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1 Q4 FISCAL YEAR 2023 Supplemental Information
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2 Revenue Composition ($ in thousands) Quarter Ended September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 Software and related service revenue SaaS(1) $ 10,864 $ 10,170 $ 9,901 $ 9,230 $ 8,833 $ 8,450 $ 7,899 $ 6,310 Transaction-based(2) 3,827 3,461 3,319 3,331 3,137 3,253 2,642 2,325 Maintenance(3) 7,986 8,478 8,140 7,417 5,600 5,720 5,672 5,897 Recurring software services(4) 10,966 11,804 11,266 10,164 10,945 10,768 11,107 10,311 Professional services(5) 11,443 10,600 11,202 9,775 8,492 8,743 8,251 9,386 Software licenses 3,256 2,755 3,479 1,197 3,485 2,072 3,401 2,109 Total $ 48,342 $ 47,268 $ 47,307 $ 41,114 $ 40,492 $ 39,006 $ 38,972 $ 36,338 Year-over-year growth 19 % 21 % 21 % 13 % Payments revenue $ 42,601 $ 41,990 $ 41,909 $ 40,354 $ 39,775 $ 36,683 $ 34,528 $ 33,466 Year-over-year growth 7 % 14 % 21 % 21 % Other revenue Recurring(6) $ 1,992 $ 1,956 $ 1,880 $ 2,045 $ 2,001 $ 1,792 $ 1,780 $ 1,802 Other 3,472 2,717 2,776 2,516 2,982 3,072 2,840 2,333 Total $ 5,464 $ 4,673 $ 4,656 $ 4,561 $ 4,983 $ 4,864 $ 4,620 $ 4,135 Year-over-year growth 10 % (4) % 1 % 10 % Total revenue $ 96,407 $ 93,931 $ 93,872 $ 86,029 $ 85,250 $ 80,553 $ 78,120 $ 73,939 Recurring revenue(7) $ 78,236 $ 77,859 $ 76,415 $ 72,541 $ 70,291 $ 66,666 $ 63,628 $ 60,111 Annualized Recurring Revenue “ARR”(8) Software and related service revenue $ 134,572 $ 135,652 $ 130,504 $ 120,568 $ 114,060 $ 112,764 $ 109,280 $ 99,372 Payments revenue 170,404 167,960 167,636 161,416 159,100 146,732 138,112 133,864 Other revenue 7,968 7,824 7,520 8,180 8,004 7,168 7,120 7,208 Total ARR $ 312,944 $ 311,436 $ 305,660 $ 290,164 $ 281,164 $ 266,664 $ 254,512 $ 240,444 Year-over-year growth 11 % 17 % 20 % 21 % See footnotes continued on the next slide.
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3 Annualized Recurring Revenue (“ARR”) 1.) SaaS revenue is earned when we provide, as a service to our customers over time, the right to access our software, generally hosted in a cloud environment. 2.) Transaction-based software revenue is earned when we provide services through our software and charge a per-transaction fee. For example, when we provide electronic filing services for courts and charge fees per filing, or when we stand-ready to process and bill utility customers and charge the utility a fee per bill electronically presented. 3.) Software maintenance revenue is earned when, following the implementation of our software systems, we provide ongoing software support services to assist our customers in operating the systems and to periodically update the software. 4.) Recurring software services are earned when we provide long-term, usually evergreen, contracted services to our customers through our software. The services provided, such as healthcare revenue cycle management, or automated collections management, are integrated into one of our software solutions. 5.) Professional services are earned when we provide customized services to our customers who utilize our software products. Many of our customers contract with us for installation, configuration, training, and data conversion projects, which do not necessarily recur, and as such are excluded from our calculation of ARR. 6.) Recurring other revenue primarily consists of recurring long-term contracts that are not specific to software, such as hardware maintenance plans or field service plans. 7.) Recurring revenue consists of software-as-a-service (“SaaS”) arrangements, transaction-based software-revenue, software maintenance revenue, recurring software-based services, payments revenue and other recurring revenue sources. This excludes contracts that are not recurring or are one-time in nature. 8.) Annualized Recurring Revenue (ARR) is the quarterly recurring revenue multiplied by 4. The Company focuses on ARR because it helps to assess the health and trajectory of the business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. It should be reviewed independently of revenue and it is not a forecast. It does not contemplate seasonality. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by the Company’s customers.
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4 ($ in thousands) Three months ended September 30, 2023 Three months ended September 30, 2022 Software and Services Merchant Services Other Total Software and Services Merchant Services Other Total Income (loss) from operations $ 13,329 $ 8,456 $ (12,990) $ 8,795 $ 12,923 $ 6,746 $ (12,450) $ 7,219 ($ in thousands) Year ended September 30, 2023 Year ended September 30, 2022 Software and Services Merchant Services Other Total Software and Services Merchant Services Other Total Income (loss) from operations $ 45,712 $ 29,130 $ (52,133) $ 22,709 $ 20,003 $ 24,595 $ (47,042) $ (2,444) The following is our Income (loss) from operations for the three and twelve months ended September 30, 2023 and 2022 calculated in accordance with GAAP. The presentation also includes references to non-GAAP financial measures presented by the Company. The Company believes that the non-GAAP financial measures presented by the Company provide useful information to investors in understanding and evaluating the Company's ongoing operating results. Accordingly, the Company includes such non-GAAP financial measures when reporting its financial results to shareholders and potential investors in order to provide them with an additional tool to evaluate the Company’s ongoing business operations. The Company believes that these non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of the Company’s current and ongoing business operations. Although these non-GAAP financial measures assist in measuring the Company's operating results and assessing its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation. The Company believes that the disclosure of these non-GAAP financial measures provides investors with important key financial performance indicators that are utilized by management to assess the Company's operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of these non-GAAP financial measures to give shareholders and potential investors an opportunity to see the Company as viewed by management, to assess the Company with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. The Company believes that disclosure of these non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources. Q4 Fiscal 2023 GAAP Measures
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5 Q4 Fiscal 2023 Segment Performance(1) ($ in thousands) Three months ended September 30, Period over period growth2023 2022 Revenue Software and Services $ 60,056 $ 51,827 16% Merchant Services 36,374 33,410 9% Other (23) 13 (277)% Total $ 96,407 $ 85,250 13% Adjusted EBITDA(2) Software and Services $ 21,225 $ 17,099 24% Merchant Services 10,756 9,122 18% Other (5,204) (4,482) (16)% Total $ 26,777 $ 21,739 23% Volume Software and Services $ 735,980 $ 604,592 22% Merchant Services 5,563,071 5,470,056 2% Total $ 6,299,051 $ 6,074,648 4% 1.) i3 Verticals has two segments, "Software and Services" and “Merchant Services.” i3 Verticals also has an “Other” category, which includes corporate overhead. 2.) Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures.
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6 Q4 Fiscal 2023 Segment Performance(1) ($ in thousands) Years ended September 30, Period over period growth2023 2022 Revenue Software and Services $ 232,967 $ 193,402 20% Merchant Services 137,342 124,481 10% Other (70) (21) nm Total $ 370,239 $ 317,862 16% Adjusted EBITDA(2) Software and Services $ 83,001 $ 62,691 32% Merchant Services 38,933 34,651 12% Other (21,571) (17,798) (21)% Total $ 100,363 $ 79,544 26% Volume Software and Services $ 2,743,549 $ 2,148,795 28% Merchant Services 21,686,690 20,488,530 6% Total $ 24,430,239 $ 22,637,325 8% 1.) i3 Verticals has two segments, "Software and Services" and “Merchant Services.” i3 Verticals also has an “Other” category, which includes corporate overhead. 2.) Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures.
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7 ($ in thousands) Three months ended September 30, 2023 Three months ended September 30, 2022 Software and Services Merchant Services Other Total Software and Services Merchant Services Other Total Income (loss) from operations $ 13,329 $ 8,456 $ (12,990) $ 8,795 $ 12,923 $ 6,746 $ (12,450) $ 7,219 Interest expense, net — — 6,714 6,714 — — 4,477 4,477 Other expense (income) — 2,660 (929) 1,731 — — 991 991 Provision for income taxes 63 — (3,162) (3,099) — — 6,161 6,161 Net income (loss) 13,266 5,796 (15,613) 3,449 12,923 6,746 (24,079) (4,410) Non-GAAP Adjustments: Provision for income taxes 63 — (3,162) (3,099) — — 6,161 6,161 Non-cash change in fair value of contingent consideration(1) 876 — — 876 (979) 20 — (959) Equity-based compensation(2) — — 7,032 7,032 — — 6,550 6,550 Acquisition-related expenses(3) — — 29 29 — — 1,071 1,071 Acquisition intangible amortization(4) 5,032 1,942 158 7,132 4,099 2,056 — 6,155 Non-cash interest expense(5) — — 405 405 — — 1,483 1,483 Other taxes(6) 44 (2) 391 433 10 11 236 257 Other expenses related to adjustments of liabilities under Tax Receivable Agreement(7) — — (929) (929) — — 991 991 Write down of intangible asset(8) — 2,660 — 2,660 — — — — Non-GAAP adjusted income (loss) before taxes 19,281 10,396 (11,689) 17,988 16,053 8,833 (7,587) 17,299 Pro forma taxes at effective tax rate(9) (4,820) (2,599) 2,922 (4,497) (4,013) (2,208) 1,896 (4,325) Pro forma adjusted net income (loss)(10) 14,461 7,797 (8,767) 13,491 12,040 6,625 (5,691) 12,974 Plus: Cash interest expense, net(11) — — 6,309 6,309 — — 2,994 2,994 Pro forma taxes at effective tax rate(9) 4,820 2,599 (2,922) 4,497 4,013 2,208 (1,896) 4,325 Depreciation and internally developed software amortization(12) 1,944 360 176 2,480 1,046 289 111 1,446 Adjusted EBITDA $ 21,225 $ 10,756 $ (5,204) $ 26,777 $ 17,099 $ 9,122 $ (4,482) $ 21,739 See footnotes continued on the next slide. The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
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8 Reconciliation of Non-GAAP Financial Measures 1.) Non-cash change in fair value of contingent consideration reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the later of the most recent balance sheet date forming the beginning of the income statement period or the original estimates made at the closing of the applicable acquisition. 2.) Equity-based compensation expense related to stock options and restricted stock units issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan. 3.) Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 4.) Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 5.) Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 6.) Other taxes consist of franchise taxes, commercial activity taxes, the employer portion of payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included. 7.) Under our Tax Receivable Agreement we have a liability equal to 85% of certain deferred tax assets resulting from an increase in the tax basis of our investment in i3 Verticals, LLC. Other expenses related to adjustments of liabilities under our Tax Receivable Agreement relate to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates. 8.) Write down of intangible asset is related to the write down of an internal use software project. 9.) Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2023 and 2022, based on blended federal and state tax rates. 10.) Pro forma adjusted net income represents a non-GAAP financial measure, and assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 11.) Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 12.) Depreciation and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.
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9 ($ in thousands) Year ended September 30, 2023 Year ended September 30, 2022 Software and Services Merchant Services Other Total Software and Services Merchant Services Other Total Income (loss) from operations $ 45,712 $ 29,130 $ (52,133) $ 22,709 $ 20,003 $ 24,595 $ (47,042) $ (2,444) Interest expense, net — — 25,128 25,128 — — 14,775 14,775 Other expense (income) — 2,660 (1,224) 1,436 — — 991 991 Provision for income taxes 82 — (1,285) (1,203) — — 5,007 5,007 Net income (loss) 45,630 26,470 (74,752) (2,652) 20,003 24,595 (67,815) (23,217) Non-GAAP Adjustments: Provision for income taxes 82 — (1,285) (1,203) — — 5,007 5,007 Financing-related expenses(1) — — 8 8 — — 13 13 Non-cash change in fair value of contingent consideration(2) 10,768 13 — 10,781 23,205 520 — 23,725 Equity-based compensation(3) — — 27,878 27,878 — — 26,230 26,230 Acquisition-related expenses(4) — — 1,132 1,132 — — 2,088 2,088 Acquisition intangible amortization(5) 20,051 7,933 158 28,142 15,796 8,333 — 24,129 Non-cash interest expense(6) — — 1,717 1,717 — — 5,795 5,795 Other taxes(7) 108 494 792 1,394 55 27 426 508 Other expenses related to adjustments of liabilities under Tax Receivable Agreement(8) — — (929) (929) — — 991 991 Write down of intangible asset(9) — 2,660 — 2,660 — — — — Net gain on sale of investments(10) — — (295) (295) — — — — Non-GAAP adjusted income (loss) before taxes 76,639 37,570 (45,576) 68,633 59,059 33,475 (27,265) 65,269 Pro forma taxes at effective tax rate(11) (19,160) (9,393) 11,395 (17,158) (14,765) (8,369) 6,816 (16,318) Pro forma adjusted net income (loss)(12) 57,479 28,177 (34,181) 51,475 44,294 25,106 (20,449) 48,951 Plus: Cash interest expense, net(13) — — 23,411 23,411 — — 8,980 8,980 Pro forma taxes at effective tax rate(11) 19,160 9,393 (11,395) 17,158 14,765 8,369 (6,816) 16,318 Depreciation and internally developed software amortization(14) 6,362 1,363 594 8,319 3,632 1,176 487 5,295 Adjusted EBITDA $ 83,001 $ 38,933 $ (21,571) $ 100,363 $ 62,691 $ 34,651 $ (17,798) $ 79,544 The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures See footnotes continued on the next slide.
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10 Reconciliation of Non-GAAP Financial Measures 1.) Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions. 2.) Non-cash change in fair value of contingent consideration reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the later of the most recent balance sheet date forming the beginning of the income statement period or the original estimates made at the closing of the applicable acquisition. 3.) Equity-based compensation expense related to stock options and restricted stock units issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan. 4.) Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 5.) Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 6.) Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 7.) Other taxes consist of franchise taxes, commercial activity taxes, reserves for ongoing tax audit matters, the employer portion of payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included. 8.) Under our Tax Receivable Agreement we have a liability equal to 85% of certain deferred tax assets resulting from an increase in the tax basis of our investment in i3 Verticals, LLC. Other expenses related to adjustments of liabilities under our Tax Receivable Agreement relate to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates. 9.) Write down of intangible asset is related to the write down of an internal use software project. 10.) Gain on investment, which the Company recognizes in other income, reflects contingent consideration received for an investment that was sold in a prior year for the year ended September 30, 2023. 11.) Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2023 and 2022, based on blended federal and state tax rates. 12.) Pro forma adjusted net income represents a non-GAAP financial measure, and assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 13.) Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 14.) Depreciation and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.
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11 Reconciliation Between GAAP Debt and Covenant Debt ($ in millions) As of September 30, 2023 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 272.5 Exchangeable Notes 117.0 Less: Cash and Cash Equivalents (3.1) Total long-term debt for use in our Total Leverage Ratio $ 386.4 The reconciliation of our GAAP Long-term debt, before issuance costs, and the debt balance used in our Total Leverage Ratio is as follows: