What changed in this filing

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Item 1. Business

2024-11-25 compared with 2023-11-22 · 144 added, 143 removed, 254 unchanged (53% of the section changed)

i3 Verticals builds, acquires and grows software solutions in strategic vertical markets.

Our broad array of specialized solutions meet our customers’ specific enterprise needs which leads to long-term partnerships.

Our payments platform seamlessly integrates into our solutions, unlocking additional value.

Revenue from software and related services accounts for 50% of our total revenue for the twelve months ended September 30, 2023, up from 5% for the twelve months ended September 30, 2017.

Since our founding in 2012, we have steadily increased our market share and solution breadth through a combination of organic growth initiatives and acquisitions.

Our cash flow generation has positioned us to capitalize on strategic opportunities and position ourselves to expand our product offerings for years to come.

We focus on strategic vertical markets where we can build lasting customer relationships.

Our primary markets are underserved, fragmented, large, and growing.

Our primary strategic vertical markets include:

• Public Sector —We have products and solutions that create an efficient flow of information throughout a variety of public sector entities, including states and local governments.

Our solutions help our customers provide more responsive and efficient services to their citizens.

We have products that enable upper and lower court case management, collections, finance and accounting, motor vehicle and carrier registration, e-filing and taxation, license plate inventory, property tax management, utility billing, professional licensing, document workflow, and law enforcement software.

We deliver integrated payments solutions throughout many of these products and these solutions allow our customers to efficiently process court, tax, registration, utility and other payments.

We also assist public schools in completing payment processing functions such as accepting payments for school lunches (online or at school) and school activities.

• Healthcare —We provide entities in the healthcare market with software platforms that drive process efficiency and ensure compliance.

These include electronic healthcare records ("EHR") and revenue cycle management solutions, often paired together.

We offer our software as a service and often bundle it with professional services that specialize in outsourced revenue cycle management, including coding.

We also provide insurance adjudication, patient engagement platforms, billing, scheduling and integrated payments solutions.

Our payment solutions in the healthcare market seamlessly integrate into our own proprietary software, as well as that of our distribution partners, consisting of independent software vendors (“ISVs”).

We also provide workflow software and associated professional services to medical insurance payers.

Our customers include multiple large academic medical institutions, multiple large payer networks, billing organizations and individual physician practices.

i3 Verticals builds, acquires and grows software solutions in the Public Sector and Healthcare vertical markets.

Our broad array of enterprise solutions deeply integrate within customers’ operations, which leads to long-term partnerships.

Since our founding in 2012, we have compounded cash flow through a combination of organic growth and acquisitions.

Our cash flow generation and strong recurring revenue model has positioned us with an ideal financial structure to capitalize on strategic growth opportunities for years to come.

Sale of Merchant Services Business

On September 20, 2024, i3 Verticals, LLC, and i3 Holdings Sub, Inc., a wholly-owned subsidiary of i3 Verticals, LLC (“Corporation Seller,” and collectively with i3 Verticals, LLC, the “Sellers”) completed the transactions (such closing, the “Closing”) contemplated by that certain Securities Purchase Agreement dated as of June 26, 2024 (the “Purchase Agreement”), by and among i3 Verticals, LLC, Corporation Seller, the Company (solely for the purpose of providing a guaranty of the obligations of Sellers as set forth in the Purchase Agreement), Payroc Buyer, LLC (“Buyer”), and Payroc WorldAccess, LLC (solely for the purpose of providing a guaranty of the obligations of Buyer as set forth in the Purchase Agreement), the entry into which Purchase Agreement was previously disclosed in a Current Report on Form 8-K filed by the Company on June 26, 2024.

Pursuant to the terms of the Purchase Agreement, the Sellers sold to Buyer the equity interests of certain direct and indirect wholly-owned subsidiaries of Sellers (the “Acquired Entities”) primarily comprising the Company’s merchant services business, including its associated proprietary technology (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 to the Acquired Entities pursuant to a contribution agreement which was entered into immediately prior to the Closing.

Pursuant to the terms of the Purchase Agreement, Buyer paid to Sellers an aggregate purchase price of approximately $438 million (after giving effect to estimated net working capital, indebtedness and cash adjustments), payable in cash at the Closing, subject to post-closing purchase price adjustments.

Organic Growth in Strategic Vertical Markets

The ability to organically grow revenue over the long term is the result of expanding recurring revenue streams, strategic selection of markets and continued investment in our products.

Approximately 80% of our revenue from continuing operations is considered recurring.

We earn the majority of our revenue from software and related services.

We also earn revenue from volume and transaction-based fees for payment processing services, all of which is integrated into our software.

Our proprietary payment facilitator platform seamlessly integrates into our software solutions, unlocking additional value.

We focus on solutions in the Public Sector and Healthcare vertical and sub-vertical markets because of the following characteristics:

• Technologically underserved markets

• Large and growing total addressable markets

• Fragmented competitive landscape

• Ample opportunity for transaction-based revenues

• Insulation from market cycles

With deep integration into our customers’ operations, we believe that we are well positioned to conceive and build products that meet their growing needs.

Ongoing investment into improving existing platforms and strategically creating new platforms and products is an essential part of our long-term strategy.

Ability to Use Acquisitions to Drive Growth

A core component of our growth strategy includes a disciplined approach to acquisitions of companies and technology, evidenced by 50 acquisitions since our inception in 2012.

Our acquisitions have opened new strategic vertical markets, increased the number of businesses and organizations to whom we provide solutions and extended our existing software solutions and capabilities.

We target vertical markets where businesses and organizations often lack integrated payment functionality within their business management systems.

When we present software solutions that integrate the customer's operations with their payments, we can build a long-term relationship primed to grow together.

Our management team has significant experience acquiring and integrating vertical market software businesses that complement our existing suite of products and solutions.

Due to our team’s longstanding relationships and domain expertise, we maintain a strong pipeline of acquisition targets and are constantly evaluating businesses against our acquisition criteria.

We generate revenue from software licenses and subscriptions, ongoing support, and other software-related solutions.

We also generate revenue from volume-based fees generated by payment processing services provided to customers throughout North America.

Our software and integrated payment solutions coupled with our distribution network derive significant scale from operating efficiencies, which enables us to generate strong operating margins and cash flows.

We have two reportable segments, Software and Services and Merchant Services, and an Other category.

Our management team has significant

experience acquiring and integrating vertical market software businesses that complement our existing suite of products and solutions.

Acquisitions have extended our product offerings and capabilities, thereby allowing us to enhance our value proposition to our customers.

They have also increased our addressable markets.

Target businesses are generally founder lead, growing, generating cash flow, and have been in our core vertical markets.

Through our proprietary payment facilitator platform we have scale, pricing and expertise in payments.

As a result, we often identify targets who lack integrated payment functionality within their solutions or have under-monetized the opportunity.

We maintain a strong pipeline of acquisition targets and are constantly evaluating businesses against our acquisition criteria.

As a result of the sale of the Merchant Services Business as described above, our entire former Merchant Services segment and a small portion of the historical Software and Services segment which were included in the Merchant Services Business have been reflected in discontinued operations in the Company's consolidated financial statements.

After giving effect to these developments, the Company has two reportable segments, Public Sector and Healthcare, and an Other category.

For additional information on our segments, see Note 18 to our consolidated financial statements and “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

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.

Merchant Services

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

Our Merchant Services segment includes third-party integrated payment solutions as well as traditional merchant processing services across our strategic vertical markets.

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

Our Products and Solutions

We deliver a comprehensive array of vertical market software solutions and integrated payment technology to our customers and distribution partners.

Our products and solutions are strategically aligned to support new customer growth and promote customer retention.

Some solutions are broadly applicable across many different types of entities and departments, while others are specific to certain markets.

Public Sector

Our Public Sector vertical is comprised of more than 100 unique software products designed to make governments run more efficiently.

Payments are often embedded into these software products, providing customers with a seamless experience as well as an additional revenue stream.

We have products and solutions that create an efficient flow of information throughout a variety of public sector entities.

We serve customers at both the state and local level and our geographic reach covers most of the United States and some of Canada.

Our software products are designed to align with the specific needs of our customers and their communities.

Solutions categories include:

• Judiciary & Courts - Fully integrated digital solutions offering dynamic processes to plan, coordinate, evaluate, record, and provide up to date information within court systems.

• Motor Vehicle - Comprehensive solutions for driver license, vehicle title and registration and motor carrier compliance for departments of transportation in the United States and Canada.

• Utility Billing - Complete suite of billing and back-office management software solutions and services to enhance enterprise applications, improve customer experience, and increase efficiency of utility operations.

• Digital Customer Engagement - Digital customer engagement platform, including web, mobile, chat, and voice options, enables intuitive self-service options for customers to manage their data & accounts.

• Finance and ERP - Enterprise resource planning ("ERP") solutions connect the organization and its data to create a flow of information providing insight across multiple departments.

• School Lunches - Comprehensive solution for schools and districts including meal account management, point of sale, menu planning, nutritional analysis, food inventory and free and reduced meal applications.

• Land & Records Management - Fully digital solutions to boost proficiency and maintain records to enable submission of index information, scanning of document images and secure instantaneous retrieval of information.

• Public Safety - Solutions for computer aided dispatch, law records management, evidence management, jail management, mobile solutions, and livescan.

• Licensing & Permitting - Automation for every step of the licensing application, renewal process and payment process.

These include workflow and user driven customization solutions.

• Property, Recording and Tax – Digital solutions designed for appraisal information, tax collection management, revenue collection, and Computer Assisted Mass Appraisal.

Our Healthcare vertical is dedicated to delivering integrated solutions across the healthcare ecosystem, catering to providers and payers, with a strong emphasis on enhancing process efficiency and ensuring compliance.

Our core offering is our versatile care delivery platform, which encompasses a range of solutions, including EHR, practice management tools, patient engagement applications, and patient payment solutions.

Our solutions help our customers provide more responsive and efficient services to their citizens and stakeholders.

There are five sub-verticals within the Public Sector vertical:

• JusticeTech and Public Safety:

Product categories include (1) fully integrated digital solutions offering dynamic processes to plan, coordinate, evaluate, record, and provide up to date information within court systems, (2) E-Filing and revenue cycle management solutions for courts, and (4) Solutions for computer aided dispatch, law records management, evidence management, jail management, mobile solutions, and livescan.

• Transportation:

Products include comprehensive solutions for driver license, vehicle title and registration and motor carrier compliance for departments of transportation in the United States and Canada.

Product categories include (1) digital customer engagement platform, including web, mobile, chat, and voice options, enables intuitive self-service options for customers to manage their data and accounts, and (2) complete suite of billing and back-office management software solutions and services to enhance enterprise applications, improve customer experience, and increase efficiency of utility operations.

• Enterprise Resource Planning (“ERP”):

Product categories include (1) solutions that connect the organization and its data to create a flow of information providing insight across multiple departments, (2) digital land records solutions that boost proficiency and maintain records to enable submission of index information, scanning of document images and secure instantaneous retrieval of information, (3) licensing and permitting solutions that automate every step of the application, renewal and payment process, and (4) digital solutions designed for appraisal information, tax collection management, revenue collection, and Computer Assisted Mass Appraisal.

Products include (1) comprehensive solutions for school lunch programs, including meal account management, point of sale, menu planning, nutritional analysis, food inventory and free and reduced meal applications and (2) school event solutions, including ticketing and concessions.

We deliver integrated payments with our proprietary payment facilitator platform throughout many of these products.

These solutions allow our customers to efficiently process court, tax, registration, utility, school and other payments.

Our Healthcare segment is dedicated to delivering integrated solutions across the healthcare ecosystem, catering to providers and payers, with a strong emphasis on enhancing process efficiency and ensuring compliance.

There are two sub-verticals within the Healthcare vertical:

• Provider Software Solutions:

Products include our versatile care delivery platform, which encompasses a range of solutions, including EHR, practice management tools, patient engagement applications, and patient payment solutions.

These solutions are designed to adapt to the diverse needs of healthcare organizations, from small physician practices to large academic medical institutions and multi-location health systems.

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From revenue optimization and billing to claims processing and coding, our services are designed to streamline financial processes and maximize revenue performance for healthcare organizations.

Finally, our healthcare payer solutions provide payers with the tools to manage the complex healthcare industry more effectively.

We offer tailored solutions for managing compliance requirements, including Appeals & Grievances.

Additionally, our Network Management platform assists payers in provider contracting, credentialing, and outreach, enabling them to expand and adapt to changing market dynamics.

Payment Technology

In addition to our broad suite of vertical market software described above, we have developed a suite of payment technology solutions that serves customers across our vertical markets.

Capabilities include:

• traditional merchant processing or payment facilitator models,

• integration with customer business management systems, risk management,

• validated point-to-point encryption, and

• PCI-compliant security and extensive reporting tools.

We offer our customers a single point of access through our powerful, simple and capable proprietary core platform.

From there we offer a suite of payment and software solutions, enabling omni-channel POS, spanning brick and mortar locations and electronic- and mobile-commerce, including app-based payments.

Our payment technology platforms include an Application Programming Interface (“API”) suite that provides access to traditional merchant processing, ACH processing and payment facilitator merchant processing capabilities.

The platform APIs allow access to Europay, Mastercard and Visa (“EMV”) devices using an implementation that shields software providers from the requirements of PCI or payment application data security standard certifications.

• Payer Software Solutions:

Products include (1) tailored solutions for managing compliance requirements, including appeals & grievances and (2) our network management platform assists payers in provider contracting, credentialing, and outreach, enabling them to expand and adapt to changing market dynamics.

The Other category includes corporate overhead expenses, technology resources shared across segments and inter-segment eliminations.

Our Technology

As a forward-thinking software company that excels in delivering cutting edge solutions, we are committed to agile delivery, scalable platforms, and secure solutions.

We are committed to agile delivery, scalable platforms, and secure solutions, intended to bring our customers the best possible mission critical software.

Our team of highly skilled and experienced technologists is dedicated to implementing software products that cater to the diverse and evolving needs of our customers.

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We prioritize rapid development, continuous improvement, and dynamic responsiveness in our ever-changing environment.

This means our customers receive software solutions that evolve with their needs as well as the market, ensuring they stay ahead of the curve.

Our product management lifecycle ensures our products remain robust and flexible.

Product roadmaps drive our investments and ensure our solutions remain innovative and never grow stale.

Continuous investment is the key to our success.

This means our customers receive software solutions that evolve with their needs as well as the market.

Our product management life cycle ensures our products remain robust and flexible.

Product roadmaps drive our investments.

Our development is supported by streamlined back office technology to increase efficiency.

This includes consolidated instant messaging, file sharing, and telephony solutions.

We have reduced dependency on multiple vendors across the enterprise while creating efficiency and reducing expense.

Together, these initiatives support our commitment to operational efficiency and exceptional service delivery.

Scalable Platforms

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Our cloud-first strategy drives solutions that are designed to expand seamlessly, empowering our systems to adapt, grow, and thrive without constraints.

Remaining cloud agnostic allows us to choose best of breed solutions allowing us to meet the needs of our customers.

Our strategic partnerships with multiple cloud providers give us capabilities beyond that of many of our competitors.

New development is always cloud-native SaaS solutions.

We are a scaled partner of both Amazon Web Services ("AWS") and Microsoft Azure ("Azure") cloud services.

Our AWS cloud consolidation initiative is nearing successful completion, with collocated and on-premises data centers successfully migrated to the cloud and unifying disparate subscriptions into an enterprise account.

Our strategic partnerships with multiple cloud providers give us flexibility, as well as capabilities beyond that of many of our competitors.

Secure Solutions

Cybersecurity is at the core of our digital strategy.

We employ the latest security measures to safeguard our customers’ data and systems, which are designed to protect the integrity and confidentiality of their valuable information.

Our increasing investment in security protects against the ever-evolving threats in the digital realm.

We rigorously adhere to data protection regulations, industry-specific compliance standards, and best practices to ensure that our customers’ sensitive data is handled with the utmost care.

Our solutions are designed to meet the requirements of regulatory and legal compliance.

Further strengthening our technology infrastructure, we have centralized cybersecurity measures using fully integrated Microsoft tools, including endpoint detection and response, mobile device management, and identity and access management solutions.

Payment Technology

In addition to our broad suite of vertical market software, we have developed a proprietary payment facilitation platform.

We have centralized our payment solutions onto our proprietary gateway, providing us excellent scale and pricing with our processing partner.

Consolidation of the payments platform also reduces our overall PCI scope and increases margins by lowering expenses.Capabilities include:

• integration with customer business management systems,

• integration with EMV/contactless devices,

• unified reporting for our customers across ACH, card, etc.,

• risk management, and

• PCI-compliant security and extensive reporting tools.

We offer our customers a single point of access through our powerful but simple proprietary core platform.

From there we offer a suite of proprietary payment and software solutions spanning brick and mortar locations, web-based and mobile-based payments.

Our payment technology platforms include an unified application programming interface that provides access to ACH processing and payment facilitator merchant processing capabilities.

We also support Paypal and Venmo payments.

Our Sales and Marketing

Our sales strategy includes both employee sales representatives and a broad network of distribution partners.

We utilize our direct sales team, our largest channel, to sell our proprietary software and payment technology solutions directly to customers in our vertical markets.

Sales teams are organized and coordinated by vertical, leading to extensive cross-selling opportunities across our broad array of solutions.

Leveraging our vertically focused suite of products and services, we are able to maximize the performance of our employee sales force, and our external distribution channels, as we continue to attract new partners.

Our external channel partners are comprised of ISVs, value-added resellers (“VARs”) and a few select independent sales organizations (“ISOs”).

These distribution partners are a consistent and scalable source for new customer acquisition.

Our product and partner marketing is delivered through a shared-services model which is coordinated with each vertical market.

Marketing is tightly aligned with our sales efforts by providing event coordination, demand generation resources, physical and electronic marketing campaigns and partner marketing collateral.

We utilize our direct sales team to sell our proprietary software and payment technology solutions directly to customers in our vertical markets.

Sales teams are organized and coordinated by vertical and sub-vertical market, leading to extensive cross-selling opportunities across our broad array of solutions.

Leveraging our vertically focused suite of products and services, we are able to maximize the performance of our employee sales force as we continue to attract new customers.

Our product marketing are delivered through a shared-services model which is coordinated with each vertical market.

Marketing is tightly aligned with our sales efforts by providing event coordination, demand-generation resources, physical and electronic marketing campaigns and collateral.

Our enterprise marketing function establishes our overall corporate marketing strategy to enhance brand awareness and demand generation.

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Our Operations

Our operations team is uniquely structured to optimize the experience of our customers and distribution partners.

These vertically focused business support teams allow us to establish a level of expertise that delivers a scalable support structure and enables us to align our services with the economic goals and specific expectations of the respective business unit.

Our operations team is uniquely structured to optimize the experience of our customers.

These vertically focused business support teams allow us to establish expertise that delivers a scalable support structure and enables us to align our services with the economic goals of our company.

Each operations team is positioned to support the functions of their customer base.

Key performance indicators mark their progress toward achieving the goals established by each business unit.

A strong network of shared services, such as marketing, legal, finance and HR, support our decentralized operating units and ensure they are focused on providing best in-class service to our customers.

Our corporate technology department is structured to rapidly enhance, deploy and effectively maintain our products and services.

Key performance indicators mark their progress toward achieving the goals established by each vertical and sub-vertical.

A strong network of shared services, such as marketing, legal, finance and HR, support our vertical and sub-vertical units and ensure they are focused on providing best in-class service to our customers.

Our operations team is structured to effectively support the individual needs of our customers.

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• credit underwriting and risk management;

• payment processing support;

• payment facilitator processing support;

• end-user customer support.

Our technical operations team oversees the execution of development, quality control, delivery and support for our vertical software and payment processing applications.

Our technical operations team oversees the execution of development, quality control, delivery and support for our vertical software solutions and proprietary payment facilitator platform.

Products are developed and tested according to the software development lifecycle, composed of iterative backlog refinement, feature prioritization, development and testing with a dedicated focus on planning and execution.

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Each application is built with redundancy to foster resiliency and built to be easily managed during a disaster recovery scenario.

Our hosted solutions are maintained within a managed, dedicated environment which upholds multiple compliance standards according to the vertical, including but not limited to PCI, Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and National Institute of Standards and Technology ("NIST"), to protect all personal and transactional data.

Our hosted solutions are managed within dedicated environments within AWS and Azure that align with various compliance standards specific to each industry.

This includes, but is not limited to PCI, Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and National Institute of Standards and Technology ("NIST"), ensuring the protection of all personal and transactional data.

Our Competition

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We believe the most significant competitive factors in our markets are:

quality, including the ability of our products and solutions to addresses the specific needs of our customers;

quality, including the ability of our products and solutions to address the specific needs of our customers;

service, including our ability to bring value-added solutions and strong customer support;

trust, including a strong reputation for quality service and trusted distribution partners;

trust, including a strong reputation for quality service;

convenience, such as speed in customer onboarding and approving applications;

pricing, including fees charged to customers and residuals and incentives offered to distribution partners.

Our competitors range from large and well-established companies to smaller, earlier-stage businesses.

See “Risk Factors—Risks Related to Our Business and Industry— The vertical market software and payment processing industries are highly competitive.

See “Risk Factors—Risks Related to Our Business and Industry— The vertical market software and payment processing industries are competitive.

Such competition could adversely affect the revenue we receive, and as a result, our margins, business, financial condition and results of operations.” in Part I, Item 1A of this Annual Report on Form 10-K.

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We provide competitive compensation and benefits programs to help meet the needs of our employees.

In addition to salaries, these programs (which vary across our businesses) include bonus opportunities and, for our domestic employees, a 401(k) Plan.

In addition to salaries, these programs (which vary across our businesses) include bonus opportunities and, for our

domestic employees, a 401(k) Plan.

We use targeted stock option grants and restricted stock units ("RSUs") with vesting conditions to facilitate retention of personnel, and we are proud that a large percentage of our workforce owns i3 Verticals shares, RSUs or options to purchase i3 Verticals shares.

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We encourage our employees to take advantage of our flexible work arrangements to meet their individual circumstances.

We are an acquisitive company and regularly add new employees and locations as a result of our acquisition activity.

Our employee headcount has significantly increased since our Initial Public Offering in June 2018, and as of November 21, 2023, we have approximately 1,663 employees in 42 states and two countries.

We are an acquisitive company and have regularly added new employees and locations as a result of our acquisition activity.

As of November 22, 2024, after giving effect to the disposition of our Merchant Services Business which was completed on September 20, 2024, we had approximately 1,480 employees in 44 states and two countries.

No employees are represented by unions.

We believe that our employee retention rates are competitive and we think this is a result of strong emphasis on workforce culture in our acquisition process and in our operational decision making.

As of September 30, 2023, the Company's workforce was 48% female and 52% male.

As of September 30, 2024, after giving effect to the completion of the sale of our Merchant Services Business, the Company's workforce was 54% female and 46% male.

In addition, our workforce ethnicity, as of September 30, 2024, was as follows:

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Relevant federal privacy laws include the Gramm-Leach-Bliley Act of 1999, which applies directly to a broad range of financial institutions and indirectly, or in some instances directly, to companies that provide services to financial institutions.

These laws and regulations restrict the collection, processing, storage, use and disclosure of personal information, require notice to individuals of privacy practices and provide individuals with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information.

the use and disclosure of certain nonpublic or otherwise legally protected information.

These laws also impose requirements for safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines.

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Virgin Islands have enacted data breach notification laws requiring businesses that experience a security breach of their computer databases that contain personal information to notify affected individuals, consumer reporting agencies and governmental agencies.

Eleven states have implemented (though not all laws, including Texas, are presently in effect) comprehensive data security laws.

Many states have implemented comprehensive data privacy and security laws.

Certain of these laws restrict the ability to collect and utilize certain types of personal information, such as Social Security and driver’s license numbers, impose secure disposal requirements for personal data and contain regulations surrounding data protection and information security.

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In addition, states are increasingly legislating data protection requirements for a broader list of personal data and are strengthening protections for students' personal information.

For example, Illinois regulates the collection of biometric information under its Biometric Information Privacy Act.

Texas and Washington have also passed legislation regulating the collection of biometric information, and at least ten other states have legislation pending regarding the collection of biometric data.

Additionally, the California Consumer Privacy Act of 2018 (the “CCPA”), requires companies that process personal information of California residents to make certain disclosures to consumers about data practices, grants consumers specific access rights to their data, allows consumers to opt out of certain data sharing activities and creates a private right of action for data breaches.

The California Privacy Rights Act of 2020 (the “CPRA”), which came into effect on January 1, 2023, applies to certain personal information collected on or after January 1, 2022, amends and expands the CCPA to create additional consumer privacy rights, such as the right of correction and right to limit the use of sensitive personal information, and establishes a privacy enforcement agency known as the California Privacy Protection Agency (the “CPPA”).

Virginia passed the Consumer Data Protection Act, effective January 1, 2023 which offers consumers some rights similar to those offered by the CCPA.

Colorado (the Colorado Privacy Act) and Connecticut (Public Act 22-15) both passed privacy laws that went into effect on July 1, 2023, and Utah updated its code with respect to a number of privacy and data security-related issues that go into effect on December 31, 2023.

In addition, various other states are expected to enact in the near future, new laws and regulations concerning privacy, data protection and information security.

Illinois regulates the collection of biometric information under its Biometric Information Privacy Act.

Texas and Washington have also passed legislation regulating the collection of biometric information, and additional states have legislation pending regarding the collection of biometric data.

Additionally, many states have passed comprehensive consumer privacy laws, that are either currently in effect or are set to become effective in the near term including California, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Kentucky, Maryland, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, Rhode Island, Oregon, Tennessee, Texas, Utah, and Virginia.

These laws require companies that process personal information of certain residents of those states to make disclosures to consumers about data practices, grants consumers specific rights to their data, and allow consumers to opt out of certain data sharing activities, and the California Consumer Privacy Act of 2018 (the “CCPA”), as amended by the California Privacy Rights Act of 2020 (the “CPRA”), creates a private right of action for data breaches.

To the extent we are subject to such legislation, the potential effects on our business are often far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

The recently enacted laws often provide for civil penalties or fines for violations.

Such laws often provide for civil penalties or fines for violations.

Each privacy law and regulation that applies to us could increase our cost of doing business or limit permissible activities.

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As an entity that provides services to educational institutions, we are indirectly subject to the Family Educational Rights and Privacy Act ("FERPA") or Protection of Pupil Rights Amendment ("PPRA"), and we may not transfer or otherwise disclose or use any personally identifiable information from a student record to another party other than on a basis and in a manner permitted under the statutes.

See “Risk Factors—If we violate the FERPA or PPRA, it could result in a material breach of contract with one or more of our customers in our Education vertical and could harm our reputation.

See “Risk Factors—If we violate the FERPA or PPRA, it could result in a material breach of contract with one or more of our customers in our Education sub-vertical and could harm our reputation.

Further, if we disclose student information in violation of FERPA or PPRA, our access to student information could be suspended."

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In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic Clinical Health Act of 2009 ("HITECH") and other laws (collectively "HIPAA") establish privacy and security standards that limit the use and disclosure of certain individually identifiable health information (known as “protected health information”) and require covered entities, including health plans and most healthcare providers, to implement administrative, physical and technical safeguards to protect the privacy of PHI and ensure the confidentiality, integrity and availability of electronic PHI.

Currently, a Notice of Proposed Rulemaking to strengthen the HIPAA security rule is under review by the U.S.

Office of Management and Budget and is expected to be published before the end of 2024.

Although the specific requirements of this proposed rule have not been published, we would expect the proposed rule to modernize requirements for protecting PHI against healthcare cybersecurity threats, which have dramatically increased over the past few years.

In addition, the HIPAA administrative simplification provisions require the use of uniform electronic data transmission standards of healthcare claims and payment transactions submitted or received electronically.

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In addition to HIPAA, numerous other U.S.

federal and state laws govern the collection, dissemination, use, access to and confidentiality of personal information, including health and wellness data that is not protected

health information.

federal and state laws govern the collection, dissemination, use, access to and confidentiality of personal information, including certain demographic information, such as social security numbers, financial information, health and wellness data that is not protected health information.

In many cases, state laws are more restrictive than, and not preempted by, HIPAA, and may allow personal rights of action with respect to privacy or security breaches, as well as fines.

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Government initiatives promoting interoperability of electronic health information ("EHI") have driven increasing demand among customers, industry groups, and patients for health information technology ("HIT") products that are compatible with one another and capable of facilitating access, exchange, and use of EHI without delay or other interference.

For example, the 21st Century Cures Act ("The Cures Act") and implementing regulations (the "Information Blocking Rule"), prohibit information blocking by health care providers, health information exchanges ("HIEs"), and developers that offer or develop one or more HIT modules certified by the Office of the National Coordinator of Health Information Technology ("ONC").

One of our subsidiaries is considered to be a HIT developer since its product, iMed EMR, is ONC certified and is, therefore, subject to these restrictions.

For example, the 21st Century Cures Act ("The Cures Act") and implementing regulations (the "Information Blocking Rule"), prohibit information blocking by health care providers, health information exchanges ("HIEs"), and developers that offer or develop one or more HIT modules certified through the Office of the National Coordinator of Health Information Technology ("ONC") Certification Program ("Certified Health Information Technology").

One of our subsidiaries is considered to be a HIT developer since its product, iMed EMR, is Certified Health Information Technology and is, therefore, subject to these restrictions.

Information blocking by an HIT developer or HIE is any practice that the actor knows or should know is likely to interfere with, prevent or materially discourage access, exchange or use of EHI, unless it is required by law or meets an exception.

Under the Cures Act and a final rule published in July 2023 by the HHS Office of the Inspector General (“OIG”), developers of certified HIT that commit information blocking may be subject to civil penalties of up to $1 million per violation.

Under the Cures Act and a final rule published in July 2023 by the HHS Office of the Inspector General (“OIG”), developers of Certified Health Information Technology that commit information blocking may be subject to civil penalties of up to $1 million per violation.

In 2020, ONC published a final rule that imposes HIT technology standards, implementation specifications, certification criteria, and conditions and maintenance of certification requirements that apply to HIT developers (“HIT Standards and Certification Criteria Final Rule”).

The HIT Standards and Certification Criteria Final Rule includes new criteria related to EHI export and standardized APIs for patient services.

As a result of this rule, HIT developers of certified HIT must ensure that their products and services meet the requisite technical standards by the relevant deadlines, which roll out through 2024, and that their HIT continues to evolve as developers and other stakeholders release revised versions of these standards.

As a result of this rule, HIT developers of certified HIT must ensure that their products and services meet the requisite technical standards by the relevant deadlines, most of which rolled out, and that their HIT continues to evolve as developers and other stakeholders release revised versions of these standards.

In addition, to participate in the ONC Health IT Certification Program, HIT developers must make various certifications regarding their HIT, and attest to compliance with applicable conditions of certification, including those related to information blocking.

In 2020, the Centers for Medicare & Medicaid Services ("CMS") published the Interoperability and Patient Access Final Rule, which, among other things, requires hospitals with certain EHR capabilities to send admission, discharge, and transfer notifications to other providers, and imposes requirements on certain payors to support Patient Access and Provider Directory APIs.

While not directly applicable to HIT developers, the Interoperability

and Patient Access Final Rule further demonstrates the government’s drive toward interoperability of EHI and the resulting need of healthcare providers and other consumers of HIT for tools that meet these requirements.

While not directly applicable to HIT developers, the Interoperability and Patient Access Final Rule further demonstrates the government’s drive toward interoperability of EHI and the resulting need of healthcare providers and other consumers of HIT for tools that meet these requirements.

In January 2022, ONC published the Trusted Exchange Framework, Common Agreement - Version 1 ("TEFCA") and Qualified Health Information Network ("QHIN") Technical Framework - Version 1.

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Although implementation of the Trusted Exchange Framework is not mandatory, the federal government encourages its adoption through the establishment of a publicly available directory of networks that are capable of trusted exchange and by permitting federal agencies to require implementation of the Trusted Exchange Framework by network contractors as the contractors update their health IT or operational practices.

In February 2023, ONC approved the first group of networks to implement the TEFCA as prospective QHINs, and these candidate QHINs are expected to go live by the end of 2023.

In February 2023, ONC approved the first group of networks to implement the TEFCA as prospective QHINs, and currently there are seven QHINs that are live.

ONC, now known as the Assistant Secretary for Technology Policy/Office of the National Coordinator for Health IT, or “ASTP ONC,” has finalized one update to the HIT Standards and Certification Criteria Final Rule since 2020, and has another one pending.

The finalized update, a Final Rule entitled “Health Data, Technology,

and Interoperability:

Certification Program Updates, Algorithm Transparency, and Information Sharing,” or “HTI-1,” became effective February 8, 2024.

HTI-1 further advances health IT interoperability by updating health IT standards, establishing transparency requirements for artificial intelligence and other predictive algorithms that are part of Certified Health Information Technology, and revising and adding Information Blocking Rule exceptions (including one for TEFCA).

The other update is a rule proposed by ASTP ONC called “Health Data, Technology, and Interoperability:

Patient Engagement, Information Sharing, and Public Health Interoperability,” or “HTI-2.” HTI-2 proposes two sets of new certification criteria (to enable public health as well as health IT for payors), continues to build off HTI-1 in terms of technology and standards updates, proposes additional Information Blocking Rule exceptions, and establishes governance rules for TEFCA.

Public comments closed on HTI-2 October 4, 2024, and the Final Rule for HTI-2 has not yet been released.

Anti-Kickback Laws

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The FCA prohibits the knowing submission of false claims or statements to the federal government, including to the Medicare and Medicaid programs.

The FCA defines the term “knowingly” broadly to include not only actual knowledge of a claim’s falsity, but also reckless disregard of the truth of the information, or deliberate ignorance of

the truth or falsity of a claim.

The FCA defines the term “knowingly” broadly to include not only actual knowledge of a claim’s falsity, but also reckless disregard of the truth of the information, or deliberate ignorance of the truth or falsity of a claim.

Specific intent to defraud is not required.

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Further, submission of a claim for an item or service generated in violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA.

When an entity is determined to have violated the FCA, it may be required to pay three times the actual damages sustained by the government, plus substantial civil penalties for each false claim, and may be excluded from participation in federal healthcare programs.

When an entity is determined to have violated the FCA, it may be required to pay three times the actual damages sustained by the government, plus

substantial civil penalties for each false claim, and may be excluded from participation in federal healthcare programs.

Exclusion from Participation in Government Healthcare Programs

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Our customers have an affirmative duty to check the exclusion status of individuals and entities prior to entering into contractual relationships and periodically re-check thereafter.

We have implemented compliance policies and procedures to screen for excluded individuals.

We have implemented compliance policies and procedures to screen for excluded individuals at our entities subject to these laws.

However, if we employ or contract with an excluded individual or entity, we could face significant consequences as outlined above.

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Prepaid Products

General-use prepaid cards, store gift cards and gift certificates issued as a card, code or other device, often referred to as stored value, are subject to various federal and state laws and regulations, which may include laws and regulations related to consumer and data protection, licensing, consumer disclosures, escheat, anti-money laundering, banking, trade practices and competition and wage and employment.

The customers who utilize the gift card processing products and services that we may sell may be subject to these laws and regulations.

In the future, if we seek to expand these stored value card products and services, or as a result of regulatory changes, we may be subject to additional regulation and may be required to obtain additional licenses and registrations which we may not be able to obtain.

Prepaid products, such as store gift cards, are subject to various federal and state laws and regulations, which may include laws and regulations related to consumer and data protection, licensing, consumer disclosures, escheat, anti-money laundering, banking, trade practices and competition.

The customers who utilize prepaid products and services that we may sell may be subject to these laws and regulations.

In the future, if we seek to expand these prepaid card products and services, or as a result of regulatory changes, we may be subject to additional regulation and may be required to obtain additional licenses and registrations which we may not be able to obtain.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Card Act”) gift card provisions created requirements applicable to general-use prepaid cards, store gift cards and gift certificates.

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Indirect Regulatory Requirements

Certain of our distribution partners are financial institutions that are directly subject to various regulations and compliance obligations issued by the CFPB, the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration and other agencies responsible for regulating financial institutions, which includes state financial institution regulators.

Certain of our partners are financial institutions that are directly subject to various regulations and compliance obligations issued by the CFPB, the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration and other agencies responsible for regulating financial institutions, which includes state financial institution regulators.

While these regulatory requirements and compliance obligations do not apply directly to us, many of these requirements materially affect the services we provide to our customers and us overall.

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These rules and standards, including the PCI DSS, govern a variety of areas of the payments industry, including how we can process transactions, how consumers and customers may use their cards, how our customers may conduct their business regarding the acceptance of payments (including the types and amounts of fees that can be assessed for the acceptance of payments), the security features of cards, security standards for processing, data security and allocation of liability for certain acts or omissions including liability in the event of a data breach.

The payment networks may change these rules and standards from time to time as they may determine in their sole discretion and with or without advance notice to their participants.

The payment networks may change these rules and standards from time to time as they may determine in their sole discretion and with or without advance notice to

their participants.

These changes may be made for any number of reasons, including as a result of changes in the regulatory environment, to maintain or attract new participants, or to serve the strategic initiatives of the networks and may impose additional costs and expenses on or be disadvantageous to certain participants.

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We have invested significant resources to ensure our systems’ compliance with the mandate, and to assist our customers in fulfilling their EMV compliance responsibilities.

To provide our electronic payment services, we must be registered either indirectly or directly as a service provider with each of the payment networks that we utilize.

To provide our electronic payment services, we must be registered with each of the payment networks that we utilize.

Because we are not a bank, we are not eligible for primary membership in certain payment networks, including Visa and Mastercard, and are therefore unable to directly access these networks.

The operating regulations of certain payment networks, including Visa and Mastercard, require us to be sponsored by a member bank as a service provider.

We are registered with certain payment networks, including Visa and Mastercard, through various sponsor banks.

The agreements with our bank sponsors give them substantial discretion in approving certain aspects of our business practices including our solicitation, application and qualification procedures for customers and the terms of our agreements with customers.

The operating regulations of certain payment networks, including Visa and Mastercard, require us to be sponsored by a member bank .

We are registered with certain payment networks, including Visa and Mastercard, through a sponsor bank.

The agreements with our bank sponsor gives them substantial discretion in approving certain aspects of our business practices including our solicitation, application and qualification procedures for customers and the terms of our agreements with customers.

We are also subject to network operating rules and guidelines promulgated by the National Automated Clearing House Association (“NACHA”) relating to payment transactions we process using the ACH Network.

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We are subject to U.S.

federal and state unclaimed or abandoned property (escheat) laws which require us to remit to certain government authorities property of others we hold that has been unclaimed for a specified period of time such as account balances due to a distribution partner or customer following discontinuation of its relationship with us.

federal and state unclaimed or abandoned property (escheat) laws which require us to remit to certain government authorities property of others we hold that has been unclaimed for a specified period of time such as account balances due to a customer following discontinuation of its relationship with us.

The Housing Assistance Tax Act of 2008 requires certain merchant acquiring entities and third-party settlement organizations to provide information returns for each calendar year with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year.

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In addition, we license technology from third parties that is integrated into some of our solutions.

We own a number of registered federal service marks, including, without limitation, i3 Verticals®, PaySchools® and Axia®.

We own a number of registered federal service marks, including, without limitation, i3 Verticals®, i3 Education®, ImageSoft®, JusticeTech®, TrueSign®, Milestone® and PaySchools®.

We also own a number of domain names, including, without limitation, www.i3verticals.com.

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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-K

Item 1. Business