i3 Verticals, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended September 30, 2023 (“Form 10-K”), filed with the SEC on November 22, 2023. The terms “i3 Verticals,” “we,” “us” and “our” and similar references refer (1) before the completion of our IPO or the reorganization transactions entered into in connection therewith (the “Reorganization Transactions”), which are described in the notes to the condensed consolidated financial statements, to i3 Verticals, LLC and, where appropriate, its subsidiaries, and (2) after the Reorganization Transactions to i3 Verticals, Inc. and, where appropriate, its subsidiaries. Note Regarding Forward-looking Statements This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts contained in this report may be forward-looking statements. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “pro forma,” “continues,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These factors include, but are not limited to, the following: • our indebtedness and our ability to maintain compliance with the financial covenants in our 2023 Senior Secured Credit Facility (as defined below); • our ability to meet our liquidity needs; • our ability to raise additional funds on terms acceptable to us, if at all, whether through debt, equity or a combination thereof; • our ability to protect our systems and data from continually evolving cybersecurity risks or other technological risks, including the impact of any cybersecurity incidents or security breaches; • liability and reputation damage from unauthorized disclosure, destruction or modification of data or disruption of our services; • technical, operational and regulatory risks related to our information technology systems and third-party providers’ systems; • our ability to successfully manage our intellectual property; • the triggering of impairment testing of our fair-valued assets, including goodwill and intangible assets, in the event of a decline in the price of our Class A common stock or otherwise; • our ability to generate revenues sufficient to maintain profitability and positive cash flow; • competition in our industry and our ability to compete effectively; • consolidation in the banking and financial services industry; • risk of shortages, price increases, changes, delays or discontinuations of hardware due to supply chain disruptions with respect to our limited number of suppliers; • impact of inflation and fluctuations in interest rates (including current elevated interest rate levels) and the potential effect of such fluctuations on revenues, expenses and resulting margins; • our dependence on non-exclusive distribution partners to market our products and services; • our ability to keep pace with rapid developments and changes in our industry and provide new products and services; • reliance on third parties for significant services; • exposure to economic conditions and political risks affecting consumer and commercial spending, including the use of credit cards; • our ability to increase our existing vertical markets, expand into new vertical markets and execute our growth strategy; 44 • our ability to successfully identify acquisition targets, complete those acquisitions and effectively integrate those acquisitions into our services; • potential degradation of the quality of our products, services and support; • our ability to retain customers; • our ability to attract, recruit, retain and develop key personnel and qualified employees; • risk of significant chargeback liability if our customers refuse or cannot reimburse chargebacks resolved in favor of their customers; • risks related to laws, regulations and industry standards, including our ability to comply with complex laws and regulations applicable to the healthcare industry or to adjust our operations in response to changing laws and regulations; • the impact of recent decisions of the U.S. Supreme Court regarding the actions of federal agencies; • the impact of government investigations, claims, and litigation; • the effects of health reform initiatives; • risks related to our international operations; • operating and financial restrictions imposed by our 2023 Senior Secured Credit Facility; • risks related to the accounting method for i3 Verticals, LLC's 1.0% Exchangeable Notes due February 15, 2025 (the "Exchangeable Notes"); • our ability to raise the funds necessary to settle exchanges of the Exchangeable Notes or to repurchase the Exchangeable Notes upon a fundamental change; • risks related to the exchange feature of the Exchangeable Notes; • risks related to the anticipated sale of our Merchant Services Business pursuant to the terms of the Purchase Agreement; and • the "Risk Factors" included in our Form 10-K and included in Part II, Item 1A of this Quarterly Report on Form 10-Q, if any. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. The matters summarized in “Risk Factors” in our Form 10-K, and in subsequent filings could cause our actual results to differ significantly from those contained in our forward-looking statements. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this filing, those results or developments may not be indicative of results or developments in subsequent periods. In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this filing speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments, except as required by applicable law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. Executive Overview The Company delivers seamless integrated software and services to customers in strategic vertical markets. Building on its broad suite of software and services solutions, the Company creates and acquires software products to serve the specific needs of its customers. The Company's primary strategic verticals are Public Sector (including Education) and Healthcare. 45 Economic Trends Inflationary pressures, elevated interest rate levels, monetary policy, and the current geopolitical situation (including the military conflicts in Ukraine and in the Middle East), are causing broad economic uncertainty and could potentially cause new, or exacerbate existing, economic challenges that may impact us. These conditions could worsen as a result of adverse economic developments impacting the U.S. and/or global economies, including as a result of monetary policy designed to curb inflation. As the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our financial results. Liquidity At June 30, 2024, we had $9.7 million of cash and cash equivalents and $98.6 million of available capacity under our 2023 Senior Secured Credit Facility subject to our financial covenants. As of June 30, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio 3.5x, and 3.6x, respectively. For additional information about our Exchangeable Notes and 2023 Senior Secured Credit Facility, see the section entitled “Liquidity and Capital Resources” below. Recent Developments Anticipated Sale of Merchant Services Business On June 26, 2024, i3 Verticals, Inc., i3 Verticals, LLC, and i3 Holdings Sub, Inc., a wholly-owned subsidiary of i3 Verticals, LLC, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Payroc Buyer, LLC ("Payroc") and Payroc WorldAccess LLC. Pursuant to the terms of the Purchase Agreement, Payroc would purchase the equity interests of certain direct and indirect wholly-owned subsidiaries (the "Acquired Entities") of i3 Verticals, LLC and i3 Holdings Sub, Inc. (i3 Verticals, LLC and i3 Holdings Sub, Inc., collectively, the "Sellers") comprising the Merchant Services segment as well as certain assets within our Software and Services segment related to the Non-profit and Property Management vertical markets, including its associated proprietary technology (collectively, the "Merchant Services Business"), after giving effect to the contribution of certain assets and the assignment of certain liabilities associated with the Merchant Services Business from i3 Verticals, LLC and certain affiliates thereof to the Acquired Entities pursuant to a contribution agreement to be entered into immediately prior to the closing of the transactions pursuant to the Purchase Agreement (such transactions, collectively, the "Transactions"). Pursuant to the terms of the Contribution Agreement, i3 Verticals, LLC and its affiliates would retain certain liabilities related to the Merchant Services Business. The purchase price payable by Payroc to us for the equity interests of the Merchant Services Business would be $440 million (the “Purchase Price”), payable in cash upon the closing of the Transactions, subject to adjustments for closing net working capital and other purchase price adjustments provided in the Purchase Agreement. The closing of the Transactions is subject to certain closing conditions set forth in the Purchase Agreement, including the expiration or termination of the waiting period applicable to the Transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Waiting Period"), the absence of certain legal impediments, the accuracy of the representations of the other party (subject to certain materiality qualifiers specified in the Purchase Agreement), the compliance by the other party of its covenants under the Purchase Agreement in all material respects, and, in the case of Payroc's closing obligations, the delivery by us of certain consents associated with the Merchant Services Business and the absence of any material adverse effect with respect to the Merchant Services Business. The HSR Waiting Period expired on August 5, 2024. The consummation of the sale is expected to occur during the three months ending September 30, 2024. The Purchase Agreement provides that at the closing of the Transactions, and as a condition to the closing obligations of the parties, the parties and/or their affiliates will enter into certain ancillary agreements, including (i) a transition services agreement, pursuant to which, among other things, the Sellers and/or affiliates thereof will provide certain information technology and operational transition services to Payroc for a period of time after the closing, (ii) a processing services agreement, pursuant to which the parties will provide certain payment processing services to customers of each party, and (iii) a restrictive covenant agreement, pursuant to which i3 Verticals, Inc. and Sellers will be bound by certain confidentiality covenants, non-competition and business relation non-solicitation covenants (with a term ending on the fifth anniversary of the closing of the Transactions) and employee non-solicitation covenants (with a term ending on the third anniversary of the closing of the Transactions), subject to certain limitations, as provided therein. 46 As noted above, as a result of the anticipated sale of the Merchant Services Business pursuant to the Purchase Agreement, the historical results of the Merchant Services Business have been reflected as discontinued operations in our condensed consolidated financial statements, and the Company no longer presents a Merchant Services Business segment . See Notes 2 and 15 to our condensed consolidated financial statements for additional information. For additional information regarding the Purchase Agreement and the Transactions, see the Current Report on Form 8-K filed by us on June 26, 2024. Aggregate costs incurred related to the Transactions during the nine months ended June 30, 2024 were approximately $2,626 and were expensed as incurred. These costs include fees for third-party advisory, consulting, legal and professional services, as well as other items associated with the Transactions that are incremental in nature. The expenses are reflected within selling, general and administrative expenses within our condensed consolidated statements of operations. Acquisitions Recent acquisitions Effective August 1, 2024, we completed the acquisition of a business to expand our permitting and licensing software offerings in the Public Sector vertical. Total purchase consideration was $18.0 million in cash funded by the proceeds from our revolving credit facility, the issuance of 311,634 shares of our Class A common stock in a private placement, and an amount of contingent consideration of up to $22.0 million, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreement, through no later than July 2027. The Company is in process of determining the acquisition date fair values of the liabilities for the contingent consideration based on discounted cash flow analyses. Acquisitions during the nine months ended June 30, 2024 During the nine months ended June 30, 2024, we completed the acquisition of one business to expand our software offerings. Total purchase consideration was $1.3 million, including $1.1 million in cash funded by the proceeds from our revolving credit facility and $0.2 million in contingent consideration. Acquisitions during the nine months ended June 30, 2023 On October 1, 2022, we completed the acquisition of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt. Ltd. in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical. Total purchase consideration was $85.0 million in cash consideration, funded by the proceeds from our revolving credit facility. During the nine months ended June 30, 2023, we completed the acquisition of two other businesses to expand our software offerings. Total purchase consideration was $19.8 million, including $17.0 million in cash funded by the proceeds from our revolving credit facility, the issuance of $2.0 million of our Class A common stock in a private placement, and $0.8 million in contingent consideration. Our Revenue and Expenses Revenues We generate revenue from software and related services revenue, including the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software. We also generate revenue from volume-based payment processing fees (“discount fees”) that we provide to our customers directly through our software. Volume-based fees represent a percentage of the dollar amount of each credit or debit transaction processed. Revenues are also derived from a variety of fixed transaction or service fees, including authorization fees, convenience fees, statement fees, annual fees and fees for other miscellaneous services, such as handling chargebacks. 47 Interchange and network fees. Interchange and network fees consist primarily of pass-through fees that make up a portion of discount fee revenue. These include assessment fees payable to card associations, which are a percentage of the processing volume we generate from Visa and Mastercard. These fees are presented net of revenue. Expenses Other costs of services . Other costs of services include costs directly related to our software and related services, such as hosting expenses. Additionally, other costs of services include costs directly attributable related to payment processing services such as processing and bank sponsorships. Losses resulting from chargebacks against a customer are included in other cost of services. Residual payments to our distribution partners and the cost of equipment sold is also included in cost of services. Other costs of services are recognized at the time the related revenue is recognized. Selling, general and administrative . Selling, general and administrative expenses include salaries and other employment costs, professional services, rent and utilities and other operating costs. Depreciation and amortization . Depreciation expense consists of depreciation on our investments in property, equipment and computer hardware and software. Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset. Amortization expense for acquired intangible assets and internally developed software is recognized using a proportional cash flow method. Amortization expense for internally developed software is recognized over the estimated useful life of the asset. The useful lives of contract-based intangible assets are equal to the terms of the agreement. Interest expense, net. Our interest expense consists of interest on our outstanding indebtedness under our 2023 Senior Secured Credit Facility, our Prior Senior Secured Credit Facility and Exchangeable Notes, and amortization of debt issuance costs. How We Assess Our Business As noted above, as a result of the anticipated sale of the Merchant Services Business pursuant to the Purchase Agreement, the historical results of the Merchant Services Business have been reflected as discontinued operations in our condensed consolidated financial statements, and the Company no longer presents a Merchant Services Business segment. Software and Services Our Software and Services segment delivers vertical market software solutions to customers across all of our strategic vertical markets. These solutions often include embedded payments or other recurring services. 48 Other Our Other category includes corporate overhead expenses, when presenting reportable segment information. For additional information on our segments, see Note 15 to our condensed consolidated financial statements. Key Performance Indicators We evaluate our performance through key performance indicators, including: • annualized recurring revenue ("ARR"); • software and related services as a percentage of total revenue; and • the dollar volume of payments our customers process through us (“payment volume”). ARR is the annualized revenue derived from software-as-a-service (“SaaS”) arrangements, transaction-based software-revenue, software maintenance, recurring software-based services, payments revenue and other recurring revenue sources within the quarter. This excludes contracts that are not recurring or are one-time in nature. We focus on ARR because it helps us to assess the health and trajectory of our business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. It should be reviewed independently of revenue and it is not a forecast. Additionally, ARR does not take into account seasonality. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers. ARR from continuing operations for the three months ended June 30, 2024 and 2023 was $181.3 million and $174.5 million, respectively, representing a period-to-period growth rate of 4%. Software and related services revenue includes the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software. We focus on software and related services revenue as a percentage of total revenue because it is a strategic goal to expand the software services we provide our customers. Software and related services typically result in long-term partnerships with strong recurring revenues. Software and related services revenue as a percentage of total revenue from continuing operations for the three months ended June 30, 2024 and 2023 was 74% and 76%. Our payment volume from continuing operations for the three months ended June 30, 2024 and 2023 was $497.5 million and $409.7 million, respectively, representing a period-to-period growth rate of 21.4%. Our payment volume from continuing operations for the nine months ended June 30, 2024 and 2023 was $1,608.8 million and $1,387.7 million, respectively, representing a period-to-period growth rate of 16%. We focus on payment volume because it is a reflection of the scale and economic activity of our customer base and because a significant part of our revenue is derived as a percentage of our customers’ dollar volume receipts. Payment volume reflects the addition of new customers and same store payment volume growth of existing customers, partially offset by customer attrition during the period. We no longer consider processing margin to be a key performance indicator as a result of the fact that such metric is associated with our Merchant Services Business, which is anticipated to be sold pursuant to the Purchase Agreement and is now reflected in discontinued operations. 49 Results of Operations As a result of the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, the historical results of the Merchant Services Business have been reflected as discontinued operations in our condensed consolidated financial statements. Prior period results of operations and balance sheet information have been recast to reflect this presentation, and the discussion below relates to our continuing operations after giving effect to the reclassification for the Merchant Services Business as discontinued operations. Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 The following table presents our historical results of operations for the periods indicated: Three Months Ended June 30, Change (in thousands) 2024 2023 Amount % Revenue $ 56,037 $ 57,260 $ (1,223) (2.1) % Operating expenses Other costs of services 4,722 3,944 778 19.7 % Selling, general and administrative 45,033 45,045 (12) — % Depreciation and amortization 6,969 6,665 304 4.6 % Change in fair value of contingent consideration (18) 6,183 (6,201) n/m Total operating expenses 56,706 61,837 (5,131) (8.3) % Loss from continuing operations (669) (4,577) 3,908 (85.4) % Other expenses Interest expense, net 7,906 6,725 1,181 17.6 % Other income — (92) 92 (100.0) % Total other expenses 7,906 6,633 1,273 19.2 % Loss before income taxes (8,575) (11,210) 2,635 (23.5) % Provision for (benefit from) income taxes 5,271 (292) 5,563 n/m Net loss from continuing operations (13,846) (10,918) (2,928) 26.8 % Net income from discontinued operations, net of income taxes 5,548 4,840 708 14.6 % Net loss (8,298) (6,078) (2,928) 48.2 % Net income from continuing operations attributable to non-controlling interest (2,416) (2,392) (24) 1.0 % Net loss from discontinued operations attributable to non-controlling interest 1,663 1,469 194 13.2 % Net loss attributable to non-controlling interest (753) (923) 170 (18.4) % Net loss attributable to i3 Verticals, Inc. from continuing operations $ (11,430) $ (8,526) $ (2,904) 34.1 % Net income attributable to i3 Verticals, Inc. from discontinued operations $ 3,885 $ 3,371 $ 514 15.2 % Net loss attributable to i3 Verticals, Inc. $ (7,545) $ (5,155) $ (2,390) 46.4 % n/m = not meaningful 50 Revenue Revenue decreased $1.2 million, or 2.1%, to $56.0 million for the three months ended June 30, 2024 from $57.3 million for the three months ended June 30, 2023. This decrease was primarily driven by a decrease of $3.1 million in software license revenue and professional services revenue, partially offset by an increase of $1.7 million in recurring revenues, primarily in our Public Sector vertical. Other Costs of Services Other costs of services increased $0.8 million, or 19.7%, to $4.7 million for the three months ended June 30, 2024 from $3.9 million for the three months ended June 30, 2023. This increase was primarily driven by an increase in software cost of services of $0.3 million and an increase in payment volume, resulting in increases in processing costs of $0.3 million for the three months ended June 30, 2024 from the three months ended June 30, 2023. Selling, General and Administrative Expenses Selling, general and administrative expenses slightly decreased $12 thousand to $45.0 million for the three months ended June 30, 2024 from the three months ended June 30, 2023. This decrease was primarily driven by a decrease in employment expenses of $1.9 million for the three months ended June 30, 2024 from the three months ended June 30, 2023, partially offset by $1.8 million in transaction costs related to the anticipated sale of the Merchant Services Business during the three months ended June 30, 2024. Depreciation and Amortization Depreciation and amortization increased $0.3 million, or 4.6%, to $7.0 million for the three months ended June 30, 2024 from $6.7 million for the three months ended June 30, 2023. Amortization expense increased $0.5 million to $2.5 million for the three months ended June 30, 2024 from $2.0 million for the three months ended June 30, 2023 primarily due to an increase in capitalized software project releases. Depreciation expense decreased $0.1 million to $4.5 million for the three months ended June 30, 2024 from $4.6 million for the three months ended June 30, 2023. Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration to be paid in connection with acquisitions was a benefit of $18 thousand for the three months ended June 30, 2024 related to adjustments to the expected present value of consideration to be paid for earnouts. The change in fair value of contingent consideration for the three months ended June 30, 2023 was a charge of $6.2 million. Interest Expense, net Interest expense, net, increased $1.2 million, or 17.6%, to $7.9 million for the three months ended June 30, 2024 from $6.7 million for the three months ended June 30, 2023. The increase reflects a higher average interest rate and a higher average outstanding debt balance for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Other income There was no other income during the three months ended June 30, 2024. Other income of $0.1 million during the three months ended June 30, 2023 reflects contingent consideration received for an investment that was sold in a prior year. Provision for Income Taxes The provision for income taxes increased to a provision for $5.3 million for the three months ended June 30, 2024 from a benefit of $0.3 million for three months ended June 30, 2023. Our effective tax rate was (61)% for the three months ended June 30, 2024. Our effective tax rate differs from the federal statutory rate of 21% primarily due to the tax structure of the Company. The income of majority owned i3 Verticals, LLC is not taxed and the separate loss of the Company has minimal tax effect due to the allocations from i3 Verticals, LLC. i3 Verticals, Inc. is subject to federal, state and local income taxes with respect to its allocable share of any taxable income of i3 Verticals, LLC and is taxed at the prevailing corporate tax rates. 51 Net income from discontinued operations, net of income taxes Net income from discontinued operations, net of income tax, increased $0.7 million, or 14.6%, to $5.5 million for the three months ended June 30, 2024 from $4.8 million for the three months ended June 30, 2023. See Note 2 to our condensed consolidated financial statements for additional information and detail on the financial results of discontinued operations. Revenue from discontinued operations increased $1.7 million, partially offset by an increase of $1.5 million in other cost of services for discontinued operations for the three months ended June 30, 2024 from the three months ended June 30, 2023. These increases were primarily driven by increases in payments volume. 52 Nine Months Ended June 30, 2024 Compared to Nine Months Ended June 30, 2023 The following table presents our historical results of operations for the periods indicated: Nine Months Ended June 30, Change (in thousands) 2024 2023 Amount % Revenue $ 169,059 $ 168,138 $ 921 0.5 % Operating expenses Other costs of services 13,540 11,272 2,268 20.1 % Selling, general and administrative 131,548 132,510 (962) (0.7) % Depreciation and amortization 21,216 19,289 1,927 10.0 % Change in fair value of contingent consideration (545) 9,891 (10,436) n/m Total operating expenses 165,759 172,962 (7,203) (4.2) % Income (loss) from continuing operations 3,300 (4,824) 8,124 n/m Other expenses (income) Interest expense, net 22,307 18,414 3,893 21.1 % Other income (2,150) (295) (1,855) 628.8 % Total other expenses 20,157 18,119 2,038 11.2 % Loss before income taxes (16,857) (22,943) 6,086 (26.5) % Provision for (benefit from) income taxes 3,507 (500) 4,007 n/m Net loss from continuing operations (20,364) (22,443) 2,079 (9.3) % Net income from discontinued operations, net of income taxes 16,950 16,342 608 3.7 % Net loss (3,414) (6,101) 2,079 (34.1) % Net income from continuing operations attributable to non-controlling interest (3,944) (5,702) 1,758 (30.8) % Net loss from discontinued operations attributable to non-controlling interest 5,099 4,960 139 2.8 % Net income (loss) attributable to non-controlling interest 1,155 (742) 1,897 n/m Net loss attributable to i3 Verticals, Inc. from continuing operations $ (16,420) $ (16,741) $ 321 (1.9) % Net income attributable to i3 Verticals, Inc. from discontinued operations $ 11,851 $ 11,382 $ 469 4.1 % Net loss attributable to i3 Verticals, Inc. $ (4,569) $ (5,359) $ 790 (14.7) % n/m = not meaningful 53 Revenue Revenue increased $0.9 million, or 0.5%, to $169.1 million for the nine months ended June 30, 2024 from $168.1 million for the nine months ended June 30, 2023. This increase was driven by incremental revenue from an acquisition of $1.5 million, net of intercompany eliminations, which was within the Software and Services segment, and an organic increase of $7.0 million in recurring revenues for the nine months ended June 30, 2024 from the nine months ended June 30, 2023. The increases were partially offset by a decrease in software license revenue and professional services revenue of $7.8 million for the nine months ended June 30, 2024 from the nine months ended June 30, 2023. Other Costs of Services Other costs of services increased $2.3 million, or 20.1%, to $13.5 million for the nine months ended June 30, 2024 from $11.3 million for the nine months ended June 30, 2023. This increase was primarily driven by an increase in software cost of services of $1.0 million and an increase in payment volume, resulting in increases in processing costs of $0.8 million for the nine months ended June 30, 2024 from the nine months ended June 30, 2023. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased $1.0 million, or 0.7%, to $131.5 million for the nine months ended June 30, 2024 from $132.5 million for the nine months ended June 30, 2023. This decrease was primarily driven by a decrease in employment expenses of $3.0 million, travel expense of $0.2 million, and advertising expenses of $0.2 million for the nine months ended June 30, 2024 from the nine months ended June 30, 2023, partially offset by $2.6 million of costs incurred during the nine months ended June 30, 2024 related to the anticipated sale of the Merchant Services Business. Depreciation and Amortization Depreciation and amortization increased $1.9 million, or 10.0%, to $21.2 million for the nine months ended June 30, 2024 from $19.3 million for the nine months ended June 30, 2023. Amortization expense increased $1.6 million to $19.2 million for the nine months ended June 30, 2024 from $17.6 million for the nine months ended June 30, 2023 primarily due to an increase in capitalized software project releases and acquisitions completed during the 2023 fiscal year. Depreciation expense increased $0.3 million to $2.0 million for the nine months ended June 30, 2024 from $1.7 million for the nine months ended June 30, 2023. Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration to be paid in connection with acquisitions was a benefit of $0.5 million for the nine months ended June 30, 2024 related to adjustments to the expected present value of consideration to be paid for earnouts. The change in fair value of contingent consideration for the nine months ended June 30, 2023 was a charge of $9.9 million. Interest Expense, net Interest expense, net, increased $3.9 million, or 21.1%, to $22.3 million for the nine months ended June 30, 2024 from $18.4 million for the nine months ended June 30, 2023. The increase reflects a higher average interest rate and a higher average outstanding debt balance for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023. Other income Other income increased $1.9 million to $2.2 million for the nine months ended June 30, 2024 from other income of $0.3 million for the nine months ended June 30, 2023. Other income during the nine months ended June 30, 2024 reflects the gain on the Exchangeable Note Repurchases and gain on Warrant Unwinds, net of the loss on Note Hedge Unwinds and loss on the sale of a building purchased through acquisition. Other income during the nine months ended June 30, 2023 reflects contingent consideration received for an investment that was sold in a prior year. 54 Provision for Income Taxes The provision for income taxes increased to a provision of $3.5 million for the nine months ended June 30, 2024 from a benefit of $0.5 million for nine months ended June 30, 2023. Our effective tax rate was 21% for the nine months ended June 30, 2024. Our effective tax rate differs from the federal statutory rate of 21% primarily due to the tax structure of the Company. The income of majority owned i3 Verticals, LLC is not taxed and the separate loss of the Company has minimal tax effect due to the allocations from i3 Verticals, LLC. i3 Verticals, Inc. is subject to federal, state and local income taxes with respect to its allocable share of any taxable income of i3 Verticals, LLC and is taxed at the prevailing corporate tax rates. Net income from discontinued operations, net of income taxes Net income from discontinued operations, net of income tax, increased $0.6 million, or 3.7%, to $17.0 million for the nine months ended June 30, 2024 from $16.3 million for the nine months ended June 30, 2023. See Note 2 to our condensed consolidated financial statements for additional information and detail on the financial results of discontinued operations. Revenue from discontinued operations increased $6.2 million, partially offset by an increase of $2.6 million in other cost of services for discontinued operations for the nine months ended June 30, 2024 from the nine months ended June 30, 2023. These increases were primarily driven by increases in payments volume. Additionally, the provision for income taxes increased $1.5 million and depreciation and amortization increased $1.1 million, which also offset the increase in revenue for the nine months ended June 30, 2024 from the nine months ended June 30, 2023. Seasonality We have experienced in the past, and may continue to experience, seasonal fluctuations in our revenues as a result of consumer and business spending patterns. Revenues during the first quarter of the calendar year, which is our second fiscal quarter, tend to decrease in comparison to the remaining three quarters of the calendar year on a same store basis. This decrease is due to the relatively higher number and amount of electronic payment transactions related to seasonal retail events, such as holiday and vacation spending in their second, third and fourth quarters of the calendar year. The number of business days in a month or quarter also may affect seasonal fluctuations. Revenue in our Education vertical fluctuates with the school calendar. Revenue for our Education customers is strongest in August, September, October, January and February, at the start of each semester, and generally weakens throughout the semester, with little revenue in the summer months of June and July. Operating expenses show less seasonal fluctuation, with the result that net income is subject to the same seasonal factors as our revenues. The growth in our business may have partially overshadowed seasonal trends to date, and seasonal impacts on our business may be more pronounced in the future. Liquidity and Capital Resources We have historically financed our operations and working capital through net cash from operating activities. As of June 30, 2024, we had $9.7 million of cash and cash equivalents and available borrowing capacity of $98.6 million under our 2023 Senior Secured Credit Facility, subject to the financial covenants. We usually minimize cash balances by making payments on our revolving line of credit to minimize borrowings and interest expense. As of June 30, 2024, we had borrowings outstanding of $351.4 million under the 2023 Senior Secured Credit Facility. For additional information about our 2023 Senior Secured Credit Facility, see the section entitled "— 2023 Senior Secured Credit Facility" below. 55 Our primary cash needs are to fund working capital requirements, invest in our technology infrastructure, fund acquisitions and related contingent consideration, make scheduled principal and interest payments on our outstanding indebtedness and pay tax distributions to members of i3 Verticals, LLC, and, following the completion of the transactions under the Purchase Agreement, potential repurchases of shares of Class A common stock under our share repurchase program, as discussed below. We consistently have positive cash flow provided by operations and expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the 2023 Senior Secured Credit Facility will be sufficient to fund our operations and planned capital expenditures, to service our debt obligations, to pay tax distributions to members of i3 Verticals, LLC, and make potential repurchases of shares of Class A common stock under our share repurchase program for at least the next twelve months and foreseeable future. Our growth strategy includes acquisitions. We expect to fund acquisitions through a combination of net cash from operating activities, borrowings under our 2023 Senior Secured Credit Facility and through the issuance of equity and debt securities. As a holding company, we depend on distributions or loans from i3 Verticals, LLC to access funds earned by our operations. The covenants contained in the 2023 Senior Secured Credit Facility may restrict i3 Verticals, LLC’s ability to provide funds to i3 Verticals, Inc. Our liquidity profile reflects our completed offering in February 2020 of an aggregate principal amount of $138.0 million in 1.0% Exchangeable Senior Notes due 2025, with substantially all the proceeds being used to pay down outstanding borrowings under our Prior Senior Secured Credit Facility. After giving effect to the repurchase of $90.8 million in aggregate principal amount of the 1.0% Exchangeable Senior Notes on January 18, 2024 as described below as well as the repurchase of $21.0 million in aggregate principal amount of Exchangeable Senior Notes in open market purchases in 2020, the aggregate principal amount of the Exchangeable Notes that is currently outstanding is $26.2 million. The Exchangeable Notes mature on February 15, 2025, unless earlier exchanged, redeemed or repurchased. We may elect from time to time to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise. Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law and other factors. Our 2023 Senior Secured Credit Facility, as amended, requires us to maintain a consolidated interest coverage ratio not less than 3.0 to 1.0 and total leverage ratio not exceeding 5.0 to 1.0. As of June 30, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio of 3.5x and 3.6x, respectively. Although we believe our liquidity position remains strong, there can be no assurance that we will be able to raise additional funds, in the form of debt or equity, or to amend our 2023 Senior Secured Credit Facility on terms acceptable to us, if at all, even if we determined such actions were necessary in the future. Upon the completion of the transactions pursuant to the Purchase Agreement, we anticipate using the net proceeds from such transactions to fully satisfy the outstanding amount of the Revolver under the 2023 Senior Secured Credit Facility at such time, and to use the remaining net proceeds for general corporate purposes, which may include repurchases under our share repurchase authorization as described below. In addition, upon the completion of the transactions pursuant to the Purchase Agreement, [in connection with the taxable income that will be recognized for federal income tax purposes by the members of i3 Verticals, LLC, a pass-through entity, in connection therewith, we expect that i3 Verticals, LLC will be required to make a tax distribution in early 2025 to the members of i3 Verticals, LLC, including i3 Verticals, Inc. On August 8, 2024, the Company announced that its Board of Directors had approved a new share repurchase program for the Company’s Class A common stock, under which the Company may repurchase up to $50 million of outstanding shares of Class A common stock. This share repurchase program will terminate on the earlier of August 8, 2025, or when the maximum dollar amount under the authorization has been expended. Pursuant to this authorization, repurchases may be made from time to time in the open market, through privately negotiated transactions, or otherwise. In addition, any repurchases under the authorization will be subject to prevailing market conditions, liquidity and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), and other factors. Taking into account restrictions under the 2023 Senior Secured Credit Facility, the Company does not anticipate making any repurchases under this authorization until the closing of the transactions under the 56 Purchase Agreement. This share repurchase program does not require the Company to acquire any amount of shares of Class A common stock, and may be extended, modified, suspended or discontinued at any time. Cash Flows The discussion of our cash flows that follows does not include the impact of any adjustments to remove the Merchant Services Business as discontinued operations and is stated on a total company consolidated basis. The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods. Nine Months Ended June 30, 2024 and 2023 Nine months ended June 30, 2024 2023 (in thousands) Net cash provided by operating activities $ 33,266 $ 26,370 Net cash used in investing activities $ (16,755) $ (115,415) Net cash (used in) provided by financing activities $ (15,215) $ 85,482 Cash Flow from Operating Activities Net cash provided by operating activities increased $6.9 million to $33.3 million for the nine months ended June 30, 2024 from $26.4 million for the nine months ended June 30, 2023. Our net loss decreased from a net loss of $6.1 million for the nine months ended June 30, 2023 to a net loss of $3.4 million for the nine months ended June 30, 2024. The primary driver of the increase in cash provided by operating activities was an increase in changes in net operating assets and liabilities of $15.6 million, which are impacted by the timing of collections and payments, for the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023. This increase was partially offset by non-cash income and reductions in non-cash expenses that increase net loss but do not impact cash flows from operating activities. These changes in non-cash income and expenses included a decrease in changes in non-cash contingent consideration of $10.5 million, a decrease in equity-based compensation expense of $3.5 million, an increase in depreciation and amortization of $3.0 million, a gain on the repurchase of exchangeable notes of $2.4 million, and an increase in the provision for deferred income taxes of $2.2 million for the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023. Cash Flow from Investing Activities Net cash used in investing activities decreased $98.7 million to $16.8 million for the nine months ended June 30, 2024 from $115.4 million for the nine months ended June 30, 2023. The largest driver of the decrease in cash used in investing activities was a decrease of $100.9 million in cash used in acquisitions, net of cash acquired, during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023. This change was partially offset by an increase of $4.1 million in purchases of merchant portfolios and residual buyouts during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023. Cash Flow from Financing Activities Net cash flow from financing activities changed $100.7 million to $15.2 million net cash used in financing activities for the nine months ended June 30, 2024 from $85.5 million net cash provided by financing activities for the nine months ended June 30, 2023. The change in net cash flow from financing activities was primarily related to the $87.2 million payments for the repurchases of exchangeable notes and warrants, offset by the proceeds from the sale of the exchangeable senior note hedges. The remaining factors were the result of a decrease in proceeds from the revolving credit facility of $14.4 million and an increase in net payments for settlement obligations of $6.8 million, partially offset by a decrease in payments on the revolving credit facility of $4.9 million and a decrease in cash paid for contingent consideration of $4.1 million during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023. 2023 Senior Secured Revolving Credit Facility 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 57 Credit Facility. 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”). In addition, on June 26, 2024, the Borrower entered into the first amendment to the 2023 Senior Secured Credit Facility (the “Amendment”). Among other things, the Amendment permitted the execution of the Purchase Agreement and the consummation of the sale of the Merchant Services Business. Certain provisions of the Amendment were effective as of the date of the Amendment, and certain other provisions are to be effective upon the closing of the sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement. 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 June 30, 2024, the Borrower's consolidated interest coverage ratio was 3.5x and total leverage ratio was 3.6x. 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 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, 2024). 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, 2024). The base rate shall not be less than 1% in any event. 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 > 3.0 to 1.0 0.30 % 3.00 % 3.00 % 2.00 % > 2.5 to 1.0 but < 3.0 to 1.0 0.25 % 2.50 % 2.50 % 1.50 % > 2.0 to 1.0 but < 2.5 to 1.0 0.20 % 2.25 % 2.25 % 1.25 % < 2.0 to 1.0 0.15 % 2.00 % 2.00 % 1.00 % 58 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, 2024) 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 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; dispose of assets; enter into hedging arrangements; make certain restricted payments; undertake transactions with affiliates; enter into sale-leaseback transactions; make certain investments; prepay or modify the terms of certain indebtedness; and modify the terms of certain organizational agreements. The 2023 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. Exchangeable Notes On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its 1.0% Exchangeable Notes due February 15, 2025. The Exchangeable Notes bear interest at a fixed rate of 1.0% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. The Exchangeable Notes are exchangeable into cash, shares of the Company's Class A common stock, or a combination thereof, at i3 Verticals, LLC's election. Beginning on August 15, 2024, the Exchangeable Notes may be exchanged by the holders thereof at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Exchangeable Notes mature on February 15, 2025, unless earlier exchanged, redeemed or repurchased. The net proceeds from the sale of the Exchangeable Notes were approximately $132.8 million, after deducting discounts and commissions to the certain initial purchasers and other estimated fees and expenses. i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Prior Senior Secured Credit Facility in connection with the effectiveness of the operative provisions of the amendment to the Prior Senior Secured Credit Facility and to pay the cost of the Note Hedge Transactions. As of June 30, 2024, $26.2 million of the original aggregate principal amount of $138.0 million was outstanding. On December 21, 2023, i3 Verticals, LLC entered into agreements to repurchase a 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 Exchangeable Note Repurchases were completed on January 18, 2024, and the Company paid $87.4 million to repurchase $90.8 million in aggregate principal amount of its Exchangeable Notes and to repay approximately $0.4 million in accrued interest on the repurchased portion of the Exchangeable Notes. Following the closing of the Exchangeable Note Repurchases, approximately $26.2 million in aggregate principal amount of the Exchangeable Notes remained outstanding, with terms unchanged. For additional information, see Note 8 to our condensed consolidated financial statements. 59 At-the-Market Program On August 20, 2021, we, together with i3 Verticals, LLC, entered into an at-the-market offering sales agreement with Raymond James & Associates, Inc., Morgan Stanley & Co. LLC and BTIG, LLC (each a “Sales Agent”), under which we may issue and sell, from time to time and through the Sales Agents, shares of our Class A common stock having an aggregate offering price of up to $125.0 million (the “ATM Program”). During the quarter ended June 30, 2024, we did not sell any Class A common stock under the ATM Program. As of June 30, 2024, we had a remaining capacity to sell up to $107.1 million of our Class A common stock under the ATM Program. Material Cash Requirements The following table summarizes our material cash requirements as of June 30, 2024, including those related to leases and borrowings: Payments Due by Period Contractual Obligations Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years (in thousands) Processing minimums (1) $ 3,257 $ 2,897 $ 360 $ — $ — Facility leases 11,553 4,081 5,441 1,262 769 2023 Senior Secured Credit Facility and related interest (2) 470,283 29,721 59,441 381,121 — Exchangeable Notes and related interest (3) 26,387 26,387 — — — Contingent consideration (4) 538 427 111 — — Total $ 512,018 $ 63,513 $ 65,353 $ 382,383 $ 769 __________________________ 1. We have non-exclusive agreements with several processors to provide us services related to transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools. Certain of these agreements require us to submit a minimum monthly number of transactions for processing. If we submit a number of transactions that is lower than the minimum, we are required to pay to the processor the fees it would have received if we had submitted the required minimum number of transactions. These agreements with processors are included in the Merchant Services Business, and following the closing of the transactions pursuant to the Purchase Agreement, we will no longer be a party to these agreements. 2. We estimated interest payments through the maturity of our 2023 Senior Secured Credit Facility by applying the interest rate of 8.55% in effect on the outstanding balance as of June 30, 2024, plus the unused fee rate of 0.30% in effect as of June 30, 2024. 3. The chart set forth above calculates interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.0% on the principal balance as of June 30, 2024 of $26.2 million. 4. In connection with certain of our acquisitions, we may be obligated to pay the seller of the acquired entity certain amounts of contingent consideration as set forth in the relevant purchasing documents, whereby additional consideration may be due upon the achievement of certain specified financial performance targets. i3 Verticals, Inc. accounts for the fair values of such contingent payments in accordance with the Level 3 financial instrument fair value hierarchy at the close of each subsequent reporting period. The acquisition-date fair value of contingent consideration is valued using a Monte Carlo simulation. i3 Verticals, Inc. subsequently reassesses such fair value based on probability estimates with respect to the acquired entity’s likelihood of achieving the respective financial performance targets. Potential payments under the Tax Receivable Agreement are not reflected in this table. See “—Tax Receivable Agreement” below. 60 Tax Receivable Agreement We are a party to a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners, as described in Note 9 of our condensed consolidated financial statements. As a result of the Tax Receivable Agreement, we have been required to establish a liability in our condensed consolidated financial statements. That liability, which will increase upon the redemptions or exchanges of Common Units for our Class A common stock, generally represents 85% of the estimated future tax benefits, if any, relating to the increase in tax basis associated with the Common Units we received as a result of the Reorganization Transactions and other redemptions or exchanges by holders of Common Units. If this election is made, the accelerated payment will be based on the present value of 100% of the estimated future tax benefits and, as a result, the associated liability reported on our condensed consolidated financial statements may be increased. We expect that the payments required under the Tax Receivable Agreement will be substantial. The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of Common Units, the price of our Class A common stock at the time of the redemption or exchange, whether such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable as well as the portion of our payments under the Tax Receivable Agreement constituting imputed interest. We intend to fund the payment of the amounts due under the Tax Receivable Agreement out of the cash savings that we actually realize in respect of the attributes to which Tax Receivable Agreement relates. As of June 30, 2024, the total amount due under the Tax Receivable Agreement was $40.4 million, and payments to the Continuing Equity Owners related to exchanges through June 30, 2024 will range from $0 to $3.3 million per year and are expected to be paid over the next 24 years. The amounts recorded as of June 30, 2024, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, goodwill and intangible assets, contingent consideration, and equity-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are those that we consider the most critical to understanding our financial condition and results of operations. As of June 30, 2024, there have been no significant changes to our critical accounting estimates disclosed in the Form 10-K filed with the SEC on November 22, 2023.