Red Violet, Inc. 2022 Form 10-K Summary
Business Context and Reporting Period
Red Violet provides cloud-native identity intelligence, data analytics, and information solutions through its CORE platform and IDI and FOREWARN brands. Applications support risk mitigation, due diligence, fraud prevention, regulatory compliance, customer acquisition, and investigative workflows.
The filing covers the fiscal year ended December 31, 2022, including fourth-quarter results. Red Violet had 7,021 IDI billable customers and 116,960 FOREWARN users at year-end, compared with 6,548 and 82,419, respectively, in 2021. Substantially all revenue is generated from licensing and access to its hosted solutions.
Financial Performance and Liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $53.3 million | $44.0 million | 21% increase |
| Platform revenue | $52.0 million | Not clearly provided in source text | 22% increase |
| Services revenue | $1.3 million | Not clearly provided in source text | 16% decrease |
| Gross profit | $34.7 million | $27.7 million | 25% increase |
| Gross margin | 65% | 63% | Up 2 percentage points |
| Net income | $0.6 million | $0.7 million | 6% decrease |
| Basic and diluted EPS | $0.04 | $0.05 | Decrease |
| Adjusted EBITDA | $12.9 million | $10.9 million | 18% increase |
| Adjusted EBITDA margin | 24% | 25% | Down 1 percentage point |
| Cash flow from operations | $12.5 million | $8.9 million | 39% increase |
| Free cash flow | $3.6 million | $3.7 million | 2% decrease |
| Cash and cash equivalents | $31.8 million | $34.3 million | Decrease of $2.4 million |
Cost of revenue increased 9% to $12.2 million, slower than revenue growth, primarily because data costs are largely fixed under flat-fee and unlimited-use arrangements. Adjusted gross profit was $41.1 million and adjusted gross margin was 77%, compared with 75% in 2021.
Operating income was $0.4 million, compared with an operating loss of $1.3 million in 2021. Interest income was $0.4 million in 2022, compared with net interest expense in 2021. The 2021 results included a one-time $2.2 million gain from forgiveness of the CARES Act loan; no such gain was recorded in 2022.
The company had total liabilities of $6.3 million and shareholders’ equity of $71.1 million at December 31, 2022. The filing does not report outstanding debt at year-end; the CARES Act loan was fully forgiven in 2021. Operating lease liabilities totaled $1.3 million, including $0.7 million current and $0.6 million noncurrent.
Fourth-Quarter 2022 Results
- Revenue increased 16% to $13.1 million from $11.3 million.
- Platform revenue increased 19% to $12.9 million; services revenue decreased 54% to $0.2 million.
- Gross profit increased 19% to $8.3 million, and gross margin improved to 63% from 62%.
- Adjusted gross profit increased 20% to $10.0 million, with adjusted gross margin rising to 77% from 74%.
- Net loss narrowed to $1.5 million, or $0.11 per basic and diluted share, from a $1.8 million loss.
- Adjusted EBITDA increased 16% to $1.5 million.
- Operating cash flow increased 123% to $4.4 million.
- Cash and cash equivalents were $31.8 million at year-end.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by a $1.4 million increase from new customers, a $7.3 million increase in base revenue from existing customers, and a $0.6 million increase in growth revenue from existing customers.
- FOREWARN users grew approximately 42%, while IDI billable customers grew approximately 7%.
- Sales and marketing expense increased 21% to $10.8 million, primarily due to higher salaries, benefits, and sales commissions.
- General and administrative expense increased 17% to $23.2 million, including higher employee compensation and professional fees.
- Depreciation and amortization increased 24% to $6.7 million as internally developed software entered service.
- Capitalized software costs increased to $8.5 million from $5.0 million, limiting free cash flow despite stronger operating cash flow.
- Financing activities used $6.1 million, primarily for $5.2 million of taxes paid on net share settlement of restricted stock units and $0.9 million of share repurchases. The company repurchased 50,000 shares during the year under a $5.0 million authorization.
- The proportion of revenue from pricing contracts declined to 75% from 80%, while transactional revenue increased to 25% from 20%.
Outlook, Management Commentary, Risks, and Unusual Items
Management expects to fund operations and expected capital expenditures for the next twelve months with available cash and operating cash flow. The filing does not provide formal revenue, earnings, or margin guidance. Management states that additional capital could be required in the future, potentially through equity or debt financing, which could dilute shareholders or impose unfavorable terms.
Management reported continuing improvement after the pandemic, but idiVERIFIED, a lower-margin, purely transactional collections offering, remained below pre-COVID volume and its recovery timing could not be estimated. Inflation, higher interest rates, reduced credit availability, and weaker customer spending may pressure volumes, pricing, and margins.
- Supplier concentration: The largest data supplier represented 49% of data acquisition costs in both 2022 and 2021. The agreement has minimum purchase commitments of $18.6 million through June 2026, while total material data licensing commitments were $27.2 million at year-end.
- Data and cybersecurity: The business relies on large repositories of sensitive personal information and external data sources. A breach, system outage, data loss, or loss of supplier access could cause legal liability, reputational damage, customer losses, or service disruption.
- Regulation: Privacy and data-use laws, including federal requirements and expanding state privacy laws, could restrict collection, sharing, or use of data and increase compliance costs.
- Competition: The company competes with larger, better-capitalized providers, including Palantir, RELX/LexisNexis, TransUnion, and Thomson Reuters. Price competition, consolidation, and faster technology development could pressure market share and margins.
- Customer and market risk: Customers may terminate or reduce usage, and macroeconomic weakness in financial services, insurance, real estate, collections, and other industries could reduce demand.
- Equity dilution: Approximately 1.0 million unvested RSUs remained at year-end, and 2.3 million shares were available for future issuance under the amended 2018 Stock Incentive Plan.
- Legal contingencies: Management states that no pending legal proceeding is expected to have a material adverse effect, but ordinary-course litigation and regulatory matters remain inherently uncertain.
The company capitalized $10.1 million of internally developed software costs in 2022, including $1.6 million of capitalized share-based compensation. Approximately $5.3 million of software costs had not yet entered amortization at year-end. Management recorded no goodwill or long-lived asset impairment.
Important Facts for Investors to Verify
- Whether platform revenue growth and FOREWARN user growth remain durable as macroeconomic conditions weaken.
- The recovery, profitability, and strategic importance of the lower-margin idiVERIFIED services business.
- Renewal terms, pricing, and minimum purchase commitments under the largest data supplier agreement through June 2026.
- The pace and returns on internally developed software investment, including the $8.5 million capitalized in 2022.
- The effect of privacy regulation, cybersecurity incidents, and data-source restrictions on product availability and operating costs.
- The potential dilution from outstanding and future restricted stock unit awards.
- Whether operating cash flow can continue to fund software development, supplier commitments, share repurchases, and other capital needs without additional financing.
- The comparability of adjusted EBITDA, adjusted gross profit, and free cash flow with other companies, because these are non-GAAP measures with company-specific adjustments.