What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-07 compared with 2024-08-09 · 172 added, 234 removed, 220 unchanged (65% of the section changed)

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These factors include, but are not limited to, the following:

• our indebtedness and our ability to maintain compliance with the financial covenants in our 2023 Senior Secured Credit Facility (as defined below);

• our ability to meet our liquidity needs;

• our ability to raise additional funds on terms acceptable to us, if at all, whether through debt, equity or a combination thereof;

• our ability to protect our systems and data from continually evolving cybersecurity risks or other technological risks, including the impact of any cybersecurity incidents or security breaches;

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• technical, operational and regulatory risks related to our information technology systems and third-party providers’ systems;

• our ability to execute on our strategy and achieve our goals following the completion of the sale of our Merchant Services Business;

• our ability to successfully manage our intellectual property;

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• impact of inflation and fluctuations in interest rates (including current elevated interest rate levels) and the potential effect of such fluctuations on revenues, expenses and resulting margins;

• our dependence on non-exclusive distribution partners to market our products and services;

• our ability to keep pace with rapid developments and changes in our industry and provide new products and services;

• reliance on third parties for significant services;

• exposure to economic conditions and political risks affecting consumer and commercial spending, including the use of credit cards;

• our ability to increase our existing vertical markets, expand into new vertical markets and execute our growth strategy;

• exposure to economic conditions and political risks affecting consumer, commercial and government spending, including any decline in the use of credit cards;

• changes in the budgets or regulatory environments of our Public Sector customers, primarily local and state governments, that could negatively impact spending;

• our ability to increase our existing vertical markets, grow within the current vertical markets in which we operate and execute our growth strategy;

• our ability to successfully identify acquisition targets, complete those acquisitions and effectively integrate those acquisitions into our services;

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• our ability to attract, recruit, retain and develop key personnel and qualified employees;

• risk of significant chargeback liability if our customers refuse or cannot reimburse chargebacks resolved in favor of their customers;

• risks related to laws, regulations, and industry standards;

• risk of chargeback liabilities if our customers refuse or cannot reimburse chargebacks resolved in favor of their customers;

• risks related to laws, regulations and industry standards, including our ability to comply with complex laws and regulations applicable to the healthcare industry or to adjust our operations in response to changing laws and regulations;

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• risks related to our international operations;

• our indebtedness and our ability to maintain compliance with the financial covenants in our 2023 Senior Secured Credit Facility (as defined below);

• our ability to meet our liquidity needs;

• our ability to raise additional funds on terms acceptable to us, if at all, whether through debt, equity or a combination thereof;

• operating and financial restrictions imposed by our 2023 Senior Secured Credit Facility;

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• our ability to raise the funds necessary to settle exchanges of the Exchangeable Notes or to repurchase the Exchangeable Notes upon a fundamental change;

• risks related to the exchange feature of the Exchangeable Notes;

• risks related to the anticipated sale of our Merchant Services Business pursuant to the terms of the Purchase Agreement;

• the "Risk Factors" included in our Form 10-K and included in Part II, Item 1A of this Quarterly Report on Form 10-Q, if any.

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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.

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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.

At June 30, 2024, we had $9.7 million of cash and cash equivalents and $98.6 million of available capacity under our 2023 Senior Secured Credit Facility subject to our financial covenants.

As of June 30, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio 3.5x, and 3.6x, respectively.

At December 31, 2024, we had $85.6 million of cash and cash equivalents and $450.0 million of available capacity under our 2023 Senior Secured Credit Facility subject to our financial covenants.

As of December 31, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio 3.7x, and 0.1x, respectively.

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

Recent Developments

Anticipated Sale of Merchant Services Business

On June 26, 2024, i3 Verticals, Inc., i3 Verticals, LLC, and i3 Holdings Sub, Inc., a wholly-owned subsidiary of i3 Verticals, LLC, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Payroc Buyer, LLC ("Payroc") and Payroc WorldAccess LLC.

Pursuant to the terms of the Purchase Agreement, Payroc would purchase the equity interests of certain direct and indirect wholly-owned subsidiaries (the "Acquired Entities") of i3 Verticals, LLC and i3 Holdings Sub, Inc.

(i3 Verticals, LLC and i3 Holdings Sub, Inc., collectively, the "Sellers") comprising the Merchant Services segment as well as certain assets within our Software and Services segment related to the Non-profit and Property Management vertical markets, including its associated proprietary technology (collectively, the "Merchant Services Business"), after giving effect to the contribution of certain assets and the assignment of certain liabilities associated with the Merchant Services Business from i3 Verticals, LLC and certain affiliates thereof to the Acquired Entities pursuant to a contribution agreement to be entered into immediately prior to the closing of the transactions pursuant to the Purchase Agreement (such transactions, collectively, the "Transactions").

Pursuant to the terms of the Contribution Agreement, i3 Verticals, LLC and its affiliates would retain certain liabilities related to the Merchant Services Business.

The purchase price payable by Payroc to us for the equity interests of the Merchant Services Business would be $440 million (the “Purchase Price”), payable in cash upon the closing of the Transactions, subject to adjustments for closing net working capital and other purchase price adjustments provided in the Purchase Agreement.

The closing of the Transactions is subject to certain closing conditions set forth in the Purchase Agreement, including the expiration or termination of the waiting period applicable to the Transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Waiting Period"), the absence of certain legal impediments, the accuracy of the representations of the other party (subject to certain materiality qualifiers specified in the Purchase Agreement), the compliance by the other party of its covenants under the Purchase Agreement in all material respects, and, in the case of Payroc's closing obligations, the delivery by us of certain consents associated with the Merchant Services Business and the absence of any material adverse effect with respect to the Merchant Services Business.

The HSR Waiting Period expired on August 5, 2024.

The consummation of the sale is expected to occur during the three months ending September 30, 2024.

The Purchase Agreement provides that at the closing of the Transactions, and as a condition to the closing obligations of the parties, the parties and/or their affiliates will enter into certain ancillary agreements, including (i) a transition services agreement, pursuant to which, among other things, the Sellers and/or affiliates thereof will provide certain information technology and operational transition services to Payroc for a period of time after the closing, (ii) a processing services agreement, pursuant to which the parties will provide certain payment processing services to customers of each party, and (iii) a restrictive covenant agreement, pursuant to which i3 Verticals, Inc.

and Sellers will be bound by certain confidentiality covenants, non-competition and business relation non-solicitation covenants (with a term ending on the fifth anniversary of the closing of the Transactions) and employee non-solicitation covenants (with a term ending on the third anniversary of the closing of the Transactions), subject to certain limitations, as provided therein.

As noted above, as a result of the anticipated sale of the Merchant Services Business pursuant to the Purchase Agreement, the historical results of the Merchant Services Business have been reflected as discontinued operations in our condensed consolidated financial statements, and the Company no longer presents a Merchant Services Business segment .

See Notes 2 and 15 to our condensed consolidated financial statements for additional information.

For additional information regarding the Purchase Agreement and the Transactions, see the Current Report on Form 8-K filed by us on June 26, 2024.

Aggregate costs incurred related to the Transactions during the nine months ended June 30, 2024 were approximately $2,626 and were expensed as incurred.

These costs include fees for third-party advisory, consulting, legal and professional services, as well as other items associated with the Transactions that are incremental in nature.

The expenses are reflected within selling, general and administrative expenses within our condensed consolidated statements of operations.

Recent acquisitions

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

Total purchase consideration was $18.0 million in cash funded by the proceeds from our revolving credit facility, the issuance of 311,634 shares of our Class A common stock in a private placement, and an amount of contingent consideration of up to $22.0 million, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreement, through no later than July 2027.

The Company is in process of determining the acquisition date fair values of the liabilities for the contingent consideration based on discounted cash flow analyses.

Acquisitions during the nine months ended June 30, 2024

During the nine months ended June 30, 2024, we completed the acquisition of one business to expand our software offerings.

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 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 three months ended December 31, 2024

During the three months ended December 31, 2024, we did not complete any acquisitions.

Acquisitions during the three months ended December 31, 2023

During the three months ended December 31, 2023, we completed the acquisition of one business to expand our software offerings.

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

Acquisitions during the nine months ended June 30, 2023

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

in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical.

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

During the nine months ended June 30, 2023, we completed the acquisition of two other businesses to expand our software offerings.

Total purchase consideration was $19.8 million, including $17.0 million in cash funded by the proceeds from our revolving credit facility, the issuance of $2.0 million of our Class A common stock in a private placement, and $0.8 million in contingent consideration.

Our Revenue and Expenses

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Other costs of services .

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

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

Other costs of services include costs directly related to our software and related services.

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

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

Residual payments to our distribution partners and the cost of equipment sold is also included in cost of services.

Amortization arising from capitalized software development is not included in other cost of services.

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

Following the disposal of our Merchant Services Business in the fourth quarter of fiscal year 2024, our core business is providing software solutions for key verticals.

Given the change in our business model, we have reclassified certain expenses to better align with the primary industry in which we now operate.

During the first quarter of fiscal year 2025, we revised our presentation of certain expenses in the Condensed Consolidated Statements of Operations from selling, general and administrative expenses to other costs of services.

We reclassified personnel costs related to installation of our software, conversion of client data, training client personnel, customer support activities and various other services provided directly to customers from selling, general and administrative to other costs of services.

We also reclassified certain hosting and related software costs for directly supporting our customers from selling, general and administrative to other costs of services.

Refer to Note 3 for discussion of the change in the current and prior period presentation.

Selling, general and administrative .

Selling, general and administrative expenses include salaries and other employment costs, professional services, rent and utilities and other operating costs.

Selling, general and administrative expenses include certain salaries and other employment costs, professional services, internal technology expenses, rent and utilities and other operating costs.

Salaries and other employment costs within selling, general and administrative include individuals associated with shared services, product development, sales and other functions.

Following the disposal of our Merchant Services Business in the fourth quarter of fiscal year 2024, our core business is providing software solutions for key verticals.

Given the change in our business model, we have reclassified certain expenses to better align with the primary industry in which we now operate.

Refer to Note 3 for discussion of the change in the current and prior period presentation.

Depreciation and amortization .

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The useful lives of contract-based intangible assets are equal to the terms of the agreement.

Interest expense, net.

Interest (income) expense, net.

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

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.

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

As a result of the sale of the Merchant Services Business, 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 16 to our condensed consolidated financial statements.

Key Performance Indicators

We evaluate our performance through key performance indicators, including:

We evaluate our performance through various metrics, 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”).

• 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.

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

ARR from continuing operations for the three months ended June 30, 2024 and 2023 was $181.3 million and $174.5 million, respectively, representing a period-to-period growth rate of 4%.

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

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

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

Software and related services revenue as a percentage of total revenue from continuing operations for the three months ended June 30, 2024 and 2023 was 74% and 76%.

Our payment volume from continuing operations for the three months ended June 30, 2024 and 2023 was $497.5 million and $409.7 million, respectively, representing a period-to-period growth rate of 21.4%.

Our payment volume from continuing operations for the nine months ended June 30, 2024 and 2023 was $1,608.8 million and $1,387.7 million, respectively, representing a period-to-period growth rate of 16%.

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

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

We no longer consider processing margin to be a key performance indicator as a result of the fact that such metric is associated with our Merchant Services Business, which is anticipated to be sold pursuant to the Purchase Agreement and is now reflected in discontinued operations.

ARR from continuing operations for the three months ended December 31, 2024 and 2023 was $193.3 million and $179.6 million, respectively, representing a period-to-period growth rate of 8%.

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 39% and 40% for the three months ended December 31, 2024 and 2023, respectively.

Further, Adjusted EBITDA margin for our healthcare segment was 28% and 24% for the three months ended December 31, 2024 and 2023, respectively.

For additional information regarding Adjusted EBITDA and Adjusted EBITDA margin, see Note 16.

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

Results of Operations

As a result of the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, the historical results of the Merchant Services Business have been reflected as discontinued operations in our condensed consolidated financial statements.

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 condensed consolidated financial statements.

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

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Three Months Ended December 31, 2024 Compared to Three Months Ended December 31, 2023

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

Three Months Ended June 30, Change

Three Months Ended December 31, Change

(in thousands) 2024 2023 Amount %

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Operating expenses

Other costs of services 4,722 3,944 778 19.7 %

Selling, general and administrative 45,033 45,045 (12) — %

Depreciation and amortization 6,969 6,665 304 4.6 %

Change in fair value of contingent consideration (18) 6,183 (6,201) n/m

Total operating expenses 56,706 61,837 (5,131) (8.3) %

Loss from continuing operations (669) (4,577) 3,908 (85.4) %

Other expenses

Interest expense, net 7,906 6,725 1,181 17.6 %

Other income — (92) 92 (100.0) %

Total other expenses 7,906 6,633 1,273 19.2 %

Loss before income taxes (8,575) (11,210) 2,635 (23.5) %

Provision for (benefit from) income taxes 5,271 (292) 5,563 n/m

Net loss from continuing operations (13,846) (10,918) (2,928) 26.8 %

Net income from discontinued operations, net of income taxes 5,548 4,840 708 14.6 %

Net loss (8,298) (6,078) (2,928) 48.2 %

Net income from continuing operations attributable to non-controlling interest (2,416) (2,392) (24) 1.0 %

Net loss from discontinued operations attributable to non-controlling interest 1,663 1,469 194 13.2 %

Net loss attributable to non-controlling interest (753) (923) 170 (18.4) %

Net loss attributable to i3 Verticals, Inc.

from continuing operations $ (11,430) $ (8,526) $ (2,904) 34.1 %

Net income attributable to i3 Verticals, Inc.

from discontinued operations $ 3,885 $ 3,371 $ 514 15.2 %

Net loss attributable to i3 Verticals, Inc.

Other costs of services (excluding depreciation and amortization) (1)

21,031 19,577 1,454 7.4 %

n/m = not meaningful

Revenue decreased $1.2 million, or 2.1%, to $56.0 million for the three months ended June 30, 2024 from $57.3 million for the three months ended June 30, 2023.

This decrease was primarily driven by a decrease of $3.1 million in software license revenue and professional services revenue, partially offset by an increase of $1.7 million in recurring revenues, primarily in our Public Sector vertical.

Other Costs of Services

Other costs of services increased $0.8 million, or 19.7%, to $4.7 million for the three months ended June 30, 2024 from $3.9 million for the three months ended June 30, 2023.

This increase was primarily driven by an increase in software cost of services of $0.3 million and an increase in payment volume, resulting in increases in processing costs of $0.3 million for the three months ended June 30, 2024 from the three months ended June 30, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses slightly decreased $12 thousand to $45.0 million for the three months ended June 30, 2024 from the three months ended June 30, 2023.

This decrease was primarily driven by a decrease in employment expenses of $1.9 million for the three months ended June 30, 2024 from the three months ended June 30, 2023, partially offset by $1.8 million in transaction costs related to the anticipated sale of the Merchant Services Business during the three months ended June 30, 2024.

Depreciation and Amortization

Depreciation and amortization increased $0.3 million, or 4.6%, to $7.0 million for the three months ended June 30, 2024 from $6.7 million for the three months ended June 30, 2023.

Amortization expense increased $0.5 million to $2.5 million for the three months ended June 30, 2024 from $2.0 million for the three months ended June 30, 2023 primarily due to an increase in capitalized software project releases.

Depreciation expense decreased $0.1 million to $4.5 million for the three months ended June 30, 2024 from $4.6 million for the three months ended June 30, 2023.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration to be paid in connection with acquisitions was a benefit of $18 thousand for the three months ended June 30, 2024 related to adjustments to the expected present value of consideration to be paid for earnouts.

The change in fair value of contingent consideration for the three months ended June 30, 2023 was a charge of $6.2 million.

Interest Expense, net

Interest expense, net, increased $1.2 million, or 17.6%, to $7.9 million for the three months ended June 30, 2024 from $6.7 million for the three months ended June 30, 2023.

The increase reflects a higher average interest rate and a higher average outstanding debt balance for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

There was no other income during the three months ended June 30, 2024.

Other income of $0.1 million during the three months ended June 30, 2023 reflects contingent consideration received for an investment that was sold in a prior year.

Provision for Income Taxes

The provision for income taxes increased to a provision for $5.3 million for the three months ended June 30, 2024 from a benefit of $0.3 million for three months ended June 30, 2023.

Our effective tax rate was (61)% for the three months ended June 30, 2024.

Our effective tax rate differs from the federal statutory rate of 21% primarily due to the tax structure of the Company.

The income of majority owned i3 Verticals, LLC is not taxed and the separate loss of the Company has minimal tax effect due to the allocations from i3 Verticals, LLC.

i3 Verticals, Inc.

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

Net income from discontinued operations, net of income taxes

Net income from discontinued operations, net of income tax, increased $0.7 million, or 14.6%, to $5.5 million for the three months ended June 30, 2024 from $4.8 million for the three months ended June 30, 2023.

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

Revenue from discontinued operations increased $1.7 million, partially offset by an increase of $1.5 million in other cost of services for discontinued operations for the three months ended June 30, 2024 from the three months ended June 30, 2023.

These increases were primarily driven by increases in payments volume.

Nine Months Ended June 30, 2024 Compared to Nine Months Ended June 30, 2023

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

Nine Months Ended June 30,

(in thousands) 2024 2023 Amount %

Revenue $ 169,059 $ 168,138 $ 921 0.5 %

Operating expenses

Other costs of services 13,540 11,272 2,268 20.1 %

Selling, general and administrative (1)

28,900 27,175 1,725 6.3 %

Depreciation and amortization 7,684 7,054 630 8.9 %

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Total operating expenses 58,992 53,569 5,423 10.1 %

Income (loss) from continuing operations 3,300 (4,824) 8,124 n/m

Other expenses (income)

Interest expense, net 22,307 18,414 3,893 21.1 %

Other income (2,150) (295) (1,855) 628.8 %

Total other expenses 20,157 18,119 2,038 11.2 %

Loss before income taxes (16,857) (22,943) 6,086 (26.5) %

Income from operations 2,699 1,485 1,214 81.8 %

Other (income) expenses

Interest expense 680 6,687 (6,007) (89.8) %

Other (income) expense (1,826) 107 (1,933) n/m

Total other (income) expenses (1,146) 6,794 (7,940) n/m

Income (loss) before income taxes 3,845 (5,309) 9,154 n/m

Provision for (benefit from) income taxes 523 (1,094) 1,617 n/m

Net loss from continuing operations (20,364) (22,443) 2,079 (9.3) %

Net income from discontinued operations, net of income taxes 16,950 16,342 608 3.7 %

Net loss (3,414) (6,101) 2,079 (34.1) %

Net income from continuing operations attributable to non-controlling interest (3,944) (5,702) 1,758 (30.8) %

Net loss from discontinued operations attributable to non-controlling interest 5,099 4,960 139 2.8 %

Net income (loss) attributable to non-controlling interest 1,155 (742) 1,897 n/m

Net loss attributable to i3 Verticals, Inc.

from continuing operations $ (16,420) $ (16,741) $ 321 (1.9) %

Net income (loss) from continuing operations 3,322 (4,215) 7,537 n/m

Net (loss) income from discontinued operations, net of income taxes (214) 5,751 (5,965) n/m

Net income 3,108 1,536 1,572 102.3 %

Net income (loss) from continuing operations attributable to non-controlling interest 1,128 (1,330) 2,458 n/m

Net (loss) income from discontinued operations attributable to non-controlling interest (76) 1,768 (1,844) n/m

Net income attributable to non-controlling interest 1,052 438 614 140.2 %

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

2,194 (2,885) 5,079 n/m

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

(138) 3,983 (4,121) n/m

Net income attributable to i3 Verticals, Inc.

from discontinued operations $ 11,851 $ 11,382 $ 469 4.1 %

Net loss attributable to i3 Verticals, Inc.

$ 2,056 $ 1,098 $ 958 87.2 %

n/m = not meaningful

Revenue increased $0.9 million, or 0.5%, to $169.1 million for the nine months ended June 30, 2024 from $168.1 million for the nine months ended June 30, 2023.

This increase was driven by incremental revenue from an acquisition of $1.5 million, net of intercompany eliminations, which was within the Software and Services segment, and an organic increase of $7.0 million in recurring revenues for the nine months ended June 30, 2024 from the nine months ended June 30, 2023.

The increases were partially offset by a decrease in software license revenue and professional services revenue of $7.8 million for the nine months ended June 30, 2024 from the nine months ended June 30, 2023.

_________________________________________

Refer to Note 3 for discussion of the change in the current and prior period presentation.

Revenue increased $6.6 million, or 12.1%, to $61.7 million for the three months ended December 31, 2024 from $55.1 million for the three months ended December 31, 2023.

This increase included incremental revenue from an acquisition within the Public Sector vertical of $1.2 million, net of intercompany eliminations.

The remaining increase was primarily driven by an increase of $2.9 million in recurring revenues, an increase of $2.3 million in software license revenue.

Revenue within Public Sector increased $5.3 million, or 12.2%, to $48.8 million for the three months ended December 31, 2024 from $43.5 million for the three months ended December 31, 2023.

This increase included incremental revenue from an acquisition of $1.2 million, net of intercompany eliminations.

The remaining increase was primarily driven by an increase in recurring revenues of $3.0 million and an increase of $0.7 million in software license revenue.

Revenue within Healthcare increased $1.6 million, or 13.7%, to $13.2 million for the three months ended December 31, 2024 from $11.6 million for the three months ended December 31, 2023.

This increase was mostly driven by an increase in software license revenue of $1.6 million.

Other Costs of Services

Other costs of services increased $2.3 million, or 20.1%, to $13.5 million for the nine months ended June 30, 2024 from $11.3 million for the nine months ended June 30, 2023.

This increase was primarily driven by an increase in software cost of services of $1.0 million and an increase in payment volume, resulting in increases in processing costs of $0.8 million for the nine months ended June 30, 2024 from the nine months ended June 30, 2023.

Other costs of services increased $1.5 million, or 7.4%, to $21.0 million for the three months ended December 31, 2024 from $19.6 million for the three months ended December 31, 2023.

This increase included incremental other costs of services from an acquisition within the Public Sector vertical of $0.3 million, net of intercompany eliminations.

The remaining increase was primarily driven by an increase in internal personnel costs of $1.4 million partially offset by a decrease of $0.5 million in stock compensation expense within other costs of services for the three months ended December 31, 2024 from the three months ended December 31, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $1.0 million, or 0.7%, to $131.5 million for the nine months ended June 30, 2024 from $132.5 million for the nine months ended June 30, 2023.

This decrease was primarily driven by a decrease in employment expenses of $3.0 million, travel expense of $0.2 million, and advertising expenses of $0.2 million for the nine months ended June 30, 2024 from the nine months ended June 30, 2023, partially offset by $2.6 million of costs incurred during the nine months ended June 30, 2024 related to the anticipated sale of the Merchant Services Business.

Selling, general and administrative expenses increased $1.7 million to $28.9 million for the three months ended December 31, 2024 from from $27.2 million for the three months ended December 31, 2023.

This increase included incremental SG&A expenses from an acquisition within the Public Sector vertical of $0.9 million, net of intercompany eliminations The remaining increase was primarily driven by an increase in internal personnel costs of $1.6 million and internal technology costs $0.5 million for the three months ended December 31, 2024 from the three months ended December 31, 2023, partially offset by a decrease in stock compensation expense within selling, general and administrative expenses of $1.0 million and a decrease in professional services expense of $0.3 million for the three months ended December 31, 2024 from the three months ended December 31, 2023.

Depreciation and Amortization

Depreciation and amortization increased $1.9 million, or 10.0%, to $21.2 million for the nine months ended June 30, 2024 from $19.3 million for the nine months ended June 30, 2023.

Amortization expense increased $1.6 million to $19.2 million for the nine months ended June 30, 2024 from $17.6 million for the nine months ended June 30, 2023 primarily due to an increase in capitalized software project releases and acquisitions completed during the 2023 fiscal year.

Depreciation expense increased $0.3 million to $2.0 million for the nine months ended June 30, 2024 from $1.7 million for the nine months ended June 30, 2023.

Depreciation and amortization increased $0.6 million, or 8.9%, to $7.7 million for the three months ended December 31, 2024 from $7.1 million for the three months ended December 31, 2023.

Amortization expense increased $0.6 million to $7.0 million for the three months ended December 31, 2024 from $6.4 million for the three months ended December 31, 2023 primarily due to an increase in capitalized software project releases, driving an increase in amortization expense.

Depreciation expense increased slightly by $48 thousand to $0.7 million for the three months ended December 31, 2024 from $0.6 million for the three months ended December 31, 2023.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration to be paid in connection with acquisitions was a benefit of $0.5 million for the nine months ended June 30, 2024 related to adjustments to the expected present value of consideration to be paid for earnouts.

The change in fair value of contingent consideration for the nine months ended June 30, 2023 was a charge of $9.9 million.

Interest Expense, net

Interest expense, net, increased $3.9 million, or 21.1%, to $22.3 million for the nine months ended June 30, 2024 from $18.4 million for the nine months ended June 30, 2023.

The increase reflects a higher average interest rate and a higher average outstanding debt balance for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023.

Other income increased $1.9 million to $2.2 million for the nine months ended June 30, 2024 from other income of $0.3 million for the nine months ended June 30, 2023.

Other income during the nine months ended June 30, 2024 reflects the gain on the Exchangeable Note Repurchases and gain on Warrant Unwinds, net of the loss on Note Hedge Unwinds and loss on the sale of a building purchased through acquisition.

Other income during the nine months ended June 30, 2023 reflects contingent consideration received for an investment that was sold in a prior year.

Provision for Income Taxes

The provision for income taxes increased to a provision of $3.5 million for the nine months ended June 30, 2024 from a benefit of $0.5 million for nine months ended June 30, 2023.

Our effective tax rate was 21% for the nine months ended June 30, 2024.

Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $1.4 million for the three months ended December 31, 2024 related to adjustments to the expected present value of consideration to be paid for earnouts.

The change in fair value of contingent consideration for the three months ended December 31, 2023 was a benefit of $0.2 million.

Interest Expense

Interest expense decreased $6.0 million, or 89.8%, to $0.7 million for the three months ended December 31, 2024 from $6.7 million for the three months ended December 31, 2023.

The decrease reflects a lower average outstanding debt balance for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023.

Other (Income) Expense

Other income was $1.8 million during the three months ended December 31, 2024, and other expense was $0.1 million during the three months ended December 31, 2023.

Other income during the the three months ended December 31, 2024 reflects income generated from cash held at financial institutions of $0.7 million, a gain on disposal of property and equipment of $0.6 million related to the sale of a building and automobiles purchased through previous acquisitions and income from the Transition Services Agreement and Processing Services Agreement related to the sale of the Merchant Services Business of $0.5 million.

Other expense during the three months ended December 31, 2023 reflects a loss on disposal of property and equipment related to the sale of a building purchased through an acquisition.

Provision for (Benefit from) Income Taxes

The provision for income taxes increased to a provision for $0.5 million for the three months ended December 31, 2024 from a benefit of $1.1 million for three months ended December 31, 2023.

Our effective tax rate was 14% for the three months ended December 31, 2024.

Our effective tax rate differs from the federal statutory rate of 21% primarily due to the tax structure of the Company.

The income of majority owned i3 Verticals, LLC is not taxed and the separate loss of the Company has minimal tax effect due to the allocations from i3 Verticals, LLC.

The income of majority-owned i3 Verticals, LLC is not taxed at the entity-level.

i3 Verticals, Inc.

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

Net income from discontinued operations, net of income taxes

Net income from discontinued operations, net of income tax, increased $0.6 million, or 3.7%, to $17.0 million for the nine months ended June 30, 2024 from $16.3 million for the nine months ended June 30, 2023.

Net (Loss) Income from Discontinued Operations, Net of Income Taxes

We had $0.2 million in net loss from discontinued operations, net of income tax, for the three months ended December 31, 2024 compared to $5.8 million in net income from discontinued operations, net of income tax, for the three months ended December 31, 2023.

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

Revenue from discontinued operations increased $6.2 million, partially offset by an increase of $2.6 million in other cost of services for discontinued operations for the nine months ended June 30, 2024 from the nine months ended June 30, 2023.

These increases were primarily driven by increases in payments volume.

Additionally, the provision for income taxes increased $1.5 million and depreciation and amortization increased $1.1 million, which also offset the increase in revenue for the nine months ended June 30, 2024 from the nine months ended June 30, 2023.

The net loss from discontinued operations, net of income tax, for the three months ended December 31, 2024 reflects adjustments to the gain on the sale of the Merchant Services Business.

The net income from discontinued operations, net of income tax, for the three months ended December 31, 2023 included a complete quarter of business activity, including revenue of $36.9 million, operating expenses of $29.9 million, and a provision for income taxes of $1.3 million.

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.

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We have historically financed our operations and working capital through net cash from operating activities.

As of June 30, 2024, we had $9.7 million of cash and cash equivalents and available borrowing capacity of $98.6 million under our 2023 Senior Secured Credit Facility, subject to the financial covenants.

As of December 31, 2024, we had $85.6 million of cash and cash equivalents and available borrowing capacity of $450.0 million under our 2023 Senior Secured Credit Facility, subject to the financial covenants.

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

As of June 30, 2024, we had borrowings outstanding of $351.4 million under the 2023 Senior Secured Credit Facility.

As of December 31, 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 of i3 Verticals, LLC, and, following the completion of the transactions under the Purchase Agreement, potential repurchases of shares of Class A common stock under our share repurchase program, as discussed below.

We consistently have positive cash flow provided by operations and expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the 2023 Senior Secured Credit Facility will be sufficient to fund our operations and planned capital expenditures, to service our debt obligations, to pay tax distributions to members of i3 Verticals, LLC, and make potential repurchases of shares of Class A common stock under our share repurchase program for at least the next twelve months and foreseeable future.

Our 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.

Our growth strategy includes acquisitions.

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

As of June 30, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio of 3.5x and 3.6x, respectively.

As of December 31, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio of 3.7x and 0.1x, respectively.

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

Upon the completion of the transactions pursuant to the Purchase Agreement, we anticipate using the net proceeds from such transactions to fully satisfy the outstanding amount of the Revolver under the 2023 Senior Secured Credit Facility at such time, and to use the remaining net proceeds for general corporate purposes, which may include repurchases under our share repurchase authorization as described below.

In addition, upon the completion of the transactions pursuant to the Purchase Agreement, [in connection with the taxable income that will be recognized for federal income tax purposes by the members of i3 Verticals, LLC, a pass-through entity, in connection therewith, we expect that i3 Verticals, LLC will be required to make a tax distribution in early 2025 to the members of i3 Verticals, LLC, including i3 Verticals, Inc.

On August 8, 2024, the Company announced that its Board of Directors had approved a new share repurchase program for the Company’s Class A common stock, under which the Company may repurchase up to $50 million of outstanding shares of Class A common stock.

This share repurchase program will terminate on the earlier of August 8, 2025, or when the maximum dollar amount under the authorization has been expended.

Pursuant to this authorization, repurchases may be made from time to time in the open market, through privately negotiated transactions, or otherwise.

In addition, any repurchases under the authorization will be subject to prevailing market conditions, liquidity and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), and other factors.

Taking into account restrictions under the 2023 Senior Secured Credit Facility, the Company does not anticipate making any repurchases under this authorization until the closing of the transactions under the

Purchase Agreement.

This share repurchase program does not require the Company to acquire any amount of shares of Class A common stock, and may be extended, modified, suspended or discontinued at any time.

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 January 2025, i3 Verticals, LLC, a pass-through entity in which the Company holds a majority ownership interest, made a tax distribution (the “LLC Tax Distribution”) to the Company and the other members of i3 Verticals, LLC (the “Continuing Equity Owners”) related to the taxable income associated with the gain on the sale of the Merchant Services Business completed in September 2024 that is anticipated to be recognized for 2024 federal income tax purposes by members of the Company.

As a result of differences in the amount of net taxable income allocable to the Company and to the Continuing Equity Owners and the higher assumed tax rate of the Continuing Equity Owners than the tax rate of the Company, this LLC Tax Distribution resulted in the Company holding cash in excess of the Company’s tax liabilities, its obligation to make payments under its tax receivables agreement, and any other expected liabilities of the Company.

Thereafter, on January 23, 2025, the Company and i3 Verticals, LLC effected certain recapitalization actions in order to reduce excess cash held at the Company following this LLC Tax Distribution.

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 the accompanying unaudited condensed consolidated financial statements contained in this report.

For additional information regarding these recapitalization transactions, see Note 20 to the accompanying unaudited condensed consolidated financial statements contained in this report.

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

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

Nine Months Ended June 30, 2024 and 2023

Nine months ended June 30,

Three Months Ended December 31, 2024 and 2023

Three months ended December 31,

(in thousands)

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Net cash used in investing activities $ (1,418) $ (7,171)

Net cash (used in) provided by financing activities $ (15,215) $ 85,482

Net cash used in financing activities $ (10,467) $ (8,550)

Cash Flow from Operating Activities

Net cash provided by operating activities increased $6.9 million to $33.3 million for the nine months ended June 30, 2024 from $26.4 million for the nine months ended June 30, 2023.

Our net loss decreased from a net loss of $6.1 million for the nine months ended June 30, 2023 to a net loss of $3.4 million for the nine months ended June 30, 2024.

The primary driver of the increase in cash provided by operating activities was an increase in changes in net operating assets and liabilities of $15.6 million, which are impacted by the timing of collections and payments, for the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

This increase was partially offset by non-cash income and reductions in non-cash expenses that increase net loss but do not impact cash flows from operating activities.

These changes in non-cash income and expenses included a decrease in changes in non-cash contingent consideration of $10.5 million, a decrease in equity-based compensation expense of $3.5 million, an increase in depreciation and amortization of $3.0 million, a gain on the repurchase of exchangeable notes of $2.4 million, and an increase in the provision for deferred income taxes of $2.2 million for the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

Net cash provided by operating activities decreased $2.9 million to $11.5 million for the three months ended December 31, 2024 from $14.4 million for the three months ended December 31, 2023.

Our net income increased from $1.5 million for the three months ended December 31, 2023 to $3.1 million for the three months ended December 31, 2024.

The primary driver of the decrease in cash provided by operating activities despite the increase in net income was reductions in non-cash expenses that increase net income but do not impact cash flows from operating activities.

These changes in non-cash income and expenses included a decrease in equity-based compensation expense of $2.7 million, a decrease in depreciation and amortization of $2.1 million, a decrease in the provision for deferred income taxes of $0.9 million and a decrease in other non-cash adjustments to net income of $0.8 million, which includes gains on sales of property and equipment as well as other non-cash adjustments to net income.

These reductions in non-cash expenses were partially offset by an increase in changes in non-cash contingent consideration of $1.6 million and an increase in changes in net operating assets and liabilities of $0.8 million, which are impacted by the timing of collections and payments, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023.

Cash Flow from Investing Activities

Net cash used in investing activities decreased $98.7 million to $16.8 million for the nine months ended June 30, 2024 from $115.4 million for the nine months ended June 30, 2023.

The largest driver of the decrease in cash used in investing activities was a decrease of $100.9 million in cash used in acquisitions, net of cash acquired, during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

This change was partially offset by an increase of $4.1 million in purchases of merchant portfolios and residual buyouts during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

Net cash used in investing activities decreased $5.8 million to $1.4 million for the three months ended December 31, 2024 from $7.2 million for the three months ended December 31, 2023.

The largest drivers of the decrease in cash used in investing activities were a decrease of $2.9 million in purchases of merchant portfolios and residual buyouts, a decrease of $1.1 million in cash used in acquisitions, net of cash acquired, an increase of $0.8 million in proceeds from the sale of property and equipment and a decrease of $0.7 million in expenditures for capitalized software during the three months ended December 31, 2024 compared to the three months ended December 31, 2023.

Cash Flow from Financing Activities

Net cash flow from financing activities changed $100.7 million to $15.2 million net cash used in financing activities for the nine months ended June 30, 2024 from $85.5 million net cash provided by financing activities for the nine months ended June 30, 2023.

The change in net cash flow from financing activities was primarily related to the $87.2 million payments for the repurchases of exchangeable notes and warrants, offset by the proceeds from the sale of the exchangeable senior note hedges.

The remaining factors were the result of a decrease in proceeds from the revolving credit facility of $14.4 million and an increase in net payments for settlement obligations of $6.8 million, partially offset by a decrease in payments on the revolving credit facility of $4.9 million and a decrease in cash paid for contingent consideration of $4.1 million during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

Net cash used in financing activities increased $1.9 million to $10.5 million net cash used in financing activities for the three months ended December 31, 2024 from $8.6 million net cash provided by financing activities for the three months ended December 31, 2023.

The largest driver of the increase in cash used in financing activities was $11.2 million cash paid for repurchases of class A common stock during the three months ended December 31, 2024.

This increase in cash used in financing activities was partially offset by no net activity in the revolving credit facility during the three months ended December 31, 2024, compared to a net $7.0 million in payments on the revolving credit facility in excess of proceeds from the revolving credit facilities during the three months ended December 31, 2023, and a decrease in net payments for settlement obligations of $1.9 million during the three months ended December 31, 2024 compared to the three months ended December 31, 2023.

2023 Senior Secured Revolving Credit Facility

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

The 2023 Senior Secured Credit Facility replaces the Prior Senior Secured

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”).

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

Certain provisions of the Amendment were effective as of the date of the Amendment, and certain other provisions are to be effective upon the closing of the sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement.

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.

As of June 30, 2024, the Borrower's consolidated interest coverage ratio was 3.5x and total leverage ratio was 3.6x.

As of December 31, 2024, the Borrower's consolidated interest coverage ratio was 3.7x and total leverage ratio was 0.1x.

The provision of any such additional amounts under the additional term loan facilities or additional revolving credit commitments are subject to certain additional conditions and the receipt of certain additional commitments by existing or additional lenders.

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The Adjusted Term SOFR rate will be the rate of interest per annum equal to the Term SOFR rate (based upon an interest period of one, three or six months), plus 0.10%;

plus an applicable margin of 2.00% to 3.00% (3.00% at June 30, 2024).

plus an applicable margin of 2.00% to 3.00% (2.00% at December 31, 2024).

The Adjusted Term SOFR rate shall not be less than 0% in any event.

The base rate is a fluctuating rate of interest per annum equal to the highest of (a) the greater of the federal funds rate or the overnight bank funding rate, plus ½ of 1%, (b) Wall Street Journal prime rate and (c) the Adjusted Term SOFR rate for an interest period of one month, plus 1%;

plus an applicable margin of 1.00% to 2.00% (2.00% at June 30, 2024).

plus an applicable margin of 1.00% to 2.00% (1.00% at December 31, 2024).

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

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0.15 % 2.00 % 2.00 % 1.00 %

In addition to paying interest on outstanding principal under the Revolver, the Borrower will be required to pay a commitment fee equal to the product of between 0.15% and 0.30% (the applicable percentage depending on the Borrower’s consolidated total net leverage ratio as reflected in the schedule above, 0.30% at June 30, 2024) times the actual daily amount by which $450 million exceeds the total amount outstanding under the Revolver and available to be drawn under all outstanding letters of credit.

In addition to paying interest on outstanding principal under the Revolver, the Borrower will be required to pay a commitment fee equal to the product of between 0.15% and 0.30% (the applicable percentage depending on the Borrower’s consolidated total net leverage ratio as reflected in the schedule above, 0.15% at December 31, 2024) times the actual daily amount by which $450 million exceeds the total amount outstanding under the Revolver and available to be drawn under all outstanding letters of credit.

The Borrower will be permitted to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the 2023 Senior Secured Credit Facility, whether such amounts are issued under the Revolver or under the additional term loan facilities or additional revolving credit facilities, at any time without premium or penalty.

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The 2023 Senior Secured Credit Facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain events with respect to employee benefit plans, invalidity of loan documents and certain changes in control.

As of December 31, 2024, we were in compliance with these covenants, with a consolidated interest coverage ratio and total leverage ratio of 3.71x and 0.07x, respectively.

Exchangeable Notes

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The Exchangeable Notes are exchangeable into cash, shares of the Company's Class A common stock, or a combination thereof, at i3 Verticals, LLC's election.

Beginning on August 15, 2024, the Exchangeable Notes may be exchanged by the holders thereof at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

As of August 15, 2024, the Exchangeable Notes became exchangeable 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.

1 unchanged sentence

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

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

As of December 31, 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.

Following the closing of the Exchangeable Note Repurchases,

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

For additional information, see Note 8 to our condensed consolidated financial statements.

At-the-Market Program

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

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

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

As of June 30, 2024, we had a remaining capacity to sell up to $107.1 million of our Class A common stock under the ATM Program.

Material Cash Requirements

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

The following table summarizes our material cash requirements as of December 31, 2024, including those related to leases and borrowings:

Payments Due by Period

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(in thousands)

Processing minimums (1)

$ 3,257 $ 2,897 $ 360 $ — $ —

Facility leases (1)

$ 9,784 $ 3,983 $ 4,017 $ 1,313 $ 471

2023 Senior Secured Credit Facility and related interest (2)

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__________________________

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

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

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

These agreements with processors are included in the Merchant Services Business, and following the closing of the transactions pursuant to the Purchase Agreement, we will no longer be a party to these agreements.

We estimated interest payments through the maturity of our 2023 Senior Secured Credit Facility by applying the interest rate of 8.55% in effect on the outstanding balance as of June 30, 2024, plus the unused fee rate of 0.30% in effect as of June 30, 2024.

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

In addition to the facility leases presented, we have $59.0 thousand in short-term leases.

These payments will be made within the next twelve months.

We estimated interest payments through the maturity of our 2023 Senior Secured Credit Facility by the unused fee rate of 0.15% in effect as of December 31, 2024.

The chart set forth above calculates interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.0% on the principal balance as of December 31, 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.

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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 provide 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 repurchased 496,785 shares of Class A Common Stock at an average price of $22.49 under the Share Repurchase Program during the three months ended December 31, 2024.

Tax Receivable Agreement

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

As of June 30, 2024, the total amount due under the Tax Receivable Agreement was $40.4 million, and payments to the Continuing Equity Owners related to exchanges through June 30, 2024 will range from $0 to $3.3 million per year and are expected to be paid over the next 24 years.

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

As of December 31, 2024, the total amount due under the Tax Receivable Agreement was $39.2 million, and payments to the Continuing Equity Owners related to exchanges through December 31, 2024 will range from $0 to $9.9 million per year and are expected to be paid over the next 22 years.

The amounts recorded as of December 31, 2024, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S.

federal and state income tax returns.

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Critical accounting policies are those that we consider the most critical to understanding our financial condition and results of operations.

As of June 30, 2024, there have been no significant changes to our critical accounting estimates disclosed in the Form 10-K filed with the SEC on November 22, 2023.

As of December 31, 2024, there have been no significant changes to our critical accounting estimates disclosed in the Form 10-K filed with the SEC on November 25, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis