What changed in this filing

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Item 1. Financial Statements

2024-02-09 compared with 2023-08-09 · 258 added, 369 removed, 720 unchanged (47% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

June 30, September 30,

December 31, September 30,

Current assets

16 unchanged sentences

Accounts payable $ 9,711 $ 11,064

Current portion of long term debt 90,777 —

Accrued expenses and other current liabilities 33,081 37,740

11 unchanged sentences

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

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

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

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

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

23,279,170 and 23,253,272 shares issued and outstanding as of December 31, 2023 and September 30, 2023, 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 June 30, 2023 and September 30, 2022, respectively

10,093,394 and 10,093,394 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

Additional paid-in capital 254,562 249,688

8 unchanged sentences

(In thousands, except share and per share amounts)

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

Three months ended December 31,

Revenue $ 91,990 $ 86,029

5 unchanged sentences

Total operating expenses 83,458 80,191

Income (loss) from operations 2,632 ( 2,731 ) 13,914 ( 9,663 )

Income from operations 8,532 5,838

Interest expense, net 6,707 5,490

Other income ( 92 ) — ( 295 ) —

Other expense (income) 107 ( 203 )

Total other expenses 6,814 5,287

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

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

Net loss attributable to i3 Verticals, Inc.

Income before income taxes 1,718 551

Provision for income taxes 182 382

Net income 1,536 169

Net income attributable to non-controlling interest 438 409

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

$ 1,098 $ ( 240 )

Net loss per share attributable to Class A common stockholders:

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

Basic $ 0.05 $ ( 0.01 )

10 unchanged sentences

Balance at September 30, 2023 23,253,272 $ 2 10,093,394 $ 1 $ 249,688 $ ( 12,944 ) $ 91,549 $ 328,296

Adoption of ASU 2020-06 — — — — ( 23,382 ) 11,449 — ( 11,933 )

Equity-based compensation — — — — 6,508 — — 6,508

Net (loss) income — — — — — ( 240 ) 409 169

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 685 — — 685

Net income — — — — — 1,098 438 1,536

Exercise of equity-based awards 25,898 — — — ( 10 ) — — ( 10 )

Sale of exchangeable note hedges — — — — 1,483 — — 1,483

Repurchases of warrants — — — — ( 657 ) — — ( 657 )

Allocation of equity to non-controlling interests — — — — ( 2,450 ) — 2,450 —

Balance at December 31, 2023 23,279,170 2 10,093,394 1 254,562 ( 11,846 ) 94,437 337,156

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

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

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (CONTINUED)

(In thousands, except share amounts)

Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Non-Controlling Interest Total Equity

1 unchanged sentence

Balance at September 30, 2022 22,986,448 $ 2 10,118,142 $ 1 $ 241,958 $ ( 23,582 ) $ 89,309 $ 307,688

Adoption of ASU 2020-06 — — — — ( 23,382 ) 11,449 — ( 11,933 )

Equity-based compensation — — — — 6,846 — — 6,846

Net loss — — — — — ( 2,528 ) ( 1,153 ) ( 3,681 )

Redemption of common units in i3 Verticals, LLC 15,000 — ( 15,000 ) — 123 — ( 123 ) —

Net (loss) income — — — — — ( 240 ) 409 169

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 685 — — 685

2 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 — — — — 6,257 — — 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

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)

Nine months ended June 30,

Three months ended December 31,

Cash flows from operating activities:

Net loss $ ( 6,101 ) $ ( 18,807 )

Net income $ 1,536 $ 169

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

2 unchanged sentences

Amortization of debt discount and issuance costs 414 361

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

Provision for income taxes 182 355

Non-cash lease expense 1,184 1,063

Increase in non-cash contingent consideration expense from original estimate 9,905 24,684

Changes in non-cash contingent consideration expense from original estimate ( 237 ) 1,443

Other non-cash adjustments to net income 513 502

15 unchanged sentences

Expenditures for property and equipment ( 699 ) ( 1,438 )

Proceeds from sale of property and equipment 618 —

Expenditures for capitalized software ( 3,100 ) ( 2,721 )

2 unchanged sentences

Payments for other investing activities ( 11 ) ( 802 )

Proceeds from investments 295 —

Proceeds from other investing activities 4 203

Net cash used in investing activities ( 7,171 ) ( 94,530 )

3 unchanged sentences

(In thousands)

Nine months ended June 30,

Three months ended December 31,

Cash flows from financing activities:

1 unchanged sentence

Payments on revolving credit facility ( 71,661 ) ( 79,025 )

Proceeds from sale of exchangeable senior note hedges 250 —

Payments for repurchases of warrants ( 119 ) —

Payments of debt issuance costs — ( 87 )

Cash paid for contingent consideration — ( 1,000 )

Payments for required distributions to members for tax obligations ( 155 ) —

Proceeds from stock option exercises — 54

Payments for employee's tax withholdings from net settled stock option exercises and RSU releases ( 204 ) ( 21 )

Net cash provided by financing activities 82,229 85,695

Net cash (used in) provided by financing activities ( 7,195 ) 76,925

Net (decrease) increase in cash, cash equivalents and restricted cash ( 1,316 ) 574

42 unchanged sentences

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

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

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, 2023 and for the three months ended December 31, 2023 and 2022.

The results of operations for the three months ended December 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 $ 10,793 as of June 30, 2023 and $ 7,540 as of September 30, 2022, respectively.

Settlement assets and settlement obligations were both $ 3,518 as of December 31, 2023 and $ 4,873 as of September 30, 2023, 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 $ 4,537 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.

Inventories were $ 4,251 and $ 4,138 at December 31, 2023 and September 30, 2023, 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.

6 unchanged sentences

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

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

Acquisitions completed during the nine months ended June 30, 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.

The Company elected the accounting policy practical expedients for all classes of underlying assets to (i) combine associated lease and non-lease components in a lease arrangement as a combined lease component and (ii) exclude recording short-term leases as right-of-use assets on the condensed consolidated balance sheets.

i3 VERTICALS, Inc.

1 unchanged sentence

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

elected the accounting policy practical expedients for all classes of underlying assets to (i) combine associated lease and non-lease components in a lease arrangement as a combined lease component and (ii) exclude recording short-term leases as right-of-use assets on the condensed consolidated balance sheets.

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.

11 unchanged sentences

The Company utilized the portfolio approach practical expedient within ASC 606-10-10-4 Revenue from Contracts with Customers—Objectives and the significant financing component practical expedient within ASC 606-10-32-18 Revenue from Contracts with Customers—The Existence of a Significant Financing Component in the Contract in performing the analysis.

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 nine months ended June 30, 2023 and 2022 is derived from the following sources:

The Company's revenue for the three months ended December 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

24 unchanged sentences

(1) the Company has no discretion over which card issuing bank will be used to process a transaction and is unable to direct the activity of the merchant to another card issuing bank, and (2) interchange and card network rates are pre-established by the card issuers or card networks, and the Company has no latitude in determining these fees.

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

Therefore, revenue allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and card networks, respectively, for the three months ended December 31, 2023 and 2022.

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

1 unchanged sentence

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.

Revenues derived from such fees are recognized at the time 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.

2 unchanged sentences

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 the product life cycle.

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)

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

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.

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.

4 unchanged sentences

The Company's products are defined as follows:

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

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

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

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

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

Payments revenue 12,261 29,733 ( 4 ) 41,990

Other revenue 2,669 2,004 — 4,673

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

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

Payments revenue 9,559 27,135 ( 11 ) 36,683

Other revenue 2,613 2,230 21 4,864

Total revenue $ 47,839 $ 32,714 $ — $ 80,553

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Nine Months Ended June 30, 2023

For the Three Months Ended December 31, 2023

Software and Services Merchant Services Other Total

3 unchanged sentences

Total revenue $ 56,589 $ 35,422 $ ( 21 ) $ 91,990

For the Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

Software and Services Merchant Services Other Total

4 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 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 June 30, 2023

Software and Services Merchant Services Other Total

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

Revenue earned at a point in time 4,346 5,149 ( 3 ) 9,492

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

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

Revenue earned at a point in time 13,888 7,071 10 20,969

Total revenue $ 47,839 $ 32,714 $ — $ 80,553

i3 VERTICALS, Inc.

1 unchanged sentence

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

For the Nine Months Ended June 30, 2023

For the Three Months Ended December 31, 2023

Software and Services Merchant Services Other Total

2 unchanged sentences

Total revenue $ 56,589 $ 35,422 $ ( 21 ) $ 91,990

For the Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

Software and Services Merchant Services Other Total

5 unchanged sentences

Therefore, the Company may have contract assets other than trade accounts receivable for performance obligations that are partially completed, which would typically represent consulting services provided before a milestone is completed in a contract.

Additionally, contract assets also include software licenses sold as a right to use license but paid for under a subscription model.

Under this structure, the license revenue is recognized upfront while a portion of the revenue is unbilled.

Unbilled amounts associated with these services are presented as accounts receivable as the Company has an unconditional right to payment for services performed.

As of June 30, 2023 and September 30, 2022, the Company’s contract assets from contracts with customers was $ 12,910 and $ 9,716 , respectively.

As of December 31, 2023 and September 30, 2023, the Company’s contract assets from contracts with customers was $ 10,139 and $ 15,131 , 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 nine months ended June 30, 2023 and 2022, respectively:

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

Balance at September 30, 2023

2 unchanged sentences

Balance at December 31, 2023

Deferral of revenue 10,475

Recognition of unearned revenue ( 14,286 )

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, 2022

2 unchanged sentences

Balance at December 31, 2022

Deferral of revenue 11,047

Recognition of unearned revenue ( 16,034 )

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 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.

As of December 31, 2023 and September 30, 2023, the Company had $ 5,106 and $ 4,966 , 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 $ 229 for the three months ended December 31, 2023, and $ 183 for the three months ended December 31, 2022.

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

5 unchanged sentences

The reserve for merchant losses is included within accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets.

The cost of equipment sold is also included in other cost of services.

The cost of equipment and software sold is also included in other cost of services.

Other costs of services are recognized at the time the associated revenue is earned.

2 unchanged sentences

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.

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.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No.

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

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

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

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

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

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

The Company adopted this ASU on October 1, 2022.

The adoption of ASU 2020-06 resulted in an increase in long-term debt, less current portion and debt issuance costs, net of $ 11,933 , a decrease in additional paid-in-capital of $ 23,382 and a decrease in accumulated deficit of $ 11,449 .

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

i3 VERTICALS, Inc.

1 unchanged sentence

(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:

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.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.

Actual results could differ from those estimates.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 will provide improvements to the income tax disclosures primarily related to the income taxes paid and rate reconciliation, and how legislation changes may affect future capital allocation and cash flow forecasts.

The amendment will improve the consistency in which companies provide tax information, and will further increase the transparency of related tax risks and operational opportunities.

The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company will not be required to adopt ASU 2023-09 until October 1, 2025.

The Company is currently evaluating the impact of the adoption of ASU 2023-09 on the Company’s financial statement disclosures.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 improves interim disclosure requirements for segment reporting, including clarifications regarding the measure of profit and loss used to asses segment performance and the allocation of resources.

Further, it enhances the disclosures for reporting segment expenses and will require the Company to report significant expenses regularly provided by the chief operating decision maker.

The amendment will require companies to disclose a more granular level of information with regards to segment reporting to further enhance the transparency of what specified amounts are included within each segment.

The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company will not be required to adopt ASU 2023-07 until October 1, 2024.

The Company is currently evaluating the impact of the adoption of ASU 2023-07 on the Company’s financial statement disclosures.

During the three months ended December 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 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.

During the three months ended December 31, 2023 and 2022, the Company purchased residuals for $ 3,359 and $ 275 of consideration, respectively.

The purchases were funded with 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 nine months ended June 30, 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 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 .

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Business Combinations during the three months ended December 31, 2023

During the three months ended December 31, 2023 the Company completed the acquisition of a business to expand the Company’s software offerings.

Total purchase consideration was $ 1,270 , including $ 1,100 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $ 170 of contingent consideration.

In connection with this acquisition, the Company allocated approximately $ 5 to property and equipment, approximately $ 40 to capitalized software, approximately $ 220 to customer relationships and the remainder, approximately $ 1,005 , to goodwill, all of which is deductible for tax purposes.

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

The acquired customer relationships intangible assets have an estimated amortization periods of ten years .

The acquired capitalized software have amortization periods of seven years .

Acquisition-related costs for this acquisition amounted to approximately $ 8 and were expensed as incurred.

Business Combinations during the year ended September 30, 2023

Purchase of Celtic Cross Holdings, Inc.

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.

During the three months ended December 31, 2022, 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 June 30, 2023.

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

24 unchanged sentences

Net assets acquired $ 85,001

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

Other Business Combinations during the year ended September 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 $ 159 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 $ 12,229 , to goodwill, of which $ 2,864 is deductible for tax purposes, and approximately $ 2,178 to other long-term liabilities.

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

Certain of the purchase price allocations assigned for one of these acquisitions is considered preliminary as of December 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.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

Nine months ended June 30,

Revenue $ 275,206 $ 249,808

Net loss $ ( 6,145 ) $ ( 17,477 )

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 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.

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

The acquired customer relationships intangible assets have estimated amortization periods of between ten and nineteen years .

The trade names have estimated weighted-average amortization periods of four years .

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

The acquired capitalized software have amortization periods of seven years .

Acquisition-related costs for these businesses amounted to approximately $ 773 and were expensed as incurred.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 23,000 , in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreements, through no later than September 2024.

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.

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

i3 VERTICALS, Inc.

1 unchanged sentence

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

Summary of Business Combinations during the year ended September 30, 2022

The fair values assigned to certain assets and liabilities assumed, as of the acquisition dates, during the year ended September 30, 2022 were as follows:

Accounts receivable $ 651

Settlement assets 685

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Property and equipment 190

Capitalized software 9,790

Acquired merchant relationships 41,090

Trade name 1,550

Goodwill 61,347

Operating lease right-of-use assets 263

Other assets 22

Total assets acquired 115,671

Accrued expenses and other current liabilities 287

Settlement obligations 685

Deferred revenue, current 30

Current portion of operating lease liabilities 82

Operating lease liabilities, less current portion 181

Other long-term liabilities 6,725

Net assets acquired $ 107,681

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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,

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

December 31, September 30,

Inventory $ 4,251 $ 4,138

4 unchanged sentences

Prepaid expenses and other current assets $ 14,218 $ 12,449

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

GOODWILL AND INTANGIBLE ASSETS

3 unchanged sentences

$ 287,613 $ 121,950 $ — $ 409,563

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:

Goodwill attributable to preliminary purchase price adjustments and acquisitions during the three months ended December 31, 2023 1,209 — — 1,209

Balance at December 31, 2023 $ 288,822 $ 121,950 $ — $ 410,772

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

Cost Accumulated

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Total identifiable intangible assets $ 335,636 $ ( 110,340 ) $ 225,296

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

Amortization expense for intangible assets amounted to $ 5,234 and $ 5,059 during the three months ended December 31, 2023 and 2022 respectively.

i3 VERTICALS, Inc.

1 unchanged sentence

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

Based on net carrying amounts at December 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:

2024 (nine months remaining) $ 15,625

Thereafter 130,240

ACCRUED EXPENSES AND OTHER LIABILITIES

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,

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

December 31, September 30,

Accrued wages, bonuses, commissions and vacation $ 6,995 $ 8,713

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Escrow liabilities 2,957 3,965

Tax receivable agreement liability — current portion 21 20

Customer deposits 1,312 1,258

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Accrued expenses and other current liabilities $ 33,081 $ 37,740

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,

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

December 31, September 30,

Accrued contingent consideration — long-term portion $ 349 $ 1,414

2 unchanged sentences

Total other long-term liabilities $ 21,991 $ 24,143

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

LONG-TERM DEBT, NET

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

June 30, September 30,

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

December 31, September 30,

Maturity 2023 2023

Revolving lines of credit to banks under the 2023 Senior Secured Credit Facility May 8, 2028 $ 265,539 $ 272,505

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

1 % Exchangeable Senior Notes due 2025

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Total long-term debt, net of issuance costs 378,528 385,081

Less current portion of long-term debt ( 90,777 ) —

Long-term debt, net of current portion $ 287,751 $ 385,081

2020 Exchangeable Notes Offering

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

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

On October 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method, which resulted in the Exchangeable Notes being presented as a single liability instrument with no separate accounting for embedded conversion features.

Refer to Note 2 for further discussion.

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

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

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Bank National Association, as trustee.

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, 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.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three months ended December 31, 2023 was $ 255 and $ 227 for the three months ended December 31, 2022.

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 1,246 and $ 1,501 as of December 31, 2023 and September 30, 2023, respectively.

The estimated fair value of the Exchangeable Notes was $ 108,635 as of December 31, 2023.

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

The fair value is classified as Level 2, as defined in Note 10.

During fiscal year 2020, we repurchased $ 21,000 in aggregate principal amount of Exchangeable Notes in open market purchases.

In addition, on December 21, 2023, i3 Verticals, LLC entered into agreements to repurchase an additional portion of its Exchangeable Notes pursuant to privately negotiated transactions with a limited number of holders of the Exchangeable Notes (the "Exchangeable Note Repurchases").

The repurchase payments were determined by the Company’s average stock price over the 15 trading-day measurement period ending January 16, 2024, and the closing of the Exchangeable Note Purchases occurred on January 18, 2024.

The Company reclassified the $ 90,777 Exchangeable Note Repurchases from long-term to current effective December 21, 2023 to reflect the agreements.

The Company will record the impact of the difference in the estimated acquisition price and the net carrying amount of the repurchased portion of the Exchangeable Notes, adjusted for unamortized debt issuance costs and costs and third-party fees related to the transaction, in January

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

2024 after giving effect to the settlement.

Refer to Note 18 for additional information regarding the settlement of these Exchangeable Notes.

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

Exchangeable Note Hedge Transactions

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

In December 2023, i3 Verticals, LLC received $ 250 from the Counterparties to terminate the portion of the Note Hedge Transactions corresponding to the Exchangeable Notes that were repurchased in fiscal year 2020.

Also in December 2023, i3 Verticals, LLC entered into agreements with the Counterparties to terminate the portion of the Note Hedge Transactions corresponding to the Exchangeable Note Repurchases, which settled in January 2024.

For additional information regarding the termination of these Note Hedge Transactions, see Note 18.

Warrant Transactions

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

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, 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.

5 unchanged sentences

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

In December 2023, the Company paid $ 119 to the Counterparties to terminate the portion of the Warrants corresponding to the Exchangeable Notes that were repurchased in fiscal year 2020.

Also in December 2023, i3 Verticals, LLC entered into agreements with the Counterparties to terminate the portion of the Warrants

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

corresponding to the Exchangeable Note Repurchases, which settled in January 2024.

For additional information regarding the termination of these Warrants, see Note 18.

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.

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

The 2023 Senior Secured Credit Facility replaces the Prior Senior Secured Credit Facility (as defined below).

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

The 2023 Senior Secured Credit Facility 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 Senior Secured Credit Facility) 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 Senior Secured Credit Facility) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not exceed 5.0 to 1.0.

As of December 31, 2023, the Borrower's consolidated interest coverage ratio was 4.40 and total leverage ratio was 3.60 .

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.

The lenders under the 2023 Senior Secured Credit Facility 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 Senior Secured Credit Facility) 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.

2 unchanged sentences

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

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:

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

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

5 unchanged sentences

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.

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 December 31, 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 Senior Secured Credit Facility, 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 Senior Secured Credit Facility requires the Borrower to prepay such excess outstanding amounts.

All obligations under the 2023 Senior Secured Credit Facility 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;

The 2023 Senior Secured Credit Facility 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;

7 unchanged sentences

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.

The 2023 Senior Secured Credit Facility 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).

6 unchanged sentences

Debt issuance costs

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 did not incur any debt issuance costs during the three months ended December 31, 2023, and incurred $ 265 in debt issuance costs during the three months ended December 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 $ 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.

The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $ 414 during the three months ended December 31, 2023, and $ 361 during the three months ended December 31, 2022.

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 $ 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.

The Company’s provision for income taxes was a provision of $ 182 for the three months ended December 31, 2023, and a provision of $ 382 during the three months ended December 31, 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

i3 VERTICALS, Inc.

1 unchanged sentence

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

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.

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.

During the three months ended December 31, 2023, the Company acquired no Common Units in i3 Verticals, LLC in connection with the redemption of Common Units from the Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 37,723 and $ 40,079 , respectively, as of December 31, 2023.

Payments to the Continuing Equity Owners related to exchanges through December 31, 2023 will range from $ 0 to $ 3,235 per year and are expected to be paid over the next 23 years.

The amounts recorded as of December 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 June 30, 2023.

The Company had no finance leases as of December 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 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 weighted-average remaining lease term at December 31, 2023 and 2022 was two and four years , respectively.

The Company had no significant short-term leases during the three months ended December 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 7.7 % and 7.6 % as of June 30, 2023 and 2022, respectively.

The weighted-average discount rate used in the measurement of our lease liabilities was 7.5 % and 6.1 % as of December 31, 2023 and 2022, respectively.

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

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.

Operating lease costs were $ 1,333 for the three months ended December 31, 2023 and $ 1,504 for the three months ended December 31, 2022, 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, 2023 include variable lease costs of approximately $ 10 and $ 11 and for the three months ended December 31, 2022, 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, 2023 were $ 45 and were $ 35 for the three months ended December 31, 2022, 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)

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 (three months remaining) $ 1,366

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

Fiscal Years ending September 30:

2024 (nine months remaining) $ 3,833

Thereafter 1,262

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

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of June 30, 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.

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, 2023 and 2022, because of the relatively short maturity dates on these instruments.

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

i3 VERTICALS, Inc.

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Contingent consideration paid ( 1,918 )

Balance at June 30, 2023 $ 17,856

Balance at December 31, 2023 $ 6,254

Accrued Contingent Consideration

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Contingent consideration paid ( 4,212 )

Balance at June 30, 2022 $ 38,411

Balance at December 31, 2022 $ 20,064

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

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

Approximately $ 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.

Approximately $ 5,905 and $ 6,825 of contingent consideration was recorded in accrued expenses and other current liabilities as of December 31, 2023 and September 30, 2023, respectively.

Approximately $ 349 and $ 1,414 of contingent consideration was recorded in other long-term liabilities as of December 31, 2023 and September 30, 2023, respectively.

Disclosure of Fair Values

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

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

The estimated fair value of the Exchangeable Notes was $ 108,635 as of December 31, 2023.

i3 VERTICALS, Inc.

2 unchanged sentences

EQUITY-BASED COMPENSATION

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

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

Three Months Ended December 31,

Stock options $ 4,969 $ 6,288

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

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.

Current and deferred income tax benefits of $ 1,078 and $ 1,189 were recognized during the three months ended December 31, 2023 and 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 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.

As of December 31, 2023, equity awards with respect to 2,433,717 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 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.

As of December 31, 2023, equity awards with respect to 1,230,668 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.

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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 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

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

December 31, 2023 September 30, 2023

Expected volatility (1)

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

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

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

Stock Options Weighted Average Exercise Price

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Forfeited ( 113,595 ) 28.19

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.

Outstanding at December 31, 2023 8,463,075 $ 25.13

Exercisable at December 31, 2023 6,030,296 $ 24.65

The weighted-average grant date fair value of stock options granted during the three months ended December 31, 2023 was $ 11.04 .

As of December 31, 2023, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 18,211 , which is expected to be recognized over a weighted-average period of 2.14 years.

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

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

The total fair value of stock options that vested during the three months ended December 31, 2023 was $ 6,395 .

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 nine months ended June 30, 2023 is as follows:

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

Restricted Stock Units Weighted Average Grant Date Fair Value

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Forfeited ( 9,792 ) 25.54

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.

Outstanding at December 31, 2023 852,336 $ 24.93

As of December 31, 2023, total unrecognized compensation expense related to unvested RSUs, including an estimate for pre-vesting forfeitures, was $ 12,240 , which is expected to be recognized over a weighted average period of 2.97 years.

$ 698 of RSUs vested during the three months ended December 31, 2023.

COMMITMENTS AND CONTINGENCIES

The Company utilizes office space and equipment under operating leases.

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.

Rent expense under these leases amounted to $ 1,378 and $ 1,539 during the three months ended December 31, 2023 and 2022, respectively.

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

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

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

Years ending September 30:

2023 (three months remaining) $ 1,225

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

Fiscal Years ending September 30:

2024 (nine months remaining) $ 3,425

Total $ 4,452

Third Party Sales Organization Buyout Agreement

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

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

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

As the eventual financial metrics are not known, the amount of the buyout transaction as well as the additional consideration are not able to be estimated at this time.

With respect to all legal, regulatory and governmental proceedings, and in accordance with ASC 450-20, Contingencies—Loss Contingencies , the Company considers the likelihood of a negative outcome.

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S&S Litigation

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

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

See State of Louisiana, by and through its Division of Administration, East Baton Rouge Parish Law Enforcement District, by and through the duly elected East Baton Rouge Parish Sheriff, Sid J.

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and Scott Carrington .

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

The Petition seeks monetary damages for the cost of network remediation of $ 15,000 purportedly spent by the State and $ 7,000 purportedly spent by the Sheriffs, return of purchase prices, potential additional expenses related to remediation and any obligation to notify parties of an alleged data breach as and if required by applicable law, and reasonable attorneys’ fees.

The claimed damages relate to a third-party remote access software product used in connection with services provided by S&S to certain Louisiana Parish law enforcement districts and alleged inadequacies in the Company’s cybersecurity practices.

The Petition was amended on October 4, 2021 to amend and expand the putative class and subsequently removed to the United States District Court for the Middle District of Louisiana.

The Petition seeks monetary damages for the cost of network remediation of $ 15,000 purportedly spent by the State and $ 7,000 purportedly spent by the Plaintiffs, return of purchase prices, potential additional expenses related to remediation and any obligation to notify parties of an alleged data breach as and if required by applicable law, and reasonable attorneys’ fees.

The claimed damages relate to a third-party remote access software product used in connection with services provided by S&S to certain Louisiana law enforcement districts and alleged inadequacies in the Company’s cybersecurity practices.

Plaintiffs moved to remand the action to state court on November 5, 2021, and the motion was referred to a magistrate to make a report and recommendation to the district court judge.

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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, 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.

Oral argument on this motion in front of the United States Fifth Circuit Court of Appeals took place on April 4, 2023, and on September 1, 2023, the Fifth Circuit panel affirmed the District Court order to remand the case back to state court.

On September 29, 2023, all Defendants-Appellants filed a Petition for Rehearing En Banc, which the Plaintiffs-Appellees opposed on October 12, 2023.

The parties await a decision on that motion.

The assets of the S&S business were acquired from South Pointe by the Company in 2018 for $ 17,000 , including upfront cash consideration and contingent consideration, and provides software and payments services within the Company’s Public Sector vertical to local government agencies almost exclusively in Louisiana.

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

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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)

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.

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.

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 June 30, 2023, the total amount due under the Tax Receivable Agreement was $ 40,915 .

As of December 31, 2023, the total amount due under the Tax Receivable Agreement was $ 40,079 .

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.

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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 nine months ended June 30, 2023 and 2022.

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

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

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

Software and Services Merchant Services Other Total

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Goodwill $ 288,822 $ 121,950 $ — $ 410,772

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

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

Software and Services Merchant Services Other Total

10 unchanged sentences

Goodwill $ 276,868 $ 121,930 $ — $ 398,798

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 June 30, 2022

Software and Services Merchant Services Other Total

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

Other costs of services ( 3,456 ) ( 16,303 ) 10 ( 19,749 )

Residuals 348 10,320 ( 11 ) 10,657

Processing Margin $ 44,731 $ 26,731 $ ( 1 ) $ 71,461

Residuals ( 10,657 )

Selling, general and administrative ( 47,775 )

Depreciation and amortization ( 7,506 )

Change in fair value of contingent consideration ( 8,254 )

Loss from operations $ ( 2,731 )

Total assets $ 510,336 $ 204,656 $ 65,432 $ 780,424

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

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

Other costs of services ( 9,660 ) ( 43,273 ) 43 ( 52,890 )

Residuals 1,139 26,555 ( 28 ) 27,666

Processing margin $ 133,054 $ 74,353 $ ( 19 ) $ 207,388

Residuals ( 27,666 )

Selling, general and administrative ( 142,878 )

Depreciation and amortization ( 21,823 )

Change in fair value of contingent consideration ( 24,684 )

Loss from operations $ ( 9,663 )

Total assets $ 510,336 $ 204,656 $ 65,432 $ 780,424

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

The Company has not disclosed expenditures on long-lived assets as such expenditures are not reviewed by or provided to the chief operating decision maker.

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

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

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

owned 23,279,170 and 23,011,193 of i3 Verticals, LLC's Common Units, representing a 69.8 % and 69.5 % 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:

Nine Months Ended June 30,

Net loss attributable to non-controlling interest

$ ( 742 ) $ ( 5,178 )

Transfers to non-controlling interests:

Redemption of common units in i3 Verticals, LLC ( 86 ) ( 918 )

Allocation of equity to non-controlling interests 2,033 5,594

Net transfers to non-controlling interests 1,947 4,676

Three Months Ended December 31,

Net income attributable to non-controlling interest

Transfers to (from) non-controlling interests:

Allocation of equity to (from) non-controlling interests 2,450 ( 1,906 )

Net transfers to (from) non-controlling interests 2,450 ( 1,906 )

Change from net income (loss) attributable to non-controlling interests and transfers to non-controlling interests $ 2,888 $ ( 1,497 )

7 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 nine months ended June 30, 2023 and 2022:

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

2023 2022 2023 2022

Basic net loss per share:

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

Net loss attributable to non-controlling interest

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, 2023 and 2022:

Three Months Ended December 31,

Basic net income (loss) per share:

$ 1,536 $ 169

Net loss attributable to Class A common stockholders

Net income attributable to non-controlling interest

Net income (loss) attributable to Class A common stockholders

$ 1,098 $ ( 240 )

1 unchanged sentence

23,267,290 22,998,608

Basic net loss per share (1)

Basic net income (loss) per share (1)

$ 0.05 $ ( 0.01 )

Diluted net income per share:

Net income attributable to Class A common stockholders $ 1,098

Reallocation of net income assuming conversion of common units 331

Net income attributable to Class A common stockholders - diluted 1,429

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 income per share $ 0.04

__________________________

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.

For the three months ended December 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:

10,108,218 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.

10,118,142 weighted average shares of Class B common stock for the three months ended December 31, 2022, 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 stock options for the three months ended December 31, 2022, 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 shares for the three months ended December 31, 2022, 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 December 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:

7,496,394 stock options for the three months ended December 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.

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(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.

Accordingly, upon conversion, the Company will pay the principal in cash, and it will pay or deliver, as the case may be, the conversion premium in cash, shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock, at its election.

The Company applies the if-converted method and only includes the number of incremental shares that would be issued upon conversion for calculating any potential dilutive effect of the conversion spread on diluted net income per share.

In September 2022 the Company made the irrevocable election to settle the principal portion of its Exchangeable Notes only in cash, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company's Class A common stock for a given period exceeds the exchange price of $ 40.87 per share for the Exchangeable Notes.

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SIGNIFICANT NON-CASH TRANSACTIONS

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

Nine months ended June 30,

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

Three months ended December 31,

Acquisition date fair value of contingent consideration in connection with business combinations $ 170 $ —

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 $ — $ 178

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

Consideration accrued for December 2023 residual buyout $ 476 $ —

Right-of-use assets obtained in exchange for operating lease obligations $ 18 $ 838

SUBSEQUENT EVENTS

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.

Exchangeable Note Repurchases

On January 18, 2024, the Company paid $ 87,391 to repurchase $ 90,777 in aggregate principal amount of its Exchangeable Notes and to repay approximately $ 386 in accrued interest on the repurchased portion of the Exchangeable Notes pursuant to agreements entered into with certain holders of the Exchangeable Notes as described in Note 7.

The Company wrote off $ 926 of debt issuance costs in connection with the repurchase transactions.

These repurchases resulted in a decrease in the Company's total leverage ratio, and following the completion of the repurchases of these Exchangeable Notes, approximately $ 26,223 in aggregate principal amount of the Exchangeable Notes remained outstanding, with terms unchanged.

The Company recorded a gain on retirement of debt of $ 2,397 due to the estimated acquisition price exceeding the net carrying amount of the repurchased portion of the Exchangeable Notes, adjusted for unamortized debt issuance costs and costs and third-party fees related to the transaction.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Note Hedge and Warrant Unwind Transactions

Also on January 18, 2024, in connection with the Exchangeable Note Repurchases, the Company and i3 Verticals, LLC terminated the corresponding portions of the Note Hedge Transactions ("Note Hedge Unwinds") and Warrants ("Warrant Unwinds").

i3 Verticals, LLC received $ 987 for the sale of the Note Hedge Unwinds and the Company paid $ 433 for the repurchase of the Warrant Unwinds.

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