SEC Form 10-Q filed by Red Violet Inc.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38407

 

RED VIOLET, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		82-2408531
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

2650 North Military Trail, Suite 300, Boca Raton, Florida 33431

(Address of Principal Executive Offices) (Zip Code)

(561) 757-4000

(Registrant’s Telephone Number, Including Area Code)

None

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	RDVT	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☐	Accelerated filer		☐
Non-accelerated filer		☒	Smaller reporting company		☒
			Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of May 6, 2024, the registrant had 13,730,543 shares of common stock outstanding.

 

 

 

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RED VIOLET, INC.

TABLE OF CONTENTS FOR FORM 10-Q

				Page
PART I - FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)
		Condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023		1
		Condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023		2
		Condensed consolidated statements of changes in shareholders' equity for the three months ended March 31, 2024 and 2023		3
		Condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023		4
		Notes to condensed consolidated financial statements		5
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		17
Item 4.		Controls and Procedures		17
PART II - OTHER INFORMATION
Item 1.		Legal Proceedings		19
Item 1A.		Risk Factors		19
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3.		Defaults Upon Senior Securities		19
Item 4.		Mine Safety Disclosures		20
Item 5.		Other Information		20
Item 6.		Exhibits		20
SIGNATURES				21

 

 

 

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PART I - FINANCIAL INFORMATION

Unless otherwise indicated or required by the context, all references in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “red violet,” or the “Company,” refer to Red Violet, Inc. and its consolidated subsidiaries.

Item 1. Financial Statements.

 

RED VIOLET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(unaudited)

 

		March 31, 2024				December 31, 2023
ASSETS:
Current assets:
Cash and cash equivalents		$	32,147			$	32,032
Accounts receivable, net of allowance for doubtful accounts of $212 and $159 as of   March 31, 2024 and December 31, 2023, respectively			7,871				7,135
Prepaid expenses and other current assets			1,491				1,113
Total current assets			41,509				40,280
Property and equipment, net			601				592
Intangible assets, net			34,962				34,403
Goodwill			5,227				5,227
Right-of-use assets			2,323				2,457
Deferred tax assets			9,043				9,514
Other noncurrent assets			361				517
Total assets		$	94,026			$	92,990
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable		$	2,353			$	1,631
Accrued expenses and other current liabilities			4,741				1,989
Current portion of operating lease liabilities			588				569
Deferred revenue			652				690
Total current liabilities			8,334				4,879
Noncurrent operating lease liabilities			1,845				1,999
Total liabilities			10,179				6,878
Shareholders' equity:
Preferred stock—$0.001 par value, 10,000,000 shares authorized, and 0 shares   issued and outstanding, as of March 31, 2024 and December 31, 2023			-				-
Common stock—$0.001 par value, 200,000,000 shares authorized, 13,942,164 and   13,980,274 shares issued, and 13,740,164 and 13,970,846 shares outstanding, as of   March 31, 2024 and December 31, 2023			14				14
Treasury stock, at cost, 202,000 and 9,428 shares as of March 31, 2024 and   December 31, 2023			(4,143	)			(188	)
Additional paid-in capital			94,065				94,159
Accumulated deficit			(6,089	)			(7,873	)
Total shareholders' equity			83,847				86,112
Total liabilities and shareholders' equity		$	94,026			$	92,990

 

See notes to condensed consolidated financial statements.

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RED VIOLET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share data)

(unaudited)

 

		Three Months Ended March 31,
		2024				2023
Revenue		$	17,511			$	14,626
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization)			3,756				3,179
Sales and marketing expenses			3,712				3,889
General and administrative expenses			5,790				5,241
Depreciation and amortization			2,270				1,916
Total costs and expenses			15,528				14,225
Income from operations			1,983				401
Interest income, net			365				286
Income before income taxes			2,348				687
Income tax expense (benefit)			564				(29	)
Net income		$	1,784			$	716
Earnings per share:
Basic		$	0.13			$	0.05
Diluted		$	0.13			$	0.05
Weighted average shares outstanding:
Basic			13,997,064				13,997,154
Diluted			14,164,506				14,236,771

 

See notes to condensed consolidated financial statements.

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RED VIOLET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(unaudited)

 

		Common stock								Treasury stock								Additional paid-in				Accumulated
		Shares				Amount				Shares				Amount				capital				deficit				Total
Balance at December 31, 2022			13,956,404			$	14				-			$	-			$	92,481			$	(21,402	)		$	71,093
Vesting of restricted stock units			6,800				-				-				-				-				-				-
Increase in treasury stock resulting   from shares withheld to cover   statutory taxes			-				-				(1,561	)			(31	)			-				-				(31	)
Common stock repurchased			-				-				(10,937	)			(201	)			-				-				(201	)
Retirement of treasury stock			(1,561	)			-				1,561				31				(31	)			-				-
Share-based compensation			-				-				-				-				1,843				-				1,843
Net income			-				-				-				-				-				716				716
Balance at March 31, 2023			13,961,643			$	14				(10,937	)		$	(201	)		$	94,293			$	(20,686	)		$	73,420
Balance at December 31, 2023			13,980,274			$	14				(9,428	)		$	(188	)		$	94,159			$	(7,873	)		$	86,112
Vesting of restricted stock units			67,125				-				-				-				-				-				-
Increase in treasury stock resulting   from shares withheld to cover   statutory taxes			-				-				(20,867	)			(383	)			-				-				(383	)
Common stock repurchased			-				-				(276,940	)			(5,514	)			-				-				(5,514	)
Retirement of treasury stock			(105,235	)			-				105,235				1,942				(1,942	)			-				-
Share-based compensation			-				-				-				-				1,848				-				1,848
Net income			-				-				-				-				-				1,784				1,784
Balance at March 31, 2024			13,942,164			$	14				(202,000	)		$	(4,143	)		$	94,065			$	(6,089	)		$	83,847

 

See notes to condensed consolidated financial statements.

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RED VIOLET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)

 

		Three Months Ended March 31,
		2024				2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,784			$	716
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,270				1,916
Share-based compensation expense			1,402				1,384
Write-off of long-lived assets			-				3
Provision for bad debts			70				668
Noncash lease expenses			134				145
Deferred income tax expense (benefit)			471				(30	)
Changes in assets and liabilities:
Accounts receivable			(806	)			(1,022	)
Prepaid expenses and other current assets			(378	)			(539	)
Other noncurrent assets			156				(293	)
Accounts payable			722				116
Accrued expenses and other current liabilities			(1,347	)			(1,460	)
Deferred revenue			(38	)			93
Operating lease liabilities			(135	)			(166	)
Net cash provided by operating activities			4,305				1,531
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(65	)			(44	)
Capitalized costs included in intangible assets			(2,327	)			(2,273	)
Net cash used in investing activities			(2,392	)			(2,317	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Taxes paid related to net share settlement of vesting of restricted stock units			(383	)			(31	)
Repurchases of common stock			(1,415	)			(175	)
Net cash used in financing activities			(1,798	)			(206	)
Net increase (decrease) in cash and cash equivalents		$	115			$	(992	)
Cash and cash equivalents at beginning of period			32,032				31,810
Cash and cash equivalents at end of period		$	32,147			$	30,818
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	1
Share-based compensation capitalized in intangible assets		$	446			$	459
Retirement of treasury stock		$	1,942			$	31

 

See notes to condensed consolidated financial statements.

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RED VIOLET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share data)

(unaudited)

 

 

 

 

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”). This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends, or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those contained in this Form 10-Q, as well as the disclosures made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed on March 7, 2024 (“Form 10-K”), and other filings we make with the Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to update forward-looking statements, except as required by law. We intend that all forward-looking statements be subject to the safe harbor provisions of PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

References in this discussion and analysis to “we,” “us,” “our,” “red violet,” or the “Company,” refer to Red Violet, Inc. and its consolidated subsidiaries.

Overview

Red Violet, Inc., a Delaware corporation, is dedicated to making the world a safer place and reducing the cost of doing business. We build proprietary technologies and apply analytical capabilities to deliver identity intelligence. Our technology powers critical solutions, which empower organizations to operate with confidence. Our solutions enable the real-time identification and location of people, businesses, assets, and their interrelationships. These solutions are used for purposes including risk mitigation, due diligence, fraud detection and prevention, regulatory compliance, and customer acquisition. Our AI/ML-driven identity intelligence platform, CORETM, is purpose-built for the enterprise, yet flexible enough for organizations of all sizes, bringing clarity to massive datasets by transforming data into intelligence. We drive workflow efficiency and enable organizations to make better data-driven decisions.

Organizations are challenged by the structure, volume, and disparity of data. Our platform and applications transform the way our customers interact with information, presenting connections and relevance of information otherwise unattainable, which drives actionable insights and better outcomes. Leveraging cloud-native proprietary technology and applying machine learning and advanced analytical capabilities, CORE provides essential solutions to public and private sector organizations through intuitive, easy-to-use analytical interfaces. With massive data assets consisting of public record, proprietary, and publicly-available data, our differentiated information and innovative platform and solutions deliver identity intelligence – entities, relationships, affiliations, interactions, and events. Our solutions are used today to enable frictionless commerce, to ensure safety, and to reduce fraud and the concomitant expense borne by society.

While our platform powers a vast array of solutions for our customers, we presently market our solutions primarily through two brands, IDI™ and FOREWARN®. IDI is a leading-edge, analytics and information solutions provider delivering actionable intelligence to the an expansive and diverse set of industries in support of use cases such as the verification and authentication of consumer identities, due diligence, prevention of fraud and abuse, legislative compliance, and debt recovery. idiCORE™ is IDI's flagship product. idiCORE is a next-generation, investigative solution used to address a variety of organizational challenges, including, but not limited to, due diligence, risk mitigation, identity authentication, and regulatory compliance, by financial services companies, insurance companies, healthcare companies, law enforcement and government, identity verification platforms, collections, law firms, retail, telecommunication companies, corporate security, and investigative firms. FOREWARN is an app-based solution currently tailored for the real estate industry, providing instant knowledge prior to face-to-face engagement with a consumer, helping professionals identify and mitigate risk. As of March 31, 2024 and 2023, IDI had 8,241 and 7,256 billable customers and FOREWARN had 236,639 and 131,348 users, respectively. We define a billable customer of IDI as a single entity that generated revenue during the last three months of the period. Billable customers are typically corporate organizations. In most cases, corporate organizations will have multiple users and/or departments purchasing our solutions, however, we count the entire organization as a discrete customer. We define a user of FOREWARN as a unique person that has a subscription to use the FOREWARN service as of the last day of the period. A unique person can only have one user account.

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We generate substantially all of our revenue from licensing our solutions. Customers access our solutions through a hosted environment using an online interface, batch processing, API and custom integrations. We recognize revenue from licensing fees (a) on a transactional basis determined by the customer’s usage, (b) via a monthly fee or (c) from a combination of both. Revenue pursuant to pricing contracts containing a monthly fee is recognized ratably over the contract period. Pricing contracts are generally annual contracts or longer, with auto renewal. For the three months ended March 31, 2024 and 2023, 78% and 75% of total revenue was attributable to customers with pricing contracts, respectively, versus 22% and 25% attributable to transactional customers, respectively.

We endeavor to understand our customers’ needs at the moment of first engagement. We continuously engage with our customers and evaluate their usage of our solutions throughout their life cycle, to maximize utilization of our solutions and, hence, their productivity. Our go-to-market strategy leverages (a) an inside sales team that cultivates relationships, and ultimately closes business, with their end-user markets, (b) a strategic sales team that provides a more personal, face-to-face approach for major accounts within certain industries, and (c) distributors, resellers, and strategic partners that have a significant foothold in many of the industries that we have not historically served, as well as to further penetrate those industries that we do serve. We employ a “land and expand” approach. Our sales model generally begins with a free trial followed by an initial purchase on a transactional basis or minimum-committed monthly spend. As organizations derive benefits from our solutions, we are able to expand within organizations as additional use cases are presented across departments, divisions and geographic locations and customers become increasingly reliant on our solutions in their daily workflow.

In order for us to continue to develop new products, grow our existing business and expand into additional markets, we must generate and sustain sufficient operating profits and cash flow in future periods. This will require us to generate additional sales from current products and new products currently under development. We continue to build out our sales organization to drive current products and to introduce new products into the marketplace.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the revenue recognition, allowance for doubtful accounts, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, share-based compensation, and income tax provision. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For additional information, please refer to our Form 10-K. There have been no material changes to Critical Accounting Policies and Estimates disclosed in our Form 10-K.

Recently issued accounting standards

See Note 1(b), “Recently issued accounting standards,” in “Notes to Condensed Consolidated Financial Statements.”

First Quarter Financial Results

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023:

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First Quarter and Recent Business Highlights

Use and Reconciliation of Non-GAAP Financial Measures

Management evaluates the financial performance of our business on a variety of key indicators, including non-GAAP metrics of adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and free cash flow ("FCF"). Adjusted EBITDA is a non-GAAP financial measure equal to net income, the most directly comparable financial measure based on US GAAP, excluding interest income, net, income tax expense (benefit), depreciation and amortization, share-based compensation expense, litigation costs, and write-off of long-lived assets and others. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue. Adjusted net income is a non-GAAP financial measure equal to net income, the most directly comparable financial measure based on US GAAP, excluding share-based compensation expense, and amortization of share-based compensation capitalized in intangible assets, and including the tax effect of adjustments. We define adjusted earnings per share as adjusted net income divided by the weighted average shares outstanding. We define adjusted gross profit as revenue less cost of revenue (exclusive of depreciation and amortization), and adjusted gross margin as adjusted gross profit as a percentage of revenue. We define FCF as net cash provided by operating activities reduced by purchase of property and equipment, and capitalized costs included in intangible assets.

The following is a reconciliation of net income, the most directly comparable US GAAP financial measure, to adjusted EBITDA:

 

		Three Months Ended March 31,
(Dollars in thousands)		2024				2023
Net income		$	1,784			$	716
Interest income, net			(365	)			(286	)
Income tax expense (benefit)			564				(29	)
Depreciation and amortization			2,270				1,916
Share-based compensation expense			1,402				1,384
Litigation costs			27				3
Write-off of long-lived assets and others			7				2
Adjusted EBITDA		$	5,689			$	3,706
Revenue		$	17,511			$	14,626
Net income margin			10	%			5	%
Adjusted EBITDA margin			32	%			25	%

 

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The following is a reconciliation of net income, the most directly comparable US GAAP financial measure, to adjusted net income:

 

		Three Months Ended March 31,
(Dollars in thousands, except share data)		2024				2023
Net income		$	1,784			$	716
Share-based compensation expense			1,402				1,384
Amortization of share-based compensation   capitalized in intangible assets			275				222
Tax effect of adjustments(1)			(308	)			-
Adjusted net income		$	3,153			$	2,322
Earnings per share:
Basic		$	0.13			$	0.05
Diluted		$	0.13			$	0.05
Adjusted earnings per share:
Basic		$	0.23			$	0.17
Diluted		$	0.22			$	0.16
Weighted average shares outstanding:
Basic			13,997,064				13,997,154
Diluted			14,164,506				14,236,771

 

(1) The tax effect of adjustments is calculated using the expected federal and state statutory tax rate. The expected federal and state income tax rate was approximately 25.75% for the three months ended March 31, 2024. There was no tax effect of such adjustments for the three months ended March 31, 2023, as a full valuation allowance was provided for the net deferred tax assets.

The following is a reconciliation of gross profit, the most directly comparable US GAAP financial measure, to adjusted gross profit:

		Three Months Ended March 31,
(Dollars in thousands)		2024				2023
Revenue		$	17,511			$	14,626
Cost of revenue (exclusive of depreciation and amortization)			(3,756	)			(3,179	)
Depreciation and amortization of intangible assets			(2,214	)			(1,858	)
Gross profit			11,541				9,589
Depreciation and amortization of intangible assets			2,214				1,858
Adjusted gross profit		$	13,755			$	11,447
Gross margin			66	%			66	%
Adjusted gross margin			79	%			78	%

The following is a reconciliation of net cash provided by operating activities, the most directly comparable US GAAP financial measure, to FCF:

 

		Three Months Ended March 31,
(Dollars in thousands)		2024				2023
Net cash provided by operating activities		$	4,305			$	1,531
Less:
Purchase of property and equipment			(65	)			(44	)
Capitalized costs included in intangible assets			(2,327	)			(2,273	)
Free cash flow		$	1,913			$	(786	)

In order to assist readers of our consolidated financial statements in understanding the operating results that management uses to evaluate the business and for financial planning purposes, we present non-GAAP measures of adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF as supplemental measures of our operating performance. We believe they provide useful information to our investors as they eliminate the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance. In addition, we use them as an integral part of our internal reporting to measure the performance and operating strength of our business.

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We believe adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF are relevant and provide useful information frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours and are indicators of the operational strength of our business. We believe adjusted EBITDA eliminates the uneven effect of considerable amounts of non-cash depreciation and amortization, share-based compensation expense and the impact of other non-recurring items, providing useful comparisons versus prior periods or forecasts. Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue. We believe adjusted net income provides additional means of evaluating period-over-period operating performance by eliminating certain non-cash expenses and other items that might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. Adjusted net income is a non-GAAP financial measure equal to net income, excluding share-based compensation expense, and amortization of share-based compensation capitalized in intangible assets, and including the tax effect of adjustments. We define adjusted earnings per share as adjusted net income divided by the weighted average shares outstanding. Our adjusted gross profit is a measure used by management in evaluating the business’s current operating performance by excluding the impact of prior historical costs of assets that are expensed systematically and allocated over the estimated useful lives of the assets, which may not be indicative of the current operating activity. Our adjusted gross profit is calculated by using revenue, less cost of revenue (exclusive of depreciation and amortization). We believe adjusted gross profit provides useful information to our investors by eliminating the impact of non-cash depreciation and amortization, and specifically the amortization of software developed for internal use, providing a baseline of our core operating results that allow for analyzing trends in our underlying business consistently over multiple periods. Adjusted gross margin is calculated as adjusted gross profit as a percentage of revenue. We believe FCF is an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in our business. FCF is a measure used by management to understand and evaluate the business’s operating performance and trends over time. FCF is calculated by using net cash provided by operating activities, less purchase of property and equipment, and capitalized costs included in intangible assets.

Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, financial measures presented in accordance with US GAAP. In addition, FCF is not intended to represent our residual cash flow available for discretionary expenses and is not necessarily a measure of our ability to fund our cash needs. The way we measure adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF may not be comparable to similarly titled measures presented by other companies, and may not be identical to corresponding measures used in our various agreements.

Results of Operations

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Revenue. Revenue increased $2.9 million or 20% to $17.5 million for the three months ended March 31, 2024 from $14.6 million for the three months ended March 31, 2023. Base revenue from existing customers increased $2.1 million or 19%, and growth revenue from existing customers increased $1.0 million or 62%, while revenue from new customers decreased $0.2 million or 13%. Our IDI billable customer base grew from 7,256 customers as of March 31, 2023 to 8,241 customers as of March 31, 2024, and our FOREWARN user base grew from 131,348 users to 236,639 users during that same period. Revenue from new customers represents the total monthly revenue generated from new customers in a given period. A customer is defined as a new customer during the first six months of revenue generation. Base revenue from existing customers represents the total monthly revenue generated from existing customers in a given period that does not exceed the customers' trailing six-month average revenue. A customer is defined as an existing customer six months after their initial month of revenue. Growth revenue from existing customers represents the total monthly revenue generated from existing customers in a given period in excess of the customers' trailing six-month average revenue.

Cost of revenue (exclusive of depreciation and amortization). Cost of revenue increased $0.6 million or 18% to $3.8 million for the three months ended March 31, 2024 from $3.2 million for the three months ended March 31, 2023. Our cost of revenue primarily includes data acquisition costs. Data acquisition costs consist primarily of the costs to acquire data either on a transactional basis or through flat-fee data licensing agreements, including unlimited usage agreements. We continue to enhance the breadth and depth of our data through the addition and expansion of relationships with key data suppliers, including our largest data supplier, which accounted for 41% and 48% of our total data acquisition costs for the three months ended March 31, 2024 and 2023, respectively. Other cost of revenue items include expenses related to third-party infrastructure fees and pertinent personnel costs.

As the construct of our data costs is primarily a flat-fee, unlimited usage model, the cost of revenue as a percentage of revenue decreased to 21% for the three months ended March 31, 2024 from 22% for the three months ended March 31, 2023. We expect that cost of revenue as a percentage of revenue will continue to decrease over the coming years as our revenue increases. Historically, at scale, the industry business model’s cost of revenue will trend between 15% and 30% as a percentage of revenue.

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Sales and marketing expenses. Sales and marketing expenses decreased $0.2 million or 5% to $3.7 million for the three months ended March 31, 2024 from $3.9 million for the three months ended March 31, 2023. Sales and marketing expenses consist of salaries and benefits, advertising and marketing, travel expenses, and share-based compensation expense, incurred by our sales team, and provision for bad debts. The decrease during the three months ended March 31, 2024 was primarily attributable to the decrease of $0.6 million in provision for bad debts, which was offset by the increase of $0.3 million in salaries and benefits, and sales commission.

General and administrative expenses. General and administrative expenses increased $0.6 million or 10% to $5.8 million for the three months ended March 31, 2024 from $5.2 million for the three months ended March 31, 2023. For the three months ended March 31, 2024 and 2023, our general and administrative expenses consisted primarily of employee salaries and benefits of $2.7 million and $2.8 million, respectively, share-based compensation expense of $1.3 million and $1.3 million, respectively, and professional fees of $1.2 million and $0.6 million, respectively.

Depreciation and amortization. Depreciation and amortization expenses increased $0.4 million or 18% to $2.3 million for the three months ended March 31, 2024 from $1.9 million for the three months ended March 31, 2023. The increase in depreciation and amortization for the three months ended March 31, 2024 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after March 31, 2023.

Interest income, net. Interest income, net increased $0.1 million or 28% to $0.4 million for the three months ended March 31, 2024 from $0.3 million for the three months ended March 31, 2023. This was primarily due to interest income earned on investments in certain money market funds.

Income before income taxes. Income before income taxes increased $1.6 million or 242% to $2.3 million for the three months ended March 31, 2024 from $0.7 million for the three months ended March 31, 2023. The increase was primarily attributable to the increase in revenue, decrease in our cost of revenue as a percentage of revenue, and decrease in provision for bad debts of $0.6 million, which was partially offset by the increase in employee salaries and benefits and sales commissions of $0.3 million, professional fees of $0.6 million, and depreciation and amortization of $0.4 million.

Income taxes. Income tax expense of $0.6 million was recognized for the three months ended March 31, 2024 compared to income tax benefit of $0.03 million for the three months ended March 31, 2023. A valuation allowance on the deferred tax assets was recognized as of March 31, 2023 to reduce the deferred tax assets to the amount that is more likely than not to be realized. Beginning from the three months ended September 30, 2023, the Company released the valuation allowance as the Company concluded that the realization of the deferred tax assets is more likely than not. See Note 6, “Income taxes,” included in “Notes to Condensed Consolidated Financial Statements.”

Net income. Net income was $1.8 million for the three months ended March 31, 2024 compared to $0.7 million for the three months ended March 31, 2023, as a result of the foregoing.

Effect of Inflation

We believe that the persistent inflationary pressure throughout 2023 and up to March 31, 2024 has contributed to deteriorating macroeconomic conditions and increased recession fears, causing businesses to slow their spending over the last several months, which have resulted, and may continue to result, in fluctuations in volumes, pricing and operating margins for our services. Also, higher interest rates imposed to combat inflation, may reduce the demand for credit, which may lead to a decline in the volume of services we provide to our customers in the banking or financial industry, or other industries that are affected by these types of disruptions. However, the rates of inflation experienced in recent years have had no material impact on our financial statements as we have attempted to recover increased costs by increasing prices for our services, to the extent permitted by contracts and competition.

Liquidity and Capital Resources

Cash flows provided by operating activities. For the three months ended March 31, 2024, net cash provided by operating activities was $4.3 million, primarily the result of the net income of $1.8 million, adjusted for certain non-cash items (consisting of share-based compensation expense, depreciation and amortization, provision for bad debts, noncash lease expenses, and deferred income tax expense (benefit)) totaling $4.3 million, and the cash used as a result of changes in assets and liabilities of $1.8 million, primarily the result of the increase in accounts receivable, and prepaid expenses and other current assets, and the decrease in accrued expenses and other current liabilities, which was offset by the increase in accounts payable. For the three months ended March 31, 2023, net cash provided by operating activities was $1.5 million, primarily the result of the net income of $0.7 million, adjusted for certain non-cash items, primarily as mentioned above, totaling $4.1 million, and the cash used as a result of changes in assets and liabilities of $3.3 million, primarily the result of the increase in accounts receivable, prepaid expenses and other current assets and other noncurrent assets, and the decrease in accrued expenses and other current liabilities, and operating lease liabilities.

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Cash flows used in investing activities. For the three months ended March 31, 2024 and 2023, net cash used in investing activities was $2.4 million and $2.3 million, respectively, primarily as a result of capitalized costs included in intangible assets.

Cash flows used in financing activities. For the three months ended March 31, 2024, net cash used in financing activities was $1.8 million, resulting from the taxes paid related to the net share settlement of vesting of RSUs of $0.4 million, and the result of $1.4 million paid in aggregate for the repurchase of common stock pursuant to a stock repurchase program that the board of directors authorized on May 2, 2022 (the "Stock Repurchase Program"), authorizing the repurchase of up to $5.0 million of our common stock. Subsequently on each December 19, 2023 and March 28, 2024, the board of directors approved the repurchases of an additional $5.0 million of our common stock under the Stock Repurchase Program. For the three months ended March 31, 2023, net cash used in financing activities was $0.2 million, mainly the result of $0.2 million paid in aggregate for the repurchase of common stock pursuant to the Stock Repurchase Program.

As of March 31, 2024, we had material commitments under certain data licensing agreements of $20.1 million. We anticipate funding our operations using available cash and cash flow generated from operations within the next twelve months.

We reported net income of $1.8 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had a total shareholders’ equity balance of $83.8 million.

As of March 31, 2024, we had cash and cash equivalents of approximately $32.1 million. Based on projections of growth in revenue and operating results in the next twelve months, and the available cash and cash equivalents held by us, we believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months.

Subject to revenue growth and our ability to generate positive cash flow, we may have to raise capital through the issuance of additional equity and/or debt, which, if we are able to obtain, could have the effect of diluting stockholders. Any equity or debt financings, if available at all, may be on terms which are not favorable to us.

 

Off-Balance Sheet Arrangements

As of March 31, 2024, we did not have any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information required by this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d–15(e) of the Exchange Act) as of March 31, 2024. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Based on the evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2024.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of management, is likely to have a material adverse effect on the business, financial condition, results of operations or cash flows. Legal fees associated with such legal proceedings, are expensed as incurred. We review legal proceedings and claims on an ongoing basis and follow appropriate accounting guidance, including Accounting Standards Codification 450, “Contingencies,” when making accrual and disclosure decisions. We establish accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.

In addition to the foregoing, we may be involved in litigation from time to time in the ordinary course of business. We do not believe that the ultimate resolution of any such matters will have a material adverse effect on our business, financial condition, results of operations or cash flows. However, the results of such matters cannot be predicted with certainty and we cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 7, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table provides information relating to the Company's repurchase of common stock during the three months ended March 31, 2024 pursuant to the Stock Repurchase Program:

 

Period(1)		Total number of shares purchased				Average price paid per share(2)				Total number of shares purchased as part of publicly announced plans or programs				Approximate dollar value of shares that may yet be purchased under the plans or programs
January 1, 2024 - January 31, 2024			16,036			$	18.77				16,036			$	5,075,644
February 1, 2024 - February 29, 2024			27,564			$	18.00				27,564			$	4,579,445
March 1, 2024 - March 31, 2024			233,340			$	20.18				233,340			$	4,870,824
Total			276,940			$	19.88				276,940

 

 

On May 2, 2022, the board of directors of the Company authorized the repurchase of up to $5.0 million of the Company's common stock from time to time, and subsequently on each of December 19, 2023 and March 28, 2024, the board of directors authorized the repurchase of an additional $5.0 million of the Company's common stock (the "Stock Repurchase Program"). The Stock Repurchase Program does not obligate the Company to repurchase any shares and it may be modified, suspended, or terminated at any time and for any reason at the discretion of the board of directors.

Shares of common stock withheld as payment of withholding taxes in connection with the vesting of equity awards are also treated as common stock repurchases. Those withheld shares of common stock are not required to be disclosed under Item 703 of Regulation S-K and accordingly are excluded from the amounts in the table above.

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

 

Incorporated by Reference

Filed

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith

10.1+

Third Amendment to Employment Agreement dated March 5, 2024 by and between Red Violet, Inc. and Jeffrey Dell.

X

31.1

Certification of Chief Executive Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

31.2

Certification of Chief Financial Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

32.1*

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

32.2*

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

X

101.SCH

Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.

X

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

X

 

+ Management contract or compensatory plan or arrangement.

* This certification is deemed furnished and not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

May 8, 2024				Red Violet, Inc.
		By:		/s/ Daniel MacLachlan
				Daniel MacLachlan
				Chief Financial Officer
				(Principal Financial and Accounting Officer)

 

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