i3 Verticals Reports Fourth Quarter and Full Fiscal Year 2023 Financial Results

About this update from I3 Verticals, Inc.

Introduces 2024 Outlook NASHVILLE, Tenn. --(BUSINESS WIRE)-- i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal fourth quarter and year ended September 30, 2023 . Highlights for the fiscal fourth quarter and full fiscal year of 2023 vs. 2022 Fourth quarter revenue was $96.4 million , an increase of 13.1% over the prior year's fourth quarter; full year revenue was $370.2 million , an increase of 16.5% over the prior year. Fourth quarter net income was $3.4 million , compared to a net loss of $4.4 million in the prior year's fourth quarter. Net loss for the year ended September 30, 2023 , was $2.7 million , compared to a net loss of $23.2 million for the year ended September 30, 2022 . Fourth quarter net income attributable to i3 Verticals, Inc. was $4.5 million ; full year net loss attributable to i3 Verticals, Inc. was $0.8 million . Fourth quarter adjusted EBITDA1 was $26.8 million , an increase of 23.2% over the prior year's fourth quarter. Adjusted EBITDA1 for the year ended September 30, 2023 , was $100.4 million , an increase of 26.2% over the prior year. Adjusted EBITDA1 as a percentage of revenue was 27.1% for the year ended September 30, 2023 , compared to 25.0% for the year ended September 30, 2022 . Fourth quarter diluted net income per share available to Class A common stock was $0.11 , compared to a net loss per share of $0.15 in the prior year's fourth quarter; full year diluted net loss per share available to Class A common stock was $0.07 , compared to a net loss per share of $0.77 in the prior year. For the fourth quarter and year ended September 30, 2023 , pro forma adjusted diluted earnings per share1, which gives pro forma effect to the Company's tax rate, was $0.40 and $1.52 , respectively, compared to $0.39 and $1.48 for the fourth quarter and year ended September 30, 2022 , respectively. Annualized Recurring Revenue ("ARR")2 for the fourth quarter of 2023 and 2022 was $312.9 million and $281.2 million , respectively, representing a period-to-period growth rate of 11.3%. Software and related services revenue3 as a percentage of total revenue was 50% and 49% for the years ended September 30, 2023 and 2022, respectively. Payments revenue4 as a percentage of total revenue was 45% and 45% for the years ended September 30, 2023 and 2022, respectively. As of September 30, 2023 , our consolidated interest coverage ratio was 4.39x and our total leverage ratio was 3.77x. These ratios are defined in the Company's 2023 Credit Agreement. 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. Additionally, ARR does not take into account seasonality. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers. 3. Software and related services revenue includes the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software. 4. Payments revenue includes merchant processing, PCI and annual fees, residual, gateway and ACH revenue. Greg Daily , Chairman and CEO of i3 Verticals , commented, "We are pleased to report an excellent finish to fiscal 2023. For three straight years we have set a new record for revenue and adjusted EBITDA every single quarter. At the same time, the mix and quality of our business has continued to improve. For example, in this 2023 fiscal fourth quarter software-as-a-service revenue grew 23% and overall margins expanded by over 200 basis points year over year. We are pleased with our performance in fiscal 2023 which we believe will carry over into fiscal 2024. "Our total leverage as of September 30, 2023 , is back below 3.8x adjusted EBITDA. We have been very disciplined in our growth and acquisition strategy, and I am excited about our ability to capitalize on future opportunities. "Finally, I want to congratulate Eric Willis and Crystal Bell on their promotions to President - Healthcare and President – Enterprise Solutions, respectively. We continue to benefit from phenomenal talent that has been developed within our Company and added through our acquisitions, and we are excited about how Eric and Crystal will continue to transform our business." 2024 Outlook The Company's practice is to provide annual guidance, excluding the impact of future acquisitions and transaction-related costs. The Company is providing the following outlook for the fiscal year ending September 30, 2024 : (in thousands, except share and per share amounts) Outlook Range Fiscal year ending September 30, 2024 Revenue $ 385,000 - $ 410,000 Adjusted EBITDA (non-GAAP) $ 109,000 - $ 119,000 Depreciation and internally developed software amortization $ 11,000 - $ 13,000 Cash interest expense $ 22,000 - $ 25,000 Proforma adjusted diluted earnings per share(1)(non-GAAP) $ 1.60 - $ 1.78 __________________________ 1. Assumes an effective pro forma tax rate of 25.0% (non-GAAP). With respect to the “2024 Outlook” above, reconciliation of adjusted EBITDA, pro forma adjusted diluted earnings per share and 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 potentially have a significant impact on future GAAP financial results. Conference Call The Company will host a conference call on Thursday, November 16, 2023 , at 8:30 a.m. ET , to discuss financial results and operations. To listen to the call live via telephone, participants should dial (844) 887-9399 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. ET on November 16, 2023 , through November 27, 2023 , by dialing (877) 344-7529 and entering Confirmation Code 7272540. To listen to the call live via webcast, participants should visit the “Investors” section of the Company’s website, www.i3verticals.com , and go to the “Events” page approximately 10 minutes prior to the start of the call. The online replay will be available on this page of the Company’s website beginning shortly after the conclusion of the call and will remain available for 30 days. Non-GAAP Measures This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of the Company's consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented for historical periods 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. About i3 Verticals The Company delivers seamless integrated software and services to customers in strategic vertical markets. Building on its sophisticated and diverse platform of software and services solutions, the Company creates and acquires software products to serve the specific needs of public and private organizations in its strategic verticals, including its Public Sector (including Education) and Healthcare verticals. 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 2024 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 and geopolitical conditions, including the impact of inflation and rising interest rates, competition in our industry and our ability to compete effectively, regulatory developments, 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. i3 Verticals, Inc. Consolidated Statements of Operations ($ in thousands, except share and per share amounts) Three months ended September 30 , Year ended September 30 , 2023 2022 % Change 2023 2022 % Change (unaudited) (unaudited) (unaudited) Revenue $ 96,407 $ 85,250 13 % $ 370,239 $ 317,862 16 % Operating expenses Other costs of services 21,021 20,477 3 % 80,552 73,367 10 % Selling general and administrative 56,103 50,912 10 % 219,736 193,790 13 % Depreciation and amortization 9,612 7,601 26 % 36,461 29,424 24 % Change in fair value of contingent consideration 876 (959 ) (191 )% 10,781 23,725 (55 )% Total operating expenses 87,612 78,031 12 % 347,530 320,306 8 % Income (loss) from operations 8,795 7,219 n/m 22,709 (2,444 ) n/m Other expenses Interest expense, net 6,714 4,477 50 % 25,128 14,775 70 % Other expense 1,731 991 75 % 1,436 991 45 % Total other expenses 8,445 5,468 54 % 26,564 15,766 68 % Income before income taxes 350 1,751 (80 )% (3,855 ) (18,210 ) (79 )% (Benefit from) provision for income taxes (3,099 ) 6,161 n/m (1,203 ) 5,007 n/m Net income (loss) 3,449 (4,410 ) (178 )% (2,652 ) (23,217 ) (89 )% Net loss attributable to non-controlling interest (1,099 ) (937 ) 17 % (1,841 ) (6,115 ) (70 )% Net income (loss) attributable to i3 Verticals $ 4,548 $ (3,473 ) (231 )% $ (811 ) $ (17,102 ) (95 )% Net income (loss) per share available to Class A common stock: Basic $ 0.20 $ (0.15 ) $ (0.04 ) $ (0.77 ) Diluted $ 0.11 $ (0.15 ) $ (0.07 ) $ (0.77 ) Weighted average shares of Class A common stock outstanding: Basic 23,236,620 22,645,755 23,137,586 22,249,656 Diluted 34,011,302 22,645,755 33,246,833 22,249,656 n/m = not meaningful i3 Verticals, Inc. Segment Summary (Unaudited) ($ in thousands) For the Three Months Ended September 30, 2023 Software and Services Merchant Services Other Total Revenue $ 60,056 $ 36,374 $ (23 ) $ 96,407 Income (loss) from operations $ 13,329 $ 8,456 $ (12,990 ) $ 8,795 Payment volume(1) $ 735,980 $ 5,563,071 $ — $ 6,299,051 For the Year Ended September 30, 2023 Software and Services Merchant Services Other Total Revenue $ 232,967 $ 137,342 $ (70 ) $ 370,239 Income (loss) from operations $ 45,712 $ 29,130 $ (52,133 ) $ 22,709 Payment volume(1) $ 2,743,549 $ 21,686,690 $ — $ 24,430,239 For the Three Months Ended September 30, 2022 Software and Services Merchant Services Other Total Revenue $ 51,827 $ 33,410 $ 13 $ 85,250 Income (loss) from operations $ 12,923 $ 6,746 $ (12,450 ) $ 7,219 Payment volume(1) $ 604,592 $ 5,470,056 $ — $ 6,074,648 For the Year Ended September 30, 2022 Software and Services Merchant Services Other Total Revenue $ 193,402 $ 124,481 $ (21 ) $ 317,862 Income (loss) from operations $ 20,003 $ 24,595 $ (47,042 ) $ (2,444 ) Payment volume(1) $ 2,148,795 $ 20,488,530 $ — $ 22,637,325 __________________________ 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. i3 Verticals, Inc. Consolidated Balance Sheets ($ in thousands, except share and per share amounts) September 30 , September 30 , 2023 2022 (unaudited) Assets Current assets Cash and cash equivalents $ 3,112 $ 3,490 Accounts receivable, net 65,110 53,334 Settlement assets 4,873 7,540 Prepaid expenses and other current assets 12,449 19,445 Total current assets 85,544 83,809 Property and equipment, net 12,308 5,670 Restricted cash 4,415 12,735 Capitalized software, net 62,577 52,341 Goodwill 409,563 353,639 Intangible assets, net 226,952 195,919 Deferred tax asset 52,514 43,458 Operating lease right-of-use assets 13,922 17,678 Other assets 13,698 5,063 Total assets $ 881,493 $ 770,312 Liabilities and equity Liabilities Current liabilities Accounts payable 11,064 9,342 Accrued expenses and other current liabilities 37,740 57,833 Settlement obligations 4,873 7,540 Deferred revenue 35,275 31,975 Current portion of operating lease liabilities 4,509 4,568 Total current liabilities 93,461 111,258 Long-term debt, less current portion and debt issuance costs, net 385,081 287,020 Long-term tax receivable agreement obligations 40,079 40,812 Operating lease liabilities, less current portion 10,433 13,994 Other long-term liabilities 24,143 9,540 Total liabilities 553,197 462,624 Commitments and contingencies Stockholders' equity Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2023 and 2022 — — Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 23,253,272 and 22,986,448 shares issued and outstanding as of September 30, 2023 and 2022, respectively 2 2 Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,093,394 and 10,118,142 shares issued and outstanding as of September 30, 2023 and 2022, respectively 1 1 Additional paid-in-capital 249,688 241,958 Accumulated deficit (12,944 ) (23,582 ) Total stockholders' equity 236,747 218,379 Non-controlling interest 91,549 89,309 Total equity 328,296 307,688 Total liabilities and equity $ 881,493 $ 770,312 i3 Verticals, Inc. Consolidated Cash Flow Data ($ in thousands) Year ended September 30 , 2023 2022 (unaudited) Net cash provided by operating activities $ 34,503 $ 45,846 Net cash used in investing activities $ (121,520 ) $ (113,045 ) Net cash provided by financing activities $ 75,652 $ 73,033 Reconciliation of GAAP to Non-GAAP Financial Measures The Company believes that the non-GAAP financial measures presented by the Company provide useful information to investors in understanding and evaluating the Company's ongoing operating results. Accordingly, the Company includes such 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. The Company believes that these non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of the Company’s current and ongoing business operations. Although these non-GAAP financial measures assist in measuring the Company's operating results and assessing its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation. The Company believes that the disclosure of these 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 these non-GAAP financial measures to give shareholders and potential investors an opportunity to see the Company as viewed by management, to assess the Company with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. The Company believes that disclosure of these 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. i3 Verticals, Inc. Reconciliation of GAAP Net Income to Non-GAAP Pro Forma Adjusted Net Income and Non-GAAP Adjusted EBITDA (Unaudited) ($ in thousands) Three months ended September 30 , Year ended September 30 , 2023 2022 2023 2022 Net income (loss) attributable to i3 Verticals, Inc. $ 4,548 $ (3,473 ) $ (811 ) $ (17,102 ) Net loss attributable to non-controlling interest (1,099 ) (937 ) (1,841 ) (6,115 ) Non-GAAP Adjustments: Provision for income taxes (3,099 ) 6,161 (1,203 ) 5,007 Financing-related expenses(1) — — 8 13 Non-cash change in fair value of contingent consideration(2) 876 (959 ) 10,781 23,725 Equity-based compensation(3) 7,032 6,550 27,878 26,230 Acquisition-related expenses(4) 29 1,071 1,132 2,088 Acquisition intangible amortization(5) 7,132 6,155 28,142 24,129 Non-cash interest expense(6) 405 1,483 1,717 5,795 Other taxes(7) 433 257 1,394 508 Other expenses (income) related to adjustments of liabilities under tax receivable agreement(8) (929 ) 991 (929 ) 991 Write down of intangible asset(9) 2,660 — 2,660 — Gain on investment(10) — — (295 ) — Non-GAAP pro forma adjusted income before taxes(11) 17,988 17,299 68,633 65,269 Pro forma taxes at effective tax rate(12) (4,497 ) (4,325 ) (17,158 ) (16,317 ) Pro forma adjusted net income(13) $ 13,491 $ 12,974 $ 51,475 $ 48,952 Cash interest expense, net(14) 6,309 2,994 23,411 8,980 Pro forma taxes at effective tax rate(12) 4,497 4,325 17,158 16,317 Depreciation and internally developed software amortization(15) 2,480 1,446 8,319 5,295 Adjusted EBITDA(11) $ 26,777 $ 21,739 $ 100,363 $ 79,544 __________________________ 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 the Company's acquisitions and are not part of its core performance. 5. Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions. 6. Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 7. Other taxes consist of franchise taxes, commercial activity taxes, reserves for ongoing tax audit matters, the employer portion of payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included. 8. Under our Tax Receivable Agreement we have a liability equal to 85% of certain deferred tax assets resulting from an increase in the tax basis of our investment in i3 Verticals, LLC . Other expenses related to adjustments of liabilities under our Tax Receivable Agreement relate to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates. 9. Write down of intangible asset is related to the write down of an internal use software project. 10. Gain on investment, which the Company recognizes in other income, reflects contingent consideration received for an investment that was sold in a prior year for the year ended September 30, 2023 . 11. Represents a non-GAAP financial measure. 12. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using tax rates of 25.0% for 2023 and 2022, based on blended federal and state tax rates. 13. Pro forma adjusted net income represents a non-GAAP financial measure, and assumes that all net income during the period is available to the holders of the Company’s Class A common stock. 14. Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs. 15. Depreciation 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. i3 Verticals, Inc. GAAP Diluted EPS and Non-GAAP Pro Forma Adjusted Diluted EPS (Unaudited) ($ in thousands, except share and per share amounts) Three months ended September 30 , Year ended September 30 , 2023 2022 2023 2022 Diluted net income (loss) available to Class A common stock per share $ 0.11 $ (0.15 ) $ (0.07 ) $ (0.77 ) Pro forma adjusted diluted earnings per share(1) $ 0.40 $ 0.39 $ 1.52 $ 1.48 Pro forma adjusted net income(2) $ 13,491 $ 12,974 $ 51,475 $ 48,952 Pro forma weighted average shares of adjusted diluted Class A common stock outstanding(3) 34,011,302 33,618,854 33,970,731 33,100,182 __________________________ 1. Pro forma adjusted diluted earnings per share is calculated using pro forma adjusted net income and the pro forma weighted average shares of adjusted diluted Class A common stock outstanding. 2. Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company's Class A common stock. Further, pro forma adjusted diluted earnings per share assumes that all Common Units in i3 Verticals, LLC and the associated non-voting Class B common stock were exchanged for Class A common stock at the beginning of the period on a one-for-one basis. 3. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,099,678 and 10,109,247 weighted average outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 675,004 and 723,898 shares resulting from estimated stock option exercises and restricted stock units vesting as calculated by the treasury stock method for the three months and year ended September 30, 2023 , respectively. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,118,142 and 10,170,668 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 854,957 and 679,858 shares resulting from estimated stock option exercises and restricted stock units vesting as calculated by the treasury stock method for the three months and year ended September 30, 2022 , respectively. View source version on businesswire.com : https://www.businesswire.com/news/home/20231115418119/en/ Clay Whitson Chief Financial Officer (888) 251-0987 [email protected] Source: i3 Verticals, Inc.

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