What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-11-25 compared with 2023-11-22 · 244 added, 114 removed, 217 unchanged (62% of the section changed)

7 unchanged sentences

Building on its broad suite of software and services solutions, the Company creates and acquires software products to serve the specific needs of its customers.

The Company's primary strategic verticals are Public Sector (including Education) and Healthcare.

The Company's primary strategic verticals are Public Sector and Healthcare.

Economic Trends

Inflationary pressures, elevated interest rate levels, monetary policy, and the current geopolitical situation (including the military conflicts in Ukraine and in the Middle East), are causing broad economic uncertainty and could potentially cause new, or exacerbate existing, economic challenges that may impact us.

Inflationary pressures, elevated interest rate levels, monetary policy, and the current geopolitical situation (including the military conflicts in the Middle East and Ukraine), are causing broad economic uncertainty and could potentially cause new, or exacerbate existing, economic challenges that may impact us.

These conditions could worsen as a result of adverse economic developments impacting the U.S.

and/or global economies, including as a result of monetary policy designed to curb inflation.

and/or global economies.

As the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our financial results.

2 unchanged sentences

For additional information about our Exchangeable Notes and 2023 Senior Secured Credit Facility, see the section entitled “Liquidity and Capital Resources” below.

Recent Developments

Sale of Merchant Services Business

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

Pursuant to the terms of the Purchase Agreement, the Sellers sold to Buyer the equity interests of certain direct and indirect wholly-owned subsidiaries of Sellers (the “Acquired Entities”) primarily comprising the Company's merchant services business, including its associated proprietary technology (the “Merchant Services Business”), after giving effect to the contribution of certain assets and the assignment of certain liabilities associated with the Merchant Services Business from i3 Verticals, LLC and certain affiliates to the Acquired Entities pursuant to a contribution agreement which was entered into immediately prior to the Closing.

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

The Merchant Services Business comprised our entire former Merchant Services segment and a small portion of our former Software and Services segment.

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

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

Our acquisitions have increased the number of businesses and organizations to whom we provide solutions and augmented our existing proprietary payment facilitator platform and software solutions and capabilities.

Acquisitions during the year ended September 30, 2024

On August 1, 2024, we completed the acquisition of a business to expand our permitting and licensing software offerings in the Public Sector vertical.

Total purchase consideration was $18.0 million in cash funded by the proceeds from our revolving credit facility, the issuance of 311,634 shares of our Class A common stock in a private placement, and $2.0 million in contingent consideration.

During the year ended September 30, 2024, we completed the acquisition of one other business to expand our software offerings.

Total purchase consideration was $1.3 million, including $1.1 million in cash funded by the proceeds from our revolving credit facility and $0.2 million in contingent consideration.

Acquisitions during the year ended September 30, 2023

On October 1, 2022, we completed the acquisition of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt.

1 unchanged sentence

Total purchase consideration was $85.0 million in cash consideration, funded by the proceeds from our revolving credit facility.

During the year ended September 30, 2023, we completed the acquisition of two other businesses to expand our software offerings.

During the year ended September 30, 2023, we completed the acquisition of one other business within continuing operations to expand our software offerings.

Total purchase consideration was $15.3 million, including $12.5 million in cash funded by the proceeds from our revolving credit facility, $2.0 million of our Class A Common Stock, and $0.8 million in contingent consideration.

Acquisitions during the year ended September 30, 2022

During the year ended September 30, 2022, we completed the acquisition of three businesses to expand our software offerings in the Public Sector and Healthcare verticals.

Total purchase consideration was $107.7 million, including $101.4 million in cash on hand and proceeds from the Company's revolving credit facility, and $6.3 million in contingent consideration.

Our Revenue and Expenses

We generate revenue from software and related services revenue, including the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software.

We also generate revenue from volume-based payment processing fees (“discount fees”) and POS-related solutions that we provide to our customers directly and through our distribution partners.

We also generate revenue from volume-based payment processing fees (“discount fees”) that we provide to our customers directly through our software.

Volume-based fees represent a percentage of the dollar amount of each credit or debit transaction processed.

5 unchanged sentences

Other costs of services .

Other costs of services include costs directly attributable to processing and bank sponsorship costs.

These also include related costs such as residual payments to our distribution partners, which are based on a percentage of the net revenues (revenue less interchange and network fees) generated from customer referrals.

Losses resulting from excessive chargebacks against a customer are included in other cost of services.

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

Other costs of services are recognized at the time the customer’s transactions are processed.

Other costs of services include costs directly related to our software and related services, such as hosting expenses.

Additionally, other costs of services include costs directly attributable related to payment processing services such as a processing and bank sponsorship.

Losses resulting from chargebacks against a customer are included in other cost of services.

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

Selling, general and administrative .

7 unchanged sentences

Interest expense, net.

Our interest expense consists of interest on our outstanding indebtedness under our 2023 Senior Secured Credit Facility, our Prior Senior Secured Credit Facility and Exchangeable Notes, and amortization of debt discount and issuance costs.

Interest income is generated from cash and cash equivalents held at financial institutions.

How We Assess Our Business

Software and Services

Our Software and Services segment delivers vertical market software solutions to customers across all of our strategic vertical markets.

These solutions often include embedded payments or other recurring services.

Merchant Services

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

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

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

As a result of the sale of the Merchant Services Business pursuant to the Purchase Agreement, the historical results of the Merchant Services segment and a small portion of the historical Software and Services segment which had been included in the Merchant Services Business have been reflected as discontinued operations in our consolidated financial statements.

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

Public Sector

Our Public Sector segment has products and solutions that create an efficient flow of information throughout a variety of public sector entities.

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

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

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

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

For additional information on our segments, see Note 18 to our consolidated financial statements.

Key Performance Indicators

We evaluate our performance through key performance indicators, including:

We evaluate our performance through various meters, including the following key performance indicators:

• Annualized recurring revenue ("ARR");

• software and related services as a percentage of total revenue;

• the dollar volume of payments our customers process through us (“payment volume”);

• processing margin.

• Adjusted EBITDA margin

ARR is the annualized revenue derived from software-as-a-service (“SaaS”) arrangements, transaction-based software-revenue, software maintenance, recurring software-based services, payments revenue and other recurring revenue sources within the quarter.

5 unchanged sentences

The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

ARR for the three months ended September 30, 2023 and 2022 was $312.9 million and $281.2 million, respectively, representing a period-to-period growth rate of 11.3%.

Software and related services revenue includes the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software.

We focus on software and related services revenue as a percentage of total revenue because it is a strategic goal to expand the software services we provide our customers.

Software and related services typically result in long-term partnerships with strong recurring revenues.

Software and related services revenue as a percentage of total revenue for the years ended September 30, 2023 and 2022 was 50% and 49%.

Our payment volume for the years ended September 30, 2023 and 2022 was $24.4 billion and $22.6 billion, respectively, representing a period-to-period growth rate of 8%.

We focus on payment volume because it is a reflection of the scale and economic activity of our customer base and because a significant part of our revenue is derived as a percentage of our customers’ dollar volume receipts.

Payment volume reflects the addition of new customers and same store payment volume growth of existing customers, partially offset by customer attrition during the period.

Processing margin is equal to revenue less other cost of services plus residuals expense, which is a component of other cost of services.

We focus on processing margin because it represents the profitability of the operating segments, exclusive of sales efforts and overhead.

Our processing margin for the years ended September 30, 2023 and 2022 was $333.3 million and $282.7 million, respectively.

ARR from continuing operations for the three months ended September 30, 2024 and 2023 was $188.2 million and $175.1 million, respectively, representing a period-to-period growth rate of 7.5%.

Adjusted EBITDA margin is used by the Company to measure operating performance and for purposes of making decisions about allocating resources to our business segments.

Adjusted EBITDA margin for any particular period is adjusted EBITDA as a percentage of revenue for such period.

Adjusted EBITDA is calculated as earnings adjusted to exclude interest, tax, depreciation, amortization, stock-compensation expense, non-cash changes in the fair value of contingent consideration, M&A-related expenses, and certain other adjustments that management believes are not reflective of our underlying operations.

Adjusted EBITDA and Adjusted EBITDA margin are presented at a segment level in our financial statement footnotes in accordance with ASC 280 – “Segment Reporting.” Adjusted EBITDA margin for our public sector segment was 40% for each of the years ended September 30, 2024 and 2023.

Further, Adjusted EBITDA margin for our healthcare segment was 20% for the year ended September 30, 2024, and 21% for the year ended September 30, 2023.

For additional information regarding Adjusted EBITDA and Adjusted EBITDA margin, see Note 18 to our consolidated financial statements.

Adjusted EBITDA and Adjusted EBITDA margin, when presented on a consolidated basis in our other public disclosures, are non-GAAP financial measures.

We no longer consider payment volume to be a key performance indicator as a result of the fact that such metric was associated with our Merchant Services Business, which was sold on September 20, 2024, pursuant to the Purchase Agreement, and is now reflected in discontinued operations.

Further, we no longer consider software and related services as a percentage of total revenue to be a key performance indicator as a result of the fact that, following the sale of our Merchant Services Business on September 20, 2024, our software and related services business comprises a sufficiently high percentage of our total business from continuing operations that we no longer consider such measure to be a key metric in connection with the operation of our business.

Results of Operations

As a result of the sale of the Merchant Services Business, the historical results of the Merchant Services Business have been reflected as discontinued operations in our consolidated financial statements.

Prior period results of operations and balance sheet information have been recast to reflect this presentation, and the discussion below relates to our continuing operations after giving effect to the reclassification for the Merchant Services Business as discontinued operations.

Year Ended September 30, 2024 Compared to Year Ended September 30, 2023

12 unchanged sentences

Interest expense, net 29,263 25,128 4,135 16.5 %

Other expense 1,436 991 445 n/m

Total other expenses 26,564 15,766 10,798 68.5 %

Loss before income taxes (3,855) (18,210) 14,355 (78.8) %

Other income (3,395) (1,224) (2,171) n/m

Total other expenses 25,868 23,904 1,964 n/m

Loss before income taxes (19,014) (27,473) 8,459 n/m

Benefit from income taxes (5,668) (3,788) (1,880) n/m

Net loss from continuing operations (13,346) (23,685) 10,339

Net income from discontinued operations, net of income taxes 188,476 21,033 167,443

Net income (loss) 175,130 (2,652) 177,782 n/m

Net loss from continuing operations attributable to non-controlling interest (4,424) (7,863) 3,439

Net income from discontinued operations attributable to non-controlling interest 66,213 6,022 60,191

Net income (loss) attributable to non-controlling interest 61,789 (1,841) 63,630 n/m

Net loss from continuing operations attributable to i3 Verticals, Inc.

(8,922) (15,822) 6,900

Net income from discontinued operations attributable to i3 Verticals, Inc.

122,263 15,011 107,252

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

$ 113,341 $ (811) $ 114,152 n/m

n/m = not meaningful

Revenue increased $3.2 million, or 1.4%, to $229.9 million for the year ended September 30, 2024 from $226.7 million for the year ended September 30, 2023.

This increase was partially driven by revenue from acquisitions completed during the 2024 and 2023 fiscal years of $2.4 million, net of intercompany eliminations, all of which were within the Public Sector segment.

In addition to our growth through acquisitions, revenue from existing businesses grew, resulting from growth in proprietary payments revenues and software and related services revenues, primarily in Public Sector.

Revenue within Public Sector increased $2.6 million, or 1.4%, to $184.8 million for the year ended September 30, 2024 from $182.2 million for the year ended September 30, 2023.

This increase was principally driven by revenue of $2.4 million from acquisitions completed during 2024 and 2023.

Revenue within Healthcare increased $1.0 million, or 2.2%, to $45.6 million for the year ended September 30, 2024 from $44.6 million for the year ended September 30, 2023.

This increase was principally driven by growth from software and related services revenue.

Other Costs of Services

Other costs of services increased $3.2 million, or 21.0%, to $18.6 million for the year ended September 30, 2024 from $15.4 million for the year ended September 30, 2023.

This increase was primarily driven by an increase of $1.4 million in software expenses and an increase of $1.0 million in third-party processing expense.

Other costs of services within Public Sector increased $2.8 million, or 21.0%, to $16.1 million for the year ended September 30, 2024 from $13.3 million for the year ended September 30, 2023, driven by increases in software expenses and third-party processing expense.

Other costs of services within Healthcare increased $0.8 million, or 39.4%, to $2.9 million for the year ended September 30, 2024 from $2.1 million for the year ended September 30, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $1.3 million, or 0.8%, to $176.4 million for the year ended September 30, 2024 from $177.7 million for the year ended September 30, 2023.

This decrease was principally driven by a $4.6 million decrease in employment expense, primarily resulting from a decrease in stock compensation expense.

This was partially offset by an increase of $2.8 million in professional services and insurance expense.

Depreciation and Amortization

Depreciation and amortization increased $2.4 million, or 8.9%, to $28.8 million for the year ended September 30, 2024 from $26.4 million for the year ended September 30, 2023.

Amortization expense increased $2.0 million to $26.1 million for the year ended September 30, 2024 from $24.1 million for the year ended September 30, 2023 primarily due to an increase in capitalized software project releases.

Depreciation expense increased $0.4 million to $2.7 million for the year ended September 30, 2024 from $2.4 million for the year ended September 30, 2023.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration to be paid in connection with acquisitions was a benefit of $0.7 million for the year ended September 30, 2024 related to adjustments to the expected present value of consideration to be paid for earnouts.

The change in fair value of contingent consideration for the year ended September 30, 2023 was a charge of $10.8 million.

Interest Expense, net

Interest expense, net, increased $4.1 million, or 16.5%, to $29.3 million for the year ended September 30, 2024 from $25.1 million for the year ended September 30, 2023.

The increase reflected a higher average interest rate and a higher average outstanding debt balance for the year ended September 30, 2024, as compared to the year ended September 30, 2023.

Other income was $3.4 million for the year ended September 30, 2024, compared to other income of $1.2 million for the year ended September 30, 2023.

Other income for the year ended September 30, 2024 reflects $1.2 million relating to adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for change in income tax rates and the gain on the Exchangeable Note Repurchases and $2.3 million relating to the gain on Warrant Unwinds, net of the loss on Note Hedge Unwinds, partially offset by a $0.1 million loss on the sale of a building purchased through acquisition.

Other income for the year ended September 30, 2023 reflects $0.9 million relating to adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates and $0.3 million contingent consideration received for an investment that was sold in a prior year.

(Benefit from) Income Taxes

The benefit from income taxes was $5.7 million for the year ended September 30, 2024 as compared to a $3.8 million benefit from income taxes for the year ended September 30, 2023.

The benefit from deferred income taxes increased to a benefit of $8.8 million for the year ended September 30, 2024 from a benefit of $7.3 million for the year ended September 30, 2023, driven by a reduction in valuation allowances.

Additionally, the provision for current income tax expense decreased to $3.1 million for the year ended September 30, 2024 from $3.5 million for the year ended September 30, 2023, driven by the decrease in current state tax expense.

Our effective tax rate of 30% for the year ended September 30, 2024 differs from the federal statutory rate primarily due to valuation allowance and state tax expense.

i3 Verticals, Inc.

is subject to federal, state and local income taxes with respect to its allocable share of any taxable income of i3 Verticals, LLC and is taxed at the prevailing corporate tax rates.

Net income from discontinued operations, net of income taxes

Net income from discontinued operations, net of income tax, increased $167.4 million, or 796%, to $188.5 million for the year ended September 30, 2024 from $21.0 million for the year ended September 30, 2023.

See Note 2 to our consolidated financial statements for additional information and detail on the financial results of discontinued operations.

The largest driver of the increase in net income from discontinues operations for the year ended September 30, 2024 from the year ended September 30, 2023 was the gain on the sale of the Merchant Services business of $205.6 million, partially offset by an increase in the provision for income taxes of $38.7 million for the year ended September 30, 2024 from the year ended September 30, 2023 .

Additionally, revenue from discontinued operations increased $2.4 million, partially offset by an increase of $1.9 million in other cost of services for discontinued operations for the year ended September 30, 2024 from the year ended September 30, 2023.

These increases were primarily driven by increases in payments volume.

Year Ended September 30, 2023 Compared to Year Ended September 30, 2022

The following table presents our historical results of operations for the periods indicated:

Year ended September 30, Change

(in thousands) 2023 2022 Amount %

Revenue $ 226,722 $ 187,752 $ 38,970 20.8 %

Operating expenses

Other costs of services 15,355 12,834 2,521 19.6 %

Selling, general and administrative 177,731 156,666 21,065 13.4 %

Depreciation and amortization 26,438 19,330 7,108 36.8 %

Change in fair value of contingent consideration 10,767 22,063 (11,296) n/m

Total operating expenses 230,291 210,893 19,398 9.2 %

Loss from operations (3,569) (23,141) 19,572 n/m

Other expenses

Interest expense, net 25,128 14,775 10,353 70.1 %

Other (income) expense (1,224) 991 (2,215) n/m

Total other expenses 23,904 15,766 8,138 n/m

Loss before income taxes (27,473) (38,907) 11,434 n/m

(Benefit from) provision for income taxes (3,788) 152 (3,940) n/m

Net loss (2,652) (23,217) 20,565 (88.6) %

Net loss attributable to non-controlling interest (1,841) (6,115) 4,274 (69.9) %

Net loss attributable to i3 Verticals $ (811) $ (17,102) $ 16,291 (95.3) %

Net loss from continuing operations (23,685) (39,059) 15,374

Net income from discontinued operations, net of income taxes 21,033 15,842 5,191

Net loss (2,652) (23,217) 20,565 n/m

Net loss from continuing operations attributable to non-controlling interest (7,863) (11,828) 3,965

Net income from discontinued operations attributable to non-controlling interest 6,022 5,713 309

Net loss attributable to non-controlling interest (1,841) (6,115) 4,274 n/m

Net loss from continuing operations attributable to i3 Verticals, Inc.

(15,822) (27,231) 11,409

Net income from discontinued operations attributable to i3 Verticals, Inc.

15,011 10,129 4,882

Net loss attributable to i3 Verticals, Inc.

$ (811) $ (17,102) $ 16,291 n/m

n/m = not meaningful

Revenue increased $39.0 million, or 20.8%, to $226.7 million for the year ended September 30, 2023 from $187.8 million for the year ended September 30, 2022.

This increase was partially driven by revenue from acquisitions completed during the 2023 and 2022 fiscal years of $21.5 million, net of intercompany eliminations, all of which were within Software and Services.

In addition to our growth through acquisitions, revenue from existing businesses grew, resulting from growth in software and related services revenues, primarily in our Public Sector vertical, and an increase in payment volume from new and existing customers across the Company.

Revenue within Software and Services increased $39.6 million, or 20.5%, to $233.0 million for the year ended September 30, 2023 from $193.4 million for the year ended September 30, 2022.

This increase was principally driven by revenue of $21.5 million from acquisitions completed during 2023 and 2022, and the remaining growth was driven by an increase in software and related services revenue in our Public Sector vertical and an increase in processing revenue in our Education vertical.

Revenue within Merchant Services increased $12.9 million, or 10.3%, to $137.3 million for the year ended September 30, 2023 from $124.5 million for the year ended September 30, 2022.

Payment volume from new and existing customers within Merchant Services increased $1.2 billion, or 5.8%, to $21.7 billion for the year ended September 30, 2023 from $20.5 billion for the year ended September 30, 2022.

In addition to our growth through acquisitions, revenue from existing businesses grew, resulting from growth in proprietary payments revenues of $9.7 million and software and related services revenues of $7.9 million.

Revenue within Public Sector increased $38.3 million, or 26.6%, to $182.2 million for the year ended September 30, 2023 from $144.0 million for the year ended September 30, 2022.

This increase was principally driven by revenue of $20.4 million from acquisitions, net of intercompany eliminations completed during the 2023 and 2022 fiscal years.

In addition to our growth through acquisitions, revenue from existing businesses grew, resulting from growth in proprietary payments revenues of $9.6 million and software and related services revenues of $8.4 million.

Revenue within Healthcare increased $0.8 million, or 1.7%, to $44.6 million for the year ended year ended September 30, 2023 from $43.8 million for the year ended September 30, 2022.

This increase was principally driven by revenue of $1.1 million from acquisitions, net of intercompany eliminations, completed during the 2023 and 2022 fiscal years.

Other Costs of Services

Other costs of services increased $2.5 million, or 19.6%, to $15.4 million for the year ended September 30, 2023 from $12.8 million for the year ended September 30, 2022.

This increase was primarily driven by an increase in other cost of services within the Merchant Services segment, driven by the increase in payment volume.

Other costs of services within Merchant Services increased $4.9 million, or 8.2%, to $64.5 million for the year ended September 30, 2023 from $59.6 million for the year ended September 30, 2022, driven primarily by the growth in payment volume.

Other costs of services within Software and Services increased $2.3 million, or 16.9%, to $16.1 million for the year ended September 30, 2023 from $13.8 million for the year ended September 30, 2022.

Acquisitions completed during the 2022 and 2023 fiscal years contributed an incremental $1.1 million, net of intercompany eliminations, to our other cost of services for the year ended September 30, 2023.

This increase was primarily driven by an increase of $1.0 million in third-party processing expense, an increase of $0.6 million in residuals expense and an increase of $0.5 million in software expenses.

Other costs of services within Public Sector increased $2.2 million, or 19.4%, to $13.3 million for the year ended September 30, 2023 from $11.2 million for the year ended September 30, 2022., driven by increases in third-party processing expense and software expenses.

Other costs of services within Healthcare increased $0.4 million, or 21.6%, to $2.1 million for the year ended September 30, 2023 from $1.7 million for the year ended September 30, 2022.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $21.1 million, or 13.4%, to $177.7 million for the year ended September 30, 2023 from $156.7 million for the year ended September 30, 2022.

This increase was principally driven by a $22.4 million increase in employment expense, primarily resulting from an increase in headcount that resulted from inflationary pressures, acquisitions and an increase in stock compensation expense.

The majority of the remaining increase was comprised of increases in technology expense.

This decrease was principally driven by an $18.6 million increase in employment expense, primarily resulting from an increase in headcount that resulted from acquisitions and an increase in contract labor.

The remaining increases primarily related to increases in technology expenses of $2.4 million for the year ended September 30, 2023 from $1.6 million for the year ended September 30, 2022.

Depreciation and Amortization

Depreciation and amortization increased $7.0 million, or 23.9%, to $36.5 million for the year ended September 30, 2023 from $29.4 million for the year ended September 30, 2022.

Amortization expense increased $6.2 million to $33.1 million for the year ended September 30, 2023 from $26.9 million for the year ended September 30, 2022 primarily due to greater amortization expense resulting from acquisitions completed during the 2023 and 2022 fiscal years.

Depreciation and amortization increased $7.1 million, or 36.8%, to $26.4 million for the year ended year ended September 30, 2023 from $19.3 million for the year ended September 30, 2022.

Amortization expense increased $6.4 million to $24.1 million for the year ended September 30, 2023 from $17.7 million for the year ended September 30, 2022 primarily due to an increase in capitalized software project releases.

Depreciation expense increased $0.7 million to $2.4 million for the year ended September 30, 2023 from $1.6 million for the year ended September 30, 2022.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $10.8 million for the year ended September 30, 2023 due to the performance of some of our acquisitions exceeding our expectations.

Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $10.8 million for the year ended September 30, 2023 related to adjustments to the expected present value of consideration to be paid for earnouts.

The change in fair value of contingent consideration for the year ended September 30, 2022 was a charge of $22.1 million.

2 unchanged sentences

The increase reflected a higher average interest rate and a higher average outstanding debt balance for the year ended September 30, 2023, as compared to the year ended September 30, 2022.

Other expense

Other expense was $1.4 million for the year ended September 30, 2023, related to a $2.7 million write down of an internal use software project, offset by $0.9 million relating to adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates and $0.3 million contingent consideration received for an investment that was sold in a prior year.

Other expense was $1.0 million for the year ended September 30, 2022, relating to adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates.

Other income (expense)

Other income was $1.2 million for the year ended September 30, 2023, compared to other expense of $1.0 million for the year ended September 30, 2022.

Other income and expense for the years ended September 30, 2023 and 2022, both related to adjustments of liabilities under our Tax Receivable Agreement that related to remeasurement of the underlying deferred tax asset for changes in estimated income tax rates.

(Benefit from) Provision for Income Taxes

The benefit from income taxes was $1.2 million for the year ended September 30, 2023 as compared to $5.0 million for the year ended September 30, 2022.

The benefit from deferred income taxes changed to a benefit of $5.9 million for the year ended September 30, 2023 from a provision of $2.6 million for the year ended September 30, 2022, driven by a reduction in valuation allowances.

Additionally, the provision for current income tax expense increased to $4.7 million for the year ended September 30, 2023 from $2.4 million for the year ended September 30, 2022, driven by the decrease in the loss before income taxes, limitations on interest expense deduction, and the phase in of deferral of research and development expenses.

The benefit from income taxes was $3.8 million for the year ended September 30, 2023 as compared to a provision for income taxes of $0.2 million for the year ended September 30, 2022.

The benefit from deferred income taxes increased to a benefit of $7.3 million for the year ended September 30, 2022 from a benefit of $1.1 million for the year ended September 30, 2022, driven by limitations on interest expense deductions and stock compensation expense being deferred for income tax purposes.

Additionally, the provision for current income tax expense increased to $3.5 million for the year ended September 30, 2023 from $1.3 million for the year ended September 30, 2022, driven by limitations on interest expense deduction and the phase in of deferral of research and development expenses.

Our effective tax rate of 14% for the year ended September 30, 2023 differs from the federal statutory rate primarily due to valuation allowance and state tax expense.

1 unchanged sentence

is subject to federal, state and local income taxes with respect to its allocable share of any taxable income of i3 Verticals, LLC and is taxed at the prevailing corporate tax rates.

Year Ended September 30, 2022 Compared to Year Ended September 30, 2021

For discussion of our results of operations for fiscal 2022 compared to fiscal 2021, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on November 18, 2022.

Net income from discontinued operations, net of income taxes

Net income from discontinued operations, net of income tax, increased $5.2 million, or 32.8%, to $21.0 million for the year ended September 30, 2023 from $15.8 million for the year ended September 30, 2022.

See Note 2 to our consolidated financial statements for additional information and detail on the financial results of discontinued operations.

Revenue from discontinued operations increased $13.4 million, partially offset by increases of $4.9 million in selling, general and administrative and $4.7 million in other cost of services for discontinued operations for the year ended September 30, 2023 from the year ended September 30, 2022.

These increases were primarily driven by increases in payments volume and employment costs.

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

Revenues during the first quarter of the calendar year, which is our second fiscal quarter, tend to decrease in comparison to the remaining three quarters of the calendar year on a same store basis.

This decrease is due to the relatively higher number and amount of electronic payment transactions related to seasonal retail events, such as holiday and vacation spending in their second, third and fourth quarters of the calendar year.

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

Revenue in our Education vertical fluctuates with the school calendar.

Revenue for our Education customers is strongest in August, September, October, January and February, at the start of each semester, and generally weakens throughout the semester, with little revenue in the summer months of June and July.

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.

4 unchanged sentences

We usually minimize cash balances by making payments on our revolving line of credit to minimize borrowings and interest expense.

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.

For additional information about our 2023 Senior Secured Credit Facility, see the section entitled "— 2023 Senior Secured Credit Facility" below.

Our primary cash needs are to fund working capital requirements, invest in our technology infrastructure, fund acquisitions and related contingent consideration, make scheduled principal and interest payments on our outstanding indebtedness and pay tax distributions to members.

We consistently have positive cash flow provided by operations and expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the 2023 Senior Secured Credit Facility will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for at least the next twelve months and foreseeable future.

Our primary cash needs are to fund working capital requirements, make capital expenditures and otherwise invest in our technology infrastructure, fund acquisitions and related contingent consideration, make scheduled principal and interest payments on our outstanding indebtedness, pay tax distributions to members of i3 Verticals, LLC as discussed below, and make repurchases of shares of Class A common stock under our share repurchase program as discussed below.

We consistently have positive cash flow provided by operations and expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the 2023 Senior Secured Credit Facility will be sufficient to fund our cash needs as described above for at least the next twelve months and foreseeable future.

Our growth strategy includes acquisitions.

3 unchanged sentences

Our liquidity profile reflects our completed offering in February 2020 of an aggregate principal amount of $138.0 million in 1.0% Exchangeable Senior Notes due 2025, with substantially all the proceeds being used to pay down outstanding borrowings under our Prior Senior Secured Credit Facility.

During the year ended September 30, 2020, we repurchased $21.0 million in aggregate principal amount of the Exchangeable Notes for an aggregate purchase price of approximately $17.4 million.

We recorded a loss on retirement of debt of $2.3 million due to the carrying value exceeding the fair value of the repurchased portion of the Exchangeable Notes at the dates of repurchases.

After giving effect to the repurchase of $90.8 million in aggregate principal amount of the 1.0% Exchangeable Senior Notes on January 18, 2024 as described below as well as the repurchase of $21.0 million in aggregate principal amount of Exchangeable Senior Notes in open market purchases in 2020, the aggregate principal amount of the Exchangeable Notes that is currently outstanding is $26.2 million.

The Exchangeable Notes mature on February 15, 2025, unless earlier exchanged, redeemed or repurchased.

We may elect from time to time to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise.

1 unchanged sentence

Our 2023 Senior Secured Credit Facility, as amended, requires us to maintain a consolidated interest coverage ratio not less than 3.0 to 1.0 and total leverage ratio not exceeding 5.0 to 1.0.

As of September 30, 2023, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio of 4.39x and 3.77x, respectively.

As of September 30, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio of 3.3x and 0.06x, respectively, and expect to remain in compliance with these covenants over the next twelve months.

Although we believe our liquidity position remains strong, there can be no assurance that we will be able to raise additional funds, in the form of debt or equity, or to amend our 2023 Senior Secured Credit Facility on terms acceptable to us, if at all, even if we determined such actions were necessary in the future.

Any material adverse change in customer demand and our ability to retain customers, competitive market forces, as well as other factors listed under the heading “Note Regarding Forward-looking Statements,” and in our risk factors included herein could affect our ability to continue to fund our liquidity needs from business operations.

Upon the completion of the sale of our Merchant Services Business, we used the net proceeds from such transactions to fully satisfy the then outstanding amount of the Revolver under the 2023 Senior Secured Credit Facility, and have used and expect to continue to use the remaining net proceeds for general corporate purposes, including repurchases under our share repurchase authorization as described below.

In connection with the taxable income associated with the gain on the sale of the 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 an 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.

For additional information regarding the ownership interest of the Company in i3 Verticals, LLC and the capitalization of i3 Verticals, LLC, see Note 1 to our consolidated financial statements under “Organization and Operations.” Our Board of Directors will determine the appropriate uses for any excess cash which is so held by the Company following such tax distribution.

For additional information regarding potential uses of this excess cash, see the discussion in our risk factors under Part I, Item 1A of this Form 10-K under “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.”

The discussion of our cash flows that follows does not include the impact of any adjustments to remove the Merchant Services Business as discontinued operations and is stated on a total company consolidated basis.

The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods.

3 unchanged sentences

Net cash provided by operating activities $ 48,409 $ 37,170

Net cash used in investing activities $ (121,520) $ (113,045)

Net cash provided by financing activities $ 75,652 $ 73,033

Net cash provided by (used in) investing activities $ 396,150 $ (121,520)

Net cash (used in) provided by financing activities $ (367,362) $ 72,985

Cash Flow from Operating Activities

Net cash provided by operating activities decreased $11.3 million to $34.5 million for the year ended September 30, 2023 from $45.8 million for the year ended September 30, 2022.

The primary driver of the decrease in cash provided by operating activities was decreases in operating assets and liabilities of $17.4 million, which are impacted by the timing of collections and payments.

Offsetting the decreases in operating assets and liabilities, our net loss decreased $20.6 million to a net loss of $2.7 million for the year ended September 30, 2023 from a net loss of $23.2 million for the year ended September 30, 2022;

however, $12.9 million of the decrease in net loss was driven by a decrease in changes in the fair value of non-cash contingent consideration, $8.5 million of the decrease in net loss was driven by a decrease in the provision for deferred income taxes to a benefit from deferred income taxes, and $4.3 million of the decrease in net loss was driven by a decrease in amortization of debt discount and issuance costs, all of which decrease the net loss but do not result in cash inflows.

These decreases to the net loss were partially offset by increases to the net loss of an increase in depreciation and amortization expense of $7.0 million, an increase in the write down of an intangible asset of $2.7 million and an increase in equity-based compensation expense of $1.6 million, all of which increase the net loss but are not cash expenditures.

Net cash provided by operating activities increased $11.2 million to $48.4 million for the year ended September 30, 2024 from $37.2 million for the year ended September 30, 2023.

The primary driver of the increase in cash provided by operating activities was increases in operating assets and liabilities of $50.1 million, which are impacted by the timing of collections and payments.

Additionally, net income increased $177.8 million from a net loss of $2.7 million for the year ended September 30, 2023 to net income of $175.1 million for the year ended September 30, 2024, including a $6.4 million increase in the benefit from deferred income taxes.

The increase in operating assets and net income is partially offset by the non-cash drivers of the increase in net income.

These non-cash drivers of the increases in net income include the non-cash gain on the sale of the Merchant Services Business of $205.6 million, a decrease in changes in the fair value of non-cash contingent consideration of $11.5 million, a $2.4 million gain on repurchase of exchangeable notes for the year ended September 30, 2024, a decrease in the write down of an intangible asset of $2.7 million and a decrease in equity-based compensation expense of $1.5 million, all of which increase net income but are not cash inflows (or reductions in cash outflows).

Cash Flow from Investing Activities

Net cash used in investing activities increased $8.5 million to $121.5 million for the year ended September 30, 2023 from $113.0 million for the year ended September 30, 2022.

The largest driver of cash used in investing activities for the years ended September 30, 2023 and 2022 was cash used in acquisitions, net of cash acquired.

For the year ended September 30, 2023, we used $102.0 million of cash for acquisitions, net of cash acquired compared to $100.7 million for the year ended September 30, 2022.

Additionally, expenditures for purchases of merchant portfolios and residual buyouts increased $2.1 million, expenditures for capitalized software increased by $2.0 million and expenditures for property and equipment increased by $1.9 million for the year ended September 30, 2023 compared to the year ended September 30, 2022.

Net cash provided by investing activities increased $517.7 million to $396.2 million provided by investing activities for the year ended September 30, 2024 from $121.5 million used in investing activities for the year ended September 30, 2023.

The largest drivers of the increase in cash provided by investing activities were $435.1 million in proceeds from the sale of the Merchant Services Business and a $82.9 million reduction in cash paid for acquisitions, net of cash acquired, partially offset by an increase of $3.2 million in expenditures for purchases of merchant portfolios and residual buyouts for the year ended September 30, 2024 compared to the year ended September 30, 2023.

Cash Flow from Financing Activities

Net cash provided by financing activities increased $2.6 million to $75.7 million for the year ended September 30, 2023 from $73.0 million for the year ended September 30, 2022.

The increase in net cash provided by financing activities was primarily the result of an increase in proceeds from the revolving credit facility of $29.3 million and a decrease in cash paid for contingent consideration up to our original estimates of $18.5 million, partially offset by an increase in payments on the revolving credit facility of $26.4 million and a decrease in proceeds from issuance of Class A common stock, net of underwriting discounts and offering costs of $17.7 million for the year ended September 30, 2023 compared to the year ended September 30, 2022.

Net cash used in financing activities increased $440.3 million to $367.4 million used in financing activities for the year ended September 30, 2024 from $73.0 million provided by financing activities for the year ended September 30, 2023.

The increase in net cash used in financing activities was primarily the result of $87.8 million in payments for repurchases of exchangeable notes during the year ended September 30, 2024 and an increase in payments on the revolving credit facility of $377.9 million, partially offset by an increase in proceeds from the revolving credit facility of $21.9 million and a decrease in cash paid for contingent consideration up to our original estimates of $6.1 million for the year ended September 30, 2024 compared to the year ended September 30, 2023.

Year Ended September 30, 2023 Compared to Year Ended September 30, 2022

1 unchanged sentence

“Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, which was filed with the Securities and Exchange Commission on November 22, 2023.

2023 Senior Secured Credit Facility

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

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

2023 Senior Secured Revolving Credit Facility

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.

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

In addition, on June 26, 2024, the Borrower entered into the first amendment to the 2023 Senior Secured Credit Facility (the “Amendment”).

Among other things, the Amendment permitted the execution of the Purchase Agreement and the consummation of the sale of the Merchant Services Business.

Certain provisions of the Amendment were effective as of the date of the Amendment, and certain other provisions became effective upon the closing of the sale of the Merchant Services Business.

The 2023 Senior Secured Credit Facility provides that the Borrower has the right to seek additional commitments to provide additional term loan facilities or additional revolving credit commitments in an aggregate principal amount up to, as of any date of determination, the sum of (i) the greater of $100 million and 100% of the Borrower’s consolidated EBITDA (as defined in the 2023 Senior Secured Credit Facility) for the most recently completed four quarter period, plus (ii) the amount of certain prepayments of certain indebtedness, so long as, among other things, after giving pro forma effect to the incurrence of such additional borrowings and any related transactions, the Borrower’s consolidated interest coverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not exceed 5.0 to 1.0.

34 unchanged sentences

Exchangeable Notes

On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its 1.0% Exchangeable Senior Notes due February 15, 2025.

On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its 1.0% Exchangeable Notes due February 15, 2025.

The Exchangeable Notes bear interest at a fixed rate of 1.0% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020.

The Exchangeable Notes are exchangeable 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.

The Exchangeable Notes are exchangeable into cash, shares of the Company's Class A common stock, or a combination thereof, at i3 Verticals, LLC’s election, 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 August 15, 2024, the Exchangeable Notes may be exchanged by the holders thereof at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

The Exchangeable Notes mature on February 15, 2025, unless earlier exchanged, redeemed or repurchased.

We received approximately $132.8 million in net proceeds from the sale of the Exchangeable Notes, as determined by deducting estimated offering expenses paid to third-parties from the aggregate principal amount.

i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Prior Senior Secured Credit Facility in connection with the effectiveness of the operative provisions of the Amendment and to pay the cost of the note hedge transactions.

During the year ended September 30, 2020, we repurchased $21.0 million in aggregate principal amount of the Exchangeable Notes for an aggregate purchase price of approximately $17.4 million.

The net proceeds from the sale of the Exchangeable Notes were approximately $132.8 million after deducting discounts and commissions to the certain initial purchasers and other estimated fees and expenses.

i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Prior Senior Secured Credit Facility in connection with the effectiveness of the operative provisions of the amendment to the Prior Senior Secured Credit Facility and to pay the cost of the Note Hedge Transactions.

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

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

The Exchangeable Note Repurchases were completed on January 18, 2024, and the Company paid $87.4 million to repurchase $90.8 million in aggregate principal amount of its Exchangeable Notes and to repay approximately $0.4 million in accrued interest on the repurchased portion of the Exchangeable Notes.

Following the closing of the Exchangeable Note Repurchases, approximately $26.2 million in aggregate principal amount of the Exchangeable Notes remained outstanding, with terms unchanged.

For additional information, see Note 11 to our consolidated financial statements.

At-the-Market Program

On August 20, 2021, we, together with i3 Verticals, LLC, entered into an at-the-market offering sales agreement with Raymond James & Associates, Inc., Morgan Stanley & Co.

LLC and BTIG, LLC (each a “Sales Agent”), under which we may issue and sell, from time to time and through the Sales Agents, shares of our Class A common stock having an aggregate offering price of up to $125 million (the “ATM Program”).

On August 20, 2021, we, together with i3 Verticals, LLC, entered into an at-the-market offering sales agreement (the "Sales Agreement") with Raymond James & Associates, Inc., Morgan Stanley & Co.

LLC and BTIG, LLC (each a “Sales Agent”), under which we could issue and sell, from time to time and through the Sales Agents, shares of our Class A common stock having an aggregate offering price of up to $125.0 million (the “ATM Program”).

During the quarter and year ended September 30, 2024, we did not sell any Class A common stock under the ATM Program.

As of September 30, 2023, we had a remaining capacity to sell up to $107.1 million of our Class A common stock under the ATM Program.

During the three months ended September 30, 2024, the Company terminated the Sales Agreement pursuant to which the ATM Program had been operated.

Material Cash Requirements

The following table summarizes our material cash requirements as of September 30, 2023 related to contracts, leases and borrowings:

The following table summarizes our material cash requirements as of September 30, 2024, including those related to leases and borrowings:

Payments Due by Period

3 unchanged sentences

(in thousands)

Processing minimums (1)

$ 5,070 $ 4,582 $ 488 $ — $ —

Facility leases (1)

8 unchanged sentences

__________________________

We have non-exclusive agreements with several processors to provide us services related to transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools.

Certain of these agreements require us to submit a minimum monthly number of transactions for processing.

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

In addition to the facility leases presented, we have $9 thousand in short-term leases.

1 unchanged sentence

We estimated interest payments through the maturity of our 2023 Senior Secured Credit Facility by applying the interest rate of 0.25% in effect on the outstanding balance as of September 30, 2024, plus the unused fee rate of 0.15% in effect as of September 30, 2024.

We calculated interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.00% on the outstanding principal balance as of September 30, 2023 of $117.0 million.

The chart set forth above calculates interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.0% on the outstanding principal balance as of September 30, 2024 of $26.2 million.

In connection with certain of our acquisitions, we may be obligated to pay the seller of the acquired entity certain amounts of contingent consideration as set forth in the relevant purchasing documents, whereby additional consideration may be due upon the achievement of certain specified financial performance targets.

1 unchanged sentence

accounts for the fair values of such contingent payments in accordance with the Level 3 financial instrument fair value hierarchy at the close of each subsequent reporting period.

The acquisition-date fair value of contingent consideration is valued using a Monte Carlo simulation.

The acquisition-date fair value of contingent consideration is valued using a Monte Carlo simulation as well a discounted cash flows analysis.

i3 Verticals, Inc.

2 unchanged sentences

See “—Tax Receivable Agreement” below.

Share Repurchase Program

On August 8, 2024, the Company announced that our Board of Directors had approved a share repurchase program for the Company's Class A common stock, under which the Company is authorized to repurchase up to $50.0 million of outstanding shares of our Class A common stock (exclusive of fees, commissions or other expenses related to such repurchases) (the "Share Repurchase Program").

The Share Repurchase Program will terminate on the earlier of August 8, 2025, or when the maximum dollar amount under the Share Repurchase Program has been expended.

Pursuant to the Share Repurchase Program, the Company is authorized to make repurchases of our Class A Common Stock in the open market, through privately negotiated transactions, or otherwise, including under Rule 10b5-1 plans.

Repurchases under the Share Repurchase Program are subject to prevailing market conditions, liquidity and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), compliance with contractual restrictions under the 2023 Senior Secured Credit Facility, and other factors.

In addition, the terms of the Share Repurchase Program provides that, immediately prior to repurchases of Class A common stock under the Share Repurchase Program, i3 Verticals, LLC redeems for cash an equal number of units held by the Company in i3 Verticals, LLC in order to fund such repurchases and maintain a 1-1 ratio between the number of outstanding shares of Class A common stock and the units held by the Company in i3 Verticals, LLC.

The Share Repurchase Program does not obligate us to acquire any particular amount of Class A Common Stock, and the Share Repurchase Program may be suspended or discontinued at any time at our discretion.

The Company did not repurchase any shares of Class A Common Stock under the Share Repurchase Program during the three months ended September 30, 2024.

Tax Receivable Agreement

6 unchanged sentences

We intend to fund the payment of the amounts due under the Tax Receivable Agreement out of the cash savings that we actually realize in respect of the attributes to which Tax Receivable Agreement relates.

As of September 30, 2023, the total amount due under the Tax Receivable Agreement was $40.1 million, and payments to the Continuing Equity Owners related to exchanges through September 30, 2023 will range from approximately $0 to $3.2 million per year and are expected to be paid over the next 24 years.

As of September 30, 2024, the total amount due under the Tax Receivable Agreement was $39.2 million, of which $9.9 million was recorded in accrued expenses and other current liabilities and $29.3 million was recorded in long-term tax receivable agreement obligations as of September 30, 2024.

Payments to the Continuing Equity Owners related to exchanges through September 30, 2024 will range from approximately $0 to $9.9 million per year and are expected to be paid over the next 24 years years.

The amounts recorded as of September 30, 2024, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S.

1 unchanged sentence

Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.

Critical Accounting Estimates

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements and related disclosures in conformity with U.S.

generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Note 3, “Summary of Significant Accounting Policies” in the notes to the accompanying consolidated financial statements in Part II, Item 8 of this Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

2 unchanged sentences

Actual results could differ from those estimates.

Below is a summary of our critical accounting estimates for which the nature of management’s assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and for which the impact of the estimates and assumptions on financial condition or operating performance is material.

Below is a summary of our critical accounting policies and estimates for which the nature of management’s assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and for which the impact of the estimates and assumptions on financial condition or operating performance is material.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

We earn revenues from the following sources:

• Software and related services — Includes software as a service ("SaaS"), transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings

• Proprietary payments — Includes volume-based payment processing fees (“discount fees”) and other related fixed transaction or service fees

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

Our software agreements with customers can include multiple performance obligations such as licenses, installation, training, consulting, development of custom software, hosting, or support and maintenance.

We account for each performance obligation separately and use significant judgement to assess whether these obligations are distinct or should be combined.

Contracts with professional services, such as training or installation, are evaluated to determine if the customer can benefit from these services independently, whether they can be provided by other available resources, or whether they are separately identifiable from other contract promises.

For agreements that involve our readily available software, we recognize revenue when control of the software license transfers to the customer, provided the software is distinct.

Readily available software is considered distinct if it can be integrated with minimal customizations, used by the customer upon installation, and if remaining services, such as training, are not highly interdependent or interrelated with the product's functionality.

The timing of revenue recognition for our SaaS revenue is determined by the nature of the underlying performance obligation.

For SaaS offerings and license support services, revenue is generally recognized evenly over the contractual period, starting from the date the service is made available to customers, which is considered over-time revenue recognition.

Conversely, revenue from on-premise perpetual or term licenses is recognized at the point in time when the software is made available for customer download or use.

Some contracts include termination for convenience clauses, allowing either the Company, the customer, or both parties to terminate the agreement at any time or upon providing a specified notice period, without incurring any penalties.

Not all contracts with our customers are standardized, and because of that we use significant judgement to determine whether the performance obligations in question will be satisfied at a point-in-time versus over-time.

The timing of revenue recognition for professional services revenue is determined by the structure of the contract, and whether it is billed based on time and materials or percent complete.

For contracts that involve significant software production, modification, or customization, or where professional services are not distinct, we recognize revenue over time by measuring percent complete.

This method best reflects the transfer of control to

the customer as costs are incurred.

These projects vary in duration but can be extended for long periods and may require revisions to revenue recognition.

Any changes to estimated contract costs are recorded when determined.

When performance obligations are distinct, the fee allocated to each obligation is analyzed separately.

Revenue recognition for time and materials is determined by resources utilized at contracted rates.

Contingent Consideration in Acquisitions

1 unchanged sentence

Accounting for business combinations requires us to estimate the fair value of any contingent purchase consideration at the acquisition date.

Where relevant, the fair value of material contingent consideration included in an acquisition is calculated using a Monte Carlo simulation.

Where relevant, the fair value of material contingent consideration included in an acquisition is calculated using a Monte Carlo simulation as well as a discounted cash flow analysis.

The contingent consideration is revalued each period until it is settled.

12 unchanged sentences

For example, if management’s forecasted earnings decreased for a reporting unit, we may have recorded an impairment loss for that reporting unit.

For each of our reporting units, the calculated fair values substantially exceeded carrying values as of our most recent quantitative impairment test date.

Related Parties

4 unchanged sentences

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 7. Management’s Discussion and Analysis