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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-38532
i3 Verticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware82-4052852
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
40 Burton Hills Blvd., Suite 415
Nashville, TN
37215
(Address of principal executive offices)(Zip Code)
(615) 465-4497
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.0001 Par ValueIIIVNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
Non-accelerated filer
o
Smaller reporting company
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 Section13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  x
As of August 10, 2020, there were 15,094,329 outstanding shares of Class A common stock, $0.0001 par value per share, and 12,391,621 outstanding shares of Class B common stock, $0.0001 par value per share.



TABLE OF CONTENTS
Page

2


PART I. - FINANCIAL INFORMATION
Item 1.    Financial Statements

3

i3 Verticals, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)


June 30,September 30,
20202019
(unaudited)
Assets
Current assets
Cash and cash equivalents$9,136  $1,119  
Accounts receivable, net16,350  15,335  
Prepaid expenses and other current assets5,789  4,117  
Total current assets31,275  20,571  
Property and equipment, net5,506  5,026  
Restricted cash1,550  2,081  
Capitalized software, net14,340  15,454  
Goodwill167,054  168,284  
Intangible assets, net99,884  107,419  
Deferred tax asset35,671  28,138  
Other assets5,193  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 liabilities15,465  21,560  
Deferred revenue9,714  10,237  
Total current liabilities29,738  35,235  
Long-term debt, less current portion and debt issuance costs, net134,114  139,298  
Long-term tax receivable agreement obligations25,933  23,204  
Other long-term liabilities3,260  9,124  
Total liabilities193,045  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 capital107,654  82,380  
Accumulated (deficit) earnings(1,372) (2,309) 
Total stockholders' equity106,284  80,073  
Non-controlling interest61,144  62,368  
Total equity167,428  142,441  
Total liabilities and stockholders' equity$360,473  $349,302  
See Notes to the Interim Condensed Consolidated Financial Statements
4

i3 Verticals, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)


Three months ended June 30,Nine months ended June 30,
2020201920202019
Revenue$31,573  $97,483  $111,862  $267,745  
Operating expenses
Interchange and network fees(1)
63,263  173,777  
Other costs of services10,001  11,431  34,874  31,414  
Selling, general and administrative18,133  17,587  58,206  44,422  
Depreciation and amortization4,475  4,425  13,668  11,875  
Change in fair value of contingent consideration(1,473) (417) (1,461) 1,736  
Total operating expenses31,136  96,289  105,287  263,224  
Income from operations437  1,194  6,575  4,521  
Other expenses
Interest expense, net2,423  1,918  6,621  3,987  
Other expense829    829    
Total other expenses3,252  1,918  7,450  3,987  
(Loss) income before income taxes(2,815) (724) (875) 534  
Benefit from income taxes(5) (131) (1,918) (2) 
Net (loss) income(2,810) (593) 1,043  536  
Net (loss) income attributable to non-controlling interest(2,454) 598  811  2,651  
Net (loss) income attributable to i3 Verticals, Inc.$(356) $(1,191) $232  $(2,115) 
Net (loss) income per share attributable to Class A common stockholders:
Basic$(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:
Basic14,858,858  10,064,785  14,515,506  9,254,549  
Diluted14,858,858  10,064,785  15,919,364  9,254,549  
__________________________
1.Effective October 1, 2019, the Company's revenues are presented net of interchange and network fees in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. See Note 2 to our condensed consolidated financial statements for a description of the recently adopted accounting pronouncement.
See Notes to the Interim Condensed Consolidated Financial Statements
5

i3 Verticals, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(In thousands, except share amounts)

Class A Common StockClass B Common StockAdditional Paid-In CapitalAccumulated Earnings (Deficit)Non-Controlling InterestTotal Equity
SharesAmountSharesAmount
Balance at September 30, 201914,444,115  $1  12,921,637  $1  $82,380  $(2,309) $62,368  $142,441  
Cumulative effect of adoption of new accounting standard—  —  —  —  —  705  640  1,345  
Equity-based compensation—  —  —  —  2,124  —  —  2,124  
Net (loss) income—  —  —  —  —  (149) 2,083  1,934  
Exercise of equity-based awards53,662  —  —  —  351  —  —  351  
Balance at December 31, 201914,497,777  1  12,921,637  1  84,855  (1,753) 65,091  148,195  
Equity-based compensation—  —  —  —  2,510  —  —  2,510  
Net income—  —  —  —  —  737  1,182  1,919  
Distributions to non-controlling interest holders—  —  —  —  —  —  (3) (3) 
Redemption of common units in i3 Verticals, LLC510,016  —  (510,016) —  2,597  —  (2,597)   
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis—  —  —  —  596  —  —  596  
Exercise of equity-based awards31,125  —  —  —  2  —  —  2  
Equity component of exchangeable notes, net of issuance costs and deferred taxes—  —  —  —  27,569  —  —  27,569  
Purchases of exchangeable note hedges—  —  —  —  (28,676) —  —  (28,676) 
Issuance of warrants—  —  —  —  14,669  —  —  14,669  
Balance at March 31, 202015,038,918  1  12,411,621  1  104,122  (1,016) 63,673  166,781  
Equity-based compensation—  —  —  —  2,816  —  —  2,816  
Net loss—  —  —  —  —  (356) (2,454) (2,810) 
Distributions to non-controlling interest holders—  —  —  —  —  —      
Redemption of common units in i3 Verticals, LLC20,000  —  (20,000)   75  —  (75)   
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis—  —  —  —  61  —  —  61  
Exercise of equity-based awards26,895  —  —  —  —  —  —    
Equity component of exchangeable notes, net of issuance costs and deferred taxes—  —  —  —  9  —  —  9  
Repurchases of exchangeable note hedges—  —  —  —  571  —  —  571  
Balance at June 30, 202015,085,813  $1  12,391,621  $1  $107,654  $(1,372) $61,144  $167,428  
See Notes to the Interim Condensed Consolidated Financial Statements
6

i3 Verticals, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) (CONTINUED)
(In thousands, except share amounts)

Class A Common StockClass B Common StockAdditional Paid-In CapitalAccumulated Earnings (Deficit)Non-Controlling InterestTotal Equity
SharesAmountSharesAmount
Balance at September 30, 20189,112,042  $1  17,213,806  $2  $38,562  $736  $72,897  $112,198  
Equity-based compensation—  —  —  —  951  —  —  951  
Forfeitures of restricted Class A common stock(4,010) —  —  —  —  —  —    
Net (loss) income—  —  —  —  —  178  2,173  2,351  
Distributions to non-controlling interest holders—  —  —  —  —  —  (934) (934) 
Balance at December 31, 20189,108,032  1  17,213,806  2  39,513  914  74,136  114,566  
Equity-based compensation—  —  —  —  1,363  —  —  1,363  
Forfeitures of restricted Class A common stock(17,644) —  —  —  —  —  —    
Net (loss) income—  —  —  —  —  (1,102) (120) (1,222) 
Distributions to non-controlling interest holders—  —  —  —  —  —  (89) (89) 
Redemption of common units in i3 Verticals, LLC101,642  —  (101,642) —  291  —  (291)   
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis—  —  —  —  117  —  —  117  
Balance at March 31, 20199,192,030  1  17,112,164  2  41,284  (188) 73,636  114,735  
Equity-based compensation—  —  —  —  1,808  —  —  1,808  
Forfeitures of restricted Class A common stock(1,124) —  —  —  —  —  —    
Net (loss) income—  —  —  —  —  (1,191) 598  (593) 
Distributions to non-controlling interest holders—  —  —  —  —  —  (1,037) (1,037) 
Redemption of common units in i3 Verticals, LLC4,190,527  —  (4,190,527) (1) 11,786  —  (11,786) (1) 
Sale of Class A common stock in public offering, net1,000,000  —  —  —  21,660  —  —  21,660  
Capitalization of public offering costs—  —  —  —  (771) —  —  (771) 
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis—  —  —  —  3,962  —  —  3,962  
Issuance of restricted Class A common stock under Equity Plan8,799  —  —  —  225  —  —  225  
Exercise of equity-based awards29,967  —  —  —  390  —  —  390  
Balance at June 30, 201914,420,199  $1  12,921,637  $1  $80,344  $(1,379) $61,411  $140,378  

See Notes to the Interim Condensed Consolidated Financial Statements
7

i3 Verticals, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)



Nine months ended June 30,
20202019
Cash flows from operating activities:
Net income (loss)$1,043  $536  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization13,668  11,875  
Equity-based compensation7,450  4,122  
Provision for doubtful accounts105  43  
Amortization of debt discount and issuance costs2,274  619  
Debt issuance costs write offs141  152  
Loss on repurchase of exchangeable notes828    
Amortization of capitalized client acquisition costs288    
Loss on disposal of assets1  8  
(Benefit from) provision for deferred income taxes(2,802) (36) 
(Decrease) increase in non-cash contingent consideration expense from original estimate(1,461) 1,736  
Changes in operating assets:
Accounts receivable(789) 3,758  
Prepaid expenses and other current assets(1,848) (1,779) 
Other assets(1,399) (2,369) 
Changes in operating liabilities:
Accounts payable989  2,489  
Accrued expenses and other current liabilities(2,896) (616) 
Deferred revenue(454) (2,633) 
Other long-term liabilities(12) (48) 
Contingent consideration paid in excess of original estimates(5,039) (1,560) 
Net cash provided by operating activities10,087  16,297  
Cash flows from investing activities:
Expenditures for property and equipment(1,883) (585) 
Expenditures for capitalized software(2,048) (1,478) 
Purchases of merchant portfolios and residual buyouts(1,677) (2,708) 
Acquisitions of businesses, net of cash acquired  (126,862) 
Acquisition of other intangibles(136) (72) 
Net cash used in investing activities(5,744) (131,705) 
See Notes to the Interim Condensed Consolidated Financial Statements

8

i3 Verticals, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(In thousands)

Nine months ended June 30,
20202019
Cash flows from financing activities:
Proceeds from revolving credit facility