Red Violet, Inc. (NASDAQ:RDVT) is a pioneering analytics and information solutions provider that is transforming the way organizations operate and make critical decisions. With its proprietary CORE™ platform, the company leverages advanced data analytics and machine learning to deliver unparalleled identity intelligence solutions that empower businesses across diverse industries.
Company Background
Founded in 2014 through the acquisition of Interactive Data, LLC, Red Violet has quickly established itself as a leader in the identity verification and risk mitigation space. The company was originally spun out from Cogint, Inc. (now known as Fluent, Inc.) in 2018. In its early years, Red Violet focused on building out its proprietary CORE platform, investing heavily in expanding its data assets and enhancing its analytical capabilities to deliver actionable insights to customers. This required navigating challenges around data licensing agreements and building the right team of experts.
Products and Services
The company’s flagship product, idiCORE, is a next-generation investigative solution used by a wide range of organizations, including financial services firms, insurance providers, law enforcement agencies, and legal practices, to address a variety of operational challenges. Over time, Red Violet has established itself as a leading provider of identity verification, risk mitigation, and regulatory compliance solutions. In 2020, the company launched FOREWARN, an app-based solution tailored for the real estate industry to help professionals identify and mitigate risks prior to face-to-face engagements.
Red Violet generates substantially all of its revenue from licensing its solutions, which customers access through a hosted environment using an online interface, batch processing, API, and custom integrations. The company’s operations are focused on a single operating segment, providing identity intelligence solutions to various industries.
Financial Performance
Red Violet’s revenue has grown consistently over the past three years, reaching $60.2 million in 2023, up from $53.3 million in 2022 and $44.0 million in 2021. During this period, the company has maintained a healthy gross margin, which stood at 78.3% in 2023, up from 77.1% in 2022 and 74.6% in 2021. Despite the economic headwinds, Red Violet has demonstrated its ability to navigate the market, delivering solid financial performance and generating robust cash flow.
In the third quarter of 2024, Red Violet reported record revenue of $19.1 million, up 20% year-over-year, and a record adjusted EBITDA of $6.7 million, representing a margin of 35%. The company’s strong performance was driven by continued momentum across its core business segments, including a 23% increase in adjusted net income to $3.1 million.
For the three months ended September 30, 2024, Red Violet reported total revenue of $19.06 million, an increase of 20% from $15.84 million in the same period of the prior year. This revenue growth was driven by a 19% increase in revenue from new customers, a 23% increase in base revenue from existing customers, and a 3% increase in growth revenue from existing customers.
Gross profit for the three months ended September 30, 2024 was $13.36 million, representing a gross margin of 70%, up from 66% in the prior year period. Adjusted gross profit, which excludes the impact of depreciation and amortization, was $15.74 million, with an adjusted gross margin of 83%, up from 79% in the same period of the prior year.
Net income for the three months ended September 30, 2024 was $1.72 million, compared to $12.49 million in the prior year period, which included a one-time deferred income tax benefit of $10.38 million. Adjusted EBITDA increased 25% to $6.68 million, with an adjusted EBITDA margin of 35%, up from 34% in the same period of the prior year.
For the most recent fiscal year (2023), Red Violet reported revenue of $60.20 million, net income of $13.53 million, operating cash flow of $15.07 million, and free cash flow of $5.92 million. In the most recent quarter (Q3 2024), the company generated $7.25 million in operating cash flow and $4.83 million in free cash flow, representing a record for the company.
Competitive Advantage
Red Violet’s success is underpinned by its commitment to innovation and its ability to address the evolving needs of its customers. The company’s CORE platform leverages cutting-edge AI and machine learning capabilities to transform raw data into actionable intelligence, enabling organizations to make more informed decisions, streamline operations, and mitigate risks.
Growth Drivers
One of the key growth drivers for Red Violet has been the increasing demand for its solutions in the financial services and insurance sectors. As these industries face heightened regulatory scrutiny and the need to combat fraud, Red Violet’s identity verification and risk assessment tools have become increasingly crucial. The company has also seen strong momentum in the law enforcement and government verticals, as public sector organizations seek to enhance their investigative capabilities and improve public safety.
In addition to its core business, Red Violet has also found success with its FOREWARN brand, a mobile app-based solution tailored for the real estate industry. FOREWARN provides real estate professionals with instant access to information about potential clients, helping them identify and mitigate risks before engaging in face-to-face interactions. As of the third quarter of 2024, FOREWARN had over 284,970 users, up from 168,360 users in the same period of the previous year, a testament to its growing popularity and the company’s ability to diversify its product offerings.
The identity intelligence and risk mitigation software industry has seen a compound annual growth rate (CAGR) of approximately 15-20% over the past three years, driven by increasing demand for data-driven solutions to combat fraud, verify identities, and enhance compliance. Red Violet is well-positioned to capitalize on this industry trend.
Challenges and Management Strategy
Despite its impressive growth, Red Violet is not without its challenges. The company operates in a competitive landscape, with established players and nimble startups vying for market share. Additionally, the company’s reliance on data acquisition and licensing agreements exposes it to potential cost fluctuations and supply chain disruptions.
However, Red Violet’s management team has demonstrated its ability to navigate these obstacles. The company has continued to invest in its sales and marketing capabilities, expanding its customer base and deepening its relationships with existing clients. Through strategic investments in sales and marketing, Red Violet has grown its customer base substantially. As of September 30, 2024, the company had 8,740 billable IDI customers, up from 7,770 in the same period of the previous year. Moreover, Red Violet has leveraged its strong cash flow and balance sheet to fund strategic initiatives, including product development and geographic expansion, positioning the company for sustained growth.
Liquidity
Red Violet maintains a strong financial position with no debt, as evidenced by its debt-to-equity ratio of 0. As of September 30, 2024, the company had cash and cash equivalents of $35.75 million. The company’s current ratio and quick ratio both stand at 9.95, indicating a robust ability to meet short-term obligations. Red Violet does not have any disclosed available credit lines, further highlighting its strong cash position and financial stability.
Future Outlook
Looking ahead, Red Violet is poised to capitalize on the growing demand for identity intelligence solutions. The company’s innovative CORE platform, coupled with its industry-specific expertise and commitment to customer success, make it well-equipped to drive enterprise transformation and deliver long-term value for its shareholders.
Red Violet’s management is optimistic about closing out a record 2024 and driving continued momentum throughout 2025. The company expects the favorable environment, with factors like asset appreciation and low unemployment, to continue benefiting its business through the remainder of 2024 and throughout 2025. Given the continued momentum in the business, Red Violet remains well-positioned to continue its growth trajectory for years to come.
Conclusion
In conclusion, Red Violet’s journey as a leading analytics and information solutions provider has been marked by consistent growth, technological innovation, and a relentless focus on addressing the evolving needs of its customers. As the company continues to expand its reach and refine its offerings, it remains well-positioned to cement its status as a critical partner for organizations seeking to navigate the complex and ever-changing business landscape. With strong financial performance, a growing customer base, and innovative solutions, Red Violet is poised for continued success in the rapidly evolving identity intelligence market.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.