UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x ☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2018~~March 31, 2023



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38532

i3 Verticals, Inc.

(Exact name of registrant as specified in its charter)



Delaware		82-4052852
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

40 Burton Hills Blvd., Suite 415 ~~Nashville, TN~~	~~37215~~
Nashville, TN		37215
(Address of principal executive offices)		(Zip Code)
(615) 465-4487
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.0001 Par Value	IIIV	Nasdaq Global Select Market

~~(615) 465-4487~~

~~(Registrant’s telephone number, including area code)~~

~~N/A~~

~~(Former name, former address and former fiscal year, if changed since last report)~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ox No xo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

o☐

Accelerated filer

o☒

Non-accelerated filer

x☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

o☐

Emerging growth company

x☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to ~~Section13(a)~~Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐No x

As of ~~August 13, 2018, the registrant had 9,084,202~~May 9, 2023, there were 23,174,199 outstanding shares of Class A common stock, $0.0001 par value per share, and ~~17,213,806~~10,108,218 outstanding shares of Class B common stock, $0.0001 par value per ~~share, outstanding.~~share.

TABLE OF CONTENTS


		Page
		~~Page~~
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statement of Change in Equity		6
Condensed Consolidated Statements of Cash Flows		78
Notes to the Unaudited Condensed Consolidated Financial Statements		910
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		3442
Item 3. Quantitative and Qualitative ~~Disclosure~~Disclosures About Market Risk		5055
Item 4. Controls and Procedures		5156

PART II. OTHER INFORMATION		5156
Item 1. Legal Proceedings		5156
Item 1A. Risk Factors		5156
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5257
Item 3. Defaults Upon Senior Securities		5257
Item 4. Mine Safety Disclosures		5257
Item 5. Other Information		5257
Item 6. Exhibits		5357
~~Signatures~~
SIGNATURES		5458

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share ~~and per share~~ amounts)


	March 31,		September 30,
	2023		2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	3,977	$	3,490
Accounts receivable, net	56,946		53,334
Settlement assets	7,185		7,540
Prepaid expenses and other current assets	21,736		19,445
Total current assets	89,844		83,809
Property and equipment, net	12,206		5,670
Restricted cash	11,171		12,735
Capitalized software, net	65,114		52,341
Goodwill	409,042		353,639
Intangible assets, net	229,612		195,919
Deferred tax asset	44,783		43,458
Operating lease right-of-use assets	15,460		17,678
Other assets	5,794		5,063
Total assets	$	883,026	$	770,312

Liabilities and equity
Liabilities
Current liabilities
Accounts payable	$	7,916	$	9,342
Accrued expenses and other current liabilities	55,407		57,833
Settlement obligations	7,185		7,540
Deferred revenue	33,542		31,975
Current portion of operating lease liabilities	4,630		4,568
Total current liabilities	108,680		111,258
Long-term debt, less current portion and debt issuance costs, net	385,467		287,020
Long-term tax receivable agreement obligations	40,894		40,812
Operating lease liabilities, less current portion	11,757		13,994
Other long-term liabilities	24,417		9,540
Total liabilities	571,215		462,624
Commitments and contingencies (see Note 12)
Stockholders' equity
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2023 and September 30, 2022	—		—
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 23,167,730 and 22,986,448 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively	2		2
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,108,218 and 10,118,142 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively	1		1
Additional paid-in capital	234,442		241,958
Accumulated deficit	(12,337)		(23,582)
Total stockholders' equity	222,108		218,379
Non-controlling interest	89,703		89,309
Total equity	311,811		307,688
Total liabilities and equity	$	883,026	$	770,312

June 30, September 30,
2018 2017
Assets (unaudited)
Current assets
Cash and cash equivalents $ 2,473
$ 955
Accounts receivable, net 7,955
8,412
Settlement assets 439
5,196
Prepaid expenses and other current assets 2,336
1,141
Total current assets 13,203
15,704

Property and equipment, net 2,227
1,420
Restricted cash 665
1,013
Capitalized software, net 3,352
3,778
Goodwill 80,166
58,517
Intangible assets, net 65,759
59,259
Other assets 1,308
300
Total assets $ 166,680
$ 139,991

Liabilities, Redeemable Class A Units and equity
Liabilities
Current liabilities
Accounts payable 3,666
1,600
Current portion of long-term debt 5,000
4,000
Accrued expenses and other current liabilities 13,385
6,706
Settlement obligations 439
5,196
Deferred revenue 2,018
2,719
Total current liabilities 24,508
20,221

Long-term debt, less current portion and debt issuance costs, net 29,543
106,836
Other long-term liabilities 4,341
2,065
Total liabilities 58,392
129,122

Commitments and contingencies (see Note 10)

Redeemable Class A units; 0 and 4,900,000 Units authorized, issued and outstanding as of June 30, 2018 and September 30, 2017, respectively —
7,723
Stockholders' / Members' equity
Members' equity —
36,164
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2018 —
—
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 9,091,903 shares issued and outstanding as of June 30, 2018 1
—
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 17,213,806 shares issued and outstanding as of June 30, 2018 2
—
Additional paid-in-capital 37,514
—
Accumulated earnings (deficit) (98 ) (33,018 )
Total Stockholders' / Members' equity (deficit) 37,419
3,146
Non-controlling interest 70,869
—
Total equity 108,288
3,146
Total liabilities, Redeemable Class A Units and members' / stockholders' equity (deficit) $ 166,680

$ 139,991

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022

Revenue	$	93,872	$	78,120	$	179,901	$	152,059

Operating expenses
Other costs of services	19,930		16,631		38,999		33,141
Selling, general and administrative	57,204		48,716		108,207		95,103
Depreciation and amortization	9,015		7,447		17,691		14,317
Change in fair value of contingent consideration	2,279		11,503		3,722		16,430
Total operating expenses	88,428		84,297		168,619		158,991

Income (loss) from operations	5,444		(6,177)		11,282		(6,932)

Interest expense, net	6,199		3,377		11,689		6,531
Other income	—		—		(203)		—
Total other expenses	6,199		3,377		11,486		6,531

Loss before income taxes	(755)		(9,554)		(204)		(13,463)

(Benefit from) provision for income taxes	(563)		884		(181)		656

Net loss	(192)		(10,438)		(23)		(14,119)

Net (loss) income attributable to non-controlling interest	(228)		(3,065)		181		(4,218)
Net income (loss) attributable to i3 Verticals, Inc.	$	36	$	(7,373)	$	(204)	$	(9,901)

Net income (loss) per share attributable to Class A common stockholders:
Basic	$	0.00	$	(0.33)	$	(0.01)	$	(0.45)
Diluted	$	0.00	$	(0.33)	$	(0.01)	$	(0.45)
Weighted average shares of Class A common stock outstanding:
Basic	23,135,898		22,076,297		23,066,499		22,059,365
Diluted	34,269,140		22,076,297		23,066,499		22,059,365

Three months ended June 30, Nine months ended June 30,
2018 2017 2018 2017

Revenue $ 84,536
$ 66,326
$ 239,455
$ 190,792

Operating expenses
Interchange and network fees 55,705
48,563
158,577
137,679
Other costs of services 11,061
7,181
30,119
20,796
Selling general and administrative 10,696
6,229
29,737
19,165
Depreciation and amortization 3,000
2,382
8,876
7,453
Change in fair value of contingent consideration 1,151
(746 ) 3,280
177
Total operating expenses 81,613
63,609
230,589
185,270

Income from operations 2,923
2,717
8,866
5,522

Other expenses
Interest expense, net 2,644
1,717
7,649
4,961
Change in fair value of warrant liability 242
(58 ) 8,487
(58 )
Total other expenses 2,886
1,659
16,136
4,903

Income (loss) before income taxes 37
1,058
(7,270 ) 619

Provision for income taxes 692
171
553
101

Net income (loss) (655 ) 887
(7,823 ) 518

Net loss attributable to non-controlling interest (91 ) —
(91 ) —
Net income (loss) attributable to i3 Verticals, Inc. $ (564 ) $ 887
$ (7,732 ) $ 518

Net loss attributable to Class A common stock per share⁽¹⁾:

Basic $ (0.01 )
$ (0.01 )
Diluted $ (0.01 )
$ (0.01 )
Weighted average shares of Class A common stock outstanding⁽¹⁾:

Basic 8,812,630

8,812,630

Diluted 8,812,630
8,812,630

~~__________________________~~


1.	Basic and diluted loss per Class A common stock is presented only for the period after the Company’s Reorganization Transactions. See Note 1 for a description of the Reorganization Transactions. See Note 14 for the calculation of loss per share.

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(In thousands, except share amounts)


	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Non-Controlling Interest		Total Equity
	Shares	Amount		Shares	Amount
Balance at September 30, 2022	22,986,448	$	2	10,118,142	$	1	$	241,958	$	(23,582)	$	89,309	$	307,688
Adoption of ASU 2020-06	—	—		—	—		(23,382)		11,449		—		(11,933)
Equity-based compensation	—	—		—	—		6,846		—		—		6,846
Net (loss) income	—	—		—	—		—		(240)		409		169
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		685		—		—		685
Exercise of equity-based awards	24,745	—		—	—		3		—		—		3
Allocation of equity to non-controlling interests	—	—		—	—		1,906		—		(1,906)		—
Balance at December 31, 2022	23,011,193	2		10,118,142	1		228,016		(12,373)		87,812		303,458
Equity-based compensation	—	—		—	—		6,802		—		—		6,802
Net income (loss)	—	—		—	—		—		36		(228)		(192)
Redemption of common units in i3 Verticals, LLC	9,924	—		(9,924)	—		86		—		(86)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		349		—		—		349
Exercise or release of equity-based awards	64,443	—		—	—		(606)		—		—		(606)
Allocation of equity to non-controlling interests	—	—		—	—		(2,205)		—		2,205		—
Issuance of Class A common stock under the 2020 Inducement Plan	82,170	—		—	—		2,000		—		—		2,000
Balance at March 31, 2023	23,167,730	$	2	10,108,218	$	1	$	234,442	$	(12,337)	$	89,703	$	311,811

Class A Common Stock Class B Common Stock Total Equity
Class A Units Common Units Class P Units Shares Amount Shares Amount Additional Paid-In Capital Accumulated Members' Deficit Retained Earnings Non-Controlling Interest
Balance at September 30, 2017 (audited) $ 34,924
$ 1,240
$ —
—
$ —
—
$ —
$ —
$ (33,018 ) $ —
$ —
$ 3,146
Preferred returns on Class A Units 2,522
—
—
—
—
—
—
—
(2,522 ) —
—
—
Preferred returns on Redeemable Class A Units —
—
—
—
—
—
—
—
(552 ) —
—
(552 )
Issuance of Common Units —
104
—
—
—
—
—
—
—
—
—
104
Net loss prior to the Reorganization Transactions —
—
—
—
—
—
—
—
(7,634 ) —
—
(7,634 )
Exercise of Junior Subordinated Notes Warrants and Mezzanine Warrants —
12,218
—
—
—
—
—
(116 ) —
—
—
12,102
Equity based compensation recognized prior to the Reorganization Transactions —
—
—
—
—
—
—
38
—
—
—
38
Effect of the Reorganization Transactions (37,446 ) (13,562 ) —
824,861
—
17,597,223
2
804
43,726
—
15,493
9,017
Issuance of Class A common stock in conversion of Junior Subordinated Notes —
—
—
619,542
—
—
—
8,054
—
—
—
8,054
Sale of Class A common stock in initial public offering, net —
—
—
7,647,500
1
—
—
92,446
—
—
—
92,447
Purchase of common units in i3 Verticals, LLC from selling shareholder —
—
—
—
—
(383,417 ) —
—
—
—
(4,635 ) (4,635 )
Capitalization of initial public offering costs —
—
—
—
—
—
—
(3,792 ) —
—
—
(3,792 )
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis —
—
—
—
—
—
—
144
—
—
—
144
Non-controlling interests related to purchase of Common Units in i3 Verticals, LLC —
—
—
—
—
—
—
(60,102 ) —
—
60,102
—
Equity based compensation recognized subsequent to the Reorganization Transactions —
—
—
—
—
—
—
38
—
—
—
38
Net loss subsequent to the Reorganization Transactions —
—
—
—
—
—
—
—
—
(98 ) (91 ) (189 )
Balance at June 30, 2018 $ —
$ —
$ —
9,091,903
$ 1
17,213,806
$ 2
$ 37,514
$ —
$ (98 ) $ 70,869
$ 108,288

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (CONTINUED)

(In thousands, except share amounts)


	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Non-Controlling Interest		Total Equity
	Shares	Amount		Shares	Amount
Balance at September 30, 2021	22,026,098	$	2	10,229,142	$	1	$	211,237	$	(6,480)	$	84,831	$	289,591
Equity-based compensation	—	—		—	—		6,624		—		—		6,624
Net loss	—	—		—	—		—		(2,528)		(1,153)		(3,681)
Redemption of common units in i3 Verticals, LLC	15,000	—		(15,000)	—		123		—		(123)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		345		—		—		345
Exercise of equity-based awards	23,219	—		—	—		174		—		—		174
Allocation of equity to non-controlling interests	—	—		—	—		(1,899)		—		1,899		—
Balance at December 31, 2021	22,064,317	2		10,214,142	1		216,604		(9,008)		85,454		293,053
Equity-based compensation	—	—		—	—		6,257		—		—		6,257
Net loss	—	—		—	—		—		(7,373)		(3,065)		(10,438)
Redemption of common units in i3 Verticals, LLC	40,000	—		(40,000)	—		335		—		(335)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		(1,288)		—		—		(1,288)
Exercise of equity-based awards	29,365	—		—	—		(89)		—		—		(89)
Allocation of equity to non-controlling interests	—	—		—	—		(1,618)		—		1,618		—
Balance at March 31, 2022	22,133,682	$	2	10,174,142	$	1	$	220,201	$	(16,381)	$	83,672	$	287,495

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Six months ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(23)	$	(14,119)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	17,691		14,317
Equity-based compensation	13,648		12,881
Amortization of debt discount and issuance costs	729		2,853
(Benefit from) provision for income taxes	(208)		656
Non-cash lease expense	2,289		2,446
Increase in non-cash contingent consideration expense from original estimate	3,722		16,430
Other non-cash adjustments to net income	909		493
Changes in operating assets:
Accounts receivable	6,497		(2,844)
Prepaid expenses and other current assets	(1,860)		(4,118)
Other assets	(710)		(1,087)
Changes in operating liabilities:
Accounts payable	(1,484)		1,489
Accrued expenses and other current liabilities	(5,009)		1,830
Acquisition escrow obligations	(1,564)		4,184
Settlement obligations	(355)		1,819
Deferred revenue	(2,628)		316
Operating lease liabilities	(2,234)		(2,349)
Other long-term liabilities	—		(1)
Contingent consideration paid in excess of original estimates	(3,881)		(3,983)
Net cash provided by operating activities	25,529		31,213

Cash flows from investing activities:
Expenditures for property and equipment	(2,322)		(967)
Expenditures for capitalized software	(5,381)		(4,305)
Purchases of merchant portfolios and residual buyouts	(387)		—
Acquisitions of businesses, net of cash and restricted cash acquired	(101,997)		(94,315)
Payments for other investing activities	(1,227)		(11)
Proceeds from investments	184		—
Net cash used in investing activities	(111,130)		(99,598)

Nine months ended June 30,
2018 2017
Cash flows from operating activities:
Net income (loss) $ (7,823 ) $ 518
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 8,876
7,453
Equity-based compensation 817
—
Provision (benefit) for doubtful accounts 33
(33 )
Amortization of deferred financing costs 835
329
Loss on disposal of assets 5
43
Benefit for deferred income taxes (468 ) —
Non-cash change in fair value of warrant liability 8,487
(58 )
Increase in non-cash contingent consideration expense from original estimate 3,280
177
Changes in operating assets:
Accounts receivable 2,205
745
Prepaid expenses and other current assets 1,433
37
Restricted cash 348
(600 )
Other assets (2,994 ) 31
Changes in operating liabilities:
Accounts payable 724
(72 )
Accrued expenses and other current liabilities 2,936
178
Deferred revenue (3,033 ) (2,096 )
Other long-term liabilities 160
69
Contingent consideration paid in excess of original estimates (814 ) (783 )
Net cash provided by operating activities 15,007
5,938

Cash flows from investing activities:
Expenditures for property and equipment (1,309 ) (545 )
Expenditures for capitalized software (760 ) (780 )
Purchases of merchant portfolios and residual buyouts (1,207 ) (1,202 )
Acquisitions of businesses, net of cash acquired (26,862 ) (5,175 )
Acquisition of other intangibles (818 ) (8 )
Net cash used in investing activities (30,956 ) (7,710 )

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(In thousands)


	Six months ended March 31,
	2023		2022
Cash flows from financing activities:
Proceeds from revolving credit facility	265,811		179,835
Payments on revolving credit facility	(179,939)		(95,908)
Payments of debt issuance costs	(87)		—
Cash paid for contingent consideration	(1,175)		(6,217)
Proceeds from stock option exercises	104		217
Payments for employee's tax withholdings from net settled stock option exercises and RSU releases	(545)		(160)
Net cash provided by financing activities	84,169		77,767

Net (decrease) increase in cash, cash equivalents and restricted cash	(1,432)		9,382
Cash, cash equivalents and restricted cash at beginning of period	23,765		17,931
Cash, cash equivalents and restricted cash at end of period	$	22,333	$	27,313

Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,266	$	3,471
Cash paid for income taxes	$	1,419	$	588

Nine months ended June 30,
2018 2017
Cash flows from financing activities:
Proceeds from revolving credit facility 19,250
13,000
Payments of revolving credit facility (90,850 ) (9,000 )
Proceeds from notes payable to banks 24,671
—
Payments of notes payable to banks (3,750 ) (4,000 )
Payment of notes payable to Mezzanine Lenders (10,486 ) —
Payment of unsecured notes payable to related and unrelated creditors (5,489 ) —
Payment of debt issuance costs (266 ) —
Proceeds from the exercise of Mezzanine Warrants and Junior Subordinated Notes Warrants 270
—
Proceeds from issuance of Class A common stock sold in initial public offering, net of underwriting discounts and offering costs 89,729
—
Payments for Common Units in i3 Verticals, LLC from selling shareholder (4,635 ) —
Payment of equity issuance costs for 2017 Class A unit issuance —
(4 )
Cash paid for contingent consideration (977 ) (517 )
Required distributions to members for tax obligations —
(931 )
Net cash provided by (used in) financing activities 17,467
(1,452 )

Net increase (decrease) in cash and cash equivalents 1,518
(3,224 )
Cash and cash equivalents, beginning of period 955
3,776
Cash and cash equivalents, end of period $ 2,473
$ 552

Supplemental disclosure of cash flow information:
Cash paid for interest $ 8,961
$ 4,569
Cash paid for income taxes $ 137
$ 1,586

Supplemental disclosure of non-cash investing and financing activities:
Common Units issued as part of acquisitions' purchase consideration (Note 3) $ 104
$ —
Acquisition date fair value of contingent consideration in connection with business combinations $ 2,084
$ 1,221
Replacement of 2016 Senior Secured Credit Facility with Senior Secured Credit Facility $ 87,525
$ —
Mezzanine Notes net settled with Mezzanine Warrant exercises $ 14
$ —
Unsecured notes payable to related and unrelated creditors net settled with Junior Subordinated Notes Warrants $ 2,565
$ —
Settlement of warrant liability with equity as a result of Mezzanine Warrant exercise $ 9,253
$ —
Preferred return on Redeemable Class A Units $ 552
$ 521
Preferred return on Class A Units $ 2,522
$ 1,483
Debt issuance costs financed with proceeds from Senior Secured Credit Facility $ 904
$ —
Conversion of notes payable to related and unrelated creditors to Class A common stock $ 8,054
$ —
Increase in accrued equity issuance costs $ 760
$ —
The following tables provide reconciliations of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to that shown in the condensed consolidated statements of cash flows:


	September 30,
	2022		2021
Beginning balance
Cash and cash equivalents	$	3,490	$	3,641
Settlement assets	7,540		4,768
Restricted cash	12,735		9,522
Total cash, cash equivalents, and restricted cash	$	23,765	$	17,931

	March 31,
	2023		2022
Ending balance
Cash and cash equivalents	$	3,977	$	6,340
Settlement assets	7,185		7,272
Restricted cash	11,171		13,701
Total cash, cash equivalents, and restricted cash	$	22,333	$	27,313

See Notes to the Interim Condensed Consolidated Financial Statements

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

1. ~~Organization and Operations~~ORGANIZATION AND OPERATIONS

i3 Verticals, Inc. (the “Company”) was formed as a Delaware corporation on January 17, 2018. The Company was formed for the purpose of completing an initial public offering (“IPO”) of its Class A common stock and other related transactions in order to carry on the business of i3 Verticals, LLC and its subsidiaries. i3 Verticals, LLC was founded in 2012 and delivers ~~seamless~~seamlessly integrated ~~payment~~software and ~~software~~payment solutions to ~~small- and medium-sized businesses (“SMBs”) and organizations~~customers in strategic vertical markets. The Company’s headquarters are located in Nashville, Tennessee, with operations throughout the United States. Unless the context otherwise requires, references to “we,” “us,” “our,” “i3 Verticals” and the “Company” refer to i3 Verticals, Inc. and its subsidiaries, including i3 Verticals, LLC.

~~Initial Public Offering~~

On June 25, 2018, the Company completed the IPO of 7,647,500 shares of its Class A common stock at a public offering price of $13.00 per share. The Company received approximately $92.5 million of net proceeds, after deducting underwriting discounts and commissions, which the Company used to purchase newly issued common units from i3 Verticals, LLC (the “Common Units”), and Common Units from a selling common unit holder, in each case at a price per Common Unit equal to the price per share paid by the underwriters for shares of the Company's Class A common stock in the IPO.

~~Reorganization Transactions~~

In connection with the IPO, the Company completed ~~the following~~certain reorganization transactions, ~~(the “Reorganization Transactions”):~~

~~i3 Verticals, LLC amended and restated its existing limited liability company agreement to,~~which, among other things, ~~(1) convert all existing Class A units, common units (including common units issued upon the exercise of existing warrants) and Class P units of ownership interest~~resulted in i3 Verticals, LLC into either Class A voting common units of i3 Verticals, LLC (such holders of Class A voting common units referred to herein as the “Continuing Equity Owners”) or Class B non-voting common units of i3 Verticals, LLC (such holders of Class B non-voting common units referred to herein as the “Former Equity Owners”), and (2) appoint i3 Verticals, Inc. asbeing the sole managing member of i3 Verticals, LLC ~~upon its acquisition of Common Units in connection with the IPO;~~

~~the Company amended and restated its certificate of incorporation to provide for, among other things, Class A common stock and Class B common stock;~~

i3 Verticals, LLC and the Company consummated a merger among i3 Verticals, LLC, i3 Verticals, Inc. and a newly formed wholly-owned subsidiary of i3 Verticals, Inc. (“MergerSub”) whereby: (1) MergerSub merged with and into i3 Verticals, LLC, with i3 Verticals, LLC as the surviving entity; (2) Class A voting common units converted into newly issued Common Units in i3 Verticals, LLC together with an equal number of shares of Class B common stock of i3 Verticals, Inc., and (3) Class B non-voting common units converted into Class A common stock of i3 Verticals, Inc. based on a conversion ratio that provided an equitable adjustment to reflect the full value of the Class B non-voting common units; and

~~the Company issued shares of its Class A common stock pursuant to a voluntary private conversion of certain subordinated notes~~ (the ~~“Junior Subordinated Notes”~~“Reorganization Transactions”) ~~by certain related and unrelated creditors of i3 Verticals, LLC.~~

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

. Following the completion of the IPO and Reorganization Transactions, the Company ~~became~~is a holding company and ~~its~~the principal asset isthat it owns are the ~~Common Units~~common units of i3 Verticals, ~~LLC that it owns.~~LLC. i3 Verticals, Inc. operates and controls all of i3 Verticals, LLC's operations and, through i3 Verticals, LLC and its subsidiaries, conducts i3 Verticals, LLC's business. i3 Verticals, Inc. has a ~~minority~~majority economic interest in i3 Verticals, LLC.

As ~~of June 30, 2018, i3 Verticals, Inc. owned 34.6% of the economic interest of i3 Verticals, LLC.~~

As of June 30, 2018, the Continuing Equity Owners owned Common Units of i3 Verticals, LLC representing approximately 65.4% of the economic interest in i3 Verticals, LLC, Class A common stock representing approximately 0.9% of the economic interest and voting power in the Company, and shares of Class B common stock of i3 Verticals, Inc., representing approximately 65.4% of the combined voting power of all of the common stock of the Company.

The Continuing Equity Owners who own Common Units in i3 Verticals, LLC may redeem at each of their options (subject in certain circumstances to time-based vesting requirements) their Common Units for, at the election of i3 Verticals, LLC, cash or newly-issued shares of the Company's Class A common stock.

~~Combining the Class A common stock and Class B common stock, the Continuing Equity Holders hold approximately 66.3% of the economic interest and voting power in i3 Verticals, Inc.~~

~~i3 Verticals, Inc. is~~ the sole managing member of i3 Verticals, LLC, ~~and as a result,~~i3 Verticals, Inc. consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest representing the Common Units of i3 Verticals, LLC held by ~~the Continuing Equity Owners.~~

~~As the Reorganization Transactions are considered transactions between entities under common control, the financial statements retroactively reflect the accounts of~~owners other than i3 Verticals, ~~LLC for periods prior to the IPO and Reorganization Transactions.~~Inc. (the “Continuing Equity Owners”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the reporting and disclosure rules and regulations of the Securities and Exchange ~~Commission.~~Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the unaudited condensed consolidated financial statements of the Company and its subsidiaries as of ~~June 30, 2018~~March 31, 2023 and for the three and ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 and ~~2017.~~2022. The results of operations for the three and ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 and ~~2017~~2022 are not necessarily indicative of the operating results for the full year.

As permitted by the rules and regulations of the SEC, certain information and disclosures otherwise included in the notes to the consolidated financial statements have been condensed or omitted from the summary of significant accounting policies. The Company believes the disclosures are adequate to make the information presented not misleading. It is recommended that these interim condensed consolidated financial statements be read in conjunction with the Company's consolidated financial statements and related footnotes ~~of i3 Verticals, LLC and subsidiaries~~ for the years ended September 30, ~~2017~~2022 and ~~2016,~~2021, included in ~~our prospectus, dated June 20, 2018,~~the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 filed with the ~~Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended,~~SEC on ~~June 21, 2018 (the “Prospectus”).~~November 18, 2022.

Principles of Consolidation

These interim condensed consolidated financial statements include the accounts of the Company and its subsidiary companies. All significant intercompany accounts and transactions have been eliminated in consolidation.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June~~Restricted Cash

Restricted cash represents funds held in escrow related to acquisitions or held-on-deposit with processing banks pursuant to agreements to cover potential merchant losses. It is presented as long-term assets on the accompanying condensed consolidated balance sheets since the related agreements extend beyond the next twelve months. Following the adoption of Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230), the Company includes restricted cash along with the cash and cash equivalents balance for presentation in the consolidated statements of cash flows.

Settlement Assets and Obligations

Settlement assets and obligations result when funds are temporarily held or owed by the Company on behalf of merchants, consumers, schools, and other institutions. Timing differences, interchange expenses, merchant reserves and exceptional items cause differences between the amount received from the card networks and the amount funded to counterparties. These balances arising in the settlement process are reflected as settlement assets and obligations on the accompanying consolidated balance sheets. With the exception of merchant reserves, settlement assets or settlement obligations are generally collected and paid within one to four days. Settlement assets and settlement obligations were both $7,185 as of March 31, 2023 and $7,540 as of September 30, ~~2018~~

2022, respectively.

Inventories

Inventories consist of point-of-sale equipment to be sold to customers and are stated at the lower of cost, determined on a weighted average or specific basis, or net realizable value. Inventories were ~~$1,247~~$4,732 and ~~$454~~$4,121 at ~~June 30, 2018~~March 31, 2023 and September 30, ~~2017,~~2022, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Acquisitions

Business acquisitions have been recorded using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition. Where relevant, the fair value of contingent consideration included in an acquisition is calculated using a Monte Carlo simulation. The fair value of merchant relationships and non-compete assets acquired is identified using the Income Approach. The fair ~~value~~values of trade names and internally-developed software acquired isare identified using the Relief from Royalty ~~Method. The fair value of deferred revenue is identified using the Adjusted Fulfillment Cost~~ Method. After the purchase price has been allocated, goodwill is recorded to the extent the total consideration paid for the acquisition, including the acquisition date fair value of contingent consideration, if any, exceeds the sum of the fair values of the separately identifiable acquired assets and assumed liabilities. Acquisition costs for business combinations are expensed when incurred and recorded in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Acquisitions not meeting the accounting criteria to be accounted for as a business combination are accounted for as an asset acquisition. An asset acquisition is recorded at its purchase price, inclusive of acquisition costs, which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date of acquisition.

The operating results of an acquisition are included in the Company’s condensed consolidated statements of operations from the date of such acquisition. Acquisitions completed during the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 contributed ~~$17,052~~$9,071 and ~~$3,285~~$2,638 of revenue and net income, respectively, to the ~~results in our~~Company's condensed consolidated statements of operations for the ~~nine~~six months then ended.

Leases

The Company adopted ASU 2016-02, Leases, on October 1, 2020, using the optional modified retrospective method under which the prior period financial statements were not restated for the new guidance. The Company

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

elected the accounting policy practical expedients for all classes of underlying assets to (i) combine associated lease and non-lease components in a lease arrangement as a combined lease component and (ii) exclude recording short-term leases as right-of-use assets on the condensed consolidated balance sheets.

At contract inception the Company determines whether an arrangement is, or contains a lease, and for each identified lease, evaluates the classification as operating or financing. Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments to be made over the term of the lease. Renewal and termination options are factored into determination of the lease term only if the option is reasonably certain to be exercised. The Company’s leases do not provide a readily determinable implicit interest rate and the Company uses its incremental borrowing rate to measure the lease liability and corresponding right-of-use asset. The incremental borrowing rate is a fully collateralized rate that considers the Company’s credit rating, market conditions and the term of the lease. The Company accounts for all components in a lease arrangement as a single combined lease component.

Operating lease cost is recognized on a straight-line basis over the lease term. Total lease costs include variable lease costs, which are primarily comprised of the consumer price index adjustments and other changes based on rates, such as costs of insurance and property taxes. Variable payments are expensed in the period incurred and not included in the measurement of lease assets and obligations.

Revenue Recognition and Deferred Revenue

Revenue is recognized ~~when it~~as each performance obligation is ~~realized or realizable and earned,~~satisfied, in accordance with ASC ~~605,~~ 606, Revenue ~~Recognition~~ (“from Contracts with Customers (“ASC ~~605”~~606”). Recognition occurs when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been performed; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. The Company accrues for rights of refund, processing errors or penalties, or other related allowances based on historical experience. The Company utilized the portfolio approach practical expedient within ASC 606-10-10-4 Revenue from Contracts with Customers—Objectives and the significant financing component practical expedient within ASC 606-10-32-18 Revenue from Contracts with Customers—The Existence of a Significant Financing Component in the Contract in performing the analysis. The Company adopted ASC 606 on October 1, 2019, using the modified retrospective method and applying the standard to all contracts not completed on the date of adoption.

~~More than 85% of our gross~~The Company's revenue for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 and ~~2017~~2022 is derived from the following sources:

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

•Payments — Includes volume-based payment processing fees (“discount fees”), gateway fees and other related fixed transaction or service ~~fees. The remainder is comprised of~~fees

•Other — Includes sales of ~~software licensing subscriptions, ongoing support,~~equipment, non-software related professional services and other ~~POS-related solutions~~revenues

Revenues from sales of the Company’s software are recognized when the related performance obligations are satisfied. Sales of software licenses are categorized into one of two categories of intellectual property in accordance with ASC 606, functional or symbolic. The key distinction is whether the license represents a right to use (functional) or a right to access (symbolic) intellectual property. The Company ~~provides~~generates sales of one-time software licenses, which is functional intellectual property. Revenue from functional intellectual property is recognized at a point in time, when delivered to the customer. The Company also offers access to its ~~clients directly and through its processing bank relationships.~~software under software-as-a-service (“SaaS”) arrangements, which represent services arrangements. Revenue from SaaS arrangements is recognized over time, over the term of the agreement.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

Discount fees represent a percentage of the dollar amount of each credit or debit transaction ~~processed.~~processed or a specified per transaction amount, depending on the card type. The Company frequently enters into agreements with customers under which the customer engages the Company to provide both payment authorization services and transaction settlement services for all of the cardholder transactions of the customer, regardless of which issuing bank and card network to which the transaction relates. The Company’s core performance obligations are to stand ready to provide continuous access to the Company’s payment authorization services and transaction settlement services in order to be able to process as many transactions as its customers require on a daily basis over the contract term. These services are stand ready obligations, as the timing and quantity of transactions to be processed is not determinable. Under a stand-ready obligation, the Company’s performance obligation is defined by each time increment rather than by the underlying activities satisfied over time based on days elapsed. Because the service of standing ready is substantially the same each day and has the same pattern of transfer to the customer, the Company has determined that its stand-ready performance obligation comprises a series of distinct days of service. Discount fees are recognized each day based on the volume or transaction count at the time the merchants’ transactions are processed.

The Company follows the requirements of ASC ~~605-45~~ 606-10-55 Revenue ~~Recognition—~~from Contracts with Customers—Principal versus Agent Considerations, which states that the determination of whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement. The determination of gross versus net recognition of revenue requires judgment that depends on whether the Company controls the good or service before it is transferred to the merchant or whether the Company is acting as an agent of a third party. The assessment is provided separately for each performance obligation identified. Under its agreements, the Company incurs interchange and network pass-through charges from the third-party card issuers and card networks, respectively, related to the provision of payment authorization services. The Company has determined that it is acting as an agent with respect to these payment authorization services, based on the following factors: (1) the Company has no discretion over which card issuing bank will be used to process a transaction and is unable to direct the activity of the merchant to another card issuing bank, and (2) interchange and card network rates are pre-established by the card issuers or card networks, and the Company has no latitude in determining ~~its merchant processing services~~these fees. Therefore, revenue ~~reporting. Generally,~~allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and card networks, respectively.

With regards to the Company's discount fees, generally, where the Company has control over merchant pricing, merchant portability, credit risk and ultimate responsibility for the merchant relationship, revenues are reported at the time of sale ~~on a gross basis~~ equal to the full amount of the discount charged to the ~~merchant. This amount includes~~merchant, less interchange ~~fees paid to card issuing banks~~ and ~~assessments paid to payment card networks pursuant to which such parties receive payments based primarily on processing volume for particular groups of merchants.~~network fees. Revenues generated from merchant portfolios where the Company does not have control over merchant pricing, liability for merchant losses or credit risk or rights of portability are reported net of interchange and ~~other fees.~~network fees as well as third-party processing costs directly attributable to processing and bank sponsorship costs.

Revenues are also derived from a variety of ~~fixed~~ transaction ~~or service~~ fees, ~~including authorization fees, convenience fees, statement fees, annual fees,~~which are charged for accessing our payment and software solutions, and fees for other miscellaneous ~~services,~~services. Revenues derived from such ~~as handling chargebacks.~~

~~Revenues from sales of the Company’s software licensing subscriptions~~fees are recognized in the period the transactions occur and when ~~they~~there are ~~realized or realizable and earned. Contractual arrangements~~no further performance obligations. Revenue from the sale of equipment, is recognized upon transfer of ownership to the customer, after which there are ~~evaluated for indications that multiple element arrangements may exist including instances where more-than-incidental software deliverables are included.~~ no further performance obligations.

Arrangements may contain multiple ~~elements,~~performance obligations, such as payment authorization services, transaction settlement services, hardware, software products, maintenance, and professional installation and training services. Revenues are allocated to each ~~element~~performance obligation based on the standalone selling price ~~hierarchy.~~of each good or service. The selling price for a deliverable is based on ~~vendor specific objective evidence of~~standalone selling price, if available, ~~third party evidence,~~the adjusted market assessment approach, estimated cost plus margin approach, or ~~estimated selling price.~~residual approach. The Company establishes estimated selling price, based on the judgment of the Company's management, considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. In arrangements with multiple ~~elements,~~performance obligations, the Company determines allocation

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

of the transaction price at inception of the arrangement ~~based on~~and uses the ~~relative~~standalone selling ~~price of each unit of accounting.~~

~~In multiple element arrangements where more-than-incidental software deliverables are included,~~prices for the Company applied the residual method to determine the amount of software license revenues to be recognized. Under the residual method, if fair value exists for undelivered elements in a multiple-element arrangement, such fair valuemajority of the undelivered elements is deferred with the remaining portion of the arrangement consideration recognized upon delivery of the software license or services arrangement. The Company allocates the fair value of each element of a software related multiple-element arrangement based upon its fair value as determined by vendor specific objective evidence of selling price, with any remaining amount allocated to the software license. If evidence of the fair value cannot be established for the undelivered elements of a software arrangement, then the entire amount ofCompany's revenue under the arrangement is deferred until these elements have been delivered or objective evidence can be established. These amounts, if any, are included in deferred revenue in the condensed consolidated balance sheets. Revenues related to software licensing subscriptions, maintenance or other support services with terms greater than one month are recognized ratably over the term of the agreement.recognition.

Revenues from sales of the Company’s combined hardware and software element are recognized when ~~they are realized or realizable and earned~~each performance obligation has been satisfied which has been determined to be upon the delivery of ~~our~~the product. Revenues derived from service fees are recognized at the time the services are performed and there are no further performance obligations. The Company’s professional services, including training, installation, and repair services are ~~billed and~~ recognized as revenue as these services are performed.

The tables below present a disaggregation of the Company's revenue from contracts with customers by product by segment. Refer to Note 14 for discussion of the Company's segments. The Company's products are defined as follows:

•Software and related services —Includes sales of SaaS, transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings.

•Payments — Includes discount fees, gateway fees and other related fixed transaction or service fees.

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


	For the Three Months Ended March 31, 2023
	Merchant Services		Software and Services		Other		Total
Software and related services revenue	$	3,217	$	44,099	$	(9)	$	47,307
Payments revenue	27,634		14,285		(10)		41,909
Other revenue	2,243		2,413		—		4,656
Total revenue	$	33,094	$	60,797	$	(19)	$	93,872


	For the Three Months Ended March 31, 2022
	Merchant Services		Software and Services		Other		Total
Software and related services revenue	$	3,008	$	35,972	$	(8)	$	38,972
Payments revenue	23,926		10,616		(14)		34,528
Other revenue	2,246��		2,374		—		4,620
Total revenue	$	29,180	$	48,962	$	(22)	$	78,120

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)


	For the Six Months Ended March 31, 2023
	Merchant Services		Software and Services		Other		Total
Software and related services revenue	$	6,196	$	82,244	$	(19)	$	88,421
Payments revenue	55,243		27,038		(18)		82,263
Other revenue	4,489		4,728		—		9,217
Total revenue	$	65,928	$	114,010	$	(37)	$	179,901


	For the Six Months Ended March 31, 2022
	Merchant Services		Software and Services		Other		Total
Software and related services revenue	$	5,970	$	69,356	$	(16)	$	75,310
Payments revenue	48,230		19,782		(18)		67,994
Other revenue	4,157		4,598		—		8,755
Total revenue	$	58,357	$	93,736	$	(34)	$	152,059

The tables below present a disaggregation of the Company's revenue from contracts with customers by timing of transfer of goods or services by segment. For the three and six months ended March 31, 2022, $9,333 and $19,546, respectively, was included in revenue earned at a point in time related to professional services or other stand ready contract revenue for fixed service fee arrangements. These types of revenue are included in revenue earned over time for the three and six months ended March 31, 2023. The Company's revenue included in each category are defined as follows:

•Revenue earned over time — Includes discount fees, gateway fees, sales of SaaS, ongoing support or other stand-ready obligations and professional services.

•Revenue earned at a point in time — Includes point in time service fees that are not stand-ready obligations, software licenses sold as functional intellectual property and other equipment.


	For the Three Months Ended March 31, 2023
	Merchant Services		Software and Services		Other		Total
Revenue earned over time	$	27,984	$	54,568	$	(9)	$	82,543
Revenue earned at a point in time	5,110		6,229		(10)		11,329
Total revenue	$	33,094	$	60,797	$	(19)	$	93,872


	For the Three Months Ended March 31, 2022
	Merchant Services		Software and Services		Other		Total
Revenue earned over time	$	22,599	$	34,151	$	(9)	$	56,741
Revenue earned at a point in time	6,581		14,811		(13)		21,379
Total revenue	$	29,180	$	48,962	$	(22)	$	78,120

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)


	For the Six Months Ended March 31, 2023
	Merchant Services		Software and Services		Other		Total
Revenue earned over time	$	55,581	$	105,009	$	(19)	$	160,571
Revenue earned at a point in time	10,347		9,001		(18)		19,330
Total revenue	$	65,928	$	114,010	$	(37)	$	179,901


	For the Six Months Ended March 31, 2022
	Merchant Services		Software and Services		Other		Total
Revenue earned over time	$	45,333	$	65,439	$	(17)	$	110,755
Revenue earned at a point in time	13,024		28,297		(17)		41,304
Total revenue	$	58,357	$	93,736	$	(34)	$	152,059

Contract Assets

The Company bills for certain software and related services sales and fixed fee professional services upon pre-determined milestones in the contracts. Therefore, the Company may have contract assets other than trade accounts receivable for performance obligations that are partially completed, which would typically represent consulting services provided before a milestone is completed in a contract. Unbilled amounts associated with these services are presented as accounts receivable as the Company has an unconditional right to payment for services performed.

As of March 31, 2023 and September 30, 2022, the Company’s contract assets from contracts with customers was $12,116 and $9,716, respectively.

Contract Liabilities

Deferred revenue represents amounts billed to customers by the Company for services contracts. Payment is typically collected at the start of the contract term. The initial prepaid contract agreement balance is deferred. The balance is then recognized as the services are provided over the contract term. Deferred revenue that is expected to be recognized as revenue within one year is recorded as short-term deferred revenue and the remaining portion is recorded as other long-term liabilities in the condensed consolidated balance sheets. The terms for most of the Company's contracts with a deferred revenue component are one year. Substantially all of the Company's deferred revenue is anticipated to be recognized within the next year.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June~~The following tables present the changes in deferred revenue as of and for the six months ended March 31, 2023 and 2022, respectively:


Balance at September 30, 2022	$	32,089
Deferral of revenue	19,334
Recognition of unearned revenue	(13,925)
Balance at December 31, 2022	37,498
Deferral of revenue	10,475
Recognition of unearned revenue	(14,286)
Balance at March 31, 2023	$	33,687


Balance at September 30, 2021	$	30,024
Deferral of revenue	21,032
Recognition of unearned revenue	(15,735)
Balance at December 31, 2021	35,321
Deferral of revenue	11,047
Recognition of unearned revenue	(16,034)
Balance at March 31, 2022	$	30,334

Costs to Obtain and Fulfill a Contract

The Company capitalizes incremental costs to obtain new contracts and contract renewals and amortizes these costs on a straight-line basis as an expense over the benefit period, which is generally the contract term, unless a commensurate payment is not expected at renewal. As of March 31, 2023 and September 30, ~~2018~~2022 the Company had $4,518 and $4,185, respectively, of capitalized contract costs, which relates to commissions paid to employees and agents as well as other incentives given to customers to obtain new sales, included within “Other assets" on the condensed consolidated balance sheets. The Company recorded expense related to these costs of $193 and $376 for the three and six months ended March 31, 2023, respectively and $178 and $345 for the three and six months ended March 31, 2022, respectively.

The Company expenses sales commissions as incurred for the Company's sales commission plans that are paid on recurring monthly revenues, portfolios of existing customers, or have a substantive stay requirement prior to payment.

~~Interchange and Network Fees and~~ Other Cost of Services

Interchange and network fees consist primarily of fees that are directly related to discount fee revenue. These include interchange fees paid to issuers and assessment fees payable to card associations, which are a percentage of the processing volume we generate from Visa and Mastercard, as well as fees charged by card-issuing banks. Other costs of services include third-party processing costs directly attributable to processing and bank sponsorship costs, which may not be based on a percentage of volume. These costs also include related costs such as residual payments to sales groups, which are based on a percentage of the net revenues generated from merchant referrals. In certain merchant processing bank relationships the Company is liable for chargebacks against a merchant equal to the volume of the transaction. Losses resulting from chargebacks against a merchant are included in other cost of services on the accompanying condensed consolidated statement of operations. The Company evaluates its risk for such transactions and estimates its potential loss from chargebacks based primarily on historical experience and other relevant factors. The reserve for merchant losses is included within accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. The cost of equipment sold is also included in other cost of services. ~~Interchange and other~~Other costs of services are recognized at the time the ~~merchant's transactions are processed.~~associated revenue is earned.

The Company accounts for all governmental taxes associated with revenue transactions on a net basis.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the value of purchase consideration paid and identifiable assets acquired and assumed in acquisitions, goodwill and intangible asset impairment review, ~~warrant valuation,~~determination of performance obligations for revenue recognition, ~~for multiple element arrangements,~~ loss reserves, assumptions used in the calculation of equity-based compensation and in the calculation of income taxes, and certain tax assets and liabilities as well as the related valuation allowances. Actual results could differ from those estimates.

~~Recently Issued~~Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In ~~May 2017,~~August 2020, the FASB issued ASU No. ~~2017-09,~~ ~~Compensation - Stock Compensation: Scope of Modification~~ 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting ~~(Topic 718)~~ For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU ~~2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this ASU~~2020-06 are effective for public business entities for fiscal years beginning after December 15, ~~2017,~~2021, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. ~~Early~~The Company adopted this ASU on October 1, 2022. The adoption ~~is permitted, including adoption~~of ASU 2020-06 resulted in an ~~interim period.~~increase in long-term debt, less current portion and debt issuance costs, net of $11,933, a decrease in additional paid-in-capital of $23,382 and a decrease in accumulated deficit of $11,449. The ~~Company has adopted this standard as~~adoption of ~~April 1, 2018. There was~~ASU 2020-06 had no impact on ~~the Company’s condensed consolidated financial statements.~~net income.

~~In August 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows: Restricted Cash~~ (Topic 230). The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. As an emerging growth company, the Company will not be required to adopt this ASU until October 1, 2019. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the impact of the adoption of this principle on the Company’s interim condensed consolidated financial statements.

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments~~ (Topic 230). The update clarifies how cash receipts and cash payments in certain transactions are presented and classified in the statement of cash flows. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. As an emerging growth company, the Company will not be required to adopt this ASU until October 1, 2019. The update requires retrospective application to all periods presented but may be applied prospectively if retrospective application is impracticable. The Company is currently evaluating the impact of the adoption of this principle on the Company’s interim condensed consolidated financial statements.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~ (Topic 718). The update requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit in the statement of operations. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether a benefit reduces taxes payable in the current period. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. As a public business entity, the Company is an emerging growth company and has elected to use the extended transition period provided for such companies. As a result, the Company will not be required to adopt this ASU until October 1, 2018. The Company is currently evaluating the impact of the adoption of this principle on the Company’s interim condensed consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (Topic 842). This ASU amends the existing guidance by recognizing all leases, including operating leases, with a term longer than twelve months on the balance sheet and disclosing key information about the lease arrangements. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. As a public business entity, the Company is an emerging growth company and has elected to use the extended transition period provided for such companies. As a result, the Company will not be required to adopt this ASU until October 1, 2020. The update requires modified retrospective transition, with the option to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment and elect various practical expedients. The Company is currently evaluating the impact of the adoption of this principle on the Company’s interim condensed consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue From Contracts With Customers~~ (Topic 606). The ASU supersedes the revenue recognition requirements in ASC 605. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard, as amended, is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. As an emerging growth company, the Company will not be required to adopt this ASU until October 1, 2019. The amendment allows companies to use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company has formed a project team and is currently assessing the impact of the adoption of this principle on the Company’s interim condensed consolidated financial statements.

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

3. ACQUISITIONS

During the ~~nine~~six months ended ~~June 30, 2018,~~March 31, 2023 and 2022, the Company acquired the following intangible assets and businesses:

Residual Buyouts

From time to time, the Company acquires future commission streams (or "residuals") from sales agents in exchange for an upfront cash payment. This results in an increase in overall gross processing volume to the Company. The residual buyouts are treated as asset acquisitions, resulting in recording a residual buyout intangible asset at cost on the date of acquisition. These assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are expected to be utilized over their estimated useful lives.

During the ~~nine~~six months ended ~~June 30, 2018,~~March 31, 2023, the Company purchased ~~$1,208~~$387 in ~~residual buyouts~~residuals using a combination of cash on hand and borrowings on ~~our~~the Company's revolving ~~line of credit.~~credit facility. The acquired residual buyout intangible ~~assets have~~asset has an estimated amortization period of ~~two~~eight years. The Company did not acquire any residuals during the six months ended March 31, 2022.

Referral Agreements

From time to time, the Company enters into referral agreements with agent banks or other organizations (“referral partner”). Under these agreements, the referral partner ~~exclusively~~ refers its customers to the Company for credit card processing services. Total consideration paid for these agreements in the six months ended March 31, 2023 was ~~$815,~~$420, all of which was settled with cash on hand. Because the Company pays an up-front fee to compensate

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

the referral partner, the amount is treated as an asset acquisition in which the Company has acquired an intangible stream of referrals. This asset is amortized over a straight-line ~~period. The weighted-average amortization~~ period ~~for all intangibles acquired is~~of five years.

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

Purchase of ~~San Diego Cash Register Company,~~Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd.

~~On October~~During the six months ended March 31, ~~2017,~~2023, the Company ~~closed an agreement to purchase all~~completed the acquisition of ~~the outstanding stock of San Diego Cash Register Company,~~Celtic Cross Holdings, Inc. ~~(“SDCR, Inc.”~~, in Scottsdale, Arizona and Celtic Systems Pvt. Ltd. in Vadodara, India (collectively "Celtic")~~. The acquisition was completed~~ to expand ~~our revenue~~the Company’s software offerings in the Public Sector vertical. Celtic is within the ~~integrated POS market.~~Software and Services segment. Total purchase consideration ~~was $20,834, which includes $104~~consisted of ~~common units~~$85,000 in ~~i3 Verticals, LLC issued to the seller. The acquisition was~~cash consideration, funded ~~using $20,000 in~~by proceeds from the ~~issuance of long-term debt from the Senior Secured Credit Facility (as defined in Note 5) and $730 of contingent cash consideration. The final purchase consideration~~Company's revolving credit facility. Certain of the ~~acquired assets and assumed liabilities was allocated based on fair values~~purchase price allocations assigned for this acquisition is considered preliminary as ~~follows:~~

Cash and cash equivalents $ 1,338
Accounts receivable 1,008
Related party receivable 773
Inventories 1,318
Prepaid expenses and other current assets 1,176
Property and equipment 69
Acquired merchant relationships 5,500
Non-compete agreements 40
Trade name 1,340
Goodwill 16,523
Total assets acquired 29,085

Accounts payable 1,342
Accrued expenses and other current liabilities 3,123
Deferred revenue, current 2,029
Other long-term liabilities 1,757
Net assets acquired $ 20,834
of March 31, 2023.

The goodwill associated with the Celtic acquisition is ~~not~~ deductible for tax purposes. The acquired customer relationships ~~contracts~~ intangible ~~asset~~assets has an estimated amortization period of ~~twelve~~eighteen years. The ~~non-compete agreement and~~ trade name and non-compete agreements associated with the acquisition have an amortization ~~period~~periods of ~~two~~five years and ~~five~~three years, respectively. The weighted-average amortization period for all intangibles acquired is ~~eleven~~eighteen years. The acquired capitalized software has a weighted-average amortization period of ten years.

Acquisition-related costs for ~~SDCR, Inc. were $293~~this acquisition amounted to approximately $1,739 and were expensed as incurred.

~~Certain provisions in the purchase agreement provide for additional consideration~~Summary of upCeltic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd.

The fair values assigned to ~~$2,400, in the aggregate, to be paid based upon the achievement~~certain assets and liabilities assumed, as of ~~specified financial performance targets, as defined in the purchase agreement, through October 2019. The Company determined~~ the acquisition date, ~~fair value~~were as follows:


Accounts receivable	$	7,604
Prepaid expenses and other current assets	110
Property and equipment	5,437
Capitalized software	12,600
Customer relationships	33,800
Non-compete agreements	200
Trade name	600
Goodwill	42,595
Total assets acquired	102,946

Accounts payable	9
Accrued expenses and other current liabilities	3,182
Deferred revenue, current	2,742
Other long-term liabilities	12,013
Net assets acquired	$	85,000

Other Business Combinations during the six months ended March 31, 2023

The Company completed the acquisition of two other businesses to expand the Company's software offerings.The total purchase consideration was $19,757, including $16,997 in cash consideration, funded by proceeds from the Company's revolving credit facility, $2,000 of the ~~liability for the~~Company's Class A Common Stock, and $760 contingent ~~consideration based on a discounted cash flow analysis.~~consideration. In ~~each subsequent reporting period~~connection with this acquisition, the Company ~~will reassess its current estimates~~allocated approximately $180 of ~~performance relative~~the consideration to net working capital, approximately $374 to property and equipment, approximately $670 to capitalized software, approximately $8,400 to customer relationships, approximately $100 to trade names, and the ~~targets~~remainder, approximately $12,808, to goodwill, of which $2,864 is deductible for tax purposes, and ~~adjust~~approximately $2,778 to other long-term liabilities. Certain of the ~~contingent liability to its fair value through earnings. See additional disclosures in Note 7.~~purchase price allocations assigned for this acquisition is

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

considered preliminary as of March 31, 2023. The acquired capital software and customer relationships intangible asset have estimated amortization periods of seven to eight years and ten to fifteen years, respectively.

Pro Forma Results of Operations for Business Combinations during the six months ended March 31, 2023

The following unaudited supplemental pro forma results of operations have been prepared as though each of the ~~acquisitions of SDCR, Inc.~~acquired businesses in the six months ended March 31, 2023 had occurred on October 1, ~~2016 and of Fairway Payments, LLC (see Note 4 of the consolidated financial statements for the years ended September 30, 2017 and 2016 included in our Prospectus) had occurred on October 1, 2015.~~2021. Pro forma adjustments were made to reflect the impact of depreciation and amortization, changes to executive compensation and the ~~revised~~increased debt, ~~load,~~ all in accordance with ASC 805. This supplemental pro forma information does not purport to be indicative of the results of operations that would have been attained had the acquisitions been made on these dates, or of results of operations that may occur in the future.


	Six months ended March 31,
	2023		2022
Revenue	$	181,275	$	163,987
Net loss	$	(67)	$	(12,630)

Business Combinations during the year ended September 30, 2022

Nine months ended June 30,
2018 2017
Revenue $ 240,998
$ 240,492
Net income (loss) $ (7,545 ) $ 5,859

~~Purchase of Court Solutions, LLC~~

~~On December 1, 2017,~~During the year ended September 30, 2022, the Company ~~acquired certain assets~~completed the acquisitions of ~~Court Solutions, LLC (“CS, LLC”). The acquisition was completed~~three businesses to expand the Company’s ~~merchant base and increase our processing base~~software offerings in the ~~public sector.~~ Public Sector and Healthcare vertical markets. Certain of the purchase price allocations assigned for these acquisitions are considered preliminary as of March 31, 2023.

Total purchase consideration was ~~$2,890~~$107,681, including ~~$2,200~~$101,400 in cash consideration, funded by proceeds from the Company's revolving credit facility, and ~~revolver proceeds and $690~~$6,281 of contingent ~~cash~~ consideration. ~~The final purchase consideration of the acquired assets and assumed liabilities was allocated based on fair values as follows:~~

Property and equipment $ 5
Capitalized software 100
Other assets 4
Acquired merchant relationships 1,500
Goodwill 1,281
Total assets acquired $ 2,890

The goodwill associated with two of the ~~acquisition~~three acquisitions is deductible for tax purposes. The acquired ~~merchant~~customer relationships intangible ~~asset has an~~assets have estimated amortization periods of between ten and nineteen years. The trade names have estimated weighted-average amortization periods of four years. The weighted-average amortization period offor all intangibles acquired is fifteen years. The acquired capitalized software have amortization periods of seven years.

Acquisition-related costs for ~~CS, LLC~~these businesses amounted to approximately ~~$117~~$773 and were expensed as incurred.

Certain provisions in the purchase ~~agreement~~agreements provide for additional consideration of up to ~~$2,800,~~$23,000, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase ~~agreement,~~agreements, through ~~November 2019.~~no later than September 2024. The Company determined the acquisition date fair ~~value~~values of the ~~liability~~liabilities for the contingent consideration based on aprobability forecasts and discounted cash flow ~~analysis.~~analyses. In each subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent ~~liability~~liabilities to ~~its~~their fair ~~value~~values through ~~earnings.~~earnings See additional disclosures in Note 7.

The pre-acquisition operating results of CS, LLC are not considered material to the condensed consolidated results of operations of the Company. As such, the Company has not disclosed supplemental pro forma revenue and earnings, in accordance with ASC 805.

~~Purchase of Enterprise Merchant Solutions, Inc.~~

On January 31, 2018, the Company acquired certain assets and assumed certain liabilities of Enterprise Merchant Solutions, Inc. (“EMS, Inc.”). The acquisition was completed to expand our revenue within the integrated POS market. Total purchase consideration was $6,664, including $6,000 in cash and revolver proceeds and $664 of contingent cash consideration. The final purchase consideration of the acquired assets and assumed liabilities was allocated based on fair values as follows:10.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June~~Summary of Business Combinations during the year ended September 30, ~~2018~~

Inventories $ 130
Property and equipment 14
Acquired merchant relationships 1,500
Non-compete agreements 1,400
Trade name 200
Goodwill 3,845
Total assets acquired 7,089

Accrued expenses and other current liabilities 442
Deferred revenue, current 190
Net assets acquired $ 6,457
2022

The ~~goodwill associated with~~fair values assigned to certain assets and liabilities assumed, as of the acquisition is deductible for tax purposes. The acquired relationships contracts intangible asset has an estimated amortization period of fifteen years. The non-compete agreement and trade name have an amortization period of three and five years, respectively. The weighted-average amortization period for all intangibles acquired is nine years.

~~Acquisition-related costs for EMS, Inc.~~dates, during the year ended September 30, 2022 were ~~$93 and were expensed as incurred.~~

Certain provisions in the purchase agreement provide for additional consideration of up to $9,000, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreement, through January 2020. The Company determined the acquisition date fair value of the liability for the contingent consideration based on a discounted cash flow analysis. In each subsequent reporting period the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liability to its fair value through earnings. See additional disclosures in Note 7.

The pre-acquisition operating results of EMS, Inc. are not considered material to the condensed consolidated results of operations of the Company. As such, the Company has not disclosed supplemental pro forma revenue and earnings, in accordance with ASC 805.

~~4. GOODWILL AND INTANGIBLE ASSETS~~

~~Changes in the carrying amount of goodwill are~~ as follows:


Accounts receivable	$	651
Settlement assets	685
Prepaid expenses and other current assets	83
Property and equipment	190
Capitalized software	9,790
Acquired merchant relationships	41,090
Trade name	1,550
Goodwill	61,347
Operating lease right-of-use assets	263
Other assets	22
Total assets acquired	115,671

Accrued expenses and other current liabilities	287
Settlement obligations	685
Deferred revenue, current	30
Current portion of operating lease liabilities	82
Operating lease liabilities, less current portion	181
Other long-term liabilities	6,725
Net assets acquired	$	107,681

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

A summary of the Company's prepaid expenses and other current assets as of March 31, 2023 and September 30, 2022 is as follows:


	March 31,		September 30,
	2023		2022
Inventory	$	4,732	$	4,121
Prepaid licenses	6,282		5,743
Prepaid insurance	980		736
Notes receivable — current portion	5,117		4,930
Other current assets	4,625		3,915
Prepaid expenses and other current assets	$	21,736	$	19,445

Merchant Services Other Total
Balance at September 30, 2017 (net of accumulated impairment losses of $11,458 and $0, respectively) $ 49,173
$ 9,344
$ 58,517
Goodwill attributable to the acquisitions of SDCR, Inc., CS, LLC and EMS, Inc. 20,368
1,281
21,649
Balance at June 30, 2018 $ 69,541
$ 10,625
$ 80,166

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

5. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are as follows:


	Merchant Services		Software and Services		Other		Total
Balance at September 30, 2022	$	119,086	$	234,553	$	—	$	353,639
Goodwill attributable to preliminary purchase price adjustments and acquisitions during the six months ended March 31, 2023	2,864		52,539		—		55,403
Balance at March 31, 2023	$	121,950	$	287,092	$	—	$	409,042

Intangible assets consisted of the following as of ~~June 30, 2018:~~

Cost
Accumulated
Amortization

Carrying
Value

Amortization Life
and Method
Finite-lived intangible assets:
Merchant relationships $ 92,691
$ (32,365 ) $ 60,326
15 years – accelerated or straight-line
Non-compete agreements 1,865
(413 ) 1,452
2 to 3 years – straight-line
Website development costs 18
(13 ) 5
3 years – straight-line
Trade names 3,717
(1,610 ) 2,107
2 to 5 years – straight-line
Residual buyouts 1,684
(531 ) 1,153
2 years – straight-line
Referral agreements 800
(116 ) 684
5 years – straight-line
Total finite-lived intangible assets 100,775
(35,048 ) 65,727

Indefinite-lived intangible assets:
Trademarks 32
—
32

Total identifiable intangible assets $ 100,807
$ (35,048 ) $ 65,759

March 31, 2023:


	Cost		Accumulated Amortization		Carrying Value		Amortization Life and Method
Finite-lived intangible assets:
Merchant relationships	$	310,501	$	(89,422)	$	221,079	9 to 25 years – accelerated or straight-line
Non-compete agreements	1,390		(928)		462		3 to 6 years – straight-line
Website and brand development costs	267		(194)		73		3 to 4 years – straight-line
Trade names	8,471		(4,935)		3,536		3 to 7 years – straight-line
Residual buyouts	6,557		(2,538)		4,019		8 years – straight-line
Referral and exclusivity agreements	1,220		(821)		399		5 years – straight-line
Total finite-lived intangible assets	328,406		(98,838)		229,568

Indefinite-lived intangible assets:
Trademarks	44		—		44
Total identifiable intangible assets	$	328,450	$	(98,838)	$	229,612

Amortization expense for intangible assets amounted to ~~$2,376~~$10,216 and ~~$7,007~~$8,774 during the ~~three and nine~~six months ended ~~June 30, 2018, respectively,~~March 31, 2023 and ~~$1,800 and $5,665 during the three and nine months ended June 30, 2017,~~2022 respectively.

Based on ~~gross~~net carrying amounts at ~~June 30, 2018, our~~March 31, 2023, the Company's estimate of future amortization expense for intangible assets are presented in the table ~~below.~~below for fiscal years ending September 30:


2023 (six months remaining)	$	10,160
2024	19,548
2025	19,257
2026	18,785
2027	18,165
Thereafter	143,653
	$	229,568

2018 (three months remaining) $ 2,301
2019 8,361
2020 6,724
2021 5,904
2022 5,565
Thereafter 36,872
$ 65,727

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June~~6. ACCRUED EXPENSES AND OTHER LIABILITIES

A summary of the Company's accrued expenses and other current liabilities as of March 31, 2023 and September 30, ~~2018~~2022 is as follows is as follows:


	March 31,		September 30,
	2023		2022
Accrued wages, bonuses, commissions and vacation	$	7,182	$	8,117
Accrued interest	1,336		642
Accrued contingent consideration — current portion	20,756		21,385
Escrow liabilities	10,721		12,285
Tax receivable agreement liability — current portion	21		20
Customer deposits	1,272		1,575
Employee health self-insurance liability	1,068		732
Accrued interchange	2,184		2,096
Other current liabilities	10,867		10,981
Accrued expenses and other current liabilities	$	55,407	$	57,833

A summary of the Company's long-term liabilities as of March 31, 2023 and September 30, 2022 is as follows:


	March 31,		September 30,
	2023		2022
Accrued contingent consideration — long-term portion	$	1,503	$	1,448
Deferred tax liability — long-term	22,687		7,896
Other long-term liabilities	227		196
Total other long-term liabilities	$	24,417	$	9,540

5.7. LONG-TERM DEBT, NET

A summary of long-term debt, net as of ~~June 30, 2018~~March 31, 2023 and September 30, ~~2017~~2022 is as follows:


		March 31,		September 30,
	Maturity	2023		2022
Revolving lines of credit to banks under the Senior Secured Credit Facility	May 9, 2024	$	271,067	$	185,017
1% Exchangeable Senior Notes due 2025	February 15, 2025	117,000		104,557
Debt issuance costs, net		(2,600)		(2,554)
Total long-term debt, net of issuance costs		$	385,467	$	287,020

2020 Exchangeable Notes Offering

On February 18, 2020, i3 Verticals, LLC issued $138,000 aggregate principal amount of 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Company

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

June 30, September 30,
Maturity 2018 2017
Notes payable to Mezzanine Lenders November 29, 2020 $ —
$ 10,500
Unsecured notes payable to related and unrelated creditors February 14, 2019 —
16,108
Term loans to bank under the 2016 Senior Secured Credit Facility April 29, 2020 —
14,000
Revolving lines of credit to banks under the 2016 Senior Secured Credit Facility April 29, 2020 —
71,600
Term loans to bank under the Senior Secured Credit Facility October 30, 2022 36,250
—
Revolving lines of credit to banks under the Senior Secured Credit Facility October 30, 2022 —
—
Debt issuance costs, net (1,707 ) (1,372 )
Total long-term debt, net of issuance costs 34,543
110,836
Less current portion of long-term debt (5,000 ) (4,000 )
Long-term debt, net of current portion $ 29,543
$ 106,836
received approximately $132,762 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.

On October 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method, which resulted in the Exchangeable Notes being presented as a single liability instrument with no separate accounting for embedded conversion features. Refer to Note 2 for further discussion.

The Exchangeable Notes bear interest at a fixed rate of 1.00% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. The Exchangeable Notes will mature on February 15, 2025, unless converted or repurchased at an earlier date.

i3 Verticals, LLC issued the Exchangeable Notes pursuant to an Indenture, dated as of February 18, 2020, among i3 Verticals, LLC, the Company and U.S. Bank National Association, as trustee.

As of March 31, 2023, the aggregate principal amount outstanding of the Exchangeable Notes was $117,000.

For a discussion of the terms of the Exchangeable Notes, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and six months ended March 31, 2023 was $233 and $460, respectively $164 and $323 for the three and six months ended March 31, 2022, respectively. Total unamortized debt issuance costs related to the Exchangeable Notes were $1,989 as of March 31, 2023.

The estimated fair value of the Exchangeable Notes was $108,564 as of March 31, 2023. The estimated fair value of the Exchangeable Notes was determined through consideration of quoted market prices for similar instruments. The fair value is classified as Level 2, as defined in Note 10.

Exchangeable Note Hedge Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, i3 Verticals, LLC entered into exchangeable note hedge transactions with respect to Class A common stock (the “Note Hedge Transactions”) with certain financial institutions (collectively, the “Counterparties”). The Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes, the same number of shares of Class A common stock that initially underlie the Exchangeable Notes in the aggregate and are exercisable upon exchange of the Exchangeable Notes. The Note Hedge Transactions are intended to reduce potential dilution to the Class A common stock upon any exchange of the Exchangeable Notes. The Note Hedge Transactions will expire upon the maturity of the Exchangeable Notes, if not earlier exercised. The Note Hedge Transactions are separate transactions, entered into by i3 Verticals, LLC with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Note Hedge Transactions. i3 Verticals, LLC used approximately $28,676 of the net proceeds from the offering of the Exchangeable Notes (net of the premiums received for the warrant transactions described below) to pay the cost of the Note Hedge Transactions.

The Note Hedge Transactions do not require separate accounting as a derivative as they meet a scope exception for certain contracts involving an entity's own equity. The premiums paid for the Note Hedge Transactions have been included as a net reduction to additional paid-in capital within stockholders' equity.

Warrant Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, the Company entered into warrant transactions to sell to the Counterparties warrants (the “Warrants”) to acquire,

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

subject to customary adjustments, up to initially 3,376,391 shares of Class A common stock in the aggregate at an initial exercise price of $62.88 per share. The Company offered and sold the Warrants in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Warrants will expire over a period beginning on May 15, 2025.

The Warrants are separate transactions, entered into by the Company with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Warrants. The Company received approximately $14,669 from the offering and sale of the Warrants. The Warrants do not require separate accounting as a derivative as they meet a scope exception for certain contracts involving an entity's own equity. The premiums paid for the Warrants have been included as a net increase to additional paid-in capital within stockholders' equity.

Senior Secured Credit Facility

On ~~October 30, 2017,~~May 9, 2019, the Company replaced its then existing credit facility with a new credit agreement ~~(“the Senior~~(the "Senior Secured Credit ~~Facility”~~Facility"). ~~The Company concluded that~~Effective October 3, 2022, the Senior Secured Credit Facility, ~~should be accounted for~~ as amended, consisted of a ~~debt modification based on~~$375,000 revolving credit facility, together with an option to increase the ~~guidance in ASC 470-50. The Senior Secured Credit Facility consists of~~revolving credit facility and/or obtain incremental term loans in ~~the original~~an additional principal amount of ~~$40,000 and a $110,000 revolving line~~up to $50,000 in the aggregate (subject to the receipt of ~~credit.~~ additional commitments for any such incremental loan amounts).

The Senior Secured Credit Facility accrues interest ~~payable monthly,~~ at ~~prime~~Term SOFR (based upon an interest period of one, three or six months), plus aan adjustment of 0.10%, plus an applicable margin of ~~0.50%~~2.25% to ~~2.00% (2.00%~~3.25% (3.25% as of ~~June 30, 2018)~~March 31, 2023), or at the ~~30-day LIBOR~~base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus a0.50% and (z) Term SOFR, plus an adjustment of 0.10%, plus 1.00%), plus an applicable margin of ~~2.75%~~0.25% to ~~4.00% (4.00%~~1.25% (1.25% as of ~~June 30, 2018)~~March 31, 2023), in each case depending onupon the ~~ratio of~~ consolidated ~~debt to EBITDA,~~total leverage ratio, as defined in the agreement. Interest was payable at the end of the selected interest period, but no less frequently than quarterly. Additionally, the Senior Secured Credit Facility ~~requires~~required the Company to pay unused commitment fees of ~~up to~~ 0.15% to 0.30% (0.30% as of ~~June 30, 2018)~~March 31, 2023) on any undrawn amounts under the revolving ~~line~~credit facility and letter of ~~credit.~~credit fees of up to 3.25% on the maximum amount available to be drawn under each letter of credit issued under the agreement. The Senior Credit Facility requires maintenance of certain financial ratios on a quarterly basis as follows: (i) a minimum consolidated interest coverage ratio of 3.00 to 1.00 (ii) a maximum total leverage ratio of 5.00 to 1.00, provided, that for each of the four fiscal quarters immediately following a qualified acquisition (each a “Leverage Increase Period”), the required ratio set forth above may be increased by up to 0.25, subject to certain limitations and (iii) a maximum consolidated senior secured leverage ratio of 3.25 to 1.00, provided, that for each Leverage Increase Period, the consolidated senior leverage ratio may be increased by up to 0.25, subject to certain limitations. The maturity date of the Senior Secured Credit Facility is ~~October 30, 2022. Principal payments~~May 9, 2024. As of ~~$1,250 are due on~~March 31, 2023, the ~~last day of each calendar quarter until the maturity date, when all outstanding principal~~Company was in compliance with these covenants, and ~~accrued and unpaid interest are due. At June 30, 2018~~ there was ~~$110,000~~$103,933 available for borrowing under the revolving ~~line of credit.~~credit facility, subject to the financial covenants.

The Senior Secured Credit Facility iswas secured by substantially all assets of the Company. The ~~notes payable to banks and revolving line of credit to banks hold~~lenders under the Senior Secured Credit Facility held senior rights to collateral and principal repayment over all other creditors.

The provisions of the Senior Secured Credit Facility ~~place~~placed certain restrictions and limitations upon the Company. These include, among others, restrictions on liens, investments, indebtedness, fundamental changes and dispositions; maintenance of certain financial ratios; and certain non-financial covenants pertaining to the activities of the Company during the period covered. The Company was in compliance with such covenants as of ~~June 30, 2018.~~March 31, 2023. In addition, the Senior Secured Credit Facility restricts ~~our~~the Company's ability to make dividends or other distributions to the holders of ~~our~~the Company's equity. ~~We are~~The Company is permitted to (i) make cash distributions to the holders of ~~our~~the Company's equity in order to pay taxes incurred by owners of equity in i3 Verticals, LLC, by reason of such ownership, (ii) move intercompany cash between subsidiaries that are joined to the Senior Secured Credit Facility, (iii) repurchase equity from employees, directors, officers or consultants ~~after the Reorganization Transactions~~ in an aggregate amount not to exceed ~~$1,500~~$3,000 per year, (iv) make certain payments in connection with the Tax Receivable Agreement (discussed in Note 8 below), and ~~(iv)~~(v) make other dividends or distributions in an aggregate amount not to exceed 5% of the net cash proceeds received from any additional common equity ~~issuance after an~~issuance. The

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

~~initial public offering. We are~~Company is also permitted to make non-cash dividends in the form of additional equity issuances. Each subsidiary may make ratable distributions to persons that own equity interests in such subsidiary. All other forms of dividends or distributions are prohibited under the Senior Secured Credit Facility.

~~Notes payable to Mezzanine Lenders~~

~~During 2013,~~On May 8, 2023, the Company issued notes payable in the aggregate principal amount of $10,500 (the “Mezzanine Notes”) to three creditors. The Mezzanine Notes accrued interest at a fixed rate of 12.0%, payable monthly, and were due to mature in November 2020. The Mezzanine Notes were secured by substantially all assets of the Company in accordance with the terms of the security agreement and were subordinate toreplaced the Senior Secured Credit ~~Facility.~~Facility with a new credit agreement. See Note 18—Subsequent Events for more information.

In June 2018, all of the outstanding aggregate principal balance and accrued interest on the Mezzanine Notes was repaid with proceeds from the Company’s IPO. As part of the extinguishment of the Mezzanine Notes, $78 of unamortizedDebt issuance costs

The Company incurred $265 in debt issuance costs ~~were written off.~~

~~Mezzanine Warrants~~

~~In connection with~~during the issuance of the Mezzanine Notes, the Company granted detachable warrants (“Mezzanine Warrants”) to purchase 1,423,688 common units in i3 Verticals, LLC. The Mezzanine Warrants were determined to have no material value as of the grant date. The intrinsic value of the Mezzanine Warrants was $767 as of September 30, 2017,three and they had an exercise price of $0.01. On June 25, 2018, in conjunction with the Reorganization Transactions described in Note 1, all existing Mezzanine Warrants were exercised for common units in i3 Verticals, LLC. The intrinsic value of the Mezzanine Warrants at that date was $9,241. The change in the fair market value of the warrants for the ninesix months ended ~~June 30, 2018 is reflected within our condensed consolidated statement of operations.~~

~~Unsecured notes payable to related~~March 31, 2023 and ~~unrelated creditors~~

During 2014, the Company issued notes payable (“Junior Subordinated Notes”) to unrelated and related creditors. The Junior Subordinated Notes accrued interest, payable monthly, at a fixed rate of 10.0% and were due to mature on February 14, 2019, when all outstanding principal and accrued and unpaid interest was due. At September 30, 2017, $16,108 of the Junior Subordinated Notes remained outstanding.

In connection with the issuance of the Junior Subordinated Notes, the Company granted detachable warrants (“Junior Subordinated Notes Warrants”) to purchase 1,433,920 common units in i3 Verticals, LLC. Management determined that the warrants had no material value as of the grant date, and none of the proceeds from the notes was attributed to the warrants. The warrants are accounted for as equity. See additional disclosures in Note 9.

In June 2018, in connection with the Company's IPO and as part of the Reorganization Transactions, $8,054 of the Junior Subordinated Notes were converted to newly issued shares of the Company's Class A common stock, as described in Note 1, and the remaining $8,054 of the Junior Subordinated Notes was repaid with proceeds from the Company's IPO. As part of the extinguishment of the Junior Subordinated Notes, $43 of unamortizeddid not incur any debt issuance costs ~~were written off.~~during the three and six months ended March 31, 2022. The Company's debt issuance costs are being amortized over the related term of the debt using the straight-line method, which is not materially different than the effective interest rate method, and are presented net against long-term debt in the condensed consolidated balance sheets. The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $368 and $729 during the three and six months ended March 31, 2023, respectively and $259 and $513 during the three and six months ended March 31, 2022, respectively.

8. INCOME TAXES

i3 Verticals, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from i3 Verticals, LLC based on i3 Verticals, Inc.'s’s economic interest in i3 Verticals, LLC. i3 Verticals, LLC's members, including the Company, are liable for federal, state and local income taxes based on their share of i3 Verticals, LLC's pass-through taxable income. i3 Verticals, LLC is not a taxable entity for federal income tax purposes but is subject to and reports entity level tax in both Tennessee and Texas. In addition, certain subsidiaries of i3 Verticals, LLC are corporations that are subject to state and ~~Federal~~federal income taxes.

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. When the estimate of the annual effective tax rate is unreliable, the Company records its income tax expense or benefit based up on a period to date effective tax rate. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the Company’s estimated tax rate changes, it

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

makes a cumulative adjustment in that period. The Company’s provision for income taxes was ~~$692~~a benefit of $563 and ~~$553~~$181 for the three and ~~nine~~six months ended ~~June 30, 2018, respectively,~~March 31, 2023, and ~~$171~~a provision of $884 and ~~$101~~$656 during the three and ~~nine~~six months ended ~~June 30, 2017, respectively.~~

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The new legislation contains several key tax provisions, including the reduction of the federal corporate income tax rate to 21% effective January 1, 2018, as well as a variety of other changes, including limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction. The Company is assessing the impact of the enacted tax law on its business and its consolidated financial statements and recorded a provisional discrete tax benefit related to the re-measurement of its deferred tax assets and liabilities at SDCR, Inc. of $504 for the reduced federal tax rates during the nine-month period ended June 30, 2018.March 31, 2022.

Tax Receivable Agreement

On June 25, 2018, the Company entered into a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners (the “Tax Receivable Agreement”) that provides for the payment by the Company to the Continuing Equity Owners of 85% of the amount of certain tax benefits, if any, that it actually realizes, or in some circumstances, is deemed to realize in its tax reporting, as a result of (i) future redemptions funded by the Company or exchanges, or deemed exchanges in certain circumstances, of Common Units of i3 Verticals, LLC for Class A common stock of i3 Verticals, Inc. or cash, and (ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement. These tax benefit payments are not conditioned upon one or more of the Continuing Equity Owners maintaining a continued ownership interest in i3 Verticals, LLC. If a Continuing Equity Owner transfers Common Units but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such Continuing Equity Owner generally will continue to be entitled to receive payments under the Tax Receivable Agreement arising in respect of a subsequent exchange of such Common Units. In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged or otherwise alienated to any person, other than certain permitted transferees, without (a) the Company's prior written consent, which should not be unreasonably withheld, conditioned or delayed, and (b) such persons becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein. The Company expects to benefit from the remaining 15% of the tax benefits, if any, that the Company may realize.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

During the ~~three and nine~~six months ended ~~June 30, 2018,~~March 31, 2023, the Company acquired an aggregate of 9,924 Common Units in ~~conjunction~~i3 Verticals, LLC in connection with the ~~Company's IPO, i3 Verticals, Inc. purchased Class B common stock~~redemption of Common Units from athe Continuing Equity ~~Owner for $4,635. This transaction triggered~~Owners, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement. WeAs a result of the exchange, during the six months ended March 31, 2023 the Company recognized aan increase to its net deferred tax ~~asset~~assets in the amount of ~~$960~~$98, and a corresponding ~~liability~~Tax Receivable Agreement liabilities of ~~$816,~~$83, representing 85% of the tax benefits due to Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $39,808 and $40,915, respectively, as of March 31, 2023.

Payments to the Continuing Equity Owners related to exchanges through March 31, 2023 will range from $0 to $3,321 per year and are expected to be paid over the next 24 years. The amounts recorded as of ~~June 30, 2018.~~March 31, 2023, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.

9. LEASES

The Company’s leases consist primarily of real estate leases throughout the markets in which the Company operates. At contract inception, the Company determines whether an arrangement is or contains a lease, and for each identified lease, evaluates the classification as operating or financing. The Company had no finance leases as of March 31, 2023. Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments to be made over the term of the lease. Renewal and termination options are factored into determination of the lease term only if the option is reasonably certain to be exercised. The weighted-average remaining lease term at March 31, 2023 and 2022 was four and five years, respectively. The Company had no significant short-term leases during the three and six months ended March 31, 2023 and 2022.

The Company’s leases do not provide a readily determinable implicit interest rate and the Company uses its incremental borrowing rate to measure the lease liability and corresponding right-of-use asset. The incremental borrowing rates were determined based on a portfolio approach considering the Company’s current secured borrowing rate adjusted for market conditions and the length of the lease term. The weighted-average discount rate used in the measurement of our lease liabilities was 7.3% and 7.1% as of March 31, 2023 and 2022, respectively.

Operating lease cost is recognized on a straight-line basis over the lease term. Operating lease costs were $1,405 and $2,909 for the three and six months ended March 31, 2023, respectively and $1,455 and $2,946 for the three and six months ended March 31, 2022, respectively, which are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Total operating lease costs for the three and six months ended March 31, 2023 include variable lease costs of approximately $9 and $20, respectively and $6 and $44 for the three and six months ended March 31, 2022, respectively, which are primarily comprised of costs of maintenance and utilities and changes in rates, and are determined based on the actual costs incurred during the period. Variable payments are expensed in the period incurred and not included in the measurement of lease assets and liabilities.

Short-term rent expense for the three and six months ended March 31, 2023 were $75 and $110, respectively and were $46 and $93 for the three and six months ended March 31, 2022, respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

As of March 31, 2023, maturities of lease liabilities are as follows:


Years ending September 30:
2023 (six months remaining)	$	2,662
2024	4,743
2025	4,125
2026	3,202
2027	1,597
Thereafter	2,017
Total future minimum lease payments (undiscounted)(1)	18,346
Less: present value discount	(1,959)
Present value of lease liability	$	16,387

__________________________

1.Total future minimum lease payments excludes payments of $29 for leases designated as short-term leases, which are excluded from the Company's right-of-use assets. These payments will be made within the next twelve months.

10. FAIR VALUE MEASUREMENTS

The Company applies the provisions of ASC 820, Fair Value Measurement, which defines fair value, establishes a framework for its measurement and expands disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or the price paid to transfer a liability as of the measurement date. A three-tier, fair-value reporting hierarchy exists for disclosure of fair value measurements based on the observability of the inputs to the valuation of financial assets and liabilities. The three levels are:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of ~~June 30, 2018~~March 31, 2023 and ~~September 30, 2017,~~2022, because of the relatively short maturity dates on these instruments. The carrying amount of debt approximates fair value as of ~~June 30, 2018~~March 31, 2023 and ~~September 30, 2017,~~2022, because interest rates on these instruments approximate market interest rates.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The Company has no Level 1 or Level 2 financial ~~instruments.~~instruments measured at fair value on a recurring basis. The following tables present the changes in ~~our~~the Company's Level 3 financial instruments that are measured at fair value on a recurring basis.


	Accrued Contingent Consideration
Balance at September 30, 2022	$	22,833
Contingent consideration accrued at time of business combination	760
Change in fair value of contingent consideration included in Operating expenses	3,722
Contingent consideration paid	(5,056)
Balance at March 31, 2023	$	22,259


	Accrued Contingent Consideration
Balance at September 30, 2021	$	36,229
Contingent consideration accrued at time of business combination	5,481
Change in fair value of contingent consideration included in Operating expenses	16,430
Contingent consideration paid	(10,200)
Balance at March 31, 2022	$	47,940

Mezzanine Warrants Accrued Contingent Consideration
Balance at September 30, 2017 $ 767
$ 3,340
Change in the fair value of warrant liabilities, included in Other expenses 8,487
—
Exercise of warrant liabilities into Common Units (9,254 ) —
Contingent consideration accrued at time of business combination —
2,084
Change in fair value of contingent consideration included in Operating expenses —
3,280
Contingent consideration paid —
(1,791 )
Balance at June 30, 2018 $ —
$ 6,913

Mezzanine Warrants Accrued Contingent Consideration
Balance at September 30, 2016 $ 1,182
$ 5,537
Change in the fair value of warrant liabilities, included in Other expenses (58 ) —
Contingent consideration accrued at time of business combination —
1,221
Change in fair value of contingent consideration included in Operating expenses —
177
Contingent consideration paid —
(1,300 )
Balance at June 30, 2017 $ 1,124
$ 5,635
The fair value of contingent consideration obligations includes inputs not observable in the market and thus represents a Level 3 measurement. The amount to be paid under these obligations is contingent upon the achievement of certain growth metrics related to the financial performance of the entities subsequent to acquisition. The fair value of material contingent consideration included in an acquisition is calculated using a Monte Carlo simulation. The contingent consideration is revalued each period until it is settled. Management reviews the historical and projected performance of each acquisition with contingent consideration and uses an income probability method to revalue the contingent consideration. The revaluation requires management to make certain assumptions and represent management's best estimate at the valuation date. The probabilities are determined based on a management review of the expected likelihood of triggering events that would cause a change in the contingent consideration paid. The Company develops the projected future financial results based on an analysis of historical results, market conditions, and the expected impact of anticipated changes in the Company's overall business and/or product strategies.

Approximately ~~$4,886~~$20,756 and ~~$3,635~~$21,385 of contingent consideration was recorded in accrued expenses and other current liabilities as of ~~June 30, 2018~~March 31, 2023 and September 30, ~~2017,~~2022, respectively. Approximately ~~$2,027~~$1,503 and ~~$2,000~~$1,448 of contingent consideration was recorded in other long-term liabilities as of ~~June 30, 2018~~March 31, 2023 and September 30, ~~2017,~~2022, respectively.

Disclosure of Fair Values

The Company's financial instruments that are not remeasured at fair value include the Exchangeable Notes (see Note 7). The Company estimates the fair value of the Exchangeable Notes through consideration of quoted market prices of similar instruments, classified as Level 2 as described above. The estimated fair value of the Exchangeable Notes was $108,564 as of March 31, 2023.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

8.11. EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the three and ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 and ~~2017~~2022 is as follows:

Three Months Ended June 30, Nine Months Ended June 30,
2018 2017 2018 2017
TRA non-participation compensatory shares $ 741
$ —
$ 741
$ —
Stock options 76
—
76
—
Equity-based compensation expense $ 817
$ —
$ 817
$ —


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Stock options	$	5,992	$	6,042	$	12,280	$	12,666
Restricted stock units	810		215		1,368		215
Equity-based compensation expense	$	6,802	$	6,257	$	13,648	$	12,881

Amounts are included in general and administrative expense on the condensed consolidated statements of operations. ~~No income~~Income tax benefits of $61 and $108 were recognized ~~related to equity-based compensation~~ during the three and ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023, respectively, and ~~2017.~~

~~TRA Non-Participation Compensatory Shares~~

~~On June 25, 2018,~~$68 and $95 during the ~~Company entered into a Tax Receivable Agreement with i3 Verticals, LLC~~three and each of the Continuing Equity Owners as described in Note 6. The Former Equity Owners did not participate in the Tax Receivable Agreement. Therefore, as part of the Reorganization Transactions, the Class B common units held by the Former Equity Owners were converted into Class A common stock based on a conversion ratio that provided an equitable adjustment to reflect the full value of the Class B common units. For employees who are Former Equity Owners, this arrangement was a modification under ASC 718. We recognized stock-based compensation expense of $741 as part of the Reorganization Transactions as a result of this conversion.

~~Stock Options~~six months ended March 31, 2022, respectively.

In May 2018, wethe Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) under which wethe Company may grant up to 3,500,000 stock options and other equity-based awards to employees, directors and officers. The number of shares of Class A common stock available for issuance under the 2018 Plan includes an annual increase on the first day of each ~~year beginning with the 2019~~ calendar year equal to 4.0% of the outstanding shares of all classes of ~~our~~the Company's common stock as of the last day of the immediately preceding calendar year, unless the Company’s board of directors determines prior to the last trading day of December of the immediately preceding calendar year that the increase shall be less than 4%4.0%. As of March 31, 2023, equity awards with respect to 849,900 shares of the Company's Class A common stock were available for grant under the 2018 Plan.

In September 2020, the Company adopted the 2020 Acquisition Equity Incentive Plan (the “2020 Inducement Plan”) under which the Company may grant up to 1,500,000 stock options and other equity-based awards to individuals that were not previously employees of the Company or its subsidiaries in connection with acquisitions, as a material inducement to the ~~IPO, we granted 2,045,000~~individual's entry into employment with the Company or its subsidiaries within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. In May 2021, the Company amended the 2020 Inducement Plan to increase the number of shares of the Company's Class A common stock ~~options~~available for issuance from 1,500,000 to ~~our directors~~3,000,000 shares. As of March 31, 2023, equity awards with respect to 1,074,736 shares of the Company's Class A common stock were available for grant under the 2020 Inducement Plan.

Share-based compensation expense includes the estimated effects of forfeitures, which will be adjusted over the requisite service period to the extent actual forfeitures differ or are expected to differ from such estimates.

Stock Options

The Company has issued stock option awards under the 2018 Plan and ~~certain employees. The stock options were granted with an exercise price of $13.00 per share and vest equally over a three year period.~~

the 2020 Inducement Plan. The fair value of the stock option awards during the six months ended March 31, 2023 and during the year ended September 30, 2022 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:



~~Expected volatility~~⁽¹⁾	~~26.2~~	%
~~Expected dividend yield~~⁽²⁾	—	%
~~Expected term (in years)~~⁽³⁾	~~6.0~~
~~Risk-free interest rate~~⁽⁴⁾	~~2.9~~	%


	March 31, 2023		September 30, 2022
Expected volatility(1)	55.0	%	55.7	%
Expected dividend yield(2)	—	%	—	%
Expected term(3)	6 years		6 years
Risk-free interest rate(4)	3.9	%	1.6	%

_________________


1.	~~Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.~~


2.	~~We have assumed a dividend yield of zero as we have no plans to declare dividends in the foreseeable future.~~


3.	~~Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method.~~


4.	~~The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.~~

1.Expected volatility is based on the Company's own share price.

~~A summary~~2.The Company has assumed a dividend yield of ~~stock option activity for~~zero as management has no plans to declare dividends in the ~~nine months ended June 30, 2018~~foreseeable future.

3.Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method as ~~follows:~~details of employee exercise behavior are limited due to limited historical data.

4.The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

Stock Options Weighted Average Exercise Price
Outstanding at beginning of period —
$ —
Granted 2,045,000
13.00
Exercised —
—
Forfeited —
—
Outstanding at end of period 2,045,000
$ 13.00
A summary of stock option activity for the six months ended March 31, 2023 is as follows:


	Stock Options	Weighted Average Exercise Price
Outstanding at September 30, 2022	8,222,322	$	25.07
Granted	1,154,550	24.37
Exercised	(202,737)	19.43
Forfeited	(246,474)	26.85
Outstanding at March 31, 2023	8,927,661	$	25.06

Exercisable at March 31, 2023	5,543,356	$	24.26

The weighted-average grant date fair value of stock options granted during the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 was ~~$4.13.~~ $13.88.

As of ~~June 30, 2018, there were 2,045,000 stock options outstanding, of which none were exercisable. As of June 30, 2018,~~March 31, 2023, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was ~~$8,364,~~$33,829, which is expected to be recognized over a weighted-average period of 32.2 years. The Company's policy is to account for forfeitures of stock-based compensation awards as they occur.

The total fair value of stock options that vested during the three and six months ended March 31, 2023 was $11,150 and $18,172, respectively.

~~9. STOCKHOLDERS' / MEMBERS' EQUITY~~Restricted Stock Units

In connection with the Company’s IPO, the Company’s board of directors approved an amended and restated certificate of incorporation (the “Amended and Restated Certificate of Incorporation”), which became effective on June 25, 2018. The ~~Amended and Restated Certificate of Incorporation authorizes the issuance of up to 150,000,000 shares of~~Company has issued Class A common stock ~~up to 40,000,000 shares~~in the form of ~~Class B common~~restricted stock ~~and 10,000,000 shares~~units ("RSUs") under the 2018 Plan.

A summary of preferred stock, each having a par value of $0.0001 per share. Shares of Class A common stock have both economic and voting rights. Shares of Class B common stock have no economic rights, but do have voting rights. Holders of shares of Class A common stock and Class B common stock are entitled to one vote per share on all matters presented to stockholders generally. The Company’s board of directors has the discretion to determine the rights, preferences, privileges, restrictions and restrictions of any series of preferred stock.

On June 25, 2018, the Company completed the IPO of 7,647,500 shares of its Class A common stock. In connection with the IPO, the Company and i3 Verticals, LLC completed the Reorganization Transactions, pursuant to which all outstanding vested and non-vested Class A units, Class P units and common units were converted into new Common Units. Former equity owners' Common Units converted into newly issued Class A common stock. Continuing equity owners received newly issued Class B common stock. For further descriptions of the IPO and Reorganization Transactions see Note 1.

~~i3 Verticals, LLC Recapitalization~~

As noted above, the i3 Verticals, LLC Limited Liability Company Agreement, among other things, appointed the Company as i3 Verticals, LLC’s sole managing member and reclassified all outstanding membership interests in i3 Verticals, LLC as non-voting common units. As the sole managing member of i3 Verticals, LLC, the Company controls the management of i3 Verticals, LLC. As a result, the Company consolidates i3 Verticals, LLC’s financial results and reports a non-controlling interestactivity related to restricted stock units for the ~~economic interest of i3 Verticals, LLC held by the Continuing Equity Owners.~~

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

The Amended and Restated Certificate of Incorporation and the i3 Verticals, LLC Limited Liability Company Agreement discussed above require i3 Verticals, LLC and the Company, at all times, to maintain (i) a one-to-one ratio between the number of shares of Class A common stock issued by the Company and the number of Common Units owned by the Company and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of Common Units owned by the Continuing Equity Owners (other than shares of our Class A common stock under unvested options we issue, treasury stock and preferred stock (the “Excluded Common Units”)). The Company may issue shares of Class B common stock only to the extent necessary to maintain the one-to-one ratio between the number of Common Units of i3 Verticals, LLC held by the Continuing Equity Owners (other than the Excluded Common Units) and the number of shares of Class B common stock issued to the Continuing Equity Owners. Shares of Class B common stock are transferable only together with an equal number of Common Units of i3 Verticals, LLC. Only permitted transferees of Common Units held by the Continuing Equity Owners will be permitted transferees of Class B common stock.

The Continuing Equity Owners may from time to time at each of their options (subject, in certain circumstances, to time-based vesting requirements) require i3 Verticals, LLC to redeem all or a portion of their Common Units in exchange for, at i3 Verticals, LLC’s election, newly-issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Common Unit redeemed, in each case in accordance with the terms of the i3 Verticals, LLC Limited Liability Company Agreement; provided that, at the Company’s election, the Company may effect a direct exchange of such Class A common stock or such cash,six months ended March 31, 2023 is as applicable, for such Common Units. The Continuing Equity Owners may exercise such redemption right for as long as their Common Units remain outstanding. Simultaneously with the payment of cash or shares of Class A common stock, as applicable, in connection with a redemption or exchange of Common Units pursuant to the terms of the i3 Verticals, LLC Limited Liability Company Agreement, a number of shares of our Class B common stock registered in the name of the redeeming or exchanging Continuing Equity Owner will be canceled for no consideration on a one-for-one basis with the number of Common Units so redeemed or exchanged.

~~Junior Subordinated Notes Warrants~~follows:


	Restricted Stock Units	Weighted Average Grant Date Fair Value
Outstanding at September 30, 2022	486,652	$	24.93
Granted	524,132	25.32
Vested	(58,234)	26.52
Forfeited	(51,058)	24.20
Outstanding at March 31, 2023	901,492	$	24.94

As of ~~September 30, 2017 there were in~~March 31, 2023, total unrecognized compensation expense related to unvested RSUs, including an estimate for pre-vesting forfeitures, was $14,218, which is expected to be recognized over a weighted average period of 3.56 years.

$1,544 RSUs vested during the aggregate 1,433,920 warrants outstanding and exercisable to purchase Common Units which are classified as equity instruments (“Junior Subordinated Notes Warrants”). The warrants were issued in connection with the issuance of the Junior Subordinated Notes (Note 5). The intrinsic value of the Junior Subordinated Notes Warrants was $0 as of September 30, 2017, and they had an exercise price of $2.095 per common unit. On June 25, 2018, in conjunction with the Reorganization Transactions described in Note 1, all existing Junior Subordinated Notes Warrants were exercised for common units in i3 Verticals, LLC.

six months ended March 31, 2023.

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

~~10.~~12. COMMITMENTS AND CONTINGENCIES

Leases

The Company utilizes office space and equipment under operating leases. Rent expense under these leases amounted to ~~$419~~$1,480 and ~~$1,105~~$3,019 during the three and ~~nine~~six months ended ~~June 30, 2018 and 2017,~~March 31, 2023, respectively, and ~~$237~~$1,501 and ~~$720~~$3,039 during the three and ~~nine~~six months ended ~~June 30, 2017,~~March 31, 2022, respectively.

~~A summary~~ Refer to Note 9 for further discussion and a table of ~~approximate~~the future minimum payments under these ~~leases as of June 30, 2018 is as follows:~~leases.

Years ending September 30:
2018 (three months remaining) $ 381
2019 1,729
2020 1,606
2021 1,249
2022 1,136
Thereafter 2,338
Total $ 8,439

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Minimum Processing Commitments

~~We have~~The Company has non-exclusive agreements with several processors to provide usthe Company services related to transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools. Certain of these agreements require usthe Company to submit a minimum monthly number of transactions for processing. If ~~we submit~~the Company submits a number of transactions that is lower than the minimum, ~~we are~~it is required to pay to the processor the fees itthe processor would have received if wethe Company had submitted the required minimum number of transactions. As of ~~June 30, 2018,~~March 31, 2023, such minimum fee commitments were as follows:


Years ending September 30:
2023 (six months remaining)	$	2,237
2024	1,238
2025	—
2026	—
2027	—
Thereafter	—
Total	$	3,475

Years ending September 30:
2018 (three months remaining) $ 903
2019 2,387
2020 1,275
Thereafter —
Total $ 4,565
Third Party Sales Organization Buyout Agreement

The Company has conditionally committed to a future buyout of a third party's business at the earlier of (a) the 60th day following the date upon which the founder of the third party sales organization dies or becomes disabled or (b) the 60th day following July 1, 2023. The buyout amount is dependent on certain financial metrics but is capped at $29,000, which would be net of repayment of secured loans. The buyout also contains certain provisions to provide additional consideration of up to $9,000, in the aggregate, to be paid based on the achievement of specified financial performance targets, following the buyout. As the eventual financial metrics are not known, the amount of the buyout transaction as well as the additional consideration are not able to be estimated at this time.

Litigation

With respect to all legal, regulatory and governmental proceedings, and in accordance with ASC 450-20, Contingencies—Loss Contingencies, the Company considers the likelihood of a negative outcome. If the Company determines the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, the Company records an accrual for the estimated amount of loss for the expected outcome of the matter. If the likelihood of a negative outcome with respect to material matters is reasonably possible and the Company is able to determine an estimate of the amount of possible loss or a range of loss, whether in excess of a related accrued liability or where there is no accrued liability, the Company discloses the estimate of the amount of possible loss or range of loss. However, the Company in some instances may be unable to estimate an amount of possible loss or range of loss based on the significant uncertainties involved in, or the preliminary nature of, the matter, and in these instances the Company will disclose the nature of the contingency and describe why the Company is unable to determine an estimate of possible loss or range of loss.

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

~~In addition, the~~The Company is involved in ordinary course legal proceedings, which include all claims, lawsuits, investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of ~~business and otherwise not described below.~~business. The Company has considered all such ordinary course legal proceedings in formulating its disclosures and assessments. After taking into consideration the evaluation of such legal matters by the Company's legal counsel, the Company's management believes at this time such matters will not have a material impact on the Company's consolidated balance sheet, results of operations or cash flows.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

S&S Litigation

On June ~~14, 2016, Expert Auto Repair, Inc., for itself~~2, 2021, the State of Louisiana, Division of Administration (the “State”) and ~~on behalf of~~ a putative class of ~~additional plaintiffs, and Jeff Straight initiated~~Louisiana law enforcement districts (collectively "Plaintiffs") filed a ~~class action lawsuit against us, as alleged successor to Merchant Processing Solutions, LLC,~~Petition (as amended on October 4, 2021, the “Petition”), in the ~~Los Angeles County Superior~~19th Judicial District Court for the Parish of ~~California, seeking damages, restitution and declaratory and injunctive relief (the “Expert Auto Litigation”). The plaintiffs alleged that Merchant Processing Solutions,~~East Baton Rouge against i3-Software & Services, LLC our alleged predecessor, engaged in unfair business practices in the merchant services sector including unfairly inducing merchants to obtain credit and debit card processing services and thereafter assessing them with improper fees. Subject to final court approval, we have entered into(“S&S”), a ~~settlement agreement to settle the plaintiffs’ claims for $995. On April 10, 2018, the Court granted conditional class certification and preliminary approval~~subsidiary of the ~~agreed settlement and scheduled~~Company located in Shreveport, Louisiana, the ~~final fairness hearing and final approval~~Company, i3 Verticals, LLC, the current leader of the ~~settlement for December 14, 2018. The reserved amount is reflected in accrued expenses~~S&S business, the former leader of the S&S business, and ~~other current liabilities as of June 30, 2018. The amount was included in general and administrative expenses in our consolidated statement of operations for the year ended September 30, 2017.~~

~~In connection with the Expert Auto Litigation, on November 3, 2016 our insurance carrier, Starr Indemnity and Liability Company, Inc.~~1120 South Pointe Properties, LLC (“~~Starr”~~South Pointe”), ~~filed~~the former owner of the assets of the S&S business (collectively "Defendants"). See State of Louisiana, by and through its Division of Administration, East Baton Rouge Parish Law Enforcement District, by and through the duly elected East Baton Rouge Parish Sheriff, Sid J. Gautreaux, III, et. al., individually and as class representatives vs. i3-Software & Services, LLC; 1120 South Pointe Properties, LLC, formerly known as Software and Services of Louisiana, L.L.C.; i3 Verticals, Inc.; i3 Verticals, LLC; Gregory R. Teeters; and Scott Carrington.

The Petition was amended on October 4, 2021 to add a ~~complaint against us in~~putative class of Louisiana sheriffs (the “Sheriffs”) and subsequently removed to the United States District Court for the Middle District of ~~Tennessee, seeking a declaration from the court that Starr's policy provided no coverage~~Louisiana. The Petition seeks monetary damages for the ~~Expert Auto Litigation. This action was subsequently dismissed for lack~~cost of ~~subject matter jurisdiction, prompting Starr~~network remediation of $15,000 purportedly spent by the State and $7,000 purportedly spent by the Sheriffs, return of purchase prices, potential additional expenses related to ~~move the court~~remediation and any obligation to ~~reconsider~~notify parties of an alleged data breach as and ~~on February 15, 2017~~if required by applicable law, and reasonable attorneys’ fees. The claimed damages relate to ~~file~~ a ~~complaint against us~~third-party remote access software product used in connection with services provided by S&S to certain Louisiana Parish law enforcement districts and alleged inadequacies in the ~~Twentieth Judicial District of~~Company’s cybersecurity practices. Plaintiffs moved to remand the ~~Davidson County Chancery Court of Tennessee repeating its federal~~action to state court ~~claims (although Starr has since dismissed~~on November 5, 2021, and the ~~complaint in~~motion was referred to a magistrate to make a report and recommendation to the ~~Davidson County Chancery Court). Thereafter, after reconsidering its dismissal for lack of subject~~district court judge. On July 5, 2022, the magistrate recommended that the matter ~~jurisdiction,~~be remanded to state court. On July 19, 2022, the Company and all other defendants filed objections to the recommendation. On August 3, 2022, the Plaintiffs filed a response to those objections. On August 16, 2022, the district court granted the Plaintiffs’ motion to remand, and all Defendants appealed. The case is fully briefed with the United States ~~District~~Fifth Circuit Court of Appeals, and oral argument took place on April 4, 2023.

The assets of the S&S business were acquired from South Pointe by the Company in 2018 for $17,000, including upfront cash consideration and contingent consideration, and S&S provides software and payments services within the Company’s Public Sector vertical to local government agencies almost exclusively in Louisiana.

The Company is unable to predict the outcome of this litigation. While we do not believe that this matter will have a material adverse effect on our business or financial condition, we cannot give assurance that this matter will not have a material effect on our results of operations for the ~~Middle District of Tennessee revived Starr’s complaint, allowing Starr’s action to continue~~period in ~~federal court.~~

On April 13, 2018, the court issued an order to (i) stay discovery in the matter, (ii) allow Starr to file a motion for judgment on the pleadings by May 21, 2018 (which was filed) and (iii) require the Company to respond to such motion by June 8, 2018 (which the Company did). In the meantime, the Company filed its answer and counterclaim to Starr’s complaint and Starr then filed a motion to dismiss a portion of this counterclaim. On August 7, 2018, the court denied Starr's motion for judgment on the pleadings and also denied Starr's motion to dismiss in relation to the Company's counterclaim. The court has set a case management conference for August 27, 2018. The Company intends to continue to vigorously defend against Starr’s claims and to continue to pursue its own counterclaim.which it is resolved.

Other

~~Our~~The Company's subsidiary CP-PS, LLC has certain indemnification obligations in favor of FDS Holdings, Inc. related to the acquisition of certain assets of Merchant Processing Solutions, LLC in February 2014. ~~We have~~The Company has incurred expenses related to these indemnification obligations in prior periods and may have additional expenses in the future. However, after taking into consideration the evaluation of such matters by the Company’s legal counsel, the Company’s management believes at this time that the anticipated outcome of any existing or potential indemnification liabilities related to this matter will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~11.~~

13. RELATED PARTY TRANSACTIONS

~~Related parties held $6,158 of our Company’s Junior Subordinated Notes as of September 30, 2017. As described Note 5, in~~In connection with the ~~Company's~~Company’s IPO, the Company and ~~as part~~i3 Verticals, LLC entered into a Tax Receivable Agreement with the Continuing Equity Owners that provides for the payment by the Company to the Continuing Equity Owners of 85% of the ~~Reorganization Transactions, $924~~amount of ~~the Junior Subordinated Notes held by related parties was converted to newly issued shares of the Company's Class A common stock. Also~~certain tax benefits, if any, that it actually realizes, or in ~~June 2018, the remaining $5,234 of the Junior Subordinated Notes held by related parties were repaid with proceeds from the Company's IPO. Interest expense to related parties for the Company’s~~some

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

~~Junior Subordinated Notes amounted~~circumstances, is deemed to ~~$145 and $457 during the three and nine months ended June 30, 2018, respectively, $168 and $471 during the three and nine months ended June 30, 2017, respectively.~~

~~All lenders party to~~realize in its tax reporting, as a result of (i) future redemptions funded by the Company’~~s Mezzanine Notes are considered related parties, through their ownership interest~~ or exchanges, or deemed exchanges in ~~the Company and affiliated director relationships. Outstanding Mezzanine Notes payable to related parties amounted to $10,500 as~~certain circumstances, of June 30, 2018 and September 30, 2017. In June 2018, the Mezzanine Notes were repaid in full with proceeds from the Company's IPO. Interest expense to related parties for the Company’s Mezzanine Notes amounted to $315 and $952 during the three and nine months ended June 30, 2018, respectively, $319 and $956 during the three and nine months ended June 30, 2017, respectively.

~~In April, 2016, we entered into a purchase agreement to purchase certain assets~~Common Units of Axia, LLC. On April 29, 2016, the Company entered into a Processing Services Agreement (the “Axia Tech Agreement”) with Axia Technologies, LLC (“Axia Tech”), an entity controlled by the previous owner of Axia, LLC. Under the Axia Tech Agreement, we agreed to provide processing services for certain merchants as designated by Axia Tech from time to time. In accordance with ASC 605-45, revenue from the processing services is recognized net of interchange, residual expense and other fees. We earned net revenues related to the Axia Tech Agreement of $13 and $37 during the three and nine months ended June 30, 2018, respectively, and $8 and $17 during the three and nine months ended June 30, 2017, respectively. i3 Verticals, LLC ~~our CEO~~for Class A common stock of i3 Verticals, Inc. or cash, and ~~our CFO own 3%, 11% and 1%, respectively,~~(ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement. See Note 8 for further information. As of March 31, 2023, the ~~outstanding equity of Axia Tech.~~total amount due under the Tax Receivable Agreement was $40,915.

~~12.~~14. SEGMENTS

The Company determines its operating segments based on ASC 280, Segment Reporting, in alignment with how the chief operating ~~decision making~~decision-making group monitors and manages the performance of the ~~business.~~business as well as the level at which financial information is reviewed. The Company’s operating segments are strategic business units that offer different products and services.

~~Our~~The Company's core business is delivering ~~seamless~~seamlessly integrated payment and software solutions ~~to small- and medium-sized businesses (“SMBs”) and organizations~~customers in strategic vertical markets. This is ~~primarily~~ accomplished through the Merchant Services ~~which constitutes an operating segment. We also provide~~and Software and Services segments.

The Merchant Services segment provides comprehensive payment solutions to businesses and organizations. The Merchant Services segment includes third-party integrated payment solutions as well as traditional merchant processing services ~~with proprietary owned software.~~ across the Company's strategic vertical markets.

The ~~proprietary owned~~Software and Services segment delivers vertical market software ~~operating segments do not meet applicable materiality thresholds for separate segment disclosure~~solutions to customers across all of the Company's strategic vertical markets. These solutions often include embedded payments or ~~aggregation, but are included as the primary components of an “other”~~other recurring services.

The Other category ~~under GAAP as set forth below. The other category also~~ includes corporate overhead ~~expenses.~~expenses when presenting reportable segment information.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The Company primarily ~~use~~uses processing margin to measure operating performance. Processing margin is equal to revenue less other cost of services plus residuals expense, which are a component of other cost of services. The following is a summary of reportable segment operating performance for the three and ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 and ~~2017.~~2022.


	As of and for the Three Months Ended March 31, 2023
	Merchant Services		Software and Services		Other		Total
Revenue	$	33,094	$	60,797	$	(19)	$	93,872
Other costs of services	(15,719)		(4,229)		18		(19,930)
Residuals	10,039		799		(9)		10,829
Processing margin	$	27,414	$	57,367	$	(10)	$	84,771

Residuals							(10,829)
Selling, general and administrative							(57,204)
Depreciation and amortization							(9,015)
Change in fair value of contingent consideration							(2,279)
Income from operations							$	5,444

Total assets	$	205,898	$	620,126	$	57,002	$	883,026
Goodwill	$	121,950	$	287,092	$	—	$	409,042


	As of and for the Six Months Ended March 31, 2023
	Merchant Services		Software and Services		Other		Total
Revenue	$	65,928	$	114,010	$	(37)	$	179,901
Other costs of services	(31,286)		(7,752)		39		(38,999)
Residuals	19,848		1,322		(20)		21,150
Processing margin	$	54,490	$	107,580	$	(18)	$	162,052

Residuals							(21,150)
Selling, general and administrative							(108,207)
Depreciation and amortization							(17,691)
Change in fair value of contingent consideration							(3,722)
Income from operations							$	11,282

Total assets	$	205,898	$	620,126	$	57,002	$	883,026
Goodwill	$	121,950	$	287,092	$	—	$	409,042

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~


	As of and for the Three Months Ended March 31, 2022
	Merchant Services		Software and Services		Other		Total
Revenue	$	29,180	$	48,962	$	(22)	$	78,120
Other costs of services	(13,528)		(3,124)		21		(16,631)
Residuals	8,054		448		(13)		8,489
Processing Margin	$	23,706	$	46,286	$	(14)	$	69,978

Residuals							(8,489)
Selling, general and administrative							(48,716)
Depreciation and amortization							(7,447)
Change in fair value of contingent consideration							(11,503)
Loss from operations							$	(6,177)

Total assets	$	205,922	$	506,409	$	60,325	$	772,656
Goodwill	$	119,086	$	230,368	$	—	$	349,454


	As of and for the Six Months Ended March 31, 2022
	Merchant Services		Software and Services		Other		Total
Revenue	$	58,357	$	93,736	$	(34)	$	152,059
Other costs of services	(26,970)		(6,204)		33		(33,141)
Residuals	16,235		791		(17)		17,009
Processing margin	$	47,622	$	88,323	$	(18)	$	135,927

Residuals							(17,009)
Selling, general and administrative							(95,103)
Depreciation and amortization							(14,317)
Change in fair value of contingent consideration							(16,430)
Loss from operations							$	(6,932)

Total assets	$	205,922	$	506,409	$	60,325	$	772,656
Goodwill	$	119,086	$	230,368	$	—	$	349,454

The Company has not disclosed expenditures on long-lived assets as such expenditures are not reviewed by or provided to the chief operating decision maker.

As of and for the Three Months Ended June 30, 2018
Merchant Services Other Total
Revenue $ 79,766
$ 4,770
$ 84,536

Operating expenses
Interchange and network fees 54,673
1,032
55,705
Other costs of services 10,693
368
11,061
Selling general and administrative 6,126
4,570
10,696
Depreciation and amortization 2,424
576
3,000
Change in fair value of contingent consideration 88
1,063
1,151
Income from operations $ 5,762
$ (2,839 ) $ 2,923

Processing margin⁽¹⁾
$ 18,130
$ 3,489
$ 21,619
Total assets $ 142,866
$ 23,814
$ 166,680
Goodwill $ 69,541
$ 10,625
$ 80,166

~~__________________________~~


1.	Processing margin is equal to revenue less interchange and network fees, less other costs of services. $3,730 and $119 of residual expense, a component of other costs of services, are added back to the Merchant Services segment and Other category, respectively.

As of and for the Nine Months Ended June 30, 2018
Merchant Services Other Total
Revenue $ 224,671
$ 14,784
$ 239,455

Operating expenses
Interchange and network fees 155,012
3,565
158,577
Other costs of services 28,949
1,170
30,119
Selling general and administrative 17,127
12,610
29,737
Depreciation and amortization 7,140
1,736
8,876
Change in fair value of contingent consideration 1,535
1,745
3,280
Income from operations $ 14,908
$ (6,042 ) $ 8,866

Processing margin⁽¹⁾
$ 50,923
$ 10,483
$ 61,406

~~__________________________~~


1.	Processing margin is equal to revenue less interchange and network fees, less other costs of services. $10,213 and $434 of residual expense, a component of other costs of services, are added back to the Merchant Services segment and Other category, respectively.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

As of and for the Three Months Ended June 30, 2017
Merchant Services Other Total
Revenue $ 63,413
$ 2,913
$ 66,326

Operating expenses
Interchange and network fees 47,737
826
48,563
Other costs of services 6,996
185
7,181
Selling general and administrative 3,042
3,187
6,229
Depreciation and amortization 1,903
479
2,382
Change in fair value of contingent consideration 29
(775 ) (746 )
Income from operations $ 3,706
$ (989 ) $ 2,717

Processing margin⁽¹⁾
$ 11,738
$ 1,956
$ 13,694
Total assets $ 75,331
$ 20,175
$ 95,506
Goodwill $ 29,863
$ 9,344
$ 39,207

~~__________________________~~


1.	Processing margin is equal to revenue less interchange and network fees, less other costs of services. $3,058 and $54 of residual expense, a component of other costs of services, are added back to the Merchant Services segment and Other category, respectively.

As of and for the Nine Months Ended June 30, 2017
Merchant Services Other Total
Revenue $ 180,445
$ 10,347
$ 190,792

Operating expenses
Interchange and network fees 134,781
2,898
137,679
Other costs of services 19,891
905
20,796
Selling general and administrative 9,475
9,690
19,165
Depreciation and amortization 5,932
1,521
7,453
Change in fair value of contingent consideration 592
(415 ) 177
Income from operations $ 9,774
$ (4,252 ) $ 5,522

Processing margin⁽¹⁾
$ 34,365
$ 6,768
$ 41,133

~~__________________________~~


1.	Processing margin is equal to revenue less interchange and network fees, less other costs of services. $8,592 and $224 of residual expense, a component of other costs of services, are added back to the Merchant Services segment and Other category, respectively.

Corporate overhead expenses contributed losses from operations of $2,721 and $7,190, and depreciation and amortization of $59 and $122 for the three and nine months ended June 30, 2018, respectively. Corporate overhead expenses contributed losses from operations of $1,534 and $4,414, and depreciation and amortization of $30 and $87 for the three and nine months ended June 30, 2017, respectively.

~~i3 VERTICALS, Inc.~~

~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

~~June 30, 2018~~

~~13.~~15. NON-CONTROLLING INTEREST

i3 Verticals, Inc. is the sole managing member of i3 Verticals, LLC, and as a result, consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest representing the Common Units of i3 Verticals, LLC held by the Continuing Equity Owners. Changes in i3 Verticals, Inc.’s ownership interest in i3 Verticals, LLC while i3 Verticals, Inc. retains its controlling interest in i3 Verticals, LLC will be accounted for as equity transactions. As such, future redemptions or direct exchanges of ~~common units~~Common Units of i3 Verticals, LLC by the Continuing Equity Owners will result in a change in ownership and reduce or increase the amount recorded as non-controlling interest and increase or decrease additional paid-in capital when i3 Verticals, LLC has positive or negative net assets, respectively.

As of ~~June 30, 2018,~~March 31, 2023 and 2022, respectively, i3 Verticals, Inc. owned ~~9,091,903~~23,167,730 and 22,133,682 of i3 Verticals, ~~LLC~~LLC's Common Units, representing a ~~34.6%~~69.6% and 68.5% economic ownership interest in i3 Verticals, LLC.

The following table summarizes the impact on equity due to changes in the Company's ownership interest in i3 Verticals, LLC:


	Six Months Ended March 31,
	2023		2022
Net income (loss) attributable to non-controlling interest	$	181	$	(4,218)
Transfers to non-controlling interests:
Redemption of common units in i3 Verticals, LLC	(86)		(458)
Allocation of equity to non-controlling interests	299		3,517
Net transfers to non-controlling interests	213		3,059
Change from net income (loss) attributable to non-controlling interests and transfers to non-controlling interests	$	394	$	(1,159)

~~14.~~

16. EARNINGS PER SHARE

Basic earnings per share of Class A common stock is computed by dividing net income available to i3 Verticals, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income available to i3 Verticals, Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

Prior to the IPO, the i3 Verticals, LLC membership structure included Class A units, common units and Class P units. The Company analyzed the calculation of earnings per unit for periods prior to the IPO using the two-class method and determined that it resulted in values that would not be meaningful to the users of these unaudited condensed consolidated financial statements. Therefore, earnings per share information has not been presented for the fiscal 2018 periods ended June 24, 2018 and the three and nine months ended June 30, 2017. The basic and diluted earnings per share period for the three and nine months ended June 30, 2018 represents only the period from June 25 through June 30, 2018.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

~~June 30, 2018~~

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common ~~stock:~~

Three Months Ended
June 30, 2018 Nine Months Ended
June 30, 2018
Basic and dilutive net income (loss) per share:
Numerator
Net loss⁽¹⁾
$ (138 ) $ (138 )
Less: Net loss attributable to non-controlling interests (91 ) (91 )
Net loss attributable to Class A common stockholders (47 ) (47 )
Denominator
Weighted average shares of Class A common stock outstanding⁽²⁾
8,812,630
8,812,630
Basic net loss per share $ (0.01 ) $ (0.01 )

~~____________________~~


1.	~~Basic and diluted earnings per Class A common~~ stock ~~is presented only~~ for ~~the period after the Company’s Reorganization Transactions. As such, net loss used in the calculation represents the loss for the period from June 25 through June 30, 2018.~~


2.	~~Excludes 279,273 restricted Class A common stock units.~~

~~For~~ the three and ~~nine~~six months ended ~~June 30, 2018, 17,213,806~~March 31, 2023 and 2022:


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Basic net income (loss) per share:
Numerator
Net loss	$	(192)	$	(10,438)	$	(23)	$	(14,119)
Less: Net (loss) income attributable to non-controlling interest	(228)		(3,065)		181		(4,218)
Net income (loss) attributable to Class A common stockholders	$	36	$	(7,373)	$	(204)	$	(9,901)
Denominator
Weighted average shares of Class A common stock outstanding	23,135,898		22,076,297		23,066,499		22,059,365
Basic net income (loss) per share(1)	$	0.00	$	(0.33)	$	(0.01)	$	(0.45)

Diluted net loss per share:
Numerator
Net income attributable to Class A common stockholders	$	36
Reallocation of net loss assuming conversion of common units	(171)
Net loss attributable to Class A common stockholders - diluted	(135)

Denominator
Weighted average shares of Class A common stock outstanding	23,135,898
Weighted average effect of dilutive securities(2)	11,133,242
Weighted average shares of Class A common stock outstanding - diluted	34,269,140
Diluted net loss per share	$	0.00

__________________________

1.For the six months ended March 31, 2023 and the three and six months ended March 31, 2022, all potentially dilutive securities were anti-dilutive, so diluted net loss per share was equivalent to basic net loss per share. The following securities were excluded from the weighted average effect of dilutive securities in the computation of diluted net loss per share of Class A common stock:

a.10,114,598 weighted average shares of Class B common stock ~~2,045,000~~for the six months ended March 31, 2023, and 10,210,142 and 10,216,615 for the three and six months ended March 31, 2022, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive.

b.5,165,478 stock options for the six months ended March 31, 2023 and ~~291,391 unvested Common Units~~4,667,581 and 5,388,813 for the three and six months ended March 31, 2022, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive, and

c.633,453 shares for the six months ended March 31, 2023, and 522,355 and 613,913 for the three and six months ended March 31, 2022, respectively, resulting from estimated stock option exercises and restricted stock units vesting as calculated by the treasury stock method were excluded because of the effect of including them would have been anti-dilutive.

2.For the three months ended March 31, 2023, the following securities were excluded from the ~~weighted-average~~weighted average effect of dilutive securities in the computation of diluted ~~earnings~~net loss per share of Class A common stock:

a.4,018,042 stock options for the three months ended March 31, 2023, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

On September 22, 2022, the Company provided the trustee notice of the Company’s irrevocable election to settle the principal portion of its Exchangeable Notes only in cash and the conversion spread in cash or shares. Accordingly, upon conversion, the Company will pay the principal in cash, and it will pay or deliver, as the case may be, the conversion premium in cash, shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock, at its election. The Company applies the if-converted method and only includes the number of incremental shares that would be issued upon conversion for calculating any potential dilutive effect of the conversion spread on diluted net income per share. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company's Class A common stock for a given period exceeds the exchange price of $40.87 per share for the Exchangeable Notes.

The Warrants sold in connection with the issuance of the Exchangeable Notes are considered to be dilutive when the average price of the Company's Class A common stock during the period exceeds the Warrants' stock price of $62.88 per share. The effect of the additional shares that may be issued upon exercise of the Warrants will be included in the weighted average shares of Class A common stock outstanding—diluted using the treasury stock method. The Note Hedge Transactions purchased in connection with the issuance of the Exchangeable Notes are considered to be anti-dilutive and therefore do not impact our calculation of diluted net income per share. Refer to Note 7 for further discussion regarding the Exchangeable Notes.

Shares of the Company's Class B common stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented.

17. SIGNIFICANT NON-CASH TRANSACTIONS

The Company engaged in the following significant non-cash investing and financing activities during the six months ended March 31, 2023 and 2022:


	Six months ended March 31,
	2023		2022
Acquisition date fair value of contingent consideration in connection with business combinations	$	760	$	5,481
Debt issuance costs financed with proceeds from the Senior Secured Credit Facility	$	178	$	—
Right-of-use assets obtained in exchange for operating lease obligations	$	1,098	$	7,584

18. SUBSEQUENT EVENTS

2023 Senior Secured Revolving Credit Facility

On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (the “2023 Credit Agreement”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”). The 2023 Credit Agreement replaces the Senior Secured Credit Facility. The 2023 Credit Agreement provides for aggregate commitments of $450 million in the form of a senior secured revolving credit facility (the “Revolver”).

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

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 Credit Agreement) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement) would not exceed 5.0 to 1.0.

The provision of any such additional amounts under the additional term loan facilities or additional revolving credit commitments are subject to certain additional conditions and the receipt of certain additional commitments by existing or additional lenders. The lenders under the 2023 Credit Agreement are not under any obligation to provide any such additional term loan facilities or revolving credit commitments.

The proceeds of the Revolver, together with proceeds from any additional amounts under the additional term loan facilities or additional revolving credit commitments, may only be used by the Borrower to (i) finance working capital, capital expenditures and other lawful corporate purposes, (ii) finance permitted acquisitions (as defined in the 2023 Credit Agreement) and (iii) to refinance certain existing indebtedness.

Borrowings under the Revolver will be made, at the Borrower’s option, at the base rate or the Adjusted Term SOFR rate, plus, in each case, an applicable margin. 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%; provided, that the base rate shall not be less than 1% in any event. 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%; provided, that the Adjusted Term SOFR rate shall not be less than 0% in any event. The applicable margin is based upon the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement), as reflected in the schedule below:


Consolidated Total Net Leverage Ratio	Commitment Fee		Letter of Credit Fee		Term Benchmark Loans		Base Rate Loans
> 3.0 to 1.0	0.30	%	3.00	%	3.00	%	2.00	%
> 2.5 to 1.0 but < 3.00 to 1.0	0.25	%	2.50	%	2.50	%	1.50	%
> 2.0 to 1.0 but < 2.50 to 1.0	0.20	%	2.25	%	2.25	%	1.25	%
< 2.0 to 1.0	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) 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 Credit Agreement, whether such amounts are issued under the Revolver or under the additional term loan facilities or additional revolving credit facilities, at any time without premium or penalty.

In addition, if the total amount borrowed under the Revolver exceeds $450 million at any time, the 2023 Credit Agreement requires the Borrower to prepay such excess outstanding amounts.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

tangible and intangible assets of the Borrower, the Company and each subsidiary guarantor, in each case whether owned on the date of the initial borrowings or thereafter acquired.

The 2023 Credit Agreement places certain restrictions on the ability of the Borrower, the Company and their subsidiaries to, among other things, incur debt and liens; merge, consolidate or liquidate; dispose of assets; enter into hedging arrangements; make certain restricted payments; undertake transactions with affiliates; enter into sale-leaseback transactions; make certain investments; prepay or modify the terms of certain indebtedness; and modify the terms of certain organizational agreements.

The 2023 Credit Agreement 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 ERISA events, invalidity of loan documents and certain changes in control.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our ~~prospectus, dated June 20, 2018,~~Annual Report on Form 10-K for the year ended September 30, 2022 (“Form 10-K”), filed with the ~~Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended,~~SEC on ~~June 21, 2018 (the “Prospectus”) in connection with our initial public offering (“IPO”).~~November 18, 2022. The terms “i3 Verticals,” “we,” “us” and “our” and similar references refer (1) before the completion of our IPO or the reorganization transactions entered into in connection therewith (the “Reorganization Transactions”), which are described in the notes to the condensed consolidated financial statements, to i3 Verticals, LLC and, where appropriate, its subsidiaries, and (2) after the Reorganization Transactions to i3 Verticals, Inc. and, where appropriate, its subsidiaries.

~~Special~~ Note Regarding Forward-looking Statements

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts contained in this report may be forward-looking statements. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “pro forma,” “continues,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” “would” or “should” or, in each case, their negative or other variations or comparable terminology.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These factors include, but are not limited to, the following:

•our indebtedness and our ability to maintain compliance with the financial covenants in our 2023 Credit Agreement (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;

•the triggering of impairment testing of our fair-valued assets, including goodwill and intangible assets, in the event of a decline in the price of our Class A common stock or otherwise;

•our ability to generate revenues sufficient to maintain profitability and positive cash flow;

•competition in our industry and our ability to compete effectively;

•consolidation in the banking and financial services industry;

•risk of shortages, price increases, changes, delays or discontinuations of hardware due to supply chain disruptions with respect to our limited number of suppliers;

•impact of inflation and fluctuations in interest rates 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;

•liability and reputation damage from unauthorized disclosure, destruction or modification of data or disruption of our services;

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

•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;

•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;

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

•potential degradation of the quality of our products, services and support;

•our ability to retain ~~clients, many of which are SMBs, which can be difficult and costly to retain;~~customers;

•our ability to successfully manage our intellectual property;

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

•risks related to laws, regulations and industry standards;

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

•our ability to comply with complex laws and ~~potential increases~~regulations applicable to the healthcare industry or to adjust our operations in ~~our indebtedness;~~response to changing laws and regulations;

•the impact of government investigations, claims, and litigation;

•the effects of health reform initiatives;

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

•risks related to the ~~risk factors~~accounting method for i3 Verticals, LLC's 1.0% Exchangeable Notes due February 15, 2025 (the "Exchangeable Notes");

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

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

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

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. The matters summarized ~~under~~in “Risk Factors” in ~~the Prospectus~~our Form 10-K, and in subsequent filings could cause our actual results to differ significantly from those contained in our forward-looking statements. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this filing, those results or developments may not be indicative of results or developments in subsequent periods.

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this filing speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments, except as required by applicable law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

Executive Overview

~~Recognizing the convergence of~~We deliver seamless integrated software and ~~payments, i3 Verticals was founded in 2012 with the purpose of delivering seamless integrated payment and software solutions~~services to ~~small- and medium-sized businesses (“SMBs”) and organizations~~customers in strategic vertical markets. ~~Since commencing operations, we have built a~~Building on its broad suite of ~~payment~~software and services solutions, we create and acquire software solutions that address the specific needs of SMBs and other organizations in our strategic vertical markets, and we believe our suite of solutions differentiates us from our competition. Our primary strategic vertical markets include education, non-profit, public sector, property management and healthcare. These vertical markets are large, growing and tendproducts to have increasing levels of electronic payments adoption compared to other industries. In addition to our strategic vertical markets, we also have a growing presence in the business-to-business (“B2B”) payments market.

~~We distribute our payment technology and proprietary software solutions to our clients through our direct sales force~~as well as through a growing network of distribution partners, including independent software vendors (“ISVs”), value-added resellers (“VARs”), independent sales organizations (“ISOs”) and other referral partners, including financial institutions. Our ISV partners represent a significant distribution channel and enable us to accelerate our market penetration through a cost effective one-to-many distribution model that tends to result in high retention and faster growth.

~~Our integrated payment and software solutions feature embedded payment capabilities tailored to~~serve the specific needs of our ~~clients in strategic vertical markets.~~customers. Our configurable payment technology solutions integrate seamlessly into clients’ third-party business management systems, provide security that complies with Payment Card Industry Data Security Standards (“PCI DSS”) and include extensive reporting tools. In addition to integrations with third party software, we deliver our own proprietary software solutions that increase the productivity of our clients by streamlining their business processes, particularly in the education, property management and public sector markets. We believe our proprietary software further differentiates us from our competitors in theseprimary strategic verticals are Public Sector (including Education) and ~~enables us~~Healthcare.

Economic Trends

Inflationary pressures, rising interest rates, monetary policy, and the current geopolitical situation, are causing broad economic uncertainty and could potentially cause new, or exacerbate existing, economic challenges that we may face. These conditions could worsen, or others could arise, if the U.S. and global economies were to ~~maximize~~enter recessionary periods, triggered or exacerbated by monetary policy designed to curb inflation. As the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our ~~payment-related revenue. Through our proprietary gateway,~~financial results.

Liquidity

At March 31, 2023, we ~~offer our clients a single point~~had $4.0 million of ~~access for a broad suite~~cash and cash equivalents and $103.9 million of ~~payment and software solutions, enabling omni-channel point of sale (“POS”), spanning brick and mortar and electronic and mobile commerce, including app-based payments.~~

We primarily focus on strategic vertical markets where we believe we can be a leader in vertically-focused, integrated payment and software solutions. Our strategic vertical markets include education, non-profit, public sector, property management and healthcare. We have a longer term goal of being a leader in six to ten strategic vertical markets. We target vertical markets where businesses and organizations tend to lack integrated payment functionality within their business management systems and where we face less competition for our solutions. In many cases, we deliver our proprietary software solutions to strategic vertical markets through the Payment Facilitator (“PayFac”) model, where we maintain a master merchant account, enabling clients to accept electronic payments through a sub-merchant contract. As more ISVs seek to differentiate their offerings by seamlessly integrating payment functionality into their software solutions, the PayFac model has gained significant momentum. Before PayFacs were an option, any business looking to accept credit cards was required to establish an individual merchant account, which is often costly and time-consuming for small merchants. Our PayFac solution streamlines and simplifies client onboarding, delivers ease of reporting and reconciliation and enables superior data management. In addition to our vertical markets, we have a growing presence in the B2B payments sector, which is among the fastest-growing segments within payments.

An important part of our long-term strategy is acquisition-driven growth. To date, we have completed nine “platform” acquisitions and twelve “tuck-in” acquisitions. Our platform acquisitions have opened new strategic vertical markets, broadened our technology and solutions suite and expanded our client base, while our tuck-in acquisitions have augmented our existing payment and software solutions and added clients. Our growth strategy is to continue to build our company through a disciplined combination of organic growth and growth through platform and tuck-in acquisitions.

~~Acquisitions~~

~~On January 31, 2018, we acquired certain assets and assumed certain liabilities of Enterprise Merchant Solutions, Inc. (“EMS, Inc.”). We used proceeds from~~available capacity under our Senior Secured Credit Facility subject to ~~fund~~our financial covenants. As of March 31, 2023, we were in compliance with these covenants with a consolidated interest coverage ratio, total leverage ratio and consolidated senior leverage ratio of 4.61x, 4.00x and 2.78x, respectively. On May 8, 2023, the ~~purchase consideration of $6.7 million, including $0.7 million of contingent consideration. We acquired EMS, Inc. to expand our presence within~~Company replaced the ~~integrated POS market.~~

~~On December 1, 2017, we acquired certain assets of Court Solutions, LLC (“CS, LLC”)~~Senior Secured Credit Facility with the 2023 Credit Agreement (as defined below). ~~We acquired CS, LLC to expand our presence within the public sector vertical market. We used proceeds from~~For additional information about our Senior Secured Credit Facility, ~~to fund~~Exchangeable Notes and 2023 Credit Agreement, see the ~~net purchase consideration of $2.9 million, including $0.7 million of contingent consideration.~~section entitled “Liquidity and Capital Resources” below.

Acquisitions

Acquisitions during the six months ended March 31, 2023

On October 1, 2022, we completed the acquisition of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt. Ltd. in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical. Total purchase consideration was $85.0 million in cash consideration, funded by the proceeds from our revolving credit facility.

During the six months ended March 31, ~~2017,~~2023, we ~~acquired all~~completed the acquisition of ~~the outstanding stock of San Diego Cash Register Company, Inc ("SDCR, Inc."). We acquired SDCR, Inc.~~two other businesses to expand our ~~presence within the integrated POS market. We used proceeds from our Senior Secured Credit Facility and the issuance of $0.1 million of common units in i3 Verticals, LLC to fund the net~~software offerings. Total purchase consideration ~~of $20.8~~was $19.8 million, including ~~$0.7~~$17.0 million ~~of contingent consideration.~~

~~On August 1, 2017, we acquired~~in cash funded by the membership interests of Fairway Payments, LLC (“Fairway”). We acquired Fairway to add ISV distribution partners, to increase our presence in the healthcare and non-profit verticals and to provide another vendor for our payment processing services. We used proceeds from our revolving credit facility, ~~the issuance of $12.5~~$2.0 million of our Class A ~~units~~Common Stock, and ~~$0.3~~$0.8 million in contingent consideration.

Acquisitions during the six months ended March 31, 2022

During the six months ended March 31, 2022, we completed the acquisition of ~~common units~~two business to expand our software offerings in ~~i3 Verticals, LLC to fund~~ the ~~net~~Healthcare vertical. Total purchase consideration ~~of $39.3 million.~~

~~On June 30, 2017, we acquired certain assets and assumed certain liabilities of C.C. Productions, Inc. (“CCP, Inc.”), a dealer of our products within~~was $100.5 million, including $95.0 million in cash funded by the ~~education market. We acquired CCP, Inc. to provide additional service to our education clients. We used~~ proceeds from our revolving credit facility, and ~~cash on hand to fund the net purchase consideration of $1.2 million.~~$5.5 million in contingent consideration.

On December 1, 2016, we acquired substantially all of the assets of CSC Links, LLC (“CSC, LLC”). We acquired CSC, LLC to expand our client base in our verticals. We used proceeds from our revolving credit facility and cash on hand to fund the net purchase consideration of $5.2 million, including $1.2 million of accrued contingent cash consideration for a three-year earnout period.

The results of operations of these acquired businesses have been included in our financial statements since the applicable acquisition date. For additional information, see Note 3 to our unaudited condensed consolidated financial statements.

Our Revenue and Expenses

Revenues

We generate revenue ~~primarily~~ from software licensing subscriptions, ongoing software support, volume-based payment processing ~~services provided to clients, which principally include but are not limited to volume-based~~ fees (“discount fees”), and ~~to a lesser extent, software licensing subscriptions, ongoing support and other~~ POS-related solutions that we provide to our ~~clients~~customers directly and through our distribution partners. Volume-based fees represent a percentage of the dollar amount of each credit or debit transaction processed. Revenues are also derived from a variety of fixed transaction or service fees, including authorization fees, convenience fees, statement fees, annual fees and fees for other miscellaneous services, such as handling chargebacks.

~~Expenses~~

Interchange and network fees. Interchange and network fees consist primarily of pass-through fees that make up a portion of discount fee revenue. These include assessment fees payable to card associations, which are a percentage of the processing volume we generate from Visa and Mastercard. These fees are presented net of revenue.

Expenses

Other costs of services. Other costs of services include costs directly 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 ~~client~~customer referrals. Losses resulting from excessive chargebacks against a ~~client~~customer are included in other cost of services. The cost of equipment sold is also included in cost of services. Interchange and other costs of services are recognized at the time the ~~client’s~~customer’s transactions are processed.

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

Depreciation and amortization. Depreciation expense consists of depreciation on our investments in property, equipment and computer hardware and software. Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset. Amortization expense for acquired intangible assets and internally developed software is recognized using a proportional cash flow method. Amortization expense for internally developed software is recognized over the estimated useful life of the asset. The useful lives of contract-based intangible assets are equal to the terms of the agreement.

Interest expense, net. Our interest expense consists of interest on our outstanding indebtedness under our Senior Secured Credit Facility ~~Mezzanine~~and Exchangeable Notes, and ~~Junior Subordinated Notes.~~amortization of debt discount and issuance costs.

How We Assess Our Business

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 ~~payment~~merchant processing services across our strategic vertical markets.

~~Proprietary~~ Software and ~~Related Payments~~Services

Our ~~Proprietary~~ Software and ~~Related Payments business~~Services segment delivers ~~embedded payment~~vertical market software solutions to customers across all of our ~~clients through company-owned software. Payments are delivered through both the PayFac model and the traditional merchant processing model.~~ strategic vertical markets. These solutions often include embedded payments or other recurring services.

Other

Our Proprietary Software and Related Payments clients are primarily in the education, property management and public sector markets. Our Proprietary Software and Related Payments business is included, along withOther category includes corporate overhead expenses, ~~in our “Other” category~~ when presenting reportable segment information.

For additional information on our segments, see Note 1214 to our ~~unaudited~~ condensed consolidated financial statements.

Key ~~Operating Metrics~~Performance Indicators

We evaluate our performance through key ~~operating metrics,~~performance indicators, including:

•annualized recurring revenue ("ARR");

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

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

ARR is the ~~portion~~annualized revenue derived from software-as-a-service (“SaaS”) arrangements, software monetized with transaction-based fees, software maintenance, recurring software-based services, payments revenue and other recurring revenue sources within the quarter. This excludes contracts that are not recurring or are one-time in nature. We focus on ARR because it helps us to assess the health and trajectory of our ~~payment volume that~~business. ARR does not have a standardized definition and is ~~produced~~therefore unlikely to be comparable to similarly titled measures presented by ~~integrated transactions;~~other companies. It should be reviewed independently of revenue and it is not a forecast. 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 March 31, 2023 and 2022 was $305.7 million and $254.5 million, respectively, representing a period-to-period growth rate of 20.1%.

~~period-to-period payment volume attrition.~~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 three months ended March 31, 2023 and 2022 was 50.40% and 49.89%.

Our payment volume for the three months ended ~~June 30, 2018~~March 31, 2023 and ~~2017~~2022 was ~~$3.0~~$6.0 billion and ~~$2.6~~$5.3 billion, respectively, representing a period-to-period growth rate of ~~14%~~11.7%. Our payment volume for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 and ~~2017~~2022 was ~~$8.6~~$11.9 billion and ~~$7.5~~$10.6 billion, respectively, representing a period-to-period growth rate of ~~14.5%~~11.5%. We focus on payment volume because it is a reflection of the scale and economic activity of our ~~client~~customer base and because a significant part of our revenue is derived as a percentage of our ~~clients’~~customers’ dollar volume receipts. Payment volume reflects the addition of new ~~clients~~customers and same store payment volume growth of existing ~~clients,~~customers, partially offset by ~~client~~customer attrition during the period.

Integrated payments represents payment transactions that are generated in situations where payment technology is embedded within our own proprietary software, a client’s software or critical business process. We evaluate the portion of our payment volume that is produced by integrated transactions because we believe the convergence of software and payments is a significant trend impacting our industry. We believe integrated payments create stronger client relationships with higher payment volume retention and growth. Integrated payments grew to 43% of our payment volume for the three months ended June 30, 2018 from 35% for the three months ended June 30, 2017.

We measure period-to-period payment volume attrition as the change in card-based payment volume for all clients that were processing with us for the same period in the prior year. We exclude from our calculations payment volume from new clients added during the period. We experience attrition in payment volume as a result of several factors, including business closures, transfers of clients’ accounts to our competitors and account closures that we initiate due to heightened credit risks. During the ~~nine~~ ~~months ended~~ ~~June 30, 2018~~ ~~we experienced approximately~~ 1% ~~net volume attrition per month.~~

Results of Operations

Three Months Ended ~~June 30, 2018~~March 31, 2023 Compared to Three Months Ended ~~June 30, 2017~~March 31, 2022

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

Three months ended June 30, Change
(in thousands) 2018 2017 Amount %

Revenue $ 84,536
$ 66,326
$ 18,210
27.5 %

Operating expenses
Interchange and network fees 55,705
48,563
7,142
14.7 %
Other costs of services 11,061
7,181
3,880
54.0 %
Selling general and administrative 10,696
6,229
4,467
71.7 %
Depreciation and amortization 3,000
2,382
618
25.9 %
Change in fair value of contingent consideration 1,151
(746 ) 1,897
(254.3 )%
Total operating expenses 81,613
63,609
18,004
28.3 %

Income from operations 2,923
2,717
206
7.6 %

Other expenses
Interest expense, net 2,644
1,717
927
54.0 %
Change in fair value of warrant liability 242
(58 ) 300
n/m
Total other expenses 2,886
1,659
1,227
74.0 %

Income (loss) before income taxes 37
1,058
(1,021 ) (96.5 )%

Provision for income taxes 692
171
521
n/m

Net income (loss) (655 ) 887
(1,542 ) n/m

Net loss attributable to non-controlling interests (91 ) —
(91 ) n/m
Net loss attributable to i3 Verticals, Inc. $ (564 ) $ 887
$ (1,451 ) n/m


	Three months ended March 31,				Change
(in thousands)	2023		2022		Amount		%

Revenue	$	93,872	$	78,120	$	15,752	20.2	%

Operating expenses
Other costs of services	19,930		16,631		3,299		19.8	%
Selling, general and administrative	57,204		48,716		8,488		17.4	%
Depreciation and amortization	9,015		7,447		1,568		21.1	%
Change in fair value of contingent consideration	2,279		11,503		(9,224)		(80.2)	%
Total operating expenses	88,428		84,297		4,131		4.9	%

Income (loss) from operations	5,444		(6,177)		11,621		n/m

Interest expense, net	6,199		3,377		2,822		83.6	%

Loss before income taxes	(755)		(9,554)		8,799		(92.1)	%

(Benefit from) provision for income taxes	(563)		884		(1,447)		n/m

Net loss	(192)		(10,438)		10,246		(98.2)	%

Net loss attributable to non-controlling interest	(228)		(3,065)		2,837		(92.6)	%
Net income (loss) attributable to i3 Verticals, Inc.	$	36	$	(7,373)	$	7,409	n/m

n/m = not meaningful

Revenue

Revenue increased ~~$18.2~~$15.8 million, or ~~27.5%~~20.2%, to ~~$84.5~~$93.9 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$66.3~~$78.1 million for the three months ended ~~June 30, 2017.~~March 31, 2022. This increase was principally driven by ~~acquisitions. Acquisitions completed after June 30, 2017 contributed $15.0~~incremental revenue from acquisitions of $6.0 million, net of intercompany eliminations, all of which were within the Software and Services segment. In addition to our growth through acquisitions, revenue ~~for the three months ended June 30, 2018. The remaining $3.2 million of increased revenue was due~~from existing businesses grew, resulting from growth in software and related services revenues, primarily toin our Public Sector vertical, and an increase in payment ~~volume.~~volume from new and existing customers across the Company.

Revenue ~~related to a subset of merchant contracts purchased in 2014~~within Software and ~~2017 (“Purchased Portfolios”), which have a higher rate of revenue attrition and payment volume attrition than the rest of our business, decreased $(1.7)~~Services increased $11.8 million, or ~~(28.4)%~~24.2%, to ~~$4.2~~$60.8 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$5.9~~$49.0 million for the three months ended ~~June 30, 2017. Excluding~~March 31, 2022. The increase was principally driven by growth in software and related services revenues ~~from the Purchased Portfolios, revenue grew $19.9~~in our Public Sector vertical.

Revenue within Merchant Services increased $3.9 million, or ~~32.9%~~13.4%, to ~~$80.3~~$33.1 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$60.4~~$29.2 million for the three months ended ~~June 30, 2017.~~

~~Revenue within Merchant Services increased $16.4 million, or 25.8%, to $79.8 million for the three months ended June 30, 2018~~March 31, 2022. Payment volume from ~~$63.4 million for the three months ended June 30, 2017. Revenue within our Other business, comprised primarily of our Proprietary Software~~new and ~~Related Payments, increased $1.9 million, or 63.7%, to $4.8 million for the three months ended June 30, 2018 from $2.9 million for the three months ended June 30, 2017.~~

~~Payment volume~~existing customers increased $0.4 billion, or ~~14.1%~~9.2%, to ~~$3.0~~$5.2 billion for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$2.6~~$4.8 billion for the three months ended ~~June 30, 2017.~~

~~Interchange and Network Fees~~

Interchange and network fees increased $7.1 million, or 14.7%, to $55.7 million for the three months ended June 30, 2018 from $48.6 million for the three months ended June 30, 2017. This increase was principally driven by acquisitions. Acquisitions completed after June 30, 2017 contributed $5.0 million of our interchange and network fees for the three months ended June 30, 2018. The remaining $2.2 million of increased interchange and network fees was due primarily to an increase in payment volume.

Interchange and network fees related to the Purchased Portfolios decreased $(0.8) million, or (27.1)%, to $2.2 million for the three months ended June 30, 2018 from $3.0 million for the three months ended June 30, 2017. Excluding interchange and network fees from these Purchased Portfolios, interchange and network fees grew $7.9 million, or 17.4%, to $53.6 million for the three months ended June 30, 2018 from $45.6 million for the three months ended June 30, 2017.

Interchange and network fees within Merchant Services increased $6.9 million, or 14.5%, to $54.7 million for the three months ended June 30, 2018 from $47.7 million for the three months ended June 30, 2017. Interchange and network fees within our Other business, comprised primarily of our Proprietary Software and Related Payments, increased $0.2 million, or 24.9%, to $1.0 million for the three months ended June 30, 2018 from $0.8 million for the three months ended June 30, 2017.March 31, 2022.

Other Costs of Services

Other costs of services increased ~~$3.9~~$3.3 million, or ~~54.0%~~19.8%, to ~~$11.1~~$19.9 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$7.2~~$16.6 million for the three months ended ~~June 30, 2017. Increased payment volume resulted in greater third-party processing costs of $0.7 million and~~March 31, 2022. This increase was primarily driven by an increase in ~~residuals paid to our distribution partners of $0.7 million. The~~other cost of ~~equipment and software also rose $2.2 million due to~~services within the ~~acquisitions of SDCR, Inc. and EMS, Inc.~~Merchant Services segment driven by the increase in payment volume.

Other costs of services within Merchant Services increased ~~$3.7~~$2.2 million, or ~~52.8%~~16.2%, to ~~$10.7~~$15.7 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$7.0~~$13.5 million for the three months ended ~~June 30, 2017.~~March 31, 2022, driven primarily by the growth in payment volume.

Other costs of services within ~~our Other business, comprised primarily of our Proprietary~~ Software and ~~Related Payments,~~Services increased ~~$0.2~~$1.1 million, or ~~98.9%~~35.4%, to ~~$0.4~~$4.2 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$0.2~~$3.1 million for the three months ended ~~June 30, 2017.~~March 31, 2022, driven primarily by acquisitions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$4.5~~$8.5 million, or ~~71.7%~~17.4%, to ~~$10.7~~$57.2 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$6.2~~$48.7 million for the three months ended ~~June 30, 2017.~~March 31, 2022. This increase was primarily driven by ana $6.0 million increase in employment ~~costs of $4.3 million due to~~expenses, primarily resulting from an increase in headcount ~~resulting~~that resulted from acquisitions and ~~additions to corporate staff~~an increase in preparation for transitioning to being a public company. Increases in software and technological services, rent, telecommunication costs, advertising and marketing expenses comprised the remainder of the increase.

stock compensation expense.

Depreciation and Amortization

Depreciation and amortization increased ~~$0.6~~$1.6 million, or ~~25.9%~~21.1%, to ~~$3.0~~$9.0 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$2.4~~$7.4 million for the three months ended ~~June 30, 2017.~~March 31, 2022. Amortization expense increased ~~$0.6~~$1.4 million to ~~$2.8~~$8.2 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$2.2~~$6.8 million for the three months ended ~~June 30, 2017,~~March 31, 2022 primarily due to ~~greater amortization expense resulting from~~ acquisitions ~~such as Fairway~~completed during the 2022 and ~~SDCR, Inc., which was partially offset by lower amortization expense for historical acquisitions due to our accelerated method of amortization.~~2023 fiscal years. Depreciation expense ~~remained consistent at~~increased $0.2 million to $0.8 million for the three months ended ~~June 30, 2018 and 2017.~~March 31, 2023 from $0.6 million for the three months ended March 31, 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 ~~$1.2~~$2.3 million for the three months ended ~~June 30, 2018~~March 31, 2023 primarily due to the ~~strong~~ performance of ~~the SDCR, Inc. and CS, LLC acquisitions.~~some of our acquisitions exceeding our expectations. The change in fair value of contingent consideration for the three months ended ~~June 30, 2017~~March 31, 2022 was a ~~benefit~~charge of ~~$(0.7)~~$11.5 million.

Interest Expense, net

Interest expense, net, increased ~~$0.9~~$2.8 million, or ~~54.0%~~83.6%, to ~~$2.6~~$6.2 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$1.7~~$3.4 million for the three months ended ~~June 30, 2017.~~March 31, 2022. The increase reflects ~~additional borrowings on our Senior Secured Credit Facility used to fund our acquisition activity subsequent to June 30, 2017.~~

~~Change in Fair Value of Warrant Liability~~

The change in fair value of our warrant liabilities corresponds to the value of the warrants issued in connection with our Mezzanine Notes. The fair value of these warrant liabilities increased $0.2 milliona higher average interest rate and a higher average outstanding debt balance for the three months ended June 30, 2018. The change in the fair value of the warrants corresponded with their exercise in June 2018 in conjunction with our IPO. The change in fair value of the warrant liabilities was a benefit of $(0.1) million forMarch 31, 2023, as compared to the three months ended ~~June 30, 2017.~~March 31, 2022.

(Benefit from) Provision for Income Taxes

The provision for income taxes ~~increased~~decreased to ~~$0.7~~a benefit of $0.6 million for the three months ended ~~June 30, 2018~~March 31, 2023 from ~~$0.2~~a provision of $0.9 million for three months ended March 31, 2022. Our effective tax rate was 74.6% for the three months ended June 30, 2017. The provision for income taxes consists primarily of provisions for state income taxes and, for certain subsidiaries of i3 Verticals, LLC which are corporations, provisions for Federal income taxes. Our effective tax rate was 1870% for the three months ended June 30, 2018.March 31, 2023. Our effective tax rate differs from the federal statutory rate ~~because significant pre-tax losses related~~of 21% primarily due to the ~~change in~~tax structure of the ~~fair value~~Company. The income of ~~contingent consideration and warrant liabilities were recognized at the~~majority owned i3 Verticals, LLC ~~level prior to our Reorganization Transactions~~is not taxed and ~~were not subject~~the separate loss of the Company has minimal tax effect due to the ~~federal income tax rate. As a result of the consummation of the Reorganization Transactions and the IPO,~~allocations from i3 Verticals, LLC. i3 Verticals, Inc. ~~became~~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.

~~Nine~~Six Months Ended ~~June 30, 2018~~March 31, 2023 Compared to ~~Nine~~Six Months Ended ~~June 30, 2017~~March 31, 2022

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

Nine months ended June 30, Change
(in thousands) 2018 2017 Amount %

Revenue $ 239,455
$ 190,792
$ 48,663
25.5 %

Operating expenses
Interchange and network fees 158,577
137,679
20,898
15.2 %
Other costs of services 30,119
20,796
9,323
44.8 %
Selling general and administrative 29,737
19,165
10,572
55.2 %
Depreciation and amortization 8,876
7,453
1,423
19.1 %
Change in fair value of contingent consideration 3,280
177
3,103
1,753.1 %
Total operating expenses 230,589
185,270
45,319
24.5 %

Income from operations 8,866
5,522
3,344
60.6 %

Other expenses
Interest expense, net 7,649
4,961
2,688
54.2 %
Change in fair value of warrant liability 8,487
(58 ) 8,545
n/m
Total other expenses 16,136
4,903
11,233
229.1 %

Income (loss) before income taxes (7,270 ) 619
(7,889 ) (1,274.5 )%

Provision (benefit) for income taxes 553
101
452
n/m

Net income (loss) (7,823 ) 518
(8,341 ) n/m

Net loss attributable to non-controlling interests (91 ) —
(91 ) n/m
Net loss attributable to i3 Verticals, Inc. $ (7,732 ) $ 518
$ (8,250 ) n/m

~~n/m = not meaningful~~


	Six months ended March 31,				Change
(in thousands)	2023		2022		Amount		%

Revenue	$	179,901	$	152,059	$	27,842	18.3	%

Operating expenses
Other costs of services	38,999		33,141		5,858		17.7	%
Selling, general and administrative	108,207		95,103		13,104		13.8	%
Depreciation and amortization	17,691		14,317		3,374		23.6	%
Change in fair value of contingent consideration	3,722		16,430		(12,708)		(77.3)	%
Total operating expenses	168,619		158,991		9,628		6.1	%

Income (loss) from operations	11,282		(6,932)		18,214		n/m

Other expenses
Interest expense, net	11,689		6,531		5,158		79.0	%
Other income	(203)		—		(203)		n/m
Total other expenses	11,486		6,531		4,955		75.9	%

Loss before income taxes	(204)		(13,463)		13,259		(98.5)	%

(Benefit from) provision for income taxes	(181)		656		(837)		n/m

Net loss	(23)		(14,119)		14,096		(99.8)	%

Net income (loss) attributable to non-controlling interest	181		(4,218)		4,399		n/m
Net loss attributable to i3 Verticals, Inc.	$	(204)	$	(9,901)	$	9,697	(97.9)	%

Revenue

Revenue increased ~~$48.7~~$27.8 million, or ~~25.5%~~18.3%, to ~~$239.5~~$179.9 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$190.8~~$152.1 million for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022. This increase was partially driven by revenue from acquisitions of $12.2 million, net of intercompany eliminations, all of which were within the Software and Services segment. In addition to our growth through acquisitions, revenue from existing businesses grew, resulting from an increase in payment volume from new and existing customers across the Company and growth in software and related services revenues, primarily in our Public Sector vertical.

Revenue within Software and Services increased $20.3 million, or 21.6%, to $114.0 million for the six months ended March 31, 2023 from $93.7 million for the six months ended March 31, 2022. The increase was principally driven by ~~acquisitions. Acquisitions completed after June 30, 2017 contributed $40.2 million of~~growth in software and related services revenues as well as integrated volume driving increases in payments revenue in our ~~revenue for the nine months ended June 30, 2018. The remaining $8.5 million of increased revenue was due primarily to an increase in payment volume.~~

Revenue related to Purchased Portfolios, which have a higher rate of revenue attrition and payment volume attrition than the rest of our business, decreased $(4.0) million, or (22.2)%, to $14.0 million for the nine months ended June 30, 2018 from $18.0 million for the nine months ended June 30, 2017. Excluding revenues from the Purchased Portfolios, revenue grew $52.7 million, or 30.5%, to $225.4 million for the nine months ended June 30, 2018 from $172.8 million for the nine months ended June 30, 2017.

Public Sector vertical.

Revenue within Merchant Services increased ~~$44.2~~$7.6 million, or ~~24.5%~~13.0%, to ~~$224.7~~$65.9 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$180.4~~$58.4 million for the ~~nine~~six months ended ~~June 30, 2017. Revenue within our Other business, comprised primarily of our Proprietary Software~~March 31, 2022. Payment volume from new and ~~Related Payments,~~existing customers increased ~~$4.4 million,~~$0.9 billion, or ~~42.9%~~9.2%, to ~~$14.8 million for the nine months ended June 30, 2018 from $10.3 million for the nine months ended June 30, 2017.~~

~~Payment volume increased $1.1 billion, or 14.5%, to $8.6~~$10.5 billion for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$7.5~~$9.6 billion for the ~~nine~~six months ended ~~June 30, 2017.~~

~~Interchange and Network Fees~~

Interchange and network fees increased $20.9 million, or 15.2%, to $158.6 million for the nine months ended June 30, 2018 from $137.7 million for the nine months ended June 30, 2017. Acquisitions completed after June 30, 2017 contributed $14.8 million of our interchange and network fees for the nine months ended June 30, 2018. The remaining $6.1 million of increased interchange and network fees was due primarily to an increase in payment volume.

Interchange and network fees related to the Purchased Portfolios decreased $(1.9) million, or (21.5)%, to $6.8 million for the nine months ended June 30, 2018 from $8.7 million for the nine months ended June 30, 2017. Excluding interchange and network fees from these Purchased Portfolios, interchange and network fees grew $22.8 million, or 17.6%, to $151.8 million for the nine months ended June 30, 2018 from $129.0 million for the nine months ended June 30, 2017.

Interchange and network fees within Merchant Services increased $20.2 million, or 15.0%, to $155.0 million for the nine months ended June 30, 2018 from $134.8 million for the nine months ended June 30, 2017. Interchange and network fees within our Other business, comprised primarily of our Proprietary Software and Related Payments, increased $0.7 million, or 23.0%, to $3.6 million for the nine months ended June 30, 2018 from $2.9 million for the nine months ended June 30, 2017.March 31, 2022.

Other Costs of Services

Other costs of services increased ~~$9.3~~$5.9 million, or ~~44.8%~~17.7%, to ~~$30.1~~$39.0 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$20.8~~$33.1 million for the ~~nine~~six months ended ~~June 30, 2017. Increased payment volume resulted in greater third-party processing costs of $2.1 million and~~March 31, 2022. This increase was primarily driven by an increase in ~~residuals paid to our distribution partners of $1.8 million. The~~other cost of ~~equipment and software also rose $4.8 million due to~~services within the ~~acquisitions of SDCR, Inc. and EMS, Inc.~~Merchant Services segment driven by the increase in payment volume.

Other costs of services within Merchant Services increased ~~$9.1~~$4.3 million, or ~~45.5%~~16.0%, to ~~$28.9~~$31.3 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$19.9~~$27.0 million for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022, driven primarily by the growth in payment volume.

Other costs of services within ~~our Other business, comprised primarily of our Proprietary~~ Software and ~~Related Payments, decreased $0.3~~Services increased $1.5 million, or ~~29.3%~~25.0%, to ~~$1.2~~$7.8 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$0.9~~$6.2 million for the ~~nine~~six months ended ~~June 30, 2017. The decrease was due to reduced processing costs~~March 31, 2022, driven by the growth in payment volume and ~~residual expense.~~acquisitions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$10.6~~$13.1 million, or ~~55.2%~~13.8%, to ~~$29.7~~$108.2 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$19.2~~$95.1 million for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022. This increase was primarily driven by ana $9.7 million increase in employment ~~costs of $10.1 million due to~~expenses, primarily resulting from an increase in headcount ~~resulting~~that resulted from acquisitions and ~~additions to corporate staff~~an increase in preparation for transitioning to being a public company. Increases in software and technological services, rent, telecommunication costs, advertising and marketing expenses comprised the remainder of the increase.

stock compensation expense.

Depreciation and Amortization

Depreciation and amortization increased ~~$1.4~~$3.4 million, or ~~19.1%~~23.6%, to ~~$8.9~~$17.7 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$7.5~~$14.3 million for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022. Amortization expense increased ~~$1.4~~$3.1 million to ~~$2.3~~$16.1 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$6.9~~$13.0 million for the ~~nine~~six months ended ~~June 30, 2017,~~March 31, 2022, primarily due to ~~greater amortization expense resulting from~~ acquisitions ~~such as Fairway~~completed during the 2022 and ~~SDCR, Inc., which was partially offset by lower amortization expense for historical acquisitions due to our accelerated method of amortization.~~2023 fiscal years. Depreciation expense ~~remained consistent at $0.6~~increased $0.3 million to $1.6 million for the ~~nine~~six months ended ~~June 30, 2018 and 2017.~~March 31, 2023 from $1.3 million for the six months ended March 31, 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 ~~$3.3~~$3.7 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 primarily due to the ~~strong performances~~performance of ~~the Information Design, Inc., CSC, LLC, SDCR, Inc. and CS, LLC acquisitions.~~some of our acquisitions exceeding our expectations. The change in fair value of contingent consideration for the ~~nine~~six months ended ~~June 30, 2017~~March 31, 2022 was a charge of ~~$0.2~~$16.4 million.

Interest Expense, net

Interest expense, net, increased ~~$2.7~~$5.2 million, or ~~54.2%~~79.0%, to ~~$7.6~~$11.7 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$5.0~~$6.5 million for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022. The increase reflects ~~additional borrowings on our Senior Secured Credit Facility used to fund our acquisition activity subsequent to June 30, 2017.~~

~~Change in Fair Value of Warrant Liability~~

~~The change in fair value of our warrant liabilities corresponds~~a higher average interest rate and a higher average outstanding debt balance for the six months ended March 31, 2023, as compared to the ~~value of the warrants issued~~six months ended March 31, 2022.

Other Income

Other income was $0.2 million related to contingent consideration received for an investment that was sold in ~~connection with our Mezzanine Notes. The fair value of these warrant liabilities increased $8.5 million~~a prior year for the ~~nine~~six months ended ~~June 30, 2018. The change in the fair value of the warrants~~March 31, 2023. There was due to increased estimated enterprise value resulting from our acquisitions and growth, culminating in the exercise of the warrants in conjunction with our IPO. The change in fair value of the warrant liabilities was a benefit of $(0.1) millionno other income for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022.

(Benefit from) Provision for Income Taxes

The provision for income taxes ~~increased~~decreased to ~~$0.6~~a benefit of $0.2 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$0.1~~a provision of $0.7 million for ~~the nine~~six months ended June 30, 2017. The provision for income taxes consists primarily of provisions for state income taxes and, for certain subsidiaries of i3 Verticals, LLC are corporations, provisions for Federal income taxes.March 31, 2022. Our effective tax rate was ~~(8)%~~88.7% for the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2023. Our effective tax rate differs from the federal statutory rate ~~because significant pre-tax losses related~~of 21% primarily due to the ~~change in~~tax structure of the ~~fair value~~Company. The income of ~~contingent consideration and warrant liabilities were recognized at the~~majority owned i3 Verticals, LLC ~~level prior to our Reorganization Transactions~~is not taxed and ~~were not subject~~the separate loss of the Company has minimal tax effect due to the ~~federal income tax rate. As a result of the consummation of the Reorganization Transactions and the IPO,~~allocations from i3 Verticals, LLC. i3 Verticals, Inc. ~~became~~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.

Seasonality

We have experienced in the past, and may continue to experience, seasonal fluctuations in our revenues as a result of consumer and business spending patterns. Revenues during the first quarter of the calendar year, which is our second fiscal quarter, tend to decrease in comparison to the remaining three quarters of the calendar year on a same store basis. This decrease is due to the relatively higher number and amount of electronic payment transactions related to seasonal retail events, such as holiday and vacation spending in their second, third and fourth quarters of the calendar year. The number of business days in a month or quarter also may affect seasonal fluctuations. Revenue in our ~~education~~Education vertical fluctuates with the school calendar. Revenue for our ~~education~~Education customers is strongest in August, September, October, January and February, at the start of each semester, and generally weakens throughout the semester, with little revenue in the summer months of June and July. Operating expenses show less seasonal fluctuation, with the result that net income is subject to the same seasonal factors as our revenues. The growth in our business may have partially overshadowed seasonal trends to date, and seasonal impacts on our business may be more pronounced in the future.

Liquidity and Capital Resources

We have historically financed our operations and working capital through net cash from operating activities. As of ~~June 30, 2018, after completion of our IPO,~~March 31, 2023, we had ~~$2.5~~$4.0 million of cash and cash equivalents and available borrowing capacity of ~~$110.0~~$103.9 million under our Senior Secured Credit ~~Facility.~~Facility, subject to the financial covenants. We usually minimize cash balances by making payments on our revolving line of credit ~~facility~~ to minimize borrowings and interest expense. As of March 31, 2023, we had borrowings outstanding of $271.1 million under the Senior Secured Credit Facility. On May 8, 2023, the Company replaced the Senior Secured Credit Facility with the 2023 Credit Agreement (as defined below). For additional information about our 2023 Credit Agreement, see the section entitled "—Senior Secured Revolving 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 ~~payments~~ 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 ~~Senior Secured~~2023 Credit ~~Facility~~Agreement will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for at least the next twelve ~~months.~~months and foreseeable future. Our growth strategy includes acquisitions. We expect to fund acquisitions through a combination of net cash from operating activities, borrowings under our 2023 Credit Agreement and through the issuance of equity and debt securities. As a holding company, we depend on distributions or loans from i3 Verticals, LLC to access funds earned by our operations. The covenants contained in the ~~Senior Secured~~2023 Credit ~~Facility~~Agreement may restrict i3 Verticals, LLC’s ability to provide funds to i3 Verticals, Inc.

Our liquidity profile reflects our completed offering in February 2020 of an aggregate principal amount of $138.0 million in 1.0% Exchangeable Senior Notes due 2025, with substantially all the proceeds being used to pay down outstanding borrowings under our Senior Secured Credit Facility. As of March 31, 2023, the aggregate principal amount outstanding of the Exchangeable Notes was $117.0 million. We may elect from time to time to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise. Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law and other factors.

Cash Flows

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, 2018~~Six Months Ended March 31, 2023 and ~~2017~~2022


	Six months ended March 31,
	2023		2022
	(in thousands)
Net cash provided by operating activities	$	25,529	$	31,213
Net cash used in investing activities	$	(111,130)	$	(99,598)
Net cash provided by financing activities	$	84,169	$	77,767

Nine months ended June 30,
2018 2017
(in thousands)
Net cash provided by operating activities $ 15,007
$ 5,938
Net cash used in investing activities $ (30,956 ) $ (7,710 )
Net cash provided by (used in) in financing activities $ 17,467
$ (1,452 )

Cash Flow from Operating Activities

Net cash provided by operating activities ~~increased $9.1~~decreased $5.7 million to ~~$15.0~~$25.5 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$5.9~~$31.2 million for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022. Our net loss decreased from a net loss of $14.1 million for the six months ended March 31, 2022 to a net loss of $23 thousand for the six months ended March 31, 2023. Some of this decrease in net loss was driven by reductions in non-cash expenses that do not impact cash flows from operating activities. The ~~increase~~primary drivers of the decrease in ~~net~~ cash provided by operating activities, ~~included~~despite the decrease in net loss, were a decrease in ~~net~~non-cash contingent consideration of $12.7 million, a decrease in amortization of debt discount and issuance costs of $2.1 million and a decrease in the provision for income ~~to a net loss,~~taxes of ~~$(8.3)~~$0.9 million, partially offset by an ~~$8.5 million~~ increase in ~~change in fair value of warrant liability. Depreciation~~depreciation and amortization ~~expense increased $1.4~~of $3.4 million equity-based compensation increased $0.8 million and non-cash contingent consideration expense from an increase in the original estimate increased $3.1 million. These increases were offset by $0.8 million in benefit from income taxes from the revaluation of deferred taxes related to the newly enacted federal tax reform and an increase in the change in contingent consideration paid in excess of original estimates of $0.8 million. Working capital decreased $3.5 million, driven by a $(3.0) million reduction in other assets and a $2.8 million increase in accrued liabilities, offset by a $1.5 million decrease in accounts receivable and a $1.4 million decrease in prepaid expenses and other current assets, for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 compared to the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022. Other changes include decreases in operating assets and liabilities of $8.5 million, which are impacted by the timing of collections and payments, for the six months ended March 31, 2023 compared to the six months ended March 31, 2022.

Cash Flow from Investing Activities

Net cash used in investing activities increased ~~$(23.2)~~$11.5 million to ~~$(31.0)~~$111.1 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~$(7.7)~~$99.6 million for the ~~nine~~six months ended ~~June 30, 2017. In~~March 31, 2022. The largest driver of cash used in investing activities for the ~~nine~~six months ended ~~June 30, 2018,~~March 31, 2023 and 2022 was cash used in acquisitions, net of cash acquired. For the six months ended March 31, 2023, we used ~~$18.7~~$102.0 million of cash for ~~the acquisition of SDCR, Inc. and used $10.2 million~~acquisitions, net of cash acquired compared to $94.3 million for ~~other~~the six months ended March 31, 2022. As a result, most of the increase in net cash used in investing activities was primarily the result of an increase of $7.7 million in cash used in acquisitions, ~~including the acquisition of EMS, Inc. and CS, LLC, the acquisition of residual buyouts and other intangibles. We also used $(0.8) million~~net of cash ~~for capitalized software costs and $(1.3) million of cash~~acquired. Additionally, expenditures for property and equipment ~~expenditures. In the nine months ended June 30, 2017, we used $4.0~~increased $1.4 million, ~~of cash to acquire CSC, LLC and used $2.4 million of cash~~payments for other ~~acquisitions, including a payment portfolio~~investing activities increased $1.2 million and ~~CCP, Inc., residual buyouts and other intangibles. In the nine months ended June 30, 2017, we used $(0.8) million~~expenditures for capitalized software ~~costs, and $(0.5)~~increased $1.1 million for ~~property and equipment expenditures.~~

the six months ended March 31, 2023 compared to the six months ended March 31, 2022.

Cash Flow from Financing Activities

Net cash provided by financing activities increased ~~$18.9~~$6.4 million to ~~$17.5~~$84.2 million for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2023 from ~~a use of $(1.5)~~$77.8 million for the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2022. The increase in net cash provided by financing activities was primarily the result of an increase in proceeds from ~~debt~~the revolving credit facility of $86.0 million and ~~our IPO, used to fund acquisitions and~~a decrease in cash paid for contingent consideration up to our original estimates of $5.0 million, partially offset ~~with~~by an increase in payments on ~~debt with~~ the ~~proceeds~~revolving credit facility of $84.0 million for the six months ended March 31, 2023 from ~~our IPO.~~the six months ended March 31, 2022.

Senior Secured Credit Facility

On May 9, 2019, we replaced our senior secured credit facility with a new credit agreement (the “Senior Secured Credit Facility”). Effective October ~~30, 2017, we entered into~~3, 2022, the Senior Secured Credit ~~Facility. Bank~~Facility, as amended, consisted of ~~America serves as administrative agent~~a $375.0 million revolving credit facility, together with ~~Bank~~an option to increase the revolving credit facility and/or obtain incremental term loans in an additional principal amount of ~~America, Wells Fargo and Fifth Third serving as joint lead arrangers and joint bookrunners.~~ up to $50.0 million in the aggregate (subject to the receipt of additional commitments for any such incremental loan amounts).

The Senior Secured Credit Facility ~~consists~~accrued interest at Term SOFR (based upon an interest period of ~~$40.0 million in term loans and a $110.0 million revolving line~~one, three or six months), plus an adjustment of ~~credit. The Senior Secured Credit Facility accrues interest, payable monthly, at~~0.10%, plus an applicable margin of 2.25% to 3.25% (3.25% as of March 31, 2023), or the base rate (defined as the highest of (x) the Bank of America prime rate, ~~per annum~~(y) the federal

funds rate plus a0.50% and (z) Term SOFR, plus an adjustment of 0.10%, plus 1.00%), plus an applicable margin of ~~0.50%~~0.25% to ~~2.00% (2.00%~~1.25% (1.25% as of ~~June 30, 2018) or at the 30-day LIBOR rate plus a margin of 2.75% to 4.00% (4.00% as of June 30, 2018)~~March 31, 2023), in each case depending onupon the ~~ratio of~~ consolidated ~~debt to EBITDA,~~total leverage ratio, as defined in the agreement. Interest was payable at the end of the selected interest period, but no less frequently than quarterly. Additionally, the Senior Secured Credit Facility ~~requires~~required us to pay unused commitment fees of up0.15% to 0.30% (0.30% as of ~~June 30, 2018)~~March 31, 2023) on any undrawn amounts under the revolving ~~line~~credit facility and letter of ~~credit. Principal payments~~credit fees of ~~$1.3 million are due~~up to 3.25% on the ~~last day~~maximum amount available to be drawn under each letter of ~~each calendar quarter until~~credit issued under the ~~maturity date, when all outstanding principal and accrued and unpaid interest will be due.~~agreement. The ~~maturity date of the~~ Senior ~~Secured~~ Credit Facility ~~is October 30, 2022. The Senior Secured Credit Facility contains customary affirmative and negative covenants, including financial covenants requiring~~requires maintenance of certain financial ratios on a ~~senior secured debt-to-EBITDA~~quarterly basis as follows: (i) a minimum consolidated interest coverage ratio ~~(as defined in the Senior Secured Credit Facility), not exceeding the amounts reflected in the schedule below.~~



~~Calendar Year~~	~~March 31~~	~~June 30~~	~~September 30~~	~~December 31~~
~~2018~~	~~3.50 to 1.0~~	~~3.50 to 1.0~~	~~3.50 to 1.0~~	~~3.25 to 1.0~~
~~2019~~	~~3.25 to 1.0~~	~~3.25 to 1.0~~	~~3.25 to 1.0~~	~~3.25 to 1.0~~
~~2020~~	~~3.25 to 1.0~~	~~3.00 to 1.0~~	~~3.00 to 1.0~~	~~3.00 to 1.0~~
~~thereafter~~	~~3.00 to 1.0~~	~~3.00 to 1.0~~	~~3.00 to 1.0~~	~~3.00 to 1.0~~

~~The Senior Secured Credit Facility also includes~~of 3.00 to 1.00 (ii) a ~~financial covenant requiring maintenance~~maximum total leverage ratio of ~~a consolidated debt-to-EBITDA ratio (as defined in the Senior Secured Credit Facility), not exceeding the amounts reflected in the schedule below.~~



~~Calendar Year~~	~~March 31~~	~~June 30~~	~~September 30~~	~~December 31~~
~~2017~~	~~N/A~~	~~N/A~~	~~N/A~~	~~4.50 to 1.0~~
~~2018~~	~~4.50 to 1.0~~	~~4.50 to 1.0~~	~~4.50 to 1.0~~	~~4.25 to 1.0~~
~~2019~~	~~4.25 to 1.0~~	~~4.25 to 1.0~~	~~4.25 to 1.0~~	~~4.25 to 1.0~~
~~2020~~	~~4.25 to 1.0~~	~~4.00 to 1.0~~	~~4.00 to 1.0~~	~~4.00 to 1.0~~
~~thereafter~~	~~4.00 to 1.0~~	~~4.00 to 1.0~~	~~4.00 to 1.0~~	~~4.00 to 1.0~~

~~The Senior Secured Credit Facility contains provisions detailing a leverage increase period during which the required debt-to-EBITDA ratios set forth above will be increased by 0.25~~5.00 to 1.00, provided, that for each of the four fiscal quarters immediately following a ~~“Qualified Acquisition,” as defined therein, commencing with~~qualified acquisition (each a “Leverage Increase Period”), the ~~fiscal quarter during which~~required ratio set forth above may be increased by up to 0.25, subject to certain limitations and (iii) a maximum consolidated senior secured leverage ratio of 3.25 to 1.00, provided, that for each Leverage Increase Period, the ~~acquisition was completed. We used proceeds from~~consolidated senior leverage ratio may be increased by up to 0.25, subject to certain limitations. The maturity date of the Senior Secured Credit Facility to complete the SDCR, Inc., CS, LLC, and EMS, Inc. acquisitions. With the completion of the SDCR, Inc. acquisition, we received a step-up for the purposes of calculating our debt-to-EBITDA ratio; as of June 30, 2018, our maximum senior secured debt-to-EBITDA ratio is 3.75 to 1.0 and our maximum consolidated debt-to-EBITDA ratio is 4.75 to 1.0.was May 9, 2024. As of ~~June 30, 2018,~~March 31, 2023, we ~~had $36.3~~were in compliance with these covenants, and there was $103.9 million available for borrowing under the revolving credit facility, subject to the financial covenants.

The Senior Secured Credit Facility was secured by substantially all of ~~term loans outstanding, with no borrowings outstanding and $110.0 million of available capacity under~~ our ~~revolving line of credit~~.

~~All obligations~~assets. The lenders under the Senior Secured Credit Facility ~~are fully~~held senior rights to collateral and ~~unconditionally secured by pledged equity interests and security interests in substantially~~principal repayment over all ~~of our assets.~~

other creditors.

The provisions of the Senior Secured Credit Facility ~~place~~placed certain restrictions and limitations upon us. These include, among others, restrictions on liens, investments, indebtedness, fundamental changes and ~~dispositions;~~dispositions, maintenance of certain financial ~~ratios;~~ratios, and certain non-financial covenants pertaining to our activities during the period covered. ~~We were~~

2023 Senior Secured Revolving Credit Facility

On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (the “2023 Credit Agreement”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”). The 2023 Credit Agreement replaces the Senior Secured Credit Facility. The 2023 Credit Agreement provides for aggregate commitments of $450 million in ~~compliance with such covenants~~the form of a senior secured revolving credit facility (the “Revolver”).

The 2023 Credit Agreement 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 ~~June 30, 2018.~~ 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 Credit Agreement) 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 Credit Agreement) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement) would not exceed 5.0 to 1.0.

applicable margin is based upon the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement), as reflected in the schedule below:


Consolidated Total Net Leverage Ratio	Commitment Fee		Letter of Credit Fee		Term Benchmark Loans		Base Rate Loans
> 3.0 to 1.0	0.30	%	3.00	%	3.00	%	2.00	%
> 2.5 to 1.0 but < 3.0 to 1.0	0.25	%	2.50	%	2.50	%	1.50	%
> 2.0 to 1.0 but < 2.5 to 1.0	0.20	%	2.25	%	2.25	%	1.25	%
< 2.0 to 1.0	0.15	%	2.00	%	2.00	%	1.00	%

In addition, if the total amount borrowed under the Revolver exceeds $450 million at any time, the 2023 Credit Agreement requires the Borrower to prepay such excess outstanding amounts.

All obligations under the 2023 Credit Agreement are unconditionally guaranteed by the Company, and each of the Company’s existing and future direct and indirect material, wholly owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by first-priority security interests in substantially all tangible and intangible assets of the Borrower, the Company and each subsidiary guarantor, in each case whether owned on the date of the initial borrowings or thereafter acquired..

Exchangeable Notes

On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its 1.0% Exchangeable Notes due February 15, 2025. The Exchangeable Notes bear interest at a fixed rate of 1.0% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. The Exchangeable Notes are exchangeable into cash, shares of the Company's Class A common stock, or a combination thereof, at i3 Verticals, LLC's election. The Exchangeable Notes mature on February 15, 2025, unless earlier exchanged, redeemed or repurchased. The net proceeds from the sale of the Exchangeable Notes were approximately $132.8 million, after deducting discounts and commissions to the certain initial purchasers and other estimated fees and expenses. i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Senior Secured Credit Facility ~~restricts our ability to make dividends or other distributions to the holders of our equity. We are permitted to:~~


a.	~~make cash distributions to the holders of our equity in order to pay taxes incurred by owners of equity in i3 Verticals, LLC, by reason of such ownership,~~


b.	~~move intercompany cash between subsidiaries that are joined to the Senior Secured Credit Facility,~~


c.	~~use up to $1.5 million per year to repurchase equity from employees, directors, officers or consultants after our restructuring~~ in connection ~~with the IPO, and~~


d.	~~make other dividends or distributions in an aggregate amount not to exceed 5% of the net cash proceeds received from any additional common equity issuance after our initial public offering.~~

~~We are also permitted to make noncash dividends in the form of additional equity issuances. The Senior Secured Credit Facility prohibits all other forms of dividends or distributions.~~

~~Mezzanine Notes~~

During 2013, we issued notes payable in the aggregate principal amount of $10.5 million (the “Mezzanine Notes”) to three related creditors (the “Mezzanine Lenders”). The Mezzanine Notes accrue interest at a fixed annual rate of 12.0%, payable monthly, and were due to mature in November 29, 2020. The Mezzanine Notes were secured by substantially all of our assets in accordance with the ~~terms~~effectiveness of the ~~security agreement and were subordinate~~operative provisions of the amendment to the Senior Secured Credit ~~Facility.~~

~~In June 2018, all~~Facility and to pay the cost of the ~~outstanding aggregate principal balance~~Note Hedge Transactions.

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 ~~accrued interest on~~BTIG, LLC (each a “Sales Agent”), under which we may issue and sell, from time to time and through the ~~Mezzanine Notes was repaid with proceeds from the Company’s IPO. As part of the extinguishment of the Mezzanine Notes, $0.1 million of unamortized debt issuance costs were written off.~~

~~Junior Subordinated Notes~~

During 2014, we issued notes payable (“Junior Subordinated Notes”) in the aggregate principal amount of $17.6 million to unrelated and related creditors. The notes accrued interest, payable monthly, at a fixed rate of 10.0% and were due to mature on February 14, 2019. In June 2016, $1.0 million of the Junior Subordinated Notes held by Greg Daily were retired and exchanged for 309,598 Class A units. In July 2017, $0.5 million of the Junior Subordinated Notes held by Greg Daily were retired and exchanged for 147,929 Class A units. At September 30, 2017, $16.1 million of the Junior Subordinated Notes remained outstanding. The Junior Subordinated Notes are subordinated to the Mezzanine Notes and the Senior Secured Credit Facility.

~~In June 2018, in connection with our IPO and as part of the Reorganization Transactions, we issued 671,167~~Sales Agents, shares of our Class A common stock ~~pursuant~~having an aggregate offering price of up to $125 million (the “ATM Program”). During the quarter ended March 31, 2023, we did not sell any Class A common stock under the ATM Program. As of March 31, 2023, we had a ~~voluntary private conversion of Junior Subordinated Notes by certain related and unrelated creditors of i3 Verticals, LLC. $8.1~~remaining capacity to sell up to $107 million ~~of the Junior Subordinated Notes were converted to the newly issued shares~~ of our Class A common ~~stock. Also in June 2018,~~stock under the ~~remaining $8.1 million of the Junior Subordinated Notes was repaid with~~ATM Program.

The proceeds from ~~our IPO. As part of~~these issuances were used to repay outstanding indebtedness under the ~~extinguishment of the Junior Subordinated Notes, a nominal amount of unamortized debt issuance costs were written off.~~Senior Secured Credit Facility and for other general corporate purposes.

~~Class A Units Offerings~~Material Cash Requirements

As noted above, during March 2016, an existing $1.0 million unsecured convertible note payable to Mr. Daily was converted into 1,000,000 Class A units of i3 Verticals, LLC at a price of $1.00 per unit pursuant to the provisions of the note.

During July 2017, we raised $12.5 million from the issuance of a total of 3,698,225 Class A units at a price of $3.38 per unit in a private offering. As noted above, during July 2016, $0.5 million of the Junior Subordinated Notes held by Mr. Daily were converted into 147,929 Class A units at a price of $3.38 per unit. The fair value of the Class A units we issued approximated the carrying amount of the Junior Subordinated Notes, and we recognized no extinguishment gain or loss.

~~Contractual Obligations~~

The following table summarizes our ~~contractual obligations and commitments~~material cash requirements as of ~~June 30, 2018~~March 31, 2023 related to leases and borrowings:


	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
(in thousands)
Processing minimums(1)	$	3,475	$	2,856	$	619	$	—	$	—
Facility leases	18,346		5,217		7,976		3,523		1,630
Senior Secured Credit Facility and related interest(2)	298,195		21,645		276,550		—		—
Exchangeable Notes and related interest(3)	119,194		1,170		118,024		—		—
Contingent consideration(4)	22,259		20,756		1,503		—		—
Total	$	461,469	$	51,644	$	404,672	$	3,523	$	1,630

__________________________

1.We have non-exclusive agreements with several processors to provide us services related to transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools. Certain of these agreements require us to submit a minimum monthly number of transactions for processing. If we submit a number of transactions that is lower than the minimum, we are required to pay to the processor the fees it would have received if we had submitted the required minimum number of transactions.

Payments Due by Period
Contractual Obligations Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years
(in thousands)

Processing minimums⁽¹⁾
$ 4,565
$ 2,808
$ 1,757
$ —
$ —
Facility leases 8,439
1,684
4,136
2,547
72
Senior Secured Credit Facility and related interest⁽²⁾
47,077
2,498
4,996
39,583
—
Contingent consideration⁽³⁾
—
—
—
—
—
Total $ 60,081
$ 6,990
$ 10,889
$ 42,130
$ 72
2.We estimated interest payments through the maturity of our Senior Secured Credit Facility by applying the interest rate of 8.17% in effect on the outstanding balance as of March 31, 2023, plus the unused fee rate of 0.30% in effect as of March 31, 2023.

~~__________________________~~

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.


2.	We estimated interest payments through the maturity of our Senior Secured Credit Facility by applying the interest rate of 5.98% in effect on our term loan as of June 30, 2018, plus an unused fee rate of 0.30%.

In connection with certain of our acquisitions, we may be obligated to pay the seller of the acquired entity certain amounts of contingent consideration as set forth in the relevant purchasing documents, whereby additional consideration may be due upon the achievement of certain specified financial performance targets. i3 Verticals, Inc. accounts for the fair values of such contingent payments in accordance with the Level 3 financial instrument fair value hierarchy at the close of each subsequent reporting period. The acquisition-date fair value of contingent consideration is valued using a Monte Carlo simulation. i3 Verticals, Inc. subsequently reassesses such fair value based on probability estimates with respect to the acquired entity’s likelihood of achieving the respective financial performance targets.

3.We calculated interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.0% on the principal balance as of March 31, 2023 of $117.0 million.

4.In connection with certain of our acquisitions, we may be obligated to pay the seller of the acquired entity certain amounts of contingent consideration as set forth in the relevant purchasing documents, whereby additional consideration may be due upon the achievement of certain specified financial performance targets. i3 Verticals, Inc. accounts for the fair values of such contingent payments in accordance with the Level 3 financial instrument fair value hierarchy at the close of each subsequent reporting period. The acquisition-date fair value of contingent consideration is valued using a Monte Carlo simulation. i3 Verticals, Inc. subsequently reassesses such fair value based on probability estimates with respect to the acquired entity’s likelihood of achieving the respective financial performance targets.

Potential payments under the Tax Receivable Agreement are not reflected in this table. See “—“—Tax Receivable Agreement” below.

Tax Receivable Agreement

We are a party to ~~the~~a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners, as described in Note 68 of our condensed consolidated financial statements. As a result of the Tax Receivable Agreement, we have been required to establish a liability in our condensed consolidated financial statements. That liability, which will increase upon the redemptions or exchanges of Common Units for our Class A common stock, generally represents 85% of the estimated future tax benefits, if any, relating to the increase in tax basis associated with the Common Units we ~~receive~~received as a result of the Reorganization Transactions and other redemptions or exchanges by holders of Common Units. If this election is made, the accelerated payment will be based on the present value of 100% of the estimated future tax benefits and, as a result, the associated liability reported on our condensed consolidated financial statements may be increased. We expect that the payments required under the Tax Receivable Agreement will be substantial. The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of Common Units, the price of our Class A common stock at the time of the redemption or exchange, whether such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable as well as the portion of our payments under the Tax Receivable Agreement constituting imputed interest. We intend to fund the payment of the amounts due under the Tax Receivable Agreement out of the cash savings that we actually realize in respect of the attributes to which Tax Receivable Agreement relates.

As of ~~June 30, 2018 we recognized liabilities related to~~March 31, 2023, the total amount due under the Tax Receivable Agreement was $40.9 million, and payments to the Continuing Equity Owners related to exchanges through March 31, 2023 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 ~~$0.8 million.~~

March 31, 2023, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.

Critical Accounting ~~Policies~~Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, goodwill and intangible assets, ~~derivative financial instruments,~~contingent consideration, and equity-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

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

As of ~~June 30, 2018,~~March 31, 2023, there have been no significant changes to our critical accounting estimates disclosed in the ~~Prospectus~~Form 10-K filed with the SEC on ~~June 21, 2018.~~November 18, 2022.

~~Recently Issued Accounting Pronouncements~~

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation - Stock Compensation: Scope of Modification Accounting~~ (Topic 718). The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We have adopted this standard as of April 1, 2018. There was no impact on our condensed consolidated financial statements.

~~In August 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows: Restricted Cash~~ (Topic 230). The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. As an emerging growth company, we will not be required to adopt this ASU until October 1, 2019. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. We are currently evaluating the impact of the adoption of this principle on our consolidated financial statements.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments~~ (Topic 230). The update clarifies how cash receipts and cash payments in certain transactions are presented and classified in the statement of cash flows. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. As an emerging growth company, we will not be required to adopt this ASU until October 1, 2019. The update requires retrospective application to all periods presented but may be applied prospectively if retrospective application is impracticable. We are currently evaluating the impact of the adoption of this principle on our consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (Topic 842). This ASU amends the existing guidance by recognizing all leases, including operating leases, with a term longer than twelve months on the balance sheet and disclosing key information about the lease arrangements. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. As a public business entity, we are an emerging growth company and have elected to use the extended transition period provided for such companies. As a result, we will not be required to adopt this ASU until October 1, 2020. The update requires modified retrospective transition, with the option to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment and elect various practical expedients. We are currently evaluating the impact of the adoption of this principle on our consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue From Contracts With Customers~~ (Topic 606). The ASU supersedes the revenue recognition requirements in ASC 605. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard, as amended, is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. As an emerging growth company, we will not be required to adopt this ASU until October 1, 2019. The amendment allows companies to use either a full retrospective or a modified retrospective approach to adopt this ASU. We have formed a project team and are currently assessing the impact of the adoption of this principle on our consolidated financial statements.

~~Off-Balance Sheet Arrangements~~

~~As of June 30, 2018, we did not have any off-balance sheet financing arrangements.~~

Item 3. Quantitative and Qualitative ~~Disclosure~~Disclosures About Market Risk

~~We are exposed to market risks associated with changes in interest rates on our variable rate long-term debt. We have outstanding borrowings under our~~Interest Rate Risk

As of March 31, 2023, the Senior Secured Credit Facility, ~~and may incur~~as amended, consisted of a $375.0 million revolving credit facility, together with an option to increase the revolving credit facility and/or obtain incremental term loans in an additional ~~borrowings from time~~principal amount of up to ~~time for general corporate purposes, including working capital and capital expenditures. As of June 30, 2018,~~$50.0 million in the ~~interest rate applicable~~aggregate (subject to the ~~senior secured term~~receipt of additional commitments for any such incremental loan is, at our option, equal to either (1) the Eurocurrency option with an effective rate of LIBOR plus a margin of 2.75% to 4.00% or (2) the alternative base rate with an effective rate of the prime rate plus a margin of 0.50% to 2.00%amounts). ~~In the case of both the LIBOR borrowings or base rate borrowings, the margin rate is determined by a ratio of our consolidated debt to EBITDA.~~

As of ~~June 30, 2018,~~March 31, 2023, the Senior Secured Credit Facility accrued interest at Term SOFR (based upon an interest period of one, three or six months), plus an adjustment of 0.10%, plus an applicable margin of 2.25% to 3.25% (3.25% as of March 31, 2023), or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50% and (z) Term SOFR, plus an adjustment of 0.10%, plus 1.00%), plus an applicable margin of 0.25% to 1.25% (1.25% as of March 31, 2023), in each case depending upon the consolidated total leverage ratio, as defined in the agreement. Interest was payable at the end of the selected

interest period, but no less frequently than quarterly. Additionally, the Senior Secured Credit Facility required us to pay unused commitment fees of 0.15% to 0.30% (0.30% as of March 31, 2023) on any undrawn amounts under the revolving credit facility and letter of credit fees of up to 3.25% on the maximum amount available to be drawn under each letter of credit issued under the agreement. The Senior Credit Facility required maintenance of certain financial ratios on a quarterly basis as follows: (i) a minimum consolidated interest coverage ratio of 3.00 to 1.00 (ii) a maximum total leverage ratio of 5.00 to 1.00, provided, that for each of the four fiscal quarters immediately following a qualified acquisition (each a “Leverage Increase Period”), the required ratio set forth above may be increased by up to 0.25, subject to certain limitations and (iii) a maximum consolidated senior secured leverage ratio of 3.25 to 1.00, provided, that for each Leverage Increase Period, the consolidated senior leverage ratio may be increased by up to 0.25, subject to certain limitations. As of March 31, 2023, we were in compliance with these covenants, and there was $103.9 million available for borrowing under the revolving credit facility, subject to the financial covenants.

As of March 31, 2023, we had borrowings outstanding of ~~$36.3~~$271.1 million outstanding under the Senior Secured Credit Facility. A 1.0% increase or decrease in the interest rate applicable to such borrowing (which iswas the ~~LIBOR~~Term SOFR rate) would have had a ~~$0.4~~$2.7 million dollar impact on the results of the business.

Foreign Currency Exchange Rate Risk

As a result of our international operations, we are also exposed to foreign currency exchange rate risks. Because our international operations are not yet material to our consolidated results of operations, a 10% change in foreign currency exchange rates would not have had a material impact on our consolidated results of operations, financial position, or cash flows for the three months ended March 31, 2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, with the participation of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities ~~and~~ Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluations, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective (at the reasonable assurance level) to ensure that the information required to be ~~included~~disclosed by the Company in ~~this report~~the reports that it files or submits under the Exchange Act has been recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that the information required to be included in this report was accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control ~~Over~~over Financial Reporting

NoThere have been no changes in our internal control over financial reporting ~~occurred~~ during the quarter ended ~~June 30, 2018~~March 31, 2023 that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

PART II. - OTHER INFORMATION

Item 1. Legal Proceedings

The information required with respect to this item can be found in Note 1012 to the accompanying unaudited condensed consolidated financial statements contained in this report and is incorporated by reference into this Part II, Item 1.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our ~~final Prospectus that we~~Form 10-K for the fiscal year ended September 30, 2022 filed with the SEC on ~~June 21, 2018 in connection with our IPO.~~November 18, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Recent Sales of Unregistered Securities~~None.

In connection with the Reorganization Transactions and immediately prior to the consummation of the IPO, i3 Verticals, Inc. issued to the existing holders of i3 Verticals, LLC’s existing Class A units, common units (including common units issued upon the exercise of existing warrants held by existing warrant holders of i3 Verticals, LLC) and Class P units an aggregate 824,861 shares of Class A common stock and an aggregate 17,597,222 shares of Class B common stock, $0.0001 par value per share, of i3 Verticals, Inc. Also in connection with the Reorganization Transactions, i3 Verticals, Inc. issued 619,542 shares of Class A common stock pursuant to a voluntary private conversion of certain subordinated notes by certain related and unrelated creditors of i3 Verticals, LLC, wherein certain eligible holders of i3 Verticals, LLC's Junior Subordinated Notes elected to convert approximately $8.1 million in aggregate indebtedness into Class A common stock. Both of these issuances of Class A common stock and Class B common stock were made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering. No underwriters were involved in the issuance and sale of these shares of Class A common stock or Class B common stock.

Subject to the terms of the i3 Verticals, LLC Limited Liability Company Agreement, the Continuing Equity Owners may redeem their Common Units for shares of our Class A common stock or, at the election of i3 Verticals, LLC, for newly-issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Common Unit redeemed. The Continuing Equity Owners may exercise such redemption right for as long as their Common Units remain outstanding. In connection with the exercise of the redemption or exchange of Common Units (1) the Continuing Equity Owners will be required to surrender a number of shares of our Class B common stock registered in the name of such redeeming or exchanging Continuing Equity Owner, which we will cancel for no consideration on a one-for-one basis with the number of Common Units so redeemed or exchanged and (2) all redeeming members will surrender Common Units to i3 Verticals, LLC for cancellation.

~~Use of Proceeds from Initial Public Offering of Class A Common Stock~~

On June 25, 2018, we completed the initial public offering of our Class A common stock pursuant to a registration statement (File No. 333-225214) (the “Registration Statement”), which was declared effective on June 20, 2018. We registered and sold an aggregate of 7,647,500 shares of our Class A common stock (including 997,500 shares sold pursuant to the underwriters' over-allotment option) under the Registration Statement at a price of $13.00 per share, for an aggregate offering price of $99.4 million. Cowan and Company, LLC and Raymond James & Associates, Inc. acted as representatives of the underwriters in the offering. The offering commenced on June 21, 2018 and did not terminate before all of the securities registered in the Registration Statement were sold. The offering resulted in net proceeds of $92.5 million after deducting underwriters' discounts and commissions. No offering expenses were paid or are payable, directly or indirectly, to any of our officers, directors or their associates, to any person owning 10% or more of any class of our equity securities or to any of our affiliates.

We used the net proceeds to purchase (1) 7,264,083 Common Units directly from i3 Verticals, LLC, and (2) 383,417 Common Units from a Continuing Equity Owner, in each case at a price per Common Unit equal to the price per share paid by the underwriters for shares of our Class A common stock in the IPO.

As its sole manager, we caused i3 Verticals, LLC to use the net proceeds from the sale of Common Units to i3 Verticals, Inc. to repay the Mezzanine Notes in full, to repay the outstanding Junior Subordinated Notes in full and to repay approximately $68.5 million of the revolving loan of our Senior Secured Credit Facility. In addition, we caused i3 Verticals, LLC to repay approximately $2.8 million of the revolving loan of our Senior Secured Credit Facility with the amounts received from the exercise of warrants.

~~Thus, as of the date of this Quarterly Report on Form 10-Q, we have used all of the net proceeds from our IPO.~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibit Index

Exhibit
Number
Exhibit Description Incorporated by Reference
Form File No. Exhibit
Filing
Date
Filed/
Furnished
Herewith
3.1
Amended and Restated Certificate of Incorporation of i3 Verticals, Inc.
8-K 001-38532 3.1 6/25/18
3.2
Amended and Restated Bylaws of i3 Verticals, Inc.
8-K 001-38532 3.2 6/25/18
4.1
Specimen Stock Certificate evidencing the shares of Class A common stock
S-1 333-225214 4.1 5/25/18
10.1
Form of Tax Receivable Agreement
S-1 333-225214 10.2 5/25/18
10.2
Form of Registration Rights Agreement
S-1 333-225214 10.3 5/25/18
10.3
Limited Liability Company Agreement of i3 Verticals, LLC
8-K 001-38532 10.3 6/25/18
10.4
Plan Administration Agreement, dated June 25, 2018, by and between i3 Verticals, Inc. and i3 Verticals, LLC
8-K 001-38532 10.4 6/25/18
10.5
First Amendment to Credit Agreement and Joinder Agreement, dated June 19, 2018, by and among i3 Verticals, LLC, i3 Verticals, Inc., the Guarantors party thereto, the Lenders party thereto, and Bank of America, N.A.
8-K 001-38532 10.5 6/25/18
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.
*
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.
*
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
101.INS XBRL Instance Document. *
101.SCH XBRL Taxonomy Extension Schema Document. *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF XBRL Taxonomy Definition Linkbase Document. *
101.LAB XBRL Taxonomy Label Linkbase Document. *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. *

~~____________________~~


*Exhibit Number			~~Filed herewith~~			Exhibit Description


** 3.1	~~Furnished herewith~~	Amended and Restated Certificate of Incorporation of i3 Verticals, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 25, 2018) (File No. 001-38532).

3.2		Amended and Restated Bylaws of i3 Verticals, Inc., as amended and restated on November 16, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2022) (File No. 001-38532)

10.1		Credit Agreement, dated as of May 8, 2023, among i3 Verticals, LLC, the guarantor and lender parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 9, 2023) (File No. 001-38532)

10.2		Security and Pledge Agreement, dated as of May 8, 2023, among i3 Verticals, LLC, the obligor parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 9, 2023) (File No. 001-38532)

31.1*		Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2*		Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL and contained in Exhibit 101.

____________________

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

i3 Verticals, Inc.

~~(Registrant)~~

By:

/s/ Clay Whitson

Clay Whitson

~~Date:~~

~~August 13, 2018~~

~~By:~~

~~/s/Clay Whitson~~

~~Clay Whitson~~

Chief Financial Officer

Date:

May 10, 2023



	June 30,			September 30,
	2018			2017
Assets	(unaudited)
Current assets
Cash and cash equivalents	$	2,473		$	955
Accounts receivable, net	7,955			8,412
Settlement assets	439			5,196
Prepaid expenses and other current assets	2,336			1,141
Total current assets	13,203			15,704

Property and equipment, net	2,227			1,420
Restricted cash	665			1,013
Capitalized software, net	3,352			3,778
Goodwill	80,166			58,517
Intangible assets, net	65,759			59,259
Other assets	1,308			300
Total assets	$	166,680		$	139,991

Liabilities, Redeemable Class A Units and equity
Liabilities
Current liabilities
Accounts payable	3,666			1,600
Current portion of long-term debt	5,000			4,000
Accrued expenses and other current liabilities	13,385			6,706
Settlement obligations	439			5,196
Deferred revenue	2,018			2,719
Total current liabilities	24,508			20,221

Long-term debt, less current portion and debt issuance costs, net	29,543			106,836
Other long-term liabilities	4,341			2,065
Total liabilities	58,392			129,122

Commitments and contingencies (see Note 10)
Redeemable Class A units; 0 and 4,900,000 Units authorized, issued and outstanding as of June 30, 2018 and September 30, 2017, respectively	—			7,723
Stockholders' / Members' equity
Members' equity	—			36,164
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2018	—			—
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 9,091,903 shares issued and outstanding as of June 30, 2018	1			—
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 17,213,806 shares issued and outstanding as of June 30, 2018	2			—
Additional paid-in-capital	37,514			—
Accumulated earnings (deficit)	(98		)	(33,018		)
Total Stockholders' / Members' equity (deficit)	37,419			3,146
Non-controlling interest	70,869			—
Total equity	108,288			3,146
Total liabilities, Redeemable Class A Units and members' / stockholders' equity (deficit)	$	166,680		$	139,991



	Three months ended June 30,						Nine months ended June 30,
	2018			2017			2018			2017

Revenue	$	84,536		$	66,326		$	239,455		$	190,792

Operating expenses
Interchange and network fees	55,705			48,563			158,577			137,679
Other costs of services	11,061			7,181			30,119			20,796
Selling general and administrative	10,696			6,229			29,737			19,165
Depreciation and amortization	3,000			2,382			8,876			7,453
Change in fair value of contingent consideration	1,151			(746		)	3,280			177
Total operating expenses	81,613			63,609			230,589			185,270

Income from operations	2,923			2,717			8,866			5,522

Other expenses
Interest expense, net	2,644			1,717			7,649			4,961
Change in fair value of warrant liability	242			(58		)	8,487			(58		)
Total other expenses	2,886			1,659			16,136			4,903

Income (loss) before income taxes	37			1,058			(7,270		)	619

Provision for income taxes	692			171			553			101

Net income (loss)	(655		)	887			(7,823		)	518

Net loss attributable to non-controlling interest	(91		)	—			(91		)	—
Net income (loss) attributable to i3 Verticals, Inc.	$	(564	)	$	887		$	(7,732	)	$	518

Net loss attributable to Class A common stock per share⁽¹⁾:
Basic	$	(0.01	)				$	(0.01	)
Diluted	$	(0.01	)				$	(0.01	)
Weighted average shares of Class A common stock outstanding⁽¹⁾:
Basic	8,812,630						8,812,630
Diluted	8,812,630						8,812,630



Cash and cash equivalents	$	1,338
Accounts receivable	1,008
Related party receivable	773
Inventories	1,318
Prepaid expenses and other current assets	1,176
Property and equipment	69
Acquired merchant relationships	5,500
Non-compete agreements	40
Trade name	1,340
Goodwill	16,523
Total assets acquired	29,085

Accounts payable	1,342
Accrued expenses and other current liabilities	3,123
Deferred revenue, current	2,029
Other long-term liabilities	1,757
Net assets acquired	$	20,834



2018 (three months remaining)	$	2,301
2019	8,361
2020	6,724
2021	5,904
2022	5,565
Thereafter	36,872
	$	65,727



	Mezzanine Warrants			Accrued Contingent Consideration
Balance at September 30, 2017	$	767		$	3,340
Change in the fair value of warrant liabilities, included in Other expenses	8,487			—
Exercise of warrant liabilities into Common Units	(9,254		)	—
Contingent consideration accrued at time of business combination	—			2,084
Change in fair value of contingent consideration included in Operating expenses	—			3,280
Contingent consideration paid	—			(1,791		)
Balance at June 30, 2018	$	—		$	6,913



	Mezzanine Warrants			Accrued Contingent Consideration
Balance at September 30, 2016	$	1,182		$	5,537
Change in the fair value of warrant liabilities, included in Other expenses	(58		)	—
Contingent consideration accrued at time of business combination	—			1,221
Change in fair value of contingent consideration included in Operating expenses	—			177
Contingent consideration paid	—			(1,300		)
Balance at June 30, 2017	$	1,124		$	5,635



	Stock Options	Weighted Average Exercise Price
Outstanding at beginning of period	—	$	—
Granted	2,045,000	13.00
Exercised	—	—
Forfeited	—	—
Outstanding at end of period	2,045,000	$	13.00



	Three Months Ended June 30, 2018			Nine Months Ended June 30, 2018
Basic and dilutive net income (loss) per share:
Numerator
Net loss⁽¹⁾	$	(138	)	$	(138	)
Less: Net loss attributable to non-controlling interests	(91		)	(91		)
Net loss attributable to Class A common stockholders	(47		)	(47		)
Denominator
Weighted average shares of Class A common stock outstanding⁽²⁾	8,812,630			8,812,630
Basic net loss per share	$	(0.01	)	$	(0.01	)



Exhibit Number	Exhibit Description	Incorporated by Reference
		Form	File No.	Exhibit	Filing Date	Filed/ Furnished Herewith
3.1	Amended and Restated Certificate of Incorporation of i3 Verticals, Inc.	8-K	001-38532	3.1	6/25/18
3.2	Amended and Restated Bylaws of i3 Verticals, Inc.	8-K	001-38532	3.2	6/25/18
4.1	Specimen Stock Certificate evidencing the shares of Class A common stock	S-1	333-225214	4.1	5/25/18
10.1	Form of Tax Receivable Agreement	S-1	333-225214	10.2	5/25/18
10.2	Form of Registration Rights Agreement	S-1	333-225214	10.3	5/25/18
10.3	Limited Liability Company Agreement of i3 Verticals, LLC	8-K	001-38532	10.3	6/25/18
10.4	Plan Administration Agreement, dated June 25, 2018, by and between i3 Verticals, Inc. and i3 Verticals, LLC	8-K	001-38532	10.4	6/25/18
10.5	First Amendment to Credit Agreement and Joinder Agreement, dated June 19, 2018, by and among i3 Verticals, LLC, i3 Verticals, Inc., the Guarantors party thereto, the Lenders party thereto, and Bank of America, N.A.	8-K	001-38532	10.5	6/25/18
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.					*
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.					*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					**
101.INS	XBRL Instance Document.					*
101.SCH	XBRL Taxonomy Extension Schema Document.					*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					*
101.DEF	XBRL Taxonomy Definition Linkbase Document.					*
101.LAB	XBRL Taxonomy Label Linkbase Document.					*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					*