What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-05-10 · 239 added, 198 removed, 947 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

March 31, September 30,

June 30, 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 March 31, 2021 and September 30, 2020

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

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

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

21,960,059 and 18,864,143 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively

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

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

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

Additional paid-in capital 207,697 157,598

8 unchanged sentences

(In thousands, except share and per share amounts)

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

Three months ended June 30, Nine months ended June 30,

2021 2020 2021 2020

9 unchanged sentences

Interest expense, net 2,704 2,423 7,092 6,621

Other income ( 2,353 ) — ( 2,353 ) —

Other expenses (income) — 829 ( 2,353 ) 829

Total other expenses 2,704 3,252 4,739 7,450

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

(Loss) before income taxes ( 4,704 ) ( 2,815 ) ( 9,185 ) ( 875 )

Benefit from income taxes ( 110 ) ( 5 ) ( 416 ) ( 1,918 )

1 unchanged sentence

Net (loss) income attributable to non-controlling interest ( 1,286 ) ( 2,454 ) ( 3,328 ) 811

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

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

$ ( 3,308 ) $ ( 356 ) $ ( 5,441 ) $ 232

27 unchanged sentences

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

Equity-based compensation — — — — 5,111 — — 5,111

Net (loss) — — — — — ( 3,308 ) ( 1,286 ) ( 4,594 )

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 141 ) — — ( 141 )

Exercise of equity-based awards 40,759 — — — 287 — — 287

Allocation of equity to non-controlling interests — — — — ( 1,363 ) — 1,363 —

Balance at June 30, 2021 21,960,059 $ 2 10,229,142 $ 1 $ 207,697 $ ( 7,463 ) $ 81,891 $ 282,128

See Notes to the Interim Condensed Consolidated Financial Statements

20 unchanged sentences

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

Equity-based compensation — — — — 2,816 — — 2,816

Forfeitures of restricted Class A common stock — — — — — — — —

Net (loss) — — — — — ( 356 ) ( 2,454 ) ( 2,810 )

Distributions to non-controlling interest holders — — — — — — — —

Redemption of common units in i3 Verticals, LLC 20,000 — ( 20,000 ) — 75 — ( 75 ) —

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 61 — — 61

Exercise of equity-based awards 26,895 — — — — — — —

Equity component of exchangeable notes, net of issuance costs and deferred taxes — — — — 9 — — 9

Repurchases of exchangeable note hedges — — — — 571 — — 571

Balance at June 30, 2020 15,085,813 $ 1 12,391,621 $ 1 $ 107,654 $ ( 1,372 ) $ 61,144 $ 167,428

See Notes to the Interim Condensed Consolidated Financial Statements

2 unchanged sentences

(In thousands)

Six months ended March 31,

Nine months ended June 30,

Cash flows from operating activities:

6 unchanged sentences

Debt issuance costs write offs — 141

Loss on repurchase of exchangeable notes — 828

Amortization of capitalized customer acquisition costs 386 288

Loss on disposal of assets — 1

Unrealized gain on investment ( 2,353 ) —

1 unchanged sentence

Non-cash lease expense 2,328 —

Increase in non-cash contingent consideration expense from original estimate 2,226 12

(Decrease) Increase in non-cash contingent consideration expense from original estimate 5,835 ( 1,461 )

Changes in operating assets:

21 unchanged sentences

(In thousands)

Six months ended March 31,

Nine months ended June 30,

Cash flows from financing activities:

4 unchanged sentences

Proceeds from issuance of warrants — 14,669

Payments for repurchase of exchangeable notes — ( 6,807 )

Payments of debt issuance costs — ( 5,215 )

3 unchanged sentences

Payments for employee's tax withholdings from net settled stock option exercises ( 710 ) ( 121 )

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

Net cash provided by financing activities 115,519 3,143

Net (decrease) in cash, cash equivalents, and restricted cash ( 5,346 ) 7,486

18 unchanged sentences

On June 25, 2018, the Company completed the IPO of 7,647,500 shares of its Class A common stock at a public offering price of $ 13.00 per share.

The Company received approximately $ 92.5 million of net proceeds, after deducting underwriting discounts and commissions, which the Company used to purchase newly issued common units from i3 Verticals, LLC (the “Common Units”), and Common Units from a selling Common Unit holder, in each case at a price per Common Unit equal to the price per share paid by the underwriters for shares of the Company's Class A common stock in the IPO.

The Company received approximately $ 92,500 of net proceeds, after deducting underwriting discounts and commissions, which the Company used to purchase newly issued common units from i3 Verticals, LLC (the “Common Units”), and Common Units from a selling Common Unit holder, in each case at a price per Common Unit equal to the price per share paid by the underwriters for shares of the Company's Class A common stock in the IPO.

Reorganization Transactions

13 unchanged sentences

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

Following the completion of the IPO and Reorganization Transactions, the Company became a holding company and its principal asset is the Common Units in i3 Verticals, LLC that it owns.

Following the completion of the IPO and Reorganization Transactions, the Company became a holding company and the principal asset that it owns are the Common Units in i3 Verticals, LLC.

i3 Verticals, Inc.

7 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 March 31, 2021, i3 Verticals, Inc.

• As of June 30, 2021, i3 Verticals, Inc.

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

• 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.

• As of June 30, 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 March 31, 2021 and for

i3 VERTICALS, Inc.

1 unchanged sentence

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

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.

three and nine months ended June 30, 2021 and 2020.

The results of operations for the three and nine months ended June 30, 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.

10 unchanged sentences

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

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

As of June 30, 2021, settlement assets and settlement obligations were both $ 4,963 .

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 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.

Inventories were $ 2,281 and $ 1,309 at June 30, 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 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.

Acquisitions completed during the nine months ended June 30, 2021 contributed $ 31,961 and $ 891 of revenue and net income, respectively, to the Company's condensed consolidated statements of operations for the nine 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.

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 majority of the Company's revenue for the nine months ended June 30, 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 March 31, 2021

For the Three Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 29,912 $ 32,615 $ ( 563 ) $ 61,964

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

For the Three Months Ended June 30, 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

For the Nine Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 80,874 $ 73,940 $ ( 1,674 ) $ 153,140

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

For the Nine Months Ended June 30, 2020 (1)

Merchant Services Proprietary Software and Payments Other Total

9 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 March 31, 2021

For the Three Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

5 unchanged sentences

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

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

For the Three Months Ended June 30, 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

For the Nine Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 80,874 $ 73,940 $ ( 1,674 ) $ 153,140

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

For the Nine Months Ended June 30, 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.

Contract Assets

The Company bills for fixed fee professional services once the Company achieves pre-determined milestones in the contract.

Therefore, the Company may have contract assets other than trade accounts receivable for performance obligations that are partially completed, which would typically represent consulting services provided before a milestone is completed in a contract.

For the Company’s time and materials professional services contracts and transaction processing services, the Company periodically bills the customer after services have been provided but has the right to invoice the customer for services performed to date at any time.

Unbilled amounts associated with these services are presented as accounts receivable as the Company has an unconditional right to payment for services performed.

As of June 30, 2021 and September 30, 2020, the Company’s contract assets from contracts with customers was $ 1,575 and $ 0 , respectively

Contract Liabilities

4 unchanged sentences

Deferred revenue that is expected to be recognized as revenue within one year is recorded as short-term deferred revenue and the remaining portion is recorded as other long-term liabilities in the condensed consolidated balance sheets.

The terms for most of the Company's contracts with a deferred revenue component are one year.

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

The terms for

i3 VERTICALS, Inc.

1 unchanged sentence

(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:

most of the Company's contracts with a deferred revenue component are one year.

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 nine months ended June 30, 2021 and 2020, respectively:

Balance at September 30, 2020

5 unchanged sentences

Balance at March 31, 2021

Deferral of revenue 10,547

Recognition of unearned revenue ( 12,923 )

Balance at June 30, 2021

Balance at September 30, 2019

5 unchanged sentences

Balance at March 31, 2020

Deferral of revenue 5,630

Recognition of unearned revenue ( 5,512 )

Balance at June 30, 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 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.

As of June 30, 2021 and 2020 the Company had $ 3,720 and $ 2,958 , 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 $ 138 and $ 386 for the three and nine months ended June 30, 2021, respectively, and $ 104 and $ 288 for the three and nine months ended June 30, 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Other Cost of Services

8 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

19 unchanged sentences

The adoption of ASC 842 also resulted in a reduction in existing prepaid expenses and other current assets of $ 202 and in accrued expenses and other current liabilities and other long-term liabilities of $ 869 as of October 1, 2020.

Lease liabilities are measured as the present value of remaining lease payments, utilizing the Company’s incremental borrowing rate based on the remaining lease term as of the adoption date.

Lease liabilities are measured as the present value of remaining

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

lease payments, utilizing the Company’s incremental borrowing rate based on the remaining lease term as of the adoption date.

The right-of-use assets are measured at an amount equal to the lease liabilities adjusted by the amounts of certain assets and liabilities, such as deferred lease obligations and prepaid rent, that were previously recognized on the balance sheet prior to the initial application of ASC 842.

12 unchanged sentences

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.

16 unchanged sentences

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.

During the nine months ended June 30, 2021 and 2020 the Company acquired the following intangible assets and businesses:

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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

During the nine months ended June 30, 2021 the Company purchased $ 1,500 in residual buyouts using a combination of cash on hand and borrowings on the Company's revolving credit facility.

The acquired residual buyout intangible assets have weighted average estimated amortization periods of eight years .

Business Combinations during the nine months ended June 30, 2021

During the nine months ended June 30, 2021, the Company completed the acquisitions of unrelated businesses.

Certain of the purchase price allocations assigned for these acquisitions are considered preliminary as of June 30, 2021.

Purchase of BIS

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.

9 unchanged sentences

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.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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.

See additional disclosures in Note 8.

Purchase of ImageSoft, Inc.

Purchase of ImageSoft

On November 17, 2020, the Company completed the acquisition of substantially all of the assets of ImageSoft, Inc.

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

ImageSoft, Inc.

is within the Proprietary Software & Payments segment.

(“Imagesoft”) to expand its software offerings, primarily in the Public Sector vertical.

ImageSoft, is within the Proprietary Software & Payments segment.

Total purchase consideration was $ 46,300 , including $ 40,000 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $ 6,300 in contingent consideration.

4 unchanged sentences

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

Acquisition-related costs for ImageSoft, Inc.

amounted to approximately $ 381 and were expensed as incurred.

Acquisition-related costs for ImageSoft amounted to approximately $ 403 and were expensed as incurred.

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 probability forecast and 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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

1 unchanged sentence

Other Business Combinations

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.

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.

From October 1, 2020 to May 1, 2021, the Company completed the acquisitions of six 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.

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

Total purchase consideration was $ 65,353 , including $ 57,000 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $ 8,353 of contingent consideration.

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

4 unchanged sentences

Acquisition-related costs for these businesses amounted to approximately $ 1,280 and were expensed as incurred.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 10,200 , 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 March 2023.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 50,200 , 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 determined the acquisition date fair values of the liabilities for the contingent consideration based on probability forecasts and discounted cash flow analyses.

4 unchanged sentences

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

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

Summary of Business Combinations during the nine months ended June 30, 2021

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

BIS ImageSoft, Inc.

BIS ImageSoft Other Total

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

17 unchanged sentences

Net assets acquired $ 95,495 $ 46,300 $ 63,387 $ 205,182

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.

Pro Forma Results of Operations for Business Combinations during the nine months ended June 30, 2021

The following unaudited supplemental pro forma results of operations have been prepared as though each of the acquired businesses in the nine months ended June 30, 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 increased debt, 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.

Six months ended March 31,

Nine months ended June 30,

Revenue $ 178,349 $ 168,720

Net (loss) income $ ( 3,186 ) $ 3,716

Net (loss) $ ( 8,525 ) $ ( 272 )

Business Combinations during the year ended September 30, 2020

3 unchanged sentences

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.

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

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

38 unchanged sentences

$ 115,982 $ 71,023 $ — $ 187,005

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:

Goodwill attributable to preliminary purchase price adjustments and acquisitions during the nine months ended June 30, 2021 2,822 94,424 — 97,246

Balance at June 30, 2021 $ 118,804 $ 165,447 $ — $ 284,251

Intangible assets consisted of the following as of June 30, 2021:

Cost Accumulated

11 unchanged sentences

Total identifiable intangible assets $ 247,340 $ ( 68,459 ) $ 178,881

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

Amortization expense for intangible assets amounted to $ 4,674 and $ 11,786 during the three and nine months ended June 30, 2021, respectively, and $ 3,066 and $ 9,348 during the three and nine months ended June 30, 2020, respectively.

Based on net carrying amounts at June 30, 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 (three months remaining) $ 4,181

Thereafter 117,439

3 unchanged sentences

LONG-TERM DEBT, NET

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

March 31, September 30,

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

June 30, September 30,

Maturity 2021 2020

7 unchanged sentences

The Company received approximately $ 132,762 in net proceeds from the sale of the Exchangeable Notes, as determined by deducting estimated offering expenses paid to third-parties from the aggregate principal amount.

The Exchangeable Notes are senior secured notes and are guaranteed solely by the Company.

The Exchangeable Notes bear interest at a fixed rate of 1.00 % per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020.

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

As of June 30, 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.

17 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 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.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and nine months ended June 30, 2021 was $ 149 and $ 434 , respectively, and $ 146 and $ 216 for the three and nine months ended June 30, 2020, respectively.

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 $ 2,908 as of March 31, 2021.

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

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 2,759 as of June 30, 2021.

The estimated fair value of the Exchangeable Notes was $ 119,633 as of June 30, 2021.

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

33 unchanged sentences

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.

The Senior Secured Credit Facility accrues interest at the London Inter Bank Offered Rate ("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 June 30, 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 June 30, 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

Additionally, the Senior Secured Credit Facility requires the Company to pay

i3 VERTICALS, Inc.

1 unchanged sentence

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

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.

unused commitment fees of 0.15 % to 0.30 % ( 0.30 % as of June 30, 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 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.

As of June 30, 2021, the Company was in compliance with these covenants, and there was $ 157.2 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 March 31, 2021.

The Company was in compliance with such covenants as of June 30, 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 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 incurred no debt issuance costs during the three and nine months ended June 30, 2021.

During the three and nine months ended June 30, 2020, the Company capitalized debt issuance costs totaling $ 4,212 , 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 $ 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.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 244 and $ 719 during the three and nine months ended June 30, 2021, respectively, and $ 242 and $ 514 during the three and nine months ended June 30, 2020, respectively.

i3 Verticals, Inc.

9 unchanged sentences

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 $ 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.

The Company’s provision for income taxes was a benefit of $ 110 and $ 416 for the three and nine months ended June 30, 2021, respectively, and a benefit of $ 5 and $ 1,918 for the three and nine months ended June 30, 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 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.

During the nine months ended June 30, 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 nine months ended June 30, 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 $ 42,897 and $ 39,626 , respectively, as of June 30, 2021.

Payments to the Continuing Equity Owners related to exchanges through June 30, 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 June 30, 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 as of March 31, 2021.

The Company had no finance leases as of June 30, 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 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 weighted-average remaining lease term at June 30, 2021 was 6 years.

The Company had no significant short-term leases during the three and nine months ended June 30, 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 7.0 % as of March 31, 2021.

The weighted-average discount rate used in the measurement of our lease liabilities was 7.3 % as of June 30, 2021.

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

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.

Operating lease costs for the three and nine months ended June 30, 2021 were $ 1,164 and $ 3,064 , 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 nine months ended June 30, 2021 include variable lease costs of approximately $ 1 and $ 5 , 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 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:

Short-term rent expense for the three and nine months ended June 30, 2021 was $ 410 and $ 540 , respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

As of June 30, 2021, maturities of lease liabilities are as follows:

Years ending September 30:

2021 (six months remaining) $ 1,983

2021 (three months remaining) $ 1,035

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 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.

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 June 30, 2021 and 2020, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of June 30, 2021 and 2020, because interest rates on these instruments approximate market interest rates.

i3 VERTICALS, Inc.

8 unchanged sentences

Contingent consideration paid ( 6,522 )

Balance at March 31, 2021 $ 28,059

Balance at June 30, 2021 $ 34,750

Accrued Contingent Consideration

3 unchanged sentences

Contingent consideration paid ( 8,027 )

Balance at March 31, 2020 $ 11,761

Balance at June 30, 2020 $ 8,738

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 $ 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.

Approximately $ 19,878 and $ 10,062 of contingent consideration was recorded in accrued expenses and other current liabilities as of June 30, 2021 and September 30, 2020, respectively.

Approximately $ 14,872 and $ 2,972 of contingent consideration was recorded in other long-term liabilities as of June 30, 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 $ 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.

The estimated fair value of the Exchangeable Notes was $ 119,633 as of June 30, 2021.

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

Greg Daily, the Company’s chief executive officer;

Clay Whitson, the Company’s chief financial officer;

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

For additional information, see Note 11.

i3 VERTICALS, Inc.

2 unchanged sentences

EQUITY-BASED COMPENSATION

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,

A summary of equity-based compensation expense recognized during the three and nine months ended June 30, 2021 and 2020 is as follows:

Three months ended June 30, Nine months ended June 30,

2021 2020 2021 2020

1 unchanged sentence

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

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.

Income tax benefits of $ 102 and $ 584 were recognized during the three and nine months ended June 30, 2021, respectively.

Income tax expense of $ 164 and benefits of $ 177 were recognized during the three and nine months ended June 30, 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 March 31, 2021, there were 626,684 equity awards available for grant under the 2018 Plan.

As of June 30, 2021, there were 468,762 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 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

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 from 1,500,000 to 3,000,000 shares.

As of June 30, 2021, there were 1,424,971 equity awards available for grant under the 2020 Inducement Plan.

The fair value of the stock option awards during the nine months ended June 30, 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:

June 30, 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 six months ended March 31, 2021 is as follows:

A summary of stock option activity for the nine months ended June 30, 2021 is as follows:

Stock Options Weighted Average Exercise Price

4 unchanged sentences

Outstanding at end of period 7,484,507 $ 25.10

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 weighted-average grant date fair value of stock options granted during the nine months ended June 30, 2021 was $ 11.22 .

As of June 30, 2021, there were 7,484,507 stock options outstanding, of which 2,904,266 were exercisable.

As of June 30, 2021, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 34,517 , 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 and six months ended March 31, 2021 was $ 4,231 and $ 6,216 , respectively.

The total fair value of stock options that vested during the three and nine months ended June 30, 2021 was $ 4,374 and $ 10,590 , respectively.

COMMITMENTS AND CONTINGENCIES

The Company utilizes office space and equipment under operating leases.

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.

Rent expense under these leases amounted to $ 1,201 and $ 3,231 during the three and nine months ended June 30, 2021, respectively, and $ 657 and $ 2,073 during the three and nine months ended June 30, 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 March 31, 2021, such minimum fee commitments were as follows:

As of June 30, 2021, such minimum fee commitments were as follows:

Years ending September 30:

2021 (six months remaining) $ 1,540

2021 (three months remaining) $ 608

Total $ 6,520

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 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.

As of June 30, 2021, such knowable loan commitments, dependent on the third party sales organization's achievement of certain financial metrics, were $ 750 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.

2 unchanged sentences

However, the Company in some instances may be unable to estimate an amount of possible loss or range of loss based on the significant uncertainties involved in, or the preliminary nature of, the matter, and in these instances the Company will disclose the nature of the contingency and describe why the Company is unable to determine an estimate of possible loss or range of loss.

In addition, the Company is involved in ordinary course legal proceedings, which include all claims, lawsuits, investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business.

The Company is involved in ordinary course legal proceedings, which include all claims, lawsuits, investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business.

The Company has considered all such ordinary course legal proceedings in formulating its disclosures and assessments.

After taking into consideration the evaluation of such legal matters by the Company's legal counsel, the Company's management believes at this time such matters will not have a material impact on the Company's consolidated balance sheet, results of operations or cash flows.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

S&S Litigation

A Petition was filed on June 2, 2021 in the 19th Judicial District Court, Parish of East Baton Rouge by the State of Louisiana, through the Division of Administration, and the East Baton Rouge Parish Law Enforcement District and other Law Enforcement Districts, on behalf of themselves and as class representatives of a purported class of law enforcement districts in the State of Louisiana against i3-Software & Services, LLC (“S&S”), a subsidiary of i3 Verticals, Inc.

(the “Company”) located in Shreveport, Louisiana, the Company, the leader of the S&S business and its former owner.

See State of Louisiana, by and through its Division of Administration, East Baton Rouge Parish Law Enforcement District, by and through the duly elected East Baton Rouge Parish Sheriff, Sid J.

Gautreaux, III, et.

al., individually and as class representatives vs.

i3-Software & Services, LLC;

1120 South Pointe Properties, LLC, formerly known as Software and Services of Louisiana, L.L.C.;

i3 Verticals, Inc.;

i3 Verticals, LLC;

and Scott Carrington .

The Petition seeks monetary damages for the cost of network remediation of $ 15 million, return of their purchase prices, potential additional expenses related to remediation and any obligation to notify parties of an alleged data breach as and if required by applicable law, and reasonable attorneys’ fees.

The claimed damages relate to a third-party remote access software product (“Third-Party Software”) used in connection with services provided by S&S to certain Louisiana Parish law enforcement districts and alleged inadequacies in the Company’s cybersecurity practices.

S&S was acquired by the Company in 2018 for an aggregate purchase price of $ 17 million, including upfront cash consideration and contingent consideration, and provides software and payments services within the Company’s Public Sector vertical to local government agencies almost exclusively in Louisiana.

The Company is also aware of a related investigation led by the U.S.

Department of Justice (“DOJ”).

The Company has produced documents in response to subpoenas and made employees available for interviews by the government.

The Company has cooperated fully and is continuing to cooperate.

Based on information available to the Company, the Company believes that the investigation is focused on unauthorized access to certain S&S customers’ internal networks by unknown third parties.

Such unauthorized access may have been enabled in part by the Third-Party Software.

The Company is unable to predict the outcome of the DOJ’s investigation or the related litigation.

We do not believe that these matters will, individually or in the aggregate, have a material adverse effect on our business or financial condition.

We cannot give assurance, however, that these will not have a material effect on our results of operations for the period in which they are resolved.

The Company's subsidiary CP-PS, LLC has certain indemnification obligations in favor of FDS Holdings, Inc.

4 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

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.

i3 VERTICALS, Inc.

1 unchanged sentence

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

(“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 $ 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.

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 chief executive officer;

Clay Whitson, the Company’s chief financial officer;

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

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

As of June 30, 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.

14 unchanged sentences

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

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

The following is a summary of reportable segment operating performance for the three and nine months ended June 30, 2021 and 2020.

As of and for the Three Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

7 unchanged sentences

Change in fair value of contingent consideration ( 3,609 )

Loss from operations $ ( 135 )

Income (loss) from operations $ ( 2,000 )

Total assets $ 209,707 $ 372,903 $ 61,992 $ 644,602

Goodwill $ 118,804 $ 165,447 $ — $ 284,251

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

As of and for the Nine Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

13 unchanged sentences

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

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

As of and for the Three Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

10 unchanged sentences

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

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

As of and for the Nine Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

20 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 March 31, 2021, i3 Verticals, Inc.

As of June 30, 2021, i3 Verticals, Inc.

owned 21,960,059 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:

Six months ended March 31,

Nine months ended June 30,

Net (loss) income attributable to non-controlling interest $ ( 3,328 ) $ 811

14 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 and six months ended March 31, 2021 and 2020:

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

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 nine months ended June 30, 2021 and 2020:

Three months ended June 30, Nine months ended June 30,

2021 2020 2021 2020

Basic net income (loss) per share:

Basic net (loss) income per share:

Net (loss) income $ ( 4,594 ) $ ( 2,810 ) $ ( 8,769 ) $ 1,043

Net (loss) income attributable to non-controlling interests ( 1,286 ) ( 2,454 ) ( 3,328 ) 811

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

Net (loss) income attributable to Class A common stockholders $ ( 3,308 ) $ ( 356 ) $ ( 5,441 ) $ 232

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

4 unchanged sentences

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

( 371 ) — ( 1,538 ) —

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 $ 0.01

____________________

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

Excludes 2,949 and 8,965 restricted Class A common stock units for the three and nine months ended June 30, 2021, respectively, and 193,709 and 225,985 restricted Class A common stock units for both the three and nine months ended June 30, 2020, respectively.

For the three and nine months ended June 30, 2021, 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 net loss per share of Class A common stock:

10,229,142 and 10,884,874 shares of weighted average Class B common stock for the three and nine months ended June 30, 2021, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive,

2,100,833 and 2,419,305 stock options for the three and nine months ended June 30, 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

1,678,774 and 1,531,722 shares for the three and nine months ended June 30, 2021, respectively, resulting from estimated stock option exercises as calculated by the treasury stock method, and 2,949 and 8,965 restricted Class A common units for the three and nine months ended June 30, 2021, respectively, were excluded because the effect of including them would have been anti-dilutive.

For the three months ended June 30, 2020,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 net loss per share of Class A common stock:

12,404,368 and 12,699,339 shares of weighted average Class B common stock for the three and nine months ended June 30, 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

i3 VERTICALS, Inc.

1 unchanged sentence

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

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

1,498,000 and 1,105,000 stock options for the three and nine months ended June 30, 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.

1,127,509 shares for the three months ended June 30, 2020, resulting from estimated stock option exercises as calculated by the treasury stock method, and 193,709 restricted Class A common units for the three months ended June 30, 2020, were excluded because the effect of including them would have been anti-dilutive.

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.

8 unchanged sentences

SIGNIFICANT NON-CASH TRANSACTIONS

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,

The Company engaged in the following significant non-cash investing and financing activities during the nine months ended June 30, 2021 and 2020:

Nine months ended June 30,

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

2 unchanged sentences

Right-of-use assets obtained in exchange for operating lease obligations $ 16,745 $ —

SUBSEQUENT EVENTS

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.

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.

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