i3 Verticals Reports Third Quarter 2021 Financial Results

Raises 2021 Outlook

NASHVILLE, Tenn.–(BUSINESS WIRE)–$IIIV–i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal third quarter ended June 30, 2021.

Highlights for the fiscal third quarter and nine months ended June 30, 2021 vs. 2020

• Third quarter revenue was $62.0 million, an increase of 96% over the prior year’s third quarter. Revenue for the nine months ended June 30, 2021, was $153.1 million, an increase of 37% over the prior year’s first nine months.
• Third quarter net loss was $4.6 million, compared to net loss of $2.8 million in the prior year’s third quarter. Net loss for the nine months ended June 30, 2021, was $8.8 million, compared to net income of $1.0 million in the prior year’s first nine months.
• Third quarter diluted net loss per share available to Class A common stock was $0.15, compared to diluted net loss per share available to Class A common stock of $0.02 in the prior year’s third quarter. For the nine months ended June 30, 2021, diluted net loss per share available to Class A common stock was $0.26, compared to diluted net income per share available to Class A common stock of $0.01 for the prior year’s first nine months.
• Integrated payments¹ were 60% and 58% of payment volume for the three and nine months ended June 30, 2021, respectively.
• Software and related services revenue² as a percentage of total revenue was 41% and 26% for the three months ended June 30, 2021 and 2020, respectively.
• As of June 30, 2021, our consolidated interest coverage ratio was 8.23x, total leverage ratio was 3.81x and consolidated senior leverage ratio was 1.87x. These ratios are defined in our Senior Secured Credit Facility.

Greg Daily, Chairman and CEO of i3 Verticals, commented, “We are proud of our third quarter results. Once again, we achieved new records in revenue, adjusted EBITDA, software revenue, payment volume and integration mix. The momentum we saw at the end of our second quarter continued throughout our third quarter as the economy continued to rebound. Our software-related revenue grew to 41% of our total net revenue even as we experienced excellent growth in all other revenue categories.

Our Public Sector vertical now represents over half of our company and Healthcare is now our second largest vertical. We will continue to invest in both of these markets as we pursue our software-led strategy. We believe our recent acquisitions along with our product development have strengthened our position in the market and positioned us for future growth.”

1. Integrated payments represents payment transactions that are generated in situations where payment technology is embedded within the Company’s own proprietary software, a client’s software or critical business process.
2. Software and related services includes the sale of licenses, subscriptions, installation and implementation services, and ongoing support specific to software.

    

Changes in Presentation of Adjusted EBITDA and Pro Forma Adjusted Diluted Earnings Per Share

Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. In previous quarterly earnings reports, we included in our reported adjusted net revenue, adjusted EBITDA, pro forma adjusted net income and pro forma adjusted diluted EPS an adjustment to remove the effect of purchase accounting write-downs of deferred revenue, which we have called “Acquisition Revenue Adjustments”. We have also historically included an estimated amount of Acquisition Revenue Adjustments, excluding future acquisitions, in our guidance for adjusted net revenue, adjusted EBITDA and pro forma adjusted diluted EPS. As part of the ordinary course SEC comment process, however, we are no longer adjusting revenue, adjusted EBITDA, pro forma adjusted net income and pro forma adjusted diluted EPS to remove the effect of Acquisition Revenue Adjustments. We will continue to provide, separately, the same non-GAAP Acquisition Revenue Adjustment for informational purposes. The following table summarizes our revenue, adjusted EBITDA, pro forma adjusted net income and pro forma adjusted diluted earnings per share for the three and nine months ended June 30, 2021 and 2020, excluding the Acquisition Revenue Adjustments. The applicable Acquisition Revenue Adjustments and the impact of excluding them on our pro forma adjusted earnings per share is also summarized.

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1. Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
2. Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. Amounts shown reflect the effect of these adjustments to acquisition date fair value from acquisitions that have closed as of the earnings release date.

    

Revised 2021 Outlook

The Company’s practice is to provide annual guidance, excluding future acquisitions and transaction-related costs. Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. In previous quarterly earnings reports we have included in our reported adjusted net revenue, adjusted EBITDA and pro forma adjusted diluted EPS an “acquisition revenue adjustment” to remove the effect of purchase accounting write-downs of deferred revenue from acquisitions that have closed as of the date of the earnings release. We have also historically included an estimated amount, excluding future acquisitions, in our guidance for adjusted net revenue, adjusted EBITDA and pro forma adjusted diluted EPS. As part of the ordinary course SEC comment process, however, we are no longer adjusting net revenue, EBITDA and pro forma diluted EPS to remove the effect of purchase accounting write-downs of deferred revenue. For informational purposes, we have included an estimate of $5.1 million which represents the impact of Acquisition Revenue Adjustments which are now excluded from our guidance on revenue, adjusted EBITDA and pro forma adjusted diluted EPS.

The Company is providing the following revised outlook for the fiscal year ending September 30, 2021:

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1. Represents a non-GAAP financial measure.
2. Assumes an effective pro forma tax rate of 25.0% (non-GAAP).
3. Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. Amounts shown reflect the effect of these adjustments to acquisition date fair value from acquisitions that have closed as of the earnings release date.

With respect to the “Revised 2021 Outlook” above, reconciliation of adjusted 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 10, 2021, at 8:30 a.m. ET, to discuss financial results and operations. To listen to the call live via telephone, participants should dial (877) 270-2148 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. ET on August 10, 2021, through August 17, 2021, by dialing (877) 344-7529 and entering Confirmation Code 10158331.

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, adjusted net revenue, pro forma adjusted net income, adjusted EBITDA and pro forma adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included on pages 10 through 13 in the financial schedules of this release.

About i3 Verticals

Helping drive the convergence of software and payments, i3 Verticals delivers seamlessly integrated payment and software solutions to small- and medium-sized businesses and other organizations in strategic vertical markets, such as education, non-profit, the public sector, property management, and healthcare and to the business-to-business payments market. With a broad suite of payment and software solutions that address the specific needs of its clients in each strategic vertical market, i3 Verticals processed approximately $17.2 billion in total payment volume for the 12 months ended June 30, 2021.

Forward-Looking Statements

This release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this release are forward-looking statements, including any statements regarding the Company’s fiscal 2021 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. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect the Company’s actual future performance or results and cause them to differ materially from those anticipated in the forward-looking statements. Certain of these factors and other risks are discussed in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”) and include, but are not limited to: (i) the anticipated impact to the timing and recovery of the Company’s business operations, payment volume and volume attrition due to the global pandemic of a novel strain of the coronavirus (COVID-19), including the anticipated impact of further school closures on our Education vertical; (ii) the Company’s indebtedness and the ability to maintain compliance with the financial covenants in the Company’s senior secured credit facility in light of the impacts of the COVID-19 pandemic; (iii) the ability to meet the Company’s liquidity needs in light of the impacts of the COVID-19 pandemic; (iv) the ability to raise additional funds on terms acceptable to us, if at all, whether debt, equity or a combination thereof; (v) the triggering of impairment testing of the Company’s fair-valued assets, including goodwill and intangible assets, in the event of a decline in the price of the Company’s Class A common stock; (vi) the ability to generate revenues sufficient to maintain profitability and positive cash flow; (vii) competition in the Company’s industry and the ability to compete effectively; (viii) the dependence on non-exclusive distribution partners to market the Company’s products and services; (ix) the ability to keep pace with rapid developments and changes in the Company’s industry and provide new products and services; (x) liability and reputation damage from unauthorized disclosure, destruction or modification of data or disruption of the Company’s services; (xi) technical, operational and regulatory risks related to the Company’s information technology systems and third-party providers’ systems; (xii) reliance on third parties for significant services; (xiii) exposure to economic conditions and political risks affecting consumer and commercial spending, including the use of credit cards; (xiv) the ability to increase the Company’s existing vertical markets, expand into new vertical markets and execute the Company’s growth strategy; (xv) the ability to successfully identify acquisition targets and thereafter to complete and effectively integrate those acquisitions into the Company’s services; (xvi) potential degradation of the quality of the Company’s products, services and support; (xvii) the ability to retain clients, many of which are small- and medium-sized businesses, which can be difficult and costly to retain; (xviii) the Company’s ability to successfully manage its intellectual property; (xiv) the ability to attract, recruit, retain and develop key personnel and qualified employees; (xx) risks related to laws, regulations and industry standards; (xxi) operating and financial restrictions imposed by the Company’s senior secured credit facility; and (xxii) the risk factors included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, the Company’s actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this release speaks only as of the date of this release. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

n/m = not meaningful

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1. Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
2. Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. Amounts shown reflect the effect of these adjustments to acquisition date fair value from acquisitions that have closed as of the earnings release date.

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1. Payment volume is the net dollar value of both 1) Visa, Mastercard and other payment network transactions processed by the Company’s clients and settled to clients by us and 2) ACH transactions processed by the Company’s clients and settled to clients by the Company.

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1. Effective July 1, 2020, the Company reassigned a component from the Proprietary Software and Payments segment to the Merchant Services segment to better align the Company’s business within its segments. The prior period comparatives have been retroactively adjusted to reflect the Company’s current segment presentation.

Contacts

Clay Whitson

Chief Financial Officer

(888) 251-0987

investorrelations@i3verticals.com

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