RDVT 10-Q — Smart Summary

• Basis of preparation: Unaudited condensed consolidated financial statements prepared under US GAAP; results for interim periods are not necessarily indicative of results for any future interim periods or for the full year ending December 31, 2025. The December 31, 2024 balance sheet was derived from audited financials included in the Form 10-K filed with the SEC on February 27, 2025.
• ASU 2023-09 (Income Taxes): FASB's December 2023 guidance requires greater disaggregation of the effective tax rate reconciliation and income taxes paid by jurisdiction; effective for annual periods beginning after December 31, 2024, with prospective or retrospective application permitted. The Company is currently evaluating the impact on its financial statements.
• ASU 2024-03 (Expense Disaggregation): FASB's November 2024 guidance requires note-level disclosure of specific expense categories including employee compensation, depreciation, and intangible asset amortization; effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027. The Company is currently assessing the impact.

Dilution source: Diluted weighted average shares outstanding for both the three months ended March 31, 2025 and March 31, 2024 are calculated by inclusion of unvested restricted stock units (RSUs) under the treasury stock method.

• Intangible asset composition: As of March 31, 2025, net intangibles totaled $37.5M, comprising software developed for internal use (gross $77.1M, accumulated amortization ($40.9M), net $36.2M; 5–10 year life) and acquired intangible assets consisting of data assets with perpetual usage rights (gross $1.3M, accumulated amortization ($48,000), net $1.3M; 10-year life); acquired intangibles carried a zero balance as of December 31, 2024.
• Amortization expense: Amortization of $2.5M and $2.2M was recorded for the three months ended March 31, 2025 and 2024, respectively; costs of $4M and $2.8M were capitalized during those same periods.
• Not-yet-amortizing assets: As of March 31, 2025, $6.7M of software developed for internal use (included in gross carrying amounts) has not yet begun amortization as it is not ready for its intended use.
• Future amortization schedule: Estimated amortization from the March 31, 2025 balance is $7.7M for the remainder of 2025, $9.6M in 2026, $8M in 2027, $5.5M in 2028, $3.6M in 2029, and $3.1M in 2030 and thereafter.

• Goodwill balance: Goodwill of $5.2M (stated as $5,227 with no unit qualifier beyond context) remained unchanged at both March 31, 2025 and December 31, 2024, arising entirely from the acquisition of Interactive Data, LLC, a wholly-owned subsidiary of red violet, effective October 2, 2014.
• Impairment status: No goodwill impairment loss was recorded during the three months ended March 31, 2025 and 2024, and there was no accumulated goodwill impairment loss as of March 31, 2025; the annual impairment test measurement date is October 1.

• Unbilled receivables: As of March 31, 2025, current and noncurrent unbilled accounts receivable were $1,334 and $1,484, respectively, compared to $937 and $1,080 as of December 31, 2024; these are included within accounts receivable and other noncurrent assets on the condensed consolidated balance sheets.
• Revenue mix — pricing vs. transactional: For the three months ended March 31, 2025, 74% of total revenue was attributable to customers with pricing contracts (generally annual or longer with auto renewal) and 26% to transactional customers, versus 78% and 22%, respectively, for the three months ended March 31, 2024.
• Deferred revenue: The balance was $754 as of March 31, 2025 and $712 as of December 31, 2024, all expected to be realized in the next 12 months; of the December 31, 2024 balance, $311 was recognized into revenue during the three months ended March 31, 2025.
• Remaining performance obligations: As of March 31, 2025, $22,035 of revenue is expected to be recognized for unsatisfied or partially unsatisfied obligations on pricing contracts with terms greater than 12 months, with $8,888 in the remainder of 2025, $7,800 in 2026, $4,322 in 2027, $875 in 2028, $145 in 2029, and $5 in 2030.

• Effective tax rate: The Company's effective income tax rate was 24% for the three months ended March 31, 2025 and 2024, versus the U.S. corporate statutory federal income tax rate of 21%; the difference was primarily driven by state income taxes and certain nondeductible permanent differences, partially offset by the utilization of research and development tax credits.
• Valuation allowance: The Company released its valuation allowance on deferred tax assets during Q3 2023, concluding that realization of deferred tax assets as of March 31, 2025 was more likely than not, based on historical cumulative positive income before income taxes plus permanent differences, projections of future taxable income, and the reversal of taxable temporary differences.
• Unrecognized tax benefits: The Company does not have any material unrecognized tax benefits as of March 31, 2025 and December 31, 2024; due to net operating loss carryforwards since inception, all income tax filings remain open for examination.

• Common shares issued: Issued shares of common stock were 13,950,797 as of March 31, 2025, up from 13,936,329 as of December 31, 2024; the increase reflects 19,500 shares issued upon RSU vesting, of which 5,032 shares were withheld for withholding taxes (reflected in treasury stock at a cost of $202,000) and subsequently retired during the period, leaving no treasury shares outstanding at either date.
• Special cash dividend: On December 3, 2024, the Company declared a special cash dividend of $0.30 per share to shareholders of record as of January 31, 2025; the aggregate payment of approximately $4.2M was made on February 14, 2025.

• Plan capacity: As of March 31, 2025, 1,655,452 shares were available for future issuance under the 2018 Plan, as amended; on April 17, 2025, the Board approved (subject to stockholder approval at the 2025 Annual Meeting) a further increase in authorized shares from 6,500,000 to 7,500,000.
• RSU grants: During the three months ended March 31, 2025, the Company granted 95,650 RSUs at grant-date fair values ranging from $34.18 to $38.72 per share, with vesting periods of three to four years; unvested RSUs increased from 887,268 units (weighted average grant-date fair value of $21.67) at December 31, 2024 to 936,581 units ($23.07) at March 31, 2025, after 14,468 units vested and delivered, 5,032 withheld as treasury stock, and 26,837 forfeited.
• Unrecognized expense: As of March 31, 2025, unrecognized share-based compensation expense associated with granted RSUs was $17.4M, expected to be recognized over a remaining weighted average period of 2.7 years.
• Capitalized compensation: In addition to expensed share-based compensation, $382,000 was capitalized in intangible assets in Q1 2025, compared to $446,000 in Q1 2024.

• Lease portfolio: The Company leases its corporate headquarters of 21,020 rentable square feet under a non-cancellable operating lease amended effective January 2017, with a further amendment executed September 20, 2023 extending the term for an additional 60 months through June 30, 2029 and an option to further extend for an additional 60 months; a second office of 6,003 rentable square feet leased since April 2017 expired in March 2025; and a new Seattle office of 6,709 rentable square feet under an 80-month non-cancellable operating lease entered December 20, 2024, with the term preliminarily set to commence May 1, 2025.
• Lease cost and cash paid: Operating lease costs were $194,000 for both the three months ended March 31, 2025 and March 31, 2024; cash paid for operating leases was $201,000 for the three months ended March 31, 2025 versus $194,000 for the three months ended March 31, 2024.
• Lease liabilities on balance sheet: As of March 31, 2025, total operating lease liabilities were $1.8M ($343,000 current, $1.5M noncurrent), with a weighted average remaining operating lease term of 4.2 years; total maturities excluding the lease not yet commenced were $2.3M, implying a present-value discount of $418,000.
• New Seattle Lease — not yet recognized: Total undiscounted future payments for the New Seattle Lease of $1.5M are included in the $3.8M total maturities but excluded from recognized lease liabilities as of March 31, 2025; the right-of-use asset and corresponding lease liability will be recognized on the commencement date based on pertinent information available at that time.

• Single segment: The Company operates as one single operating and reporting segment, 'identity and information solutions,' as defined by ASC 280. There have been no significant changes in the basis of segmentation or measurement of segment profit since the last annual report.
• CODM metric: The chief operating decision maker assesses performance and allocates resources based on net income, which is also reported on the condensed consolidated statements of operations. Segment assets are measured as total assets reported on the condensed consolidated balance sheet.
• Other segment items: 'Other segment items' primarily includes travel and entertainment, acquisition costs, write-off of long-lived assets, and other selling, general and administrative expenses.

Commitments

• Data licensing agreements ($11.5M as of March 31, 2025): Non-cancelable commitments payable through 2028: $6.6M remainder of 2025, $4.5M in 2026, $383,000 in 2027, $42,000 in 2028.
• Cloud services agreement ($3M annual minimum, effective May 1, 2025): Five-year non-cancellable agreement with a third-party provider; costs expensed as infrastructure fees or capitalized as internal-use software.

Legal Proceedings

• Atlas Data Privacy Corporation et al. v. Company (filed February 7, 2024): Plaintiffs allege failure to suppress home addresses and phone numbers under New Jersey's Daniel's Law; action pending in Superior Court of New Jersey with no trial date scheduled; Company anticipates insurer coverage subject to policy limits.

• Business description: Red Violet operates an AI/ML-driven identity intelligence platform, CORE™, marketing solutions primarily through two brands — IDI (flagship product: idiCORE, serving financial services, insurance, healthcare, law enforcement, government, and other industries for due diligence, fraud prevention, identity authentication, and regulatory compliance) and FOREWARN® (app-based solution tailored for the real estate industry providing instant knowledge prior to face-to-face engagement).
• Customer growth: As of March 31, 2025, IDI had 9,241 billable customers (vs. 8,241 as of March 31, 2024) and FOREWARN had 325,336 users (vs. 236,639 as of March 31, 2024).
• Revenue mix: For the three months ended March 31, 2025, 74% of total revenue was attributable to customers with pricing contracts and 26% to transactional customers; comparable figures for the three months ended March 31, 2024 were 78% and 22%, respectively.
• Growth requirements: Management states that continued development of new products, growth of existing business, and expansion into additional markets requires generating and sustaining sufficient operating profits and cash flow, driven by additional sales from current and new products under development.

• Non-GAAP metrics defined: Management tracks adjusted EBITDA (net income excluding interest income, income tax expense, D&A, share-based compensation, litigation costs, and write-off of long-lived assets), adjusted net income (net income excluding share-based compensation and amortization of share-based compensation capitalized in intangible assets, plus tax effect of adjustments), adjusted gross profit (gross profit plus D&A of certain intangible assets), and FCF (net cash from operations less purchase of property and equipment and capitalized costs included in intangible assets).
• Adjusted EBITDA: Rose to $8.4M in Q1 2025 from $5.7M in Q1 2024; adjusted EBITDA margin expanded to 38% from 32%, while GAAP net income margin improved to 16% from 10% on revenue of $22M vs. $17.5M.
• Adjusted net income and EPS: Adjusted net income was $4.8M ($0.35 basic / $0.33 diluted) in Q1 2025 vs. $3.2M ($0.23 basic / $0.22 diluted) in Q1 2024; GAAP diluted EPS was $0.24 vs. $0.13; tax effect of adjustments used statutory rates of approximately 26.00% (2025) and 25.75% (2024).
• Adjusted gross margin and FCF: Adjusted gross margin was 83% in Q1 2025 vs. 79% in Q1 2024 (GAAP gross margin: 72% vs. 66%); FCF was $2.5M in Q1 2025 vs. $1.9M in Q1 2024, with capitalized costs in intangible assets of $2.5M and $2.3M being the primary deduction from operating cash flow of $5M and $4.3M, respectively.

• Revenue growth: Revenue increased $4.5M, or 26%, to $22M for the three months ended March 31, 2025, compared to $17.5M for the same period in 2024, driven by strong onboarding of new customers and stable recurring revenue from the existing customer base.
• New vs. existing customer split: Revenue from new customers (first six full calendar months of revenue contribution) increased $1.3M, or 80%; revenue from existing customers (beginning in their seventh full calendar month) increased $3.2M, or 20%.
• Customer base expansion: As of March 31, 2025, the IDI billable customer base increased to 9,241 customers, up from 8,241 a year earlier, and the FOREWARN user base increased to 325,336 users, up from 236,639 users a year earlier.
• Metric consolidation: Beginning in the first quarter of 2025, the prior base revenue and growth revenue categories were consolidated into a single revenue from existing customers metric.

• Cost of revenue: Decreased $100,000, or 3%, to $3.7M for the three months ended March 31, 2025, compared to $3.8M for the same period in 2024; as a % of revenue, cost of revenue fell to 17% from 21% year-over-year, driven by the fixed-cost nature of the primary data licensing structure.
• Composition: Primarily data acquisition costs under flat-fee licensing agreements (including unlimited usage arrangements) and transactional purchases, supplemented by cloud infrastructure fees and personnel-related costs.
• Supplier concentration: The largest data supplier accounted for 43% of total data acquisition costs for the three months ended March 31, 2025, up from 41% for the same period in 2024.
• Outlook: Management expects cost of revenue as a % of revenue to continue to decline over time as revenue increases.

• Overall change: Sales and marketing expenses increased $1.7M, or 46%, to $5.4M for the three months ended March 31, 2025, compared to $3.7M for the same period in 2024.
• Primary drivers: The increase was primarily driven by a $1.6M rise in personnel-related expenses and a $100,000 increase in share-based compensation expense.
• Category composition: Sales and marketing expenses include personnel-related expenses, advertising, marketing and agency expenses, travel expenses, share-based compensation expense incurred by the sales team, and provision for bad debts.
• Strategic context: Management attributes the increase to continued investment in expanding go-to-market capabilities to support long-term revenue growth.

• Overall G&A: General and administrative expenses increased $400,000, or 7%, to $6.2M for the three months ended March 31, 2025, compared to $5.8M for the same period in 2024, driven by higher personnel-related expenses and share-based compensation expense.
• Personnel-related expenses: Rose to $3.1M for the three months ended March 31, 2025 from $2.7M in the same period in 2024.
• Share-based compensation: Increased to $1.4M from $1.3M year-over-year; professional fees declined slightly to $1.1M from $1.2M.

• D&A increase: Depreciation and amortization expenses increased $300,000, or 12%, to $2.6M for the three months ended March 31, 2025, compared to $2.3M for the same period in 2024, primarily driven by the amortization of intangible assets that became ready for their intended use after March 31, 2024.

• Interest income decline: Interest income decreased $100,000, or 16%, to $300,000 for the three months ended March 31, 2025, compared to $400,000 for the same period in 2024, primarily attributable to lower yields on money market fund investments during the quarter.

• Income tax expense: $1.1M for the three months ended March 31, 2025, up from $600,000 for the same period in 2024, driven primarily by higher pre-tax income; the effective tax rate remained consistent at 24% in both periods.

Net income: Net income increased $1.6M, or 93%, to $3.4M for the three months ended March 31, 2025, compared to $1.8M for the same period in 2024.

• Macro impact: Management states that persistent inflationary pressures throughout 2024 and into the first quarter of 2025 have contributed to a more challenging macroeconomic environment, increasing recessionary concerns and prompting some businesses to moderate discretionary spending, which has resulted in — and may continue to contribute to — fluctuations in transaction volumes, pricing dynamics, and operating margins across services.
• Interest rate risk: Elevated interest rates implemented to curb inflation may reduce demand for credit, which could lead to lower usage of services by customers in the banking, financial services, and adjacent industries.
• Financial impact to date: Despite these conditions, inflation has not had a material impact on financial results to date; where feasible, management has taken steps to mitigate inflation-related cost increases, including implementing pricing adjustments where permitted under contract terms and competitive conditions.

• Operating cash flow (Q1 2025): Net cash provided by operating activities was $5M for the three months ended March 31, 2025, driven by net income of $3.4M and non-cash adjustments totaling $5.3M (including share-based compensation expense, depreciation and amortization, write-off of long-lived assets, provision for bad debts, noncash lease expenses, and deferred income tax expense), partially offset by a net use of cash of $3.7M from changes in operating assets and liabilities primarily due to an increase in accounts receivable and other noncurrent assets and a decrease in accrued expenses and other current liabilities.
• Operating cash flow (Q1 2024): Net cash provided by operating activities was $4.3M for the three months ended March 31, 2024, driven by net income of $1.8M and non-cash adjustments totaling $4.3M (including share-based compensation expense, depreciation and amortization, provision for bad debts, noncash lease expenses, and deferred income tax expense), partially offset by a net use of cash of $1.8M from changes in operating assets and liabilities primarily due to an increase in accounts receivable and prepaid expenses and other noncurrent assets and a decrease in accrued expenses and other current liabilities, partially offset by an increase in accounts payable.

Investing cash outflows: Net cash used in investing activities was $2.5M for the three months ended March 31, 2025, compared to $2.4M for the three months ended March 31, 2024, primarily as a result of capitalized costs included in intangible assets.

• Q1 2025 financing outflows: Net cash used in financing activities was $4.4M for the three months ended March 31, 2025, driven by a special cash dividend totaling $4.2M (declared December 3, 2024 at $0.30 per share, paid February 14, 2025 to shareholders of record as of January 31, 2025) and $200,000 in taxes paid for net share settlement of vesting RSUs.
• Q1 2024 financing outflows: Net cash used in financing activities was $1.8M for the three months ended March 31, 2024, driven by $1.4M in common stock repurchases under the Stock Repurchase Program and $400,000 in taxes paid for net share settlement of vesting RSUs.
• Stock Repurchase Program: Originally authorized May 2, 2022 for up to $5M; the Board approved two additional $5M authorizations on December 19, 2023 and March 28, 2024, expanding the total program size.

Data licensing commitments: As of March 31, 2025, material commitments under certain data licensing agreements totaled $11.5M.

• Funding plan: Management expects to fund these commitments, as well as ongoing operating and capital requirements, using available cash on hand and cash flows generated from operations over the next twelve months.

• Net income and equity position: Net income was $3.4M for the three months ended March 31, 2025, compared to $1.8M for the three months ended March 31, 2024; as of March 31, 2025, total shareholders' equity was $91.8M and cash and cash equivalents were $34.6M.
• Liquidity adequacy: Management believes existing resources will be sufficient to fund operations and expected capital expenditures for at least the next twelve months, based on projected growth in revenue and operating results and available cash on hand.
• Potential future capital needs: Future capital needs may arise from the pace of revenue growth, investment in technology, or strategic initiatives, in which case the Company may seek to raise additional capital through the issuance of equity and/or debt securities, with the caveat that such financing could result in dilution to existing stockholders and may involve unfavorable terms.