What Red Violet (RDVT) Said on Its Q3 Earnings Call

Key Points

• Red Violet reported record Q3 results: Revenue rose 20% year over year to $27.8 million, adjusted EBITDA increased 22% to $11 million, and operating cash flow climbed 25% to $12.7 million. Trailing 12-month revenue topped $100 million for the first time.
• Growth spanned all five revenue verticals, supported by customer additions and greater contractual revenue, which reached 78% of total revenue; gross revenue retention was 96%. However, IDI’s real estate business declined at a high-single-digit rate and is expected to stay soft until housing conditions improve.
• The company ended September with $165.7 million in cash and no debt after a public offering, and generated record free cash flow of $8.8 million. Management plans to prioritize investment in the business while evaluating acquisitions, and is also developing AI-enabled products and applications.

Red Violet NASDAQ: RDVT reported record third-quarter revenue and operating cash flow as demand for its identity intelligence services grew across its markets, though its IDI real estate business remained under pressure.

Revenue rose 20% from a year earlier to $27.8 million, while operating cash flow increased 25% to $12.7 million. Trailing 12-month revenue surpassed $100 million for the first time, Chairman and CEO Derek Dubner said on the company’s earnings call.

Adjusted EBITDA increased 22% to $11 million, with the margin rising one percentage point to 40%. Net income rose 29% to $5.4 million, while adjusted net income grew 23% to $7.3 million, or $0.47 per diluted share.

Dubner said revenue growth was broad-based and that the quarter included no meaningful one-time transactional revenue contributions. September was the company’s highest-revenue month, and October was “just as good,” he said.

Customer Growth and Market Trends

Red Violet added 383 billable customers to its IDI business during the quarter, bringing the total to 11,252. Its FOREWARN safety service added 19,688 users, ending the period with 462,861.

Contractual revenue represented 78% of total revenue, up three percentage points from a year earlier, while gross revenue retention remained at 96%. CFO Dan MacLachlan said the higher contractual mix reflected both existing customer conversions and new business, including medium-sized and larger enterprise customers that typically enter into contracts.

MacLachlan said all five revenue verticals contributed growth. Investigative was the fastest-growing vertical on a percentage basis, with law enforcement, private investigators, bail bonds and process servers each posting strong double-digit growth. Red Violet now serves more than 1,000 law enforcement agencies, he said.

Collections also had one of its strongest recent quarters, as elevated consumer delinquencies put more accounts into collections and customers increased their use of Red Violet’s services, MacLachlan said. Financial services grew through deeper usage by existing customers, while background screening and insurance posted accelerated growth.

Real estate delivered overall growth because of FOREWARN, but IDI’s real estate business declined at a high-single-digit rate year over year. MacLachlan said tentative signs of improvement noted in the previous quarter did not continue and that the business is expected to remain soft until housing market conditions improve.

FOREWARN revenue grew at a double-digit rate, and the service had more than 665 REALTOR associations under contract. Its recently introduced Community Alerts feature lets subscribers flag a concerning interaction and alert their local network. Dubner said the feature is currently included at no additional cost within the subscription.

Public Sector, AI and Investment

Dubner said Red Violet signed a multiyear contract in October with another secretary of state to support identity resolution and fraud prevention. The company is also developing relationships with federal agencies, a process he said takes time.

Management plans to continue investing in sales, infrastructure and product development, including AI. Dubner said the company is using AI to aggregate and analyze data, develop features and improve internal productivity. He also said Red Violet is building new applications and ways for customers to interact with its services, though it has not yet announced them.

Asked about hiring and profitability, MacLachlan said the company has added sales, marketing, engineering and infrastructure staff while continuing to expand margins. Margins may fluctuate from quarter to quarter, he said, but management believes the business can continue to benefit from operating leverage as it invests.

Cash Position and Acquisition Plans

Red Violet completed a public offering that generated approximately $109 million in net proceeds. It ended September with $165.7 million in cash, cash equivalents and U.S. Treasury securities and no debt. Third-quarter free cash flow rose 21% to a record $8.8 million.

Management said its first capital allocation priority remains investment in the business, but it continues to evaluate acquisitions involving data assets, technology or companies with established positions in markets where Red Violet is earlier in its development.

Dubner said the company maintains a high bar for potential deals and has previously passed on opportunities that did not meet its expectations for synergies or valuation. “When we see the one we want, we’ll transact,” he said.

About Red Violet (NASDAQ:RDVT)

Red Violet, Inc NASDAQ: RDVT is a technology company that develops cloud-based identity intelligence and information solutions. Its platform helps organizations access, analyze and connect data to support investigations, risk management, fraud prevention, compliance and other decision-making activities.

The company's products include idiCORE, an investigative and information services platform designed for users such as law enforcement agencies, government organizations, corporate security teams, insurance companies, financial institutions, collection agencies and other businesses.

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