SEC Filing - i3 Verticals

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iiiv-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38532

i3 Verticals, Inc.

(Exact name of registrant as specified in its charter)


Delaware			82-4052852
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
40 Burton Hills Blvd., Suite 415
Nashville, TN			37215
(Address of principal executive offices)			(Zip Code)
(615) 465-4487
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.0001 Par Value	IIIV	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of August 8, 2023, there were 23,246,734 outstanding shares of Class A common stock, $0.0001 par value per share, and 10,093,394 outstanding shares of Class B common stock, $0.0001 par value per share.

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Operations			5
Condensed Consolidated Statement of Change in Equity			6
Condensed Consolidated Statements of Cash Flows			8
Notes to the Unaudited Condensed Consolidated Financial Statements			10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			42
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. Controls and Procedures			55

PART II. OTHER INFORMATION			55
Item 1. Legal Proceedings			55
Item 1A. Risk Factors			55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 3. Defaults Upon Senior Securities			56
Item 4. Mine Safety Disclosures			56
Item 5. Other Information			56
Item 6. Exhibits			56

SIGNATURES			57

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	June 30,		September 30,
	2023		2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	5,043	$	3,490
Accounts receivable, net	60,781		53,334
Settlement assets	10,793		7,540
Prepaid expenses and other current assets	20,057		19,445
Total current assets	96,674		83,809
Property and equipment, net	12,123		5,670
Restricted cash	4,366		12,735
Capitalized software, net	65,459		52,341
Goodwill	409,042		353,639
Intangible assets, net	224,588		195,919
Deferred tax asset	42,715		43,458
Operating lease right-of-use assets	14,885		17,678
Other assets	5,972		5,063
Total assets	$	875,824	$	770,312

Liabilities and equity
Liabilities
Current liabilities
Accounts payable	$	8,296	$	9,342
Accrued expenses and other current liabilities	46,505		57,833
Settlement obligations	10,793		7,540
Deferred revenue	26,792		31,975
Current portion of operating lease liabilities	4,598		4,568
Total current liabilities	96,984		111,258
Long-term debt, less current portion and debt issuance costs, net	389,569		287,020
Long-term tax receivable agreement obligations	40,894		40,812
Operating lease liabilities, less current portion	11,284		13,994
Other long-term liabilities	24,151		9,540
Total liabilities	562,882		462,624
Commitments and contingencies (see Note 12)
Stockholders' equity
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2023 and September 30, 2022	—		—
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 23,193,447 and 22,986,448 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively	2		2
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,108,218 and 10,118,142 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively	1		1
Additional paid-in capital	239,917		241,958
Accumulated deficit	(17,492)		(23,582)
Total stockholders' equity	222,428		218,379
Non-controlling interest	90,514		89,309
Total equity	312,942		307,688
Total liabilities and equity	$	875,824	$	770,312

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)


	Three months ended June 30,				Nine months ended June 30,
	2023		2022		2023		2022

Revenue	$	93,931	$	80,553	$	273,832	$	232,612

Operating expenses
Other costs of services	20,532		19,749		59,531		52,890
Selling, general and administrative	55,426		47,775		163,633		142,878
Depreciation and amortization	9,158		7,506		26,849		21,823
Change in fair value of contingent consideration	6,183		8,254		9,905		24,684
Total operating expenses	91,299		83,284		259,918		242,275

Income (loss) from operations	2,632		(2,731)		13,914		(9,663)

Interest expense, net	6,725		3,767		18,414		10,298
Other income	(92)		—		(295)		—
Total other expenses	6,633		3,767		18,119		10,298

Loss before income taxes	(4,001)		(6,498)		(4,205)		(19,961)

Provision for (benefit from) income taxes	2,077		(1,810)		1,896		(1,154)

Net loss	(6,078)		(4,688)		(6,101)		(18,807)

Net loss attributable to non-controlling interest	(923)		(960)		(742)		(5,178)
Net loss attributable to i3 Verticals, Inc.	$	(5,155)	$	(3,728)	$	(5,359)	$	(13,629)

Net loss per share attributable to Class A common stockholders:
Basic	$	(0.22)	$	(0.17)	$	(0.23)	$	(0.62)
Diluted	$	(0.22)	$	(0.17)	$	(0.23)	$	(0.62)
Weighted average shares of Class A common stock outstanding:
Basic	23,179,638		22,229,787		23,104,212		22,116,172
Diluted	23,179,638		22,229,787		23,104,212		22,116,172

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(In thousands, except share amounts)


	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Non-Controlling Interest		Total Equity
	Shares	Amount		Shares	Amount
Balance at September 30, 2022	22,986,448	$	2	10,118,142	$	1	$	241,958	$	(23,582)	$	89,309	$	307,688
Adoption of ASU 2020-06	—	—		—	—		(23,382)		11,449		—		(11,933)
Equity-based compensation	—	—		—	—		6,846		—		—		6,846
Net (loss) income	—	—		—	—		—		(240)		409		169
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		685		—		—		685
Exercise of equity-based awards	24,745	—		—	—		3		—		—		3
Allocation of equity to non-controlling interests	—	—		—	—		1,906		—		(1,906)		—
Balance at December 31, 2022	23,011,193	2		10,118,142	1		228,016		(12,373)		87,812		303,458
Equity-based compensation	—	—		—	—		6,802		—		—		6,802
Net income (loss)	—	—		—	—		—		36		(228)		(192)
Redemption of common units in i3 Verticals, LLC	9,924	—		(9,924)	—		86		—		(86)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		349		—		—		349
Exercise or release of equity-based awards	64,443	—		—	—		(606)		—		—		(606)
Allocation of equity to non-controlling interests	—	—		—	—		(2,205)		—		2,205		—
Issuance of Class A common stock under the 2020 Inducement Plan	82,170	—		—	—		2,000		—		—		2,000
Balance at March 31, 2023	23,167,730	2		10,108,218	1		234,442		(12,337)		89,703		311,811
Equity-based compensation	—	—		—	—		7,198		—		—		7,198
Net loss	—	—		—	—		—		(5,155)		(923)		(6,078)
Exercise of equity-based awards	25,717	—		—	—		11		—		—		11
Allocation of equity to non-controlling interests	—	—		—	—		(1,734)		—		1,734		—
Balance at June 30, 2023	23,193,447	$	2	10,108,218	$	1	$	239,917	$	(17,492)	$	90,514	$	312,942

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (CONTINUED)

(In thousands, except share amounts)


	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Non-Controlling Interest		Total Equity
	Shares	Amount		Shares	Amount
Balance at September 30, 2021	22,026,098	$	2	10,229,142	$	1	$	211,237	$	(6,480)	$	84,831	$	289,591
Equity-based compensation	—	—		—	—		6,624		—		—		6,624
Net loss	—	—		—	—		—		(2,528)		(1,153)		(3,681)
Redemption of common units in i3 Verticals, LLC	15,000	—		(15,000)	—		123		—		(123)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		345		—		—		345
Exercise of equity-based awards	23,219	—		—	—		174		—		—		174
Allocation of equity to non-controlling interests	—	—		—	—		(1,899)		—		1,899		—
Balance at December 31, 2021	22,064,317	2		10,214,142	1		216,604		(9,008)		85,454		293,053
Equity-based compensation	—	—		—	—		6,257		—		—		6,257
Net loss	—	—		—	—		—		(7,373)		(3,065)		(10,438)
Redemption of common units in i3 Verticals, LLC	40,000	—		(40,000)	—		335		—		(335)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		(1,288)		—		—		(1,288)
Exercise of equity-based awards	29,365	—		—	—		(89)		—		—		(89)
Allocation of equity to non-controlling interests	—	—		—	—		(1,618)		—		1,618		—
Balance at March 31, 2022	22,133,682	2		10,174,142	1		220,201		(16,381)		83,672		287,495
Equity-based compensation	—	—		—	—		6,799		—		—		6,799
Net loss	—	—		—	—		—		(3,728)		(960)		(4,688)
Redemption of common units in i3 Verticals, LLC	56,000	—		(56,000)	—		460		—		(460)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		748		—		—		748
Exercise of equity-based awards	62,958	—		—	—		138		—		—		138
Allocation of equity to non-controlling interests	—	—		—	—		(2,077)		—		2,077		—
Balance at June 30, 2022	22,252,640	$	2	10,118,142	$	1	$	226,269	$	(20,109)	$	84,329	$	290,492

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Nine months ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(6,101)	$	(18,807)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	26,849		21,823
Equity-based compensation	20,846		19,680
Amortization of debt discount and issuance costs	1,312		4,312
Provision for (benefit from) income taxes	1,860		(1,154)
Non-cash lease expense	3,464		3,684
Increase in non-cash contingent consideration expense from original estimate	9,905		24,684
Other non-cash adjustments to net income	946		1,047
Changes in operating assets:
Accounts receivable	2,961		(4,800)
Prepaid expenses and other current assets	(200)		(2,735)
Other assets	(980)		(1,837)
Changes in operating liabilities:
Accounts payable	(1,111)		242
Accrued expenses and other current liabilities	(1,548)		5,874
Acquisition escrow obligations	(8,370)		5,189
Settlement obligations	3,253		912
Deferred revenue	(9,319)		(7,325)
Operating lease liabilities	(3,339)		(3,544)
Other long-term liabilities	2		—
Contingent consideration paid in excess of original estimates	(10,807)		(11,405)
Net cash provided by operating activities	29,623		35,840

Cash flows from investing activities:
Expenditures for property and equipment	(3,110)		(1,395)
Expenditures for capitalized software	(8,914)		(7,199)
Purchases of merchant portfolios and residual buyouts	(462)		—
Acquisitions of businesses, net of cash and restricted cash acquired	(101,997)		(100,715)
Payments for other investing activities	(1,227)		(41)
Proceeds from investments	295		—
Net cash used in investing activities	(115,415)		(109,350)

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(In thousands)


	Nine months ended June 30,
	2023		2022
Cash flows from financing activities:
Proceeds from revolving credit facility	310,436		258,665
Payments on revolving credit facility	(222,055)		(155,655)
Payments of debt issuance costs	(694)		—
Cash paid for contingent consideration	(4,835)		(17,378)
Proceeds from stock option exercises	154		617
Payments for employee's tax withholdings from net settled stock option exercises and RSU releases	(777)		(554)
Net cash provided by financing activities	82,229		85,695

Net (decrease) increase in cash, cash equivalents and restricted cash	(3,563)		12,185
Cash, cash equivalents and restricted cash at beginning of period	23,765		17,931
Cash, cash equivalents and restricted cash at end of period	$	20,202	$	30,116

Supplemental disclosure of cash flow information:
Cash paid for interest	$	14,488	$	5,428
Cash paid for income taxes	$	1,931	$	835

The following tables provide reconciliations of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to that shown in the condensed consolidated statements of cash flows:


	September 30,
	2022		2021
Beginning balance
Cash and cash equivalents	$	3,490	$	3,641
Settlement assets	7,540		4,768
Restricted cash	12,735		9,522
Total cash, cash equivalents, and restricted cash	$	23,765	$	17,931

	June 30,
	2023		2022
Ending balance
Cash and cash equivalents	$	5,043	$	9,046
Settlement assets	10,793		6,365
Restricted cash	4,366		14,705
Total cash, cash equivalents, and restricted cash	$	20,202	$	30,116

See Notes to the Interim Condensed Consolidated Financial Statements

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

1. ORGANIZATION AND OPERATIONS

i3 Verticals, Inc. (the “Company”) was formed as a Delaware corporation on January 17, 2018. The Company was formed for the purpose of completing an initial public offering (“IPO”) of its Class A common stock and other related transactions in order to carry on the business of i3 Verticals, LLC and its subsidiaries. i3 Verticals, LLC was founded in 2012 and delivers seamlessly integrated software and payment solutions to customers in strategic vertical markets. The Company’s headquarters are located in Nashville, Tennessee, with operations throughout the United States. Unless the context otherwise requires, references to “we,” “us,” “our,” “i3 Verticals” and the “Company” refer to i3 Verticals, Inc. and its subsidiaries, including i3 Verticals, LLC.

In connection with the IPO, the Company completed certain reorganization transactions, which, among other things, resulted in i3 Verticals, Inc. being the sole managing member of i3 Verticals, LLC (the “Reorganization Transactions”). Following the completion of the IPO and Reorganization Transactions, the Company is a holding company and the principal asset that it owns are the common units of i3 Verticals, LLC. i3 Verticals, Inc. operates and controls all of i3 Verticals, LLC's operations and, through i3 Verticals, LLC and its subsidiaries, conducts i3 Verticals, LLC's business. i3 Verticals, Inc. has a majority economic interest in i3 Verticals, LLC. As the sole managing member of i3 Verticals, LLC, i3 Verticals, Inc. consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest representing the Common Units of i3 Verticals, LLC held by owners other than i3 Verticals, Inc. (the “Continuing Equity Owners”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the reporting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the unaudited condensed consolidated financial statements of the Company and its subsidiaries as of June 30, 2023 and for the three and nine months ended June 30, 2023 and 2022. The results of operations for the three and nine months ended June 30, 2023 and 2022 are not necessarily indicative of the operating results for the full year.

As permitted by the rules and regulations of the SEC, certain information and disclosures otherwise included in the notes to the consolidated financial statements have been condensed or omitted from the summary of significant accounting policies. The Company believes the disclosures are adequate to make the information presented not misleading. It is recommended that these interim condensed consolidated financial statements be read in conjunction with the Company's consolidated financial statements and related footnotes for the years ended September 30, 2022 and 2021, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 filed with the SEC on November 18, 2022.

Principles of Consolidation

These interim condensed consolidated financial statements include the accounts of the Company and its subsidiary companies. All significant intercompany accounts and transactions have been eliminated in consolidation.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Restricted Cash

Restricted cash represents funds held in escrow related to acquisitions or held-on-deposit with processing banks pursuant to agreements to cover potential merchant losses. It is presented as long-term assets on the accompanying condensed consolidated balance sheets since the related agreements extend beyond the next twelve months. Following the adoption of Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230), the Company includes restricted cash along with the cash and cash equivalents balance for presentation in the consolidated statements of cash flows.

Settlement Assets and Obligations

Settlement assets and obligations result when funds are temporarily held or owed by the Company on behalf of merchants, consumers, schools, and other institutions. Timing differences, interchange expenses, merchant reserves and exceptional items cause differences between the amount received from the card networks and the amount funded to counterparties. These balances arising in the settlement process are reflected as settlement assets and obligations on the accompanying consolidated balance sheets. With the exception of merchant reserves, settlement assets or settlement obligations are generally collected and paid within one to four days. Settlement assets and settlement obligations were both $10,793 as of June 30, 2023 and $7,540 as of September 30, 2022, respectively.

Inventories

Inventories consist of point-of-sale equipment to be sold to customers and are stated at the lower of cost, determined on a weighted average or specific basis, or net realizable value. Inventories were $4,537 and $4,121 at June 30, 2023 and September 30, 2022, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Acquisitions

Business acquisitions have been recorded using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition. Where relevant, the fair value of contingent consideration included in an acquisition is calculated using a Monte Carlo simulation. The fair value of merchant relationships and non-compete assets acquired is identified using the Income Approach. The fair values of trade names and internally-developed software acquired are identified using the Relief from Royalty Method. After the purchase price has been allocated, goodwill is recorded to the extent the total consideration paid for the acquisition, including the acquisition date fair value of contingent consideration, if any, exceeds the sum of the fair values of the separately identifiable acquired assets and assumed liabilities. Acquisition costs for business combinations are expensed when incurred and recorded in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Acquisitions not meeting the accounting criteria to be accounted for as a business combination are accounted for as an asset acquisition. An asset acquisition is recorded at its purchase price, inclusive of acquisition costs, which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date of acquisition.

The operating results of an acquisition are included in the Company’s condensed consolidated statements of operations from the date of such acquisition. Acquisitions completed during the nine months ended June 30, 2023 contributed $13,417 and $3,713 of revenue and net income, respectively, to the Company's condensed consolidated statements of operations for the nine months then ended.

Leases

The Company adopted ASU 2016-02, Leases, on October 1, 2020, using the optional modified retrospective method under which the prior period financial statements were not restated for the new guidance. The Company

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

elected the accounting policy practical expedients for all classes of underlying assets to (i) combine associated lease and non-lease components in a lease arrangement as a combined lease component and (ii) exclude recording short-term leases as right-of-use assets on the condensed consolidated balance sheets.

At contract inception the Company determines whether an arrangement is, or contains a lease, and for each identified lease, evaluates the classification as operating or financing. Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments to be made over the term of the lease. Renewal and termination options are factored into determination of the lease term only if the option is reasonably certain to be exercised. The Company’s leases do not provide a readily determinable implicit interest rate and the Company uses its incremental borrowing rate to measure the lease liability and corresponding right-of-use asset. The incremental borrowing rate is a fully collateralized rate that considers the Company’s credit rating, market conditions and the term of the lease. The Company accounts for all components in a lease arrangement as a single combined lease component.

Operating lease cost is recognized on a straight-line basis over the lease term. Total lease costs include variable lease costs, which are primarily comprised of the consumer price index adjustments and other changes based on rates, such as costs of insurance and property taxes. Variable payments are expensed in the period incurred and not included in the measurement of lease assets and obligations.

Revenue Recognition and Deferred Revenue

Revenue is recognized as each performance obligation is satisfied, in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company accrues for rights of refund, processing errors or penalties, or other related allowances based on historical experience. The Company utilized the portfolio approach practical expedient within ASC 606-10-10-4 Revenue from Contracts with Customers—Objectives and the significant financing component practical expedient within ASC 606-10-32-18 Revenue from Contracts with Customers—The Existence of a Significant Financing Component in the Contract in performing the analysis. The Company adopted ASC 606 on October 1, 2019, using the modified retrospective method and applying the standard to all contracts not completed on the date of adoption.

The Company's revenue for the nine months ended June 30, 2023 and 2022 is derived from the following sources:

•Software and related services — Includes sales of software as a service, transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings

•Payments — Includes volume-based payment processing fees (“discount fees”), gateway fees and other related fixed transaction or service fees

•Other — Includes sales of equipment, non-software related professional services and other revenues

Revenues from sales of the Company’s software are recognized when the related performance obligations are satisfied. Sales of software licenses are categorized into one of two categories of intellectual property in accordance with ASC 606, functional or symbolic. The key distinction is whether the license represents a right to use (functional) or a right to access (symbolic) intellectual property. The Company generates sales of one-time software licenses, which is functional intellectual property. Revenue from functional intellectual property is recognized at a point in time, when delivered to the customer. The Company also offers access to its software under software-as-a-service (“SaaS”) arrangements, which represent services arrangements. Revenue from SaaS arrangements is recognized over time, over the term of the agreement.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed or a specified per transaction amount, depending on the card type. The Company frequently enters into agreements with customers under which the customer engages the Company to provide both payment authorization services and transaction settlement services for all of the cardholder transactions of the customer, regardless of which issuing bank and card network to which the transaction relates. The Company’s core performance obligations are to stand ready to provide continuous access to the Company’s payment authorization services and transaction settlement services in order to be able to process as many transactions as its customers require on a daily basis over the contract term. These services are stand ready obligations, as the timing and quantity of transactions to be processed is not determinable. Under a stand-ready obligation, the Company’s performance obligation is defined by each time increment rather than by the underlying activities satisfied over time based on days elapsed. Because the service of standing ready is substantially the same each day and has the same pattern of transfer to the customer, the Company has determined that its stand-ready performance obligation comprises a series of distinct days of service. Discount fees are recognized each day based on the volume or transaction count at the time the merchants’ transactions are processed.

The Company follows the requirements of ASC 606-10-55 Revenue from Contracts with Customers—Principal versus Agent Considerations, which states that the determination of whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement. The determination of gross versus net recognition of revenue requires judgment that depends on whether the Company controls the good or service before it is transferred to the merchant or whether the Company is acting as an agent of a third party. The assessment is provided separately for each performance obligation identified. Under its agreements, the Company incurs interchange and network pass-through charges from the third-party card issuers and card networks, respectively, related to the provision of payment authorization services. The Company has determined that it is acting as an agent with respect to these payment authorization services, based on the following factors: (1) the Company has no discretion over which card issuing bank will be used to process a transaction and is unable to direct the activity of the merchant to another card issuing bank, and (2) interchange and card network rates are pre-established by the card issuers or card networks, and the Company has no latitude in determining these fees. Therefore, revenue allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and card networks, respectively.

With regards to the Company's discount fees, generally, where the Company has control over merchant pricing, merchant portability, credit risk and ultimate responsibility for the merchant relationship, revenues are reported at the time of sale equal to the full amount of the discount charged to the merchant, less interchange and network fees. Revenues generated from merchant portfolios where the Company does not have control over merchant pricing, liability for merchant losses or credit risk or rights of portability are reported net of interchange and network fees as well as third-party processing costs directly attributable to processing and bank sponsorship costs.

Revenues are also derived from a variety of transaction fees, which are charged for accessing our payment and software solutions, and fees for other miscellaneous services. Revenues derived from such fees are recognized in the period the transactions occur and when there are no further performance obligations. Revenue from the sale of equipment, is recognized upon transfer of ownership to the customer, after which there are no further performance obligations.

Arrangements may contain multiple performance obligations, such as payment authorization services, transaction settlement services, hardware, software products, maintenance, and professional installation and training services. Revenues are allocated to each performance obligation based on the standalone selling price of each good or service. The selling price for a deliverable is based on standalone selling price, if available, the adjusted market assessment approach, estimated cost plus margin approach, or residual approach. The Company establishes estimated selling price, based on the judgment of the Company's management, considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. In arrangements with multiple performance obligations, the Company determines allocation

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

of the transaction price at inception of the arrangement and uses the standalone selling prices for the majority of the Company's revenue recognition.

Revenues from sales of the Company’s combined hardware and software element are recognized when each performance obligation has been satisfied which has been determined to be upon the delivery of the product. Revenues derived from service fees are recognized at the time the services are performed and there are no further performance obligations. The Company’s professional services, including training, installation, and repair services are recognized as revenue as these services are performed.

The tables below present a disaggregation of the Company's revenue from contracts with customers by product by segment. Refer to Note 14 for discussion of the Company's segments. The Company's products are defined as follows:

•Software and related services — Includes sales of SaaS, transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings.

•Payments — Includes discount fees, gateway fees and other related fixed transaction or service fees.

•Other — Includes sales of equipment, non-software related professional services and other revenues.


	For the Three Months Ended June 30, 2023
	Software and Services		Merchant Services		Other		Total
Software and related services revenue	$	43,971	$	3,303	$	(6)	$	47,268
Payments revenue	12,261		29,733		(4)		41,990
Other revenue	2,669		2,004		—		4,673
Total revenue	$	58,901	$	35,040	$	(10)	$	93,931


	For the Three Months Ended June 30, 2022
	Software and Services		Merchant Services		Other		Total
Software and related services revenue	$	35,667	$	3,349	$	(10)	$	39,006
Payments revenue	9,559		27,135		(11)		36,683
Other revenue	2,613		2,230		21		4,864
Total revenue	$	47,839	$	32,714	$	—	$	80,553

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)


	For the Nine Months Ended June 30, 2023
	Software and Services		Merchant Services		Other		Total
Software and related services revenue	$	126,215	$	9,499	$	(25)	$	135,689
Payments revenue	39,299		84,976		(22)		124,253
Other revenue	7,397		6,493		—		13,890
Total revenue	$	172,911	$	100,968	$	(47)	$	273,832


	For the Nine Months Ended June 30, 2022
	Software and Services		Merchant Services		Other		Total
Software and related services revenue	$	105,023	$	9,319	$	(26)	$	114,316
Payments revenue	29,341		75,365		(29)		104,677
Other revenue	7,211		6,387		21		13,619
Total revenue	$	141,575	$	91,071	$	(34)	$	232,612

The tables below present a disaggregation of the Company's revenue from contracts with customers by timing of transfer of goods or services by segment. For the three and nine months ended June 30, 2022, $10,170 and $29,716, respectively, was included in revenue earned at a point in time related to professional services or other stand ready contract revenue for fixed service fee arrangements. These types of revenue are included in revenue earned over time for the three and nine months ended June 30, 2023. The Company's revenue included in each category are defined as follows:

•Revenue earned over time — Includes discount fees, gateway fees, sales of SaaS, ongoing support or other stand-ready obligations and professional services.

•Revenue earned at a point in time — Includes point in time service fees that are not stand-ready obligations, software licenses sold as functional intellectual property and other equipment.


	For the Three Months Ended June 30, 2023
	Software and Services		Merchant Services		Other		Total
Revenue earned over time	$	54,555	$	29,891	$	(7)	$	84,439
Revenue earned at a point in time	4,346		5,149		(3)		9,492
Total revenue	$	58,901	$	35,040	$	(10)	$	93,931


	For the Three Months Ended June 30, 2022
	Software and Services		Merchant Services		Other		Total
Revenue earned over time	$	33,951	$	25,643	$	(10)	$	59,584
Revenue earned at a point in time	13,888		7,071		10		20,969
Total revenue	$	47,839	$	32,714	$	—	$	80,553

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)


	For the Nine Months Ended June 30, 2023
	Software and Services		Merchant Services		Other		Total
Revenue earned over time	$	159,564	$	85,472	$	(26)	$	245,010
Revenue earned at a point in time	13,347		15,496		(21)		28,822
Total revenue	$	172,911	$	100,968	$	(47)	$	273,832


	For the Nine Months Ended June 30, 2022
	Software and Services		Merchant Services		Other		Total
Revenue earned over time	$	99,390	$	70,976	$	(27)	$	170,339
Revenue earned at a point in time	42,185		20,095		(7)		62,273
Total revenue	$	141,575	$	91,071	$	(34)	$	232,612

Contract Assets

The Company bills for certain software and related services sales and fixed fee professional services upon pre-determined milestones in the contracts. Therefore, the Company may have contract assets other than trade accounts receivable for performance obligations that are partially completed, which would typically represent consulting services provided before a milestone is completed in a contract. Unbilled amounts associated with these services are presented as accounts receivable as the Company has an unconditional right to payment for services performed.

As of June 30, 2023 and September 30, 2022, the Company’s contract assets from contracts with customers was $12,910 and $9,716, respectively.

Contract Liabilities

Deferred revenue represents amounts billed to customers by the Company for services contracts. Payment is typically collected at the start of the contract term. The initial prepaid contract agreement balance is deferred. The balance is then recognized as the services are provided over the contract term. Deferred revenue that is expected to be recognized as revenue within one year is recorded as short-term deferred revenue and the remaining portion is recorded as other long-term liabilities in the condensed consolidated balance sheets. The terms for most of the Company's contracts with a deferred revenue component are one year. Substantially all of the Company's deferred revenue is anticipated to be recognized within the next year.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The following tables present the changes in deferred revenue as of and for the nine months ended June 30, 2023 and 2022, respectively:


Balance at September 30, 2022	$	32,089
Deferral of revenue	19,334
Recognition of unearned revenue	(13,925)
Balance at December 31, 2022	37,498
Deferral of revenue	10,475
Recognition of unearned revenue	(14,286)
Balance at March 31, 2023	33,687
Deferral of revenue	8,788
Recognition of unearned revenue	(15,478)
Balance at June 30, 2023	$	26,997


Balance at September 30, 2021	$	30,024
Deferral of revenue	21,032
Recognition of unearned revenue	(15,735)
Balance at December 31, 2021	35,321
Deferral of revenue	11,047
Recognition of unearned revenue	(16,034)
Balance at March 31, 2022	30,334
Deferral of revenue	8,131
Recognition of unearned revenue	(15,742)
Balance at June 30, 2022	$	22,723

Costs to Obtain and Fulfill a Contract

The Company capitalizes incremental costs to obtain new contracts and contract renewals and amortizes these costs on a straight-line basis as an expense over the benefit period, which is generally the contract term, unless a commensurate payment is not expected at renewal. As of June 30, 2023 and September 30, 2022, the Company had $4,650 and $4,185, respectively, of capitalized contract costs, which relates to commissions paid to employees and agents as well as other incentives given to customers to obtain new sales, included within “Other assets" on the condensed consolidated balance sheets. The Company recorded expense related to these costs of $203 and $579 for the three and nine months ended June 30, 2023, respectively, and $187 and $532 for the three and nine months ended June 30, 2022, respectively.

The Company expenses sales commissions as incurred for the Company's sales commission plans that are paid on recurring monthly revenues, portfolios of existing customers, or have a substantive stay requirement prior to payment.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Other Cost of Services

Other costs of services include third-party processing costs directly attributable to processing and bank sponsorship costs, which may not be based on a percentage of volume. These costs also include related costs such as residual payments to sales groups, which are based on a percentage of the net revenues generated from merchant referrals. In certain merchant processing bank relationships the Company is liable for chargebacks against a merchant equal to the volume of the transaction. Losses resulting from chargebacks against a merchant are included in other cost of services on the accompanying condensed consolidated statement of operations. The Company evaluates its risk for such transactions and estimates its potential loss from chargebacks based primarily on historical experience and other relevant factors. The reserve for merchant losses is included within accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. The cost of equipment sold is also included in other cost of services. Other costs of services are recognized at the time the associated revenue is earned.

The Company accounts for all governmental taxes associated with revenue transactions on a net basis.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the value of purchase consideration paid and identifiable assets acquired and assumed in acquisitions, goodwill and intangible asset impairment review, determination of performance obligations for revenue recognition, loss reserves, assumptions used in the calculation of equity-based compensation and in the calculation of income taxes, and certain tax assets and liabilities as well as the related valuation allowances. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this ASU on October 1, 2022. The adoption of ASU 2020-06 resulted in an increase in long-term debt, less current portion and debt issuance costs, net of $11,933, a decrease in additional paid-in-capital of $23,382 and a decrease in accumulated deficit of $11,449. The adoption of ASU 2020-06 had no impact on net income.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

3. ACQUISITIONS

During the nine months ended June 30, 2023 and 2022, the Company acquired the following intangible assets and businesses:

Residual Buyouts

From time to time, the Company acquires future commission streams (or "residuals") from sales agents in exchange for an upfront cash payment. This results in an increase in overall gross processing volume to the Company. The residual buyouts are treated as asset acquisitions, resulting in recording a residual buyout intangible asset at cost on the date of acquisition. These assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are expected to be utilized over their estimated useful lives.

During the nine months ended June 30, 2023, the Company purchased $462 in residuals using a combination of cash on hand and borrowings on the Company's revolving credit facility. The acquired residual buyout intangible asset has an estimated amortization period of eight years. The Company did not acquire any residuals during the nine months ended June 30, 2022.

Referral Agreements

From time to time, the Company enters into referral agreements with agent banks or other organizations (“referral partner”). Under these agreements, the referral partner refers its customers to the Company for credit card processing services. Total consideration paid for these agreements in the nine months ended June 30, 2023 was $420, all of which was settled with cash on hand. Because the Company pays an up-front fee to compensate the referral partner, the amount is treated as an asset acquisition in which the Company has acquired an intangible stream of referrals. This asset is amortized over a straight-line period of five years.

Purchase of Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd.

During the nine months ended June 30, 2023, the Company completed the acquisition of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt. Ltd. in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical. Celtic is within the Software and Services segment. Total purchase consideration consisted of $85,000 in cash consideration, funded by proceeds from the Company's revolving credit facility. Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of June 30, 2023.

The goodwill associated with the Celtic acquisition is deductible for tax purposes. The acquired customer relationships intangible assets has an estimated amortization period of eighteen years. The trade name and non-compete agreements associated with the acquisition have amortization periods of five years and three years, respectively. The weighted-average amortization period for all intangibles acquired is eighteen years. The acquired capitalized software has a weighted-average amortization period of ten years.

Acquisition-related costs for this acquisition amounted to approximately $1,748 and were expensed as incurred.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Summary of Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd.

The fair values assigned to certain assets and liabilities assumed, as of the acquisition date, were as follows:


Accounts receivable	$	7,604
Prepaid expenses and other current assets	110
Property and equipment	5,437
Capitalized software	12,600
Customer relationships	33,800
Non-compete agreements	200
Trade name	600
Goodwill	42,595
Total assets acquired	102,946

Accounts payable	9
Accrued expenses and other current liabilities	3,182
Deferred revenue, current	2,742
Other long-term liabilities	12,013
Net assets acquired	$	85,000

Other Business Combinations during the nine months ended June 30, 2023

The Company completed the acquisition of two other businesses to expand the Company's software offerings. The total purchase consideration was $19,757, including $16,997 in cash consideration, funded by proceeds from the Company's revolving credit facility, $2,000 of the Company's Class A Common Stock, and $760 contingent consideration. In connection with this acquisition, the Company allocated approximately $180 of the consideration to net working capital, approximately $374 to property and equipment, approximately $670 to capitalized software, approximately $8,400 to customer relationships, approximately $100 to trade names, and the remainder, approximately $12,808, to goodwill, of which $2,864 is deductible for tax purposes, and approximately $2,778 to other long-term liabilities. Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of June 30, 2023. The acquired capital software and customer relationships intangible asset have estimated amortization periods of seven to eight years and ten to fifteen years, respectively.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Pro Forma Results of Operations for Business Combinations during the nine months ended June 30, 2023

The following unaudited supplemental pro forma results of operations have been prepared as though each of the acquired businesses in the nine months ended June 30, 2023 had occurred on October 1, 2021. Pro forma adjustments were made to reflect the impact of depreciation and amortization, changes to executive compensation and the increased debt, all in accordance with ASC 805. This supplemental pro forma information does not purport to be indicative of the results of operations that would have been attained had the acquisitions been made on these dates, or of results of operations that may occur in the future.


	Nine months ended June 30,
	2023		2022
Revenue	$	275,206	$	249,808
Net loss	$	(6,145)	$	(17,477)

Business Combinations during the year ended September 30, 2022

During the year ended September 30, 2022, the Company completed the acquisitions of three businesses to expand the Company’s software offerings in the Public Sector and Healthcare vertical markets. Certain of the purchase price allocations assigned for these acquisitions are considered preliminary as of June 30, 2023.

Total purchase consideration was $107,681, including $101,400 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $6,281 of contingent consideration.

The goodwill associated with two of the three acquisitions is deductible for tax purposes. The acquired customer relationships intangible assets have estimated amortization periods of between ten and nineteen years. The trade names have estimated weighted-average amortization periods of four years. The weighted-average amortization period for all intangibles acquired is fifteen years. The acquired capitalized software have amortization periods of seven years.

Acquisition-related costs for these businesses amounted to approximately $773 and were expensed as incurred.

Certain provisions in the purchase agreements provide for additional consideration of up to $23,000, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreements, through no later than September 2024. The Company determined the acquisition date fair values of the liabilities for the contingent consideration based on probability forecasts and discounted cash flow analyses. In each subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liabilities to their fair values through earnings. See additional disclosures in Note 10.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Summary of Business Combinations during the year ended September 30, 2022

The fair values assigned to certain assets and liabilities assumed, as of the acquisition dates, during the year ended September 30, 2022 were as follows:


Accounts receivable	$	651
Settlement assets	685
Prepaid expenses and other current assets	83
Property and equipment	190
Capitalized software	9,790
Acquired merchant relationships	41,090
Trade name	1,550
Goodwill	61,347
Operating lease right-of-use assets	263
Other assets	22
Total assets acquired	115,671

Accrued expenses and other current liabilities	287
Settlement obligations	685
Deferred revenue, current	30
Current portion of operating lease liabilities	82
Operating lease liabilities, less current portion	181
Other long-term liabilities	6,725
Net assets acquired	$	107,681

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

A summary of the Company's prepaid expenses and other current assets as of June 30, 2023 and September 30, 2022 is as follows:


	June 30,		September 30,
	2023		2022
Inventory	$	4,537	$	4,121
Prepaid licenses	7,813		5,743
Prepaid insurance	1,126		736
Notes receivable — current portion	5,106		4,930
Other current assets	1,475		3,915
Prepaid expenses and other current assets	$	20,057	$	19,445

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

5. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are as follows:


	Software and Services		Merchant Services		Other		Total
Balance at September 30, 2022	$	234,553	$	119,086	$	—	$	353,639
Goodwill attributable to preliminary purchase price adjustments and acquisitions during the nine months ended June 30, 2023	52,540		2,863		—		55,403
Balance at June 30, 2023	$	287,093	$	121,949	$	—	$	409,042

Intangible assets consisted of the following as of June 30, 2023:


	Cost		Accumulated Amortization		Carrying Value		Amortization Life and Method
Finite-lived intangible assets:
Merchant relationships	$	310,501	$	(93,806)	$	216,695	9 to 25 years – accelerated or straight-line
Non-compete agreements	1,390		(1,040)		350		3 to 6 years – straight-line
Website and brand development costs	267		(210)		57		3 to 4 years – straight-line
Trade names	8,471		(5,293)		3,178		3 to 7 years – straight-line
Residual buyouts	6,632		(2,745)		3,887		8 years – straight-line
Referral and exclusivity agreements	1,220		(842)		378		5 years – straight-line
Total finite-lived intangible assets	328,481		(103,936)		224,545

Indefinite-lived intangible assets:
Trademarks	43		—		43
Total identifiable intangible assets	$	328,524	$	(103,936)	$	224,588

Amortization expense for intangible assets amounted to $15,315 and $13,303 during the nine months ended June 30, 2023 and 2022 respectively.

Based on net carrying amounts at June 30, 2023, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:


2023 (three months remaining)	$	5,066
2024	19,558
2025	19,266
2026	18,794
2027	18,174
Thereafter	143,687
	$	224,545

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

6. ACCRUED EXPENSES AND OTHER LIABILITIES

A summary of the Company's accrued expenses and other current liabilities as of June 30, 2023 and September 30, 2022 is as follows is as follows:


	June 30,		September 30,
	2023		2022
Accrued wages, bonuses, commissions and vacation	$	10,136	$	8,117
Accrued interest	1,545		642
Accrued contingent consideration — current portion	16,680		21,385
Escrow liabilities	3,915		12,285
Tax receivable agreement liability — current portion	21		20
Customer deposits	1,473		1,575
Employee health self-insurance liability	638		732
Accrued interchange	1,299		2,096
Other current liabilities	10,798		10,981
Accrued expenses and other current liabilities	$	46,505	$	57,833

A summary of the Company's long-term liabilities as of June 30, 2023 and September 30, 2022 is as follows:


	June 30,		September 30,
	2023		2022
Accrued contingent consideration — long-term portion	$	1,176	$	1,448
Deferred tax liability — long-term	22,687		7,896
Other long-term liabilities	288		196
Total other long-term liabilities	$	24,151	$	9,540

7. LONG-TERM DEBT, NET

A summary of long-term debt, net as of June 30, 2023 and September 30, 2022 is as follows:


		June 30,		September 30,
	Maturity	2023		2022
Revolving lines of credit to banks under the 2023 Senior Secured Credit Facility	May 8, 2028	$	277,400	$	—
Revolving lines of credit to banks under the Prior Senior Secured Credit Facility	May 9, 2024	—		185,017
1% Exchangeable Senior Notes due 2025	February 15, 2025	117,000		104,557
Debt issuance costs, net		(4,831)		(2,554)
Total long-term debt, net of issuance costs		$	389,569	$	287,020

2020 Exchangeable Notes Offering

On February 18, 2020, i3 Verticals, LLC issued $138,000 aggregate principal amount of 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Company

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

received approximately $132,762 in net proceeds from the sale of the Exchangeable Notes, as determined by deducting estimated offering expenses paid to third-parties from the aggregate principal amount.

On October 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method, which resulted in the Exchangeable Notes being presented as a single liability instrument with no separate accounting for embedded conversion features. Refer to Note 2 for further discussion.

The Exchangeable Notes bear interest at a fixed rate of 1.00% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. The Exchangeable Notes will mature on February 15, 2025, unless converted or repurchased at an earlier date.

i3 Verticals, LLC issued the Exchangeable Notes pursuant to an Indenture, dated as of February 18, 2020, among i3 Verticals, LLC, the Company and U.S. Bank National Association, as trustee.

As of June 30, 2023, the aggregate principal amount outstanding of the Exchangeable Notes was $117,000.

For a discussion of the terms of the Exchangeable Notes, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and nine months ended June 30, 2023 was $241 and $701, respectively $169 and $492 for the three and nine months ended June 30, 2022, respectively. Total unamortized debt issuance costs related to the Exchangeable Notes were $1,749 as of June 30, 2023.

The estimated fair value of the Exchangeable Notes was $108,206 as of June 30, 2023. The estimated fair value of the Exchangeable Notes was determined through consideration of quoted market prices for similar instruments. The fair value is classified as Level 2, as defined in Note 10.

Exchangeable Note Hedge Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, i3 Verticals, LLC entered into exchangeable note hedge transactions with respect to Class A common stock (the “Note Hedge Transactions”) with certain financial institutions (collectively, the “Counterparties”). The Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes, the same number of shares of Class A common stock that initially underlie the Exchangeable Notes in the aggregate and are exercisable upon exchange of the Exchangeable Notes. The Note Hedge Transactions are intended to reduce potential dilution to the Class A common stock upon any exchange of the Exchangeable Notes. The Note Hedge Transactions will expire upon the maturity of the Exchangeable Notes, if not earlier exercised. The Note Hedge Transactions are separate transactions, entered into by i3 Verticals, LLC with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Note Hedge Transactions. i3 Verticals, LLC used approximately $28,676 of the net proceeds from the offering of the Exchangeable Notes (net of the premiums received for the warrant transactions described below) to pay the cost of the Note Hedge Transactions.

The Note Hedge Transactions do not require separate accounting as a derivative as they meet a scope exception for certain contracts involving an entity's own equity. The premiums paid for the Note Hedge Transactions have been included as a net reduction to additional paid-in capital within stockholders' equity.

Warrant Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, the Company entered into warrant transactions to sell to the Counterparties warrants (the “Warrants”) to acquire,

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

subject to customary adjustments, up to initially 3,376,391 shares of Class A common stock in the aggregate at an initial exercise price of $62.88 per share. The Company offered and sold the Warrants in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Warrants will expire over a period beginning on May 15, 2025.

The Warrants are separate transactions, entered into by the Company with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Warrants. The Company received approximately $14,669 from the offering and sale of the Warrants. The Warrants do not require separate accounting as a derivative as they meet a scope exception for certain contracts involving an entity's own equity. The premiums paid for the Warrants have been included as a net increase to additional paid-in capital within stockholders' equity.

2023 Senior Secured Revolving Credit Facility

On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (the “2023 Credit Agreement”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”). The 2023 Credit Agreement replaces the Prior Senior Secured Credit Facility (as defined below). The 2023 Credit Agreement provides for aggregate commitments of $450 million in the form of a senior secured revolving credit facility (the “Revolver”).

The 2023 Credit Agreement provides that the Borrower has the right to seek additional commitments to provide additional term loan facilities or additional revolving credit commitments in an aggregate principal amount up to, as of any date of determination, the sum of (i) the greater of $100 million and 100% of the Borrower’s consolidated EBITDA (as defined in the 2023 Credit Agreement) for the most recently completed four quarter period, plus (ii) the amount of certain prepayments of certain indebtedness, so long as, among other things, after giving pro forma effect to the incurrence of such additional borrowings and any related transactions, the Borrower’s consolidated interest coverage ratio (as defined in the 2023 Credit Agreement) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement) would not exceed 5.0 to 1.0. As of June 30, 2023, the Borrower's consolidated interest coverage ratio was 4.31x and total leverage ratio was 4.00x.

The provision of any such additional amounts under the additional term loan facilities or additional revolving credit commitments are subject to certain additional conditions and the receipt of certain additional commitments by existing or additional lenders. The lenders under the 2023 Credit Agreement are not under any obligation to provide any such additional term loan facilities or revolving credit commitments.

The proceeds of the Revolver, together with proceeds from any additional amounts under the additional term loan facilities or additional revolving credit commitments, may only be used by the Borrower to (i) finance working capital, capital expenditures and other lawful corporate purposes, (ii) finance permitted acquisitions (as defined in the 2023 Credit Agreement) and (iii) to refinance certain existing indebtedness.

Borrowings under the Revolver will be made, at the Borrower’s option, at the Adjusted Term SOFR rate or the base rate, plus, in each case, an applicable margin.

The Adjusted Term SOFR rate will be the rate of interest per annum equal to the Term SOFR rate (based upon an interest period of one, three or six months), plus 0.10%, plus an applicable margin of 2.00% to 3.00% (3.00% at June 30, 2023). The Adjusted Term SOFR rate shall not be less than 0% in any event.

The base rate is a fluctuating rate of interest per annum equal to the highest of (a) the greater of the federal funds rate or the overnight bank funding rate, plus ½ of 1%, (b) Wall Street Journal prime rate and (c) the Adjusted Term SOFR rate for an interest period of one month, plus 1%, plus an applicable margin of 1.00% to 2.00% (2.00% at June 30, 2023). The base rate shall not be less than 1% in any event.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The applicable margin is based upon the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Credit Agreement), as reflected in the schedule below:


Consolidated Total Net Leverage Ratio	Commitment Fee		Letter of Credit Fee		Term Benchmark Loans		Base Rate Loans
> 3.0 to 1.0	0.30	%	3.00	%	3.00	%	2.00	%
> 2.5 to 1.0 but < 3.00 to 1.0	0.25	%	2.50	%	2.50	%	1.50	%
> 2.0 to 1.0 but < 2.50 to 1.0	0.20	%	2.25	%	2.25	%	1.25	%
< 2.0 to 1.0	0.15	%	2.00	%	2.00	%	1.00	%

In addition to paying interest on outstanding principal under the Revolver, the Borrower will be required to pay a commitment fee equal to the product of between 0.15% and