What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2022-02-09 · 381 added, 251 removed, 841 unchanged (43% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

December 31, September 30,

March 31, September 30,

Current assets

29 unchanged sentences

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

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

0 shares issued and outstanding as of March 31, 2022 and September 30, 2021

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

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

22,133,682 and 22,026,098 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively

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

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

10,174,142 and 10,229,142 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively

Additional paid-in capital 220,201 211,237

8 unchanged sentences

(In thousands, except share and per share amounts)

Three months ended December 31,

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

2022 2021 (1)

Revenue $ 78,120 $ 49,197 $ 152,059 $ 93,818

5 unchanged sentences

Total operating expenses 84,297 47,998 158,991 93,622

Loss from operations ( 755 ) ( 1,003 )

(Loss) income from operations ( 6,177 ) 1,199 ( 6,932 ) 196

Interest expense, net 3,377 2,358 6,531 4,387

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

Benefit from income taxes ( 228 ) ( 10 )

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

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

Net loss attributable to i3 Verticals, Inc.

Other income — ( 2,353 ) — ( 2,353 )

Total other expenses 3,377 5 6,531 2,034

(Loss) income before income taxes ( 9,554 ) 1,194 ( 13,463 ) ( 1,838 )

Provision for (benefit from) income taxes 884 ( 136 ) 656 ( 146 )

Net (loss) income ( 10,438 ) 1,330 ( 14,119 ) ( 1,692 )

Net (loss) income attributable to non-controlling interest ( 3,065 ) 27 ( 4,218 ) ( 997 )

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

$ ( 7,373 ) $ 1,303 $ ( 9,901 ) $ ( 695 )

Net loss per share attributable to Class A common stockholders:

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

Basic $ ( 0.33 ) $ 0.06 $ ( 0.45 ) $ ( 0.03 )

20 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 — — — — 6,257 — — 6,257

Net loss — — — — — ( 7,373 ) ( 3,065 ) ( 10,438 )

Redemption of common units in i3 Verticals, LLC 40,000 — ( 40,000 ) — 335 — ( 335 ) —

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 1,288 ) — — ( 1,288 )

Exercise of equity-based awards 29,365 — — — ( 89 ) — — ( 89 )

Allocation of equity to non-controlling interests — — — — ( 1,618 ) — 1,618 —

Balance at March 31, 2022 22,133,682 $ 2 10,174,142 $ 1 $ 220,201 $ ( 16,381 ) $ 83,672 $ 287,495

See Notes to the Interim Condensed Consolidated Financial Statements

12 unchanged sentences

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

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

Net income — — — — — 1,303 27 1,330

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 — — — — 617 — — 617

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

Allocation of equity to non-controlling interests — — — — ( 9,769 ) — 9,769 —

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 $ 203,631 $ ( 2,718 ) $ 82,656 $ 283,572

__________________________

5 unchanged sentences

(In thousands)

Three months ended December 31,

Six months ended March 31,

2022 2021 (1)(2)

9 unchanged sentences

Unrealized gain on investment — ( 2,353 )

Benefit from deferred income taxes ( 228 ) ( 10 )

Provision for (benefit from) income taxes 656 ( 146 )

Non-cash lease expense 2,446 1,518

23 unchanged sentences

(In thousands)

Three months ended December 31,

Six months ended March 31,

2022 2021 (1)(2)

37 unchanged sentences

The Company was formed for the purpose of completing an initial public offering (“IPO”) of its Class A common stock and other related transactions in order to carry on the business of i3 Verticals, LLC and its subsidiaries.

i3 Verticals, LLC was founded in 2012 and delivers seamlessly integrated payment and software solutions to small- and medium-sized businesses (“SMBs”) and organizations in strategic vertical markets.

i3 Verticals, LLC was founded in 2012 and delivers seamlessly integrated software and payment solutions to small- and medium-sized businesses (“SMBs”) and organizations in strategic vertical markets.

The Company’s headquarters are located in Nashville, Tennessee, with operations throughout the United States.

1 unchanged sentence

and its subsidiaries, including i3 Verticals, LLC.

Reorganization Transactions

In connection with the IPO, the Company completed the following transactions (the “Reorganization Transactions”):

• i3 Verticals, LLC amended and restated its existing limited liability company agreement to, among other things, (1) convert all existing Class A units, common units (including common units issued upon the exercise of existing warrants) and Class P units of ownership interest in i3 Verticals, LLC into either Class A voting common units of i3 Verticals, LLC (such holders of Class A voting common units referred to herein as the “Continuing Equity Owners”) or Class B non-voting common units of i3 Verticals, LLC (such holders of Class B non-voting common units referred to herein as the “Former Equity Owners”), and (2) appoint i3 Verticals, Inc.

as the sole managing member of i3 Verticals, LLC upon its acquisition of Common Units in connection with the IPO;

• the Company amended and restated its certificate of incorporation to provide for, among other things, Class A common stock and Class B common stock;

• i3 Verticals, LLC and the Company consummated a merger among i3 Verticals, LLC, i3 Verticals, Inc.

and a newly formed wholly-owned subsidiary of i3 Verticals, Inc.

(“MergerSub”) whereby:

(1) MergerSub merged with and into i3 Verticals, LLC, with i3 Verticals, LLC as the surviving entity;

(2) Class A voting common units converted into newly issued Common Units in i3 Verticals, LLC together with an equal number of shares of Class B common stock of i3 Verticals, Inc., and (3) Class B non-voting common units converted into Class A common stock of i3 Verticals, Inc.

based on a conversion ratio that provided an equitable adjustment to reflect the full value of the Class B non-voting common units;

• 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.

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.

In connection with the IPO, the Company completed certain reorganization transactions, which, among other things, resulted in i3 Verticals, Inc.

being the sole managing member of i3 Verticals, LLC (the “Reorganization Transactions”).

Following the completion of the IPO and Reorganization Transactions, the Company is a holding company and the principal asset that it owns are the common units of i3 Verticals, LLC.

i3 Verticals, Inc.

2 unchanged sentences

has a majority economic interest in i3 Verticals, LLC.

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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As the sole managing member of i3 Verticals, LLC, i3 Verticals, Inc.

consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest representing the Common Units of i3 Verticals, LLC held by other owners other (the “Continuing Equity Owners”).

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 December 31, 2021 and for the three months ended December 31, 2021 and 2020.

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.

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the unaudited condensed consolidated financial statements of the Company and its subsidiaries as of March 31, 2022 and for the three and six months ended March 31, 2022 and 2021.

The results of operations for the three and six months ended March 31, 2022 and 2021 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.

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These balances arising in the settlement process are reflected as settlement assets and obligations on the accompanying consolidated balance sheets.

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

As of December 31, 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.

With the exception of merchant

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

reserves, settlement assets or settlement obligations are generally collected and paid within one to four days.

Settlement assets and settlement obligations were both $ 7,272 and $ 4,768 as of March 31, 2022 and September 30, 2021, respectively.

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.

Inventories were $ 3,909 and $ 2,220 at March 31, 2022 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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

4 unchanged sentences

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

Acquisitions completed during the three months ended December 31, 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.

Acquisitions completed during the six months ended March 31, 2022 contributed $ 16,687 and $ 2,922 of revenue and net income, respectively, to the Company's condensed consolidated statements of operations for the six months then ended.

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

6 unchanged sentences

The Company accounts for all components in a lease arrangement as a single combined lease component.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

6 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(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:

The Company's revenue for the six months ended March 31, 2022 and 2021 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

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Discount fees are recognized each day based on the volume or transaction count at the time the merchants’ transactions are processed.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Company follows the requirements of ASC 606-10-55 Revenue from Contracts with Customers—Principal versus Agent Considerations , which states that the determination of whether a company should recognize revenue based on the gross amount billed to a client or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement.

5 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.

20 unchanged sentences

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

For the Three Months Ended December 31, 2021

For the Three Months Ended March 31, 2022

Merchant Services Proprietary Software and Payments Other Total

3 unchanged sentences

Total revenue $ 29,180 $ 48,962 $ ( 22 ) $ 78,120

For the Three Months Ended December 31, 2020

For the Three Months Ended March 31, 2021 (1)

Merchant Services Proprietary Software and Payments Other Total

3 unchanged sentences

Total revenue $ 26,106 $ 23,769 $ ( 678 ) $ 49,197

__________________________

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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Six Months Ended March 31, 2022

Merchant Services Proprietary Software and Payments Other Total

Software and related services revenue $ 5,970 $ 69,356 $ ( 16 ) $ 75,310

Payments revenue 48,230 19,782 ( 18 ) 67,994

Other revenue 4,157 4,598 — 8,755

Total revenue $ 58,357 $ 93,736 $ ( 34 ) $ 152,059

For the Six Months Ended March 31, 2021 (1)

Merchant Services Proprietary Software and Payments Other Total

Software and related services revenue $ 5,741 $ 28,802 $ — $ 34,543

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

Other revenue 3,370 1,974 ( 17 ) 5,327

Total revenue $ 51,167 $ 43,762 $ ( 1,111 ) $ 93,818

__________________________

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.

The Company's revenue included in each category are defined as follows:

• Revenue transferred over time — Includes discount fees, gateway fees, sales of SaaS and ongoing support contract revenue.

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

For the Three Months Ended December 31, 2021

• Revenue earned over time — Includes discount fees, gateway fees, sales of SaaS and ongoing support contract revenue.

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

For the Three Months Ended March 31, 2022

Merchant Services Proprietary Software and Payments Other Total

5 unchanged sentences

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

For the Three Months Ended December 31, 2020

For the Three Months Ended March 31, 2021 (1)

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 26,106 $ 23,769 $ ( 678 ) $ 49,197

__________________________

For the Six Months Ended March 31, 2022

Merchant Services Proprietary Software and Payments Other Total

Revenue earned over time $ 45,333 $ 65,439 $ ( 17 ) $ 110,755

Revenue earned at a point in time 13,024 28,297 ( 17 ) 41,304

Total revenue $ 58,357 $ 93,736 $ ( 34 ) $ 152,059

For the Six Months Ended March 31, 2021 (1)

Merchant Services Proprietary Software and Payments Other Total

Revenue earned over time $ 37,483 $ 31,854 $ ( 1,020 ) $ 68,317

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

Total revenue $ 51,167 $ 43,762 $ ( 1,111 ) $ 93,818

__________________________

Contract Assets

2 unchanged sentences

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

As of March 31, 2022 and September 30, 2021, the Company’s contract assets from contracts with customers was $ 6,080 and $ 1,505 , respectively.

Contract Liabilities

6 unchanged sentences

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

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The following tables present the changes in deferred revenue as of and for the six months ended March 31, 2022 and 2021, respectively:

Balance at September 30, 2021

2 unchanged sentences

Balance at December 31, 2022

Deferral of revenue 11,047

Recognition of unearned revenue ( 16,034 )

Balance at March 31, 2022 $ 30,334

Balance at September 30, 2020

2 unchanged sentences

Balance at December 31, 2020

Deferral of revenue 6,483

Recognition of unearned revenue ( 8,509 )

Balance at March 31, 2021 $ 23,629

Costs to Obtain and Fulfill a Contract

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

As of December 31, 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.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(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.

As of March 31, 2022 and September 30, 2021 the Company had $ 4,149 and $ 3,851 , 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 assets" on the condensed consolidated balance sheets.

The Company recorded expense related to these costs of $ 178 and $ 345 for the three and six months ended March 31, 2022, respectively and $ 129 and $ 248 for the three and six months ended March 31, 2021.

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.

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Use of Estimates

21 unchanged sentences

The amendments in ASU No.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

2021-08 should be applied prospectively to business combinations occurring on or after the effective date of the amendments.

3 unchanged sentences

2021-08 effective October 1, 2020.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

As of March 31, 2021

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

4 unchanged sentences

Deferred revenue $ 22,426 $ 1,135 $ 23,561

Long-term tax receivable agreement obligations $ 39,626 $ (8) $ 39,618

Stockholders' equity

5 unchanged sentences

(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

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 and six months ended March 31, 2021:

Three months ended March 31, 2021

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

1 unchanged sentence

Benefit from income taxes $ ( 87 ) $ ( 49 ) $ ( 136 )

Net (loss) income $ ( 53 ) $ 1,383 $ 1,330

Net (loss) income attributable to non-controlling interest $ ( 493 ) $ 520 $ 27

Net income attributable to i3 Verticals, Inc.

$ 440 $ 863 $ 1,303

Net income per share attributable to Class A common stockholders:

Basic $ 0.02 $ 0.04 $ 0.06

Diluted $ 0.00 $ 0.04 $ 0.04

Six months ended March 31, 2021

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

Revenue $ 91,176 $ 2,642 $ 93,818

Benefit from income taxes $ ( 306 ) $ 160 $ ( 146 )

Net loss $ ( 4,174 ) $ 2,482 $ ( 1,692 )

5 unchanged sentences

Diluted $ ( 0.12 ) $ 0.07 $ ( 0.05 )

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

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 March 31, 2021:

Three months ended March 31, 2021

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

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

Net (loss) income $ ( 53 ) 1,383 1,330

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis $ 897 ( 280 ) 617

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

Balance at March 31, 2021 $ 281,465 $ 2,107 $ 283,572

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 cash flows for the six months ended March 31, 2021:

Six months ended March 31, 2021

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

1 unchanged sentence

Net loss $ ( 4,174 ) $ 2,482 $ ( 1,692 )

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

Adjustments to reconcile net loss to net cash provided by operating activities:

Benefit from deferred income taxes $ ( 306 ) $ 160 $ ( 146 )

5 unchanged sentences

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)

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

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

2 unchanged sentences

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.

As the Company is an emerging growth company and has elected to use the extended transition period afforded to 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 condensed 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 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

During the six months ended March 31, 2022 and 2021, the Company acquired the following intangible assets and businesses:

Business Combinations during the six months ended March 31, 2022

During the six months ended March 31, 2022, 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 March 31, 2022.

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.

7 unchanged sentences

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

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 10.

i3 VERTICALS, Inc.

1 unchanged sentence

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

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

Summary of Business Combinations during the six months ended March 31, 2022

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

5 unchanged sentences

Acquired merchant relationships 38,700

Non-compete agreements —

Trade name 1,500

3 unchanged sentences

Total assets acquired 108,682

Accounts Payable —

Accrued expenses and other current liabilities 285

Settlement obligations 685

Deferred revenue, current —

Current portion of operating lease liabilities 82

2 unchanged sentences

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 Results of Operations for Business Combinations during the six months ended March 31, 2022

The following unaudited supplemental pro forma results of operations have been prepared as though each of the acquired businesses in the six months ended March 31, 2022 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,

Six months ended March 31,

Revenue $ 154,536 $ 112,638

2 unchanged sentences

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.

Purchase of Business Information Systems

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

BIS is within the Proprietary Software & Payments segment.

Total purchase consideration was $ 95,495 , including $ 52,500 in

i3 VERTICALS, Inc.

1 unchanged sentence

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

Purchase of Business Information Systems, Inc.

BIS is within the Proprietary Software & Payments segment.

Total purchase consideration was $ 95,495 , including $ 52,500 in cash on hand and proceeds from the Company's revolving credit facility, 1,202,914 shares of the Company's Class A Common Stock (valued at $ 35,245 ), and $ 7,750 in contingent consideration.

cash on hand and proceeds from the Company's revolving credit facility, 1,202,914 shares of the Company's Class A Common Stock (valued at $ 35,245 ), and $ 7,750 in contingent consideration.

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

4 unchanged sentences

Acquisition-related costs for BIS amounted to approximately $ 374 and were expensed as incurred.

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

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

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

12 unchanged sentences

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

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

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

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

3 unchanged sentences

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

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

i3 VERTICALS, Inc.

1 unchanged sentence

(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 ten and twenty-five years .

ten and twenty-five years .

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

6 unchanged sentences

See additional disclosures in Note 10.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

22 unchanged sentences

Refer to Note 2 for further discussion.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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,

A summary of the Company's prepaid expenses and other current assets as of March 31, 2022 and September 30, 2021 is as follows:

March 31, September 30,

Inventory $ 3,909 $ 2,220

3 unchanged sentences

Prepaid expenses and other current assets $ 15,250 $ 11,214

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

GOODWILL AND INTANGIBLE ASSETS

3 unchanged sentences

$ 119,086 $ 173,157 $ — $ 292,243

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:

Goodwill attributable to preliminary purchase price adjustments and acquisitions during the six months ended March 31, 2022 — 57,211 — 57,211

Balance at March 31, 2022 $ 119,086 $ 230,368 $ — $ 349,454

Intangible assets consisted of the following as of March 31, 2022:

Cost Accumulated

11 unchanged sentences

Total identifiable intangible assets $ 282,987 $ ( 79,844 ) $ 203,143

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

Amortization expense for intangible assets amounted to $ 8,774 and $ 7,112 during the three and six months ended March 31, 2022, and 2021 respectively.

i3 VERTICALS, Inc.

1 unchanged sentence

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

Based on net carrying amounts at March 31, 2022, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:

2022 (six months remaining) $ 9,117

Thereafter 127,829

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,

A summary of the Company's accrued expenses and other current liabilities as of March 31, 2022 and September 30, 2021 is as follows is as follows:

March 31, September 30,

Accrued wages, bonuses, commissions and vacation $ 5,977 $ 6,649

6 unchanged sentences

Accrued expenses and other current liabilities $ 71,384 $ 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 December 31, 2021 and September 30, 2021 is as follows:

December 31, September 30,

A summary of long-term debt, net as of March 31, 2022 and September 30, 2021 is as follows:

March 31, September 30,

Maturity 2022 2021

6 unchanged sentences

On February 18, 2020, i3 Verticals, LLC issued $ 138,000 aggregate principal amount of 1.0 % Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

4 unchanged sentences

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

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

As of March 31, 2022, 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.

7 unchanged sentences

The carrying amount of the liability component before the allocation of any transaction costs was calculated by measuring the fair value of a similar liability that does not have an associated exchangeable feature.

The carrying amount of the equity component (before the allocation of any transaction costs), representing the conversion option, which does not require separate accounting as a derivative as it meets a scope exception for certain contracts involving an entity's own equity, was determined by deducting the fair value of the liability component from the par value of the Exchangeable Notes.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

a scope exception for certain contracts involving an entity's own equity, was determined by deducting the fair value of the liability component from the par value of the Exchangeable Notes.

The difference between the principal amount of the Exchangeable Notes and the liability component represents the debt discount, which is recorded as a direct deduction from the related debt liability in the consolidated balance sheet and accreted over the period from the date of issuance to the contractual maturity date, resulting in the recognition of non-cash interest expense.

The equity component of the Exchangeable Notes of approximately $ 28,662 is included in additional paid-in capital in the consolidated balance sheet and is not remeasured as longs as it continues to meet the conditions for equity classification.

The equity component of the Exchangeable Notes of approximately $ 28,662 is included in additional paid-in capital in the consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification.

Transaction costs were allocated to the liability and equity components in the same proportion as the allocation of the proceeds.

1 unchanged sentence

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

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

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and six months ended March 31, 2022 was $ 164 , and $ 323 , and $ 145 and $ 285 for the three and six months ended March 31, 2021, 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 $ 2,446 as of December 31, 2021.

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

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 2,282 as of March 31, 2022.

The estimated fair value of the Exchangeable Notes was $ 110,822 as of March 31, 2022.

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

14 unchanged sentences

The premiums paid for the Note Hedge Transactions have been included as a net reduction to additional paid-in capital within stockholders' equity.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Warrant Transactions

5 unchanged sentences

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

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

4 unchanged sentences

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

The Senior Secured Credit Facility accrues interest at 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.

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 March 31, 2022), or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 % and (z) LIBOR plus 1.00 %), plus an applicable margin of 0.25 % to 1.25 % ( 1.25 % as of March 31, 2022), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.

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

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

Additionally, the Senior Secured Credit Facility requires the Company to pay unused commitment fees of 0.15 % to 0.30 % ( 0.30 % as of March 31, 2022) on any undrawn amounts under the revolving credit facility and letter of credit fees of up to 3.25 % on the maximum amount available to be drawn under each letter of credit issued under the agreement.

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

1 unchanged sentence

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

As of December 31, 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.

As of March 31, 2022, the Company was in compliance with these covenants, and there was $ 86,676 available for borrowing under the revolving credit facility, subject to the financial covenants.

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

4 unchanged sentences

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

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

The Company was in compliance with such covenants as of

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

March 31, 2022.

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.

The Company is permitted to (i) make cash distributions to the holders of the Company's equity in order to pay taxes incurred by owners of equity in i3 Verticals, LLC, by reason of such ownership, (ii) move intercompany cash between subsidiaries that are joined to the Senior Secured Credit Facility, (iii) repurchase equity from employees, directors, officers or consultants in an aggregate amount not to exceed $ 3,000 per year, (iv) make certain payments in connection with the Tax Receivable Agreement, and (v) make other dividends or distributions in an aggregate amount not to exceed 5 % of the net cash proceeds received from any additional common equity issuance.

The Company is permitted to (i) make cash distributions to the holders of the Company's equity in order to pay taxes incurred by owners of equity in i3 Verticals, LLC, by reason of such ownership, (ii) move intercompany cash between subsidiaries that are joined to the Senior Secured Credit Facility, (iii) repurchase equity from employees, directors, officers or consultants in an aggregate amount not to exceed $ 3,000 per year, (iv) make certain payments in connection with the Tax Receivable Agreement (discussed in Note 8 below), and (v) make other dividends or distributions in an aggregate amount not to exceed 5 % of the net cash proceeds received from any additional common equity issuance.

The Company is also permitted to make non-cash dividends in the form of additional equity issuances.

1 unchanged sentence

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 months ended December 31, 2021 and 2020.

The Company incurred no debt issuance costs during the three and six months ended March 31, 2022 and 2021.

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 $ 254 and $ 235 during the three months ended December 31, 2021, and 2020, respectively.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 259 and $ 513 during the three and six months ended March 31, 2022, respectively and $ 240 and $ 475 during the three and six months ended March 31, 2021, respectively.

i3 Verticals, Inc.

6 unchanged sentences

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

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

The Company’s provision for income taxes was a provision of $ 884 and $ 656 for the three and six months ended March 31, 2022, respectively and a benefit of $ 136 and $ 146 during the three and six months ended March 31, 2021, respectively.

Tax Receivable Agreement

3 unchanged sentences

If a Continuing Equity Owner transfers Common Units but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such Continuing Equity Owner generally will continue to be entitled to receive payments under the Tax Receivable Agreement arising in respect of a subsequent exchange of such Common Units.

In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged or otherwise alienated to any person, other than certain permitted transferees, without (a) the Company's prior written consent, which should not be unreasonably withheld, conditioned or delayed, and (b) such persons becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein.

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

During the three months ended December 31, 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.

1 unchanged sentence

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

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.

general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged or otherwise alienated to any person, other than certain permitted transferees, without (a) the Company's prior written consent, which should not be unreasonably withheld, conditioned or delayed, and (b) such persons becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein.

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

During the six months ended March 31, 2022, the Company acquired an aggregate of 55,000 Common Units in i3 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 six months ended March 31, 2022, the Company recognized an increase to its net deferred tax assets in the amount of $ 436 , and corresponding Tax Receivable Agreement liabilities of $ 370 , representing 85 % of the tax benefits due to the Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 40,817 and $ 39,493 , respectively, as of March 31, 2022.

Payments to the Continuing Equity Owners related to exchanges through March 31, 2022 will range from $ 0 to $ 3,200 per year and are expected to be paid over the next 26 years.

The amounts recorded as of March 31, 2022, 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.

2 unchanged sentences

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

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

The Company had no finance leases as of March 31, 2022.

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

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

The weighted-average remaining lease term at December 31, 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 weighted-average remaining lease term at March 31, 2022 and 2021 was five and six years , respectively.

The Company had no significant short-term leases during the three and six months ended March 31, 2022 and 2021.

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

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

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

The weighted-average discount rate used in the measurement of our lease liabilities was 7.1 % and 7.0 % as of March 31, 2022 and 2021, respectively.

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

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.

Operating lease costs for the three and six months ended March 31, 2022 were $ 1,455 and $ 2,946 , respectively, which are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Operating lease costs for the three and six months ended March 31, 2021 were $ 1,046 and $ 1,900 , respectively.

Total operating lease costs for the three and six months ended March 31, 2022 include variable lease costs of approximately $ 6 and $ 44 , respectively, which are primarily comprised of costs of maintenance and utilities and changes in rates, and are determined based on the actual costs incurred during the period.

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

Short-term rent expense for the three months ended December 31, 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.

Total operating lease costs for the three and six months ended March 31, 2021 were $ 3 and $ 4 , respectively.

i3 VERTICALS, Inc.

1 unchanged sentence

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

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

Short-term rent expense for the three and six months ended March 31, 2022 was $ 46 and $ 93 , respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Short term rent expense for the three and six months ended March 31, 2021 was $ 72 and $ 130 , respectively.

As of March 31, 2022, maturities of lease liabilities are as follows:

Years ending September 30:

2022 (nine months remaining) $ 4,329

2022 (six months remaining) $ 2,946

Thereafter 3,574

15 unchanged sentences

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

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of December 31, 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.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of March 31, 2022 and 2021, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of March 31, 2022 and 2021, because interest rates on these instruments approximate market interest rates.

i3 VERTICALS, Inc.

8 unchanged sentences

Contingent consideration paid ( 10,200 )

Balance at December 31, 2021 $ 36,882

Balance at March 31, 2022 $ 47,940

Accrued Contingent Consideration

3 unchanged sentences

Contingent consideration paid ( 5,851 )

Balance at December 31, 2020 $ 19,527

Balance at March 31, 2021 $ 28,059

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

6 unchanged sentences

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

Approximately $ 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.

Approximately $ 39,037 and $ 25,768 of contingent consideration was recorded in accrued expenses and other current liabilities as of March 31, 2022 and September 30, 2021, respectively.

Approximately $ 8,903 and $ 10,461 of contingent consideration was recorded in other long-term liabilities as of March 31, 2022 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 $ 107,684 as of December 31, 2021.

The estimated fair value of the Exchangeable Notes was $ 110,822 as of March 31, 2022.

i3 VERTICALS, Inc.

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EQUITY-BASED COMPENSATION

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,

A summary of equity-based compensation expense recognized during the three and six months ended March 31, 2022 and 2021 is as follows:

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

2022 2021 2022 2021

Stock options $ 6,042 $ 4,142 $ 12,666 $ 7,583

Restricted stock units 215 — 215 —

Equity-based compensation expense $ 6,257 $ 4,142 $ 12,881 $ 7,583

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

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

Stock Options

Income tax benefits of $ 68 and $ 95 were recognized during the three and six months ended March 31, 2022, respectively, and $ 277 and $ 482 during the three and six months ended March 31, 2021.

In May 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) under which the Company may grant up to 3,500,000 stock options and other equity-based awards to employees, directors and officers.

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

As of December 31, 2021, there were 262,692 equity awards available for grant under the 2018 Plan.

As of March 31, 2022, there were 939,068 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 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

As of March 31, 2022, there were 938,597 equity awards available for grant under the 2020 Inducement Plan.

Share-based compensation expense includes the estimated effects of forfeitures, which will be adjusted over the requisite service period to the extent actual forfeitures differ or are expected to differ from such estimates.

Stock Options

The Company has issued stock option awards under the 2018 Plan and the 2020 Inducement Plan.

The fair value of the stock option awards during the six months ended March 31, 2022 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:

March 31, 2022 September 30, 2021

Expected volatility (1)

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

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

A summary of stock option activity for the six months ended March 31, 2022 is as follows:

Stock Options Weighted Average Exercise Price

Outstanding at beginning of period 7,547,622 $ 25.26

Outstanding at September 30, 2021 7,547,622 $ 25.26

Granted 1,511,821 24.43

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Forfeited ( 428,022 ) 29.35

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

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 months ended December 31, 2021 was $ 4,941 .

Outstanding at March 31, 2022 8,472,030 $ 25.05

Exercisable at March 31, 2022 4,064,893 $ 22.23

The weighted-average grant date fair value of stock options granted during the six months ended March 31, 2022 was $ 12.87 .

As of March 31, 2022, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 44,436 , which is expected to be recognized over a weighted-average period of two years .

The total fair value of stock options that vested during the three and six months ended March 31, 2022 was $ 11,167 and $ 16,108 , respectively.

Restricted Stock Units

The Company has issued Class A common stock in the form of restricted stock units ("RSUs") under the 2018 Plan.

A summary of activity related to restricted stock units for the six months ended March 31, 2022 is as follows:

Restricted Stock Units Weighted Average Grant Date Fair Value

Outstanding at September 30, 2021 — $ —

Granted 257,426 26.52

Exercised — —

Forfeited — —

Outstanding at March 31, 2022 257,426 $ 26.52

The weighted-average grant date fair value of restricted stock units granted during the six months ended March 31, 2022 was $ 26.52 .

As of March 31, 2022, total unrecognized compensation expense related to unvested RSUs, including an estimate for pre-vesting forfeitures, was $ 5,612 , which is expected to be recognized over a weighted average period of four years .

As of March 31, 2022, there were no RSUs vested.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

COMMITMENTS AND CONTINGENCIES

The Company utilizes office space and equipment under operating leases.

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

Rent expense under these leases amounted to $ 1,501 and $ 3,039 during the three and six months ended March 31, 2022, respectively and $ 1,118 and $ 2,030 during the three and six months ended March 31, 2021, 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 December 31, 2021, such minimum fee commitments were as follows:

As of March 31, 2022, such minimum fee commitments were as follows:

Years ending September 30:

2022 (nine months remaining) $ 2,923

2022 (six months remaining) $ 1,840

Total $ 4,980

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Third Party Sales Organization Buyout Agreement

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

3 unchanged sentences

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.

Plaintiffs moved to remand the action to state court on November 5, 2021, which motion remains pending.

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 $ 15,000 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 Amended 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 assets of the S&S business were acquired from South Pointe by the Company in 2018 for and aggregate purchase price of $ 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 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 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

or cash, and (ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement.

See Note 8 for further information.

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

As of March 31, 2022, the total amount due under the Tax Receivable Agreement was $ 39,493 .

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.

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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.

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 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

The following is a summary of reportable segment operating performance for the three and six months ended March 31, 2022 and 2021.

As of and for the Three Months Ended March 31, 2022

Merchant Services Proprietary Software and Payments Other Total

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Goodwill $ 119,086 $ 230,368 $ — $ 349,454

As of and for the Six Months Ended March 31, 2022

Merchant Services Proprietary Software and Payments Other Total

Revenue $ 58,357 $ 93,736 $ ( 34 ) $ 152,059

Other costs of services ( 26,970 ) ( 6,204 ) 33 ( 33,141 )

Residuals 16,235 791 ( 17 ) 17,009

Processing margin $ 47,622 $ 88,323 $ ( 18 ) $ 135,927

Residuals ( 17,009 )

Selling general and administrative ( 95,103 )

Depreciation and amortization ( 14,317 )

Change in fair value of contingent consideration ( 16,430 )

Loss from operations

Total assets $ 205,922 $ 506,409 $ 60,325 $ 772,656

Goodwill $ 119,086 $ 230,368 $ — $ 349,454

i3 VERTICALS, Inc.

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

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

As of and for the Three months ended March 31, 2021 (1)

Merchant Services Proprietary Software and Payments Other Total

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Change in fair value of contingent consideration ( 322 )

Loss from operations $ ( 1,003 )

Income from operations

Total assets $ 211,002 $ 330,941 $ 64,110 $ 606,053

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

As of and for the Six Months Ended March 31, 2021 (1)

Merchant Services Proprietary Software and Payments Other Total

Revenue $ 51,167 $ 43,762 $ ( 1,111 ) $ 93,818

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

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

Processing margin $ 41,389 $ 40,839 $ ( 1,094 ) $ 81,134

Residuals ( 12,296 )

Selling general and administrative ( 55,473 )

Depreciation and amortization ( 10,943 )

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

Income from operations

Total assets $ 211,002 $ 330,941 $ 64,110 $ 606,053

Goodwill $ 119,155 $ 147,987 $ — $ 267,142

__________________________

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

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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 December 31, 2021, i3 Verticals, Inc.

As of March 31, 2022, i3 Verticals, Inc.

owned 22,133,682 of i3 Verticals, LLC's Common Units, representing a 68.5 % 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:

Three months ended December 31,

Six months ended March 31,

Net loss attributable to non-controlling interest

$ ( 4,218 ) $ ( 997 )

Transfers to (from) non-controlling interests:

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

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,

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 six months ended March 31, 2022 and 2021:

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

2022 2021 (1)

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 )

2022 2021 (1)

Basic (2) net (loss) income per share:

Net (loss) income

$ ( 10,438 ) $ 1,330 $ ( 14,119 ) $ ( 1,692 )

Net (loss) income attributable to non-controlling interests

( 3,065 ) 27 ( 4,218 ) ( 997 )

Net (loss) income attributable to Class A common stockholders

$ ( 7,373 ) $ 1,303 $ ( 9,901 ) $ ( 695 )

Weighted average shares of Class A common stock outstanding

22,076,297 20,940,725 22,059,365 20,024,936

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

Basic net (loss) income per share

$ ( 0.33 ) $ 0.06 $ ( 0.45 ) $ ( 0.03 )

Dilutive net income per share:

Net income (loss) attributable to Class A common stockholders $ 1,303 $ ( 695 )

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

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

1,323 ( 1,446 )

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

20,940,725 20,024,936

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

12,464,258 11,212,739

Weighted average shares of Class A common stock outstanding - diluted

33,404,983 31,237,675

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

__________________________

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.

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

For the three and six months ended March 31, 2022, 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:

10,222,946 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,

10,210,142 and 10,216,615 shares of weighted average Class B common stock for the three and six months ended March 31, 2022, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive,

4,667,581 and 5,388,813 stock options for the three and six months ended March 31, 2022, 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,

522,355 and 613,913 shares for the three and six months ended March 31, 2022, respectively, resulting from estimated stock option exercises and restricted stock units vesting as calculated by the treasury stock method were excluded because of the effect of including them would have been anti dilutive.

i3 VERTICALS, Inc.

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

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.

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

1,760,997 and 2,506,997 stock options for the three and six months ended March 31, 2021, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive, and

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

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 three months ended December 31, 2021 and 2020:

Three months ended December 31,

The Company engaged in the following significant non-cash investing and financing activities during the six months ended March 31, 2022 and 2021:

Six months ended March 31,

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

Acquisition date fair value of contingent consideration in connection with business combinations $ 5,481 $ 18,650

Right-of-use assets obtained in exchange for operating lease obligations $ 7,584 $ 16,295

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

SUBSEQUENT EVENTS

Recent Acquisitions

Subsequent to March 31, 2022, the Company completed the acquisition of a businesses that further strengthens the Company's focus in its healthcare vertical.Total purchase consideration, which includes cash funded by proceeds from our revolving line of credit, and contingent consideration, is still being valued but is expected to be less than $ 10.0 million.

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