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Athersys Reports Second Quarter 2021 Results

Announced promising topline ARDS results reported by Athersys partner, HEALIOS K.K., from its ONE-BRIDGE study

Advanced partnership with Healios to enhance commercial readiness preparations forMultiStem in Japan

Made continued progress in establishing manufacturing and other capabilities for commercial success

Management to host conference call at 4:30 pm EDT today

CLEVELAND–(BUSINESS WIRE)–
Athersys, Inc. (NASDAQ: ATHX) announced today its financial results for the three months ended June 30, 2021 and provided a corporate update.

“We are happy about the positive topline results for the ONE-BRIDGE ARDS study in Japan reported by Healios last week,” stated Mr. William (B.J.) Lehmann, Jr., Interim Chief Executive Officer of Athersys. “The results are consistent with results from our previous MUST-ARDS trial in the United States and the United Kingdom and provide further support for the potential therapeutic benefit for ARDS patients treated with MultiStem^® cell therapy.”

“Additionally, we were pleased to announce new agreements with Healios to improve our collaboration as the MultiStem therapy approaches commercialization following potential regulatory approvals in Japan,” added Mr. Lehmann. “Healios will take on greater responsibility and investment with respect to product supply in Japan, which we will continue to support, while we deepen our focus on advanced manufacturing technologies and higher volume manufacturing. In addition, by expanding the scope of the license in Japan, we have created opportunities for both parties to realize additional returns on their investments in this innovative therapy.”

Highlights of the second quarter of 2021 and recent events include:

• Partner HEALIOS K.K. (Healios) announced positive topline data from its ONE-BRIDGE clinical trial in Japan evaluating the safety and efficacy of MultiStem cell therapy (HLCM051; invimestrocel) in patients with pneumonia-induced and COVID-induced acute respiratory distress syndrome (ARDS);
• Expanded our partnership with Healios to optimize and better align the collaboration structure to drive the commercial success and therapeutic reach for MultiStem therapy in Japan;
• Published in Scientific Reports important new data about the relevance of MultiStem’s mechanism of action in critical care applications – specifically, the role of these cells in promoting regulatory T cell (Treg) differentiation and proliferation and modulation of immune response;
• Advanced our large-scale bioreactor manufacturing platform and initiated efforts to establish GMP production capacity including necessary supply chain and support capabilities;
• Continued to build an experienced, world-class team with important hires in regulatory, supply chain, and operations, including the addition of Mr. James Glover as Senior Vice President of Commercial Manufacturing;
• Recognized net loss of $22.6 million, or $0.10 net loss per share, for the quarter ended June 30, 2021; and
• Ended the second quarter with $56.7 million of cash and cash equivalents.

“We continue to advance our clinical programs with a priority focus on our MASTERS-2 ischemic stroke trial and on the establishment of core capabilities and partnerships necessary for driving commercial success following approval. With important read-outs ahead of us, including Healios’ TREASURE stroke study and our MASTERS-2 study, we are planning and preparing for success,” concluded Mr. Lehmann.

Second Quarter Results

There were no revenues for the three months ended June 30, 2021 compared to $0.1 million for the three months ended June 30, 2020. Our collaboration revenues currently fluctuate from period to period based on the delivery of goods and services under our arrangement with Healios.

Research and development expenses increased to $17.7 million for the three months ended June 30, 2021 from $13.8 million for the comparable period in 2020. The $3.9 million increase is associated with increases in clinical trial and manufacturing process development costs of $2.6 million, personnel costs of $0.8 million, facilities costs of $0.3 million and other costs of $0.2 million. Our clinical development, clinical manufacturing and manufacturing process development expenses vary over time based on the timing and stage of clinical trials underway, manufacturing campaigns for clinical trials and manufacturing process development projects.

General and administrative expenses decreased slightly to $4.2 million for the three months ended June 30, 2021 from $4.4 million in the comparable period in 2020. The $0.2 million decrease was primarily related to decreased stock compensation expense.

Net loss for the second quarter of 2021 was $22.6 million compared to a net loss of $18.4 million in the second quarter of 2020. The difference primarily results from the above variances.

During the six months ended June 30, 2021, net cash used in operating activities was $37.2 million compared to $24.9 million in the six months ended June 30, 2020. At June 30, 2021, we had $56.7 million in cash and cash equivalents, compared to $51.5 million at December 31, 2020.

Conference Call

Members of the management will host a conference call today to review the results as follows:

Date		August 9, 2021
Time		4:30 p.m. (Eastern Time)
Live webcast registration		Webcast Link
Phone registration		http://www.directeventreg.com/registration/event/5972392

We encourage shareholders to listen using the webcast link above. If you would like to dial in using the phone to ask a question, please register for the conference call ahead of time using the call registration link above. Once registered, you will receive the toll-free number, a direct entry passcode and a registrant ID.

A replay of the event will be available on the webcast link at www.athersys.com under the investors’ section approximately two hours after the call has ended. Shareholders may also call in for on-demand listening approximately three hours after the completion of the call until 11:59 PM Eastern Time on August 16, 2021, by dialing (800) 585-8367 or (416) 621-4642 and entering the conference code 5972392.

About Athersys

Athersys is a biotechnology company engaged in the discovery and development of therapeutic product candidates designed to extend and enhance the quality of human life. The Company is developing its MultiStem^® cell therapy product, a patented, adult-derived “off-the-shelf” stem cell product, initially for disease indications in the neurological, inflammatory and immune, cardiovascular, and other critical care indications and has several ongoing clinical trials evaluating this potential regenerative medicine product. Athersys has forged strategic partnerships and a broad network of collaborations to further advance MultiStem cell therapy toward commercialization. More information is available at www.athersys.com. Follow Athersys on Twitter at www.twitter.com/athersys.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These forward-looking statements relate to, among other things, the expected timetable for development of our product candidates, our growth strategy, and our future financial performance, including our operations, economic performance, financial condition, prospects, and other future events. We have attempted to identify forward-looking statements by using such words as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “should,” “suggest,” “will,” or other similar expressions. These forward-looking statements are only predictions and are largely based on our current expectations. A number of known and unknown risks, uncertainties, and other factors could affect the accuracy of these statements. Some of the more significant known risks that we face are the risks and uncertainties inherent in the process of discovering, developing, and commercializing products that are safe and effective for use as therapeutics, including the uncertainty regarding market acceptance of our product candidates and our ability to generate revenues. The following risks and uncertainties may cause our actual results, levels of activity, performance, or achievements to differ materially from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements: our ability to raise capital to fund our operations, including but not limited to, our ability to access our traditional financing sources on the same or reasonably similar terms as were available to us before the COVID-19 pandemic; the timing and nature of results from MultiStem clinical trials, including the MASTERS-2 Phase 3 clinical trial evaluating the administration of MultiStem for the treatment of ischemic stroke, and the Healios TREASURE and ONE-BRIDGE clinical trials in Japan evaluating the treatment in stroke and ARDS patients, respectively; the success of our MACOVIA clinical trial evaluating the administration of MultiStem for the treatment of COVID-19 induced ARDS, and the MATRICS-1 clinical trial being conducted with The University of Texas Health Science Center at Houston evaluating the treatment of patients with serious traumatic injuries; the impact of the COVID-19 pandemic on our ability to complete planned or ongoing clinical trials; the possibility that the COVID-19 pandemic could delay clinical site initiation, clinical trial enrollment, regulatory review and potential receipt of regulatory approvals, payments of milestones under our license agreements and commercialization of one or more of our product candidates, if approved; the availability of product sufficient to meet commercial demand shortly following any approval, such as in the case of accelerated approval for the treatment of COVID-19 induced ARDS; the impact on our business, results of operations and financial condition from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of infectious disease in the United States; the possibility of delays in, adverse results of, and excessive costs of the development process; our ability to successfully initiate and complete clinical trials of our product candidates; the impact of the COVID-19 pandemic on the production capabilities of our contract manufacturing partners and our MultiStem trial supply chain; the possibility of delays, work stoppages or interruptions in manufacturing by third parties or us, such as due to material supply constraints, contamination, operational restrictions due to COVID-19 or other public health emergencies, labor constraints, regulatory issues or other factors which could negatively impact our trials and the trials of our collaborators; uncertainty regarding market acceptance of our product candidates and our ability to generate revenues, including MultiStem cell therapy for neurological, inflammatory and immune, cardiovascular and other critical care indications; changes in external market factors; changes in our industry’s overall performance; changes in our business strategy; our ability to protect and defend our intellectual property and related business operations, including the successful prosecution of our patent applications and enforcement of our patent rights, and operate our business in an environment of rapid technology and intellectual property development; our possible inability to realize commercially valuable discoveries in our collaborations with pharmaceutical and other biotechnology companies; our ability to meet milestones and earn royalties under our collaboration agreements, including the success of our collaboration with Healios; our collaborators’ ability to continue to fulfill their obligations under the terms of our collaboration agreements and generate sales related to our technologies; the success of our efforts to enter into new strategic partnerships and advance our programs, including, without limitation, in North America, Europe and Japan; our possible inability to execute our strategy due to changes in our industry or the economy generally; changes in productivity and reliability of suppliers; the success of our competitors and the emergence of new competitors; and the risks mentioned elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020 under Item 1A, “Risk Factors” and our other filings with the SEC. You should not place undue reliance on forward-looking statements contained in this press release, and we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

Athersys, Inc. Condensed Consolidated Balance Sheets (In thousands)
		June 30, 2021				December 31, 2020
		(Unaudited)				(Note)
Assets
Cash and cash equivalents		$	56,654			$	51,546
Accounts receivable from Healios		89				89
Prepaid expenses, deposits and other		4,164				4,276
Operating right-of-use assets, net		9,447				648
Property and equipment, net		2,946				3,155
Total assets		$	73,300			$	59,714
Liabilities and stockholders’ equity
Accounts payable, accrued expenses and other current liabilities		$	26,091			$	20,704
Accounts payable to Healios		1,205				1,705
Deferred revenue – Healios		65				65
Operating lease liabilities		9,692				677
Advance from Healios		5,201				5,201
Total stockholders’ equity		31,046				31,362
Total liabilities and stockholders’ equity		$	73,300			$	59,714

Note: The Condensed Consolidated Balance Sheet Data has been derived from the audited financial statements as of that date.

Athersys, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (In Thousands, Except Per Share Amounts)
		Three Months Ended June 30,
		2021				2020
Revenues
Contract revenue from Healios		$	—			$	77
Grant revenue		—				7
Total revenues		—				84
Costs and expenses
Research and development		17,691				13,767
General and administrative		4,158				4,432
Depreciation		723				222
Total costs and expenses		22,572				18,421
Loss from operations		(22,572		)		(18,337		)
Other (expense) income, net		(27		)		(35		)
Net loss and comprehensive loss		$	(22,599	)		$	(18,372	)
Net loss per share, basic and diluted		$	(0.10	)		$	(0.10	)
Weighted average shares outstanding, basic and diluted		222,436				191,317

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005706/en/

Ivor Macleod

Chief Financial Officer

Tel: (216) 431-9900

[email protected]

Karen Hunady

Director of Corporate Communications & Investor Relations

Tel: (216) 431-9900

[email protected]

David Schull

Russo Partners, LLC

Tel: (212) 845-4271 or (858) 717-2310

[email protected]

KEYWORDS: United States North America Ohio

INDUSTRY KEYWORDS: Health Stem Cells Clinical Trials General Health Pharmaceutical Biotechnology

MEDIA:

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Nautilus, Inc. Begins Fiscal 2022 With Strong First Quarter Results

Total Net Sales increased62% to $185 million, the highest fiscal first quarter sales result in company history

Record Breaking Retail Segment Quarterly Net Sales of $120 million

Operating Income of $18 million, Operating Margin of 10%, EBITDA of $20 million

Advances JRNY^® platform, including FitOn partnership.

VANCOUVER, Wash.–(BUSINESS WIRE)–
Nautilus, Inc. (NYSE: NLS) today reported its unaudited operating results for the fiscal 2022 first quarter ended June 30, 2021.

Fiscal 2022 First Quarter Ended June 30, 2021 Compared to June 30, 2020

• Net sales were $184.6 million, up 61.7% compared to $114.2 million for the same period last year, and up 74.4%, excluding sales related to the Octane brand, which was sold in October 2020. Sales growth was driven primarily by continued demand for connected fitness bikes and treadmills, like the Bowflex^® VeloCore^® bike and Bowflex^® T22 Treadmill, and robust sales of SelectTech^® weights.

• Gross profit was $55.5 million, up 17.1% compared to $47.4 million for the same period last year. Gross margins were 30.1% this year compared to 41.5% for the same period last year. This margin pressure is the result of current macro events affecting not just the Company but many others as well. The 11.4 ppt decrease in gross margins was primarily due to: higher landed product costs driven by inflationary price increases in commodities and components, foreign exchange, and elevated transportation costs, partially offset by sales price increases (-6 ppts), channel mix as Direct segment sales were 34% versus 44% last year (-3 ppts), outbound freight (-1 ppt), and a strategic decision to end production of select SKUs (-1 ppt).

• Operating expenses were $37.6 million, a decrease of $16.9 million, or 30.9%, compared to the same period last year, primarily due to the $29.0 million loss on disposal group for the same period last year partially offset by increased selling and marketing expenses, as the Direct business returned to more normalized levels of advertising and the company invested in incremental brand marketing. Total advertising expenses were $11.6 million this year versus $2.8 million last year. General and administrative expenses and product development expenses also increased versus last year primarily driven by investments in JRNY^®.

• Operating income was $17.9 million or 9.7% operating margin, a $25.0 million improvement compared to a loss of $7.1 million for the same period last year. JRNY^® investments were $4.6 million this year versus $1 million last year and brand marketing was $3.4 million this year versus $0 last year. Excluding these investments, our Q1 2022 operating margins have been improved by 4 percentage points.

• Income from continuing operations improved to $14.0 million, or $0.43 per diluted share, compared to a loss of $5.0 million, or $0.17 per diluted share, for the same period last year.

• Net income was $13.9 million, or $0.43 per diluted share, compared to a net loss of $5.1 million, or $0.17 per diluted share, for the same period last year.

• The effective tax rate was 19.7% this year compared to 32.0% for the same period last year.

• The following statements exclude the impact of the loss on disposal group last year¹.
  • Adjusted operating expenses were $37.6 million or 20.4% of sales compared to $25.5 million or 22.3% of sales last year.
  • Adjusted operating income was $17.9 million compared to last year’s $21.9 million, driven by lower gross margins , the return to normalized levels of brand marketing, and North Star investments.
  • Adjusted income from continuing operations was $14.0 million, or $0.43 per diluted share, compared to $16.8 million, or $0.56 per diluted share.
  • Adjusted EBITDA from continuing operations was $21.0 million compared to $25.5 million last year.

¹ See “Reconciliation of Non-GAAP Financial Measures” and “Loss on Disposal Group” for more information

JRNY^® update

Nautilus Inc. continues to enhance the JRNY^® platform, creating differentiated connected fitness experiences for their members. In the past quarter, the Company enhanced its content library, adding 200+ trainer-led videos and commissioning additional Explore the World content. They introduced the JRNY^® app for use with its popular IC4 and C6 bikes further expanding its diverse lineup of connected products.

Today, Nautilus also announced a strategic partnership with digital fitness provider, FitOn. Under the agreement, JRNY^® members will have access to hundreds of off-product workouts through the JRNY^® digital fitness platform and app to keep members engaged and reaching their fitness goals.

Management Comments

“I’m really pleased by how our team delivered in comparison to last year, the first full quarter that benefitted from the COVID-related tailwinds. We delivered the highest fiscal Q1 net sales in company history, highlighting the continued demand for at-home fitness products. Retail grew sales by 91% or 107% excluding Octane, delivering record net sales of $120 million, while Direct grew by 26%. We generated $18 million in operating income and 10% operating margins even with the continued external pressure of elevated logistics costs and supply inflation. Importantly, we made great progress on our North Star strategy, with improved incremental brand advertising and further enhancements to our JRNY^® digital fitness platform,” said Jim Barr, Nautilus Inc. Chief Executive Officer.

“We have generated record results for three sequential quarters, underscoring the momentum of our execution of North Star, our long-term transformation plan. We believe that our planned North Star investments, particularly in marketing and our JRNY^® platform, will result in more predictable growth and consistent and expanding profitability. We will continue to enhance JRNY^® to provide our members with a differentiated experience and our recently announced FitOn partnership is an example of that commitment. Our team’s focus on executing North Star has enabled us to reach more of our target customers, grow our member base, add new retailer partners, reduce backlog, and improve our inventory position. These areas of focus combined with our improving connected fitness experience have us very well positioned to deliver sustainable long-term growth and profitability,” continued Mr. Barr.

Fiscal 2022 First Quarter ended June 30, 2021 Segment Results Compared to June 30, 2020

Direct Segment

• Direct segment sales were $63.4 million, up 25.7% compared to the same period last year.

• Strength product sales grew 559.4% to a historical record, led by the popular SelectTech^® weights and Bowflex^® Home Gyms. Cardio sales declined 31.1%, primarily due to end-of-life products that are no longer available for sale this year and a decline in sales of the Schwinn^® IC4 and Bowflex^® C6 bikes that was partially offset by VeloCore^® sales.

• As of June 30, 2021, the Direct’s segment’s backlog totaled $3.1 million compared to $26.5 million as of March 31, 2021. These amounts represent unfulfilled consumer orders net of current promotional programs and sales discounts.

• Direct’s sales results, excluding backlog, were more in line with typical seasonality, with the quarters ending June and ending September representing the lower sales volume quarters.

• Gross margins were 38.7% versus 54.6% last year. The 15.9 ppt decrease in gross margin was primarily driven by: higher landed product costs (-6 ppts), higher outbound freight costs (-6 ppts), deleveraging of fixed costs as direct sales grew slower than retail’s (-2 ppts), a strategic decision to end production of select SKUs (-1 ppt), and increased investments in JRNY^® (-1 ppt). Gross profit was $24.5 million, down 10.9% versus last year.

• Segment contribution income was $6.8 million or 10.7% of sales, compared to $17.0 million or 33.7% of sales last year. The decline was primarily driven by lower gross profit and the return to normalized advertising expenditures. Advertising expenses were $8.0 million compared to $2.4 million last year.

Retail Segment

• Retail segment sales were $120.5 million, the best quarterly sales in segment history.

• Net sales were up 91.4% from the same period last year, or 120.7% excluding sales related to the Octane brand. Retail segment sales outside the United States and Canada grew 70%, or 102% excluding Octane.

• Strength product sales grew by 119.3%, led by our popular SelectTech^® weights and benches and Bowflex^® Home Gyms. Cardio sales increased by 83.5%, to a historical record, driven by connected-fitness bikes and treadmills.

• As of June 30, 2021, the Retail segment’s backlog totaled $141.9 million compared to $178.6 million as of March 31, 2021. These amounts represent customer orders for future shipments and are net of contractual rebates and consideration payable to applicable Retail customers.

• Gross margins were 25.1% compared to 30.3% last year. The 5.2 ppt decrease in gross margin was primarily driven by: higher landed product costs (-6 ppts), a strategic decision to end production of select SKUs (-1 ppt), offset by leverage on fixed costs as retail segment sales grew faster than direct segment sales (+2 ppts). Gross profit was $30.3 million, an increase of 59% versus last year.

• Segment contribution income was $22.1 million or 18.3% of sales, compared to $11.6 million or 18.4% of sales for the same period last year, primarily driven by higher gross profit and expense leverage.

Balance Sheet and Other Key Highlights as ofJune 30, 2021:

• Cash and Liquidity:
  • Cash, cash equivalents, restricted cash and available-for-sale securities were $82.8 million, compared to cash, cash equivalents, restricted cash and available-for-sale securities of $113.2 million as of March 31, 2021. The decrease was primarily due to the increase in inventory.
  • Debt was $13.4 million compared to $13.3 million as of March 31, 2021.
  • $53.6 million was available for borrowing under the Wells Fargo Asset Based Lending Revolving Facility compared to $54.4 million as of March 31, 2021.

• Trade receivables were $98.2 million, compared to $88.7 million as of March 31, 2021. The increase in trade receivables was primarily due to the timing of customer payments on increased sales.

• Inventory was $111.1 million, compared to $68.1 million as of March 31, 2021. The increase in inventory is driven by the strategic decision to increase on-hand inventory levels ahead of the fitness season given continued disruption in global logistics. More than 60% of inventory as of June 30, 2021 was in-transit.

• Trade payables were $114.6 million, compared to $98.9 million as of March 31, 2021. The increase in trade payables was primarily due to timing of payments for inventory.

• Capital expenditures totaled $1.9 million during the quarter ended June 30, 2021.

Forward Looking Guidance

Second Quarter Fiscal 2022

• The Company’s revenue for the next few quarters will be compared to record results due to the pandemic’s effect on net sales last year. To gauge continued progress against the expanded addressable market, the Company will be measuring business versus last year and versus the same period two years ago for the next few quarters.

• Demand curves for the Direct segment in Q1 and in the first month of Q2 have started to revert to more typical seasonality patterns. Now that Direct’s backlog has returned to more normal levels, the Company expects Direct sales in Q2 to be lower than Q1.

• The Company expects total company net sales for the 2nd quarter of fiscal 2022 to be between $145 million and $155 million, a 2-year revenue CAGR of 53% to 59%.

• Similar to many other companies, the Company expects external gross margin challenges to continue in Q2 and anticipates increased price pressure due to the ongoing chip shortage.

• The Company was pleased with the results of North Star investment in Q1 and plans to continue investing in Q2. Brand marketing expenditures will be between $5 million and $6 million versus $3 million last quarter and zero last year. JRNY^® investment will be between $5.5 million and $6.5 million versus $5 million last quarter and $1 million last year. JRNY^® investments will further enhance platform functionality via improved adaptive workouts, the addition of a member portal, and additional fresh content, like the ones provided by their new partner FitOn. The Company expects these investments to dilute operating margins by 7 to 8 percentage points.

• Given these investments and the external macro pressure on gross margin, the Company expects operating margins to be in the low single digits.

Back Half of Fiscal 2022

• The Company expects to continue investing in North Star on a “pay as we go” basis.

• The Company assumes that the external macro factors negatively affecting gross margins will continue in Q3 and Q4. Although it’s unclear when the pressure will ease, the Company expects that over time, prices will stabilize and eventually return closer to pre-pandemic levels.

• Until the macro environment improves, the Company expects operating margins to be in the low to mid-single digits for the back half of the year.

• The Company continues to expect full year capital expenditures to be between $12 million and $14 million with the majority earmarked for JRNY^® investments.

• The Company reiterates their expectation of reaching 250,000 JRNY^® members by the end of FY22

Longer term view, beyond Fiscal 2022

• The Company’s conviction in their North Star strategy has never been stronger. Growth in JRNY^® members and their increased engagement confirm the Company’s expectations that their North Star investments will ultimately yield higher quality recurring revenue and long-term profitable growth.

• The Company believes the near-term external gross margin pressures are temporary and are not delaying the Company’s expectations of achieving sustainable operating margins upwards of 15% by FYE 2026, as they realize the long-term benefits of their transformational investments.

Conference Call

Nautilus will discuss our fiscal 2022 first quarter ended June 30, 2021 operating results during a live conference call and webcast on Monday, August 9, 2021 at 1:30 p.m. Pacific Time. The conference call can be accessed by calling (877) 425-9470 in North America. International callers may dial (201) 389-0878. Please note that there will be presentation slides accompanying the earnings call. The slides will be displayed live on the webcast and will be available to download via the webcast player or at http://www.nautilusinc.com/events. The webcast will be archived online within two hours after completion of the call and will be available for six months. Participants from the Company will include Jim Barr, Chief Executive Officer and Aina Konold, Chief Financial Officer.

A telephonic playback will be available from 4:30 p.m. PT, August 9, 2021 through 8:59 p.m. PT, August 30, 2021. Participants can dial (844) 512-2921 in North America and international participants can dial (412) 317-6671 to hear the playback. The passcode for the playback is 13721447.

About Nautilus, Inc.

Nautilus, Inc. (NYSE:NLS) is a global leader in digitally connected home fitness solutions. The company’s brand family includes Bowflex®, Nautilus®, Schwinn®, and JRNY®, its digital fitness platform. With a broad selection of exercise bikes, cardio equipment, and strength training products, Nautilus, Inc. empowers healthier living through individualized connected fitness experiences; and in doing so, envisions building a healthier world, one person at a time.

Headquartered in Vancouver, Washington, the company’s products are sold direct to consumer on brand websites and through retail partners and are available throughout the U.S. and internationally. Nautilus, Inc. uses the investor relations page of its website (www.nautilusinc.com/investors) to make information available to its investors and the market.

Forward-Looking Statements

This press release includes forward-looking statements (statements which are not historical facts) within the meaning of the Private Securities Litigation Reform Act of 1995, including: projected, targeted or forecasted financial, operating results and capital expenditures, including but not limited to net sales growth rates, gross margins, operating expenses, operating margins, anticipated demand for the Company’s new and existing products, statements regarding the Company’s prospects, resources or capabilities; planned investments, strategic initiatives and the anticipated or targeted results of such initiatives; the effects of the COVID-19 pandemic on the Company’s business; and planned operational initiatives and the anticipated cost-saving results of such initiatives. All of these forward-looking statements are subject to risks and uncertainties that may change at any time. Factors that could cause Nautilus, Inc.’s actual expectations to differ materially from these forward-looking statements also include: weaker than expected demand for new or existing products; our ability to timely acquire inventory that meets our quality control standards from sole source foreign manufacturers at acceptable costs; risks associated with current and potential delays, work stoppages, or supply chain disruptions, including shipping delays due to the severe shortage of shipping containers; an inability to pass along or otherwise mitigate the impact of raw material price increases and other cost pressures, including unfavorable currency exchange rates and increased shipping costs; experiencing delays and/or greater than anticipated costs in connection with launch of new products, entry into new markets, or strategic initiatives; our ability to hire and retain key management personnel; changes in consumer fitness trends; changes in the media consumption habits of our target consumers or the effectiveness of our media advertising; a decline in consumer spending due to unfavorable economic conditions; risks related to the impact on our business of the COVID-19 pandemic or similar public health crises; softness in the retail marketplace; availability and timing of capital for financing our strategic initiatives, including being able to raise capital on favorable terms or at all; changes in the financial markets, including changes in credit markets and interest rates that affect our ability to access those markets on favorable terms and the impact of any future impairment. Additional assumptions, risks and uncertainties are described in detail in our registration statements, reports and other filings with the Securities and Exchange Commission, including the “Risk Factors” set forth in our Annual Report on Form 10-K, as supplemented by our quarterly reports on Form 10-Q. Such filings are available on our website or at www.sec.gov. You are cautioned that such statements are not guarantees of future performance and that our actual results may differ materially from those set forth in the forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect subsequent developments, events, or circumstances.

RESULTS OF OPERATIONS INFORMATION

The following summary contains information from our consolidated statements of operations for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands, except per share amounts):

	Three-Months Ended June 30,
	2021				2020
Net sales	$	184,593			$	114,188
Cost of sales		129,088				66,792
Gross profit		55,505				47,396
Operating expenses:
Selling and marketing		21,300				12,446
General and administrative		11,523				9,315
Research and development		4,815				3,728
Loss on disposal group		—				29,013
Total operating expenses		37,638				54,502
Operating income (loss)		17,867				(7,106	)
Other expense, net		(413	)			(222	)
Income (loss) from continuing operations before income taxes		17,454				(7,328	)
Income tax expense (benefit)		3,438				(2,342	)
Income (loss) from continuing operations		14,016				(4,986	)
Loss from discontinued operations, net of income taxes		(132	)			(124	)
Net income (loss)	$	13,884			$	(5,110	)
Basic income (loss) per share from continuing operations	$	0.46			$	(0.17	)
Basic loss per share from discontinued operations		(0.01	)			—
Basic net income (loss) per share	$	0.45			$	(0.17	)
Diluted income (loss) per share from continuing operations	$	0.43			$	(0.17	)
Diluted loss per share from discontinued operations		—				—
Diluted net income (loss) per share	$	0.43			$	(0.17	)
Shares used in per share calculations:
Basic		30,697				29,909
Diluted		32,508				29,909
Select Metrics:
Gross margin		30.1	%			41.5	%
Selling and marketing % of net sales		11.5	%			10.9	%
General and administrative % of net sales		6.2	%			8.2	%
Research and development % of net sales		2.6	%			3.3	%
Operating income (loss) % of net sales		9.7	%			(6.2	)%

SEGMENT INFORMATION

The following tables present certain comparative information by segment and major product lines within each business segment for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands):

		Three-Months Ended June 30,								Change
		2021				2020				$				%
Net sales:
Direct net sales:
Cardio products(1)		$	31,430			$	45,585			$	(14,155	)		(31.1	)%
Strength products(2)			31,966				4,848				27,118			559.4	%
Direct			63,396				50,433				12,963			25.7	%
Retail net sales:
Cardio products(1)			89,924				49,011				40,913			83.5	%
Strength products(2)			30,560				13,937				16,623			119.3	%
Retail			120,484				62,948				57,536			91.4	%
Royalty			713				807				(94	)		(11.6	)%
Consolidated net sales		$	184,593			$	114,188			$	70,405			61.7	%
Gross profit:
Direct		$	24,514			$	27,523			$	(3,009	)		(10.9	)%
Retail			30,278				19,066				11,212			58.8	%
Royalty			713				807				(94	)		(11.6	)%
Consolidated gross profit		$	55,505			$	47,396			$	8,109			17.1	%
Gross margin:
Direct			38.7	%			54.6	%			(1,590	)		basis points
Retail			25.1	%			30.3	%			(520	)		basis points
Contribution:
Direct		$	6,759			$	16,995			$	(10,236	)		(60.2	)%
Retail			22,090				11,613				10,477			90.2	%
Royalty			713				807				(94	)		(11.6	)%
Consolidated contribution		$	29,562			$	29,415			$	147			0.5	%
Reconciliation of consolidated contribution to income (loss) from continuing operations:
Consolidated contribution		$	29,562			$	29,415			$	147			0.5	%
Amounts not directly related to segments:
Operating expenses			(11,695	)			(36,521	)			24,826			68.0	%
Other expense, net			(413	)			(222	)			(191	)		(86.0	)%
Income tax (expense) benefit			(3,438	)			2,342				(5,780	)		(246.8	)%
Income (loss) from continuing operations		$	14,016			$	(4,986	)		$	19,002			381.1	%
(1) Cardio products include: connected-fitness bikes, the Bowflex® C6, Bowflex® VeloCore®, Schwinn® IC4, Max Trainer®, connected-fitness treadmills, other exercise bikes, ellipticals and subscription services.
(2) Strength products include: Bowflex® Home Gyms, Bowflex® SelectTech® dumbbells, kettlebell and barbell weights, and accessories.

BALANCE SHEET INFORMATION

The following summary contains information from our consolidated balance sheets as of June 30, 2021 and March 31, 2021 (unaudited and in thousands):

	As of
	June 30, 2021				March 31, 2021
Assets
Cash and cash equivalents	$	25,218			$	38,441
Restricted cash	1,339				1,339
Available-for-sale securities	56,264				73,448
Trade receivables, net of allowances	98,160				88,657
Inventories	111,132				68,085
Prepaids and other current assets	15,650				25,840
Income taxes receivable	9,500				—
Total current assets	317,263				295,810
Property, plant and equipment, net	24,718				24,496
Operating lease right-of-use assets	25,662				19,108
Other intangible assets, net	9,350				9,365
Deferred income tax assets, non-current	3,068				2,144
Other assets	2,325				3,307
Total assets	$	382,386			$	354,230
Liabilities and Shareholders’ Equity
Trade payables	$	114,602			$	98,878
Accrued liabilities	14,515				19,627
Operating lease liabilities, current portion	4,706				3,384
Warranty obligations, current portion	8,191				7,243
Income taxes payable, current portion	845				5,709
Debt payable, current portion, net of unamortized debt issuance costs	3,125				3,000
Total current liabilities	145,984				137,841
Operating lease liabilities, non-current	23,221				17,875
Warranty obligations, non-current	1,593				1,408
Income taxes payable, non-current	3,805				3,657
Other non-current liabilities	606				607
Debt payable, non-current, net of unamortized debt issuance costs	10,296				10,297
Shareholders’ equity	196,881				182,545
Total liabilities and shareholders’ equity	$	382,386			$	354,230

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Non-GAAP Presentation

In addition to disclosing its financial results determined in accordance with GAAP, Nautilus has presented in this release certain non-GAAP financial measures, which exclude the impact of certain items (as further described below) and provide supplemental information regarding operating performance. Nautilus presents non-GAAP financial measures as a complement to results provided in accordance with GAAP, and the non-GAAP financial measures should not be regarded as a substitute for GAAP. By disclosing these non-GAAP financial measures, management intends to provide investors with a supplemental comparison of operating results and trends for the periods presented. Management believes these measures are also useful to investors as such measures allow investors to evaluate performance using the same metrics that management uses to evaluate past performance and prospects for future performance. Nautilus strongly encourages you to review all its financial statements and publicly filed reports in their entirety and to not rely on any single financial measure.

EBITDA from Continuing Operations

Nautilus defines EBITDA from continuing operations as its income from continuing operations, adjusted to exclude interest expense (income), income tax expense (benefit) of continuing operations, and depreciation and amortization expense. Nautilus uses EBITDA from continuing operations in evaluating its operating results and for financial and operational decision-making purposes such as budgeting and establishing operational goals. Nautilus believes that EBITDA from continuing operations helps identify underlying trends in its business that could otherwise be masked by the effect of the items that are excluded from EBITDA from continuing operations and enhances the overall understanding of the Company’s past performance and future prospects. Management believes that EBITDA is frequently used by investors, securities analysts, and other interested parties in their evaluation of companies, many of which present EBITDA when reporting their results. Other companies may calculate EBITDA differently, and it may not be comparable.

Adjusted Results

In addition to disclosing the comparable GAAP results, Nautilus has presented its operating expenses, operating income, and income from continuing operations on an adjusted basis. Adjusted operating expenses excludes the non-cash charges related to the disposal group held-for-sale of Octane Fitness^®. Adjusted operating income excludes non-cash charges related to the disposal group held-for-sale of Octane Fitness^®. Adjusted income from continuing operations excludes the loss as well as the associated tax benefit. We believe that the adjustment of this charge and associated tax benefit, which are inconsistent in amount and frequency, supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance. In addition to presenting its EBITDA from continuing operations as described above, Nautilus has also presented EBITDA from continuing operations on an adjusted basis, excluding the aforementioned loss for similar reasons.

Adjusted EBITDA from Continuing Operations

In addition to presenting its EBITDA from continuing operations as described above, Nautilus has also presented EBITDA from continuing operations on an adjusted basis, to exclude the non-cash charge related to stock-based compensation expense. We believe that the adjustment of this charge, which is inconsistent in amount and frequency, supplements the EBITDA information with a measure that can be used to assess the sustainability of our operating performance.

The following table presents a reconciliation of operating expenses, the most directly comparable GAAP measure, to Adjusted operating expenses for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands):

	Three-Months Ended June 30,
	2021			2020
Operating expenses	$	37,638		$	54,502
Loss on disposal group(1)		—			(29,013	)
Adjusted operating expenses	$	37,638		$	25,489

The following table presents a reconciliation of operating income (loss), the most directly comparable GAAP measure, to Adjusted operating income for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands):

	Three-Months Ended June 30,
	2021			2020
Operating income (loss)	$	17,867		$	(7,106	)
Loss on disposal group(1)		—			29,013
Adjusted operating income	$	17,867		$	21,907

The following table presents a reconciliation of income (loss) from continuing operations, the most directly comparable GAAP measure, to Adjusted income from continuing operations for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands):

	Three-Months Ended June 30,
	2021			2020
Income (loss) from continuing operations	$	14,016		$	(4,986	)
Loss on disposal group(1)		—			29,013
Income tax benefit for loss on disposal group		—			(7,216	)
Adjusted income from continuing operations	$	14,016		$	16,811

The following table presents a reconciliation of income (loss) from continuing operations, the most directly comparable GAAP measure, to EBITDA from continuing operations for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands):

	Three-Months Ended June 30,
	2021			2020
Income (loss) from continuing operations	$	14,016		$	(4,986	)
Interest expense, net		293			337
Income tax expense (benefit) from continuing operations		3,438			(2,342	)
Depreciation and amortization		2,054			2,646
Earnings (loss) before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations	$	19,801		$	(4,345	)

The following table presents a reconciliation of income (loss) from continuing operations, the most directly comparable GAAP measure, to Adjusted EBITDA from continuing operations for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands):

	Three-Months Ended June 30,
	2021			2020
Income (loss) from continuing operations	$	14,016		$	(4,986	)
Interest expense, net		293			337
Income tax expense (benefit) from continuing operations		3,438			(2,342	)
Depreciation and amortization		2,054			2,646
Loss on disposal group(1)		—			29,013
Stock-based compensation expense		1,225			865
Adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) from continuing operations	$	21,026		$	25,533

The following table presents a reconciliation of diluted income (loss) per share from continuing operations, the most directly comparable GAAP measure, to Adjusted diluted income per share from continuing operations for the three-months ended June 30, 2021 and 2020 (unaudited and in thousands):

	Three-Months Ended June 30,
	2021			2020
Diluted income (loss) per share from continuing operations	$	0.43		$	(0.17	)
Loss on disposal group, net of tax(1)		—			0.73
Adjusted diluted income per share from continuing operations	$	0.43		$	0.56

⁽¹⁾ Loss on disposal group

In accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, for a long-lived assets or disposal group classified as held-for-sale, a loss is recognized for the carrying amount that exceeds the fair market value of the long-lived assets less the cost to sell. The assets and liabilities of a disposal group classified as held-for-sale should be presented separately in the asset and liability sections, respectively, of the balance sheet. The disposal group was structured as a sale of the subsidiary shares and we elected to classify the deferred taxes associated with the individual assets and liabilities as part of the disposal group held-for-sale.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005703/en/

Investor Relations:

John Mills

ICR, LLC

646-277-1254

[email protected]

Media:

John Fread

Nautilus, Inc

360-859-5815

[email protected]

Carey Kerns

The Hoffman Agency

503-754-7975

[email protected]

KEYWORDS: United States North America Washington

INDUSTRY KEYWORDS: Other Retail Health Retail Fitness & Nutrition Specialty

MEDIA:

Posted on August 9, 2021 6:49 pm

Myomo Second Quarter 2021 Financial Results Feature Significant Increases in Revenue and Gross Margin, Record Insurance Authorizations and Orders

Myomo Second Quarter 2021 Financial Results Feature Significant Increases in Revenue and Gross Margin, Record Insurance Authorizations and Orders

 Revenue was $3.1 million, up 262% over prior year

Gross margin was 71%, up 2,000 basis points over prior year

Insurance authorizations and orders were a record 138

Conference call begins at 4:30 p.m. Eastern time today

BOSTON–(BUSINESS WIRE)–Myomo, Inc. (NYSE American: MYO) (“Myomo” or the “Company”), a wearable medical robotics company that offers increased functionality for those suffering from neurological disorders and upper-limb paralysis, today announced financial results for the three and six months ended June 30, 2021.

Financial and operational highlights for the second quarter of 2021 include the following (all comparisons are with the second quarter of 2020, which was adversely impacted by the COVID-19 pandemic, unless otherwise noted):

• Revenue was $3.1 million, up 262%
• Revenue units were 80, up 233% including a record 38 units where orders and insurance authorizations were received during the quarter
• Gross margin was 71%, up 2,000 basis points
• Backlog, which represents insurance authorizations and orders received but not yet converted to revenue, was 160 units as of June 30, 2021, a 36% increase compared with March 31, 2021
• Received orders and insurance authorizations for 138 patients to receive a MyoPro^®
• Growing number of health insurance plans covering the cost of a MyoPro, with over 20 new payers approving their first device, including several state Medicaid, Medicare Advantage, and commercial plans
• Revenue from the direct billing channel represented 74% of total revenue, compared with 73% of total revenue in the first quarter of 2021
• The reimbursement pipeline as of June 30, 2021 consisted of 898 MyoPro units

Management Commentary

“We are pleased to be reporting sustained momentum with our efforts to expand the number of individuals who receive a MyoPro through our direct-to-consumer marketing and our own clinical services channel,” stated Paul R. Gudonis, Myomo’s chairman and chief executive officer. “A growing number of physicians are prescribing the MyoPro for their patients, and we obtained a record number of insurance authorizations and orders during the second quarter. We are also experiencing an acceleration of the revenue cycle as a growing number of units are regularly reimbursed by certain insurance plans.”

Financial Results

		For the Three Months Ended June 30,								Period-to-Period Change						For the Six Months Ended June 30,								Period-to-Period Change
			2021				2020			$			%				2021				2020			$			%
Revenue		$	3,104,294			$	858,590			$	2,245,704		262	%		$	5,440,783			$	1,866,735			$	3,574,048		191	%
Cost of revenue			901,566				418,862				482,704		115	%			1,524,718				737,513				787,205		107	%
Gross profit		$	2,202,728			$	439,728			$	1,763,000		401	%		$	3,916,065			$	1,129,222			$	2,786,843		247	%
Gross margin			71	%			51	%					20	%			72	%			60	%					12	%

Revenue for the second quarter of 2021 was $3.1 million, an increase of 262% compared with the second quarter of 2020. In addition to an increase in the number of revenue units during the second quarter of 2021, the Company also recorded higher average selling prices. Myomo recognized revenue on 80 units in the second quarter of 2021, an increase of 233% compared with the second quarter of 2020. Year-to-date revenue of $5.4 million was up 191% compared with the same period a year ago.

Gross margin for the second quarter of 2021 was 71%, compared with 51% for the second quarter of 2020. The margin expansion primarily reflects a higher average selling price and improved fixed cost coverage resulting from higher unit volume, partially offset by a greater number of deliveries to patients in the second quarter, which is when cost of goods sold is recognized. The Company delivered 86 units to patients in the second quarter. Year-to-date gross margin was 72%, compared with 60% in the year-ago period.

Operating expenses for the second quarter of 2021 were $4.8 million, an increase of 46% compared with the second quarter of 2020, which reflected various COVID-19 related expense reductions. Operating expenses for the first six months of 2021 were $9.4 million, an increase of 28% compared with the same period a year ago.

Operating loss for the second quarter of 2021 narrowed to $2.6 million from $2.8 million for the second quarter of 2020. Net loss for the second quarter of 2021 was $2.6 million, or $0.46 per share, compared with a net loss of $3.3 million, or $1.12 per share, for the second quarter of 2020. Net loss available to common stockholders for the first six months of 2021 was $5.6 million, or $1.03 per share, compared with $7.8 million, or $3.27 per share, for the comparable period in 2020. Net loss available to common stockholders in the first six months of 2020 included a deemed dividend of $0.7 million related to the repricing of certain warrants.

Adjusted EBITDA¹ for the second quarter of 2021 was negative $2.2 million, compared with negative $2.7 million for the second quarter of 2020. Adjusted EBITDA for the first six months of 2021 was negative $4.9 million, compared with negative $6.0 million for the same period a year ago. A reconciliation of GAAP net loss to this non-GAAP financial measure appears below.

Business Outlook

“We expect to deliver another solid quarter of year-over-year revenue growth in the third quarter,” said Mr. Gudonis. “Our plan is to build upon the successful strategies we implemented during the first half of the year, in particular increased direct-to-patient marketing. In addition, we will continue to focus on the direct billing channel as we look forward to a strong finish to 2021.”

Liquidity

Cash and cash equivalents as of June 30, 2021 were $13.8 million. Cash used in operating activities was $3.4 million in the second quarter of 2021, which included the payment of 2020 incentive compensation. Cash used in operating activities is expected to decrease in the third quarter of 2021 due to a lower working capital requirement. The Company continues to believe its existing cash is sufficient to fund operations well into the second half of 2022.

Conference Call and Webcast Information

Myomo will hold a conference call today at 4:30 p.m. Eastern time to discuss these results and answer questions. Participants are encouraged to pre-register for the call at https://dpregister.com/sreg/10158505/eaf8cf4039. Callers who pre-register will be given a conference passcode and unique PIN to gain immediate access to the call and bypass the live operator. Participants may pre-register at any time, including up to and after the call start time. Those without internet access or unable to pre-register may participate by dialing 1-844-707-6932 (U.S.) or 1-412-317-9250 (International). A webcast of the call will also be available at Myomo’s Investor Relations page at http://ir.myomo.com/.

A replay of the webcast will be available beginning approximately one hour after the completion of the live conference call at http://ir.myomo.com/. A dial-in replay of the call will be available until August 23, 2021; please dial 1-877-344-7529 (U.S.) or 1-412-317-0088 (International) and provide the passcode 10158505.

Non-GAAP Financial Measures

Myomo is providing financial information that has not been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. This information includes Adjusted EBITDA. This non-GAAP financial measure is not in accordance with, or an alternative for, GAAP and may be different from similar non-GAAP financial measures used by other companies. Myomo believes the use of this non-GAAP financial measure provides supplementary information for investors to use in evaluating operating performance and in comparing Myomo’s financial measures with other companies in its industry, many of which present similar non-GAAP financial measures. Adjusted EBITDA is EBITDA adjusted for stock-based compensation expense, the impact of the fair value revaluation of derivative liabilities and loss of extinguishment of debt. This non-GAAP financial measure is not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP, and should be viewed in conjunction with GAAP financial measures. Investors are encouraged to review the reconciliation of this non-GAAP measure to its most directly comparable GAAP financial measure. A reconciliation of GAAP to the non-GAAP financial measures has been provided in the tables included as part of this press release.

About Myomo

Myomo, Inc. is a wearable medical robotics company that offers improved arm and hand function for those suffering from neurological disorders and upper-limb paralysis. Myomo develops and markets the MyoPro product line. MyoPro is a powered upper-limb orthosis designed to support the arm and restore function to the weakened or paralyzed arms of certain patients suffering from CVA stroke, brachial plexus injury, traumatic brain or spinal cord injury, ALS or other neuromuscular disease or injury. It is currently the only marketed device that, sensing a patient’s own EMG signals through non-invasive sensors on the arm, can restore an individual’s ability to perform activities of daily living, including feeding themselves, carrying objects and doing household tasks. Many are able to return to work, live independently and reduce their cost of care. Myomo is headquartered in Cambridge, Massachusetts, with sales and clinical professionals across the U.S. and representatives internationally. For more information, please visit www.myomo.com.

Forward-Looking Statements

This press release contains forward-looking statements regarding the Company’s future business expectations, including expectations for revenues in the first quarter, its current authorization backlog and its cash runway and capital requirements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors.

These factors include, among other things:

• the direct and indirect impact of the novel coronavirus (COVID-19) on our business and operations, including fabrication and delivery, sales, patient consultations, supply chain, manufacturing, insurance reimbursements and employees;
• our ability to continue normal operations and patient interactions in order to cast, deliver and fit our custom-fabricated device;
• our marketing and commercialization efforts;
• our ability to achieve reimbursement from third-party payers for our products;
• our dependence upon external sources for the financing of our operations, to the extent that we do not achieve or maintain cash flow breakeven;
• our ability to effectively execute our business plan and scale up our operations;
• our expectations as to our product development programs, and;
• general market, economic, environmental and social factors that may affect the evaluation, fitting, delivery and sale of our products to patients.

More information about these and other factors that potentially could affect our financial results is included in Myomo’s filings with the Securities and Exchange Commission, including those contained in the risk factors section of the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Commission. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Although the forward-looking statements in this release of financial information are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

MYOMO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		For the Three Months Ended June 30,							For the Six Months Ended June 30,
			2021				2020			2021				2020
Revenue		$	3,104,294			$	858,590		$	5,440,783			$	1,866,735
Cost of revenue			901,566				418,862			1,524,718				737,513
Gross profit			2,202,728				439,728			3,916,065				1,129,222
Operating expenses:
Research and development			600,116				397,811			1,126,083				904,764
Selling, general and administrative			4,202,244				2,890,464			8,322,047				6,495,432
			4,802,360				3,288,275			9,448,130				7,400,196
Loss from operations			(2,599,632	)			(2,848,547	)		(5,532,065	)			(6,270,974	)
Other expense (income)
Change in fair value of derivative liabilities			—				(39,717	)		—				(121,818	)
Interest (income) expense and other expense, net			6,018				88,915			6,137				224,124
Non-cash interest expense, debt discount			—				40,025			—				206,668
Loss on extinguishment of debt			—				348,079			—				507,281
			6,018				437,302			6,137				816,255
Loss before income taxes			(2,605,650	)			(3,285,849	)		(5,538,202	)			(7,087,229	)
Income tax expense			15,665				1,085			43,907				1,698
Net loss		$	(2,621,315	)		$	(3,286,934	)	$	(5,582,109	)		$	(7,088,927	)
Deemed dividend on repricing of warrants			—				—			—				(670,632	)
Net loss attributable to common stockholders		$	(2,621,315	)		$	(3,286,934	)	$	(5,582,109	)		$	(7,759,559	)
Weighted average number of common shares outstanding:
Basic and diluted			5,639,524				2,932,570			5,416,708				2,376,332
Net loss per share attributable to common stockholders
Basic and diluted		$	(0.46	)		$	(1.12	)	$	(1.03	)		$	(3.27	)

MYOMO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
		June 30,				December 31,
		2021				2020
ASSETS
Current Assets:
Cash and cash equivalents		$	13,772,464			$	12,241,261
Accounts receivable, net			1,132,078				924,916
Inventories, net			728,638				707,114
Prepaid expenses and other current assets			999,027				572,684
Total Current Assets			16,632,207				14,445,975
Equipment, net			320,238				95,023
Operating lease assets with right of use			756,221				168,784
Total Assets		$	17,708,666			$	14,709,782
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses			2,899,948				2,848,904
Current operating lease liability			319,624				18,289
Deferred revenue			—				2,512
Total Current Liabilities			3,219,572				2,869,705
Deferred revenue			1,495				1,495
Non-current operating lease liability			562,887				155,148
Other long-term liabilities			113,423				118,060
Total Liabilities			3,897,377				3,144,408
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock			—				—
Common stock			570				457
Additional paid-in capital			87,091,409				79,273,964
Accumulated other comprehensive loss			(2,224	)			(12,690	)
Accumulated deficit			(73,272,002	)			(67,689,893	)
Treasury stock, at cost			(6,464	)			(6,464	)
Total Stockholders’ Equity			13,811,289				11,565,374
Total Liabilities and Stockholders’ Equity		$	17,708,666			$	14,709,782

MYOMO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,			2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(5,582,109	)		$	(7,088,927	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation			58,329				53,021
Stock-based compensation			529,283				229,490
Bad debt expense			—				45,839
Non-cash interest expense, debt discount			—				206,668
Amortization of original issue discount and debt restructuring fee			—				143,026
Amortization of right-of-use assets			66,653				—
Loss on extinguishment of debt			—				507,281
Change in fair value of derivative liabilities			—				(121,818	)
Loss on disposal of asset			202				177
Other non-cash charges			1,772				(2,980	)
Changes in operating assets and liabilities:
Accounts receivable			(194,455	)			67,931
Inventories			(28,200	)			(243,336	)
Prepaid expenses and other current assets			(426,749	)			(100,128	)
Other assets			—				57,987
Accounts payable and accrued expenses			17,926				51,292
Operating lease liabilities			54,983				—
Deferred revenue			(2,512	)			5,787
Other liabilities			(4,637	)			77,892
Net cash used in operating activities			(5,509,514	)			(6,110,798	)
CASH USED IN INVESTING ACTIVITIES			(247,644	)			(7,878	)
CASH PROVIDED BY FINANCING ACTIVITIES			7,289,483				12,386,663
Effect of foreign exchange rate changes on cash			(1,122	)			(23	)
Net increase in cash, cash equivalents and restricted cash			1,531,203				6,267,964
Cash, cash equivalents and restricted cash, beginning of period			12,241,261				4,540,455
Cash, cash equivalents and restricted cash, end of period		$	13,772,464			$	10,808,419

MYOMO, INC.
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(unaudited)
		For the Three Months Ended June 30,							For the Six Months Ended June 30,
			2021				2020			2021				2020
GAAP net loss		$	(2,621,315	)		$	(3,286,934	)	$	(5,582,109	)		$	(7,088,927	)
Adjustments to reconcile to Adjusted EBITDA:
Interest (income) expense and other expense, net			6,018				88,915			6,137				224,124
Non-cash interest expense, debt discount			—				40,025			—				206,668
Loss on extinguishment of debt			—				348,079			—				507,281
Depreciation expense			35,016				26,633			58,329				53,021
Stock-based compensation			363,312				106,281			529,283				229,490
Change in fair value of derivative liabilities			—				(39,717	)		—				(121,818	)
Income tax expense			15,665				1,085			43,907				1,698
Adjusted EBITDA		$	(2,201,304	)		$	(2,715,633	)	$	(4,944,453	)		$	(5,988,463	)

---

¹ Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization adjusted for stock-based compensation expense, the impact of the fair value revaluation of derivative liabilities and loss on extinguishment of debt.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005675/en/

For Myomo:

[email protected]

Investor Relations:

Kim Sutton Golodetz

LHA Investor Relations

[email protected]

212-838-3777

KEYWORDS: United States North America Massachusetts

INDUSTRY KEYWORDS: Biotechnology Medical Devices Other Health Health Physical Therapy

MEDIA:

Logo

Broadmark Realty Capital Announces Second Quarter 2021 Results

– Produced $212.3 Million of Loan Commitments –

SEATTLE–(BUSINESS WIRE)–Broadmark Realty Capital Inc. (NYSE: BRMK) (the “Company”),an internally managed secured real estate finance company, today announced operating results for the quarter ended June 30, 2021.

Jeff Pyatt, President and Chief Executive Officer of Broadmark, commented, “Originations were up in the second quarter, reflecting a strong environment for lending amid an active construction market. We expect the high pace of building activity to be maintained as the U.S. works to address a substantial need for new housing. Our focus remains on disciplined capital allocation and further progress on our portfolio credit, including reducing our pool of loans in non-accrual status over the coming quarters. Our capital structure and liquidity provide us with the tools required to continue growing our portfolio over time, and we remain committed to doing so in a prudent manner, weighing the risks and appropriate pricing levels where we see the best opportunities.”

Second Quarter 2021 Financial Highlights

• Total revenue of $29.2 million for the three months ended June 30, 2021.
• GAAP net income attributable to common stockholders of $18.3 million, or $0.14 per diluted common share.
• Distributable earnings, a non-GAAP financial measure, of $23.5 million, or $0.18 per diluted common share.

Second Quarter 2021 Loan Portfolio Highlights

• New originations and amendments totaling $212.3 million, with a weighted average loan to value of 57.5%.
• Interest income of $21.6 million and fee income of $7.6 million.
• Total active loan portfolio of $1.3 billion across 14 states and the District of Columbia.

Loan Portfolio

As of June 30, 2021, the principal outstanding on loans in contractual default status placed on non-accrual status was $155.3 million. During the second quarter, the Company foreclosed on one loan, cured two loans in default with total commitment of $44 million and had no new defaults.

Balance Sheet Activity and Liquidity

At June 30, 2021, the Company had cash and cash equivalents of $164.0 million and $378.1 million of unfunded loan commitments on balance sheet. The Company has no debt outstanding.

Dividend

On July 13, 2021, the Company’s board of directors declared a cash dividend of $0.07 per common share payable on August 13, 2021 to stockholders of record as of July 30, 2021.

Private REIT

On July 13, 2021, the Company announced its intention to retire Broadmark Private REIT, LLC (the “Private REIT”). The Private REIT’s outstanding loan participations will be purchased by the Company for a cash payment equal to the fair value of the Private REIT’s loan participations as of August 1, 2021, which is projected to be approximately $42 million. The liquidation of the Private REIT and distribution of its assets to its investors is scheduled to be completed by the end of the third quarter 2021. Upon completion of the purchase, the Company will hold 100% of the participation interests in its outstanding loans.

Additional Information

The Company has posted supplemental financial information to provide additional disclosure on its website at www.broadmark.com. These materials can be found on the Investors section of the website under the “Financials” tab.

Conference Call and Webcast Information

The Company will host a live conference call and webcast today at 5:00 p.m. Eastern time. To listen to the live webcast, go to the Investors section of the Company’s website at www.broadmark.com at least 15 minutes prior to the scheduled start time in order to register and install any necessary audio software.

To Participate in the Telephone Conference Call:

Dial in at least 15 minutes prior to start time.

Domestic: 1-855-327-6837

International: 1-631-891-4304

Conference Call Playback:

Domestic: 1-844-512-2921

International: 1-412-317-6671

Passcode: 10015911

The playback can be accessed through August 23, 2021.

Forward Looking Statements

This press release contains certain “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Forward-looking statements reflect the Company’s current views with respect to, among other things, capital resources, portfolio performance and projected results of operations. In some cases, you can identify these forward-looking statements by the use of terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words or phrases. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates.

These forward-looking statements are based largely on the Company’s current beliefs, assumptions and expectations concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that it has anticipated. Factors that may cause actual results to vary from the Company’s forward-looking statements include, but are not limited to:

• the magnitude, duration and severity of the novel coronavirus (“COVID-19”) pandemic;
• disruptions in the Company’s business operations, including construction lending activity, relating to COVID-19;
• adverse impact of COVID-19 on the value of the Company’s goodwill;
• the impact of actions taken by governments, businesses, and individuals in response to COVID-19;
• the current and future health and stability of the economy and residential housing market, including any extended slowdown in the real estate markets as a result of COVID-19;
• changes in laws or regulations applicable to the Company’s business, employees lending activities, including current and future laws, regulations and orders that limit the Company’s ability to operate in light of COVID-19;
• defaults by borrowers in paying debt service on outstanding indebtedness;
• the adequacy of collateral securing the Company’s loans and declines in the value of real estate property securing the Company’s loans;
• availability of origination and acquisition opportunities acceptable to the Company;
• potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements;
• increased competition from entities engaged in construction lending activities;
• general economic uncertainty and the effect of general economic conditions on the real estate and real estate capital markets in particular;
• general and local commercial and residential real estate property conditions;
• changes in U.S. federal government policies;
• changes in U.S. federal, state and local governmental laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust;
• the Company’s ability to pay, maintain or grow the dividend in the future;
• changes in interest rates;
• the availability of, and costs associated with, sources of liquidity;
• the adequacy of the Company’s policies, procedures and systems for managing risk effectively;
• the ability to manage future growth;
• changes in personnel and availability of qualified personnel; and
• other factors set forth in the Company’s periodic filings with the Securities and Exchange Commission.

Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

The Company uses its website and social media channels as channels of distribution of Company information. The information that the Company posts through these channels may be deemed material. Accordingly, the Company encourages investors and others interested in the Company to routinely monitor these channels, in addition to following the Company’s press releases, Securities and Exchange Commission filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section of the Company’s website at http://ir.broadmark.com/resources/email-alerts. The contents of the Company’s website and social media channels are not, however, incorporated by reference into this press release.

About Broadmark Realty Capital

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed commercial real estate finance company that offers short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. Broadmark Realty Capital manages and services its loan portfolio across a variety of market conditions and economic cycles.

BROADMARK REALTY CAPITAL INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
		June 30, 2021				December 31, 2020
Assets
Cash and cash equivalents		$	164,023			$	223,375
Mortgage notes receivable, net			814,454				798,486
Interest and fees receivable, net			12,229				14,357
Investment in real property, net			41,725				8,473
Right-of-use assets			6,209				—
Goodwill			136,965				136,965
Other assets			9,391				5,663
Total assets		$	1,184,996			$	1,187,319
Liabilities and Equity
Accounts payable and accrued liabilities		$	8,542			$	4,946
Lease Liabilities			8,271				—
Dividends payable			9,284				7,952
Total liabilities		$	26,097			$	12,898
Commitments and Contingencies (Note 10)
Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding at June 30, 2021 and December 31, 2020			—				—
Common stock, $0.001 par value, 500,000,000 shares authorized, 132,634,672 and 132,532,383 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively			132				132
Additional Paid in Capital			1,215,513				1,213,987
Accumulated deficit			(56,746	)			(39,698	)
Total equity			1,158,899				1,174,421
Total liabilities and equity		$	1,184,996			$	1,187,319

BROADMARK REALTY CAPITAL INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share data)
		Three Months Ended								Six Months Ended
		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
Revenues
Interest income		$	21,618			$	22,180			$	43,635			$	46,733
Fee income			7,565				6,890				15,016				14,105
Total Revenue		$	29,183			$	29,070			$	58,651			$	60,838
Other Income (Expense):
Change in fair value of warrant liabilities			(3,734	)			(1,458	)			(3,734	)			3,146
Expenses
Impairment:
Provision for credit losses, net			58				4,224				2,766				8,656
Operating expenses:
Compensation and employee benefits			3,669				3,044				7,229				6,237
General and administrative			3,470				4,500				6,289				6,778
Total Expenses			7,197				11,768				16,284				21,671
Income before income taxes			18,252				15,844				38,633				42,313
Income tax provision			—				—				—				—
Net income		$	18,252			$	15,844			$	38,633			$	42,313
Earnings per common share:
Basic		$	0.14			$	0.12			$	0.29			$	0.32
Diluted		$	0.14			$	0.12			$	0.29			$	0.32
Weighted-average shares of common stock outstanding, basic and diluted
Basic			132,585,116				132,165,005				132,567,768				132,120,290
Diluted			132,646,389				132,165,005				132,636,425				132,120,290

BROADMARK REALTY CAPITAL INC.

RECONCILIATION OF NET INCOME TO DISTRIBUTABLE EARNINGS

(in thousands, except for per share amounts)

Definition of Distributable Earnings

The Company has elected to present “distributable earnings,” a supplemental non-GAAP financial measure used by management to evaluate the Company’s operating performance. The Company defines distributable earnings as net income attributable to common stockholders adjusted for: (i) impairment recorded on the Company’s investments; (ii) unrealized gains or losses on the Company’s investments (including provision for credit losses) and warrant liabilities; (iii) non-capitalized transaction-related and new public company transition expenses; (iv) non-cash stock-based compensation; (v) depreciation and amortization of the Company’s intangible assets; and (vi) deferred taxes, which are subject to variability and generally not indicative of future economic performance or representative of current operations.

During the six months ended June 30, 2021 and 2020, provision for credit losses, net was $2.8 and $8.7 million, respectively, which has been excluded from distributable earnings consistent with other unrealized gains (losses) pursuant to the Company’s policy for reporting distributable earnings. The Company expects to recognize such potential credit losses in distributable earnings if and when such amounts are deemed nonrecoverable upon a realization event. This is generally upon charge-off of principal at the time of loan repayment or upon sale of real property owned by the Company and the amount of proceeds is less than the principal outstanding at the time of foreclosure.

Management believes that the adjustments to compute “distributable earnings” specified above allow investors and analysts to readily identify and track the operating performance of the Company’s assets, assist in comparing the operating results between periods, and enable investors to evaluate the Company’s current performance using the same measure that management uses to operate the business. Distributable earnings excludes certain recurring items, such as unrealized gains and losses (including provision for credit losses) and non-capitalized transaction-related expenses, because they are not considered by management to be part of the Company’s primary operations for the reasons described herein. As such, distributable earnings is not intended to reflect all of the Company’s activity and should be considered as only one of the factors used by management in assessing the Company’s performance, along with GAAP net income which is inclusive of all of the Company’s activities.

As a REIT, the Company is required to distribute at least 90% of its annual REIT taxable income and to pay tax at regular corporate rates to the extent that it annually distributes less than 100% of such taxable income. Given these requirements and its belief that dividends are generally one of the principal reasons stockholders invest in its common stock, the Company generally intends to attempt to pay dividends to its stockholders in an amount equal to its net taxable income, if and to the extent authorized by the Company’s board of directors. Distributable earnings is one of many factors considered by the Company’s board of directors in declaring dividends and, while not a direct measure of taxable income, over time, the measure can be considered a useful indicator of the Company’s dividends.

Distributable earnings does not represent, and should not be considered as a substitute for, or superior to, net income or as a substitute for, or superior to, cash flows from operating activities, each as determined in accordance with GAAP, and the Company’s calculation of this measure may not be comparable to similarly entitled measures reported by other companies.

The table below is a reconciliation of distributable earnings to the most directly comparable GAAP financial measure:

		Three Months Ended								Six Months Ended
(dollars in thousands, except share and per share data)		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
Net income attributable to common stockholders		$	18,252			$	15,844			$	38,633			$	42,313
Adjustments for non-distributable earnings:
Stock-based compensation expense			924				967				1,661				1,881
New public company expenses (1)			289				834				953				2,066
Change in fair value of warrant liabilities			3,734				1,458				3,734				(3,146	)
Depreciation and amortization			268				119				431				(785	)
Provision for credit losses, net			58				4,224				2,766				8,656
Distributable earnings prior to realized loss on investments		$	23,525			$	23,446			$	48,178			$	50,985
Realized credit losses (2)			—				(696	)			(1,401	)			(1,233	)
Distributable earnings		$	23,525			$	22,750			$	46,777			$	49,752
Distributable earnings per diluted share of common stock prior to realized loss on investments		$	0.18			$	0.18			$	0.36			$	0.39
Distributable earnings per diluted share of common stock		$	0.18			$	0.17			$	0.35			$	0.38
Weighted-average number of shares of common stock outstanding, basic and diluted
Basic			132,585,116				132,165,005				132,567,768				132,120,290
Diluted			132,646,389				132,165,005				132,636,425				132,120,290

(1)		Expenses directly related to professional fees in connection with our new public company reporting procedures, the design and implementation of internal controls under Section 404 of the Sarbanes-Oxley Act and the implementation of the CECL standard.
(2)		Represents credit losses recorded in the provision for credit losses and recognized in distributable earnings upon charge-off of principal at the time of loan repayment or upon sale of real property where proceeds received are less than the principal outstanding.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005664/en/

Investor Relations

[email protected]

206-623-7782

Media Relations

Jason Chudoba

646-277-1249

KEYWORDS: United States North America Washington

INDUSTRY KEYWORDS: REIT Finance Professional Services Commercial Building & Real Estate Construction & Property

MEDIA:

Posted on August 9, 2021 6:49 pm

i3 Verticals Reports Third Quarter 2021 Financial Results

i3 Verticals Reports Third Quarter 2021 Financial Results

Raises 2021 Outlook

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

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

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

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

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

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

    

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

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

(in thousands, except share and per share amounts)		Three months ended June 30,								Nine months ended June 30,
		2021				2020				2021				2020
Revenue (excludes Acquisition Revenue Adjustments)		$	61,964			$	31,573			$	153,140			$	111,862
Adjusted EBITDA(1) (excludes Acquisition Revenue Adjustments)		$	14,368			$	7,027			$	34,543			$	28,205
Pro forma adjusted net income(1) (excludes Acquisition Revenue Adjustments)		$	8,785			$	3,838			$	21,139			$	15,903
Pro forma adjusted diluted earnings per share(1) (excludes Acquisition Revenue Adjustments)		$	0.26			$	0.13			$	0.64			$	0.56
Acquisition Revenue Adjustments(2)		$	1,254			$	24			$	4,392			$	670
Acquisition Revenue Adjustments impact on pro forma adjusted diluted earnings per share(2)		$	0.03			$	—			$	0.10			$	0.02

_______________________

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

    

Revised 2021 Outlook

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

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

(in thousands, except share and per share amounts)		Previous Outlook Range								Revised Outlook Range
		Fiscal year ending September 30, 2021
Revenue (excludes Acquisition Revenue Adjustments)		$	198,400		–	$	214,400			$	212,000		–	$	222,000
Adjusted EBITDA(1) (excludes Acquisition Revenue Adjustments)		$	46,400		–	$	52,400			$	49,000		–	$	52,500
Pro forma adjusted diluted earnings per share(1)(2) (excludes Acquisition Revenue Adjustments)		$	0.85		–	$	0.95			$	0.90		–	$	0.96
Acquisition revenue adjustments(1)(3)		$	5,600		–	$	5,600			$	5,083		–	$	5,083
Acquisition Revenue Adjustments impact on pro forma adjusted diluted earnings per share(1)(2)(3)		$	0.13		–	$	0.13			$	0.11		–	$	0.11

_______________________

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

With respect to the “Revised 2021 Outlook” above, reconciliation of adjusted net revenue, adjusted EBITDA and pro forma adjusted diluted earnings per share guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliations, including changes in the fair value of contingent consideration, income tax expense of i3 Verticals, Inc. and equity-based compensation expense. The Company expects these adjustments may have a potentially significant impact on future GAAP financial results.

Conference Call

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

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

Non-GAAP Measures

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

Additional information about non-GAAP financial measures, including, but not limited to, adjusted net revenue, pro forma adjusted net income, adjusted EBITDA and pro forma adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included on pages 10 through 13 in the financial schedules of this release.

About i3 Verticals

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

Forward-Looking Statements

This release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this release are forward-looking statements, including any statements regarding the Company’s fiscal 2021 financial outlook and statements of a general economic or industry specific nature. Forward-looking statements give the Company’s current expectations and projections relating to its financial condition, results of operations, guidance, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “could have,” “exceed,” “significantly,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

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

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

i3 Verticals, Inc. Consolidated Statements of Operations
(Unaudited)
($ in thousands, except share and per share amounts)
		Three months ended June 30,													Nine months ended June 30,
		2021					2020					% Change			2021					2020					% Change
Revenue		$	61,964				$	31,573				96	%		$	153,140				$	111,862				37	%
Operating expenses
Other costs of services		16,064					10,001					61	%		41,044					34,874					18	%
Selling, general and administrative		37,296					18,133					106	%		92,769					58,206					59	%
Depreciation and amortization		6,995					4,475					56	%		17,938					13,668					31	%
Change in fair value of contingent consideration		3,609					(1,473		)			n/m			5,835					(1,461		)			n/m
Total operating expenses		63,964					31,136					105	%		157,586					105,287					50	%
(Loss) income from operations		(2,000		)			437					n/m			(4,446		)			6,575					n/m
Other expenses
Interest expense, net		2,704					2,423					12	%		7,092					6,621					7	%
Other expenses (income)		—					829					n/m			(2,353		)			829					n/m
Total other expenses		2,704					3,252					(17	)%		4,739					7,450					(36	)%
(Loss) before income taxes		(4,704		)			(2,815		)			67	%		(9,185		)			(875		)			950	%
Benefit from income taxes		(110		)			(5		)			2,100	%		(416		)			(1,918		)			n/m
Net (loss) income		(4,594		)			(2,810		)			n/m			(8,769		)			1,043					(941	)%
Net (loss) income attributable to non-controlling interest		(1,286		)			(2,454		)			n/m			(3,328		)			811					(510	)%
Net (loss) income attributable to i3 Verticals, Inc.		$	(3,308	)			$	(356	)			829	%		$	(5,441	)			$	232				n/m
Net (loss) income per share available to Class A common stock:
Basic		$	(0.15	)			$	(0.02	)						$	(0.26	)			$	0.02
Diluted		$	(0.15	)			$	(0.02	)						$	(0.26	)			$	0.01
Weighted average shares of Class A common stock outstanding:
Basic		21,926,225					14,858,858								20,658,700					14,515,506
Diluted		21,926,225					14,858,858								20,658,700					15,919,364

n/m = not meaningful

i3 Verticals, Inc. Financial Highlights
(Unaudited)
($ in thousands, except per share amounts)
		Three months ended June 30,											Nine months ended June 30,
		2021				2020				% Change			2021				2020				% Change
Adjusted EBITDA(1) (excludes Acquisition Revenue Adjustments)		$	14,368			$	7,027			104	%		$	34,543			$	28,205			22	%
Pro forma adjusted diluted earnings per share(1) (excludes Acquisition Revenue Adjustments)		$	0.26			$	0.13			100	%		$	0.64			$	0.56			14	%
Acquisition Revenue Adjustments(2)		$	1,254			$	24						$	4,392			$	670
Acquisition Revenue Adjustments impact on pro forma adjusted diluted earnings per share(2)		$	0.03			$	—						$	0.10			$	0.02

__________________________

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

i3 Verticals, Inc. Supplemental Volume Information
(Unaudited)
($ in thousands)
		Three months ended June 30,								Nine months ended June 30,
		2021				2020				2021				2020
Payment volume(1)		$	5,136,285			$	2,980,702			$	13,200,017			$	10,397,555

__________________________

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

i3 Verticals, Inc. Segment Summary
(Unaudited)
($ in thousands)
		For the Three Months Ended June 30, 2021
		Merchant Services				Proprietary Software and Payments				Other				Total
Revenue		$	29,912			$	32,615			$	(563	)		$	61,964
Other costs of services		(14,206		)		(2,397		)		539				(16,064		)
Residuals		8,374				273				(519		)		8,128
		$	24,080			$	30,491			$	(543	)		$	54,028
Residuals														(8,128		)
Selling general and administrative														(37,296		)
Depreciation and amortization														(6,995		)
Change in fair value of contingent consideration														(3,609		)
Income (loss) from operations														$	(2,000	)
Payment volume		$	4,761,350			$	374,935			$	—			$	5,136,285

		For the Nine Months Ended June 30, 2021
		Merchant Services				Proprietary Software and Payments				Other				Total
Revenue		$	80,874			$	73,940			$	(1,674	)		$	153,140
Other costs of services		(36,829		)		(5,864		)		1,649				(41,044		)
Residuals		21,219				817				(1,612		)		20,424
		$	65,264			$	68,893			$	(1,637	)		$	132,520
Residuals														(20,424		)
Selling general and administrative														(92,769		)
Depreciation and amortization														(17,938		)
Change in fair value of contingent consideration														(5,835		)
Loss from operations														$	(4,446	)
Payment volume		$	12,160,134			$	1,039,883			$	—			$	13,200,017

		For the Three Months Ended June 30, 2020(1)
		Merchant Services				Proprietary Software and Payments				Other				Total
Revenue		$	22,222			$	9,767			$	(416	)		$	31,573
Other costs of services		(9,448		)		(969		)		416				(10,001		)
Residuals		4,690				103				(413		)		4,380
		$	17,464			$	8,901			$	(413	)		$	25,952
Residuals														(4,380		)
Selling general and administrative														(18,133		)
Depreciation and amortization														(4,475		)
Change in fair value of contingent consideration														1,473
Income from operations														$	437
Payment volume		$	2,909,731			$	70,971			$	—			$	2,980,702

________

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

		For the Nine Months Ended June 30, 2020(1)
		Merchant Services				Proprietary Software and Payments				Other				Total
Revenue		$	76,190			$	37,029			$	(1,357	)		$	111,862
Other costs of services		(32,978		)		(3,252		)		1,356				(34,874		)
Residuals		15,788				413				(1,347		)		14,854
		$	59,000			$	34,190			$	(1,348	)		$	91,842
Residuals														(14,854		)
Selling general and administrative														(58,206		)
Depreciation and amortization														(13,668		)
Change in fair value of contingent consideration														1,461
Income from operations														$	6,575
Payment volume		$	9,938,497			$	459,058			$	—			$	10,397,555

________

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

    

i3 Verticals, Inc. Consolidated Balance Sheets
($ in thousands, except share and per share amounts)
		June 30,				September 30,
		2021				2020
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	4,653			$	15,568
Accounts receivable, net		27,684				17,538
Settlement assets		4,963				—
Prepaid expenses and other current assets		10,755				4,869
Total current assets		48,055				37,975
Property and equipment, net		5,971				5,339
Restricted cash		10,602				5,033
Capitalized software, net		41,387				16,989
Goodwill		284,251				187,005
Intangible assets, net		178,881				109,233
Deferred tax asset		51,247				36,755
Operating lease right-of-use assets		14,483				—
Other assets		8,495				5,197
Total assets		$	643,372			$	403,526
Liabilities and equity
Liabilities
Current liabilities
Accounts payable		$	6,415			$	3,845
Accrued expenses and other current liabilities		44,675				24,064
Settlement obligations		4,963				—
Deferred revenue		20,118				10,986
Current portion of operating lease liabilities		3,185				—
Total current liabilities		79,356				38,895
Long-term debt, less current portion and debt issuance costs, net		212,644				90,758
Long-term tax receivable agreement obligations		39,626				27,565
Operating lease liabilities, less current portion		11,948				—
Other long-term liabilities		17,670				6,140
Total liabilities		361,244				163,358
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 June 30, 2021 and September 30, 2020		—				—
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 21,960,059 and 18,864,143 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively		2				2
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,229,142 and 11,900,621 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively		1				1
Additional paid-in capital		207,697				157,598
Accumulated (deficit) earnings		(7,463		)		(2,023		)
Total stockholders’ equity		200,237				155,578
Non-controlling interest		81,891				84,590
Total equity		282,128				240,168
Total liabilities and equity		$	643,372			$	403,526

i3 Verticals, Inc. Consolidated Cash Flow Data
(Unaudited)
($ in thousands)
		Nine months ended June 30,
		2021				2020
Net cash provided by operating activities		$	36,081			$	10,087
Net cash used in investing activities		$	(156,946	)		$	(5,744	)
Net cash provided by financing activities		$	115,519			$	3,143

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, i3 Verticals includes non-GAAP financial measures when reporting its financial results to stockholders and potential investors in order to provide them with an additional tool to evaluate the Company’s ongoing business operations. i3 Verticals believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of i3 Verticals’ 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. i3 Verticals 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 stockholders and potential investors an opportunity to see i3 Verticals as viewed by management, to assess i3 Verticals with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. i3 Verticals 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 June 30,								Nine months ended June 30,
		2021				2020				2021				2020
Net (loss) income attributable to i3 Verticals, Inc.		$	(3,308	)		$	(356	)		$	(5,441	)		$	232
Net (loss) income attributable to non-controlling interest		(1,286		)		(2,454		)		(3,328		)		811
Non-GAAP adjustments:
Benefit from income taxes		(110		)		(5		)		(416		)		(1,918		)
Financing-related expenses(1)		36				22				152				243
Non-cash change in fair value of contingent consideration(2)		3,609				(1,473		)		5,835				(1,461		)
Equity-based compensation(3)		5,111				2,816				12,694				7,450
Acquisition-related expenses(4)		535				458				2,065				1,303
Acquisition intangible amortization(5)		5,673				3,552				14,617				10,873
Non-cash interest expense(6)		1,372				1,436				4,056				2,415
Other taxes(7)		82				54				305				189
Gain on investment(8)		—				—				(2,353		)		—
Non-cash loss on Exchangeable Note repurchases(9)		—				828				—				828
COVID-19 related expenses(10)		—				239				—				239
Non-GAAP pro forma adjusted income before taxes		11,714				5,117				28,186				21,204
Pro forma taxes at effective tax rate(11)		(2,929		)		(1,279		)		(7,047		)		(5,301		)
Pro forma adjusted net income(12) (excludes Acquisition Revenue Adjustments)		$	8,785			$	3,838			$	21,139			$	15,903
Cash interest expense, net(13)		1,332				987				3,036				4,206
Pro forma taxes at effective tax rate(11)		2,929				1,279				7,047				5,301
Depreciation, non-acquired intangible asset amortization and internally developed software amortization(14)		1,322				923				3,321				2,795
Adjusted EBITDA(15) (excludes Acquisition Revenue Adjustments)		$	14,368			$	7,027			$	34,543			$	28,205
Acquisition Revenue Adjustments(15)		1,254				24				4,392				670

________

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 consisted of $5,111 related to stock options issued under the Company’s 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $2,816 related to stock options issued under the Company’s 2018 Equity Incentive Plan during the three months ended June 30, 2021 and 2020, respectively. Equity-based compensation expense consisted of $12,694 related to stock options issued under the Company’s 2018 Equity Incentive Plan and 2020 Acquisition Equity Incentive Plan and $7,450 related to stock options issued under the Company’s 2018 Equity Incentive Plan during the nine months ended June 30, 2021 and 2020, respectively.
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, employer payroll taxes related to stock exercises and other non-income based taxes. Taxes related to salaries are not included.
8. In March 2021, the Company became aware of an observable price change in an investment due to a planned third party acquisition of the entity underlying the investment. This resulted in an increase of $2,353 to the fair value of the investment at March 31, 2021, which the Company recognized in other income.
9. Non-cash loss on Exchangeable Note repurchases reflects the loss on retirement of debt the Company recorded during the relevant periods due to the carrying value exceeding the fair value of the repurchased portion of the 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) at the dates of repurchases.
10. COVID-19 related expenses reflects incremental expenses incurred as a result of the COVID-19 pandemic, including employee severance expenses and legal expenses.
11. Pro forma corporate income tax expense is based on Non-GAAP adjusted income before taxes and is calculated using a tax rate of 25.0% for both 2021 and 2020, based on blended federal and state tax rates.
12. Pro forma adjusted net income assumes that all net income during that period was available to the holders of the Company’s Class A common stock.
13. 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.
14. 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.
15. Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. In previous quarterly earnings reports we have included in our pro forma adjusted net income and adjusted EBITDA an acquisition revenue adjustment to remove the effect of purchase accounting write-downs of deferred revenue from acquisitions that have closed as of the date of the earnings release. We have also historically included an estimated amount, excluding future acquisitions, in our guidance for adjusted EBITDA. As part of the ordinary course SEC comment process, however, we are no longer adjusting EBITDA to remove the effect of Acquisition Revenue Adjustments. We have presented the excluded adjustment separately for informational purposes.

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 June 30,								Nine months ended June 30,
		2021				2020				2021				2020
Diluted net (loss) income available to Class A common stock per share		$	(0.15	)		$	(0.02	)		$	(0.26	)		$	0.01
Pro forma adjusted diluted earnings per share(1)(2) (excludes Acquisition Revenue Adjustments)		$	0.26			$	0.13			$	0.64			$	0.56
Pro forma adjusted net income(2)(3) (excludes Acquisition Revenue Adjustments)		$	8,785			$	3,838			$	21,139			$	15,903
Pro forma weighted average shares of adjusted diluted Class A common stock outstanding(4)			33,837,090				28,584,444				33,084,261				28,618,703
Acquisition Revenue Adjustments impact on pro forma adjusted diluted earnings per share(2)		$	0.03			$	—			$	0.10			$	0.02

__________

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. Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. In previous quarterly earnings reports we have included in our pro forma adjusted net income and pro forma adjusted diluted EPS an acquisition revenue adjustment to remove the effect of purchase accounting write-downs of deferred revenue from acquisitions that have closed as of the date of the earnings release. We have also historically included an estimated amount, excluding future acquisitions, in our guidance for pro forma adjusted diluted EPS. As part of the ordinary course SEC comment process, however, we are no longer adjusting pro forma diluted EPS to remove the effect of Acquisition Revenue Adjustments. We have presented the impact of the excluded adjustment on our pro forma adjusted diluted EPS separately for informational purposes.
3. Pro forma adjusted net income, which excludes Acquisition Revenue Adjustments, 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.
4. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,229,142 and 12,404,368 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,681,723 and 1,321,218 shares of unvested Class A common stock and options for the three months ended June 30, 2021 and 2020, respectively. Pro forma weighted average shares of adjusted diluted Class A common stock outstanding include 10,884,874 and 12,699,339 outstanding shares of Class A common stock issuable upon the exchange of Common Units in i3 Verticals, LLC and 1,540,687 and 1,403,858 shares of unvested Class A common stock and options for the nine months ended June 30, 2021 and 2020, respectively.

i3 Verticals, Inc. GAAP Revenue and Acquisition Revenue Adjustments
(Unaudited)
($ in thousands)
		Three months ended June 30,								Nine months ended June 30,
		2021				2020				2021				2020
Revenue(1) (excludes Acquisition Revenue Adjustments)		$	61,964			$	31,573			$	153,140			$	111,862
Acquisition revenue adjustments(1)		$	1,254			$	24			$	4,392			$	670

__________

1. Under GAAP, companies must adjust, as necessary, beginning balances of acquired deferred revenue to fair value as part of acquisition accounting as defined by GAAP. In previous quarterly earnings reports we have included in our adjusted net revenue an acquisition revenue adjustment to remove the effect of purchase accounting write-downs of deferred revenue from acquisitions that have closed as of the date of the earnings release. We have also historically included an estimated amount, excluding future acquisitions, in our guidance for adjusted net revenue. As part of the ordinary course SEC comment process, however, we are no longer adjusting net revenue to remove the effect of Acquisition Revenue Adjustments. We have presented the excluded adjustment separately for informational purposes.

 

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Clay Whitson

Chief Financial Officer

(888) 251-0987

[email protected]

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