Q1 2021 Red Violet Inc Earnings Call

Good day, ladies and gentlemen, and welcome to Red Violet and first quarter 2021 and earnings conference call and this time all participants are in a listen only mode. Later, we will conduct a question answer session and and.

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And no one should require operator assistance. Please press Star then zero on your phone as a reminder, this call is being recorded.

I would now like to introduce your host for today's conference Camilo Ramirez there and.

All finance and Investor Relations. Please go ahead.

Good afternoon and welcome. Thank you for joining us today to discuss our first quarter 2021 financial results with me today is Derek Dubner, our chairman and Chief Executive Officer, and Dan Mclaughlin, Our Chief Financial Officer.

Our call today, and 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 the event will be available following the call on our website to access the webcast. Please visit our investors page on our website www dot.

Red Violet Dot 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 business and 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 and adjusted EBITDA Reconciliations of these non-GAAP.

Measures to their most directly comparable GAAP financial measures.

Our provided and 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 and the earnings press release issued earlier today with that I am pleased to introduce red Violet as chairman.

And Chief Executive Officer, Derek Dubner.

Thanks, Camilo and good afternoon to those joining us today to discuss the results of our first quarter 2021.

Red Violet delivered a strong start to the year.

We kicked off the year with our highest quarterly revenue and our history driven by strong demand across our product suite.

And I'm very proud of the Red Violet team as they capitalized upon increased momentum in our markets due to the improving economy and the leverage of our differentiated assets, which translated into strong demand for our solutions.

Turning now to our performance and the quarter, we generated record revenue of $10 2 million.

And 10% increase over the first quarter of last year.

Adjusted gross profit increased 24% to $7 5 million.

And adjusted gross margin increased to 73% from 65% and the same period of 2020.

Adjusted EBITDA increased 66% to $2 9 million also a record and a given quarter and our history.

Most importantly platform revenue increased to $9 8 million.

21% over the same period last year and.

And the first quarter of this year, we set another new record for contractual revenue at 80%.

As a reminder, we break out revenue into platform revenue and services revenue.

Platform revenue is exactly that all revenue driven by our technology platform core.

This revenue is very high margin driven by our fixed cost business model.

Services revenue is made up of revenues from our collections suite ancillary product IDI verified a lower margin verification product.

As IDI verified was most significantly impacted by pandemic related collections Moratoria and is still slowly recovering the rest of the business is growing healthily and generating these record financial metrics without any real contribution from our services revenue.

For example.

We handily topped first quarter revenues of last year without the additional $8 million and services revenue included in the first quarter of last year.

As the collections industry continues its recovery it will be additive to the overall growth momentum we are experiencing across the business.

Turning to IDI core we added over 170, new customers during the first quarter ending the quarter with 5902 customers as we continue to enhance the breadth and depth of data increased functionality and introduce new features all.

Of which is driving greater efficiency and effectiveness and customer workflows.

This growth occurred notwithstanding the termination of 162 customers in the first quarter as a carryover of our fourth quarter implementation of a heightened compliance and Credentialing program that we detailed on our earnings call last quarter.

Revenue associated with these terminated customers is immaterial representing approximately $7000 a month.

For worn added over 10004 hundred users during the first quarter.

For Warren has now surpassed 58800 users and over 140 realtor associations have now contracted for four warrant <unk>.

Securing this unique verification and risk prevention tool for their real estate professionals.

With a 100% association renewal rate for war and has truly become the gold standard and realtor safety.

While IDI core and for warrant our our two prominent brands and the market. It is important to remember that our technology platform is our product suite as the platform powers those two brands and all be spoke applications.

With a customer centric approach from first contact we strive to understand our customers' needs.

Or does that fits squarely within IDI core or for worn is irrelevant as our platform is designed to be flexible enough to customize solutions for our particular needs with little modification.

Many of our largest customers our strategic integrations with our platform where their solutions and market are dependent upon our platform and speed.

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Throughput and the accurate information that it generates.

Today from a revenue perspective, the IDI core brand represents 93% of our total revenue and.

And for worn represents the remaining 7%.

Presently the primary markets. We serve consist of real estate financial services collections, and investigative which includes industry such as law enforcement and private investigative firms.

These markets are benefiting from a general improvement and the economy, including a robust housing market, increasing commerce, and new customer and employee on boarding.

We also serve a number of other industries and what we refer to as emerging markets.

We know from prior experience that emerging markets represent strong opportunities for growth.

But historically just due to the early stages of our evolution as a company we have focused our sales efforts outside of this area.

Today with the business as strong as it has ever been and we see increased opportunity to drive our solutions suite into these emerging markets.

While continuing our strong growth and our primary markets.

By way of example, we are planning our strategic entry into online gaming.

Government and insurance, and bringing current and new solutions and identity fraud and marketing.

Building upon our identity intelligence capabilities. We believe we are in early innings of becoming the go to solution for all things identity within the strong and growing markets.

To provide a bit more insight and todays primary markets. Our solutions are used in the following ways.

Within real estate IDI core is used for property owner diligence for propensity modeling and identity verification for buyer and seller transactions.

For war is used for instant identity verification and risk assessment and mitigation.

In financial services use cases include identity verification and fraud prevention, and due diligence and support of payments Frictionless Commerce and.

And customer on boarding.

As well as <unk> or know your customer and AML anti money laundering.

And collections use cases include debtor and asset verification location and legislative compliance.

As you can see our solutions power essential risk and compliance workflows across key disparate industries and these applications apply to just about any transaction.

And support of our expansion both within primary and emerging markets. We've recently hired several industry veterans with deep knowledge and identity data and analytics to fill key new business development positions.

We will continue to address key positions in strategic sales to move into larger enterprises within various verticals.

Our strong balance sheet and cash generation are driving expansion of our competitive advantages, including our cloud native architecture extensible platform differentiated data assets and customer centric solutions.

We will continue to invest and our teams to drive these competitive advantages into our markets.

Given the improving economy secular tailwind and the applicability of our technology differentiated data assets and innovative solutions. We are very excited about the future.

I will now turn it over to Dan to discuss the financials.

Thank you Derek and good afternoon, we had a great first quarter with strong profitable growth from platform revenue, we hit records and nearly every key financial metric.

We're seeing nice customer adoption across our brands, which is translating nicely into new customer revenue.

As well, we are seeing strong growth revenue from existing customers and.

Across the board I am extremely pleased with how the business is performing so let's dive into the first quarter results for clarity all the comparisons I will discuss today will be against the first quarter of 2020 unless noted otherwise.

Total revenue was $10 2 million, a 10% increase over prior year, and our highest quarterly revenue ever.

Platform revenue increased 21% to a record $9 8 million.

As Derek discussed our services revenue continues to be impacted by COVID-19 related government and post collection, Moratoria and forbearance programs and as a result was down 66% to <unk> 4 million.

Our adjusted gross margin was the highest it has ever been at 73% up eight percentage points.

These profitable dollars flowed nicely down the P&L generating a record $2 $9 million and adjusted EBITDA up 66% over prior year.

Continuing through the details of our P&L as mentioned revenue was $10 2 million for the first quarter consisting of revenue from new customers of $1 million.

Revenue from existing customers of $7 3 million and growth revenue from existing customers of $1 9 million.

Or IDI core billable customer base grew sequentially by 176 customers compared to the fourth quarter of 2020, ending the first quarter at 5902 customers.

<unk> added over 10004 hundred users during the first quarter, our highest sequential increase ever.

As Derek pointed out earlier, we discussed on our last earnings call that at the end of the third quarter 2020, we implemented enhanced credentialing and compliance standard, which impacted mostly smaller customers and are investigated vertical during the first quarter and that we expected to see some residual impact and the first quarter of 2021.

That residual impact and the first quarter resulted in the termination of 162 customers.

<unk> hundred 62 customers represented and total a loss of only $7000 and monthly revenue.

Netting out this compliance initiatives are sequential customer adds to the IDI core billable customer base and the first quarter would have been over 300 customers and consistent with prior quarters and in line with trending expectations.

Our contractual revenue was 80% for the quarter and 11 percentage point increase over prior year, and our highest quarterly contractual revenue ever.

Our revenue attrition percentage was 7% compared to 8% and prior year.

This metric trended nicely in the first quarter. Despite some lingering effects as it is calculated on a trailing 12 month basis from the pandemic related customer concessions and temporary transactional customer pauses from the second and third quarter of 2020.

We would expect our revenue attrition percentage to trend between 5% and 10% for the remainder of the year.

Moving on from our revenue metrics and down the P&L, our cost of revenue exclusive of depreciation and amortization decreased <unk> 5 million or 16% to $2 8 million.

This <unk> 5 million decrease was result of a decrease and third party service or cost associated with our services revenue, partially offset by an increase and data acquisition costs.

Adjusted gross profit increased 24% to a record $7 5 million producing an adjusted gross margin of 73% and eight percentage point increase over fourth quarter of 2020, and our highest adjusted gross margin ever.

Sales and marketing expenses remained flat at $2 2 million for the quarter the.

The $2 2 million of sales and marketing expense for the quarter consisted primarily of $1 2 million and employee salary and benefits.

And <unk> 6 million and sales commissions.

General and administrative expenses increased <unk> 2 million or 3% to $4 6 million for the quarter.

This increase was primarily the result of $1 $3 million increase and payroll and benefits slightly offset by a decrease and share based compensation expense.

The $4 5 million and general and administrative expenses for the quarter consisted primarily of $1 9 million of noncash share based compensation expense.

And <unk> 5 million of employee salaries, and benefits and <unk> 7 million and accounting and.

And other professional fees.

Depreciation and amortization increased <unk> 4 million or 38% to $1 3 million for the quarter.

This increase was primarily the result of the amortization of internally developed software.

Net loss narrowed and $9 million or 61% to <unk> 6 million for the quarter, our best quarter ever.

We reported a loss of <unk> <unk> per share for the quarter based on a weighted average share count of $12 2 million shares.

Moving on to the balance sheet cash and cash equivalents were $12 9 million at March 31, 2021, compared to $13 million at December 31, 2020.

Current assets were $17 5 million compared to $16 7 million and current liabilities were $4 7 million compared to $5 million.

We generated $1 2 million and cash from operating activities for the quarter ended March 31, 2021 and for the same period and 2020.

Internally, we track our operational cash burn versus burn on a monthly basis by calculating adjusted EBITDA and subtracting the cash we used for the development of internal use software and other capital expenses, which can be found on our statement of cash flow.

On this operational earn and burn analysis, we earned $1 6 million and cash during the first quarter of 2021 compared to earnings <unk> 2 million for the first quarter 2020.

Cash used in investing activities was $1 $3 million per the quarter ended March 31, 2021, mainly the result of $1 2 million used for software developed for internal use.

There were no financing activities during the period.

In closing I'm very happy with the performance and the first quarter across the board our financial metrics are extremely strong our teams are delivering and their respective areas. Our technology platform continues to win business from the competition at a higher customer tier.

We are seeing strong leverage and the business and very healthy profitability metrics as we continue to scale.

We're excited with the momentum we are seeing with that our operator will now open the line for Q&A.

As a reminder to ask a question and you will need to press star one on your telephone keypad again that is star one on your telephone keypad jobin during our question and approach.

And that has gone by and wasn't some pile and Thats your linear roster.

And there are no questions at this time presenters you may end the call.

Thank you very much we're very proud of posting a record quarter across many metrics, we're seeing increased momentum and the business and we're generating cash, which we are investing to execute upon our long term strategy. We believe we are very well positioned for 2021 and.

Beyond.

Thank you and good afternoon.

This concludes today's conference call. Thank you for participating you may now disconnect.

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On the growth.

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