What changed in this filing

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Item 1. Financial Statements

2022-02-09 compared with 2021-08-09 · 398 added, 492 removed, 694 unchanged (56% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

June 30, September 30,

December 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 June 30, 2021 and September 30, 2020

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

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

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

22,064,317 and 22,026,098 shares issued and outstanding as of December 31, 2021 and September 30, 2021, 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 June 30, 2021 and September 30, 2020, respectively

10,214,142 and 10,229,142 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively

Additional paid-in capital 216,604 211,237

Accumulated (deficit) earnings ( 7,463 ) ( 2,023 )

Accumulated deficit ( 9,008 ) ( 6,480 )

Total stockholders' equity 207,599 204,760

6 unchanged sentences

(In thousands, except share and per share amounts)

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

Three months ended December 31,

2021 2020 (1)

6 unchanged sentences

Total operating expenses 74,694 45,624

(Loss) income from operations ( 2,000 ) 437 ( 4,446 ) 6,575

Other expenses

Loss from operations ( 755 ) ( 1,003 )

Interest expense, net 3,154 2,029

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

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

Loss before income taxes ( 3,909 ) ( 3,032 )

Benefit from income taxes ( 228 ) ( 10 )

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

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

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

Net loss ( 3,681 ) ( 3,022 )

Net loss attributable to non-controlling interest ( 1,153 ) ( 1,024 )

Net loss attributable to i3 Verticals, Inc.

$ ( 2,528 ) $ ( 1,998 )

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

Net loss per share attributable to Class A common stockholders:

Basic $ ( 0.11 ) $ ( 0.10 )

3 unchanged sentences

Diluted 22,042,801 19,129,056

__________________________

Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

See Note 2 to the interim consolidated financial statements for a description of the recently adopted accounting pronouncement and the impacts of adoption on the condensed consolidated statements of operations.

See Notes to the Interim Condensed Consolidated Financial Statements

12 unchanged sentences

Balance at December 31, 2021 22,064,317 $ 2 10,214,142 $ 1 $ 216,604 $ ( 9,008 ) $ 85,454 $ 293,053

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

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

5 unchanged sentences

Balance at September 30, 2020 18,864,143 $ 2 11,900,621 $ 1 $ 157,598 $ ( 2,023 ) $ 84,590 $ 240,168

Cumulative effect of adoption of new accounting standard — — — — — 705 640 1,345

Equity-based compensation — — — — 3,441 — — 3,441

Net (loss) income — — — — — ( 149 ) 2,083 1,934

Exercise of equity-based awards 53,662 — — — 351 — — 351

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

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

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

Net loss — — — — — ( 1,998 ) ( 1,024 ) ( 3,022 )

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

Redemption of common units in i3 Verticals, LLC 1,019,609 — ( 1,019,609 ) — 7,185 — ( 7,185 ) —

1 unchanged sentence

Exercise of equity-based awards 121,019 — — — 688 — — 688

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

Allocation of equity to non-controlling interests — — — — ( 1,008 ) — 1,008 —

Balance at December 31, 2020 20,004,771 $ 2 10,881,012 $ 1 $ 169,066 $ ( 4,021 ) $ 77,389 $ 242,437

__________________________

See Notes to the Interim Condensed Consolidated Financial Statements

2 unchanged sentences

(In thousands)

Nine months ended June 30,

Three months ended December 31,

2021 2020 (1)(2)

Cash flows from operating activities:

Net (loss) income $ ( 8,769 ) $ 1,043

Net loss $ ( 3,681 ) $ ( 3,022 )

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

3 unchanged sentences

Amortization of debt discount and issuance costs 1,416 1,332

Debt issuance costs write offs — 141

Loss on repurchase of exchangeable notes — 828

Amortization of capitalized customer acquisition costs 167 119

3 unchanged sentences

Non-cash lease expense 1,205 694

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

Increase in non-cash contingent consideration expense from original estimate

Changes in operating assets:

5 unchanged sentences

Accrued expenses and other current liabilities 6,818 ( 3,496 )

Settlement obligations 2,581 84

Deferred revenue 5,439 6,563

6 unchanged sentences

Expenditures for capitalized software ( 1,958 ) ( 1,166 )

Purchases of merchant portfolios and residual buyouts ( 1,500 ) ( 1,677 )

Acquisitions of businesses, net of cash acquired ( 149,495 ) —

Acquisitions of businesses, net of cash and restricted cash acquired ( 60,000 ) ( 59,595 )

Acquisition of other intangibles ( 11 ) ( 19 )

4 unchanged sentences

(In thousands)

Nine months ended June 30,

Three months ended December 31,

2021 2020 (1)(2)

Cash flows from financing activities:

1 unchanged sentence

Payments on revolving credit facility ( 49,900 ) ( 38,948 )

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 for repurchase of exchangeable notes — ( 6,807 )

Payments of debt issuance costs — ( 5,215 )

Cash paid for contingent consideration ( 6,217 ) ( 1,736 )

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

Proceeds from stock option exercises 174 851

1 unchanged sentence

Net cash provided by financing activities 49,223 48,222

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

Net increase in cash, cash equivalents and restricted cash 8,780 ( 1,069 )

Cash, cash equivalents and restricted cash at beginning of period 17,931 20,601

3 unchanged sentences

Cash paid for income taxes $ 556 $ —

__________________________

The prior period amounts included in the statement of cash flows have been updated to correct settlement assets as restricted cash, which were previously reported as cash flows used in operating activities.

These adjustments reflect an increase in prior year cash flows provided by operating activities of $ 84 and a corresponding increase in cash, cash equivalents, and restricted cash at the end of the period.

The following tables provide reconciliations of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to that shown in the condensed consolidated statements of cash flows:

September 30,

Beginning balance

Cash and cash equivalents $ 3,641 $ 15,568

Settlement assets 4,768 —

Restricted cash 9,522 5,033

Total cash, cash equivalents, and restricted cash $ 17,931 $ 20,601

Ending balance

Cash and cash equivalents $ 3,371 $ 10,879

Settlement assets 8,034 84

Restricted cash 15,306 8,569

Total cash, cash equivalents, and restricted cash $ 26,711 $ 19,532

See Notes to the Interim Condensed Consolidated Financial Statements

10 unchanged sentences

and its subsidiaries, including i3 Verticals, LLC.

Initial Public Offering

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 $ 92,500 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

10 unchanged sentences

• the Company issued shares of its Class A common stock pursuant to a voluntary private conversion of certain subordinated notes by certain related and unrelated creditors 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)

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.

3 unchanged sentences

has a majority economic interest in i3 Verticals, LLC.

Public Offering

On September 15, 2020, the Company completed a public offering (the “September 2020 Public Offering”) of 3,737,500 shares of its Class A common stock, at a public offering price of $ 23.50 per share, which included a full exercise of the underwriters' option to purchase 487,500 additional shares of Class A Common Stock from the Company.

The Company received approximately $ 83,400 of net proceeds, after deducting underwriting discounts and commissions, but before offering expenses.

The Company used the net proceeds to purchase (1) 3,250,000 Common Units directly from i3 Verticals, LLC, and (2) 487,500 Common Units pursuant to the exercise of the underwriters' option to purchase additional shares in full and an equivalent number of Class B common stock (which shares were then canceled) from certain Continuing Equity Owners, 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 offering.

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 June 30, 2021, i3 Verticals, Inc.

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

• 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.

• Combining the Class A common stock and Class B common stock, the Continuing Equity Owners hold approximately 32.4 % of the economic interest and voting power in i3 Verticals, Inc.

i3 Verticals, Inc.

is the sole managing member of i3 Verticals, LLC and as a result, consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest representing the Common Units of i3 Verticals, LLC held by the Continuing Equity Owners.

As the Reorganization Transactions are considered transactions between entities under common control, the financial statements retroactively reflect the accounts of i3 Verticals, LLC for periods prior to the IPO and Reorganization Transactions.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 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 June 30, 2021 and for the

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

The results of operations for the three months ended December 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, 2021 and 2020, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2021.

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 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 $ 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.

As of December 31, 2021, settlement assets and settlement obligations were both $ 8,034 .

As of September 30, 2021, the Company had $ 4,768 of settlement assets and 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 or specific basis, or net realizable value.

Inventories were $ 3,071 and $ 2,220 at December 31, 2021 and September 30, 2021, 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.

1 unchanged sentence

The fair value of merchant relationships and non-compete assets acquired is identified using the Income Approach.

The fair values of trade names and internally-developed software acquired are identified using the Relief from Royalty Method.

The fair values of trade names and internally-developed software acquired are identified using the Relief from Royalty

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The fair value of deferred revenue is identified using the Adjusted Fulfillment Cost Method.

3 unchanged sentences

An asset acquisition is recorded at its purchase price, inclusive of acquisition costs, which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date of acquisition.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 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.

Acquisitions completed during the three months ended December 31, 2021 contributed $ 7,555 and $ 805 of revenue and net income, respectively, to the Company's condensed consolidated statements of operations for the three 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 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.

i3 VERTICALS, Inc.

1 unchanged sentence

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

The Company's revenue for the three months ended December 31, 2021 and 2020 is derived from the following sources:

• Software and related services — Includes sales of software as a service, transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings

• Payments — Includes volume-based payment processing fees (“discount fees”), gateway fees and other related fixed transaction or service fees

• Other — Includes sales of equipment, non-software related professional services and other revenues

Revenues from sales of the Company’s software are recognized when the related performance obligations are satisfied.

Sales of software licenses are categorized into one of two categories of intellectual property in accordance with ASC 606, functional or symbolic.

The key distinction is whether the license represents a right to use (functional) or a right to access (symbolic) intellectual property.

The Company generates sales of one-time software licenses, which is functional intellectual property.

Revenue from functional intellectual property is recognized at a point in time, when delivered to the client.

The Company also offers access to its software under software-as-a-service (“SaaS”) arrangements, which represent services arrangements.

Revenue from SaaS arrangements is recognized over time, over the term of the agreement.

Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed or a specified per transaction amount, depending on the card type.

12 unchanged sentences

Therefore, revenue allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and card networks, respectively.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

With regards to the Company's discount fees, generally, where the Company has control over merchant pricing, merchant portability, credit risk and ultimate responsibility for the merchant relationship, revenues are reported at the time of sale equal to the full amount of the discount charged to the merchant, less interchange and network fees.

3 unchanged sentences

Revenue from fixed transactions, which principally relate to the sale of equipment, is recognized upon transfer of ownership and delivery to the client, after which there are no further performance obligations.

Revenues from sales of the Company’s software are recognized when the related performance obligations are satisfied.

Sales of software licenses are categorized into one of two categories of intellectual property in accordance with ASC 606, functional or symbolic.

The key distinction is whether the license represents a right to use (functional) or a right to access (symbolic) intellectual property.

The Company generates sales of one-time software licenses, which is functional intellectual property.

Revenue from functional intellectual property is recognized at a point in time, when delivered to the client.

The Company also offers access to its software under

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

software-as-a-service (“SaaS”) arrangements, which represent services arrangements.

Revenue from SaaS arrangements is recognized over time, over the term of the agreement.

Arrangements may contain multiple performance obligations, such as payment authorization services, transaction settlement services, hardware, software products, maintenance, and professional installation and training services.

6 unchanged sentences

The Company’s professional services, including training, installation, and repair services are recognized as revenue as these services are performed.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The tables below present a disaggregation of the Company's revenue from contracts with clients by product by segment.

1 unchanged sentence

The Company's products are defined as follows:

• Software and related services — Includes sales of SaaS, transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings.

• Payments — Includes discount fees, gateway fees and other related fixed transaction or service fees.

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

For the Three Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

Payments revenue $ 24,995 $ 7,770 $ ( 542 ) $ 32,223

Other revenue 4,917 24,845 ( 21 ) 29,741

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

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

Merchant Services Proprietary Software and Payments Other Total

Payments revenue $ 18,334 $ 2,724 $ ( 412 ) $ 20,646

Other revenue 3,888 7,043 ( 4 ) 10,927

Total revenue $ 22,222 $ 9,767 $ ( 416 ) $ 31,573

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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Nine Months Ended June 30, 2021

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

For the Three Months Ended December 31, 2021

Merchant Services Proprietary Software and Payments Other Total

Software and related services revenue $ 2,962 $ 33,384 $ ( 8 ) $ 36,338

Payments revenue 24,304 9,166 ( 4 ) 33,466

1 unchanged sentence

Total revenue $ 29,177 $ 44,774 $ ( 12 ) $ 73,939

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

For the Three Months Ended December 31, 2020

Merchant Services Proprietary Software and Payments Other Total

Software and related services revenue $ 2,929 $ 13,856 $ — $ 16,785

Payments revenue 20,541 5,497 ( 426 ) 25,612

1 unchanged sentence

Total revenue $ 25,061 $ 19,993 $ ( 433 ) $ 44,621

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 June 30, 2021

For the Three Months Ended December 31, 2021

Merchant Services Proprietary Software and Payments Other Total

Revenue transferred over time $ 22,566 $ 20,524 $ ( 520 ) $ 42,570

Revenue transferred at a point in time 7,346 12,091 ( 43 ) 19,394

Revenue earned over time $ 22,734 $ 31,288 $ ( 8 ) $ 54,014

Revenue earned at a point in time 6,443 13,486 ( 4 ) 19,925

Total revenue $ 29,177 $ 44,774 $ ( 12 ) $ 73,939

2 unchanged sentences

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

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

Merchant Services Proprietary Software and Payments Other Total

Revenue transferred over time $ 15,902 $ 6,712 $ ( 402 ) $ 22,212

Revenue transferred at a point in time 6,320 3,055 ( 14 ) 9,361

Total revenue $ 22,222 $ 9,767 $ ( 416 ) $ 31,573

Refer to Note 12 for further discussion.

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

For the Nine Months Ended June 30, 2021

Merchant Services Proprietary Software and Payments Other Total

Revenue transferred over time $ 59,844 $ 49,941 $ ( 1,540 ) $ 108,245

Revenue transferred at a point in time 21,030 23,999 ( 134 ) 44,895

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

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

For the Three Months Ended December 31, 2020

Merchant Services Proprietary Software and Payments Other Total

Revenue transferred over time $ 54,503 $ 25,838 $ ( 1,336 ) $ 79,005

Revenue transferred at a point in time 21,687 11,191 ( 21 ) 32,857

Revenue earned over time $ 18,102 $ 14,937 $ ( 388 ) $ 32,651

Revenue earned at a point in time 6,959 5,056 ( 45 ) 11,970

Total revenue $ 25,061 $ 19,993 $ ( 433 ) $ 44,621

Refer to Note 12 for further discussion.

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.

The Company bills for certain software and related services sales and fixed fee professional services upon pre-determined milestones in the contracts.

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

As of December 31, 2021 and September 30, 2021, the Company’s contract assets from contracts with customers was $ 4,030 and $ 1,505 , 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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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 following tables present the changes in deferred revenue as of and for the nine months ended June 30, 2021 and 2020, respectively:

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

Balance at September 30, 2021

2 unchanged sentences

Balance at December 31, 2021

Deferral of revenue 5,699

Recognition of unearned revenue ( 7,174 )

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, 2020

2 unchanged sentences

Balance at December 31, 2020

Deferral of revenue 5,004

Recognition of unearned revenue ( 5,753 )

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 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.

As of December 31, 2021 and 2020 the Company had $ 4,087 and $ 3,356 , respectively, of capitalized contract costs, which relates to commissions paid to employees and agents as well as other incentives given to customers to obtain new sales, included within “Other

i3 VERTICALS, Inc.

1 unchanged sentence

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

assets" on the condensed consolidated balance sheets.

The Company recorded expense related to these costs of $ 167 and $ 119 for the three months ended December 31, 2021, and 2020 respectively.

Other Cost of Services

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Recently Adopted Accounting Pronouncements

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.

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.

In November 2019, the FASB issued ASU No.

2019-10, which extends the effective date for adoption of ASC 842 for certain entities.

In June 2016, the FASB issued ASU No.

2020-05, which further extends the effective date for adoption of ASC 842 for certain entities.

As a result of the provisions in ASU No.

2020-05, and as the Company is an emerging growth company and has elected to use the extended transition period of such companies, the Company was not required to adopt ASC 842 until October 1, 2022.

The Company elected to early adopt ASC 842 on October 1, 2020, using the optional modified retrospective transition method, under which the prior period financial statements were not restated for the new guidance.

The Company elected to apply the package of practical expedients whereby the Company did not reassess whether expired or existing leases contain a lease, did not reassess the lease classification for any expired or existing leases, and did not reassess initial direct costs for any existing leases.

The Company further elected to account for lease and nonlease components in a lease arrangement as a combined lease component for all classes of leased assets.

The Company also elected to apply the short-term lease exception practical expedient.

The adoption of ASC 842 resulted in the recognition of the right-of-use assets of $ 9,093 and the lease liabilities of $ 9,760 as of October 1, 2020.

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

2016-13, Financial Instruments—Credit Losses (Topic 326).

The amendments in ASU No.

2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The Company’s financial assets impacted by this ASU include primarily accounts receivable, settlement processing assets, and certain other receivables.

The Company adopted this ASU on October 1, 2021.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The amendments in ASU No.

2021-08 address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination.

The amendments in ASU No.

2021-08 require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers.

Upon adoption, an acquirer should account for the related revenue contracts of the acquiree as if it has originated the contracts.

For public business entities, the amendments in ASU No.

2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The amendments in ASU No.

i3 VERTICALS, Inc.

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(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.

Refer to Note 7 for further information.

should be applied prospectively to business combinations occurring on or after the effective date of the amendments.

Early adoption of the amendments is permitted.

An entity that early adopts should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

The Company has early adopted ASU No.

2021-08 effective October 1, 2020.

The adoption of ASU 2021-08 resulted in adjustments to the fair values assigned to goodwill and deferred revenue assumed as of the acquisition dates of acquisitions occurring during the year ended September 30, 2021, and an increase in revenue for the year ended September 30, 2021 due to recognition of revenue earned during the period for deferred revenue contracts acquired in business combinations.

The following tables present the material impacts of adopting ASU 2021-08 on the Company's condensed consolidated balance sheets as of December 31, 2020:

As of December 31, 2020

Excluding impacts of adoption of ASU 2021-08 Adjustment Presentation with adoption of ASU 2021-08

Goodwill $ 219,912 $ 2,993 $ 222,905

Deferred tax asset $ 44,966 $ ( 303 ) $ 44,663

Liabilities and equity

Current liabilities

Deferred revenue $ 23,868 $ 1,686 $ 25,554

Stockholders' equity

Additional paid-in-capital $ 169,097 $ ( 31 ) $ 169,066

Accumulated deficit $ ( 4,595 ) $ 574 $ ( 4,021 )

Non-controlling interest $ 76,928 $ 461 $ 77,389

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 material impacts of adoption of ASU 2021-08 on the Company's condensed consolidated statements of operations for the three months ended December 31, 2020:

Three months ended December 31, 2020

Excluding impacts of adoption of ASU 2021-08 Adjustment Presentation with adoption of ASU 2021-08

Revenue $ 43,313 $ 1,308 $ 44,621

Benefit from income taxes $ ( 219 ) $ 209 $ ( 10 )

Net loss $ ( 4,121 ) $ 1,099 $ ( 3,022 )

Net loss attributable to non-controlling interest $ ( 1,549 ) $ 525 $ ( 1,024 )

Net loss attributable to i3 Verticals, Inc.

$ ( 2,572 ) $ 574 $ ( 1,998 )

Net loss per share attributable to Class A common stockholders:

Basic $ ( 0.13 ) $ 0.03 $ ( 0.10 )

Diluted $ ( 0.13 ) $ 0.03 $ ( 0.10 )

The following tables present the material impacts of adoption of ASU 2021-08 on the Company's condensed consolidated statement of changes in equity for the three months ended December 31, 2020:

Three months ended December 31, 2020

Excluding impacts of adoption of ASU 2021-08 Adjustment Presentation with adoption of ASU 2021-08

Net loss $ ( 4,121 ) $ 1,099 $ ( 3,022 )

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis $ 1,257 $ ( 95 ) $ 1,162

Balance at December 31, 2020 $ 241,433 $ 1,004 $ 242,437

The following tables present the material impacts of adoption of ASU 2021-08 on the Company's condensed consolidated statements of cash flows for the three months ended December 31, 2020:

Three months ended December 31, 2020

Excluding impacts of adoption of ASU 2021-08 Adjustment Presentation with adoption of ASU 2021-08

Cash flows from operating activities:

Net loss $ ( 4,121 ) $ 1,099 $ ( 3,022 )

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Benefit from deferred income taxes $ ( 219 ) $ 209 $ ( 10 )

Changes in operating liabilities:

Deferred revenue $ 7,870 $ ( 1,307 ) $ 6,563

Other long-term liabilities $ 6,038 $ ( 1 ) $ 6,037

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No.

2018-13, Fair Value Measurement:

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820).

The amendments in ASU No.

2018-13 provide clarification and modify the disclosure requirements on fair value measurement in Topic 820, Fair Value Measurement.

The amendments in this ASU No.

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.

2018-13 until October 1, 2021.

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

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326).

The amendments in ASU No.

The amendments in this ASU No.

2016-13 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 for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

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 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.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”).

ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features.

ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.

ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas.

The amendments in ASU 2020-06 are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

As the Company is an emerging growth company and has elected to use the extended transition period of such companies, the Company will not be required to adopt ASU 2020-06 until October 1, 2022.

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

In May 2021, the FASB issued ASU No.

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

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.

During the three months ended December 31, 2021 and 2020 the Company acquired the following intangible assets and businesses:

Business Combinations during the three months ended December 31, 2021

During the three months ended December 31, 2021, the Company completed the acquisition of two businesses to expand the Company’s software offerings in the public sector and healthcare vertical markets.

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

Total purchase consideration was $ 100,481 , including $ 95,000 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $ 5,481 of contingent consideration.

The goodwill associated with one of the two acquisitions is deductible for tax purposes.

The acquired merchant relationships intangible assets have estimated amortization periods of between nine and nineteen years .

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

The weighted-average amortization period for all intangibles acquired is fourteen years .

The acquired capitalized software has a weighted-average amortization period of seven years .

Acquisition-related costs for these businesses amounted to approximately $ 228 and were expensed as incurred.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 18,000 , 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 December 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.

In each subsequent reporting period, the Company will reassess its current estimates of performance

i3 VERTICALS, Inc.

1 unchanged sentence

(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

relative to the targets and adjust the contingent liabilities to their fair values through earnings.

See additional disclosures in Note 10.

Summary of Business Combinations during the three months ended December 31, 2021

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

Accounts receivable $ 223

Settlement assets 685

Prepaid expenses and other current assets 44

Property and equipment 181

Capitalized software 9,500

Acquired merchant relationships 38,700

Non-compete agreements —

Trade name 1,500

Goodwill 57,354

Operating lease right-of-use assets 263

Other assets 22

Total assets acquired 108,472

Accounts Payable —

Accrued expenses and other current liabilities 75

Settlement obligations 685

Deferred revenue, current —

Current portion of operating lease liabilities 82

Operating lease liabilities, less current portion 181

Other long-term liabilities 6,968

Net assets acquired $ 100,481

Pro Forma Results of Operations for Business Combinations during the three months ended December 31, 2021

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, 2021 had occurred on October 1, 2020.

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.

Three months ended December 31,

Revenue $ 76,416 $ 54,134

Net loss $ ( 7,029 ) $ ( 4,912 )

Business Combinations during the year ended September 30, 2021

During the year ended September 30, 2021, the Company completed the acquisitions of eight unrelated businesses, including Business Information Systems, Inc., ImageSoft Inc., and six other collectively material businesses.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

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See additional disclosures in Note 10.

Purchase of ImageSoft

Purchase of ImageSoft, Inc.

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

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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

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.

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.

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Other Business Combinations

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.

From October 1, 2020 to September 30, 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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Services segment.

Total purchase consideration was $ 65,527 , including $ 57,000 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $ 8,527 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 amortization periods of between eleven and twenty-five years .

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

The weighted-average amortization period for all intangibles acquired is eighteen years .

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

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

The weighted-average amortization period for all intangibles acquired is sixteen years .

The acquired capitalized software has a weighted-average amortization period of seven years .

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

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 Other Total

Summary of Business Combinations during the year ended September 30, 2021

The fair values assigned to certain assets and liabilities assumed, as of the acquisition dates, during the year ended September 30, 2021 were as follows:

BIS ImageSoft, Inc.

Accounts receivable $ 1,567 $ 4,997 $ 3,216 $ 9,780

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Net assets acquired $ 95,495 $ 46,300 $ 65,527 $ 207,322

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.

Nine months ended June 30,

Revenue $ 178,349 $ 168,720

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

Business Combinations during the year ended September 30, 2020

During the year ended September 30, 2020, the Company completed the acquisitions of three unrelated businesses.

Two expand the Company's geographic reach and software capabilities in the Public Sector vertical.

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 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

The acquired merchant relationships intangible assets have estimated amortization periods of between fifteen and eighteen years .

The non-compete agreement and trade names both have weighted-average amortization periods three years .

The weighted-average amortization period for all intangibles acquired is sixteen years .

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

Acquisition-related costs for these businesses amounted to approximately $ 547 and were expensed as incurred.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 18,600 , 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 September 2022.

The Company determined the acquisition date fair values of the liabilities for the contingent consideration based on probability forecasts and 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.

See additional disclosures in Note 8.

Summary of Business Combinations during the year ended September 30, 2020

The fair values assigned to certain assets and liabilities assumed, as of the acquisition dates, during the year ended September 30, 2020 were as follows:

Cash and cash equivalents $ 313

Accounts receivable 846

The fair values assigned were updated to reflect the retrospective adoption of ASU 2021-08, which resulted in increases to the fair values assigned to deferred revenue and goodwill as of the acquisition dates.

Refer to Note 2 for further discussion.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Property and equipment 122

Capitalized software 1,970

Acquired merchant relationships 11,900

Non-compete agreements 90

Trade name 300

Goodwill 20,213

Other assets 17

Total assets acquired $ 35,825

Accounts payable 168

Accrued expenses and other current liabilities 635

Deferred revenue, current 200

Other long-term liabilities 2,194

Net assets acquired $ 32,628

A summary of the Company's prepaid expenses and other current assets as of December 31, 2021 and September 30, 2021 is as follows:

December 31, September 30,

Inventory $ 3,071 $ 2,220

Prepaid licenses 8,256 4,646

Prepaid insurance 1,398 1,074

Other current assets 2,889 3,274

Prepaid expenses and other current assets $ 15,614 $ 11,214

i3 VERTICALS, Inc.

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Merchant Services Proprietary Software and Payments Other Total

Balance at September 30, 2020 (net of accumulated impairment losses of $ 11,458 , $ 0 and $ 0 , respectively)

Balance at September 30, 2021

$ 119,086 $ 173,157 $ — $ 292,243

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:

Goodwill attributable to preliminary purchase price adjustments and acquisitions during the three months ended December 31,2021 — 57,354 — 57,354

Balance at December 31, 2021 $ 119,086 $ 230,511 $ — $ 349,597

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

Cost Accumulated

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Trade names 7,820 ( 3,066 ) 4,754 3 to 7 years – straight-line

Residual buyouts 6,399 ( 1,207 ) 5,192 2 to 8 years – straight-line

Referral and exclusivity agreements 800 ( 533 ) 267 5 to 10 years – straight-line

Residual buyouts 6,718 ( 1,617 ) 5,101 8 years – straight-line

Referral and exclusivity agreements 800 ( 613 ) 187 5 years – straight-line

Total finite-lived intangible assets 282,945 ( 75,248 ) 207,697

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Total identifiable intangible assets $ 282,987 $ ( 75,248 ) $ 207,739

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

Amortization expense for intangible assets amounted to $ 4,178 and $ 3,360 during the three months ended December 31, 2021, and 2020 respectively.

Based on net carrying amounts at December 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:

2022 (nine months remaining) $ 13,712

Thereafter 127,829

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

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

A summary of the Company's accrued expenses and other current liabilities as of December 31, 2021 and September 30, 2021 is as follows is as follows:

December 31, September 30,

Accrued wages, bonuses, commissions and vacation $ 6,808 $ 6,649

Accrued interest 713 271

Accrued contingent consideration — current portion 26,703 25,768

Escrow liabilities 14,851 9,067

Customer deposits 1,842 1,913

Employee health self-insurance liability 648 1,032

Other current liabilities (1)

Accrued expenses and other current liabilities $ 93,695 $ 50,815

__________________________

The Company accrued $ 35,000 as of December 31, 2021 for the purchase of an acquisition that was effective on December 31, 2021, but for which the Company did not transfer cash until January 3, 2022.

See Note 3 to our interim consolidated financial statements for further discussion of acquisitions.

LONG-TERM DEBT, NET

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

June 30, September 30,

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

December 31, September 30,

Maturity 2021 2021

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The Exchangeable Notes are exchangeable on the terms set forth in the Indenture into cash, shares of Class A common stock, or a combination thereof, at i3 Verticals, LLC’s election.

The exchange rate is initially 24.4666 shares of Class A common stock per $1,000 principal amount of Exchangeable Notes (equivalent to an initial exchange price of approximately $ 40.87 per share of Class A common stock).

The exchange rate is

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

initially 24.4666 shares of Class A common stock per $1,000 principal amount of Exchangeable Notes (equivalent to an initial exchange price of approximately $ 40.87 per share of Class A common stock).

The exchange rate is subject to adjustment in certain circumstances.

1 unchanged sentence

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 June 30, 2021, none of the conditions permitting the holders of the Exchangeable Notes to early convert have been met.

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

11 unchanged sentences

The Company incurred third-party issuance costs totaling $ 5,238 , in connection with the issuance of the Exchangeable Notes.

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 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 capitalized $ 4,150 of debt issuance costs in connection with the

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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, 2021 and 2020 was $ 159 , and $ 140 , 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 $ 2,759 as of June 30, 2021.

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

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 2,446 as of December 31, 2021.

The estimated fair value of the Exchangeable Notes was $ 107,684 as of December 31, 2021.

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

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Exchangeable Note Hedge Transactions

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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”).

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”).

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 Company received approximately $ 14,669 from the offering and sale of the Warrants.

The Warrants do not require separate accounting as a derivative as they meet a scope exception for certain contracts involving an entity's own equity.

The Warrants do not require separate accounting as a derivative as they meet a scope exception for

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

certain contracts involving an entity's own equity.

The premiums paid for the Warrants have been included as a net increase to additional paid-in capital within stockholders' equity.

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The second amendment reduced the Company's borrowing capacity under the Senior Secured Credit Facility.

During the year ended September 30, 2020, the Company wrote off $ 141 of unamortized debt issuance costs, which was recorded in interest expense in the condensed consolidated statements of operations, due to the decrease in borrowing capacity.

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 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.

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 December 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 December 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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

Additionally, the Senior Secured Credit Facility requires the Company to pay unused commitment fees of 0.15 % to 0.30 % ( 0.30 % as of December 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.

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(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 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.

As of December 31, 2021, the Company was in compliance with these covenants, and there was $ 115,494 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.

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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 June 30, 2021.

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

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All other forms of dividends or distributions are prohibited under the Senior Secured Credit Facility.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Debt Issuance Costs

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 incurred no debt issuance costs during the three months ended December 31, 2021 and 2020.

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 $ 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.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 254 and $ 235 during the three months ended December 31, 2021, and 2020, respectively.

i3 Verticals, Inc.

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

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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 $ 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.

The Company’s provision for income taxes was a benefit of $ 228 and $ 10 for the three months ended December 31, 2021, and 2020, respectively.

Tax Receivable Agreement

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

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.

Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.

During the three months ended December 31, 2021, the Company acquired an aggregate of 15,000 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 the exchange, during the three months ended December 31, 2021, the Company recognized an increase to its net deferred tax assets in the amount of $ 96 , and corresponding Tax Receivable Agreement liabilities of $ 81 , representing 85 % of the tax benefits due to the Continuing Equity Owners.

i3 VERTICALS, Inc.

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

As discussed in Note 2, the Company adopted ASC 842 effective October 1, 2020, using the modified retrospective transition method, under which the prior period financial statements were not restated for the new guidance.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 41,104 and $ 39,204 , respectively, as of December 31, 2021.

Payments to the Continuing Equity Owners related to exchanges through December 31, 2021 will range from $ 0 to $ 3,180 per year and are expected to be paid over the next 26 years.

The amounts recorded as of December 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.

Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.

The Company’s leases consist primarily of real estate leases throughout the markets in which the Company operates.

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 June 30, 2021.

The Company had no finance leases as of December 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 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 weighted-average remaining lease term at December 31, 2021 and 2020 was five and five years , respectively.

The Company had no significant short-term leases during the three months ended December 31, 2021 and 2020.

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 7.3 % as of June 30, 2021.

The weighted-average discount rate used in the measurement of our lease liabilities was 6.7 % and 6.8 % as of December 31, 2021 and 2020, respectively.

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

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.

Operating lease costs for the three months ended December 31, 2021 and December 31, 2020 were $ 1,491 and $ 854 , respectively 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, 2021 and December 31, 2020 include variable lease costs of approximately $ 38 and $ 1 , 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 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:

Short-term rent expense for the three months ended December 31, 2021 and December 31, 2020 was $ 47 and $ 58 , respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Years ending September 30:

2021 (three months remaining) $ 1,035

2022 (nine months remaining) $ 4,329

Thereafter 3,456

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These payments will be made within the next twelve months.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

A summary of approximate future minimum payments for leases under ASC 840 as of September 30, 2020, was as follows:

Years ending September 30:

Thereafter 1,221

Total $ 10,877

FAIR VALUE MEASUREMENTS

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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 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.

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

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

i3 VERTICALS, Inc.

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Contingent consideration paid ( 9,755 )

Balance at June 30, 2021 $ 34,750

Balance at December 31, 2021 $ 36,882

Accrued Contingent Consideration

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Contingent consideration paid ( 5,851 )

Balance at June 30, 2020 $ 8,738

Balance at December 31, 2020 $ 19,527

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

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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 $ 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.

Approximately $ 26,703 and $ 25,768 of contingent consideration was recorded in accrued expenses and other current liabilities as of December 31, 2021 and September 30, 2021, respectively.

Approximately $ 10,179 and $ 10,461 of contingent consideration was recorded in other long-term liabilities as of December 31, 2021 and September 30, 2021, respectively.

Disclosure of Fair Values

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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 $ 119,633 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.

The estimated fair value of the Exchangeable Notes was $ 107,684 as of December 31, 2021.

i3 VERTICALS, Inc.

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EQUITY-BASED COMPENSATION

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

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

Three months ended December 31,

Stock options $ 6,624 $ 3,441

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

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.

Income tax benefits of $ 27 and $ 205 were recognized during the three months ended December 31, 2021 and 2020, respectively.

Stock Options

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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 June 30, 2021, there were 468,762 equity awards available for grant under the 2018 Plan.

As of December 31, 2021, there were 262,692 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.

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

As of December 31, 2021, there were 892,072 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, 2021 and during the year ended September 30, 2021 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

December 31, 2021 September 30, 2021

Expected volatility (1)

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_________________

Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.

Expected volatility is based on the Company's own share price.

The Company has assumed a dividend yield of zero as management has no plans to declare dividends in the foreseeable future.

5 unchanged sentences

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

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

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

Stock Options Weighted Average Exercise Price

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Outstanding at end of period 8,299,218 $ 24.99

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 weighted-average grant date fair value of stock options granted during the three months ended December 31, 2021 was $ 12.14 .

As of December 31, 2021, there were 8,299,218 stock options outstanding, of which 3,339,373 were exercisable.

As of December 31, 2021, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 45,867 , 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 nine months ended June 30, 2021 was $ 4,374 and $ 10,590 , respectively.

The total fair value of stock options that vested during the three months ended December 31, 2021 was $ 4,941 .

COMMITMENTS AND CONTINGENCIES

The Company utilizes office space and equipment under operating leases.

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.

Rent expense under these leases amounted to $ 1,494 and $ 912 during the three months ended December 31, 2021 and 2020, respectively.

Refer to Note 9 for further discussion and a table of the future minimum payments under these leases.

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

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

Years ending September 30:

2021 (three months remaining) $ 608

2022 (nine months remaining) $ 2,923

Total $ 6,063

2 unchanged sentences

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

Loan to Third Party Sales Organization

The Company has entered into an agreement as of March 2020, as amended in October 2020, to provide a secured loan to a third party sales organization of up to $ 750 in the future, dependent on their achievement of certain financial metrics.

Additionally, the Company has conditionally committed to a future buyout of the third party's business at the earlier of (a) the 60th day following the date upon which the founder of the third party sales organization dies or becomes disabled or (b) the 60th day following July 1, 2023.

The buyout amount is dependent on certain financial metrics but is capped at $ 29,000 , which would be net of repayment of the secured loans.

Third Party Sales Organization Buyout Agreement

The Company has conditionally committed to a future buyout of the third party's business at the earlier of (a) the 60th day following the date upon which the founder of the third party sales organization dies or becomes disabled or (b) the 60th day following July 1, 2023.

The buyout amount is dependent on certain financial metrics but is capped at $ 29,000 , which would be net of repayment of secured loans.

The buyout also contains certain provisions to provide additional consideration of up to $ 9,000 , in the aggregate, to be paid based on the achievement of specified financial performance targets, following the buyout.

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 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.

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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.

On June 2, 2021, the State of Louisiana, Division of Administration (the “State”) and a putative class of Louisiana law enforcement districts filed a Petition (as amended on October 4, 2021, the “Petition”), in the 19th Judicial District Court for the Parish of East Baton Rouge against i3-Software & Services, LLC (“S&S”), a subsidiary of the Company located in Shreveport, Louisiana, the Company, i3 Verticals, LLC, the current leader of the S&S business, the former leader of the S&S business, and 1120 South Pointe Properties, LLC (“South Pointe”), the former owner of the assets of the S&S business.

The Petition was amended on October 4, 2021 to add a putative class of Louisiana sheriffs (the “Sheriffs”) and subsequently removed to the United States District Court for the Middle District of Louisiana.

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.

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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 Petition seeks monetary damages for the cost of network remediation of $ 15,000 purportedly spent by the State and $ 7,000 purportedly spent by the Sheriffs, return of 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 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The assets of the S&S business were acquired from South Pointe by the Company in 2018 for $ 17,000 , 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 unable to predict the outcome of this litigation.

While we do not believe that this matter will have a material adverse effect on our business or financial condition, we cannot give assurance that this matter will not have a material effect on our results of operations for the period in which it is resolved.

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 produced documents in response to subpoenas and made employees available for interviews by the government and otherwise cooperated fully with this investigation.

The Company believes that the investigation was focused on unauthorized access to certain S&S customers’ internal networks by unknown third parties.

On September 10, 2021, the DOJ informed the Company that the investigation was concluded with respect to the Company and that no criminal charges would be brought against the Company.

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

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RELATED PARTY TRANSACTIONS

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 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.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 8 for further information.

As of June 30, 2021, the total amount due under the Tax Receivable Agreement was $ 39,626 .

As of December 31, 2021, the total amount due under the Tax Receivable Agreement was $ 39,204 .

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.

4 unchanged sentences

The Merchant Services segment includes third-party integrated payment solutions as well as merchant of record payment services across the Company's strategic vertical markets.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Proprietary Software and Payments segment delivers solutions, including embedded payments, to the Company's clients through proprietary software.

1 unchanged sentence

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

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 segments with its business operations.

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.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Revenue $ 29,912 $ 32,615 $ ( 563 ) $ 61,964

Other costs of services ( 14,206 ) ( 2,397 ) 539 ( 16,064 )

Residuals 8,374 273 ( 519 ) 8,128

Processing margin $ 24,080 $ 30,491 $ ( 543 ) $ 54,028

Residuals ( 8,128 )

Selling general and administrative ( 37,296 )

Depreciation and amortization ( 6,995 )

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

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 Nine Months Ended June 30, 2021

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

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

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

Merchant Services Proprietary Software and Payments Other Total

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

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

Merchant Services Proprietary Software and Payments Other Total

Revenue $ 22,222 $ 9,767 $ ( 416 ) $ 31,573

Other costs of services ( 9,448 ) ( 969 ) 416 ( 10,001 )

Residuals 4,690 103 ( 413 ) 4,380

Processing margin $ 17,464 $ 8,901 $ ( 413 ) $ 25,952

Residuals ( 4,380 )

Selling general and administrative ( 18,133 )

Depreciation and amortization ( 4,475 )

Change in fair value of contingent consideration 1,473

Income from operations $ 437

Total assets $ 210,565 $ 99,870 $ 50,038 $ 360,473

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

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

As of and for the Three months ended December 31, 2020 (1)

Merchant Services Proprietary Software and Payments Other Total

7 unchanged sentences

Change in fair value of contingent consideration ( 1,904 )

Income from operations $ 6,575

Loss from operations $ ( 1,003 )

Total assets $ 213,093 $ 224,925 $ 62,361 $ 500,379

Goodwill $ 119,079 $ 103,826 $ — $ 222,905

__________________________

See Note 2 to the interim consolidated financial statements for a description of the recently adopted accounting pronouncement.

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.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NON-CONTROLLING INTEREST

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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 June 30, 2021, i3 Verticals, Inc.

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

owned 22,064,317 of i3 Verticals, LLC's Common Units, representing a 68.4 % economic ownership interest in i3 Verticals, LLC.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Nine months ended June 30,

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

Three months ended December 31,

Net loss attributable to non-controlling interest $ ( 1,153 ) $ ( 1,024 )

Transfers to (from) non-controlling interests:

Distributions to non-controlling interest holders — ( 3 )

Redemption of common units in i3 Verticals, LLC ( 123 ) ( 7,185 )

Cumulative effect of adoption of new accounting standard — 640

Allocation of equity to non-controlling interests 1,899 1,008

Net transfers to (from) non-controlling interests 1,776 ( 6,177 )

Change from net (loss) income attributable to non-controlling interests and transfers to (from) non-controlling interests $ ( 2,699 ) $ ( 1,224 )

Change from net loss attributable to non-controlling interests and transfers to (from) non-controlling interests $ 623 $ ( 7,201 )

__________________________

See Note 2 to the interim consolidated financial statements for a description of the recently adopted accounting pronouncement.

EARNINGS PER SHARE

3 unchanged sentences

by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(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 nine months ended June 30, 2021 and 2020:

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

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, 2021 and 2020:

Three months ended December 31,

2021 2020 )1)

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

Basic (2) and diluted (3) net loss per share:

Net loss $ ( 3,681 ) $ ( 3,022 )

Net loss attributable to non-controlling interests ( 1,153 ) ( 1,024 )

Net loss attributable to Class A common stockholders $ ( 2,528 ) $ ( 1,998 )

Weighted average shares of Class A common stock outstanding

22,042,801 19,129,056

Basic net (loss) income per share $ ( 0.15 ) $ ( 0.02 ) $ ( 0.26 ) $ 0.02

Dilutive net income per share:

Net income (loss) attributable to Class A common stockholders $ 232

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

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

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

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

Weighted average shares of Class A common stock outstanding - diluted

Diluted net income (loss) per share $ 0.01

Basic and diluted net loss per share $ ( 0.11 ) $ ( 0.10 )

__________________________

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.

See Note 2 to the interim consolidated financial statements for a description of the recently adopted accounting pronouncement.

Excludes 18,869 restricted Class A common stock units for the three months ended December 31, 2020.

For the three months ended December 31, 2021 and 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

10,222,946 and 11,668.199 shares of weighted average Class B common stock for the three months ended December 31, 2021 and 2020, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive,

5,444,557 and 1,251,600 stock options for the three months ended December 31, 2021 and 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,

i3 VERTICALS, Inc.

1 unchanged sentence

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

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 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 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.

606,942 and 1,212,584 shares for the three months ended December 31, 2021 and 2020, respectively, resulting from estimated stock option exercises as calculated by the treasury stock method were excluded because of the effect of including them would have been anti dilutive, and 18,869 restricted Class A common units for the three months ended December 31, 2020 were excluded because the effect of including them would have been anti-dilutive.

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.

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SIGNIFICANT NON-CASH TRANSACTIONS

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 $ —

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

Three months ended December 31,

Acquisition date fair value of contingent consideration in connection with business combinations $ 5,481 $ 3,400

Issuance of Exchangeable Notes and related Note Hedge Transactions and Warrants $ — $ 85

Right-of-use assets obtained in exchange for operating lease obligations $ 6,820 $ 11,251

Purchase consideration accrued for December 31, 2021 acquisition $ 35,000 $ —

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