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What changed in i3 Verticals, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of i3 Verticals, Inc.'s 2023 and 2024 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 2024 report.

+484 added−425 removedSource: 10-K (2024-11-25) vs 10-K (2023-11-22)

Top changes in i3 Verticals, Inc.'s 2024 10-K

484 paragraphs added · 425 removed · 329 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

71 edited+31 added−28 removed91 unchanged
Biggest changeSolutions 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.
Biggest changeThere are five sub-verticals within the Public Sector vertical: • JusticeTech and Public Safety: Product categories include (1) fully integrated digital solutions offering dynamic processes to plan, coordinate, evaluate, record, and provide up to date information within court systems, (2) E-Filing and revenue cycle management solutions for courts, and (4) Solutions for computer aided dispatch, law records management, evidence management, jail management, mobile solutions, and livescan. • Transportation: Products include comprehensive solutions for driver license, vehicle title and registration and motor carrier compliance for departments of transportation in the United States and Canada. • Utilities: Product categories include (1) digital customer engagement platform, including web, mobile, chat, and voice options, enables intuitive self-service options for customers to manage their data and accounts, and (2) 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. • Enterprise Resource Planning (“ERP”): Product categories include (1) solutions that connect the organization and its data to create a flow of information providing insight across multiple departments, (2) digital land records solutions that boost proficiency and maintain records to enable submission of index information, scanning of document images and secure instantaneous retrieval of information, (3) licensing and permitting solutions that automate every step of the application, renewal and payment process, and (4) digital solutions designed for appraisal information, tax collection management, revenue collection, and Computer Assisted Mass Appraisal. • Education: Products include (1) comprehensive solutions for school lunch programs, including meal account management, point of sale, menu planning, nutritional analysis, food inventory and free and reduced meal applications and (2) school event solutions, including ticketing and concessions.
Indirect Regulatory Requirements Certain of our distribution partners are financial institutions that are directly subject to various regulations and compliance obligations issued by the CFPB, the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration and other agencies responsible for regulating financial institutions, which includes state financial institution regulators.
Indirect Regulatory Requirements Certain of our partners are financial institutions that are directly subject to various regulations and compliance obligations issued by the CFPB, the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration and other agencies responsible for regulating financial institutions, which includes state financial institution regulators.
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.
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. 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.
Our team of highly skilled and experienced technologists is dedicated to implementing software products that cater to the diverse and evolving needs of our customers. We continuously refine and expand our software offerings to stay aligned with the latest industry and current market trends. 10 Agile Development Our flexible approach to digital delivery is centered around agility.
Our team of highly skilled and experienced technologists is dedicated to implementing software products that cater to the diverse and evolving needs of our customers. We continuously refine and expand our software offerings to stay aligned with the latest industry and current market trends. Agile Development Our flexible approach to digital delivery is centered around agility.
When an entity is determined to have violated the FCA, it may be required to pay three times the actual damages sustained by the government, plus substantial civil penalties for each false claim, and may be excluded from participation in federal healthcare programs.
When an entity is determined to have violated the FCA, it may be required to pay three times the actual damages sustained by the government, plus 17 substantial civil penalties for each false claim, and may be excluded from participation in federal healthcare programs.
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.
We expect to expend significant resources on an ongoing basis in an effort to assist our customers in meeting their legal requirements. 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.
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.
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.
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.
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.
These laws and regulations restrict the collection, processing, storage, use and disclosure of personal information, require notice to individuals of privacy practices and provide individuals with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information.
These laws and regulations restrict the collection, processing, storage, use and disclosure of personal information, require notice to individuals of privacy practices and provide individuals with certain rights to prevent 13 the use and disclosure of certain nonpublic or otherwise legally protected information.
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.
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 sub-vertical and could harm our reputation.
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.
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 facilitator processing support; and • end-user customer support.
The payment networks may change these rules and standards from time to time as they may determine in their sole discretion and with or without advance notice to their participants.
The payment networks may change these rules and standards from time to time as they may determine in their sole discretion and with or without advance notice to 19 their participants.
To the extent we are subject to such legislation, the potential effects on our business are often far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. The recently enacted laws often provide for civil penalties or fines for violations.
To the extent we are subject to such legislation, the potential effects on our business are often far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Such laws often provide for civil penalties or fines for violations.
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").
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 through the Office of the National Coordinator of Health Information Technology ("ONC") Certification Program ("Certified Health Information Technology").
Under the Cures Act and a final rule published in July 2023 by the HHS Office of the Inspector General (“OIG”), developers of certified HIT that commit information blocking may be subject to civil penalties of up to $1 million per violation.
Under the Cures Act and a final rule published in July 2023 by the HHS Office of the Inspector General (“OIG”), developers of Certified Health Information Technology that commit information blocking may be subject to civil penalties of up to $1 million per violation.
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.
In the future, if we seek to expand these prepaid 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.
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 have regularly added new employees and locations as a result of our acquisition activity.
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.
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, 2024, 60% of our employees work in one of our 25 offices and 40% of our employees are fully remote or hybrid.
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.
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.
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.
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, most of which rolled out, and that their HIT continues to evolve as developers and other stakeholders release revised versions of these standards.
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.
Our Sales and Marketing We utilize our direct sales team to sell our proprietary software and payment technology solutions directly to customers in our vertical markets. Sales teams are organized and coordinated by vertical and sub-vertical market, leading to extensive cross-selling opportunities across our broad array of solutions.
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.
Our technical operations team oversees the execution of development, quality control, delivery and support for our vertical software solutions and proprietary payment facilitator platform. 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.
To provide our electronic payment services, we must be registered either indirectly or directly as a service provider with each of the payment networks that we utilize. Because we are not a bank, we are not eligible for primary membership in certain payment networks, including Visa and Mastercard, and are therefore unable to directly access these networks.
To provide our electronic payment services, we must be registered with each of the payment networks that we utilize. Because we are not a bank, we are not eligible for primary membership in certain payment networks, including Visa and Mastercard, and are therefore unable to directly access these networks.
The agreements with our bank sponsors give them substantial discretion in approving certain aspects of our business practices including our solicitation, application and qualification procedures for customers and the terms of our agreements with customers.
The agreements with our bank sponsor gives them substantial discretion in approving certain aspects of our business practices including our solicitation, application and qualification procedures for customers and the terms of our agreements with customers.
In addition, we license technology from third parties that is integrated into some of our solutions. We own a number of registered federal service marks, including, without limitation, i3 Verticals®, PaySchools® and Axia®. We also own a number of domain names, including, without limitation, www.i3verticals.com.
In addition, we license technology from third parties that is integrated into some of our solutions. We own a number of registered federal service marks, including, without limitation, i3 Verticals®, i3 Education®, ImageSoft®, JusticeTech®, TrueSign®, Milestone® and PaySchools®. We also own a number of domain names, including, without limitation, www.i3verticals.com.
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.
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.
One of our subsidiaries is considered to be a HIT developer since its product, iMed EMR, is ONC certified and is, therefore, subject to these restrictions.
One of our subsidiaries is considered to be a HIT developer since its product, iMed EMR, is Certified Health Information Technology and is, therefore, subject to these restrictions.
The operating regulations of certain payment networks, including Visa and Mastercard, require us to be sponsored by a member bank as a service provider. We are registered with certain payment networks, including Visa and Mastercard, through various sponsor banks.
The operating regulations of certain payment networks, including Visa and Mastercard, require us to be sponsored by a member bank . We are registered with certain payment networks, including Visa and Mastercard, through a sponsor bank.
In addition, our workforce ethnicity, as of September 30, 2023, was as follows: 66% White, 15% Asian, 8% Black or African American, 6% Hispanic or Latino and 5% Other. Race and gender disclosures are based on information self-reported by employees. Government Regulation We operate in an increasingly complex legal and regulatory environment.
In addition, our workforce ethnicity, as of September 30, 2024, was as follows: 62% White, 22% Asian, 8% Black or African American, 4% Hispanic or Latino and 4% Other. Race and gender disclosures are based on information self-reported by employees. Government Regulation We operate in an increasingly complex legal and regulatory environment.
The customers who utilize the gift card processing products and services that we may sell may be subject to these laws and regulations.
The customers who utilize prepaid products and services that we may sell may be subject to these laws and regulations.
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.
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 certain demographic information, such as social security numbers, financial information, health and wellness data that is not protected health information.
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.
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 additional 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. 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.
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.
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.
Our Operations Our operations team is uniquely structured to optimize the experience of our customers. These vertically focused business support teams allow us to establish expertise that delivers a scalable support structure and enables us to align our services with the economic goals of our company. Each operations team is positioned to support the functions of their customer base.
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.
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. Many states have implemented comprehensive data privacy and security laws.
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.
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.
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.
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.
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.
These laws require companies that process personal information of certain residents of those states to make disclosures to consumers about data practices, grants consumers specific rights to their data, and allow consumers to opt out of certain data sharing activities, and the California Consumer Privacy Act of 2018 (the “CCPA”), as amended by the California Privacy Rights Act of 2020 (the “CPRA”), creates a private right of action for data breaches.
For our non-U.S. employees, in addition to standard medical coverage, we offer benefits that are consistent with local practices for similarly situated companies. We provide competitive compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs (which vary across our businesses) include bonus opportunities and, for our domestic employees, a 401(k) Plan.
For our non-U.S. employees, in addition to standard medical coverage, we offer benefits that are consistent with local practices for similarly situated companies. We provide competitive compensation and benefits programs to help meet the needs of our employees.
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.
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. 20 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 customer following discontinuation of its relationship with us.
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.
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, 2024, after giving effect to the completion of the sale of our Merchant Services Business, the Company's workforce was 54% female and 46% male.
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.
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. Our hosted solutions are managed within dedicated environments within AWS and Azure that align with various compliance standards specific to each industry.
We believe the most significant competitive factors in our markets are: 1. quality, including the ability of our products and solutions to addresses the specific needs of our customers; 2. service, including our ability to bring value-added solutions and strong customer support; 3. trust, including a strong reputation for quality service and trusted distribution partners; 4. convenience, such as speed in customer onboarding and approving applications; 5. pricing, including fees charged to customers and residuals and incentives offered to distribution partners.
We believe the most significant competitive factors in our markets are: 1. quality, including the ability of our products and solutions to address the specific needs of our customers; 2. service, including our ability to bring value-added solutions and strong customer support; 3. trust, including a strong reputation for quality service; 4. convenience, such as speed in customer onboarding and approving applications; Our competitors range from large and well-established companies to smaller, earlier-stage businesses.
In February 2023, ONC approved the first group of networks to implement the TEFCA as prospective QHINs, and these candidate QHINs are expected to go live by the end of 2023.
In February 2023, ONC approved the first group of networks to implement the TEFCA as prospective QHINs, and currently there are seven QHINs that are live.
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 commonly known as the federal Anti-Kickback Statute (“AKS”).
Public comments closed on HTI-2 October 4, 2024, and the Final Rule for HTI-2 has not yet been released. 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 commonly known as the federal Anti-Kickback Statute (“AKS”).
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.
We have implemented compliance policies and procedures to screen for excluded individuals at our entities subject to these laws. However, if we employ or contract with an excluded individual or entity, we could face significant consequences as outlined above.
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.
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.
We prioritize rapid development, continuous improvement, and dynamic responsiveness in our ever-changing environment. This means our customers receive software solutions that evolve with their needs as well as the market, ensuring they stay ahead of the curve. Our product management lifecycle ensures our products remain robust and flexible.
We prioritize rapid development, continuous improvement, and dynamic responsiveness in our ever-changing environment. This means our customers receive software solutions that evolve with their needs as well as the market. Our product management life cycle ensures our products remain robust and flexible. Product roadmaps drive our investments. Our development is supported by streamlined back office technology to increase efficiency.
From there we offer a suite of payment and software solutions, enabling omni-channel POS, spanning brick and mortar locations and electronic- and mobile-commerce, including app-based payments. Our payment technology platforms include an Application Programming Interface (“API”) suite that provides access to traditional merchant processing, ACH processing and payment facilitator merchant processing capabilities.
We offer our customers a single point of access through our powerful but simple proprietary core platform. From there we offer a suite of proprietary payment and software solutions spanning brick and mortar locations, web-based and mobile-based payments. Our payment technology platforms include an unified application programming interface that provides access to ACH processing and payment facilitator merchant processing capabilities.
Though there is still litigation involving whether payment processing companies are subject to these requirements (and the extent of their application), these requirements may apply or be applicable in the future. UDAAPs could involve omissions or misrepresentations of important information to consumers or practices that take advantage of vulnerable consumers, such as elderly or low-income consumers.
Though there is still litigation involving whether payment processing companies are subject to these requirements (and the extent of their application), these requirements may apply or be applicable in the future.
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.
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. 14 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.
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.
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. 15 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.
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.
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. We also support Paypal and Venmo payments.
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.
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 solutions help our customers provide more responsive and efficient services to their citizens and stakeholders.
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.
Marketing is tightly aligned with our sales efforts by providing event coordination, demand-generation resources, physical and electronic marketing campaigns and collateral. 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.
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.
A strong network of shared services, such as marketing, legal, finance and HR, support our vertical and sub-vertical units and ensure they are focused on providing best in-class service to our customers. 11 Our operations team is structured to effectively support the individual needs of our customers.
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.
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. The success of our business is fundamentally connected to the well-being of our people.
By providing flexible and scalable technology solutions, we empower our clients to navigate the evolving landscape of healthcare. Complementing our technology platform, we offer a comprehensive portfolio of revenue cycle management services. These services provide our clients with a full end-to-end experience, covering all aspects of their financial operations.
These solutions are designed to adapt to the diverse needs of healthcare organizations, from small physician practices to large academic medical institutions and multi-location health systems. By providing flexible and scalable technology solutions, we empower our clients to navigate the evolving landscape of healthcare. Complementing our technology platform, we offer a comprehensive portfolio of revenue cycle management services.
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.
UDAAPs could involve omissions or misrepresentations of important information to consumers or practices that take advantage of vulnerable consumers, such as elderly or low-income consumers. 18 Prepaid Products Prepaid products, such as store gift cards, 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.
From revenue optimization and billing to claims processing and coding, our services are designed to streamline financial processes and maximize revenue performance for healthcare organizations. Finally, our healthcare payer solutions provide payers with the tools to manage the complex healthcare industry more effectively. We offer tailored solutions for managing compliance requirements, including Appeals & Grievances.
From revenue optimization and billing to claims processing and coding, our services are designed to streamline financial processes and maximize revenue performance for healthcare organizations. • Payer Software Solutions: Products include (1) tailored solutions for managing compliance requirements, including appeals & grievances and (2) our network management platform assists payers in provider contracting, credentialing, and outreach, enabling them to expand and adapt to changing market dynamics.
These include workflow and user driven customization solutions. • Property, Recording and Tax – Digital solutions designed for appraisal information, tax collection management, revenue collection, and Computer Assisted Mass Appraisal. Healthcare Our Healthcare vertical is dedicated to delivering integrated solutions across the healthcare ecosystem, catering to providers and payers, with a strong emphasis on enhancing process efficiency and ensuring compliance.
These solutions allow our customers to efficiently process court, tax, registration, utility, school and other payments. 9 Healthcare Our Healthcare segment is dedicated to delivering integrated solutions across the healthcare ecosystem, catering to providers and payers, with a strong emphasis on enhancing process efficiency and ensuring compliance.
Our Competition We compete with a variety of vertical market software providers that have different business models, go-to-market strategies and technical capabilities.
This includes, but is not limited to PCI, Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and National Institute of Standards and Technology ("NIST"), ensuring the protection of all personal and transactional data. Our Competition We compete with a variety of vertical market software providers that have different business models, go-to-market strategies and technical capabilities.
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”).
Leveraging our vertically focused suite of products and services, we are able to maximize the performance of our employee sales force as we continue to attract new customers. Our product marketing are delivered through a shared-services model which is coordinated with each vertical market.
Item 1. Business Our Company i3 Verticals builds, acquires and grows software solutions in strategic vertical markets. Our broad array of specialized solutions meet our customers’ specific enterprise needs which leads to long-term partnerships. Our payments platform seamlessly integrates into our solutions, unlocking additional value.
Item 1. Business Our Company i3 Verticals builds, acquires and grows software solutions in the Public Sector and Healthcare vertical markets. Our broad array of enterprise solutions deeply integrate within customers’ operations, which leads to long-term partnerships. Since our founding in 2012, we have compounded cash flow through a combination of organic growth and acquisitions.
Our core offering is our versatile care delivery platform, which encompasses a range of solutions, including EHR, practice management tools, patient engagement applications, and patient payment solutions. These solutions are designed to adapt to the diverse needs of healthcare organizations, from small physician practices to large academic medical institutions and multi-location health systems.
There are two sub-verticals within the Healthcare vertical: • Provider Software Solutions: Products include our versatile care delivery platform, which encompasses a range of solutions, including EHR, practice management tools, patient engagement applications, and patient payment solutions.
Our management team has significant experience acquiring and integrating vertical market software businesses that complement our existing suite of products and solutions. Due to our team’s longstanding relationships and domain expertise, we maintain a strong pipeline of acquisition targets and are constantly evaluating businesses against our acquisition criteria.
We maintain a strong pipeline of acquisition targets and are constantly evaluating businesses against our acquisition criteria.
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.
Ongoing investment into improving existing platforms and strategically creating new platforms and products is an essential part of our long-term strategy. Ability to Use Acquisitions to Drive Growth A core component of our growth strategy includes a disciplined approach to acquisitions of companies and technology, evidenced by 50 acquisitions since our inception in 2012.
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.
For additional information on our segments, see Note 18 to our consolidated financial statements and “Management's Discussion and Analysis of Financial Condition and Results of Operations.” Public Sector We have products and solutions that create an efficient flow of information throughout a variety of public sector entities.
We deliver integrated payments solutions throughout many of these products and these solutions allow our customers to efficiently process court, tax, registration, utility and other payments.
We deliver integrated payments with our proprietary payment facilitator platform throughout many of these products.
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.
Payment Technology In addition to our broad suite of vertical market software, we have developed a proprietary payment facilitation platform. We have centralized our payment solutions onto our proprietary gateway, providing us excellent scale and pricing with our processing partner.
Our cloud-first strategy drives solutions that are designed to expand seamlessly, empowering our systems to adapt, grow, and thrive without constraints. Remaining cloud agnostic allows us to choose best of breed solutions allowing us to meet the needs of our customers. Our strategic partnerships with multiple cloud providers give us capabilities beyond that of many of our competitors.
Our cloud-first strategy drives solutions that are designed to expand seamlessly, empowering our systems to adapt, grow, and thrive without constraints. New development is always cloud-native SaaS solutions. We are a scaled partner of both Amazon Web Services ("AWS") and Microsoft Azure ("Azure") cloud services.
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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.
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Our cash flow generation and strong recurring revenue model has positioned us with an ideal financial structure to capitalize on strategic growth opportunities for years to come.
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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.
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Sale of Merchant Services Business On September 20, 2024, i3 Verticals, LLC, and i3 Holdings Sub, Inc., a wholly-owned subsidiary of i3 Verticals, LLC (“Corporation Seller,” and collectively with i3 Verticals, LLC, the “Sellers”) completed the transactions (such closing, the “Closing”) contemplated by that certain Securities Purchase Agreement dated as of June 26, 2024 (the “Purchase Agreement”), by and among i3 Verticals, LLC, Corporation Seller, the Company (solely for the purpose of providing a guaranty of the obligations of Sellers as set forth in the Purchase Agreement), Payroc Buyer, LLC (“Buyer”), and Payroc WorldAccess, LLC (solely for the purpose of providing a guaranty of the obligations of Buyer as set forth in the Purchase Agreement), the entry into which Purchase Agreement was previously disclosed in a Current Report on Form 8-K filed by the Company on June 26, 2024.
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Our primary strategic vertical markets include: • Public Sector —We have products and solutions that create an efficient flow of information throughout a variety of public sector entities, including states and local governments. Our solutions help our customers provide more responsive and efficient services to their citizens.
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Pursuant to the terms of the Purchase Agreement, the Sellers sold to Buyer the equity interests of certain direct and indirect wholly-owned subsidiaries of Sellers (the “Acquired Entities”) primarily comprising the Company’s merchant services business, including its associated proprietary technology (the “Merchant Services Business”), after giving effect to the contribution of certain assets and the assignment of certain liabilities associated with the Merchant Services Business from i3 Verticals, LLC and certain affiliates to the Acquired Entities pursuant to a contribution agreement which was entered into immediately prior to the Closing.
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We have products that enable upper and lower court case management, collections, finance and accounting, motor vehicle and carrier registration, e-filing and taxation, license plate inventory, property tax management, utility billing, professional licensing, document workflow, and law enforcement software.
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Pursuant to the terms of the Purchase Agreement, Buyer paid to Sellers an aggregate purchase price of approximately $438 million (after giving effect to estimated net working capital, indebtedness and cash adjustments), payable in cash at the Closing, subject to post-closing purchase price adjustments.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeTo the extent that we need funds to pay our taxes or other liabilities or to fund our operations, and i3 Verticals, LLC is restricted from making distributions to us under applicable agreements under which it is bound, including its financing agreements, laws or regulations, does not have sufficient cash to make these distributions or is otherwise unable to provide such funds, we may have to borrow funds to meet these obligations and operate our business, and our liquidity and financial condition could be materially adversely affected.
Biggest changeWe intend to cause i3 Verticals, LLC to distribute cash to us in an amount at least equal to the amount necessary to cover our respective tax liabilities, if any, with respect to our allocable share of the net income of i3 Verticals, LLC and to cover cash dividends on our Class A common stock, if any, we declare, and purchases of Class A common stock pursuant to our share repurchase program, as well as any payments due under the Tax Receivable Agreement (the “Tax Receivable Agreement” or "TRA") by and among i3 Verticals, Inc., i3 Verticals, LLC and each of the holders, other than i3 Verticals, Inc., of common units in i3 Verticals, LLC (the “Continuing Equity Owners”). 46 To the extent that we need funds to pay our taxes or other liabilities or to fund our operations, and i3 Verticals, LLC is restricted from making distributions to us under applicable agreements under which it is bound, including its financing agreements, laws or regulations, does not have sufficient cash to make these distributions or is otherwise unable to provide such funds, we may have to borrow funds to meet these obligations and operate our business, and our liquidity and financial condition could be materially adversely affected.
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.
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; 23 • 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.
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.
U.S. and international markets are experiencing uncertain and volatile economic and geopolitical conditions, including from the impacts of military conflict in the Middle East, Russian aggression in Ukraine, 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.
Violations of applicable statutes and regulations may result in criminal penalties and in substantial civil penalties, including exclusion from government healthcare programs, and settlements of lawsuits involving Medicare and Medicaid issues routinely require monetary penalties and corporate integrity agreements. Assessing and predicting the outcome of these matters involves substantial uncertainties.
Violations of applicable statutes and regulations may result in criminal penalties and substantial civil penalties, including exclusion from government healthcare programs, and settlements of lawsuits involving Medicare and Medicaid issues routinely require monetary penalties and corporate integrity agreements. Assessing and predicting the outcome of these matters involves substantial uncertainties.
Further, many foreign data privacy regulations (including India’s Digital Personal Data Protection Act) can be more stringent than those in the United States. These laws and regulations are rapidly evolving and changing and could have an adverse effect on our operations.
Further, many foreign data privacy regulations (including India’s Digital Personal Data Protection Act) can be more stringent than those in the United States. These laws and regulations are rapidly evolving and changing and could have an adverse effect on our operations.
Our obligations and requirements under these laws and regulations are subject to uncertainty in how they may be interpreted by government authorities and regulators.
Our obligations and requirements under these laws and regulations are subject to uncertainty in how they may be interpreted by government authorities and regulators.
The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, affect our customers’ willingness to permit us to use and store personal data, prevent us from selling our products or services, and/or affect our ability to invest in or jointly develop products.
The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, affect our customers’ willingness to permit us to use and store personal data, prevent us from selling our products or services, and/or affect our ability to invest in or jointly develop products.
These requirements include, but are not limited to: • the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002; • compliance with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, including critical audit matters; • the requirement that we provide full and more detailed disclosures regarding executive compensation; and • the requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved.
These requirements include, but are not limited to: • the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002; • compliance with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, including critical audit matters; • the requirement that we provide full and more detailed disclosures regarding executive compensation; and 43 • the requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved.
For example, on June 2, 2021, the State of Louisiana, Division of Administration (the “State”) and a putative class of Louisiana law enforcement districts filed a petition in the 19th Judicial District Court for the Parish of East Baton Rouge against i3-Software & Services, LLC (“S&S”), a subsidiary of the Company located in Shreveport, Louisiana, seeking monetary damages related to a third-party remote access software product used in connection with services provided by S&S to certain Louisiana Parish law enforcement districts and alleged inadequacies in the Company’s cybersecurity practices.
For example, on June 2, 2021, the State of Louisiana, Division of Administration and a putative class of Louisiana law enforcement districts filed a petition in the 19th Judicial District Court for the Parish of East Baton Rouge against i3-Software & Services, LLC (“S&S”), a subsidiary of the Company located in Shreveport, Louisiana, seeking monetary damages related to a third-party remote access software product used in connection with services provided by S&S to certain Louisiana Parish law enforcement districts and alleged inadequacies in the Company’s cybersecurity practices.
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.
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 comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business.
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.
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, banking and lending, U.S. Safe Harbor regulations, and import and export restrictions.
In addition, if we were precluded from processing Visa and Mastercard electronic payments, we would lose substantially all of our revenues. We are also subject to the operating rules of NACHA, a self-regulatory organization which administers and facilitates private-sector operating rules for ACH payments and defines the roles and responsibilities of financial institutions and other ACH network participants.
In addition, if we were precluded from processing Visa and Mastercard electronic payments, we would lose substantially all of our payments-related revenues. We are also subject to the operating rules of Nacha, a self-regulatory organization which administers and facilitates private-sector operating rules for ACH payments and defines the roles and responsibilities of financial institutions and other ACH network participants.
Although simple negligence will not give rise to liability under the FCA, "knowingly" submitting a false claim may result in liability. When an entity is determined to have violated the FCA, the government may impose substantial civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in federal healthcare programs.
Although simple negligence will not give rise to liability under the FCA, "knowingly" submitting a false claim may result in liability. When an entity is determined to have violated the FCA, 37 the government may impose substantial civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in federal 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.
We also may incur costs in periods prior to the corresponding recognition of revenue. To the extent current regulations are subsequently changed or 38 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, 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.
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 2025.
To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid. 47 The interests of the other Continuing Equity Owners in our business may conflict with the interests of holders of shares of our Class A common stock.
To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid. The interests of the other Continuing Equity Owners in our business may conflict with the interests of holders of shares of our Class A common stock.
For example, use of our solutions could be affected by: • changes in the billing patterns of providers; • changes in the design of health insurance plans; and • changes in the contracting methods payers use in their relationships with providers. The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur.
For example, use of our solutions could be affected by: • changes in the billing patterns of providers; • the design of health insurance plans; and • the contracting methods payers use in their relationships with providers. 39 The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur.
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. Government regulators, industry groups and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data.
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. 42 Government regulators, industry groups and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data.
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.
For additional information about our 2023 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.
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.
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 22 state and federal laws (including HIPAA) or by the payment networks.
Should the rate of post-acquisition customer attrition exceed the rate we forecasted, the revenues and profits from the acquisition may be less than we estimated, which could result in losses or a decline in profits, as well as potential impairment charges. We perform a due diligence review of each of our acquisition partners.
Should the rate of post-acquisition customer attrition exceed the rate forecasted, the revenues and profits from the acquisition may be less than we estimated, which could result in losses or a decline in profits, as well as potential impairment charges. 30 We perform a due diligence review of each of our acquisition partners.
Any debt financing we obtain in the future could involve covenants that further restrict our capital raising activities and other financial and operational matters, which may make it more difficult for us to operate our business, obtain additional capital and pursue business opportunities, including potential acquisitions.
Any debt financing we obtain in the future could involve covenants that further restrict our capital raising 45 activities and other financial and operational matters, which may make it more difficult for us to operate our business, obtain additional capital and pursue business opportunities, including potential acquisitions.
On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (the “2023 Senior Secured Credit Facility”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”). The 2023 Senior Secured Credit Facility replaces the Prior Senior Secured Credit Facility (as defined below).
On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (as amended, the “2023 Senior Secured Credit Facility”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”). The 2023 Senior Secured Credit Facility replaces the Prior Senior Secured Credit Facility (as defined below).
Relevant federal privacy laws include, in addition to FERPA and PPRA described above, 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. The U.S.
Relevant federal privacy laws include, in addition to FERPA, PPRA and HIPAA described above, 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. The U.S.
There can be no assurance that we will be able to fund or finance our obligations under the Tax Receivable Agreement. 48 In certain circumstances, i3 Verticals, LLC will be required to make distributions to us and the Continuing Equity Owners, and the distributions that i3 Verticals, LLC will be required to make may be substantial.
There can be no assurance that we will be able to fund or finance our obligations under the Tax Receivable Agreement. In certain circumstances, i3 Verticals, LLC will be required to make distributions to us and the Continuing Equity Owners, and the distributions that i3 Verticals, LLC will be required to make may be substantial.
Failure to comply with the FCPA and could result in the imposition of civil or criminal fines and penalties and could disrupt our business and adversely affect our results of operations, cash flows and financial condition. Numerous other federal laws affect our business, and any failure to comply with those laws could harm our business.
Failure to comply with the FCPA could result in the imposition of civil or criminal fines and penalties and could disrupt our business and adversely affect our results of operations, cash flows and financial condition. 40 Numerous other federal laws affect our business, and any failure to comply with those laws could harm our business.
In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control.
In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business 47 combinations or other changes of control.
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.
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 payable on future exchanges of the Exchangeable Notes if and/or as required by the Indenture would constitute a default under the Indenture.
These risks may be heightened in connection with employees working from remote work environments, as our dependency on certain service providers, such as video conferencing and web conferencing 22 services, has significantly increased.
These risks may be heightened in connection with employees working from remote work environments, as our dependency on certain service providers, such as video conferencing and web conferencing services, has significantly increased.
The NACHA Rules and Operating Guidelines impose obligations on us and our partner financial institutions. These obligations include audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations.
The Nacha Operating Rules impose obligations on us and our partner financial institutions. These obligations include audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations.
We and other third parties collect, process, store and transmit sensitive data, such as names, addresses, social security numbers, credit or debit card numbers and expiration dates, drivers’ license numbers and bank account numbers, and we have ultimate liability to the payment networks and member financial institutions that register us with the payment networks for our failure, or the failure of certain distribution partners and third parties with whom we contract, to protect this data in accordance with payment network requirements.
We and other third parties collect, process, store and transmit sensitive data, such as names, addresses, social security numbers, credit or debit card numbers and expiration dates, drivers’ license numbers and bank account numbers, and we have ultimate liability to the payment networks and member financial institutions that register us with the payment networks for our failure, or the failure of certain third parties with whom we contract, to protect this data in accordance with payment network requirements.
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 may also face audits or investigations by one or more foreign government agencies relating to our compliance with these regulations. 33 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.
Additionally, larger financial institutions may decide to perform in-house some or all of the services we provide or could provide, which may give them with a competitive advantage in the market.
Additionally, larger financial institutions may decide to perform in-house some or all of the services we provide or could provide, which may give them a competitive advantage in the market.
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.
The Information Blocking Rule prohibits healthcare providers, Health Information Exchange ("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 electronic health information ("EHI"), except as required by law or specified by HHS as a reasonable and necessary activity.
If we cannot or do not license the infringed technology on reasonable terms or substitute similar technology from another source, our revenue and earnings could be materially and adversely affected. 32 If we lose key personnel, or if their reputations are damaged, our business, financial condition and results of operations may be adversely affected, and proprietary information of our company could be shared with our competitors.
If we cannot or do not license the infringed technology on reasonable terms or substitute similar technology from another source, our revenue and earnings could be materially and adversely affected. 31 If we lose key personnel, or if their reputations are damaged, our business, financial condition and results of operations may be adversely affected, and proprietary information of our company could be shared with our competitors.
These provisions could also make it more difficult for stockholders to nominate directors for election to our Board of Directors and take other corporate actions. 50 We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock.
These provisions could also make it more difficult for stockholders to nominate directors for election to our Board of Directors and take other corporate actions. 49 We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock.
The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our Class A common stock, either by diluting the voting power of our Class A common 51 stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our Class A common stock.
The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our Class A common stock, either by diluting the voting power of our Class A common 50 stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our Class A common stock.
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).
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, 2024).
Additionally, any integrations that do not occur rapidly and smoothly could divert the attention of management away from other strategic matters, including, but not limited to, acquisitions or product development. In connection with some acquisitions, we may incur non-recurring severance expenses, restructuring charges or change of control payments.
Integrations that do not occur rapidly and smoothly could divert the attention of management away from other strategic matters, including, but not limited to, acquisitions or product development. In connection with some acquisitions, we may incur non-recurring severance expenses, restructuring charges or change of control payments.
We and many of our customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices, provisions of the Dodd-Frank Act that prohibit UDAAP, the Telemarketing Sales Act, the Electronic Fund Transfer Act and other laws, rules and or regulations, which may directly impact the activities of certain of our customers.
We and many of our customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices (referred to as "UDAAP"), provisions of the Dodd-Frank Act that prohibit UDAAP, the Telemarketing Sales Act, the Electronic Fund Transfer Act and other laws, rules and or regulations, which may directly impact the activities of certain of our customers.
On occasion, we experience increases in interchange and sponsorship fees; if we cannot pass these increases along to our customers, our profit margins will be reduced. We pay interchange fees or assessments to issuing banks through the card associations for each transaction that is processed using their credit and debit cards.
On occasion, we experience increases in interchange and sponsorship fees; if we cannot pass these increases along to our customers, our profit margins will be reduced. We pay interchange fees or assessments to the issuing bank through the card associations for each transaction that is processed using their credit and debit cards.
Volatility in our key operating metrics or their rates of growth could have a negative impact on our financial results and investor perceptions of our business prospects. 33 We are the subject of various claims and legal proceedings and may become the subject of claims, litigation or investigations which could have a material adverse effect on our business, financial condition or results of operations.
Volatility in our key operating metrics or their rates of growth could have a negative impact on our financial results and investor perceptions of our business prospects. 32 We are the subject of various claims and legal proceedings and may become the subject of claims, litigation or investigations which could have a material adverse effect on our business, financial condition or results of operations.
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.
This could materially and adversely affect our business. 26 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.
In connection with providing products and services to our customers, we are required by regulations, government-required standards, and by our contracts with customers and with our financial institution distribution partners to provide assurances regarding the confidentiality and security of non-public consumer information. These contracts may require periodic audits by independent companies regarding our compliance with applicable standards.
In connection with providing products and services to our customers, we are required by regulations, applicable industry standards, and our contracts with customers and financial institution distribution partners to provide assurances regarding the confidentiality and security of non-public consumer information. These contracts may require periodic audits by independent companies regarding our compliance with applicable standards.
These rules may subject us, as the electronic payment processor or provider of certain services, to investigations, fees, fines and disgorgement of funds if we were deemed to have improperly aided and abetted or otherwise provided the means and instrumentalities to facilitate the illegal or improper activities of the customer through our services.
These rules may subject us, as the electronic payment processor or provider of certain services, to investigations, fees, fines and disgorgement of funds if we are deemed to have improperly aided and abetted or otherwise provided the means and instrumentalities to facilitate the illegal or improper activities of the customer through our services.
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). The Adjusted Term SOFR rate shall not be less than 0% in any event.
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% (2.00% at September 30, 2024). The Adjusted Term SOFR rate shall not be less than 0% in any event.
Any of these could result in a material adverse impact on our business, results of operations or financial condition. Even an unsuccessful challenge of our activities could result in adverse publicity and could require a costly response. The Cures Act and Implementing Regulations (Information Blocking and HIT Standards and Certification Requirements).
Any of these could result in a material adverse impact on our business, results of operations or financial condition. Even an unsuccessful challenge of our activities could result in adverse publicity and could require a costly response. The Cures Act and Implementing Regulations (Information Blocking and Health Information Technology ("HIT") Standards and Certification Requirements).
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.
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. 29 We may not be able to successfully execute our strategy of growth through acquisitions.
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.
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 .
The compliance standards relate to the security of our infrastructure, and include components and operational procedures designed to safeguard the confidentiality and security of individuals’ non-public personal information that our customers share with us. Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract, grow and maintain business in the future.
The compliance standards relate to the security of our infrastructure, including components and operational procedures designed to safeguard the confidentiality and security of individuals’ non-public personal information that our customers share with us. Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract, grow and maintain business in the future.
Any significant unauthorized disclosure of sensitive data entrusted to us would cause significant damage to our reputation, impair our ability to attract new integrated technology and distribution partners and may cause parties with whom we already have such agreements to terminate them.
Any significant unauthorized disclosure of sensitive data entrusted to us would cause significant damage to our reputation, impair our ability to attract new integrated technology and may cause parties with whom we already have such agreements to terminate them.
Any claims asserted against us or our management, regardless of merit or eventual outcome, could harm our reputation or the reputation of our management and have an adverse impact on our relationship with our customers, distribution partners and other third parties and could lead to additional related claims.
Any claims asserted against us or our management, regardless of merit or eventual outcome, could harm our reputation or the reputation of our management and have an adverse impact on our relationship with our customers and other third parties and could lead to additional related claims.
Additionally, HIT developers that participate in the ONC Health IT Certification Program, like i3, must make various certifications regarding their HIT and attest to compliance with applicable conditions of certification, including those related to information blocking.
Additionally, HIT developers that participate in the ONC Health IT Certification Program, like us, must make various certifications regarding their HIT and attest to compliance with applicable conditions of certification, including those related to information blocking.
In addition, to access our network, products and services, customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and subject to their own security risk.
In addition, to access our network, products and services, customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and subject to their own security risks.
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.
While we did not incur material chargeback losses in our 2024 or 2023 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.
If we fail to comply with the applicable requirements of the Visa and Mastercard payment networks, those payment networks could seek to fine us, suspend us or terminate our registrations through our bank sponsors.
If we fail to comply with the applicable requirements of the Visa and Mastercard payment networks, those payment networks could seek to fine us, suspend us or terminate our registrations through our bank sponsor.
These foregoing matters could have an adverse effect on our business, result of operations and financial condition. We have faced, and may in the future face, significant chargeback liability if our customers refuse or cannot reimburse chargebacks resolved in favor of their customers, and we may not accurately anticipate these liabilities.
These foregoing matters could have an adverse effect on our business, result of operations and financial condition. 27 We have faced, and may in the future face, chargeback liabilities if our customers refuse or cannot reimburse chargebacks resolved in favor of their customers, and we may not accurately anticipate these liabilities.
The increasing focus on environmental, social and governance (“ESG”) practices could increase our costs, harm our reputation and adversely impact our financial results. There has been increasing public focus by investors, customers, environmental activists, the media and governmental and nongovernmental organizations on a variety of ESG matters.
The heightened focus on environmental, social and governance (“ESG”) practices could increase our costs, harm our reputation and adversely impact our financial results. There has been heightened focus by investors, customers, environmental activists, the media and governmental and nongovernmental organizations on a variety of ESG matters.
Although we generally require that our agreements with our distribution partners and service providers who have access to customer data include confidentiality obligations that restrict these parties from using or disclosing any customer data except as necessary to perform their services under the applicable agreements, there can be no assurance that these contractual measures will prevent the unauthorized disclosure of business or customer data, nor can we be sure that such third parties would be willing or able to satisfy liabilities arising from their breach of these agreements.
Although we generally require that our agreements with third parties who have access to customer data include confidentiality obligations that restrict these parties from using or disclosing any customer data except as necessary to perform their services under the applicable agreements, there can be no assurance that these contractual measures will prevent the unauthorized disclosure of business or customer data, nor can we be sure that such third parties would be willing or able to satisfy liabilities arising from their breach of these agreements.
Any determination by a federal or state regulatory authority that any of our activities or those of our customers or vendors violate any of these laws or regulations could: (i) subject us to civil or criminal penalties, (ii) require us to enter into corporate integrity agreements or similar agreements with government regulators to meet ongoing compliance obligations, (iii) require us to change or terminate some portions of our business, (iv) require us to refund a portion of our service fees, and/or (v) disqualify us from providing services to customers that are, or do business with, government programs.
Any determination by a federal or state regulatory authority that any of our activities or those of our customers or vendors violate any of these laws or regulations could: subject us to civil or criminal penalties, require us to enter into corporate integrity agreements or similar agreements with government regulators to meet ongoing compliance obligations, require us to change or terminate some portions of our business, require us to refund a portion of our service fees and/or disqualify us from providing services to customers that are, or do business with, government programs.
The termination of our registration with the payment networks, or any changes in payment network or issuer rules that limit our ability to provide merchant acquiring services, could have an adverse effect on our payment processing volumes, revenues and operating costs.
The termination of our registration with the payment networks, or any changes in payment network or issuer rules that limit our ability to provide payment facilitation services, could have an adverse effect on our payment processing volumes, revenues and operating costs.
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.
The Continuing Equity Owners, who collectively hold approximately 31% of the combined voting power of our common stock as of November 22, 2024, 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.
Any failure to adequately comply with these protective measures could result in fees, penalties, litigation or termination of our bank sponsor agreements.
Any failure to adequately comply with these protective measures could result in fees, penalties, litigation or termination of our bank sponsor agreement.
In addition, our sponsoring banks may seek to increase their sponsorship fees charged to us, all of which are based upon the dollar amount of the payment transactions we process. If we are not able to pass these fee increases along to customers through corresponding increases in our processing fees, our profit margins will be reduced.
In addition, our sponsoring bank may seek to increase its sponsorship fees charged to us, all of which are based upon the dollar amount of the payment transactions we process. If we are not able to pass these fee increases along to customers through corresponding increases in our processing fees, our profit margins will be reduced.
Competition could also result in a loss of existing distribution partners and customers and greater difficulty attracting new distribution partners and customers. One or more of these factors could have a material adverse effect on our business, financial condition and results of operations.
Competition could also result in a loss of customers and greater difficulty attracting new customers. One or more of these factors could have a material adverse effect on our business, financial condition and results of operations.
Funds used by i3 Verticals, LLC to satisfy its tax distribution obligations will not be available for reinvestment in our business.
Funds used by i3 Verticals, LLC to satisfy its tax distribution obligations may not be available for reinvestment in our business.
Even if we believe that intellectual property related claims are without merit, defending against such claims is time consuming and expensive and could result in the diversion of the time and attention of our management and employees.
Even if we believe that intellectual property related claims are without merit, defending against such claims is resource intensive and expensive and could result in the diversion of the time and attention of our management and employees.
If we or our bank sponsors fail to comply with the applicable rules and requirements of the Visa or Mastercard payment networks, Visa or Mastercard could suspend or terminate our member registration or certification, which would make it impossible for us to conduct our business on its current scale.
If we or our bank sponsor fails to comply with the applicable rules and requirements of the Visa or Mastercard payment networks, Visa or Mastercard could suspend or terminate our member registration or certification, which would make it impossible for us to conduct our business on its current scale.
In a fraudulent card-not-present transaction, even if the customer receives authorization for the transaction, the customer is liable for any loss arising from the transaction. Many of our smaller customers transact a substantial percentage of their sales over the Internet or in response to telephone or mail orders.
In a fraudulent card-not-present transaction, even if the customer receives authorization for the transaction, the customer is liable for any loss arising from the transaction. Many of our customers transact a substantial percentage of their transactions over the Internet or in response to telephone orders.
We are responsible both for our own business and to a significant degree for acts and omissions by certain of our distribution partners and third-party vendors under the rules and regulations established by the payment networks, such as Visa and Mastercard, Discover and American Express, and the debit networks.
We are responsible both for our own business and to a significant degree for acts and omissions by certain of our partners under the rules and regulations established by the payment networks, such as Visa and Mastercard, Discover and American Express, and the debit networks.
Many of our solutions require or benefit from the use of third-party hardware products that we sell to our customers, such as payment terminals and point of sale equipment. A number of such products come from limited number of suppliers.
Some of our solutions require or benefit from the use of third-party hardware products that we sell to our customers, such as kiosks, payment terminals and point of sale equipment. A number of such products come from 28 limited number of suppliers.
If we cannot keep pace with rapid developments and changes in our industry, the use of our products and services could decline, causing a reduction in our revenues. The electronic payments market is subject to constant and significant changes.
If we cannot keep pace with rapid developments and changes in our industry, the use of our products and services could decline, causing a reduction in our revenues. The vertical market software market is subject to constant and significant changes.
If the banks that sponsor us with the Visa and Mastercard networks stop sponsoring us, we would need to find other financial institutions to provide those services, which could be difficult and expensive.
If the bank that sponsors us with the Visa and Mastercard networks stop sponsoring us, we would need to find other financial institutions to provide those services, which could be difficult and expensive.
For additional information about this litigation, see Note 15 to our consolidated financial statements.
For additional information about this litigation, see Note 16 to our consolidated financial statements.
We do not directly access the payment card networks, such as Visa and Mastercard, that enable our acceptance of credit cards and debit cards, including some types of prepaid cards. Accordingly, we must rely on banks or other payment processors to process transactions and must pay fees for the services.
We do not directly access the payment card networks, such as Visa and Mastercard, that enable our acceptance of credit cards and debit cards, including some types of prepaid cards. Accordingly, we must rely on our bank sponsor or other payment processing providers to process transactions and must pay fees for the services.
Together, these circumstances create an environment in which it is challenging for us to predict future operating results. 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.
Together, these circumstances create an environment in which it is challenging for us to predict future operating results. If these uncertain business, macroeconomic or political conditions continue or further decline, or if the military conflicts noted above escalate, our business, financial condition and results of operations could be materially adversely affected.
Our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects. We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our revenues as a result of consumer spending patterns.
Our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects. We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our revenues.
We may not have adequate financial or technological resources to develop effective and secure services or distribution channels that will satisfy the demands of these new vertical markets. Penetrating these new vertical markets may also prove to be more challenging or costly or take longer than we may anticipate.
We may not have adequate financial or technological resources to develop effective and secure services that will satisfy the demands of these new customers. Penetrating these new customers in our existing vertical markets may also prove to be more challenging or costly or take longer than we may anticipate.
We depend on the ability and experience of a number of our key personnel, particularly Messrs. Daily, Whitson and Stanford, who have substantial experience with our operations, the rapidly changing payment processing industry and the vertical markets in which we offer our products and services.
We depend on the ability and experience of a number of our key personnel who have substantial experience with our operations, the rapidly changing payment processing industry and the vertical markets in which we offer our products and services.
If such an event were to occur it could significantly disrupt our operations, expose us to liability under HIPAA and/or state data breach laws, adversely impact our reputation, impact our customer relationships or subject us to other material losses or liability.
If such an event were to occur it could materially disrupt our operations, expose us to liability under data breach laws, adversely impact our reputation, impact our customer relationships or subject us to other material losses or liability.

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Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeWe also lease properties for our Healthcare segment located within Ohio, Louisiana and Wisconsin. Our properties include office spaces used for support, operational, sales, management and administrative purposes.
Item 2. Properties Our corporate headquarters is in Nashville, Tennessee where we occupy approximately 16,000 square feet of office space under a lease that expires in 2027.
Item 2. Properties Our corporate headquarters is in Nashville, Tennessee where we occupy approximately 16,000 square feet of office space under a lease that expires in 2027. We lease properties for our Public Sector segment located within various geographic regions in which we conduct business, including Alabama, Colorado, Connecticut, Georgia, Louisiana, Michigan, South Carolina, Tennessee and Texas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information required with respect to this item can be found in Note 15 to the accompanying audited consolidated financial statements contained in this report and is incorporated by reference into this Part I, Item 3. Item 4. Mine Safety Disclosures Not applicable. 52 PART II
Biggest changeItem 3. Legal Proceedings The information required with respect to this item can be found in Note 16 to the accompanying audited consolidated financial statements contained in this report and is incorporated by reference into this Part I, Item 3. Item 4. Mine Safety Disclosures Not applicable. 53 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe 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.
Biggest changeWe intend to retain any earnings to finance the growth and development of our business and do not currently expect to declare or pay any cash dividends, provided that, as described above, our Board of Directors will determine the appropriate uses for excess cash held by the Company following tax distributions made by i3 Verticals, LLC to its members, including the Company, in connection with the taxable income associated with the gain on the sale in September 2024 of our Merchant Services Business.
The comparisons reflected in the graph and table are not intended to forecast the future performance of our stock and may not be indicative of our future performance. 53 The following table presents the corresponding data for the periods shown in the graph: i3 Verticals, Inc.
The comparisons reflected in the graph and table are not intended to forecast the future performance of our stock and may not be indicative of our future performance. 54 The following table presents the corresponding data for the periods shown in the graph: i3 Verticals, Inc.
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.
Stockholders As of November 22, 2024, there were 69 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.
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, 2023. Dividends We have never declared or paid a cash dividend on our common stock.
We did not repurchase any shares of our Class A common stock (under our Share Repurchase Program or otherwise) or Class B common stock during the three months ended September 30, 2024. Dividends We have never declared or paid a cash dividend on our Class A common stock.
As of November 21, 2023, there were 52 stockholders of record of our Class B common stock.
As of November 22, 2024, there were 51 stockholders of record of our Class B common stock.
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.
Additionally, our 2023 Senior Secured Credit Facility (as defined below) places restrictions on the payment of dividends by the Company. For further discussion of the 2023 Senior Secured 55 Credit Facility, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources." Item 6. Reserved
Removed
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
S&P 500 S&P 500 Information Technology September 30, 2019 $ 100.00 $ 100.00 $ 100.00 September 30, 2020 $ 125.50 $ 112.98 $ 145.37 September 30, 2021 $ 120.33 $ 144.71 $ 185.64 September 30, 2022 $ 99.55 $ 120.45 $ 147.16 September 30, 2023 $ 105.07 $ 144.05 $ 205.58 September 30, 2024 $ 105.91 $ 193.58 $ 311.58 Sales of Unregistered Securities All sales of unregistered securities during the year ended September 30, 2024, have been previously disclosed in either a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
Removed
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.
Added
Issuer Purchases of Equity Securities Share Repurchase Program On August 8, 2024, the Company announced that our Board of Directors had approved a share repurchase program for the Company’s Class A common stock, under which the Company is authorized to repurchase up to $50.0 million of outstanding shares of our Class A common stock (exclusive of fees, commissions or other expenses related to such repurchases) (the "Share Repurchase Program").
Removed
"Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources." Item 6. Reserved
Added
The Share Repurchase Program will terminate on the earlier of August 8, 2025, or when the maximum dollar amount under the Share Repurchase Program has been expended.
Added
Pursuant to the Share Repurchase Program, the Company is authorized to make repurchases of our Class A common stock in the open market, through privately negotiated transactions, or otherwise, including under Rule 10b5-1 plans.
Added
Repurchases under the Share Repurchase Program are subject to prevailing market conditions, liquidity and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), compliance with contractual restrictions under the 2023 Senior Secured Credit Facility, and other factors.
Added
In addition, the terms of the Share Repurchase Program provides that, immediately prior to repurchases of Class A common stock under the Share Repurchase Program, i3 Verticals, LLC redeems for cash an equal number of units held by the Company in i3 Verticals, LLC in order to fund such repurchases and maintain a 1-1 ratio between the number of outstanding shares of Class A common stock and the units held by the Company in i3 Verticals, LLC.
Added
The Share Repurchase Program does not obligate us to acquire any particular amount of Class A common stock, and the Share Repurchase Program may be suspended or discontinued at any time at our discretion.
Added
In addition, under our certificate of incorporation, holders of our Class B common stock are not entitled to participate in any cash dividends declared by our Board of Directors.
Added
A possible use for such excess cash may be the payment of a cash dividend on our Class A common stock.
Added
For additional information, see the discussion in our risk factors under Part I, Item 1A of this Form 10-K under “In certain circumstances, i3 Verticals, LLC will be required to make distributions to us and the Continuing Equity Owners, and the distributions that i3 Verticals, LLC will be required to make may be substantial.” Our Board of Directors reviews our dividend policy from time to time and may declare dividends (whether special dividends or otherwise) at its discretion.

Item 7. Management's Discussion & Analysis

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

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Biggest changeOur 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.
Biggest changeThese increases were primarily driven by increases in payments volume. 62 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 $ 226,722 $ 187,752 $ 38,970 20.8 % Operating expenses Other costs of services 15,355 12,834 2,521 19.6 % Selling, general and administrative 177,731 156,666 21,065 13.4 % Depreciation and amortization 26,438 19,330 7,108 36.8 % Change in fair value of contingent consideration 10,767 22,063 (11,296) n/m Total operating expenses 230,291 210,893 19,398 9.2 % Loss from operations (3,569) (23,141) 19,572 n/m Other expenses Interest expense, net 25,128 14,775 10,353 70.1 % Other (income) expense (1,224) 991 (2,215) n/m Total other expenses 23,904 15,766 8,138 n/m Loss before income taxes (27,473) (38,907) 11,434 n/m (Benefit from) provision for income taxes (3,788) 152 (3,940) n/m Net loss from continuing operations (23,685) (39,059) 15,374 Net income from discontinued operations, net of income taxes 21,033 15,842 5,191 Net loss (2,652) (23,217) 20,565 n/m Net loss from continuing operations attributable to non-controlling interest (7,863) (11,828) 3,965 Net income from discontinued operations attributable to non-controlling interest 6,022 5,713 309 Net loss attributable to non-controlling interest (1,841) (6,115) 4,274 n/m Net loss from continuing operations attributable to i3 Verticals, Inc.
Cash Flows The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods.
The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods.
At-the-Market Program On August 20, 2021, we, together with i3 Verticals, LLC, entered into an at-the-market offering sales agreement with Raymond James & Associates, Inc., Morgan Stanley & Co.
At-the-Market Program On August 20, 2021, we, together with i3 Verticals, LLC, entered into an at-the-market offering sales agreement (the "Sales Agreement") with Raymond James & Associates, Inc., Morgan Stanley & Co.
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 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 % 68 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, 0.15% at September 30, 2024) times the actual daily amount by which $450 million exceeds the total amount outstanding under the Revolver and available to be drawn under all outstanding letters of credit.
Below is a summary of our critical accounting estimates for which the nature of management’s assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and for which the impact of the estimates and assumptions on financial condition or operating performance is material.
Below is a summary of our critical accounting policies and estimates for which the nature of management’s assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and for which the impact of the estimates and assumptions on financial condition or operating performance is material.
Critical Accounting Estimates The preparation of consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Critical Accounting Policies and Estimates The preparation of consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results requires the Company’s management to make estimates and assumptions that affect the 71 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
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.
Our effective tax rate of 14% 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.
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).
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, 2024).
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.
The amounts recorded as of September 30, 2024, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.
Tax Receivable Agreement We are a party to a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners, as described in Note 11 of our consolidated financial statements. As a result of the Tax Receivable Agreement, we have been required to establish a liability in our consolidated financial statements.
Tax Receivable Agreement We are a party to a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners, as described in Note 12 of our consolidated financial statements. As a result of the Tax Receivable Agreement, we have been required to establish a liability in our consolidated financial statements.
Our growth strategy includes acquisitions. We expect to fund acquisitions through a combination of net cash from operating activities, borrowings under our 2023 Senior Secured Credit Facility and through the issuance of equity and debt securities. As a holding company, we depend on distributions or loans from i3 Verticals, LLC to access funds earned by our operations.
We expect to fund acquisitions through a combination of net cash from operating activities, borrowings under our 2023 Senior Secured Credit Facility and through the issuance of equity and debt securities. As a holding company, we depend on distributions or loans from i3 Verticals, LLC to access funds earned by our operations.
Note 2, “Summary of Significant Accounting Policies” in the notes to the accompanying consolidated financial statements in Part II, Item 8 of this Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.
Note 3, “Summary of Significant Accounting Policies” in the notes to the accompanying consolidated financial statements in Part II, Item 8 of this Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.
LLC and BTIG, LLC (each a “Sales Agent”), under which we may issue and sell, from time to time and through the Sales Agents, shares of our Class A common stock having an aggregate offering price of up to $125 million (the “ATM Program”).
LLC and BTIG, LLC (each a “Sales Agent”), under which we could issue and sell, from time to time and through the Sales Agents, shares of our Class A common stock having an aggregate offering price of up to $125.0 million (the “ATM Program”).
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.
The change in fair value of contingent consideration for the year ended September 30, 2022 was a charge of $22.1 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.
“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”).
“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, 2023, which was filed with the Securities and Exchange Commission on November 22, 2023. 67 2023 Senior Secured Revolving Credit Facility On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (as amended, the “2023 Senior Secured Credit Facility”) with the guarantors and lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”).
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.
Year Ended September 30, 2023 Compared to Year Ended September 30, 2022 For a discussion of the cash flows for the year ended September 30, 2023 compared to the year ended September 30, 2022, refer to Part II, Item 7.
These conditions could worsen as a result of adverse economic developments impacting the U.S. and/or global economies, including as a result of monetary policy designed to curb inflation. As the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our financial results.
These conditions could worsen as a result of adverse economic developments impacting the U.S. and/or global economies. As the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our financial results.
Ltd. in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical. Total purchase consideration was $85.0 million in cash consideration, funded by the proceeds from our revolving credit facility. During the year ended September 30, 2023, we completed the acquisition of two other businesses to expand our software offerings.
Ltd. in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical. Total purchase consideration was $85.0 million in cash consideration, funded by the proceeds from our revolving credit facility. During the year ended September 30, 2023, we completed the acquisition of one other business within continuing operations to expand our software offerings.
The contingent consideration is revalued each period until it is settled. Management reviews the historical and projected performance of each acquisition with contingent consideration and uses an income probability method to revalue the contingent consideration. The revaluation requires management to make certain assumptions and represent management's best estimate at the valuation date.
Management reviews the historical and projected performance of each acquisition with contingent consideration and uses an income probability method to revalue the contingent consideration. The revaluation requires management to make certain assumptions and represent management's best estimate at the valuation date.
The acquisition-date fair value of contingent consideration is valued using a Monte Carlo simulation. i3 Verticals, Inc. subsequently reassesses such fair value based on probability estimates with respect to the acquired entity’s likelihood of achieving the respective financial performance targets. Potential payments under the Tax Receivable Agreement are not reflected in this table. See “—Tax Receivable Agreement” below.
The acquisition-date fair value of contingent consideration is valued using a Monte Carlo simulation as well a discounted cash flows analysis. i3 Verticals, Inc. subsequently reassesses such fair value based on probability estimates with respect to the acquired entity’s likelihood of achieving the respective financial performance targets. Potential payments under the Tax Receivable Agreement are not reflected in this table.
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.
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 the Public Sector and Healthcare segments.
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, 2024, we were in compliance with these covenants, with a consolidated interest coverage ratio and total leverage ratio of 3.30x and 0.06x, respectively. Exchangeable Notes On February 18, 2020, i3 Verticals, LLC issued $138.0 million aggregate principal amount of its 1.0% Exchangeable Notes due February 15, 2025.
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.
As of September 30, 2024, the fair value of contingent consideration recorded is $2.4 million, with maximum contingent consideration payout of $26.8 million dependent upon achievement of specified financial performance targets, as defined in the purchase agreements.
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.
As of September 30, 2024, the Borrower's consolidated interest coverage ratio was 3.30x and total leverage ratio was 0.06x. 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.
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.
We also generate revenue from volume-based payment processing fees (“discount fees”) that we provide to our customers directly through our software. Volume-based fees represent a percentage of the dollar amount of each credit or debit transaction processed.
The Company's primary strategic verticals are Public Sector (including Education) and Healthcare. 54 Economic Trends Inflationary pressures, elevated interest rate levels, monetary policy, and the current geopolitical situation (including the military conflicts in Ukraine and in the Middle East), are causing broad economic uncertainty and could potentially cause new, or exacerbate existing, economic challenges that may impact us.
Economic Trends Inflationary pressures, elevated interest rate levels, monetary policy, and the current geopolitical situation (including the military conflicts in the Middle East and Ukraine), are causing broad economic uncertainty and could potentially cause new, or exacerbate existing, economic challenges that may impact us.
Executive Overview The Company delivers seamless integrated software and services to customers in strategic vertical markets. Building on its broad suite of software and services solutions, the Company creates and acquires software products to serve the specific needs of its customers.
Executive Overview The Company delivers seamless integrated software and services to customers in strategic vertical markets. Building on its broad suite of software and services solutions, the Company creates and acquires software products to serve the specific needs of its customers. The Company's primary strategic verticals are Public Sector and Healthcare.
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.
Liquidity At September 30, 2024, we had $86.5 million of cash and cash equivalents and $450.0 million of available capacity under our 2023 Senior Secured Credit Facility subject to our financial covenants. As of September 30, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio 3.30x, and 0.06x, respectively.
Additionally, the provision for current income tax expense increased to $4.7 million for the year ended September 30, 2023 from $2.4 million for the year ended September 30, 2022, driven by the decrease in the loss before income taxes, limitations on interest expense deduction, and the phase in of deferral of research and development expenses.
Additionally, the provision for current income tax expense increased to $3.5 million for the year ended September 30, 2023 from $1.3 million for the year ended September 30, 2022, driven by limitations on interest expense deduction and the phase in of deferral of research and development expenses.
The covenants contained in the 2023 Senior Secured Credit Facility may restrict i3 Verticals, LLC’s ability to provide funds to i3 Verticals, Inc. 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 Prior Senior Secured Credit Facility.
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 Prior Senior Secured Credit Facility.
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.
Other income for the year ended September 30, 2023 reflects $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.
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.
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. Expenses Other costs of services . Other costs of services include costs directly related to our software and related services, such as hosting expenses.
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.
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 cash needs as described above for at least the next twelve months and foreseeable future. Our growth strategy includes acquisitions.
The primary driver of the decrease in cash provided by operating activities was decreases in operating assets and liabilities of $17.4 million, which are impacted by the timing of collections and payments.
The primary driver of the increase in cash provided by operating activities was increases in operating assets and liabilities of $50.1 million, which are impacted by the timing of collections and payments.
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.
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 related to adjustments to the expected present value of consideration to be paid for earnouts.
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.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $21.1 million, or 13.4%, to $177.7 million for the year ended September 30, 2023 from $156.7 million for the year ended September 30, 2022.
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.
The net proceeds from the sale of the Exchangeable Notes were approximately $132.8 million after deducting discounts and commissions to the certain initial purchasers and other estimated fees and expenses. 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 to the Prior Senior Secured Credit Facility and to pay the cost of the Note Hedge Transactions.
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.
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. 64 Other income (expense) Other income was $1.2 million for the year ended September 30, 2023, compared to other expense of $1.0 million for the year ended September 30, 2022.
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.
We estimated interest payments through the maturity of our 2023 Senior Secured Credit Facility by applying the interest rate of 0.25% in effect on the outstanding balance as of September 30, 2024, plus the unused fee rate of 0.15% in effect as of September 30, 2024. 3.
Goodwill We test goodwill for impairment using a fair value approach at least annually, absent some triggering event that would require an interim impairment assessment.
Goodwill We test goodwill for impairment using a fair value approach at least annually, absent some triggering event that would require an interim impairment assessment. Absent any impairment indicators, we perform our goodwill impairment testing as of July 1 each year.
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.
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. Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset.
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.
Other costs of services within Healthcare increased $0.8 million, or 39.4%, to $2.9 million for the year ended September 30, 2024 from $2.1 million for the year ended September 30, 2023.
Recently Issued Accounting Pronouncements Refer to Note 2, “Summary of Significant Accounting Policies” in the notes to the accompanying consolidated financial statements for further discussion.
A description of related-party transactions is provided in Note 17 in the accompanying consolidated financial statements. Recently Issued Accounting Pronouncements Refer to Note 3, “Summary of Significant Accounting Policies” in the notes to the accompanying consolidated financial statements for further discussion. 73
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.
Depreciation and Amortization Depreciation and amortization increased $7.1 million, or 36.8%, to $26.4 million for the year ended year ended September 30, 2023 from $19.3 million for the year ended September 30, 2022.
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).
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% (2.00% at September 30, 2024). The Adjusted Term SOFR rate shall not be less than 0% in any event.
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.
The benefit from deferred income taxes increased to a benefit of $8.8 million for the year ended September 30, 2024 from a benefit of $7.3 million for the year ended September 30, 2023, driven by a reduction in valuation allowances.
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.
Total purchase consideration was $15.3 million, including $12.5 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. 57 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.
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.
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. The useful lives of contract-based intangible assets are equal to the terms of the agreement. Interest expense, net.
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.
Cash Flow from Financing Activities Net cash used in financing activities increased $440.3 million to $367.4 million used in financing activities for the year ended September 30, 2024 from $73.0 million provided by financing activities for the year ended September 30, 2023.
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.
It should be reviewed independently of revenue and it is not a forecast. Additionally, ARR does not take into account seasonality. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
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 chart set forth above calculates interest payments through the maturity of our Exchangeable Notes by applying the coupon interest rate of 1.0% on the outstanding principal balance as of September 30, 2024 of $26.2 million. 4.
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.
As of September 30, 2024, we had $86.5 million of cash and cash equivalents and available borrowing capacity of $450.0 million under our 2023 Senior Secured Credit Facility, subject to the financial covenants. We usually minimize cash balances by making payments on our revolving line of credit to minimize borrowings and interest expense.
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.
Other income and expense for the years ended September 30, 2023 and 2022, both related to adjustments of liabilities under our Tax Receivable Agreement that related to remeasurement of the underlying deferred tax asset for changes in estimated income tax rates.
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.
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.
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.
Other Costs of Services Other costs of services increased $2.5 million, or 19.6%, to $15.4 million for the year ended September 30, 2023 from $12.8 million for the year ended September 30, 2022.
During the quarter and year ended September 30, 2023, we did not sell any Class A common stock under the ATM Program.
During the quarter and year ended September 30, 2024, we did not sell any Class A common stock under the ATM Program. During the three months ended September 30, 2024, the Company terminated the Sales Agreement pursuant to which the ATM Program had been operated.
Revenue in our Education vertical fluctuates with the school calendar. Revenue for our Education customers is strongest in August, September, October, January and February, at the start of each semester, and generally weakens throughout the semester, with little revenue in the summer months of June and July.
Transactional revenue for our Education customers is strongest in August, September, October, January and February, at the start of each semester, and generally weakens throughout the semester, with little revenue in the summer months of June and July. Operating expenses show less seasonal fluctuation, with the result that net income is subject to the same seasonal factors as our revenues.
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 2023 Senior Secured Credit Facility replaces the Prior Senior Secured Credit Facility. The 2023 Senior Secured Credit Facility provides for aggregate commitments of $450 million in the form of a senior secured revolving credit facility (the “Revolver”). In addition, on June 26, 2024, the Borrower entered into the first amendment to the 2023 Senior Secured Credit Facility (the “Amendment”).
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.
The increase in net cash used in financing activities was primarily the result of $87.8 million in payments for repurchases of exchangeable notes during the year ended September 30, 2024 and an increase in payments on the revolving credit facility of $377.9 million, partially offset by an increase in proceeds from the revolving credit facility of $21.9 million and a decrease in cash paid for contingent consideration up to our original estimates of $6.1 million for the year ended September 30, 2024 compared to the year ended September 30, 2023.
Contingent Consideration in Acquisitions On occasion, we may have acquisitions that include contingent consideration. Accounting for business combinations requires us to estimate the fair value of any contingent purchase consideration at the acquisition date. Where relevant, the fair value of material contingent consideration included in an acquisition is calculated using a Monte Carlo simulation.
Revenue recognition for time and materials is determined by resources utilized at contracted rates. Contingent Consideration in Acquisitions On occasion, we may have acquisitions that include contingent consideration. Accounting for business combinations requires us to estimate the fair value of any contingent purchase consideration at the acquisition date.
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, 2024, we were in compliance with these covenants with a consolidated interest coverage ratio and total leverage ratio of 3.3x and 0.06x, respectively, and expect to remain in compliance with these covenants over the next twelve months.
Absent any impairment indicators, we perform our goodwill impairment testing as of July 1 each year. 66 In our goodwill impairment review, we use significant estimates and assumptions that include the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit.
In our goodwill impairment review, we use significant estimates and assumptions that include the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit. Our assessment of qualitative factors involves significant judgments about expected future business performance and general market conditions.
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.
Other costs of services within Healthcare increased $0.4 million, or 21.6%, to $2.1 million for the year ended September 30, 2023 from $1.7 million for the year ended September 30, 2022.
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.
Our acquisitions have increased the number of businesses and organizations to whom we provide solutions and augmented our existing proprietary payment facilitator platform and software solutions and capabilities. Acquisitions during the year ended September 30, 2024 On August 1, 2024, we completed the acquisition of a business to expand our permitting and licensing software offerings in the Public Sector vertical.
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.
(Benefit from) Provision for Income Taxes The benefit from income taxes was $3.8 million for the year ended September 30, 2023 as compared to a provision for income taxes of $0.2 million for the year ended September 30, 2022.
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.
Other Costs of Services Other costs of services increased $3.2 million, or 21.0%, to $18.6 million for the year ended September 30, 2024 from $15.4 million for the year ended September 30, 2023. This increase was primarily driven by an increase of $1.4 million in software expenses and an increase of $1.0 million in third-party processing expense.
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.
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 does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies.
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.
This increase was principally driven by revenue of $2.4 million from acquisitions completed during 2024 and 2023. Revenue within Healthcare increased $1.0 million, or 2.2%, to $45.6 million for the year ended September 30, 2024 from $44.6 million for the year ended September 30, 2023. This increase was principally driven by growth from software and related services revenue.
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.
This decrease was principally driven by an $18.6 million increase in employment expense, primarily resulting from an increase in headcount that resulted from acquisitions and an increase in contract labor. The remaining increases primarily related to increases in technology expenses of $2.4 million for the year ended September 30, 2023 from $1.6 million for the year ended September 30, 2022.
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.
For additional information about our 2023 Senior Secured Credit Facility, see the section entitled "— 2023 Senior Secured Credit Facility" below. 65 Our primary cash needs are to fund working capital requirements, make capital expenditures and otherwise invest in our technology infrastructure, fund acquisitions and related contingent consideration, make scheduled principal and interest payments on our outstanding indebtedness, pay tax distributions to members of i3 Verticals, LLC as discussed below, and make repurchases of shares of Class A common stock under our share repurchase program as discussed below.
Related Parties Transactions involving related parties cannot be presumed to be carried out at an arm's length basis, as the requisite conditions of competitive, free-dealing markets may not exist. A description of related-party transactions is provided in Note 16 in the accompanying consolidated financial statements.
For each of our reporting units, the calculated fair values substantially exceeded carrying values as of our most recent quantitative impairment test date. Related Parties Transactions involving related parties cannot be presumed to be carried out at an arm's length basis, as the requisite conditions of competitive, free-dealing markets may not exist.
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.
Total purchase consideration was $18.0 million in cash funded by the proceeds from our revolving credit facility, the issuance of 311,634 shares of our Class A common stock in a private placement, and $2.0 million in contingent consideration. During the year ended September 30, 2024, we completed the acquisition of one other business to expand our software offerings.
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.
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 issuance costs. Interest income is generated from cash and cash equivalents held at financial institutions.
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.
Year Ended September 30, 2024 Compared to Year Ended September 30, 2023 Year ended September 30, 2024 2023 (in thousands) Net cash provided by operating activities $ 48,409 $ 37,170 Net cash provided by (used in) investing activities $ 396,150 $ (121,520) Net cash (used in) provided by financing activities $ (367,362) $ 72,985 Cash Flow from Operating Activities Net cash provided by operating activities increased $11.2 million to $48.4 million for the year ended September 30, 2024 from $37.2 million for the year ended September 30, 2023.
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.
The Merchant Services Business comprised our entire former Merchant Services segment and a small portion of our former Software and Services segment. 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.
Operating expenses show less seasonal fluctuation, with the result that net income is subject to the same seasonal factors as our revenues. The growth in our business may have partially overshadowed seasonal trends to date, and seasonal impacts on our business may be more pronounced in the future.
The growth in our business may have partially overshadowed seasonal trends to date, and seasonal impacts on our business may be more pronounced in the future. Liquidity and Capital Resources We have historically financed our operations and working capital through net cash from operating activities.
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.
Revenue within Healthcare increased $0.8 million, or 1.7%, to $44.6 million for the year ended year ended September 30, 2023 from $43.8 million for the year ended September 30, 2022. This increase was principally driven by revenue of $1.1 million from acquisitions, net of intercompany eliminations, completed during the 2023 and 2022 fiscal years.
Seasonality We have experienced in the past, and may continue to experience, seasonal fluctuations in our revenues as a result of consumer and business spending patterns. Revenues during the first quarter of the calendar year, which is our second fiscal quarter, tend to decrease in comparison to the remaining three quarters of the calendar year on a same store basis.
Seasonality We have experienced in the past, and may continue to experience, seasonal fluctuations in our revenues as a result of consumer and business spending patterns. The number of business days in a month or quarter also may affect seasonal fluctuations. Certain revenues in our Public Sector segment fluctuate with the fiscal calendars of our customers.
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.
Payments to the Continuing Equity Owners related to exchanges through September 30, 2024 will range from approximately $0 to $9.9 million per year and are expected to be paid over the next 24 years 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.
Amortization expense increased $6.4 million to $24.1 million for the year ended September 30, 2023 from $17.7 million for the year ended September 30, 2022 primarily due to an increase in capitalized software project releases. Depreciation expense increased $0.7 million to $2.4 million for the year ended September 30, 2023 from $1.6 million for the year ended September 30, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA 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.
Biggest changeTherefore, an increase or decrease in the interest rate applicable to the 2023 Senior Secured Credit Facility would not have had an 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.
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.
As of September 30, 2024, 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% (2.00% at September 30, 2024), 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, 2024), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.
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).
Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of September 30, 2024, 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).
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.
Additionally, the 2023 Senior Secured Credit Facility requires us to pay unused commitment fees of 0.15% to 0.30% (0.15% as of September 30, 2024) 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.
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
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, 2024. 74
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.
As of September 30, 2024, we were in compliance with these covenants, and there was $450.0 million available for borrowing under the revolving credit facility, subject to the financial covenants. As of September 30, 2024, we had no borrowings outstanding under the 2023 Senior Secured Credit Facility.

Other IIIV 10-K year-over-year comparisons