Summary of Red Violet (RDVT) FY Conference Call Company Overview - **Company**: Red Violet (RDVT) - **Industry**: ID verification sector - **Key Offerings**: Aggregation of identity-related data from various databases, including liens, judgments, and credit header data, which is sold to different industries [1][2] Core Business Verticals - **Five Verticals Served**: 1. Collections 2. Financial and Corporate Risk 3. Investigative 4. Real Estate 5. Emerging Markets [3][12] Historical Context - **Management Background**: Previous experience includes building Seizen and TLO, both in the identity verification space, with significant sales to LexisNexis and TransUnion [4][5][6] Technology and Differentiation - **Cloud-Native Platform**: Built from the ground up using AWS, differentiating it from older products [7] - **AI Integration**: Utilizes AI to enhance data connections and improve transaction clarity [7][60] Use Cases - **Collections**: Validating debt records for accuracy [8] - **Real Estate**: Safety solutions for realtors, including background checks on potential clients [11][12] - **Financial Risk**: Background screening for job applicants, ensuring data accuracy [14][15] - **Investigative**: Tools for law enforcement to conduct investigations efficiently [18][19] Financial Performance - **Revenue Model**: Fixed cost nature with long-term agreements with data providers, leading to high contribution margins [23] - **Gross Profit Margin**: Reported over 80% gross profit and approaching 40% adjusted EBITDA margins [24] - **Customer Base**: Approximately 9,500 customers across various products, with significant growth potential [30] Market Position and Competition - **Competitive Landscape**: Competes with major players like TransUnion and LexisNexis but maintains a unique position due to its technology and data aggregation capabilities [39][40] - **Switching Costs**: Low for customers, allowing for quick onboarding and integration [34][36] Future Opportunities - **Public Sector Growth**: Anticipated increase in contracts due to upcoming RFPs, with potential for large contracts [43][46] - **Background Screening Expansion**: New product offerings in the background screening space, targeting large payroll companies [47][48] Key Performance Indicators - **Gross Retention Rate**: Reported at 97%, with guidance towards 90-95% [50] - **Net Revenue Retention**: Estimated to be in the mid to upper teens [51] Additional Insights - **AI as a Tool**: AI is leveraged for operational efficiency and enhancing customer interaction with the platform [62] - **Data Security**: Regular audits and certifications (PCI level one, SOC one, SOC two, ISO 27001) ensure data safety [70] Conclusion - Red Violet is positioned strongly within the ID verification sector, leveraging advanced technology and a diverse range of use cases to drive growth and maintain competitive advantages. The company is well-prepared to capitalize on emerging opportunities in the public sector and background screening markets.

Financial Data and Key Metrics Changes - Revenue for the quarter increased by 14% to $21.8 million, with a 21% growth when excluding a one-time transactional revenue of $1 million from the prior year [7][17] - Adjusted gross profit reached $18.2 million, resulting in a record adjusted gross margin of 84%, up two percentage points [8][18] - Adjusted EBITDA was $7.6 million, with a margin of 35%, down one percentage point from the previous year [8][18] - Adjusted net income increased by 6% to $4.1 million, resulting in adjusted earnings of $0.28 per diluted share [8][22] - Free cash flow for the quarter was $4.8 million, a 47% increase from $3.3 million a year ago [23] Business Line Data and Key Metrics Changes - IDI's billable customer base increased by 308 customers sequentially, ending the quarter with 9,549 customers [18] - The Investigative vertical led in percentage growth, driven by the addition of over 200 law enforcement agencies [19] - The emerging markets vertical led in revenue growth dollars, with strong contributions from legal, government, and retail industries [19] - Collections posted high teens revenue growth, the highest since 2020, indicating a recovery in that vertical [19] - ForWarn added over 21,000 users, now having over 575 realtor associations contracted [20] Market Data and Key Metrics Changes - Contractual revenue accounted for 77% of total revenue, up three percentage points from the prior year [21] - Gross revenue retention improved to 97%, an increase of three percentage points [21] Company Strategy and Development Direction - The company is focusing on increasing productivity through automation and machine learning applications to enhance operational efficiency [11][12] - Capital investment in AI is a key part of the long-term growth strategy, aimed at improving fraud detection and data quality [13] - The company is well-capitalized and agile, with the flexibility to pursue both organic and strategic growth opportunities [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to drive long-term value creation, citing a resilient business model and a clear roadmap for innovation [14] - The company is encouraged by the growth pipeline, particularly in larger enterprise accounts, and is optimistic about future opportunities in the public sector [30][34] Other Important Information - The company entered into an amendment with its largest data supplier, extending the agreement through April 30, 2031, with minimal cost escalation [21][43] - Sales and marketing expenses increased by 28% to $5.6 million, driven by higher personnel-related expenses [22] Q&A Session Summary Question: What are the expectations for securing larger accounts? - Management noted significant progress in penetrating larger enterprise accounts, with a growing pipeline and encouraging results from testing [28][30] Question: Are there opportunities related to government budget increases? - Management confirmed that recent government budget changes present significant opportunities, particularly in the public sector [34][36] Question: Is there a timeline for expanding ForWarn into other verticals? - Management is actively testing and marketing ForWarn in various key areas outside real estate, with expectations for updates in 2026 [39][40] Question: Can you elaborate on the amendment with the data supplier? - The amendment extends the term with the data supplier under similar terms, ensuring long-term partnership with minimal price escalation [43][44] Question: What is the outlook for customer retention? - Management expects retention rates to remain around 95% to 96%, supported by strong product functionality and customer need [48][49] Question: How will the company utilize its cash flow? - The company is evaluating various capital allocation strategies, including investments in AI, potential acquisitions, and share repurchase programs [52][54]

Core Insights - Red Violet, Inc. reported a 14% increase in revenue to $21.8 million for the quarter ended June 30, 2025, alongside a record cash flow from operations of $7.5 million [1][6]. Financial Performance - Total revenue increased by 14% to $21.8 million compared to $19.1 million in the same quarter last year [6]. - Gross profit rose by 18% to $15.7 million, with gross margin improving to 72% from 70% [6]. - Adjusted gross profit increased by 17% to $18.2 million, and adjusted gross margin improved to 84% from 82% [6]. - Net income grew by 2% to $2.7 million, resulting in earnings of $0.19 per basic share and $0.18 per diluted share [6]. - Adjusted EBITDA increased by 12% to $7.6 million, with adjusted EBITDA margin slightly decreasing to 35% from 36% [6]. - Net cash provided by operating activities surged by 31% to $7.5 million [6]. Customer Metrics - The company added 308 customers to its IDI platform during the second quarter, bringing the total to 9,549 customers [6]. - FOREWARN saw an addition of 21,335 users, ending the quarter with 346,671 users, with over 575 REALTOR Associations contracted to use the service [6]. Market Position and Strategy - The CEO expressed confidence in the company's ability to continue driving revenue growth and capitalize on significant opportunities ahead, highlighting strong customer onboarding and demand [2][6]. - The company has been successful in attracting higher-tier customers, with total customer spend increasing across key revenue cohorts [6].

Financial Data and Key Metrics Changes - Revenue for the quarter increased by 26% to a record $22 million, with adjusted gross profit reaching $18.3 million and an adjusted gross margin of 83% [7][14] - Adjusted EBITDA rose by 47% to a record $8.4 million, resulting in an adjusted EBITDA margin of 38%, up six percentage points [7][15] - Adjusted net income increased by 53% to a record $4.8 million, leading to adjusted earnings of $0.33 per diluted share [7][21] Business Line Data and Key Metrics Changes - The IDI billable customer base grew by over 300 customers sequentially, ending the quarter at 9,241 customers [7][17] - The emerging markets vertical led revenue growth, while the investigative vertical continued to perform well, driven by law enforcement [17][18] - The collections vertical showed mid-single-digit growth, with the highest year-over-year growth rate since 2020 when normalized for prior year impacts [18] - The real estate vertical, excluding FORWARN, declined by low single digits due to affordability issues [19] Market Data and Key Metrics Changes - Over 545 realtor associations are now contracted to use FORWARN, which added more than 20,000 users during the quarter, marking its twentieth consecutive quarter of revenue growth [8][19] - Contractual revenue represented 74% of total revenue for the quarter, down four percentage points from the prior year [19] Company Strategy and Development Direction - The company focuses on increasing productivity, implementing automation, and enhancing proprietary data generation and aggregation, including the use of AI [11][31] - The business model has proven resilient through various economic cycles, ensuring relevance and mission-critical status regardless of market conditions [9][10] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the business model's durability amid economic volatility, highlighting strong demand across various customer segments [8][10] - The company is optimistic about the opportunity pipeline and expects continued onboarding across customer verticals [25][26] Other Important Information - Cash and cash equivalents were $34.6 million as of March 31, 2025, with a special cash dividend of $0.30 per share paid out [21][22] - The company generated $5 million in cash from operating activities, compared to $4.3 million for the same period in 2024 [21] Q&A Session Summary Question: What is driving the strong growth in IDI customers? - Management noted consistent volume across customer bases and verticals, with no impact from broader economic uncertainty [25][26] Question: Any highlights on larger customers and their trends? - The number of customers generating over $100,000 in revenue annually has grown to approximately 110, indicating strong performance in medium and larger enterprise segments [27][28] Question: What areas of technology investment are being focused on for long-term growth? - The company is investing in enhancing its identity graph and proprietary data generation, with a focus on AI initiatives to provide current risk signals to customers [29][31]

Financial Data and Key Metrics Changes - Revenue for the quarter increased by 26% to a record $22 million, with adjusted gross profit reaching $18.3 million and an adjusted gross margin of 83% [8][16] - Adjusted EBITDA rose by 47% to a record $8.4 million, resulting in an adjusted EBITDA margin of 38%, up six percentage points [8][16] - Adjusted net income increased by 53% to a record $4.8 million, leading to adjusted earnings of $0.33 per diluted share [8][16] Business Line Data and Key Metrics Changes - The IDI billable customer base grew by over 300 customers sequentially, ending the quarter at 9,241 customers [9][19] - The emerging markets vertical led revenue growth, while the investigative vertical continued to perform well, driven by law enforcement [19][20] - The collections vertical showed mid-single-digit growth, with the highest year-over-year growth rate since 2020 when normalized for prior year impacts [20] Market Data and Key Metrics Changes - ForeWarn added 21,918 users during the first quarter, ending with 325,336 users, marking its twentieth consecutive quarter of sequential revenue growth [9][21] - Contractual revenue represented 74% of total revenue for the quarter, down four percentage points from the prior year due to one-time transactional revenue [21] Company Strategy and Development Direction - The company focuses on increasing productivity, implementing automation, and enhancing proprietary data generation and aggregation, including the use of AI [13][35] - The business model has proven resilient through various economic cycles, ensuring relevance and mission-critical status regardless of market conditions [10][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's ability to perform through economic fluctuations, highlighting a structural shift in consumer dynamics [12][25] - The company remains focused on sustaining momentum, expanding reach, and creating long-term value for shareholders [25][40] Other Important Information - Cash and cash equivalents were $34.6 million as of March 31, 2025, with a special cash dividend of $0.30 per share paid out [23][24] - The company generated $5 million in cash from operating activities, compared to $4.3 million for the same period in 2024 [23] Q&A Session Summary Question: What is driving the strong growth in IDI customers? - Management noted consistent volume across customer verticals and strong onboarding across various customer sizes, expecting this trend to continue [28][29] Question: Are larger customers slowing down or picking up amid macro uncertainty? - The number of customers generating over $100,000 in revenue annually has increased to around 110, indicating continued growth in medium and larger enterprise customers [30] Question: What areas of technology investment are being focused on for long-term growth? - The company is investing in enhancing its identity graph and proprietary data generation, with a focus on risk signals and automation to improve financial performance [32][35]