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): May 10, 2021 (May 4, 2021 )
(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. ☐
Item 1.01.
The information in Item 8.01 is hereby incorporated by reference into this Item 1.01.
Item 2.02. Results of Operations and Financial Condition.
On May 10, 2021, i3 Verticals, Inc. (the “Company”) issued a press release announcing the results of its operations for the three and six months ended March 31, 2021. 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”) providing certain supplemental financial information for the three and six months ended March 31, 2021. 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, www.i3verticals.com.
Item 8.01. Other Events.
On May 4, 2021, upon the recommendation of the Compensation Committee of the Board of Directors (the “Board”) of the Company, the Board approved the First Amendment (the “Plan Amendment”) to the i3 Verticals, Inc. 2020 Acquisition Equity Incentive Plan (the “Plan”) to increase the number of shares of the Company’s Class A Common Stock, par value $0.0001, available for issuance under the Plan from 1,500,000 to 3,000,000 shares. The Plan is used exclusively for grants of awards to individuals that were not previously employees of the Company or its subsidiaries in connection with acquisitions as a material inducement to the individual’s entry into employment with the Company or its subsidiaries within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.
The foregoing description of the Plan Amendment is not complete and is qualified in its entirety by reference to the text of the Plan Amendment, which is filed as Exhibit 10.1 to this Current Report on Form 8-K.
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: May 10, 2021
i3 VERTICALS, INC. | ||||||||
By: | /s/ Clay Whitson | |||||||
Name: | Clay Whitson | |||||||
Title: | Chief Financial Officer | |||||||
FIRST AMENDMENT TO THE I3 VERTICALS, INC.
2020 ACQUISITION EQUITY INCENTIVE PLAN
WHEREAS, i3 Verticals, Inc., a Delaware corporation (the "Company"), has previously adopted the Company’s 2020 Acquisition Equity Incentive Plan (the "Plan");
WHEREAS, pursuant to Section 12.1 of the Plan, the Company's Board of Directors has retained the right to amend the Plan; and
WHEREAS, the Company's Board of Directors now desires to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The first sentence of Section 4.1 is deleted in its entirety and replaced with the following:
“Subject to the remaining provisions of this Section 4.1 and Section 4.2 hereof, the number of Shares with respect to which Awards may be granted under the Plan (the “Share Reserve”) shall be 3,000,000.”
2. Except as expressly stated herein, all other portions of the Plan remain in full force and effect.
3. This First Amendment to the i3 Verticals, Inc. 2020 Acquisition Equity Incentive Plan is effective this 4th day of May, 2021; provided it has been approved by the Company’s Board of Directors.
| i3 Verticals, Inc. | ||||||||
| By: | /s/ Paul Maple | |||||||
| Name: | Paul Maple | |||||||
| Title: | General Counsel & Secretary | |||||||
i3 VERTICALS REPORTS SECOND QUARTER 2021 FINANCIAL RESULTS
Announces Latest Public Sector Acquisition
Raises 2021 Outlook
NASHVILLE, Tenn. (May 10, 2021) – i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal second quarter ended March 31, 2021.
Highlights for the fiscal second quarter and six months ended March 31, 2021 vs. 2020
•Second quarter revenue was $47.9 million, an increase of 22% over the prior year's second quarter. Revenue for the six months ended March 31, 2021, was $91.2 million, an increase of 14% over the prior year's first six months.
•Second quarter adjusted net revenue1, which excludes acquisition revenue adjustments, was $49.4 million, a decrease of 26% over the prior year's second quarter. Adjusted net revenue1 for the six months ended March 31, 2021, was $94.3 million, an increase of 17% over the prior year's first six months.
•Second quarter net loss was $0.1 million, compared to net income of $1.9 million in the prior year's second quarter. Net loss for the six months ended March 31, 2021, was $4.2 million, compared to net income of $3.9 million in the prior year's first six months.
•Second quarter adjusted EBITDA1 was $12.4 million, an increase of 25% over the prior year's second quarter. Adjusted EBITDA1 for the six months ended March 31, 2021, was $23.3 million, an increase of 7% over the prior year's first six months.
•Second quarter adjusted EBITDA1 as a percentage of adjusted net revenue1 was 25.2%, compared to 25.3% in the prior year's second quarter. For the six months ended March 31, 2021, adjusted EBITDA1 as a percentage of adjusted net revenue1 was 24.7%, compared to 27.0% for the prior year's first six months.
•Second quarter diluted net income per share available to Class A common stock was $0.00, compared to diluted net income per share available to Class A common stock of $0.05 in the prior year's second quarter. For the six months ended March 31, 2021, diluted net loss per share available to Class A common stock was $0.12, compared to diluted net income per share available to Class A common stock of $0.04 for the prior year's first six months.
•For the three and six months ended March 31, 2021, pro forma adjusted diluted earnings per share1, which gives pro forma effect to the Company's going forward effective tax rate, was $0.23 and $0.45, respectively, compared to $0.20 and $0.44 for the three and six months ended March 31, 2020, respectively.
•Integrated payments2 were 59% and 57% of payment volume for the three and six months ended March 31, 2021, respectively.
•As of March 31, 2021, our consolidated interest coverage ratio was 6.19x, total leverage ratio was 3.80x and consolidated senior leverage ratio was 1.57x. These ratios are defined in our Senior Secured Credit Facility.
•Subsequent to March 31, 2021, the Company completed the acquisition of three businesses. Two of these businesses were previously announced in our press release dated April 5, 2021, and further strengthen the Company's focus in its Healthcare vertical. The third business expands the Company's software capabilities in the utilities market within the Public Sector vertical. The aggregate up-front cash purchase price for the three businesses was $37.4 million. These transactions also include contingent consideration, for which the fair value as of the respective acquisition dates is still being valued. The aggregate maximum contingent consideration payable for these acquisitions is up to $40.0 million, subject to the satisfaction of certain growth metrics over established time periods.
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May 10, 2021
•For the third acquisition, which closed on May 4, 2021, in accordance with Nasdaq Listing Rule 5635(c)(4), the Company has granted equity awards under its 2020 Acquisition Equity Incentive Plan to the new employees who agreed to join the Company at closing. The Company granted options to purchase a total of 300,000 shares of the Company’s Class A common stock to 46 employees as a material inducement to enter into employment with the Company. These stock options will vest ratably over three years, subject to the employees’ continued service to the Company through each applicable vesting date. The stock options have an exercise price equal to $32.41, the closing price per share of the Company’s Class A common stock as reported by Nasdaq on the date of closing.
1.Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
2.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.
Greg Daily, Chairman and CEO of i3 Verticals, commented, “We are thrilled with our second quarter results as we posted new records in adjusted net revenue, adjusted EBITDA, software revenue, payment volume and integration mix. Software-related revenue is now 36% of our total adjusted net revenue, and our Public Sector vertical is leading the way.
“We anticipate that government technology spending will increase as the effects of the pandemic subside and state and local governments receive federal funds allocated under the American Rescue Plan Act. Our product lineup and integrations are perfectly suited to help our government clients continue to modernize. We will continue to invest in our Public Sector software and are enthusiastic about the opportunities ahead.
“We recently completed an acquisition of a software company that provides products and solutions in the utilities sector. This company focuses on large, Tier 1 customers. Its software and professional services will augment and expand our existing platform in this space. We are excited about our increased ability to deliver excellent products to this market going forward.
“We previously announced in April the closing of our latest two acquisitions in the Healthcare vertical. We have now built a strong foundation to address this market. We are optimistic about our opportunities to further build our product suite and grow our Healthcare vertical.
We exited the second quarter with positive momentum, and we believe we are well positioned to deliver strong financial results during the remainder of the year.”
Revised 2021 Outlook
The Company's practice is to provide annual guidance, excluding future acquisitions and transaction-related costs. The Company is providing the following revised outlook for the fiscal year ending September 30, 2021:
| (in thousands, except share and per share amounts) | Outlook Range | ||||||||||
Fiscal year ending September 30, 2021 | |||||||||||
Adjusted net revenue(1) (non-GAAP) | $ | 204,000 | - | $ | 220,000 | ||||||
Adjusted EBITDA(1) (non-GAAP) | $ | 52,000 | - | $ | 58,000 | ||||||
| Depreciation and internally developed software amortization | $ | 4,250 | - | $ | 4,500 | ||||||
| Cash interest expense, net | $ | 4,750 | - | $ | 5,250 | ||||||
| Pro forma weighted average shares of adjusted diluted Class A common stock outstanding | 33,000,000 | - | 34,000,000 | ||||||||
Pro forma adjusted diluted earnings per share(1)(2) (non-GAAP) | $ | 0.98 | - | $ | 1.08 | ||||||
_______________________
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. For the 2021 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.
2.Assumes an effective pro forma tax rate of 25.0% (non-GAAP).
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May 10, 2021
With respect to the “Revised 2021 Outlook” above, reconciliation of adjusted net revenue, adjusted EBITDA and pro forma 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 i3 Verticals, Inc. and equity-based compensation expense. The Company expects these adjustments may have a potentially significant impact on future GAAP financial results.
Conference Call
The Company will host a conference call on Tuesday, May 11, 2021, at 8:30 a.m. ET, to discuss financial results and operations. To listen to the call live via telephone, participants should dial (877) 270-2148 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. ET on May 11, 2021, through May 18, 2021, by dialing (877) 344-7529 and entering Confirmation Code 10155829.
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 $15.0 billion in total payment volume for the 12 months ended March 31, 2021.
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 the Company's fiscal 2021 financial outlook 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.
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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 U.S. Securities and Exchange Commission (the “SEC”) and include, but are not limited to: (i) the anticipated impact to the timing and recovery of the Company’s business operations, payment volume and volume attrition due to the global pandemic of a novel strain of the coronavirus (COVID-19), including the anticipated impact of further school closures on our Education vertical; (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 and thereafter to complete 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; (xiv) 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; and (xxii) the risk factors included in the Company's Annual Report on Form 10-K for the year ended September 30, 2020. 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.
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 | |||||
| (888) 251-0987 | |||||
investorrelations@i3verticals.com | |||||
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IIIV Reports Second Quarter 2021 Financial Results
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i3 Verticals, Inc. Consolidated Statements of Operations
(Unaudited)
($ in thousands, except share and per share amounts)
| Three months ended March 31, | Six months ended March 31, | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||||||||||||||
| Revenue | $ | 47,863 | $ | 39,178 | 22% | $ | 91,176 | $ | 80,289 | 14% | |||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Other costs of services | 11,314 | 11,955 | (5)% | 24,980 | 24,873 | —% | |||||||||||||||||||||||||||||
| Selling, general and administrative | 30,511 | 20,786 | 47% | 55,473 | 40,073 | 38% | |||||||||||||||||||||||||||||
| Depreciation and amortization | 5,851 | 4,538 | 29% | 10,943 | 9,193 | 19% | |||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 322 | (142) | n/m | 2,226 | 12 | n/m | |||||||||||||||||||||||||||||
| Total operating expenses | 47,998 | 37,137 | 29% | 93,622 | 74,151 | 26% | |||||||||||||||||||||||||||||
| (Loss) income from operations | (135) | 2,041 | n/m | (2,446) | 6,138 | n/m | |||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||||||||
| Interest expense, net | 2,358 | 2,184 | 8% | 4,387 | 4,198 | 5% | |||||||||||||||||||||||||||||
| Other income | (2,353) | — | n/m | (2,353) | — | n/m | |||||||||||||||||||||||||||||
| Total other expenses | 5 | 2,184 | (100)% | 2,034 | 4,198 | (52)% | |||||||||||||||||||||||||||||
| (Loss) income before income taxes | (140) | (143) | (2)% | (4,480) | 1,940 | (331)% | |||||||||||||||||||||||||||||
| Benefit from income taxes | (87) | (2,062) | (96)% | (306) | (1,913) | n/m | |||||||||||||||||||||||||||||
| Net (loss) income | (53) | 1,919 | n/m | (4,174) | 3,853 | (208)% | |||||||||||||||||||||||||||||
| Net (loss) income attributable to non-controlling interest | (493) | 1,182 | n/m | (2,042) | 3,265 | (163)% | |||||||||||||||||||||||||||||
| Net income (loss) attributable to i3 Verticals, Inc. | $ | 440 | $ | 737 | (40)% | $ | (2,132) | $ | 588 | n/m | |||||||||||||||||||||||||
Net income (loss) per share available to Class A common stock: | |||||||||||||||||||||||||||||||||||
| Basic | $ | 0.02 | $ | 0.05 | $ | (0.11) | $ | 0.04 | |||||||||||||||||||||||||||
| Diluted | $ | 0.00 | $ | 0.05 | $ | (0.12) | $ | 0.04 | |||||||||||||||||||||||||||
Weighted average shares of Class A common stock outstanding: | |||||||||||||||||||||||||||||||||||
| Basic | 20,940,725 | 14,456,970 | 20,024,936 | 14,344,768 | |||||||||||||||||||||||||||||||
| Diluted | 33,404,983 | 16,106,757 | 31,237,675 | 15,778,077 | |||||||||||||||||||||||||||||||
n/m = not meaningful
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i3 Verticals, Inc. Financial Highlights
(Unaudited)
($ in thousands, except per share amounts)
| Three months ended March 31, | Six months ended March 31, | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||||||||||||||
| Adjusted net revenue (non-GAAP) | $ | 49,406 | $ | 39,311 | 26% | $ | 94,314 | $ | 80,935 | 17% | |||||||||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | 12,435 | 9,965 | 25% | 23,313 | 21,824 | 7% | |||||||||||||||||||||||||||||
| Pro forma adjusted diluted earnings per share (non-GAAP) | $ | 0.23 | $ | 0.20 | 15% | $ | 0.45 | $ | 0.44 | 2% | |||||||||||||||||||||||||
i3 Verticals, Inc. Supplemental Volume Information
(Unaudited)
($ in thousands)
| Three months ended March 31, | Six months ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Payment volume(1) | $ | 4,263,205 | $ | 3,577,735 | $ | 8,063,732 | $ | 7,416,853 | |||||||||||||||
__________________________
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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IIIV Reports Second Quarter 2021 Financial Results
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i3 Verticals, Inc. Segment Summary
(Unaudited)
($ in thousands)
For the Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 25,992 | $ | 22,549 | $ | (678) | $ | 47,863 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Other costs of services | 11,782 | 210 | (678) | 11,314 | |||||||||||||||||||
| Selling general and administrative | 6,765 | 15,198 | 8,548 | 30,511 | |||||||||||||||||||
| Depreciation and amortization | 2,712 | 2,952 | 187 | 5,851 | |||||||||||||||||||
| Change in fair value of contingent consideration | 163 | 159 | — | 322 | |||||||||||||||||||
| Income (loss) from operations | $ | 4,570 | $ | 4,030 | $ | (8,735) | $ | (135) | |||||||||||||||
| Payment volume | $ | 3,816,170 | $ | 447,035 | $ | — | $ | 4,263,205 | |||||||||||||||
For the Six Months Ended March 31, 2021 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 50,962 | $ | 41,325 | $ | (1,111) | $ | 91,176 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Other costs of services | 22,623 | 3,467 | (1,110) | 24,980 | |||||||||||||||||||
| Selling general and administrative | 13,209 | 26,093 | 16,171 | 55,473 | |||||||||||||||||||
| Depreciation and amortization | 5,478 | 5,101 | 364 | 10,943 | |||||||||||||||||||
| Change in fair value of contingent consideration | 320 | 1,906 | — | 2,226 | |||||||||||||||||||
| Income (loss) from operations | $ | 9,332 | $ | 4,758 | $ | (16,536) | $ | (2,446) | |||||||||||||||
| Payment volume | $ | 7,398,784 | $ | 664,948 | $ | — | $ | 8,063,732 | |||||||||||||||
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For the Three Months Ended March 31, 2020(1) | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 25,729 | $ | 13,980 | $ | (531) | $ | 39,178 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Other costs of services | 11,356 | 1,129 | (530) | 11,955 | |||||||||||||||||||
| Selling general and administrative | 7,048 | 7,138 | 6,600 | 20,786 | |||||||||||||||||||
| Depreciation and amortization | 2,995 | 1,364 | 179 | 4,538 | |||||||||||||||||||
| Change in fair value of contingent consideration | (649) | 507 | — | (142) | |||||||||||||||||||
| Income (loss) from operations | $ | 4,979 | $ | 3,842 | $ | (6,780) | $ | 2,041 | |||||||||||||||
| Payment volume | $ | 3,393,710 | $ | 184,025 | $ | — | $ | 3,577,735 | |||||||||||||||
________
1.Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.
For the Six Months Ended March 31, 2020(1) | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 53,968 | $ | 27,262 | $ | (941) | $ | 80,289 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Other costs of services | 23,530 | 2,283 | (940) | 24,873 | |||||||||||||||||||
| Selling general and administrative | 13,911 | 14,533 | 11,629 | 40,073 | |||||||||||||||||||
| Depreciation and amortization | 6,067 | 2,778 | 348 | 9,193 | |||||||||||||||||||
| Change in fair value of contingent consideration | (2,946) | 2,958 | — | 12 | |||||||||||||||||||
| Income (loss) from operations | $ | 13,406 | $ | 4,710 | $ | (11,978) | $ | 6,138 | |||||||||||||||
| Payment volume | $ | 7,028,766 | $ | 388,087 | $ | — | $ | 7,416,853 | |||||||||||||||
________
1.Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.
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IIIV Reports Second Quarter 2021 Financial Results
Page 9
May 10, 2021
i3 Verticals, Inc. Consolidated Balance Sheets
($ in thousands, except share and per share amounts)
| March 31, | September 30, | ||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 2,352 | $ | 15,568 | |||||||
| Accounts receivable, net | 24,599 | 17,538 | |||||||||
| Settlement assets | 6,056 | — | |||||||||
| Prepaid expenses and other current assets | 9,983 | 4,869 | |||||||||
| Total current assets | 42,990 | 37,975 | |||||||||
| Property and equipment, net | 5,929 | 5,339 | |||||||||
| Restricted cash | 10,090 | 5,033 | |||||||||
| Capitalized software, net | 39,163 | 16,989 | |||||||||
| Goodwill | 263,365 | 187,005 | |||||||||
| Intangible assets, net | 165,145 | 109,233 | |||||||||
| Deferred tax asset | 51,277 | 36,755 | |||||||||
| Operating lease right-of-use assets | 14,821 | — | |||||||||
| Other assets | 10,039 | 5,197 | |||||||||
| Total assets | $ | 602,819 | $ | 403,526 | |||||||
| Liabilities and equity | |||||||||||
| Liabilities | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 4,871 | $ | 3,845 | |||||||
| Accrued expenses and other current liabilities | 42,357 | 24,064 | |||||||||
| Settlement obligations | 6,056 | — | |||||||||
| Deferred revenue | 22,426 | 10,986 | |||||||||
| Current portion of operating lease liabilities | 3,056 | — | |||||||||
| Total current liabilities | 78,766 | 38,895 | |||||||||
| Long-term debt, less current portion and debt issuance costs, net | 178,442 | 90,758 | |||||||||
| Long-term tax receivable agreement obligations | 39,626 | 27,565 | |||||||||
| Operating lease liabilities, less current portion | 12,382 | — | |||||||||
| Other long-term liabilities | 12,138 | 6,140 | |||||||||
| Total liabilities | 321,354 | 163,358 | |||||||||
| Commitments and contingencies (see Note 10) | |||||||||||
| Stockholders' equity | |||||||||||
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2021 and September 30, 2020 | — | — | |||||||||
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 21,919,300 and 18,864,143 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively | 2 | 2 | |||||||||
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,229,142 and 11,900,621 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively | 1 | 1 | |||||||||
| Additional paid-in capital | 203,803 | 157,598 | |||||||||
| Accumulated (deficit) earnings | (4,155) | (2,023) | |||||||||
| Total stockholders' equity | 199,651 | 155,578 | |||||||||
| Non-controlling interest | 81,814 | 84,590 | |||||||||
| Total equity | 281,465 | 240,168 | |||||||||
| Total liabilities and equity | $ | 602,819 | $ | 403,526 | |||||||
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IIIV Reports Second Quarter 2021 Financial Results
Page 10
May 10, 2021
i3 Verticals, Inc. Consolidated Cash Flow Data
(Unaudited)
($ in thousands)
| Six months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net cash provided by operating activities | $ | 23,875 | $ | 8,847 | |||||||
| Net cash used in investing activities | $ | (115,934) | $ | (3,881) | |||||||
| Net cash provided by (used in) financing activities | $ | 83,900 | $ | (4,994) | |||||||
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 Second Quarter 2021 Financial Results
Page 11
May 10, 2021
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 March 31, | Six months ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income (loss) attributable to i3 Verticals, Inc. | $ | 440 | $ | 737 | $ | (2,132) | $ | 588 | |||||||||||||||
| Net (loss) income attributable to non-controlling interest | (493) | 1,182 | (2,042) | 3,265 | |||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Benefit from income taxes | (87) | (2,062) | (306) | (1,913) | |||||||||||||||||||
Financing-related expenses(1) | 63 | 221 | 116 | 221 | |||||||||||||||||||
Non-cash change in fair value of contingent consideration(2) | 322 | (142) | 2,226 | 12 | |||||||||||||||||||
Equity-based compensation(3) | 4,142 | 2,510 | 7,583 | 4,634 | |||||||||||||||||||
Acquisition revenue adjustments(4) | 1,543 | 133 | 3,138 | 646 | |||||||||||||||||||
Acquisition-related expenses(5) | 520 | 583 | 1,530 | 845 | |||||||||||||||||||
Acquisition intangible amortization(6) | 4,827 | 3,600 | 8,944 | 7,321 | |||||||||||||||||||
Non-cash interest expense(7) | 1,352 | 879 | 2,684 | 979 | |||||||||||||||||||
Other taxes(8) | 129 | 81 | 223 | 135 | |||||||||||||||||||
Gain on investment(9) | (2,353) | — | (2,353) | — | |||||||||||||||||||
| Non-GAAP pro forma adjusted income before taxes | 10,405 | 7,722 | 19,611 | 16,733 | |||||||||||||||||||
Pro forma taxes at effective tax rate(10) | (2,601) | (1,930) | (4,903) | (4,183) | |||||||||||||||||||
Pro forma adjusted net income(11) | $ | 7,804 | $ | 5,792 | $ | 14,708 | $ | 12,550 | |||||||||||||||
Cash interest expense, net(12) | 1,006 | 1,305 | 1,703 | 3,219 | |||||||||||||||||||
Pro forma taxes at effective tax rate(10) | 2,601 | 1,930 | 4,903 | 4,183 | |||||||||||||||||||
Depreciation, non-acquired intangible asset amortization and internally developed software amortization(13) | 1,024 | 938 | 1,999 | 1,872 | |||||||||||||||||||
| Adjusted EBITDA | $ | 12,435 | $ | 9,965 | $ | 23,313 | $ | 21,824 | |||||||||||||||
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IIIV Reports Second Quarter 2021 Financial Results
Page 12
May 10, 2021
________
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 $4,142 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $2,510 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months ended March 31, 2021 and 2020, respectively. Equity-based compensation expense consisted of $7,583 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $4,634 related to stock options issued under the Company's 2018 Equity Incentive Plan during the six months ended March 31, 2021 and 2020, 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, employer payroll taxes related to stock exercises and other non-income based taxes. Taxes related to salaries are not included.
9.In March 2021, the Company became aware of an observable price change in an investment due to a planned third party acquisition of the entity underlying the investment. This resulted in an increase of $2,353 to the fair value of the investment at March 31, 2021, which the Company recognized in other income.
10.Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2021 and 2020, based on blended federal and state tax rates.
11.Pro forma adjusted net income assumes that all net income during that period was available to the holders of the Company's Class A common stock.
12.Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs.
13.Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.
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IIIV Reports Second Quarter 2021 Financial Results
Page 13
May 10, 2021
i3 Verticals, Inc. GAAP Diluted EPS and Non-GAAP Pro Forma Adjusted Diluted EPS
(Unaudited)
($ in thousands, except share and per share amounts)
| Three months ended March 31, | Six months ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Diluted net income (loss) available to Class A common stock per share | $ | 0.00 | $ | 0.05 | $ | (0.12) | $ | 0.04 | |||||||||||||||
Pro forma adjusted diluted earnings per share (non-GAAP)(1) | $ | 0.23 | $ | 0.20 | $ | 0.45 | $ | 0.44 | |||||||||||||||
Pro forma adjusted net income(2) | $ | 7,804 | $ | 5,792 | $ | 14,708 | $ | 12,550 | |||||||||||||||
Pro forma weighted average shares of adjusted diluted Class A common stock outstanding(3) | 33,404,983 | 28,876,325 | 32,698,865 | 28,624,095 | |||||||||||||||||||
__________
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 10,747,158 and 12,769,568 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,717,100 and 1,649,787 shares of unvested Class A common stock and options for the three months ended March 31, 2021 and 2020, respectively. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 11,212,739 and 12,846,018 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,461,190 and 1,433,309 shares of unvested Class A common stock and options for the six months ended March 31, 2021 and 2020, respectively.
i3 Verticals, Inc. Reconciliation of GAAP Revenue to Non-GAAP Adjusted Net Revenue
(Unaudited)
($ in thousands)
| Three months ended March 31, | Six months ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenue | $ | 47,863 | $ | 39,178 | $ | 91,176 | $ | 80,289 | |||||||||||||||
Acquisition revenue adjustments(1) | 1,543 | 133 | 3,138 | 646 | |||||||||||||||||||
| Adjusted Net Revenue | $ | 49,406 | $ | 39,311 | $ | 94,314 | $ | 80,935 | |||||||||||||||
__________
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.
-END-
Q2 Fiscal 2021 Supplemental Information
2 Q2 Fiscal 2021 GAAP Measures ($ in thousands) Three months ended March 31, 2021 Three months ended March 31, 2020(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Revenue $ 25,992 $ 22,549 $ (678) $ 47,863 $ 25,729 $ 13,980 $ (531) $ 39,178 Income (loss) from operations $ 4,570 $ 4,030 $ (8,735) $ (135) $ 4,979 $ 3,842 $ (6,780) $ 2,041 ($ in thousands) Six months ended March 31, 2021 Six months ended March 31, 2020(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Revenue $ 50,962 $ 41,325 $ (1,111) $ 91,176 $ 53,968 $ 27,262 $ (941) $ 80,289 Income (loss) from operations $ 9,332 $ 4,758 $ (16,536) $ (2,446) $ 13,406 $ 4,710 $ (11,978) $ 6,138 The following are our Revenues and Income (loss) from operations for the three and six months ended March 31, 2021 and 2020 calculated in accordance with GAAP. The presentation also includes references to the Company’s non-GAAP financials measures. The Company believes that, in addition to the financial measures calculated in accordance with GAAP, Adjusted Net Revenue, Adjusted EBITDA and Adjusted Net Income (Loss) are appropriate indicators to assist in the evaluation of its operating performance on a period-to-period basis. The Company also uses Adjusted EBITDA internally as a performance measure for planning purposes, including forecasting and for calculations of earnout liabilities. Adjusted EBITDA is also used to evaluate the Company’s ability to service debt.These non-GAAP financials measures presented throughout should be considered as a supplement to, not a substitute for, revenue, income from operations, net income, or other financials performance and liquidity measures prepared in accordance with GAAP. 1. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.
3 Q2 QTD Fiscal 2021 Segment Performance(1) ($ in thousands) Three months ended March 31, Period over period growth2021 2020(3) Adjusted Net Revenue(2) Merchant Services, excluding Purchased Portfolios $ 25,338 $ 24,695 3% Purchased Portfolios 768 1,034 (26)% Merchant Services 26,106 25,729 1% Proprietary Software and Payments 23,978 14,113 70% Other (678) (531) nm Total $ 49,406 $ 39,311 26% Adjusted EBITDA(2) Merchant Services $ 7,560 $ 7,328 3% Proprietary Software and Payments 8,579 5,846 47% Other (3,704) (3,209) (15)% Total $ 12,435 $ 9,965 25% Adjusted EBITDA as a percentage of Adjusted Net Revenue 25.2 % 25.3 % Volume Merchant Services $ 3,816,170 $ 3,393,710 12% Proprietary Software and Payments 447,035 184,025 143% Total $ 4,263,205 $ 3,577,735 19% 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 financial measures. 3. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.
4 Q2 YTD Fiscal 2021 Segment Performance(1) ($ in thousands) Six months ended March 31, Period over period growth2021 2020(3) Adjusted Net Revenue(2) Merchant Services, excluding Purchased Portfolios $ 49,464 $ 51,601 (4)% Purchased Portfolios 1,703 2,367 (28)% Merchant Services 51,167 53,968 (5)% Proprietary Software and Payments 44,258 27,908 59% Other (1,111) (941) nm Total $ 94,314 $ 80,935 17% Adjusted EBITDA(2) Merchant Services $ 15,343 $ 16,534 (7)% Proprietary Software and Payments 14,707 11,092 33% Other (6,737) (5,802) (16)% Total $ 23,313 $ 21,824 7% Adjusted EBITDA as a percentage of Adjusted Net Revenue 24.7 % 27.0 % Volume Merchant Services $ 7,398,784 $ 7,028,766 5% Proprietary Software and Payments 664,948 388,087 71% Total $ 8,063,732 $ 7,416,853 9% 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 financial measures. 3. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.
5 Reconciliation of Non-GAAP Financial Measures ($ in thousands) Three months ended March 31, 2021 Merchant Services(2) Proprietary Software and Payments Other Total Revenue $ 25,992 $ 22,549 $ (678) $ 47,863 Acquisition revenue adjustments(1) 114 1,429 — 1,543 Adjusted Net Revenue $ 26,106 $ 23,978 $ (678) $ 49,406 ($ in thousands) Three months ended March 31, 2020(4) Merchant Services(3) Proprietary Software and Payments Other Total Revenue $ 25,729 $ 13,980 $ (531) $ 39,178 Acquisition revenue adjustments(1) — 133 — 133 Adjusted Net Revenue $ 25,729 $ 14,113 $ (531) $ 39,311 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 $768 and acquisition revenue adjustments of $0 for the three months ended March 31, 2021. 3. Merchant Services includes purchased portfolios which had revenue of $1,034 and acquisition revenue adjustments of $0 for the three months ended March 31, 2020. 4. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation. The reconciliation of our quarter to date revenue to non-GAAP adjusted net revenue is as follows:
6 Reconciliation of Non-GAAP Financial Measures ($ in thousands) Six months ended March 31, 2021 Merchant Services(2) Proprietary Software and Payments Other Total Revenue $ 50,962 $ 41,325 $ (1,111) $ 91,176 Acquisition revenue adjustments(1) 205 2,933 — 3,138 Adjusted Net Revenue $ 51,167 $ 44,258 $ (1,111) $ 94,314 ($ in thousands) Six months ended March 31, 2020(4) Merchant Services(3) Proprietary Software and Payments Other Total Revenue $ 53,968 $ 27,262 $ (941) $ 80,289 Acquisition revenue adjustments(1) — 646 — 646 Adjusted Net Revenue $ 53,968 $ 27,908 $ (941) $ 80,935 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 $1,703 and acquisition revenue adjustments of $0 for the six months ended March 31, 2021. 3. Merchant Services includes purchased portfolios which had revenue of $2,367 and acquisition revenue adjustments of $0 for the six months ended March 31, 2020. 4. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation. The reconciliation of our fiscal year to date revenue to non-GAAP adjusted net revenue is as follows:
7 ($ in thousands) Three months ended March 31, 2021 Three months ended March 31, 2020(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 4,570 $ 4,030 $ (8,735) $ (135) $ 4,979 $ 3,842 $ (6,780) $ 2,041 Interest expense, net — — 2,358 2,358 — — 2,184 2,184 Other income — — (2,353) (2,353) — — — — Benefit from income taxes — — (87) (87) — — (2,062) (2,062) Net income (loss) 4,570 4,030 (8,653) (53) 4,979 3,842 (6,902) 1,919 Non-GAAP Adjustments: Benefit from income taxes — — (87) (87) — — (2,062) (2,062) Financing-related expenses(2) — — 63 63 — — 221 221 Non-cash change in fair value of contingent consideration(3) 163 159 — 322 (649) 507 — (142) Equity-based compensation(4) — — 4,142 4,142 — — 2,510 2,510 Acquisition revenue adjustments(5) 114 1,429 — 1,543 — 133 — 133 Acquisition-related expenses(6) — — 520 520 — — 583 583 Acquisition intangible amortization(7) 2,419 2,408 — 4,827 2,728 872 — 3,600 Non-cash interest(8) — — 1,352 1,352 — — 879 879 Other taxes(9) 1 9 119 129 3 — 78 81 Gain on investment(10) — — (2,353) (2,353) — — — — Non-GAAP adjusted income (loss) before taxes 7,267 8,035 (4,897) 10,405 7,061 5,354 (4,693) 7,722 Pro forma taxes at effective tax rate(11) (1,817) (2,009) 1,225 (2,601) (1,765) (1,338) 1,173 (1,930) Pro forma adjusted net income (loss)(12) 5,450 6,026 (3,672) 7,804 5,296 4,016 (3,520) 5,792 Plus: Cash interest expense, net(13) — — 1,006 1,006 — — 1,305 1,305 Pro forma taxes at effective tax rate(11) 1,817 2,009 (1,225) 2,601 1,765 1,338 (1,173) 1,930 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(14) 293 544 187 1,024 267 492 179 938 Adjusted EBITDA $ 7,560 $ 8,579 $ (3,704) $ 12,435 $ 7,328 $ 5,846 $ (3,209) $ 9,965 See footnotes continued on the next slide. The reconciliation of our quarter to date income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
8 Reconciliation of Non-GAAP Financial Measures 1. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation. 2. Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions. 3. 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. 4. Equity-based compensation expense consisted of $4,142 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $2,510 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months ended March 31, 2021 and 2020, respectively. 5. 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. 6. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 7. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 8. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 9. Other taxes consist of franchise taxes, commercial activity taxes, employer payroll taxes related to stock exercises and other non-income based taxes. Taxes related to salaries are not included. 10. In March 2021, the Company became aware of an observable price change in an investment due to a planned third party acquisition of the entity underlying the investment. This resulted in an increase of $2,353 to the fair value of the investment at March 31, 2021, which the Company recognized in other income. 11. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2021 and 2020, based on blended federal and state tax rates, considering the Tax Reform Act for 2018. 12. Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 13. Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 14. Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.
9 ($ in thousands) Six months ended March 31, 2021 Six months ended March 31, 2020(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 9,332 $ 4,758 $ (16,536) $ (2,446) $ 13,406 $ 4,710 $ (11,978) $ 6,138 Interest expense, net — — 4,387 4,387 — — 4,198 4,198 Other income — — (2,353) (2,353) — — — — Benefit from income taxes — — (306) (306) — — (1,913) (1,913) Net income (loss) 9,332 4,758 (18,264) (4,174) 13,406 4,710 (14,263) 3,853 Non-GAAP Adjustments: Benefit from income taxes — — (306) (306) — — (1,913) (1,913) Financing-related expenses(2) — — 116 116 — — 221 221 Non-cash change in fair value of contingent consideration(3) 320 1,906 — 2,226 (2,946) 2,958 — 12 Equity-based compensation(4) — — 7,583 7,583 — — 4,634 4,634 Acquisition revenue adjustments(5) 205 2,933 — 3,138 — 646 — 646 Acquisition-related expenses(6) — — 1,530 1,530 — — 845 845 Acquisition intangible amortization(7) 4,905 4,039 — 8,944 5,567 1,754 — 7,321 Non-cash interest(8) — — 2,684 2,684 — — 979 979 Other taxes(9) 8 9 206 223 7 — 128 135 Gain on investment(10) — — (2,353) (2,353) — — — — Non-GAAP adjusted income (loss) before taxes 14,770 13,645 (8,804) 19,611 16,034 10,068 (9,369) 16,733 Pro forma taxes at effective tax rate(11) (3,693) (3,411) 2,201 (4,903) (4,008) (2,517) 2,342 (4,183) Pro forma adjusted net income (loss)(12) 11,077 10,234 (6,603) 14,708 12,026 7,551 (7,027) 12,550 Plus: Cash interest expense, net(13) — — 1,703 1,703 — — 3,219 3,219 Pro forma taxes at effective tax rate(11) 3,693 3,411 (2,201) 4,903 4,008 2,517 (2,342) 4,183 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(14) 573 1,062 364 1,999 500 1,024 348 1,872 Adjusted EBITDA $ 15,343 $ 14,707 $ (6,737) $ 23,313 $ 16,534 $ 11,092 $ (5,802) $ 21,824 See footnotes continued on the next slide. The reconciliation of our fiscal year to date income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
10 Reconciliation of Non-GAAP Financial Measures 1. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company's business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company's current segment presentation.Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions. 2. Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions. 3. 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. 4. Equity-based compensation expense consisted of $7,583 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $4,634 related to stock options issued under the Company's 2018 Equity Incentive Plan during the six months ended March 31, 2021 and 2020, respectively. 5. 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. 6. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 7. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 8. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 9. Other taxes consist of franchise taxes, commercial activity taxes, employer payroll taxes related to stock exercises and other non-income based taxes. Taxes related to salaries are not included. 10. In March 2021, the Company became aware of an observable price change in an investment due to a planned third party acquisition of the entity underlying the investment. This resulted in an increase of $2,353 to the fair value of the investment at March 31, 2021, which the Company recognized in other income. 11. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2021 and 2020, based on blended federal and state tax rates. 12. Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 13. Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 14. Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.
11 Reconciliation Between GAAP Debt and Covenant Debt ($ in millions) As of March 31, 2021 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 85.0 Exchangeable Notes 97.5 Debt issuance costs, net (4.1) Total long-term debt, net of issuance costs $ 178.4 Non-GAAP Adjustments: Discount on Exchangeable Notes(1) $ 19.5 Exchangeable Notes 97.5 Exchangeable Notes Face Value $ 117.0 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 85.0 Exchangeable Notes Face Value 117.0 Less: Cash and Cash Equivalents (2.4) Total long-term debt for use in our Total Leverage Ratio $ 199.6 The reconciliation of our GAAP Long-term debt, net of issuance costs and the debt balance used in our Total Leverage Ratio: 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.
12 2021 Outlook and Revised Presentation We have consistently included in our reported Adjusted Net Revenue, Adjusted EBITDA and Pro Forma Adjusted Diluted EPS an adjustment to remove the effect of purchase accounting write-downs of deferred revenue. We have also included an estimated amount, excluding future acquisitions, in our guidance for Adjusted Net Revenue, Adjusted EBITDA and Pro Forma Adjusted Diluted EPS. The earnings release we issued on May 10, 2021 includes this adjustment to both metrics consistent with our historical approach. As part of the ordinary course SEC comment process, however, we have agreed with the SEC Staff to discontinue adjusting Net Revenue, EBITDA and Pro Forma Diluted EPS to remove the effect of purchase accounting write-downs of deferred revenue beginning with our third fiscal quarter ending June 30, 2021. We will continue to provide, separately, as part of our earnings release for the third quarter, the same non-GAAP acquisition revenue adjustment on both a historical basis and our estimate of these amounts for the remainder of the fiscal year. Following is an illustration of how our guidance presentation will be revised to appear beginning with our third fiscal quarter ending June 30, 2021. (in thousands, except share and per share amounts) Current Outlook Range Midpoint of acquisition revenue adjustments(1) Revised Presentation Fiscal year ending September 30, 2021 Fiscal year ending September 30, 2021 Adjusted net revenue(1) (non-GAAP) $ 204,000 - $ 220,000 $ (5,600) $ 198,400 - $ 214,400 Adjusted EBITDA(1) (non-GAAP) $ 52,000 - $ 58,000 $ (5,600) $ 46,400 - $ 52,400 Depreciation and internally developed software amortization $ 4,250 - $ 4,500 $ 4,250 - $ 4,500 Cash interest expense, net $ 4,750 - $ 5,250 $ 4,750 - $ 5,250 Pro forma weighted average shares of adjusted diluted Class A common stock outstanding 33,000,000 - 34,000,000 33,000,000 - 34,000,000 Pro forma adjusted diluted earnings per share(1)(2) (non-GAAP) $ 0.98 - $ 1.08 $ (0.13) $ 0.85 - $ 0.95 Revenue impact of purchase accounting deferred revenue write-downs(1) $ 5,350 - $ 5,850 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. For the 2021 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. Beginning with our third fiscal quarter ending June 30, 2021 we will discontinue removing the effect of the adjustment to beginning balances of acquired deferred revenue. 2. Assumes an effective pro forma tax rate of 25.0% (non-GAAP).