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): November 17, 2021 (November 17, 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. ☐
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 November 17, 2021 , i3 Verticals, Inc. (the “Company”) issued a press release announcing the results of its operations for the three months and year ended September 30, 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”) containing segment financial performance information for the three months and year ended September 30, 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.
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: November 17, 2021
i3 VERTICALS, INC. | ||||||||
By: | /s/ Clay Whitson | |||||||
Name: | Clay Whitson | |||||||
Title: | Chief Financial Officer | |||||||
i3 VERTICALS REPORTS FOURTH QUARTER AND FULL FISCAL YEAR 2021 FINANCIAL RESULTS
Introduces 2022 Outlook
Decosta Jenkins to Join Board of Directors
NASHVILLE, Tenn. (November 17, 2021) – i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal fourth quarter and year ended September 30, 2021.
Highlights for the fiscal fourth quarter and full fiscal year of 2021 vs. 2020
•Fourth quarter revenue was $67.2 million, an increase of 76% over the prior year's fourth quarter; full year revenue was $224.1 million, an increase of 49% over the prior year.
•Fourth quarter net loss was $1.9 million, compared to a net loss of $2.0 million in the prior year's fourth quarter. Net loss for the year ended September 30, 2021, was $7.8 million, compared to a net loss of $1.0 million for the year ended September 30, 2020.
•Fourth quarter net loss attributable to i3 Verticals, Inc. was $0.5 million; full year net loss attributable to i3 Verticals, Inc. was $4.5 million.
•Fourth quarter adjusted EBITDA1 was $17.1 million, an increase of 79.0% over the prior year's fourth quarter. Adjusted EBITDA1 for the year ended September 30, 2021, was $55.4 million, an increase of 46.8% over the prior year.
•Fourth quarter adjusted EBITDA1 as a percentage of revenue was 25.4%, compared to 24.8% in the prior year's fourth quarter.
•Fourth quarter diluted net loss per share available to Class A common stock was $0.05, compared to $0.06 in the prior year's fourth quarter; full year diluted net loss per share available to Class A common stock was $0.22, compared to $0.03 in the prior year.
•For the fourth quarter and year ended September 30, 2021, pro forma adjusted diluted earnings per share1, which gives pro forma effect to the Company's tax rate, was $0.33 and $1.05, respectively, compared to $0.20 and $0.75 for the fourth quarter and year ended September 30, 2020, respectively.
•Integrated payments2 were 63% of payment volume for the three months ended September 30, 2021.
•Software and related services revenue3 as a percentage of total revenue was 42% and 26% for the three months ended September 30, 2021 and 2020, respectively.
•As of September 30, 2021, our consolidated interest coverage ratio was 10.3x, total leverage ratio was 3.5x and consolidated senior leverage ratio was 1.6x. These ratios are defined in our Senior Secured Credit Facility.
•As previously announced in our press release dated October 4, 2021, the Company completed an acquisition that further strengthens its focus in the Healthcare vertical. The acquired business provides comprehensive revenue cycle management and related administrative and consulting services for hospitals, including academic teaching institutions with residents, practice groups and healthcare providers primarily in the southeast. The aggregate purchase price was $60.0 million in cash and an amount of contingent consideration, which is still being valued.
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.
3.Software and related services revenue includes the sale of licenses, subscriptions, installation and implementation services, and ongoing support specific to software.
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Greg Daily, Chairman and CEO of i3 Verticals, commented, “We are very pleased to deliver another quarter of sequential and year-over-year growth with new records in revenue and adjusted EBITDA. Our vision has been to grow into a vertical market software company that focuses on embedded payment opportunities. Our results highlight consistent execution of this vision as software and related services revenue has grown to 42% of our total revenue and our integrated payments now represent 63% of our total payment volume.
“We previously announced our largest acquisition in our Healthcare vertical to-date, effective October 1, which significantly enhanced our software platform and services within that vertical market. Public Sector and Healthcare are our two largest verticals and will drive us going forward, both in our organic growth and acquisition strategy. We offer comprehensive and competitive software suites in these markets, and we believe they will drive strong financial results in the future. We closed our fiscal year with great momentum that sets us up well for the coming fiscal year.
“I am pleased to announce that Decosta Jenkins will be joining our Board of Directors. Decosta is a highly respected business leader, and we are elated to add his knowledge and experience to our Board. Based on his long history as CEO with Nashville Electric Service, one of the largest public utilities in the United States, Decosta will bring a unique and helpful perspective to our Public Sector businesses, particularly in the utilities space. His experience as a public company board member, as a CFO and as an auditor with Deloitte LLP will benefit our Board and i3. I have no doubt that Decosta will prove to be a fantastic addition to our Board.”
Updates to the Presentation of Adjusted EBITDA and Pro Forma Adjusted Diluted Earnings Per Share
Under GAAP, companies historically were required to adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting. Prior to the third quarter of our fiscal 2021 we included in reported adjusted net revenue, adjusted EBITDA, pro forma adjusted net income and pro forma adjusted diluted EPS an adjustment to remove the effect of purchase accounting write-downs of deferred revenue, which we called “Acquisition Revenue Adjustments.” We also historically included an estimated amount of Acquisition Revenue Adjustments, excluding future acquisitions, in our guidance for adjusted net revenue, adjusted EBITDA and pro forma adjusted diluted EPS. As part of the ordinary course SEC comment process, however, beginning with the third quarter of our fiscal 2021, we no longer adjust revenue, adjusted EBITDA, pro forma adjusted net income and pro forma adjusted diluted EPS to remove the effect of Acquisition Revenue Adjustments.
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2021-08 (the "ASU"), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Among other things, the ASU reversed the previous requirement to write down deferred revenue to fair value as part of acquisition accounting as defined by GAAP. Instead it would result in acquiring companies recording deferred revenue acquired at its book value, assuming the deferred revenue had been recorded in accordance with U.S. GAAP prior to the acquisition. Early adoption is permitted and we have done so retrospectively for all acquisitions completed during fiscal year 2021. As part of this, we have adjusted our quarterly financial data for fiscal year 2021, and Acquisition Revenue Adjustments are no longer relevant for acquisitions occurring during fiscal year 2021. The remaining Acquisitions Revenue Adjustments, which relate to acquisitions completed during, or before, fiscal year 2020, are presented for information purposes, and were $15,000 and $600,000 for the three and twelve months ended September 30, 2021, respectively.
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2022 Outlook
The Company's practice is to provide annual guidance, excluding future acquisitions and transaction-related costs. The Company is providing the following outlook for the fiscal year ending September 30, 2022:
| (in thousands, except share and per share amounts) | Outlook Range | ||||||||||
| Fiscal year ending September 30, 2022 | |||||||||||
| Revenue | $ | 280,000 | - | $ | 300,000 | ||||||
| Adjusted EBITDA (non-GAAP) | $ | 70,000 | - | $ | 78,000 | ||||||
Pro forma adjusted diluted earnings per share(1) (non-GAAP) | $ | 1.25 | - | $ | 1.40 | ||||||
_______________________
1.Assumes an effective pro forma tax rate of 25.0% (non-GAAP).
With respect to the “2022 Outlook” above, 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 Thursday, November 18, 2021, at 8:30 a.m. ET, to discuss financial results and operations. To listen to the call live via telephone, participants should dial (844) 887-9399 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. ET on November 18, 2021, through November 25, 2021, by dialing (877) 344-7529 and entering Confirmation Code 10161739.
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” 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 11 to 14 in the financial schedules of this release.
About i3 Verticals
Helping drive the convergence of software and payments, i3 Verticals delivers integrated payment and software solutions to small- and medium-sized businesses (“SMBs”) and other organizations in strategic vertical markets, such as education, non-profit, the public sector, and healthcare and to the business-to-business payments market. With a broad suite of payment and software solutions that address the specific
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needs of its clients in each strategic vertical market, i3 Verticals processed approximately $18.8 billion in total payment volume for the 12 months ended September 30, 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 2022 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 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 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, 2020 and in our subsequent filings. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, the
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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.
Contacts: | |||||
Clay Whitson | |||||
Chief Financial Officer | |||||
| (888) 251-0987 | |||||
investorrelations@i3verticals.com | |||||
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i3 Verticals, Inc. Consolidated Statements of Operations
($ in thousands, except share and per share amounts)
| Three months ended September 30, | Year ended September 30, | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||
| Revenue | $ | 67,177 | $ | 38,272 | 76% | $ | 224,124 | $ | 150,134 | 49% | |||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Other costs of services | 16,662 | 12,356 | 35% | 57,706 | 47,230 | 22% | |||||||||||||||||||||||||||||
| Selling general and administrative | 42,103 | 20,117 | 109% | 134,872 | 78,323 | 72% | |||||||||||||||||||||||||||||
| Depreciation and amortization | 6,480 | 4,549 | 42% | 24,418 | 18,217 | 34% | |||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 1,305 | 52 | 2410% | 7,140 | (1,409) | n/m | |||||||||||||||||||||||||||||
| Total operating expenses | 66,550 | 37,074 | 80% | 224,136 | 142,361 | 57% | |||||||||||||||||||||||||||||
| Income (loss) from operations | 627 | 1,198 | (48)% | (12) | 7,773 | (100)% | |||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||||||||
| Interest expense, net | 2,708 | 2,305 | 17% | 9,799 | 8,926 | 10% | |||||||||||||||||||||||||||||
| Other (income) expense | (242) | 1,792 | n/m | (2,595) | 2,621 | n/m | |||||||||||||||||||||||||||||
| Total other expenses | 2,466 | 4,097 | (40)% | 7,204 | 11,547 | (38)% | |||||||||||||||||||||||||||||
| Loss before income taxes | (1,839) | (2,899) | (37)% | (7,216) | (3,774) | 91% | |||||||||||||||||||||||||||||
| Provision for (benefit from) income taxes | 107 | (877) | n/m | 623 | (2,795) | n/m | |||||||||||||||||||||||||||||
| Net loss | (1,946) | (2,022) | (4)% | (7,839) | (979) | 701% | |||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | (1,464) | (1,371) | 7% | (3,382) | (560) | 504% | |||||||||||||||||||||||||||||
| Net loss attributable to i3 Verticals, Inc. | $ | (482) | $ | (651) | (26)% | $ | (4,457) | $ | (419) | 964% | |||||||||||||||||||||||||
Net loss per share available to Class A common stock: | |||||||||||||||||||||||||||||||||||
| Basic | $ | (0.02) | $ | (0.04) | $ | (0.21) | $ | (0.03) | |||||||||||||||||||||||||||
| Diluted | $ | (0.05) | $ | (0.06) | $ | (0.22) | $ | (0.03) | |||||||||||||||||||||||||||
Weighted average shares of Class A common stock outstanding: | |||||||||||||||||||||||||||||||||||
| Basic | 21,991,340 | 15,780,082 | 20,994,598 | 14,833,378 | |||||||||||||||||||||||||||||||
| Diluted | 32,220,482 | 28,069,996 | 31,714,191 | 27,429,801 | |||||||||||||||||||||||||||||||
n/m = not meaningful
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i3 Verticals, Inc. Financial Highlights
(Unaudited)
($ in thousands, except per share amounts)
| Three months ended September 30, | Year ended September 30, | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||||||||||||||
Adjusted EBITDA(1)(2) | $ | 17,057 | $ | 9,528 | 79% | $ | 55,407 | $ | 37,733 | 47% | |||||||||||||||||||||||||
Pro forma adjusted diluted earnings per share(1)(2) | $ | 0.33 | $ | 0.20 | 65% | $ | 1.05 | $ | 0.75 | 40% | |||||||||||||||||||||||||
Acquisition Revenue Adjustments(1)(2) | $ | 15 | $ | 154 | $ | 600 | $ | 824 | |||||||||||||||||||||||||||
Acquisition Revenue Adjustments impact on pro forma adjusted diluted earnings per share(1)(2) | $ | 0.00 | $ | 0.00 | $ | 0.01 | $ | 0.02 | |||||||||||||||||||||||||||
__________________________
1.Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
2.Under GAAP, companies historically were required to adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting. Prior to the second quarter of our fiscal 2021 we included in our adjusted EBITDA and pro forma adjusted diluted earnings per share an acquisition revenue adjustment to remove the effect of purchase accounting write-downs of deferred revenue from acquisitions that have closed as of the date of the earnings release. As part of the ordinary course SEC comment process, however, beginning with the third quarter of our fiscal 2021, we no longer adjust EBITDA or pro forma adjusted diluted earnings per share to remove the effect of Acquisition Revenue Adjustments. Subsequent to the change we have presented the excluded adjustment separately for informational purposes. In October 2021, the FASB issued guidance that reversed the previous requirement to write down deferred revenue to fair value as part of acquisition accounting as defined by GAAP. We have early adopted this standard retrospectively for all acquisitions completed during fiscal year 2021. We have adjusted our quarterly financial data for fiscal year 2021, and Acquisition Revenue Adjustments are no longer relevant for acquisitions occurring during fiscal year 2021. The remaining Acquisitions Revenue Adjustments separately provided relate to acquisitions completed during, or before, fiscal year 2020, and are for information purposes.
i3 Verticals, Inc. Supplemental Volume Information
(Unaudited)
($ in thousands)
| Three months ended September 30, | Year ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Payment volume(1) | $ | 5,597,890 | $ | 3,979,593 | $ | 18,797,907 | $ | 14,377,148 | |||||||||||||||
__________________________
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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November 17, 2021
i3 Verticals, Inc. Segment Summary
(Unaudited)
($ in thousands)
| For the Three Months Ended September 30, 2021 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 30,740 | $ | 36,942 | $ | (505) | $ | 67,177 | |||||||||||||||
| Other costs of services | (14,405) | (2,746) | 489 | (16,662) | |||||||||||||||||||
| Residuals | 8,623 | 330 | (459) | 8,494 | |||||||||||||||||||
| Processing margin | 24,958 | 34,526 | (475) | 59,009 | |||||||||||||||||||
| Residuals | 8,494 | ||||||||||||||||||||||
| Selling general and administrative | 42,103 | ||||||||||||||||||||||
| Depreciation and amortization | 6,480 | ||||||||||||||||||||||
| Change in fair value of contingent consideration | 1,305 | ||||||||||||||||||||||
| Income from operations | $ | 627 | |||||||||||||||||||||
| Payment volume | $ | 4,978,080 | $ | 619,810 | $ | — | $ | 5,597,890 | |||||||||||||||
For the Year Ended September 30, 2021 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 111,870 | $ | 114,433 | $ | (2,179) | $ | 224,124 | |||||||||||||||
| Other costs of services | (51,234) | (8,610) | 2,138 | (57,706) | |||||||||||||||||||
| Residuals | 29,842 | 1,147 | (2,071) | 28,918 | |||||||||||||||||||
| Processing margin | 90,478 | 106,970 | (2,112) | 195,336 | |||||||||||||||||||
| Residuals | 28,918 | ||||||||||||||||||||||
| Selling general and administrative | 134,872 | ||||||||||||||||||||||
| Depreciation and amortization | 24,418 | ||||||||||||||||||||||
| Change in fair value of contingent consideration | 7,140 | ||||||||||||||||||||||
| Loss from operations | $ | (12) | |||||||||||||||||||||
| Payment volume | $ | 17,138,214 | $ | 1,659,693 | $ | — | $ | 18,797,907 | |||||||||||||||
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i3 Verticals, Inc. Segment Summary (continued)
(Unaudited)
($ in thousands)
For the Three Months Ended September 30, 2020 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 24,759 | $ | 13,924 | $ | (411) | $ | 38,272 | |||||||||||||||
| Other costs of services | (10,962) | (1,805) | 411 | (12,356) | |||||||||||||||||||
| Residuals | 5,830 | 174 | (410) | 5,594 | |||||||||||||||||||
| Processing margin | 19,627 | 12,293 | (410) | 31,510 | |||||||||||||||||||
| Residuals | 5,594 | ||||||||||||||||||||||
| Selling general and administrative | 20,117 | ||||||||||||||||||||||
| Depreciation and amortization | 4,549 | ||||||||||||||||||||||
| Change in fair value of contingent consideration | 52 | ||||||||||||||||||||||
| Income from operations | $ | 1,198 | |||||||||||||||||||||
| Payment volume | $ | 3,614,766 | $ | 364,827 | $ | — | $ | 3,979,593 | |||||||||||||||
For the Year Ended September 30, 2020 | |||||||||||||||||||||||
| Merchant Services | Proprietary Software and Payments | Other | Total | ||||||||||||||||||||
| Revenue | $ | 100,949 | $ | 50,953 | $ | (1,768) | $ | 150,134 | |||||||||||||||
| Other costs of services | (43,940) | (5,057) | 1,767 | (47,230) | |||||||||||||||||||
| Residuals | 21,618 | 587 | (1,757) | 20,448 | |||||||||||||||||||
| Processing margin | 78,627 | 46,483 | (1,758) | 123,352 | |||||||||||||||||||
| Residuals | 20,448 | ||||||||||||||||||||||
| Selling general and administrative | 78,323 | ||||||||||||||||||||||
| Depreciation and amortization | 18,217 | ||||||||||||||||||||||
| Change in fair value of contingent consideration | (1,409) | ||||||||||||||||||||||
| Income from operations | $ | 7,773 | |||||||||||||||||||||
| Payment volume | $ | 13,553,263 | $ | 823,885 | $ | — | $ | 14,377,148 | |||||||||||||||
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IIIV Reports Fourth Quarter and Full Fiscal Year 2021 Financial Results
Page 10
November 17, 2021
i3 Verticals, Inc. Consolidated Balance Sheets
($ in thousands, except share and per share amounts)
| September 30, | September 30, | ||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 3,641 | $ | 15,568 | |||||||
| Accounts receivable, net | 38,500 | 17,538 | |||||||||
| Settlement assets | 4,768 | — | |||||||||
| Prepaid expenses and other current assets | 11,214 | 4,869 | |||||||||
| Total current assets | 58,123 | 37,975 | |||||||||
| Property and equipment, net | 5,902 | 5,339 | |||||||||
| Restricted cash | 9,522 | 5,033 | |||||||||
| Capitalized software, net | 41,371 | 16,989 | |||||||||
| Goodwill | 292,243 | 187,005 | |||||||||
| Intangible assets, net | 171,706 | 109,233 | |||||||||
| Deferred tax asset | 49,992 | 36,755 | |||||||||
| Operating lease right-of-use assets | 14,479 | — | |||||||||
| Other assets | 8,462 | 5,197 | |||||||||
| Total assets | $ | 651,800 | $ | 403,526 | |||||||
| Liabilities and equity | |||||||||||
| Liabilities | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | 7,865 | 3,845 | |||||||||
| Accrued expenses and other current liabilities | 50,815 | 24,064 | |||||||||
| Settlement obligations | 4,768 | — | |||||||||
| Deferred revenue | 29,862 | 10,986 | |||||||||
| Current portion of operating lease liabilities | 3,201 | — | |||||||||
| Total current liabilities | 96,511 | 38,895 | |||||||||
| Long-term debt, less current portion and debt issuance costs, net | 200,605 | 90,758 | |||||||||
| Long-term tax receivable agreement obligations | 39,122 | 27,565 | |||||||||
| Operating lease liabilities, less current portion | 11,960 | — | |||||||||
| Other long-term liabilities | 14,011 | 6,140 | |||||||||
| Total liabilities | 362,209 | 163,358 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity | |||||||||||
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and 2020 | — | — | |||||||||
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 22,026,098 and 18,864,143 shares issued and outstanding as of September 30, 2021 and 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 September 30, 2021 and 2020, respectively | 1 | 1 | |||||||||
| Additional paid-in-capital | 211,237 | 157,598 | |||||||||
| Accumulated deficit | (6,480) | (2,023) | |||||||||
| Total stockholders' equity | 204,760 | 155,578 | |||||||||
| Non-controlling interest | 84,831 | 84,590 | |||||||||
| Total equity | 289,591 | 240,168 | |||||||||
| Total liabilities and equity | $ | 651,800 | $ | 403,526 | |||||||
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IIIV Reports Fourth Quarter and Full Fiscal Year 2021 Financial Results
Page 11
November 17, 2021
i3 Verticals, Inc. Consolidated Cash Flow Data
($ in thousands)
| Year ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Net cash provided by operating activities | $ | 46,774 | $ | 23,720 | |||||||
| Net cash used in investing activities | $ | (156,315) | $ | (35,431) | |||||||
| Net cash provided by financing activities | $ | 102,103 | $ | 29,112 | |||||||
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 shareholders 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 shareholders 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 Fourth Quarter and Full Fiscal Year 2021 Financial Results
Page 12
November 17, 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 September 30, | Year ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net loss attributable to i3 Verticals, Inc. | $ | (482) | $ | (651) | $ | (4,457) | $ | (419) | |||||||||||||||
| Net loss attributable to non-controlling interest | (1,464) | (1,371) | (3,382) | (560) | |||||||||||||||||||
| Non-GAAP Adjustments: | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | 107 | (877) | 623 | (2,795) | |||||||||||||||||||
Financing-related expenses(1) | — | 43 | 152 | 286 | |||||||||||||||||||
Non-cash change in fair value of contingent consideration(2) | 1,305 | 52 | 7,140 | (1,409) | |||||||||||||||||||
Equity-based compensation(3) | 8,166 | 3,002 | 20,860 | 10,452 | |||||||||||||||||||
Acquisition-related expenses(4) | 254 | 508 | 2,319 | 1,811 | |||||||||||||||||||
Acquisition intangible amortization(5) | 5,337 | 3,624 | 19,954 | 14,497 | |||||||||||||||||||
Non-cash interest expense(6) | 1,394 | 1,429 | 5,450 | 3,844 | |||||||||||||||||||
Other taxes(7) | 226 | 176 | 531 | 365 | |||||||||||||||||||
Other (income) expenses related to adjustments of liabilities under tax receivable agreement(8) | (496) | 323 | (496) | 323 | |||||||||||||||||||
Net loss (gain) on sale of investments(9) | 253 | — | (2,100) | — | |||||||||||||||||||
Non-cash loss on Exchangeable Note repurchases(10) | — | 1,469 | — | 2,297 | |||||||||||||||||||
COVID-19 related expenses(11) | — | — | — | 239 | |||||||||||||||||||
| Non-GAAP pro forma adjusted income before taxes | 14,600 | 7,727 | 46,594 | 28,931 | |||||||||||||||||||
Pro forma taxes at effective tax rate(12) | (3,650) | (1,932) | (11,649) | (7,233) | |||||||||||||||||||
Pro forma adjusted net income(13) | $ | 10,950 | $ | 5,795 | $ | 34,945 | $ | 21,698 | |||||||||||||||
Cash interest expense, net(14) | 1,314 | 876 | 4,349 | 5,082 | |||||||||||||||||||
Pro forma taxes at effective tax rate(12) | 3,650 | 1,932 | 11,649 | 7,233 | |||||||||||||||||||
Depreciation, non-acquired intangible asset amortization and internally developed software amortization(15) | 1,143 | 925 | 4,464 | 3,720 | |||||||||||||||||||
Adjusted EBITDA(16) | $ | 17,057 | $ | 9,528 | $ | 55,407 | $ | 37,733 | |||||||||||||||
Acquisition Revenue Adjustments(16) | 15 | 154 | 600 | 824 | |||||||||||||||||||
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IIIV Reports Fourth Quarter and Full Fiscal Year 2021 Financial Results
Page 13
November 17, 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 $8,166 and $20,860 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan during the three months and year ended September 30, 2021, respectively, and $3,002 and $10,452 during the three months and year ended September 30, 2020, respectively.
4.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.
5.Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions.
6.Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs.
7.Other taxes consist of franchise taxes, commercial activity taxes, employer portion payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included.
8.Under our Tax Receivable Agreement we have a liability equal to 85% of certain deferred tax assets resulting from an increase in the tax basis of our investment in i3 Verticals, LLC. Other expenses related to adjustments of liabilities under our Tax Receivable Agreement relate to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates.
9.When the Company becomes aware of an observable price change in an investment, such as a planned third party acquisition of the entity underlying the investment, we will adjust the carry value of the investment, which the Company recognizes in other income.
10.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.
11.COVID-19 related expenses reflects incremental expenses incurred as a result of the COVID-19 pandemic, including employee severance expenses and legal expenses.
12.Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using tax rates of 25.0% for 2021 and 2020, based on blended federal and state tax rates, considering the Tax Reform Act for 2018.
13.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.
14.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.
15.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.
16.Under GAAP, companies historically were required to adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting. Prior to the second quarter of our fiscal 2021 we included in our adjusted EBITDA an acquisition revenue adjustment to remove the effect of purchase accounting write-downs of deferred revenue from acquisitions that have closed as of the date of the earnings release. As part of the ordinary course SEC comment process, however, beginning with the third quarter of our fiscal 2021, we no longer adjust EBITDA to remove the effect of Acquisition Revenue Adjustments. Subsequent to the change we have presented the excluded adjustment separately for informational purposes. In October 2021, the FASB issued guidance that reversed the previous requirement to write down deferred revenue to fair value as part of acquisition accounting as defined by GAAP. We have early adopted this standard retrospectively for all acquisitions completed during fiscal year 2021. We have adjusted our quarterly financial data for fiscal year 2021, and Acquisition Revenue Adjustments are no longer relevant for acquisitions occurring during fiscal year 2021. The remaining Acquisitions Revenue Adjustments separately provided relate to acquisitions completed during, or before, fiscal year 2020, and are for information purposes.
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IIIV Reports Fourth Quarter and Full Fiscal Year 2021 Financial Results
Page 14
November 17, 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 September 30, | Year ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Diluted net loss available to Class A common stock per share | $ | (0.05) | $ | (0.06) | $ | (0.22) | $ | (0.03) | |||||||||||||||
Pro forma adjusted diluted earnings per share(1)(2) | $ | 0.33 | $ | 0.20 | $ | 1.05 | $ | 0.75 | |||||||||||||||
Pro forma adjusted net income(2)(3) | $ | 10,950 | $ | 5,795 | $ | 34,945 | $ | 21,698 | |||||||||||||||
Pro forma weighted average shares of adjusted diluted Class A common stock outstanding(3) | 33,517,066 | 29,390,270 | 33,191,924 | 28,814,308 | |||||||||||||||||||
Acquisition Revenue Adjustments impact on pro forma adjusted diluted earnings per share(2) | $ | 0.00 | $ | 0.00 | $ | 0.01 | $ | 0.02 | |||||||||||||||
__________
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.Under GAAP, companies historically were required to adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting. Prior to the second quarter of our fiscal 2021 we included in our pro forma adjusted diluted earnings per share and pro forma adjusted net income an acquisition revenue adjustment to remove the effect of purchase accounting write-downs of deferred revenue from acquisitions that have closed as of the date of the earnings release. As part of the ordinary course SEC comment process, however, beginning with the third quarter of our fiscal 2021, we no longer adjust pro forma adjusted diluted earnings per share and pro forma adjusted net income to remove the effect of Acquisition Revenue Adjustments. Subsequent to the change we have presented the excluded adjustment separately for informational purposes. In October 2021, the FASB issued guidance that reversed the previous requirement to write down deferred revenue to fair value as part of acquisition accounting as defined by GAAP. We have early adopted this standard retrospectively for all acquisitions completed during fiscal year 2021. We have adjusted our quarterly financial data for fiscal year 2021, and Acquisition Revenue Adjustments are no longer relevant for acquisitions occurring during fiscal year 2021. The remaining Acquisitions Revenue Adjustments separately provided relate to acquisitions completed during, or before, fiscal year 2020, and are for information purposes.
3.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.
4.Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,229,142 and 10,719,593 weighted average outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,296,584 and 1,477,733 shares of unvested Class A common stock and options for the three months and year ended September 30, 2021, respectively. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 12,289,914 and 12,596,423 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,320,274 and 1,384,507 shares of unvested Class A common stock and options for the for the three months and year ended September 30, 2020, respectively.
-END-
Q4 Fiscal 2021 Supplemental Information
2 Updates to Acquisition Revenue Adjustments Under GAAP, companies historically were required to adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting. Prior to the second quarter of our fiscal 2021 we included adjusted net revenue, adjusted EBITDA and pro forma adjusted diluted EPS inclusive of an “Acquisition Revenue Adjustment” which removed the effect of purchase accounting write-downs of deferred revenue from acquisitions that had closed prior to the date of the earnings release. We also historically included an estimated amount of Acquisition Revenue Adjustments, excluding future acquisitions, in our guidance for adjusted net revenue, adjusted EBITDA and pro forma adjusted diluted EPS. As part of the ordinary course SEC comment process, however, beginning with the third quarter of our fiscal 2021, we no longer adjust revenue, EBITDA and pro forma diluted EPS to remove the effect of Acquisition Revenue Adjustments. Subsequent to the change we presented the excluded adjustment separately for informational purposes below adjusted EBITDA in our press release and in the supplement. In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2021-08 (the "ASU"), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Among other things, the ASU reversed the previous requirement to write down deferred revenue to fair value as part of acquisition accounting as defined by GAAP. Instead it would result in acquiring companies recording deferred revenue acquired at its book value, assuming the deferred revenue had been recorded in accordance with U.S. GAAP prior to the acquisition. Early adoption is permitted and we have done so retrospectively for all acquisitions completed during fiscal year 2021. As part of this, we have adjusted our quarterly financial data for fiscal year 2021, and Acquisition Revenue Adjustments are no longer relevant for acquisitions occurring during fiscal year 2021. The remaining Acquisitions Revenue Adjustments relate to acquisitions completed during, or before, fiscal year 2020.
3 ($ in thousands) Three months ended September 30, 2021 Three months ended September 30, 2020 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 6,546 $ 5,958 $ (11,877) $ 627 $ 5,147 $ 2,729 $ (6,678) $ 1,198 ($ in thousands) Year ended September 30, 2021 Year ended September 30, 2020 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 21,652 $ 16,207 $ (37,871) $ (12) $ 23,528 $ 8,704 $ (24,459) $ 7,773 The following is our Income (loss) from operations for the three and twelve months ended September 30, 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 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. Q4 Fiscal 2021 GAAP Measures
4 Q4 Fiscal 2021 Segment Performance(1) ($ in thousands) Three months ended September 30, Period over period growth2021 2020 Revenue(2) Merchant Services $ 30,740 $ 24,759 24% Proprietary Software and Payments 36,942 13,924 165% Other (505) (411) nm Total $ 67,177 $ 38,272 76% Adjusted EBITDA(2)(3) Merchant Services $ 9,075 $ 7,525 21% Proprietary Software and Payments 11,063 4,783 131% Other (3,081) (2,780) (11)% Total $ 17,057 $ 9,528 79% Acquisition Revenue Adjustments(2) Merchant Services $ — $ — Proprietary Software and Payments 15 154 Total $ 15 $ 154 Volume Merchant Services $ 4,978,080 $ 3,614,766 38% Proprietary Software and Payments 619,810 364,827 70% Total $ 5,597,890 $ 3,979,593 41% 1. i3 Verticals has two segments, “Merchant Services” and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Revenue and adjusted EBITDA exclude acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. 3. Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures.
5 Q4 Fiscal 2021 Segment Performance(1) ($ in thousands) Years ended September 30, Period over period growth2021 2020 Revenue(2) Merchant Services $ 111,870 $ 100,949 11% Proprietary Software and Payments 114,433 50,953 125% Other (2,179) (1,768) nm Total $ 224,124 $ 150,134 49% Adjusted EBITDA(2)(3) Merchant Services $ 33,162 $ 30,754 8% Proprietary Software and Payments 35,600 17,818 100% Other (13,355) (10,839) (23)% Total $ 55,407 $ 37,733 47% Acquisition Revenue Adjustments(2) Merchant Services $ — $ — Proprietary Software and Payments 600 824 Total $ 600 $ 824 Volume Merchant Services $ 17,138,214 $ 13,553,263 26% Proprietary Software and Payments 1,659,693 823,885 101% Total $ 18,797,907 $ 14,377,148 31% 1. i3 Verticals has two segments, “Merchant Services” and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Revenue and adjusted EBITDA exclude acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. 3. Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures. 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.
6 ($ in thousands) Three months ended September 30, 2021 Three months ended September 30, 2020 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 6,546 $ 5,958 $ (11,877) $ 627 $ 5,147 $ 2,729 $ (6,678) $ 1,198 Interest expense, net — — 2,708 2,708 — — 2,305 2,305 Other (income) expense — — (242) (242) — — 1,792 1,792 Benefit from income taxes — — 107 107 — — (877) (877) Net income (loss) 6,546 5,958 (14,450) (1,946) 5,147 2,729 (9,898) (2,022) Non-GAAP Adjustments: Benefit from income taxes — — 107 107 — — (877) (877) Financing-related expenses(1) — — — — — — 43 43 Non-cash change in fair value of contingent consideration(2) (179) 1,484 — 1,305 (400) 452 — 52 Equity-based compensation(3) — — 8,166 8,166 — — 3,002 3,002 Acquisition-related expenses(4) — — 254 254 — — 508 508 Acquisition intangible amortization(5) 2,387 2,950 — 5,337 2,539 1,085 — 3,624 Non-cash interest expense(6) — — 1,394 1,394 — — 1,429 1,429 Other taxes(7) 2 6 218 226 3 — 173 176 Other expenses related to adjustments of liabilities under Tax Receivable Agreement(8) — — (496) (496) — — 323 323 Non-cash loss on Exchangeable Note repurchases(9) — — — — — — 1,469 1,469 COVID-19 related expenses(10) — — — — — — — — Net loss on sale of investment(11) — — 253 253 — — — — Non-GAAP adjusted income (loss) before taxes 8,756 10,398 (4,554) 14,600 7,289 4,266 (3,828) 7,727 Pro forma taxes at effective tax rate(12) (2,188) (2,600) 1,138 (3,650) (1,823) (1,067) 958 (1,932) Pro forma adjusted net income (loss)(13) 6,568 7,798 (3,416) 10,950 5,466 3,199 (2,870) 5,795 Plus: Cash interest expense (income), net(14) — — 1,314 1,314 — — 876 876 Pro forma taxes at effective tax rate(12) 2,188 2,600 (1,138) 3,650 1,823 1,067 (958) 1,932 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(15) 319 665 159 1,143 236 517 172 925 Adjusted EBITDA(16) $ 9,075 $ 11,063 $ (3,081) $ 17,057 $ 7,525 $ 4,783 $ (2,780) $ 9,528 Acquisition revenue adjustments(16) $ — $ 15 $ — $ 15 $ — $ 154 $ — $ 154 See footnotes continued on the next slide. The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
7 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 $8,166 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $3,002 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months ended September 30, 2021 and 2020, respectively. 4. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 5. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 6. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 7. Other taxes consist of franchise taxes, commercial activity taxes, employer portion payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included. 8. Under our Tax Receivable Agreement we have a liability equal to 85% of certain deferred tax assets resulting from an increase in the tax basis of our investment in i3 Verticals, LLC. Other expenses related to adjustments of liabilities under our Tax Receivable Agreement relate to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates. 9. 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. When the Company becomes aware of an observable price change in an investment, such as a planned third party acquisition of the entity underlying the investment, we will adjust the carry value of the investment, which the Company recognizes in other income. 12. 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. 13. 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. 14. 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. 15. 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. 16. Adjusted EBITDA excludes acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. We have presented the excluded adjustment separately for informational purposes.
8 ($ in thousands) Year ended September 30, 2021 Year ended September 30, 2020 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 21,652 $ 16,207 $ (37,871) $ (12) $ 23,528 $ 8,704 $ (24,459) $ 7,773 Interest expense, net — — 9,799 9,799 (1) — 8,927 8,926 Other expense — — (2,595) (2,595) — — 2,621 2,621 Benefit from income taxes — — 623 623 — — (2,795) (2,795) Net income (loss) 21,652 16,207 (45,698) (7,839) 23,529 8,704 (33,212) (979) Non-GAAP Adjustments: Benefit from income taxes — — 623 623 — — (2,795) (2,795) Financing-related expenses(1) — — 152 152 — — 286 286 Non-cash change in fair value of contingent consideration(2) 177 6,963 — 7,140 (4,691) 3,282 — (1,409) Equity-based compensation(3) — — 20,860 20,860 — — 10,452 10,452 Acquisition-related expenses(4) — — 2,319 2,319 — — 1,811 1,811 Acquisition intangible amortization(5) 10,115 9,839 — 19,954 10,780 3,717 — 14,497 Non-cash interest expense(6) — — 5,450 5,450 — — 3,844 3,844 Other taxes(7) 23 34 474 531 14 — 351 365 Other expenses related to adjustments of liabilities under Tax Receivable Agreement(8) — — (496) (496) — — 323 323 Non-cash loss on Exchangeable Note repurchases(9) — — — — — — 2,297 2,297 COVID-19 related expenses(10) — — — — 107 109 23 239 Net gain on sale of investments(11) — — (2,100) (2,100) — — — — Non-GAAP adjusted income (loss) before taxes 31,967 33,043 (18,416) 46,594 29,739 15,812 (16,620) 28,931 Pro forma taxes at effective tax rate(12) (7,992) (8,261) 4,604 (11,649) (7,435) (3,953) 4,155 (7,233) Pro forma adjusted net income (loss)(13) 23,975 24,782 (13,812) 34,945 22,304 11,859 (12,465) 21,698 Plus: Cash interest (income) expense, net(14) — — 4,349 4,349 (1) — 5,083 5,082 Pro forma taxes at effective tax rate(12) 7,992 8,261 (4,604) 11,649 7,435 3,953 (4,155) 7,233 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(15) 1,195 2,557 712 4,464 1,016 2,006 698 3,720 Adjusted EBITDA(16) $ 33,162 $ 35,600 $ (13,355) $ 55,407 $ 30,754 $ 17,818 $ (10,839) $ 37,733 Acquisition revenue adjustments(16) $ — $ 600 $ — $ 600 $ — $ 824 $ — $ 824 See footnotes continued on the next slide. The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
9 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 $20,860 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $10,452 related to stock options issued under the Company's 2018 Equity Incentive Plan during the years ended September 30, 2021 and 2020, respectively. 4. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 5. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 6. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 7. Other taxes consist of franchise taxes, commercial activity taxes, employer portion payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included. 8. Under our Tax Receivable Agreement we have a liability equal to 85% of certain deferred tax assets resulting from an increase in the tax basis of our investment in i3 Verticals, LLC. Other expenses related to adjustments of liabilities under our Tax Receivable Agreement relate to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates. 9. 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. When the Company becomes aware of an observable price change in an investment, such as a planned third party acquisition of the entity underlying the investment, we will adjust the carry value of the investment, which the Company recognizes in other income. 12. 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. 13. 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. 14. 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. 15. 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. 16. Adjusted EBITDA excludes acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. We have presented the excluded adjustment separately for informational purposes.
10 Reconciliation Between GAAP Debt and Covenant Debt ($ in millions) As of September 30, 2021 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 104.4 Exchangeable Notes 99.8 Debt issuance costs, net (3.6) Total long-term debt, net of issuance costs $ 200.6 Non-GAAP Adjustments: Discount on Exchangeable Notes(1) $ 17.2 Exchangeable Notes 99.8 Exchangeable Notes Face Value $ 117.0 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 104.4 Exchangeable Notes Face Value 117.0 Less: Cash and Cash Equivalents(2) (10.0) Total long-term debt for use in our Total Leverage Ratio $ 211.4 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. 2. Although our cash and cash equivalents balance at September 30, 2021 was $3,641, in accordance with our Senior Secured Credit Facility, only up to $10,000 of unrestricted cash and cash equivalents may be subtracted from the calculation of long-term debt for use in our Total Leverage Ratio.
Q3 Fiscal 2021 Supplemental Information
12 ($ in thousands) Three months ended June 30, 2021 Three months ended June 30, 2020 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 5,569 $ 3,054 $ (9,458) $ (835) $ 4,975 $ 1,265 $ (5,803) $ 437 The following is our Income (loss) from operations for the three months ended June 30, 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 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. Q3 Fiscal 2021 GAAP Measures
13 Q3 Fiscal 2021 Segment Performance(1) ($ in thousands) Three months ended June 30, Period over period growth2021 2020(4) Revenue(2) Merchant Services $ 29,963 $ 22,222 35% Proprietary Software and Payments 33,729 9,767 245% Other (563) (416) nm Total $ 63,129 $ 31,573 100% Adjusted EBITDA(2)(3) Merchant Services $ 8,744 $ 6,695 31% Proprietary Software and Payments 10,326 2,589 299% Other (3,536) (2,257) (57)% Total $ 15,534 $ 7,027 121% Acquisition Revenue Adjustments(2) Merchant Services $ — $ — Proprietary Software and Payments 89 24 Total $ 89 $ 24 Volume Merchant Services $ 4,761,350 $ 2,909,731 64% Proprietary Software and Payments 374,935 70,971 428% Total $ 5,136,285 $ 2,980,702 72% 1. i3 Verticals has two segments, “Merchant Services” and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Revenue and adjusted EBITDA exclude acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. 3. Adjusted EBITDA is a non-GAAP financial measures. Refer to the following slides for the reconciliation of non-GAAP financial measures. 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.
14 ($ in thousands) Three months ended June 30, 2021 Three months ended June 30, 2020(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 5,569 $ 3,054 $ (9,458) $ (835) $ 4,975 $ 1,265 $ (5,803) $ 437 Interest (income) expense, net — — 2,704 2,704 (1) — 2,424 2,423 Other expense — — — — — — 829 829 Benefit from income taxes — — 662 662 — — (5) (5) Net income (loss) 5,569 3,054 (12,824) (4,201) 4,976 1,265 (9,051) (2,810) Non-GAAP Adjustments: Benefit from income taxes — — 662 662 — — (5) (5) Financing-related expenses(2) — — 36 36 — — 22 22 Non-cash change in fair value of contingent consideration(3) 36 3,573 — 3,609 (1,345) (128) — (1,473) Equity-based compensation(4) — — 5,111 5,111 — — 2,816 2,816 Acquisition-related expenses(5) — — 535 535 — — 458 458 Acquisition intangible amortization(6) 2,823 2,850 — 5,673 2,674 878 — 3,552 Non-cash interest expense(7) — — 1,372 1,372 — — 1,436 1,436 Other taxes(8) 13 19 50 82 4 — 50 54 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 8,441 9,496 (5,058) 12,879 6,416 2,124 (3,423) 5,117 Pro forma taxes at effective tax rate(11) (2,111) (2,374) 1,265 (3,220) (1,604) (531) 855 (1,280) Pro forma adjusted net income (loss)(12) 6,330 7,122 (3,793) 9,659 4,812 1,593 (2,568) 3,837 Plus: Cash interest (income) expense, net(13) — — 1,333 1,333 (1) — 988 987 Pro forma taxes at effective tax rate(11) 2,111 2,374 (1,265) 3,220 1,604 531 (855) 1,280 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(14) 303 830 189 1,322 280 465 178 923 Adjusted EBITDA(15) $ 8,744 $ 10,326 $ (3,536) $ 15,534 $ 6,695 $ 2,589 $ (2,257) $ 7,027 Acquisition revenue adjustments(15) $ — $ 89 $ — $ 89 $ — $ 24 $ — $ 24 See footnotes continued on the next slide. The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
15 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 $5,111 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $2,816 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months ended June 30, 2021 and 2020, respectively. 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, employer portion payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries 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 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. 15. Adjusted EBITDA excludes acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. We have presented the excluded adjustment separately for informational purposes.
Q2 Fiscal 2021 Supplemental Information
17 ($ in thousands) Three months ended March 31, 2021 Three months ended March 31, 2020 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 4,684 $ 5,250 $ (8,735) $ 1,199 $ 4,979 $ 3,842 $ (6,780) $ 2,041 The following is our Income (loss) from operations for the three 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 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. Q2 Fiscal 2021 GAAP Measures
18 Q2 Fiscal 2020 Segment Performance(1) ($ in thousands) Three months ended March 31, Period over period growth2021 2020(3) Revenue(2) Merchant Services $ 26,106 $ 25,729 1% Proprietary Software and Payments 23,769 13,980 70% Other (678) (531) nm Total $ 49,197 $ 39,178 26% Adjusted EBITDA(2) Merchant Services $ 7,560 $ 7,328 3% Proprietary Software and Payments 8,370 5,713 47% Other (3,704) (3,209) (15)% Total $ 12,226 $ 9,832 24% Acquisition Revenue Adjustments(2) Merchant Services $ — $ — Proprietary Software and Payments 209 133 Total $ 209 $ 133 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” and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Revenue and adjusted EBITDA exclude acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. 3. Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures. 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.
19 ($ 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 $ 4,684 $ 5,250 $ (8,735) $ 1,199 $ 4,979 $ 3,842 $ (6,780) $ 2,041 Interest expense, net — — 2,358 2,358 — — 2,184 2,184 Benefit from income taxes — — (136) (136) — — (2,062) (2,062) Net income (loss) 4,684 5,250 (10,957) (1,023) 4,979 3,842 (6,902) 1,919 Non-GAAP Adjustments: Benefit from income taxes — — (136) (136) — — (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-related expenses(5) — — 520 520 — — 583 583 Acquisition intangible amortization(6) 2,419 2,408 — 4,827 2,728 872 — 3,600 Non-cash interest expense(7) — — 1,352 1,352 — — 879 879 Other taxes(8) 1 9 119 129 3 — 78 81 Gain on investment(9) — — (2,353) (2,353) — — — — Non-GAAP adjusted income (loss) before taxes 7,267 7,826 (7,250) 7,843 7,061 5,221 (4,693) 7,589 Pro forma taxes at effective tax rate(10) (1,817) (1,956) 1,224 (2,549) (1,765) (1,305) 1,173 (1,897) Pro forma adjusted net income (loss)(11) 5,450 5,870 (6,026) 5,294 5,296 3,916 (3,520) 5,692 Plus: Cash interest expense (income), net(12) — — 1,006 1,006 — — 1,305 1,305 Pro forma taxes at effective tax rate(10) 1,817 1,956 (1,224) 2,549 1,765 1,305 (1,173) 1,897 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(13) 293 544 187 1,024 267 492 179 938 Adjusted EBITDA(14) $ 7,560 $ 8,370 $ (6,057) $ 9,873 $ 7,328 $ 5,713 $ (3,209) $ 9,832 Acquisition revenue adjustments(14) $ — $ 209 $ — $ 209 $ — $ 133 $ — $ 133 See footnotes continued on the next slide. The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
20 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. 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, employer portion payroll taxes related to stock option 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 $2,353 to the fair value of the investment at March 31, 2021, which the Company recognized in other income. 10. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2021 and 2020, based on blended federal and state tax rates, considering the Tax Reform Act for 2018. 11. Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 12. Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 13. Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software. 14. Adjusted EBITDA excludes acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. We have presented the excluded adjustment separately for informational purposes.
Q1 Fiscal 2021 Supplemental Information
22 ($ in thousands) Three months ended December 31, 2020 Three months ended December 31, 2019 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 4,853 $ 1,945 $ (7,801) $ (1,003) $ 8,427 $ 868 $ (5,198) $ 4,097 The following is our Income (loss) from operations for the three months ended December 31, 2020 and 2019 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 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. Q1 Fiscal 2021 GAAP Measures
23 Q1 Fiscal 2021 Segment Performance(1) ($ in thousands) Three months ended December 31, Period over period growth2020 2019(3) Revenue(2) Merchant Services $ 25,061 $ 28,239 (11)% Proprietary Software and Payments 19,993 13,282 51% Other (433) (410) nm Total $ 44,621 $ 41,111 9% Adjusted EBITDA(2) Merchant Services $ 7,783 $ 9,206 (15)% Proprietary Software and Payments 5,841 4,733 23% Other (3,033) (2,593) (17)% Total $ 10,591 $ 11,346 (7)% Acquisition Revenue Adjustments(2) Merchant Services $ — $ — Proprietary Software and Payments 287 513 Total $ 287 $ 513 Volume Merchant Services $ 3,582,614 $ 3,635,056 (1)% Proprietary Software and Payments 217,913 204,062 7% Total $ 3,800,527 $ 3,839,118 (1)% 1. i3 Verticals has two segments, “Merchant Services” and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Revenue and adjusted EBITDA exclude acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. 3. Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures. 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.
24 ($ in thousands) Three months ended December 31, 2020 Three months ended December 31, 2019(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 4,853 $ 1,945 $ (7,801) $ (1,003) $ 8,427 $ 868 $ (5,198) $ 4,097 Interest expense, net — — 2,029 2,029 — — 2,014 2,014 Provision for income taxes — — (10) (10) — — 149 149 Net income (loss) 4,853 1,945 (9,820) (3,022) 8,427 868 (7,361) 1,934 Non-GAAP Adjustments: Provision for income taxes — — (10) (10) — — 149 149 Financing-related expenses(2) — — 53 53 — — — — Non-cash change in fair value of contingent consideration(3) 157 1,747 — 1,904 (2,297) 2,451 — 154 Equity-based compensation(4) — — 3,441 3,441 — — 2,124 2,124 Acquisition-related expenses(5) — — 1,010 1,010 — — 262 262 Acquisition intangible amortization(6) 2,486 1,631 — 4,117 2,839 882 — 3,721 Non-cash interest expense(7) — — 1,332 1,332 — — 100 100 Other taxes(8) 7 — 87 94 4 — 50 54 Non-GAAP adjusted income (loss) before taxes 7,503 5,323 (3,907) 8,919 8,973 4,201 (4,676) 8,498 Pro forma taxes at effective tax rate(9) (1,876) (1,331) 977 (2,230) (2,243) (1,050) 1,169 (2,124) Pro forma adjusted net income (loss)(10) 5,627 3,992 (2,930) 6,689 6,730 3,151 (3,507) 6,374 Plus: Cash interest expense, net(11) — — 697 697 — — 1,914 1,914 Pro forma taxes at effective tax rate(9) 1,876 1,331 (977) 2,230 2,243 1,050 (1,169) 2,124 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(12) 280 518 177 975 233 532 169 934 Adjusted EBITDA(13) $ 7,783 $ 5,841 $ (3,033) $ 10,591 $ 9,206 $ 4,733 $ (2,593) $ 11,346 Acquisition revenue adjustments(13) $ — $ 287 $ — $ 287 $ — $ 513 $ — $ 513 See footnotes continued on the next slide. The reconciliation of our income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA is as follows: Reconciliation of Non-GAAP Financial Measures
25 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 $3,441 related to stock options issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $2,124 related to stock options issued under the Company's 2018 Equity Incentive Plan during the three months ended December 31, 2020 and 2019, respectively. 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, employer portion payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included. 9. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2020 and 2019, based on blended federal and state tax rates, considering the Tax Reform Act for 2018. 10. 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. 11. Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 12. Depreciation, 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.. 13. Adjusted EBITDA excludes acquisition revenue adjustments for acquisitions occurring prior to October 1, 2020. See slide 2. We have presented the excluded adjustment separately for informational purposes.