SEC Comment Letter for i3 Verticals, Inc. (IIIV) (CIK 0001728688) (IIIV) — Mar 14, 2018
i3 Verticals, Inc. (IIIV) (CIK 0001728688)
Date: March 14, 2018 · CIK: 0001728688 · Accession: 0000000000-18-007869
AI Filing Summary & Sentiment
Letter
Mail Stop 3561 March 13 , 2018 Gregory Daily Chief Executive Officer i3 Verticals, Inc. 40 Burton Hills Blvd., Suite 415 Nashville, TN 37215
Re: i3 Verticals , Inc. Draft Registration Statement on Form S-1 Submitted February 12, 2018 CIK No. 0001728688
Dear Mr. Daily:
We have reviewed your draft registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure.
Please respond to this lette r by providing the requested information and either submitting an amended draft registration statement or publicly filing your registration statement on EDGAR. If you do not believe our comments apply to your facts and circumstances or do not believe an a mendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments and your amended draft registration statement or filed registration statement, we may have additional comments.
General
1. Please supplement ally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your behalf, present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications.
Prospectus Cover Page
2. Please revise to disclose your dual class capi tal structure and the percentage of voting and economic interest that will be held by investors in this offering.
Gregory Daily i3 Verticals, Inc . March 13, 2018 Page 2
Our Company, page 2
3. Please revise to provide the basis for your statement that “substantial value was created at both iPayment, Inc. an d PMT Services, Inc.” Please also state that there is no guarantee that your executives will be able to create similar value for your company. Please similarly revise your disclosure on page 90 regarding your executive management team’s “proven track rec ord of successfully building publicly -traded payments businesses.”
Risk Factors
We are a holding company with no operations of our own, page 35
4. Please disclose whether you currently anticipate that i3 Verticals, LLC will be restricted from making dis tributions to you pursuant to the financing agreements that will be in effect following the offering.
Our Organizational Structure
Organizational Structure Following this Offering, page 48
5. Please clarify how the company will manage the business of i3 Verticals, LLC following the offering. Please discuss, for example, whether the company will have any employees, other than the named executive officers discussed in the prospectus, or if all such functions will reside at the i3 Verticals, LLC or other sub sidiary level.
Unaudited Pro Forma Consolidated Financial Information
Notes to Unaudited Pro Forma Consolidated Balance Sheet, page 62
6. Please describe the valuation techniques and inputs used to determine the provisional acquisition -date fair values for acquired merchant relationships, non -compete agreements, trade name and deferred revenue used to determine the fair value on contingent consideration.
Notes to Unaudited Pro Forma Consolidated Statements of Operations, page 6 6
7. Please disclose the natu re and terms of the compensation contractual arrangements in pro forma adjustment (d) (1).
8. Please disclose the current interest rate used in computing pro forma adjustment (d) (4). Further, if the actual interest rate disclosed can vary from that depic ted please also disclose the effect on income of a 1/8 percent variance.
Gregory Daily i3 Verticals, Inc . March 13, 2018 Page 3
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Key Operating Metrics, page 74
9. You state that measuring period -to-period payment volume attrition is a key operating metric. Please revise to provide results of this metric for a recent period .
10. We note that payment volume is a key metric by which you evaluate your perform ance. We further note that “[p]ayment volume reflects the addition of new clients and same store payment volume growth of existing clients.” Please tell us whether you track payment volume from new clients and existing clients separately, particularly in lieu of the fact that period to period growth attributable to payment volume in the aggregate was 21% and part of your strategy is acquisition -driven growth. If so, please advise what consideration you gave to disclosing those components of your payment v olume metric.
Results of Operations
Revenue, page 75
11. Please revise to quantify the total amount of revenue attributable to “discount fees” and the amount of revenue attributable to other revenue -generating activities such as software licensing sub scriptions and other POS -related solutions, to the extent material. Refer to Item 303 of Regulation S -K.
12. To the extent practicable, please quantify the increase in revenue attributable to the increased payment volume of $1.8 billion. Please also quantif y the increase in payment volume revenue attributable to acquisitions. Refer to Item 303 of Regulation S -K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies, page 82
13. Please quantify and provide an analysis of the impact of critical accounting estimates on your financial position and results of operations for the periods presented , including the effect of changes in critical accounting estimates between periods to the extent such changes h ad a significant effect on your financial position or operating results. In addition, please revise to include a qualitative and quantitative analysis of the sensitivity of reported results to changes in assumptions, judgments, and estimates when reasonab ly likely changes in assumptions, judgments and estimates would have a material effect on your financial cond ition or operating performance. R efer to SEC Release No. 33 -8350.
Gregory Daily i3 Verticals, Inc . March 13, 2018 Page 4
Contractual Obligations, page 81
14. Please include contingent consideration payable and other long -term liabilities in the table of contractual obligations or disclose why such liabilities are omitted.
Goodwill, page 84
15. Please disclose that material goodwill does not exist at reporting units that are at risk at failing step o ne or that no reporting units are at risk. Otherwise, please provide the following disclosures for each reporting unit that is at risk of failing step one of the impairment test:
The percentage by which fair value exceeded carrying value as of the date o f the most recent test;
The amount of goodwill allocated to the reporting unit;
A description of the methods and key assumptions used and how the key assumptions were determined;
A discussion of the degree of uncertainty associated with key assumptions. The discussion regarding uncertainty should provide specifics to the extent possible; and
A description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.
Business
Distributi on Partners, page 103
16. Here, or in another appropriate place in the prospectus, please briefly elaborate upon the financial concessions you may need to pay to maintain loyalty or exclusivity with distribution partners. In this regard, we note your disclos ure on page 20.
Certain Relationships and Related Party Transactions
Tax Receivable Agreement, page 129
17. Please enhance your disclosure by providing an estimated range of the future payment amount s you expect to pay under the agreement to the Continuing Equity Owners and the anticipated timing of such payments.
Gregory Daily i3 Verticals, Inc . March 13, 2018 Page 5
Financial Statements
i3 Verticals, LLC and Subsidiaries
General
18. Please update your financial statements in accordance with Rule 8-08 of Regulation S -X. Please also update unaudited pro forma financial information on page 75.
Consolidated Statements of Operations, page F -4
19. Please disclose basic and diluted income (loss) per common unit in accordance with ASC 260. Please also present pro forma income taxes and pro forma net income (loss) per common unit.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
Long -Term Debt, Net, page F -24
20. We note your disclosure regarding dividend policy on page 53. Please describe the most significant r estrictions on the payment of d ividends, indicating their sources, their pertinent provisions and the amount of members’ equity or income restricted or free of restrictions. Please refer to Rule 4 -08(e) of Regulation S -X.
14. Commitments and Contingencies
Litigation, page F -33
21. We note that you considered all ordinary course legal proceedings in formulating your disclosures and assessments. However, since you only referred to legal proceedings which are probable of being asserted, please confirm that:
you disclose nature of accruals for estimated losses from a loss continge ncy when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated; and
you disclose the nature of the contingency and an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made if there is at least a reasonable possibility that a loss or additional loss may have been incurred and an accrual is not made or an exposure to loss exists in excess of the amount accrued;
Please refer to ASC 450 -20-25-2 and ASC 450 -20-50-3 thro ugh ASC 450 -20-50-6.
Gregory Daily i3 Verticals, Inc . March 13, 2018 Page 6
In addition, please disclose your accounting policies for the recognition and disclosure of loss contingencies.
Related Party Transactions, page F -33
22. Please tell us your basis in GAAP for treating revenues and expenses related to processing payment card transactions for merchants designed by Axia Tech. Please cite the authoritative guidance applied.
16. Segments, page F -34
23. We note that you primarily use processing margin to measure segment operating performance. Please revise your disclosure to describe how you define and calculate processing margin. Please also tell us why the processing margin segment measure is not reflected in the summary of rep ortable segment operating performance for the years ended September 30, 2017 and 2016.
24. Please tell us what consideration you gave to disclosing the factors used to identify reportable segments . Please refer to ASC 280 -10- 50-21. Also, please tell us t he significance of B2B payment processing revenues and how B2B payment services is presented in your segment reporting .
Fairway Payments, Inc.
Financial Statements
25. Please update the financial statements in accordance with Rule 8 -08 of Regulation S -X.
San Diego Cash Register Company, Inc.
Financial Statements
26. Please update your fina ncial statements in accordance with Rule 8 -08 of Regulation S -X.
Gregory Daily i3 Verticals, Inc . March 13, 2018 Page 7
You may contact Yolanda Guobadia , Staff Accountant, at (202) 551 -3562, or William Thompson, Accounting Branch Chief, at (202) 551 -3344 if you have questions regarding comments on the financial statements and related matters. Please contact Courtney Haseley, Attorney -Adviser, at (202) 551 -7689, Lisa Kohl, Legal Branch Chief, at (202) 551 -3252, or me at (202) 551 -3720 with any other questions.
Sincerely,
/s/ Lisa M. Kohl for
Show Raw Text
Mail Stop 3561
March 13 , 2018
Gregory Daily
Chief Executive Officer
i3 Verticals, Inc.
40 Burton Hills Blvd., Suite 415
Nashville, TN 37215
Re: i3 Verticals , Inc.
Draft Registration Statement on Form S-1
Submitted February 12, 2018
CIK No. 0001728688
Dear Mr. Daily:
We have reviewed your draft registration statement and have the following comments. In
some of our comments, we may ask you to provide us with information so we may better
understand your disclosure.
Please respond to this lette r by providing the requested information and either submitting
an amended draft registration statement or publicly filing your registration statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances or do not
believe an a mendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments and your
amended draft registration statement or filed registration statement, we may have additional
comments.
General
1. Please supplement ally provide us with copies of all written communications, as defined
in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your
behalf, present to potential investors in reliance on Section 5(d) of the Securities Act,
whether or not they retain copies of the communications.
Prospectus Cover Page
2. Please revise to disclose your dual class capi tal structure and the percentage of voting and
economic interest that will be held by investors in this offering.
Gregory Daily
i3 Verticals, Inc .
March 13, 2018
Page 2
Our Company, page 2
3. Please revise to provide the basis for your statement that “substantial value was created at
both iPayment, Inc. an d PMT Services, Inc.” Please also state that there is no guarantee
that your executives will be able to create similar value for your company. Please
similarly revise your disclosure on page 90 regarding your executive management team’s
“proven track rec ord of successfully building publicly -traded payments businesses.”
Risk Factors
We are a holding company with no operations of our own, page 35
4. Please disclose whether you currently anticipate that i3 Verticals, LLC will be restricted
from making dis tributions to you pursuant to the financing agreements that will be in
effect following the offering.
Our Organizational Structure
Organizational Structure Following this Offering, page 48
5. Please clarify how the company will manage the business of i3 Verticals, LLC following the
offering. Please discuss, for example, whether the company will have any employees, other
than the named executive officers discussed in the prospectus, or if all such functions will
reside at the i3 Verticals, LLC or other sub sidiary level.
Unaudited Pro Forma Consolidated Financial Information
Notes to Unaudited Pro Forma Consolidated Balance Sheet, page 62
6. Please describe the valuation techniques and inputs used to determine the provisional
acquisition -date fair values for acquired merchant relationships, non -compete
agreements, trade name and deferred revenue used to determine the fair value on
contingent consideration.
Notes to Unaudited Pro Forma Consolidated Statements of Operations, page 6 6
7. Please disclose the natu re and terms of the compensation contractual arrangements in pro
forma adjustment (d) (1).
8. Please disclose the current interest rate used in computing pro forma adjustment (d) (4).
Further, if the actual interest rate disclosed can vary from that depic ted please also
disclose the effect on income of a 1/8 percent variance.
Gregory Daily
i3 Verticals, Inc .
March 13, 2018
Page 3
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Key Operating Metrics, page 74
9. You state that measuring period -to-period payment volume attrition is a key operating
metric. Please revise to provide results of this metric for a recent period .
10. We note that payment volume is a key metric by which you evaluate your perform ance.
We further note that “[p]ayment volume reflects the addition of new clients and same
store payment volume growth of existing clients.” Please tell us whether you track
payment volume from new clients and existing clients separately, particularly in lieu of
the fact that period to period growth attributable to payment volume in the aggregate was
21% and part of your strategy is acquisition -driven growth. If so, please advise what
consideration you gave to disclosing those components of your payment v olume metric.
Results of Operations
Revenue, page 75
11. Please revise to quantify the total amount of revenue attributable to “discount fees” and
the amount of revenue attributable to other revenue -generating activities such as software
licensing sub scriptions and other POS -related solutions, to the extent material. Refer to
Item 303 of Regulation S -K.
12. To the extent practicable, please quantify the increase in revenue attributable to the
increased payment volume of $1.8 billion. Please also quantif y the increase in payment
volume revenue attributable to acquisitions. Refer to Item 303 of Regulation S -K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies, page 82
13. Please quantify and provide an analysis of the impact of critical accounting estimates on
your financial position and results of operations for the periods presented , including the
effect of changes in critical accounting estimates between periods to the extent such
changes h ad a significant effect on your financial position or operating results. In
addition, please revise to include a qualitative and quantitative analysis of the sensitivity
of reported results to changes in assumptions, judgments, and estimates when reasonab ly
likely changes in assumptions, judgments and estimates would have a material effect on
your financial cond ition or operating performance. R efer to SEC Release No. 33 -8350.
Gregory Daily
i3 Verticals, Inc .
March 13, 2018
Page 4
Contractual Obligations, page 81
14. Please include contingent consideration payable and other long -term liabilities in the
table of contractual obligations or disclose why such liabilities are omitted.
Goodwill, page 84
15. Please disclose that material goodwill does not exist at reporting units that are at risk at
failing step o ne or that no reporting units are at risk. Otherwise, please provide the
following disclosures for each reporting unit that is at risk of failing step one of the
impairment test:
The percentage by which fair value exceeded carrying value as of the date o f the most
recent test;
The amount of goodwill allocated to the reporting unit;
A description of the methods and key assumptions used and how the key assumptions
were determined;
A discussion of the degree of uncertainty associated with key assumptions. The
discussion regarding uncertainty should provide specifics to the extent possible; and
A description of potential events and/or changes in circumstances that could
reasonably be expected to negatively affect the key assumptions.
Business
Distributi on Partners, page 103
16. Here, or in another appropriate place in the prospectus, please briefly elaborate upon the
financial concessions you may need to pay to maintain loyalty or exclusivity with
distribution partners. In this regard, we note your disclos ure on page 20.
Certain Relationships and Related Party Transactions
Tax Receivable Agreement, page 129
17. Please enhance your disclosure by providing an estimated range of the future payment
amount s you expect to pay under the agreement to the Continuing Equity Owners and the
anticipated timing of such payments.
Gregory Daily
i3 Verticals, Inc .
March 13, 2018
Page 5
Financial Statements
i3 Verticals, LLC and Subsidiaries
General
18. Please update your financial statements in accordance with Rule 8-08 of Regulation S -X.
Please also update unaudited pro forma financial information on page 75.
Consolidated Statements of Operations, page F -4
19. Please disclose basic and diluted income (loss) per common unit in accordance with ASC
260. Please also present pro forma income taxes and pro forma net income (loss) per
common unit.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
Long -Term Debt, Net, page F -24
20. We note your disclosure regarding dividend policy on page 53. Please describe the most
significant r estrictions on the payment of d ividends, indicating their sources, their
pertinent provisions and the amount of members’ equity or income restricted or free of
restrictions. Please refer to Rule 4 -08(e) of Regulation S -X.
14. Commitments and Contingencies
Litigation, page F -33
21. We note that you considered all ordinary course legal proceedings in formulating your
disclosures and assessments. However, since you only referred to legal proceedings
which are probable of being asserted, please confirm that:
you disclose nature of accruals for estimated losses from a loss continge ncy when it is
probable that a liability has been incurred and the amount of loss can be reasonably
estimated; and
you disclose the nature of the contingency and an estimate of the possible loss or
range of loss or a statement that such an estimate cannot be made if there is at least a
reasonable possibility that a loss or additional loss may have been incurred and an
accrual is not made or an exposure to loss exists in excess of the amount accrued;
Please refer to ASC 450 -20-25-2 and ASC 450 -20-50-3 thro ugh ASC 450 -20-50-6.
Gregory Daily
i3 Verticals, Inc .
March 13, 2018
Page 6
In addition, please disclose your accounting policies for the recognition and disclosure of
loss contingencies.
Related Party Transactions, page F -33
22. Please tell us your basis in GAAP for treating revenues and expenses related to
processing payment card transactions for merchants designed by Axia Tech. Please cite
the authoritative guidance applied.
16. Segments, page F -34
23. We note that you primarily use processing margin to measure segment operating
performance. Please revise your disclosure to describe how you define and calculate
processing margin. Please also tell us why the processing margin segment measure is not
reflected in the summary of rep ortable segment operating performance for the years
ended September 30, 2017 and 2016.
24. Please tell us what consideration you gave to disclosing the factors used to identify
reportable segments . Please refer to ASC 280 -10- 50-21. Also, please tell us t he
significance of B2B payment processing revenues and how B2B payment services is
presented in your segment reporting .
Fairway Payments, Inc.
Financial Statements
25. Please update the financial statements in accordance with Rule 8 -08 of Regulation S -X.
San Diego Cash Register Company, Inc.
Financial Statements
26. Please update your fina ncial statements in accordance with Rule 8 -08 of Regulation S -X.
Gregory Daily
i3 Verticals, Inc .
March 13, 2018
Page 7
You may contact Yolanda Guobadia , Staff Accountant, at (202) 551 -3562, or William
Thompson, Accounting Branch Chief, at (202) 551 -3344 if you have questions regarding
comments on the financial statements and related matters. Please contact Courtney Haseley,
Attorney -Adviser, at (202) 551 -7689, Lisa Kohl, Legal Branch Chief, at (202) 551 -3252, or me
at (202) 551 -3720 with any other questions.
Sincerely,
/s/ Lisa M. Kohl for
Mara L. Ransom
Assistant Director
Office of Consumer Products
cc: J. Page Davidson, Esq.
Jay H. Knight, Esq.
Bass, Berry & Sims PLC