Red Violet, Inc. (NASDAQ:RDVT) Q4 2023 Earnings Call Transcript March 7, 2024
Red Violet, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day ladies and gentlemen and welcome to Red Violet’s Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today’s call, Camilo Ramirez, Senior Vice President of Finance and Investor Relations. Please go ahead.
Camilo Ramirez: Good afternoon and welcome. Thank you for joining us today to discuss our fourth quarter and full year 2023 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer and Dan MacLachlan, our Chief Financial Officer. Our call today we’ll begin with comments from Derek and Dan, followed by a question-and-answer session. I would like to remind you that this call is being webcast live and recorded. A replay of this and will be available following the call on our website. To access the webcast, please visit our Investors page on our website, www.redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company’s business. The company undertakes no obligation to update the information provided on this call. For a discussion of risks and uncertainties associated with Red Violet’s business, I encourage you to review the company’s filings with the Securities and Exchange Commission including the most recent Annual Report on Form 10-K and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share and free cash flow. Reconciliations of these non-GAAP financial measures and their most directly comparable U.S. GAAP financial measures are provided in the earnings press release issued earlier today.
In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet’s Chairman and Chief Executive Officer, Derek Dubner.
Derek Dubner: Thanks, Camilo. Good afternoon to those joining us today to discuss our fourth quarter and full year 2023 results. We are pleased to announce a strong fourth quarter capping off another record year for Red Violet. It was a year of producing higher financial metrics across the board, reflecting on the prior year in an economic climate that certainly experienced its ebbs and flows, but found its footing as the year progressed. We grew revenue in the mid-teens, generated very strong margins and cash flow, and invested in our business while returning capital to shareholders via our stock repurchase program. Our industry-leading AI/ML-powered platform, proprietary linking algorithms, and core identity graph continue to be recognized by industry and as time passes, more and more customers and prospects are realizing that we do entity resolution better than anybody else.
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Q&A Session
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And entity resolution is essential for identity verification, fraud detection and prevention, and risk mitigation across industries and across transactions. Case in point, our solutions are now an integral component of the solutions of a number of the leading identity verification platform companies in the market today. These companies rely on our entity resolution capabilities to serve their many end markets. Our differentiated assets and capabilities have us very well positioned for 2024 and beyond. Given the continuing expansion of our product suite and with 2024 revenue to date off to a record start, we are very optimistic and highly focused on accelerating our business and continuing to deliver exceptional customer and shareholder value.
Now, turning to the numbers, total revenue for the fourth quarter was $15.1 million, a 15% increase over prior year. We produced $11.7 million in adjusted gross profit, resulting in a margin of 78% in the fourth quarter, up 1 percentage point. Adjusted EBITDA for the quarter was $2.7 million, up 76% over prior year. Adjusted EBITDA margin was 18%, up 6 percentage points. Adjusted net income increased 157% to $0.3 million for the quarter, resulting in adjusted earnings of $0.02 per share. Cash and cash equivalents were $32 million at December 31, 2023. Our contractual revenue was 82% for the quarter, up 5 percentage points from prior year. For those that are new to our story, it always bears mention that the fourth quarter presents some seasonality just due to the fact that there are less business days to transact around the holiday periods, which impacts our transactional revenue.
Our IDI billable customer base grew by 106 customers sequentially from the third quarter ending the fourth quarter at 7875 customers. FOREWARN added over 17,000 users during the fourth quarter, ending the quarter at 185,380 users. Over 400 realtor associations are now contracted to use FOREWARN. We continue to hear personal stories from appreciative FOREWARN subscribers about how impactful FOREWARN is in ensuring their safety as they meet unknown prospects in often isolated locations. We are working urgently to get this essential safety tool into the hands of all real estate professionals. For the year, total revenue increased 13% to $60.2 million, generating an adjusted gross profit of $47.1 million and adjusted EBITDA of $16.4 million. Adjusted EBITDA margin was 27%, up 3 percentage points.
We saw strong customer onboarding throughout the year with continued growth in the onboarding of higher tier customers with 72 customers contributing over $100,000 of revenue in 2023 compared to 67 customers in 2022.
idiCRIM: Our focus on law enforcement within our investigative vertical has driven increased agency onboarding due to the accuracy and currentness of our data, our differentiated interface, leading mobile app and unique search functionality, including our map-based criminal search, real-time arrest search, and arrest monitoring. In the last two quarters of the year, we saw signs of recovery in our collections vertical and that progress continues throughout the first quarter to date. Closing out the year we completed our IDI marketing data integration with our holistic core consumer identity graph. We added hundreds of data attributes to the graph with IDI marketing products now in market to inform a vast set of industries in identity verification across the entire customer journey from prospecting, onboarding, app login, purchase, transfer and more.
We are highly focused on these areas for 2024, with the goal of accelerating revenue by way of identity verification, background screening support, government, law enforcement and marketing services as we will roll out new products and expanded capabilities throughout 2024 and beyond. Given the economic climate last year, we likely sacrificed a bit of top line growth as we tilted conservatively in managing the business and ensuring a very healthy bottom line. We of course will remain focused on the health of our business, but we see real opportunities in our current endeavors to lean in and accelerate revenue growth in 2024 and to position ourselves for continued acceleration in subsequent years. Given our announcement today on the appointment of Jonathan McDonald, I do want to take a little time to discuss the public sector.
It is a large market opportunity for us and we have proven when given the chance to test against larger competition that our platform, core consumer identity graph and superior API functionality are differentiating in generating insights needed by government agencies to solve for their complex problems. As government is a unique industry with its own complexities and as an example of where we are leaning in to accelerate our path, we are excited to welcome Jonathan McDonald to the Red Violet team. Jonathan will be joining us as EVP of Public Sector. Jonathan has over two decades of experience leading public sector divisions of global information solution providers responsible for product development, go-to-market strategy, sales and contract procurement.
Jonathan’s prior experience includes his role as EVP U.S. Public Sector at TransUnion, where he was instrumental in TransUnion’s entrance into and expansion within the U.S. public sector. Previously, Jonathan held leadership roles at Clarivate, Pivotal Software, Dell, IBM, and LexisNexis Risk Solutions. Another area that we had previously said we would lean in is AI, specifically deep learning. As you may recall, we discussed a few quarters ago that we are in a unique position to expand our AI capabilities, given our valuable assets, namely our AI/ML driven platform and our high confidence core consumer identity graph. We are investing in this area and at present we have added two individuals with expertise in deep learning, who are leading the charge in training transformer models to identify fraud signals across massive amounts of data, in utilizing generative AI to develop new ways of interacting with our high confidence data assets, in using large language models to analyze data and to identify patterns and relationships to assimilate into our core identity graph, and in providing deep learning models to diverse industries to extract valuable insights and intelligence from the large volumes of data within our identity graph.
