What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 230 added, 237 removed, 859 unchanged (35% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

March 31, September 30,

June 30, September 30,

Current assets

29 unchanged sentences

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

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

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

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

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

23,193,447 and 22,986,448 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively

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

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

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

Additional paid-in capital 239,917 241,958

8 unchanged sentences

(In thousands, except share and per share amounts)

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

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

Revenue $ 93,931 $ 80,553 $ 273,832 $ 232,612

10 unchanged sentences

Loss before income taxes ( 4,001 ) ( 6,498 ) ( 4,205 ) ( 19,961 )

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

Provision for (benefit from) income taxes 2,077 ( 1,810 ) 1,896 ( 1,154 )

Net loss ( 6,078 ) ( 4,688 ) ( 6,101 ) ( 18,807 )

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

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

Net loss attributable to non-controlling interest ( 923 ) ( 960 ) ( 742 ) ( 5,178 )

Net loss attributable to i3 Verticals, Inc.

$ ( 5,155 ) $ ( 3,728 ) $ ( 5,359 ) $ ( 13,629 )

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

Net loss per share attributable to Class A common stockholders:

Basic $ ( 0.22 ) $ ( 0.17 ) $ ( 0.23 ) $ ( 0.62 )

25 unchanged sentences

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

Equity-based compensation — — — — 7,198 — — 7,198

Net loss — — — — — ( 5,155 ) ( 923 ) ( 6,078 )

Exercise of equity-based awards 25,717 — — — 11 — — 11

Allocation of equity to non-controlling interests — — — — ( 1,734 ) — 1,734 —

Balance at June 30, 2023 23,193,447 $ 2 10,108,218 $ 1 $ 239,917 $ ( 17,492 ) $ 90,514 $ 312,942

See Notes to the Interim Condensed Consolidated Financial Statements

19 unchanged sentences

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

Equity-based compensation — — — — 6,799 — — 6,799

Net loss — — — — — ( 3,728 ) ( 960 ) ( 4,688 )

Redemption of common units in i3 Verticals, LLC 56,000 — ( 56,000 ) — 460 — ( 460 ) —

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 748 — — 748

Exercise of equity-based awards 62,958 — — — 138 — — 138

Allocation of equity to non-controlling interests — — — — ( 2,077 ) — 2,077 —

Balance at June 30, 2022 22,252,640 $ 2 10,118,142 $ 1 $ 226,269 $ ( 20,109 ) $ 84,329 $ 290,492

See Notes to the Interim Condensed Consolidated Financial Statements

2 unchanged sentences

(In thousands)

Six months ended March 31,

Nine months ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Amortization of debt discount and issuance costs 1,312 4,312

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

Provision for (benefit from) income taxes 1,860 ( 1,154 )

Non-cash lease expense 3,464 3,684

27 unchanged sentences

(In thousands)

Six months ended March 31,

Nine months ended June 30,

Cash flows from financing activities:

50 unchanged sentences

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

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

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the unaudited condensed consolidated financial statements of the Company and its subsidiaries as of June 30, 2023 and for the three and nine months ended June 30, 2023 and 2022.

The results of operations for the three and nine months ended June 30, 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 $ 7,185 as of March 31, 2023 and $ 7,540 as of September 30, 2022, respectively.

Settlement assets and settlement obligations were both $ 10,793 as of June 30, 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 $ 4,732 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.

Inventories were $ 4,537 and $ 4,121 at June 30, 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 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.

Acquisitions completed during the nine months ended June 30, 2023 contributed $ 13,417 and $ 3,713 of revenue and net income, respectively, to the Company's condensed consolidated statements of operations for the nine months then ended.

The Company adopted ASU 2016-02, Leases, 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 six months ended March 31, 2023 and 2022 is derived from the following sources:

The Company's revenue for the nine months ended June 30, 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

48 unchanged sentences

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

For the Three Months Ended March 31, 2023

Merchant Services Software and Services Other Total

For the Three Months Ended June 30, 2023

Software and Services Merchant Services Other Total

Software and related services revenue $ 43,971 $ 3,303 $ ( 6 ) $ 47,268

2 unchanged sentences

Total revenue $ 58,901 $ 35,040 $ ( 10 ) $ 93,931

For the Three Months Ended March 31, 2022

Merchant Services Software and Services Other Total

For the Three Months Ended June 30, 2022

Software and Services Merchant Services Other Total

Software and related services revenue $ 35,667 $ 3,349 $ ( 10 ) $ 39,006

5 unchanged sentences

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

For the Six Months Ended March 31, 2023

Merchant Services Software and Services Other Total

For the Nine Months Ended June 30, 2023

Software and Services Merchant Services Other Total

Software and related services revenue $ 126,215 $ 9,499 $ ( 25 ) $ 135,689

2 unchanged sentences

Total revenue $ 172,911 $ 100,968 $ ( 47 ) $ 273,832

For the Six Months Ended March 31, 2022

Merchant Services Software and Services Other Total

For the Nine Months Ended June 30, 2022

Software and Services Merchant Services Other Total

Software and related services revenue $ 105,023 $ 9,319 $ ( 26 ) $ 114,316

3 unchanged sentences

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 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.

For the three and nine months ended June 30, 2022, $ 10,170 and $ 29,716 , 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 nine months ended June 30, 2023.

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

1 unchanged sentence

• 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

For the Three Months Ended June 30, 2023

Software and Services Merchant Services Other Total

Revenue earned over time $ 54,555 $ 29,891 $ ( 7 ) $ 84,439

1 unchanged sentence

Total revenue $ 58,901 $ 35,040 $ ( 10 ) $ 93,931

For the Three Months Ended March 31, 2022

Merchant Services Software and Services Other Total

For the Three Months Ended June 30, 2022

Software and Services Merchant Services Other Total

Revenue earned over time $ 33,951 $ 25,643 $ ( 10 ) $ 59,584

4 unchanged sentences

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

For the Six Months Ended March 31, 2023

Merchant Services Software and Services Other Total

For the Nine Months Ended June 30, 2023

Software and Services Merchant Services Other Total

Revenue earned over time $ 159,564 $ 85,472 $ ( 26 ) $ 245,010

1 unchanged sentence

Total revenue $ 172,911 $ 100,968 $ ( 47 ) $ 273,832

For the Six Months Ended March 31, 2022

Merchant Services Software and Services Other Total

For the Nine Months Ended June 30, 2022

Software and Services Merchant Services Other Total

Revenue earned over time $ 99,390 $ 70,976 $ ( 27 ) $ 170,339

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

As of June 30, 2023 and September 30, 2022, the Company’s contract assets from contracts with customers was $ 12,910 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 six months ended March 31, 2023 and 2022, respectively:

The following tables present the changes in deferred revenue as of and for the nine months ended June 30, 2023 and 2022, respectively:

Balance at September 30, 2022

5 unchanged sentences

Balance at March 31, 2023

Deferral of revenue 8,788

Recognition of unearned revenue ( 15,478 )

Balance at June 30, 2023

Balance at September 30, 2021

5 unchanged sentences

Balance at March 31, 2022

Deferral of revenue 8,131

Recognition of unearned revenue ( 15,742 )

Balance at June 30, 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 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.

As of June 30, 2023 and September 30, 2022, the Company had $ 4,650 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 $ 203 and $ 579 for the three and nine months ended June 30, 2023, respectively, and $ 187 and $ 532 for the three and nine months ended June 30, 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Other Cost of Services

8 unchanged sentences

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Use of Estimates

14 unchanged sentences

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

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

During the nine months ended June 30, 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 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.

During the nine months ended June 30, 2023, the Company purchased $ 462 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 six months ended March 31, 2022.

The Company did not acquire any residuals during the nine months ended June 30, 2022.

Referral Agreements

1 unchanged sentence

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.

Total consideration paid for these agreements in the nine months ended June 30, 2023 was $ 420 , all of which was settled with cash on hand.

Because the Company pays an up-front fee to compensate 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 .

1 unchanged sentence

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.

During the nine months ended June 30, 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 March 31, 2023.

Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of June 30, 2023.

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

4 unchanged sentences

Acquisition-related costs for this acquisition amounted to approximately $ 1,748 and were expensed as incurred.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Summary of Celtic Cross Holdings, Inc.

15 unchanged sentences

Net assets acquired $ 85,000

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

Other Business Combinations during the nine months ended June 30, 2023

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

1 unchanged sentence

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

Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of June 30, 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.

i3 VERTICALS, Inc.

1 unchanged sentence

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

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 Results of Operations for Business Combinations during the nine months ended June 30, 2023

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

Six months ended March 31,

Nine months ended June 30,

Revenue $ 275,206 $ 249,808

2 unchanged sentences

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 March 31, 2023.

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

7 unchanged sentences

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

In each subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liabilities to their fair values through earnings See additional disclosures in Note 10.

See additional disclosures in Note 10.

i3 VERTICALS, Inc.

22 unchanged sentences

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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,

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

June 30, September 30,

Inventory $ 4,537 $ 4,121

9 unchanged sentences

Changes in the carrying amount of goodwill are as follows:

Merchant Services Software and Services Other Total

Software and Services Merchant Services Other Total

Balance at September 30, 2022

$ 234,553 $ 119,086 $ — $ 353,639

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:

Goodwill attributable to preliminary purchase price adjustments and acquisitions during the nine months ended June 30, 2023 52,540 2,863 — 55,403

Balance at June 30, 2023 $ 287,093 $ 121,949 $ — $ 409,042

Intangible assets consisted of the following as of June 30, 2023:

Cost Accumulated

11 unchanged sentences

Total identifiable intangible assets $ 328,524 $ ( 103,936 ) $ 224,588

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

Amortization expense for intangible assets amounted to $ 15,315 and $ 13,303 during the nine months ended June 30, 2023 and 2022 respectively.

Based on net carrying amounts at June 30, 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 (three months remaining) $ 5,066

Thereafter 143,687

3 unchanged sentences

ACCRUED EXPENSES AND OTHER LIABILITIES

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,

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

June 30, September 30,

Accrued wages, bonuses, commissions and vacation $ 10,136 $ 8,117

8 unchanged sentences

Accrued expenses and other current liabilities $ 46,505 $ 57,833

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,

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

June 30, September 30,

Accrued contingent consideration — long-term portion $ 1,176 $ 1,448

3 unchanged sentences

LONG-TERM DEBT, NET

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

March 31, September 30,

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

June 30, September 30,

Maturity 2023 2022

Revolving lines of credit to banks under the 2023 Senior Secured Credit Facility May 8, 2028 $ 277,400 $ —

Revolving lines of credit to banks under the Prior Senior Secured Credit Facility May 9, 2024 — 185,017

1 % Exchangeable Senior Notes due 2025

14 unchanged sentences

Bank National Association, as trustee.

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

As of June 30, 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 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.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and nine months ended June 30, 2023 was $ 241 and $ 701 , respectively $ 169 and $ 492 for the three and nine months ended June 30, 2022, respectively.

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 1,749 as of June 30, 2023.

The estimated fair value of the Exchangeable Notes was $ 108,206 as of June 30, 2023.

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

23 unchanged sentences

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

Senior Secured Credit Facility

On May 9, 2019, the Company replaced its then existing credit facility with a new credit agreement (the "Senior Secured Credit Facility").

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 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:

(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.

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

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;

maintenance of certain financial ratios;

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

The Company was in compliance with such covenants as of March 31, 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 amount not to exceed 5 % of the net cash proceeds received from any additional common equity issuance.

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 Prior Senior Secured Credit Facility (as defined below).

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 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.

As of June 30, 2023, the Borrower's consolidated interest coverage ratio was 4.31 x and total leverage ratio was 4.00 x.

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 Adjusted Term SOFR rate or the base rate, plus, in each case, an applicable margin.

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 %, plus an applicable margin of 2.00 % to 3.00 % ( 3.00 % at June 30, 2023).

The Adjusted Term SOFR rate shall not be less than 0 % in any event.

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 %, plus an applicable margin of 1.00 % to 2.00 % ( 2.00 % at June 30, 2023).

The base rate shall not be less than 1 % in any event.

i3 VERTICALS, Inc.

1 unchanged sentence

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

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.

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, 0.30 % at June 30, 2023) 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 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 events with respect to employee benefit plans, invalidity of loan documents and certain changes in control.

Prior Senior Secured Credit Facility

On May 9, 2019, the Company replaced its then existing credit facility with a new credit agreement (the "Prior Senior Secured Credit Facility") (as noted above, the Prior Senior Secured Credit Facility was replaced by the 2023 Credit Agreement in May 2023).

Effective October 3, 2022, the Prior 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).

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Prior Senior Secured Credit Facility accrued 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 %, 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 %, 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 Prior Senior Secured Credit Facility required the Company to pay unused commitment fees of 0.15 % to 0.30 % 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.

Debt issuance costs

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 incurred $ 2,814 and $ 3,079 in debt issuance costs during the three and nine months ended June 30, 2023, respectively, and did not incur any debt issuance costs during the three and nine months ended June 30, 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 $ 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.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 583 and $ 1,312 during the three and nine months ended June 30, 2023, respectively and $ 263 and $ 776 during the three and nine months ended June 30, 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 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.

The Company’s provision for income taxes was a provision of $ 2,077 and $ 1,896 for the three and nine months ended June 30, 2023, and a benefit of $ 1,810 and $ 1,154 during the three and nine months ended June 30, 2022.

Tax Receivable Agreement

3 unchanged sentences

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

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

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

i3 VERTICALS, Inc.

1 unchanged sentence

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

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.

prior written consent, which should not be unreasonably withheld, conditioned or delayed, and (b) such persons becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein.

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

During the nine months ended June 30, 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 nine months ended June 30, 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 June 30, 2023.

Payments to the Continuing Equity Owners related to exchanges through June 30, 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 June 30, 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 March 31, 2023.

The Company had no finance leases as of June 30, 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 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 weighted-average remaining lease term at June 30, 2023 and 2022 was four and five years , respectively.

The Company had no significant short-term leases during the three and nine months ended June 30, 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 7.3 % and 7.1 % as of March 31, 2023 and 2022, respectively.

The weighted-average discount rate used in the measurement of our lease liabilities was 7.7 % and 7.6 % as of June 30, 2023 and 2022, respectively.

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

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.

Operating lease costs were $ 1,378 and $ 4,287 for the three and nine months ended June 30, 2023, respectively and $ 1,469 and $ 4,415 for the three and nine months ended June 30, 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 nine months ended June 30, 2023 include variable lease costs of approximately $ 44 and $ 64 , respectively and $ 14 and $ 58 for the three and nine months ended June 30, 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 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 March 31, 2023, maturities of lease liabilities are as follows:

Short-term rent expense for the three and nine months ended June 30, 2023 were $ 54 and $ 164 , respectively and were $ 51 and $ 144 for the three and nine months ended June 30, 2022, respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

As of June 30, 2023, maturities of lease liabilities are as follows:

Years ending September 30:

2023 (six months remaining) $ 2,662

2023 (three months remaining) $ 1,366

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 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.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of June 30, 2023 and 2022, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of June 30, 2023 and 2022, because interest rates on these instruments approximate market interest rates.

i3 VERTICALS, Inc.

8 unchanged sentences

Contingent consideration paid ( 15,642 )

Balance at March 31, 2023 $ 22,259

Balance at June 30, 2023 $ 17,856

Accrued Contingent Consideration

3 unchanged sentences

Contingent consideration paid ( 28,783 )

Balance at March 31, 2022 $ 47,940

Balance at June 30, 2022 $ 38,411

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 $ 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.

Approximately $ 16,680 and $ 21,385 of contingent consideration was recorded in accrued expenses and other current liabilities as of June 30, 2023 and September 30, 2022, respectively.

Approximately $ 1,176 and $ 1,448 of contingent consideration was recorded in other long-term liabilities as of June 30, 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 $ 108,564 as of March 31, 2023.

The estimated fair value of the Exchangeable Notes was $ 108,206 as of June 30, 2023.

i3 VERTICALS, Inc.

2 unchanged sentences

EQUITY-BASED COMPENSATION

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

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

A summary of equity-based compensation expense recognized during the three and nine months ended June 30, 2023 and 2022 is as follows:

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

3 unchanged sentences

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

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.

Income tax benefits of $ 197 and $ 305 were recognized during the three and nine months ended June 30, 2023, respectively, and $ 169 and $ 264 during the three and nine months ended June 30, 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 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.

As of June 30, 2023, equity awards with respect to 888,780 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 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.

As of June 30, 2023, equity awards with respect to 1,115,568 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 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

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

June 30, 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 six months ended March 31, 2023 is as follows:

A summary of stock option activity for the nine months ended June 30, 2023 is as follows:

Stock Options Weighted Average Exercise Price

3 unchanged sentences

Forfeited ( 351,076 ) 27.48

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.

Outstanding at June 30, 2023 8,831,619 $ 25.04

Exercisable at June 30, 2023 5,679,982 $ 24.56

The weighted-average grant date fair value of stock options granted during the nine months ended June 30, 2023 was $ 13.69 .

As of June 30, 2023, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 28,792 , which is expected to be recognized over a weighted-average period of 2.08 years.

The Company's policy is to account for forfeitures of stock-based compensation awards as they occur.

The total fair value of stock options that vested during the three and six months ended March 31, 2023 was $ 11,150 and $ 18,172 , respectively.

The total fair value of stock options that vested during the three and nine months ended June 30, 2023 was $ 4,457 and $ 22,629 , respectively.

Restricted Stock Units

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

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

A summary of activity related to restricted stock units for the nine months ended June 30, 2023 is as follows:

Restricted Stock Units Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 56,631 ) 24.25

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.

Outstanding at June 30, 2023 890,669 $ 24.93

As of June 30, 2023, total unrecognized compensation expense related to unvested RSUs, including an estimate for pre-vesting forfeitures, was $ 13,244 , which is expected to be recognized over a weighted average period of 3.31 years.

$ 1,688 of RSUs vested during the nine months ended June 30, 2023.

COMMITMENTS AND CONTINGENCIES

The Company utilizes office space and equipment under operating leases.

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.

Rent expense under these leases amounted to $ 1,432 and $ 4,451 during the three and nine months ended June 30, 2023, respectively, and $ 1,520 and $ 4,559 during the three and nine months ended June 30, 2022, respectively.

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

6 unchanged sentences

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

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

As of June 30, 2023, such minimum fee commitments were as follows:

Years ending September 30:

2023 (six months remaining) $ 2,237

2023 (three months remaining) $ 1,225

Total $ 3,302

7 unchanged sentences

If the likelihood of a negative outcome with respect to material matters is reasonably possible and the Company is able to determine an estimate of the amount of possible loss or a range of loss, whether in excess of a related accrued liability or where there is no accrued liability, the Company discloses the estimate of the amount of possible loss or range of loss.

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.

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, any such material 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.

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.

25 unchanged sentences

The Company is unable to predict the outcome of this litigation.

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

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

10 unchanged sentences

See Note 8 for further information.

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

As of June 30, 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.

The Company’s operating segments are strategic business units that offer different products and services.

The Company's core business is delivering seamlessly integrated payment and software solutions customers in strategic vertical markets.

The Company's core business is delivering seamlessly integrated software and payment solutions customers in strategic vertical markets.

This is accomplished through the Merchant Services and Software and Services segments.

The Merchant Services segment provides comprehensive payment solutions to businesses and organizations.

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

The Software and Services segment delivers vertical market software solutions to customers across all of the Company's strategic vertical markets.

These solutions often include embedded payments or other recurring services.

The Merchant Services segment provides comprehensive payment solutions to businesses and organizations.

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

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

4 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 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

The following is a summary of reportable segment operating performance for the three and nine months ended June 30, 2023 and 2022.

As of and for the Three Months Ended June 30, 2023

Software and Services Merchant Services Other Total

Revenue $ 58,901 $ 35,040 $ ( 10 ) $ 93,931

9 unchanged sentences

Goodwill $ 287,093 $ 121,949 $ — $ 409,042

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

Merchant Services Software and Services Other Total

As of and for the Nine Months Ended June 30, 2023

Software and Services Merchant Services Other Total

Revenue $ 172,911 $ 100,968 $ ( 47 ) $ 273,832

12 unchanged sentences

(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

As of and for the Three Months Ended June 30, 2022

Software and Services Merchant Services Other Total

Revenue $ 47,839 $ 32,714 $ — $ 80,553

9 unchanged sentences

Goodwill $ 234,796 $ 119,086 $ — $ 353,882

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

Merchant Services Software and Services Other Total

As of and for the Nine Months Ended June 30, 2022

Software and Services Merchant Services Other Total

Revenue $ 141,575 $ 91,071 $ ( 34 ) $ 232,612

19 unchanged sentences

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

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

As of June 30, 2023 and 2022, respectively, i3 Verticals, Inc.

owned 23,193,447 and 22,252,640 of i3 Verticals, LLC's Common Units, representing a 69.6 % and 68.7 % economic ownership interest in i3 Verticals, LLC.

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

Six Months Ended March 31,

Net income (loss) attributable to non-controlling interest

Nine Months Ended June 30,

Net loss attributable to non-controlling interest

$ ( 742 ) $ ( 5,178 )

12 unchanged sentences

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

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the three and six months ended March 31, 2023 and 2022:

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

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the three and nine months ended June 30, 2023 and 2022:

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

Basic net income (loss) per share:

Basic net loss per share:

$ ( 6,078 ) $ ( 4,688 ) $ ( 6,101 ) $ ( 18,807 )

Net (loss) income attributable to non-controlling interest

Net loss attributable to non-controlling interest

( 923 ) ( 960 ) ( 742 ) ( 5,178 )

Net income (loss) attributable to Class A common stockholders

Net loss attributable to Class A common stockholders

$ ( 5,155 ) $ ( 3,728 ) $ ( 5,359 ) $ ( 13,629 )

1 unchanged sentence

23,179,638 22,229,787 23,104,212 22,116,172

Basic net income (loss) per share (1)

Basic net loss per share (1)

$ ( 0.22 ) $ ( 0.17 ) $ ( 0.23 ) $ ( 0.62 )

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 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.

For the three and nine months ended June 30, 2023 and 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:

10,114,598 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.

10,108,218 and 10,112,471 and weighted average shares of Class B common stock for the three and nine months ended June 30, 2023, and 10,131,878 and 10,188,369 for the three and nine months ended June 30, 2022, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive.

5,729,321 and 5,673,655 stock options for the three and nine months ended June 30, 2023 and 4,547,783 and 5,201,394 for the three and nine months ended June 30, 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

557,728 and 740,196 shares for the three and nine months ended June 30, 2023, and 716,276 and 724,484 for the three and nine months ended June 30, 2022, respectively, resulting from estimated stock option exercises and restricted stock units vesting as calculated by the treasury stock method were excluded because of the effect of including them would have been anti-dilutive.

i3 VERTICALS, Inc.

12 unchanged sentences

SIGNIFICANT NON-CASH TRANSACTIONS

The Company engaged in the following significant non-cash investing and financing activities during the six months ended March 31, 2023 and 2022:

Six months ended March 31,

The Company engaged in the following significant non-cash investing and financing activities during the nine months ended June 30, 2023 and 2022:

Nine months ended June 30,

Acquisition date fair value of contingent consideration in connection with business combinations $ 760 $ 6,281

Replacement of the Prior Senior Secured Credit Facility with the 2023 Senior Secured Credit Facility $ 284,000 $ —

Debt issuance costs financed with proceeds from the 2023 Senior Secured Credit Facility $ 2,386 $ —

Accrued interest financed with proceeds from the 2023 Senior Secured Credit Facility $ 1,617 $ —

Right-of-use assets obtained in exchange for operating lease obligations $ 1,702 $ 7,720

SUBSEQUENT EVENTS

2023 Senior Secured Revolving Credit Facility

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”).

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

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.

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.

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.

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.

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

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