Red Violet, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Red Violet provides identity intelligence, risk mitigation, fraud prevention, due diligence, regulatory compliance and customer acquisition solutions through its IDI and FOREWARN brands. Its CORE platform uses proprietary technology, data, machine learning and analytics. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021.
- IDI billable customers increased to 6,592 from 5,902.
- FOREWARN users increased to 91,490 from 58,831.
- The Company added 27 employees, released idiCORE Mobile and added 44 IDI customers and 9,071 FOREWARN users during the quarter.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $12.7 million | $10.2 million | Up 25% |
| Gross profit | $8.1 million | $6.3 million | Up 29% |
| Gross margin | 64% | 61% | Up 3 percentage points |
| Adjusted gross profit | $9.6 million | $7.5 million | Up 28% |
| Adjusted gross margin | 75% | 73% | Up 2 percentage points |
| Income from operations | $0.3 million | $(0.6) million | Improved |
| Net income (loss) | $0.1 million | $(0.6) million | Improved |
| Adjusted EBITDA | $3.2 million | $2.9 million | Up 12% |
| Adjusted EBITDA margin | 25% | 28% | Down 3 percentage points |
| Cash flow from operations | $2.4 million | $1.2 million | Up 97% |
Platform revenue increased 24% to $12.2 million, while services revenue increased 27% to $0.5 million. Pricing-contract revenue represented 77% of total revenue, compared with 80% in the prior-year quarter; transactional revenue represented the remaining 23%.
Cash and cash equivalents were $34.8 million at March 31, 2022, compared with $34.3 million at December 31, 2021. Total assets were $76.7 million and shareholders’ equity was $71.2 million. The balance sheet does not report conventional debt; operating lease liabilities totaled $1.8 million. Capitalized software costs were $1.8 million in investing cash outflows, and the Company had $31.6 million of future commitments under data licensing agreements.
Operating cash flow benefited from noncash depreciation and amortization of $1.5 million, share-based compensation of $1.4 million and deferred income tax expense of $0.2 million. Investing cash outflows totaled $1.9 million, and financing cash outflows totaled $6 thousand.
Material changes versus the prior comparable period
- Revenue growth reflected a $2.4 million increase in base revenue from existing customers, plus smaller increases in growth revenue from existing customers and new customers.
- Cost of revenue increased 15%, slower than revenue growth, and declined to 25% of revenue from 27%, primarily because data acquisition costs are substantially fixed under flat-fee or unlimited-use arrangements.
- Sales and marketing expense increased 8% to $2.4 million, primarily from higher salaries, benefits and sales commissions.
- General and administrative expense increased 18% to $5.4 million, driven primarily by higher employee compensation and professional fees, partly offset by lower share-based compensation.
- Depreciation and amortization increased 22% to $1.5 million as additional internally developed software became ready for use.
- Net income improved from a $0.6 million loss to $0.1 million of income, despite a $0.2 million income tax expense and higher operating expenses.
- Weighted average basic shares increased to 13.5 million from 12.2 million, and diluted shares were 14.0 million due to the inclusion of unvested restricted stock units.
Guidance, outlook, risks and unusual items
The filing does not provide formal quarterly or annual revenue or earnings guidance. Management expects idiVERIFIED, a lower-margin, purely transactional collections offering, to return to pre-COVID volume in the first half of 2023. Management stated that results improved during 2021 and the first quarter of 2022, except for idiVERIFIED.
Management expects to fund operations and anticipated capital expenditures with available cash and operating cash flow over the next twelve months and believes current resources are sufficient. It also noted that additional equity or debt financing could become necessary depending on revenue growth, cash generation and COVID-19 effects, potentially causing dilution and possibly being available only on unfavorable terms.
- COVID-19 effects remain uncertain, including the impact of new variants, vaccines and government measures.
- The Company depends substantially on data suppliers; its largest supplier represented approximately 47% of data acquisition costs in Q1 2022, compared with approximately 45% in Q1 2021.
- Material future data licensing commitments totaled $31.6 million through 2026.
- The Company had $17.9 million of unrecognized share-based compensation expense expected to be recognized over a weighted-average period of three years.
- Income tax expense was $175 thousand despite a cumulative-loss position, and the Company maintained a full valuation allowance against deferred tax assets.
- No goodwill impairment was recorded. The Company reported no material legal proceedings, no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
- The 2018 Stock Incentive Plan amendment approved by the board on April 11, 2022, which would increase authorized shares from 4.5 million to 6.5 million, remained subject to stockholder approval.
Important facts for investors to verify
- Whether revenue growth and customer expansion continue after the strong year-over-year Q1 comparison.
- Whether adjusted EBITDA margin recovers from 25% as the Company continues investing in personnel, technology and product development.
- The timing and cash impact of the $31.6 million data licensing commitments and ongoing software capitalization.
- Whether idiVERIFIED volume returns to pre-COVID levels in the first half of 2023 as expected.
- The effect of share-based compensation, potential plan expansion and additional equity financing on future share dilution.
- Whether the Company’s cash balance and operating cash flow remain sufficient to fund operations, commitments and capital expenditures without external financing.