2017 Q3 Form 10-K Financial Statement

#000172868818000027 Filed on December 07, 2018

View on sec.gov

Income Statement

Concept 2017 Q3 2017 Q2 2017 Q1
Revenue $71.78M $66.33M $62.14M
YoY Change
Cost Of Revenue $59.40M $48.56M
YoY Change
Gross Profit $12.30M $13.69M
YoY Change
Gross Profit Margin 17.14% 20.65%
Selling, General & Admin $8.000M $6.229M
YoY Change
% of Gross Profit 65.04% 45.49%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $2.640M $2.382M $5.070M
YoY Change
% of Gross Profit 21.46% 17.39%
Operating Expenses $10.30M $6.229M
YoY Change
Operating Profit $2.078M $2.717M $1.709M
YoY Change
Interest Expense -$2.000M -$1.700M
YoY Change
% of Operating Profit -96.25% -62.57%
Other Income/Expense, Net $400.0K -$1.659M
YoY Change
Pretax Income $460.0K $1.058M $58.00K
YoY Change
Income Tax $100.0K $171.0K
% Of Pretax Income 21.74% 16.16%
Net Earnings $384.0K $887.0K $48.00K
YoY Change
Net Earnings / Revenue 0.53% 1.34% 0.08%
Basic Earnings Per Share
Diluted Earnings Per Share $15.63K
COMMON SHARES
Basic Shares Outstanding
Diluted Shares Outstanding

Balance Sheet

Concept 2017 Q3 2017 Q2 2017 Q1
SHORT-TERM ASSETS
Cash & Short-Term Investments $1.000M
YoY Change
Cash & Equivalents $955.0K $552.0K
Short-Term Investments
Other Short-Term Assets $6.300M
YoY Change
Inventory $930.0K
Prepaid Expenses
Receivables $8.412M
Other Receivables $0.00
Total Short-Term Assets $15.70M
YoY Change
LONG-TERM ASSETS
Property, Plant & Equipment $1.420M
YoY Change
Goodwill $58.52M $39.21M
YoY Change 66.92%
Intangibles $59.26M
YoY Change
Long-Term Investments
YoY Change
Other Assets $300.0K
YoY Change
Total Long-Term Assets $124.3M
YoY Change
TOTAL ASSETS
Total Short-Term Assets $15.70M
Total Long-Term Assets $124.3M
Total Assets $140.0M $95.51M
YoY Change 39.6%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $1.600M
YoY Change
Accrued Expenses $6.706M
YoY Change
Deferred Revenue
YoY Change
Short-Term Debt $0.00
YoY Change
Long-Term Debt Due $4.000M
YoY Change
Total Short-Term Liabilities $20.22M
YoY Change
LONG-TERM LIABILITIES
Long-Term Debt $106.8M
YoY Change
Other Long-Term Liabilities $2.065M
YoY Change
Total Long-Term Liabilities $108.9M
YoY Change
TOTAL LIABILITIES
Total Short-Term Liabilities $20.22M
Total Long-Term Liabilities $108.9M
Total Liabilities $129.1M
YoY Change
SHAREHOLDERS EQUITY
Retained Earnings -$33.02M
YoY Change
Common Stock
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $10.90M
YoY Change
Total Liabilities & Shareholders Equity $140.0M
YoY Change

Cashflow Statement

Concept 2017 Q3 2017 Q2 2017 Q1
OPERATING ACTIVITIES
Net Income $384.0K $887.0K $48.00K
YoY Change
Depreciation, Depletion And Amortization $2.640M $2.382M $5.070M
YoY Change
Cash From Operating Activities $1.790M $2.010M $3.930M
YoY Change
INVESTING ACTIVITIES
Capital Expenditures -$770.0K -$450.0K -$880.0K
YoY Change
Acquisitions
YoY Change
Other Investing Activities -$39.43M -$1.240M -$5.140M
YoY Change
Cash From Investing Activities -$40.19M -$1.690M -$6.020M
YoY Change
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities 38.80M 60.00K -1.510M
YoY Change
NET CHANGE
Cash From Operating Activities 1.790M 2.010M 3.930M
Cash From Investing Activities -40.19M -1.690M -6.020M
Cash From Financing Activities 38.80M 60.00K -1.510M
Net Change In Cash 400.0K 380.0K -3.600M
YoY Change
FREE CASH FLOW
Cash From Operating Activities $1.790M $2.010M $3.930M
Capital Expenditures -$770.0K -$450.0K -$880.0K
Free Cash Flow $2.560M $2.460M $4.810M
YoY Change

Facts In Submission

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ORGANIZATION AND OPERATIONS<div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">i3 Verticals, Inc. (the “Company”) was formed as a Delaware corporation on January 17, 2018. The Company was formed for the purpose of completing an initial public offering (“IPO”) of its Class A common stock and other related transactions in order to carry on the business of i3 Verticals, LLC and its subsidiaries. i3 Verticals, LLC was founded in 2012 and delivers seamlessly integrated payment and software solutions to small- and medium-sized businesses (“SMBs”) and organizations in strategic vertical markets. The Company’s headquarters are in Nashville, Tennessee, with operations throughout the United States. Unless the context otherwise requires, references to “we,” “us,” “our,” “i3 Verticals” and the “Company” refer to i3 Verticals, Inc. and its subsidiaries, including i3 Verticals, LLC.</span></div><div style="margin-bottom:4pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;font-weight:700;line-height:120%;">Initial Public Offering</span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">On June 25, 2018, the Company completed the IPO of 7,647,500 shares of its Class A common stock at a public offering price of $13.00 per share. The Company received approximately $92.5 million of net proceeds, after deducting underwriting discounts and commissions, which the Company used to purchase newly issued common units from i3 Verticals, LLC (the “Common Units”), and Common Units from a selling Common Unit holder, in each case at a price per Common Unit equal to the price per share paid by the underwriters for shares of the Company's Class A common stock in the IPO. </span></div><div style="margin-bottom:4pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;font-weight:700;line-height:120%;">Reorganization Transactions</span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">In connection with the IPO, the Company completed the following transactions (the “Reorganization Transactions”):</span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">i3 Verticals, LLC amended and restated its existing limited liability company agreement to, among other things, </span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">(1) convert all existing Class A units, common units (including common units issued upon the exercise of existing warrants) and Class P units of ownership interest in i3 Verticals, LLC into either Class A voting common units of i3 Verticals, LLC (such holders of Class A voting common units referred to herein as the “Continuing Equity Owners”) or Class B non-voting common units of i3 Verticals, LLC (such holders of Class B non-voting common units referred to herein as the “Former Equity Owners”), and (2) appoint i3 Verticals, Inc. as the sole managing member of i3 Verticals, LLC upon its acquisition of Common Units in connection with the IPO;</span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">the Company amended and restated its certificate of incorporation to provide for, among other things, Class A common stock and Class B common stock;</span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">i3 Verticals, LLC and the Company consummated a merger among i3 Verticals, LLC, i3 Verticals, Inc. and a newly formed wholly-owned subsidiary of i3 Verticals, Inc. (“MergerSub”) whereby: (1) MergerSub merged with and into i3 Verticals, LLC, with i3 Verticals, LLC as the surviving entity; (2) Class A voting common units converted into newly issued Common Units in i3 Verticals, LLC together with an equal number of shares of Class B common stock of i3 Verticals, Inc., and (3) Class B non-voting common units converted into Class A common stock of i3 Verticals, Inc. based on a conversion ratio that provided an equitable adjustment to reflect the full value of the Class B non-voting common units; and</span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">the Company issued shares of its Class A common stock pursuant to a voluntary private conversion of certain subordinated notes (the “Junior Subordinated Notes”) by certain related and unrelated creditors of i3 Verticals, LLC.</span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">Following the completion of the IPO and Reorganization Transactions, the Company became a holding company and its principal asset is the Common Units in i3 Verticals, LLC that it owns. i3 Verticals, Inc. operates and controls all of i3 Verticals, LLC's operations and, through i3 Verticals, LLC and its subsidiaries, conducts i3 Verticals, LLC's business. i3 Verticals, Inc. has a minority economic interest in i3 Verticals, LLC. </span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">As of </span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">September 30, 2018, i3 Verticals, Inc. owned 34.6% of the economic interest in i3 Verticals, LLC. </span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">As of </span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">September 30, 2018, the Continuing Equity Owners owned Common Units in i3 Verticals, LLC representing approximately 65.4% of the economic interest in i3 Verticals, LLC, shares of Class A common stock in the Company representing approximately 0.9% of the economic interest and voting power in the Company, and shares of Class B common stock in i3 Verticals, Inc., representing approximately 65.4% of the voting power in the Company. </span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">The Continuing Equity Owners who own Common Units in i3 Verticals, LLC may redeem at each of their options (subject in certain circumstances to time-based vesting requirements) their Common Units for, at the election of i3 Verticals, LLC, cash or newly-issued shares of the Company's Class A common stock. </span></div><div style="text-indent:-18pt;padding-left:36pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">•</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;padding-left:15.37pt;">Combining the Class A common stock and Class B common stock, the Continuing Equity Holders hold approximately </span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">66.3% of the economic interest and voting power in i3 Verticals, Inc. </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">i3 Verticals, Inc. is the sole managing member of i3 Verticals, LLC and as a result, consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest representing the Common Units of i3 Verticals, LLC held by the Continuing Equity Owners. </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">As the Reorganization Transactions are considered transactions between entities under common control, the financial statements retroactively reflect the accounts of i3 Verticals, LLC for periods prior to the IPO and Reorganization Transactions.</span></div>
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<div style="margin-top:6pt;margin-bottom:4pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;font-weight:700;line-height:120%;">Use of Estimates </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the value of purchase consideration paid and identifiable assets acquired and assumed in acquisitions, goodwill and intangible asset impairment review, warrant valuation, revenue recognition for multiple element arrangements, loss reserves, assumptions used in the calculation of equity-based compensation and in the calculation of income taxes, and certain tax assets and liabilities as well as the related valuation allowances. Actual results could differ from those estimates. </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">Below is a summary of the Company’s critical accounting estimates for which the nature of management’s assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain</span></div><div style="margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;"> matters or the susceptibility of such matters to change, and for which the impact of the estimates and assumptions on financial condition or operating performance is material.</span></div><div style="text-indent:18pt;margin-top:6pt;margin-bottom:4pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;font-style:italic;font-weight:700;line-height:120%;">Contingent Consideration in Acquisitions</span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">On occasion, the Company may have acquisitions that include contingent consideration. Accounting for business combinations requires the Company to estimate the fair value of any contingent purchase consideration at the acquisition date. Where relevant, the fair value of contingent consideration included in an acquisition is calculated using a Monte Carlo simulation. </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">The contingent consideration is revalued each period until it is settled. Management reviews the historical and projected performance of each acquisition with contingent consideration and uses an income probability method to revalue the contingent consideration. The revaluation requires management to make certain assumptions and represent management's best estimate at the valuation date. The probabilities are determined based on a management review of the expected likelihood of triggering events that would cause a change in the contingent consideration paid.</span></div><div style="text-indent:18pt;margin-top:6pt;margin-bottom:4pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;font-style:italic;font-weight:700;line-height:120%;">Goodwill</span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">The Company tests goodwill for impairment using a fair value approach at least annually, absent some triggering event that would require an interim impairment assessment. Absent any impairment indicators, the Company performs its goodwill impairment testing as of July 1 each year. </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">Significant estimates and assumptions are used in the Company’s goodwill impairment review and include the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit. The Company’s assessment of qualitative factors involves significant judgments about expected future business performance and general market conditions. In a quantitative assessment, the fair value of each reporting unit is determined based on a combination of techniques, including the present value of future cash flows, applicable multiples of competitors and multiples from sales of like businesses, and requires management to make estimates and assumptions regarding discount rates, growth rates and the Company's future long-term business plans. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment charge for each reporting unit.</span></div><div style="text-indent:18pt;margin-top:6pt;margin-bottom:4pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;font-style:italic;font-weight:700;line-height:120%;">Warrant Valuation</span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">As of September 30, 2017, there were in the aggregate 1,423,688 of warrants (the “Mezzanine Warrants”) outstanding and exercisable to purchase common units in i3 Verticals, LLC related to the issuance of the Mezzanine Notes. The Mezzanine Warrants were mandatorily redeemable and embody a conditional obligation to redeem the instrument by a transfer of assets. The Mezzanine Warrants were remeasured at each reporting date through the settlement of the instrument and changes in value were reflected in earnings. </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">The Company used the Black-Scholes option pricing model to determine the fair market value of the Mezzanine Warrants at each reporting period. The option pricing model required the input of highly subjective assumptions, including the estimated enterprise value of the Company, expected term of the warrants, expected volatility, risk-free interest rates and discount for lack of marketability. To determine the fair value of the Mezzanine Warrants, the Company engaged an outside consultant to prepare a valuation of the unit price at each reporting date, using information provided by management and information obtained from private and public sources. </span></div><div style="text-indent:18pt;margin-bottom:12pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:Arial;font-size:10pt;line-height:120%;">The Company used an expected volatility based on the historical volatilities of a group of guideline companies and estimated a liquidity event in June 2018 to determine the term of the warrants. The risk-free interest rates were obtained from publicly available U.S. Treasury yield curve rates. The discount for lack of marketability, if any, was determined using the Finnerty Model. </span></div>Based on the Company’s analysis, the most highly sensitive input in the Company's option pricing model related to management’s forecasted earnings. For example, if management’s forecasted earnings increased, the Company would have recorded additional losses from the change in fair value of warrant liability. Conversely, if management’s forecasted earnings decreased, the Company would have recorded a gain from change in fair value of warrant liability. Other inputs such as expected volatility and the risk free interest rate had a less material impact of the valuation of the warrant liability.
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1008000 USD
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350000 USD
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4000 USD
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4908000 USD
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2065000 USD
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CY2017 us-gaap Deferred Federal Income Tax Expense Benefit
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CY2016 us-gaap Deferred Federal Income Tax Expense Benefit
DeferredFederalIncomeTaxExpenseBenefit
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CY2016 us-gaap Deferred Federal Income Tax Expense Benefit
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CY2017 us-gaap Deferred State And Local Income Tax Expense Benefit
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CY2016 us-gaap Deferred State And Local Income Tax Expense Benefit
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IncomeTaxExpenseBenefit
177000 USD
CY2016 us-gaap Income Tax Expense Benefit
IncomeTaxExpenseBenefit
243000 USD
CY2016 us-gaap Income Tax Expense Benefit
IncomeTaxExpenseBenefit
243000 USD
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370000 USD
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0.343
CY2016 us-gaap Income Tax Reconciliation Income Tax Expense Benefit At Federal Statutory Income Tax Rate
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-629000 USD
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0.340
CY2018 us-gaap Income Tax Reconciliation Tax Exempt Income
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294000 USD
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-0.064
CY2017 us-gaap Income Tax Reconciliation Tax Exempt Income
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-1352000 USD
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-1.253
CY2016 us-gaap Income Tax Reconciliation Tax Exempt Income
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-3103000 USD
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1.677
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965000 USD
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-0.209
CY2017 iiiv Effective Income Tax Rate Reconciliation Valuation Allowance Amount
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CY2017 iiiv Effective Income Tax Rate Reconciliation Valuation Allowance Percent
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299412 shares

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