What changed in this filing

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Item 1. Business

2020-11-23 compared with 2019-11-22 · 57 added, 40 removed, 194 unchanged (33% of the section changed)

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We primarily focus on strategic vertical markets where we believe we can be a leader in vertically-focused, integrated payment and software solutions.

Our strategic vertical markets include:

• Education —We assist schools in completing payment processing functions such as accepting payments for school lunches (online, at school, or at the point-of-sale (“POS”)) and school activities, selling products from the online student store while managing inventory, ticket sales while tracking attendance at athletic and other events, enabling parents and students to complete forms electronically and enabling parents to make installment payments on higher-priced items.

Our education solutions, which utilize the payment facilitator model, are self-serve payment and data collection software platforms that manage critical parent and student information via web, mobile, and on-site transaction processing.

Using our convenience-fee payment technology, our school clients in this vertical often receive the full principal amount which alleviates reconciliation issues and processing costs.

Our primary strategic vertical markets include:

• Public Sector —We have products and solutions that create an efficient flow of information throughout a variety of public sector entities.

These include upper and lower court case management, collections, finance and accounting, property tax management, utility billing, professional licensing, and law enforcement software.

We also deliver integrated payment solutions in our public-sector vertical.

These solutions allow our clients to process court, tax, utility billing, bail, and other public-sector payments, typically utilizing the payment facilitator model.

Convenience-fee payment technology is also available to our public sector clients.

These solutions allow our clients to process court, tax, utility billing and other public-sector payments.

Using our convenience-fee payment technology, our school clients in this vertical often receive the full principal amount which alleviates reconciliation issues and processing costs.

• Non-profit —We deliver an integrated solution for processing payments from donors to non-profit organizations.

These solutions assist non-profit organizations with ordinary course fundraising along with special one-time or “giving day” promotions that may include many separate organizations seeking donations within a single marketing campaign.

These solutions, which include text-to-pay technology, assist non-profit organizations with ordinary course fundraising, including recurring and special one-time or “giving day” promotions that may include many separate organizations seeking donations within a single marketing campaign.

Our integrated solutions seamlessly integrate into the business management system for each respective non-profit to allow for efficient data capture and reporting.

• Property Managemen t—We assist landlords and property managers in the rent collection process by providing centralized reporting for card and automated clearing house (“ACH”) payments, bank-level Payment Card Industry Data Security Standards (“PCI DSS”) compliant security and solutions that integrate with third-party accounting software.

Our instruction-based funding model, enabled by our payment facilitator platform, accommodates complex fund distribution to multiple depository accounts, which is important to property managers and landlords.

• Healthcare —We provide businesses in our healthcare vertical with an integrated solution for processing payments from patients for various healthcare-related costs and fees.

These payment solutions seamlessly integrate into our distribution partner independent software vendor (“ISV”) software to provide clients and their customers a bundled card payment solution.

These ISV relationships promote our integrated payment solutions in a one-to-many fashion to prospective clients.

• Healthcare —We provide businesses in our healthcare vertical with a software platform for medical coding, billing and scheduling.

We also offer integrated solutions for processing payments from patients for various healthcare-related costs and fees.

Certain of these payment solutions seamlessly integrate into our proprietary software and our distribution partner independent software vendor (“ISV”) software to provide clients and their customers a bundled card payment solution.

We target vertical markets where businesses and organizations tend to lack integrated payment functionality within their business management systems and where we face less competition for our solutions.

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Before payment facilitators were an option, any business looking to accept credit cards was required to establish an individual merchant account, which is often costly and time-consuming for small merchants.

We generate revenue primarily, but not exclusively, from volume-based fees generated by payment processing services provided to clients throughout the United States.

We generate revenue from volume-based fees generated by payment processing services provided to clients throughout the United States.

Our payment processing services enable clients to accept electronic payments, facilitating the exchange of funds and transaction data between clients, financial institutions and payment networks.

Services include merchant onboarding, risk and underwriting, authorization, settlement, chargeback processing and other merchant support services.

We also generate revenue from software licensing subscriptions, ongoing support, and other POS-related solutions that we provide to our clients directly and through our distribution partners.

We also generate revenue from software licenses and subscriptions, ongoing support, and other POS-related solutions.

Due to our integrated payment and software solutions and our distribution network, we are able to derive significant scale from operating efficiencies, which enable us to generate strong operating margins and profitability.

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Our Merchant Services segment provides comprehensive payment solutions to businesses and organizations.

Our Merchant Services segment includes third-party integrated payment solutions as well as traditional payment services across our strategic vertical markets.

Our Merchant Services segment includes third-party integrated payment solutions as well as merchant of record payment services across our strategic vertical markets.

Proprietary Software and Payments

Our Proprietary Software and Payments segment delivers embedded payment solutions to our clients through company-owned software.

Payments are delivered through both the payment facilitator model and the traditional merchant processing model.

Our Proprietary Software and Payments clients are primarily in the education, public sector and property management markets.

Our Proprietary Software and Payments segment delivers solutions to our clients, including embedded payments, through company-owned software.

Payments are delivered through both the payment facilitator model and the merchant of record processing model.

We have Proprietary Software and Payments clients across all of our strategic vertical markets.

Our Other category includes corporate overhead expenses, when presenting reportable segment information.

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• offer PCI-compliant security and extensive reporting tools.

We offer our clients a single point of access through our powerful, simple and capable proprietary core platform (“Burton Platform”).

Combining a centralized environment for scalability, PCI Service Level Provider (“SLP”) Level 1 security and redundancy, Burton Platform offers a broad suite of payment and software solutions, enabling omni-channel POS, spanning brick and mortar locations and electronic- and mobile-commerce, including app-based payments.

We offer our clients a single point of access through our powerful, simple and capable proprietary core platform (the “Burton Platform”).

Combining a centralized environment for scalability, PCI Service Level Provider (“SLP”) Level 1 security and redundancy, the Burton Platform offers a broad suite of payment and software solutions, enabling omni-channel POS, spanning brick and mortar locations and electronic- and mobile-commerce, including app-based payments.

We employ project management, release management and product development lifecycle methodologies that enable us to deploy initial downloads and upgrades in a quick and efficient manner via the cloud.

Burton Platform is the core of our technology suite.

A platform designed to be highly scalable, built for minimal downtime and high transaction volume, Burton Platform brings together common components of our vertical software technologies as well as several historically disparate solutions.

Burton Platform includes an Application Programming Interface (“API”) suite that provides access to traditional merchant processing, ACH processing and payment facilitator merchant processing capabilities.

The Burton Platform is the core of our technology suite.

A platform designed to be highly scalable and built for high transaction volume, the Burton Platform brings together common components of our vertical software technologies as well as several historically disparate solutions.

The Burton Platform includes an Application Programming Interface (“API”) suite that provides access to merchant of record processing, ACH processing and payment facilitator merchant processing capabilities.

The platform APIs allow access to Europay, Mastercard and Visa (“EMV”) devices as well as validated P2PE certified devices using an implementation that shields software providers from the requirements of PCI / payment application data security standard (“PA-DSS”) certification.

We own multiple horizontal software solutions, including Burton Platform described above.

We own multiple horizontal software solutions, including the Burton Platform described above.

In the business-to-business (“B2B”) market, we provide payment solutions to clients in industries that include professional services (including law firms), manufacturing, contractor services, construction, and other industries where a significant percentage of payments are received using a commercial, business, purchasing, or virtual card.

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Our distribution partners include card issuers and industry associations, each of whom provides a predictable source of new client leads.

In addition, we provide payment processing solutions to many retail establishments using both an integrated and traditional merchant account approach.

In addition, we provide payment processing solutions to many retail establishments using both an integrated and merchant of record account approach.

For example, we have reseller arrangements, pursuant to which we re-sell integrated POS solutions that consist of both hardware and software.

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The assigned sales team is the primary liaison for managing the partner relationship, coordinating with marketing team efforts and engaging new client referral opportunities.

We utilize our direct sales team to sell our proprietary software and payment technology solutions directly to clients in our education, property management and public sector markets.

We utilize our direct sales team to sell our proprietary software and payment technology solutions directly to clients in our education and public sector markets.

Our Operations

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Our Competition

We compete with a variety of merchant acquirers that have different business models, go-to-market strategies and technical capabilities.

We compete with a variety of merchant acquirers and software vendors that have different business models, go-to-market strategies and technical capabilities.

We believe the most significant competitive factors in our markets are:

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Our competitors range from large and well established companies to smaller, earlier-stage businesses.

See “Risk Factors—Risks Related to Our Business and Industry—The payment processing industry is highly competitive.

See “Risk Factors—Risks Related to Our Business and Industry—The payment processing industry as well as the software industries in our strategic vertical markets are all highly competitive.

Such competition could adversely affect the fees we receive, and as a result, our margins, business, financial condition and results of operations” in Part I, Item 1A of this Annual Report on Form 10-K.

Human Capital

To facilitate talent attraction and retention, we strive to make i3 Verticals a safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by competitive compensation and benefits programs and opportunities for advancement.

The success of our business is fundamentally connected to the well-being of our people.

Accordingly, we provide our eligible employees with access to flexible and convenient medical programs intended to meet their needs and the needs of their families.

In addition to standard medical coverage, we offer dental and vision coverage, health savings and flexible spending accounts, paid time off, flexible work schedules on a case-by-case basis, employee assistance programs, voluntary short term and long term disability insurance and term life insurance.

In response to the COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.

This included having the majority of our employees work from home for several months, while implementing additional safety measures for employees continuing critical on-site work then and now.

We provide competitive compensation and benefits programs to help meet the needs of our employees.

In addition to salaries, these programs (which vary across our businesses) include bonus opportunities and a 401(k) Plan.

We use targeted stock option grants with vesting conditions to facilitate retention of personnel, and we are proud that a large percentage of our workforce owns i3 Verticals shares or options to purchase i3 Verticals shares.

We believe this dynamic aligns important economic incentives and encourages an entrepreneurial spirit.

We have built a collaborative culture that recognizes and rewards innovation and offers employees a variety of opportunities and experiences.

We believe that our culture is critical to our success.

We are an acquisitive company and regularly add new employees in locations across the United States as a result of our acquisition activity.

Our employee headcount has significantly increased since our Initial Public Offering in June 2018, and as of November 20, 2020, we have approximately 740 employees in 38 states (which includes 140 employees that are subject to a transition services period related to a recent acquisition).

We believe that our employee retention rates are competitive and we think this is a result of strong emphasis on workforce culture in our acquisition process and in our operational decision making.

Government Regulation

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These laws also impose requirements for safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines.

Our business may also be subject to the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act of 2003, which regulate the use and reporting of consumer credit information and also impose disclosure requirements on entities who take adverse action based on information obtained from credit reporting agencies.

In addition, there are state laws restricting the ability to collect and utilize certain types of personal information such as Social Security and driver’s license numbers and imposing secure disposal requirements for personal data.

Our business also may be subject to the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act of 2003, which regulate the use and reporting of consumer credit information and impose disclosure requirements on entities who take adverse action based on information obtained from credit reporting agencies.

In addition, there are state laws that restrict the ability to collect and utilize certain types of personal information, such as Social Security and driver’s license numbers, and impose secure disposal requirements for personal data.

Certain state laws mandate businesses to implement reasonable data security measures.

Massachusetts requires any business that processes the personal information of a Massachusetts resident to adopt and implement a written information security program.

States are increasingly legislating data protection requirements for a broader list of personal data, such as biometric data, and are strengthening protections for students' personal information.

States are increasingly legislating data protection requirements for a broader list of personal data and are strengthening protections for students' personal information.

For example, Illinois regulates the collection of biometric information under its Biometric Information Privacy Act, and at least five other states have legislation pending regarding the collection of biometric data.

All fifty states, Puerto Rico, and the U.S.

Virgin Islands have now enacted data breach notification laws requiring businesses that experience a security breach of their computer databases that contain personal information to notify affected individuals, consumer reporting agencies and governmental agencies that possess data.

In June 2018, the State of California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which will come into effect on January 1, 2020.

The CCPA will require companies that process personal information of California residents to make new disclosures to consumers about their data collection, use and sharing practices, will grant consumers specific access rights to their data, will allow consumers to opt out of certain data sharing with or sales to third parties and will create a new cause of action for data breaches.

The CCPA has broadly defined personal information to include any information that is linked or reasonably linkable to a consumer.

In June 2018, the State of California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020.

The CCPA requires companies that process personal information of California residents to make certain disclosures to consumers about data practices, grants consumers specific access rights to their data, allows consumers to opt out of certain data sharing activities and creates a private right of action for data breaches.

On November 2, 2020, California voters passed Proposition 24 that enacted the California Privacy Rights Act of 2020 (the “CPRA”).

The CRPA, which will come into effect on January 1, 2023, amends and expands the CCPA to create additional consumer privacy rights, such as the right of correction and right to limit the use of sensitive personal information, and establish a privacy enforcement agency known as the California Privacy Protection Agency (the “CPPA”).

Each privacy law and regulation that applies to us could increase our cost of doing business or limit permissible activities.

As an entity that provides services to educational institutions, we are indirectly subject to the Family Educational Rights and Privacy Act (“FERPA”) and the privacy requirements of the Protection of Pupil Rights Amendment (“PPRA”), and we may not transfer or otherwise disclose or use any personally identifiable information from a student record to another party other than on a basis and in a manner permitted under the statutes.

See “Risk Factors—If we violate the Family Educational Rights and Privacy Act (“FERPA”) and the Protection of Pupil Rights Amendment (“PPRA”), it could result in a material breach of contract with one or more of our clients in our education vertical and could harm our reputation.

Further, if we disclose student information in violation of FERPA or PPRA, our access to student information could be suspended.”

Anti-Money Laundering and Counter-Terrorism Regulation

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Like the card networks, NACHA may update its operating rules and guidelines at any time and we will be subject to these changes.

These operating rules and guidelines allocate responsibility and liabilities to the various participants in the payment network.

For example, NACHA's WEB Debit Account Validation Rule, originally introduced in November 2018, will take effect March 19, 2021.

This rule requires changes to ACH validation of bank accounts associated with internet WEB ACH payments.

The NACHA Operating Rules and Guidelines allocate responsibility and liabilities to the various participants in the payment network, including us and our partner financial institutions.

Recently, NACHA has focused upon data security and privacy responsibilities.

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We also own a number of domain names, including www.i3verticals.com.

Our Employees

As of September 30, 2019, we had 542 employees.

None of our employees is represented by a labor union and we have experienced no work stoppages.

We consider our employee relations to be in good standing.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business