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What changed in i3 Verticals, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of i3 Verticals, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+390 added−399 removedSource: 10-K (2023-11-22) vs 10-K (2022-11-18)

Top changes in i3 Verticals, Inc.'s 2023 10-K

390 paragraphs added · 399 removed · 311 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

87 edited+21 added−18 removed82 unchanged
Biggest changeFor example, NACHA's WEB Debit Account Validation Rule, took effect March 19, 2021. This rule requires changes to ACH validation of bank accounts associated with internet WEB ACH payments. The NACHA Operating Rules and Guidelines allocate responsibility and liabilities to the various participants in the payment network, including us and our partner financial institutions.
Biggest changeThe NACHA Operating Rules and Guidelines allocate responsibility and liabilities to the various participants in the payment network, including us and our partner financial institutions. NACHA continues to focus on data security and privacy and delegation of responsibilities. We are subject to audit by our partner financial institutions for compliance with the rules and guidelines.
These services may be subject us to, or we may be contractually required to comply with, numerous federal and state laws that prohibit false or fraudulent claims including but not limited to the FCA, the federal Civil Monetary Penalties Law ("CMP Law"), and state equivalents.
These services may subject us to, or we may be contractually required to comply with, numerous federal and state laws that prohibit false or fraudulent claims including but not limited to the FCA, the federal Civil Monetary Penalties Law ("CMP Law"), and state equivalents.
Privacy and Information Security Regulations We provide services that are subject to privacy laws and regulations of a variety of jurisdictions. Relevant federal privacy laws include the Gramm-Leach-Bliley Act of 1999, which applies directly to a broad range of 12 financial institutions and indirectly, or in some instances directly, to companies that provide services to financial institutions.
Privacy and Information Security Regulations We provide services that are subject to privacy laws and regulations of a variety of jurisdictions. Relevant federal privacy laws include the Gramm-Leach-Bliley Act of 1999, which applies directly to a broad range of financial institutions and indirectly, or in some instances directly, to companies that provide services to financial institutions.
Our compounding cash flow generation has positioned us to capitalize on strategic opportunities and position ourselves to expand our product offerings for years to come. We focus on strategic vertical markets where we can build lasting customer relationships. Our primary markets are underserved, fragmented, large, and growing.
Our cash flow generation has positioned us to capitalize on strategic opportunities and position ourselves to expand our product offerings for years to come. We focus on strategic vertical markets where we can build lasting customer relationships. Our primary markets are underserved, fragmented, large, and growing.
Civil penalties may be imposed against providers and entities that employ or enter into contracts with excluded individuals or entities to provide items or services to federal healthcare program beneficiaries and submit a claim for reimbursement to a 16 federal healthcare program, or cause such a claim to be submitted.
Civil penalties may be imposed against providers and entities that employ or enter into contracts with excluded individuals or entities to provide items or services to federal healthcare program beneficiaries and submit a claim for reimbursement to a federal healthcare program, or cause such a claim to be submitted.
This mandate set new requirements and technical standards, including requiring integrated point of sale systems to be capable of accepting the more secure “chip” cards that utilize the EMV standard and setting new rules for data handling and security.
This mandate set new requirements and technical standards, including requiring integrated point of sale systems to be capable of accepting the more secure “chip” enabled cards that utilize the EMV standard and setting new rules for data handling and security.
While not directly applicable to HIT developers, the Interoperability and Patient Access Final Rule further demonstrates the government’s drive toward interoperability of EHI and the resulting need of healthcare providers and other consumers of HIT for tools that meet these requirements.
While not directly applicable to HIT developers, the Interoperability 16 and Patient Access Final Rule further demonstrates the government’s drive toward interoperability of EHI and the resulting need of healthcare providers and other consumers of HIT for tools that meet these requirements.
The FCA defines the term “knowingly” broadly to include not only actual knowledge of a claim’s falsity, but also reckless disregard of the truth of the information, or deliberate ignorance of the truth or falsity of a claim. Specific intent to defraud is not required.
The FCA defines the term “knowingly” broadly to include not only actual knowledge of a claim’s falsity, but also reckless disregard of the truth of the information, or deliberate ignorance of 17 the truth or falsity of a claim. Specific intent to defraud is not required.
As a result of this rule, HIT developers of certified HIT need to ensure that their products and services meet the requisite technical standards by the relevant deadlines, which roll out through 2024, and that their HIT continues to evolve as developers and other stakeholders release revised versions of these standards.
As a result of this rule, HIT developers of certified HIT must ensure that their products and services meet the requisite technical standards by the relevant deadlines, which roll out through 2024, and that their HIT continues to evolve as developers and other stakeholders release revised versions of these standards.
In January of 2022, ONC published the Trusted Exchange Framework, Common Agreement - Version 1 ("TEFCA"), and Qualified Health Information Network ("QHIN") Technical Framework - Version 1. The overall goal of the TEFCA is to establish a universal floor for interoperability across the country.
In January 2022, ONC published the Trusted Exchange Framework, Common Agreement - Version 1 ("TEFCA") and Qualified Health Information Network ("QHIN") Technical Framework - Version 1. In November 2023, ONC published TEFCA Version 1.1. The overall goal of the TEFCA is to establish a universal floor for interoperability across the country.
To the extent we are permitted under our customer contracts, we may de-identify protected health information and use de-identified information for our purposes without obtaining patient authorization or further complying with HIPAA. Determining whether protected health information has been sufficiently de-identified to comply with the HIPAA privacy standards and our contractual obligations may require complex factual and statistical analyses.
To the extent we are permitted under our customer contracts, we may de-identify PHI and use de-identified information for our purposes without obtaining patient authorization or further complying with HIPAA. Determining whether PHI has been sufficiently de-identified to comply with the HIPAA privacy standards and our contractual obligations may require complex factual and statistical analyses.
Other Regulation We are subject to U.S. federal and state unclaimed or abandoned property (escheat) laws which require us to turn over to certain government authorities the property of others we hold that has been unclaimed for a specified period of time such as account balances that are due to a distribution partner or customer following discontinuation of its relationship with us.
Other Regulation We are subject to U.S. federal and state unclaimed or abandoned property (escheat) laws which require us to remit to certain government authorities property of others we hold that has been unclaimed for a specified period of time such as account balances due to a distribution partner or customer following discontinuation of its relationship with us.
A non-permitted use or disclosure of protected health information is presumed to be a breach under HIPAA unless the business associate or covered entity establishes that there is a low probability the information has been compromised consistent with the risk assessment requirements enumerated under HIPAA.
A non-permitted use or disclosure of PHI is presumed to be a breach under HIPAA unless the business associate or covered entity establishes that there is a low probability the information has been compromised consistent with the risk assessment requirements enumerated under HIPAA.
To the extent permitted by applicable regulations and contracts and associated business associate agreements with our customers, we are permitted to use and disclose protected health information to perform our services and for other limited purposes, but other uses and disclosures, such as marketing communications, require written authorization from the patient or must meet an exception specified under the privacy regulations.
To the extent permitted by applicable regulations and contracts and associated business associate agreements with our customers, we are permitted to use and disclose PHI to perform our services and for other limited purposes, but other uses and disclosures, such as marketing communications, require written authorization from the patient or must meet an exception specified under the privacy regulations.
Many states also require money transmitters, issuers of payment instruments, and their agents to comply with federal and/or state anti-money laundering laws and regulations.
Many states also require money transmitters, issuers of payment instruments and stored value, and their agents to comply with federal and/or state anti-money laundering laws and regulations.
The California Privacy Rights Act of 2020 (the “CPRA”), which will come into effect on January 1, 2023, but applies to certain personal information collected on or after January 1, 2022, amends and expands the CCPA to create additional consumer privacy rights, such as the right of correction and right to limit the use of sensitive personal information, and establishes a privacy enforcement agency known as the California Privacy Protection Agency (the “CPPA”).
The California Privacy Rights Act of 2020 (the “CPRA”), which came into effect on January 1, 2023, applies to certain personal information collected on or after January 1, 2022, amends and expands the CCPA to create additional consumer privacy rights, such as the right of correction and right to limit the use of sensitive personal information, and establishes a privacy enforcement agency known as the California Privacy Protection Agency (the “CPPA”).
Massachusetts requires any business that processes the personal information of a Massachusetts resident to adopt and implement a written information security program. States are increasingly legislating data protection requirements for a broader list of personal data and are strengthening protections for students' personal information.
For example, Massachusetts requires any business that processes the personal information of a Massachusetts resident to adopt and implement a written information security program. In addition, states are increasingly legislating data protection requirements for a broader list of personal data and are strengthening protections for students' personal information.
A core component of our growth strategy includes a disciplined approach to acquisitions of companies and technology, evidenced by more than 47 acquisitions since our inception in 2012. Our acquisitions have opened new strategic vertical markets, increased the number of businesses and organizations to whom we provide solutions and extended our existing software solutions and capabilities.
A core component of our growth strategy includes a disciplined approach to acquisitions of companies and technology, evidenced by 48 acquisitions since our inception in 2012. Our acquisitions have opened new strategic vertical markets, increased the number of businesses and organizations to whom we provide solutions and extended our existing software solutions and capabilities.
Revenue from software and related services accounts for 49% of our total revenue in the twelve months ended September 30, 2022, up from 5% in the twelve months ended September 30, 2017. Since founding in 2012, we have steadily increased our market share and solution breadth through a combination of organic growth initiatives and acquisitions.
Revenue from software and related services accounts for 50% of our total revenue for the twelve months ended September 30, 2023, up from 5% for the twelve months ended September 30, 2017. Since our founding in 2012, we have steadily increased our market share and solution breadth through a combination of organic growth initiatives and acquisitions.
Department of the Treasury (“FinCEN”), issued a final rule in July 2011 regarding the applicability of the BSA’s regulations to “prepaid access” products and services. This rulemaking clarifies the anti-money laundering obligations for entities engaged in the provision and sale of prepaid services, such as prepaid gift cards.
Department of the Treasury (“FinCEN”), issued a final rule in July 2011 regarding the applicability of the BSA’s regulations to “prepaid access” products and services. This rulemaking clarifies the anti-money laundering obligations for entities engaged in the provision and sale of prepaid access including prepaid gift cards.
In addition, the FTC regulations require creditors, which may include some of our customers, to implement identity theft prevention programs to detect, 14 prevent and mitigate identity theft in connection with customer accounts.
Further, the FTC regulations require creditors, which may include some of our customers, to implement identity theft prevention programs to detect, prevent and mitigate identity theft in connection with customer accounts.
Solutions categories include: • Judiciary & Courts - Fully integrated digital solutions offering dynamic processes to plan, coordinate, evaluate, record, and provide up to date information within court systems. • Motor Vehicle - Comprehensive solutions for commercial and passenger vehicle management for motor vehicle administrations. • Utility Billing - Complete suite of billing and back-office management software solutions and services to enhance enterprise applications, improve customer experience, and increase efficiency of utility operations. • Digital Customer Engagement - Digital customer engagement platform, including web, mobile, chat, and voice options, enables intuitive self-service options for customers to manage their data & accounts. • Finance and ERP - Enterprise resource planning (ERP) solutions connect the organization and its data to create a flow of information providing insight across multiple departments. • School Lunches - Comprehensive solution for schools and districts including meal account management, point of sale, menu planning, nutritional analysis, food inventory and free and reduced meal applications. 8 • Land & Records Management - Fully digital solutions to boost proficiency and maintain records to enable submission of index information, scanning of document images and secure instantaneous retrieval of information. • Public Safety - Solutions for computer aided dispatch, law records management, evidence management, jail management, mobile solutions, and livescan. • Licensing & Permitting - Automation for every step of the licensing application, renewal process and payment process.
Solutions categories include: • Judiciary & Courts - Fully integrated digital solutions offering dynamic processes to plan, coordinate, evaluate, record, and provide up to date information within court systems. • Motor Vehicle - Comprehensive solutions for driver license, vehicle title and registration and motor carrier compliance for departments of transportation in the United States and Canada. • Utility Billing - Complete suite of billing and back-office management software solutions and services to enhance enterprise applications, improve customer experience, and increase efficiency of utility operations. • Digital Customer Engagement - Digital customer engagement platform, including web, mobile, chat, and voice options, enables intuitive self-service options for customers to manage their data & accounts. • Finance and ERP - Enterprise resource planning ("ERP") solutions connect the organization and its data to create a flow of information providing insight across multiple departments. • School Lunches - Comprehensive solution for schools and districts including meal account management, point of sale, menu planning, nutritional analysis, food inventory and free and reduced meal applications. • Land & Records Management - Fully digital solutions to boost proficiency and maintain records to enable submission of index information, scanning of document images and secure instantaneous retrieval of information. 9 • Public Safety - Solutions for computer aided dispatch, law records management, evidence management, jail management, mobile solutions, and livescan. • Licensing & Permitting - Automation for every step of the licensing application, renewal process and payment process.
Our technical operations team oversees the execution of development, quality control, delivery and support for our vertical software and payment processing applications. Applications are developed and tested according to the software development lifecycle, composed of iterative development and testing with a dedicated focus on planning and execution.
Our technical operations team oversees the execution of development, quality control, delivery and support for our vertical software and payment processing applications. Products are developed and tested according to the software development lifecycle, composed of iterative backlog refinement, feature prioritization, development and testing with a dedicated focus on planning and execution.
Certain provisions of the security and privacy regulations promulgated pursuant to HIPAA apply to business associates (entities that handle protected health information on behalf of covered entities), and business associates are subject to direct liability for violation of these provisions.
Certain provisions of the security and privacy regulations promulgated pursuant to HIPAA apply to business associates (entities that handle PHI on behalf of covered entities), and business associates are subject to direct liability for violation of these provisions.
Additionally, the Durbin Amendment to the Dodd-Frank Act provides that the interchange fees that certain issuers charge merchants for debit transactions will be regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the issuer in authorizing, clearing and settling the transactions.
The Durbin Amendment to the Dodd-Frank Act provides that the Federal Reserve regulate interchange fees that certain issuers charge merchants for debit transactions and these fees must be “reasonable and proportional” to the cost incurred by the issuer in authorizing, clearing and settling the transactions.
Reportable transactions are also subject to backup withholding requirements. 19 The foregoing is not an exhaustive list of the laws and regulations to which we are subject and the regulatory framework governing our business is changing continuously. See “Risk Factors—Risks Related to Our Business and Industry” in Part I, Item 1A of this Annual Report on Form 10-K.
The foregoing is not an exhaustive list of the laws and regulations to which we are subject and the regulatory framework governing our business is changing continuously. See “Risk Factors—Risks Related to Our Business and Industry” in Part I, Item 1A of this Annual Report on Form 10-K.
In addition, submission of a claim or services or items generated in violation of the AKS may be subject to additional penalties under the federal False Claims Act ("FCA"). The AKS contains a limited number of exceptions, and the Office of the Inspector General (“OIG”) of HHS has created regulatory safe harbors to the AKS.
In addition, submission of a claim or services or items generated in violation of the AKS may be subject to additional penalties under the federal False Claims Act ("FCA"). The AKS contains a limited number of exceptions, and the OIG has created regulatory safe harbors to the AKS.
Each privacy law and regulation that applies to us could increase our cost of doing business or limit permissible activities. We are also subject to numerous federal and state laws and regulations related to the privacy and security of health information. See “— Healthcare Regulatory Matters ” below.
Each privacy law and regulation that applies to us could increase our cost of doing business or limit permissible activities. We are also subject to numerous federal and state laws and regulations related to the privacy and security of health information.
Processors and customers that do not comply with the mandate or do not use systems that are EMV compliant risk fines and liability for fraud-related losses. We have invested significant resources to ensure our systems’ compliance with the mandate, and to assist our customers in becoming compliant.
Processors and customers that do not comply with the mandate or do not use systems that are EMV compliant risk fines and liability for fraud-related charges. We have invested significant resources to ensure our systems’ compliance with the mandate, and to assist our customers in fulfilling their EMV compliance responsibilities.
Such licensing laws also may cover matters such as regulatory approval of consumer forms, consumer disclosures and the filing of periodic reports by the licensee and require the licensee to demonstrate and maintain specified levels of net worth.
Such licensing laws may cover matters including regulatory approval of consumer forms, required consumer disclosures, the filing of periodic and updated reports by the licensee and require the licensee to demonstrate and maintain specified levels of net worth.
The Housing Assistance Tax Act of 2008 requires certain merchant acquiring entities and third-party settlement organizations to provide information returns for each calendar year with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year.
The Housing Assistance Tax Act of 2008 requires certain merchant acquiring entities and third-party settlement organizations to provide information returns for each calendar year with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year. Reportable transactions are also subject to backup withholding requirements.
Our software and integrated payment solutions coupled with our distribution network derive significant scale from operating efficiencies, which enables us to generate strong operating margins and cash flows. 7 Our Segments We have two reportable segments, Merchant Services and Software and Services (formerly known as Proprietary Software and Payments), and an Other category.
Our software and integrated payment solutions coupled with our distribution network derive significant scale from operating efficiencies, which enables us to generate strong operating margins and cash flows. 8 Our Segments We have two reportable segments, Software and Services and Merchant Services, and an Other category.
As a provider of services to entities subject to HIPAA, we are a “business associate” of our customers and must safeguard the protected health information we handle.
As a provider of services to entities subject to HIPAA, we are a “business associate” of our customers and must safeguard the PHI we handle.
Prepaid services may also be subject to the rules and regulations of Visa, Mastercard, Discover and American Express and other payment networks with which our customers and the card issuers do business.
Products offered on a prepaid basis may also be subject to the rules and regulations of Visa, Mastercard, Discover and American Express and other payment networks with which our customers and the card issuers do business.
For example, the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020, requires companies that process personal information of California residents to make certain disclosures to consumers about data practices, grants consumers specific access rights to their data, allows consumers to opt out of certain data sharing activities and creates a private right of action for data breaches.
Additionally, the California Consumer Privacy Act of 2018 (the “CCPA”), requires companies that process personal information of California residents to make certain disclosures to consumers about data practices, grants consumers specific access rights to their data, allows consumers to opt out of certain data sharing activities and creates a private right of action for data breaches.
As an entity that provides services to educational institutions, we are indirectly subject to the Family Educational Rights and Privacy Act (“FERPA”) and the privacy requirements of the Protection of Pupil Rights Amendment (“PPRA”), and we may not transfer or otherwise disclose or use any personally identifiable information from a student record to another party other than on a basis and in a manner permitted under the statutes.
See “— Healthcare Regulatory Matters ” below. 14 As an entity that provides services to educational institutions, we are indirectly subject to the Family Educational Rights and Privacy Act ("FERPA") or Protection of Pupil Rights Amendment ("PPRA"), and we may not transfer or otherwise disclose or use any personally identifiable information from a student record to another party other than on a basis and in a manner permitted under the statutes.
These vertically focused business support teams allow us to establish a level of expertise that delivers a scalable support structure and enables us to align our services with the economic goals and specific expectations of the respective business unit.
These vertically focused business support teams allow us to establish a level of expertise that delivers a scalable support structure and enables us to align our services with the economic goals and specific expectations of the respective business unit. Each operations team is positioned to support the functions of their customer base.
In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) establish privacy and security standards that limit the use and disclosure of certain individually identifiable health information (known as “protected health information”) and require covered entities, including health plans and most healthcare providers, to implement administrative, physical and technical safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information.
In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic Clinical Health Act of 2009 ("HITECH") and other laws (collectively "HIPAA")establish privacy and security standards that limit the use and disclosure of certain individually identifiable health information (known as “protected health information”) and require covered entities, including health plans and most healthcare providers, to implement administrative, physical and technical safeguards to protect the privacy of PHI and ensure the confidentiality, integrity and availability of electronic PHI.
For example, Illinois regulates the collection of biometric information under its Biometric Information Privacy Act, and at least five other states have legislation pending regarding the collection of biometric data.
For example, Illinois regulates the collection of biometric information under its Biometric Information Privacy Act. Texas and Washington have also passed legislation regulating the collection of biometric information, and at least ten other states have legislation pending regarding the collection of biometric data.
Various federal and state regulatory enforcement agencies, including the Federal Trade Commission and the states attorneys general, have authority to take action against non-banks that engage in unfair or deceptive acts or practices or violate other laws, rules and regulations and to the extent we are processing payments or providing services for a customer that may be in violation of laws, rules and regulations, we may be subject to enforcement actions and as a result may incur losses and liabilities that may impact our business.
Various federal and state regulatory enforcement agencies, including the Federal Trade Commission and the states attorneys general, have authority to take action against non-banks that engage in unfair or deceptive acts or practices or violate other laws, rules and regulations and to the extent we are processing payments or providing services for a customer that may be in violation of laws, rules and regulations, we may be subject to enforcement actions and as a result may incur losses and liabilities that may impact our business. 18 In addition, the CFPB has recently attempted to extend certain provisions of the Dodd-Frank Act that prevent the employment of unfair, deceptive or abusive acts or practices (“UDAAP”) to payment processors.
In addition, various states, including Colorado, Virginia, Utah, and Connecticut, have enacted, and other states are expected to enact in the near future, new laws and regulations concerning privacy, data protection and information security.
In addition, various other states are expected to enact in the near future, new laws and regulations concerning privacy, data protection and information security.
The majority of our employees work on-site in one of our over 40 offices; however, we encourage our employees to take advantage of our flexible work arrangements to meet their individual circumstances. We are an acquisitive company and regularly add new employees and locations as a result of our acquisition activity.
We encourage our employees to take advantage of our flexible work arrangements to meet their individual circumstances. We are an acquisitive company and regularly add new employees and locations as a result of our acquisition activity.
Our payment solutions in the healthcare market seamlessly integrate into our own proprietary software, as well as that of our distribution partners, consisting of independent software vendors (“ISVs”). We also provide workflow software and associated professional services to medical insurance payers.
Our payment solutions in the healthcare market seamlessly integrate into our own proprietary software, as well as that of our distribution partners, consisting of independent software vendors (“ISVs”). We also provide workflow software and associated professional services to medical insurance payers. Our customers include multiple large academic medical institutions, multiple large payer networks, billing organizations and individual physician practices.
Accordingly, we provide our eligible employees with access to flexible and convenient medical programs intended to meet their needs and the needs of their families.
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we provide our eligible employees with access to flexible and convenient medical programs intended to meet their needs and the needs of their families.
Virgin Islands have enacted data breach notification laws requiring businesses that experience a security breach of their computer databases that contain personal information to notify affected individuals, consumer reporting agencies and governmental agencies.
Virgin Islands have enacted data breach notification laws requiring businesses that experience a security breach of their computer databases that contain personal information to notify affected individuals, consumer reporting agencies and governmental agencies. Eleven states have implemented (though not all laws, including Texas, are presently in effect) comprehensive data security laws.
See “Risk Factors—If we violate the Family Educational Rights and Privacy Act (“FERPA”) and the Protection of Pupil Rights Amendment (“PPRA”), it could result in a material breach of contract with one or more of our customers in our Education vertical and could harm our reputation.
See “Risk Factors—If we violate the FERPA or PPRA, it could result in a material breach of contract with one or more of our customers in our Education vertical and could harm our reputation.
The Dodd-Frank Act also created the Consumer Financial Protection Bureau (the “CFPB”), which has assumed responsibility for most federal consumer protection laws, and the Financial Stability Oversight Council, which has the authority to determine whether any non-bank financial company, such as us, should be supervised by the Board of Governors of the Federal Reserve System because it is systemically important to the U.S. financial system.
New rules effective July, 2023 contain certain prohibitions on payment network exclusivity and merchant routing restrictions of debit card transactions. 13 The Dodd-Frank Act also created the Consumer Financial Protection Bureau (the "CFPB"), which has assumed responsibility for most federal consumer protection laws of a financial nature, and the Financial Stability Oversight Council, which has the authority to determine whether any non-bank financial company, such as us, should be supervised by the Board of Governors of the Federal Reserve System because it is systemically important to the U.S. financial system.
Stored Value Services Stored value cards, store gift cards and electronic gift certificates are subject to various federal and state laws and regulations, which may include laws and regulations related to consumer and data protection, licensing, consumer disclosures, escheat, anti-money laundering, banking, trade practices and competition and wage and employment.
Prepaid Products General-use prepaid cards, store gift cards and gift certificates issued as a card, code or other device, often referred to as stored value, are subject to various federal and state laws and regulations, which may include laws and regulations related to consumer and data protection, licensing, consumer disclosures, escheat, anti-money laundering, banking, trade practices and competition and wage and employment.
Money Transmitter Regulation We are subject to various U.S. federal, state, and foreign laws and regulations governing money transmission and the issuance and sale of payment instruments, including some of the prepaid products we may sell. In the United States, most states license money transmitters and issuers of payment instruments.
Money Transmitter Regulation We are subject to various U.S. federal, state, and foreign laws and regulations governing money transmission and the issuance and sale of payment instruments, including various prepaid access products we may sell. 20 In the United States, each state besides Montana has money transmitter license requirements and many have licenses for issuers of payment instruments and stored value.
We use a broad variety of traditional and digital marketing mediums to engage prospective customers. 10 Our Operations Our operations team is uniquely structured to optimize the experience of our customers and distribution partners.
Our enterprise marketing function establishes our overall corporate marketing strategy to enhance brand awareness and demand generation. We use a broad variety of traditional and digital marketing mediums to engage prospective customers. 11 Our Operations Our operations team is uniquely structured to optimize the experience of our customers and distribution partners.
Releases are modeled on continuous deployment and added to the live environment on a routine basis. Each application stack is built with redundancy to foster resiliency and built to be easily managed during a disaster recovery scenario. The entire solution is hosted within a managed, dedicated environment that is certified PCI-compliant to protect all personal and transactional data.
Releases are modeled on continuous deployment and added to the live environment on a routine basis. Each application is built with redundancy to foster resiliency and built to be easily managed during a disaster recovery scenario.
Rules released by the Federal Reserve in July 2011 to implement the Durbin Amendment mandate a cap on debit transaction interchange fees for issuers with assets of $10 billion or greater.
Rules released by the Federal Reserve in July 2011 to implement the Durbin Amendment mandate a cap on debit transaction interchange fees for issuers with assets of $10 billion or greater. Federal Reserve approval of a final rule effective October 1, 2021 permit debit card issuers to receive a fraud-prevention adjustment to the interchange fee standards.
Our employee headcount has significantly increased since our Initial Public Offering in June 2018, and as of November 17, 2022, we have approximately 1,637 employees in 43 states and two countries.
Our employee headcount has significantly increased since our Initial Public Offering in June 2018, and as of November 21, 2023, we have approximately 1,663 employees in 42 states and two countries. No employees are represented by unions.
We have implemented compliance policies and procedures to screen for excluded individuals. However, if we are found to have employed or contracted with an excluded individual or entity, we could face significant consequences as outlined above.
We have implemented compliance policies and procedures to screen for excluded individuals. However, if we employ or contract with an excluded individual or entity, we could face significant consequences as outlined above. In addition, we could be liable under our customer contracts if we are excluded by the OIG or employ or contract with an excluded individual or entity.
Our operations team is structured to effectively support the individual needs of our customers. This support includes: • customer onboarding and data conversions; • software configurations and integrations; • customer support and retention; • customer training and activations; • billing and financial review; • credit underwriting and risk management; • payment processing support; and • end-user customer support.
This includes: • customer onboarding; • data conversions and migrations; • software configurations and integrations; • customer support and retention; • customer training and activations; • contract renewals, billing and financial review; • credit underwriting and risk management; • payment processing support; and • end-user customer support.
U.S. federal, state, local laws and regulations are evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain.
U.S. federal, state, local laws and regulations are evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain. These laws are enforced by federal, state and local regulatory agencies in the jurisdictions where we operate, and in some instances also through private civil litigation.
In addition, there are state laws that restrict the ability to collect and utilize certain types of personal information, such as Social Security and driver’s license numbers, and impose secure disposal requirements for personal data. Certain state laws mandate businesses to implement reasonable data security measures.
Certain of these laws restrict the ability to collect and utilize certain types of personal information, such as Social Security and driver’s license numbers, impose secure disposal requirements for personal data and contain regulations surrounding data protection and information security.
In the future, if we seek to expand these stored value card products and services, or as a result of regulatory changes, we may be subject to additional regulation and may be required to obtain additional licenses and registrations which we may not be able to obtain. 17 The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Card Act”) created new requirements applicable to general-use prepaid gift cards, store gift cards and electronic gift certificates.
In the future, if we seek to expand these stored value card products and services, or as a result of regulatory changes, we may be subject to additional regulation and may be required to obtain additional licenses and registrations which we may not be able to obtain.
These laws are enforced by federal, state and local regulatory agencies in the jurisdictions where we operate, and in some instances also through private civil litigation. 13 Examples of the most significant of these laws include, but are not limited to, the following: HIPAA Privacy and Security Requirements There are numerous federal and state laws and regulations related to the privacy and security of health information.
Examples of the most significant of these laws include, but are not limited to, the following: HIPAA Privacy and Security Requirements There are numerous federal and state laws and regulations related to the privacy and security of health information.
We have built a collaborative culture that recognizes and rewards innovation and offers employees a variety of opportunities and experiences. We believe that our culture is critical to our success.
We have built a collaborative culture that recognizes and rewards innovation and offers employees a variety of opportunities and experiences. We believe that our culture is critical to our success. As of September 30, 2023, 60% of our employees work in one of our 38 offices and 40% of our employees are fully remote or hybrid.
Payment Technology In addition to our broad suite of vertical market software described above, we have developed a suite of payment technology solutions that serves customers across our vertical markets.
Additionally, our Network Management platform assists payers in provider contracting, credentialing, and outreach, enabling them to expand and adapt to changing market dynamics. Payment Technology In addition to our broad suite of vertical market software described above, we have developed a suite of payment technology solutions that serves customers across our vertical markets.
We believe that our employee retention rates are competitive and we think this is a result of strong emphasis on workforce culture in our acquisition process and in our operational decision making. Government Regulation We operate in an increasingly complex legal and regulatory environment.
We believe that our employee retention rates are competitive and we think this is a result of strong emphasis on workforce culture in our acquisition process and in our operational decision making. As of September 30, 2023, the Company's workforce was 48% female and 52% male.
Although implementation of the Trusted Exchange Framework is not mandatory, the federal government encourages its adoption through the establishment of a publicly available directory of networks that are capable of trusted exchange and by permitting federal agencies to require implementation of the Trusted Exchange Framework by network contractors as the contractors update their health IT or operational practices. 15 Anti-Kickback Laws A number of federal and state laws govern patient referrals, financial relationships with physicians and other referral sources and inducements to providers and patients, including restrictions contained in amendments to the Social Security Act, commonly known as the federal Anti-Kickback Statute (“AKS”).
Although implementation of the Trusted Exchange Framework is not mandatory, the federal government encourages its adoption through the establishment of a publicly available directory of networks that are capable of trusted exchange and by permitting federal agencies to require implementation of the Trusted Exchange Framework by network contractors as the contractors update their health IT or operational practices.
For example, the Office of the National Coordinator of Health Information Technology ("ONC") and HHS published a final rule in 2020, implementing provisions of the 21st Century Cures Act ("The Cures Act"), that prohibits health care providers, health information exchanges ("HIEs"), and HIT developers from information blocking (“Information Blocking Final Rule”).
For example, the 21st Century Cures Act ("The Cures Act") and implementing regulations (the "Information Blocking Rule"), prohibit information blocking by health care providers, health information exchanges ("HIEs"), and developers that offer or develop one or more HIT modules certified by the Office of the National Coordinator of Health Information Technology ("ONC").
The networks may fine, penalize or suspend the registration of participants for certain acts or omissions or the failure of the participants to comply with applicable rules and standards. 18 An example of a such a standard is the “chip and pin” or “chip and signature” card requirement, known as EMV, which was mandated by Visa, Mastercard, American Express and Discover to be supported by payment processors by April 2013 and by merchants by October 2015.
A significant network rule is the “chip and pin” or “chip and signature” card requirement, known as EMV, which was mandated by Visa, Mastercard, American Express and Discover to be supported by payment processors by April 2013 and merchants by October 2015.
Other Our Other category includes corporate overhead expenses, when presenting reportable segment information. Our Products and Solutions We deliver a comprehensive array of vertical market software solutions and integrated payment technology to our customers and distribution partners. Our products and solutions are strategically aligned to support new customer growth and promote customer retention.
Our Products and Solutions We deliver a comprehensive array of vertical market software solutions and integrated payment technology to our customers and distribution partners. Our products and solutions are strategically aligned to support new customer growth and promote customer retention. Some solutions are broadly applicable across many different types of entities and departments, while others are specific to certain markets.
A strong network of shared services, such as marketing, legal, finance and HR, support our decentralized operating units and ensure that they are focused on the best in-class service to our customers. Our corporate technology department is structured to rapidly enhance and effectively maintain our products and services.
Key performance indicators mark their progress toward achieving the goals established by each business unit. A strong network of shared services, such as marketing, legal, finance and HR, support our decentralized operating units and ensure they are focused on providing best in-class service to our customers.
The platform APIs allow access to Europay, Mastercard and Visa (“EMV”) devices using an 9 implementation that shields software providers from the requirements of PCI or payment application data security standard certifications. Our Technology Our technology offerings are architected and delivered utilizing a variety of strategies designed to maximize business value for customers.
The platform APIs allow access to Europay, Mastercard and Visa (“EMV”) devices using an implementation that shields software providers from the requirements of PCI or payment application data security standard certifications. Our Technology As a forward-thinking software company that excels in delivering cutting edge solutions, we are committed to agile delivery, scalable platforms, and secure solutions.
Such competition could adversely affect the revenue we receive, and as a result, our margins, business, financial condition and results of operations.” in Part I, Item 1A of this Annual Report on Form 10-K.
Such competition could adversely affect the revenue we receive, and as a result, our margins, business, financial condition and results of operations.” in Part I, Item 1A of this Annual Report on Form 10-K. 12 Human Capital To facilitate talent attraction and retention, we strive to make i3 Verticals a safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by competitive compensation and benefits programs and opportunities for advancement.
Payments are often embedded into these software products, providing customers with a seamless experience as well as an additional revenue stream. We serve customers at both the state and local level and our geographic reach covers most of the United States and some of Canada.
We serve customers at both the state and local level and our geographic reach covers most of the United States and some of Canada. Our software products are designed to align with the specific needs of our customers and their communities.
For additional information on our segments, see Note 17 to our consolidated financial statements and “Management's Discussion and Analysis of Financial Condition and Results of Operations.” Merchant Services Our Merchant Services segment provides comprehensive payment solutions to businesses and organizations.
For additional information on our segments, see Note 17 to our consolidated financial statements and “Management's Discussion and Analysis of Financial Condition and Results of Operations.” Software and Services Our Software and Services segment delivers vertical market software solutions to customers across all of our strategic vertical markets. These solutions often include embedded payments or other recurring services.
We also assist public schools in completing payment processing functions such as accepting payments for school lunches (online or at school) and school activities. • Healthcare —We provide businesses in our Healthcare vertical with software platforms for revenue cycle management, including coding, insurance adjudication, billing, scheduling and integrated payments.
We also assist public schools in completing payment processing functions such as accepting payments for school lunches (online or at school) and school activities. • Healthcare —We provide entities in the healthcare market with software platforms that drive process efficiency and ensure compliance. These include electronic healthcare records ("EHR") and revenue cycle management solutions, often paired together.
Recently, NACHA has focused upon data security and privacy responsibilities. We are subject to audit by our partner financial institutions for compliance with the rules and guidelines. Our sponsor financial institutions have substantial discretion in approving certain aspects of our business practices, including the terms of our agreements with our ACH processing customers.
Our sponsor financial institutions have substantial discretion in approving certain aspects of our business practices, including the terms of our agreements with our ACH processing customers.
Our Sales and Marketing Our sales strategy includes both direct W2 sales representatives and a broad network of distribution partners. We utilize our direct sales team, our largest channel, to sell our proprietary software and payment technology solutions directly to customers in our vertical markets.
We utilize our direct sales team, our largest channel, to sell our proprietary software and payment technology solutions directly to customers in our vertical markets. Sales teams are organized and coordinated by vertical, leading to extensive cross-selling opportunities across our broad array of solutions.
Any failure by us to meet HIPAA requirements with respect to de-identification could subject us to penalties and harm our reputation. Other Privacy and Security Requirements In addition to HIPAA, numerous other U.S. federal and state laws govern the collection, dissemination, use, access to and confidentiality of personal information.
Other Privacy and Security Requirements In addition to HIPAA, numerous other U.S. federal and state laws govern the collection, dissemination, use, access to and confidentiality of personal information, including health and wellness data that is not protected 15 health information.
Our external channel partners are comprised of ISVs, value-added resellers (“VARs”) and a few select independent sales organizations (“ISOs”). These distribution partners are a consistent and scalable source for new customer acquisition. Our product and partner marketing is delivered through a shared-services model which is coordinated with each business unit.
These distribution partners are a consistent and scalable source for new customer acquisition. Our product and partner marketing is delivered through a shared-services model which is coordinated with each vertical market. Marketing is tightly aligned with our sales efforts by providing event coordination, demand generation resources, physical and electronic marketing campaigns and partner marketing collateral.
Sales teams are organized and coordinated by vertical, leading to extensive cross-selling opportunities across our broad array of solutions. Leveraging our vertically focused suite of products and services, we are able to maximize the performance of our direct W2 sales force, and our external distribution channels, as we continue to attract new partners.
Leveraging our vertically focused suite of products and services, we are able to maximize the performance of our employee sales force, and our external distribution channels, as we continue to attract new partners. Our external channel partners are comprised of ISVs, value-added resellers (“VARs”) and a few select independent sales organizations (“ISOs”).
The Card Act, along with the Federal Reserve’s amended Regulation E, created new requirements with respect to these cards and electronic certificates. These include certain prohibited features and revised disclosure obligations.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Card Act”) gift card provisions created requirements applicable to general-use prepaid cards, store gift cards and gift certificates. The Card Act, along with the Federal Reserve’s amended Regulation E, created new requirements with respect to general-use prepaid cards, store gift cards and gift certificates.
HIT developers are subject to a higher standard than health care providers in terms of determining whether a practice constitutes information blocking, in that an action that the HIT developer knows or should know is likely to interfere with, prevent, or materially discourage access, exchange, or use of EHI may be considered information blocking.
Information blocking by an HIT developer or HIE is any practice that the actor knows or should know is likely to interfere with, prevent or materially discourage access, exchange or use of EHI, unless it is required by law or meets an exception.
Payment Network Rules and Standards Payment networks establish their own rules and standards that allocate liabilities and responsibilities among the payment networks and their participants.
We expect to expend significant resources on an ongoing basis in an effort to assist our customers in meeting their legal requirements. 19 Payment Network Rules and Standards Payment networks establish their own rules and standards that allocate liabilities and responsibilities among the payment networks and their participants.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe Senior Secured Credit Facility accrues interest at Term Secured Overnight Financing Rate ("SOFR") (based upon an interest period of one, three or six months), plus an adjustment of 0.10%, plus an applicable margin of up to 3.25%, or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50% and (z) Term SOFR, plus an adjustment of 0.10%, plus 1.00%), plus an applicable margin of 0.25% to 1.25% (1.25% as of September 30, 2022), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.
Biggest changeThe Adjusted Term SOFR rate will be the rate of interest per annum equal to the Term SOFR rate (based upon an interest period of one, three or six months), plus 0.10%, plus an applicable margin of 2.00% to 3.00% (3.00% at September 30, 2023). The Adjusted Term SOFR rate shall not be less than 0% in any event.
While we have developed and implemented a comprehensive billing compliance program that we believe is consistent with the federal guidance, our failure to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations to our business and contracting model, or other failure to comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business.
While we have developed and implemented a comprehensive billing compliance program that we believe is consistent with federal guidance, our failure to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations to our business and contracting model, or other failure to comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business.
Our failure to repurchase Exchangeable Notes at a time when the repurchase is required by the indenture that governs the Exchangeable Notes or to pay cash 46 payable on future exchanges of the Exchangeable Notes if and/or as required by the Indenture would constitute a default under the Indenture.
Our failure to repurchase Exchangeable Notes at a time when the repurchase is required by the indenture that governs the Exchangeable Notes or to pay 46 cash payable on future exchanges of the Exchangeable Notes if and/or as required by the Indenture would constitute a default under the Indenture.
Although we currently expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the Senior Secured Credit Facility will be sufficient to fund our operations and planned expenditures and to service our debt obligations for at least the next twelve months, there can be no assurance that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financing will be available to us in an amount sufficient to enable us to service our debt and fund our other liquidity needs.
Although we currently expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the 2023 Senior Secured Credit Facility will be sufficient to fund our operations and planned expenditures and to service our debt obligations for at least the next twelve months, there can be no assurance that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financing will be available to us in an amount sufficient to enable us to service our debt and fund our other liquidity needs.
Defects in our systems or those of third parties, errors or delays in the processing of payment transactions, telecommunications failures or other difficulties could result in: • loss of revenues; • loss of customers; • loss of customer and cardholder data; • fines imposed by payment networks or regulators; • harm to our business or reputation resulting from negative publicity; • exposure to fraud losses or other liabilities; • additional operating and development costs; or • diversion of management, technical and other resources, among other consequences.
Defects in our systems or those of third parties, errors or delays in the processing of payment transactions, telecommunications failures or other difficulties could result in: • loss of revenues; • loss of customers; • loss of customer and cardholder data; • fines imposed by payment networks or regulators; • harm to our business or reputation resulting from negative publicity; • exposure to fraud losses or other liabilities; • additional operating and development costs; or 23 • diversion of management, technical and other resources, among other consequences.
See the detailed discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Senior Secured Credit Facility” in Part II, Item 7 of this Annual Report on Form 10-K for a discussion of the restrictive covenants, including i3 Verticals, LLC’s obligations to maintain specific financial ratios, that may limit its ability to make certain distributions to us.
See the detailed discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — 2023 Senior Secured Credit Facility” in Part II, Item 7 of this Annual Report on Form 10-K for a discussion of the restrictive covenants, including i3 Verticals, LLC’s obligations to maintain specific financial ratios, that may limit its ability to make certain distributions to us.
The Information Blocking Final Rule prohibits healthcare providers, HIEs, and HIT developers, including our subsidiary that provides electronic medical records, from information blocking, which is defined as practices likely to interfere with, prevent, or materially discourage access, exchange, or use of EHI, except as 38 required by law or specified by HHS as a reasonable and necessary activity.
The Information Blocking Rule prohibits healthcare providers, HIEs, and HIT developers, including our subsidiary that provides electronic medical records, from information blocking, which is defined as practices likely to interfere with, prevent, or materially discourage access, exchange, or use of EHI, except as required by 38 law or specified by HHS as a reasonable and necessary activity.
In addition, contractual obligations related to confidentiality and assignment of intellectual property rights may be ineffective or unenforceable, and departing employees may share our proprietary information with competitors in ways that could adversely impact us. 32 In a dynamic industry like ours, our success and growth depend on our ability to attract, recruit, retain and develop qualified employees.
In addition, contractual obligations related to confidentiality and assignment of intellectual property rights may be ineffective or unenforceable, and departing employees may share our proprietary information with competitors in ways that could adversely impact us. In a dynamic industry like ours, our success and growth depend on our ability to attract, recruit, retain and develop qualified employees.
We also have a certain amount of fixed and semi-fixed costs, including rent, debt service and salaries, which could limit our ability to quickly adjust costs and respond to changes in our business and the economy. Rapidly evolving domestic and global economic conditions are beyond our control and could materially adversely affect our business, operations, and results of operations.
We also have a certain amount of fixed and semi-fixed costs, including rent, debt service and salaries, which could limit our ability to quickly adjust costs and respond to changes in our business and the economy. Rapidly evolving domestic and global conditions are beyond our control and could materially adversely affect our business, operations, and results of operations.
In addition, even an inadvertent failure to comply with laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could damage our business or our reputation. Compliance with the Dodd-Frank Act and other federal and state regulations may increase our compliance costs, limit our revenues and otherwise negatively affect our business.
In addition, even an inadvertent failure to comply with laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could damage our business or our reputation. Compliance with the Dodd-Frank Act and other federal and state regulations applicable to our business may increase our compliance costs, limit our revenues and otherwise negatively affect our business.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. 45 In addition, the credit agreement governing our Senior Secured Credit Facility contains, and any agreements evidencing or governing other future debt may contain, certain restrictive covenants that limit our ability, among other things, to engage in certain activities that are in our long-term best interests, including our ability to: • incur liens on property, assets or revenues; • incur or assume additional debt or amend our debt and other material agreements; • declare or make distributions and redeem or repurchase equity interests or issue preferred stock; • prepay, redeem or repurchase debt; • make investments; • enter into any sale-and-leaseback of property; • engage in certain business activities; and • engage in mergers and asset sales.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. 45 In addition, the 2023 Senior Secured Credit Facility contains, and any agreements evidencing or governing other future debt may contain, certain restrictive covenants that limit our ability, among other things, to engage in certain activities that are in our long-term best interests, including our ability to: • incur liens on property, assets or revenues; • incur or assume additional debt or amend our debt and other material agreements; • declare or make distributions and redeem or repurchase equity interests or issue preferred stock; • prepay, redeem or repurchase debt; • make investments; • enter into any sale-and-leaseback of property; • engage in certain business activities; and • engage in mergers and asset sales.
Various laws and regulations, including those in other industries in which we provide services, even if such laws and regulations not directed at us, may require us to make significant efforts to change our products and services and may require that we incur additional compliance costs and change how we price our products and services to our customers and distribution partners.
Various laws and regulations, including those in other industries in which we provide services, even if such laws and regulations are not directed at us, may require us to make significant efforts to change our products and services and may require that we incur additional compliance costs and change how we price our products and services to our customers and distribution partners.
Since the enactment of the Dodd-Frank Act, there have been substantial reforms to the supervision and operation of the financial services industry, including numerous new regulations that have imposed compliance costs and, in some cases, limited revenue sources for us and our financial institution partners and customers.
Since the enactment of the Dodd-Frank Act, there have been substantial reforms to the supervision and operation of the financial services industry, including numerous new regulations that have imposed additional compliance costs and, in some cases, limited revenue sources for us and our financial institution partners and customers.
Security breaches could result in financial institutions canceling large numbers of credit and debit cards, or consumers or businesses electing to cancel their cards following such an incident. We may not be able to successfully execute our strategy of growth through acquisitions.
Security breaches could result in financial institutions canceling large numbers of credit and debit cards, or consumers or businesses electing to cancel their cards following such an incident. 30 We may not be able to successfully execute our strategy of growth through acquisitions.
In addition, our ability to repurchase the Exchangeable Notes or to pay cash upon exchanges of the Exchangeable Notes is limited by the agreements governing our existing indebtedness (including the Senior Secured Credit Facility) and may also be limited by law, by regulatory authority or by agreements that will govern our future indebtedness.
In addition, our ability to repurchase the Exchangeable Notes or to pay cash upon exchanges of the Exchangeable Notes is limited by the agreements governing our existing indebtedness (including the 2023 Senior Secured Credit Facility) and may also be limited by law, by regulatory authority or by agreements that will govern our future indebtedness.
The restrictive covenants in our Senior Secured Credit Facility also require us to maintain specified financial ratios. While we have not previously breached and are not in breach of any of these covenants, there can be no guarantee that we will not breach these covenants in the future.
The restrictive covenants in our 2023 Senior Secured Credit Facility also require us to maintain specified financial ratios. While we have not previously breached and are not in breach of any of these covenants, there can be no guarantee that we will not breach these covenants in the future.
Although we may enter into interest rate swap agreements in the future, we and our subsidiaries are exposed to interest rate increases on the floating portion of our Senior Secured Credit Facility that are not covered by interest rate swaps, to the extent we have indebtedness outstanding.
Although we may enter into interest rate swap agreements in the future, we and our subsidiaries are exposed to interest rate increases on the floating portion of our 2023 Senior Secured Credit Facility that are not covered by interest rate swaps, to the extent we have indebtedness outstanding.
Our ability to comply with these covenants and restrictions may be affected by events and factors beyond our control. Our failure to comply with any of these covenants or restrictions could result in an event of default under our Senior Secured Credit Facility.
Our ability to comply with these covenants and restrictions may be affected by events and factors beyond our control. Our failure to comply with any of these covenants or restrictions could result in an event of default under our 2023 Senior Secured Credit Facility.
The following risk factors, some of which contain statements that constitute forward-looking statements, should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes.
The following risk factors, some of which contain statements that constitute forward-looking statements, should be read in conjunction with 21 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes.
Any such initiatives also may 39 result in a reduction of expenditures by existing or potential customers, which could have a material adverse impact on our business, results of operations or financial condition.
Any such initiatives also may result in a reduction of expenditures by existing or potential customers, which could have a material adverse impact on our business, results of operations or financial condition.
For additional information about our Senior Secured Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K, and “Quantitative and Qualitative Disclosure About Market Risk” in Part II, Item 7A of this Annual Report on Form 10-K.
For additional information about our 2023 Senior 44 Secured Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K, and “Quantitative and Qualitative Disclosure About Market Risk” in Part II, Item 7A of this Annual Report on Form 10-K.
A breach of our system or a third-party system upon which we rely may subject us to material losses or liability, including payment network fines, assessments and claims for unauthorized purchases with misappropriated credit, debit or card information, impersonation or other similar fraud claims.
In addition, a breach of our system or a third-party system upon which we rely may subject us to material losses or liability, including payment network fines, assessments and claims for unauthorized purchases with misappropriated credit, debit or card information, impersonation or other similar fraud claims.
The Exchangeable Notes are exchangeable on the terms set forth in the Indenture into cash, shares of Class A common stock, or a combination thereof, at i3 Verticals, LLC’s election. As of September 30, 2022, $117.0 million of the original aggregate principal amount of $138.0 million was outstanding.
The Exchangeable Notes are exchangeable on the terms set forth in the Indenture into cash, shares of Class A common stock, or a combination thereof, at i3 Verticals, LLC’s election. As of September 30, 2023, $117.0 million of the original aggregate principal amount of $138.0 million was outstanding.
Further, reform efforts or changing healthcare regulatory requirements may also render our products or services obsolete or may block us from accomplishing our work or from developing new products or services. This may in turn impose additional costs upon us to adapt to the new operating environment or to further develop or modify our products and services.
Further, reform efforts or changing healthcare regulatory requirements may also render our products or services obsolete or may block us from fully realizing or accomplishing our work or from developing new products or services. This may in turn impose additional costs upon us to adapt to the new operating environment or to further develop or modify our products and services.
Further, OCR may require companies to enter into resolution agreements and corrective action plans which impose ongoing compliance requirements. OCR enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources.
Further, OCR may require companies to enter into resolution agreements and corrective action plans that impose ongoing compliance requirements. OCR enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources.
In general, demand for consumer products may be adversely affected by increases in interest rates and the reduced availability of financing. A reduction in the amount of consumer or commercial spending could result in a decrease in our revenue and profits.
In addition, demand for consumer products may be adversely affected by increases in interest rates and the reduced availability of financing. A reduction in the amount of consumer or commercial spending could result in a decrease in our revenue and profits.
In addition, the American Rescue Plan Act of 2021 increased the federal budget deficit in a manner that triggered an additional statutorily mandated sequestration. As a result, an additional payment reduction of up to 4% was required to take effect in January 2022. However, Congress has delayed implementation of this payment reduction until 2023.
In addition, the American Rescue Plan Act of 2021 increased the federal budget deficit in a manner that triggered an additional statutorily mandated sequestration. 39 As a result, an additional payment reduction of up to 4% was required to take effect in January 2022. However, Congress has delayed implementation of this payment reduction until 2025.
An event of default would permit the lending banks under the facility to take certain actions, including terminating all outstanding commitments and declaring all amounts outstanding under our credit facility to be immediately due and payable, including all outstanding borrowings, accrued and unpaid interest thereon, and all other amounts owing or payable with respect to such borrowings and any terminated commitments.
An event of default would permit the lending banks under the facility to take certain actions, including terminating all outstanding commitments and declaring all amounts outstanding under our 2023 Senior Secured Credit Facility to be immediately due and payable, including all outstanding borrowings, accrued and unpaid interest thereon, and all other amounts owing or payable with respect to such borrowings and any terminated commitments.
While we did not incur material chargeback losses in our 2022 or 2021 fiscal years, any increase in chargebacks not paid by our customers could have a material adverse effect on our business, financial condition and results of operations. We are potentially liable for losses caused by fraudulent card transactions.
While we did not incur material chargeback losses in our 2023 or 2022 fiscal years, any increase in chargebacks not paid by our customers could have a material adverse effect on our business, financial condition and results of operations. 28 We are potentially liable for losses caused by fraudulent card transactions.
A default under the Indenture or the fundamental change itself could also lead to a default under the agreements governing our other indebtedness (including the credit agreement governing the Senior Secured Credit Facility) and agreements governing our future indebtedness.
A default under the Indenture or the fundamental change itself could also lead to a default under the agreements governing our other indebtedness (including the 2023 Senior Secured Credit Facility) and agreements governing our future indebtedness.
The Continuing Equity Owners, who collectively hold approximately 31% of the combined voting power of our common stock as of November 17, 2022, may receive payments from us under the Tax Receivable Agreement upon a redemption or exchange of their common units in i3 Verticals, LLC, including the issuance of shares of our Class A common stock upon any such redemption or exchange.
The Continuing Equity Owners, who collectively hold approximately 31% of the combined voting power of our common stock as of November 21, 2023, may receive payments from us under the Tax Receivable Agreement upon a redemption or exchange of their common units in i3 Verticals, LLC, including the issuance of shares of our Class A common stock upon any such redemption or exchange.
If we violate the federal AKS, the CMP Law, the federal FCA, the Cures Act or similar federal or state laws and regulations, it could result in a material breach of contract with one or more of our customers in our Healthcare vertical, harm our reputation and subject us to substantial civil and criminal penalties.
If we violate the federal AKS, the CMP Law, the federal FCA, the Cures Act or other federal or state laws and regulations applicable to healthcare services, it could result in a material breach of contract with one or more of our customers in our Healthcare vertical, harm our reputation and subject us to substantial civil and criminal penalties.
These new rules are currently applicable to certain services we offer, and customers may insist that we develop additional solutions that comply with these various interoperability requirements, which could subject us to additional costs. We currently are and likely will continue to have certain solutions certified by ONC, which could further increase development costs and delay customer sales and implementations.
These rules apply to certain services we offer, and customers may insist that we develop additional solutions that comply with these various interoperability requirements, which could subject us to additional costs. We currently have and likely will continue to have certain solutions certified by ONC, which could further increase development costs and delay customer sales and implementations.
In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, expose us to liability under HIPAA, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the imposition of material penalties and fines under state and federal laws or by the payment networks.
In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the imposition of material penalties and fines under state and federal laws (including HIPAA) or by the payment networks.
For example, the HIPAA privacy and security regulations extensively regulate the use and disclosure of protected health information and require business associates such as our company to implement administrative, physical and technical safeguards to protect the security of such information.
For example, the HIPAA privacy and security regulations extensively regulate the use and disclosure of PHI and require business associates such as our company to implement administrative, physical and technical safeguards to protect the security of such information.
Specifically, under the so-called “Durbin Amendment” to the Dodd-Frank Act, the interchange fees that certain issuers charge businesses and organizations for debit transactions are regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the issuer in authorizing, clearing and settling the transactions.
Specifically, under the commonly known “Durbin Amendment” to the Dodd-Frank Act, the interchange fees that certain issuers charge businesses and organizations for debit transactions are regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the issuer in authorizing, clearing and settling the transactions.
Such cybersecurity regulations are applicable to large bank holding companies and their subsidiaries, as well as to service providers to those organizations.
Cybersecurity regulations and guidance are applicable to large bank holding companies and their subsidiaries, as well as to service providers to those organizations.
In addition, cost containment efforts at the federal and state levels may affect industry expenditures. For example, the Budget Control Act of 2011 requires automatic spending reductions to reduce the federal deficit. CMS began imposing a 2% reduction on payments of Medicare claims in 2013. These reductions have been extended through 2030.
In addition, cost containment efforts at the federal and state levels may affect industry expenditures. For example, the Budget Control Act of 2011 requires automatic spending reductions to reduce the federal deficit. CMS began imposing a 2% reduction on payments of Medicare claims in 2013. These reductions have been extended through the first six months of 2032.
As discussed above, the credit agreement governing our Senior Secured Credit Facility contains restrictive covenants that limit our ability to incur additional debt and engage in other capital-raising activities.
As discussed above, the 2023 Senior Secured Credit Facility contains restrictive covenants that limit our ability to incur additional debt and engage in other capital-raising activities.
Since the completion of our IPO, we have been subject to a requirement, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), to conduct an annual review and evaluation of our internal control over financial reporting and furnish a report by management on, among other things, our assessment of the effectiveness of our internal control over financial reporting each fiscal year beginning with the year following our first annual report required to be filed with the SEC.
We are subject to a requirement, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), to conduct an annual review and evaluation of our internal control over financial reporting and furnish a report by management on, among other things, our assessment of the effectiveness of our internal control over financial reporting each fiscal year beginning with the year following our first annual report required to be filed with the SEC.
If we are unable to properly protect 36 the privacy and security of protected health information entrusted to us, we could be found to have breached our contracts with our customers and be subject to investigation by the HHS Office for Civil Rights (“OCR”).
If we are unable to properly protect the privacy and security 36 of PHI entrusted to us, we could be found to have breached our contracts with our customers and/or be subject to investigation by the HHS Office for Civil Rights (“OCR”).
To provide our merchant acquiring services, we are registered through our bank sponsors with the Visa and Mastercard networks as service providers for member institutions. The majority of our $22.6 billion in payment volume in fiscal year 2022 was attributable to transactions processed on the Visa and Mastercard networks.
To provide our merchant acquiring services, we are registered through our bank sponsors with the Visa and Mastercard networks as service providers for member institutions. The majority of our $24.4 billion in payment volume in fiscal year 2023 was attributable to transactions processed on the Visa and Mastercard networks.
We also may incur costs in periods prior to the corresponding recognition of revenue. To the extent current regulations are subsequently changed or supplemented, customers may postpone or cancel their decisions to purchase or implement such solutions. Exclusion from participation in government healthcare programs.
We also may incur costs in periods prior to the corresponding recognition of revenue. To the extent current regulations are subsequently changed or supplemented, or for other reasons beyond our control, customers may postpone or cancel their decisions to purchase or implement such solutions. Exclusion from participation in government healthcare programs.
In addition, our relationships and reputation could be harmed, which could inhibit our ability to retain existing customers and distribution partners and obtain new customers and distribution partners. Legal requirements relating to the collection, storage, handling and transfer of personal data continue to evolve.
In addition, our relationships and reputation could be harmed, which could inhibit our ability to retain existing customers and distribution partners and obtain new customers and distribution partners. 42 Legal requirements relating to the collection, storage, handling and transfer of personal data continue to evolve at both the federal and state level.
U.S. and international markets and, are experiencing uncertain and volatile economic conditions, including from the impacts of the COVID-19 pandemic, Russian aggression in Ukraine and related rises in fuel costs, sustained inflation, threats or concerns of recession, and supply chain disruptions. These conditions make it extremely difficult for us to accurately forecast and plan future business activities.
U.S. and international markets are experiencing uncertain and volatile economic and geopolitical conditions, including from the impacts of Russian aggression in Ukraine, military conflict in the Middle East, rises in fuel costs, sustained inflation, threats or concerns of recession, and supply chain disruptions. These conditions make it extremely difficult for us to accurately forecast and plan future business activities.
Additionally, if we suffer a data breach, other privacy or cybersecurity regulatory compliance failures or are subject to fines, sanctions or proceedings as a result of actual or perceived compliance failures, or any similar event causing reputational harm, our opportunities for growth may be curtailed, and our potential liability for security breaches may increase, all of which could have a material adverse effect on our business, financial condition and results of operations. 43 These laws and regulations may change rapidly, and it is frequently unclear how they apply to our business.
Additionally, if we suffer a data breach, other privacy or cybersecurity regulatory compliance failures or are subject to fines, sanctions or proceedings as a result of actual or perceived compliance failures, or any similar event causing reputational harm, our opportunities for growth may be curtailed, and our potential liability for security breaches may increase, all of which could have a material adverse effect on our business, financial condition and results of operations.
We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights (including litigation against our third-party licensors), which is expensive, could cause a diversion of resources and may not prove successful.
We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights (including litigation against our third-party licensors), which is expensive, could cause a diversion of resources and may not prove successful. The loss of intellectual property protection or the inability to obtain third-party intellectual property could harm our business and ability to compete.
Our competitors include, among others, Tyler Technologies, Inc., EverCommerce, Inc., EngageSmart, LLC, GTY Technology Holdings, Inc., Constellation Software, Inc., Global Payments, Inc., Stripe, Inc., and Square, Inc. Many of our competitors have substantially greater financial, technological, and marketing resources than we have.
Our competitors include, among others, Tyler Technologies, Inc., EverCommerce, Inc., EngageSmart, LLC, Constellation Software, Inc., Roper Technologies, Inc., Global Payments, Inc., Axon Technologies, and PowerSchool Holdings, Inc. Many of our competitors have substantially greater financial, technological, and marketing resources than we have.
A number of federal and state laws govern patient referrals, financial relationships with physicians and other referral sources and inducements to providers and patients, including restrictions contained in amendments to the Social Security Act, commonly known as the AKS.
A number of federal and state laws govern patient referrals, financial relationships with physicians and other referral sources and inducements to providers and patients, including restrictions contained in amendments to the Social Security Act, commonly known as the AKS. The AKS contains a limited number of exceptions, and the OIG has created regulatory safe harbors to the AKS.
Our international operations subject us to additional risks which could have an adverse effect on our business, operating results, and financial condition. We employ resources outside of the United States to support on onshore operations.
Our international operations subject us to additional risks which could have an adverse effect on our business, operating results, and financial condition. We employ resources in India, to support our onshore operations.
Our systems and our third-party providers’ systems may fail, or our third-party providers may discontinue providing their services or technology generally or to us specifically, which in either case could interrupt our business, cause us to lose business and increase our costs. We rely on third parties for specific services, software and hardware used in providing our products and services.
Our software and systems and our third-party providers’ software and systems may fail, or our third-party providers may discontinue providing their services or technology generally or to us specifically, which in either case could interrupt our business, cause us to lose business and increase our costs.
Rules released by the Federal Reserve in July 2011 to implement the Durbin Amendment mandate a cap on debit transaction interchange fees for card issuers with assets of $10 billion or greater.
Rules released by the Federal Reserve in July 2011 to implement the Durbin Amendment mandate a cap on debit transaction interchange fees for card issuers with assets of $10 billion or greater. Effective October 1, 2012, debit card issuers are permitted a fraud-prevention adjustment.
We expect that the loss of EGC status and compliance will increase our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements. 44 Risks Related to Our Indebtedness Our indebtedness could adversely affect our financial health and competitive position.
We expect that the loss of EGC status and compliance will increase our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements.
Even if general expenditures by healthcare industry constituents remain the same or increase, other developments in the healthcare industry may reduce spending on healthcare IT and services or in some or all of the specific markets we serve or are planning to serve.
We anticipate that the federal deficit will continue to place pressure on government healthcare programs. Even if general expenditures by healthcare industry constituents remain the same or increase, other developments in the healthcare industry may reduce spending on healthcare IT and services or in some or all of the specific markets we serve or are planning to serve.
Such activities may reveal that we have failed to comply with the PCI DSS. In addition, even if we comply with the PCI DSS, there is no assurance that we will be protected from a security breach.
In addition, even if we comply with the PCI DSS, there is no assurance that we will be protected from a security breach.
Further, the FTC has prosecuted certain data breach cases as unfair and deceptive acts or practices under the Federal Trade Commission Act.
Further, the FTC has prosecuted certain uses and disclosures of personal information and data breach cases as unfair and/or deceptive acts or practices under the Federal Trade Commission Act or under the FTC Health Breach Notification Act.
As of September 30, 2022, we have an aggregate of 127,013,552 shares of Class A common stock authorized but unissued, including 10,118,142 shares of Class A common stock issuable, at our election, upon redemption of common units of i3 Verticals, LLC that are held by the Continuing Equity Owners.
As of September 30, 2023, we have an aggregate of 126,746,728 shares of Class A common stock authorized but unissued, including 10,093,394 shares of Class A common stock issuable, at our election, upon redemption of common units of i3 Verticals, LLC that are held by the Continuing Equity Owners.
In addition, several other states have introduced or passed similar legislation to the CCPA, including Nevada, Colorado, Virginia and Maine, that may impose varying standards and requirements on our data collection, use and processing activities.
In addition, several other states have introduced or passed similar legislation to the CCPA, including Nevada, Colorado, Virginia, Connecticut, Utah, Montana, Tennessee, Indiana, Iowa, Texas, Florida, Delaware and Oregon, that may impose varying standards and requirements on our data collection, use and processing activities.
If we fail to expand into new vertical markets and increase our penetration into existing vertical markets, we may not be able to continue to grow our revenues and earnings. 30 Revenues and profits generated via acquisition may be less than anticipated, the integration process could experience delays or difficulties, and we may fail to uncover all liabilities of acquisition targets through the due diligence process prior to an acquisition, resulting in unanticipated costs, losses or a decline in profits, as well as potential impairment charges.
Revenues and profits generated via acquisition may be less than anticipated, the integration process could experience delays or difficulties, and we may fail to uncover all liabilities of acquisition targets through the due diligence process prior to an acquisition, resulting in unanticipated costs, losses or a decline in profits, as well as potential impairment charges.
We could be liable for penalties if our information returns are not in compliance with these regulations. 41 Depending on how our products and services evolve, we may be subject to a variety of additional laws and regulations, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds transfers, anti-money laundering, counter-terrorist financing, restrictions on foreign assets, gambling, banking and lending, U.S.
Depending on how our products and services evolve, we may be subject to a variety of additional laws and regulations, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds transfers, anti-money laundering, counter-terrorist financing, restrictions on foreign assets, gambling, banking and lending, U.S. Safe Harbor regulations, and import and export restrictions.
Furthermore, even though the market for integrated payment processing products and services is evolving, it may develop too rapidly or not rapidly enough for us to recover the costs we have incurred in developing new products and services targeted at this market.
Furthermore, even though the market for integrated payment processing products and services is evolving, it may develop too rapidly or not rapidly enough for us to recover the costs we have incurred in developing new products and services targeted at this market. Any of the foregoing could have a material and adverse effect on our operating results and financial condition.
Any such sanction, fine, proceeding or action could damage our reputation, force us to incur significant expenses in defense of these proceedings, disrupt our operations, distract our management, increase our costs of doing business and may result in the imposition of monetary liability. We could be subject to breaches of security by hackers or other unauthorized persons.
Any such sanction, fine, proceeding or action could damage our reputation, force us to incur significant expenses in defense of these proceedings, disrupt our operations, distract our management, increase our costs of doing business and may result in the imposition of monetary liability. We are subject to risk associated with information technology and cybersecurity matters.
To the extent we are processing payments or providing products and services for a customer that may be in violation of laws, rules and regulations, we may be subject to enforcement actions and as a result may incur losses and liabilities that may adversely affect our business.
To the extent we are processing payments or providing products and services for a customer that may be in violation of laws, rules and regulations, we may be subject to enforcement actions and as a result may incur losses and liabilities that may adversely affect our business. 40 We could be adversely affected by violations of the FCPA and similar anti-bribery laws of other countries in which we provide services or have employees.
If these uncertain business, macroeconomic or political conditions continue or further decline, our business, financial condition and results of operations could be materially adversely affected. 29 A decline in the use of cards and ACH as payment mechanisms for consumers and businesses or adverse developments in the electronic payment industry in general could adversely affect our business, financial condition and operating results.
A decline in the use of cards and ACH as payment mechanisms for consumers and businesses or adverse developments in the electronic payment industry in general could adversely affect our business, financial condition and operating results.
This due diligence review, however, may not adequately uncover all of the contingent or undisclosed liabilities we may incur as a consequence of the proposed acquisition, exposing us to potentially significant, unanticipated costs, as well as potential impairment charges. An acquisition may also subject us to additional regulatory burdens that affect our business in potentially unanticipated and significantly negative ways.
This due diligence review, however, may not adequately uncover all of the contingent or undisclosed liabilities we may incur as a consequence of the proposed acquisition, exposing us to potentially significant, unanticipated costs, as well as potential impairment charges.
The HHS OIG recommends that medical billing companies develop and implement comprehensive compliance programs to mitigate this risk. In addition, certain states have adopted laws or regulations forbidding splitting of fees with non-physicians, which may be interpreted to prevent business service providers, including medical billing providers, from using a percentage-based billing arrangement.
In addition, certain states have adopted laws or regulations forbidding splitting of fees with non-physicians, which may be interpreted to prevent business service providers, including medical billing providers, from using a percentage-based billing arrangement.
Such disruptions could decrease efficiency, increase our costs and have an adverse effect on our business or results of operations. 34 Risks Related to Regulation We are subject to extensive laws and government regulation, the costs of compliance with which can be significant, and our actual or perceived failure to comply with such obligations may subject us to penalties and otherwise have an unfavorable impact on our business, financial condition and results of operations.
We may also face audits or investigations by one or more foreign government agencies relating to our compliance with these regulations. 34 Risks Related to Regulation We are subject to extensive laws and government regulation, the costs of compliance with which can be significant, and our actual or perceived failure to comply with such obligations may subject us to penalties and otherwise have an unfavorable impact on our business, financial condition and results of operations.
We expect our cash needs to increase significantly for the next several years as we: • make additional acquisitions; • market our products and services; • expand our customer support and service operations; • hire additional marketing, customer support and administrative personnel; and • implement new and upgraded operational and financial systems, procedures and controls.
We expect our cash needs to increase significantly for the next several years as we: • make additional acquisitions; • market our products and services; • expand our customer support and service operations; • hire additional marketing, customer support and administrative personnel; and • implement new and upgraded operational and financial systems, procedures and controls. 24 As a result of these continuing costs and expenses, we need to generate significant revenues to attain and maintain profitability and positive cash flow.
Because our standing arrangements and agreements with our vendors and customers typically contain no purchase or sale obligations and are terminable by either party upon no or relatively short notice, we are subject to significant risks associated with the loss or change at any time in the business habits and financial condition of key vendors as they adapt to changes in the market. 22 To acquire and retain customers, we depend in part on distribution partners that generally do not serve us exclusively, may not aggressively market our products and services, are subject to attrition and are not under our control.
Because our standing arrangements and agreements with our vendors and customers typically contain no purchase or sale obligations and are terminable by either party upon no or relatively short notice, we are subject to significant risks associated with the loss or change at any time in the business habits and financial condition of key vendors as they adapt to changes in the market.
Any failure to timely integrate emerging payment methods into our software, to anticipate consumer behavior changes or to contract with processing partners that support such emerging payment technologies could cause us to lose traction among our customers or referral sources, resulting in a corresponding loss of revenue, if those methods become popular among end-users of their services.
Any failure to timely integrate emerging payment methods into our software, to anticipate consumer behavior changes or to contract with processing partners that support such emerging payment technologies could cause us to lose traction among our customers or referral sources, resulting in a corresponding loss of revenue, if those methods become popular among end-users of their services. 26 The products and services we deliver are designed to process complex transactions and provide reports and other information on those transactions, all at very high volumes and processing speeds.
We rely heavily on the efforts of our distribution partners to market our products and services to existing customers and potential customers. Generally, our agreements with distribution partners are not exclusive and these partners retain the right to refer potential customers to other merchant acquirers.
Generally, our agreements with distribution partners are not exclusive and these partners retain the right to refer potential customers to other merchant acquirers.
Additionally, in recent years, individuals and groups have been purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies like ours.
Any claim from third parties may result in a limitation on our ability to use the intellectual property subject to these claims. Additionally, in recent years, individuals and groups have been purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies like ours.
If we are unable to develop, adapt to or access technological changes or evolving industry standards on a timely and cost-effective basis, our business, financial condition and results of operations would be materially adversely affected. Unauthorized disclosure, destruction or modification of data or disruption of our services could expose us to liability, protracted and costly litigation and damage our reputation.
If we are unable to develop, adapt to or access technological changes or evolving industry standards on a timely and cost-effective basis, our business, financial condition and results of operations would be materially adversely affected.
If we are found to be in violation of any such legal or regulatory requirements, we may be subject to monetary fines or other penalties such as a cease and desist order, or we may be required to make product changes, any of which could have an adverse effect on our business and financial results.
If we are found to be in violation of any such legal or regulatory requirements, we may be subject to monetary fines or other penalties such as a cease and desist order, or we may be required to make product changes, any of which could have an adverse effect on our business and financial results. 41 Changes in tax laws or their interpretations, or becoming subject to additional U.S., state or local taxes that cannot be passed through to our customers, could negatively affect our business, financial condition and results of operations.
Some of these organizations and service providers are our competitors or provide similar services and technology to our competitors, and we may not have long-term contracts with them. If these contracts are canceled or we are unable to renew them on commercially reasonable terms, or at all, our business, financial condition and results of operation could be adversely impacted.
If these contracts are canceled or we are unable to renew them on commercially reasonable terms, or at all, our business, financial condition and results of operation could be adversely impacted.
Such healthcare reforms may also make introduction of new products and service costlier or more time-consuming than we currently anticipate. These changes may also prevent our introduction of new products and services or make the continuation or maintenance of our existing products and services unprofitable or impossible.
Such healthcare reforms may also make introduction of new products and service costlier or more time-consuming than we currently anticipate.
Such penalties could be material and could result in termination of registration or could require changes in our process for registering new customers. This could materially and adversely affect our business. Under certain circumstances specified in the payment network rules, we may be required to submit to periodic audits, self-assessments or other assessments of our compliance with the PCI DSS.
This could materially and adversely affect our business. 27 Under certain circumstances specified in the payment network rules, we may be required to submit to periodic audits, self-assessments or other assessments of our compliance with the PCI DSS. Such activities may reveal that we have failed to comply with the PCI DSS.
If an audit or self-assessment under PCI DSS or NACHA identifies any deficiencies that we need to remediate, the remediation efforts may distract our management team and be expensive and time consuming. 26 If our bank sponsorships are terminated and we are not able to secure or successfully migrate customer portfolios to new bank sponsors, we will not be able to conduct our business.
If an audit or self-assessment under PCI DSS or NACHA identifies any deficiencies that we need to remediate, the remediation efforts may distract our management team and be expensive and time consuming.
As such, we will be subject to certain disclosure and compliance requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company.
We no longer qualify as an emerging growth company ("EGC") as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"). As such, we are subject to certain disclosure and compliance requirements that apply to other public companies but did not previously apply to us due to our status as an EGC.
In addition, the defense of these matters could result in continued diversion of our management’s time and attention away from business operations, which could also harm our business.
In addition, the defense of these matters could result in continued diversion of our management’s time and attention away from business operations, which could also harm our business. Even if these matters are resolved in our favor, the uncertainty and expense associated with unresolved legal proceedings could harm our business and reputation.

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Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed3 unchanged
Biggest changeWe lease properties located within various geographic regions in which we conduct business, including Alabama, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Kentucky, Louisiana, Michigan, Minnesota, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Washington and Wisconsin. Our properties include office spaces and call centers used for operational, sales, management and administrative purposes.
Biggest changeWe lease properties located within various geographic regions in which we conduct business, including Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Louisiana, Michigan, North Carolina, Ohio, South Carolina, Tennessee, Texas, Washington and Wisconsin. Our properties include office spaces and call centers used for operational, sales, management and administrative purposes.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−1 removed4 unchanged
Biggest changeAll other sales of unregistered securities during the year ended September 30, 2022, have been previously disclosed in either a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. Issuer Purchases of Equity Securities We did not repurchase any shares of our Class A or Class B common stock during the quarter ended September 30, 2022.
Biggest changeIssuer Purchases of Equity Securities We did not repurchase any shares of our Class A or Class B common stock during the quarter ended September 30, 2023. Dividends We have never declared or paid a cash dividend on our common stock.
Our Board of Directors reviews our dividend policy from time to time and may declare dividends at its discretion; however, our Senior Secured Credit Facility (as defined below) places restrictions on the payment of dividends. For further discussion of the Senior Secured Credit Facility, see Item 7.
Our Board of Directors reviews our dividend policy from time to time and may declare dividends at its discretion; however, our 2023 Senior Secured Credit Facility (as defined below) places restrictions on the payment of dividends. For further discussion of the 2023 Senior Secured Credit Facility, see Item 7.
The following graph shows a comparison of cumulative total shareholder return for (1) our Class A common stock, (2) the S&P 500 Index and (3) the S&P Information technology Index. The graph assumes the value of the investment in our common stock and each index was $100.00 on June 21, 2018 and that all dividends, if any, were reinvested.
The following graph shows a comparison of cumulative total shareholder return for (1) our Class A common stock, (2) the S&P 500 Index and (3) the S&P Information technology Index. The graph assumes the value of the investment in our common stock and each index was $100.00 on September 30, 2018 and that all dividends, if any, were reinvested.
Stockholders As of November 17, 2022, there were 79 stockholders of record of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or “street name” accounts through brokers.
Stockholders As of November 21, 2023, there were 74 stockholders of record of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or “street name” accounts through brokers.
Dividends We have never declared or paid a cash dividend on our common stock. We intend to retain any earnings to finance the growth and development of our business and do not expect to declare or pay any cash dividends in the foreseeable future.
We intend to retain any earnings to finance the growth and development of our business and do not expect to declare or pay any cash dividends in the foreseeable future.
As of November 17, 2022, there were 53 stockholders of record of our Class B common stock.
As of November 21, 2023, there were 52 stockholders of record of our Class B common stock.
Removed
S&P 500 S&P 500 Information Technology June 21, 2018 $ 100.00 $ 100.00 $ 100.00 September 30, 2018 $ 176.77 $ 105.97 $ 105.71 September 30, 2019 $ 154.77 $ 108.25 $ 113.00 September 30, 2020 $ 194.23 $ 122.30 $ 164.27 September 30, 2021 $ 186.23 $ 156.65 $ 209.78 September 30, 2022 $ 154.08 $ 130.40 $ 166.30 Sales of Unregistered Securities We did not issue any Class A common stock in exchange for Class B common stock pursuant to the terms of the LLC Limited Liability Agreement during the quarter ended September 30, 2022.
Added
S&P 500 S&P 500 Information Technology September 30, 2018 $ 100.00 $ 100.00 $ 100.00 September 30, 2019 $ 87.55 $ 102.15 $ 106.91 September 30, 2020 $ 109.88 $ 115.41 $ 155.40 September 30, 2021 $ 105.35 $ 147.82 $ 198.46 September 30, 2022 $ 87.16 $ 123.05 $ 157.32 September 30, 2023 $ 91.99 $ 147.15 $ 219.78 Sales of Unregistered Securities In August 2023, we issued an aggregate of 14,824 shares of Class A Common stock in exchange for an equivalent number of shares of Class B common stock and Common Units pursuant to the terms of the i3 Verticals, LLC Limited Liability Company Agreement, which shares represented less than 1% of the outstanding shares of Class A Common Stock.
Added
These shares were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933. We did not issue any other equity securities that were not registered during the year ended September 30, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

80 edited+15 added−24 removed42 unchanged
Biggest changeOther changes include decreases in operating assets and liabilities of $17.9 million, which are impacted by the timing of collections and payments, an increase in the provision for deferred income taxes of $2.9 million, a decrease in the gain on sale of investments of $2.1 million and an increase in non-cash lease expense of $1.7 million for the year ended September 30, 2022 compared to the year ended September 30, 2021. 61 Cash Flow from Investing Activities Net cash used in investing activities decreased $36.3 million to $113.0 million for the year ended September 30, 2022 from $149.3 million for the year ended September 30, 2021.
Biggest changeOffsetting the decreases in operating assets and liabilities, our net loss decreased $20.6 million to a net loss of $2.7 million for the year ended September 30, 2023 from a net loss of $23.2 million for the year ended September 30, 2022; however, $12.9 million of the decrease in net loss was driven by a decrease in changes in the fair value of non-cash contingent consideration, $8.5 million of the decrease in net loss was driven by a decrease in the provision for deferred income taxes to a benefit from deferred income taxes, and $4.3 million of the decrease in net loss was driven by a decrease in amortization of debt discount and issuance costs, all of which decrease the net loss but do not result in cash inflows.
We received approximately $132.8 million in net proceeds from the sale of the Exchangeable Notes, as determined by deducting estimated offering expenses paid to third-parties from the aggregate principal amount. i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Senior Secured Credit Facility in connection with the effectiveness of the operative provisions of the Amendment and to pay the cost of the note hedge transactions.
We received approximately $132.8 million in net proceeds from the sale of the Exchangeable Notes, as determined by deducting estimated offering expenses paid to third-parties from the aggregate principal amount. i3 Verticals, LLC used a portion of the net proceeds of the Exchangeable Notes offering to pay down outstanding borrowings under the Prior Senior Secured Credit Facility in connection with the effectiveness of the operative provisions of the Amendment and to pay the cost of the note hedge transactions.
Although we believe our liquidity position remains strong, there can be no assurance that we will be able to raise additional funds, in the form of debt or equity, or to amend our Senior Secured Credit Facility on terms acceptable to us, if at all, even if we determined such actions were necessary in the future.
Although we believe our liquidity position remains strong, there can be no assurance that we will be able to raise additional funds, in the form of debt or equity, or to amend our 2023 Senior Secured Credit Facility on terms acceptable to us, if at all, even if we determined such actions were necessary in the future.
The lenders under the Senior Secured Credit Facility are not under any obligation to provide any such additional term loan facilities or revolving credit commitments.
The lenders under the 2023 Senior Secured Credit Facility are not under any obligation to provide any such additional term loan facilities or revolving credit commitments.
The amounts recorded as of September 30, 2022, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.
The amounts recorded as of September 30, 2023, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.
ARR is the annualized revenue derived from software-as-a-service (“SaaS”) arrangements, software monetized with transaction-based fees, 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. We focus on ARR because it helps us to assess the health and trajectory of our business.
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. We focus on ARR because it helps us to assess the health and trajectory of our business.
During the year ended September 30, 2020, we repurchased $21.0 million in aggregate principal amount of the Exchangeable Notes for an aggregate purchase price of approximately $17.4 million. As of September 30, 2022, $117.0 million of the original aggregate principal amount of $138.0 million was outstanding.
During the year ended September 30, 2020, we repurchased $21.0 million in aggregate principal amount of the Exchangeable Notes for an aggregate purchase price of approximately $17.4 million. As of September 30, 2023, $117.0 million of the original aggregate principal amount of $138.0 million was outstanding.
In addition to our growth through acquisitions, revenue from existing businesses grew, resulting from growth in software and related services revenues, primarily in our Public Sector verticals, and an increase in payment volume from new and existing customers across the Company.
In addition to our growth through acquisitions, revenue from existing businesses grew, resulting from growth in software and related services revenues, primarily in our Public Sector vertical, and an increase in payment volume from new and existing customers across the Company.
The increase reflected a higher average interest rate and a higher average outstanding debt balance for the year ended September 30, 2022 as compared to the year ended September 30, 2021.
The increase reflected a higher average interest rate and a higher average outstanding debt balance for the year ended September 30, 2023, as compared to the year ended September 30, 2022.
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020 For a discussion of the cash flows for the year ended September 30, 2021 compared to the year ended September 30, 2020, refer to Part II, Item 7.
Year Ended September 30, 2022 Compared to Year Ended September 30, 2021 For a discussion of the cash flows for the year ended September 30, 2022 compared to the year ended September 30, 2021, refer to Part II, Item 7.
We will be permitted to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the Senior Secured Credit Facility, whether such amounts are issued under the Senior Secured Credit Facility or under the additional term loan facilities or additional revolving credit facilities, at any time without premium or penalty.
The Borrower will be permitted to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the 2023 Senior Secured Credit Facility, whether such amounts are issued under the Revolver or under the additional term loan facilities or additional revolving credit facilities, at any time without premium or penalty.
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020 For discussion of our results of operations for fiscal 2021 compared to fiscal 2020, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on November 22, 2021.
Year Ended September 30, 2022 Compared to Year Ended September 30, 2021 For discussion of our results of operations for fiscal 2022 compared to fiscal 2021, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on November 18, 2022.
We intend to fund the payment of the amounts due under the Tax Receivable Agreement out of the cash savings that we actually realize in respect of the attributes to which Tax Receivable Agreement relates. 65 As of September 30, 2022, the total amount due under the Tax Receivable Agreement was $40.8 million, and payments to the Continuing Equity Owners related to exchanges through September 30, 2022 will range from approximately $0 to $3.3 million per year and are expected to be paid over the next 26 years years.
We intend to fund the payment of the amounts due under the Tax Receivable Agreement out of the cash savings that we actually realize in respect of the attributes to which Tax Receivable Agreement relates. 65 As of September 30, 2023, the total amount due under the Tax Receivable Agreement was $40.1 million, and payments to the Continuing Equity Owners related to exchanges through September 30, 2023 will range from approximately $0 to $3.2 million per year and are expected to be paid over the next 24 years.
We calculated interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.00% on the outstanding principal balance as of September 30, 2022 of $117.0 million. 4.
We calculated interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.00% on the outstanding principal balance as of September 30, 2023 of $117.0 million. 5.
The Senior Secured Credit Facility places certain restrictions on the ability of us, i3 Verticals, Inc. and their restricted subsidiaries to, among other things, incur debt and liens; merge, consolidate or liquidate; dispose of assets; enter into hedging arrangements; make certain restricted payments; undertake transactions with affiliates; enter into sale-leaseback transactions; make certain investments; prepay or modify the terms of certain indebtedness; and modify the terms of certain organizational agreements.
The 2023 Senior Secured Credit Facility places certain restrictions on the ability of the Borrower, the Company and their subsidiaries to, among other things, incur debt and liens; merge, consolidate or liquidate; dispose of assets; enter into hedging arrangements; make certain restricted payments; undertake transactions with affiliates; enter into sale-leaseback transactions; make certain investments; prepay or modify the terms of certain indebtedness; and modify the terms of certain organizational agreements.
The proceeds of the Senior Secured Credit Facility, together with proceeds from any additional amounts under the additional term loan facilities or additional revolving credit commitments, may only be used by us to (i) finance working capital, capital expenditures and other lawful corporate purposes, (ii) finance permitted acquisitions and (iii) to refinance certain existing indebtedness.
The proceeds of the Revolver, together with proceeds from any additional amounts under the additional term loan facilities or additional revolving credit commitments, may only be used by the Borrower to (i) finance working capital, capital expenditures and other lawful corporate purposes, (ii) finance permitted acquisitions (as defined in the 2023 Senior Secured Credit Facility) and (iii) to refinance certain existing indebtedness.
Acquisitions completed during the 2021 and 2022 fiscal years contributed an incremental $3.4 million, net of intercompany eliminations, to our other cost of services for the year ended September 30, 2022.
Acquisitions completed during the 2022 and 2023 fiscal years contributed an incremental $1.1 million, net of intercompany eliminations, to our other cost of services for the year ended September 30, 2023.
The obligations are secured by first-priority security interests in substantially all of our tangible and intangible assets, i3 Verticals, Inc. and each subsidiary guarantor, in each case whether owned on the date of the initial borrowings or thereafter acquired.
The obligations are secured by first-priority security interests in substantially all tangible and intangible assets of the Borrower, the Company and each subsidiary guarantor, in each case whether owned on the date of the initial borrowings or thereafter acquired.
Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $23.7 million for the year ended September 30, 2022 due to the performance of some of our acquisitions exceeding our expectations.
Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration to be paid in connection with acquisitions was a charge of $10.8 million for the year ended September 30, 2023 due to the performance of some of our acquisitions exceeding our expectations.
The Senior Secured Credit Facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events, invalidity of loan documents and certain changes in control.
The 2023 Senior Secured Credit Facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain events with respect to employee benefit plans, invalidity of loan documents and certain changes in control.
The largest driver of cash used in investing activities for the years ended September 30, 2022 and 2021 was cash used in acquisitions, net of cash acquired. For the year ended September 30, 2022, we used $100.7 million of cash for acquisitions, net of cash acquired compared to $142.5 million for the year ended September 30, 2021.
The largest driver of cash used in investing activities for the years ended September 30, 2023 and 2022 was cash used in acquisitions, net of cash acquired. For the year ended September 30, 2023, we used $102.0 million of cash for acquisitions, net of cash acquired compared to $100.7 million for the year ended September 30, 2022.
The applicable margin is based upon our consolidated total leverage ratio, as reflected in the schedule below: Consolidated Total Leverage Ratio Commitment Fee Letter of Credit Fee Term SOFR Rate Loans Base Rate Loans > 3.00 to 1.0 0.30% 3.25% 3.25% 1.25% > 2.50 to 1.0 but 0.25% 2.75% 2.75% 0.75% > 2.00 to 1.0 but 0.20% 2.50% 2.50% 0.50% 0.15% 2.25% 2.25% 0.25% In addition to paying interest on outstanding principal under the Senior Secured Credit Facility, we will be required to pay a commitment fee equal to the product of between 0.15% and 0.30% (the applicable percentage depending on our consolidated total leverage ratio as reflected in the schedule above) times the actual daily amount by which $375.0 million exceeds the total amount outstanding under the Senior Secured Credit Facility and available to be drawn under all outstanding letters of credit.
The applicable margin is based upon the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Senior Secured Credit Facility), as reflected in the schedule below: Consolidated Total Net Leverage Ratio Commitment Fee Letter of Credit Fee Term Benchmark Loans Base Rate Loans > 3.0 to 1.0 0.30 % 3.00 % 3.00 % 2.00 % > 2.5 to 1.0 but 0.25 % 2.50 % 2.50 % 1.50 % > 2.0 to 1.0 but 0.20 % 2.25 % 2.25 % 1.25 % 0.15 % 2.00 % 2.00 % 1.00 % In addition to paying interest on outstanding principal under the Revolver, the Borrower will be required to pay a commitment fee equal to the product of between 0.15% and 0.30% (the applicable percentage depending on the Borrower’s consolidated total net leverage ratio as reflected in the schedule above, 0.30% at September 30, 2023) times the actual daily amount by which $450 million exceeds the total amount outstanding under the Revolver and available to be drawn under all outstanding letters of credit.
The decrease in net cash provided by financing activities was primarily the result of an increase in payments on the revolving credit facility of $56.7 million and an increase in cash paid for contingent consideration up to our original estimates of $22.4 million, partially offset by an increase in proceeds from the revolving credit facility of $32.9 million and an increase in proceeds from issuance of Class A common stock, net of underwriting discounts and offering costs of $17.7 million for the year ended September 30, 2022 from year ended September 30, 2021.
The increase in net cash provided by financing activities was primarily the result of an increase in proceeds from the revolving credit facility of $29.3 million and a decrease in cash paid for contingent consideration up to our original estimates of $18.5 million, partially offset by an increase in payments on the revolving credit facility of $26.4 million and a decrease in proceeds from issuance of Class A common stock, net of underwriting discounts and offering costs of $17.7 million for the year ended September 30, 2023 compared to the year ended September 30, 2022.
Other costs of services within Merchant Services increased $8.4 million, or 16.4%, to $59.6 million for the year ended September 30, 2022 from $51.2 million for the year ended September 30, 2021, driven primarily by the growth in payment volume.
Other costs of services within Merchant Services increased $4.9 million, or 8.2%, to $64.5 million for the year ended September 30, 2023 from $59.6 million for the year ended September 30, 2022, driven primarily by the growth in payment volume.
Depreciation expense increased $0.2 million to $2.5 million for the year ended September 30, 2022 from $2.3 million for the year ended September 30, 2021.
Depreciation expense increased $0.8 million to $3.4 million for the year ended September 30, 2023 from $2.5 million for the year ended September 30, 2022.
Software and related services revenue as a percentage of total revenue for the years ended September 30, 2022 and 2021 was 49% and 39%. Our payment volume for the years ended September 30, 2022 and 2021 was $22.6 billion and $18.8 billion, respectively, representing a period-to-period growth rate of 20%.
Software and related services revenue as a percentage of total revenue for the years ended September 30, 2023 and 2022 was 50% and 49%. Our payment volume for the years ended September 30, 2023 and 2022 was $24.4 billion and $22.6 billion, respectively, representing a period-to-period growth rate of 8%.
Depreciation expense consists of depreciation on our investments in property, equipment and computer hardware and software. Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset. Amortization expense for acquired intangible assets and internally developed software is recognized using a proportional cash flow method.
Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset. Amortization expense for acquired intangible assets and internally developed software is recognized using a proportional cash flow method. Amortization expense for internally developed software is recognized over the estimated useful life of the asset.
In addition, if the total amount borrowed under the Senior Secured Credit Facility exceeds $375.0 million at any time, the Senior Secured Credit Facility requires us to prepay such excess outstanding amounts.
In addition, if the total amount borrowed under the Revolver exceeds $450 million at any time, the 2023 Senior Secured Credit Facility requires the Borrower to prepay such excess outstanding amounts.
As of September 30, 2022, the fair value of contingent consideration recorded is $22.8 million, with maximum contingent consideration payout of $81.3 million dependent upon achievement of specified financial performance targets, as defined in the purchase agreements.
As of September 30, 2023, the fair value of contingent consideration recorded is $8.2 million, with maximum contingent consideration payout of $18.9 million dependent upon achievement of specified financial performance targets, as defined in the purchase agreements.
Our effective tax rate of (27)% for the year ended September 30, 2022 differs from the federal statutory rate primarily due to the increase in the valuation allowance and as well as decrease in state taxes and increase in the tax effect of the revaluation of liabilities. i3 Verticals, Inc. is subject to federal, state and local income taxes with respect to its allocable share of any taxable income of i3 Verticals, LLC and is taxed at the prevailing corporate tax rates.
Our effective tax rate of 31% for the year ended September 30, 2023 differs from the federal statutory rate primarily due to valuation allowance and state tax expense. i3 Verticals, Inc. is subject to federal, state and local income taxes with respect to its allocable share of any taxable income of i3 Verticals, LLC and is taxed at the prevailing corporate tax rates.
Other expense (income) Other expense was $1.0 million for the year ended September 30, 2022, relating to adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates.
Other expense was $1.0 million for the year ended September 30, 2022, relating to adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates. 59 (Benefit from) Provision for Income Taxes The benefit from income taxes was $1.2 million for the year ended September 30, 2023 as compared to $5.0 million for the year ended September 30, 2022.
ARR for the three months ended September 30, 2022 and 2021 was $281.2 million and $210.8 million, respectively, representing a period-to-period growth rate of 33.4%. Software and related services revenue includes the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software.
ARR for the three months ended September 30, 2023 and 2022 was $312.9 million and $281.2 million, respectively, representing a period-to-period growth rate of 11.3%. 56 Software and related services revenue includes the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software.
Amortization expense increased $4.8 million to $26.9 million for the year ended September 30, 2022 from $22.1 million for the year ended September 30, 2021 primarily due to greater amortization expense resulting from acquisitions completed during the 2022 and 2021 fiscal years.
Amortization expense increased $6.2 million to $33.1 million for the year ended September 30, 2023 from $26.9 million for the year ended September 30, 2022 primarily due to greater amortization expense resulting from acquisitions completed during the 2023 and 2022 fiscal years.
This increase was principally driven by a $48.2 million increase in employment expense, primarily resulting from an increase in headcount that resulted from acquisitions and an increase in stock compensation expense. The majority of the remaining increase was comprised of increases in technology expense, travel expense, rental expense and advertising expense.
This increase was principally driven by a $22.4 million increase in employment expense, primarily resulting from an increase in headcount that resulted from inflationary pressures, acquisitions and an increase in stock compensation expense. The majority of the remaining increase was comprised of increases in technology expense.
Other Costs of Services Other costs of services increased $15.7 million, or 27.1%, to $73.4 million for the year ended September 30, 2022 from $57.7 million for the year ended September 30, 2021. This increase was primarily driven by an increase in other cost of services within the Merchant Services segment, driven by the increase in payment volume.
Other Costs of Services Other costs of services increased $7.2 million, or 9.8%, to $80.6 million for the year ended September 30, 2023 from $73.4 million for the year ended September 30, 2022. This increase was primarily driven by an increase in other cost of services within the Merchant Services segment, driven by the increase in payment volume.
This increase was principally driven by incremental revenue from acquisitions completed during the 2022 and 2021 fiscal years of $61.8 million, net of intercompany eliminations, all of which were within Software and Services.
This increase was partially driven by revenue from acquisitions completed during the 2023 and 2022 fiscal years of $21.5 million, net of intercompany eliminations, all of which were within Software and Services.
If we submit a number of transactions that is lower than the minimum, we are required to pay to the processor the fees it would have received if we had submitted the required minimum number of transactions. 2.
If we submit a number of transactions that is lower than the minimum, we are required to pay to the processor the fees it would have received if we had submitted the required minimum number of transactions. 2. In addition to the facility leases presented, we have $52 thousand in short-term leases.
The change in fair value of contingent consideration for the year ended September 30, 2021 was a charge of $7.1 million. Interest Expense, net Interest expense, net, increased $5.0 million, or 50.8%, to $14.8 million for the year ended September 30, 2022 from $9.8 million for the year ended September 30, 2021.
The change in fair value of contingent consideration for the year ended September 30, 2022 was a charge of $23.7 million. Interest Expense, net Interest expense, net, increased $10.4 million, or 70.1%, to $25.1 million for the year ended September 30, 2023 from $14.8 million for the year ended September 30, 2022.
All obligations under the Senior Secured Credit Facility are unconditionally guaranteed by i3 Verticals, Inc., a Delaware corporation, and each of i3 Verticals, Inc.’s existing and future direct and indirect material, wholly owned domestic restricted subsidiaries, subject to certain exceptions.
All obligations under the 2023 Senior Secured Credit Facility are unconditionally guaranteed by the Company, and each of the Company’s existing and future direct and indirect material, wholly owned domestic subsidiaries, subject to certain exceptions.
Payment volume from new and existing customers within Merchant Services increased $3.4 billion, or 19.5%, to $20.5 billion for the year ended September 30, 2022 from $17.1 billion for the year ended September 30, 2021.
Payment volume from new and existing customers within Merchant Services increased $1.2 billion, or 5.8%, to $21.7 billion for the year ended September 30, 2023 from $20.5 billion for the year ended September 30, 2022.
Depreciation and Amortization Depreciation and amortization increased $5.0 million, or 20.5%, to $29.4 million for the year ended September 30, 2022 from $24.4 million for the year ended September 30, 2021.
Depreciation and Amortization Depreciation and amortization increased $7.0 million, or 23.9%, to $36.5 million for the year ended September 30, 2023 from $29.4 million for the year ended September 30, 2022.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $58.9 million, or 43.7%, to $193.8 million for the year ended September 30, 2022 from $134.9 million for the year ended September 30, 2021.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $25.9 million, or 13.4%, to $219.7 million for the year ended September 30, 2023 from $193.8 million for the year ended September 30, 2022.
Other costs of services within Software and Services increased $5.2 million, or 60.0%, to $13.8 million for the year ended September 30, 2022 from $8.6 million for the year ended September 30, 2021.
Other costs of services within Software and Services increased $2.3 million, or 16.9%, to $16.1 million for the year ended September 30, 2023 from $13.8 million for the year ended September 30, 2022.
Interchange and other costs of services are recognized at the time the customer’s transactions are processed. Selling, general and administrative . Selling, general and administrative expenses include salaries and other employment costs, professional services, rent and utilities and other operating costs. Depreciation and amortization .
Other costs of services are recognized at the time the customer’s transactions are processed. Selling, general and administrative . Selling, general and administrative expenses include salaries and other employment costs, professional services, rent and utilities and other operating costs. Depreciation and amortization . Depreciation expense consists of depreciation on our investments in property, equipment and computer hardware and software.
For additional information on our segments, see Note 17 to our consolidated financial statements. 56 Key Performance Indicators We evaluate our performance through key performance indicators, including: • annualized recurring revenue ("ARR"); • software and related services as a percentage of total revenue; and • the dollar volume of payments our customers process through us (“payment volume”).
Key Performance Indicators We evaluate our performance through key performance indicators, including: • annualized recurring revenue ("ARR"); • software and related services as a percentage of total revenue; • the dollar volume of payments our customers process through us (“payment volume”); and • processing margin.
Revenue within Software and Services increased $79.0 million, or 69.0%, to $193.4 million for the year ended September 30, 2022 from $114.4 million for the year ended September 30, 2021.
Revenue within Software and Services increased $39.6 million, or 20.5%, to $233.0 million for the year ended September 30, 2023 from $193.4 million for the year ended September 30, 2022.
We estimated interest payments through the maturity of our Senior Secured Credit Facility by applying the interest rate of 6.24% in effect on the outstanding balance as of September 30, 2022, plus the unused fee rate of 0.30% in effect as of September 30, 2022. 3.
These payments will be made within the next twelve months. 3. We estimated interest payments through the maturity of our 2023 Senior Secured Credit Facility by applying the interest rate of 8.85% in effect on the outstanding balance as of September 30, 2023, plus the unused fee rate of 0.30% in effect as of September 30, 2023. 4.
As of September 30, 2022, we were in compliance with these covenants with a consolidated interest coverage ratio, total leverage ratio and consolidated senior leverage ratio of 8.17x, 3.68x and 2.24x, respectively.
As of September 30, 2023, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio of 4.39x and 3.77x, respectively.
As of September 30, 2022, we had borrowings outstanding of $185.0 million under the Senior Secured Credit Facility. Our primary cash needs are to fund working capital requirements, invest in our technology infrastructure, fund acquisitions and related contingent consideration, make scheduled principal and interest payments on our outstanding indebtedness and pay tax distributions to members.
Our primary cash needs are to fund working capital requirements, invest in our technology infrastructure, fund acquisitions and related contingent consideration, make scheduled principal and interest payments on our outstanding indebtedness and pay tax distributions to members.
This increase was principally driven by growth in software and related services revenues in our Public Sector and Healthcare verticals. 58 Revenue within Merchant Services increased $12.6 million, or 11.3%, to $124.5 million for the year ended September 30, 2022 from $111.9 million for the year ended September 30, 2021.
This increase was principally driven by revenue of $21.5 million from acquisitions completed during 2023 and 2022, and the remaining growth was driven by an increase in software and related services revenue in our Public Sector vertical and an increase in processing revenue in our Education vertical. 58 Revenue within Merchant Services increased $12.9 million, or 10.3%, to $137.3 million for the year ended September 30, 2023 from $124.5 million for the year ended September 30, 2022.
Year Ended September 30, 2022 Compared to Year Ended September 30, 2021 Year ended September 30, 2022 2021 (in thousands) Net cash provided by operating activities $ 45,846 $ 44,533 Net cash used in investing activities $ (113,045) $ (149,306) Net cash provided by financing activities $ 73,033 $ 102,103 Cash Flow from Operating Activities Net cash provided by operating activities increased $1.3 million to $45.8 million for the year ended September 30, 2022 from $44.5 million for the year ended September 30, 2021.
Year Ended September 30, 2023 Compared to Year Ended September 30, 2022 Year ended September 30, 2023 2022 (in thousands) 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 Cash Flow from Operating Activities Net cash provided by operating activities decreased $11.3 million to $34.5 million for the year ended September 30, 2023 from $45.8 million for the year ended September 30, 2022.
Cash Flow from Financing Activities Net cash provided by financing activities decreased $29.1 million to $73.0 million for the year ended September 30, 2022 from $102.1 million for the year ended September 30, 2021.
Cash Flow from Financing Activities Net cash provided by financing activities increased $2.6 million to $75.7 million for the year ended September 30, 2023 from $73.0 million for the year ended September 30, 2022.
Our Merchant Services segment includes third-party integrated payment solutions as well as traditional merchant processing services across our strategic vertical markets. Software and Services Our Software and Services segment delivers vertical market software solutions to customers across all of our strategic vertical markets. These solutions often include embedded payments or other recurring services.
How We Assess Our Business Software and Services Our Software and Services segment delivers vertical market software solutions to customers across all of our strategic vertical markets. These solutions often include embedded payments or other recurring services. Merchant Services Our Merchant Services segment provides comprehensive payment solutions to businesses and organizations.
Our acquisitions have opened new strategic vertical markets, increased the number of businesses and organizations to whom we provide solutions and augmented our existing payment and software solutions and capabilities. Acquisitions subsequent to September 30, 2022 Subsequent to September 30, 2022, we completed the acquisition of two business.
Our acquisitions have opened new strategic vertical markets, increased the number of businesses and organizations to whom we provide solutions and augmented our existing payment and software solutions and capabilities. Acquisitions during the year ended September 30, 2023 On October 1, 2022, we completed the acquisition of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt.
The provision of any such additional amounts under the additional term loan facilities or additional revolving credit commitments are subject to certain additional conditions and the receipt of certain additional commitments by existing or additional lenders.
As of September 30, 2023, the Borrower's consolidated interest coverage ratio was 4.39x and total leverage ratio was 3.77x. The provision of any such additional amounts under the additional term loan facilities or additional revolving credit commitments are subject to certain additional conditions and the receipt of certain additional commitments by existing or additional lenders.
Additionally, expenditures for purchases of merchant portfolios and residual buyouts decreased $1.8 million for the year ended September 30, 2022 compared to the year ended September 30, 2021.
Additionally, expenditures for purchases of merchant portfolios and residual buyouts increased $2.1 million, expenditures for capitalized software increased by $2.0 million and expenditures for property and equipment increased by $1.9 million for the year ended September 30, 2023 compared to the year ended September 30, 2022.
The Senior Secured Credit Facility provides that we have the right to seek additional commitments to provide additional term loan facilities or additional revolving credit commitments in an aggregate principal amount up to $50.0 million so long as, among other things, after giving pro forma effect to the incurrence of such additional borrowings and any related transactions, our consolidated interest coverage ratio would not be less than 3.00 to 1.00, our total leverage ratio would not exceed 5.00 to 1.00 and our consolidated senior leverage ratio would not exceed 3.25 to 1.00, provided that for each of the four fiscal quarters immediately following a qualified acquisition, the total leverage ratio and the consolidated senior secured leverage ratio would increase by up to 0.25, subject to certain limitations.
The 2023 Senior Secured Credit Facility provides that the Borrower has the right to seek additional commitments to provide additional term loan facilities or additional revolving credit commitments in an aggregate principal amount up to, as of any date of determination, the sum of (i) the greater of $100 million and 100% of the Borrower’s consolidated EBITDA (as defined in the 2023 Senior Secured Credit Facility) for the most recently completed four quarter period, plus (ii) the amount of certain prepayments of certain indebtedness, so long as, among other things, after giving pro forma effect to the incurrence of such additional borrowings and any related transactions, the Borrower’s consolidated interest coverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not exceed 5.0 to 1.0.
Total purchase consideration was $46.3 million, including $40.0 million in cash consideration, funded by proceeds from our revolving credit facility, and $6.3 million in contingent consideration.
Total purchase consideration was $19.8 million, including $17.0 million in cash funded by the proceeds from our revolving credit facility, $2.0 million of our Class A Common Stock, and $0.8 million in contingent consideration.
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 our customers.
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.
Volume-based fees represent a percentage of the dollar amount of each credit or debit transaction processed. Revenues are also derived from a variety of fixed transaction or service fees, including authorization fees, convenience fees, statement fees, annual fees and fees for other miscellaneous services, such as handling chargebacks. Interchange and network fees.
Revenues are also derived from a variety of fixed transaction or service fees, including authorization fees, convenience fees, statement fees, annual fees and fees for other miscellaneous services, such as handling chargebacks. Interchange and network fees. Interchange and network fees consist primarily of pass-through fees that make up a portion of discount fee revenue.
As of September 30, 2022, we had $3.5 million of cash and cash equivalents and available borrowing capacity of $90.0 million under our Senior Secured Credit Facility, subject to the financial covenants. We usually minimize cash balances by making payments on our revolving credit facility to minimize borrowings and interest expense.
We usually minimize cash balances by making payments on our revolving line of credit to minimize borrowings and interest expense. As of September 30, 2023, we had borrowings outstanding of $272.5 million under the 2023 Senior Secured Credit Facility. For additional information about our 2023 Senior Secured Credit Facility, see the section entitled "— 2023 Senior Secured Credit Facility" below.
Total purchase consideration was $107.7 million, including $101.4 million in cash on hand and proceeds from the Company's revolving credit facility, and $6.3 million in contingent consideration.
Total purchase consideration was $107.7 million, including $101.4 million in cash on hand and proceeds from the Company's revolving credit facility, and $6.3 million in contingent consideration. Our Revenue and Expenses Revenues We generate revenue from software and related services revenue, including the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software.
The Term SOFR rate will be the rate of interest per annum equal to SOFR (based upon an interest period of one, three or six months), plus an adjustment of 0.10%.
Borrowings under the Revolver will be made, at the Borrower’s option, at the Adjusted Term SOFR rate or the base rate, plus, in each case, an applicable margin. 62 The Adjusted Term SOFR rate will be the rate of interest per annum equal to the Term SOFR rate (based upon an interest period of one, three or six months), plus 0.10%, plus an applicable margin of 2.00% to 3.00% (3.00% at September 30, 2023).
Interchange and network fees consist primarily of pass-through fees that make up a portion of discount fee revenue. These include assessment fees payable to card associations, which are a percentage of the processing volume we generate from Visa and Mastercard.
These include assessment fees payable to card associations, which are a percentage of the processing volume we generate from Visa and Mastercard. These fees are presented net of revenue. 55 Expenses Other costs of services . Other costs of services include costs directly attributable to processing and bank sponsorship costs.
“Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, which was filed with the Securities and Exchange Commission on November 22, 2021.
“Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, which was filed with the Securities and Exchange Commission on November 18, 2022. 2023 Senior Secured Credit Facility On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (the “2023 Senior Secured Credit Facility”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”).
Other income was $2.6 million for the year ended September 30, 2021, relating to a net gain on sales of investments of $2.1 million and adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates of $0.5 million. 59 Provision for Income Taxes The provision for income taxes was to $5.0 million for the year ended September 30, 2022 as compared to $0.6 million for the year ended September 30, 2021.
Other expense Other expense was $1.4 million for the year ended September 30, 2023, related to a $2.7 million write down of an internal use software project, offset by $0.9 million relating to adjustments of liabilities under our Tax Receivable Agreement related to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates and $0.3 million contingent consideration received for an investment that was sold in a prior year.
Payment volume reflects the addition of new customers and same store payment volume growth of existing customers, partially offset by customer attrition during the period. 57 Results of Operations Year Ended September 30, 2022 Compared to Year Ended September 30, 2021 The following table presents our historical results of operations for the periods indicated: Year ended September 30, Change (in thousands) 2022 2021 Amount % Revenue $ 317,862 $ 224,124 $ 93,738 41.8 % Operating expenses Other costs of services 73,367 57,706 15,661 27.1 % Selling general and administrative 193,790 134,872 58,918 43.7 % Depreciation and amortization 29,424 24,418 5,006 20.5 % Change in fair value of contingent consideration 23,725 7,140 16,585 n/m Total operating expenses 320,306 224,136 96,170 42.9 % Loss from operations (2,444) (12) (2,432) n/m Other expenses Interest expense, net 14,775 9,799 4,976 50.8 % Other expense (income) 991 (2,595) 3,586 n/m Total other expenses 15,766 7,204 8,562 118.9 % Loss before income taxes (18,210) (7,216) (10,994) 152.4 % Provision for income taxes 5,007 623 4,384 n/m Net loss (23,217) (7,839) (15,378) 196.2 % Net loss attributable to non-controlling interest (6,115) (3,382) (2,733) 80.8 % Net loss attributable to i3 Verticals $ (17,102) $ (4,457) $ (12,645) 283.7 % n/m = not meaningful Revenue Revenue increased $93.7 million, or 41.8%, to $317.9 million for the year ended September 30, 2022 from $224.1 million for the year ended September 30, 2021.
Our processing margin for the years ended September 30, 2023 and 2022 was $333.3 million and $282.7 million, respectively. 57 Results of Operations Year Ended September 30, 2023 Compared to Year Ended September 30, 2022 The following table presents our historical results of operations for the periods indicated: Year ended September 30, Change (in thousands) 2023 2022 Amount % Revenue $ 370,239 $ 317,862 $ 52,377 16.5 % Operating expenses Other costs of services 80,552 73,367 7,185 9.8 % Selling general and administrative 219,736 193,790 25,946 13.4 % Depreciation and amortization 36,461 29,424 7,037 23.9 % Change in fair value of contingent consideration 10,781 23,725 (12,944) n/m Total operating expenses 347,530 320,306 27,224 8.5 % Income (loss) from operations 22,709 (2,444) 25,153 n/m Other expenses Interest expense, net 25,128 14,775 10,353 70.1 % Other expense 1,436 991 445 n/m Total other expenses 26,564 15,766 10,798 68.5 % Loss before income taxes (3,855) (18,210) 14,355 (78.8) % (Benefit from) provision for income taxes (1,203) 5,007 (6,210) n/m Net loss (2,652) (23,217) 20,565 (88.6) % Net loss attributable to non-controlling interest (1,841) (6,115) 4,274 (69.9) % Net loss attributable to i3 Verticals $ (811) $ (17,102) $ 16,291 (95.3) % n/m = not meaningful Revenue Revenue increased $52.4 million, or 16.5%, to $370.2 million for the year ended September 30, 2023 from $317.9 million for the year ended September 30, 2022.
Our interest expense consists of interest on our outstanding indebtedness under our Senior Secured Credit Facility and Exchangeable Notes, and amortization of debt discount and issuance costs. How We Assess Our Business Merchant Services Our Merchant Services segment provides comprehensive payment solutions to businesses and organizations.
The useful lives of contract-based intangible assets are equal to the terms of the agreement. Interest expense, net. Our interest expense consists of interest on our outstanding indebtedness under our 2023 Senior Secured Credit Facility, our Prior Senior Secured Credit Facility and Exchangeable Notes, and amortization of debt discount and issuance costs.
Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law and other factors.
Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law and other factors. Our 2023 Senior Secured Credit Facility, as amended, requires us to maintain a consolidated interest coverage ratio not less than 3.0 to 1.0 and total leverage ratio not exceeding 5.0 to 1.0.
The base rate is a fluctuating rate of interest per annum equal to the highest of (a) the federal funds rate plus ½ of 1%, (b) the interest announced from time to time by 62 Bank of America as its prime rate and (c) the Term SOFR rate plus an adjustment of 0.10%, plus 1%.
The base rate is a fluctuating rate of interest per annum equal to the highest of (a) the greater of the federal funds rate or the overnight bank funding rate, plus ½ of 1%, (b) Wall Street Journal prime rate and (c) the Adjusted Term SOFR rate for an interest period of one month, plus 1%, plus an applicable margin of 1.00% to 2.00% (2.00%% at September 30, 2023).
In connection with this offering, we recognized an additional deferred tax asset of $3.0 million related to the Tax Receivable Agreement and a corresponding liability of $2.5 million. Exchangeable Notes On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its 1.0% Exchangeable Senior Notes due February 15, 2025.
As of September 30, 2023, we were in compliance with these covenants, with a consolidated interest coverage ratio and total leverage ratio of 4.39x and 3.77x, respectively. 63 Exchangeable Notes On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its 1.0% Exchangeable Senior Notes due February 15, 2025.
As of September 30, 2022, we were in compliance with these covenants with a consolidated interest coverage ratio, total leverage ratio and consolidated senior leverage ratio of 8.17x, 3.68x and 2.24x, respectively.
Liquidity At September 30, 2023, we had $3.1 million of cash and cash equivalents and $177.5 million of available capacity under our 2023 Senior Secured Credit Facility subject to our financial covenants. As of September 30, 2023, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio 4.39x, and 3.77x, respectively.
For that reason, we are unable to predict the long-term impact of COVID-19 and its variant strains on our business at this time. Acquisitions A core component of our growth strategy includes a disciplined approach to acquisitions of companies and technology, evidenced by numerous platform acquisitions and tuck-in acquisitions since our inception in 2012.
For additional information about our Exchangeable Notes and 2023 Senior Secured Credit Facility, see the section entitled “Liquidity and Capital Resources” below. Acquisitions A core component of our growth strategy includes a disciplined approach to acquisitions of companies and technology, evidenced by numerous platform acquisitions and tuck-in acquisitions since our inception in 2012.
For additional information, see Note 4 to our consolidated financial statements. 55 Our Revenue and Expenses Revenues We generate revenue from software licenses and subscriptions, other software related services, and volume-based payment processing fees (“discount fees”), and to a lesser extent, software licensing subscriptions, ongoing support and other POS-related solutions that we provide to our customers directly and through our distribution partners.
We also generate revenue from volume-based payment processing fees (“discount fees”) and POS-related solutions that we provide to our customers directly and through our distribution partners. Volume-based fees represent a percentage of the dollar amount of each credit or debit transaction processed.
The primary reason cash provided by operating activities increased despite the increase in net loss was that the increase in net loss was driven by an increase in non-cash contingent consideration of $16.6 million, an increase in equity-based compensation expense of $5.4 million and an increase in depreciation and amortization expense of $5.0 million, all of which increase the net loss but are not cash expenditures.
These decreases to the net loss were partially offset by increases to the net loss of an increase in depreciation and amortization expense of $7.0 million, an increase in the write down of an intangible asset of $2.7 million and an increase in equity-based compensation expense of $1.6 million, all of which increase the net loss but are not cash expenditures. 61 Cash Flow from Investing Activities Net cash used in investing activities increased $8.5 million to $121.5 million for the year ended September 30, 2023 from $113.0 million for the year ended September 30, 2022.
The provision for deferred income taxes increased to an provision for the year ended September 30, 2022 from a benefit for the year ended September 30, 2021. Additionally, the provision for current income tax expense increased for the year ended September 30, 2022 from the year ended September 30, 2021, due to the mix of earnings within the Company.
The benefit from deferred income taxes changed to a benefit of $5.9 million for the year ended September 30, 2023 from a provision of $2.6 million for the year ended September 30, 2022, driven by a reduction in valuation allowances.
We currently expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the Senior Secured Credit Facility will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for at least the next twelve months and foreseeable future. 60 Our liquidity profile reflects our completed offering in February 2020 of an aggregate principal amount of $138.0 million in 1.0% Exchangeable Senior Notes due 2025, with substantially all the proceeds being used to pay down outstanding borrowings under our Senior Secured Credit Facility, as well as our September 2020 Public Offering as described below under the heading “Follow-on Offerings.” During the year ended September 30, 2020, we repurchased $21.0 million in aggregate principal amount of the Exchangeable Notes for an aggregate purchase price of approximately $17.4 million.
We consistently have positive cash flow provided by operations and expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the 2023 Senior Secured Credit Facility will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for at least the next twelve months and foreseeable future.
The Senior Secured Credit Facility, as amended in October, 2022, consists of a $375.0 million revolving credit facility.
The 2023 Senior Secured Credit Facility replaces the Prior Senior Secured Credit Facility (as defined below). The 2023 Senior Secured Credit Facility provides for aggregate commitments of $450 million in the form of a senior secured revolving credit facility (the “Revolver”).
The proceeds from these issuances were used to repay outstanding indebtedness under the Senior Secured Credit Facility and for other general corporate purposes. 64 Material Cash Requirements The following table summarizes our material cash requirements as of September 30, 2022 related to contracts, leases and borrowings: Payments Due by Period Material Cash Requirements Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years (in thousands) Processing minimums (1) $ 5,832 $ 4,512 $ 1,320 $ — $ — Facility leases 21,166 5,492 8,798 4,865 2,011 Senior Secured Credit Facility and related interest (2) 204,763 11,260 193,503 — — Exchangeable Notes and related interest (3) 119,779 1,170 118,609 — — Contingent consideration (4) 22,833 21,385 1,448 — — Total $ 374,373 $ 43,819 $ 323,678 $ 4,865 $ 2,011 __________________________ 1.
As of September 30, 2023, we had a remaining capacity to sell up to $107.1 million of our Class A common stock under the ATM Program. 64 Material Cash Requirements The following table summarizes our material cash requirements as of September 30, 2023 related to contracts, leases and borrowings: Payments Due by Period Material Cash Requirements Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years (in thousands) Processing minimums (1) $ 5,070 $ 4,582 $ 488 $ — $ — Facility leases (2) 16,562 5,055 7,893 2,352 1,262 2023 Senior Secured Credit Facility and related interest (3) 386,399 23,913 47,990 314,496 — Exchangeable Notes and related interest (4) 118,609 1,170 117,439 — — Contingent consideration (5) 8,239 6,825 1,414 — — Total $ 534,879 $ 41,545 $ 175,224 $ 316,848 $ 1,262 __________________________ 1.
As of September 30, 2022, we had a remaining capacity to sell up to $107.1 million of our Class A common stock under the ATM Program.
During the quarter and year ended September 30, 2023, we did not sell any Class A common stock under the ATM Program.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−1 removed1 unchanged
Biggest changeThe Senior Secured Credit Facility requires maintenance of certain financial ratios on a quarterly basis as follows: (i) a minimum consolidated interest coverage ratio of 3.00 to 1.00, (ii) a maximum total leverage ratio of 5.00 to 1.00, provided, that for each of the four fiscal quarters immediately following a qualified acquisition (each a “Leverage Increase Period”), the required ratio set forth above may be increased by up to 0.25, subject to certain limitations and (iii) a maximum consolidated senior secured leverage ratio of 3.25 to 1.00, provided, that for each Leverage Increase Period, the consolidated senior leverage ratio may be increased by up to 0.25, subject to certain limitations.
Biggest changeThe 2023 Senior Secured Credit Facility requires maintenance of certain financial ratios on a quarterly basis as follows: (i) a minimum consolidated interest coverage ratio of 3.0 to 1.0 (ii) a maximum total leverage ratio of 5.0 to 1.0.
A 1.0% increase or decrease in the interest rate applicable to such borrowing (which was the Term SOFR rate) would have had a $1.9 million dollar impact on the results of the business. 67 Foreign Currency Exchange Rate Risk As a result of our international operations, we are also exposed to foreign currency exchange rate risks.
A 1.0% increase or decrease in the interest rate applicable to such borrowing (which was the Term SOFR rate) would have had a $2.7 million dollar impact on the results of the business. Foreign Currency Exchange Rate Risk As a result of our international operations, we are also exposed to foreign currency exchange rate risks.
Because our international operations are not yet material to our consolidated results of operations, a 10% change in foreign currency exchange rates would not have had a material impact on our consolidated results of operations, financial position, or cash flows for the twelve months ended September 30, 2022. 68
Because our international operations are not material to our consolidated results of operations, a 10% change in foreign currency exchange rates would not have had a material impact on our consolidated results of operations, financial position, or cash flows for the twelve months ended September 30, 2023. 67
Additionally, the Senior Secured Credit Facility requires the Company to pay unused commitment fees of 0.15% to 0.30% (0.30% as of September 30, 2022) on any undrawn amounts under the revolving credit facility and letter of credit fees of up to 3.25% on the maximum amount available to be drawn under each letter of credit issued under the agreement.
Additionally, the 2023 Senior Secured Credit Facility requires us to pay unused commitment fees of 0.15% to 0.30% (0.30% as of September 30, 2023) on any undrawn amounts under the revolving credit facility and letter of credit fees of up to 3.00% on the maximum amount available to be drawn under each letter of credit issued under the agreement.
As of September 30, 2022, we were in compliance with these covenants and there was $90.0 million available for borrowing under the revolving credit facility, subject to the financial covenants. As of September 30, 2022, we had borrowings of $185.0 million outstanding under the Senior Secured Credit Facility.
As of September 30, 2023, we were in compliance with these covenants, and there was $177.5 million available for borrowing under the revolving credit facility, subject to the financial covenants. As of September 30, 2023, we had borrowings outstanding of $272.5 million outstanding under the 2023 Senior Secured Credit Facility.
Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of September 30, 2022, the Senior Secured Credit Facility, as amended, consisted of a $275 million revolving credit facility, together with an option to increase the revolving credit facility and/or obtain incremental term loans in an additional principal amount of up to $50.0 million in the aggregate (subject to the receipt of additional commitments for any such incremental loan amounts).
Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of September 30, 2023, the 2023 Senior Secured Credit Facility, as amended, consisted of a $450 million revolving credit facility, together with an option to increase the revolving credit facility and/or obtain incremental term loans in an additional principal amount of up, as of any date of determination, the greater of $100 million and 100% of consolidated EBITDA (as defined in the 2023 Senior Secured Credit Facility) for the most recently completed four quarter period (subject to the receipt of additional commitments for any such incremental loan amounts).
At September 30, 2022, the Senior Secured Credit Facility accrues interest at Term SOFR (based upon an interest period of one, three or six months), plus an adjustment of 0.10%, plus an applicable margin of 2.25% to 3.25% (3.25% as of September 30, 2022), or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50% and (z) Term SOFR, plus an adjustment of 0.10%, plus 1.00%), plus an applicable margin of 0.25% to 1.25% (1.25% as of September 30, 2022), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.
As of September 30, 2023, the 2023 Senior Secured Credit Facility accrued interest at Term SOFR (based upon an interest period of one, three or six months), plus 0.10%, plus an applicable margin of 2.00% to 3.00% (3.00% at September 30, 2023), or the base rate (defined as the highest of (a) the greater of the federal funds rate or the overnight bank funding rate, plus ½ of 1%, (b) Wall Street Journal prime rate and (c) the Adjusted Term SOFR rate for an interest period of one month, plus 1%), plus an applicable margin of 1.00% to 2.00% (2.00% at September 30, 2023), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.
Removed
As discussed in Note 21 to our consolidated financial statements, effective October 3, 2022, the Senior Secured Credit Facility was amended to, among other things, increase the maximum amount of the revolving credit facility to $375 million.

Other IIIV 10-K year-over-year comparisons