What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2022-02-09 · 142 added, 68 removed, 251 unchanged (46% of the section changed)

9 unchanged sentences

These factors include, but are not limited to, the following:

• the anticipated impact to our business operations, payment volume and volume attrition due to the global pandemic of a novel strain of the coronavirus (COVID-19), including variant strains thereof, including the impact of social distancing, shelter-in-place, shutdowns of non-essential businesses and similar measures imposed or undertaken by governments;

• the anticipated impact to our business operations, payment volume and volume attrition due to the global pandemic of a novel strain of coronavirus (COVID-19), including variant strains thereof, including the impact of social distancing, shelter-in-place, shutdowns of non-essential businesses and similar measures imposed or undertaken by governments;

• our indebtedness and our ability to maintain compliance with the financial covenants in our Senior Secured Credit Facility (as defined below), particularly in light of the impacts of the COVID-19 pandemic;

6 unchanged sentences

• risk of shortages, price increases, changes, delays or discontinuations of hardware due to supply chain disruptions with respect to our limited number of suppliers;

• impact of inflation and fluctuations in interest rates and the potential effect of such fluctuations on revenues, expenses and resulting margins;

• our dependence on non-exclusive distribution partners to market our products and services;

29 unchanged sentences

Executive Overview

Recognizing the convergence of software and payments, i3 Verticals was founded in 2012 with the purpose of delivering seamlessly integrated payment and software solutions to SMBs and organizations in strategic vertical markets.

Since commencing operations, we have built a broad suite of payment and software solutions that address the specific needs of SMBs and other organizations in our strategic vertical markets, and we believe our suite of solutions differentiates us from our competition.

Recognizing the convergence of software and payments, i3 Verticals was founded in 2012 with the purpose of delivering seamlessly integrated software and payment solutions to SMBs and organizations in strategic vertical markets.

Since commencing operations, we have built a broad suite of software and payment solutions that address the specific needs of SMBs and other organizations in our strategic vertical markets, and we believe our suite of solutions differentiates us from our competition.

Our primary strategic vertical markets include education, non-profit, public sector and healthcare.

7 unchanged sentences

For that reason, we are unable to predict the long-term impact of COVID-19 and its variant strains on our business at this time.

At December 31, 2021, we had $3.4 million of cash and cash equivalents and $115.5 million of available capacity under our Senior Secured Credit Facility subject to our financial covenants.

As of December 31, 2021, we were in compliance with these covenants with a consolidated interest coverage ratio, total leverage ratio and consolidated senior leverage ratio of 9.18x, 3.82x and 2.18x, respectively.

At March 31, 2022, we had $6.3 million of cash and cash equivalents and $86.7 million of available capacity under our Senior Secured Credit Facility subject to our financial covenants.

As of March 31, 2022, we were in compliance with these covenants with a consolidated interest coverage ratio, total leverage ratio and consolidated senior leverage ratio of 8.66x, 3.89x and 2.37x, respectively.

For additional information about our Senior Secured Credit Facility and Exchangeable Notes, see the section entitled “Liquidity and Capital Resources” below.

Acquisitions during the three months ended December 31, 2021

Recent acquisitions

Subsequent to March 31, 2022, we completed the acquisition of one business which further strengthens our focus in our 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.

Acquisitions during the six months ended March 31, 2022

We completed the acquisition of substantially all of the assets of two businesses to expand our software offerings, in the public sector and healthcare verticals.

Total purchase consideration was $100.5 million, including $95.0 million in cash on hand and proceeds from the Company's revolving credit facility, and $5.5 million in contingent consideration.

Acquisitions during the three months ended December 31, 2020

Acquisitions during the six months ended March 31, 2021

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

1 unchanged sentence

Total purchase consideration was $46.3 million, including $40.0 million in cash consideration, funded by proceeds from our revolving credit facility, and $6.3 million in contingent consideration.

During the three months ended December 31, 2020, we also completed the acquisition of three other businesses to expand the Company’s software offerings in the public sector and healthcare vertical markets, and to add proprietary technology that will augment the Company’s existing platform across several verticals.

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

Total purchase consideration was $95.5 million, including $52.5 million 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, and $7.8 million in contingent consideration.

During the six months ended March 31, 2021, we also completed the acquisition of three other businesses to expand the Company’s software offerings in the public sector and healthcare vertical markets, and to add proprietary technology that will augment the Company’s existing platform across several verticals.

Total purchase consideration was $22.5 million, including $19.6 million in cash and revolving line of credit proceeds and $2.9 million of contingent consideration.

44 unchanged sentences

The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

ARR for the three months ended December 31, 2021 and 2020 was $240.4 million and $157.5 million, respectively, representing a period-to-period growth rate of 52.7%.

Our payment volume for the three months ended December 31, 2021 and 2020 was $5.3 billion and $3.8 billion, respectively, representing a period-to-period growth rate of 39.7%.

ARR for the three months ended March 31, 2022 and 2021 was $254.5 million and $173.3 million, respectively, representing a period-to-period growth rate of 46.8%.

Our payment volume for the three months ended March 31, 2022 and 2021 was $5.3 billion and $4.3 billion, respectively, representing a period-to-period growth rate of 25.2%.

Our payment volume for the six months ended March 31, 2022 and 2021 was $10.6 billion and $8.1 billion, respectively, representing a period-to-period growth rate of 32.0%.

We focus on payment volume because it is a reflection of the scale and economic activity of our client base and because a significant part of our revenue is derived as a percentage of our clients’ dollar volume receipts.

3 unchanged sentences

We believe integrated payments create stronger client relationships with higher payment volume retention and growth.

Integrated payments grew to 61% of our payment volume for the three months ended December 31, 2021 from 56% for the three months ended December 31, 2020.

Integrated payments grew to 62% and 59% of our payment volume for the three months ended March 31, 2022 and 2021, respectively.

Integrated payment grew to 62% and 57% of our payment volume for the six months ended March 31, 2022 and 2021, respectively.

We measure period-to-period payment volume attrition as the change in card-based payment volume for all clients that were processing with us for the same period in the prior year.

1 unchanged sentence

We experience attrition in payment volume as a result of several factors, including business closures, transfers of clients’ accounts to our competitors and account closures that we initiate due to heightened credit risks.

During the three months ended December 31, 2021, our average net volume attrition per month remained below 2%.

During the six months ended March 31, 2022, our average net volume attrition per month remained below 2%.

Results of Operations

Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The following table presents our historical results of operations for the periods indicated:

Three months ended December 31, Change

Three months ended March 31, Change

(in thousands) 2022 2021 (1)

6 unchanged sentences

Total operating expenses 84,297 47,998 36,299 75.6 %

Loss from operations (755) (1,003) 248 (24.7) %

(Loss) income from operations (6,177) 1,199 (7,376) n/m

Interest expense, net 3,377 2,358 1,019 43.2 %

Other income — (2,353) 2,353 (100.0) %

Total other expenses 3,377 5 3,372 67,440.0 %

(Loss) income before income taxes (9,554) 1,194 (10,748) n/m

Provision for (benefit from) income taxes 884 (136) 1,020 n/m

Net (loss) income (10,438) 1,330 (11,768) n/m

Net (loss) income attributable to non-controlling interest (3,065) 27 (3,092) n/m

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

$ (7,373) $ 1,303 $ (8,676) n/m

n/m = not meaningful

__________________________

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.

Revenue increased $28.9 million, or 58.8%, to $78.1 million for the three months ended March 31, 2022 from $49.2 million for the three months ended March 31, 2021.

This increase was principally driven by incremental revenue from acquisitions of $18.5 million, net of intercompany eliminations.

Revenue from existing businesses grew, primarily due to growth in software and related services revenues and in our public sector vertical and an increase in payment volume from new and existing customers.

Revenue within Proprietary Software and Payments increased $25.2 million, or 106.0%, to $49.0 million for the three months ended March 31, 2022 from $23.8 million for the three months ended March 31, 2021.

The increase was principally driven by growth in software and related services revenues in our public sector and healthcare verticals.

Revenue within Merchant Services increased $3.1 million, or 11.8%, to $29.2 million for the three months ended March 31, 2022 from $26.1 million for the three months ended March 31, 2021.

Payment volume from new and existing customers increased $1.0 billion, or 25.8%, to $4.8 billion for the three months ended March 31, 2022 from $3.8 billion for the three months ended March 31, 2021.

Other Costs of Services

Other costs of services increased $5.3 million, or 47.0%, to $16.6 million for the three months ended March 31, 2022 from $11.3 million for the three months ended March 31, 2021.

This increase was primarily driven by an increase in other cost of services within the Proprietary Software and Payments segment driven by the increase in payment volume.

Other costs of services within Merchant Services increased $1.7 million, or 14.8%, to $13.5 million for the three months ended March 31, 2022 from $11.8 million for the three months ended March 31, 2021.

Other costs of services within Proprietary Software and Payments increased $2.9 million, or 1,387.6%, to $3.1 million for the three months ended March 31, 2022 from $0.2 million for the three months ended March 31, 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $18.2 million, or 59.7%, to $48.7 million for the three months ended March 31, 2022 from $30.5 million for the three months ended March 31, 2021.

This increase was primarily driven by a $15.6 million increase in employment expenses, primarily resulting from an increase in headcount that resulted from acquisitions and an increase in stock compensation expense.

The remaining increase was primarily driven by increases in technology expense, rental expense, and travel expenses.

Depreciation and Amortization

Depreciation and amortization increased $1.5 million, or 26.4%, to $7.4 million for the three months ended March 31, 2022 from $5.9 million for the three months ended March 31, 2021.

Amortization expense increased $1.5 million to $6.8 million for the three months ended March 31, 2022 from $5.3 million for the three months ended March 31, 2021 primarily due to acquisitions completed during the 2021 and 2022 fiscal years.

Depreciation expense increased $0.1 million to $0.6 million for the three months ended March 31, 2022 from $0.6 million for the three months ended March 31, 2021.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $11.5 million for the three months ended March 31, 2022 primarily due to the performance of some of our acquisitions exceeding our expectations.

The change in fair value of contingent consideration for the three months ended March 31, 2021 was a charge of $0.3 million.

Interest Expense, net

Interest expense, net, increased $1.0 million, or 43.2%, to $3.4 million for the three months ended March 31, 2022 from $2.4 million for the three months ended March 31, 2021.

The increase reflects a higher average outstanding debt balance for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.

There was no other income for the three months ended March 31, 2022.

Other income was $2.4 million for the three months ended March 31, 2021.

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

This resulted in an increase of $2.4 million to the fair value of the AxiaMed investment at March 31, 2021, which the Company recognized in other income.

Provision for (benefit from) Income Taxes

The provision for income taxes increased to a provision for $0.9 million for the three months ended March 31, 2022 from a benefit of $0.1 million for three months ended March 31, 2021.

Our effective tax rate was (9.3)% for the three months ended March 31, 2022.

Our effective tax rate differs from the federal statutory rate of 21% primarily due to the tax structure of the Company.

The income of majority owned i3 Verticals, LLC is not taxed and the separate loss of the Company has minimal tax effect due to the allocations from i3 Verticals, LLC.

i3 Verticals, Inc.

is subject to federal, state and local income taxes with respect to its allocable share of any taxable income of i3 Verticals, LLC and is taxed at the prevailing corporate tax rates.

Six months ended March 31, 2022 Compared to Six months ended March 31, 2021

The following table presents our historical results of operations for the periods indicated:

Six Months Ended March 31, Change

(in thousands) 2022 2021 (1)

Revenue $ 152,059 $ 93,818 $ 58,241 62.1 %

Operating expenses

Other costs of services 33,141 24,980 8,161 32.7 %

Selling, general and administrative 95,103 55,473 39,630 71.4 %

Depreciation and amortization 14,317 10,943 3,374 30.8 %

Change in fair value of contingent consideration 16,430 2,226 14,204 638.1 %

Total operating expenses 158,991 93,622 65,369 69.8 %

(Loss) income from operations (6,932) 196 (7,128) n/m

Interest expense, net 6,531 4,387 2,144 48.9 %

Other income — (2,353) 2,353 (100.0) %

Total other expenses 6,531 2,034 4,497 221.1 %

Loss before income taxes (13,463) (1,838) (11,625) 632.5 %

Benefit from income taxes (228) (10) (218) 21.8

Provision for (benefit from) income taxes 656 (146) 802 n/m

Net loss (14,119) (1,692) (12,427) 734.5 %

Net loss attributable to non-controlling interest

(4,218) (997) (3,221) 323.1 %

Net loss attributable to i3 Verticals, Inc.

4 unchanged sentences

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

Revenue increased $29.3 million, or 65.7%, to $73.9 million for the three months ended December 31, 2021 from $44.6 million for the three months ended December 31, 2020.

Revenue increased $58.2 million, or 62.1%, to $152.1 million for the six months ended March 31, 2022 from $93.8 million for the six months ended March 31, 2021.

This increase was principally driven by incremental revenue from acquisitions of $40.7 million, net of intercompany eliminations.

Revenue from existing businesses contributed an additional $7.1 million of revenue, primarily due to an increase in payment volume from new and existing customers, and growth in software and related services revenues in our public sector vertical.

Revenue within Proprietary Software and Payments increased $24.8 million, or 123.9%, to $44.8 million for the three months ended December 31, 2021 from $20.0 million for the three months ended December 31, 2020.

Revenue from existing businesses grew, primarily due to growth in software and related services revenues in our public sector vertical and an increase in payment volume from new and existing customers.

Revenue within Proprietary Software and Payments increased $50.0 million, or 114.2%, to $93.7 million for the six months ended March 31, 2022 from $43.8 million for the six months ended March 31, 2021.

The increase was principally driven by growth in software and related services revenues in our public sector and healthcare verticals.

Revenue within Merchant Services increased $4.1 million, or 16.4%, to $29.2 million for the three months ended December 31, 2021 from $25.1 million for the three months ended December 31, 2020.

Payment volume from new and existing customers increased $1.2 billion, or 34.6%, to $4.8 billion for the three months ended December 31, 2021 from $3.6 billion for the three months ended December 31, 2020.

Revenue within Merchant Services increased $7.2 million, or 14.1%, to $58.4 million for the six months ended March 31, 2022 from $51.2 million for the six months ended March 31, 2021.

Payment volume from new and existing customers increased $2.2 billion, or 30.0%, to $9.6 billion for the six months ended March 31, 2022 from $7,398.8 million for the six months ended March 31, 2021.

Other Costs of Services

Other costs of services increased $2.8 million, or 20.8%, to $16.5 million for the three months ended December 31, 2021 from $13.7 million for the three months ended December 31, 2020.

Other costs of services increased $8.2 million, or 32.7%, to $33.1 million for the six months ended March 31, 2022 from $25.0 million for the six months ended March 31,2021.

This increase was primarily driven by an increase in other cost of services within the Merchant Services segment driven by the increase in payment volume.

Other costs of services within Merchant Services increased $2.6 million, or 24.0%, to $13.4 million for the three months ended December 31, 2021 from $10.8 million for the three months ended December 31, 2020.

Other costs of services within Proprietary Software and Payments decreased $0.2 million, or 5.4%, to $3.1 million for the three months ended December 31, 2021 from $3.3 million for the three months ended December 31, 2020.

Other costs of services within Merchant Services increased $4.4 million, or 19.4%, to $27.0 million for the six months ended March 31, 2022 from $22.6 million for the six months ended March 31, 2021.

Other costs of services within Proprietary Software and Payments increased $2.7 million, or 78.9%, to $6.2 million for the six months ended March 31, 2022 from $3.5 million for the six months ended March 31, 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $21.4 million, or 85.8%, to $46.4 million for the three months ended December 31, 2021 from $25.0 million for the three months ended December 31, 2020.

Selling, general and administrative expenses increased $39.6 million, or 71.4%, to $95.1 million for the six months ended March 31, 2022 from $55.5 million for the six months ended March 31, 2021.

This increase was primarily driven by a $34.2 million increase in employment expenses, primarily resulting from an increase in headcount that resulted from acquisitions and an increase in stock compensation expense.

1 unchanged sentence

Depreciation and Amortization

Depreciation and amortization increased $1.8 million, or 34.9%, to $6.9 million for the three months ended December 31, 2021 from $5.1 million for the three months ended December 31, 2020.

Amortization expense increased $1.6 million to $6.2 million for the three months ended December 31, 2021 from $4.6 million for the three months ended December 31, 2020 primarily due to acquisitions completed during the 2021 and 2022 fiscal years.

Depreciation expense increased $0.1 million to $0.6 million for the three months ended December 31, 2021 from $0.5 million for the three months ended December 31, 2020.

Depreciation and amortization increased $3.4 million, or 30.8%, to $14.3 million for the six months ended March 31, 2022 from $10.9 million for the six months ended March 31, 2021.

Amortization expense increased $3.2 million to $13.0 million for the six months ended March 31, 2022 from $9.8 million for the six months ended March 31, 2021 primarily due to acquisitions completed during the 2021 and 2022 fiscal years.

Depreciation expense increased $0.2 million to $1.3 million for the six months ended March 31, 2022 from $1.1 million for the six months ended March 31, 2021.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $4.9 million for the three months ended December 31, 2021 primarily due to the performance of some of our acquisitions exceeding our expectations.

The change in fair value of contingent consideration for the three months ended December 31, 2020 was a charge of $1.9 million.

Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $16.4 million for the six months ended March 31, 2022 primarily due to the performance of some of our acquisitions exceeding our expectations.

The change in fair value of contingent consideration for the six months ended March 31, 2021 was a charge of $2.2 million.

Interest Expense, net

Interest expense, net, increased $1.2 million, or 57.9%, to $3.2 million for the three months ended December 31, 2021 from $2.0 million for the three months ended December 31, 2020.

The increase reflects a higher average outstanding debt balance for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020.

Benefit from Income Taxes

The benefit from income taxes decreased to a benefit of $0.2 million for the three months ended December 31, 2021 from a benefit of $10 thousand for three months ended December 31, 2020.

Our effective tax rate was 5.8% for the three months ended December 31, 2021.

Interest expense, net, increased $2.1 million, or 48.9%, to $6.5 million for the six months ended March 31, 2022 from $4.4 million for the six months ended March 31, 2021.

The increase reflects a higher average outstanding debt balance for the six months ended March 31, 2022, as compared to the six months ended March 31, 2021.

There was no other income for the six months ended March 31, 2022.

Other income was $2.4 million for the six months ended March 31, 2021.

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

This resulted in an increase of $2.4 million to the fair value of the AxiaMed investment at March 31, 2021, which the Company recognized in other income.

Provision for (benefit from) Income Taxes

The provision for income taxes increased to a provision for $0.7 million for the six months ended March 31, 2022 from a benefit of $0.1 million for six months ended March 31, 2021.

Our effective tax rate was (5)% for the six months ended March 31, 2022.

Our effective tax rate differs from the federal statutory rate of 21% primarily due to the tax structure of the Company.

13 unchanged sentences

We have historically financed our operations and working capital through net cash from operating activities.

As of December 31, 2021, we had $3.4 million of cash and cash equivalents and available borrowing capacity of $115.5 million under our Senior Secured Credit Facility, subject to the financial covenants.

As of March 31, 2022, we had $6.3 million of cash and cash equivalents and available borrowing capacity of $86.7 million under our Senior Secured Credit Facility, subject to the financial covenants.

We usually minimize cash balances by making payments on our revolving line of credit to minimize borrowings and interest expense.

As of December 31, 2021, we had borrowings outstanding of $159.5 million under the Senior Secured Credit Facility.

As of March 31, 2022, we had borrowings outstanding of $188.3 million under the Senior Secured Credit Facility.

Our primary cash needs are to fund working capital requirements, invest in our technology infrastructure, fund acquisitions and related contingent consideration, make scheduled principal and interest payments on our outstanding indebtedness and pay tax distributions to members.

6 unchanged sentences

During the year ended September 30, 2020, we repurchased $21.0 million in aggregate principal amount of the Exchangeable Notes for an aggregate purchase price of approximately $17.4 million.

We recorded a loss on retirement of debt of $2.3 million due to the carrying value exceeding the fair value of the repurchased portion of the Exchangeable Notes at the dates of repurchases.

We may elect from time to time to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise.

Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law and other factors.

Any such debt repurchases will depend

upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law and other factors.

The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods.

Three Months Ended December 31, 2021 and 2020

Three months ended December 31,

Six Months Ended March 31, 2022 and 2021

Six months ended March 31,

2022 2021 (1)

7 unchanged sentences

Cash Flow from Operating Activities

Net cash provided by operating activities increased $9.9 million to $21.9 million for the three months ended December 31, 2021 from $12.0 million for the three months ended December 31, 2020.

Our net loss declined from a net loss of $3.0 million for the three months ended December 31, 2020 to a net loss of $3.7 million for the three months ended December 31, 2021, most of this reduction was driven by non-cash expenses that do not impact cash flows from operating activities.

The primary driver of the increase in cash provided by operating activities was an increase in equity-based compensation of $3.2 million and an increase in non-cash contingent consideration of $3.0 million.

Other changes include increases in operating assets and liabilities of $2.1 million, which are impacted by the timing of collections and payments and an increase in depreciation and amortization of $1.8 million for the three months ended December 31, 2021 compared to the three months ended December 31, 2020.

Net cash provided by operating activities increased $1.3 million to $31.2 million for the six months ended March 31, 2022 from $29.9 million for the six months ended March 31, 2021.

Our net loss increased from a net loss of $1.7 million for the six months ended March 31, 2021 to a net loss of $14.1 million for the six months ended March 31, 2022, most of this increase in net loss was driven by non-cash expenses that do not impact cash flows from operating activities.

The primary driver of the increase in cash provided by operating activities was an increase in non-cash contingent consideration of $14.2 million and an increase in equity-based compensation of $5.3 million.

Other changes include decreases in operating assets and liabilities of $13.5 million, which are impacted by the timing of collections and payments and an increase in depreciation and amortization of $3.4 million for the six months ended March 31, 2022 compared to the six months ended March 31, 2021.

Cash Flow from Investing Activities

Net cash used in investing activities increased $1.1 million to $62.4 million for the three months ended December 31, 2021 from $61.3 million for the three months ended December 31, 2020.

The largest driver of cash used in investing activities for the three months ended December 31, 2021 was cash used in acquisitions, net of cash acquired.

For the three months ended December 31, 2021, we used $60.0 million of cash for acquisitions, net of cash acquired compared to $59.6 million for the three months ended December 31, 2020.

Additionally, expenditures for capitalized software increased $0.8 million for the three months ended December 31, 2021.

Net cash used in investing activities decreased $16.3 million to $99.6 million for the six months ended March 31, 2022 from $115.9 million for the six months ended March 31, 2021.

The largest driver of cash used in investing activities for the six months ended March 31, 2022 was cash used in acquisitions, net of cash acquired.

For the six months ended March 31, 2022, we used $94.3 million of cash for acquisitions, net of cash acquired compared to $112.1 million for the six months ended March 31, 2021.

Additionally, expenditures for capitalized software increased $1.4 million for the six months ended March 31, 2022.

Cash Flow from Financing Activities

Net cash provided by financing activities increased $1.0 million to $49.2 million for the three months ended December 31, 2021 from $48.2 million for the three months ended December 31, 2020.

The increase in net cash provided by financing activities was primarily the result of an increase in proceeds from the revolving credit facility of $16.8 million for three months ended December 31, 2021 from the three months ended December 31, 2020.

These increases in cash provided by financing activities were partially offset by an increase in payments on the revolving credit facility of $11.0 million and an increase in cash paid for contingent consideration up to our original estimates of $4.5 million for the three months ended December 31, 2021 from the three months ended December 31, 2020.

Net cash provided by financing activities decreased $6.1 million to $77.8 million for the six months ended March 31, 2022 from $83.9 million for the six months ended March 31, 2021.

The decrease in net cash provided by financing activities was primarily the result of an increase in payments on the revolving credit facility of $5.5 million and an increase in cash paid for contingent consideration up to our original estimates of $4.5 million for the six months ended March 31, 2022 from the six months ended March 31, 2021.

These changes in cash provided by financing activities were partially offset by an increase in proceeds from the revolving credit facility of $4.4 million for six months ended March 31, 2022 from the six months ended March 31, 2021.

Senior Secured Credit Facility

1 unchanged sentence

The Senior Secured Credit Facility consists of a $275.0 million 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 $50.0 million in the aggregate (subject to the receipt of additional commitments for any such incremental loan amounts).

The Senior Secured Credit Facility accrues interest at LIBOR (based upon an interest period of one, two, three or six months or, under some circumstances, up to twelve months) plus an applicable margin of 2.25% to 3.25% (3.25% as of 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 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 us 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 us 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, we were in compliance with these covenants, and there was $115.5 million available for borrowing under the revolving credit facility, subject to the financial covenants.

As of March 31, 2022, we were in compliance with these covenants, and there was $86.7 million available for borrowing under the revolving credit facility, subject to the financial covenants.

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

10 unchanged sentences

The net proceeds from the sale of the Exchangeable Notes were approximately $132.8 million, after deducting discounts and commissions to the certain initial purchasers and other estimated fees and expenses.

i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Senior Secured Credit Facility in connection with the effectiveness of the operative provisions of the Amendment and to pay the cost of the Note Hedge Transactions.

i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Senior Secured Credit Facility in connection with the effectiveness of the operative provisions of the amendment to the Senior Secured Credit Facility and to pay the cost of the Note Hedge Transactions.

At-the-Market Program

On August 20, 2021, we entered into an at-the-market offering sales agreement with Raymond James & Associates, Inc., Morgan Stanley & Co.

LLC and BTIG, LLC (each a “Sales Agent”), as further amended on November 22, 2021, under which we may issue and sell, from time to time and through the Sales Agents, shares of our Class A common stock having an aggregate offering price of up to $125.0 million (the “ATM Program”).

LLC and BTIG, LLC (each a “Sales Agent”), as further amended on November 22, 2021, under which we may issue and sell, from time to time and through the Sales Agents, shares

of our Class A common stock having an aggregate offering price of up to $125.0 million (the “ATM Program”).

As of the date of this report, we have not sold any shares of Class A common stock under the ATM Program.

Material Cash Requirements

The following table summarizes our material cash requirements as of December 31, 2021 related to leases and borrowings:

The following table summarizes our material cash requirements as of March 31, 2022 related to leases and borrowings:

Payments Due by Period

17 unchanged sentences

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

We estimated interest payments through the maturity of our Senior Secured Credit Facility by applying the interest rate of 3.47% in effect on the outstanding balance as of December 31, 2021, plus the unused fee rate of 0.30% in effect as of December 31, 2021.

We calculated interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.0% on the principal balance as of December 31, 2021 of $117.0 million.

We estimated interest payments through the maturity of our Senior Secured Credit Facility by applying the interest rate of 3.74% in effect on the outstanding balance as of March 31, 2022, plus the unused fee rate of 0.30% in effect as of March 31, 2022.

We calculated interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.0% on the principal balance as of March 31, 2022 of $117.0 million.

In connection with certain of our acquisitions, we may be obligated to pay the seller of the acquired entity certain amounts of contingent consideration as set forth in the relevant purchasing documents, whereby additional consideration may be due upon the achievement of certain specified financial performance targets.

14 unchanged sentences

We intend to fund the payment of the amounts due under the Tax Receivable Agreement out of the cash savings that we actually realize in respect of the attributes to which Tax Receivable Agreement relates.

As of December 31, 2021, the total amount due under the Tax Receivable Agreement was $39.2 million, and payments to the Continuing Equity Owners related to exchanges through December 31, 2021 will range from $0 to $3.2 million 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.

As of March 31, 2022, the total amount due under the Tax Receivable Agreement was $39.5 million, and payments to the Continuing Equity Owners related to exchanges through March 31, 2022 will range from $0 to $3.2 million 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.

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

Critical Accounting Policies

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.

4 unchanged sentences

Critical accounting policies are those that we consider the most critical to understanding our financial condition and results of operations.

As of December 31, 2021, there have been no significant changes to our critical accounting estimates disclosed in the Form 10-K filed with the SEC on November 22, 2021.

Recently Issued Accounting Pronouncements

As of December 31, 2021, there have been no significant changes to our recently issued accounting pronouncements disclosed in the Form 10-K filed with the SEC on November 22, 2021, except as described in Note 2 to our condensed consolidated financial statements.

Off-Balance Sheet Arrangements

As of December 31, 2021, we did not have any off-balance sheet financing arrangements.

As of March 31, 2022, there have been no significant changes to our critical accounting estimates disclosed in the Form 10-K filed with the SEC on November 22, 2021.

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 2. Management’s Discussion and Analysis