Red Violet(RDVT) - 2021 Q4 - Annual Report

PART I Item 1. Business Red Violet provides identity intelligence solutions via its CORE™ platform for risk mitigation, fraud detection, and customer acquisition in a competitive data and analytics market Company Overview - Red Violet, Inc. provides identity intelligence solutions through its CORE™ platform, primarily via IDI™ and FOREWARN® brands, for risk mitigation, due diligence, fraud detection, prevention, regulatory compliance, and customer acquisition[11][13] - Revenue is primarily generated from licensing fees, with 80% from pricing contracts in 2021, up from 73% in 2020[14] Customer Growth (2021 vs 2020) | Metric | 2021 | 2020 | | :----------------- | :--------- | :--------- | | IDI Billable Customers | 6,548 | 5,726 | | FOREWARN Users | 82,419 | 48,377 | Financial Performance (2021 vs 2020, in millions) | Metric | 2021 | 2020 | | :----------------- | :--------- | :--------- | | Revenue | $44.0 | $34.6 | | Net Income (Loss) | $0.7 | $(6.8) | | Adjusted EBITDA | $10.9 | $5.9 | Our Markets - The target market consists of public and private sector organizations where cloud-driven identity intelligence is critical to daily workflow[18] - The data and analytics sector is projected to grow at a CAGR of 12.8% from 2021 through 2025, reaching $215.7 billion in worldwide revenue in 2021[19] - The risk analytics market is projected to grow to $64.7 billion by 2026, representing a CAGR of 14.7% from 2021 through 2026[20] Key Challenges Facing our Customers - Customers are overwhelmed by the velocity and volume of data, struggling to glean actionable insights in real-time from disparate and siloed datasets[21][23] - Organizations face constant cost and performance pressures, demanding enhanced, fast, accurate, and cost-effective solutions for identity verification, risk management, and regulatory compliance[22] - There is a need for information solutions that leverage unified data assets for actionable intelligence within operational workflows due to data fragmentation and lack of robust technology[23] Our Competitive Strengths - The company's cloud-native CORE platform assimilates, structures, and unifies billions of disparate records to create comprehensive identity intelligence views in real-time[28] - A massive unified data asset, compiled from public record, proprietary, and publicly-available sources, is leveraged with proprietary algorithms to provide actionable insights[28] Our Sales, Distribution and Marketing - Go-to-market strategy includes an inside sales team, a strategic sales team for major accounts, and partnerships with distributors, resellers, and strategic partners[16][26][27][29] - Employs a 'land and expand' sales model, starting with free trials and initial purchases, then expanding within organizations as additional use cases emerge[16] - Marketing methods include trade shows, seminars, advertising, public relations, sales literature, and ongoing communication with prospective and current customers[30] Our Strategy - Transform data into intelligence by expanding the unified data asset and leveraging machine learning algorithms to increase semantic insight and applicability[34] - Widen the technology lead by advancing and expanding the cloud-native CORE platform's functionality, speed, and scalability[34] - Enhance functionality and develop new products to solve complex problems, enable better data-driven decisions, and increase workflow efficiencies for customers[34] Our Competition - The market for products and services is highly competitive, with competition centered on innovation, product stability, pricing, and customer service[31] - Principal competitors include Palantir, RELX Group (LexisNexis), TransUnion, and Thomson Reuters[103] - Competitors may have substantially greater financial, technical, sales, and marketing resources, better name recognition, and a larger customer base[33][103] Concentration of Customers - No individual customer accounted for more than 10% of total revenue for the years ended December 31, 2021 and 2020[36] - No individual customer accounted for more than 10% of the company's accounts receivable as of December 31, 2021 and 2020[36] Concentration of Suppliers - The largest data supplier accounted for 49% of total data acquisition costs for the year ended December 31, 2021, compared to 46% for 2020[37] - The agreement with the largest data supplier is amended and renewed until June 30, 2026, with remaining minimum purchase commitments of $23.8 million as of December 31, 2021[37] - Loss of the largest data supplier could negatively impact the ability to provide products and services, requiring significant time, expense, and resources to secure comparable data[37] Our Intellectual Property - The company protects its proprietary technology, trademarked brands, and content through trade secret, unfair competition, trademark, and copyright laws[38] - At present, the company does not hold any issued patents[38] Regulatory Matters - The business is subject to various federal, state, and local laws and regulations, including the Gramm-Leach-Bliley Act (GLBA), Driver's Privacy Protection Act (DPPA), and Federal Trade Commission Act (FTC Act)[40] - Changes in applicable laws or new privacy legislation could materially increase data collection costs, restrict data use, or adversely affect the ability to meet customer requirements and profitability[40] Seasonality - The company's results are subject to seasonal fluctuation, with certain products experiencing pressure during the fourth quarter[41] Management Team - The management team possesses significant expertise in the data and analytics sector and has a track record of strong performance, overseeing the expansion of proprietary technology and the transition to a sales-driven company[42] Our Employees - As of December 31, 2021, the company employed 139 full-time employees, none of whom are represented by a labor organization[43] - Future success depends on the ability to hire, motivate, and retain qualified sales, marketing, executive, administrative, and technical personnel in a competitive sector[43] Corporate Information - Red Violet, Inc. was spun off from Cogint, Inc. (now Fluent, Inc.) on March 26, 2018[44] - The principal executive offices are located at 2650 North Military Trail, Suite 300, Boca Raton, Florida 33431[45] - Annual, Quarterly, and Current Reports are available free of charge under the 'Investors' section of www.redviolet.com and on the SEC website[45] Information About Our Executive Officers - Key executive officers include Derek Dubner (CEO and Chairman), James Reilly (President), Daniel MacLachlan (Chief Financial Officer), and Jeff Dell (Chief Information Officer)[46] - Each executive possesses extensive experience in the data and analytics industry, with long tenures in leadership roles[47][48][49][50] Item 1A. Risk Factors Risks include pandemic impacts, cybersecurity, regulatory compliance, stock volatility, and operational challenges like competition and supplier dependence Coronavirus Pandemic Risks - The COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption, impacting business operations, customer demand, and employee work/travel capabilities[52][53] - The extent of the pandemic's future impact is unpredictable, depending on factors like duration, new variants, governmental actions, and vaccine effectiveness, potentially causing material adverse effects on financial results[53][54] Cybersecurity and Technology Risks - Highly technical products may contain undetected errors or security vulnerabilities, leading to revenue loss, customer loss, or legal claims[55] - Failure to respond to rapid technological changes in the data and analytics sector could result in loss of customers or product obsolescence[56] - Unauthorized access to networks and information technology systems, including hacking, DDoS attacks, or data breaches, could disrupt operations, lead to loss of revenue, proprietary information, legal liability, and harm reputation[57][59][61][62] Legal, Regulatory and Compliance Risks - The business is subject to complex and frequently changing federal and state privacy laws (e.g., GLBA, DPPA, FTC Act, CCPA, CPRA), with potential for new legislation or stricter enforcement[69][71] - Non-compliance with regulations or adverse outcomes from litigation, inquiries, or investigations could result in significant expenses, civil/criminal penalties, restrictions on business, and reputational harm[75][76] - Bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions, potentially limiting stockholders' ability to choose a favorable judicial forum[79] Risks Related to Our Common Stock - The company's stock price has been and may continue to be highly volatile due to various factors, including changes in key personnel, regulatory approvals, earnings estimates, economic conditions, and global events[81] - Future issuances of common stock for acquisitions or stock incentive plans could have a dilutive effect on existing investments[84] - Concentration of stock ownership by officers, directors, and significant stockholders (approximately 9% and 24% respectively as of December 31, 2021) may limit the influence of individual stockholders[85] - As an 'emerging growth company,' reduced reporting requirements may make shares less attractive to investors, potentially leading to a less active trading market and more volatile prices[86] - The company may need additional capital in the future, which, if raised through equity, could result in further dilution for existing stockholders[87] Business and Operations Risks - The company has a history of operating losses, making future profitability uncertain and dependent on generating greater revenue[88] - Growth depends on strategic alliances, joint ventures, and acquisitions, which carry inherent risks such as integration difficulties, diversion of management attention, and potential dilution[90][91] - Dependence on key customers and data suppliers (largest supplier accounted for 49% of data acquisition costs in 2021) poses risks if relationships are diminished or terminated[93][96][97] - Loss of key personnel, economic downturns affecting the U.S. market, and intense competition from companies with greater resources could adversely impact business and revenue[94][95][102][103] - Challenges include protecting intellectual property, ensuring market acceptance for newer products, managing long sales and implementation cycles, and reliance on outside service providers[99][106][108][109] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[113] Item 2. Properties Red Violet leases its corporate headquarters in Boca Raton, Florida, and an additional office in Seattle, Washington, under long-term operating lease agreements - Corporate headquarters: 21,020 rentable square feet in Boca Raton, Florida, under an 89-month lease agreement effective January 2017[114] - Seattle office: 6,003 rentable square feet in Seattle, Washington, under a 90-month lease agreement entered in April 2017[114] Item 3. Legal Proceedings The company is not currently involved in any legal proceedings or claims that management believes would have a material adverse effect on its business or financial condition - The company is not currently a party to any legal proceeding, investigation, or claim likely to have a material adverse effect on its business, financial condition, results of operations, or cash flows[115][116] - Accruals for loss contingencies are established when a loss is probable and can be reasonably estimated, in accordance with ASC 450[115] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable[117] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Red Violet's common stock trades on NASDAQ under "RDVT"; no dividends are planned, with 13.5 million shares outstanding as of March 2022 - Common stock is listed on The NASDAQ Capital Market under the symbol "RDVT" and began trading on March 27, 2018[119] - No dividends have been paid since March 27, 2018, and there are no plans for future dividend payments[119] Common Stock Information (as of March 4, 2022) | Metric | Value | | :----------------------- | :------------ | | Shares Outstanding | 13,522,567 | | Record Holders | 28 | Item 6. [Reserved] This item is reserved and contains no information - This item is reserved[123] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Red Violet's financial condition and results for 2021 and 2020, covering key metrics, industry trends, accounting policies, and liquidity Overview - Red Violet provides identity intelligence solutions through its CORE™ platform, primarily via IDI™ and FOREWARN® brands, for risk mitigation, fraud detection, and customer acquisition[126][128] - Revenue is primarily from licensing fees, with 80% from pricing contracts in 2021 (up from 73% in 2020)[130] Customer Growth (2021 vs 2020) | Metric | 2021 | 2020 | | :----------------- | :--------- | :--------- | | IDI Billable Customers | 6,548 | 5,726 | | FOREWARN Users | 82,419 | 48,377 | - The COVID-19 pandemic significantly reduced commercial activity in 2020, with ongoing improvement in 2021, though the idiVERIFIED service volume is expected to return to pre-Covid levels in the second half of 2022[133] - The company deferred employer Social Security payroll tax under the CARES Act and had a $2.2 million loan fully forgiven in June 2021[134] Industry Trends and Uncertainties - Operating results are influenced by macroeconomic conditions (credit availability, interest rates, inflation, employment, consumer confidence) and overall technology, marketing, and advertising expenditures[136] - Industry trends include increasing demand for business analytics services, real-time data, and integrated solutions, alongside growing complexity of data regulations[136] - New or amended privacy legislation could materially impact information services by restricting data collection/use, increasing costs, or reducing solution effectiveness[136] - Intense competition from large data and analytics vendors, and industry consolidation, could lead to price competition, reduced profit margins, or loss of market share[136] Company Specific Trends and Uncertainties - The company's operating results are directly affected by its ability to develop new products, grow existing business, and expand into additional markets[132] - Generating and sustaining sufficient operating profits and cash flow in future periods requires additional sales from current and new products[132] - Continued investment in building out the sales organization is crucial for driving current products and introducing new ones[132] Critical Accounting Policies and Estimates - Key estimates and judgments include allowance for doubtful accounts, useful lives of intangible assets, recoverability of goodwill and intangible assets, share-based compensation, and income tax provision[136][241] - Revenue is recognized in accordance with ASC 606, generally on a transactional basis or ratably over contract periods (typically 12 months) for monthly fees[138][139][257][259] Deferred Revenue and Unsatisfied Performance Obligations (as of Dec 31, 2021, in thousands) | Metric | Amount | | :------------------------------------ | :-------------------- | | Deferred Revenue | $841 | | Unsatisfied Performance Obligations (contracts > 12 months) | | | - Expected in 2022 | $4,400 | | - Expected in 2023 | $2,600 | | - Expected in 2024 | $700 | - Income taxes are accounted for using the asset and liability method (ASC 740), with a valuation allowance of $9.5 million in 2021 (vs. $7.6 million in 2020) on deferred tax assets[147][295] - Intangible assets (primarily internal-use software) are capitalized and amortized straight-line over 5-10 years; goodwill is tested annually for impairment, with no impairment found in 2021 or 2020[149][150][151][152][248][249][251][252] - Share-based compensation (ASC 718) is measured at grant-date fair value and recognized over the vesting period, or when performance criteria are probable for performance-based awards[156][158][269][271] Recently Issued Accounting Standards - The company refers to Note 2(s) in the financial statements for details on recently issued accounting standards[159][283] - As an emerging growth company, the company intends to adopt any applicable new accounting standards timely[283] Fourth Quarter Financial Results Q4 2021 vs Q4 2020 Financial Highlights | Metric | Q4 2021 | Q4 2020 | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | | Total Revenue | $11.3 million | $8.963 million | +26% | | Net Loss | $(1.8) million | $(1.875) million | -5% (narrowed) | | Adjusted EBITDA | $1.3 million | $1.197 million | +9% | | Gross Profit | $6.9 million | $5.126 million | +35% | | Gross Margin | 62% | 57% | +5 pp | | Adjusted Gross Profit | $8.3 million | $6.269 million | +33% | | Adjusted Gross Margin | 74% | 70% | +4 pp | | Cash from Operating Activities | $2.0 million | N/A | +10% (vs. prior period, not Q4 2020) | | Cash & Cash Equivalents (Dec 31) | $34.3 million | N/A | N/A | Full Year Financial Results FY 2021 vs FY 2020 Financial Highlights | Metric | FY 2021 | FY 2020 | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | | Total Revenue | $44.0 million | $34.6 million | +27% | | Platform Revenue | $42.5 million | N/A | +31% | | Services Revenue | $1.5 million | N/A | -25% | | Net Income (Loss) | $0.7 million | $(6.8) million | Shift to profit | | Adjusted EBITDA | $10.9 million | $5.9 million | +85% | | Gross Profit | $27.7 million | $19.320 million | +43% | | Gross Margin | 63% | 56% | +7 pp | | Adjusted Gross Profit | $32.8 million | $23.310 million | +41% | | Adjusted Gross Margin | 75% | 67% | +8 pp | | Cash from Operating Activities | $8.9 million | N/A | +37% | Use and Reconciliation of Non-GAAP Financial Measures - Management uses non-GAAP measures such as Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Gross Profit, and Adjusted Gross Margin to evaluate financial performance, excluding non-cash and non-recurring items[161][165] Adjusted EBITDA Reconciliation (FY 2021 vs FY 2020, in thousands) | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Net (loss) income | $655 | $(6,813) | | Interest (income) expense, net | $7 | $(18) | | Income tax expense | $198 | $0 | | Depreciation and amortization | $5,399 | $4,216 | | Share-based compensation expense | $6,615 | $8,064 | | Gain on extinguishment of debt | $(2,175) | $0 | | Litigation costs | $126 | $0 | | Write-off of long-lived assets and others | $104 | $474 | | Adjusted EBITDA | $10,929 | $5,923 | | Revenue | $44,022 | $34,586 | | Net (loss) income margin | 1% | (20%) | | Adjusted EBITDA margin | 25% | 17% | Adjusted Gross Profit Reconciliation (FY 2021 vs FY 2020, in thousands) | Metric | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Revenue | $44,022 | $34,586 | | Cost of revenue (exclusive of depreciation and amortization) | $(11,195) | $(11,276) | | Depreciation and amortization of intangible assets | $(5,170) | $(3,990) | | Gross profit | $27,657 | $19,320 | | Depreciation and amortization of intangible assets | $5,170 | $3,990 | | Adjusted gross profit | $32,827 | $23,310 | | Gross margin | 63% | 56% | | Adjusted gross margin | 75% | 67% | Quarterly Financial Data (unaudited) - The section presents unaudited quarterly consolidated statements of operations data and reconciliations of GAAP to non-GAAP financial measures for the eight quarters ended December 31, 2021[168][169] - The quarterly data is prepared on a basis consistent with the audited consolidated financial statements and includes normal recurring adjustments[168] Results of Operations (Year ended December 31, 2021 compared to year ended December 31, 2020) Revenue - Revenue increased by $9.4 million (27%) to $44.0 million in 2021, driven by a $9.9 million (41%) increase in base revenue from existing customers[170] - The increase was partially offset by a $0.5 million decrease in idiVERIFIED service revenue due to COVID-19 related government-mandated collections moratoria[170] - IDI billable customer base grew from 5,726 to 6,548, and FOREWARN user base grew from 48,377 to 82,419 during 2021[170] Cost of revenue (exclusive of depreciation and amortization) - Cost of revenue decreased by $0.1 million (1%) to $11.2 million in 2021, primarily due to reduced transactional data acquisition costs associated with lower idiVERIFIED services revenue[171] - Cost of revenue as a percentage of revenue decreased to 25% in 2021 from 33% in 2020, reflecting the primarily flat-fee, unlimited usage data cost model[172] - The largest data supplier accounted for 49% of total data acquisition costs in 2021, compared to 46% in 2020[171] Sales and marketing expenses - Sales and marketing expenses increased by $0.8 million (10%) to $8.9 million in 2021[173] - The increase was primarily driven by higher salaries and benefits ($0.3 million), sales commissions ($0.6 million), and merchant processing fees ($0.2 million) due to increased revenue[173] - This was partially offset by a $0.3 million decrease in the provision for bad debts[173] General and administrative expenses - General and administrative expenses increased by $2.0 million (11%) to $19.8 million in 2021[174] General and Administrative Expenses (2021 vs 2020, in millions) | Component | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Employee salaries and benefits | $8.4 | $5.3 | | Share-based compensation expense | $6.1 | $7.5 | | Professional fees | $3.2 | $2.8 | Depreciation and amortization - Depreciation and amortization expenses increased by $1.2 million (28%) to $5.4 million in 2021[175] - The increase was primarily due to the amortization of software developed for internal use that became ready for its intended use after December 31, 2020[175] Gain on extinguishment of debt - A $2.2 million gain on extinguishment of debt was recognized in 2021 due to the full forgiveness of the $2.2 million CARES Act loan received in May 2020[176] Income (loss) before income taxes - Income before income taxes was $0.9 million in 2021 (including the $2.2 million debt forgiveness gain), a significant improvement from a $6.8 million loss in 2020[178] - The improvement was primarily driven by increased revenue, a decrease in cost of revenue as a percentage of revenue, and decreased share-based compensation expense[178] - This was partially offset by increases in employee salaries and benefits ($4.0 million) and depreciation and amortization ($1.2 million)[178] Income taxes - Income tax expense was $198 thousand for the year ended December 31, 2021, compared to $0 in 2020[179] - A valuation allowance on deferred tax assets was recognized as of December 31, 2021 and 2020[179] Net income (loss) - Net income was $0.7 million in 2021 (including a $2.2 million gain on debt extinguishment), a significant improvement from a net loss of $6.8 million in 2020[179] Effect of Inflation - The rates of inflation experienced in recent years have had no material impact on the company's financial statements[180] - The company attempts to recover increased costs by increasing prices for its services, where permitted by contracts and competition[180] Liquidity and Capital Resources Cash Flow Summary (in thousands) | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Net cash provided by operating activities | $8,948 | $6,519 | | Net cash used in investing activities | $(5,244) | $(5,662) | | Net cash provided by financing activities | $17,597 | $324 | | Net increase in cash and cash equivalents | $21,301 | $1,181 | | Cash and cash equivalents at end of period | $34,258 | $12,957 | - In 2021, net cash provided by financing activities included $20.9 million from a registered direct offering of common stock[183] - As of December 31, 2021, the company had $34.3 million in cash and cash equivalents and $69.4 million in total shareholders' equity[184][185] - Management believes it has sufficient cash resources to finance operations and expected capital expenditures for the next twelve months, but may need to raise additional capital, potentially diluting stockholders[185][186] - Material commitments under data licensing agreements totaled $33.1 million as of December 31, 2021[184] Off-Balance Sheet Arrangements - The company does not have any outstanding off-balance sheet guarantees, interest rate swap transactions, or foreign currency forward contracts[187] - The company does not engage in trading activities involving non-exchange traded contracts or form relationships with unconsolidated entities for off-balance sheet arrangements[187] FORWARD-LOOKING STATEMENTS - This 10-K contains forward-looking statements regarding expectations, beliefs, or intentions about the company's business, financial condition, results of operations, strategies, or prospects[189] - These statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from anticipated outcomes[189] - Key risk factors include the COVID-19 pandemic, cybersecurity and technology risks, legal and regulatory compliance, risks related to common stock, and various business and operational risks[190][191] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Red Violet is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to include information for this item as it is a smaller reporting company[192] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements and notes for 2021 and 2020, including the independent auditor's report Report of Independent Registered Public Accounting Firm - Grant Thornton LLP issued an unqualified opinion on Red Violet, Inc.'s consolidated financial statements for the years ended December 31, 2021 and 2020[222][226] - The financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with US GAAP[222] - The audit did not include an opinion on the effectiveness of the company's internal control over financial reporting[224] Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Total Assets | $74,376 | $51,994 | | Cash and cash equivalents | $34,258 | $12,957 | | Accounts receivable, net | $3,736 | $3,201 | | Intangible assets, net | $28,181 | $27,170 | | Goodwill | $5,227 | $5,227 | | Total Liabilities | $4,947 | $8,649 | | Total Shareholders' Equity | $69,429 | $43,345 | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands) | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Revenue | $44,022 | $34,586 | | Total costs and expenses | $45,337 | $41,417 | | Loss from operations | $(1,315) | $(6,831) | | Gain on extinguishment of debt | $2,175 | $0 | | Income (loss) before income taxes | $853 | $(6,813) | | Income tax expense | $198 | $0 | | Net income (loss) | $655 | $(6,813) | | Basic Earnings (loss) per share | $0.05 | $(0.57) | | Diluted Earnings (loss) per share | $0.05 | $(0.57) | Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Changes in Shareholders' Equity Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Balance at period end | $69,429 | $43,345 | | Issuance of common stock (direct offering) | $20,924 | $0 | | Share-based compensation | $7,832 | $9,902 | | Net income (loss) | $655 | $(6,813) | | Taxes paid related to RSU settlement | $(3,327) | $(1,828) | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Net cash provided by operating activities | $8,948 | $6,519 | | Net cash used in investing activities | $(5,244) | $(5,662) | | Net cash provided by financing activities | $17,597 | $324 | | Net increase in cash and cash equivalents | $21,301 | $1,181 | | Cash and cash equivalents at end of period | $34,258 | $12,957 | Notes to Consolidated Financial Statements 1. Principal activities - Red Violet, Inc. is a software and services company providing identity intelligence solutions through its CORE™ platform for risk mitigation, fraud detection, prevention, regulatory compliance, and customer acquisition[235][236] - The company operates as a single operating segment[237] 2. Summary of significant accounting policies - Financial statements are prepared in accordance with US GAAP, requiring management to make estimates and assumptions for various financial items[237][241] - Key estimates include allowance for doubtful accounts, useful lives of intangible assets, goodwill impairment, share-based compensation, and income tax provision[241] - Revenue recognition (ASC 606) is based on transferring control of services, either transactionally or via monthly fees recognized ratably over contract periods[257][259] - The company's largest data supplier accounted for 49% of total data acquisition costs in 2021, and no single customer accounted for more than 10% of total revenue or accounts receivable[280][281] 3. Earnings (loss) per share Earnings (Loss) Per Share (2021 vs 2020) | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Net income (loss) | $655 | $(6,813) | | Basic EPS | $0.05 | $(0.57) | | Diluted EPS | $0.05 | $(0.57) | | Basic Weighted Average Shares Outstanding | 12,597,316 | 11,863,413 | | Diluted Weighted Average Shares Outstanding | 13,403,041 | 11,863,413 | 4. Accounts receivable, net Accounts Receivable, Net (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Accounts receivable | $3,764 | $3,239 | | Less: Allowance for doubtful accounts | $(28) | $(38) | | Total accounts receivable, net | $3,736 | $3,201 | Movement of Allowance for Doubtful Accounts (in thousands) | Metric | 2021 | 2020 | | :-------------------- | :----- | :----- | | Beginning balance | $38 | $40 | | Charges to expenses | $95 | $406 | | Write-offs | $(105) | $(408) | | Ending balance | $28 | $38 | 5. Property and equipment, net Property and Equipment, Net (in thousands) | Component | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Computer and network equipment | $732 | $705 | | Furniture, fixtures and office equipment | $763 | $673 | | Leasehold improvements | $53 | $52 | | Total cost | $1,548 | $1,430 | | Less: Accumulated depreciation | $(971) | $(872) | | Property and equipment, net | $577 | $558 | - Depreciation of property and equipment was $229 thousand in 2021 and $226 thousand in 2020[287] 6. Intangible assets, net Intangible Assets, Net (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Gross Amount | $42,982 | $36,804 | | Accumulated Amortization | $(14,801) | $(9,634) | | Net Intangible Assets | $28,181 | $27,170 | - Amortization expenses were $5,170 thousand in 2021 and $3,990 thousand in 2020[290] - Capitalized costs of software developed for internal use were $6,181 thousand in 2021 and $7,346 thousand in 2020[291] Estimated Amortization Expenses for Intangible Assets (as of Dec 31, 2021, in thousands) | Year | Amount | | :---------------- | :----- | | 2022 | $6,027 | | 2023 | $6,249 | | 2024 | $5,621 | | 2025 | $4,424 | | 2026 | $2,968 | | 2027 and thereafter | $2,892 | | Total | $28,181 | 7. Accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Component | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Accrued payroll and related expenses | $228 | $1,077 | | Accrued data acquisition costs | $49 | $58 | | Sales tax payable | $56 | $104 | | Miscellaneous expenses payable | $62 | $219 | | Total | $395 | $1,458 | 8. Income taxes Income Tax Expense (in thousands) | Metric | 2021 | 2020 | | :---------------- | :----- | :----- | | Current | $0 | $0 | | Deferred | $198 | $0 | | Total | $198 | $0 | - A valuation allowance of $9,485 thousand was recognized as of December 31, 2021 (vs. $7,583 thousand in 2020) to reduce deferred tax assets, primarily due to cumulative pre-tax losses[295] - As of December 31, 2021, the company had gross federal net operating loss carryforwards of $43,501 thousand and state net operating loss carryforwards of $33,665 thousand[294] - The company does not have any unrecognized tax benefits as of December 31, 2021 and 2020[297] 9. Common stock and preferred stock Common Stock Issued and Outstanding | Date | Shares | | :---------------- | :------------- | | December 31, 2021 | 13,488,540 | | December 31, 2020 | 12,167,327 | - Changes in common stock in 2021 included the issuance of 911,698 shares from RSU vesting and 552,915 shares from a registered direct offering (net proceeds of $20.9 million)[303] - The company has 10,000,000 shares of preferred stock authorized, but none were issued or outstanding as of December 31, 2021 and 2020[299] 10. Share-based compensation - The 2018 Stock Incentive Plan authorizes 4,500,000 shares of common stock for issuance, with 805,462 shares available for future issuance as of December 31, 2021[300][302] - As of December 31, 2021, there were 1,306,953 unvested restricted stock units (RSUs) outstanding, with $14,098 thousand in unrecognized share-based compensation expense expected to be recognized over a weighted average period of 2.6 years[304][307] - Performance-based RSU grants (Criteria One, Two, and Three) were deemed probable of achievement, while Criteria Four (120,000 RSUs granted July 2021) was not deemed probable as of December 31, 2021[305][306] Share-based Compensation Expense Allocation (in thousands) | Account | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Sales and marketing expenses | $562 | $609 | | General and administrative expenses | $6,053 | $7,455 | | Capitalized in intangible assets | $1,217 | $1,838 | | Total | $7,832 | $9,902 | 11. Related party transactions - The company had a services agreement with Michael Brauser, a significant stockholder, which was terminated via a Separation Agreement on February 16, 2021, with the agreement expiring on August 6, 2021[308][309] - The Separation Agreement included provisions for continued RSU vesting for Mr. Brauser and agreements on non-solicitation, non-disparagement, and voting of shares[309][311] Related Party Expenses (in thousands) | Expense Type | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Consulting service fees | $216 | $360 | | Share-based compensation expense | $1,432 | $1,392 | 12. Long-term loan - The company received a $2,152 thousand unsecured non-recourse loan under the CARES Act on May 5, 2020[313] - The full principal amount of the loan and accrued interest ($23 thousand) were fully forgiven on June 16, 2021, resulting in a $2,175 thousand gain on extinguishment of debt[314] 13. Leases - The company adopted Leases (Topic 842) on January 1, 2019, using the modified retrospective method[315] - The company leases its corporate headquarters and an additional office space under non-cancelable operating lease agreements[316] - Operating lease costs were $672 thousand for both 2021 and 2020[317] Scheduled Future Maturities of Operating Lease Liabilities (as of Dec 31, 2021, in thousands) | Year | Amount | | :---------------- | :----- | | 2022 | $743 | | 2023 | $765 | | 2024 | $542 | | 2025 | $77 | | Total maturities | $2,127 | 14. Commitments and contingencies - As of December 31, 2021, future material capital commitments under data licensing agreements totaled $33,059 thousand[319] - The company is involved in ordinary course litigation but does not believe the ultimate resolution will have a material adverse effect on its business or financial condition[323] - The COVID-19 pandemic continues to impact operations, with the idiVERIFIED service volume expected to return to pre-Covid levels in the second half of 2022[324] - The company utilized CARES Act provisions, including deferring Social Security payroll tax and receiving a fully forgiven loan in 2021[325] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with the company's independent registered public accounting firm on accounting and financial disclosure matters - There have been no changes in and disagreements with accountants on accounting and financial disclosure[194] Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - The company's disclosure controls and procedures were effective as of December 31, 2021[196] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 framework[197] - No changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control were identified during the last fiscal quarter of 2021[198] Item 9B. Other Information This item contains no other information - This item contains no other information[200] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[201] PART III Item 10. Directors, Executive Officers and Corporate Governance The information required for this item, pertaining to directors, executive officers, and corporate governance, is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[203] Item 11. Executive Compensation The information required for this item, detailing executive compensation, is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[204] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item, concerning security ownership of beneficial owners and management, is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[205] Item 13. Certain Relationships and Related Transactions, and Director Independence The information required for this item, regarding certain relationships, related transactions, and director independence, is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[206] Item 14. Principal Accountant Fees and Services The information required for this item, detailing principal accountant fees and services, is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[207] PART IV Item 15. Exhibits and Financial Statement Schedules This item lists all documents filed as part of the 10-K report, including financial statements, schedules, and exhibits - The report includes Financial Statements, Financial Statement Schedules, and a list of Exhibits[210] - Exhibits include the Separation and Distribution Agreement, Amended and Restated Certificate of Incorporation and Bylaws, employment agreements for executive officers, the 2018 Stock Incentive Plan, and various certifications[211][212] Item 16. Form 10-K Summary The company has voluntarily elected not to include a summary of information required by Form 10-K under this item - The company has elected not to include a summary of information required by Form 10-K[213] SIGNATURES This section contains the required signatures of the company's Chief Executive Officer, Chief Financial Officer, and other directors, certifying the submission of the Annual Report on Form 10-K - The report is signed by Derek Dubner (Chief Executive Officer and Chairman), Daniel MacLachlan (Chief Financial Officer), and directors Peter Benz, Steven D. Rubin, Robert Swayman, and Lisa Stanton[217][218] - The report was signed on March 9, 2022[217][218]