i3 Verticals Reports First Quarter 2020 Financial Results
Highlights for the fiscal first quarter of 2020 vs. 2019
- Revenue was
$41.1 million , a decrease of 52% over the prior year's first quarter. 2020 results reflect the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.1 - Adjusted net revenue2, which excludes acquisition revenue adjustments and interchange and network fees, was
$41.6 million , an increase of 41% over the prior year's first quarter.
- Net income was
$1.9 million , a decrease of 17.7% over the prior year's first quarter. - Adjusted EBITDA2 was
$11.9 million , an increase of 38% over the prior year's first quarter. - Adjusted EBITDA2 as a percentage of adjusted net revenue1 was 28.5%, compared to 29.0% in the prior year's first quarter.
- Diluted net loss per share available to Class A common stock was
$(0.01) , compared to diluted net income per share available to Class A common stock of$0.02 in the prior year's first quarter. - Pro forma adjusted diluted earnings per share2, which gives pro forma effect to the Company's going forward effective tax rate, was
$0.24 , compared to$0.20 for the prior year's first quarter.
- Integrated payments3 were 55% of payment volume for the three months ended
December 31, 2019 . - At
December 31, 2019 , the ratio of consolidated debt-to-EBITDA, as defined in the Company's Senior Secured Credit Facility, was 2.85x.
- Effective
October 1, 2019 , our revenues are presented net of interchange and network fees in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. This change in presentation affected our reported revenues and operating expenses for the three months endedDecember 31, 2019 , by the same amount and had no effect on our income from operations. - Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
- Integrated payments represents payment transactions that are generated in situations where payment technology is embedded within the Company's own proprietary software, a client’s software or critical business process.
“We continue to invest in our products, and our technology team is delivering solutions across all our verticals to meet the needs of our customers’ markets. As a result, our sales teams are seeing increased momentum in their channels. We anticipate our product development will continue to be streamlined, which we believe will produce growth across our current footprint and help us expand into new verticals.
“At the same time, we will continue to pursue acquisitions that complement our strategy. We have consistently noted that our goal is to deliver strong growth from a mix of acquisitions and organic growth. Our pipeline is strong, and we have several signed term sheets for acquisitions that would enhance our existing business. We are excited about our future deal opportunities,” concluded Daily.
Revised 2020 Outlook
The Company is providing the following revised outlook for the fiscal year ending
| (in thousands, except per share amounts) | Outlook Range | ||||||
| Fiscal year ending September 30, 2020 | |||||||
| Adjusted net revenue(1) (non-GAAP) | $ | 162,000 | - | $ | 166,000 | ||
| Adjusted EBITDA (non-GAAP) | $ | 46,000 | - | $ | 48,000 | ||
| Adjusted diluted earnings per share(2) (non-GAAP) | $ | 0.91 | - | $ | 0.97 | ||
_______________________
- Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. For the revised 2020 outlook, the Company has removed the effect of these adjustments to acquisition date fair value from acquisitions that have closed as of the earnings release date.
- Assumes an effective pro forma tax rate of 25.0% (non-GAAP).
With respect to the “Revised 2020 Outlook” above, reconciliation of adjusted net revenue, adjusted EBITDA and adjusted diluted earnings per share guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliations, including changes in the fair value of contingent consideration, income tax expense of
Conference Call
The Company will host a conference call on Tuesday, February 11, 2020, at
To listen to the call live via webcast, participants should visit the “Investors” section of the Company’s website, www.i3verticals.com, approximately 10 minutes prior to the start of the call. The online replay will be available on this page of the Company’s website beginning shortly after the conclusion of the call and will remain available for 30 days.
Non-GAAP Measures
This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of the Company's consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.
Additional information about non-GAAP financial measures, including, but not limited to, adjusted net revenue, pro forma adjusted net income, adjusted EBITDA and pro forma adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included on pages 9 through 11 in the financial schedules of this release.
About
Helping drive the convergence of software and payments,
Forward-Looking Statements
This release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this release are forward-looking statements, including any statements regarding guidance and statements of a general economic or industry specific nature. Forward-looking statements give the Company's current expectations and projections relating to its financial condition, results of operations, guidance, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “could have,” “exceed,” “significantly,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
The forward-looking statements contained in this release are based on assumptions that we have made in light of the Company's industry experience and its perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you review and consider information presented herein, you should understand that these statements are not guarantees of future performance or results. They depend upon future events and are subject to risks, uncertainties (many of which are beyond the Company's control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect the Company's actual future performance or results and cause them to differ materially from those anticipated in the forward-looking statements. Certain of these factors and other risks are discussed in the Company's filings with the
Any forward-looking statement made by us in this release speaks only as of the date of this release. Factors or events that could cause the Company's actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Contact:
Chief Financial Officer
(615) 988-9890
cwhitson@i3verticals.com
(Unaudited)
($ in thousands, except share and per share amounts)
| Three months ended December 31, | |||||||||
| 2019 | 2018 | % Change | |||||||
| Revenue | $ | 41,111 | $ | 84,868 | (52)% | ||||
| Operating expenses | |||||||||
| Interchange and network fees | — | 55,829 | (100)% | ||||||
| Other costs of services | 12,918 | 9,790 | 32% | ||||||
| Selling general and administrative | 19,287 | 12,516 | 54% | ||||||
| Depreciation and amortization | 4,655 | 3,552 | 31% | ||||||
| Change in fair value of contingent consideration | 154 | (349 | ) | (144)% | |||||
| Total operating expenses | 37,014 | 81,338 | (54)% | ||||||
| Income from operations | 4,097 | 3,530 | 16% | ||||||
| Interest expense, net | 2,014 | 914 | 120% | ||||||
| Income before income taxes | 2,083 | 2,616 | n/m | ||||||
| Provision for income taxes | 149 | 265 | (44)% | ||||||
| Net income | 1,934 | 2,351 | n/m | ||||||
| Net income attributable to non-controlling interest | 2,083 | 2,173 | n/m | ||||||
| Net (loss) income attributable to i3 Verticals, Inc. | $ | (149 | ) | $ | 178 | (184)% | |||
| Net (loss) income per share available to Class A common stock(1): | |||||||||
| Basic | $ | (0.01 | ) | $ | 0.02 | ||||
| Diluted | $ | (0.01 | ) | $ | 0.02 | ||||
| Weighted average shares of Class A common stock outstanding(1): | |||||||||
| Basic | 14,233,785 | 8,812,630 | |||||||
| Diluted | 14,233,785 | 9,903,168 | |||||||
(Unaudited)
($ in thousands, except per share amounts)
| Three months ended December 31, | |||||||||
| 2019 | 2018 | % Change | |||||||
| Adjusted net revenue (non-GAAP) | $ | 41,624 | $ | 29,570 | 41% | ||||
| Adjusted EBITDA (non-GAAP) | 11,859 | 8,578 | 38% | ||||||
| Pro forma adjusted diluted earnings per share (non-GAAP) | $ | 0.24 | $ | 0.20 | 20% | ||||
(Unaudited)
($ in thousands)
| Three months ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Payment volume(1) | $ | 3,839,118 | $ | 2,943,849 | |||
__________________________
- Payment volume is the net dollar value of both 1) Visa,
Mastercard and other payment network transactions processed by the Company's clients and settled to clients by us and 2) ACH transactions processed by the Company's clients and settled to clients by the Company.
(Unaudited)
($ in thousands)
| As of and for the Three Months Ended December 31, 2019 | |||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||
| Revenue | $ | 27,465 | $ | 14,056 | $ | (410 | ) | $ | 41,111 | ||||||||
| Operating expenses | |||||||||||||||||
| Other costs of services | 12,113 | 1,215 | (410 | ) | 12,918 | ||||||||||||
| Selling general and administrative | 6,322 | 7,936 | 5,029 | 19,287 | |||||||||||||
| Depreciation and amortization | 2,947 | 1,539 | 169 | 4,655 | |||||||||||||
| Change in fair value of contingent consideration | (1,206 | ) | 1,360 | — | 154 | ||||||||||||
| Income (loss) from operations | $ | 7,289 | $ | 2,006 | $ | (5,198 | ) | $ | 4,097 | ||||||||
| Payment volume | $ | 3,635,056 | $ | 204,062 | $ | — | $ | 3,839,118 | |||||||||
| As of and for the Three Months Ended December 31, 2018 | |||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||
| Revenue | $ | 77,702 | $ | 7,166 | $ | — | $ | 84,868 | |||||||
| Operating expenses | |||||||||||||||
| Interchange and network fees | 54,364 | 1,465 | — | 55,829 | |||||||||||
| Other costs of services | 9,396 | 394 | — | 9,790 | |||||||||||
| Selling general and administrative | 6,091 | 2,987 | 3,438 | 12,516 | |||||||||||
| Depreciation and amortization | 2,782 | 661 | 109 | 3,552 | |||||||||||
| Change in fair value of contingent consideration | (319 | ) | (30 | ) | — | (349 | ) | ||||||||
| Income (loss) from operations | $ | 5,388 | $ | 1,689 | $ | (3,547 | ) | $ | 3,530 | ||||||
| Payment volume | $ | 2,804,139 | $ | 139,710 | $ | — | $ | 2,943,849 | |||||||
($ in thousands, except share and per share amounts)
| December 31, | September 30, | ||||||
| 2019 | 2019 | ||||||
| (unaudited) | |||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 335 | $ | 1,119 | |||
| Accounts receivable, net | 14,412 | 15,335 | |||||
| Settlement assets | — | — | |||||
| Prepaid expenses and other current assets | 5,003 | 4,117 | |||||
| Total current assets | 19,750 | 20,571 | |||||
| Property and equipment, net | 5,129 | 5,026 | |||||
| Restricted cash | 1,932 | 2,081 | |||||
| Capitalized software, net | 14,779 | 15,454 | |||||
| Goodwill | 166,413 | 168,284 | |||||
| Intangible assets, net | 104,874 | 107,419 | |||||
| Deferred tax asset | 30,137 | 28,138 | |||||
| Other assets | 4,172 | 2,329 | |||||
| Total assets | $ | 347,186 | $ | 349,302 | |||
| Liabilities and equity | |||||||
| Liabilities | |||||||
| Current liabilities | |||||||
| Accounts payable | 4,530 | 3,438 | |||||
| Current portion of long-term debt | — | — | |||||
| Accrued expenses and other current liabilities | 21,205 | 21,560 | |||||
| Settlement obligations | — | — | |||||
| Deferred revenue | 10,376 | 10,237 | |||||
| Total current liabilities | 36,111 | 35,235 | |||||
| Long-term debt, less current portion and debt issuance costs, net | 132,291 | 139,298 | |||||
| Long-term tax receivable agreement obligations | 23,204 | 23,204 | |||||
| Other long-term liabilities | 7,385 | 9,124 | |||||
| Total liabilities | 198,991 | 206,861 | |||||
| Commitments and contingencies | |||||||
| Stockholders' equity | |||||||
| Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2019 and September 30, 2019 | — | — | |||||
| Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 14,497,777 and 14,444,115 shares issued and outstanding as of December 31, 2019 and September 30, 2019, respectively | 1 | 1 | |||||
| Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 12,921,637 and 12,921,637 shares issued and outstanding as of December 31, 2019 and September 30, 2019, respectively | 1 | 1 | |||||
| Additional paid-in-capital | 84,855 | 82,380 | |||||
| Accumulated deficit | (1,753 | ) | (2,309 | ) | |||
| Total Stockholders' equity | 83,104 | 80,073 | |||||
| Non-controlling interest | 65,091 | 62,368 | |||||
| Total equity | 148,195 | 142,441 | |||||
| Total liabilities and stockholders' equity | $ | 347,186 | $ | 349,302 | |||
(Unaudited)
($ in thousands)
| Three months ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Net cash provided by operating activities | $ | 7,484 | $ | 6,072 | |||
| Net cash used in investing activities | $ | (1,782 | ) | $ | (22,026 | ) | |
| Net cash (used in) provided by financing activities | $ | (6,635 | ) | $ | 16,270 | ||
Reconciliation of GAAP to Non-GAAP Financial Measures
The Company believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly,
Although non-GAAP financial measures are often used to measure the Company's operating results and assess its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation.
(Unaudited)
($ in thousands)
| Three months ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Net income (loss) attributable to i3 Verticals, Inc. | $ | (149 | ) | $ | 178 | ||
| Net income attributable to non-controlling interest | 2,083 | 2,173 | |||||
| Non-GAAP Adjustments: | |||||||
| Provision for income taxes | 149 | 265 | |||||
| Non-cash change in fair value of contingent consideration(1) | 154 | (349 | ) | ||||
| Equity-based compensation(2) | 2,124 | 951 | |||||
| Acquisition revenue adjustments(3) | 513 | 531 | |||||
| Acquisition-related expenses(4) | 262 | 360 | |||||
| Acquisition intangible amortization(5) | 3,721 | 2,905 | |||||
| Non-cash interest expense(6) | 100 | 233 | |||||
| Other taxes(7) | 54 | 3 | |||||
| Non-GAAP pro forma adjusted income before taxes | 9,011 | 7,250 | |||||
| Pro forma taxes at effective tax rate(8) | (2,253 | ) | (1,812 | ) | |||
| Pro forma adjusted net income(9) | $ | 6,758 | $ | 5,438 | |||
| Cash interest expense, net(10) | 1,914 | 681 | |||||
| Pro forma taxes at effective tax rate(8) | 2,253 | 1,812 | |||||
| Depreciation and internally developed software amortization(11) | 934 | 647 | |||||
| Adjusted EBITDA | $ | 11,859 | $ | 8,578 | |||
________
- 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.
- Equity-based compensation expense consisted of
$2,124 and$951 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months endedDecember 31, 2019 and 2018, respectively. - Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. Acquisition revenue adjustments remove the effect of these adjustments to acquisition date fair value from acquisitions that have closed as of the date of this earnings release.
- Acquisition-related expenses are the professional service and related costs directly related to the Company's acquisitions and are not part of its core performance.
- Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions.
- Non-cash interest expense reflects amortization of deferred financing costs.
- Other taxes consist of franchise taxes, commercial activity taxes and other non-income based taxes. Taxes related to salaries or employment are not included.
- Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2019 and 2018, based on blended federal and state tax rates, considering the Tax Reform Act for 2018.
- Pro forma adjusted net income assumes that all net income during the period is available to the Class A common stockholders.
- Cash interest expense, net represents all interest expense recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of deferred financing costs.
- Depreciation and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.
(Unaudited)
($ in thousands, except share and per share amounts)
| Three months ended December 31, | ||||||
| 2019 | 2018 | |||||
| Diluted net (loss) income available to Class A common stock per share | $ | (0.01 | ) | $ | 0.02 | |
| Pro forma adjusted diluted earnings per share (non-GAAP)(1) | $ | 0.24 | $ | 0.20 | ||
| Pro forma adjusted net income(2) | $ | 6,758 | $ | 5,438 | ||
| Pro forma weighted average shares of adjusted diluted Class A common stock outstanding(3) | 28,364,844 | 27,116,974 | ||||
__________
- Pro forma adjusted diluted earnings per share is calculated using pro forma adjusted net income and the pro forma weighted average shares of adjusted diluted Class A common stock outstanding.
- Pro forma adjusted net income assumes that all net income during the period is available to the Class A common stockholders. Further, pro forma adjusted diluted earnings per share assumes that all Common Units in i3
Verticals, LLC and the associated non-voting Class B common stock were exchanged for Class A common stock at the beginning of the period on a one-for-one basis. - Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 12,921,637 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3
Verticals, LLC and 1,209,422 shares of unvested Class A common stock and options for the three months endedDecember 31, 2019 .
(Unaudited)
($ in thousands)
| Three months ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Revenue | $ | 41,111 | $ | 84,868 | |||
| Acquisition revenue adjustments(1) | 513 | 531 | |||||
| Interchange and network fees | — | (55,829 | ) | ||||
| Adjusted Net Revenue | $ | 41,624 | $ | 29,570 | |||
__________
- Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. Acquisition revenue adjustments remove the effect of these adjustments to acquisition date fair value from acquisitions that have closed as of the date of this earnings release.
Source: i3 Verticals