What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2023-02-09 · 315 added, 185 removed, 781 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

December 31, September 30,

March 31, September 30,

Current assets

29 unchanged sentences

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

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

0 shares issued and outstanding as of March 31, 2023 and September 30, 2022

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

23,011,193 and 22,986,448 shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

23,167,730 and 22,986,448 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively

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

10,118,142 and 10,118,142 shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

10,108,218 and 10,118,142 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively

Additional paid-in capital 234,442 241,958

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,

Revenue $ 93,872 $ 78,120 $ 179,901 $ 152,059

9 unchanged sentences

Total other expenses 6,199 3,377 11,486 6,531

Income (loss) before income taxes 551 ( 3,909 )

Provision for (benefit from) income taxes 382 ( 228 )

Net income (loss) 169 ( 3,681 )

Net income (loss) attributable to non-controlling interest 409 ( 1,153 )

Net loss attributable to i3 Verticals, Inc.

Loss before income taxes ( 755 ) ( 9,554 ) ( 204 ) ( 13,463 )

(Benefit from) provision for income taxes ( 563 ) 884 ( 181 ) 656

Net loss ( 192 ) ( 10,438 ) ( 23 ) ( 14,119 )

Net (loss) income attributable to non-controlling interest ( 228 ) ( 3,065 ) 181 ( 4,218 )

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

$ 36 $ ( 7,373 ) $ ( 204 ) $ ( 9,901 )

Net loss per share attributable to Class A common stockholders:

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

Basic $ 0.00 $ ( 0.33 ) $ ( 0.01 ) $ ( 0.45 )

17 unchanged sentences

Balance at December 31, 2022 23,011,193 2 10,118,142 1 228,016 ( 12,373 ) 87,812 303,458

Equity-based compensation — — — — 6,802 — — 6,802

Net income (loss) — — — — — 36 ( 228 ) ( 192 )

Redemption of common units in i3 Verticals, LLC 9,924 — ( 9,924 ) — 86 — ( 86 ) —

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 349 — — 349

Exercise or release of equity-based awards 64,443 — — — ( 606 ) — — ( 606 )

Allocation of equity to non-controlling interests — — — — ( 2,205 ) — 2,205 —

Issuance of Class A common stock under the 2020 Inducement Plan 82,170 — — — 2,000 — — 2,000

Balance at March 31, 2023 23,167,730 $ 2 10,108,218 $ 1 $ 234,442 $ ( 12,337 ) $ 89,703 $ 311,811

See Notes to the Interim Condensed Consolidated Financial Statements

12 unchanged sentences

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

Equity-based compensation — — — — 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

2 unchanged sentences

(In thousands)

Three months ended December 31,

Six months ended March 31,

Cash flows from operating activities:

Net income (loss) $ 169 $ ( 3,681 )

Net loss $ ( 23 ) $ ( 14,119 )

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

2 unchanged sentences

Amortization of debt discount and issuance costs 729 2,853

Provision for (benefit from) income taxes 355 ( 228 )

(Benefit from) provision for income taxes ( 208 ) 656

Non-cash lease expense 2,289 2,446

8 unchanged sentences

Accrued expenses and other current liabilities ( 5,009 ) 1,830

Acquisition escrow obligations ( 1,564 ) 4,184

Settlement obligations ( 355 ) 1,819

16 unchanged sentences

(In thousands)

Three months ended December 31,

Six months ended March 31,

Cash flows from financing activities:

4 unchanged sentences

Proceeds from stock option exercises 104 217

Payments for employee's tax withholdings from net settled stock option exercises ( 21 ) 157

Payments for employee's tax withholdings from net settled stock option exercises and RSU releases ( 545 ) ( 160 )

Net cash provided by financing activities 84,169 77,767

Net increase in cash, cash equivalents and restricted cash 574 8,780

Net (decrease) increase in cash, cash equivalents and restricted cash ( 1,432 ) 9,382

Cash, cash equivalents and restricted cash at beginning of period 23,765 17,931

41 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, 2022 and for the three months ended December 31, 2022 and 2021.

The results of operations for the three months ended December 31, 2022 and 2021 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, 2023 and for the three and six months ended March 31, 2023 and 2022.

The results of operations for the three and six months ended March 31, 2023 and 2022 are not necessarily indicative of the operating results for the full year.

As permitted by the rules and regulations of the SEC, certain information and disclosures otherwise included in the notes to the consolidated financial statements have been condensed or omitted from the summary of significant accounting policies.

17 unchanged sentences

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

Settlement assets and settlement obligations were both $ 11,786 as of December 31, 2022 and $ 7,540 as of September 30, 2022, respectively.

Settlement assets and settlement obligations were both $ 7,185 as of March 31, 2023 and $ 7,540 as of September 30, 2022, respectively.

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

Inventories were $ 4,960 and $ 4,121 at December 31, 2022 and September 30, 2022, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Inventories were $ 4,732 and $ 4,121 at March 31, 2023 and September 30, 2022, 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.

7 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, 2022 contributed $ 3,625 and $ 971 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, 2023 contributed $ 9,071 and $ 2,638 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, on October 1, 2020, using the optional modified retrospective method under which the prior period financial statements were not restated for the new guidance.

17 unchanged sentences

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

The Company's revenue for the three months ended December 31, 2022 and 2021 is derived from the following sources:

The Company's revenue for the six months ended March 31, 2023 and 2022 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

27 unchanged sentences

Revenues generated from merchant portfolios where the Company does not have control over merchant pricing, liability for merchant losses or credit risk or rights of portability are reported net of interchange and network fees as well as third-party processing costs directly attributable to processing and bank sponsorship costs.

Revenues are also derived from a variety of fixed transaction or service fees, including authorization fees, convenience fees, statement fees, annual fees, gateway fees, which are charged for accessing our payment and software solutions, and fees for other miscellaneous services, such as handling chargebacks.

Revenues derived from service fees are recognized at the time the services are performed and there are no further performance obligations.

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

Revenues are also derived from a variety of transaction fees, which are charged for accessing our payment and software solutions, and fees for other miscellaneous services.

Revenues derived from such fees are recognized in the period the transactions occur and when there are no further performance obligations.

Revenue from the sale of equipment, is recognized upon transfer of ownership to the customer, after which there are no further performance obligations.

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

1 unchanged sentence

The selling price for a deliverable is based on standalone selling price, if available, the adjusted market assessment approach, estimated cost plus margin approach, or residual approach.

The Company establishes estimated selling price, based on the judgment of the Company's management, considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and

In arrangements with multiple performance obligations, the Company determines allocation

i3 VERTICALS, Inc.

1 unchanged sentence

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

the product life cycle.

In arrangements with multiple performance obligations, the Company determines allocation of the transaction price at inception of the arrangement and uses the standalone selling prices for the majority of the Company's revenue recognition.

of the transaction price at inception of the arrangement and uses the standalone selling prices for the majority of the Company's revenue recognition.

Revenues from sales of the Company ’ s combined hardware and software element are recognized when each performance obligation has been satisfied which has been determined to be upon the delivery of the product.

7 unchanged sentences

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

For the Three Months Ended December 31, 2022

For the Three Months Ended March 31, 2023

Merchant Services Software and Services Other Total

3 unchanged sentences

Total revenue $ 33,094 $ 60,797 $ ( 19 ) $ 93,872

For the Three Months Ended December 31, 2021

For the Three Months Ended March 31, 2022

Merchant Services Software and Services Other Total

3 unchanged sentences

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

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, 2023

Merchant Services Software and Services Other Total

Software and related services revenue $ 6,196 $ 82,244 $ ( 19 ) $ 88,421

Payments revenue 55,243 27,038 ( 18 ) 82,263

Other revenue 4,489 4,728 — 9,217

Total revenue $ 65,928 $ 114,010 $ ( 37 ) $ 179,901

For the Six Months Ended March 31, 2022

Merchant Services Software and Services 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

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

For the three months ended December 31, 2021, $10,213 was included in revenue earned at a point in time related to professional services or other stand ready contract revenue for fixed service fee arrangements.

These types of revenue are included in revenue earned over time for the three months ended December 31, 2022.The Company's revenue included in each category are defined as follows:

For the three and six months ended March 31, 2022, $ 9,333 and $ 19,546 , respectively, was included in revenue earned at a point in time related to professional services or other stand ready contract revenue for fixed service fee arrangements.

These types of revenue are included in revenue earned over time for the three and six months ended March 31, 2023.

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

• Revenue earned over time — Includes discount fees, gateway fees, sales of SaaS, ongoing support or other stand-ready obligations and professional services.

• Revenue earned at a point in time — Includes point in time service fees that are not stand-ready obligations, software licenses sold as functional intellectual property and other equipment.

For the Three Months Ended March 31, 2023

Merchant Services Software and Services Other Total

Revenue earned over time $ 27,984 $ 54,568 $ ( 9 ) $ 82,543

Revenue earned at a point in time 5,110 6,229 ( 10 ) 11,329

Total revenue $ 33,094 $ 60,797 $ ( 19 ) $ 93,872

For the Three Months Ended March 31, 2022

Merchant Services Software and Services Other Total

Revenue earned over time $ 22,599 $ 34,151 $ ( 9 ) $ 56,741

Revenue earned at a point in time 6,581 14,811 ( 13 ) 21,379

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

i3 VERTICALS, Inc.

1 unchanged sentence

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

For the Three Months Ended December 31, 2022

For the Six Months Ended March 31, 2023

Merchant Services Software and Services Other Total

2 unchanged sentences

Total revenue $ 65,928 $ 114,010 $ ( 37 ) $ 179,901

For the Three Months Ended December 31, 2021

For the Six Months Ended March 31, 2022

Merchant Services Software and Services Other Total

6 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, 2022 and September 30, 2022, the Company’s contract assets from contracts with customers was $ 11,676 and $ 9,716 , respectively.

As of March 31, 2023 and September 30, 2022, the Company’s contract assets from contracts with customers was $ 12,116 and $ 9,716 , respectively.

Contract Liabilities

9 unchanged sentences

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

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

The following tables present the changes in deferred revenue as of and for the six months ended March 31, 2023 and 2022, respectively:

Balance at September 30, 2022

2 unchanged sentences

Balance at December 31, 2022

Deferral of revenue 10,475

Recognition of unearned revenue ( 14,286 )

Balance at March 31, 2023

Balance at September 30, 2021

2 unchanged sentences

Balance at December 31, 2021

Deferral of revenue 11,047

Recognition of unearned revenue ( 16,034 )

Balance at March 31, 2022

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, 2022 and September 30, 2022 the Company had $ 4,339 and $ 4,185 , 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 $ 183 for the three months ended December 31, 2022 and $ 167 for the three months ended December 31, 2021.

As of March 31, 2023 and September 30, 2022 the Company had $ 4,518 and $ 4,185 , 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 $ 193 and $ 376 for the three and six months ended March 31, 2023, respectively and $ 178 and $ 345 for the three and six months ended March 31, 2022, respectively.

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

9 unchanged sentences

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

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

i3 VERTICALS, Inc.

1 unchanged sentence

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

recognition, loss reserves, assumptions used in the calculation of equity-based compensation and in the calculation of income taxes, and certain tax assets and liabilities as well as the related valuation allowances.

Use of Estimates

Such estimates include, but are not limited to, the value of purchase consideration paid and identifiable assets acquired and assumed in acquisitions, goodwill and intangible asset impairment review, determination of performance obligations for revenue recognition, loss reserves, assumptions used in the calculation of equity-based compensation and in the calculation of income taxes, and certain tax assets and liabilities as well as the related valuation allowances.

Actual results could differ from those estimates.

11 unchanged sentences

The adoption of ASU 2020-06 had no impact on net income.

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

During the six months ended March 31, 2023 and 2022, the Company acquired the following intangible assets and businesses:

Residual Buyouts

3 unchanged sentences

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

During the three months ended December 31, 2022, the Company purchased $ 275 in residuals using a combination of cash on hand and borrowings on the Company's revolving credit facility.

During the six months ended March 31, 2023, the Company purchased $ 387 in residuals using a combination of cash on hand and borrowings on the Company's revolving credit facility.

The acquired residual buyout intangible asset has an estimated amortization period of eight years .

The Company did not acquire any residuals during the three months ended December 31, 2021.

The Company did not acquire any residuals during the six months ended March 31, 2022.

Referral Agreements

From time to time, the Company enters into referral agreements with agent banks or other organizations (“referral partner”).

Under these agreements, the referral partner refers its customers to the Company for credit card processing services.

Total consideration paid for these agreements in the six months ended March 31, 2023 was $ 420 , all of which was settled with cash on hand.

Because the Company pays an up-front fee to compensate

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

the referral partner, the amount is treated as an asset acquisition in which the Company has acquired an intangible stream of referrals.

This asset is amortized over a straight-line period of five years .

Purchase of Celtic Cross Holdings, Inc.

and Celtic Systems Pvt.

During the three months ended December 31, 2022, the Company completed the acquisition of substantially all of the assets of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt.

During the six months ended March 31, 2023, the Company completed the acquisition of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt.

in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical.

1 unchanged sentence

Total purchase consideration consisted of $ 85,000 in cash consideration, funded by proceeds from the Company's revolving credit facility.

Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of December 31, 2022.

Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of March 31, 2023.

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

The acquired customer relationships intangible assets has an estimated amortization period of eighteen years .

The trade name and non-compete agreements associated with the acquisition have amortization periods of five years and three years ,

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

respectively.

The trade name and non-compete agreements associated with the acquisition have amortization periods of five years and three years , respectively.

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

5 unchanged sentences

Accounts receivable $ 7,604

Inventories —

Prepaid expenses and other current assets 110

11 unchanged sentences

Net assets acquired $ 85,000

Other Business Combinations during the three months ended December 31, 2022

Effective October 1, 2022, the Company completed the acquisition of another business to expand the Company's software offerings.

The total purchase consideration consisted of $ 4,497 in cash consideration, funded by proceeds from the Company's revolving credit facility.

In connection with this acquisition, the Company allocated approximately $ 104 of the consideration to net working capital, approximately $ 39 of the consideration to purchase price to property and equipment, approximately $ 30 of the consideration to capitalized software, approximately $ 1,480 of the consideration to customer relationships, and the remainder, approximately $ 2,844 , to goodwill, which is deductible for tax purposes.

Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of December 31, 2022.

The acquired capital software and customer relationships intangible asset have estimated amortization periods of eight years and ten years , respectively.

Other Business Combinations during the six months ended March 31, 2023

The Company completed the acquisition of two other businesses to expand the Company's software offerings.

The total purchase consideration was $ 19,757 , including $ 16,997 in cash consideration, funded by proceeds from the Company's revolving credit facility, $ 2,000 of the Company's Class A Common Stock, and $ 760 contingent consideration.

In connection with this acquisition, the Company allocated approximately $ 180 of the consideration to net working capital, approximately $ 374 to property and equipment, approximately $ 670 to capitalized software, approximately $ 8,400 to customer relationships, approximately $ 100 to trade names, and the remainder, approximately $ 12,808 , to goodwill, of which $ 2,864 is deductible for tax purposes, and approximately $ 2,778 to other long-term liabilities.

Certain of the purchase price allocations assigned for this acquisition is

i3 VERTICALS, Inc.

1 unchanged sentence

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

Pro Forma Results of Operations for Business Combinations during the three months ended December 31, 2022

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, 2022 had occurred on October 1, 2021.

considered preliminary as of March 31, 2023.

The acquired capital software and customer relationships intangible asset have estimated amortization periods of seven to eight years and ten to fifteen years , respectively.

Pro Forma Results of Operations for Business Combinations during the six months ended March 31, 2023

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, 2023 had occurred on October 1, 2021.

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 $ 181,275 $ 163,987

Net income (loss) $ 169 $ ( 5,267 )

Net loss $ ( 67 ) $ ( 12,630 )

Business Combinations during the year ended September 30, 2022

During the year ended September 30, 2022, the Company completed the acquisitions of three 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, 2022.

Certain of the purchase price allocations assigned for these acquisitions are considered preliminary as of March 31, 2023.

Total purchase consideration was $ 107,681 , including $ 101,400 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $ 6,281 of contingent consideration.

15 unchanged sentences

Settlement assets 685

Inventories —

Prepaid expenses and other current assets 83

2 unchanged sentences

Acquired merchant relationships 41,090

Non-compete agreements —

Trade name 1,550

11 unchanged sentences

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

December 31, September 30,

A summary of the Company's prepaid expenses and other current assets as of March 31, 2023 and September 30, 2022 is as follows:

March 31, September 30,

Inventory $ 4,732 $ 4,121

12 unchanged sentences

$ 119,086 $ 234,553 $ — $ 353,639

Goodwill attributable to preliminary purchase price adjustments and acquisitions during the three months ended December 31, 2022 2,844 42,315 — 45,159

Balance at December 31, 2022 $ 121,930 $ 276,868 $ — $ 398,798

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

Goodwill attributable to preliminary purchase price adjustments and acquisitions during the six months ended March 31, 2023 2,864 52,539 — 55,403

Balance at March 31, 2023 $ 121,950 $ 287,092 $ — $ 409,042

Intangible assets consisted of the following as of March 31, 2023:

Cost Accumulated

11 unchanged sentences

Total identifiable intangible assets $ 328,450 $ ( 98,838 ) $ 229,612

Amortization expense for intangible assets amounted to $ 5,059 and $ 4,178 during the three months ended December 31, 2022, and 2021 respectively.

Based on net carrying amounts at December 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:

2023 (nine months remaining) $ 14,884

Amortization expense for intangible assets amounted to $ 10,216 and $ 8,774 during the six months ended March 31, 2023 and 2022 respectively.

Based on net carrying amounts at March 31, 2023, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:

2023 (six months remaining) $ 10,160

Thereafter 143,653

3 unchanged sentences

ACCRUED EXPENSES AND OTHER LIABILITIES

A summary of the Company's accrued expenses and other current liabilities as of December 31, 2022 and September 30, 2022 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, 2023 and September 30, 2022 is as follows is as follows:

March 31, September 30,

Accrued wages, bonuses, commissions and vacation $ 7,182 $ 8,117

8 unchanged sentences

Accrued expenses and other current liabilities $ 55,407 $ 57,833

A summary of the Company's long-term liabilities as of December 31, 2022 and September 30, 2022 is as follows:

December 31, September 30,

A summary of the Company's long-term liabilities as of March 31, 2023 and September 30, 2022 is as follows:

March 31, September 30,

Accrued contingent consideration — long-term portion $ 1,503 $ 1,448

3 unchanged sentences

LONG-TERM DEBT, NET

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

December 31, September 30,

A summary of long-term debt, net as of March 31, 2023 and September 30, 2022 is as follows:

March 31, September 30,

Maturity 2023 2022

16 unchanged sentences

Bank National Association, as trustee.

As of December 31, 2022, the aggregate principal amount outstanding of the Exchangeable Notes was $ 117,000 .

As of March 31, 2023, the aggregate principal amount outstanding of the Exchangeable Notes was $ 117,000 .

For a discussion of the terms of the Exchangeable Notes, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three months ended December 31, 2022 was $ 227 , and $ 159 for the three months ended December 31, 2021.

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 2,223 as of December 31, 2022.

The estimated fair value of the Exchangeable Notes was $ 103,990 as of December 31, 2022.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and six months ended March 31, 2023 was $ 233 and $ 460 , respectively $ 164 and $ 323 for the three and six months ended March 31, 2022, respectively.

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 1,989 as of March 31, 2023.

The estimated fair value of the Exchangeable Notes was $ 108,564 as of March 31, 2023.

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

11 unchanged sentences

Warrant Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, the Company entered into warrant transactions to sell to the Counterparties warrants (the “Warrants”) to acquire,

i3 VERTICALS, Inc.

1 unchanged sentence

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

the Company entered into warrant transactions to sell to the Counterparties warrants (the “Warrants”) to acquire, subject to customary adjustments, up to initially 3,376,391 shares of Class A common stock in the aggregate at an initial exercise price of $ 62.88 per share.

subject to customary adjustments, up to initially 3,376,391 shares of Class A common stock in the aggregate at an initial exercise price of $ 62.88 per share.

The Company offered and sold the Warrants in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.

8 unchanged sentences

Effective October 3, 2022, the Senior Secured Credit Facility, as amended, consisted of a $ 375,000 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 Term SOFR (based upon an interest period of one, three or six months), plus an adjustment of 0.10 %, plus an applicable margin of 2.25 % to 3.25 % ( 3.25 % as of December 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) Term SOFR, plus an adjustment of 0.10%, plus 1.00 %), plus an applicable margin of 0.25 % to 1.25 % ( 1.25 % as of December 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, 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 Senior Secured Credit Facility accrues interest at Term SOFR (based upon an interest period of one, three or six months), plus an adjustment of 0.10 %, plus an applicable margin of 2.25 % to 3.25 % ( 3.25 % as of March 31, 2023), 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) Term SOFR, plus an adjustment of 0.10%, plus 1.00 %), plus an applicable margin of 0.25 % to 1.25 % ( 1.25 % as of March 31, 2023), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.

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

Additionally, the Senior Secured Credit Facility required the Company to pay unused commitment fees of 0.15 % to 0.30 % ( 0.30 % as of March 31, 2023) 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 Senior Credit Facility requires maintenance of certain financial ratios on a quarterly basis as follows:

1 unchanged sentence

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

As of December 31, 2022, the Company was in compliance with these covenants, and there was $ 111,826 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.

The lenders under the Senior Secured Credit Facility hold senior rights to collateral and principal repayment over all other creditors.

The provisions of the Senior Secured Credit Facility place certain restrictions and limitations upon the Company.

As of March 31, 2023, the Company was in compliance with these covenants, and there was $ 103,933 available for borrowing under the revolving credit facility, subject to the financial covenants.

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

The lenders under the Senior Secured Credit Facility held senior rights to collateral and principal repayment over all other creditors.

The provisions of the Senior Secured Credit Facility placed certain restrictions and limitations upon the Company.

These include, among others, restrictions on liens, investments, indebtedness, fundamental changes and dispositions;

1 unchanged sentence

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, 2022.

The Company was in compliance with such covenants as of March 31, 2023.

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 (discussed in Note 8 below), and (v) make other dividends or distributions in an aggregate

i3 VERTICALS, Inc.

1 unchanged sentence

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

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.

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

Each subsidiary may make ratable distributions to persons that own equity interests in such subsidiary.

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

On May 8, 2023, the Company replaced the Senior Secured Credit Facility with a new credit agreement.

See Note 18—Subsequent Events for more information.

Debt issuance costs

The Company incurred $ 265 in debt issuance costs during the three months ended December 31, 2022 and did not incur any debt issuance costs during the three months ended December 31, 2021.

The Company incurred $ 265 in debt issuance costs during the three and six months ended March 31, 2023 and did not incur any debt issuance costs during the three and six months ended March 31, 2022.

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 $ 361 during the three months ended December 31, 2022 and $ 254 during the three months ended December 31, 2021.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 368 and $ 729 during the three and six months ended March 31, 2023, respectively and $ 259 and $ 513 during the three and six months ended March 31, 2022, 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 provision of $ 382 for the three months ended December 31, 2022, and a benefit of $ 228 during the three months ended December 31, 2021.

The Company’s provision for income taxes was a benefit of $ 563 and $ 181 for the three and six months ended March 31, 2023, and a provision of $ 884 and $ 656 during the three and six months ended March 31, 2022.

Tax Receivable Agreement

8 unchanged sentences

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

During the three months ended December 31, 2022, the Company did not acquire any Common Units in i3 Verticals, LLC in connection with the redemption of Common Units from the Continuing Equity Owners.

As a result, the Company did not recognize any activity related to exchanges during the three months ended December 31, 2022 in its net deferred tax assets and corresponding Tax Receivable Agreement liabilities.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 40,346 and $ 40,832 , respectively, as of December 31, 2022.

Payments to the Continuing Equity Owners related to exchanges through December 31, 2022 will range from $ 0 to $ 3,315 per year and are expected to be paid over the next 24 years.

The amounts recorded as of December 31, 2022, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S.

During the six months ended March 31, 2023, the Company acquired an aggregate of 9,924 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, 2023 the Company recognized an increase to its net deferred tax assets in the amount of $ 98 , and corresponding Tax Receivable Agreement liabilities of $ 83 , representing 85 % of the tax benefits due to Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 39,808 and $ 40,915 , respectively, as of March 31, 2023.

Payments to the Continuing Equity Owners related to exchanges through March 31, 2023 will range from $ 0 to $ 3,321 per year and are expected to be paid over the next 24 years.

The amounts recorded as of March 31, 2023, 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, 2022.

The Company had no finance leases as of March 31, 2023.

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, 2022 and 2021 was four and five years , respectively.

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

The weighted-average remaining lease term at March 31, 2023 and 2022 was four and five years , respectively.

The Company had no significant short-term leases during the three and six months ended March 31, 2023 and 2022.

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 6.1 % and 6.7 % as of December 31, 2022 and 2021, respectively.

The weighted-average discount rate used in the measurement of our lease liabilities was 7.3 % and 7.1 % as of March 31, 2023 and 2022, 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, 2022 and 2021 were $ 1,504 and $ 1,491 , 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, 2022 and 2021 include variable lease costs of approximately $ 11 and $ 38 , 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 were $ 1,405 and $ 2,909 for the three and six months ended March 31, 2023, respectively and $ 1,455 and $ 2,946 for the three and six months ended March 31, 2022, respectively, which are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Total operating lease costs for the three and six months ended March 31, 2023 include variable lease costs of approximately $ 9 and $ 20 , respectively and $ 6 and $ 44 for the three and six months ended March 31, 2022, 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, 2022 and 2021 were $ 35 and $ 47 , 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, 2023 were $ 75 and $ 110 , respectively and were $ 46 and $ 93 for the three and six months ended March 31, 2022, respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

i3 VERTICALS, Inc.

1 unchanged sentence

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

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

As of March 31, 2023, maturities of lease liabilities are as follows:

Years ending September 30:

2023 (nine months remaining) $ 4,195

2023 (six months remaining) $ 2,662

Thereafter 2,017

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, 2022 and 2021, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of December 31, 2022 and 2021, 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, 2023 and 2022, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of March 31, 2023 and 2022, because interest rates on these instruments approximate market interest rates.

i3 VERTICALS, Inc.

8 unchanged sentences

Contingent consideration paid ( 5,056 )

Balance at December 31, 2022 $ 20,064

Balance at March 31, 2023 $ 22,259

Accrued Contingent Consideration

3 unchanged sentences

Contingent consideration paid ( 10,200 )

Balance at December 31, 2021 $ 36,882

Balance at March 31, 2022 $ 47,940

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

6 unchanged sentences

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

Approximately $ 18,847 and $ 21,385 of contingent consideration was recorded in accrued expenses and other current liabilities as of December 31, 2022 and September 30, 2022, respectively.

Approximately $ 1,217 and $ 1,448 of contingent consideration was recorded in other long-term liabilities as of December 31, 2022 and September 30, 2022, respectively.

Approximately $ 20,756 and $ 21,385 of contingent consideration was recorded in accrued expenses and other current liabilities as of March 31, 2023 and September 30, 2022, respectively.

Approximately $ 1,503 and $ 1,448 of contingent consideration was recorded in other long-term liabilities as of March 31, 2023 and September 30, 2022, respectively.

Disclosure of Fair Values

1 unchanged sentence

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

The estimated fair value of the Exchangeable Notes was $ 103,990 as of December 31, 2022.

The estimated fair value of the Exchangeable Notes was $ 108,564 as of March 31, 2023.

i3 VERTICALS, Inc.

2 unchanged sentences

EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the three months ended December 31, 2022 and 2021 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, 2023 and 2022 is as follows:

Three Months Ended March 31, Six Months Ended March 31,

2023 2022 2023 2022

Stock options $ 5,992 $ 6,042 $ 12,280 $ 12,666

2 unchanged sentences

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

Income tax benefits of $ 47 and $ 27 were recognized during the three months ended December 31, 2022 and 2021, respectively.

Income tax benefits of $ 61 and $ 108 were recognized during the three and six months ended March 31, 2023, respectively, and $ 68 and $ 95 during the three and six months ended March 31, 2022, respectively.

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 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, 2022, equity awards with respect to 434,500 shares of the Company's Class A common stock were available for grant under the 2018 Plan.

As of March 31, 2023, equity awards with respect to 849,900 shares of the Company's Class A common stock were 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, 2022, equity awards with respect to 1,035,338 shares of the Company's Class A common stock were available for grant under the 2020 Inducement Plan.

As of March 31, 2023, equity awards with respect to 1,074,736 shares of the Company's Class A common stock were 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.

1 unchanged sentence

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 three months ended December 31, 2022 and during the year ended September 30, 2022 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

December 31, 2022 September 30, 2022

The fair value of the stock option awards during the six months ended March 31, 2023 and during the year ended September 30, 2022 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

March 31, 2023 September 30, 2022

Expected volatility (1)

13 unchanged sentences

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

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

A summary of stock option activity for the six months ended March 31, 2023 is as follows:

Stock Options Weighted Average Exercise Price

3 unchanged sentences

Forfeited ( 246,474 ) 26.85

Outstanding at December 31, 2022 8,429,498 $ 24.90

Exercisable at December 31, 2022 4,905,460 $ 23.17

The weighted-average grant date fair value of stock options granted during the three months ended December 31, 2022 was $ 12.12 .

As of December 31, 2022, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 31,271 , which is expected to be recognized over a weighted-average period of 1.78 years.

Outstanding at March 31, 2023 8,927,661 $ 25.06

Exercisable at March 31, 2023 5,543,356 $ 24.26

The weighted-average grant date fair value of stock options granted during the six months ended March 31, 2023 was $ 13.88 .

As of March 31, 2023, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 33,829 , which is expected to be recognized over a weighted-average period of 2.2 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, 2022 was $ 7,022 .

The total fair value of stock options that vested during the three and six months ended March 31, 2023 was $ 11,150 and $ 18,172 , 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 three months ended December 31, 2022 is as follows:

A summary of activity related to restricted stock units for the six months ended March 31, 2023 is as follows:

Restricted Stock Units Weighted Average Grant Date Fair Value

1 unchanged sentence

Granted 524,132 25.32

Vested ( 58,234 ) 26.52

Forfeited ( 51,058 ) 24.20

Outstanding at December 31, 2022 601,320 $ 24.21

As of December 31, 2022, total unrecognized compensation expense related to unvested RSUs, including an estimate for pre-vesting forfeitures, was $ 7,373 , which is expected to be recognized over a weighted average period of 3.55 years.

No RSUs vested during the three months ended December 31, 2022.

Outstanding at March 31, 2023 901,492 $ 24.94

As of March 31, 2023, total unrecognized compensation expense related to unvested RSUs, including an estimate for pre-vesting forfeitures, was $ 14,218 , which is expected to be recognized over a weighted average period of 3.56 years.

$ 1,544 RSUs vested during the six months ended March 31, 2023.

COMMITMENTS AND CONTINGENCIES

The Company utilizes office space and equipment under operating leases.

Rent expense under these leases amounted to $ 1,539 during the three months ended December 31, 2022 and $ 1,494 during the three months

Rent expense under these leases amounted to $ 1,480 and $ 3,019 during the three and six months ended March 31, 2023, respectively, and $ 1,501 and $ 3,039 during the three and six months ended March 31, 2022, respectively.

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

i3 VERTICALS, Inc.

1 unchanged sentence

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

ended December 31, 2021.

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

Minimum Processing Commitments

2 unchanged sentences

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

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

As of March 31, 2023, such minimum fee commitments were as follows:

Years ending September 30:

2023 (nine months remaining) $ 3,098

2023 (six months remaining) $ 2,237

Total $ 3,475

8 unchanged sentences

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

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.

1 unchanged sentence

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

S&S Litigation

16 unchanged sentences

On August 16, 2022, the district court granted the Plaintiffs’ motion to remand, and all Defendants appealed.

The case is fully briefed with the United States Fifth Circuit Court of Appeals, with oral argument to take place in April 2023.

The case is fully briefed with the United States Fifth Circuit Court of Appeals, and oral argument took place on April 4, 2023.

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 S&S provides software and payments services within the Company’s Public Sector vertical to local government agencies almost exclusively in Louisiana.

5 unchanged sentences

However, after taking into consideration the evaluation of such matters by the Company’s legal counsel, the Company’s management believes at this time that the anticipated outcome of any existing or potential indemnification liabilities related to this matter will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

RELATED PARTY TRANSACTIONS

i3 VERTICALS, Inc.

1 unchanged sentence

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

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.

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.

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, 2022, the total amount due under the Tax Receivable Agreement was $ 40,832 .

As of March 31, 2023, the total amount due under the Tax Receivable Agreement was $ 40,915 .

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

12 unchanged sentences

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, 2022 and 2021.

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

The following is a summary of reportable segment operating performance for the three and six months ended March 31, 2023 and 2022.

As of and for the Three Months Ended March 31, 2023

Merchant Services Software and Services Other Total

10 unchanged sentences

Goodwill $ 121,950 $ 287,092 $ — $ 409,042

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

As of and for the Six Months Ended March 31, 2023

Merchant Services Software and Services Other Total

7 unchanged sentences

Change in fair value of contingent consideration ( 3,722 )

Income from operations $ 11,282

Total assets $ 205,898 $ 620,126 $ 57,002 $ 883,026

Goodwill $ 121,950 $ 287,092 $ — $ 409,042

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Merchant Services Software and Services Other Total

Revenue $ 29,180 $ 48,962 $ ( 22 ) $ 78,120

Other costs of services ( 13,528 ) ( 3,124 ) 21 ( 16,631 )

Residuals 8,054 448 ( 13 ) 8,489

Processing Margin $ 23,706 $ 46,286 $ ( 14 ) $ 69,978

Residuals ( 8,489 )

Selling, general and administrative ( 48,716 )

Depreciation and amortization ( 7,447 )

Change in fair value of contingent consideration ( 11,503 )

Loss from operations $ ( 6,177 )

1 unchanged sentence

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

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

Merchant Services Software and Services 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 $ ( 6,932 )

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

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

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.

8 unchanged sentences

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

As of December 31, 2022 and 2021, respectively, i3 Verticals, Inc.

As of March 31, 2023 and 2022, respectively, i3 Verticals, Inc.

owned 23,167,730 and 22,133,682 of i3 Verticals, LLC's Common Units, representing a 69.6 % and 68.5 % economic ownership interest in i3 Verticals, LLC.

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

Three months ended December 31,

Six Months Ended March 31,

Net income (loss) attributable to non-controlling interest

$ 181 $ ( 4,218 )

Transfers (from) to non-controlling interests:

Transfers to non-controlling interests:

Redemption of common units in i3 Verticals, LLC ( 86 ) ( 458 )

Allocation of equity (from) to non-controlling interests ( 1,906 ) 1,899

Net transfers (from) to non-controlling interests ( 1,906 ) 1,776

Change from net (loss) income attributable to non-controlling interests and transfers (from) to non-controlling interests $ ( 1,497 ) $ 623

Allocation of equity to non-controlling interests 299 3,517

Net transfers to non-controlling interests 213 3,059

Change from net income (loss) attributable to non-controlling interests and transfers to non-controlling interests $ 394 $ ( 1,159 )

EARNINGS PER SHARE

6 unchanged sentences

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

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the three months ended December 31, 2022 and 2021:

Three months ended December 31,

Basic and diluted (1) net income (loss) per share:

Net income (loss) $ 169 $ ( 3,681 )

Net income (loss) attributable to non-controlling interests

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, 2023 and 2022:

Three Months Ended March 31, Six Months Ended March 31,

2023 2022 2023 2022

Net loss attributable to Class A common stockholders

Basic net income (loss) per share:

$ ( 192 ) $ ( 10,438 ) $ ( 23 ) $ ( 14,119 )

Net (loss) income attributable to non-controlling interest

( 228 ) ( 3,065 ) 181 ( 4,218 )

Net income (loss) attributable to Class A common stockholders

$ 36 $ ( 7,373 ) $ ( 204 ) $ ( 9,901 )

Weighted average shares of Class A common stock outstanding

23,135,898 22,076,297 23,066,499 22,059,365

Basic and diluted net loss per share

Basic net income (loss) per share (1)

$ 0.00 $ ( 0.33 ) $ ( 0.01 ) $ ( 0.45 )

Diluted net loss per share:

Net income attributable to Class A common stockholders $ 36

Reallocation of net loss assuming conversion of common units ( 171 )

Net loss attributable to Class A common stockholders - diluted ( 135 )

Weighted average shares of Class A common stock outstanding

Weighted average effect of dilutive securities (2)

Weighted average shares of Class A common stock outstanding - diluted

Diluted net loss per share $ 0.00

__________________________

For the three months ended December 31, 2022 and 2021 all potentially dilutive securities were anti-dilutive, so diluted net loss per share was equivalent to basic net loss per share.

For the six months ended March 31, 2023 and 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:

10,118,142 and 10,222,946 weighted average shares of Class B common stock for the three months ended December 31, 2022 and 2021, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive.

5,652,711 and 5,444,557 stock options for the three months ended December 31, 2022 and 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

696,427 and 606,942 shares for the three months ended December 31, 2022 and 2021, 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.

10,114,598 weighted average shares of Class B common stock for the six months ended March 31, 2023, and 10,210,142 and 10,216,615 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.

5,165,478 stock options for the six months ended March 31, 2023 and 4,667,581 and 5,388,813 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, and

633,453 shares for the six months ended March 31, 2023, and 522,355 and 613,913 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.

For the three months ended March 31, 2023, 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:

4,018,042 stock options for the three months ended March 31, 2023, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

On September 22, 2022, the Company provided the trustee notice of the Company’s irrevocable election to settle the principal portion of its Exchangeable Notes only in cash and the conversion spread in cash or shares.

8 unchanged sentences

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

SIGNIFICANT NON-CASH TRANSACTIONS

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

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, 2023 and 2022:

Six months ended March 31,

Acquisition date fair value of contingent consideration in connection with business combinations $ 760 $ 5,481

1 unchanged sentence

Right-of-use assets obtained in exchange for operating lease obligations $ 1,098 $ 7,584

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

SUBSEQUENT EVENTS

Recent Acquisitions

Subsequent to December 31, 2022, the Company completed an acquisition of a business that will expand the Company's software offerings in the Public Sector vertical within the Software and Services segment.

Total purchase consideration for the business was $ 14,500 , including $ 12,500 in cash funded by proceeds from the Company's revolving credit facility, $ 2,000 of the Company's Class A Common Stock, and an amount of contingent consideration, which is still being valued.

Certain provisions in the purchase agreement provide for additional consideration of up to $ 6,000 , in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreement, through no later than December 2024.

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

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

The effect of the acquisition will be included in the condensed consolidated statements of operations beginning January 1, 2023.

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

2023 Senior Secured Revolving Credit Facility

On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (the “2023 Credit Agreement”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”).

The 2023 Credit Agreement replaces the Senior Secured Credit Facility.

The 2023 Credit Agreement provides for aggregate commitments of $ 450 million in the form of a senior secured revolving credit facility (the “Revolver”).

The 2023 Credit Agreement provides that the Borrower has the right to seek additional commitments to provide additional term loan facilities or additional revolving credit commitments in an aggregate principal amount up to, as of any date of determination, the sum of (i) the greater of $ 100 million and 100 % of the Borrower’s consolidated EBITDA (as defined in the 2023 Credit Agreement) for the most recently completed four quarter period, plus (ii) the amount of certain prepayments of certain indebtedness, so long as, among other things, after

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

giving pro forma effect to the incurrence of such additional borrowings and any related transactions, the Borrower’s consolidated interest coverage ratio (as defined in the 2023 Credit Agreement) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement) would not exceed 5.0 to 1.0.

The provision of any such additional amounts under the additional term loan facilities or additional revolving credit commitments are subject to certain additional conditions and the receipt of certain additional commitments by existing or additional lenders.

The lenders under the 2023 Credit Agreement are not under any obligation to provide any such additional term loan facilities or revolving credit commitments.

The proceeds of the Revolver, together with proceeds from any additional amounts under the additional term loan facilities or additional revolving credit commitments, may only be used by the Borrower to (i) finance working capital, capital expenditures and other lawful corporate purposes, (ii) finance permitted acquisitions (as defined in the 2023 Credit Agreement) and (iii) to refinance certain existing indebtedness.

Borrowings under the Revolver will be made, at the Borrower’s option, at the base rate or the Adjusted Term SOFR rate, plus, in each case, an applicable margin.

The base rate is a fluctuating rate of interest per annum equal to the highest of (a) the greater of the federal funds rate or the overnight bank funding rate, plus ½ of 1%, (b) Wall Street Journal prime rate and (c) the Adjusted Term SOFR rate for an interest period of one month, plus 1 %;

provided, that the base rate shall not be less than 1 % in any event.

The Adjusted Term SOFR rate will be the rate of interest per annum equal to the Term SOFR rate (based upon an interest period of one, three or six months), plus 0.10 %;

provided, that the Adjusted Term SOFR rate shall not be less than 0 % in any event.

The applicable margin is based upon the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement), as reflected in the schedule below:

Consolidated Total Net Leverage Ratio Commitment Fee Letter of Credit Fee Term Benchmark Loans Base Rate Loans

0.30 % 3.00 % 3.00 % 2.00 %

> 2.5 to 1.0 but < 3.00 to 1.0

0.25 % 2.50 % 2.50 % 1.50 %

> 2.0 to 1.0 but < 2.50 to 1.0

0.20 % 2.25 % 2.25 % 1.25 %

0.15 % 2.00 % 2.00 % 1.00 %

In addition to paying interest on outstanding principal under the Revolver, the Borrower will be required to pay a commitment fee equal to the product of between 0.15 % and 0.30 % (the applicable percentage depending on the Borrower’s consolidated total net leverage ratio as reflected in the schedule above) times the actual daily amount by which $ 450 million exceeds the total amount outstanding under the Revolver and available to be drawn under all outstanding letters of credit.

The Borrower will be permitted to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the 2023 Credit Agreement, whether such amounts are issued under the Revolver or under the additional term loan facilities or additional revolving credit facilities, at any time without premium or penalty.

In addition, if the total amount borrowed under the Revolver exceeds $ 450 million at any time, the 2023 Credit Agreement requires the Borrower to prepay such excess outstanding amounts.

All obligations under the 2023 Credit Agreement are unconditionally guaranteed by the Company, and each of the Company’s existing and future direct and indirect material, wholly owned domestic subsidiaries, subject to certain exceptions.

The obligations are secured by first-priority security interests in substantially all

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

tangible and intangible assets of the Borrower, the Company and each subsidiary guarantor, in each case whether owned on the date of the initial borrowings or thereafter acquired.

The 2023 Credit Agreement places certain restrictions on the ability of the Borrower, the Company and their subsidiaries to, among other things, incur debt and liens;

merge, consolidate or liquidate;

dispose of assets;

enter into hedging arrangements;

make certain restricted payments;

undertake transactions with affiliates;

enter into sale-leaseback transactions;

make certain investments;

prepay or modify the terms of certain indebtedness;

and modify the terms of certain organizational agreements.

The 2023 Credit Agreement contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events, invalidity of loan documents and certain changes in control.

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