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

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-38532
i3 Verticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware82-4052852
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
40 Burton Hills Blvd., Suite 415
Nashville, TN
37215
(Address of principal executive offices)(Zip Code)
(615) 465-4487
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.0001 Par ValueIIIVNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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 May 9, 2024, there were 23,419,645 outstanding shares of Class A common stock, $0.0001 par value per share, and 10,052,676 outstanding shares of Class B common stock, $0.0001 par value per share.



TABLE OF CONTENTS
Page

2


PART I. - FINANCIAL INFORMATION
Item 1.    Financial Statements

3

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

March 31,September 30,
20242023
(unaudited)
Assets
Current assets
Cash and cash equivalents$3,139 $3,112 
Accounts receivable, net66,539 65,110 
Settlement assets1,586 4,873 
Prepaid expenses and other current assets15,802 12,449 
Total current assets87,066 85,544 
Property and equipment, net11,002 12,308 
Restricted cash2,568 4,415 
Capitalized software, net61,345 62,577 
Goodwill410,772 409,563 
Intangible assets, net221,145 226,952 
Deferred tax asset51,591 52,514 
Operating lease right-of-use assets12,806 13,922 
Other assets7,247 13,698 
Total assets$865,542 $881,493 
Liabilities and equity
Liabilities
Current liabilities
Accounts payable$11,996 $11,064 
Current portion of long-term debt26,223  
Accrued expenses and other current liabilities26,854 37,740 
Settlement obligations1,586 4,873 
Deferred revenue36,931 35,275 
Current portion of operating lease liabilities4,421 4,509 
Total current liabilities108,011 93,461 
Long-term debt, less current portion and debt issuance costs, net343,392 385,081 
Long-term tax receivable agreement obligations40,323 40,079 
Operating lease liabilities, less current portion9,362 10,433 
Other long-term liabilities18,354 24,143 
Total liabilities519,442 553,197 
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 March 31, 2024 and September 30, 2023
  
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 23,416,518 and 23,253,272 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively
2 2 
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,052,676 and 10,093,394 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively
1 1 
Additional paid-in capital259,242 249,688 
Accumulated deficit(9,968)(12,944)
Total stockholders' equity249,277 236,747 
Non-controlling interest96,823 91,549 
Total equity346,100 328,296 
Total liabilities and equity$865,542 $881,493 

See Notes to the Interim Condensed Consolidated Financial Statements
4

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

Three months ended March 31,Six months ended March 31, 2024
2024202320242023
Revenue$94,542 $93,872 $186,532 $179,901 
Operating expenses
Other costs of services21,180 19,930 41,604 38,999 
Selling, general and administrative54,162 57,204 107,694 108,207 
Depreciation and amortization10,069 9,015 19,808 17,691 
Change in fair value of contingent consideration(290)2,279 (527)3,722 
Total operating expenses85,121 88,428 168,579 168,619 
Income from operations9,421 5,444 17,953 11,282 
Other expenses (income)
Interest expense, net7,750 6,199 14,457 11,689 
Other income(2,257) (2,150)(203)
Total other expenses5,493 6,199 12,307 11,486 
Income (loss) before income taxes3,928 (755)5,646 (204)
Provision for (benefit from) income taxes580 (563)762 (181)
Net income (loss)3,348 (192)4,884 (23)
Net income (loss) attributable to non-controlling interest1,470 (228)1,908 181 
Net income (loss) attributable to i3 Verticals, Inc.$1,878 $36 $2,976 $(204)
Net income (loss) per share attributable to Class A common stockholders:
Basic$0.08 $0.00 $0.13 $(0.01)
Diluted$0.08 $0.00 $0.13 $(0.01)
Weighted average shares of Class A common stock outstanding:
Basic23,331,239 23,135,898 23,299,214 23,066,499 
Diluted23,718,474 34,269,140 23,726,720 23,066,499 

See Notes to the Interim Condensed Consolidated Financial Statements
5

i3 Verticals, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(In thousands, except share amounts)
Class A Common StockClass B Common StockAdditional Paid-In CapitalRetained Earnings (Deficit)Non-Controlling InterestTotal Equity
SharesAmountSharesAmount
Balance at September 30, 202323,253,272 $2 10,093,394 $1 $249,688 $(12,944)$91,549 $328,296 
Equity-based compensation— — — — 6,508 — — 6,508 
Net income— — — — — 1,098 438 1,536 
Exercise of equity-based awards25,898 — — — (10)— — (10)
Sale of exchangeable note hedges— — — — 1,483 — — 1,483 
Repurchases of warrants— — — — (657)— — (657)
Allocation of equity to non-controlling interests— — — — (2,450)— 2,450  
Balance at December 31, 202323,279,170 2 10,093,394 1 254,562 (11,846)94,437 337,156 
Equity-based compensation— — — — 5,777 — — 5,777 
Net income— — — — — 1,878 1,470 3,348 
Redemption of common units in i3 Verticals, LLC40,718 — (40,718)— 384 — (384) 
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis— — — — 42 — — 42 
Exercise or release of equity-based awards96,630 — — — (223)— — (223)
Allocation of equity to non-controlling interests— — — — (1,300)— 1,300  
Balance at March 31, 202423,416,518 $2 10,052,676 $1 $259,242 $(9,968)$96,823 $346,100 

See Notes to the Interim Condensed Consolidated Financial Statements
6

i3 Verticals, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (CONTINUED)
(In thousands, except share amounts)
Class A Common StockClass B Common StockAdditional Paid-In CapitalRetained Earnings (Deficit)Non-Controlling InterestTotal Equity
SharesAmountSharesAmount
Balance at September 30, 202222,986,448 $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 awards24,745 — — — 3 — — 3 
Allocation of equity to non-controlling interests— — — — 1,906 — (1,906) 
Balance at December 31, 202223,011,193 2 10,118,142 1 228,016 (12,373)87,812 303,458 
Equity-based compensation— — — — 6,802 — — 6,802 
Net loss— — — — — 36 (228)(192)
Redemption of common units in i3 Verticals, LLC9,924 — (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 of equity-based awards64,443 — — — (606)— — (606)
Allocation of equity to non-controlling interests— — — — (2,205)— 2,205  
Issuance of Class A common stock under the 2020 Inducement Plan82,170 — — — 2,000 — — 2,000 
Balance at March 31, 202323,167,730 $2 10,108,218 $1 $234,442 $(12,337)$89,703 $311,811 

See Notes to the Interim Condensed Consolidated Financial Statements
7

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


Six months ended March 31,
2024
2023
Cash flows from operating activities:
Net income (loss)$4,884 $(23)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization19,808 17,691 
Equity-based compensation12,285 13,648 
Amortization of debt issuance costs676 729 
Gain on repurchase of exchangeable notes(2,397) 
Loss on sale of exchangeable senior note hedges245  
Gain on repurchases of warrants(105) 
Provision for (benefit from) income taxes(1,238)(208)
Non-cash lease expense2,349 2,289 
Changes in non-cash contingent consideration expense from original estimate(527)3,722 
Other non-cash adjustments to net income668 909 
Changes in operating assets:
Accounts receivable5,517 6,497 
Prepaid expenses and other current assets(3,385)(1,860)
Other assets(802)(710)
Changes in operating liabilities:
Accounts payable896 (1,484)
Accrued expenses and other current liabilities(8,621)(5,009)
Acquisition escrow obligations(1,848)(1,564)
Deferred revenue2,257 (2,628)
Operating lease liabilities(2,364)(2,234)
Other long-term liabilities2  
Contingent consideration paid in excess of original estimates(3,153)(3,881)
Net cash provided by operating activities25,147 25,884 
Cash flows from investing activities:
Expenditures for property and equipment(1,537)(2,322)
Proceeds from sale of property and equipment618  
Expenditures for capitalized software(6,106)(5,381)
Purchases of merchant portfolios and residual buyouts(4,214)(387)
Acquisitions of businesses, net of cash and restricted cash acquired(1,100)(101,997)
Payments for other investing activities(34)(1,227)
Proceeds from other investing activities4 184 
Net cash used in investing activities(12,369)(111,130)
See Notes to the Interim Condensed Consolidated Financial Statements
8

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

Six months ended March 31,
2024
2023
Cash flows from financing activities:
Proceeds from revolving credit facility206,419 265,811 
Payments on revolving credit facility(132,710)(179,939)
Payments for repurchase of exchangeable notes(87,840) 
Proceeds from sale of exchangeable senior note hedges1,238  
Payments for repurchases of warrants(552) 
Payments of debt issuance costs (87)
Net payments for settlement obligations(1)
(3,287)(355)
Cash paid for contingent consideration(760)(1,175)
Payments for required distributions to members for tax obligations(189) 
Proceeds from stock option exercises 104 
Payments for employee's tax withholdings from net settled stock option exercises and RSU releases(204)(545)
Net cash (used in) provided by financing activities(17,885)83,814 
Net decrease in cash, cash equivalents and restricted cash(5,107)(1,432)
Cash, cash equivalents and restricted cash at beginning of period12,400 23,765 
Cash, cash equivalents and restricted cash at end of period$7,293 $22,333 
Supplemental disclosure of cash flow information:
Cash paid for interest$14,107 $10,266 
Cash paid for income taxes$5,376 $1,419 
_________________________________________
1.Refer to Note 2 for discussion of the change in the current period presentation.
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,
20232022
Beginning balance
Cash and cash equivalents$3,112 $3,490 
Settlement assets4,873 7,540 
Restricted cash4,415 12,735 
Total cash, cash equivalents, and restricted cash$12,400 $23,765 
March 31,
20242023
Ending balance
Cash and cash equivalents$3,139 $3,977 
Settlement assets1,586 7,185 
Restricted cash2,568 11,171 
Total cash, cash equivalents, and restricted cash$7,293 $22,333 
See Notes to the Interim Condensed Consolidated Financial Statements
9


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 March 31, 2024 and for the three and six months ended March 31, 2024 and 2023. The results of operations for the three and six months ended March 31, 2024 and 2023 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, 2023 and 2022, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 filed with the SEC on November 22, 2023.
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.
10


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 $1,586 as of March 31, 2024 and $4,873 as of September 30, 2023, respectively.
Reclassifications
Certain prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no impact on the Company’s previously reported consolidated net income (loss).
Change in presentation
During the second quarter of 2024, the Company elected to change its presentation of cash flows associated with "Settlement obligations" from operating activities to financing actives within the Condensed Consolidated Statements of Cash Flows. Comparative amounts have been reclassified to conform to the current period presentation. This change has no impact on the Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations or Condensed Consolidated Statement of Changes in Equity.
The following tables present the effects of the change in presentation within the Condensed Consolidated Statements of Cash Flows:
For the Six Months Ended March 31, 2024
As Previously ReportedAdjustmentAs Adjusted
Cash flows from operating activities:
Settlement obligations(3,287)3,287  
Net cash provided by operating activities21,860 3,287 25,147 
Cash flows from financing activities:
Net payments for settlement obligations (3,287)(3,287)
Net cash used in financing activities(14,598)(3,287)(17,885)
11


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
For the Six Months Ended March 31, 2023
As Previously ReportedAdjustmentAs Adjusted
Cash flows from operating activities:
Settlement obligations(355)355  
Net cash provided by operating activities25,529 355 25,884 
Cash flows from financing activities:
Net payments for settlement obligations (355)(355)
Net cash provided by (used in) financing activities84,169 (355)83,814 
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 $3,978 and $4,138 at March 31, 2024 and September 30, 2023, 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.
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 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
12


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
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's revenue for the six months ended March 31, 2024 and 2023 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.
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.
13


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
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, for the six months ended March 31, 2024 and 2023.
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 at the time 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 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 Companys 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.
14


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
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 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 March 31, 2024
Software and ServicesMerchant ServicesOtherTotal
Software and related services revenue$42,130 $3,537 $(10)$45,657 
Payments revenue14,855 29,585 (6)44,434 
Other revenue2,498 1,953  4,451 
Total revenue$59,483 $35,075 $(16)$94,542 
For the Three Months Ended March 31, 2023
Software and ServicesMerchant ServicesOtherTotal
Software and related services revenue$44,099 $3,217 $(9)$47,307 
Payments revenue14,285 27,634 (10)41,909 
Other revenue2,413 2,243  4,656 
Total revenue$60,797 $33,094 $(19)$93,872 

For the Six Months Ended March 31, 2024
Software and ServicesMerchant ServicesOtherTotal
Software and related services revenue$82,462 $6,839 $(22)$89,279 
Payments revenue28,837 59,607 (15)88,429 
Other revenue4,773 4,051  8,824 
Total revenue$116,072 $70,497 $(37)$186,532 

For the Six Months Ended March 31, 2023
Software and ServicesMerchant ServicesOtherTotal
Software and related services revenue$82,244 $6,196 $(19)$88,421 
Payments revenue27,038 55,243 (18)82,263 
Other revenue4,728 4,489  9,217 
Total revenue$114,010 $65,928 $(37)$179,901 


15


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
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. 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 March 31, 2024
Software and ServicesMerchant ServicesOtherTotal
Revenue earned over time$55,361 $30,095 $(10)$85,446 
Revenue earned at a point in time4,122 4,980 (6)9,096 
Total revenue$59,483 $35,075 $(16)$94,542 
For the Three Months Ended March 31, 2023
Software and ServicesMerchant ServicesOtherTotal
Revenue earned over time$54,568 $27,984 $(9)$82,543 
Revenue earned at a point in time6,229 5,110 (10)11,329 
Total revenue$60,797 $33,094 $(19)$93,872 

For the Six Months Ended March 31, 2024
Software and ServicesMerchant ServicesOtherTotal
Revenue earned over time$109,715 $60,176 $(22)$169,869 
Revenue earned at a point in time6,357 10,321 (15)16,663 
Total revenue$116,072 $70,497 $(37)$186,532 

For the Six Months Ended March 31, 2023
Software and ServicesMerchant ServicesOtherTotal
Revenue earned over time$105,009 $55,581 $(19)$160,571 
Revenue earned at a point in time9,001 10,347 (18)19,330 
Total revenue$114,010 $65,928 $(37)$179,901 

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. Additionally, contract assets also include software licenses sold as a right to use license but paid for under a subscription model. Under this structure, the license revenue is recognized upfront while a portion of the revenue is unbilled. Unbilled amounts
16


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
associated with these services are presented as accounts receivable as the Company has an unconditional right to payment for services performed.
As of March 31, 2024 and September 30, 2023, the Company’s contract assets from contracts with customers was $11,478 and $15,131, 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.
The following tables present the changes in deferred revenue as of and for the six months ended March 31, 2024 and 2023, respectively:
Balance at September 30, 2023
$35,444 
Deferral of revenue19,793 
Recognition of unearned revenue(15,664)
Balance at December 31, 2023
39,573 
Deferral of revenue11,759 
Recognition of unearned revenue(13,596)
Balance at March 31, 2024
$37,736 
Balance at September 30, 2022
$32,089 
Deferral of revenue19,334 
Recognition of unearned revenue(13,925)
Balance at December 31, 2022
37,498 
Deferral of revenue10,475 
Recognition of unearned revenue(14,286)
Balance at March 31, 2023
$33,687 

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 March 31, 2024 and September 30, 2023, the Company had $5,417 and $4,966, 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 $241 and $470 for the three and six months ended March 31, 2024, respectively and $193 and $376 for the three and six months ended March 31, 2023.
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.
17


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 and software 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. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 will provide improvements to the income tax disclosures primarily related to the income taxes paid and rate reconciliation, and how legislation changes may affect future capital allocation and cash flow forecasts. The amendment will improve the consistency in which companies provide tax information, and will further increase the transparency of related tax risks and operational opportunities. The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company will not be required to adopt ASU 2023-09 until October 1, 2025. The Company is currently evaluating the impact of the adoption of ASU 2023-09 on the Company’s financial statement disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 improves interim disclosure requirements for segment reporting, including clarifications regarding the measure of profit and loss used to asses segment performance and the allocation of resources. Further, it enhances the disclosures for reporting segment expenses and will require the Company to report significant expenses regularly provided by the chief operating decision maker. The amendment will require companies to disclose a more granular level of information with regards to segment reporting to further enhance the transparency of what specified amounts are included within each segment. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will not be required to adopt ASU 2023-07 until October 1, 2024. The Company is currently evaluating the impact of the adoption of ASU 2023-07 on the Company’s financial statement disclosures.

18


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 six months ended March 31, 2024 and 2023, 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 six months ended March 31, 2024 and 2023, the Company purchased residuals for $4,466 and $387 of consideration, respectively. The purchases were funded with 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.
Referral Agreements
From time to time, the Company enters into referral agreements with agent banks (“Referral Partners”). 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 six months ended March 31, 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.
Business Combinations during the six months ended March 31, 2024
During the six months ended March 31, 2024 the Company completed the acquisition of a business to expand the Company’s software offerings. Total purchase consideration was $1,270, including $1,100 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $170 of contingent consideration.
In connection with this acquisition, the Company allocated approximately $5 to property and equipment, approximately $40 to capitalized software, approximately $220 to customer relationships and the remainder, approximately $1,005, to goodwill, all of which is deductible for tax purposes. Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of March 31, 2024. The acquired customer relationships intangible assets have an estimated amortization periods of ten years. The acquired capitalized software have amortization periods of seven years.
Acquisition-related costs for this acquisition amounted to approximately $8 and were expensed as incurred.
Business Combinations during the year ended September 30, 2023
Purchase of Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd.
During the six months ended March 31, 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.
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,
19


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
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 $1,782 and were expensed as incurred.
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$7,660 
Prepaid expenses and other current assets103 
Property and equipment5,233 
Capitalized software12,600 
Customer relationships33,800 
Non-compete agreements200 
Trade name600 
Goodwill43,899 
Total assets acquired104,095 
Accounts payable9 
Accrued expenses and other current liabilities3,182 
Deferred revenue, current2,741 
Other long-term liabilities13,162 
Net assets acquired$85,001 
Other Business Combinations during the year ended September 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 $159 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 $12,229, to goodwill, of which $2,864 is deductible for tax purposes, and approximately $2,178 to other long-term liabilities. Certain of the purchase price allocations assigned for one of these acquisitions is considered preliminary as of March 31, 2024. The acquired capital software and customer relationships intangible asset have estimated amortization periods of seven to eight years and ten to fifteen years, respectively.
20


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
A summary of the Company's prepaid expenses and other current assets as of March 31, 2024 and September 30, 2023 is as follows:
March 31,September 30,
20242023
Inventory$3,978 $4,138 
Prepaid licenses3,613 3,115 
Prepaid insurance929 697 
Notes receivable — current portion 4 
Other current assets7,282 4,495 
Prepaid expenses and other current assets$15,802 $12,449 

5. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill are as follows:
Software and ServicesMerchant ServicesOtherTotal
Balance at September 30, 2023
$287,613 $121,950 $ $409,563 
Goodwill attributable to preliminary purchase price adjustments and acquisitions during the six months ended March 31, 20241,209   1,209 
Balance at March 31, 2024$288,822 $121,950 $ $410,772 
Intangible assets consisted of the following as of March 31, 2024:
Cost
Accumulated
Amortization
Carrying
Value
Amortization Life and Method
Finite-lived intangible assets:
Merchant relationships$310,721 $(106,892)$203,829 
9 to 25 years – accelerated or straight-line
Non-compete agreements418 (267)151 
3 to 6 years – straight-line
Website and brand development costs103 (71)32 
3 to 4 years – straight-line
Trade names6,131 (3,908)2,223 
3 to 7 years – straight-line
Residual buyouts18,686 (4,134)14,552 
8 years – straight-line
Referral and exclusivity agreements420 (105)315 
5 years – straight-line
Total finite-lived intangible assets336,479 (115,377)221,102 
Indefinite-lived intangible assets:
Trademarks43 — 43 
Total identifiable intangible assets$336,522 $(115,377)$221,145 
Amortization expense for intangible assets amounted to $5,270 and $10,505 for the three and six months ended March 31, 2024, respectively, and $5,157 and $10,216 for the three and six months ended March 31, 2023, respectively.
21


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
Based on net carrying amounts at March 31, 2024, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:
2024 (six months remaining)$10,435 
202520,798 
202620,326 
202719,706 
202819,121 
Thereafter130,716 
$221,102 

6. ACCRUED EXPENSES AND OTHER LIABILITIES
A summary of the Company's accrued expenses and other current liabilities as of March 31, 2024 and September 30, 2023 is as follows is as follows:
March 31,September 30,
20242023
Accrued wages, bonuses, commissions and vacation$6,290 $8,713 
Accrued interest1,004 1,313 
Accrued contingent consideration — current portion3,868 6,825 
Escrow liabilities2,118 3,965 
Customer deposits1,061 1,258 
Employee health self-insurance liability1,058 1,014 
Accrued interchange2,066 2,191 
Other current liabilities9,389 12,461 
Accrued expenses and other current liabilities$26,854 $37,740 
A summary of the Company's long-term liabilities as of March 31, 2024 and September 30, 2023 is as follows:
March 31,September 30,
20242023
Accrued contingent consideration — long-term portion$101 $1,414 
Deferred tax liability — long-term17,125 19,646 
Other long-term liabilities1,128 3,083 
Total other long-term liabilities$18,354 $24,143 

22


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
7. LONG-TERM DEBT, NET
A summary of long-term debt, net as of March 31, 2024 and September 30, 2023 is as follows:
March 31,September 30,
Maturity20242023
Revolving lines of credit to banks under the 2023 Senior Secured Credit FacilityMay 8, 2028$346,214 $272,505 
1% Exchangeable Senior Notes due 2025
February 15, 202526,223 117,000 
Debt issuance costs, net(2,822)(4,424)
Total long-term debt, net of issuance costs369,615 385,081 
Less current portion of long-term debt(26,223) 
Long-term debt, net of current portion$343,392 $385,081 
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 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.
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.
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, 2023.
Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and six months ended March 31, 2024 was $104 and $359, respectively and $233 and $460 for the three and six months ended March 31, 2023. Total unamortized debt issuance costs related to the Exchangeable Notes were $216 and $1,501 as of March 31, 2024 and September 30, 2023, respectively.
During fiscal year 2020, we repurchased $21,000 in aggregate principal amount of Exchangeable Notes in open market purchases. In addition, on December 21, 2023, i3 Verticals, LLC entered into agreements to repurchase an additional portion of its Exchangeable Notes pursuant to privately negotiated transactions with a limited number of holders of the Exchangeable Notes (the "Exchangeable Note Repurchases"). The repurchase payments were determined by the Company’s average stock price over the 15 trading-day measurement period ending January 16, 2024. The closing of the Exchangeable Note Purchases occurred on January 18, 2024, and the Company paid $87,391 to repurchase $90,777 in aggregate principal amount of its Exchangeable Notes and to repay approximately $386 in accrued interest on the repurchased portion of the Exchangeable Notes. The Company wrote off $926 of debt issuance costs in connection with the repurchase transactions. These repurchases resulted in a decrease in the Company's total leverage ratio, and following the completion of the repurchases of these Exchangeable Notes, approximately $26,223 in aggregate principal amount of the Exchangeable Notes remained outstanding, with terms unchanged. The Company recorded a gain on retirement of debt of $2,397 due to the estimated acquisition price exceeding the net carrying amount of the repurchased
23


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
portion of the Exchangeable Notes, adjusted for unamortized debt issuance costs and costs and third-party fees related to the transaction.
As of March 31, 2024, the aggregate principal amount outstanding of the Exchangeable Notes was $26,223.
The estimated fair value of the Exchangeable Notes was $25,043 as of March 31, 2024. 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.
In December 2023, i3 Verticals, LLC received $250 from the Counterparties to terminate the portion of the Note Hedge Transactions corresponding to the Exchangeable Notes that were repurchased in fiscal year 2020. Also in December 2023, i3 Verticals, LLC entered into agreements with the Counterparties to terminate the portion of the Note Hedge Transactions corresponding to the Exchangeable Note Repurchases. On January 18, 2024, in connection with the Exchangeable Note Repurchases, the Company and i3 Verticals, LLC terminated the corresponding portions of the Note Hedge Transactions ("Note Hedge Unwinds"), and i3 Verticals, LLC received $987 for the sale of the Note Hedge Unwinds and recorded a loss on the sale of the Note Hedge Unwinds of $245.
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, 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
24


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
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.
In December 2023, the Company paid $119 to the Counterparties to terminate the portion of the Warrants corresponding to the Exchangeable Notes that were repurchased in fiscal year 2020. Also in December 2023, i3 Verticals, LLC entered into agreements with the Counterparties to terminate the portion of the Warrants corresponding to the Exchangeable Note Repurchases. On January 18, 2024, in connection with the Exchangeable Note Repurchases, the Company and i3 Verticals, LLC terminated the corresponding portions of the and Warrants ("Warrant Unwinds"), and the Company paid $433 for the repurchase of the Warrant Unwinds and recorded a gain on the repurchase of the Warrant Unwinds of $105.
2023 Senior Secured Revolving Credit Facility
On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (the “2023 Senior Secured Credit Facility”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”). The 2023 Senior Secured Credit Facility replaced the prior senior secured credit facility of the Company which was entered into on May 9, 2019 (the "Prior Senior Secured Credit Facility"). The 2023 Senior Secured Credit Facility provides for aggregate commitments of $450 million in the form of a senior secured revolving credit facility (the “Revolver”).

The 2023 Senior Secured Credit Facility 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 Senior Secured Credit Facility) 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 Senior Secured Credit Facility) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not exceed 5.0 to 1.0. As of March 31, 2024, the Borrower's consolidated interest coverage ratio was 4.1x and total leverage ratio was 3.5x.

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 Senior Secured Credit Facility 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 Senior Secured Credit Facility) 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 March 31, 2024). 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 March 31, 2024). The base rate shall not be less than 1% in any event.

25


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 Senior Secured Credit Facility), as reflected in the schedule below:
Consolidated Total Net Leverage RatioCommitment FeeLetter of Credit FeeTerm Benchmark LoansBase 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 0.30% (the applicable percentage depending on the Borrower’s consolidated total net leverage ratio as reflected in the schedule above, 0.30% at March 31, 2024) times the actual daily amount by which $450 million exceeds the total amount outstanding under the Revolver and available to be drawn under all outstanding letters of credit.

The Borrower will be permitted to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the 2023 Senior Secured Credit Facility, whether such amounts are issued under the Revolver or under the additional term loan facilities or additional revolving credit facilities, at any time without premium or penalty.

In addition, if the total amount borrowed under the Revolver exceeds $450 million at any time, the 2023 Senior Secured Credit Facility requires the Borrower to prepay such excess outstanding amounts.

All obligations under the 2023 Senior Secured Credit Facility are unconditionally guaranteed by the Company, and each of the Company’s existing and future direct and indirect material, wholly owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by first-priority security interests in substantially all tangible and intangible assets of the Borrower, the Company and each subsidiary guarantor, in each case whether owned on the date of the initial borrowings or thereafter acquired.

The 2023 Senior Secured Credit Facility places certain restrictions on the ability of the Borrower, the Company and their subsidiaries to, among other things, incur debt and liens; merge, consolidate or liquidate; dispose of assets; enter into hedging arrangements; make certain restricted payments; undertake transactions with affiliates; enter into sale-leaseback transactions; make certain investments; prepay or modify the terms of certain indebtedness; and modify the terms of certain organizational agreements.

The 2023 Senior Secured Credit Facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain events with respect to employee benefit plans, invalidity of loan documents and certain changes in control.
Debt issuance costs
The Company did not incur any debt issuance costs during the three and six months ended March 31, 2024, and incurred $265 in debt issuance costs during the six months ended March 31, 2023. During the three and six months ended March 31, 2024. the Company wrote off $926 of debt issuance costs in connection with the Exchangeable Note Repurchases. The Company's debt issuance costs are being amortized over the related term of the debt using the straight-line method, which is not materially different than the effective interest rate method, and are presented net against long-term debt in the condensed consolidated balance sheets. The amortization of deferred debt issuance costs is included in interest expense and amounted to approximately $262 and $676
26


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
during the three and six months ended March 31, 2024, respectively, and $368 and $729 during the three and six months ended March 31, 2023, respectively.

8. INCOME TAXES
i3 Verticals, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from i3 Verticals, LLC based on i3 Verticals, Inc.’s economic interest in i3 Verticals, LLC. i3 Verticals, LLC's members, including the Company, are liable for federal, state and local income taxes based on their share of i3 Verticals, LLC's pass-through taxable income. i3 Verticals, LLC is not a taxable entity for federal income tax purposes but is subject to and reports entity level tax in both Tennessee and Texas. In addition, certain subsidiaries of i3 Verticals, LLC are corporations that are subject to state and federal income taxes.
The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. When the estimate of the annual effective tax rate is unreliable, the Company records its income tax expense or benefit based up on a period to date effective tax rate. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the Company’s estimated tax rate changes, it makes a cumulative adjustment in that period. The Company’s provision for income taxes was a provision of $580 and $762 for the three and six months ended March 31, 2024, respectively and a benefit of $563 and $181 during the three and six months ended March 31, 2023, respectively.
Tax Receivable Agreement
On June 25, 2018, the Company entered into a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners (the “Tax Receivable Agreement”) that provides for the payment by the Company to the Continuing Equity Owners of 85% of the amount of certain tax benefits, if any, that it actually realizes, or in some circumstances, is deemed to realize in its tax reporting, as a result of (i) future redemptions funded by the Company or exchanges, or deemed exchanges in certain circumstances, of Common Units of i3 Verticals, LLC for Class A common stock of i3 Verticals, Inc. or cash, and (ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement. These tax benefit payments are not conditioned upon one or more of the Continuing Equity Owners maintaining a continued ownership interest in i3 Verticals, LLC. If a Continuing Equity Owner transfers Common Units but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such Continuing Equity Owner generally will continue to be entitled to receive payments under the Tax Receivable Agreement arising in respect of a subsequent exchange of such Common Units. In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged or otherwise alienated to any person, other than certain permitted transferees, without (a) the Company's prior written consent, which should not be unreasonably withheld, conditioned or delayed, and (b) such persons becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein. The Company expects to benefit from the remaining 15% of the tax benefits, if any, that the Company may realize.
During the six months ended March 31, 2024, the Company acquired an aggregate of 40,718 Common Units in i3 Verticals, LLC in connection with the redemption of Common Units from the Continuing Equity Owners. which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement. As a result of the exchange, during the six months ended March 31, 2024, the Company recognized an increase to its net deferred tax assets in the amount of $286, and corresponding Tax Receivable Agreement liabilities of $243, representing 85% of the tax benefits due to Continuing Equity Owners.
The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $38,009 and $40,323, respectively, as of March 31, 2024.
27


i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
Payments to the Continuing Equity Owners related to exchanges through March 31, 2024 will range from $0 to $3,256 per year and are expected to be paid over the next 24 years. The amounts recorded as of March 31, 2024, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.

9. LEASES
The Company’s leases consist primarily of real estate leases throughout the markets in which the Company operates. 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. The Company had no finance leases as of March 31, 2024. 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 weighted-average remaining lease term at March 31, 2024 and 2023 was two years and four years, respectively. The Company had no significant short-term leases during the three and six months ended March 31, 2024 and 2023.
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 rates were determined based on a portfolio approach considering the Company’s current secured borrowing rate adjusted for market conditions and the length of the lease term. The weighted-average discount rate used in the measurement of our lease liabilities was 7.4% and 7.3% as of March 31, 2024 and 2023, respectively.
Operating lease cost is recognized on a straight-line basis over the lease term. Operating lease costs were $1,318 and $2,651 for the three and six months ended March 31, 2024, respectively, and $1,405 and $2,909 for the three and six months ended March 31, 2023, respectively, which are included in selling, general and administrative expenses in the condensed consolidated statements of operations.
Total operating lease costs include variable lease costs of approximately $39 and $49, for the three and six months ended March 31, 2024, respectively, and $9 and $20 for the three and six months ended March 31, 2023, respectively, which are primarily comprised of costs of maintenance and utilities and changes in rates, and are determined based on the actual costs incurred during the period. Variable payments are expensed in the period incurred and not included in the measurement of lease assets and liabilities.
Short-term rent expense was $41 and $86 for the three and six months ended March 31, 2024, respectively, and $75 and $110 for the three and six months ended March 31, 2023, respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of operations.
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i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
As of March 31, 2024, maturities of lease liabilities are as follows:
Fiscal Years ending September 30:
2024 (six months remaining)$2,598 
20254,984 
20263,874 
20271,668 
2028755 
Thereafter1,261 
Total future minimum lease payments (undiscounted)(1)
15,140 
Less: present value discount(1,357)
Present value of lease liability$13,783 
__________________________
1.Total future minimum lease payments excludes payments of $39 for leases designated as short-term leases, which are excluded from the Company's right-of-use assets. These payments will be made within the next twelve months.

10. FAIR VALUE MEASUREMENTS
The Company applies the provisions of ASC 820, Fair Value Measurement, which defines fair value, establishes a framework for its measurement and expands disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or the price paid to transfer a liability as of the measurement date. A three-tier, fair-value reporting hierarchy exists for disclosure of fair value measurements based on the observability of the inputs to the valuation of financial assets and liabilities. The three levels are:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets.
The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of March 31, 2024 and 2023, because of the relatively short maturity dates on these instruments. The carrying amount of debt approximates fair value as of March 31, 2024 and 2023, because interest rates on these instruments approximate market interest rates.
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i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
The Company has no Level 1 or Level 2 financial instruments measured at fair value on a recurring basis. The following tables present the changes in the Company's Level 3 financial instruments that are measured at fair value on a recurring basis.
Accrued Contingent Consideration
Balance at September 30, 2023$8,239 
Contingent consideration accrued at time of business combination170 
Change in fair value of contingent consideration included in Operating expenses(527)
Contingent consideration paid(3,913)
Balance at March 31, 2024$3,969 
Accrued Contingent Consideration
Balance at September 30, 2022$22,833 
Contingent consideration accrued at time of business combination760 
Change in fair value of contingent consideration included in Operating expenses3,722 
Contingent consideration paid(5,056)
Balance at March 31, 2023$22,259 
The fair value of contingent consideration obligations includes inputs not observable in the market and thus represents a Level 3 measurement. The amount to be paid under these obligations is contingent upon the achievement of certain growth metrics related to the financial performance of the entities subsequent to acquisition. The fair value of material contingent consideration included in an acquisition is calculated using a Monte Carlo simulation. The contingent consideration is revalued each period until it is settled. Management reviews the historical and projected performance of each acquisition with contingent consideration and uses an income probability method to revalue the contingent consideration. The revaluation requires management to make certain assumptions and represent management's best estimate at the valuation date. The probabilities are determined based on a management review of the expected likelihood of triggering events that would cause a change in the contingent consideration paid. The Company develops the projected future financial results based on an analysis of historical results, market conditions, and the expected impact of anticipated changes in the Company's overall business and/or product strategies.
Approximately $3,868 and $6,825 of contingent consideration was recorded in accrued expenses and other current liabilities as of March 31, 2024 and September 30, 2023, respectively. Approximately $101 and $1,414 of contingent consideration was recorded in other long-term liabilities as of March 31, 2024 and September 30, 2023, respectively.
Disclosure of Fair Values
The Company's financial instruments that are not remeasured at fair value include the Exchangeable Notes (see Note 7). The Company estimates the fair value of the Exchangeable Notes through consideration of quoted market prices of similar instruments, classified as Level 2 as described above. The estimated fair value of the Exchangeable Notes was $25,043 as of March 31, 2024.

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i3 VERTICALS, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except unit, share and per share amounts)
11. EQUITY-BASED COMPENSATION
A summary of equity-based compensation expense recognized during the three and six months ended March 31, 2024 and 2023 is as follows:
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
Stock options$4,554 $5,992 $9,523 $12,280 
Restricted stock units1,223 810 2,762 1,368 
Equity-based compensation expense$5,777 $6,802 $12,285 $13,648 
Amounts are included in general and administrative expense on the condensed consolidated statements of operations. Current and deferred income tax benefits of $927