What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2021-02-09 · 338 added, 174 removed, 807 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

December 31, September 30,

March 31, September 30,

Current assets

29 unchanged sentences

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized;

0 shares issued and outstanding as of December 31, 2020 and September 30, 2020

0 shares issued and outstanding as of March 31, 2021 and September 30, 2020

Class A common stock, par value $ 0.0001 per share, 150,000,000 shares authorized;

20,004,771 and 18,864,143 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively

21,919,300 and 18,864,143 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively

Class B common stock, par value $ 0.0001 per share, 40,000,000 shares authorized;

10,881,012 and 11,900,621 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively

10,229,142 and 11,900,621 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively

Additional paid-in capital 203,803 157,598

Accumulated deficit ( 4,595 ) ( 2,023 )

Accumulated (deficit) earnings ( 4,155 ) ( 2,023 )

Total stockholders' equity 199,651 155,578

6 unchanged sentences

(In thousands, except share and per share amounts)

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

2021 2020 2021 2020

Revenue $ 47,863 $ 39,178 $ 91,176 $ 80,289

6 unchanged sentences

(Loss) income from operations ( 135 ) 2,041 ( 2,446 ) 6,138

Other expenses

Interest expense, net 2,358 2,184 4,387 4,198

Other income ( 2,353 ) — ( 2,353 ) —

Total other expenses 5 2,184 2,034 4,198

(Loss) income before income taxes ( 140 ) ( 143 ) ( 4,480 ) 1,940

(Benefit from) provision for income taxes ( 219 ) 149

Benefit from income taxes ( 87 ) ( 2,062 ) ( 306 ) ( 1,913 )

Net (loss) income ( 53 ) 1,919 ( 4,174 ) 3,853

Net (loss) income attributable to non-controlling interest ( 493 ) 1,182 ( 2,042 ) 3,265

Net loss attributable to i3 Verticals, Inc.

Net income (loss) attributable to i3 Verticals, Inc.

$ 440 $ 737 $ ( 2,132 ) $ 588

Net loss per share attributable to Class A common stockholders:

Net income (loss) per share attributable to Class A common stockholders:

Basic $ 0.02 $ 0.05 $ ( 0.11 ) $ 0.04

17 unchanged sentences

Balance at December 31, 2020 20,004,771 2 10,881,012 1 169,097 ( 4,595 ) 76,928 241,433

Equity-based compensation — — — — 4,142 — — 4,142

Net income (loss) — — — — — 440 ( 493 ) ( 53 )

Redemption of common units in i3 Verticals, LLC 651,870 — ( 651,870 ) — 4,529 — ( 4,529 ) —

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 897 — — 897

Exercise of equity-based awards 59,745 — — — ( 199 ) — — ( 199 )

Allocation of equity to non-controlling interests — — — — ( 9,908 ) — 9,908 —

Issuance of Class A common stock under the 2020 Inducement Plan 1,202,914 — — — 35,245 — — 35,245

Balance at March 31, 2021 21,919,300 $ 2 10,229,142 $ 1 $ 203,803 $ ( 4,155 ) $ 81,814 $ 281,465

See Notes to the Interim Condensed Consolidated Financial Statements

10 unchanged sentences

Balance at December 31, 2019 14,497,777 1 12,921,637 1 84,855 ( 1,753 ) 65,091 148,195

Equity-based compensation — — — — 2,510 — — 2,510

Net income — — — — — 737 1,182 1,919

Distributions to non-controlling interest holders — — — — — — ( 3 ) ( 3 )

Redemption of common units in i3 Verticals, LLC 510,016 — ( 510,016 ) — 2,597 — ( 2,597 ) —

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 596 — — 596

Exercise of equity-based awards 31,125 — — — 2 — — 2

Equity component of exchangeable notes, net of issuance costs and deferred taxes — — — — 27,569 — — 27,569

Purchases of exchangeable note hedges — — — — ( 28,676 ) — — ( 28,676 )

Issuance of warrants — — — — 14,669 — — 14,669

Balance at March 31, 2020 15,038,918 $ 1 12,411,621 $ 1 $ 104,122 $ ( 1,016 ) $ 63,673 $ 166,781

See Notes to the Interim Condensed Consolidated Financial Statements

2 unchanged sentences

(In thousands)

Three months ended December 31,

Six months ended March 31,

Cash flows from operating activities:

5 unchanged sentences

Amortization of debt discount and issuance costs 2,684 838

Debt issuance costs write offs — 141

Amortization of capitalized customer acquisition costs 248 184

(Benefit from) provision for deferred income taxes ( 219 ) —

Unrealized gain on investment ( 2,353 ) —

Benefit from deferred income taxes ( 306 ) ( 2,668 )

Non-cash lease expense 1,518 —

23 unchanged sentences

(In thousands)

Three months ended December 31,

Six months ended March 31,

Cash flows from financing activities:

Proceeds from revolving credit facility 175,444 80,991

Payments of revolving credit facility ( 38,948 ) ( 38,390 )

Payments on revolving credit facility ( 90,444 ) ( 203,135 )

Proceeds from borrowings on exchangeable notes — 138,000

Payments for purchase of exchangeable senior note hedges — ( 28,676 )

Proceeds from issuance of warrants — 14,669

Payments of debt issuance costs — ( 5,071 )

Cash paid for contingent consideration ( 1,736 ) ( 2,122 )

Payments for required distributions to members for tax obligations — ( 3 )

Proceeds from stock option exercises 999 474

1 unchanged sentence

Net cash provided by (used in) financing activities 83,900 ( 4,994 )

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 1,153 ) ( 933 )

Net (decrease) in cash, cash equivalents, and restricted cash ( 8,159 ) ( 28 )

Cash, cash equivalents, and restricted cash at beginning of period 20,601 3,200

43 unchanged sentences

i3 Verticals, LLC received $ 72,018 in net proceeds from the sale of Common Units to the Company, which it used to repay outstanding indebtedness.

• As of December 31, 2020, i3 Verticals, Inc.

• As of March 31, 2021, i3 Verticals, Inc.

owned 68.2 % of the economic interest in i3 Verticals, LLC.

• As of December 31, 2020, the Continuing Equity Owners owned Common Units in i3 Verticals, LLC representing approximately 35.2 % of the economic interest in i3 Verticals, LLC, shares of Class A common stock in the Company representing approximately 0.8 % of the economic interest and voting power in the Company, and shares of Class B common stock in i3 Verticals, Inc., representing approximately 35.2 % of the voting power in the Company.

• As of March 31, 2021, the Continuing Equity Owners owned Common Units in i3 Verticals, LLC representing approximately 31.8 % of the economic interest in i3 Verticals, LLC, shares of Class A common stock in the Company representing approximately 0.6 % of the economic interest and voting power in the Company, and shares of Class B common stock in i3 Verticals, Inc., representing approximately 31.8 % of the voting power in the Company.

• The Continuing Equity Owners who own Common Units in i3 Verticals, LLC may redeem at each of their options (subject in certain circumstances to time-based vesting requirements) their Common Units for, at the election of i3 Verticals, LLC, cash or newly-issued shares of the Company's Class A common stock.

7 unchanged sentences

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the unaudited condensed consolidated financial statements of the Company and its subsidiaries as of December 31, 2020 and

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

for the three months ended December 31, 2020 and 2019.

The results of operations for the three months ended December 31, 2020 and 2019 are not necessarily indicative of the operating results for the full year.

the three and six months ended March 31, 2021 and 2020.

The results of operations for the three and six months ended March 31, 2021 and 2020 are not necessarily indicative of the operating results for the full year.

It is recommended that these interim condensed consolidated financial statements be read in conjunction with the Company's consolidated financial statements and related footnotes for the years ended September 30, 2020 and 2019, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.

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With the exception of merchant reserves, settlement assets or settlement obligations are generally collected and paid within one to four days.

As of December 31, 2020, settlement assets and settlement obligations were both $ 84 .

As of March 31, 2021, settlement assets and settlement obligations were both $ 6,056 .

As of September 30, 2020, the Company had no settlement assets or settlement obligations.

Inventories consist of point-of-sale equipment to be sold to clients and are stated at the lower of cost, determined on a weighted average basis, or net realizable value.

Inventories were $ 1,460 and $ 1,309 at December 31, 2020 and September 30, 2020, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Inventories consist of point-of-sale equipment to be sold to clients and are stated at the lower of net realizable value or cost, determined on either a weighted average or specific basis.

Inventories were $ 1,806 and $ 1,309 at March 31, 2021 and September 30, 2020, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Business acquisitions have been recorded using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition.

11 unchanged sentences

The operating results of an acquisition are included in the Company’s condensed consolidated statements of operations from the date of such acquisition.

Acquisitions completed during the three months ended December 31, 2020 contributed $ 5,744 and $ 540 of revenue and net loss, respectively, to the Company's condensed consolidated statements of operations for the three months then ended.

Acquisitions completed during the six months ended March 31, 2021 contributed $ 13,394 and $ 1,379 of revenue and net income, respectively, to the Company's condensed consolidated statements of operations for the six months then ended.

The Company adopted ASU 2016-02, Leases, (“ASC 842”) on October 1, 2020, using the optional modified retrospective method under which the prior period financial statements were not restated for the new guidance.

14 unchanged sentences

The Company adopted ASC 606 on October 1, 2019, using the modified retrospective method and applying the standard to all contracts not completed on the date of adoption.

Results for the reporting period beginning October 1, 2019 are presented under ASC 606, while prior period amounts continue to be reported in accordance with the Company's historic accounting practices under previous guidance.

The majority of the Company's revenue for the three months ended December 31, 2020 and 2019 is derived from volume-based payment processing fees (“discount fees”) and other related fixed transaction or service fees.

The majority of the Company's revenue for the six months ended March 31, 2021 and 2020 is derived from volume-based payment processing fees (“discount fees”) and other related fixed transaction or service fees.

The remainder is comprised of sales of software licensing subscriptions, ongoing support, and other POS-related solutions the Company provides to its clients directly and through its processing bank relationships.

45 unchanged sentences

• Other — Includes sales of software, sales of equipment, professional services and other revenues.

For the Three Months Ended December 31, 2020

For the Three Months Ended March 31, 2021

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 25,992 $ 22,549 $ ( 678 ) $ 47,863

For the Three Months Ended December 31, 2019 (1)

For the Three Months Ended March 31, 2020 (1)

Merchant Services Proprietary Software and Payments Other Total

8 unchanged sentences

(in thousands, except unit, share and per share amounts)

For the Six Months Ended March 31, 2021

Merchant Services Proprietary Software and Payments Other Total

Payments revenue $ 42,056 $ 12,986 $ ( 1,094 ) $ 53,948

Other revenue 8,906 28,339 ( 17 ) 37,228

Total revenue $ 50,962 $ 41,325 $ ( 1,111 ) $ 91,176

For the Six Months Ended March 31, 2020 (1)

Merchant Services Proprietary Software and Payments Other Total

Payments revenue $ 43,913 $ 11,780 $ ( 935 ) $ 54,758

Other revenue 10,055 15,482 ( 6 ) 25,531

Total revenue $ 53,968 $ 27,262 $ ( 941 ) $ 80,289

Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments.

Refer to Note 12 for further discussion.

The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.

The tables below present a disaggregation of the Company's revenue from contracts with clients by timing of transfer of goods or services by segment.

2 unchanged sentences

• Revenue transferred at a point in time — Includes fixed service fees, software licenses sold as functional intellectual property, professional services and other equipment.

For the Three Months Ended December 31, 2020

For the Three Months Ended March 31, 2021

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 25,992 $ 22,549 $ ( 678 ) $ 47,863

For the Three Months Ended December 31, 2019 (1)

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

For the Three Months Ended March 31, 2020 (1)

Merchant Services Proprietary Software and Payments Other Total

5 unchanged sentences

The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.

For the Six Months Ended March 31, 2021

Merchant Services Proprietary Software and Payments Other Total

Revenue transferred over time $ 37,278 $ 29,417 $ ( 1,020 ) $ 65,675

Revenue transferred at a point in time 13,684 11,908 ( 91 ) 25,501

Total revenue $ 50,962 $ 41,325 $ ( 1,111 ) $ 91,176

For the Six Months Ended March 31, 2020 (1)

Merchant Services Proprietary Software and Payments Other Total

Revenue transferred over time $ 38,601 $ 19,126 $ ( 934 ) $ 56,793

Revenue transferred at a point in time 15,367 8,136 ( 7 ) 23,496

Total revenue $ 53,968 $ 27,262 $ ( 941 ) $ 80,289

Refer to Note 12 for further discussion.

The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.

Contract Liabilities

6 unchanged sentences

Substantially all of the Company's deferred revenue is anticipated to be recognized within the next year.

The following tables present the changes in deferred revenue as of and for the three months ended December 31, 2020 and 2019, respectively:

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The following tables present the changes in deferred revenue as of and for the six months ended March 31, 2021 and 2020, respectively:

Balance at September 30, 2020

2 unchanged sentences

Balance at December 31, 2020

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Deferral of revenue 5,699

Recognition of unearned revenue ( 7,174 )

Balance at March 31, 2021

Balance at September 30, 2019

2 unchanged sentences

Balance at December 31, 2019

Deferral of revenue 5,004

Recognition of unearned revenue ( 5,753 )

Balance at March 31, 2020

Costs to Obtain and Fulfill a Contract

The Company capitalizes incremental costs to obtain new contracts and contract renewals and amortizes these costs on a straight-line basis as an expense over the benefit period, which is generally the contract term, unless a commensurate payment is not expected at renewal.

As of December 31, 2020 and 2019, the Company had $ 3,356 and $ 2,668 , respectively, of capitalized contract costs, which relates to commissions paid to obtain new sales, included within "Prepaid expenses and other current assets” and “Other assets" on the condensed consolidated balance sheets.

The Company recorded commissions expense related to these costs of $ 119 and $ 88 for the three months ended December 31, 2020 and 2019, respectively.

As of March 31, 2021 and 2020 the Company had $ 3,572 and $ 2,830 , respectively, of capitalized contract costs, which relates to commissions paid to obtain new sales, included within "Prepaid expenses and other current assets” and “Other assets" on the condensed consolidated balance sheets.

The Company recorded commissions expense related to these costs of $ 129 and $ 248 for the three and six months ended March 31, 2021, respectively, and $ 96 and $ 184 for the three and six months ended March 31, 2020, respectively.

The Company expenses sales commissions as incurred for the Company's sales commission plans that are paid on recurring monthly revenues, portfolios of existing clients, or have a substantive stay requirement prior to payment.

9 unchanged sentences

The Company accounts for all governmental taxes associated with revenue transactions on a net basis.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Use of Estimates

4 unchanged sentences

Recently Adopted Accounting Pronouncements

In February 2016, the ASC 842 with amendments in 2018 and 2019.

In February 2016, the FASB issued ASC 842 with amendments in 2018 and 2019.

ASC 842 aims to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The amendments to ASC 842 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted.

22 unchanged sentences

2018-13 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.

As a public business entity, the Company is an emerging growth company and has elected to use the extended transition period provided for such companies.

As a result, the Company will not be required to adopt this ASU No.

1 unchanged sentence

The Company is currently evaluating the impact of the adoption of this principle on the Company’s condensed consolidated financial statements.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

In June 2016, the FASB issued ASU No.

5 unchanged sentences

As a public business entity, the Company is an emerging growth company and has elected to use the extended transition period provided for such companies.

As a result, the Company will not be required to adopt this ASU No.

2016-13 until October 1, 2023.

As a result, the Company will not be required to adopt ASU 2016-13 until October 1, 2023.

The Company is currently evaluating the impact of the adoption of this principle on the Company’s condensed consolidated financial statements.

In May 2021, the FASB issued ASU No.

2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):

Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

The amendments in ASU No.

2021-04 provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

The amendments in this ASU No.

2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years.

As a result, the Company will not be required to adopt ASU 2021-04 until October 1, 2022.

The Company is currently evaluating the impact of the adoption of this principle on the Company’s condensed consolidated financial statements.

During the six months ended March 31, 2021, the Company completed the acquisitions of unrelated businesses, including substantially all of the assets of Business Information Systems, Inc.

and ImageSoft, Inc.

Certain of the purchase price allocations assigned for these acquisitions are considered preliminary as of March 31, 2021.

Purchase of Business Information Systems, Inc.

On February 1, 2021, the Company completed the acquisition of substantially all of the assets of Business Information Systems, GP, a Tennessee general partnership and Business Information Systems, Inc., a Tennessee corporation (collectively “BIS”) to expand its software offerings, primarily in the public sector vertical.

BIS is within the Proprietary Software & Payments segment.

Total purchase consideration was $ 95,955 , including $ 52,500 in cash on hand and proceeds from the Company's revolving credit facility, 1,202,914 shares of the Company's Class A Common Stock (valued at $ 35,245 ), and $ 8,210 in contingent consideration.

The goodwill associated with the acquisition is deductible for tax purposes.

The acquired merchant relationships intangible asset has an estimated amortization period of nineteen years .

The non-compete agreement and trade name have estimated amortization periods of three and five years , respectively.

The weighted-average estimated amortization period of all intangibles acquired is nineteen years .

The acquired capitalized software has an estimated amortization period of ten years .

Acquisition-related costs for BIS amounted to approximately $ 328 and were expensed as incurred.

Certain provisions in the merger agreement provide for additional consideration of up to $ 16,000 in the aggregate, to be paid based upon achievement of specified financial performance targets, as defined in the purchase agreement, in the 24 months from February 1, 2021 through January 31, 2023.

The Company determined the acquisition date fair value of the liability for the contingent consideration based on a probability forecast and discounted cash flow analysis.

In each subsequent reporting period, the Company will reassess the

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

During the three months ended December 31, 2020, the Company completed the acquisitions of unrelated businesses, including substantially all of the assets of ImageSoft, Inc.

Certain of the purchase price allocations assigned for these acquisitions are considered preliminary as of December 31, 2020.

current estimates of performance relative to the targets and adjust the contingent liability to its fair value through earnings.

See additional disclosures in Note 8.

Purchase of ImageSoft, Inc.

1 unchanged sentence

to expand its software offerings, primarily in the public sector vertical.

ImageSoft, Inc.

is within the Proprietary Software & Payments segment.

Total purchase consideration was $ 47,040 , including $ 40,000 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $ 7,040 in contingent consideration.

7 unchanged sentences

Certain provisions in the merger agreement provide for additional consideration of up to $ 20,000 in the aggregate, to be paid based upon achievement of specified financial performance targets, as defined in the purchase agreement, in the 24 months from May 1, 2021 through April 30, 2023.

The Company determined the acquisition date fair value of the liability for the contingent consideration based on a discounted cash flow analysis.

The Company determined the acquisition date fair value of the liability for the contingent consideration based on a probability forecast and discounted cash flow analysis.

In each subsequent reporting period, the Company will reassess the current estimates of performance relative to the targets and adjust the contingent liability to its fair value through earnings.

2 unchanged sentences

On October 1, 2020, the Company completed the acquisitions of three other businesses to expand the Company’s software offerings in the public sector and healthcare vertical markets and to add proprietary technology that will augment the Company’s existing platform across several verticals.

Total purchase consideration was $ 23,000 , including $ 19,600 in revolving credit facility proceeds and $ 3,400 of contingent consideration.

Two of these businesses are within the Proprietary Software & Payments segment and one is within the Merchant Services segment.

Total purchase consideration was $ 23,000 , including $ 19,600 in cash consideration, funded by proceeds from the Company's revolving credit facility proceeds, and $ 3,400 of contingent consideration.

For each of these businesses acquired, the goodwill associated with the acquisition is deductible for tax purposes.

The acquired merchant relationships intangible assets have estimated weighted-average amortization periods of between eleven and twenty-five years .

The acquired merchant relationships intangible assets have estimated amortization periods of between eleven and twenty-five years .

The non-compete agreement and trade names have estimated amortization periods of three years .

9 unchanged sentences

(in thousands, except unit, share and per share amounts)

Summary of Business Combinations during the three months ended December 31, 2020

Summary of Business Combinations during the six months ended March 31, 2021

The fair values assigned to certain assets and liabilities assumed, as of the acquisition dates, were as follows:

ImageSoft, Inc.

BIS ImageSoft, Inc.

Accounts receivable $ 1,567 $ 4,997 $ 923 $ 7,487

17 unchanged sentences

Net assets acquired $ 95,955 $ 47,040 $ 23,000 $ 165,995

Pro Forma Results of Operations for Business Combinations during the three months ended December 31, 2020

The following unaudited supplemental pro forma results of operations have been prepared as though each of the acquired businesses in the three months ended December 31, 2020 had occurred on October 1, 2019.

Pro Forma Results of Operations for Business Combinations during the six months ended March 31, 2021

The following unaudited supplemental pro forma results of operations have been prepared as though each of the acquired businesses in the six months ended March 31, 2021 had occurred on October 1, 2019.

Pro forma adjustments were made to reflect the impact of depreciation and amortization, changes to executive compensation and the revised debt load, all in accordance with ASC 805.

This supplemental pro forma information does not purport to be indicative of the results of operations that would have been attained had the acquisitions been made on these dates, or of results of operations that may occur in the future.

Three months ended December 31,

Six months ended March 31,

Revenue $ 101,280 $ 108,199

4 unchanged sentences

The other adds text-to-pay capabilities and other software solutions in the Company's non-profit vertical.

These businesses are within the Proprietary Software & Payments segment.

Total purchase consideration was $ 32,628 , including $ 27,880 in revolving credit facility proceeds and $ 4,748 of contingent consideration.

Certain of the purchase price allocations assigned for these acquisitions are preliminary.

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

purchase consideration was $ 32,628 , including $ 27,880 in revolving credit facility proceeds and $ 4,748 of contingent consideration.

Certain of the purchase price allocations assigned for these acquisitions are preliminary.

For some of these business acquired, the goodwill associated with the acquisitions is deductible for tax purposes, and goodwill associated with the acquisitions of others of the businesses is not deductible for tax purposes.

34 unchanged sentences

$ 115,982 $ 71,023 $ — $ 187,005

Goodwill attributable to preliminary purchase price adjustments and acquisition activity during the three months ended December 31, 2020

2,892 30,015 — 32,907

Balance at December 31, 2020 $ 118,874 $ 101,038 $ — $ 219,912

Intangible assets consisted of the following as of December 31, 2020:

Goodwill attributable to preliminary purchase price adjustments and acquisition during the six months ended March 31, 2021 2,892 73,468 — 76,360

Balance at March 31, 2021 $ 118,874 $ 144,491 $ — $ 263,365

Intangible assets consisted of the following as of March 31, 2021:

Cost Accumulated

11 unchanged sentences

Total identifiable intangible assets $ 229,231 $ ( 64,086 ) $ 165,145

Amortization expense for intangible assets amounted to $ 3,360 and $ 3,194 during the three months ended December 31, 2020 and 2019, respectively.

Based on net carrying amounts at December 31, 2020, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:

2021 (nine months remaining) $ 10,059

Amortization expense for intangible assets amounted to $ 3,752 and $ 7,112 during the three and six months ended March 31, 2021, respectively, and $ 3,088 and $ 6,282 during the three and six months ended March 31, 2020, respectively.

Based on net carrying amounts at March 31, 2021, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:

2021 (six months remaining) $ 7,670

Thereafter 105,300

3 unchanged sentences

LONG-TERM DEBT, NET

A summary of long-term debt, net as of December 31, 2020 and September 30, 2020 is as follows:

December 31, September 30,

A summary of long-term debt, net as of March 31, 2021 and September 30, 2020 is as follows:

March 31, September 30,

Maturity 2021 2020

Revolving lines of credit to banks under the Senior Secured Credit Facility May 9, 2024 $ 85,000 $ —

17 unchanged sentences

If the Company or i3 Verticals, LLC undergoes a fundamental change, holders may require i3 Verticals, LLC to repurchase all or part of their Exchangeable Notes at a repurchase price equal to 100 % of the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.

As of December 31, 2020, none of the conditions permitting the holders of the Exchangeable Notes to early convert have been met.

As of March 31, 2021, none of the conditions permitting the holders of the Exchangeable Notes to early convert have been met.

i3 Verticals, LLC may not redeem the Exchangeable Notes prior to February 20, 2023.

On or after February 20, 2023, and prior to the 47th scheduled trading day immediately preceding the maturity date, if the last reported sale price per share of Class A common stock has been at least 130 % of the exchange price for the Exchangeable Notes for at least 20 trading days (whether or not consecutive), i3 Verticals, LLC may redeem all or any portion of the Exchangeable Notes at a cash redemption price equal to 100 % of the principal amount of the

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

Exchangeable Notes to be redeemed plus accrued and unpaid interest on such note to, but not including, the redemption date.

The Exchangeable Notes are general senior unsecured obligations of i3 Verticals, LLC and the guarantee is the Company’s senior unsecured obligation and rank senior in right of payment to all of i3 Verticals, LLC’s and the Company’s future indebtedness that is expressly subordinated in right of payment to the Exchangeable Notes or the guarantee, as applicable.

The Exchangeable Notes are general senior unsecured obligations of i3 Verticals, LLC.

The guarantee is the Company’s senior unsecured obligation and rank senior in right of payment to all of i3 Verticals, LLC’s and the Company’s future indebtedness that is expressly subordinated in right of payment to the Exchangeable Notes or the guarantee, as applicable.

The Exchangeable Notes and the guarantee rank equally in right of payment with all of i3 Verticals, LLC’s and the Company’s existing and future unsecured indebtedness that is not so expressly subordinated in the right of payment to the Exchangeable Notes or the guarantee, as applicable.

10 unchanged sentences

The Company capitalized $ 4,150 of debt issuance costs in connection with the Exchangeable Notes and allocated $ 1,088 of the third-party issuance costs to equity.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three months ended December 31, 2020 was $ 140 .

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and six months ended March 31, 2021 was $ 145 and $ 285 , respectively, and $ 70 for both the three and six months ended March 31, 2020.

The Company also wrote off a portion of the debt issuance costs in connection with the repurchase transactions in April and September 2020, as described below.

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 3,053 as of December 31, 2020.

The estimated fair value of the Exchangeable Notes was $ 120,978 as of December 31, 2020.

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 2,908 as of March 31, 2021.

The estimated fair value of the Exchangeable Notes was $ 119,071 as of March 31, 2021.

The estimated fair value of the Exchangeable Notes was determined through consideration of quoted market prices for similar instruments.

2 unchanged sentences

In April and September 2020, the Company paid $ 17,414 in aggregate to repurchase $ 21,000 in aggregate principal amount of the Exchangeable Notes and to repay approximately $ 24 in accrued interest on the repurchased portion of the Exchangeable Notes.

The Company recorded a loss on retirement of debt of $ 2,297 due to the carrying value

The Company recorded a loss on retirement of debt of $ 2,297 due to the carrying value exceeding the fair value of the repurchased portion of the Exchangeable Notes at the dates of repurchases.

The Company wrote off $ 592 of debt issuance costs in connection with the repurchase transactions.

Exchangeable Note Hedge Transactions

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

exceeding the fair value of the repurchased portion of the Exchangeable Notes at the dates of repurchases.

The Company wrote off $ 592 of debt issuance costs in connection with the repurchase transactions.

Exchangeable Note Hedge Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, i3 Verticals, LLC entered into exchangeable note hedge transactions with respect to Class A common stock (the “Note Hedge Transactions”) with certain financial institutions (collectively, the “Counterparties”).

Verticals, LLC entered into exchangeable note hedge transactions with respect to Class A common stock (the “Note Hedge Transactions”) with certain financial institutions (collectively, the “Counterparties”).

The Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes, the same number of shares of Class A common stock that initially underlie the Exchangeable Notes in the aggregate and are exercisable upon exchange of the Exchangeable Notes.

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The Senior Secured Credit Facility consists of a $ 275,000 revolving credit facility, together with an option to increase the revolving credit facility and/or obtain incremental term loans in an additional principal amount of up to $ 50,000 in the aggregate (subject to the receipt of additional commitments for any such incremental loan amounts).

The Senior Secured Credit Facility accrues interest at LIBOR (based upon an interest period of one, two, three or six months or, under some circumstances, up to twelve months) plus an applicable margin of 2.25 % to 3.25 % ( 3.25 % as of March 31, 2021), or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 % and (z) LIBOR plus 1.00 %), plus an applicable margin of 0.25 % to 1.25 % ( 1.25 % as of March 31, 2021), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.

Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

Additionally, the Senior Secured Credit Facility requires the Company to pay unused commitment fees

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

The Senior Secured Credit Facility accrues interest at LIBOR (based upon an interest period of one, two, three or six months or, under some circumstances, up to twelve months) plus an applicable margin of 2.25 % to 3.25 % ( 2.75 % as of December 31, 2020), or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 % and (z) LIBOR plus 1.00 %), plus an applicable margin of 0.25 % to 1.25 % ( 0.75 % as of December 31, 2020), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.

Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

Additionally, the Senior Secured Credit Facility requires the Company to pay unused commitment fees of 0.15 % to 0.30 % ( 0.25 % as of December 31, 2020) on any undrawn amounts under the revolving credit facility and letter of credit fees of up to 3.25 % on the maximum amount available to be drawn under each letter of credit issued under the agreement.

of 0.15 % to 0.30 % ( 0.30 % as of March 31, 2021) on any undrawn amounts under the revolving credit facility and letter of credit fees of up to 3.25 % on the maximum amount available to be drawn under each letter of credit issued under the agreement.

The maturity date of the Senior Secured Credit Facility is May 9, 2024.

1 unchanged sentence

(i) a minimum consolidated interest coverage ratio of 3.00 to 1.00, (ii) a maximum total leverage ratio of 5.00 to 1.00, provided, that for each of the four fiscal quarters immediately following a qualified acquisition (each a “Leverage Increase Period”), the required ratio set forth above may be increased by up to 0.25 , subject to certain limitations and (iii) a maximum consolidated senior secured leverage ratio of 3.25 to 1.00, provided, that for each Leverage Increase Period, the consolidated senior leverage ratio may be increased by up to 0.25 , subject to certain limitations.

As of December 31, 2020, the Company was in compliance with these covenants, and there was $ 225.7 million available for borrowing under the revolving credit facility, subject to the financial covenants.

As of March 31, 2021, the Company was in compliance with these covenants, and there was $ 190.0 million available for borrowing under the revolving credit facility, subject to the financial covenants.

The Senior Secured Credit Facility is secured by substantially all assets of the Company.

4 unchanged sentences

and certain non-financial covenants pertaining to the activities of the Company during the period covered.

The Company was in compliance with such covenants as of December 31, 2020.

The Company was in compliance with such covenants as of March 31, 2021.

In addition, the Senior Secured Credit Facility restricts the Company's ability to make dividends or other distributions to the holders of the Company's equity.

4 unchanged sentences

Debt Issuance Costs

The Company incurred no debt issuance costs during the three months ended December 31, 2020 or 2019.

The Company incurred no debt issuance costs during the three and six months ended March 31, 2021.

During the three and six months ended March 31, 2020, the Company capitalized debt issuance costs totaling $ 4,245 , in connection with the issuance of the Exchangeable Notes, the Note Hedge Transactions and the Warrants and in connection with entering into the second amendment to the Senior Secured Credit Facility.

The Company's debt issuance costs are being amortized over the related term of the debt using the straight-line method, which is not materially different than the effective interest rate method, and are presented net against long-term debt in the condensed consolidated balance sheets.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 235 and $ 100 during the three months ended December 31, 2020 and 2019, respectively.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 240 and $ 475 during the three and six months ended March 31, 2021, respectively, and $ 172 and $ 272 during the three and six months ended March 31, 2020, respectively.

i3 Verticals, Inc.

1 unchanged sentence

i3 Verticals, LLC's members, including the Company, are liable for federal, state and local income taxes based on their share of i3 Verticals, LLC's pass-through taxable income.

i3 Verticals, LLC is not a taxable entity for federal income tax

i3 Verticals, LLC is not a taxable entity for federal income tax purposes but is subject to and reports entity level tax in both Tennessee and Texas.

In addition, certain subsidiaries of i3 Verticals, LLC are corporations that are subject to state and federal income taxes.

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

purposes but is subject to and reports entity level tax in both Tennessee and Texas.

In addition, certain subsidiaries of i3 Verticals, LLC are corporations that are subject to state and federal income taxes.

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period.

When the estimate of the annual effective tax rate is unreliable, the Company records its income tax expense or benefit based upon a period-to-date effective tax rate.

When the estimate of the annual effective tax rate is unreliable, the Company records its income tax expense or benefit based up on a period to date effective tax rate.

Each quarter, the Company updates its estimate of the annual effective tax rate, and if the Company’s estimated tax rate changes, it makes a cumulative adjustment in that period.

The Company’s provision for income taxes was a benefit of $ 219 and a provision of $ 149 for the three months ended December 31, 2020 and 2019, respectively.

The Company’s provision for income taxes was a benefit of $ 87 and $ 306 for the three and six months ended March 31, 2021, respectively, and a benefit of $ 2,062 and $ 1,913 for the three and six months ended March 31, 2020, respectively.

Tax Receivable Agreement

5 unchanged sentences

The Company expects to benefit from the remaining 15 % of the tax benefits, if any, that the Company may realize.

During the three months ended December 31, 2020, the Company acquired an aggregate of 1,019,609 common units in Verticals, LLC in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement.

As a result of these exchanges, during the three months ended December 31, 2020, the Company recognized an increase to its net deferred tax assets in the amount of $ 7,922 , and corresponding Tax Receivable Agreement liabilities of $ 6,734 , representing 85 % of the tax benefits due to the Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 37,851 and $ 34,299 , respectively, as of December 31, 2020.

Payments to the Continuing Equity Owners related to exchanges through December 31, 2020 will range from $ 0 to $ 2,840 per year and are expected to be paid over the next 25 years.

The amounts recorded as of December 31, 2020, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S.

During the six months ended March 31, 2021, the Company acquired an aggregate of 1,671,479 Common Units in Verticals, LLC in connection with the redemption of Common Units from the Continuing Equity Owners, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement.

As a result of these exchanges, during the six months ended March 31, 2021, the Company recognized an increase to its net deferred tax assets in the amount of $ 14,177 , and corresponding Tax Receivable Agreement liabilities of $ 12,051 , representing 85 % of the tax benefits due to the Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 43,530 and $ 39,626 , respectively, as of March 31, 2021.

Payments to the Continuing Equity Owners related to exchanges through March 31, 2021 will range from $ 0 to $ 3,229 per year and are expected to be paid over the next 25 years.

The amounts recorded as of March 31, 2021, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S.

federal and state income tax returns.

6 unchanged sentences

At contract inception, the Company determines whether an arrangement is or contains a lease, and for each identified lease, evaluates the classification as operating or financing.

The Company had no finance leases during the three months ended December 31, 2020.

The Company had no finance leases as of March 31, 2021.

Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments to be made over the term of the lease.

Renewal and termination options are factored into determination of the lease term only if the option is reasonably certain to be exercised.

The weighted-average remaining lease term at December 31, 2020 was five years .

The Company had no significant short-term leases during the three months ended December 31, 2020.

The weighted-average remaining lease term at March 31, 2021 was six years .

The Company had no significant short-term leases during the three and six months ended March 31, 2021.

The Company’s leases do not provide a readily determinable implicit interest rate and the Company uses its incremental borrowing rate to measure the lease liability and corresponding right-of-use asset.

The incremental borrowing rates were determined based on a portfolio approach considering the Company’s current secured borrowing rate adjusted for market conditions and the length of the lease term.

The weighted-average discount rate used in the measurement of our lease liabilities was 6.8 % as of December 31, 2020.

The weighted-average discount rate used in the measurement of our lease liabilities was 7.0 % as of March 31, 2021.

Operating lease cost is recognized on a straight-line basis over the lease term.

Operating lease costs for the three months ended December 31, 2020 were $ 854 , which are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Total operating lease costs for the three months ended December 31, 2020 include variable lease costs of approximately $ 1 , which are primarily comprised of costs of maintenance and utilities and changes in rates, and are determined based on the actual costs incurred during the period.

Operating lease costs for the three and six months ended March 31, 2021 were $ 1,046 and $ 1,900 , respectively, which are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Total operating lease costs for the three and six months ended March 31, 2021 include variable lease costs of approximately $ 3 and $ 4 , respectively, which are primarily comprised of costs of maintenance and utilities and changes in rates, and are determined based on the actual costs incurred during the period.

Variable payments are expensed in the period incurred and not included in the measurement of lease assets and liabilities.

Short-term rent expense for the three months ended December 31, 2020 was $ 58 , and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

As of December 31, 2020, maturities of lease liabilities are as follows:

Short-term rent expense for the three and six months ended March 31, 2021 was $ 72 and $ 130 , respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

As of March 31, 2021, maturities of lease liabilities are as follows:

Years ending September 30:

2021 (nine months remaining) $ 2,538

2021 (six months remaining) $ 1,983

Thereafter 4,704

22 unchanged sentences

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of December 31, 2020 and 2019, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of December 31, 2020 and 2019, because interest rates on these instruments approximate market interest rates.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of March 31, 2021 and 2020, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of March 31, 2021 and 2020, because interest rates on these instruments approximate market interest rates.

i3 VERTICALS, Inc.

8 unchanged sentences

Contingent consideration paid ( 5,851 )

Balance at December 31, 2020 $ 19,527

Balance at March 31, 2021 $ 28,059

Accrued Contingent Consideration

3 unchanged sentences

Contingent consideration paid ( 6,477 )

Balance at December 31, 2019 $ 18,380

Balance at March 31, 2020 $ 11,761

The fair value of contingent consideration obligations includes inputs not observable in the market and thus represents a Level 3 measurement.

6 unchanged sentences

The Company develops the projected future financial results based on an analysis of historical results, market conditions, and the expected impact of anticipated changes in the Company's overall business and/or product strategies.

Approximately $ 9,644 and $ 10,062 of contingent consideration was recorded in accrued expenses and other current liabilities as of December 31, 2020 and September 30, 2020, respectively.

Approximately $ 9,883 and $ 2,972 of contingent consideration was recorded in other long-term liabilities as of December 31, 2020 and September 30, 2020, respectively.

Approximately $ 18,786 and $ 10,062 of contingent consideration was recorded in accrued expenses and other current liabilities as of March 31, 2021 and September 30, 2020, respectively.

Approximately $ 9,273 and $ 2,972 of contingent consideration was recorded in other long-term liabilities as of March 31, 2021 and September 30, 2020, respectively.

Disclosure of Fair Values

1 unchanged sentence

The Company estimates the fair value of the Exchangeable Notes through consideration of quoted market prices of similar instruments, classified as Level 2 as described above.

The estimated fair value of the Exchangeable Notes was $ 120,978 as of December 31, 2020.

The estimated fair value of the Exchangeable Notes was $ 119,071 as of March 31, 2021.

In March 2021, the Company became aware of an observable price change in the AxiaMed equity investment, due to a planned third party acquisition of AxiaMed.

This resulted in an increase of $ 2,353 to the fair value of the AxiaMed investment at March 31, 2021, which the Company recognized in other income.

i3 VERTICALS, Inc.

2 unchanged sentences

EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the three months ended December 31, 2020 and 2019 is as follows:

Three months ended December 31,

A summary of equity-based compensation expense recognized during the three and six months ended March 31, 2021 and 2020 is as follows:

Three months ended March 31, Six months ended March 31,

2021 2020 2021 2020

Stock options $ 4,142 $ 2,510 $ 7,583 $ 4,634

Amounts are included in general and administrative expense on the condensed consolidated statements of operations.

Income tax benefits of $ 205 and $ 148 were recognized during the three months ended December 31, 2020 and 2019, respectively.

Income tax benefits of $ 277 and $ 482 were recognized during the three and six months ended March 31, 2021, respectively.

Income tax benefits of $ 193 and $ 341 were recognized during the three and six months ended March 31, 2020, respectively.

Stock Options

1 unchanged sentence

The number of shares of Class A common stock available for issuance under the 2018 Plan includes an annual increase on the first day of each year, beginning with the 2019 calendar year, equal to 4.0 % of the outstanding shares of all classes of the Company's common stock as of the last day of the immediately preceding calendar year, unless the Company’s board of directors determines prior to the last trading day of December of the immediately preceding calendar year that the increase shall be less than 4.0 %.

As of December 31, 2020, there were 115,139 equity awards available for grant under the 2018 Plan.

As of March 31, 2021, there were 626,684 equity awards available for grant under the 2018 Plan.

In September 2020, the Company adopted the 2020 Acquisition Equity Incentive Plan (the “2020 Inducement Plan”) under which the Company may grant up to 1,500,000 stock options and other equity-based awards to individuals that were not previously employees of the Company or its subsidiaries in connection with acquisitions, as a material inducement to the individual's entry into employment with the Company or its subsidiaries within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

As of December 31, 2020, there were 985,000 equity awards available for grant under the 2020 Inducement Plan.

The fair value of the stock option awards during the three months ended December 31, 2020 and from June 20, 2018 through September 30, 2020 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

December 31, 2020 September 30, 2020

As of March 31, 2021, there were 410,000 equity awards available for grant under the 2020 Inducement Plan.

The fair value of the stock option awards during the six months ended March 31, 2021 and during the year ended September 30, 2020 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

March 31, 2021 September 30, 2020

Expected volatility (1)

13 unchanged sentences

(in thousands, except unit, share and per share amounts)

A summary of stock option activity for the three months ended December 31, 2020 is as follows:

Stock Options

Weighted Average Exercise Price

A summary of stock option activity for the six months ended March 31, 2021 is as follows:

Stock Options Weighted Average Exercise Price

Outstanding at beginning of period 5,210,566 $ 21.73

3 unchanged sentences

Outstanding at end of period 6,929,335 $ 24.41

The weighted-average grant date fair value of stock options granted during the three months ended December 31, 2020 was $ 9.20 .

As of December 31, 2020, there were 5,703,462 stock options outstanding, of which 1,776,841 were exercisable.

As of December 31, 2020, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 21,069 , which is expected to be recognized over a weighted-average period of two years .

The weighted-average grant date fair value of stock options granted during the six months ended March 31, was $ 10.99 .

As of March 31, 2021, there were 6,929,335 stock options outstanding, of which 2,135,714 were exercisable.

As of March 31, 2021, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 32,404 , which is expected to be recognized over a weighted-average period of two years .

The Company's policy is to account for forfeitures of stock-based compensation awards as they occur.

The total fair value of stock options that vested during the three months ended December 31, 2020 was $ 1,985 .

The total fair value of stock options that vested during the three and six months ended March 31, 2021 was $ 4,231 and $ 6,216 , respectively.

COMMITMENTS AND CONTINGENCIES

The Company utilizes office space and equipment under operating leases.

Rent expense under these leases amounted to $ 912 and $ 741 during the three months ended December 31, 2020 and 2019, respectively.

Rent expense under these leases amounted to $ 1,118 and $ 2,030 during the three and six months ended March 31, 2021, respectively, and $675 and $1,416 during the three and six months ended March 31, 2020, respectively.

Refer to Note 7 for further discussion and a table of the future minimum payments under these leases.

3 unchanged sentences

If the Company submits a number of transactions that is lower than the minimum, it is required to pay to the processor the fees the processor would have received if the Company had submitted the required minimum number of transactions.

As of December 31, 2020, such minimum fee commitments were as follows:

As of March 31, 2021, such minimum fee commitments were as follows:

Years ending September 30:

2021 (nine months remaining) $ 2,473

2021 (six months remaining) $ 1,540

Total $ 7,453

8 unchanged sentences

As the eventual financial metrics are not known, the amount of the buyout transaction as well as the additional consideration are not able to be estimated at this time.

As of December 31, 2020, such knowable loan commitments, dependent on the third party sales organization's achievement of certain financial metrics, were $ 2,500 for fiscal year 2021.

As of March 31, 2021, such knowable loan commitments, dependent on the third party sales organization's achievement of certain financial metrics, were $ 1,500 for fiscal year 2021.

With respect to all legal, regulatory and governmental proceedings, and in accordance with ASC 450-20, Contingencies—Loss Contingencies , the Company considers the likelihood of a negative outcome.

11 unchanged sentences

In April 2016, the Company entered into a purchase agreement to purchase certain assets of Axia, LLC.

On April 29, 2016, the Company entered into a Processing Services Agreement (the “AxiaMed Agreement”) with Axia Technologies, LLC (which has since been incorporated as Axia Technologies, Inc., doing business as AxiaMed (“AxiaMed”)), an entity controlled by the previous owner of Axia, LLC.

Under the AxiaMed Agreement, the

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

Company agreed to provide processing services for certain merchants as designated by AxiaMed from time to time.

(“AxiaMed”)), an entity controlled by the previous owner of Axia, LLC.

Under the AxiaMed Agreement, the Company agreed to provide processing services for certain merchants as designated by AxiaMed from time to time.

In accordance with ASC 606-10-55, revenue from the processing services is recognized net of interchange, residual expense and other fees.

The Company earned net revenues related to the AxiaMed Agreement of $ 26 and $ 22 during the three months ended December 31, 2020 and 2019, respectively.

i3 Verticals, LLC, Greg Daily, the Company’s CEO and Clay Whitson, the Company’s CFO, own 2.0 %, 9.4 % and 0.4 %, respectively, of the outstanding equity of AxiaMed.

The Company earned net revenues related to the AxiaMed Agreement of $ 27 and $ 52 during the three and six months ended March 31, 2021, respectively, and $ 22 and $ 44 during the three and six months ended March 31, 2020, respectively.

Greg Daily, the Company’s CEO;

Clay Whitson, the Company’s CFO;

and the Company own 2.0 %, 9.4 % and 0.4 %, respectively, of the outstanding equity of AxiaMed.

In March 2021, the Company became aware of an observable price change in the AxiaMed equity investment, due to a planned third party acquisition of AxiaMed.

This resulted in an increase of $ 2,353 to the fair value of the AxiaMed investment at March 31, 2021, which the Company recognized in other income.

In connection with the Company’s IPO, the Company and i3 Verticals, LLC entered into a Tax Receivable Agreement with the Continuing Equity Owners that provides for the payment by the Company to the Continuing Equity Owners of 85 % of the amount of certain tax benefits, if any, that it actually realizes, or in some circumstances, is deemed to realize in its tax reporting, as a result of (i) future redemptions funded by the Company or exchanges, or deemed exchanges in certain circumstances, of Common Units of i3 Verticals, LLC for Class A common stock of i3 Verticals, Inc.

1 unchanged sentence

See Note 6 for further information.

As of December 31, 2020, the total amount due under the Tax Receivable Agreement was $ 34,299 .

As of March 31, 2021, the total amount due under the Tax Receivable Agreement was $ 39,626 .

The Company determines its operating segments based on ASC 280, Segment Reporting , how the chief operating decision making group monitors and manages the performance of the business and the level at which financial information is reviewed.

9 unchanged sentences

The prior period comparatives reflected in the tables below have been retroactively adjusted to reflect the Company's current segment presentation.

The Company primarily uses processing margin to measure operating performance.

Processing margin is equal to revenue less other cost of services plus residuals expense, which are a component of other cost of

i3 VERTICALS, Inc.

1 unchanged sentence

(in thousands, except unit, share and per share amounts)

The Company primarily uses processing margin to measure operating performance.

The following is a summary of reportable segment operating performance for the three months ended December 31, 2020 and 2019.

As of and for the Three Months Ended December 31, 2020

The following is a summary of reportable segment operating performance for the three and six months ended March 31, 2021 and 2020.

As of and for the Three Months Ended March 31, 2021

Merchant Services Proprietary Software and Payments Other Total

Revenue $ 25,992 $ 22,549 $ ( 678 ) $ 47,863

Operating expenses

Other costs of services ( 11,782 ) ( 210 ) 678 ( 11,314 )

Residuals 6,901 287 ( 667 ) 6,521

Processing margin $ 21,111 $ 22,626 $ ( 667 ) $ 43,070

Residuals ( 6,521 )

Selling general and administrative ( 30,511 )

1 unchanged sentence

Change in fair value of contingent consideration ( 322 )

Income (loss) from operations $ 4,762 $ 728 $ ( 7,801 ) $ ( 2,311 )

Loss from operations $ ( 135 )

Total assets $ 210,720 $ 327,446 $ 64,653 $ 602,819

Goodwill $ 118,874 $ 144,491 $ — $ 263,365

As of and for the Six Months Ended March 31, 2021

Merchant Services Proprietary Software and Payments Other Total

Revenue $ 50,962 $ 41,325 $ ( 1,111 ) $ 91,176

Other costs of services ( 22,623 ) ( 3,467 ) 1,110 ( 24,980 )

Residuals 12,845 544 ( 1,093 ) 12,296

Processing margin $ 41,184 $ 38,402 $ ( 1,094 ) $ 78,492

$ 20,073 $ 15,776 $ ( 427 ) $ 35,422

Residuals ( 12,296 )

Selling general and administrative ( 55,473 )

Depreciation and amortization ( 10,943 )

Change in fair value of contingent consideration ( 2,226 )

Loss from operations $ ( 2,446 )

Total assets $ 210,720 $ 327,446 $ 64,653 $ 602,819

Goodwill $ 118,874 $ 144,491 $ — $ 263,365

__________________________

Processing margin is equal to revenue less other costs of services.

$ 5,944 , $ 257 and $( 426 ) of residual expense, a component of other costs of services, are added back to the Merchant Services segment, Proprietary Software and Payments segment, and Other category, respectively.

As of and for the Three Months Ended December 31, 2019

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

As of and for the Three Months Ended March 31, 2020

Merchant Services Proprietary Software and Payments Other Total

Revenue $ 25,729 $ 13,980 $ ( 531 ) $ 39,178

Operating expenses

Other costs of services ( 11,356 ) ( 1,129 ) 530 ( 11,955 )

Residuals 5,540 156 ( 526 ) 5,170

Processing margin $ 19,913 $ 13,007 $ ( 527 ) $ 32,393

Residuals ( 5,170 )

Selling general and administrative ( 20,786 )

1 unchanged sentence

Change in fair value of contingent consideration 142

Income (loss) from operations $ 8,427 $ 868 $ ( 5,198 ) $ 4,097

Income from operations $ 2,041

Total assets $ 212,899 $ 96,949 $ 41,334 $ 351,182

Goodwill $ 116,401 $ 50,653 $ — $ 167,054

As of and for the Six Months Ended March 31, 2020

Merchant Services Proprietary Software and Payments Other Total

Revenue $ 53,968 $ 27,262 $ ( 941 ) $ 80,289

Other costs of services ( 23,530 ) ( 2,283 ) 940 ( 24,873 )

Residuals 11,098 310 ( 934 ) 10,474

Processing margin $ 41,536 $ 25,289 $ ( 935 ) $ 65,890

$ 21,623 $ 12,282 $ ( 408 ) $ 33,497

Residuals ( 10,474 )

Selling general and administrative ( 40,073 )

Depreciation and amortization ( 9,193 )

Change in fair value of contingent consideration ( 12 )

Income from operations $ 6,138

Total assets $ 212,899 $ 96,949 $ 41,334 $ 351,182

Goodwill $ 116,401 $ 50,653 $ — $ 167,054

__________________________

Processing margin is equal to revenue less other costs of services.

$ 5,558 , $ 154 and $( 408 ) of residual expense, a component of other costs of services, are added back to the Merchant Services segment, Proprietary Software and Payments segment, and Other category, respectively.

The Company has not disclosed expenditures on long-lived assets as such expenditures are not reviewed by or provided to the chief operating decision maker.

i3 VERTICALS, Inc.

7 unchanged sentences

As such, future redemptions or direct exchanges of Common Units of i3 Verticals, LLC by the Continuing Equity Owners will result in a change in ownership and reduce or increase the amount recorded as non-controlling interest and increase or decrease additional paid-in capital when i3 Verticals, LLC has positive or negative net assets, respectively.

As of December 31, 2020, i3 Verticals, Inc.

As of March 31, 2021, i3 Verticals, Inc.

owned 21,919,300 of i3 Verticals, LLC's Common Units, representing a 68.2 % economic ownership interest in i3 Verticals, LLC.

The following table summarizes the impact on equity due to changes in the Company's ownership interest in i3 Verticals, LLC:

Three months ended December 31,

Six months ended March 31,

Net (loss) income attributable to non-controlling interest $ ( 2,042 ) $ 3,265

Transfers to (from) non-controlling interests:

Distributions to non-controlling interest holders — (3)

Redemption of common units in i3 Verticals, LLC ( 11,714 ) ( 2,597 )

11 unchanged sentences

(in thousands, except unit, share and per share amounts)

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the three months ended December 31, 2020 and 2019:

Three months ended

December 31, 2020 Three months ended

December 31, 2019

Basic and diluted (2) net loss per share:

Net (loss) income

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the three and six months ended March 31, 2021 and 2020:

Three months ended March 31, Six months ended March 31,

2021 2020 2021 2020

Basic net income (loss) per share:

Net (loss) income $ ( 53 ) $ 1,919 $ ( 4,174 ) $ 3,853

Net (loss) income attributable to non-controlling interests ( 493 ) 1,182 ( 2,042 ) 3,265

Net loss attributable to Class A common stockholders $ ( 2,572 ) $ ( 149 )

Net income (loss) attributable to Class A common stockholders $ 440 $ 737 $ ( 2,132 ) $ 588

Weighted average shares of Class A common stock outstanding (1)

20,940,725 14,456,970 20,024,936 14,344,768

Basic and diluted net loss per share $ ( 0.13 ) $ ( 0.01 )

Basic net (loss) income per share $ 0.02 $ 0.05 $ ( 0.11 ) $ 0.04

Dilutive net income per share:

Net income (loss) attributable to Class A common stockholders $ 440 $ 737 $ ( 2,132 ) $ 588

Reallocation of net (loss) income assuming conversion of common units (3)(4)

( 371 ) — ( 1,538 ) —

Excludes 18,869 and 232,828 restricted Class A common stock units for the three months ended December 31, 2020 and 2019, respectively.

For the three months ended December 31, 2020 and 2019, all potentially dilutive securities were anti-dilutive, so diluted net loss per share was equivalent to basic net loss per share.

The following securities were excluded from the weighted average effect of dilutive securities in the computation of diluted earnings per share of Class A common stock:

11,668,199 and 12,921,637 shares of weighted average Class B common stock for the three months ended December 31, 2020 and 2019, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive,

1,251,600 and 689,500 stock options for the three months ended December 31, 2020 and 2019, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive, and

1,212,584 and 976,594 shares for the three months ended December 31, 2020 and 2019, respectively, resulting from estimated stock option exercises as calculated by the treasury stock method, and 18,869 and 232,828 restricted Class A common units for the three months ended December 31, 2020 and 2019, respectively, were excluded because the effect of including them would have been anti-dilutive.

Net income (loss) attributable to Class A common stockholders - diluted

$ 69 $ 737 $ ( 3,670 ) $ 588

Weighted average shares of Class A common stock outstanding (1)

20,940,725 14,456,970 20,024,936 14,344,768

Weighted average effect of dilutive securities (2)(3)

12,464,258 1,649,787 11,212,739 1,433,309

Weighted average shares of Class A common stock outstanding - diluted

33,404,983 16,106,757 31,237,675 15,778,077

Diluted net income (loss) per share $ 0.00 $ 0.05 $ ( 0.12 ) $ 0.04

____________________

Excludes 4,925 and 11,974 restricted Class A common stock units for the three and six months ended March 31, 2021, respectively, and 215,564 and 228,872 restricted Class A common stock units for both the three and six months ended March 31, 2020, respectively.

For the three and six months ended March 31, 2021, the following securities were excluded from the weighted average effect of dilutive securities in the computation of diluted net loss per share of Class A common stock:

1,760,997 and 2,506,997 stock options for the three and six months ended 2021, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive, and

1,449,216 shares for the six months ended March 31, 2021 resulting from estimated stock option exercises as calculated by the treasury stock method, and 11,974 restricted Class A common units for the six months ended March 31, 2021, were excluded because the effect of including them would have been anti-dilutive.

For the three and six months ended March 31, 2020, the following securities were excluded from the weighted average effect of dilutive securities in the computation of diluted net loss per share of Class A common stock:

12,769,568 and 12,846,018 shares of weighted average Class B common stock for the three and six months ended March 31, 2020, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive, and

959,000 and 1,054,000 stock options for the three and six months ended March 31, 2020, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive.

The reallocation of net income assuming conversion of common units represents the tax effected net income attributable to non-controlling interest using the effective income tax rates described in Note 6 above and assuming all common units of i3 Verticals, LLC

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

were exchanged for Class A common stock at the beginning of the period.

The common units of i3 Verticals, LLC held by the Continuing Equity Owners are potentially dilutive securities, and the computations of pro forma diluted net income per share assume that all common units of i3 Verticals, LLC were exchanged for shares of Class A common stock at the beginning of the period.

Since the Company expects to settle the principal amount of its outstanding Exchangeable Notes in cash and any excess in cash or shares of the Company's Class A common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

6 unchanged sentences

As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

SIGNIFICANT NON-CASH TRANSACTIONS

The Company engaged in the following significant non-cash investing and financing activities during the three months ended December 31, 2020 and 2019:

Three months ended December 31,

The Company engaged in the following significant non-cash investing and financing activities during the six months ended March 31, 2021 and 2020:

Six months ended March 31,

Class A common stock issued as part of acquisition's purchase consideration (Note 3) $ 35,245 $ —

Acquisition date fair value of contingent consideration in connection with business combinations $ 18,650 $ —

Issuance of Exchangeable Notes and related Note Hedge Transactions and Warrants $ — $ 270

Right-of-use assets obtained in exchange for operating lease obligations $ 16,295 $ —

SUBSEQUENT EVENTS

Subsequent to December 31, 2020, the Company completed the acquisition of substantially all the assets of Business Information Systems, GP, a Tennessee general partnership (“BIS GP”) and Business Information Systems, Inc., a Tennessee corporation (collectively, “BIS”), a business based in east Tennessee that provides software and electronic payment solutions in a variety of states.

BIS will fit within the Company’s public sector vertical.

The aggregate purchase consideration was $ 87,745 , consisting of $ 52,500 in cash on hand and revolving line of credit proceeds, 1,202,914 shares of Class A common stock in i3 Verticals (equivalent to approximately $ 35,245 ) and an amount of contingent consideration, which is still being valued.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 16,000 , in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreements, through no later than January 2023.

Recent Acquisitions

Subsequent to March 31, 2021, the Company completed the acquisition of three businesses.

Two of these businesses further strengthen the Company's focus in its healthcare vertical.

The third business expands the Company's software capabilities in the utilities market within the public sector vertical.

Total purchase consideration included $ 37,400 in cash consideration, funded by proceeds from the Company's revolving line of credit, and an amount of contingent consideration, which is still being valued.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 40,000 , in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreements, through no later than June 2023.

The Company is in process of determining the acquisition date fair values of the liabilities for the contingent consideration based on discounted cash flow analyses.

In each subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liabilities to their fair values through earnings.

The effect of this acquisition will be included in the consolidated statements of operations beginning February 1, 2021.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liabilities to their fair values through earnings.

The effect of two of these acquisitions will be included in the consolidated statements of operations beginning April 1, 2021, and the third of these acquisitions will be included in the consolidated statements of operations beginning May 1, 2021.

The Company is still evaluating the allocations of the preliminary purchase consideration and pro forma results of operations.

Residual Buyouts

From time to time, the Company acquires future commission streams from sales agents in exchange for an upfront cash payment.

This results in an increase in overall gross processing volume to the Company.

The residual buyouts are treated as asset acquisitions, resulting in recording a residual buyout intangible asset at cost on the date of acquisition.

These assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are expected to be utilized over their estimated useful lives.

On April 30, 2021, the Company purchased $ 900 in a residual buyouts using a combination of cash on hand and borrowings on the Company's revolving credit facility.

2020 Inducement Plan Amendment

In May 2021, the Company amended the 2020 Inducement Plan to increase the number of shares of the Company's Class A common stock available for issuance under the 2020 Inducement Plan from 1,500,000 to 3,000,000 shares.

The 2020 Inducement Plan is used exclusively for grants of awards to individuals that were not previously employees of the Company or its subsidiaries in connection with acquisitions, as a material inducement to the individual's entry into employment with the Company or its subsidiaries within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

On April 1, 2021, AxiaMed was sold to a third party and the Company received $ 2,453 for its investment in AxiaMed.

Greg Daily, the Company’s CEO;

Clay Whitson, the Company’s CFO;

and the Company no longer have ownership interest in AxiaMed following the sale.

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-Q

Item 1. Financial Statements