Red Violet, Inc. (RDVT)

Executive Summary / Key Takeaways

• Red Violet has built a highly efficient, AI-driven identity intelligence platform that is winning contracts against entrenched competitors with hundreds of thousands of customers, demonstrating that superior technology and specialized focus can overcome scale disadvantages in niche but critical verticals.

• The company is achieving software-like economics with 83.5% gross margins, 96% gross revenue retention, and accelerating free cash flow generation ($7.3M in Q3 2025 alone), while maintaining a pristine balance sheet with virtually no debt and $18.9M remaining in share repurchase authorization.

• Management has laid out a clear path to $100M in revenue with 40% EBITDA margins, a target that would represent a step-change in profitability and validate the company's ability to scale efficiently without proportional increases in headcount.

• Competitive wins in the public sector—including a large state toll authority and a major payroll processor—signal that Red Violet's technology advantage is translating into enterprise-grade credibility, opening a TAM that management describes as "enormous" in government alone.

• The Daniels Law lawsuit represents a material but not existential risk, with over 150 companies facing nearly identical allegations; the outcome will test the company's legal defenses and could impact near-term sentiment, but the underlying business momentum remains broad-based and durable.

Setting the Scene

Red Violet, Inc. was incorporated in 2017 and is headquartered in Boca Raton, Florida, though its operational roots trace back to the 2014 acquisition of Interactive Data, LLC (IDI). The company operates a single AI-driven identity intelligence platform, CORE™, which it markets through two distinct brands: IDI, an investigative solution serving financial services, insurance, law enforcement, and collections; and FOREWARN, a mobile-first safety app tailored for real estate professionals. This bifurcated strategy allows Red Violet to address both high-volume enterprise risk management and specialized field-based safety applications from a unified technology stack.

The identity intelligence industry is dominated by multi-billion-dollar incumbents like TransUnion (TRU), Equifax (EFX), and LexisNexis Risk Solutions, each with hundreds of thousands of customers and global data networks. Red Violet's 9,853 IDI customers and 372,209 FOREWARN users represent a fraction of this scale, yet the company is growing revenue at 21% year-over-year while these larger competitors expand in the mid-single digits. This disparity reveals a structural shift in demand toward agile, specialized solutions that can be deployed quickly and integrated deeply into specific workflows—a gap that Red Violet's technology is purpose-built to fill.

The business model benefits from a counter-cyclical demand profile. In strong economic environments, corporate growth use cases drive adoption in financial services and background screening. During downturns, demand shifts toward investigations, collections, and fraud prevention. This balance has proven resilient through recent macro volatility, with the collections vertical posting its highest year-over-year growth since 2020 and the investigative vertical adding over 200 new law enforcement agencies in the past year.

Technology, Products, and Strategic Differentiation

Red Violet's CORE™ platform is an AI/ML-driven identity intelligence engine that transforms massive, disparate datasets into actionable intelligence through proprietary data aggregation and entity resolution . Unlike competitors that rely on broad but shallow consumer credit files, CORE™ links identities across non-obvious data sources—aliases, synthetic identities, behavioral patterns—enabling what management describes as "significantly greater accuracy in resolving complex profiles." This capability is not merely incremental; it allows customers in collections and investigations to find debtors and subjects that legacy systems cannot locate, creating measurable ROI that justifies premium pricing.

The idiCORE investigative solution serves as the company's flagship product, delivering identity verification, risk mitigation, and due diligence across nine distinct verticals. In Q3 2025, revenue from existing customers grew 24% year-over-year, indicating that once deployed, idiCORE becomes deeply embedded in customer workflows, driving expansion through increased transaction volumes rather than just price increases. This land-and-expand dynamic is reinforced by a 96% gross revenue retention rate, up 2 percentage points from the prior year, demonstrating that the platform's switching costs rise as customers integrate more data sources and build operational processes around it.

FOREWARN represents a second, equally strategic moat. As a mobile-first app providing instant risk checks for real estate professionals, it has achieved 20 consecutive quarters of sequential revenue growth, reaching over 590 REALTOR Associations under contract. The app's value proposition—proactive safety through immediate identity intelligence—resonates in an industry where face-to-face engagement is unavoidable. With 372,209 users as of Q3 2025, FOREWARN is now testing expansion into adjacent verticals beyond real estate, with management expecting meaningful revenue from these efforts in 2026. This diversification reduces dependence on any single market while leveraging the same underlying CORE™ infrastructure.

R&D investments focus on three areas: automating internal workflows through machine learning, enriching proprietary data assets, and applying advanced models for fraud detection. These AI initiatives are expected to drive operational efficiency and strengthen the margin profile over time. The company is not just building features; it is deepening the moat around its identity graph, making it increasingly difficult for competitors to replicate its accuracy and speed without years of data accumulation.

Financial Performance & Segment Dynamics

Red Violet's Q3 2025 results provide compelling evidence that the strategy is working. Revenue increased 21% to $23.1 million, driven entirely by volume expansion from existing customers, which grew 24% year-over-year. This is high-quality growth: it comes from deeper penetration of the installed base rather than one-time transactional revenue, which management noted was absent in the quarter. The cost of revenue as a percentage of sales fell to 16% from 17% in the prior year, a trend management expects to continue as revenue scales, indicating genuine operating leverage.

Segment performance was broad-based across IDI's verticals. The investigative vertical led with strong double-digit growth, fueled by over 200 new law enforcement agencies added in the past year. The collections vertical delivered its second consecutive quarter of high-teens growth, marking the highest year-over-year revenue increase since 2020. The emerging markets vertical—spanning retail, legal, government, and healthcare—also posted strong double-digit growth. Only the real estate vertical (excluding FOREWARN) declined slightly, pressured by high home prices and interest rates, but this headwind is more than offset by FOREWARN's 20th consecutive quarter of sequential growth.

Customer metrics underscore the momentum. IDI added 304 net new customers in Q3, ending with 9,853 billable customers, up from 8,743 a year ago. More importantly, the number of customers contributing over $100,000 in revenue reached 96 in 2024, up from 72 in 2023, signaling a successful move upmarket. FOREWARN added over 25,000 users in Q3, reaching 372,209 users across more than 590 associations. This dual growth engine—enterprise customers spending more and a consumer-facing app adding users—provides multiple levers for sustained expansion.

Cash generation is accelerating. Net cash from operating activities was $22.7 million for the nine months ended September 30, 2025, and the company generated a record $7.3 million in free cash flow during Q3. This robust cash generation funded a $4.2 million special dividend in February 2025 and $0.7 million in share repurchases, while leaving the balance sheet with minimal debt and $18.9 million remaining under the $30 million repurchase authorization. Management's comment that "our best use of capital is investing in this business" reflects confidence in the organic opportunity, but the authorization provides flexibility if valuations become attractive.

Outlook, Management Guidance, and Execution Risk

Management is explicit about its targets: reaching $100 million in revenue with 40% adjusted EBITDA margins. In Q3 2025, adjusted EBITDA margin was 35%, down 1 percentage point from the prior year due to increased investment in sales and marketing (up 28%) and general and administrative expenses (up 26%). These investments are deliberate, aimed at capturing the "enormous opportunities" management sees in front of them. The path to 40% margins does not require cost cuts; it relies on revenue scaling faster than expenses, a credible assumption given the 83.5% gross margin and the company's history of operational leverage.

The sales pipeline is described as "extremely strong," particularly for larger enterprise and public sector opportunities. Recent wins—including a large state toll authority and a multiyear contract with one of the country's largest payroll processors—are expected to become meaningful revenue contributors in 2026 as contracts mature and volumes increase. The public sector division, currently a small percentage of revenue, could become its own vertical in three to five years, competing for hundreds of millions of dollars currently captured by larger rivals.

FOREWARN's expansion beyond real estate represents a key execution variable. Management confirmed active testing and marketing into "a number of key areas" with beta testing underway. The expectation is that successful pilots will lead to heavy investment in 2026 to generate meaningful revenue. This initiative could diversify the revenue base and leverage the app's proven technology into new markets, but it also requires execution in unfamiliar verticals where competitive dynamics may differ.

Bolt-on acquisitions are also on the table. Management has "seen some opportunities for potentially accretive small bolt-on acquisitions" involving unique data, technology, or front-facing solutions in markets where Red Violet seeks to penetrate. Valuations have become more reasonable, and the company's strong cash position provides dry powder. However, any acquisition introduces integration risk and could divert management focus from the core organic opportunity.

Risks and Asymmetries

The Daniels Law lawsuit filed in February 2024 represents the most immediate risk. The company is one of over 150 defendants sued by Atlas Data Privacy Corporation for allegedly failing to suppress home addresses and unpublished phone numbers. An adverse ruling could have a near-term impact on the business, financial position, and operations. While the company is vigorously defending itself and expects insurance coverage, the outcome is uncertain and could create a distraction or financial liability that impacts the stock's premium valuation.

Scale remains a fundamental vulnerability. Red Violet's 9,853 IDI customers compare to competitors with "hundreds of thousands of customers," indicating both the opportunity and the risk. The company's smaller data breadth could limit its ability to compete for the largest enterprise deals, where global coverage and pattern recognition across billions of records are table stakes. If larger competitors respond aggressively to Red Violet's encroachment—through price cuts, enhanced products, or acquisitions—the company's growth trajectory could face headwinds.

Customer concentration in financial services and collections creates cyclical exposure. While management touts the counter-cyclical balance, elevated interest rates could reduce credit demand and lower usage by banking customers. The real estate vertical's decline due to affordability pressures demonstrates that macro factors can impact specific segments, and a broad economic downturn could test the resilience of the overall model.

The U.S.-centric focus limits international growth. Unlike global competitors, Red Violet has not demonstrated meaningful traction outside the United States. This caps the total addressable market and leaves the company vulnerable to domestic regulatory changes or competitive saturation. Expanding internationally would require significant investment and may face entrenched local players.

Valuation Context

Trading at $54.01 per share, Red Violet carries a market capitalization of $758.65 million and an enterprise value of $716.16 million. The stock trades at 69 times trailing earnings and 8.78 times sales, reflecting a premium multiple that prices in continued high growth and margin expansion. The price-to-free-cash-flow ratio of 40.06 and price-to-operating-cash-flow ratio of 25.85 are elevated but supported by accelerating cash generation—Q3 free cash flow of $7.3 million annualizes to nearly $30 million, implying a more reasonable 25x multiple on forward cash flow if growth sustains.

Balance sheet strength provides a valuation floor. With a current ratio of 8.39, debt-to-equity of just 0.03, and $18.9 million remaining in share repurchase authorization, the company has significant financial flexibility. The 83.5% gross margin significantly exceeds those of larger competitors like TransUnion (59.3% gross) and Equifax (57.1% gross). Its 19.77% operating margin is competitive with these peers (TransUnion 18.2%, Equifax 19.95%), collectively justifying a premium multiple on a profitability basis.

Peer comparisons highlight the growth premium. TransUnion trades at 3.71 times sales with 8% revenue growth; Equifax at 4.58 times sales with 5% growth; RELX (RELX) at 8.01 times sales with 7% growth. Red Violet's 8.78 times sales multiple is in line with RELX despite being a fraction of the size, reflecting the market's confidence in its 21% growth trajectory and margin profile. The key question is whether the company can scale to $100 million in revenue while maintaining these economics—a milestone that would likely trigger multiple expansion as it graduates from micro-cap to small-cap status.

Conclusion

Red Violet has engineered a rare combination in the identity intelligence space: a technology platform that wins against larger competitors, a business model that generates software-like margins and cash flow, and a capital allocation strategy that balances growth investment with shareholder returns. The company's ability to grow IDI customers by 13% year-over-year while expanding revenue from existing customers by 24% demonstrates a powerful land-and-expand dynamic that becomes more entrenched over time.

The investment thesis hinges on two variables: execution toward the $100 million revenue and 40% EBITDA margin target, and navigation of the Daniels Law lawsuit. If management delivers on its guidance, the stock's premium valuation will compress through earnings growth rather than multiple contraction. If the legal overhang resolves favorably, sentiment should improve, potentially unlocking further multiple expansion. The competitive moat—proprietary AI-driven data linking, mobile-first applications, and deep workflow integration—appears durable, but success at scale will require continued outperformance against well-funded incumbents. For investors, the story is attractive but not without risk: a small company in a large market, growing fast, generating cash, and priced for perfection.