IIIV - i3 Verticals Reports Fourth Quarter and Full Fiscal Year 2022 Financial Results

November, 16 2022 04:35 PM i3 Verticals Inc.

Introduces 2023 Outlook

i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal fourth quarter and year ended September 30, 2022.

Highlights for the fiscal fourth quarter and full fiscal year of 2022 vs. 2021

Fourth quarter revenue was $85.3 million, an increase of 26.9% over the prior year's fourth quarter; full year revenue was $317.9 million, an increase of 41.8% over the prior year.
Fourth quarter net loss was $4.4 million, compared to a net loss of $1.9 million in the prior year's fourth quarter. Net loss for the year ended September 30, 2022, was $23.2 million, compared to a net loss of $7.8 million for the year ended September 30, 2021.
Fourth quarter net loss attributable to i3 Verticals, Inc. was $3.5 million; full year net loss attributable to i3 Verticals, Inc. was $17.1 million.
Fourth quarter adjusted EBITDA ¹ was $21.7 million, an increase of 27.4% over the prior year's fourth quarter. Adjusted EBITDA ¹ for the year ended September 30, 2022, was $79.5 million, an increase of 43.6% over the prior year.
Adjusted EBITDA ¹ as a percentage of revenue was 25.0% for the year ended September 30, 2022, compared to 24.7% for the year ended September 30, 2021.
Fourth quarter diluted net loss per share available to Class A common stock was $0.15, compared to a net loss per share of $0.05 in the prior year's fourth quarter; full year diluted net loss per share available to Class A common stock was $0.77, compared to a net loss per share of $0.22 in the prior year.
For the fourth quarter and year ended September 30, 2022, pro forma adjusted diluted earnings per share ¹ , which gives pro forma effect to the Company's tax rate, was $0.39 and $1.48, respectively, compared to $0.33 and $1.05 for the fourth quarter and year ended September 30, 2021, respectively.
Annualized Recurring Revenue ("ARR") ² for the fourth quarter of 2022 and 2021 was $281.2 million and $210.8 million, respectively, representing a period-to-period growth rate of 33.4%.
Software and related services revenue ³ as a percentage of total revenue was 49% and 39% for the years ended September 30, 2022 and 2021, respectively. Payments revenue as a percentage of total revenue was 45% and 53% for the years ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, our consolidated interest coverage ratio was 8.17x, total leverage ratio was 3.68x and consolidated senior leverage ratio was 2.24x. These ratios are defined in our Senior Secured Credit Facility.
As previously announced in our press release dated October 4, 2022, the Company completed the acquisition of a business within the Company’s Public Sector vertical which is a leading provider of enterprise software solutions for the motor carrier and motor vehicle markets in the U.S. and Canada. The aggregate purchase price was approximately $85.0 million in cash.

1.

Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.
2.

Annualized Recurring Revenue (ARR) is the annualized revenue derived from software-as-a-service (“SaaS”) arrangements, transaction-based software-revenue, software maintenance, recurring software-based services, payments revenue and other recurring revenue sources within the quarter. This excludes contracts that are not recurring or are one-time in nature. The Company focuses on ARR because it helps i3 Verticals to assess the health and trajectory of the business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. It should be reviewed independently of revenue and it is not a forecast. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by the Company's customers.
3.

Software and related services revenue includes the sale of licenses, subscriptions, installation and implementation services, and ongoing support specific to software.

Greg Daily, Chairman and CEO of i3 Verticals, commented, “We are pleased to report a great quarter and an excellent finish to fiscal 2022. Revenue and adjusted EBITDA set records every single quarter this year. Year-over-year growth in revenue and adjusted EBITDA exceeded 25% every quarter, and recurring sources of revenue grew more than 30%. We are pleased with our performance in fiscal 2022 which we believe will carry over into fiscal 2023.

"We previously announced an $85 million acquisition effective October 1. We anticipate that this business will be the next exciting growth engine in the Public Sector, particularly given the synergies it offers with our existing BIS business. These two companies give us a comprehensive set of solutions serving transportation departments in the United States and Canada and have already begun to see the benefits of this expanded platform as we reply to RFPs. Led by our Public Sector vertical, we expect strong recurring revenue growth will continue to compound with additional strategic acquisition activity in fiscal 2023.

"Finally, I want to congratulate Paul Christians and Chris Laisure on their promotions to Chief Operating Officer and President – Public Sector, respectively. We look forward to their continued leadership and positive impact on our business results and company culture.”

2023 Outlook

The Company's practice is to provide annual guidance, excluding future acquisitions and transaction-related costs. The Company is providing the following outlook for the fiscal year ending September 30, 2023:

(in thousands, except share and per share amounts)
Outlook Range

Fiscal year ending September 30, 2023
Revenue
$
360,000
-
$
380,000
Adjusted EBITDA (non-GAAP)
$
94,000
-
$
102,000
Cash interest expense
$
19,000
-
$
22,000
Pro forma adjusted diluted earnings per share ⁽¹⁾ (non-GAAP)
$
1.50
-
$
1.62

_______________________

Assumes an effective pro forma tax rate of 25.0% (non-GAAP).

With respect to the “2023 Outlook” above, adjusted EBITDA and pro forma adjusted diluted earnings per share guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliations, including changes in the fair value of contingent consideration, income tax expense of i3 Verticals, Inc. and equity-based compensation expense. The Company expects these adjustments may have a potentially significant impact on future GAAP financial results.

Conference Call

The Company will host a conference call on Thursday, November 17, 2022, at 8:30 a.m. ET, to discuss financial results and operations. To listen to the call live via telephone, participants should dial (844) 887-9399 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. ET on November 17, 2022, through November 28, 2022, by dialing (877) 344-7529 and entering Confirmation Code 9785901.

To listen to the call live via webcast, participants should visit the “Investors” section of the Company’s website, www.i3verticals.com , and go to the “Events” page approximately 10 minutes prior to the start of the call. The online replay will be available on this page of the Company’s website beginning shortly after the conclusion of the call and will remain available for 30 days.

Non-GAAP Measures

This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of the Company's consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.

Additional information about non-GAAP financial measures, including, but not limited to, pro forma adjusted net income, adjusted EBITDA and pro forma adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included in the financial schedules of this release.

About i3 Verticals

The Company delivers seamless integrated software and services to customers in strategic vertical markets. Building on its sophisticated and diverse platform of software and services solutions, the Company creates and acquires software products to serve the specific needs of public and private organizations in its strategic verticals, including its Public Sector (including Education) and Healthcare verticals.

Forward-Looking Statements

This release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this release are forward-looking statements, including any statements regarding the Company's fiscal 2023 financial outlook and statements of a general economic or industry specific nature. Forward-looking statements give the Company's current expectations and projections relating to its financial condition, results of operations, guidance, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “could have,” “exceed,” “significantly,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

The forward-looking statements contained in this release are based on assumptions that we have made in light of the Company's industry experience and its perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you review and consider information presented herein, you should understand that these statements are not guarantees of future performance or results. They depend upon future events and are subject to risks, uncertainties (many of which are beyond the Company's control) and assumptions. Factors that could cause actual results to differ from those expressed or implied by our forward-looking statements include, among other things: future economic conditions, including the impact of inflation and rising interest rates, competition in our industry and our ability to compete effectively, and regulatory developments, the COVID-19 pandemic, the successful integration of acquired businesses, and future decisions made by us and our competitors. All of these factors are difficult or impossible to predict accurately and many of them are beyond our control. For a further list and description of these and other important risks and uncertainties that may affect our future operations, see Part I, Item 1A - Risk Factors in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, which we may update in Part II, Item 1A - Risk Factors in Quarterly Reports on Form 10-Q we have filed or will file hereafter.

Any forward-looking statement made by us in this release speaks only as of the date of this release and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

i3 Verticals, Inc. Consolidated Statements of Operations
($ in thousands, except share and per share amounts)


Three months ended September 30,

Year ended September 30,


2022



2021


% Change


2022



2021


% Change

(unaudited)

(unaudited)



(unaudited)
















Revenue
$
85,250


$
67,177


27
%

$
317,862


$
224,124


42
%












Operating expenses











Other costs of services

20,477



16,662


23
%


73,367



57,706


27
%
Selling general and administrative

50,912



42,103


21
%


193,790



134,872


44
%
Depreciation and amortization

7,601



6,480


17
%


29,424



24,418


21
%
Change in fair value of contingent consideration

(959
)


1,305


(173
)%


23,725



7,140


n/m

Total operating expenses

78,031



66,550


17
%


320,306



224,136


43
%












Income (loss) from operations

7,219



627


1,051
%


(2,444
)


(12
)

20,267
%












Other expenses











Interest expense, net

4,477



2,708


65
%


14,775



9,799


51
%
Other expense (income)

991



(242
)

n/m



991



(2,595
)

n/m

Total other expenses

5,468



2,466


122
%


15,766



7,204


119
%












Income (loss) before income taxes

1,751



(1,839
)

(195
)%


(18,210
)


(7,216
)

152
%












Provision for income taxes

6,161



107


n/m



5,007



623


n/m













Net loss

(4,410
)


(1,946
)

127
%


(23,217
)


(7,839
)

196
%












Net loss attributable to non-controlling interest

(937
)


(1,464
)

(36
)%


(6,115
)


(3,382
)

81
%
Net loss attributable to i3 Verticals
$
(3,473
)

$
(482
)

621
%

$
(17,102
)

$
(4,457
)

284
%












Net income (loss) per share available to Class A common stock:











Basic
$
(0.15
)

$
(0.02
)



$
(0.77
)

$
(0.21
)


Diluted
$
(0.15
)

$
(0.05
)



$
(0.77
)

$
(0.22
)


Weighted average shares of Class A common stock outstanding:











Basic

22,645,755



21,991,340





22,249,656



20,994,598



Diluted

22,645,755



32,220,482





22,249,656



31,714,191



n/m = not meaningful

i3 Verticals, Inc. Financial Highlights
(Unaudited)
($ in thousands, except per share amounts)


Three months ended September 30,

Year ended September 30,


2022


2021

% Change


2022


2021

% Change












Adjusted EBITDA ⁽¹⁾
$
21,739

$
17,057

27
%

$
79,544

$
55,407

44
%
Pro forma adjusted diluted earnings per share ⁽¹⁾
$
0.39

$
0.33

18
%

$
1.48

$
1.05

41
%

__________________________

Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release.

i3 Verticals, Inc. Supplemental Volume Information
(Unaudited)
($ in thousands)


Three months ended September 30,

Year ended September 30,


2022


2021


2022


2021








Payment volume ⁽¹⁾
$
6,074,648

$
5,597,890

$
22,637,325

$
18,797,907

__________________________

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

i3 Verticals, Inc. Segment Summary
(Unaudited)
($ in thousands)


For the Three Months Ended September 30, 2022

Merchant Services

Software and Services

Other

Total
Revenue
$
33,410

$
51,827

$
13


$
85,250

Income (loss) from operations
$
6,746

$
12,923

$
(12,450
)

$
7,219









Payment volume
$
5,470,056

$
604,592

$
—


$
6,074,648




For the Year Ended September 30, 2022

Merchant Services

Software and Services

Other

Total
Revenue
$
124,481

$
193,402

$
(21
)

$
317,862

Income (loss) from operations
$
24,595

$
20,003

$
(47,042
)

$
(2,444
)








Payment volume
$
20,488,530

$
2,148,795

$
—


$
22,637,325




For the Three Months Ended September 30, 2021

Merchant Services

Software and Services

Other

Total
Revenue
$
30,740

$
36,942

$
(505
)

$
67,177

Income (loss) from operations
$
6,546

$
5,958

$
(11,877
)

$
627









Payment volume
$
4,978,080

$
619,810

$
—


$
5,597,890




For the Year Ended September 30, 2021

Merchant Services

Software and Services

Other

Total
Revenue
$
111,870

$
114,433

$
(2,179
)

$
224,124

Income (loss) from operations
$
21,652

$
16,207

$
(37,871
)

$
(12
)








Payment volume
$
17,138,214

$
1,659,693

$
—


$
18,797,907

i3 Verticals, Inc. Consolidated Balance Sheets
($ in thousands, except share and per share amounts)


September 30,

September 30,


2022



2021


(unaudited)


Assets



Current assets



Cash and cash equivalents
$
3,490


$
3,641

Accounts receivable, net

53,334



38,500

Settlement assets

7,540



4,768

Prepaid expenses and other current assets

19,445



11,214

Total current assets

83,809



58,123





Property and equipment, net

5,670



5,902

Restricted cash

12,735



9,522

Capitalized software, net

52,341



41,371

Goodwill

353,639



292,243

Intangible assets, net

195,919



171,706

Deferred tax asset

43,458



49,992

Operating lease right-of-use assets

17,678



14,479

Other assets

5,063



8,462

Total assets
$
770,312


$
651,800





Liabilities and equity



Liabilities



Current liabilities



Accounts payable

9,342



7,865

Accrued expenses and other current liabilities

57,833



50,815

Settlement obligations

7,540



4,768

Deferred revenue

31,975



29,862

Current portion of operating lease liabilities

4,568



3,201

Total current liabilities

111,258



96,511





Long-term debt, less current portion and debt issuance costs, net

287,020



200,605

Long-term tax receivable agreement obligations

40,812



39,122

Operating lease liabilities, less current portion

13,994



11,960

Other long-term liabilities

9,540



14,011

Total liabilities

462,624



362,209





Commitments and contingencies



Stockholders' equity



Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2022 and 2021

—



—

Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 22,986,448 and 22,026,098 shares issued and outstanding as of September 30, 2022 and 2021, respectively

2



2

Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,118,142 and 10,229,142 shares issued and outstanding as of September 30, 2022 and 2021, respectively

1



1

Additional paid-in-capital

241,958



211,237

Accumulated deficit

(23,582
)


(6,480
)
Total stockholders' equity

218,379



204,760

Non-controlling interest

89,309



84,831

Total equity

307,688



289,591

Total liabilities and equity
$
770,312


$
651,800

i3 Verticals, Inc. Consolidated Cash Flow Data
($ in thousands)


Year ended September 30,


2022



2021


(unaudited)






Net cash provided by operating activities
$
45,846


$
44,533

Net cash used in investing activities
$
(113,045
)

$
(149,306
)
Net cash provided by financing activities
$
73,033


$
102,103

Reconciliation of GAAP to Non-GAAP Financial Measures

The Company believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, the Company includes non-GAAP financial measures when reporting its financial results to shareholders and potential investors in order to provide them with an additional tool to evaluate the Company’s ongoing business operations. The Company believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of the Company’s current and ongoing business operations.

Although non-GAAP financial measures are often used to measure the Company's operating results and assess its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation. The Company believes that its provision of non-GAAP financial measures provides investors with important key financial performance indicators that are utilized by management to assess the Company's operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see the Company as viewed by management, to assess the Company with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. The Company believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.

i3 Verticals, Inc. Reconciliation of GAAP Net Income to Non-GAAP Pro Forma Adjusted Net Income and Non-GAAP Adjusted EBITDA
(Unaudited)
($ in thousands)


Three months ended September 30,

Year ended September 30,


2022



2021



2022



2021

Net loss
$
(3,473
)

$
(482
)

$
(17,102
)

$
(4,457
)
Net loss attributable to non-controlling interest

(937
)


(1,464
)


(6,115
)


(3,382
)
Non-GAAP Adjustments:







Provision for income taxes

6,161



107



5,007



623

Financing-related expenses ⁽¹⁾

—



—



13



152

Non-cash change in fair value of contingent consideration ⁽²⁾

(959
)


1,305



23,725



7,140

Equity-based compensation ⁽³⁾

6,550



8,166



26,230



20,860

Acquisition-related expenses ⁽⁴⁾

1,071



254



2,088



2,319

Acquisition intangible amortization ⁽⁵⁾

6,155



5,337



24,129



19,954

Non-cash interest expense ⁽⁶⁾

1,483



1,394



5,795



5,450

Other taxes ⁽⁷⁾

257



226



508



531

Other expenses (income) related to adjustments of liabilities under tax receivable agreement ⁽⁸⁾

991



(496
)


991



(496
)
Net loss (gain) on sale of investments ⁽⁹⁾

—



253



—



(2,100
)
Non-GAAP pro forma adjusted income before taxes

17,299



14,600



65,269



46,594

Pro forma taxes at effective tax rate ⁽¹⁰⁾

(4,325
)


(3,650
)


(16,317
)


(11,649
)
Pro forma adjusted net income ⁽¹¹⁾
$
12,974


$
10,950


$
48,952


$
34,945

Cash interest expense, net ⁽¹²⁾

2,994



1,314



8,980



4,349

Pro forma taxes at effective tax rate ⁽¹⁰⁾

4,325



3,650



16,317



11,649

Depreciation, non-acquired intangible asset amortization and internally developed software amortization ⁽¹³⁾

1,446



1,143



5,295



4,464

Adjusted EBITDA
$
21,739


$
17,057


$
79,544


$
55,407

_______________

1.

Financing-related expenses includes expenses directly related to certain transactions as part of financing transactions.
2.

Non-cash change in fair value of contingent consideration reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the later of the most recent balance sheet date forming the beginning of the income statement period or the original estimates made at the closing of the applicable acquisition.
3.

Equity-based compensation expense related to stock options and restricted stock units issued under the Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan.
4.

Acquisition-related expenses are the professional service and related costs directly related to the Company's acquisitions and are not part of its core performance.
5.

Acquisition intangible amortization reflects amortization of intangible assets and software acquired through business combinations, acquired customer portfolios, acquired referral agreements and related asset acquisitions.
6.

Non-cash interest expense reflects amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs.
7.

Other taxes consist of franchise taxes, commercial activity taxes, the employer portion of payroll taxes related to stock option exercises and other non-income based taxes. Taxes related to salaries are not included.
8.

Under our Tax Receivable Agreement we have a liability equal to 85% of certain deferred tax assets resulting from an increase in the tax basis of our investment in i3 Verticals, LLC. Other expenses related to adjustments of liabilities under our Tax Receivable Agreement relate to the remeasurement of the underlying deferred tax asset for changes in estimated income tax rates.
9.

When the Company becomes aware of an observable price change in an investment, such as a planned third party acquisition of the entity underlying the investment, we will adjust the carry value of the investment, which the Company recognizes in other income.
10.

Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using tax rates of 25.0% for 2022 and 2021, based on blended federal and state tax rates.
11.

Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company’s Class A common stock.
12.

Cash interest expense, net represents all interest expense net of interest income recorded on the Company's statement of operations other than non-cash interest expense, which represents amortization of debt discount and debt issuance costs and any write-offs of debt issuance costs.
13.

Depreciation, non-acquired intangible asset amortization and internally developed software amortization reflects depreciation on the Company's property, plant and equipment, net, and amortization expense on its internally developed capitalized software.

i3 Verticals, Inc. GAAP Diluted EPS and Non-GAAP Pro Forma Adjusted Diluted EPS
(Unaudited)
($ in thousands, except share and per share amounts)


Three months ended September 30,

Year ended September 30,


2022



2021



2022



2021

Diluted net loss available to Class A common stock per share
$
(0.15
)

$
(0.05
)

$
(0.77
)

$
(0.22
)
Pro forma adjusted diluted earnings per share ⁽¹⁾
$
0.39


$
0.33


$
1.48


$
1.05

Pro forma adjusted net income ⁽²⁾
$
12,974


$
10,950


$
48,952


$
34,945

Pro forma weighted average shares of adjusted diluted Class A common stock outstanding ⁽³⁾

33,618,854



33,517,066



33,100,182



33,191,924

________________

1.

Pro forma adjusted diluted earnings per share is calculated using pro forma adjusted net income and the pro forma weighted average shares of adjusted diluted Class A common stock outstanding.
2.

Pro forma adjusted net income assumes that all net income during the period is available to the holders of the Company's Class A common stock. Further, pro forma adjusted diluted earnings per share assumes that all Common Units in i3 Verticals, LLC and the associated non-voting Class B common stock were exchanged for Class A common stock at the beginning of the period on a one-for-one basis.
3.

Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,118,142 and 10,170,668 weighted average outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 854,957 and 679,858 shares of unvested Class A common stock and options for the three months and year ended September 30, 2022, respectively. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,229,142 and 10,719,593 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,296,584 and 1,477,733 shares of unvested Class A common stock and options for the for the three months and year ended September 30, 2021, respectively.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221116005964/en/

Clay Whitson
Chief Financial Officer
(888) 251-0987
investorrelations@i3verticals.com

Company Name:	i3 Verticals Inc.
Stock Symbol:	IIIV
Market:	NASDAQ
Website:	i3verticals.com

Twitter