UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 10, 2020 (August 10, 2020)
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
(Address of principal executive offices) | (Zip Code) | |||||||||||||
(615 ) 465-4487
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b)) | |||||
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e- 4(c)) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company. ☒
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 Section 13(a) of the Exchange Act. ☐
As provided in General Instruction B.2 of Form 8-K, the information contained in this Current Report on Form 8-K (including the exhibits hereto) shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 2.02. Results of Operations and Financial Condition.
On August 10, 2020 , i3 Verticals, Inc. (the “Company”) issued a press release announcing the results of its operations for the three and nine months ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 hereto and is hereby incorporated by reference into this Item 2.02.
Item 7.01. Regulation FD Disclosure.
The Company has also prepared a supplemental presentation (the “Supplemental Presentation”) containing segment financial performance information for the three and nine months ended June 30, 2020. A copy of the Supplemental Presentation is furnished as Exhibit 99.2 hereto and is hereby incorporated by reference into this Item 7.01. A copy of the Supplemental Presentation is also available on the Investors section of the Company’s website.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits:
| Exhibit No. | Description | |||||||
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 hereunto duly authorized.
Date: August 10, 2020
i3 VERTICALS, INC. | ||||||||
By: | /s/ Clay Whitson | |||||||
Name: | Clay Whitson | |||||||
Title: | Chief Financial Officer | |||||||
i3 VERTICALS REPORTS THIRD QUARTER 2020 FINANCIAL RESULTS
NASHVILLE, Tenn. (August 10, 2020) – i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal third quarter ended June 30, 2020.
Highlights for the fiscal third quarter and nine months ended June 30, 2020 vs. 2019
•Third quarter revenue was $31.6 million, a decrease of 68% over the prior year's third quarter. Revenue for the nine months ended June 30, 2020, was $111.9 million, a decrease of 58% over the prior year's first nine months. Results for 2020 reflect the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers1.
•Third quarter adjusted net revenue2, which excludes acquisition revenue adjustments and interchange and network fees, was $31.6 million, a decrease of 12% over the prior year's third quarter. Adjusted net revenue2 for the nine months ended June 30, 2020, was $112.5 million, an increase of 16% over the prior year's first nine months.
•Third quarter net loss was $2.8 million, compared to a net loss of $0.6 million in the prior year's third quarter. Net income for the nine months ended June 30, 2020, was $1.0 million, an increase from $0.5 million in the prior year's first nine months.
•Third quarter adjusted EBITDA2 was $7.1 million, a decrease of 27% over the prior year's third quarter. Adjusted EBITDA2 for the nine months ended June 30, 2020, was $28.9 million, an increase of 7% over the prior year's first nine months.
•Third quarter adjusted EBITDA2 as a percentage of adjusted net revenue2 was 22.3%, compared to 26.9% in the prior year's third quarter. For the nine months ended June 30, 2020, adjusted EBITDA2 as a percentage of adjusted net revenue2 was 25.7%, compared to 27.8% for the prior year's first nine months.
•Third quarter diluted net loss per share available to Class A common stock was $0.02, compared to diluted net loss per share available to Class A common stock of $0.12 in the prior year's third quarter. For the nine months ended June 30, 2020, diluted net income per share available to Class A common stock was $0.01, compared to diluted net loss per share available to Class A common stock of $0.23 for the prior year's first nine months.
•For the three and nine months ended June 30, 2020, pro forma adjusted diluted earnings per share2, which gives pro forma effect to the Company's going forward effective tax rate, was $0.13 and $0.57, respectively, compared to $0.20 and $0.59 for the three and nine months ended June 30, 2019, respectively.
•Integrated payments3 were 51% and 54% of payment volume for the three and nine months ended June 30, 2020, respectively. Integrated payments3 for the three months ended June 30, 2020 were lower than those for the three months ended June 30, 2019 due primarily to reduced volume in our education and public sector verticals as a result of the COVID-19 pandemic.
•At June 30, 2020, the ratio of consolidated interest coverage ratio was 7.00x, total leverage ratio was 3.69x and consolidated senior leverage ratio was 0.61x. These ratios are defined in the Company's Senior Secured Credit Facility.
•Subsequent to June 30, 2020, the Company completed the acquisition of two businesses for a collective purchase price of $16.4 million in cash and revolving line of credit proceeds, and an amount of contingent consideration, which is still being valued. One acquisition expands our geographic reach and software capabilities in the public sector vertical. The other adds text-to-pay capabilities and other software solutions in our non-profit vertical.
1.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 and nine months ended June 30, 2020, by the same amount and had no effect on our income from operations.
2.Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
3.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.
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Greg Daily, Chairman and CEO of i3 Verticals, commented, “We are pleased with our third quarter results, especially in light of the COVID-19 pandemic. We saw a sharp decrease in our processing volume during the second half of March, and our education vertical was particularly affected by school closures. Despite the volume decreases and school closures, our payment volume and financial results in our other verticals began to steadily recover throughout the third quarter as restrictions across the country eased. We are proud of how our team members supported each other and our customers during this challenging time, and we believe we are well positioned going forward.
“Our two recent acquisitions are evidence of our commitment to our verticals strategy — one a great fit within our public sector market and the other in our non-profit vertical. The latter offers a text-to-pay solution and related software products, meeting our goal of acquiring a software platform within that vertical. In addition to representing a positive step toward growth, this acquisition strengthens our presence in the non-profit vertical, thus providing future acquisition opportunities. We are excited about how each acquisition offers integrated solutions to a dedicated and stable customer base. We continue to develop our acquisition pipeline and will monitor the economic conditions and our leverage as we execute on our acquisition strategy.”
2020 Outlook
The COVID-19 pandemic has created significant uncertainty in the economy and the extent to which the COVID-19 pandemic will impact the Company's future results is difficult to reasonably estimate at this time. Therefore, the Company is not providing a financial outlook for the fiscal year ending September 30, 2020.
Conference Call
The Company will host a conference call on Tuesday, August 11, 2020, at 8:30 a.m. ET, to discuss financial results and operations. To listen to the call live via telephone, participants should dial (929) 477-0577 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. ET on August 11, 2020, through August 18, 2020, by dialing (719) 457-0820 and entering Confirmation Code 4401933.
To listen to the call live via webcast, participants should visit the “Investors” section of the Company’s website, www.i3verticals.com, and go to the “Events & Presentations” page 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 10 through 13 in the financial schedules of this release.
About i3 Verticals
Helping drive the convergence of software and payments, i3 Verticals delivers seamlessly integrated payment and software solutions to small- and medium-sized businesses and other organizations in strategic vertical markets, such as education, non-profit, the public sector, property management, and healthcare and to the business-to-business payments market. With a broad suite of payment and software solutions that address the specific needs of its clients in each strategic vertical market, i3 Verticals processed approximately $14.2 billion in total payment volume for the 12 months ended June 30, 2020.
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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 generally 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 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 U.S. Securities and Exchange Commission and include, but are not limited to: (i) the anticipated impact to the Company’s business operations, payment volume and volume attrition due to the recent global pandemic of a novel strain of the coronavirus (COVID-19); (ii) the Company’s indebtedness and the ability to maintain compliance with the financial covenants in the Company’s senior secured credit facility in light of the impacts of the COVID-19 pandemic; (iii) the ability to meet the Company’s liquidity needs in light of the impacts of the COVID-19 pandemic; (iv) the ability to raise additional funds on terms acceptable to us, if at all, whether debt, equity or a combination thereof; (v) the triggering of impairment testing of the Company’s fair-valued assets, including goodwill and intangible assets, in the event of a decline in the price of the Company’s Class A common stock; (vi) the ability to generate revenues sufficient to maintain profitability and positive cash flow; (vii) competition in the Company's industry and the ability to compete effectively; (viii) the dependence on non-exclusive distribution partners to market the Company's products and services; (ix) the ability to keep pace with rapid developments and changes in the Company's industry and provide new products and services; (x) liability and reputation damage from unauthorized disclosure, destruction or modification of data or disruption of the Company's services; (xi) technical, operational and regulatory risks related to the Company's information technology systems and third-party providers’ systems; (xii) reliance on third parties for significant services; (xiii) exposure to economic conditions and political risks affecting consumer and commercial spending, including the use of credit cards; (xiv) the ability to increase the Company's existing vertical markets, expand into new vertical markets and execute the Company's growth strategy; (xv) the ability to successfully identify acquisition targets, complete those acquisitions and effectively integrate those acquisitions into the Company's services; (xvi) potential degradation of the quality of the Company's products, services and support; (xvii) the ability to retain clients, many of which are small- and medium-sized businesses, which can be difficult and costly to retain; (xviii) the Company's ability to successfully manage its intellectual property; (xix) the ability to attract, recruit, retain and develop key personnel and qualified employees; (xx) risks related to laws, regulations and industry standards; (xxi) operating and financial restrictions imposed by the Company's senior secured credit facility; (xxii) risks related to the accounting method for the Company’s 1.0% Exchangeable Senior Notes due February 15, 2025 (the “Exchangeable Notes”); (xxiii) the ability to raise the funds necessary to settle exchanges of the Exchangeable Notes or to repurchase the Exchangeable Notes upon a fundamental change; (xxiv) risks related to the conditional exchange feature of the Exchangeable Notes; and (xxv) the risk factors included in the Company's Annual Report on Form 10-K for the year ended September 30, 2019 and in our subsequent filings. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, the Company's actual results may vary in material respects from those projected in these forward-looking statements.
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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: | |||||
| Clay Whitson | |||||
| Chief Financial Officer | |||||
| (615) 988-9890 | |||||
cwhitson@i3verticals.com | |||||
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i3 Verticals, Inc. Consolidated Statements of Operations
(Unaudited)
($ in thousands, except share and per share amounts)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||||||||||||||
| Revenue | $ | 31,573 | $ | 97,483 | (68)% | $ | 111,862 | $ | 267,745 | (58)% | |||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
Interchange and network fees(1) | 63,263 | n/m | 173,777 | n/m | |||||||||||||||||||||||||||||||
| Other costs of services | 10,001 | 11,431 | (13)% | 34,874 | 31,414 | 11% | |||||||||||||||||||||||||||||
| Selling, general and administrative | 18,133 | 17,587 | 3% | 58,206 | 44,422 | 31% | |||||||||||||||||||||||||||||
| Depreciation and amortization | 4,475 | 4,425 | 1% | 13,668 | 11,875 | 15% | |||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | (1,473) | (417) | n/m | (1,461) | 1,736 | (184)% | |||||||||||||||||||||||||||||
| Total operating expenses | 31,136 | 96,289 | (68)% | 105,287 | 263,224 | (60)% | |||||||||||||||||||||||||||||
| Income from operations | 437 | 1,194 | n/m | 6,575 | 4,521 | 45% | |||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||||||||
| Interest expense, net | 2,423 | 1,918 | 26% | 6,621 | 3,987 | 66% | |||||||||||||||||||||||||||||
| Other expense | 829 | — | n/m | 829 | — | n/m | |||||||||||||||||||||||||||||
| Total other expenses | 3,252 | 1,918 | 70% | 7,450 | 3,987 | 87% | |||||||||||||||||||||||||||||
| (Loss) income before income taxes | (2,815) | (724) | 289% | (875) | 534 | (264)% | |||||||||||||||||||||||||||||
| Benefit from income taxes | (5) | (131) | (96)% | (1,918) | (2) | n/m | |||||||||||||||||||||||||||||
| Net (loss) income | (2,810) | (593) | n/m | 1,043 | 536 | 95% | |||||||||||||||||||||||||||||
| Net (loss) income attributable to non-controlling interest | (2,454) | 598 | n/m | 811 | 2,651 | (69)% | |||||||||||||||||||||||||||||
| Net (loss) income attributable to i3 Verticals, Inc. | $ | (356) | $ | (1,191) | n/m | $ | 232 | $ | (2,115) | n/m | |||||||||||||||||||||||||
Net (loss) income per share available to Class A common stock: | |||||||||||||||||||||||||||||||||||
| Basic | $ | (0.02) | $ | (0.12) | $ | 0.02 | $ | (0.23) | |||||||||||||||||||||||||||
| Diluted | $ | (0.02) | $ | (0.12) | $ | 0.01 | $ | (0.23) | |||||||||||||||||||||||||||
Weighted average shares of Class A common stock outstanding: | |||||||||||||||||||||||||||||||||||
| Basic | 14,858,858 | 10,064,785 | 14,515,506 | 9,254,549 | |||||||||||||||||||||||||||||||
| Diluted | 14,858,858 | 10,064,785 | 15,919,364 | 9,254,549 | |||||||||||||||||||||||||||||||
n/m = not meaningful
__________________________
1.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.
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i3 Verticals, Inc. Financial Highlights
(Unaudited)
($ in thousands, except per share amounts)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||||||||||||||
| Adjusted net revenue (non-GAAP) | $ | 31,597 | $ | 36,014 | (12)% | $ | 112,532 | $ | 97,032 | 16% | |||||||||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | 7,051 | 9,694 | (27)% | 28,875 | 27,019 | 7% | |||||||||||||||||||||||||||||
| Pro forma adjusted diluted earnings per share (non-GAAP) | $ | 0.13 | $ | 0.20 | (35)% | $ | 0.57 | $ | 0.59 | (3)% | |||||||||||||||||||||||||
i3 Verticals, Inc. Supplemental Volume Information
(Unaudited)
($ in thousands)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Payment volume(1) | $ | 2,980,702 | $ | 3,409,222 | $ | 10,397,555 | $ | 9,295,879 | |||||||||||||||
__________________________
1.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.
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August 10, 2020
i3 Verticals, Inc. Segment Summary
(Unaudited)
($ in thousands)
For the Three Months Ended June 30, 2020 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 21,531 | $ | 10,458 | $ | (416) | $ | 31,573 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Other costs of services | 9,394 | 1,023 | (416) | 10,001 | |||||||||||||||||||
| Selling general and administrative | 5,630 | 6,878 | 5,625 | 18,133 | |||||||||||||||||||
| Depreciation and amortization | 2,821 | 1,476 | 178 | 4,475 | |||||||||||||||||||
| Change in fair value of contingent consideration | (1,345) | (128) | — | (1,473) | |||||||||||||||||||
| Income (loss) from operations | $ | 5,031 | $ | 1,209 | $ | (5,803) | $ | 437 | |||||||||||||||
| Payment volume | $ | 2,909,731 | $ | 70,971 | $ | — | $ | 2,980,702 | |||||||||||||||
For the Nine Months Ended June 30, 2020 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 74,014 | $ | 39,205 | $ | (1,357) | $ | 111,862 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Other costs of services | 32,804 | 3,426 | (1,356) | 34,874 | |||||||||||||||||||
| Selling general and administrative | 18,421 | 22,531 | 17,254 | 58,206 | |||||||||||||||||||
| Depreciation and amortization | 8,629 | 4,513 | 526 | 13,668 | |||||||||||||||||||
| Change in fair value of contingent consideration | (2,951) | 1,490 | — | (1,461) | |||||||||||||||||||
| Income (loss) from operations | $ | 17,111 | $ | 7,245 | $ | (17,781) | $ | 6,575 | |||||||||||||||
| Payment volume | $ | 9,938,497 | $ | 459,058 | $ | — | $ | 10,397,555 | |||||||||||||||
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For the Three Months Ended June 30, 2019 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 87,264 | $ | 10,219 | $ | — | $ | 97,483 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Interchange and network fees | 61,744 | 1,519 | — | 63,263 | |||||||||||||||||||
| Other costs of services | 10,527 | 904 | — | 11,431 | |||||||||||||||||||
| Selling general and administrative | 6,244 | 6,066 | 5,277 | 17,587 | |||||||||||||||||||
| Depreciation and amortization | 2,972 | 1,308 | 145 | 4,425 | |||||||||||||||||||
| Change in fair value of contingent consideration | 155 | (572) | — | (417) | |||||||||||||||||||
| Income (loss) from operations | $ | 5,622 | $ | 994 | $ | (5,422) | $ | 1,194 | |||||||||||||||
| Payment volume | $ | 3,268,141 | $ | 141,081 | $ | — | $ | 3,409,222 | |||||||||||||||
For the Nine Months Ended June 30, 2019 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 241,841 | $ | 25,904 | $ | — | $ | 267,745 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Interchange and network fees | 169,229 | 4,548 | — | 173,777 | |||||||||||||||||||
| Other costs of services | 29,648 | 1,766 | — | 31,414 | |||||||||||||||||||
| Selling general and administrative | 18,561 | 12,728 | 13,133 | 44,422 | |||||||||||||||||||
| Depreciation and amortization | 8,671 | 2,811 | 393 | 11,875 | |||||||||||||||||||
| Change in fair value of contingent consideration | (554) | 2,290 | — | 1,736 | |||||||||||||||||||
| Income (loss) from operations | $ | 16,286 | $ | 1,761 | $ | (13,526) | $ | 4,521 | |||||||||||||||
| Payment volume | $ | 8,866,400 | $ | 429,479 | $ | — | $ | 9,295,879 | |||||||||||||||
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i3 Verticals, Inc. Consolidated Balance Sheets
($ in thousands, except share and per share amounts)
| June 30, | September 30, | ||||||||||
| 2020 | 2019 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 9,136 | $ | 1,119 | |||||||
| Accounts receivable, net | 16,350 | 15,335 | |||||||||
| Prepaid expenses and other current assets | 5,789 | 4,117 | |||||||||
| Total current assets | 31,275 | 20,571 | |||||||||
| Property and equipment, net | 5,506 | 5,026 | |||||||||
| Restricted cash | 1,550 | 2,081 | |||||||||
| Capitalized software, net | 14,340 | 15,454 | |||||||||
| Goodwill | 167,054 | 168,284 | |||||||||
| Intangible assets, net | 99,884 | 107,419 | |||||||||
| Deferred tax asset | 35,671 | 28,138 | |||||||||
| Other assets | 5,193 | 2,329 | |||||||||
| Total assets | $ | 360,473 | $ | 349,302 | |||||||
| Liabilities and equity | |||||||||||
| Liabilities | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 4,559 | $ | 3,438 | |||||||
| Accrued expenses and other current liabilities | 15,465 | 21,560 | |||||||||
| Deferred revenue | 9,714 | 10,237 | |||||||||
| Total current liabilities | 29,738 | 35,235 | |||||||||
| Long-term debt, less current portion and debt issuance costs, net | 134,114 | 139,298 | |||||||||
| Long-term tax receivable agreement obligations | 25,933 | 23,204 | |||||||||
| Other long-term liabilities | 3,260 | 9,124 | |||||||||
| Total liabilities | 193,045 | 206,861 | |||||||||
| Commitments and contingencies (see Note 9) | |||||||||||
| Stockholders' equity | |||||||||||
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2020 and September 30, 2019 | — | — | |||||||||
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 15,085,813 and 14,444,115 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively | 1 | 1 | |||||||||
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 12,391,621 and 12,921,637 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively | 1 | 1 | |||||||||
| Additional paid-in capital | 107,654 | 82,380 | |||||||||
| Accumulated (deficit) earnings | (1,372) | (2,309) | |||||||||
| Total stockholders' equity | 106,284 | 80,073 | |||||||||
| Non-controlling interest | 61,144 | 62,368 | |||||||||
| Total equity | 167,428 | 142,441 | |||||||||
| Total liabilities and stockholders' equity | $ | 360,473 | $ | 349,302 | |||||||
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IIIV Reports Third Quarter 2020 Financial Results
Page 10
August 10, 2020
i3 Verticals, Inc. Consolidated Cash Flow Data
(Unaudited)
($ in thousands)
| Nine months ended June 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net cash provided by operating activities | $ | 10,087 | $ | 16,297 | |||||||
| Net cash used in investing activities | $ | (5,744) | $ | (131,705) | |||||||
| Net cash provided by financing activities | $ | 3,143 | $ | 117,296 | |||||||
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, i3 Verticals includes non-GAAP financial measures when reporting its financial results to stockholders and potential investors in order to provide them with an additional tool to evaluate the Company’s ongoing business operations. i3 Verticals believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of i3 Verticals’ current and ongoing business operations.
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. i3 Verticals believes that its provision of 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 non-GAAP financial measures to give stockholders and potential investors an opportunity to see i3 Verticals as viewed by management, to assess i3 Verticals with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. i3 Verticals believes that inclusion of 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.
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IIIV Reports Third Quarter 2020 Financial Results
Page 11
August 10, 2020
i3 Verticals, Inc. Reconciliation of GAAP Net Income to Non-GAAP Pro Forma Adjusted Net Income and Non-GAAP Adjusted EBITDA
(Unaudited)
($ in thousands)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income (loss) attributable to i3 Verticals, Inc. | $ | (356) | $ | (1,191) | $ | 232 | $ | (2,115) | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | (2,454) | 598 | 811 | 2,651 | |||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Benefit from income taxes | (5) | (131) | (1,918) | (2) | |||||||||||||||||||
Financing-related expenses(1) | 22 | — | 243 | — | |||||||||||||||||||
Non-cash change in fair value of contingent consideration(2) | (1,473) | (417) | (1,461) | 1,736 | |||||||||||||||||||
Equity-based compensation(3) | 2,816 | 1,808 | 7,450 | 4,122 | |||||||||||||||||||
Acquisition revenue adjustments(4) | 24 | 1,794 | 670 | 3,064 | |||||||||||||||||||
Acquisition-related expenses(5) | 458 | 826 | 1,303 | 1,447 | |||||||||||||||||||
Acquisition intangible amortization(6) | 3,552 | 3,641 | 10,873 | 9,751 | |||||||||||||||||||
Non-cash interest expense(7) | 1,436 | 306 | 2,415 | 771 | |||||||||||||||||||
Other taxes(8) | 54 | 64 | 189 | 254 | |||||||||||||||||||
Non-cash loss on Exchangeable Note repurchases(9) | 828 | — | 828 | — | |||||||||||||||||||
COVID-19 related expenses(10) | 239 | — | 239 | — | |||||||||||||||||||
| Non-GAAP pro forma adjusted income before taxes | 5,141 | 7,298 | 21,874 | 21,679 | |||||||||||||||||||
Pro forma taxes at effective tax rate(11) | (1,285) | (1,825) | (5,469) | (5,420) | |||||||||||||||||||
Pro forma adjusted net income(12) | $ | 3,856 | $ | 5,473 | $ | 16,405 | $ | 16,259 | |||||||||||||||
Cash interest expense, net(13) | 987 | 1,612 | 4,206 | 3,216 | |||||||||||||||||||
Pro forma taxes at effective tax rate(11) | 1,285 | 1,825 | 5,469 | 5,420 | |||||||||||||||||||
Depreciation, non-acquired intangible asset amortization and internally developed software amortization(14) | 923 | 784 | 2,795 | 2,124 | |||||||||||||||||||
| Adjusted EBITDA | $ | 7,051 | $ | 9,694 | $ | 28,875 | $ | 27,019 | |||||||||||||||
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IIIV Reports Third Quarter 2020 Financial Results
Page 12
August 10, 2020
________
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 consisted of $2,816 and $1,808 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months ended June 30, 2020 and 2019, respectively, and $7,450 and $4,122 related to stock options issued under the Company's 2018 Equity Incentive Plan during the nine months ended June 30, 2020 and 2019, respectively.
4.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.
5.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.
6.Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions.
7.Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs.
8.Other taxes consist of franchise taxes, commercial activity taxes and other non-income based taxes. Taxes related to salaries or employment are not included.
9.Non-cash loss on Exchangeable Note repurchases reflects the loss on retirement of debt the Company recorded during the relevant periods due to the carrying value exceeding the fair value of the repurchased portion of the 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) at the dates of repurchases.
10.COVID-19 related expenses reflects incremental expenses incurred as a result of the COVID-19 pandemic, including employee severance expenses and legal expenses.
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 2020 and 2019, based on blended federal and state tax rates.
12.Pro forma adjusted net income assumes that all net income during that period was 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, non-acquired intangible asset amortization 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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IIIV Reports Third Quarter 2020 Financial Results
Page 13
August 10, 2020
i3 Verticals, Inc. GAAP Diluted EPS and Non-GAAP Pro Forma Adjusted Diluted EPS
(Unaudited)
($ in thousands, except share and per share amounts)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Diluted net loss available to Class A common stock per share | $ | (0.02) | $ | (0.12) | $ | 0.01 | $ | (0.23) | |||||||||||||||
Pro forma adjusted diluted earnings per share (non-GAAP)(1) | $ | 0.13 | $ | 0.20 | $ | 0.57 | $ | 0.59 | |||||||||||||||
Pro forma adjusted net income(2) | $ | 3,856 | $ | 5,473 | $ | 16,405 | $ | 16,259 | |||||||||||||||
Pro forma weighted average shares of adjusted diluted Class A common stock outstanding(3) | 28,584,444 | 27,723,231 | 28,618,703 | 27,360,396 | |||||||||||||||||||
__________
1.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.
2.Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company's Class A common stock. 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.
3.Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 12,404,368 and 16,184,026 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,321,218 and 1,474,420 shares of unvested Class A common stock and options for the three months ended June 30, 2020 and 2019, respectively. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 12,699,339 and 16,846,012 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,403,858 and 1,259,835 shares of unvested Class A common stock and options for the nine months ended June 30, 2020 and 2019, respectively.
i3 Verticals, Inc. Reconciliation of GAAP Revenue to Non-GAAP Adjusted Net Revenue
(Unaudited)
($ in thousands)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenue | $ | 31,573 | $ | 97,483 | $ | 111,862 | $ | 267,745 | |||||||||||||||
Acquisition revenue adjustments(1) | 24 | 1,794 | 670 | 3,064 | |||||||||||||||||||
Interchange and network fees(2) | (63,263) | (173,777) | |||||||||||||||||||||
| Adjusted Net Revenue | $ | 31,597 | $ | 36,014 | $ | 112,532 | $ | 97,032 | |||||||||||||||
__________
1.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.
2.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.
-END-
Q3 Fiscal 2020 Supplemental Information
Q3 Fiscal 2020 Segment Performance(1) ($ in thousands) Three months ended June 30, Period over period 2020 2019 growth Adjusted Net Revenue(2) Merchant Services, excluding Purchased Portfolios $ 20,676 $ 24,133 (14)% Purchased Portfolios 855 1,387 (38)% Merchant Services 21,531 25,520 (16)% Proprietary Software and Payments 10,482 10,494 —% Other (416) — nm Total $ 31,597 $ 36,014 (12)% Adjusted EBITDA(2) Merchant Services $ 6,618 $ 8,761 (24)% Proprietary Software and Payments 2,690 3,525 (24)% Other (2,257) (2,592) 13% Total $ 7,051 $ 9,694 (27)% Adjusted EBITDA as a percentage of Net Revenue 22.3 % 26.9 % Volume Merchant Services $ 2,909,731 $ 3,268,141 (11)% Proprietary Software and Payments 70,971 141,081 (50)% Total $ 2,980,702 $ 3,409,222 (13)% 1. i3 Verticals has two segments, “Merchant Services,” which includes Purchased Portfolios (a subset of merchant contracts purchased in 2014 and 2017) and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Adjusted Net Revenue and Adjusted EBITDA are non-GAAP financial measures. Refer to the following slides for the reconciliation of non-GAAP 2 financial measures.
Q3 Fiscal 2020 Segment Performance(1) ($ in thousands) Nine months ended June 30, Period over period 2020 2019 growth Adjusted Net Revenue(2) Merchant Services, excluding Purchased Portfolios $ 70,792 $ 67,647 5% Purchased Portfolios 3,222 4,965 (35)% Merchant Services 74,014 72,612 2% Proprietary Software and Payments 39,875 24,420 63% Other (1,357) — nm Total $ 112,532 $ 97,032 16% Adjusted EBITDA(2) Merchant Services $ 22,907 $ 24,438 (6)% Proprietary Software and Payments 14,027 9,931 41% Other (8,059) (7,350) (10)% Total $ 28,875 $ 27,019 7% Adjusted EBITDA as a percentage of Net Revenue 25.7 % 27.8 % Volume Merchant Services $ 9,938,497 $ 8,866,400 12% Proprietary Software and Payments 459,058 429,479 7% Total $ 10,397,555 $ 9,295,879 12% 1. i3 Verticals has two segments, “Merchant Services,” which includes Purchased Portfolios (a subset of merchant contracts purchased in 2014 and 2017) and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Adjusted Net Revenue and Adjusted EBITDA are non-GAAP financial measures. Refer to the following slides for the reconciliation of non-GAAP 3 financial measures.
Reconciliation of Non-GAAP Financial Measures The reconciliation of our revenue to non-GAAP adjusted net revenue is as follows: ($ in thousands) Three months ended June 30, 2020 Proprietary Software Merchant Services(2) and Payments Other Total Revenue $ 21,531 $ 10,458 $ (416) $ 31,573 Acquisition revenue adjustments(1) — 24 — 24 Adjusted Net Revenue $ 21,531 $ 10,482 $ (416) $ 31,597 ($ in thousands) Three months ended June 30, 2019 Proprietary Software Merchant Services(3) and Payments Other Total Revenue $ 87,264 $ 10,219 $ — $ 97,483 Acquisition revenue adjustments(1) — 1,794 — 1,794 Interchange and nework fees (61,744) (1,519) — (63,263) Adjusted Net Revenue $ 25,520 $ 10,494 $ — $ 36,014 1. 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 the earnings release. 2. Merchant Services includes purchased portfolios which had revenue of $855 and acquisition revenue adjustments of $0 for the three months ended June 30, 2020. 4 3. Merchant Services includes purchased portfolios which had revenue of $2,884, acquisition revenue adjustments of $0 and interchange and network fees of $1,497 for the three months ended June 30, 2019.
Reconciliation of Non-GAAP Financial Measures The reconciliation of our revenue to non-GAAP adjusted net revenue is as follows: ($ in thousands) Nine months ended June 30, 2020 Proprietary Software Merchant Services(2) and Payments Other Total Revenue $ 74,014 $ 39,205 $ (1,357) $ 111,862 Acquisition revenue adjustments(1) — 670 — 670 Adjusted Net Revenue $ 74,014 $ 39,875 $ (1,357) $ 112,532 ($ in thousands) Nine months ended June 30, 2019 Proprietary Software Merchant Services(3) and Payments Other Total Revenue $ 241,841 $ 25,904 $ — $ 267,745 Acquisition revenue adjustments(1) — 3,064 — 3,064 Interchange and nework fees (169,229) (4,548) — (173,777) Adjusted Net Revenue $ 72,612 $ 24,420 $ — $ 97,032 1. 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 the earnings release. 2. Merchant Services includes purchased portfolios which had revenue of $3,222 and acquisition revenue adjustments of $0 for the nine months ended June 30, 2020. 5 3. Merchant Services includes purchased portfolios which had revenue of $9,761, acquisition revenue adjustments of $0 and interchange and network fees of $4,796 for the nine months ended June 30, 2019.
Reconciliation of Non-GAAP Financial Measures The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: ($ in thousands) Three months ended June 30, 2020 Three months ended June 30, 2019 Proprietary Proprietary Merchant Software and Merchant Software and Services Payments Other Total Services Payments Other Total Income (loss) from operations $ 5,031 $ 1,209 $ (5,803) $ 437 $ 5,622 $ 994 $ (5,422) $ 1,194 Interest expense, net (1) — 2,424 2,423 (1) (8) 1,927 1,918 Other expense — — 829 829 — — — — Benefit from income taxes — — (5) (5) — — (131) (131) Net income (loss) 5,032 1,209 (9,051) (2,810) 5,623 1,002 (7,218) (593) Non-GAAP Adjustments: Benefit from income taxes — — (5) (5) — — (131) (131) Financing-related expenses(1) — — 22 22 — — — — Non-cash change in fair value of contingent consideration(2) (1,345) (128) — (1,473) 155 (572) — (417) Equity-based compensation(3) — — 2,816 2,816 — — 1,808 1,808 Acquisition revenue adjustments(4) — 24 — 24 — 1,794 — 1,794 Acquisition-related expenses(5) — — 458 458 — — 826 826 Acquisition intangible amortization(6) 2,582 970 — 3,552 2,792 849 — 3,641 Non-cash interest(7) — — 1,436 1,436 — — 306 306 Other taxes(8) 4 — 50 54 12 1 51 64 Non-cash loss on Exchangeable Note repurchases(9) — — 828 828 — — — — COVID-19 related expenses(10) 107 109 23 239 — — — — Non-GAAP adjusted income (loss) before taxes 6,380 2,184 (3,423) 5,141 8,582 3,074 (4,358) 7,298 Pro forma taxes at effective tax rate(11) (1,595) (546) 856 (1,285) (2,146) (769) 1,090 (1,825) Pro forma adjusted net income (loss)(12) 4,785 1,638 (2,567) 3,856 6,436 2,305 (3,268) 5,473 Plus: Cash interest expense, net(13) (1) — 988 987 (1) (8) 1,621 1,612 Pro forma taxes at effective tax rate(11) 1,595 546 (856) 1,285 2,146 769 (1,090) 1,825 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(14) 239 506 178 923 180 459 145 784 Adjusted EBITDA $ 6,618 $ 2,690 $ (2,257) $ 7,051 $ 8,761 $ 3,525 $ (2,592) $ 9,694 See footnotes continued on the next slide. 6
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 consisted of $2,816 and $1,808 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months ended June 30, 2020 and 2019, respectively. 4. 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 the earnings release. 5. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 6. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 7. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 8. Other taxes consist of franchise taxes, commercial activity taxes and other non-income based taxes. Taxes related to salaries or employment are not included. 9. Non-cash loss on Exchangeable Note repurchases reflects the loss on retirement of debt the Company recorded during the relevant periods due to the carrying value exceeding the fair value of the repurchased portion of the 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) at the dates of repurchases. 10. COVID-19 related expenses reflects incremental expenses incurred as a result of the COVID-19 pandemic, including employee severance expenses and legal expenses. 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 2020 and 2019, based on blended federal and state tax rates, considering the Tax Reform Act for 2018. 12. Pro forma adjusted net income 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, non-acquired intangible asset amortization 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. 7
Reconciliation of Non-GAAP Financial Measures The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: ($ in thousands) Nine months ended June 30, 2020 Nine months ended June 30, 2019 Proprietary Proprietary Merchant Software and Merchant Software and Services Payments Other Total Services Payments Other Total Income (loss) from operations $ 17,111 $ 7,245 $ (17,781) $ 6,575 $ 16,286 $ 1,761 $ (13,526) $ 4,521 Interest expense, net (1) — 6,622 6,621 577 (8) 3,418 3,987 Other expense — — 829 829 — — — — (Benefit from) provision for income taxes — — (1,918) (1,918) 435 — (437) (2) Net income (loss) 17,112 7,245 (23,314) 1,043 15,274 1,769 (16,507) 536 Non-GAAP Adjustments: (Benefit from) provision for income taxes — — (1,918) (1,918) 435 — (437) (2) Financing-related expenses(1) — — 243 243 — — — — Non-cash change in fair value of contingent consideration(2) (2,951) 1,490 — (1,461) (554) 2,290 — 1,736 Equity-based compensation(3) — — 7,450 7,450 — — 4,122 4,122 Acquisition revenue adjustments(4) — 670 — 670 — 3,064 — 3,064 Acquisition-related expenses(5) — — 1,303 1,303 — — 1,447 1,447 Acquisition intangible amortization(6) 7,962 2,911 — 10,873 8,179 1,571 1 9,751 Non-cash interest(7) — — 2,415 2,415 — — 771 771 Other taxes(8) 11 — 178 189 35 5 214 254 Non-cash loss on Exchangeable Note repurchases(9) — — 828 828 — — — — COVID-19 related expenses(10) 107 109 23 239 — — — — Non-GAAP adjusted income (loss) before taxes 22,241 12,425 (12,792) 21,874 23,369 8,699 (10,389) 21,679 Pro forma taxes at effective tax rate(11) (5,561) (3,106) 3,198 (5,469) (5,842) (2,175) 2,597 (5,420) Pro forma adjusted net income (loss)(12) 16,680 9,319 (9,594) 16,405 17,527 6,524 (7,792) 16,259 Plus: Cash interest expense, net(13) (1) — 4,207 4,206 577 (8) 2,647 3,216 Pro forma taxes at effective tax rate(11) 5,561 3,106 (3,198) 5,469 5,842 2,175 (2,597) 5,420 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(14) 667 1,602 526 2,795 492 1,240 392 2,124 Adjusted EBITDA $ 22,907 $ 14,027 $ (8,059) $ 28,875 $ 24,438 $ 9,931 $ (7,350) $ 27,019 See footnotes continued on the next slide. 8
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 consisted of $7,450 and $4,122 related to stock options issued under the Company's 2018 Equity Incentive Plan during the nine months ended June 30, 2020 and 2019, respectively. 4. 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 the earnings release. 5. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 6. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 7. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 8. Other taxes consist of franchise taxes, commercial activity taxes and other non-income based taxes. Taxes related to salaries or employment are not included. 9. Non-cash loss on Exchangeable Note repurchases reflects the loss on retirement of debt the Company recorded during the relevant periods due to the carrying value exceeding the fair value of the repurchased portion of the 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) at the dates of repurchases. 10. COVID-19 related expenses reflects incremental expenses incurred as a result of the COVID-19 pandemic, including employee severance expenses and legal expenses. 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 2020 and 2019, based on blended federal and state tax rates. 12. Pro forma adjusted net income 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, non-acquired intangible asset amortization 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. 9
Reconciliation Between GAAP Debt and Covenant Debt The reconciliation of our GAAP Long-term debt, net of issuance costs and the debt balance used in our Total Leverage Ratio: ($ in millions) As of June 30, 2020 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 35.0 Exchangeable Notes 104.3 Debt issuance costs, net (5.2) Total long-term debt, net of issuance costs $ 134.1 Non-GAAP Adjustments: Discount on Exchangeable Notes(1) $ 25.2 Exchangeable Notes 104.3 Exchangeable Notes Face Value $ 129.5 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 35.0 Exchangeable Notes Face Value 129.5 Less: Cash and Cash Equivalents (9.1) Total long-term debt for use in our Total Leverage Ratio $ 155.4 1.) In accordance with Financial Accounting Standards Board Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), convertible debt that may be entirely or partially settled in cash (such as the notes) is required to be separated into a liability and an equity component, such that interest expense reflects the issuer’s non-convertible debt interest cost. On the issue date, the value of the exchange option of the notes, representing the equity component was recorded as additional paid-in capital within shareholders’ equity and as a discount to the notes, which reduces their initial carrying value. The carrying value of the notes, net of the discount recorded, was accrued up to the principal amount of such notes from the issue date until maturity. ASC 470-20 does not affect the actual amount that the Issuer is required to repay. The amount shown in the table above for the discount reflects the debt discount for the value of the exchange option. 10
Payment Volumes Quickly Recovering from COVID-19 Lows Consolidated Average Daily Payments Volume(1) ($ in millions) Average daily payments volume for the week ending February 8th through the week ending August 8th (47%) +82% $39.3 $37.3 $36.1 $35.2 $34.7 $33.8 $31.7 $31.5 $32.0 $31.8 $31.3 $30.2 $30.7 $30.0 $30.9 $26.8 $25.3 $25.9 $26.3 $23.3 $23.4 $19.7 $20.3 $20.5 $18.6 $18.9 4-Apr 6-Jun 4-Jul 15-Feb22-Feb 29-Feb 7-Mar 14-Mar 21-Mar 28-Mar 11-Apr 18-Apr 25-Apr 2-May 9-May16-May23-May30-May 13-Jun 20-Jun 27-Jun 11-Jul 18-Jul 25-Jul 1-Aug 8-Aug 1.) This includes volume from i3's largest processing portfolios, for which daily volume figures are readily available. The volume of various minor portfolios and any volume for which we receive a residual but do not control the merchant relationship are not included. Average daily volume above represents approximately 85% of the credit and debit volume we reported, or we expect to report in our consolidated financial statements. 11