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Form 8-K i3 Verticals, Inc. For: Aug 08

August 8, 2022 4:14 PM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549  
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 8, 2022 (August 8, 2022) 
 
 
iiiv-20220808_g1.jpg
i3 Verticals, Inc.
(Exact name of registrant as specified in its charter)  
 

 
Delaware
001-38532
82-4052852
(State or Other Jurisdiction
of Incorporation)
(Commission
File Number)
(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)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e- 4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each 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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company.  

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




As provided in General Instruction B.2 of Form 8-K, the information contained in this Current Report on Form 8-K (including the exhibits hereto) shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 2.02.    Results of Operations and Financial Condition.
On August 8, 2022, i3 Verticals, Inc. (the “Company”) issued a press release announcing the results of its operations for the three and nine months ended June 30, 2022. A copy of the press release is furnished as Exhibit 99.1 hereto and is hereby incorporated by reference into this Item 2.02.
Item 7.01.    Regulation FD Disclosure.
The Company has also prepared a supplemental presentation (the “Supplemental Presentation”) providing certain supplemental financial information for the three and nine months ended June 30, 2022. A copy of the Supplemental Presentation is furnished as Exhibit 99.2 hereto and is hereby incorporated by reference into this Item 7.01. A copy of the Supplemental Presentation is also available on the Investors section of the Company’s website, www.i3verticals.com.
Item 9.01.     Financial Statements and Exhibits.

(d) Exhibits:
Exhibit No.Description
104Cover Page Interactive Date File (embedded within the Inline XBRL document).





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 8, 2022

i3 VERTICALS, INC.
By:
/s/ Clay Whitson
Name:
Clay Whitson
Title:
Chief Financial Officer


i3v_primaryxdarka.jpg

i3 VERTICALS REPORTS THIRD QUARTER 2022 FINANCIAL RESULTS
Third Quarter Revenue Grows 27.6%; Annualized Recurring Revenue2 Grows 30.2%


NASHVILLE, Tenn. (August 8, 2022) – i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal third quarter ended June 30, 2022.
Highlights for the fiscal third quarter ended June 30, 2022 vs. 2021
Third quarter revenue was $80.6 million, an increase of 27.6% over the prior year's third quarter. Revenue for the nine months ended June 30, 2022, was $232.6 million, an increase of 48.2% over the prior year's first nine months.
Third quarter net loss was $4.7 million, compared to net loss of $4.2 million in the prior year's third quarter. Net loss for the nine months ended June 30, 2022, was $18.8 million, compared to a net loss of $5.9 million in the prior year's first nine months.
Third quarter net loss attributable to i3 Verticals, Inc. was $3.7 million. Net loss attributable to i3 Verticals, Inc. for the nine months ended June 30, 2022, was $13.6 million.
Adjusted EBITDA1 was $20.1 million, an increase of 29.1% over the prior year's third quarter. Adjusted EBITDA1 for the nine months ended June 30, 2022, was $57.8 million, an increase of 50.7% over the prior year's first nine months.
Adjusted EBITDA1 as a percentage of revenue was 24.9%, compared to 24.6% in the prior year's third quarter. Adjusted EBITDA1 as a percentage of revenue for the nine months ended June 30, 2022, was 24.9%, compared to 24.4% in the prior year's first nine months.
Diluted net loss per share available to Class A common stock was $0.17, compared to diluted net loss per share available to Class A common stock of $0.15 in the prior year's third quarter. Diluted net loss per share available to Class A common stock was $0.62, compared to diluted net loss per share available to Class A common stock of $0.19 in the prior year's first nine months.
Pro forma adjusted diluted earnings per share1, which gives pro forma effect to the Company's tax rate, was $0.37 compared to $0.29 for the prior year's third quarter. Pro forma adjusted diluted earnings per share1 for the nine months ended June 30, 2022, was $1.09 compared to $0.73 for the prior year's first nine months.
Annualized Recurring Revenue ("ARR")2 for the three months ended June 30, 2022 and 2021 was $266.7 million and $204.9 million, respectively, representing a period-to-period growth rate of 30.2%.
Software and related services revenue3 as a percentage of total revenue was 48% and 42% for the three months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022, consolidated interest coverage ratio was 14.73x, total leverage ratio was 4.00x and consolidated senior leverage ratio was 2.51x. These ratios are defined in the Company's Senior Secured Credit Facility.

1.Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
2.Annualized Recurring Revenue (ARR) is the annualized revenue derived from software-as-a-service (“SaaS”) arrangements, transaction-based software-revenue, software maintenance, recurring software-based services, payments revenue and other recurring revenue sources within the quarter. This excludes contracts that are not recurring or are one-time in nature. The Company focuses on ARR because it helps i3 Verticals to assess the health and trajectory of the business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. It should be reviewed independently of revenue and it is not a forecast. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by the Company's customers.
3.Software and related services revenue includes the sale of licenses, subscriptions, installation and implementation services, and ongoing support specific to software.

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IIIV Reports Third Quarter 2022 Financial Results
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August 8, 2022

Greg Daily, Chairman and CEO of i3 Verticals, commented, “We are pleased to report another great quarter and anticipate an excellent finish to the fiscal year. Revenue and adjusted EBITDA both set records, greater than 80% of our revenue came from recurring sources and annualized recurring revenue for the third quarter of 2022 increased 30% from the third quarter of 2021.
“The acquisition we completed this quarter in the Healthcare vertical, effective April 30, has been an excellent fit and has already shown significant success in cross-selling to customers in our revenue cycle management services. This demonstrates promise to supplement our existing software-enabled services with an additional stream of recurring SaaS revenue. Our M&A strategy is well-positioned for the current market and we expect there to be more great opportunities to add to our thriving businesses.”
Revised 2022 Outlook
The Company's practice is to provide annual guidance, excluding future acquisitions and transaction-related costs.
The Company is providing the following revised outlook for the fiscal year ending September 30, 2022:
(in thousands, except share and per share amounts)Previous Outlook RangeRevised Outlook Range
Fiscal year ending September 30, 2022
Revenue$300,000 -$312,000 $307,000 -$317,000 
Adjusted EBITDA (non-GAAP)
$75,000 -$81,000 $76,500 -$80,500 
Pro forma adjusted diluted earnings per share(1)(non-GAAP)
$1.40 -$1.47 $1.41 -$1.47 
_______________________
1.Assumes an effective pro forma tax rate of 25.0% (non-GAAP).

With respect to the “Revised 2022 Outlook” above, reconciliation of net revenue, adjusted EBITDA and pro forma adjusted diluted earnings per share guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliations, including changes in the fair value of contingent consideration, income tax expense of i3 Verticals, Inc. and equity-based compensation expense. The Company expects these adjustments may have a potentially significant impact on future GAAP financial results.
Conference Call
The Company will host a conference call on Tuesday, August 9, 2022, at 8:30 a.m. EDT, to discuss financial results and operations. To listen to the call live via telephone, participants should dial (844) 887-9399 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. EDT on August 9, 2022, through August 16, 2022, by dialing (877) 344-7529 and entering Confirmation Code 3637280.
To listen to the call live via webcast, participants should visit the “Investors” section of the Company’s website, www.i3verticals.com, and go to the “Events & Presentations” page approximately 10 minutes prior to the start of the call. The online replay will be available on this page of the Company’s website beginning shortly after the conclusion of the call and will remain available for 30 days.
Non-GAAP Measures
This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of the Company's consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.
Additional information about non-GAAP financial measures, including, but not limited to, pro forma adjusted net income, adjusted EBITDA and pro forma adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included in the financial schedules of this release.
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IIIV Reports Third Quarter 2022 Financial Results
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August 8, 2022
About i3 Verticals
The Company delivers seamless integrated software and services to customers in strategic vertical markets. Building on its broad suite of software and services solutions, the Company creates and acquires software products to serve the specific needs of its customers. The Company's primary strategic verticals are Public Sector (including Education) and Healthcare.
Forward-Looking Statements
This release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this release are forward-looking statements, including any statements regarding the Company's fiscal 2022 financial outlook and statements of a general economic or industry specific nature. Forward-looking statements give the Company's current expectations and projections relating to its financial condition, results of operations, guidance, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “could have,” “exceed,” “significantly,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
The forward-looking statements contained in this release are based on assumptions that we have made in light of the Company's industry experience and its perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you review and consider information presented herein, you should understand that these statements are not guarantees of future performance or results. They depend upon future events and are subject to risks, uncertainties (many of which are beyond the Company's control) and assumptions. Factors that could cause actual results to differ from those expressed or implied by our forward-looking statements include, among other things: future economic, competitive, and regulatory conditions, the COVID-19 pandemic, the successful integration of acquired businesses, and future decisions made by us and our competitors. All of these factors are difficult or impossible to predict accurately and many of them are beyond our control. For a further list and description of these and other important risks and uncertainties that may affect our future operations, see Part I, Item 1A - Risk Factors in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, which we may update in Part II, Item 1A - Risk Factors in Quarterly Reports on Form 10-Q we have filed or will file hereafter.
Any forward-looking statement made by us in this release speaks only as of the date of this release and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Contact:
Clay Whitson
Chief Financial Officer
(888) 251-0987
investorrelations@i3verticals.com
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IIIV Reports Third Quarter 2022 Financial Results
Page 4
August 8, 2022
i3 Verticals, Inc. Consolidated Statements of Operations
(Unaudited)
($ in thousands, except share and per share amounts)
Three months ended June 30,Nine months ended June 30,
2022
2021(1)
% Change2022
2021(1)
% Change
Revenue$80,553 $63,129 28%$232,612 $156,947 48%
Operating expenses
Other costs of services19,749 16,064 23%52,890 41,044 29%
Selling, general and administrative47,775 37,296 28%142,878 92,769 54%
Depreciation and amortization7,506 6,995 7%21,823 17,938 22%
Change in fair value of contingent consideration8,254 3,609 129%24,684 5,835 323%
Total operating expenses83,284 63,964 30%242,275 157,586 54%
Loss from operations(2,731)(835)227%(9,663)(639)1,412%
Interest expense, net3,767 2,704 39%10,298 7,092 45%
Other income— — n/m— (2,353)(100)%
Total other expenses3,767 2,704 39%10,298 4,739 117%
Loss before income taxes(6,498)(3,539)84%(19,961)(5,378)271%
(Benefit from) provision for income taxes(1,810)662 n/m(1,154)516 n/m
Net loss(4,688)(4,201)12%(18,807)(5,894)219%
Net loss attributable to non-controlling interest(960)(921)4%(5,178)(1,918)170%
Net loss attributable to i3 Verticals, Inc.$(3,728)$(3,280)14%$(13,629)$(3,976)243%
Net loss per share attributable to Class A common stockholders:
Basic$(0.17)$(0.15)$(0.62)$(0.19)
Diluted$(0.17)$(0.15)$(0.62)$(0.19)
Weighted average shares of Class A common stock outstanding:
Basic22,229,787 21,926,225 22,116,172 20,658,700 
Diluted22,229,787 21,926,225 22,116,172 20,658,700 
__________________________
1.Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021, for a description of the recently adopted accounting pronouncement and the impacts of adoption on the condensed consolidated statements of operations.
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IIIV Reports Third Quarter 2022 Financial Results
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August 8, 2022
i3 Verticals, Inc. Financial Highlights
(Unaudited)
($ in thousands, except per share amounts)
Three months ended June 30,Nine months ended June 30,
2022
2021
% Change2022
2021
% Change
Adjusted EBITDA(1)
$20,051 $15,534 29%$57,805 $38,350 51%
Pro forma adjusted diluted earnings per share(1)
$0.37 $0.29 28%$1.09 $0.73 49%
__________________________
1.Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.

i3 Verticals, Inc. Supplemental Volume Information
(Unaudited)
($ in thousands)
Three months ended June 30,Nine months ended June 30,
2022202120222021
Payment volume(1)
$5,914,742 $5,136,285 $16,562,677 $13,200,017 
__________________________
1.Payment volume is the net dollar value of both 1) Visa, Mastercard and other payment network transactions processed by the Company's customers and settled to customers by us and 2) ACH transactions processed by the Company's customers and settled to customers by the Company.
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IIIV Reports Third Quarter 2022 Financial Results
Page 6
August 8, 2022
i3 Verticals, Inc. Segment Summary
(Unaudited)
($ in thousands)
For the Three Months Ended June 30, 2022
Merchant ServicesProprietary Software and PaymentsOtherTotal
Revenue$32,714 $47,839 $— $80,553 
Income (loss) from operations$6,451 $2,248 $(11,430)$(2,731)
Payment volume$5,396,964 $517,778 $— $5,914,742 
For the Nine Months Ended June 30, 2022
Merchant ServicesProprietary Software and PaymentsOtherTotal
Revenue$91,071 $141,575 $(34)$232,612 
Income (loss) from operations$17,849 $7,080 $(34,592)$(9,663)
Payment volume$15,018,474 $1,544,203 $— $16,562,677 
For the Three Months Ended June 30, 2021(1)
Merchant ServicesProprietary Software and PaymentsOtherTotal
Revenue$29,963 $33,729 $(563)$63,129 
Income (loss) from operations$5,569 $3,054 $(9,458)$(835)
Payment volume$4,761,350 $374,935 $— $5,136,285 
__________________________
1.Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021, for a description of the recently adopted accounting pronouncement and the impacts of adoption on the condensed consolidated statements of operations.
For the Nine Months Ended June 30, 2021(1)
Merchant ServicesProprietary Software and PaymentsOtherTotal
Revenue$81,130 $77,491 $(1,674)$156,947 
Income (loss) from operations$15,106 $10,249 $(25,994)$(639)
Payment volume$12,160,134 $1,039,883 $— $13,200,017 
__________________________
1.Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021, for a description of the recently adopted accounting pronouncement and the impacts of adoption on the condensed consolidated statements of operations.
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IIIV Reports Third Quarter 2022 Financial Results
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August 8, 2022
i3 Verticals, Inc. Consolidated Balance Sheets
($ in thousands, except share and per share amounts)
June 30,September 30,
20222021
(unaudited)
Assets
Current assets
Cash and cash equivalents$9,046 $3,641 
Accounts receivable, net43,653 38,500 
Settlement assets6,365 4,768 
Prepaid expenses and other current assets14,084 11,214 
Total current assets73,148 58,123 
Property and equipment, net5,418 5,902 
Restricted cash14,705 9,522 
Capitalized software, net51,764 41,371 
Goodwill353,882 292,243 
Intangible assets, net200,454 171,706 
Deferred tax asset51,698 49,992 
Operating lease right-of-use assets18,790 14,479 
Other assets10,565 8,462 
Total assets$780,424 $651,800 
Liabilities and equity
Liabilities
Current liabilities
Accounts payable$8,083 $7,865 
Accrued expenses and other current liabilities63,883 50,815 
Settlement obligations6,365 4,768 
Deferred revenue22,641 29,862 
Current portion of operating lease liabilities4,624 3,201 
Total current liabilities105,596 96,511 
Long-term debt, less current portion and debt issuance costs, net307,927 200,605 
Long-term tax receivable agreement obligations39,866 39,122 
Operating lease liabilities, less current portion15,021 11,960 
Other long-term liabilities21,522 14,011 
Total liabilities489,932 362,209 
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2022 and September 30, 2021
— — 
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 22,252,640 and 22,026,098 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,118,142 and 10,229,142 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively
Additional paid-in capital226,269 211,237 
Accumulated deficit(20,109)(6,480)
Total stockholders' equity206,163 204,760 
Non-controlling interest84,329 84,831 
Total equity290,492 289,591 
Total liabilities and equity$780,424 $651,800 
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IIIV Reports Third Quarter 2022 Financial Results
Page 8
August 8, 2022
i3 Verticals, Inc. Consolidated Cash Flow Data
(Unaudited)
($ in thousands)
Nine months ended June 30,
2022
2021
Net cash provided by operating activities$35,840 $34,035 
Net cash used in investing activities$(109,350)$(149,937)
Net cash provided by financing activities$85,695 $115,519 
Reconciliation of GAAP to Non-GAAP Financial Measures
The Company believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, i3 Verticals includes non-GAAP financial measures when reporting its financial results to shareholders and potential investors in order to provide them with an additional tool to evaluate the Company’s ongoing business operations. i3 Verticals believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of i3 Verticals’ current and ongoing business operations.

Although non-GAAP financial measures are often used to measure the Company's operating results and assess its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation. i3 Verticals believes that its provision of non-GAAP financial measures provides investors with important key financial performance indicators that are utilized by management to assess the Company's operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see i3 Verticals as viewed by management, to assess i3 Verticals with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. i3 Verticals believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.
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IIIV Reports Third Quarter 2022 Financial Results
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August 8, 2022
i3 Verticals, Inc. Reconciliation of GAAP Net Income to Non-GAAP Pro Forma Adjusted Net Income and Non-GAAP Adjusted EBITDA
(Unaudited)
($ in thousands)
Three months ended June 30,Nine months ended June 30, 2021
2022
2021(1)
2022
2021(1)
Net loss attributable to i3 Verticals, Inc.$(3,728)$(3,280)$(13,629)$(3,976)
Net loss attributable to non-controlling interest(960)(921)(5,178)(1,918)
Non-GAAP adjustments:
(Benefit from) provision for income taxes(1,810)662 (1,154)516 
Financing-related expenses(2)
36 13 152 
Non-cash change in fair value of contingent consideration(3)
8,254 3,609 24,684 5,835 
Equity-based compensation(4)
6,799 5,111 19,680 12,694 
Acquisition-related expenses(5)
136 535 1,017 2,065 
Acquisition intangible amortization(6)
6,095 5,673 17,974 14,617 
Non-cash interest expense(7)
1,459 1,372 4,312 4,056 
Other taxes(8)
80 82 251 305 
Gain on investment(9)
— — — (2,353)
Non-GAAP pro forma adjusted income before taxes16,332 12,879 47,970 31,993 
Pro forma taxes at effective tax rate(10)
(4,083)(3,220)(11,993)(7,998)
Pro forma adjusted net income(11)
$12,249 $9,659 $35,977 $23,995 
Cash interest expense, net(12)
2,308 1,333 5,986 3,036 
Pro forma taxes at effective tax rate(10)
4,083 3,220 11,993 7,998 
Depreciation, non-acquired intangible asset amortization and internally developed software amortization(13)
1,411 1,322 3,849 3,321 
Adjusted EBITDA$20,051 $15,534 $57,805 $38,350 
_______________
1.Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021, for a description of the recently adopted accounting pronouncement and the impacts of adoption.
2.Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions.
3.Non-cash change in fair value of contingent consideration reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the later of the most recent balance sheet date forming the beginning of the income statement period or the original estimates made at the closing of the applicable acquisition.
4.Equity-based compensation expense related to stock options and restricted stock units issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan.
5.Acquisition-related expenses are the professional service and related costs directly related to the Company's acquisitions and are not part of its core performance.
6.Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions.
7.Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs.
8.Other taxes consist of franchise taxes, commercial activity taxes, employer payroll taxes related to stock exercises and other non-income based taxes. Taxes related to salaries are not included.
9.In March 2021, the Company became aware of an observable price change in an investment due to a planned third-party acquisition of the entity underlying the investment. This resulted in an increase of $2,353 to the fair value of the investment at March 31, 2021, which the Company recognized in other income.
10.Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2022 and 2021, based on blended federal and state tax rates.
11.Pro forma adjusted net income assumes that all net income during that period was available to the holders of the Company's Class A common stock.
12.Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs.
13.Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.
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IIIV Reports Third Quarter 2022 Financial Results
Page 10
August 8, 2022
i3 Verticals, Inc. GAAP Diluted EPS and Non-GAAP Pro Forma Adjusted Diluted EPS
(Unaudited)
($ in thousands, except share and per share amounts)
Three months ended June 30,Nine months ended June 30,
2022
2021(1)
2022
2021(1)
Diluted net loss available to Class A common stock per share$(0.17)$(0.15)$(0.62)$(0.19)
Pro forma adjusted diluted earnings per share(2)(3)
$0.37 $0.29 $1.09 $0.73 
Pro forma adjusted net income(3)
$12,249 $9,659 $35,977 $23,995 
Pro forma weighted average shares of adjusted diluted Class A common stock outstanding(4)
33,077,941 33,837,090 33,029,025 33,084,261 
________________
1.Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021, for a description of the recently adopted accounting pronouncement and the impacts of adoption on the condensed consolidated statements of operations.
2.Pro forma adjusted diluted earnings per share is calculated using pro forma adjusted net income and the pro forma weighted average shares of adjusted diluted Class A common stock outstanding.
3.Pro forma adjusted net income, assumes that all net income during the period is available to the holders of the Company's Class A common stock. Further, pro forma adjusted diluted earnings per share assumes that all Common Units in i3 Verticals, LLC and the associated non-voting Class B common stock were exchanged for Class A common stock at the beginning of the period on a one-for-one basis.
4.Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,131,878 and 10,229,142 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 716,276 and 1,681,723 shares of unvested Class A common stock and options for the three months ended June 30, 2022 and 2021, respectively. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,188,369 and 10,884,874 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 724,484 and 1,540,687 shares of unvested Class A common stock and options for the nine months ended June 30, 2022 and 2021, respectively.
-END-
Q3 Fiscal 2022 Supplemental Information


 
2 Revenue Composition ($ in thousands) Quarter Ended June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Software and related service revenue SaaS(1) $ 8,450 $ 7,899 $ 6,310 $ 6,173 $ 6,107 $ 5,632 Transaction-based(2) 3,253 2,642 2,325 2,081 2,144 1,393 Maintenance(3) 5,720 5,672 5,897 5,776 5,644 2,849 Recurring software services(4) 10,768 11,107 10,311 3,237 3,587 3,952 Professional services(5) 8,743 8,251 9,386 9,086 7,630 3,371 Software licenses 2,072 3,401 2,109 2,375 1,707 561 Total $ 39,006 $ 38,972 $ 36,338 $ 28,728 $ 26,819 $ 17,758 Year-over-year growth 45 % Payments revenue $ 36,683 $ 34,528 $ 33,466 $ 33,510 $ 32,223 $ 28,337 Year-over-year growth 14 % Other revenue Recurring(6) $ 1,792 $ 1,780 $ 1,802 $ 1,923 $ 1,516 $ 1,166 Other 3,072 2,840 2,333 3,016 2,571 1,936 Total $ 4,864 $ 4,620 $ 4,135 $ 4,939 $ 4,087 $ 3,102 Year-over-year growth 19 % Total revenue $ 80,553 $ 78,120 $ 73,939 $ 67,177 $ 63,129 $ 49,197 Recurring revenue(7) $ 66,666 $ 63,628 $ 60,111 $ 52,700 $ 51,221 $ 43,329 Annualized Recurring Revenue “ARR”(8) Software and related service revenue $ 112,764 $ 109,280 $ 99,372 $ 69,068 $ 69,928 $ 55,304 Payments revenue 146,732 138,112 133,864 134,040 128,892 113,348 Other revenue 7,168 7,120 7,208 7,692 6,064 4,664 Total ARR $ 266,664 $ 254,512 $ 240,444 $ 210,800 $ 204,884 $ 173,316 Year-over-year growth 30 %


 
3 Annualized Recurring Revenue (“ARR”) 1. SaaS revenue is earned when we provide, as a service to our customers over time, the right to access our software, generally hosted in a cloud environment. 2. Transaction-based software revenue is earned when we provide services through our software and charge a per-transaction fee. For example, when we provide electronic filing services for courts and charge fees per filing, or when we stand-ready to process and bill utility customers and charge the utility a fee per bill electronically presented. 3. Software maintenance revenue is earned when, following the implementation of our software systems, we provide ongoing software support services to assist our customers in operating the systems and to periodically update the software. 4. Recurring software services are earned when we provide long-term, usually evergreen, contracted services to our customers through our software. The services provided, such as healthcare revenue cycle management, or automated collections management, are integrated into one of our software solutions. 5. Professional services are earned when we provide customized services to our customers who utilize our software products. Many of our customers contract with us for installation, configuration, training, and data conversion projects, which do not necessarily recur, and as such are excluded from our calculation of ARR. 6. Recurring other revenue primarily consists of recurring long-term contracts that are not specific to software, such as hardware maintenance plans or field service plans. 7. Recurring revenue consists of software-as-a-service (“SaaS”) arrangements, transaction-based software-revenue, software maintenance revenue, recurring software-based services, payments revenue and other recurring revenue sources. This excludes contracts that are not recurring or are one-time in nature. 8. Annualized Recurring Revenue (ARR) is the quarterly recurring revenue multiplied by 4. The Company focuses on ARR because it helps i3 to assess the health and trajectory of the business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. It should be reviewed independently of revenue and it is not a forecast. It does not contemplate seasonality. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by the Company’s customers.


 
4 Q3 Fiscal 2022 GAAP Measures ($ in thousands) Three months ended June 30, 2022 Three months ended June 30, 2021(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 6,451 $ 2,248 $ (11,430) $ (2,731) $ 5,569 $ 3,054 $ (9,458) $ (835) The following is our income (loss) from operations for the three and nine months ended June 30, 2022 and 2021 calculated in accordance with GAAP. The presentation also includes references to the Company’s non-GAAP financials measures. The Company believes that, in addition to the financial measures calculated in accordance with GAAP, adjusted EBITDA and adjusted net income (loss) are appropriate indicators to assist in the evaluation of its operating performance on a period-to-period basis. The Company also uses adjusted EBITDA internally as a performance measure for planning purposes, including forecasting and for calculations of earnout liabilities. Adjusted EBITDA is also used to evaluate the Company’s ability to service debt.These non-GAAP financials measures presented throughout should be considered as a supplement to, not a substitute for, revenue, income from operations, net income, or other financials performance and liquidity measures prepared in accordance with GAAP. (1) Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021 for a description of the recently adopted accounting pronouncement. ($ in thousands) Nine months ended June 30, 2022 Nine months ended June 30, 2021(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 17,849 $ 7,080 $ (34,592) $ (9,663) $ 15,106 $ 10,249 $ (25,994) $ (639)


 
5 Q3 QTD Fiscal 2022 Segment Performance(1) ($ in thousands) Three months ended June 30, Period over period growth2022 2021(2) Revenue Merchant Services $ 32,714 $ 29,963 9% Proprietary Software and Payments 47,839 33,729 42% Other — (563) (100)% Total $ 80,553 $ 63,129 28% Adjusted EBITDA(3) Merchant Services $ 8,761 $ 8,744 —% Proprietary Software and Payments 15,625 10,326 51% Other (4,335) (3,536) (23)% Total $ 20,051 $ 15,534 29% Volume Merchant Services $ 5,396,964 $ 4,761,350 13% Proprietary Software and Payments 517,778 374,935 38% Total $ 5,914,742 $ 5,136,285 15% 1. i3 Verticals has two segments, “Merchant Services,” which includes Purchased Portfolios (a subset of merchant contracts purchased in 2014 and 2017) and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021 for a description of the recently adopted accounting pronouncement. 3. Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures.


 
6 Q3 YTD Fiscal 2022 Segment Performance(1) ($ in thousands) Nine months ended June 30, Period over period growth2022 2021(2) Revenue Merchant Services 91,071 81,130 12% Proprietary Software and Payments 141,575 77,491 83% Other (34) (1,674) (98)% Total $ 232,612 $ 156,947 48% Adjusted EBITDA(3) Merchant Services $ 25,529 $ 24,087 6% Proprietary Software and Payments 45,592 24,537 86% Other (13,316) (10,274) (30)% Total $ 57,805 $ 38,350 51% Volume Merchant Services $ 15,018,474 $ 12,160,134 24% Proprietary Software and Payments 1,544,203 1,039,883 48% Total $ 16,562,677 $ 13,200,017 25% 1. i3 Verticals has two segments, “Merchant Services,” which includes Purchased Portfolios (a subset of merchant contracts purchased in 2014 and 2017) and "Proprietary Software and Payments." i3 Verticals also has an “Other” category, which includes corporate overhead. 2. Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10- K filed with the SEC on November 22, 2021 for a description of the recently adopted accounting pronouncement. 3. Adjusted EBITDA is a non-GAAP financial measure. Refer to the following slides for the reconciliation of non-GAAP financial measures.


 
7 ($ in thousands) Three months ended June 30, 2022 Three months ended June 30, 2021(1) Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 6,451 $ 2,248 $ (11,430) $ (2,731) $ 5,569 $ 3,054 $ (9,458) $ (835) Interest expense, net — — 3,767 3,767 — — 2,704 2,704 (Benefit from) provision for income taxes — — (1,810) (1,810) — — 662 662 Net income (loss) 6,451 2,248 (13,387) (4,688) 5,569 3,054 (12,824) (4,201) Non-GAAP Adjustments: (Benefit from) provision for income taxes — — (1,810) (1,810) — — 662 662 Financing-related expenses(2) — — 7 7 — — 36 36 Non-cash change in fair value of contingent consideration(3) (1) 8,255 — 8,254 36 3,573 — 3,609 Equity-based compensation(4) — — 6,799 6,799 — — 5,111 5,111 Acquisition-related expenses(5) — — 136 136 — — 535 535 Acquisition intangible amortization(6) 2,010 4,085 — 6,095 2,823 2,850 — 5,673 Non-cash interest(7) — — 1,459 1,459 — — 1,372 1,372 Other taxes(8) 8 8 64 80 13 19 50 82 Non-GAAP adjusted income (loss) before taxes 8,468 14,596 (6,732) 16,332 8,441 9,496 (5,058) 12,879 Pro forma taxes at effective tax rate(9) (2,117) (3,650) 1,684 (4,083) (2,111) (2,374) 1,265 (3,220) Pro forma adjusted net income (loss)(10) 6,351 10,946 (5,048) 12,249 6,330 7,122 (3,793) 9,659 Plus: Cash interest expense, net(11) — — 2,308 2,308 — — 1,333 1,333 Pro forma taxes at effective tax rate(9) 2,117 3,650 (1,684) 4,083 2,111 2,374 (1,265) 3,220 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(12) 293 1,029 89 1,411 303 830 189 1,322 Adjusted EBITDA $ 8,761 $ 15,625 $ (4,335) $ 20,051 $ 8,744 $ 10,326 $ (3,536) $ 15,534 See footnotes continued on the next slide The reconciliation of our quarterly income (loss) from operations to non-GAAP pro forma adjusted net income (loss) and non-GAAP adjusted EBITDA: Reconciliation of Non-GAAP Financial Measures


 
8 Reconciliation of Non-GAAP Financial Measures 1. Effective October 1, 2020, the Company's financial statements are presented in accordance with ASU 2021-08, Accounting Standards Codification Topic 805, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. See Note 21 to the consolidated financial statements within our Form 10-K filed with the SEC on November 22, 2021 for a description of the recently adopted accounting pronouncement and the impacts of adoption. 2. Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions. 3. Non-cash change in fair value of contingent consideration reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the later of the most recent balance sheet date forming the beginning of the income statement period or the original estimates made at the closing of the applicable acquisition. 4. Equity-based compensation expense related to stock options and restricted stock units issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan. 5. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 6. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 7. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 8. Other taxes consist of franchise taxes, commercial activity taxes, employer payroll taxes related to stock exercises and other non-income based taxes. Taxes related to salaries are not included. 9. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2022 and 2021, based on blended federal and state tax rates, considering the Tax Reform Act for 2018. 10. Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 11. Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 12. Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.


 
9 ($ in thousands) Nine months ended June 30, 2022 Nine months ended June 30, 2021 Merchant Services Proprietary Software and Payments Other Total Merchant Services Proprietary Software and Payments Other Total Income (loss) from operations $ 17,849 $ 7,080 $ (34,592) $ (9,663) $ 15,106 $ 10,249 $ (25,994) $ (639) Interest expense, net — — 10,298 10,298 — — 7,092 7,092 Other income — — — — — — (2,353) (2,353) (Benefit from) provision for income taxes — — (1,154) (1,154) — — 516 516 Net income (loss) 17,849 7,080 (43,736) (18,807) 15,106 10,249 (31,249) (5,894) Non-GAAP Adjustments: (Benefit from) provision for income taxes — — (1,154) (1,154) — — 516 516 Financing-related expenses(2) — — 13 13 — — 152 152 Non-cash change in fair value of contingent consideration(3) 500 24,184 — 24,684 356 5,479 — 5,835 Equity-based compensation(4) — — 19,680 19,680 — — 12,694 12,694 Acquisition-related expenses(5) — — 1,017 1,017 — — 2,065 2,065 Acquisition intangible amortization(6) 6,277 11,697 — 17,974 7,728 6,889 — 14,617 Non-cash interest(7) — — 4,312 4,312 — — 4,056 4,056 Other taxes(8) 16 45 190 251 21 28 256 305 Gain on investment(9) — — — — — — (2,353) (2,353) Non-GAAP adjusted income (loss) before taxes 24,642 43,006 (19,678) 47,970 23,211 22,645 (13,863) 31,993 Pro forma taxes at effective tax rate(10) (6,161) (10,752) 4,920 (11,993) (5,803) (5,661) 3,466 (7,998) Pro forma adjusted net income (loss)(11) 18,481 32,254 (14,758) 35,977 17,408 16,984 (10,397) 23,995 Plus: Cash interest expense, net(12) — — 5,986 5,986 — — 3,036 3,036 Pro forma taxes at effective tax rate(10) 6,161 10,752 (4,920) 11,993 5,803 5,661 (3,466) 7,998 Depreciation, non-acquired intangible asset amortization and internally developed software amortization(13) 887 2,586 376 3,849 876 1,892 553 3,321 Adjusted EBITDA $ 25,529 $ 45,592 $ (13,316) $ 57,805 $ 24,087 $ 24,537 $ (10,274) $ 38,350 See footnotes continued on the next slide. The reconciliation of our fiscal year to date income (loss) from operations to non-GAAP pro forma adjusted net income and non-GAAP adjusted EBITDA excluding acquisition revenue adjustments is as follows: Reconciliation of Non-GAAP Financial Measures


 
10 Reconciliation of Non-GAAP Financial Measures 1. Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions. 2. Non-cash change in fair value of contingent consideration reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the later of the most recent balance sheet date forming the beginning of the income statement period or the original estimates made at the closing of the applicable acquisition. 3. Equity-based compensation expense related to stock options and restricted stock units issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan. 4. Acquisition-related expenses are the professional service and related costs directly related to our acquisitions and are not part of our core performance. 5. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 6. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 7. Other taxes consist of franchise taxes, commercial activity taxes, employer payroll taxes related to stock exercises and other non-income based taxes. Taxes related to salaries are not included. 8. Non-cash loss on Exchangeable Note repurchases reflects the loss on retirement of debt the Company recorded during the relevant periods due to the carrying value exceeding the fair value of the repurchased portion of the 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) at the dates of repurchases. 9. In March 2021, the Company became aware of an observable price change in an investment due to a planned third-party acquisition of the entity underlying the investment. This resulted in an increase of $2,353 to the fair value of the investment at March 31, 2021, which the Company recognized in other income. 10. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2022 and 2021, based on blended federal and state tax rates. 11. Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 12. Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 13. Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.


 
11 Reconciliation Between GAAP Debt and Covenant Debt ($ in millions) As of June 30, 2022 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 207.4 Exchangeable Notes 103.3 Debt issuance costs, net (2.8) Total long-term debt, net of issuance costs $ 307.9 Non-GAAP Adjustments: Discount on Exchangeable Notes(1) $ 13.7 Exchangeable Notes 103.3 Exchangeable Notes Face Value $ 117.0 Revolving lines of credit to banks under the Senior Secured Credit Facility $ 207.4 Exchangeable Notes Face Value 117.0 Less: Cash and Cash Equivalents(2) (9.0) Total long-term debt for use in our Total Leverage Ratio $ 315.4 The reconciliation of our GAAP Long-term debt, net of issuance costs and the debt balance used in our Total Leverage Ratio: 1. In accordance with Financial Accounting Standards Board Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), convertible debt that may be entirely or partially settled in cash (such as the notes) is required to be separated into a liability and an equity component, such that interest expense reflects the issuer’s non-convertible debt interest cost. On the issue date, the value of the exchange option of the notes, representing the equity component was recorded as additional paid-in capital within shareholders’ equity and as a discount to the notes, which reduces their initial carrying value. The carrying value of the notes, net of the discount recorded, was accrued up to the principal amount of such notes from the issue date until maturity. ASC 470-20 does not affect the actual amount that the Issuer is required to repay. The amount shown in the table above for the discount reflects the debt discount for the value of the exchange option. 2. In accordance with our Senior Secured Credit Facility, only up to $10 million of unrestricted cash and cash equivalents may be subtracted from the calculation of long-term debt for use in our Total Leverage Ratio.


 


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