Red Violet, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Red Violet provides identity-intelligence solutions using proprietary technology, machine learning and data analytics. Its primary offerings are idiCORE and FOREWARN, delivered through its CORE platform. The company reported one operating segment for the three months ended March 31, 2021; amounts are unaudited and presented in thousands unless otherwise noted.
- idiCORE billable customers: 5,902, compared with 5,326 at March 31, 2020.
- FOREWARN users: 58,831, compared with 36,506 at March 31, 2020.
- Revenue from pricing contracts represented 80% of revenue, compared with 69% in the prior-year quarter.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $10.217 million | $9.300 million | +10% |
| Gross profit | $6.253 million | $5.158 million | +21% |
| Gross margin | 61% | 55% | +6 percentage points |
| Adjusted gross profit | $7.456 million | $6.008 million | +24% |
| Adjusted gross margin | 73% | 65% | +8 percentage points |
| Loss from operations | $(0.573) million | $(1.512) million | Improved |
| Net loss | $(0.578) million | $(1.481) million | Improved 61% |
| Basic and diluted loss per share | $(0.05) | $(0.13) | Improved |
| Adjusted EBITDA | $2.871 million | $1.730 million | +66% |
| Cash provided by operating activities | $1.232 million | $1.249 million | Slightly lower |
| Capitalized software and other investing expenditures | $1.293 million | $1.571 million | Lower cash use |
- Cash and cash equivalents were $12.896 million at March 31, 2021, compared with $12.957 million at December 31, 2020.
- Total liabilities were $7.786 million and shareholders’ equity was $45.164 million.
- The company had a $2.152 million CARES Act loan outstanding, including $806 thousand classified as current and $1.346 million as long-term debt. The loan bears interest at 1.0% and matures May 5, 2022.
- Operating lease liabilities totaled $2.327 million, and future data-licensing commitments totaled $8.688 million.
- Management stated that available cash and expected operating cash flow should fund operations and expected capital expenditures for the next twelve months, while noting that additional financing could become necessary if growth, cash generation or COVID-19 impacts differ from expectations.
Material changes versus the prior comparable period
- Platform revenue increased 21% to approximately $9.8 million, while services revenue decreased 66% to approximately $0.4 million.
- Revenue growth reflected higher usage from existing customers: base revenue increased 11% and growth revenue increased 51%. Revenue from new customers decreased 32%.
- Cost of revenue declined 16% to $2.8 million, primarily because of lower transactional data-acquisition costs associated with the idiVERIFIED service. Cost of revenue declined to 27% of revenue from 35%.
- Sales and marketing expense was substantially unchanged at approximately $2.2 million. General and administrative expense increased 3% to $4.6 million.
- Depreciation and amortization increased 38% to $1.3 million, primarily from additional internally developed software becoming ready for use.
- Share-based compensation expense declined to $2.046 million from $2.221 million, while $351 thousand was capitalized into intangible assets.
- Intangible assets, net increased to $27.565 million from $27.170 million, reflecting continued software capitalization partly offset by amortization.
Guidance, outlook, risks and unusual items
- Management expects collection-related transaction volume, including idiVERIFIED, to return to pre-COVID levels in the second half of 2021. Collection customer volume was approximately $0.7 million below the prior-year quarter and affected a lower-margin service.
- The COVID-19 pandemic continued to limit forecasting reliability. The company may provide customer concessions, and pandemic-related inefficiencies, delays and additional costs may continue.
- The company applied for forgiveness of its $2.152 million CARES Act loan in November 2020. Forgiveness remains subject to lender and Small Business Administration approval, and the company anticipates a Treasury audit because the loan exceeds $2 million.
- Material data-licensing commitments totaled $8.688 million, including $5.295 million due during the remainder of 2021.
- On February 16, 2021, the company entered into a separation agreement with a greater-than-10% stockholder. The related services agreement will not renew after August 6, 2021. Certain restricted stock units were modified, resulting in expected additional share-based compensation expense of approximately $723 thousand over the remaining service period.
- Income tax expense was zero because a full valuation allowance was maintained against deferred tax assets.
- No material legal proceedings or material changes to previously disclosed risk factors were reported. Management concluded that disclosure controls were effective as of March 31, 2021.
Important facts for investors to verify
- Whether the CARES Act loan receives full or partial forgiveness and the outcome of any related audit.
- The pace of recovery in collection-related transaction volume and the effect of idiVERIFIED revenue on consolidated margins.
- Conversion of customer and user growth into recurring revenue, cash flow and sustained profitability.
- The company’s ability to fund approximately $8.688 million of data-licensing commitments and ongoing software investment from cash flow and existing liquidity.
- The effect of substantial non-cash amortization and share-based compensation on comparisons between GAAP results and adjusted EBITDA.
- Potential dilution from 1.686 million unvested restricted stock units and 1.270 million shares available for future issuance under the 2018 incentive plan.