10-Q
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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. ☒ YesNo

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). ☒ YesNo

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.

 

 

 

 


 

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

 

 

 

 


 

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.

1


 

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.

2


 

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.

3


 

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.

4


 

RED VIOLET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share data)

(unaudited)

1. Summary of significant accounting policies

(a) Basis of preparation

The accompanying unaudited condensed consolidated financial statements of Red Violet, Inc., a Delaware corporation, and its consolidated subsidiaries (collectively, “red violet” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to those rules and regulations.

The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for any future interim periods or for the full year ending December 31, 2024.

The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included 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 (“Form 10-K”).

The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date included in the Form 10-K, but does not include all disclosures required by US GAAP.

The Company has only one operating segment, as defined by Accounting Standards Codification (“ASC”) 280, “Segment Reporting.”

Principles of consolidation

The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.

(b) Recently issued accounting standards

In December 2023, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standard Updates (“ASU”) No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09)," which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning after December 31, 2024. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company is currently evaluating the guidance to determine its impact on our condensed consolidated financial statements and related disclosures.

 

2. Earnings per share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and is calculated using the treasury stock method for unvested shares.

 

 

 

Three Months Ended March 31,

 

(In thousands, except share data)

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net income

 

$

1,784

 

 

$

716

 

Denominator:

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

 

13,997,064

 

 

 

13,997,154

 

Diluted(1)

 

 

14,164,506

 

 

 

14,236,771

 

Earnings per share:

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.05

 

Diluted

 

$

0.13

 

 

$

0.05

 

5


 

(1)
For the three months ended March 31, 2024 and 2023, diluted weighted average shares outstanding are calculated by the inclusion of unvested restricted stock units ("RSUs").

3. Intangible assets, net

Intangible assets other than goodwill consist of the following:

 

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

(In thousands)

 

Amortization
period

 

Gross amount

 

 

Accumulated amortization

 

 

Net

 

 

Gross amount

 

 

Accumulated amortization

 

 

Net

 

Software developed for internal use

 

5-10 years

 

$

66,318

 

 

$

(31,356

)

 

$

34,962

 

 

$

63,545

 

 

$

(29,142

)

 

$

34,403

 

The gross amount associated with software developed for internal use represents capitalized costs of internally-developed software, including eligible salaries and staff benefits, share-based compensation, travel expenses incurred by relevant employees, and other relevant costs.

Amortization expenses of $2,214 and $1,858 for the three months ended March 31, 2024 and 2023, respectively, were included in depreciation and amortization expense. As of March 31, 2024, intangible assets of $5,265, included in the gross amounts of software developed for internal use, have not started amortization, as they are not ready for their intended use.

The Company capitalized costs of software developed for internal use of $2,773 and $2,732 during the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, estimated amortization expense related to the Company’s intangible assets for the remainder of 2024 through 2029 and thereafter are as follows:

 

(In thousands)

 

 

 

Year

 

March 31, 2024

 

Remainder of 2024

 

$

7,164

 

2025

 

 

8,753

 

2026

 

 

7,301

 

2027

 

 

5,685

 

2028

 

 

3,253

 

2029 and thereafter

 

 

2,806

 

Total

 

$

34,962

 

 

4. Goodwill

Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. As of March 31, 2024 and December 31, 2023, the balance of goodwill of $5,227 was as a result of the acquisition of Interactive Data, LLC, a wholly-owned subsidiary of red violet, effective on October 2, 2014.

In accordance with ASC 350, “Intangibles - Goodwill and Other,” goodwill is tested at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. The measurement date of the Company’s annual goodwill impairment test is October 1.

The Company did not record a goodwill impairment loss during the three months ended March 31, 2024 and 2023, and there was no accumulated goodwill impairment loss as of March 31, 2024.

5. Revenue recognition

The Company recognized revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“Topic 606”). Under this standard, revenue is recognized when control of goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s performance obligation is to provide on demand information and identity intelligence solutions to its customers by leveraging its proprietary technology and applying machine learning and advanced analytics to its massive data repository. The pricing for the customer contracts is based on usage, a monthly fee, or a combination of both.

6


 

Available within Topic 606, the Company has applied the portfolio approach practical expedient in accounting for customer revenue as one collective group, rather than individual contracts. Based on the Company’s historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers, the Company has concluded the financial statement effects are not materially different than if accounting for revenue on a contract by contract basis.

Revenue is recognized over a period of time. The Company’s customers simultaneously receive and consume the benefits provided by the Company’s performance as and when provided. Furthermore, the Company has elected the “right to invoice” practical expedient, available within Topic 606, as its measure of progress, since it has a right to payment from a customer in an amount that corresponds directly with the value of its performance completed-to-date. In some arrangements, a right to consideration for the Company's performance under the customer contract may occur before invoicing to the customer, resulting in an unbilled accounts receivable. As of March 31, 2024, the current and noncurrent portion unbilled accounts receivable of $841 and $216, respectively, were included within accounts receivable and other noncurrent assets, respectively, on the condensed consolidated balance sheets. As of December 31, 2023, the current and noncurrent portion unbilled accounts receivable of $829 and $371, respectively, were included within accounts receivable and other noncurrent assets, respectively, on the consolidated balance sheets. The Company's revenue arrangements do not contain significant financing components.

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. Pricing contracts are generally annual contracts or longer, with auto renewal.

If a customer pays consideration before the Company transfers services to the customer, those amounts are classified as deferred revenue. As of March 31, 2024 and December 31, 2023, the balance of deferred revenue was $652 and $690, respectively, all of which is expected to be realized in the next 12 months. In relation to the deferred revenue balance as of December 31, 2023, $264 was recognized into revenue during the three months ended March 31, 2024.

As of March 31, 2024, $23,174 of revenue is expected to be recognized in the future for performance obligations that are unsatisfied or partially unsatisfied, related to pricing contracts that have a term of more than 12 months, of which, $8,932 of revenue will be recognized in the remainder of 2024, $7,659 in 2025, $3,669 in 2026, $2,582 in 2027, $287 in 2028, and $45 in 2029. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company excludes variable consideration related entirely to wholly unsatisfied performance obligations and contracts and recognizes such variable consideration based upon the right to invoice the customer.

Sales commissions are incurred and recorded on an ongoing basis over the term of the customer relationship. These costs are recorded in sales and marketing expenses.

In addition, the Company elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

6. Income taxes

The Company is subject to federal and state income taxes in the United States. The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter, unless a reliable estimate of ordinary income or the related tax expense/benefit cannot be made or the Company is in cumulative losses for which the benefit cannot be realized. In each quarter, the Company updates its estimate of the annual effective tax rate, and if its estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. Prior to the third quarter of 2023, primarily due to cumulative pre-tax losses, management determined a full valuation allowance was necessary to reduce the deferred tax assets to the amount that is more likely than not to be realized. During the third quarter of 2023, the Company released the valuation allowance previously recorded on its deferred tax assets. The Company concluded that, due to its established historical cumulative positive income before income taxes plus permanent differences for the recent years, projections of future taxable income, and the reversal of taxable temporary differences, the realization of deferred tax assets as of March 31, 2024 was more likely than not.

The Company’s effective income tax rate was 24% and (4%) for the three months ended March 31, 2024 and 2023, respectively, differing from the U.S. corporate statutory federal income tax rate of 21%. The difference for the three months ended March 31, 2024 was primarily the effect of state income taxes and certain nondeductible permanent differences, partially offset by the utilization of research and development tax credits. The difference for the three months ended March 31, 2023 was primarily the result of the valuation allowance applied to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized.

7


 

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the Company’s financial statements.

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Due to the existence of net operating loss carryforwards since inception, all of the Company’s income tax filings remain open for tax examinations.

The Company does not have any material unrecognized tax benefits as of March 31, 2024 and December 31, 2023.

7. Common stock and treasury stock

As of March 31, 2024 and December 31, 2023, the number of issued shares of common stock was 13,942,164 and 13,980,274, respectively, which included shares of treasury stock of 202,000 and 9,428, respectively. The changes in the number of issued shares of common stock and treasury stock were due to the following factors:

An aggregate of 67,125 shares of common stock were issued as a result of the vesting of RSUs, of which, 20,867 shares of common stock were withheld to pay withholding taxes upon such vesting, which were reflected in treasury stock, with a cost of $383. Related treasury stock of 20,867 shares was then retired during the three months ended March 31, 2024.
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 may be modified, suspended, or terminated at any time and for any reason at the discretion of the board of directors. During the three months ended March 31, 2024, the Company repurchased 276,940 shares of common stock under the Stock Repurchase Program, which was reflected in treasury stock, with a cost of $5,514. Related treasury stock of 84,368 shares, with a cost of $1,559, was retired during the three months ended March 31, 2024, which resulted in a treasury stock balance of $4,143 as of March 31, 2024.

8. Share-based compensation

On March 22, 2018, the board of directors of the Company and Cogint, Inc. (“cogint”) (now known as Fluent, Inc.), in its capacity as sole stockholder of the Company prior to the Company’s spin-off from cogint on March 26, 2018 (the “Spin-off”), approved the Red Violet, Inc. 2018 Stock Incentive Plan (the “2018 Plan”), which became effective immediately prior to the Spin-off. A total of 3,000,000 shares of common stock were authorized to be issued under the 2018 Plan. Subsequently on June 3, 2020 and May 25, 2022, the Company’s stockholders approved amendments to the 2018 Plan to increase the number of shares of common stock authorized for issuance under the 2018 Plan to 4,500,000 shares and 6,500,000 shares, respectively.

The primary purpose of the 2018 Plan, as amended, is to attract, retain, reward and motivate certain individuals by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success of the Company, so as to strengthen the mutuality of the interests between such individuals and the stockholders of the Company.

As of March 31, 2024, there were 1,907,155 shares of common stock available for future issuance under the 2018 Plan, as amended.

To date, all stock incentives issued under the 2018 Plan, as amended, have been in the form of RSUs. RSUs granted under the 2018 Plan, as amended, vest and settle upon the satisfaction of a time-based condition or with both time- and performance-based conditions. The time-based condition for these awards is generally satisfied over three or four years with annual vesting. Details of unvested RSU activity during the three months ended March 31, 2024 were as follows:

 

 

Number of units

 

 

Weighted average
grant-date fair value

 

Unvested as of December 31, 2023

 

 

1,017,718

 

 

$

20.10

 

Granted(1)

 

 

214,150

 

 

$

18.26

 

Vested and delivered

 

 

(46,258

)

 

$

25.49

 

Withheld as treasury stock(2)

 

 

(20,867

)

 

$

25.44

 

Forfeited

 

 

(123,850

)

 

$

16.71

 

Unvested as of March 31, 2024

 

 

1,040,893

 

 

$

19.77

 

 

8


 

 

(1)
In March 2024, the Company granted 130,000 RSUs, subject to performance-based requirements, to one non-executive employee at a grant date fair value of $18.30 per share. Such RSU grant shall not vest unless and until the Company has achieved certain revenue for a portion of its business prior to December 31, 2030, the last achievement date deadline. No amortization of share-based compensation expense has been recognized for 115,000 RSUs among the above-mentioned grant, because, as of March 31, 2024, the Company determined that it is not probable that related performance criteria will be met. In addition to the 130,000 RSUs discussed above, the Company granted, during the three months ended March 31, 2024, an aggregate of 84,150 RSUs to certain employees and one director at grant date fair values ranging from $18.12 to $18.30 per share, with a vesting period ranging from one to four years.
(2)
Withheld as treasury stock represents shares withheld to pay statutory taxes upon the vesting of RSUs. Refer to Note 7, "Common stock and treasury stock," for details.

As of March 31, 2024, unrecognized share-based compensation expense associated with the granted RSUs amounted to $16,483, which is expected to be recognized over a remaining weighted average period of 2.9 years.

Share-based compensation was allocated to the following accounts in the condensed consolidated financial statements for the three months ended March 31, 2024 and 2023:

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2024

 

 

2023

 

Sales and marketing expenses

 

$

138

 

 

$

107

 

General and administrative expenses

 

 

1,264

 

 

 

1,277

 

Share-based compensation expense

 

 

1,402

 

 

 

1,384

 

Capitalized in intangible assets

 

 

446

 

 

 

459

 

Total

 

$

1,848

 

 

$

1,843

 

 

9. Leases

The Company leases its corporate headquarters of 21,020 rentable square feet in accordance with a non-cancellable 89-month operating lease agreement as amended and effective in January 2017, with an option to extend for an additional 60 months. On September 20, 2023, the Company entered into an amendment to its corporate headquarters lease agreement to exercise the extension option for an additional 60 months through June 30, 2029, with an option to further extend for an additional 60 months. The Company also leases an additional office space of 6,003 rentable square feet in accordance with a non-cancellable 90-month operating lease agreement entered into in April 2017, with an option to extend for an additional 60 months. The extension option is not included in the determination of the lease term as it is not reasonably certain to be exercised.

For the three months ended March 31, 2024 and 2023, a summary of the Company’s lease information is shown below:

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2024

 

 

2023

 

Lease cost:

 

 

 

 

 

 

Operating lease costs

 

$

194

 

 

$

168

 

Other information:

 

 

 

 

 

 

Cash paid for operating leases

 

$

194

 

 

$

190

 

 

As of March 31, 2024, the weighted average remaining operating lease term was 4.7 years.

9


 

As of March 31, 2024, scheduled future maturities and present value of the operating lease liabilities are as follows:

 

(In thousands)

 

 

 

Year

 

March 31, 2024

 

Remainder of 2024

 

 

595

 

2025

 

 

580

 

2026

 

 

519

 

2027

 

 

535

 

2028

 

 

551

 

2029 and thereafter

 

 

279

 

Total maturities

 

$

3,059

 

Present value included in condensed consolidated balance sheet:

 

 

 

Current portion of operating lease liabilities

 

$

588

 

Noncurrent operating lease liabilities

 

 

1,845

 

Total operating lease liabilities

 

$

2,433

 

Difference between the maturities and the present value of operating lease liabilities

 

$

626

 

 

10. Commitments and contingencies

(a) Capital commitment

The Company incurred data costs of $2,434 and $2,361 for the three months ended March 31, 2024 and 2023, respectively, under certain data licensing agreements. As of March 31, 2024, material capital commitments under certain data licensing agreements were $20,083, shown as follows:

 

(In thousands)

 

 

 

Year

 

March 31, 2024

 

Remainder of 2024

 

$

6,488

 

2025

 

 

8,530

 

2026

 

 

4,839

 

2027

 

 

226

 

Total

 

$

20,083

 

 

(b) Contingencies

The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, 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. The Company does 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, the Company may be involved in litigation from time to time in the ordinary course of business. The Company does not believe that the ultimate resolution of any such matters will have a material adverse effect on its business, financial condition, results of operations or cash flows. However, the results of such matters cannot be predicted with certainty and the Company cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on its business, financial condition, results of operations and cash flows.

10


 

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, IDIand 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.

11


 

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:

Total revenue increased 20% to $17.5 million.
Gross profit increased 20% to $11.5 million. Gross margin remained consistent at 66%.
Adjusted gross profit increased 20% to $13.8 million. Adjusted gross margin increased to 79% from 78%.
Net income increased 149% to $1.8 million, which resulted in earnings of $0.13 per basic and diluted share. Net income margin increased to 10% from 5%.
Adjusted EBITDA increased 54% to $5.7 million. Adjusted EBITDA margin increased to 32% from 25%.
Adjusted net income increased 36% to $3.2 million, which resulted in adjusted earnings of $0.23 and $0.22 per basic and diluted share, respectively.
Net cash provided by operating activities increased 181% to $4.3 million.
Cash and cash equivalents were $32.1 million as of March 31, 2024.

12


 

First Quarter and Recent Business Highlights

Added 366 customers to IDI during the first quarter, ending the quarter with 8,241 customers.
Added a record 51,259 users to FOREWARN during the first quarter, ending the quarter with 236,639 users. Over 425 REALTOR® Associations throughout the U.S. are now contracted to use FOREWARN.
Purchased 291,879 shares of the Company’s common stock year to date through April 30, 2024, at an average price of $19.81 per share pursuant to the Company’s $15.0 million Stock Repurchase Program (as defined below), as amended, that was authorized on May 2, 2022. As of April 30, 2024, the Company has $4.6 million remaining under the Stock Repurchase Program.

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

%

 

13


 

 

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.

14


 

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.

15


 

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.

16


 

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.

17


 

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.

18


 

PART II - OTHER INFORMATION

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

 

 

 

 

 

(1)
From April 1, 2024 to April 30, 2024, the Company purchased an additional 14,939 shares at an average price of $18.54 per share pursuant to the Stock Repurchase Program.

 

(2)
Exclusive of commission fees incurred in relation to the repurchase of common stock.

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.

19


 

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.

 

20


 

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)

 

21


EX-10.1

Exhibit 10.1

 

 

THIRD AMENDMENT TO EMPLOYMENT AGREEMENT

 

This Third Amendment to Employment Agreement (the "Amendment") is made as of March 5, 2024 (the “Third Amendment Effective Date”) by and between Red Violet, Inc., a Delaware corporation (the "Company"), and Jeffrey Dell (the "Executive"). Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to them in the Employment Agreement (defined below).

 

WHEREAS, the Company and Executive entered into that certain Employment Agreement made by and between the Company and Executive, dated April 9, 2019 and as amended on November 9, 2020 and May 8, 2023 (as amended, the "Employment Agreement"); and

 

WHEREAS, Company and Executive desire to amend the Employment Agreement in accordance with the terms and provisions hereof.

 

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive hereby adopt this Amendment effective as of the Third Amendment Effective Date and agree as follows:

 

1.
Subsection 6.(c)(iv) of the Employment Agreement is deleted in its entirety and the following substituted in lieu thereof:

 

(iv) Without Cause or Refusal to Accept Assignment. In the event the Company terminates this Agreement without Cause or any successor of the Company refuses to accept assignment of this Agreement, the Company shall pay to the Executive the greater of (x) the Executive’s Base Salary for the remainder of the Term in accordance with the Company’s payroll practices in effect from time to time or (y) two years of the Executive’s Base Salary in accordance with the Company’s payroll practices in effect from time to time, provided, however, the Executive is not in violation of the Restrictive Covenant Agreement. Upon payment to the Executive of the foregoing amount, the Company shall have no further obligation or liability to or for the benefit of the Executive under this Agreement, except as required by applicable law or any Award Agreement.

2.
Subsection 6.(c)(vi) of the Employment Agreement is deleted in its entirety and the following substituted in lieu thereof:

(vi) For Good Reason. If the Executive terminates this Agreement and his employment for Good Reason, the Company shall pay to the Executive the greater of (x) the Executive’s Base Salary for the remainder of the Term in accordance with the Company’s payroll practices in effect from time to time or (y) two years of the Executive’s Base Salary in accordance with the Company’s payroll practices in effect from time to time, however, the Executive is not in violation of the Restrictive Covenant Agreement. Upon payment to the Executive of the foregoing amount, the Company shall have no further obligation or liability to or for the benefit of the Executive under this Agreement, except as required by applicable law or any Award Agreement.

3.
Except as expressly amended herein, all terms and provisions of the Employment Agreement shall remain in full force and effect.

 

[Signature Page Follows]