What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2024-11-25 compared with 2023-11-22 · 174 added, 189 removed, 542 unchanged (40% of the section changed)

1 unchanged sentence

If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected.

The following risk factors, some of which contain statements that constitute forward-looking statements, should be read in conjunction with

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes.

The following risk factors, some of which contain statements that constitute forward-looking statements, should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes.

Risks Related to Our Business and Industry

Unauthorized disclosure, destruction or modification of data or disruption of our services or other cybersecurity or technological risks, including as result of a cybersecurity incident, could expose us to liability, protracted and costly litigation and damage our reputation.

We are responsible both for our own business and to a significant degree for acts and omissions by certain of our distribution partners and third-party vendors under the rules and regulations established by the payment networks, such as Visa and Mastercard, Discover and American Express, and the debit networks.

We and other third parties collect, process, store and transmit sensitive data, such as names, addresses, social security numbers, credit or debit card numbers and expiration dates, drivers’ license numbers and bank account numbers, and we have ultimate liability to the payment networks and member financial institutions that register us with the payment networks for our failure, or the failure of certain distribution partners and third parties with whom we contract, to protect this data in accordance with payment network requirements.

Unauthorized disclosure, destruction or modification of data or disruption of our services or other cybersecurity or technological risks, including as a result of a cybersecurity incident, could expose us to liability, protracted and costly litigation and damage our reputation.

We are responsible both for our own business and to a significant degree for acts and omissions by certain of our partners under the rules and regulations established by the payment networks, such as Visa and Mastercard, Discover and American Express, and the debit networks.

We and other third parties collect, process, store and transmit sensitive data, such as names, addresses, social security numbers, credit or debit card numbers and expiration dates, drivers’ license numbers and bank account numbers, and we have ultimate liability to the payment networks and member financial institutions that register us with the payment networks for our failure, or the failure of certain third parties with whom we contract, to protect this data in accordance with payment network requirements.

The loss, destruction or unauthorized modification of customer or cardholder data could result in significant fines, sanctions and proceedings or actions against us by the payment networks, governmental bodies, consumers or others, which could have a material adverse effect on our business, financial condition and results of operations.

1 unchanged sentence

We are subject to risk associated with information technology and cybersecurity matters.

For example, on June 2, 2021, the State of Louisiana, Division of Administration (the “State”) and a putative class of Louisiana law enforcement districts filed a petition in the 19th Judicial District Court for the Parish of East Baton Rouge against i3-Software & Services, LLC (“S&S”), a subsidiary of the Company located in Shreveport, Louisiana, seeking monetary damages related to a third-party remote access software product used in connection with services provided by S&S to certain Louisiana Parish law enforcement districts and alleged inadequacies in the Company’s cybersecurity practices.

For example, on June 2, 2021, the State of Louisiana, Division of Administration and a putative class of Louisiana law enforcement districts filed a petition in the 19th Judicial District Court for the Parish of East Baton Rouge against i3-Software & Services, LLC (“S&S”), a subsidiary of the Company located in Shreveport, Louisiana, seeking monetary damages related to a third-party remote access software product used in connection with services provided by S&S to certain Louisiana Parish law enforcement districts and alleged inadequacies in the Company’s cybersecurity practices.

For additional information about this litigation, see Note 16 to our consolidated financial statements.

The current cyber threat environment presents increased risk for all companies, in our industry and otherwise, including as a result of cyberattacks, and in some cases, ransomware attacks, through which an attacker gains access to the organization’s computer files, renders them temporarily inaccessible and threatens to permanently delete them if a cash ransom is not paid by a specified deadline.

The current cyber threat environment presents increased risk for all companies, in our industry and otherwise, including as a result of cyberattacks as well as ransomware attacks (through which an attacker renders an organization’s computer files inaccessible and demands a payment to return them or reinstate access), malicious software, advanced persistent threats, phishing and other attempts by malicious threat actors, including nation-state actors, ransomware groups and others to access, acquire, use disclose, shut down or manipulate information, systems, databases, processes and people.

Like other companies in our industry, our systems are subject to recurring attempts by third parties to access information, manipulate data or disrupt our operations.

1 unchanged sentence

In addition, the cybersecurity-related threats that we face may remain undetected for an extended period of time.

While we have experienced cyber threats and incidents, we have not (and, to our knowledge, our distribution partners, third-party vendors or customers have not) been subject to a material ransomware or cyber-extortion attack impacting us.

If such an event were to occur it could significantly disrupt our operations, expose us to liability under HIPAA and/or state data breach laws, adversely impact our reputation, impact our customer relationships or subject us to other material losses or liability.

In addition, the rapid evolution and increased adoption of artificial intelligence (“AI”) and other emerging technologies also may heighten our cybersecurity risks by making cyberattacks and social engineering more difficult to detect, contain and mitigate.

While we have experienced cyber threats and incidents, we have not (whether directly or indirectly, including through our third-party vendors, customers or other business relations) been subject to a cybersecurity event of which we are aware that has had a material impact on us, including our business strategy, financial condition or results of operations.

However, despite our security measures, there is no assurance that we, or the third parties with which we interact, will not experience a cybersecurity incident in the future that materially impacts us.

If such an event were to occur it could materially disrupt our operations, expose us to liability under data breach laws, adversely impact our reputation, impact our customer relationships or subject us to other material losses or liability.

In addition, a breach of our system or a third-party system upon which we rely may subject us to material losses or liability, including payment network fines, assessments and claims for unauthorized purchases with misappropriated credit, debit or card information, impersonation or other similar fraud claims.

A misuse of such data or a cybersecurity breach could harm our reputation and deter our customers and potential customers from using electronic payments generally and our products and services specifically, thus reducing our revenue.

In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the imposition of material penalties and fines under state and federal laws (including HIPAA) or by the payment networks.

These risks may be heightened in connection with employees working from remote work environments, as our dependency on certain service providers, such as video conferencing and web conferencing

services, has significantly increased.

In addition, to access our network, products and services, customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and subject to their own security risk.

state and federal laws (including HIPAA) or by the payment networks.

These risks may be heightened in connection with employees working from remote work environments, as our dependency on certain service providers, such as video conferencing and web conferencing services, has significantly increased.

While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.

1 unchanged sentence

In addition, as cybersecurity threats continue to evolve, we have expended, and expect to continue to expend, significant resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities, but we still might be unable to successfully prevent certain cyberattacks.

Although we generally require that our agreements with our distribution partners and service providers who have access to customer data include confidentiality obligations that restrict these parties from using or disclosing any customer data except as necessary to perform their services under the applicable agreements, there can be no assurance that these contractual measures will prevent the unauthorized disclosure of business or customer data, nor can we be sure that such third parties would be willing or able to satisfy liabilities arising from their breach of these agreements.

Although we generally require that our agreements with third parties who have access to customer data include confidentiality obligations that restrict these parties from using or disclosing any customer data except as necessary to perform their services under the applicable agreements, there can be no assurance that these contractual measures will prevent the unauthorized disclosure of business or customer data, nor can we be sure that such third parties would be willing or able to satisfy liabilities arising from their breach of these agreements.

Any failure by such third parties to adequately take these protective measures could result in protracted or costly litigation.

In addition, our agreements with our bank sponsors (as well as payment network requirements) require us to take certain protective measures to ensure the confidentiality of business and consumer data.

Any failure to adequately comply with these protective measures could result in fees, penalties, litigation or termination of our bank sponsor agreements.

Any significant unauthorized disclosure of sensitive data entrusted to us would cause significant damage to our reputation, impair our ability to attract new integrated technology and distribution partners and may cause parties with whom we already have such agreements to terminate them.

In addition, our agreement with our bank sponsor and applicable payment network requirements require us to take certain protective measures to ensure the confidentiality of business and consumer data.

Any failure to adequately comply with these protective measures could result in fees, penalties, litigation or termination of our bank sponsor agreement.

Any significant unauthorized disclosure of sensitive data entrusted to us would cause significant damage to our reputation, impair our ability to attract new integrated technology and may cause parties with whom we already have such agreements to terminate them.

Our software and systems and our third-party providers’ software and systems may fail, or our third-party providers may discontinue providing their services or technology generally or to us specifically, which in either case could interrupt our business, cause us to lose business and increase our costs.

15 unchanged sentences

We rely on third parties for specific services, software and hardware used in providing our products and services.

Some of these organizations and service providers are our competitors or provide similar services and technology to our competitors, and we may not have long-term contracts with them.

If these contracts are canceled or we are unable to renew them on commercially reasonable terms, or at all, our business, financial condition and results of operation could be adversely impacted.

The termination by our service or technology providers of their arrangements with us or their failure to perform their services efficiently and effectively may adversely affect our relationships with our customers and, if we cannot find alternate providers quickly, may cause those customers to terminate their processing agreements with us.

These third parties, including hosting providers such as AWS, are necessary for our internal business needs and for the delivery of various cloud and other hosted solutions to customers.

These hosting providers rely on the uninterrupted operation of data centers and the ability to protect computer equipment and information stored in these data centers against unanticipated failures, intrusions, viruses, acts of terrorism and similar damaging events.

If one or more of our hosting providers were unable to support our requirements for an extended period, and we are not able to find an alternative solution in a timely fashion, our customer relationships could be at risk of termination, and our business, financial condition and results of operation could be adversely impacted.

We also rely in part on third parties for the development and access to new technologies, or for updates to existing products and services for which they provide ongoing support.

Failure by these third-party providers to devote an appropriate level of attention to our products and services could result in delays in introducing new products or services, or delays in resolving any issues with existing products or services for which third-party providers provide ongoing support.

In addition, in the remote work environments, the daily activities and productivity of our workforce is now more closely tied to key vendors, such as video conferencing services, consistently delivering their services without material disruption.

Our ability to deliver information using the internet and to operate in a remote working environment may be impaired because of infrastructure failures, service outages at third-party internet providers, malicious attacks or other factors.

In addition, the daily activities and productivity of our workforce is tied to key vendors, such as video conferencing services and internet providers, consistently delivering their services without material disruption, malicious attacks or other factors.

Some of our solutions contain "open-source" software, and any failure to comply with the terms of one or more of applicable open-source licenses could negatively affect our business.

8 unchanged sentences

This acquisition activity requires substantial capital and other expenditures.

Taking these factors into account, we incurred net losses attributable to i3 Verticals, Inc.

in the years ended September 30, 2023, 2022 and 2021, and we may continue to incur losses in the future.

While we had substantial net income attributable to i3 Verticals, Inc.

in the year ended September 30, 2024 as a result of the gain associated with the divestiture of our Merchant Services Business, taking into account the factors above, we incurred net losses attributable to i3 Verticals, Inc.

in the years ended September 30, 2023 and 2022 and prior years, and we may continue to incur losses in the future.

A substantial portion of our historical revenue growth has resulted from acquisitions.

For the year ended September 30, 2023, revenues attributable to the acquisitions we completed in 2022 and 2023 were $21.5 million, or 5.8% of our total revenues.

We expect our cash needs to increase significantly for the next several years as we:

For the year ended September 30, 2024, the incremental impact of revenues attributable to the acquisitions we completed in 2023 and 2024 were $2.4 million, or 1.0% of our total revenues, net of intercompany eliminations.

We expect our cash needs to increase for the next several years as we:

• make additional acquisitions;

6 unchanged sentences

If we do not continue to increase our revenues, our business, results of operations and financial condition could be materially and adversely affected.

The vertical market software and payment processing industries are highly competitive.

The vertical market software industry is competitive.

Such competition could adversely affect the revenue we receive, and as a result, our margins, business, financial condition and results of operations.

The market for payment processing services is highly competitive and has relatively low barriers to entry.

Other providers of payment processing services have established a sizable market share in the merchant acquiring sector and service more customers than we do.

Our growth will depend, in part, on a combination of the continued growth of the electronic payment market and our ability to increase our market share.

Our payment and software solutions compete against many peers.

Our competitors include, among others, Tyler Technologies, Inc., EverCommerce, Inc., EngageSmart, LLC, Constellation Software, Inc., Roper Technologies, Inc., Global Payments, Inc., Axon Technologies, and PowerSchool Holdings, Inc.

Other software providers of payment processing services have established a sizable market share in our vertical markets and service more customers than we do.

Our growth will largely depend on our ability to increase our market share.

Our competitors in the vertical market software industry include, among others, Tyler Technologies, Inc., Constellation Software, Inc.

Verra Mobility Corp, EverCommerce Inc., Roper Technologies, Inc., Axon Technologies, Paymentus Holdings, Inc., Flywire Corp, Weave Communications Inc., Phreesia Inc.

and Waystar Holding Corp.

Many of our competitors have substantially greater financial, technological, and marketing resources than we have.

Accordingly, if these competitors specifically target our business model, they may be able to offer more attractive solutions to our customers and more attractive compensation to our distribution partners.

Accordingly, if these competitors specifically target our business model, they may be able to offer more attractive solutions to our customers.

They also may be able to offer and provide products and services that we do not offer.

Additionally, larger financial institutions may decide to perform in-house some or all of the services we provide or could provide, which may give them with a competitive advantage in the market.

Additionally, larger financial institutions may decide to perform in-house some or all of the services we provide or could provide, which may give them a competitive advantage in the market.

There are also a large number of small providers of vertical market software services or payment processing services that provide various ranges of services to our customers and our potential customers.

This competition may effectively limit the prices we can charge and requires us to control costs aggressively in order to maintain acceptable profit margins.

Competition could also result in a loss of existing distribution partners and customers and greater difficulty attracting new distribution partners and customers.

Competition could also result in a loss of customers and greater difficulty attracting new customers.

One or more of these factors could have a material adverse effect on our business, financial condition and results of operations.

1 unchanged sentence

Because our standing arrangements and agreements with our vendors and customers typically contain no purchase or sale obligations and are terminable by either party upon no or relatively short notice, we are subject to significant risks associated with the loss or change at any time in the business habits and financial condition of key vendors as they adapt to changes in the market.

To acquire and retain customers, we depend in part on distribution partners that generally do not serve us exclusively, may not aggressively market our products and services, are subject to attrition and are not under our control.

We rely heavily on the efforts of our distribution partners to market our products and services to existing customers and potential customers.

Generally, our agreements with distribution partners are not exclusive and these partners retain the right to refer potential customers to other merchant acquirers.

Gaining and maintaining loyalty or exclusivity may require financial concessions to maintain current distribution partners or to attract potential distribution partners from our competitors who may be offering significantly more enticing pricing terms, such as increased signing bonuses or residuals payable to our referral partners, which could have a negative impact on our results of operations.

If these distribution partners switch to another merchant acquirer, focus more heavily on promoting the products and services of one or more other merchant acquirers, cease operations or become insolvent, we may no longer receive new referrals from them or may receive fewer new referrals from them, and we also risk losing existing customers with whom the distribution partner has a relationship.

Additionally, some of our distribution partners are subject to the requirements imposed by our bank sponsors, which may result in fines to them for non-compliance and may, in some cases, result in these entities ceasing to market our products and services.

If we are unable to maintain our existing base of distribution partners or develop relationships with new distribution partners, our business, financial condition and results of operations would be materially adversely affected.

Further, we may be named in legal proceedings in connection with the actions of our distribution partners where it is alleged that our distribution partners have intentionally or negligently misrepresented pricing or other contractual terms to customers or potential customers related to our processing solutions or related products.

Our distribution partners are independent businesses and we have no control over their day-to-day business activities, including their customer marketing and solicitation practices.

While in some cases we may have indemnification rights against our distribution partners for these activities, there is no guarantee that we will be able to successfully enforce those indemnification rights or that our distribution partners are adequately capitalized in a manner necessary to satisfy their indemnification obligations to us.

If one or more judgments or settlements in any litigation or other investigation, plus related defense and investigation costs, significantly exceed our insurance coverage and we are unable to enforce our indemnification rights against a distribution partner or partners, our business, financial condition and results of operations could materially suffer.

If we cannot keep pace with rapid developments and changes in our industry, the use of our products and services could decline, causing a reduction in our revenues.

The electronic payments market is subject to constant and significant changes.

This market is characterized by rapid technological evolution, new product and service introductions, evolving industry standards, changing customer needs and the entrance of non-traditional competitors, including products and services that enable card networks and banks to transact with consumers directly.

To remain competitive, we continually pursue initiatives to develop new products and services to compete with these new market entrants.

The vertical market software market is subject to constant and significant changes.

To remain competitive, we continually pursue initiatives to develop new products and services to compete in an effective manner.

These projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of customer acceptance.

1 unchanged sentence

Additionally, we look for acquisition opportunities, investments and alliance relationships with other businesses that will increase our market penetration and enhance our technological capabilities, product offerings and distribution capabilities.

Furthermore, even though the market for integrated payment processing products and services is evolving, it may develop too rapidly or not rapidly enough for us to recover the costs we have incurred in developing new products and services targeted at this market.

Any delay in the delivery of new products and services or the failure to differentiate our products and services or to accurately predict and address market demand could render our products and services less desirable, or even obsolete.Further, the development of AI is complex and uncertain, and presents various risks and uncertainties, including as the result of the rapidly evolving legal, regulatory and ethical landscape associated with the use of AI.

Our inability to successfully or effectively implement AI initiatives, or other deficiencies or failures in our AI systems or initiatives, could subject us to competitive harm, legal and regulatory risk, and increase our cybersecurity, intellectual property, and privacy risks.

Any of the foregoing could have a material and adverse effect on our operating results and financial condition.

The continued growth and development of our payment processing activities will depend on our ability to anticipate and adapt to changes in consumer behavior.

For example, consumer behavior may change regarding the use of payment card transactions, including the relative increased use of cash, crypto-currencies, other emerging or alternative payment methods and payment card systems that we or our processing partners do not adequately support or that do not provide adequate commissions to parties like us.

Any failure to timely integrate emerging payment methods into our software, to anticipate consumer behavior changes or to contract with processing partners that support such emerging payment technologies could cause us to lose traction among our customers or referral sources, resulting in a corresponding loss of revenue, if those methods become popular among end-users of their services.

The products and services we deliver are designed to process complex transactions and provide reports and other information on those transactions, all at very high volumes and processing speeds.

Our technology offerings must also integrate with a variety of network, hardware, mobile and software platforms and technologies, and we need to continuously modify and enhance our products and services to adapt to changes and innovation in these technologies.

Any failure to deliver an effective, reliable and secure service or any performance issue that arises with a new product or service could result in significant processing or reporting errors or other losses.

If we do not deliver a promised new product or service to our customers or distribution partners in a timely manner or the product or service does not perform as anticipated, our development efforts could result in increased costs and a loss in business that could reduce our earnings and cause a loss of revenue.

We also rely in part on third parties, including some of our competitors and potential competitors, for the development of and access to new technologies, including software and hardware.

Our future success will depend in part on our ability to develop or adapt to technological changes and evolving industry standards.

The continued growth and development of our software and related services will depend on our ability to anticipate and adapt to changes in consumer behavior.

For example, our failure to timely integrate emerging payment methods into our software could cause us to lose traction among our customers , resulting in a corresponding loss of revenue.

Our payment processing technology offerings in connection with our software must also integrate with a variety of network, hardware, mobile and software platforms and technologies.

Any failure to deliver an effective, reliable and secure service or any performance issue that arises could result in significant processing or reporting errors or other losses.Our future success will depend in part on our ability to develop or adapt to technological changes and evolving industry standards.

If we are unable to develop, adapt to or access technological changes or evolving industry standards on a timely and cost-effective basis, our business, financial condition and results of operations would be materially adversely affected.

If we fail to comply with the applicable requirements of the Visa and Mastercard payment networks, those payment networks could seek to fine us, suspend us or terminate our registrations through our bank sponsors.

We do not directly access the payment card networks, such as Visa and Mastercard, that enable our acceptance of credit cards and debit cards, including some types of prepaid cards.

Accordingly, we must rely on banks or other payment processors to process transactions and must pay fees for the services.

To provide our merchant acquiring services, we are registered through our bank sponsors with the Visa and Mastercard networks as service providers for member institutions.

The majority of our $24.4 billion in payment volume in fiscal year 2023 was attributable to transactions processed on the Visa and Mastercard networks.

As such, we, our bank sponsors and many of our customers are subject to complex and evolving payment network rules.

The payment networks routinely update and modify requirements applicable to merchant acquirers, including rules regulating data integrity, third-party relationships (such as those with respect to bank sponsors and ISOs), merchant chargeback standards and PCI DSS.

Accordingly, we must rely on our bank sponsor or other payment processing providers to process transactions and must pay fees for the services.

To provide our payment facilitator services, we are registered through our bank sponsor with the Visa and Mastercard networks.

The majority of our payment volume in fiscal year 2024 was attributable to transactions processed on the Visa and Mastercard networks.

We, our bank sponsor and many of our customers are subject to complex and evolving payment network rules.

The payment networks routinely update and modify requirements applicable to payment facilitators, including rules regulating data integrity, third-party relationships (such as those with respect to our bank sponsor), merchant chargeback standards and Payment Card Industry Data Security Standard ("PCI DSS").

The rules of the card networks are set by their boards, which may be influenced by card issuers, some of which offer competing transaction processing services.

The PCI council released version 4.0, which includes stronger standards that increase the compliance burden on processors and require additional training, education and support tools for processors to support their merchants.

If we or our bank sponsors fail to comply with the applicable rules and requirements of the Visa or Mastercard payment networks, Visa or Mastercard could suspend or terminate our member registration or certification, which would make it impossible for us to conduct our business on its current scale.

The PCI Security Standards Council released fulsome revisions in version 4.0, which has been further updated by version 4.0.1, and includes stronger standards that increase the compliance burden on processors and require additional training, education and support tools for processors to support their merchants.

If we or our bank sponsor fails to comply with the applicable rules and requirements of the Visa or Mastercard payment networks, Visa or Mastercard could suspend or terminate our member registration or certification, which would make it impossible for us to conduct our business on its current scale.

Further, our transaction processing capabilities, including with respect to settlement processes, could be delayed or otherwise disrupted, and recurring non-compliance could result in the payment networks seeking to fine us.

7 unchanged sentences

In addition, even if we comply with the PCI DSS, there is no assurance that we will be protected from a security breach.

The termination of our registration with the payment networks, or any changes in payment network or issuer rules that limit our ability to provide merchant acquiring services, could have an adverse effect on our payment processing volumes, revenues and operating costs.

The termination of our registration with the payment networks, or any changes in payment network or issuer rules that limit our ability to provide payment facilitation services, could have an adverse effect on our payment processing volumes, revenues and operating costs.

If we are unable to comply with the requirements applicable to our settlement activities, the payment networks may no longer allow us to provide these services, which would require us to spend additional resources to obtain settlement services from a third-party provider.

In addition, if we were precluded from processing Visa and Mastercard electronic payments, we would lose substantially all of our revenues.

In addition, if we were precluded from processing Visa and Mastercard electronic payments, we would lose substantially all of our payments-related revenues.

We are also subject to the operating rules of Nacha, a self-regulatory organization which administers and facilitates private-sector operating rules for ACH payments and defines the roles and responsibilities of financial institutions and other ACH network participants.

The NACHA Rules and Operating Guidelines impose obligations on us and our partner financial institutions.

The Nacha Operating Rules impose obligations on us and our partner financial institutions.

These obligations include audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations.

If an audit or self-assessment under PCI DSS or Nacha identifies any deficiencies that we need to remediate, the remediation efforts may distract our management team and be expensive and time consuming.

If our bank sponsorships are terminated and we are not able to secure or successfully migrate customer portfolios to new bank sponsors, we will not be able to conduct our business.

If the banks that sponsor us with the Visa and Mastercard networks stop sponsoring us, we would need to find other financial institutions to provide those services, which could be difficult and expensive.

If our bank sponsorship is terminated and we are not able to secure or successfully migrate customer portfolios to a new bank sponsor, we will not be able to conduct our business.

If the bank that sponsors us with the Visa and Mastercard networks stop sponsoring us, we would need to find other financial institutions to provide those services, which could be difficult and expensive.

If we were unable to find a replacement financial institution to provide sponsorship, we could no longer provide processing services to affected customers, which would negatively impact our revenues and earnings.

Furthermore, some 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.

Our bank sponsors’ discretionary actions under these agreements could have a material adverse effect on our business, financial condition, and results of operations.

Furthermore, our bank sponsor retains 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.

Our bank sponsor's discretionary actions could have a material adverse effect on our business, financial condition, and results of operations.

If our processing services agreement with Payroc is terminated and we are not able to enter into replacement processing relationship with another party, our ability to provide payment processing services to our affected software customers may be adversely impacted.

In connection with the sale of our Merchant Services Business, we entered into a processing services agreement with Payroc (the “Payroc Processing Agreement”).

Under the Payroc Processing Agreement, Payroc agreed to, among other things, process payments for a portion of our software customers in accordance with Payroc’s relationships with certain payment processors and sponsor banks.

This processing structure for these specific software customers is intended to be temporary, and we expect such customers will eventually transition into our payment facilitation platform.

If, however, the Payroc Processing Agreement is terminated and we are unable to enter into a replacement processing relationship with another party on acceptable terms or in a timely fashion, or if Payroc’s relationship with its processors or sponsor banks is terminated or significantly modified in fashion that is adverse to us or our customers, our ability to provide payment processing services to our affected software customers may be adversely impacted, which could have a material adverse effect on our business, financial condition, and results of operations.

Consolidation in the banking and financial services industry could adversely affect our business, results of operations and financial condition.

3 unchanged sentences

These foregoing matters could have an adverse effect on our business, result of operations and financial condition.

We have faced, and may in the future face, significant chargeback liability if our customers refuse or cannot reimburse chargebacks resolved in favor of their customers, and we may not accurately anticipate these liabilities.

We have faced, and may in the future face, chargeback liabilities if our customers refuse or cannot reimburse chargebacks resolved in favor of their customers, and we may not accurately anticipate these liabilities.

We have potential liability for chargebacks associated with our customers’ processing transactions.

7 unchanged sentences

In a fraudulent card-not-present transaction, even if the customer receives authorization for the transaction, the customer is liable for any loss arising from the transaction.

Many of our smaller customers transact a substantial percentage of their sales over the Internet or in response to telephone or mail orders.

Because their sales are card-not-present transactions, these customers are more vulnerable to customer fraud than larger customers.

We may experience chargebacks arising from cardholder fraud more frequently than providers of payment processing services that service larger businesses and organizations.

Many of our customers transact a substantial percentage of their transactions over the Internet or in response to telephone orders.

Because their sales are card-not-present transactions, these customers are more vulnerable to customer fraud than other customers.

Business fraud occurs when a business or organization, rather than a cardholder, knowingly uses a stolen or counterfeit card or card number to record a false sales transaction, or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction.

3 unchanged sentences

Failure to effectively manage risk and prevent fraud could increase our chargeback liability and other liability, which could have a material adverse effect on our business, financial condition and results of operations.

New Visa rules associated with chargeback are now in effect that tighten monitoring and control of risks to combat the high rates of fraud and disputes.

These new rules impact when merchants are enrolled in the Visa Fraud Monitoring Program (the “VFMP”) and the Visa Chargeback Monitoring Program (the “VCMP”).

The VFMP and the VCMP target merchants with higher levels of chargebacks and fraud.

Visa rules associated with chargeback and fraud are being consolidated effective April 1, 2025, into the Visa Acquirer Monitoring Program, which will phase out the existing Visa Fraud Monitoring Program and Visa Dispute Monitoring Program.

Visa's new rules could have serious implications for the types of businesses that we can support, and high-risk merchants will be impacted by the changes.

1 unchanged sentence

if we cannot pass these increases along to our customers, our profit margins will be reduced.

We pay interchange fees or assessments to issuing banks through the card associations for each transaction that is processed using their credit and debit cards.

From time to time, the card associations increase the interchange fees that they charge processors and the sponsoring banks.

At their sole discretion, our sponsoring banks have the right to pass any increases in interchange fees on to us.

In addition, our sponsoring banks may seek to increase their sponsorship fees charged to us, all of which are based upon the dollar amount of the payment transactions we process.

We pay interchange fees or assessments to the issuing bank through the card associations for each transaction that is processed using their credit and debit cards.

From time to time, the card associations increase the interchange fees that they charge processors and the sponsoring bank.

At their sole discretion, our sponsoring bank may pass increases in interchange fees on to us.

In addition, our sponsoring bank may seek to increase its sponsorship fees charged to us, all of which are based upon the dollar amount of the payment transactions we process.

If we are not able to pass these fee increases along to customers through corresponding increases in our processing fees, our profit margins will be reduced.

1 unchanged sentence

Thus, we are at risk of shortages, price increases, changes, delays or discontinuations of hardware, which could disrupt our business.

Many of our solutions require or benefit from the use of third-party hardware products that we sell to our customers, such as payment terminals and point of sale equipment.

A number of such products come from limited number of suppliers.

Some of our solutions require or benefit from the use of third-party hardware products that we sell to our customers, such as kiosks, payment terminals and point of sale equipment.

A number of such products come from

limited number of suppliers.

Due to our reliance on the products produced by a limited number of suppliers, we are subject to the risk of shortages and long lead times in the supply of certain products.

2 unchanged sentences

Any interruption or delay in manufacturing supply, any increases in costs, or the inability to obtain these products from alternate sources at acceptable prices and within a reasonable amount of time, could harm our ability to provide products to our customers.

We are subject to economic and political risk, the business cycles of our customers and distribution partners and changes in the overall level of consumer and commercial spending, which could negatively impact our business, financial condition and results of operations.

The electronic payment industry depends heavily on the overall level of consumer and commercial spending.

We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income and changes in consumer purchasing habits.

Economic conditions in the United States continue to be challenging in various respects, and the United States economy continues to experience significant inflationary pressures, elevated interest rates, and challenging labor market conditions.

Such adverse economic conditions may adversely affect our financial performance by reducing the number or aggregate volume of transactions made using electronic payments.

In addition, demand for consumer products may be adversely affected by increases in interest rates and the reduced availability of financing.

A reduction in the amount of consumer or commercial spending could result in a decrease in our revenue and profits.

If our customers make fewer purchases or sales of products and services using electronic payments, or consumers spend less money through electronic payments, we will have fewer transactions to process at lower dollar amounts, resulting in lower revenue.

Additionally, credit card issuers may reduce credit limits and become more selective in their card issuance practices.

We have been adversely impacted by current negative economic conditions in the United States and may continue to adversely impacted by such conditions, particularly if current negative economic conditions persist or deteriorate.

Further, credit card issuers may reduce credit limits and become more selective in their card issuance practices.

We also have a certain amount of fixed and semi-fixed costs, including rent, debt service and salaries, which could limit our ability to quickly adjust costs and respond to changes in our business and the economy.

We are subject to economic and political risk, the business cycles of our customers and changes in the overall level of consumer and commercial spending, which could negatively impact our business, financial condition and results of operations.

We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income and changes in consumer purchasing habits, as well as changes in political conditions.

Economic conditions in the United States continue to be challenging in certain respects, and the United States economy has experienced significant inflation, elevated interest rates, and challenging labor market conditions.

Adverse economic conditions may adversely affect our financial performance.

We have been adversely impacted by challenging economic conditions in the United States and may continue to adversely impacted by such conditions, particularly if current economic conditions deteriorate.

Rapidly evolving domestic and global conditions are beyond our control and could materially adversely affect our business, operations, and results of operations.

and international markets are experiencing uncertain and volatile economic and geopolitical conditions, including from the impacts of Russian aggression in Ukraine, military conflict in the Middle East, rises in fuel costs, sustained inflation, threats or concerns of recession, and supply chain disruptions.

and international markets are experiencing uncertain and volatile economic and geopolitical conditions, including from the impacts of military conflict in the Middle East, Russian aggression in Ukraine, rises in fuel costs, sustained inflation, threats or concerns of recession, and supply chain disruptions.

These conditions make it extremely difficult for us to accurately forecast and plan future business activities.

Together, these circumstances create an environment in which it is challenging for us to predict future operating results.

If these uncertain business, macroeconomic or political conditions continue or further decline, our business, financial condition and results of operations could be materially adversely affected.

If these uncertain business, macroeconomic or political conditions continue or further decline, or if the military conflicts noted above escalate, our business, financial condition and results of operations could be materially adversely affected.

In addition, our business, financial condition and results of operations could be materially adversely affected by outbreaks of illnesses, epidemics or pandemics, climate-related events, including extreme weather events and natural disasters, riots, strikes, civil insurrection or social unrest, terrorist or criminal activities, or other catastrophic events or other political and economic instability.

5 unchanged sentences

We may not be able to successfully execute our strategy of growth through acquisitions.

Our future growth and profitability depend, in part, upon our continued expansion within the vertical markets in which we currently operate, the emergence of other vertical markets for electronic payments and our integrated solutions, and our ability to penetrate new vertical markets and our current distribution partners’ customer base.

As part of our strategy to expand into new vertical markets, we look for acquisition opportunities and partnerships with other businesses that will allow us to increase our market penetration, technological capabilities, product offerings and distribution capabilities.

Our future growth and profitability depend, in part, upon our continued growth within the vertical markets in which we currently operate.

As part of our strategy to expand into new customer bases, we look for acquisition opportunities and partnerships with other businesses that will allow us to increase our market penetration, technological capabilities, product offerings and distribution capabilities.

Although we expect to continue to execute our acquisition strategy:

6 unchanged sentences

The occurrence of any of these factors could adversely affect our growth strategy.

Our expansion into new vertical markets also depends upon our ability to adapt our existing technology or to develop new technologies to meet the particular needs of each new vertical market.

We may not have adequate financial or technological resources to develop effective and secure services or distribution channels that will satisfy the demands of these new vertical markets.

Penetrating these new vertical markets may also prove to be more challenging or costly or take longer than we may anticipate.

If we fail to expand into new vertical markets and increase our penetration into existing vertical markets, we may not be able to continue to grow our revenues and earnings.

Growth in our current vertical markets also depends upon our ability to adapt existing technology or develop new technologies to meet the particular needs of new and existing customers.

We may not have adequate financial or technological resources to develop effective and secure services that will satisfy the demands of these new customers.

Penetrating these new customers in our existing vertical markets may also prove to be more challenging or costly or take longer than we may anticipate.

If we fail to increase our penetration into existing vertical markets, we may not be able to continue to grow our revenues and earnings.

There are certain risks associated with the sale of our Merchant Services Business which was completed in September 2024.

In September 2024, we completed the sale of our Merchant Services Business.

There is no assurance that we will be able to realize the anticipated benefits from the disposition of our Merchant Services Business.

Moreover, there are post-closing risks associated with the ancillary agreements entered into by us at the closing, including the transition services agreement, the processing services agreement, and the restrictive covenant agreement.

In addition, pursuant to the Purchase Agreement, we agreed to indemnify Payroc with respect to certain matters and we agreed to retain certain liabilities related to the Merchant Services Business, which in any such case could result in liability to us following the closing.

Further, we are now highly dependent on the success of our two remaining business segments, our Public Sector segment and Healthcare segment.

Revenues and profits generated via acquisition may be less than anticipated, the integration process could experience delays or difficulties, and we may fail to uncover all liabilities of acquisition targets through the due diligence process prior to an acquisition, resulting in unanticipated costs, losses or a decline in profits, as well as potential impairment charges.

In evaluating and determining the purchase price for a prospective acquisition, we estimate the future revenues and profits from that acquisition based largely on historical financial performance.

Following an acquisition, we may experience some attrition in the number of customers serviced by an acquired provider of payment processing services or included in an acquired portfolio of merchant accounts.

Should the rate of post-acquisition customer attrition exceed the rate we forecasted, the revenues and profits from the acquisition may be less than we estimated, which could result in losses or a decline in profits, as well as potential impairment charges.

Following an acquisition, we may experience some customer attrition.

Should the rate of post-acquisition customer attrition exceed the rate forecasted, the revenues and profits from the acquisition may be less than we estimated, which could result in losses or a decline in profits, as well as potential impairment charges.

We perform a due diligence review of each of our acquisition partners.

1 unchanged sentence

An acquisition may also subject us to additional regulatory burdens that affect our business in potentially unanticipated and significantly negative ways.

The acquisition of a provider of payment processing services, as well as a portfolio of merchant accounts, requires the transfer of various data processing functions and connecting links to our systems and those of our third-party service providers.

If the transfer of these functions and links does not occur rapidly and smoothly, payment processing delays and errors may occur, resulting in a loss of revenues, increased customer attrition and increased expenditures to correct the transitional problems, which could preclude our attainment of, or reduce, our anticipated revenue and profits.

Additionally, any integrations that do not occur rapidly and smoothly could divert the attention of management away from other strategic matters, including, but not limited to, acquisitions or product development.

Integrations that do not occur rapidly and smoothly could divert the attention of management away from other strategic matters, including, but not limited to, acquisitions or product development.

In connection with some acquisitions, we may incur non-recurring severance expenses, restructuring charges or change of control payments.

16 unchanged sentences

Additionally, in recent years, individuals and groups have been purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies like ours.

Even if we believe that intellectual property related claims are without merit, defending against such claims is time consuming and expensive and could result in the diversion of the time and attention of our management and employees.

Even if we believe that intellectual property related claims are without merit, defending against such claims is resource intensive and expensive and could result in the diversion of the time and attention of our management and employees.

Claims of intellectual property infringement also might require us to redesign affected products or services, enter into costly settlement or license agreements, pay costly damage awards for which we may not have insurance, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products or services.

2 unchanged sentences

If we lose key personnel, or if their reputations are damaged, our business, financial condition and results of operations may be adversely affected, and proprietary information of our company could be shared with our competitors.

We depend on the ability and experience of a number of our key personnel, particularly Messrs.

Daily, Whitson and Stanford, who have substantial experience with our operations, the rapidly changing payment processing industry and the vertical markets in which we offer our products and services.

We depend on the ability and experience of a number of our key personnel who have substantial experience with our operations, the rapidly changing payment processing industry and the vertical markets in which we offer our products and services.

Many of our key personnel have worked for us for a significant amount of time or were recruited by us specifically due to their experience.

Our success depends in part upon the reputation and influence within the industry of our senior managers who have, over the years, developed long standing and favorable relationships with our vendors, card associations, bank sponsors and other payment processing and service providers.

It is possible that the loss of the services of one or a combination of our senior executives or key managers could have a material adverse effect on our business, financial condition and results of operations.

9 unchanged sentences

Our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects.

We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our revenues as a result of consumer spending patterns.

Historically our revenues have been strongest in our first, third and fourth fiscal quarters and weakest in our second fiscal quarter.

This is due to the increase in the number and amount of electronic payment transactions related to seasonal retail events, such as holiday and vacation spending.

We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our revenues.

The number of business days in a month or quarter also may affect seasonal fluctuations.

We also experience volatility in certain other metrics, such as customers, transactions and dollar volume.

Certain revenues in our Public Sector segment fluctuate with the fiscal calendars of our customers.

Transactional 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.

Volatility in our key operating metrics or their rates of growth could have a negative impact on our financial results and investor perceptions of our business prospects.

1 unchanged sentence

In the ordinary course of business, we are the subject of various claims and legal proceedings and may become the subject of claims, litigation or investigations, including commercial disputes and employee claims, such as claims of age discrimination, sexual harassment, gender discrimination, immigration violations or other local, state and federal labor law violations, and from time to time may be involved in governmental or regulatory investigations or similar matters arising out of our current or future business.

Any claims asserted against us or our management, regardless of merit or eventual outcome, could harm our reputation or the reputation of our management and have an adverse impact on our relationship with our customers, distribution partners and other third parties and could lead to additional related claims.

Any claims asserted against us or our management, regardless of merit or eventual outcome, could harm our reputation or the reputation of our management and have an adverse impact on our relationship with our customers and other third parties and could lead to additional related claims.

In light of the potential cost and uncertainty involved in litigation, we have in the past and may in the future settle matters even when we believe we have a meritorious defense.

39 unchanged sentences

Any of these events, if realized, could have a material adverse effect on our business, results of operations and financial condition.

Various laws and regulations, including those in other industries in which we provide services, even if such laws and regulations are not directed at us, may require us to make significant efforts to change our products and services and may require that we incur additional compliance costs and change how we price our products and services to our customers and distribution partners.

Implementing new compliance risk mitigation strategies efforts can be significant with the complexity of regulatory requirements, and we are devoting and will continue to devote significant resources to address compliance requirements.

5 unchanged sentences

The CFPB has issued guidance that applies to “supervised service providers,” which the CFPB has defined to include service providers, like us, to CFPB supervised banks and nonbanks.

In that regard the CFPB July 25, 2024 report entitled The Cost of Electronic Payments in K-12 Schools, the report included discussion on the CFPB’s Fall 2023 edition of their Supervisory Highlights report and a 2014 USDA Policy Memorandum regarding school lunch fees.

The CFPB report concluded that certain payment processing practices utilized by the Company and other participants in our industry may violate consumer financial protection laws.

The appearance of being involved in unfair trade practices and violating consumer protection laws when offering payment processing services to our customers could harm our reputation with our customers.

compliance with emerging sector-specific regulations may negatively impact our business, financial condition and results of operations by requiring us to alter our fee structure or payment processing practices.

The CFPB's focus on these payment processing practices may also lead to litigation against the Company.

Other companies in our industry that serve the public school sector have been the target of litigation related to the CFPB's increased focus on certain payment processing company practices as potentially volatile of consumer financial laws and as unfair trade practices.

As sector-specific laws, governmental rules and regulations develop to implement restrictions on payment processing services within certain sectors, we could become the subject of similar litigation, which could adversely impact our reputation, business and financial results.

In addition, federal and state agencies have recently proposed or enacted cybersecurity regulations, such as the Cybersecurity Requirements for Financial Services Companies issued by the New York State Department of Financial Services and the Cyber Security Resource Guide for Financial Institutions issued November 2022 by the Federal Financial Institutions Examination Council replacing the 2018 Cyber Security Resource Guide.

1 unchanged sentence

Any new rules and regulations implemented by the CFPB, state or other authorities or in connection with the Dodd-Frank Act could, among other things, slow our ability to adapt to a rapidly changing industry, require us to make significant additional investments to comply with them, redirect time and resources to compliance obligations, modify our products or services or the manner in which they are provided, or limit or change the amount or types of revenue we are able to generate.

Interchange fees, which the payment processor typically pays to the card issuer in connection with credit and debit card transactions, are subject to increasingly intense legal, regulatory and legislative scrutiny.

Interchange fees, which the payment processor typically pays to the card issuer in connection with credit and debit card transactions, are subject to legal, regulatory and legislative scrutiny.

In particular, the Dodd-Frank Act regulates and limits debit card fees charged by certain card issuers and allows businesses and organizations to set minimum dollar amounts for the acceptance of credit cards.

5 unchanged sentences

These restrictions could negatively affect the number of debit transactions processed, and prices charged per transaction, which would negatively affect our business.

If we violate 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.

If we violate the Family Educational Rights and Privacy Act ("FERPA") or Protection of Pupil Rights Amendment ("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.

12 unchanged sentences

For example, the HIPAA privacy and security regulations extensively regulate the use and disclosure of PHI and require business associates such as our company to implement administrative, physical and technical safeguards to protect the security of such information.

If we are unable to properly protect the privacy and security

of PHI entrusted to us, we could be found to have breached our contracts with our customers and/or be subject to investigation by the HHS Office for Civil Rights (“OCR”).

If we are unable to properly protect the privacy and security of PHI entrusted to us, we could be found to have breached our contracts with our customers and/or be subject to investigation by the United States Department of Health and Human Services ("HHS") Office for Civil Rights (“OCR”).

In the event OCR finds that we have failed to comply with applicable HIPAA privacy and security standards, we could face civil and criminal penalties.

5 unchanged sentences

Although we have implemented and maintain policies, processes and a compliance program infrastructure to assist us in complying with these laws and regulations and our contractual obligations, we cannot provide assurance regarding how these laws and regulations will be interpreted, enforced or applied to our Healthcare vertical operations.

Further, the FTC has prosecuted certain uses and disclosures of personal information and data breach cases as unfair and/or deceptive acts or practices under the Federal Trade Commission Act or under the FTC Health Breach Notification Act.

If we violate the federal AKS, the CMP Law, the federal FCA, the Cures Act or other federal or state laws and regulations applicable to healthcare services, it could result in a material breach of contract with one or more of our customers in our Healthcare vertical, harm our reputation and subject us to substantial civil and criminal penalties.

Further, the Federal Trade Commission ("FTC") has prosecuted certain uses and disclosures of personal information and data breach cases as unfair and/or deceptive acts or practices under the Federal Trade Commission Act or under the FTC Health Breach Notification Act.

If we violate the federal Anti-Kickback Statue, Civil Monetary Penalties Law, the False Claims Act, the Cures Act or other federal or state laws and regulations applicable to healthcare services, it could result in a material breach of contract with one or more of our customers in our Healthcare vertical, harm our reputation and subject us to substantial civil and criminal penalties.

We strive to comply with healthcare laws, regulations and other requirements applicable to us directly and to our customers and contractors, but there can be no assurance that our operations will not be challenged or impacted by enforcement initiatives.

3 unchanged sentences

Anti-Kickback Laws.

A number of federal and state laws govern patient referrals, financial relationships with physicians and other referral sources and inducements to providers and patients, including restrictions contained in amendments to the Social Security Act, commonly known as the AKS.

The AKS contains a limited number of exceptions, and the OIG has created regulatory safe harbors to the AKS.

The AKS contains a limited number of exceptions, and the Office of Inspector General for the HHS ("OIG") has created regulatory safe harbors to the AKS.

Activities that comply with a safe harbor are deemed protected from prosecution under the AKS.

2 unchanged sentences

We cannot provide assurance that practices outside of a safe harbor will not be found to violate the AKS.

Allegations of violations of the AKS may be brought under the civil CMP Law, which requires a lower burden of proof than the AKS.

Allegations of violations of the AKS may be brought under the federal Civil Monetary Penalties ("the CMP Law"), which requires a lower burden of proof than the AKS.

The OIG has a longstanding concern that percentage-based billing arrangements may increase the risk of improper billing practices.

1 unchanged sentence

In addition, certain states have adopted laws or regulations forbidding splitting of fees with non-physicians, which may be interpreted to prevent business service providers, including medical billing providers, from using a percentage-based billing arrangement.

While we have developed and implemented a comprehensive billing compliance program that we believe is consistent with federal guidance, our failure to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations to our business and contracting model, or other failure to comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business.

While we have developed and implemented a comprehensive billing compliance program that we believe is consistent with federal guidance, our failure to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations to our business and contracting model, or comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business.

Violation of the AKS is a felony, and penalties may include imprisonment, criminal fines and substantial civil monetary penalties.

In addition, submission of a claim for items or services generated in violation of the AKS may be subject to additional penalties under the federal FCA as a false or fraudulent claim.

In addition, submission of a claim for items or services generated in violation of the AKS may be subject to additional penalties under the federal False Claims Act ("FCA") as a false or fraudulent claim.

False or Fraudulent Claim Laws;

7 unchanged sentences

Although simple negligence will not give rise to liability under the FCA, "knowingly" submitting a false claim may result in liability.

When an entity is determined to have violated the FCA, the government may impose substantial civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in federal healthcare programs.

When an entity is determined to have violated the FCA,

the government may impose substantial civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in federal healthcare programs.

Private parties are able to bring qui tam, or whistleblower, lawsuits on behalf of the government in connection with alleged false claims submitted to the government, and these private parties are entitled to share in any amounts recovered by the government.

12 unchanged sentences

Any determination by a federal or state regulatory authority that any of our activities or those of our customers or vendors violate any of these laws or regulations could:

(i) subject us to civil or criminal penalties, (ii) require us to enter into corporate integrity agreements or similar agreements with government regulators to meet ongoing compliance obligations, (iii) require us to change or terminate some portions of our business, (iv) require us to refund a portion of our service fees, and/or (v) disqualify us from providing services to customers that are, or do business with, government programs.

subject us to civil or criminal penalties, require us to enter into corporate integrity agreements or similar agreements with government regulators to meet ongoing compliance obligations, require us to change or terminate some portions of our business, require us to refund a portion of our service fees and/or disqualify us from providing services to customers that are, or do business with, government programs.

Any of these could result in a material adverse impact on our business, results of operations or financial condition.

Even an unsuccessful challenge of our activities could result in adverse publicity and could require a costly response.

The Cures Act and Implementing Regulations (Information Blocking and HIT Standards and Certification Requirements).

The Cures Act and Implementing Regulations (Information Blocking and Health Information Technology ("HIT") Standards and Certification Requirements).

Standards regarding electronic exchange of information and interoperability are subject to regular revision and updates, and we are required to modify and enhance products and services accordingly.

The Information Blocking Rule prohibits healthcare providers, HIEs, and HIT developers, including our subsidiary that provides electronic medical records, from information blocking, which is defined as practices likely to interfere with, prevent, or materially discourage access, exchange, or use of EHI, except as required by

law or specified by HHS as a reasonable and necessary activity.

The Information Blocking Rule prohibits healthcare providers, Health Information Exchange ("HIEs"), and HIT developers, including our subsidiary that provides electronic medical records, from information blocking, which is defined as practices likely to interfere with, prevent, or materially discourage access, exchange, or use of electronic health information ("EHI"), except as required by law or specified by HHS as a reasonable and necessary activity.

Civil monetary penalties for information blocking by HIT developers are substantial, up to $1 million per violation.

The HIT Standards and Certification Criteria Final Rule imposes new criteria related to EHI export and standardized APIs for patient services, and HIT developers of certified HIT need to ensure that their products and services meet the requisite technical standards by the relevant deadlines and continue to evolve as developers and other stakeholders release revised versions of these standards.

Additionally, HIT developers that participate in the ONC Health IT Certification Program, like i3, must make various certifications regarding their HIT and attest to compliance with applicable conditions of certification, including those related to information blocking.

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

These rules apply to certain services we offer, and customers may insist that we develop additional solutions that comply with these various interoperability requirements, which could subject us to additional costs.

1 unchanged sentence

We also may incur costs in periods prior to the corresponding recognition of revenue.

To the extent current regulations are subsequently changed or supplemented, or for other reasons beyond our control, customers may postpone or cancel their decisions to purchase or implement such solutions.

To the extent current regulations are subsequently changed or

supplemented, or for other reasons beyond our control, customers may postpone or cancel their decisions to purchase or implement such solutions.

Exclusion from participation in government healthcare programs.

28 unchanged sentences

• changes in the billing patterns of providers;

• changes in the design of health insurance plans;

• changes in the contracting methods payers use in their relationships with providers.

• the design of health insurance plans;

• the contracting methods payers use in their relationships with providers.

The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur.

5 unchanged sentences

Such proceedings can result in verdicts, injunctive relief or other sanctions that may affect how we operate our business and/or have an adverse effect on our financial condition.

Violations of applicable statutes and regulations may result in criminal penalties and in substantial civil penalties, including exclusion from government healthcare programs, and settlements of lawsuits involving Medicare and Medicaid issues routinely require monetary penalties and corporate integrity agreements.

Violations of applicable statutes and regulations may result in criminal penalties and substantial civil penalties, including exclusion from government healthcare programs, and settlements of lawsuits involving Medicare and Medicaid issues routinely require monetary penalties and corporate integrity agreements.

Assessing and predicting the outcome of these matters involves substantial uncertainties.

4 unchanged sentences

We must comply with laws and regulations prohibiting unfair or deceptive acts or practices, and any failure to do so could materially and adversely affect our business.

We and many of our customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices, provisions of the Dodd-Frank Act that prohibit UDAAP, the Telemarketing Sales Act, the Electronic Fund Transfer Act and other laws, rules and or regulations, which may directly impact the activities of certain of our customers.

These rules may subject us, as the electronic payment processor or provider of certain services, to investigations, fees, fines and disgorgement of funds if we were deemed to have improperly aided and abetted or otherwise provided the means and instrumentalities to facilitate the illegal or improper activities of the customer through our services.

We and many of our customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices (referred to as "UDAAP"), provisions of the Dodd-Frank Act that prohibit UDAAP, the Telemarketing Sales Act, the Electronic Fund Transfer Act and other laws, rules and or regulations, which may directly impact the activities of certain of our customers.

These rules may subject us, as the electronic payment processor or provider of certain services, to investigations, fees, fines and disgorgement of funds if we are deemed to have improperly aided and abetted or otherwise provided the means and instrumentalities to facilitate the illegal or improper activities of the customer through our services.

Various federal and state regulatory enforcement agencies including the Federal Trade Commission and state attorneys general have authority to take action against non-banks that engage in UDAAP, or violate other laws, rules and regulations.

4 unchanged sentences

While our policies mandate compliance with these anti-bribery laws, we cannot provide assurance that our internal control policies and procedures always protect us from reckless or criminal acts committed by our employees, contractors or agents.

Failure to comply with the FCPA and could result in the imposition of civil or criminal fines and penalties and could disrupt our business and adversely affect our results of operations, cash flows and financial condition.

Failure to comply with the FCPA could result in the imposition of civil or criminal fines and penalties and could disrupt our business and adversely affect our results of operations, cash flows and financial condition.

Numerous other federal laws affect our business, and any failure to comply with those laws could harm our business.

Our payment facilitator solutions present certain regulatory challenges, principally those relating to money transmitter issues.

To address these challenges we, along with our third-party service providers, use structural arrangements designed to prevent us from receiving or controlling our customer’s funds and therefore remove our activities from the scope of money transmitter regulation.

To address these challenges we, along with our third-party service providers, use structural arrangements designed to prevent us from receiving or controlling customer funds removing our activities from the scope of money transmitter regulations.

There can be no assurance that these structural arrangements will remain effective as money transmitter laws continue to evolve or that the applicable regulatory bodies, particularly state agencies, will view our payment facilitator activities as compliant.

Our business may also be subject to the FCRA, which regulates the use and reporting of consumer credit information and imposes disclosure requirements on entities that take adverse action based on information obtained from credit reporting agencies.

Our business may also be subject to the Fair Credit Reporting Act ("FCRA"), which regulates the use and reporting of consumer credit information and imposes disclosure requirements on entities that take adverse action based on information obtained from credit reporting agencies.

We could be liable if our practices under the FCRA do not comply with the FCRA or regulations under it.

2 unchanged sentences

We could be liable for penalties if our information returns are not in compliance with these regulations.

Depending on how our products and services evolve, we may be subject to a variety of additional laws and regulations, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds transfers, anti-money laundering, counter-terrorist financing, restrictions on foreign assets, gambling, banking and lending, U.S.

Safe Harbor regulations, and import and export restrictions.

Additionally, we are contractually required to comply with certain anti-money laundering regulations in connection with our payment processing activities.

These regulations are generally governed by FinCEN and OFAC.

These regulations are generally governed by the Financial Crimes Enforcement Network ("FinCEN") and the Office of Foreign Assets Control ("OFAC").

Our efforts to comply with these laws and regulations could be costly and result in diversion of management time and effort and may still not guarantee compliance.

11 unchanged sentences

Our operations are subject to certain provisions of these laws.

Relevant federal privacy laws include, in addition to FERPA and PPRA described above, 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.

Relevant federal privacy laws include, in addition to FERPA, PPRA and HIPAA described above, 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.

Children’s Online Privacy Protection Act also regulates the collection of information by operators of websites and other electronic solutions that are directed to children under 13 years of age.

3 unchanged sentences

Certain states impose similar privacy obligations as well as obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and consumer reporting agencies and businesses and governmental agencies that own data.

In connection with providing products and services to our customers, we are required by regulations, government-required standards, and by our contracts with customers and with our financial institution distribution partners to provide assurances regarding the confidentiality and security of non-public consumer information.

In connection with providing products and services to our customers, we are required by regulations, applicable industry standards, and our contracts with customers and financial institution distribution partners to provide assurances regarding the confidentiality and security of non-public consumer information.

These contracts may require periodic audits by independent companies regarding our compliance with applicable standards.

The compliance standards relate to the security of our infrastructure, and include components and operational procedures designed to safeguard the confidentiality and security of individuals’ non-public personal information that our customers share with us.

The compliance standards relate to the security of our infrastructure, including components and operational procedures designed to safeguard the confidentiality and security of individuals’ non-public personal information that our customers share with us.

Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract, grow and maintain business in the future.

If we fail to comply with the laws and regulations relating to data privacy and information security, we could be exposed to legal claims and actions or to regulatory enforcement proceedings.

In addition, our relationships and reputation could be harmed, which could inhibit our ability to retain existing customers and distribution partners and obtain new customers and distribution partners.

In addition, our relationships and reputation could be harmed, which could inhibit our ability to retain existing customers and obtain new customers.

Legal requirements relating to the collection, storage, handling and transfer of personal data continue to evolve at both the federal and state level.

For example, the CFPB issued a proposed rule on October 19, 2023, requiring depository and non-depository entities to make available to consumers data relating to consumer transactions, obligations for third accessing a consumer's data and privacy protections for the data.

In June 2018, the State of California enacted the CCPA and subsequently enacted the CPRA.

Together, the laws require companies (regardless of their location) that collect personal information of California residents to notify consumers about their data collection, use, and sharing practices, provide the ability to access and delete data to consumers and provide consumers the right to correct and limit the use and disclosure of sensitive personal information.

In addition, several other states have introduced or passed similar legislation to the CCPA, including Nevada, Colorado, Virginia, Connecticut, Utah, Montana, Tennessee, Indiana, Iowa, Texas, Florida, Delaware and Oregon, that may impose varying standards and requirements on our data collection, use and processing activities.

For example, the CFPB finalized a rule which goes into effect January 17, 2025, that requires certain data providers to make covered data regarding covered financial products and services available to consumers and authorized third parties in an electronic form, subject to a number of requirements.

Many states have introduced or passed comprehensive consumer privacy laws, including California, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Kentucky, Maryland, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Rhode Island, Tennessee, Texas, Utah and Virginia, that may impose varying standards and requirements on our data collection use and processing activities.

These laws require companies (regardless of their location) that process personal information of residents of those states make certain disclosures to consumers about data practices, grant consumers specific rights to their data, and allow consumers to opt out of certain data sharing activities.

Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data.

2 unchanged sentences

If more restrictive privacy laws or rules and/or inconsistent legal requirements are adopted by authorities in the future on the federal or state level, or regulators' enforcement priorities shift, our compliance costs may increase and our ability to perform due diligence on, and monitor the risk of, our current and potential customers may decrease, which could create liability for us.

The CCPA and CPRA also provide for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation.

M any consumer privacy laws provide for civil penalties for violations, and the CCPA and CPRA provide for a private right of action for data breaches that may increase data breach litigation.

We may also be exposed to litigation, regulatory fines, penalties or other sanctions if the personal, confidential or proprietary information of our customers is mishandled or misused by any of our suppliers, counterparties or other third parties, or if such third-parties do not have appropriate controls in place to protect such personal, confidential or proprietary information.

12 unchanged sentences

These changes may also prevent our introduction of new products and services or make the continuation or maintenance of our existing products and services unprofitable or impossible.

We no longer qualify as an “emerging growth company”, and as a result, we have to comply with increased disclosure and compliance requirements.

We no longer qualify as an “emerging growth company”, and as a result, we have been subject to increased disclosure and compliance requirements.

We no longer qualify as an emerging growth company ("EGC") as defined in the Jumpstart Our Business Startups Act (the "JOBS Act").

5 unchanged sentences

• the requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved.

We expect that the loss of EGC status and compliance will increase our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements.

The increasing focus on environmental, social and governance (“ESG”) practices could increase our costs, harm our reputation and adversely impact our financial results.

There has been increasing public focus by investors, customers, environmental activists, the media and governmental and nongovernmental organizations on a variety of ESG matters.

The loss of EGC status and compliance has increased and may continue to increase our legal and financial compliance costs, and may cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements.

The heightened focus on environmental, social and governance (“ESG”) practices could increase our costs, harm our reputation and adversely impact our financial results.

There has been heightened focus by investors, customers, environmental activists, the media and governmental and nongovernmental organizations on a variety of ESG matters.

If we are not effective in addressing ESG matters affecting our business our reputation may suffer.

4 unchanged sentences

Our indebtedness could adversely affect our financial health and competitive position.

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”).

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

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

5 unchanged sentences

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

As of September 30, 2023, we had borrowings outstanding of $272.5 million under the 2023 Senior Secured Credit Facility.

As of September 30, 2024, we had no borrowings outstanding under the 2023 Senior Secured Credit Facility.

Although we may enter into interest rate swap agreements in the future, we and our subsidiaries are exposed to interest rate increases on the floating portion of our 2023 Senior Secured Credit Facility that are not covered by interest rate swaps, to the extent we have indebtedness outstanding.

For additional information about our 2023 Senior

Secured Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K, and “Quantitative and Qualitative Disclosure About Market Risk” in Part II, Item 7A of this Annual Report on Form 10-K.

For additional information about our 2023 Senior Secured Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K, and “Quantitative and Qualitative Disclosure About Market Risk” in Part II, Item 7A of this Annual Report on Form 10-K.

On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its Exchangeable Notes.

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.

Prior to August 15, 2024, the Exchangeable Notes are exchangeable only upon satisfaction of certain conditions and during certain periods described in the Indenture, and thereafter, the Exchangeable Notes are exchangeable at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

The Exchangeable Notes are exchangeable on the terms set forth in the Indenture into cash, shares of Class A common stock, or a combination thereof, at i3 Verticals, LLC’s election.

As of August 15, 2024, the Exchangeable Notes became exchangeable at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

The Exchangeable Notes are exchangeable on the terms set forth in the Indenture into cash, shares of Class A common stock, or a combination thereof, at i3 Verticals, LLC’s election, provided that in September 2022, the Company made the irrevocable election to settle the principal portion of its Exchangeable Notes only in cash.

As of September 30, 2024, $26.2 million of the original aggregate principal amount of $138.0 million was outstanding.

11 unchanged sentences

• incur or assume additional debt or amend our debt and other material agreements;

• declare or make distributions and redeem or repurchase equity interests or issue preferred stock;

• declare or make distributions and redeem or repurchase equity interests, including making repurchases of Class A common stock pursuant to our share repurchase program, or issue preferred stock;

• prepay, redeem or repurchase debt;

13 unchanged sentences

As discussed above, the 2023 Senior Secured Credit Facility contains restrictive covenants that limit our ability to incur additional debt and engage in other capital-raising activities.

Any debt financing we obtain in the future could involve covenants that further restrict our capital raising activities and other financial and operational matters, which may make it more difficult for us to operate our business, obtain additional capital and pursue business opportunities, including potential acquisitions.

Any debt financing we obtain in the future could involve covenants that further restrict our capital raising

activities and other financial and operational matters, which may make it more difficult for us to operate our business, obtain additional capital and pursue business opportunities, including potential acquisitions.

Furthermore, if we raise additional funds by issuing equity or convertible debt or other equity-linked securities, our then-existing stockholders could suffer significant dilution.

5 unchanged sentences

In addition, our ability to repurchase the Exchangeable Notes or to pay cash upon exchanges of the Exchangeable Notes is limited by the agreements governing our existing indebtedness (including the 2023 Senior Secured Credit Facility) and may also be limited by law, by regulatory authority or by agreements that will govern our future indebtedness.

Our failure to repurchase Exchangeable Notes at a time when the repurchase is required by the indenture that governs the Exchangeable Notes or to pay

cash payable on future exchanges of the Exchangeable Notes if and/or as required by the Indenture would constitute a default under the Indenture.

Our failure to repurchase Exchangeable Notes at a time when the repurchase is required by the indenture that governs the Exchangeable Notes or to pay cash payable on future exchanges of the Exchangeable Notes if and/or as required by the Indenture would constitute a default under the Indenture.

A default under the Indenture or the fundamental change itself could also lead to a default under the agreements governing our other indebtedness (including the 2023 Senior Secured Credit Facility) and agreements governing our future indebtedness.

If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Exchangeable Notes or make cash payments upon exchanges thereof.

The conditional exchange feature of the Exchangeable Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional exchange feature of the Exchangeable Notes is triggered, holders of Exchangeable Notes will be entitled to exchange the Exchangeable Notes at any time during specified periods at their option.

If one or more holders elect to exchange their Exchangeable Notes, we may elect to settle all or a portion of our exchange obligation through the payment of cash, which could adversely affect our liquidity.

In addition, even if holders do not elect to exchange their Exchangeable Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.

Risks Related to Our Organizational Structure and Our Company

9 unchanged sentences

Accordingly, we incur income taxes on our proportionate share of any net taxable income of i3 Verticals, LLC in addition to expenses related to our operations, and our ability to obtain funds to pay these income taxes currently depends upon distributions from i3 Verticals, LLC.

We intend to cause i3 Verticals, LLC to distribute cash to us in an amount at least equal to the amount necessary to cover our respective tax liabilities, if any, with respect to our allocable share of the net income of i3 Verticals, LLC and to cover dividends, if any, we declare, as well as any payments due under the Tax Receivable Agreement (the “Tax Receivable Agreement” or "TRA") by and among i3 Verticals, Inc., i3 Verticals, LLC and each of the holders, other than i3 Verticals, Inc., of common units in i3 Verticals, LLC (the “Continuing Equity Owners”).

See the detailed discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — 2023 Senior Secured Credit Facility” in Part II, Item 7 of this Annual Report on Form 10-K for a discussion of the restrictive covenants, including i3 Verticals, LLC’s obligations to maintain specific financial ratios, that may limit its ability to make certain distributions to us.

We intend to cause i3 Verticals, LLC to distribute cash to us in an amount at least equal to the amount necessary to cover our respective tax liabilities, if any, with respect to our allocable share of the net income of i3 Verticals, LLC and to cover cash dividends on our Class A common stock, if any, we declare, and purchases of Class A common stock pursuant to our share repurchase program, as well as any payments due under the Tax Receivable Agreement (the “Tax Receivable Agreement” or "TRA") by and among i3 Verticals, Inc., i3 Verticals, LLC and each of the holders, other than i3 Verticals, Inc., of common units in i3 Verticals, LLC (the “Continuing Equity Owners”).

To the extent that we need funds to pay our taxes or other liabilities or to fund our operations, and i3 Verticals, LLC is restricted from making distributions to us under applicable agreements under which it is bound, including its financing agreements, laws or regulations, does not have sufficient cash to make these distributions or is otherwise unable to provide such funds, we may have to borrow funds to meet these obligations and operate our business, and our liquidity and financial condition could be materially adversely affected.

3 unchanged sentences

As a result, the interests of the Continuing Equity Owners may conflict with the interests of holders of shares of our Class A common stock.

For example, the Continuing Equity Owners may have different tax positions from us which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, and whether and when we should terminate the Tax Receivable Agreement and accelerate our obligations thereunder.

In addition, the structuring of future transactions may take into consideration tax or other considerations of the Continuing Equity Owners even in situations where no similar considerations are relevant to us.

For example, the Continuing Equity Owners may have different tax positions from us in relation to whether and when we dispose of assets, whether and when we incur new or refinance existing indebtedness, and whether and when we should terminate the Tax Receivable Agreement and accelerate our obligations thereunder.

We may not be able to realize all or a portion of the tax benefits that are expected to result from future redemptions or exchanges of common units by holders.

8 unchanged sentences

As a result of the foregoing, (a) we could be required to make payments under the Tax Receivable Agreement that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement and (b) if we elect to terminate the Tax Receivable Agreement early, we would be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits.

In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control.

combinations or other changes of control.

There can be no assurance that we will be able to fund or finance our obligations under the Tax Receivable Agreement.

In certain circumstances, i3 Verticals, LLC will be required to make distributions to us and the Continuing Equity Owners, and the distributions that i3 Verticals, LLC will be required to make may be substantial.

Funds used by i3 Verticals, LLC to satisfy its tax distribution obligations will not be available for reinvestment in our business.

Moreover, the tax distributions that i3 Verticals, LLC will be required to make may be substantial, and will likely exceed (as a percentage of i3 Verticals, LLC’s net income) the overall effective tax rate applicable to a similarly situated corporate taxpayer.

To the extent, as currently expected, we do not distribute such cash balances as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to i3 Verticals, LLC, the Continuing Equity Owners would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following a redemption or exchange of their common units.

Funds used by i3 Verticals, LLC to satisfy its tax distribution obligations may not be available for reinvestment in our business.

In particular, in connection with the taxable income associated with the gain on the sale in September 2024 of our Merchant Services Business that is anticipated to be recognized for 2024 federal income tax purposes by the members of i3 Verticals, LLC, a pass-through entity in which the Company held a 70.4% ownership interest as of September 30, 2024, we expect that i3 Verticals, LLC will be required under the terms of its limited liability company agreement to make a tax distribution in the first half of 2025 to the members of i3 Verticals, LLC, including i3 Verticals, Inc., the final amount of which tax distribution has not yet been determined.

As a result of potential differences in the amount of net taxable income allocable to us and to the Continuing Equity Owners, as well as the use of an assumed tax rate in calculating i3 Verticals, LLC’s distribution obligations, we may receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement, including in connection with the anticipated tax distribution to be made by i3 Verticals, LLC to its members, including the Company, in early 2025 as described above.

Our Board of Directors will determine the appropriate uses for excess cash which is so held by the Company following tax distributions, which may include, among other uses, after giving effect to the payment of obligations under the Tax Receivable Agreement, the recontribution of such cash to i3 Verticals, LLC for use in our business in exchange for common units of i3 Verticals, LLC along with an associated recapitalization of all of the outstanding common units in i3 Verticals, LLC, and/or the payment of a cash dividend on our Class A common stock.

While our Board may choose to take any such actions, our Board is not required to do so, and to the extent, for example, such excess cash balances continue to be held by the Company, the Continuing Equity Owners would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following a redemption or exchange of their common units.

Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a significant and adverse effect on our business, financial condition, results of operations and reputation.

9 unchanged sentences

In addition, we may be required to incur costs in improving our internal control system, including the costs of the hiring of additional personnel.

Any such action could negatively affect our business, financial condition, results of operations and cash flows and could also lead to a decline in the price of our Class A common stock.

Any such action

could negatively affect our business, financial condition, results of operations and cash flows and could also lead to a decline in the price of our Class A common stock.

Certain provisions of Delaware law and anti-takeover provisions in our organizational documents could delay or prevent a change of control.

46 unchanged sentences

In the future, we may also issue additional securities if we need to raise capital, including, but not limited to, in connection with acquisitions, which could constitute a material portion of our then-outstanding shares of Class A common stock.

Unresolved Staff Comments

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 1A. Risk Factors