UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 001-38407
RED VIOLET, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
82-2408531
(I.R.S. Employer
Identification No.)
2650 North Military Trail, Suite 300,
Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (561) 757-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Trading Symbol (s)
RDVT
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
On June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value (based on the closing per share sales
price of its common stock on that date) of the voting stock held by non-affiliates of the registrant was $187.6 million.
The number of shares outstanding of the registrant’s common stock, as of March 4, 2024, was 13,964,028.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to its 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year
ended December 31, 2023 are incorporated herein by reference in Part III of this Annual Report on Form 10-K.
RED VIOLET, INC.
TABLE OF CONTENTS FOR FORM 10-K
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
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Item 1. Business.
PART I
This business description should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto appearing
elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), which are incorporated herein by this
reference.
Company Overview
Red Violet, Inc. (“we,” “us,” “our,” “red violet,” or the “Company”), a Delaware corporation, is dedicated to making the world a safer place and reducing
the cost of doing business. We build proprietary technologies and apply analytical capabilities to deliver identity intelligence. Our technology powers
critical solutions, which empower organizations to operate with confidence. Our solutions enable the real-time identification and location of people,
businesses, assets, and their interrelationships. These solutions are used for purposes including risk mitigation, due diligence, fraud detection and
prevention, regulatory compliance, and customer acquisition. Our AI/ML-driven identity intelligence platform, CORETM, is purpose-built for the
enterprise, yet flexible enough for organizations of all sizes, bringing clarity to massive datasets by transforming data into intelligence. We drive workflow
efficiency and enable organizations to make better data-driven decisions.
Organizations are challenged by the structure, volume, and disparity of data. Our platform and applications transform the way our customers interact with
information, presenting connections and relevance of information otherwise unattainable, which drives actionable insights and better outcomes. Leveraging
cloud-native proprietary technology and applying machine learning and advanced analytical capabilities, CORE provides essential solutions to public and
private sector organizations through intuitive, easy-to-use analytical interfaces. With massive data assets consisting of public record, proprietary, and
publicly-available data, our differentiated information and innovative platform and solutions deliver identity intelligence – entities, relationships,
affiliations, interactions, and events. Our solutions are used today to enable frictionless commerce, to ensure safety, and to reduce fraud and the
concomitant expense borne by society.
While our platform powers a vast array of solutions for our customers, we presently market our solutions primarily through two brands, IDI™ and
FOREWARN®. IDI is a leading-edge, analytics and information solutions provider delivering actionable intelligence to an expansive and diverse set of
industries in support of use cases such as the verification and authentication of consumer identities, due diligence, prevention of fraud and abuse, legislative
compliance, and debt recovery. idiCORE™ is IDI's flagship product. idiCORE is a next-generation, investigative solution used to address a variety of
organizational challenges, including, but not limited to, due diligence, risk mitigation, identity authentication, and regulatory compliance, by financial
services companies, insurance companies, healthcare companies, law enforcement and government, identity verification platforms, collections, law firms,
retail, telecommunication companies, corporate security, and investigative firms. FOREWARN is an app-based solution currently tailored for the real estate
industry, providing instant knowledge prior to face-to-face engagement with a consumer, helping professionals identify and mitigate risk. As of December
31, 2023 and 2022, IDI had 7,875 and 7,021 billable customers and FOREWARN had 185,380 and 116,960 users, respectively. We define a billable
customer of IDI as a single entity that generated revenue during the last three months of the period. Billable customers are typically corporate
organizations. In most cases, corporate organizations will have multiple users and/or departments purchasing our solutions, however, the Company counts
the entire organization as a discrete customer. We define a user of FOREWARN as a unique person that has a subscription to use the FOREWARN service
as of the last day of the period. A unique person can only have one user account.
We generate substantially all of our revenue from licensing our solutions. Customers access our solutions through a hosted environment using an online
interface, batch processing, API and custom integrations. We recognize revenue from licensing fees (a) on a transactional basis determined by the
customer’s usage, (b) via a monthly fee or (c) from a combination of both. Revenue pursuant to pricing contracts containing a monthly fee is recognized
ratably over the contract period. Pricing contracts are generally annual contracts or longer, with auto renewal. For the years ended December 31, 2023 and
2022, 79% and 75% of total revenue was attributable to customers with pricing contracts, respectively, versus 21% and 25% attributable to transactional
customers, respectively.
1
We endeavor to understand our customers’ needs at the moment of first engagement. We continuously engage with our customers and evaluate their usage
of our solutions throughout their life cycle, to maximize utilization of our solutions and, hence, their productivity. Our go-to-market strategy leverages (a)
an inside sales team that cultivates relationships, and ultimately closes business, with their end-user markets, (b) a strategic sales team that provides a more
personal, face-to-face approach for major accounts within certain industries, and (c) distributors, resellers, and strategic partners that have a significant
foothold in many of the industries that we have not historically served, as well as to further penetrate those industries that we do serve. We employ a “land
and expand” approach. Our sales model generally begins with a free trial followed by an initial purchase on a transactional basis or minimum-committed
monthly spend. As organizations derive benefits from our solutions, we are able to expand within organizations as additional use cases are presented across
departments, divisions and geographic locations and customers become increasingly reliant on our solutions in their daily workflow.
For the years ended December 31, 2023 and 2022, we had revenue of $60.2 million and $53.3 million, net income of $13.5 million and $0.6 million,
adjusted EBITDA of $16.4 million and $12.9 million, and adjusted net income of $8.1 million and $6.9 million, respectively. Adjusted EBITDA is a non-
GAAP financial measure equal to net income, the most directly comparable financial measure based on accounting principles generally accepted in the
United States (“US GAAP”), excluding interest income, net, income tax (benefit) expense, depreciation and amortization, share-based compensation
expense, litigation costs, and write-off of long-lived assets and others. Adjusted net income is a non-GAAP financial measure equal to net income, the most
directly comparable financial measure based on US GAAP, excluding share-based compensation expense, amortization of share-based compensation
capitalized in intangible assets, and discrete tax items, and including tax effect of adjustments. Refer to the tables included in “Use and Reconciliation of
Non-GAAP Financial Measures” of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our Markets
The target market for our solutions today consists of public and private sector organizations that are reliant on high confidence, AI/ML-driven identity
intelligence in their daily workflow.
The data and analytics sector continues to grow at an accelerated pace due to the proliferation of data generated over the past two decades from both
traditional and emerging sources, including e-commerce, mobile, and social media. Fortune Business InsightsTM projected the global big data analytics
market to rise to $745.2 billion by 2030, exhibiting a CAGR of 13.5% during the forecast period from 2023 through 2030. Continued, rapid innovation and
adoption of new technologies presents enormous challenges for organizations of all types to sort through this sea of data to glean actionable intelligence
and to inform real-time decisions. Further, the digital transformation has created even greater fragmentation of data across multiple mediums, creating an
inherent need for organizations to leverage scalable and unified data and analytics on a single platform. These challenges serve as key drivers of the
sector’s growth. Our industry-agnostic platform, solutions, and analytical capabilities are designed to solve the myriad of complex problems that
organizations face on a daily basis.
Risk and fraud analytics has become increasingly important not only in the banking and financial services sectors but across multiple other industries and
use cases. According to the market research company MarketsAndMarketsTM, the risk analytics market is projected to grow to $70.5 billion by 2027,
representing CAGR of 12.4% from 2022 through 2027, with North America expected to account for the largest market size in the risk analytics market.
Risk and fraud analytics and the information derived therefrom is now the primary service product for risk management associated with key purchasers
such as financial services companies, insurance companies, healthcare companies, law enforcement and government, identity verification platforms,
collections, law firms, retail, telecommunications companies, corporate security, and investigative firms. Primary use cases include, but are not limited to,
obtaining information on consumers, businesses, assets, and their interrelationships, to facilitate the location of individuals and assets, identity verification,
legislative compliance, and to support criminal, legal, financial, insurance, and corporate investigations, due diligence, and the assessment and mitigation of
counterparty risk.
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Key Challenges Facing Our Customers
We believe our solutions address the challenges that the industry faces today, which include:
Actionable Insights Through a Single, Cloud-Native, AI/ML-Driven Platform—As the velocity and volume of data continues to grow exponentially
across various mediums, organizations have become overwhelmed with data and their inability to glean actionable insights from such data to enable
informed decisions in real-time. Customers demand full-suite, turn-key entity resolution solutions that are agile, flexible, and available on-demand in order
to gain the speed, scale, and insight necessary to drive decisioning. As the breadth and depth of data increases, organizations will need to deploy new
technologies that enable both the ingestion of data at massive scale in real-time, irrespective of structure or form, and the analytics applications necessary to
function across multiple channels. The accelerating digitization of human interactions, and the corresponding generation of the data resulting therefrom, is
driving demand for data capture, management, and analysis software. As a result, customers are looking for flexible and efficient single-point solutions to
unify disparate and often siloed sets of not only transactional data but also demographic, ethnographic, and behavioral data as well, in order to provide
insights that are truly actionable.
Cost and Performance Pressures—As customers face constant cost pressures, they are increasingly dependent upon extracting greater value from
information solutions. Whether it is identity verification, managing risk, or regulatory compliance, customers are increasingly more sophisticated, requiring
enhanced performance that provides fast, accurate, and cost-effective solutions to satisfy their business objectives. Improving performance can mean
delivering the right information at the right time at greater scale, or providing the most intuitive information as rapidly as possible to capitalize on
opportunities or reduce risk. Superior analytics combined with unified data assets delivers competitive advantages to our customers as they cope with these
pressures.
Delivering Solutions for Complex Problems Using Scalable Analytics—The larger and more complex a data set, the more difficult it is to derive and
provide sustained levels of performance and insight. The highly-fragmented nature of data across multiple mediums and often siloed within organizations,
the historical proliferation of data augmented by the recent acceleration of the digital transformation, and lack of robust technology inhibits the ability to
create a unified data asset. There is an inherent need for information solutions that allow organizations to leverage unified data assets for actionable
intelligence in support of their operational workflows and in a more efficient manner.
Our Competitive Strengths
We believe our leading-edge technology platform, massive database, and dynamic and intuitive solutions deliver superior capabilities to our customers. Our
solutions enable our customers to make more informed inquiries regarding their challenges and better decisions to solve their most complex problems. We
believe the following competitive strengths will continue to deliver an unrivaled value proposition that further drives our differentiation:
•
Transformative and Innovative Cloud-Native, AI/ML-Driven Technology Platform—Through the power of our platform, CORE, we offer a
comprehensive suite of information solutions. Our cloud-native, AI/ML-driven, data and industry agnostic platform enables us to assimilate, structure,
and unify billions of disparate records to create the leading core consumer identity graph to provide identity intelligence, and to present these insights in
real-time via analytical interfaces. We believe our platform’s speed, power, extensibility, and scalability are key differentiators in the marketplace.
• Massive Unified Data Asset—Data is the lifeblood of our technology platform, and of modern society. We leverage our CORE platform to build
massive proprietary datasets and apply analytics in real-time to provide actionable insights from our leading core consumer identity graph. Our data is
compiled from a myriad of online and offline sources, both structured and unstructured, including public record, publicly-available, proprietary, and
self-reported data. Public record data includes personal information, as well as property, identity, bankruptcy, lien, judgment, automotive, phone, and
other information aggregated from companies specializing in data aggregation, public record databases, and publicly-available sources. Proprietary data
is internally generated data unified by proprietary algorithms and analytic processes. Through AI/ML-driven technology and proprietary algorithms, we
efficiently ingest these datasets, structure them into normalized form, and unify the data to resolve unique identities so as to create an actionable, real-
time view of the information for various use cases, delivering greater intelligence to our customers and enhancing their decision-making capabilities
across all markets and industries.
3
Our Platform and Solutions
Leveraging cloud-native proprietary technology and applying machine learning and advanced analytical capabilities, CORE provides essential solutions to
public and private sector organizations through intuitive, easy-to-use analytical interfaces. With massive data assets consisting of public-record, proprietary,
and publicly-available data, our differentiated information and innovative platform and solutions deliver intelligence relating to all things identity – entities,
relationships, affiliations, interactions, and events. Our solutions are used today to enable frictionless commerce, to ensure safety, and to reduce fraud and
the concomitant expense borne by society.
Our Sales, Distribution and Marketing
Inside Sales—Our inside sales team cultivates relationships, and ultimately closes business, with their end-user markets. These professionals are
relationship-based sellers with experience in identifying customers’ needs and clearly explaining and defining products that provide solutions to those
needs.
Strategic Sales—While the majority of our direct sales efforts are supported through professional inside sales staff, major accounts within certain industries
require a more personal, face-to-face strategic sales approach. We continue to expand this team to meet the demand of the markets.
Distributors, Resellers, and Strategic Partners—In conjunction with direct-to-customer sales efforts, we engage value-added distributors, resellers, and
strategic partners that have a significant foothold in many of the industries that we have not historically served, as well as to further penetrate those
industries that we do serve. This allows us to rapidly penetrate these markets while also significantly reducing overhead associated with direct sales and
support efforts.
Marketing—We have implemented several methods to market our products, including participation in trade shows and seminars, advertising, public
relations, distribution of sales literature and product specifications and ongoing communication with prospective customers, distributors, resellers, strategic
partners and our installed base of current customers.
Our Strategy
We are committed to developing innovative technology and using our analytical capabilities to deliver solutions that transform the way organizations
interact with information. We are advancing our business through the following strategic approach:
•
Transform Data Into Intelligence—Our core consumer identity graph, integrated with our AI/ML-driven technology platform and solutions, delivers
actionable intelligence to organizations across diverse industries. As the digital transformation accelerates, the data generated therefrom increases
rapidly. Derived semantic insight increases exponentially with each new data asset, creating compounded additional value that can be used by
supervised and unsupervised machine learning algorithms. As we identify, assimilate, and unify these new data assets, our solutions expand in
applicability to larger-sized customers as well as additional industries and uses cases within.
• Widen Our Technology Lead—Unlike legacy technologies, our platform was built in the cloud from the ground up. Due to its cloud-native construct,
CORE demonstrates increased speed and scalability as compared to legacy constructs. As competitors invest millions of dollars transitioning platforms
from dated infrastructures to primarily hybrid-cloud environments, we are advancing and expanding our cloud-native technology and functionality to
meet customer need, as customers increasingly rely on the speed, reliability, security, scalability, and efficiencies that only the cloud delivers. We will
continue to invest in our technology and people to widen our lead over competitive technologies.
• Enhance Functionality and Develop New Products—We operate with a relentless focus on innovation and the customer experience. Customers rely
on our solutions to solve complex problems, to make better data-driven decisions, and to produce greater efficiencies in their workflow. We are devoted
to enhancing the functionality of our current solutions and to developing new products, to enable more intelligent interaction with information and to
become further engrained in the daily workflows of our customers. As we introduce greater functionality and additional products, it will serve to
expand the applications of our solutions, and increase the opportunities whereby our customers can solve for existing and evolving problems generated
by disparate and siloed data assets.
4
Our Competition
Competition in the data and analytics sector centers on innovation, product stability, pricing, and customer service. The market for our products and
services is highly competitive and is subject to constant change. We compete on the basis of innovative technology, differentiated solutions, analytical
capabilities, integration with our customers’ technology, customer relationships, service stability, and price. We believe we are well-positioned to
effectively compete on all fronts.
Our competitors vary widely in size and nature of the products and services they offer. There are a large number of competitors who offer products and
services in specialized areas, such as fraud prevention, risk management, and decisioning solutions. We believe our innovative technology, analytical
capabilities, robust and unified database, and the intelligent design of our cloud-native infrastructure will allow us to differentiate ourselves from our
competition in flexibility, capability, service, and price.
Some of our competitors have substantially greater financial, technical, sales, and marketing resources, better name recognition, and a larger customer base.
Even if we introduce advanced products that meet evolving customer requirements in a timely manner, there can be no assurance that our new products will
gain market acceptance.
Certain companies in the data and analytics sector have expanded their product lines or technologies in recent years as a result of increased investment and
acquisitions. We anticipate increased competition from data and analytics suppliers. Increased competition in the data and analytics sector could result in
significant price competition, reduced profit margins or loss of market share, any of which could have a material adverse effect on our business, operating
results and financial condition. There can be no assurance that we will be able to compete successfully in the future with current or new competitors.
Concentration of Customers
We have established relationships with a number of customers, many of whom could unilaterally terminate their relationship with us or materially reduce
the amount of business they conduct with us at any time. Market competition, customer requirements, customer financial condition, and customer
consolidation through mergers or acquisitions also could adversely affect our ability to continue or expand these relationships. There is no guarantee that
we will be able to retain or renew existing agreements, maintain relationships with any of our customers on acceptable terms or at all, or collect amounts
owed to us from insolvent customers. The loss of one or more of our major customers could adversely affect our business, financial condition and results of
operations.
During the years ended December 31, 2023 and 2022, no individual customer accounted for more than 10% of total revenue.
One individual customer accounted for 11% of our accounts receivable, net, as of December 31, 2023, and one individual customer accounted for 11% of
our accounts receivable, net, as of December 31, 2022.
Concentration of Suppliers
Our products and services depend extensively upon continued access to and receipt of data from external sources, including data received from the major
credit bureaus, including our largest data supplier. Our other data suppliers include strategic partners, as well as various government and public record
databases. Our largest data supplier, with whom we have expanded our relationship while securing what we believe to be favorable business terms over the
years, accounted for 48% and 49% of our total data acquisition costs for the years ended December 31, 2023 and 2022, respectively. The amended and
renewed term of the agreement with this supplier ends June 30, 2026. We may elect to extend the term for an additional twelve months upon written notice
to this supplier at least 30 days prior to the end of the amended and renewed term. During the term of the agreement, either party has the right to terminate
the agreement: (i) in the event of the other party’s failure to cure a material breach, and (ii) in the event of the other party’s insolvency. In addition, this
supplier may terminate this agreement by providing not less than 12 months’ advance written notice to us and we may terminate this agreement by
providing not less than 24 months’ advance written notice to this supplier. As of December 31, 2023, the remaining minimum purchase commitments
through the end of the amended and renewed term is $13.4 million. If we are unable to maintain our relationship with our largest data supplier, our ability
to provide products and services could be negatively impacted, as we would need to secure comparable data on similar terms, which would require
significant time, expense, and resources, and may in the short-term adversely affect our reputation, business, financial condition, and results of operations
and, if we are unable to establish a similar relationship with other data suppliers over time, could have a long-term material impact on our business and
financial condition.
5
Our Intellectual Property
We avail ourself of applicable trade secret and unfair competition laws to protect our proprietary technology, trademark law to protect our trademarks and
domain names, and copyright laws to protect our content relating to, among other things, websites and marketing materials. Our intellectual property rights
are embodied in confidential and proprietary technology and data, trademarked brands relating to our business units, products, services, and solutions,
original content on our materials such as websites and marketing materials, and domain names. With respect to our trademarks, we maintain an extensive
portfolio of perpetual common law and federally-registered trademark rights across several brands. We have also sought protection and registration of
certain brands and trademarks internationally, such as in Europe and Canada. At present, we do not hold any issued patents.
We use data acquired through licensing rights from approximately 30 providers. The loss of any one of these providers could have an immediate near-term
impact on our financial position, results of operations, and liquidity. Also see “Concentration of Suppliers” above.
Regulatory Matters
Our business is subject to various federal, state, and local laws, rules, and regulations, including, without limitation, the Gramm-Leach-Bliley Act (15
U.S.C. §§ 6801- 6809) (the “GLBA”), the Driver’s Privacy Protection Act (18 U.S.C. §§ 2721- 2725) (the “DPPA”) and the Federal Trade Commission Act
(the “FTC Act”). A change in any one of a number of the laws, rules, or regulations applicable to our business or the enactment of new or amended
legislation or industry regulations pertaining to consumer or private sector privacy issues could have a material adverse impact on information services.
Legislation or industry regulations regarding consumer or private sector privacy issues could place restrictions upon the collection, sharing, and use of
information that is currently legally available, which could materially increase our cost of collecting and maintaining some data. These types of legislation
or industry regulations could also prohibit us from collecting or disseminating certain types of data, which could adversely affect our ability to meet our
customers’ requirements and our profitability and cash flow targets.
Seasonality
Our results are subject to seasonal fluctuation. Historically, certain products experience seasonal pressure during the fourth quarter.
Management Team
Our management team has a track record of strong performance and significant expertise in the markets we serve. We have built the leading companies in
our industry, creating significant shareholder value. We continue to attract and retain experienced management talent for our business. Our team has deep
knowledge of the data and analytics sector and expertise across the various industries that we serve. Our team has overseen the expansion of our proprietary
technology platform while managing ongoing initiatives, including the transition from a development-focused company to a sales-driven company. As a
result, we are well positioned to continue to successfully drive growth organically.
Our Employees
We employ a total of 183 employees, all full-time, as of December 31, 2023. None of our employees are represented by a labor organization, and none are
party to any collective bargaining agreement. We have not experienced any work stoppages and consider our relations with our employees to be good.
Competition in the recruiting of personnel in the data and analytics sector is intense. We believe that our future success will depend in part on our continued
ability to hire, motivate, and retain qualified sales and marketing, executive and administrative and technical personnel. To date, we have not experienced
significant difficulties in attracting or retaining qualified employees.
Corporate Information
On March 26, 2018, Cogint, Inc. (“cogint”) (now known as Fluent, Inc.) spun off its risk management business by way of a distribution of all of the shares
of common stock of its then wholly-owned subsidiary, red violet, to its stockholders as of the record date and certain warrant holders (the “Spin-off”).
6
Available Information
Our principal executive offices are located at 2650 North Military Trail, Suite 300, Boca Raton, Florida 33431 and our telephone number is (561) 757-
4000. Our corporate website is www.redviolet.com. The website address provided in this 2023 Form 10-K is not intended to function as a hyperlink and
information obtained on the website is not and should not be considered part of this 2023 Form 10-K and is not incorporated by reference in this 2023 Form
10-K or any filing with the Securities and Exchange Commission (the “SEC”). Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), are available, free of charge, under the “Investors” section of our website at www.redviolet.com as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet website located at http://www.sec.gov
that contains the information we file or furnish electronically with the SEC.
Information About Our Executive Officers
Our executive officers are as follows:
Name
Derek Dubner
James Reilly
Daniel MacLachlan
Jeff Dell
Position
Chief Executive Officer and Chairman
President
Chief Financial Officer
Chief Information Officer
Mr. Derek Dubner, 52, has served as the Chief Executive Officer and a director of the Company since its formation in August 2017 and continuing
through the Spin-off from cogint on March 26, 2018. Mr. Dubner was appointed as Interim Chairman of our board of directors in September 2018 and as
Chairman of our board of directors in April 2020. Mr. Dubner served as the Chief Executive Officer and a director of cogint, from March 2016 until the
Spin-off. Mr. Dubner served as cogint’s Co-Chief Executive Officer from March 2015 until March 2016. Mr. Dubner has over 20 years of experience in the
data and analytics industry. Mr. Dubner has served as the Chief Executive Officer of our subsidiary The Best One, Inc. (“TBO”), now known as the IDI
Holdings, LLC (“IDI Holdings”), a holding company engaged in the acquisition of operating businesses and the acquisition and development of technology
assets across various industries, and its subsidiary, Interactive Data, LLC (“Interactive Data”), since October 2014. Prior to TBO, Mr. Dubner served as
General Counsel of TransUnion Risk and Alternative Data Solutions, Inc. (“TRADS”) from December 2013 to June 2014. Mr. Dubner served as General
Counsel and Secretary of TLO, LLC (“TLO”), an information solutions provider, from inception in 2009 to December 2013.
Mr. James Reilly, 49, has served as President of the Company since its formation in August 2017 and continuing through its Spin-off from cogint. Mr.
Reilly served as President of cogint from July 2017 until the Spin-off, and previously from June 2015 until June 2016 and as President and Chief Operating
Officer of two of our subsidiaries, IDI Holdings and Interactive Data from October 2014 until June 2016. From July 2016 to June 2017, Mr. Reilly was
enjoined from providing services for cogint or its subsidiaries. From January 2014 through September 2014, Mr. Reilly served as Vice President of Sales at
TRADS. From August 2010 through its acquisition of substantially all of the assets by TRADS in December 2013, Mr. Reilly served as Senior Vice
President of TLO.
Mr. Daniel MacLachlan, 45, has served as the Chief Financial Officer of the Company since its formation in August 2017 and continuing through its
Spin-off from cogint. Mr. MacLachlan served as Chief Financial Officer of cogint from March 2016 until the Spin-off and brings over fifteen years of
experience as the chief financial officer of data-driven technology companies. Mr. MacLachlan served as an independent director, Audit and Compensation
Committee Chairman for Vapor Corp., a U.S.-based distributor and retailer of vaporizers, e-liquids and electronic cigarettes, from April 2015 through April
2016. From October 2014 until February 2015, Mr. MacLachlan served as the Chief Financial Officer of TBO. Prior to TBO, Mr. MacLachlan served in the
roles of Director of Finance and Chief Financial Officer for TRADS after it acquired TLO in December 2013. Mr. MacLachlan was the Chief Financial
Officer of TLO from inception in 2009 to December 2013. From 2005 to 2009, Mr. MacLachlan served as the Chief Financial Officer of JARI Research
Corporation (“JARI”), a partnership with the Mayo Clinic advancing proprietary cancer therapeutic technology using targeted radioactive therapy. Prior to
JARI, Mr. MacLachlan served as a Special Agent in the Federal Bureau of Investigation (FBI) specializing in the criminal investigation of public
corruption and civil rights violations.
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Mr. Jeff Dell, 52, has served as the Chief Information Officer of the Company since its formation in August 2017 and continuing through its Spin-off from
cogint. Mr. Dell served as Chief Information Officer of cogint from September 2016 until the Spin-off and served as the Interim Chief Information Officer
of cogint from June 2016 through September 2016. From July 2015 through May 2016, Mr. Dell served as the VP Information Security of cogint. From
June 2012 to June 2015, Mr. Dell served as Founder and Chief Executive Officer of Endurance Tracker, Inc., a sports-based data analytics solution. From
August 2009 to May 2012, Mr. Dell served as Lead Architect at Tripwire, Inc. From October 2008 to August 2009, Mr. Dell served as Chief Information
Security Officer of TLO. From September 2003 to August 2009, Mr. Dell served as Founder and Chief Executive Officer of Activeworx, Inc., a leading
information security data analytics company. From January 2001 to August 2003, Mr. Dell served as Chief Information Security Officer of Seisint, Inc., a
leading provider in the data fusion industry.
Item 1A. Risk Factors.
Our business, financial condition, operating results, and cash flows may be impacted by a number of factors, many of which are beyond our control,
including those set forth below and elsewhere in this 2023 Form 10-K, the occurrence of any one of which could have a material adverse effect on our
actual results.
Cybersecurity and Technology Risks
Our products and services are highly technical and if they contain undetected errors, our business could be adversely affected and we may have to
defend lawsuits or pay damages in connection with any alleged or actual failure of our products and services.
Our products and services are highly technical and complex. Our products and services have contained and may contain one or more undetected errors,
defects, or security vulnerabilities. Some errors in our products and services may only be discovered after a product or service has been used by end
customers. Any errors or security vulnerabilities discovered in our products after commercial release could result in loss of revenue or delay in revenue
recognition, or loss of customers, any of which could adversely affect our business and results of operations. In addition, we could face claims for product
liability or breach of personal information. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention. In addition, if our
business liability insurance coverage is inadequate or future coverage is unavailable on acceptable terms or at all, our financial condition could be harmed.
If we fail to respond to rapid technological changes in the data and analytics sector, we may lose customers and/or our products and/or services may
become obsolete.
The data and analytics sector is characterized by rapidly changing technology, frequent product introductions, and continued evolution of new industry
standards. As a result, our success depends upon our ability to develop and introduce in a timely manner new products and services and enhancements to
existing products and services that meet changing customer requirements and evolving industry standards. The development of technologically advanced
product solutions is a complex and uncertain process requiring high levels of innovation, rapid response and accurate anticipation of technological and
market trends. We cannot assure you that we will be able to identify, develop, manufacture, market, or support new or enhanced products and services
successfully in a timely manner. Further, we or our competitors may introduce new products or services or product enhancements that shorten the life cycle
of existing products or services or cause existing products or services to become obsolete.
Because our networks and information technology systems are critical to our success, if unauthorized persons access our systems or our systems
otherwise cease to function properly, our operations could be adversely affected and we could lose revenue or proprietary information, all of which
could materially adversely affect our business.
As our business is conducted largely online, it is dependent on our networks being accessible and secure. If an actual or perceived breach of network
security occurs, regardless of whether the breach is attributable to our network security controls, the market perception of the effectiveness of our network
security could be harmed resulting in loss of current and potential end user customers, data suppliers, or cause us to lose potential value-added resellers,
distributors, or strategic partners. Our business is largely dependent on our customer-facing websites and our websites may be inaccessible because of
service interruptions or subject to hacking or computer attacks. Because the techniques used by computer hackers to access or sabotage networks change
frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques. If an actual or perceived
breach were to occur, we cannot assure you that we would not lose revenue or not sustain operating losses as a result.
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We also rely heavily on large information technology databases and the ability to provide services using that information from those databases. A party
who is able to breach the security measures on our networks or who otherwise is able to access our system through unauthorized means could
misappropriate either our proprietary information or the personal information of consumers that we collect, or otherwise cause interruptions or
malfunctions to our operations. Hacking of computer data systems is a growing problem. Hackers may especially target concerns that are known to
maintain large repositories of proprietary information or personal information, which can then be exploited for the hacker's personal gain. If we grow and
obtain more visibility, we may be more vulnerable to hacking or other attempts to gain unauthorized access to our system. Moreover, the increased use of
mobile devices also increases the risk of theft or the intentional and unintentional disclosure of data including proprietary information or personal
information. We may be unable to anticipate all of these vulnerabilities and implement adequate preventative measures and, in some cases, we may not be
able to immediately detect a security incident. Any security incident could result in legal, regulatory, and financial liability, as well as harm to our
reputation.
We may be required to expend significant capital and other resources to protect against such threats or to alleviate problems caused by breaches in security.
Additionally, any server interruptions, break-downs or system failures, including failures which may be attributable to events within or outside our control,
could increase our future operating costs and cause us to lose business. We maintain insurance policies covering losses relating to our network systems or
other assets. However, these policies may not cover the entire cost of a claim. Any future disruptions in our information technology systems, whether
caused by hacking or otherwise, may have a material adverse effect on our future results.
Privacy concerns relating to the collection, use, accuracy, correction and sharing of personal information and any perceived or actual unauthorized
disclosure of personal information, whether through breach of our network by an unauthorized party, employee theft, misuse, or error could harm our
reputation, impair our ability to attract website visitors and to attract and retain customers, result in a loss of confidence in the security of our products and
services, or subject us to claims or litigation arising from damages suffered by consumers, and thereby harm our business and results of operations. In
addition, we could incur significant costs which our insurance policies may not adequately cover, and we may need to expend significant resources to
protect against security breaches and comply with the multitude of state and federal laws regarding data privacy and data breach notification obligations.
Data security and integrity are critically important to our business, and breaches of security, unauthorized access to or disclosure of confidential
information, disruption, including distributed denial of service (“DDoS”) attacks or the perception that confidential information is not secure, could
result in a material loss of business, substantial legal liability or significant harm to our reputation.
As a nationwide provider of risk and information solutions, we aggregate, store, and process a large amount of sensitive and confidential consumer
information including financial information and personal information. This data is often accessed through secure transmissions over public and private
networks, including the internet. We have invested significant resources to implement technical and physical security policies, procedures and systems, as
well as contractual precautions, that we believe are reasonably designed to identify, detect, and prevent the unauthorized access to and alteration and
disclosure of our data. Despite these investments and precautions, we cannot assure you that systems that access our services and databases will not be
compromised or disrupted, whether as a result of criminal conduct, DDoS attacks or other advanced persistent attacks by malicious actors, including
hackers, nation states, and criminals, breaches due to employee error or malfeasance, or other disruptions during the process of upgrading or replacing
computer software or hardware, power outages, computer viruses, telecommunication or utility failures, or natural disasters or other catastrophic events.
Due to both the nature and volume of the information we aggregate, store, and process, it is not unusual for efforts to occur (coordinated or otherwise) by
unauthorized persons to attempt to obtain access to our systems or data, or to inhibit our ability to deliver products or services to a customer. These efforts
are likely becoming more sophisticated over time and may attempt to exploit obscure vulnerabilities. We must regularly monitor and develop our
information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses and
other events that could have a security impact. Several recent, highly-publicized data incidents and DDoS attacks have heightened consumer awareness of
this issue and may embolden individuals or groups to target our systems. Unauthorized disclosure, loss or corruption of our data or inability of our
customers to access our systems could disrupt our operations, subject us to substantial legal liability, result in a material loss of business, and significantly
harm our reputation.
Our precautions may be inadequate to thwart a cybersecurity incident. Furthermore, we may not be able to immediately address the consequences of a
cybersecurity incident because a successful breach of our computer systems, software, networks, or other technology assets could occur and persist for an
extended period of time before being detected due to, among other things:
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the breadth and complexity of our operations and the high volume of transactions that we process;
the large number of customers, counterparties and third-party service providers with which we do business;
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the proliferation and increasing sophistication of cyberattacks; and
the possibility that a third party, after establishing a foothold on an internal network without being detected, might obtain access to other networks and
systems.
The extent of a particular cybersecurity incident and the steps that we may need to take to investigate it may not be immediately clear, and it may take a
significant amount of time before such an investigation can be completed and full and reliable information about the incident is known. While such an
investigation is ongoing, we may not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or
compounded before they are discovered and remediated, any or all of which could further increase the costs and consequences of a cybersecurity incident.
A growing number of legislative and regulatory bodies have adopted consumer notification and other requirements in the event that a consumer's personal
information is accessed by unauthorized persons. It is likely that additional laws pertaining to the use, access, accuracy, and security of personal
information will be adopted in the future. In the United States, federal and state laws provide for more than 50 disparate data breach notification regimes,
all of which we may be subject to. Complying with such numerous and complex regulations in the event of unauthorized access would be expensive and
difficult, and failure to comply with these regulations could subject us to regulatory scrutiny and additional liability.
If we fail to maintain and improve our systems, our certifications, our technology, and our interfaces with data and customers, demand for our services
could be adversely affected.
In our industry, there are continuous improvements in computer hardware, network operating systems, programming tools, programming languages,
operating systems, data matching, data filtering and other database technologies, and the use of the internet. These improvements, as well as changes in
customer preferences or regulatory requirements, may require changes in the technology used to gather and process our data and deliver our services. Our
future success will depend, in part, upon our ability to:
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internally develop and implement new and competitive technologies;
use leading third-party technologies effectively;
respond to changing customer needs and regulatory requirements, including being able to bring our new products to the market quickly; and
transition customers and data sources successfully to new interfaces or other technologies.
We cannot provide assurance that we will successfully implement new technologies, cause customers or data suppliers to implement compatible
technologies or adapt our technology to evolving customer, regulatory, and competitive requirements. If we fail to respond, or fail to cause our customers or
data suppliers to respond, to changes in technology, regulatory requirements or customer preferences, the demand for our services, the delivery of our
services or our market reputation could be adversely affected. Additionally, our failure to implement important updates could affect our ability to
successfully meet the timeline for us to generate cost savings resulting from our investments in improved technology. Failure to achieve any of these
objectives would impede our ability to deliver strong financial results.
Furthermore, we may be required to obtain various industry or technical certifications under our contracts or otherwise to keep pace with our competitors.
If we fail to achieve and maintain these key industry or technical certifications, our customers may stop doing business with us and we may not be able to
win new business, which would negatively affect our revenue.
Legal, Regulatory and Compliance Risks
Our business is subject to various governmental regulations, laws, and orders, compliance with which may cause us to incur significant expenses
or reduce the availability or effectiveness of our solutions, and the failure to comply with which could subject us to civil or criminal penalties or
other liabilities.
Our business is subject to regulation under the GLBA, the DPPA, the FTC Act, and various other federal, state, and local laws and regulations. These laws
and regulations, which generally are designed to protect consumers and to prevent the misuse of personal information are complex, change frequently, and
have tended to become more stringent over time. We have already incurred significant expenses in our endeavors to comply with these laws.
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Currently, public concern is high with regard to the collection, use, accuracy, correction, and sharing of personal information, including Social Security
numbers, dates of birth, financial information, department of motor vehicle data, and other data which is personally identifiable or may be considered
sensitive. In addition, many advocacy groups as well as some legislatures and government regulators believe that existing laws and regulations do not
adequately protect privacy, and are otherwise concerned with businesses’ collection, storage, and use of personal information. Relatedly, several U.S.
states have introduced and passed legislation to provide consumers with greater transparency and control over their personal information. Laws may
allow consumers to request that businesses disclose to them what personal information is collected about them, delete or correct such personal
information, and opt-them out of the sale or sharing of their personal information. For example, the following state privacy laws have taken effect: (i) the
California Privacy Rights Act (the “CPRA”), effective January 2023, with some provisions applying retroactively, amending the California Consumer
Privacy Act (the “CCPA”); (ii) the Virginia Consumer Data Protection Act (the “VCDPA”), effective January 2023; (iii) the Colorado Privacy Act (the
“CPA”), effective July 2023; (iv) the Connecticut Data Privacy Act (the “CTDPA”), effective July 2023; and (v) the Utah Consumer Privacy Act (the
“UCPA”), effective December 2023. While these laws include specific exemptions, including exemptions for practices and activities conducted pursuant
to the GLBA and DPPA, they apply to other portions of our business that are not conducted pursuant to these laws. Other states are actively considering
privacy and security bills, and may pass laws, either similar or dissimilar to California’s, Virginia’s, Colorado’s, Connecticut’s, or Utah’s privacy laws in
the future. Furthermore, the U.S. Congress is considering legislation and the FTC is considering rulemaking, each with respect to data privacy and
security. At this time, it is unclear whether Congress will pass a law or whether the FTC will proceed with regulatory action. At this time, it is also unclear
whether any federal requirements will supplement or preempt state-level data privacy and security laws. In the absence of additional federal legislation or
rulemaking, the FTC has increasingly used its existing authority, such as under Section 5 of the FTC Act, to bring legal action against organizations who
are alleged to have violated consumers’ privacy rights or failed to maintain adequate security measures.
These U.S. federal and state laws and regulations, which can be enforced by government entities or, in some cases, private parties, are constantly evolving
and can be subject to significant change. Keeping our business in compliance with or bringing our business into compliance with new laws may be costly
and may affect our revenue and/or harm our financial results. In addition, the application, interpretation, and enforcement of these laws and regulations are
often uncertain, particularly in the new and rapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from
jurisdiction to jurisdiction and inconsistently with our current policies and practices. In addition, new laws or regulations or changes in enforcement of
existing laws or regulations applicable to our customers could affect the activities or strategies of such customers and, therefore, lead to reductions in their
level of business with us.
The following legal and regulatory developments also could have a material adverse effect on our business, financial condition, or results of operations:
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amendment, enactment or interpretation of laws and regulations that restrict the access and use of personal information and reduce the availability
or effectiveness of our solutions or the supply of data available to customers;
changes in public perception or the position of government actors in favor of further restrictions on information collection and sharing, which may
lead to regulations that prevent full utilization of our solutions;
failure of customers, resellers, distributors, strategic business partners, or vendors to comply with laws or regulations, where these third parties'
failures could reflect negatively on us or require us to cease or limit our business with them;
failure of our solutions to comply with current laws and regulations; and
failure of our solutions to adapt to changes in the regulatory environment in an efficient, cost-effective manner.
Changes in applicable legislation or regulations that restrict or dictate how we collect, maintain, combine, and disseminate information could adversely
affect our business, financial condition or results of operations. In the future, we may be subject to significant additional expense to ensure continued
compliance with applicable laws and regulations and to investigate, defend or remedy actual or alleged violations. Any failure by us to comply with
applicable laws or regulations could also result in significant liability to us, including liability to private plaintiffs as a result of individual or class action
litigation, or may result in the cessation of our operations or portions of our operations or impositions of fines and restrictions on our ability to carry on or
expand our operations. Moreover, our compliance with privacy laws and regulations and our reputation depend in part on our customers’ adherence to
privacy laws and regulations and their use of our services in ways consistent with consumer expectations and regulatory requirements. Certain of the laws
and regulations governing our business are subject to interpretation by judges, juries, and administrative entities, creating substantial uncertainty for our
business. We cannot predict what effect the interpretation of existing or new laws or regulations may have on our business.
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The outcome of litigation, inquiries, investigations, examinations, or other legal proceedings in which we are involved, in which we may become
involved, or in which our customers or competitors are involved, could subject us to significant monetary damages or restrictions on our ability to do
business.
Legal proceedings arise as part of the normal course of our business. These may include actions between us and a current or former employee, actions
between us and a current former customer, individual consumer cases, class action lawsuits and inquiries, investigations, examinations, regulatory
proceedings, or other actions brought by federal (e.g., the FTC) or state (e.g., state attorneys general) authorities. The scope and outcome of these
proceedings is often difficult to assess or quantify. Plaintiffs in lawsuits may seek recovery of large amounts and the cost to defend such litigation may be
significant. There may also be adverse publicity and uncertainty associated with investigations, litigation, and orders (whether pertaining to us, our
customers or our competitors) that could decrease customer acceptance of our services or result in material discovery expenses. In addition, a court-ordered
injunction or an administrative cease-and-desist order or settlement may require us to modify our business practices or may prohibit conduct that would
otherwise be legal and in which our competitors may engage. Many of the technical and complex statutes to which we are subject, including state and
federal financial privacy requirements, may provide for civil and criminal penalties and may permit consumers to maintain individual or class action
lawsuits against us and obtain statutorily prescribed damages. Additionally, our customers might face similar proceedings, actions, or inquiries which could
affect their business and, in turn, our ability to do business with those customers.
While we maintain various insurance policies that we believe provide us with suitable coverage and protection in the event of litigation or other legal
proceedings, those policies may contain exclusions or limitations, resulting in some cases in us retaining all or a portion of the risk of loss.
While we do not believe that the outcome of any pending or threatened legal proceeding, investigation, examination, or supervisory activity will have a
material adverse effect on our financial position, such events are inherently uncertain and adverse outcomes could result in significant monetary damages,
penalties, or injunctive relief against us. Furthermore, we review legal proceedings and claims on an ongoing basis and follow appropriate accounting
guidance, including Accounting Standards Codification (“ASC”) 450, “Contingencies,” when making accrual and disclosure decisions. We establish
accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the
amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. To
estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among other factors, the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate of the amount of the loss. We do not record liabilities when the likelihood that the liability has been
incurred is probable, but the amount cannot be reasonably estimated.
Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions, including derivative actions,
which could limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors,
officers, other employees, or the Company's stockholders, and may discourage lawsuits with respect to such claims.
Unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought
against or on behalf of the Company, (ii) any action asserting a claim of breach of a duty owed by any current or former director, officer, other employee or
stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the
Delaware General Corporation Law, (iv) any action as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery in
the State of Delaware, or (v) any action asserting a claim governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be the Court
of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any
state or federal court located within the State of Delaware). However, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits
brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses
set forth above would not apply to such suits. Furthermore, Section 22 of the Securities Act of 1933, as amended (the "Securities Act") provides for
concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and
regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits.
Although we believe the exclusive forum provision benefits us by providing increased consistency in the application of Delaware law for the specified
types of actions and proceedings, this provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with
the Company and its directors, officers, or other employees, and may discourage lawsuits with respect to such claims.
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Risks Related to Our Common Stock
Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.
The trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to
various factors, some of which are beyond our control. These factors could include:
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additions or departures of key personnel;
changes in governmental regulations or in the status of our regulatory approvals;
changes in earnings estimates or recommendations by securities analysts;
any major change in our board or management;
general economic conditions and slow or negative growth of our markets; and
political instability, natural disasters, pandemics, war, and/or events of terrorism.
From time to time, we estimate the timing of the accomplishment of various commercial and other product development goals or milestones. Also, from
time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All of these milestones are based on a variety of
assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we
do not meet these milestones as publicly announced, our stock price may decline.
In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of publicly traded companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours,
regardless of actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock. In addition, in the past,
following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often
been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s
attention and resources.
Future issuances of shares of our common stock in connection with acquisitions or pursuant to our stock incentive plans could have a dilutive effect on
your investment.
Since the Spin-off and through December 31, 2023, we issued an aggregate of 3,435,793 shares of our common stock in connection with vesting of awards
made under the Red Violet, Inc. 2018 Stock Incentive Plan, as amended (the “2018 Plan”), 719,735 shares of which were retired and cancelled. Also, as of
December 31, 2023, 49,034 shares underlying awards made under the 2018 Plan have vested but have not been delivered, and an additional 1,017,718
shares underlying awards made under the 2018 Plan are scheduled to vest and be delivered through 2027. Pursuant to the 2018 Plan, our board of directors
may grant stock options, restricted stock units (“RSUs”), or other equity awards to our directors and employees. Future stock incentive plans may also
allow our board of directors to issue these equity awards to our directors and employees. When these awards vest or are exercised, the issuance of shares of
common stock underlying these awards will have a dilutive effect on our common stock. Future acquisitions may involve the issuance of our common
stock as payment, in part or in full, for the business or assets acquired. The benefits derived by us from an acquisition might not exceed the dilutive effect
of the shares issued as part of the acquisition.
The concentration of our stock ownership may limit individual stockholder ability to influence corporate matters.
As of December 31, 2023, officers and directors of the Company owned approximately 10% of our common stock (approximately 12% on a fully diluted
basis). In addition, two other significant stockholders of the Company owned approximately 14% and 11% of our common stock (approximately 13% and
10% on a fully diluted basis), respectively. As a result, these stockholders may be in a position to exert significant influence over all matters requiring
stockholder approval, including the election of directors and determination of significant corporate actions. The interests of these stockholders may not
always coincide with the interests of other stockholders, and these stockholders may act in a manner that advances their interests and not necessarily those
of other stockholders, and might affect the prevailing market price for our securities.
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We are no longer an “emerging growth company,” however, we are still a “smaller reporting company,” and the reduced disclosure requirements
applicable to smaller reporting companies may make our common stock less attractive to investors.
Although we ceased to be an “emerging growth company,” on December 31, 2023, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS
Act, we remain a “smaller reporting company.” We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-
affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market
value of our stock held by non-affiliates is less than $700.0 million. As a smaller reporting company, we may continue to rely on exemptions from certain
disclosure requirements that are available to smaller reporting companies. Specifically, we may choose to present only the two most recent fiscal years of
audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced
disclosure obligations regarding executive compensation. We cannot predict if investors will find our common stock less attractive because we may rely on
these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and
our stock price may be more volatile.
We expect that we may need additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all, when or as
we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or
exchangeable for, our common stock, our existing stockholders would experience further dilution.
While we may need additional capital in the future, we cannot be certain that it will be available to us on acceptable terms when required, or at all.
Disruptions in the global equity and credit markets may limit our ability to access capital. Since the Spin-off and through December 31, 2023, we issued an
aggregate of 1,233,915 shares of our common stock in connection with registered direct offerings. To the extent that we raise additional funds by issuing
equity securities, our shareholders would experience dilution, which may be significant and could cause the market price of our common stock to decline
significantly. Any debt financing, if available, may restrict our operations. If we are unable to raise additional capital when required or on acceptable terms,
we may have to significantly delay, scale back or discontinue certain operations. Any of these events could significantly harm our business and prospects
and could cause our stock price to decline.
We do not currently intend to pay dividends on our common stock.
We do not currently expect to pay cash dividends on our common stock and have not paid cash dividends on our common stock to date. Any future
dividend payments are within the discretion of our board of directors and will depend upon, among other things, our results of operations, working capital
requirements, capital expenditure requirements, financial condition, level of indebtedness, any contractual restrictions with respect to payment of dividends,
business opportunities, anticipated cash needs, provisions of applicable law, and other factors that our board of directors may deem relevant.
Business and Operations Risks
We have a history of losses which makes our future results uncertain.
Since inception, we incurred operating losses through December 31, 2021. We need to generate greater revenue from the sale of our products and services
if we are to sustain profitability. If we are unable to generate greater revenue, we may not be able to continue to achieve profitability and generate positive
cash flow from operations in the future.
Environmental issues, including any future reporting obligations in connection with environmental issues, may adversely impact our business and
operations.
Extreme weather events and natural disasters may disrupt our operations or those of our customers and suppliers. These events may become more frequent
and more severe as a result of climate change, and the long-term impacts to the economy and our industry are unknown. While we maintain business
continuity and disaster recovery plans, we cannot be certain that those plans will be effective. Even if we are unaffected by an extreme weather event or
natural disaster, or recover from one quickly, our customers or suppliers may be more severely impacted, thereby affecting their ability to continue to do
business with us.
Additionally, the SEC is considering enhancing and standardizing climate-related disclosure rules for publicly traded companies. This, in turn, may result
in increased compliance costs and increased legal exposure. Any climate-related disclosures would likely be based on certain assumptions, estimates and
third-party data, and our reports may not meet the expectations of regulators, investors, or other third parties. If our environmental practices, reporting, and
performance do not meet expectations, or are perceived as not meeting expectations, we may be subject to government investigations, lawsuits, or other
legal actions. Our reputation and customer retention may also be negatively affected.
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We depend, in part, on strategic alliances and joint ventures to grow our business. If we are unable to develop and maintain these strategic alliances
and joint ventures, our growth may be adversely affected.
An important focus of our business is to identify business relationships that can enhance our services, enable us to develop solutions that differentiate us
from our competitors, drive users to our websites and monetize our data. We have entered into several alliance agreements or license agreements with
respect to certain of our datasets and services and may enter into similar agreements in the future. These arrangements may require us to restrict our use of
certain of our technologies or datasets among certain customer industries, restrict content on our websites, or grant licenses on terms that ultimately may
prove to be unfavorable to us, any of which could adversely affect our business, financial condition or results of operations. Relationships with our alliance
agreement partners may include risks due to incomplete information regarding the marketplace and commercial strategies of our partners, and our alliance
agreements or other licensing agreements may be the subject of contractual disputes. If we or our alliance agreements’ partners are not successful in
maintaining or commercializing the alliance agreements’ services, such commercial failure could adversely affect our business.
If we consummate any future acquisitions, we will be subject to the risks inherent in identifying, acquiring, and operating a newly acquired business.
We may, in the future, acquire additional businesses, which we believe could complement or expand our current business or offer growth opportunities.
We may experience difficulties in identifying potential acquisition candidates that complement our current business at appropriate prices, or at all. We
cannot assure you that our acquisition strategy will be successful. We may spend significant management time and resources in analyzing and negotiating
acquisitions or investments that are not consummated. Furthermore, the ongoing process of integrating an acquired business is distracting, time
consuming, expensive, and requires continuous optimization and allocation of resources. Additionally, if we use stock as consideration, this would dilute
our existing shareholders and if we use cash, this would reduce our liquidity and impact our financial flexibility. We may seek debt financing for particular
acquisitions, which may not be available on commercially reasonable terms, or at all. We face the risks associated with the business acquisition strategy,
including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the potential disruption of our existing businesses, including the diversion of management attention and the redeployment of resources;
entering new markets or industries in which we have limited prior experience;
our failure in due diligence to identify key issues specific to the businesses we seek to acquire or the industries or other environments in which they
operate, or, failure to protect against contingent liabilities arising from those issues;
unforeseen, hidden, or fraudulent liabilities;
our difficulties in integrating, aligning and coordinating organizations which will likely be geographically separated and may involve diverse business
operations and corporate cultures;
our difficulties in integrating and retaining key management, sales, research and development, production, and other personnel;
the potential loss of key employees, customers, or distribution partners of the acquired business;
our difficulties in incorporating the acquired business into our organization;
the potential loss of customers, resellers, distributors, strategic business partners, or suppliers;
our difficulties in integrating or expanding information technology systems and other business processes to accommodate the acquired business;
the risks associated with integrating financial reporting and internal control systems, including the risk that significant deficiencies or material
weaknesses may be identified in acquired entities;
the potential for future impairments of goodwill and other intangible assets if the acquired business does not perform as expected;
the inability to obtain necessary government approvals for the acquisition, if any; and
our successfully operating the acquired business.
If we cannot overcome these challenges, we may not realize actual benefits from past and future acquisitions, which will impair our overall business
results. If we complete an investment or acquisition, we may not realize the anticipated benefits from the transaction.
15
Our relationships with key customers may be materially diminished or terminated, which could adversely affect our business, financial condition, and
results of operations.
We have established relationships with a number of customers, many of whom could unilaterally terminate their relationship with us or materially reduce
the amount of business they conduct with us at any time. Market competition, customer requirements, customer financial condition, and customer
consolidation through mergers or acquisitions also could adversely affect our ability to continue or expand these relationships. There is no guarantee that
we will be able to retain or renew existing agreements, maintain relationships with any of our customers on acceptable terms or at all, or collect amounts
owed to us from insolvent customers. The loss of one or more of our major customers could adversely affect our business, financial condition and results of
operations.
If we lose the services of key personnel, it could adversely affect our business.
Our future success depends, in part, on our ability to attract and retain key personnel. Our future also depends on the continued services of Derek Dubner,
our Chief Executive Officer and Chairman, James Reilly, our President, Daniel MacLachlan, our Chief Financial Officer, and other key employees in all
areas of our organization, each of whom is important to the management of certain aspects of our business and operations and the development of our
strategic direction, and each of whom may be difficult to replace. The loss of the services of these key individuals and the process to replace these
individuals would involve significant time and expense and could significantly delay or prevent the achievement of our business objectives.
Further, the FTC and certain other government entities have indicated a desire to limit the allowability of agreements that are designed to prevent
employees from competing with their former employers. If the enforceability of these types of “non-compete” agreements is affected by future lawmaking
or regulatory action, it may impede our ability to ensure that former employees, who received training and experience through their employment with us,
refrain from using their knowledge of our business and operations to compete with us.
Our revenue is concentrated in the U.S. market across a broad range of industries. When these industries or the broader financial markets experience
a downturn, demand for our services and revenue may be adversely affected.
Our customers, and therefore our business and revenue, sometimes depend on favorable macroeconomic conditions and are impacted by the availability of
credit, the level and volatility of interest rates, inflation, employment levels, consumer confidence, and housing demand. In addition, a significant amount
of our revenue is concentrated in the U.S. market across a broad range of industries. Our customer base suffers when financial markets experience
volatility, illiquidity, and disruption, which has occurred in the past and which could reoccur. Such market developments, and the potential for increased
and continuing disruptions going forward, present considerable risks to our business and operations. Changes in the economy have resulted, and may
continue to result, in fluctuations in volumes, pricing, and operating margins for our services. Recent inflation, and higher interest rates imposed to combat
inflation, may reduce the demand for various commercial transactions. This, in turn, may lead to a decline in the volume of services we provide to our
customers in the banking or financial industry, or other industries that are affected by these types of disruptions. If businesses in these industries experience
economic hardship, we cannot assure you that we will be able to generate future revenue growth and these types of disruptions could negatively impact our
revenue and results of operations.
We could lose our access to data sources which could prevent us from providing our services.
Our products and services depend extensively upon continued access to and receipt of data from external sources, including data received from strategic
partners and various government and public record databases. In some cases, we compete with our data suppliers. Our data suppliers could stop providing
data, provide untimely data or increase the costs for their data for a variety of reasons, including a perception that our systems are insecure as a result of a
data security breach, budgetary constraints, a desire to generate additional revenue, or for regulatory or competitive reasons. We could also become subject
to increased legislative, regulatory, or judicial restrictions or mandates on the collection, disclosure, or use of such data, in particular if such data is not
collected by our providers in a way that allows us to legally use the data. If we were to lose access to this external data or if our access or use were
restricted or were to become less economical or desirable, our ability to provide services could be negatively impacted, which would adversely affect our
reputation, business, financial condition, and results of operations. We cannot provide assurance that we will be successful in maintaining our relationships
with these external data source providers or that we will be able to continue to obtain data from them on acceptable terms or at all. Furthermore, we cannot
provide assurance that we will be able to obtain data from alternative sources if our current sources become unavailable.
16
The foregoing risks are heightened with respect to our largest data supplier, with whom we have expanded our relationship while securing favorable
business terms over the years. If we are unable to maintain our current relationship with our largest data supplier, our ability to provide services could be
negatively impacted, as we would need to secure comparable data on similar terms, which would require significant time, expense, and resources, and may
in the short-term adversely affect our reputation, business, financial condition, and results of operations and, if we are unable to establish a similar
relationship with other data suppliers over time, could have a long-term material impact on our business and financial condition.
We must adequately protect our intellectual property in order to prevent loss of valuable proprietary information.
We rely primarily upon a combination of patent, copyright, trademark, and trade secret laws, as well as other intellectual property laws, and confidentiality
procedures and contractual agreements, such as non-disclosure agreements, to protect our proprietary technology. However, unauthorized parties may
attempt to copy or reverse engineer aspects of our products or services or to obtain and use information that we regard as proprietary. Policing unauthorized
use of our products or services is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property.
If the protection of our intellectual property proves to be inadequate or unenforceable, others may be able to use our proprietary developments without
compensation to us, resulting in potential cost advantages to our competitors.
Some of our systems and technologies are not covered by any copyright, patent, or patent application. We cannot guarantee that: (i) our intellectual
property rights will provide us with a competitive advantage; (ii) our ability to assert our intellectual property rights against potential competitors or to
settle current or future disputes will be effective; (iii) our intellectual property rights will be enforced in jurisdictions where competition may be intense or
where legal protection may be weak; (iv) any of the patent, trademark, copyright, trade secret or other intellectual property rights that we presently employ
in our business will not lapse or be invalidated, circumvented, challenged, or abandoned; (v) competitors will not design around our protected systems and
technology; or (vi) that we will not lose the ability to assert our intellectual property rights against others.
Policing unauthorized use of our proprietary rights can be difficult and costly. Litigation, while it may be necessary to enforce or protect our intellectual
property rights, could result in substantial costs and diversion of resources and management attention and could adversely affect our business, even if we
are successful on the merits.
Additionally, third parties may independently develop intellectual property similar to ours, but without use of our trade secrets or proprietary information.
In such cases, the value of our intellectual property may be diminished but we will lack any enforceable right or remedy.
We face intense competition from both start-up and established companies that may have significant advantages over us and our products.
The market for our products and services is intensely competitive. There are numerous companies competing with us in various segments of the data and
analytics sector, and their products and services may have advantages over our products and services in areas such as conformity to existing and emerging
industry standards, performance, price, ease of use, scalability, reliability, flexibility, product features, and technical support.
Our principal competitors in the data and analytics sector include RELX Group (LexisNexis), TransUnion, and Thomson Reuters. Current and potential
competitors may have one or more of the following significant advantages:
•
•
•
•
•
greater financial, technical, and marketing resources;
better name recognition;
more comprehensive solutions;
better or more extensive cooperative relationships; and
larger customer base.
We cannot assure you that we will be able to compete successfully with our existing or new competitors. Some of our competitors may have, in relation to
us, one or more of the following: longer operating histories, longer-standing relationships with end-user customers, and greater customer service, public
relations and other resources. As a result, these competitors may be able to more quickly develop or adapt to new or emerging technologies and changes in
customer requirements, or devote greater resources to the development, promotion, and sale of their products and services. Additionally, it is likely that
new competitors or alliances among existing competitors could emerge and rapidly acquire significant market share.
17
There may be further consolidation in our end-customer markets, which may adversely affect our revenue.
There has been, and we expect there will continue to be, merger, acquisition, and consolidation activity in our customer markets. If our customers merge
with, or are acquired by, other entities that are not our customers, or that use fewer of our services, our revenue may be adversely impacted. In addition,
industry consolidation could affect the base of recurring transaction-based revenue if consolidated customers combine their operations under one contract,
since many of our contracts provide for volume discounts. In addition, our existing customers might leave certain geographic markets, which would no
longer require them to purchase certain products from us and, consequently, we would generate less revenue than we currently expect.
To the extent the availability of free or relatively inexpensive consumer and/or business information increases, the demand for some of our services
may decrease.
Public and commercial sources of free or relatively inexpensive consumer and business information have become increasingly available, and this trend is
expected to continue. Public and commercial sources of free or relatively inexpensive consumer and/or business information may reduce demand for our
services. To the extent that our customers choose not to obtain services from us and instead rely on information obtained at little or no cost from these
public and commercial sources, our business, financial condition, and results of operations may be adversely affected.
If our newer products do not achieve market acceptance, revenue growth may suffer.
Our products have been in the marketplace for a limited period of time and may have longer sales cycles than competitive products. Accordingly, we may
not achieve the meaningful revenue growth needed to sustain operations. We cannot provide any assurances that sales of our newer products will continue
to grow or generate sufficient revenues to sustain our business. If we are unable to recognize revenues due to longer sales cycles or other problems, our
results of operations could be adversely affected.
We have not yet received broad market acceptance for our newer products. We cannot assure you that our present or future products will achieve market
acceptance on a sustained basis. In order to achieve market acceptance and achieve future revenue growth, we must introduce complementary products,
incorporate new technologies into existing product lines, and design and develop and successfully commercialize higher performance products in a timely
manner. We cannot assure you that we will be able to offer new or complementary products that gain market acceptance quickly enough to avoid decreased
revenues during current or future product introductions or transitions.
Our products and services can have long sales and implementation cycles, which may result in substantial expenses before realizing any associated
revenue.
The sale and implementation of our products and services to large companies and government entities typically involves a lengthy education process and a
significant technical evaluation and commitment of capital and other resources. This process is also subject to the risk of delays associated with customers’
internal budgeting and other procedures for approving capital expenditures, and testing and accepting new technologies that affect key operations. As a
result, sales and implementation cycles for our products and services can be lengthy, and we may expend significant time and resources before we receive
any revenues from a customer or potential customer. Our quarterly and annual operating results could be adversely affected if orders forecast for a specific
customer and for a particular period are not realized.
If our outside service providers and key vendors are not able to or do not fulfill their service obligations, our operations could be disrupted and our
operating results could be harmed.
We depend on a number of service providers and key vendors such as telecommunication companies, software engineers, data processors, and software and
hardware vendors, who are critical to our operations. These service providers and vendors are involved with our service offerings, communications and
networking equipment, computer hardware and software and related support and maintenance. Although we have implemented service-level agreements
and have established monitoring controls, our operations could be disrupted if we do not successfully manage relationships with our service providers, if
they do not perform or are unable to perform agreed-upon service levels, or if they are unwilling to make their services available to us at reasonable prices.
If our service providers and vendors do not perform their service obligations, it could adversely affect our reputation, business, financial condition, and
results of operations.
18
Consolidation in the data and analytics sector may limit market acceptance of our products and services.
Several of our competitors have acquired companies with complementary technologies in the past. We expect consolidation in the industries we serve to
continue in the future. These acquisitions may permit our competitors to accelerate the development and commercialization of broader product lines and
more comprehensive solutions than we currently offer. Acquisitions of vendors or other companies with whom we have a strategic relationship by our
competitors may limit our access to commercially significant technologies and/or data. Further, business combinations are creating companies with larger
market shares, customer bases, sales forces, product offerings and technology and marketing expertise, which may make it more difficult for us to compete.
We may incur substantial expenses defending the Company against claims of infringement.
There are numerous patents held by many companies relating to the design and manufacture of data and analytics solutions. Third parties may claim that
our products and/or services infringe on their intellectual property rights. Any claim, with or without merit, could consume management’s time, result in
costly litigation, cause delays in sales or implementation of products or services, or require entry into royalty or licensing agreements. In this respect, patent
and other intellectual property litigation is becoming increasingly more expensive in terms of legal fees, expert fees, and other expenses. Royalty and
licensing agreements, if required and available, may be on terms unacceptable to us or detrimental to our business. Moreover, a successful claim of product
infringement against us or our failure or inability to license the infringed or similar technology on commercially reasonable terms could seriously harm our
business.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
We have implemented and maintain a comprehensive information security program designed to protect the confidentiality, integrity, and availability of our
critical systems and information, as well as to identify, assess, manage, mitigate, and respond to cybersecurity threats. Our systems and processes are
assessed by independent third parties for compliance with: the International Standard Organization (“ISO”) 27001; System and Organization Controls
(“SOC”) 2, Type 2; and Payment Card Industry Data Security Standards (“PCI DSS”) Level 1.
Our information security program includes the following key elements to help identify, manage, mitigate, and respond to cybersecurity threats:
• Risk assessments—We conduct risk assessments designed to help identify material cybersecurity risks, quantify the impact and probability of each risk,
develop mitigating controls, and periodically reassess previously identified risks.
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•
Testing—We conduct regular testing of our systems and controls to help identify and address potential vulnerabilities.
Technical safeguards—We utilize various technical safeguards to help protect our information systems from cybersecurity threats. We regularly review
our technical safeguards and update them in accordance with recognized best practices and standards.
• Business continuity and disaster recovery planning—We maintain business continuity and disaster recovery plans and periodically test those plans.
• A cybersecurity incident response plan—We maintain a policy governing actions required for reporting and managing cybersecurity incidents. We
have designated an Incident Response Team with clearly defined roles and responsibilities for managing all material aspects of our reporting and
response plan.
• Employee training and awareness programs—We provide training to our employees to help identify, avoid, and mitigate cybersecurity threats. Our
employees participate in annual training, including insider threat awareness, simulated phishing exercises, and other awareness training.
•
Third-party risk management—We maintain a third-party risk management program that is designed to help identify, assess, manage, mitigate, and
respond to risks associated with the Company’s suppliers and other third parties.
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We regularly review our information security program and associated policies, making periodic updates as we deem necessary and appropriate in
accordance with recognized best practices and standards.
Governance
Our information security program and cyber risk management program is managed by our Chief Information Officer (“CIO”) and a team of information
security personnel reporting to the CIO. Our CIO brings over 30 years of experience in information technology and information security, working as an
executive within data-driven companies for the last 20 years.
Management holds monthly Information Security Management System (ISMS) meetings which include members of the executive management team as
well as the CIO and other key individuals reporting to the CIO. Cybersecurity risks, threats, and vulnerabilities, as well as existing mitigating controls, are
discussed in ISMS meetings. Our CIO also provides quarterly reports of our information security program, as well as any material cybersecurity risks, to
the board of directors.
The Company did not experience a material cybersecurity incident during the year ended December 31, 2023. However, the possibility of future
cybersecurity incidents, as well as cybersecurity and technology risks more generally, could have a material adverse effect on the Company’s business,
financial condition, results of operations, cash flows or reputation. See “Item 1A. Risk Factors – Cybersecurity and Technology Risks” for more
information.
Item 2. Properties.
Our headquarters are located at 2650 North Military Trail, Suite 300, Boca Raton, Florida 33431, where we lease 21,020 rentable square feet of office
space in accordance with an 89-month lease agreement as amended and effective in January 2017. On September 20, 2023, we entered into an amendment
to our corporate headquarters lease agreement to exercise an extension option for an additional 60 months through June 30, 2029. Our Seattle office is
located at 1111 Third Avenue, Seattle, Washington 98101, where we lease 6,003 rentable square feet of office space in accordance with a 90-month lease
agreement entered into in April 2017.
Item 3. Legal Proceedings.
The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of management, is likely to have a material
adverse effect on the business, financial condition, results of operations, or cash flows. Legal fees associated with such legal proceedings are expensed as
incurred. We review legal proceedings and claims on an ongoing basis and follow appropriate accounting guidance, including ASC 450, when making
accrual and disclosure decisions. We establish accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated,
and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our
financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among other
factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. We do not record
liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.
In addition to the foregoing, we may be involved in litigation from time to time in the ordinary course of business. We do not believe that the ultimate
resolution of any such matters will have a material adverse effect on our business, financial condition, results of operations, or cash flows. However, the
results of such matters cannot be predicted with certainty, and we cannot assure you that the ultimate resolution of any legal or administrative proceeding or
dispute will not have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Item 4. Mine Safety Disclosures.
Not Applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on The NASDAQ Capital Market (“NASDAQ”) under the symbol “RDVT,” and began regular-way trading on March 27,
2018. We have not paid any dividends or made any other distributions in respect of our common stock since March 27, 2018, and we do not currently
expect to pay any dividends or make any other distributions in the future.
As of March 4, 2024, there were 13,964,028 shares of our common stock issued and outstanding. As of March 4, 2024, there were 25 record holders of our
common stock.
Recent Sale of Unregistered Securities
None.
Repurchases of Equity Securities
The following table provides information relating to the Company's repurchase of common stock during the three months ended December 31, 2023
pursuant to the Stock Repurchase Program (as defined below):
(1)
Period
October 1, 2023 - October 31, 2023
November 1, 2023 - November 30, 2023
December 1, 2023 - December 31, 2023
Total
Total number of
shares purchased
Average price paid
per share
(2)
Total number of shares
purchased as part of publicly
announced plans or
programs
Approximate dollar value of
shares that may yet be
purchased under the plans
or programs
22,904 $
73,252 $
29,547 $
125,703 $
19.56
19.92
20.06
19.89
22,904 $
73,252 $
29,547 $
125,703
2,428,650
969,320
5,376,613
(1) From January 1, 2024 to February 29, 2024, the Company purchased an additional 43,600 shares at an average price of $18.28 per share pursuant to
the Stock Repurchase Program.
(2) Exclusive of commission fees incurred in relation to the repurchase of common stock.
On May 2, 2022, the board of directors of the Company authorized the repurchase of up to $5.0 million of the Company's common stock from time to time,
and subsequently on December 19, 2023, the board of directors authorized the repurchase of an additional $5.0 million of the Company's common stock
(the "Stock Repurchase Program"). The Stock Repurchase Program does not obligate the Company to repurchase any shares and it may be modified,
suspended, or terminated at any time and for any reason at the discretion of the board of directors.
Shares of common stock withheld as payment of withholding taxes in connection with the vesting of equity awards are also treated as common stock
repurchases. Those withheld shares of common stock are not required to be disclosed under Item 703 of Regulation S-K and accordingly are excluded from
the amounts in the table above.
Item 6. [Reserved].
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion in conjunction with our consolidated financial statements and related notes included in this 2023 Form 10-K. This
2023 Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”),
Section 27A of the Securities Act, and Section 21E of the Exchange Act, about our expectations, beliefs, or intentions regarding our business, financial
condition, results of operations, strategies, or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly
to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends, or results as of the date they
are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and
uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many
factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These
factors include those contained in Part I, “Item 1A. Risk Factors” of this 2023 Form 10-K. We do not undertake any obligation to update forward-looking
statements, except as required by law. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA. These forward-
looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.
Overview
Red Violet, Inc., a Delaware corporation, is dedicated to making the world a safer place and reducing the cost of doing business. We build proprietary
technologies and apply analytical capabilities to deliver identity intelligence. Our technology powers critical solutions, which empower organizations to
operate with confidence. Our solutions enable the real-time identification and location of people, businesses, assets, and their interrelationships. These
solutions are used for purposes including risk mitigation, due diligence, fraud detection and prevention, regulatory compliance, and customer acquisition.
Our AI/ML-driven identity intelligence platform, CORETM, is purpose-built for the enterprise, yet flexible enough for organizations of all sizes, bringing
clarity to massive datasets by transforming data into intelligence. We drive workflow efficiency and enable organizations to make better data-driven
decisions.
Organizations are challenged by the structure, volume, and disparity of data. Our platform and applications transform the way our customers interact with
information, presenting connections and relevance of information otherwise unattainable, which drives actionable insights and better outcomes. Leveraging
cloud-native proprietary technology and applying machine learning and advanced analytical capabilities, CORE provides essential solutions to public and
private sector organizations through intuitive, easy-to-use analytical interfaces. With massive data assets consisting of public record, proprietary, and
publicly-available data, our differentiated information and innovative platform and solutions deliver identity intelligence – entities, relationships,
affiliations, interactions, and events. Our solutions are used today to enable frictionless commerce, to ensure safety, and to reduce fraud and the
concomitant expense borne by society.
While our platform powers a vast array of solutions for our customers, we presently market our solutions primarily through two brands, IDI™ and
FOREWARN®. IDI is a leading-edge, analytics and information solutions provider delivering actionable intelligence to the an expansive and diverse set of
industries in support of use cases such as the verification and authentication of consumer identities, due diligence, prevention of fraud and abuse, legislative
compliance, and debt recovery. idiCORE™ is IDI's flagship product. idiCORE is a next-generation, investigative solution used to address a variety of
organizational challenges, including, but not limited to, due diligence, risk mitigation, identity authentication, and regulatory compliance, by financial
services companies, insurance companies, healthcare companies, law enforcement and government, identity verification platforms, collections, law firms,
retail, telecommunication companies, corporate security, and investigative firms. FOREWARN is an app-based solution currently tailored for the real estate
industry, providing instant knowledge prior to face-to-face engagement with a consumer, helping professionals identify and mitigate risk. As of December
31, 2023 and 2022, IDI had 7,875 and 7,021 billable customers and FOREWARN had 185,380 and 116,960 users, respectively. We define a billable
customer of IDI as a single entity that generated revenue during the last three months of the period. Billable customers are typically corporate
organizations. In most cases, corporate organizations will have multiple users and/or departments purchasing our solutions, however, we count the entire
organization as a discrete customer. We define a user of FOREWARN as a unique person that has a subscription to use the FOREWARN service as of the
last day of the period. A unique person can only have one user account.
We generate substantially all of our revenue from licensing our solutions. Customers access our solutions through a hosted environment using an online
interface, batch processing, API and custom integrations. We recognize revenue from licensing fees (a) on a transactional basis determined by the
customer’s usage, (b) via a monthly fee or (c) from a combination of both. Revenue pursuant to pricing contracts containing a monthly fee is recognized
ratably over the contract period. Pricing contracts are generally annual contracts or longer, with auto renewal. For the years ended December 31, 2023 and
2022, 79% and 75% of total revenue was attributable to customers with pricing contracts, respectively, versus 21% and 25% attributable to transactional
customers, respectively.
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We endeavor to understand our customers’ needs at the moment of first engagement. We continuously engage with our customers and evaluate their usage
of our solutions throughout their life cycle, to maximize utilization of our solutions and, hence, their productivity. Our go-to-market strategy leverages (a)
an inside sales team that cultivates relationships, and ultimately closes business, with their end-user markets, (b) a strategic sales team that provides a more
personal, face-to-face approach for major accounts within certain industries, and (c) distributors, resellers, and strategic partners that have a significant
foothold in many of the industries that we have not historically served, as well as to further penetrate those industries that we do serve. We employ a “land
and expand” approach. Our sales model generally begins with a free trial followed by an initial purchase on a transactional basis or minimum-committed
monthly spend. As organizations derive benefits from our solutions, we are able to expand within organizations as additional use cases are presented across
departments, divisions and geographic locations and customers become increasingly reliant on our solutions in their daily workflow.
In order for us to continue to develop new products, grow our existing business and expand into additional markets, we must generate and sustain sufficient
operating profits and cash flow in future periods. This will require us to generate additional sales from current products and new products currently under
development. We continue to build out our sales organization to drive current products and to introduce new products into the marketplace.
Industry Trends and Uncertainties
Operating results are affected by the following factors that impact the data and analytics sector in the United States:
•
•
•
The macroeconomic conditions, including the availability of affordable credit and capital, interest rates, inflation, employment levels, and consumer
confidence, influence our revenue. Macroeconomic conditions also have a direct impact on overall technology, marketing, and advertising
expenditures in the U.S. As marketing budgets are often more discretionary in nature, they are easier to reduce in the short term as compared to other
corporate expenses. Future widespread economic slowdowns in any of the industries or markets our customers serve could reduce the technology and
marketing expenditures of our customers and prospective customers.
Our revenue is also significantly influenced by industry trends, including the demand for business analytics services in the industries we serve.
Companies are increasingly relying on business analytics and related technologies to help process data in a cost-efficient manner. As customers have
gained the ability to rapidly aggregate data generated by their own activities, they are increasingly expecting access to real-time data and analytics
from their service providers as well as solutions that fully integrate into their workflows. The increasing number and complexity of regulations
centered around data and provision of information services makes operations for businesses in the data and analytic sector more challenging.
The enactment of new or amended legislation or industry regulations pertaining to consumer or private sector privacy issues could have a material
adverse impact on information and marketing services. Legislation or industry regulations regarding consumer or private sector privacy issues could
place restrictions upon the collection, sharing, and use of information that is currently legally available, which could materially increase our cost of
collecting and maintaining some data. These types of legislation or industry regulations could also prohibit us from collecting or disseminating certain
types of data, which could adversely affect our ability to meet our customers’ requirements and our profitability and cash flow targets.
Company Specific Trends and Uncertainties
Our operating results are also directly affected by company-specific factors, including the following:
•
•
Some of our competitors have substantially greater financial, technical, sales and marketing resources, better name recognition, and a larger customer
base. Even if we introduce advanced products that meet evolving customer requirements in a timely manner, there can be no assurance that our new
products will gain market acceptance.
Certain companies in the data and analytics sector have expanded their product lines or technologies in recent years as a result of increased investment
and acquisitions. We anticipate increased competition from data and analytics suppliers. Increased competition in the data and analytics sector could
result in significant price competition, reduced profit margins or loss of market share, any of which could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance that we will be able to compete successfully in the future with current or
new competitors.
23
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have
been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates, including those related to the revenue recognition, allowance for doubtful accounts, useful lives of intangible assets, recoverability of the
carrying amounts of goodwill and intangible assets, share-based compensation and income tax provision. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies govern our more significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenue recognition
We recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“Topic 606”). Under this standard, revenue is recognized
when control of goods or services is transferred to the Company’s customers, in an amount that reects the consideration the Company expects to be
entitled to in exchange for those goods or services. Our performance obligation is to provide on demand information and identity intelligence solutions to
our customers by leveraging our proprietary technology and applying machine learning and advanced analytics to our massive data repository. The pricing
for the customer contracts is based on usage, a monthly fee, or a combination of both.
Revenue is generally recognized on (a) a transactional basis determined by the customers’ usage, (b) a monthly fee, or (c) a combination of both. Revenue
pursuant to transactions determined by the customers’ usage is recognized when the transaction is complete, and either party may terminate the
transactional agreement at any time. Revenue pursuant to contracts containing a monthly fee is considered to be a single performance obligation consisting
of a series of distinct services, and is recognized ratably over the contract period, which is generally 12 months, and the contract shall automatically renew
for additional, successive 12-month terms unless written notice of intent not to renew is provided by one party to the other at least 30 days or 60 days prior
to the expiration of the then current term. Variable fees are allocated to each distinct month in the series for which they are earned. Our revenue is recorded
net of applicable sales taxes billed to customers.
Available within Topic 606, we have applied the portfolio approach practical expedient in accounting for customer revenue as one collective group, rather
than individual contracts. Based on our historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the
customers, we have concluded the financial statement effects are not materially different than if accounting for revenue on a contract by contract basis.
Revenue is recognized over a period of time. Our customers simultaneously receive and consume the benefits provided by our performance as and when
provided. Furthermore, we have elected the “right to invoice” practical expedient, available within Topic 606, as our measure of progress, since we have a
right to payment from a customer in an amount that corresponds directly with the value of our performance completed-to-date. In some arrangements, a
right to consideration for our performance under the customer contract may occur before invoicing to the customer. Our revenue arrangements do not
contain significant financing components.
For the years ended December 31, 2023 and 2022, 79% and 75% of total revenue was attributable to customers with pricing contracts, respectively, versus
21% and 25% attributable to transactional customers, respectively. Pricing contracts are generally annual contracts or longer, with auto renewal.
If a customer pays consideration before we transfer services to the customer, those amounts are classied as deferred revenue. As of December 31, 2023
and 2022, the balance of deferred revenue was $0.7 million, all of which is expected to be realized in the next 12 months. In relation to the deferred revenue
balance as of December 31, 2022, $0.7 million was recognized into revenue during the year ended December 31, 2023.
As of December 31, 2023, $15.8 million of revenue is expected to be recognized in the future for performance obligations that are unsatisfied or partially
unsatisfied, related to pricing contracts that have a term of more than 12 months, of which $8.7 million of revenue will be recognized in 2024, $4.6 million
in 2025, $1.7 million in 2026, and $0.8 million in 2027. The actual timing of recognition may vary due to factors outside of our control. We exclude
variable consideration related entirely to wholly unsatisfied performance obligations and contracts and recognizes such variable consideration based upon
the right to invoice the customer.
24
Sales commissions are incurred and recorded on an ongoing basis over the term of the customer relationship. These costs are recorded in sales and
marketing expenses.
In addition, we elected the practical expedient to not disclose the value of unsatised performance obligations for (i) contracts with an original expected
length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Allowances for doubtful accounts
We maintain allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Management
determines whether an allowance needs to be provided for an amount due from a customer depending on the aging of the individual receivable balance,
recent payment history, contractual terms and other qualitative factors such as status of business relationship with the customer. Historically, our estimates
for doubtful accounts have not differed materially from actual results. The amount of the allowance for doubtful accounts was $0.2 million and $0.06
million as of December 31, 2023 and 2022, respectively, which was included within accounts receivable, net, in the consolidated balance sheets.
Income taxes
We account for income taxes in accordance with ASC 740, “Income Taxes,” which requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted tax rate applicable when the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more
likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. As of December 31, 2022, we had a full valuation allowance of $8.0 million. During the year ended
December 31, 2023, we released the valuation allowance previously recorded on our deferred tax assets. We concluded that, due to our established
historical cumulative positive income before income taxes plus permanent differences for the recent years, projections of future taxable income and the
reversal of taxable temporary differences, the realization of the deferred tax assets as of December 31, 2023 is more likely than not.
ASC 740 clarifies the accounting for uncertain tax positions. This interpretation requires that an entity recognizes in the consolidated financial statements
the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position.
Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. The Company’s accounting policy is to accrue interest and penalties
related to uncertain tax positions, if and when required, as interest expense and a component of other expenses, respectively, in the consolidated statements
of operations.
Intangible assets other than goodwill
Our intangible assets are initially recorded at the capitalized actual costs incurred, their acquisition cost, or fair value if acquired as part of a business
combination, and amortized on a straight-line basis over their respective estimated useful lives, which are the periods over which the assets are expected to
contribute directly or indirectly to the future cash flows of the Company. The Company’s intangible assets represent software developed for internal use.
Intangible assets have estimated useful lives of 5-10 years.
In accordance with ASC 350-40, “Software—internal use software,” we capitalize eligible costs, including salaries and staff benefits, share-based
compensation, travel expenses incurred by relevant employees, and other relevant costs of developing internal-use software that are incurred in the
application development stage when developing or obtaining software for internal use. Once the software developed for internal use is ready for its
intended use, it is amortized on a straight-line basis over its useful life.
Goodwill
In accordance with ASC 350, “Intangibles—Goodwill and Other,” goodwill is tested at least annually for impairment, or when events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis
in determining whether it is more likely than not that its fair value exceeds the carrying value. A quantitative assessment involves determining the fair value
of each reporting unit using market participant assumptions. An entity should recognize an impairment charge for the amount by which the carrying
amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.
25
On October 1, 2023 and 2022, we performed qualitative assessments on the reporting unit and, based on this assessment, no events have occurred to
indicate that it is more likely than not that the fair value of the reporting unit is less than its carry amount. We did not record a goodwill impairment loss
during the years ended December 31, 2023 and 2022, and as of December 31, 2023, there was no accumulated goodwill impairment loss.
For purposes of reviewing impairment and the recoverability of goodwill, we must make various assumptions regarding estimated future cash flows and
other factors in determining the fair value of the reporting unit, including market multiples, discount rates, etc.
Impairment of long-lived assets
Finite-lived intangible assets are amortized over their respective useful lives and, along with other long-lived assets, are evaluated for impairment
periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with ASC 360-
10-15, “Impairment or Disposal of Long-Lived Assets.” In evaluating long-lived assets for recoverability, including finite-lived intangibles and property
and equipment, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance
with ASC 360-10-15. To the extent that estimated future undiscounted cash inflows attributable to the asset, less estimated future undiscounted cash
outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset
and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the
lower of carrying value or fair value less costs to sell.
Asset recoverability is an area involving management judgment, requiring assessment as to whether the carrying value of assets can be supported by the
undiscounted future cash flows. In calculating the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such
as revenue growth rates, gross margin percentages and terminal growth rates.
We did not record an impairment loss of long-lived assets during the years ended December 31, 2023 and 2022.
Share-based compensation
We account for share-based compensation to employees in accordance with ASC 718, “Compensation—Stock Compensation.” Under ASC 718, we
measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and, for
those awards subject only to service condition, recognizes the costs on a straight-line basis over the period the employee is required to provide service in
exchange for the award, which generally is the vesting period. For awards with performance and service conditions, we begin recording share-based
compensation when achieving the performance criteria is probable and we recognize the costs using the accelerated attribution method. We account for
forfeitures as they occur.
We have issued share-based awards with performance-based vesting criteria. Achievement of the milestones must be probable before we begin recording
share-based compensation expense. When the performance-based vesting criteria is considered probable, we begin to recognize compensation expense at
that time. In the period that achievement of the performance-based criteria is deemed probable, US GAAP requires the immediate recognition of all
previously unrecognized compensation since the original grant date. As a result, compensation expense recorded in the period that achievement is deemed
probable could include a substantial amount of previously unrecorded compensation expense related to the prior periods. For any share-based awards where
performance-based vesting criteria is no longer considered probable, previously recognized compensation cost would be reversed. As of December 31,
2023, we have achieved the performance-based criteria for all share-based awards with performance-based vesting criteria, except for the Criteria Four and
Five awards, as defined in Note 10, “Share-based compensation,” included in “Notes to Consolidated Financial Statements.”
Recently Issued Accounting Standards
See Item 8 of Part II, “Financial Statements and Supplementary Data – Note 2. Summary of significant accounting policies - (r) Recently issued accounting
standards.”
26
Fourth Quarter Financial Results
For the three months ended December 31, 2023 as compared to the three months ended December 31, 2022:
•
•
•
•
•
•
•
•
Total revenue increased 15% to $15.1 million.
Gross profit increased 16% to $9.6 million. Gross margin increased to 64% from 63%.
Adjusted gross profit increased 17% to $11.7 million. Adjusted gross margin increased to 78% from 77%.
Net loss narrowed 31% to $1.1 million, which resulted in a loss of $0.08 per basic and diluted share. Net loss margin improved to 7% from 12%.
Adjusted EBITDA increased 76% to $2.7 million. Adjusted EBITDA margin increased to 18% from 12%.
Adjusted net income increased 157% to $0.3 million, which resulted in adjusted earnings of $0.02 per basic and diluted share.
Cash from operating activities decreased 4% to $4.2 million.
Cash and cash equivalents were $32.0 million as of December 31, 2023.
Full Year Financial Results
For the year ended December 31, 2023 as compared to the year ended December 31, 2022:
•
•
•
•
•
•
•
Total revenue increased 13% to $60.2 million.
Gross profit increased 13% to $39.0 million. Gross margin remained consistent at 65%.
Adjusted gross profit increased 15% to $47.1 million. Adjusted gross margin increased to 78% from 77%.
Net income increased to $13.5 million from $0.6 million, which resulted in earnings of $0.97 and $0.96 per basic and diluted share, respectively. Net
income margin increased to 22% from 1%.
Adjusted EBITDA increased 27% to $16.4 million. Adjusted EBITDA margin increased to 27% from 24%.
Adjusted net income increased 17% to $8.1 million, which resulted in adjusted earnings of $0.58 and $0.57 per basic and diluted share, respectively.
Cash from operating activities increased 21% to $15.1 million.
Use and Reconciliation of Non-GAAP Financial Measures
Management evaluates the financial performance of our business on a variety of key indicators, including non-GAAP metrics of adjusted EBITDA,
adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and free cash flow ("FCF").
Adjusted EBITDA is a non-GAAP financial measure equal to net income (loss), the most directly comparable financial measure based on US GAAP,
excluding interest income, net, income tax expense (benefit), depreciation and amortization, share-based compensation expense, litigation costs, and write-
off of long-lived assets and others. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue. Adjusted net income is a non-
GAAP financial measure equal to net income (loss), the most directly comparable financial measure based on US GAAP, excluding share-based
compensation expense, amortization of share-based compensation capitalized in intangible assets, and discrete tax items, and including the tax effect of
adjustments. We define adjusted earnings per share as adjusted net income divided by the weighted average shares outstanding. We define adjusted gross
profit as revenue less cost of revenue (exclusive of depreciation and amortization), and adjusted gross margin as adjusted gross profit as a percentage of
revenue. We define FCF as net cash provided by operating activities reduced by purchase of property and equipment and capitalized costs included in
intangible assets.
27
The following is a reconciliation of net income (loss), the most directly comparable US GAAP financial measure, to adjusted EBITDA:
(Dollars in thousands)
Net income (loss)
Interest income, net
Income tax expense (benefit)
Depreciation and amortization
Share-based compensation expense
Litigation costs
Write-off of long-lived assets and others
Adjusted EBITDA
Revenue
Net income (loss) margin
Adjusted EBITDA margin
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
$
$
$
(1,070 ) $
(387 )
562
2,211
1,328
-
19
2,663 $
15,061 $
(7 %)
18 %
(1,544 ) $
(225 )
(148 )
1,815
1,439
4
171
1,512
$
$
13,069
(12 %)
12 %
13,529 $
(1,334 )
(9,691 )
8,352
5,386
49
77
16,368 $
60,204 $
22 %
27 %
The following is a reconciliation of net income (loss), the most directly comparable US GAAP financial measure, to adjusted net income:
(Dollars in thousands, except share data)
Net income (loss)
Share-based compensation expense
Amortization of share-based compensation
capitalized in intangible assets
Discrete tax items
Tax effect of adjustments
Adjusted net income
(2)
(1)
Earnings (loss) per share:
Basic
Diluted
Adjusted earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
(3)
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
$
$
$
$
$
$
(1,070 ) $
1,328
(1,544 ) $
1,439
263
-
(251 )
270 $
(0.08 ) $
(0.08 ) $
0.02 $
0.02 $
210
-
-
105
$
(0.11 ) $
(0.11 ) $
0.01 $
0.01 $
13,529 $
5,386
969
(10,272 )
(1,526 )
8,086 $
0.97 $
0.96 $
0.58 $
0.57 $
13,985,426
14,307,797
13,964,010
14,205,633
13,974,125
14,134,021
13,759,296
14,107,144
(1) During the three months ended September 30, 2023, $10.3 million of income tax benefit was recognized as a result of the release of the valuation
allowance previously recorded on our deferred tax asset and cumulative research and development tax credit, which were excluded to calculate the
adjusted net income.
(2) The tax effect of adjustments is calculated using the expected federal and state statutory tax rate. The expected federal and state income tax rate was
approximately 25.75% for the three and twelve months ended December 31, 2023. There was no tax effect of such adjustments for the three and
twelve months ended December 31, 2022, as a full valuation allowance was provided for the net deferred tax assets.
(3) For the three months ended December 31, 2023 and 2022, diluted weighted average shares outstanding for adjusted diluted earnings per share are
calculated by the inclusion of unvested RSUs, which were not included in US GAAP diluted weighted average shares outstanding due to the
Company's net loss position for such periods.
28
616
(351 )
96
6,675
5,505
132
178
12,851
53,318
1 %
24 %
616
5,505
766
-
-
6,887
0.04
0.04
0.50
0.49
The following is a reconciliation of gross profit, the most directly comparable US GAAP financial measure, to adjusted gross profit:
(Dollars in thousands)
Revenue
Cost of revenue (exclusive of depreciation and
amortization)
Depreciation and amortization of intangible assets
Gross profit
Depreciation and amortization of intangible assets
Adjusted gross profit
Gross margin
Adjusted gross margin
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
$
15,061 $
13,069
$
60,204 $
53,318
$
(3,337 )
(2,154 )
9,570
2,154
11,724 $
64 %
78 %
(3,054 )
(1,758 )
8,257
1,758
10,015 $
63 %
77 %
(13,069 )
(8,119 )
39,016
8,119
47,135 $
65 %
78 %
(12,211 )
(6,440 )
34,667
6,440
41,107
65 %
77 %
The following is a reconciliation of net cash provided by operating activities, the most directly comparable US GAAP measure, to FCF:
(Dollars in thousands)
Net cash provided by operating activities
Less:
Purchase of property and equipment
Capitalized costs included in intangible assets
Free cash flow
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
$
4,204 $
4,359
$
15,071 $
12,459
(24 )
(2,103 )
2,077 $
(102 )
(2,317 )
$
1,940
(122 )
(9,024 )
5,925 $
(373 )
(8,456 )
3,630
$
In order to assist readers of our consolidated financial statements in understanding the operating results that management uses to evaluate the business and
for financial planning purposes, we present non-GAAP measures of adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings
per share, adjusted gross profit, adjusted gross margin, and FCF as supplemental measures of our operating performance. We believe they provide useful
information to our investors as they eliminate the impact of certain items that we do not consider indicative of our cash operations and ongoing operating
performance. In addition, we use them as an integral part of our internal reporting to measure the performance and operating strength of our business.
We believe adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin,
and FCF are relevant and provide useful information frequently used by securities analysts, investors and other interested parties in their evaluation of the
operating performance of companies similar to ours and are indicators of the operational strength of our business. We believe adjusted EBITDA eliminates
the uneven effect of considerable amounts of non-cash depreciation and amortization, share-based compensation expense and the impact of other non-
recurring items, providing useful comparisons versus prior periods or forecasts. Adjusted EBITDA margin is calculated as adjusted EBITDA as a
percentage of revenue. We believe adjusted net income provides additional means of evaluating period-over-period operating performance by eliminating
certain non-cash expenses and other items that might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure
trends in ongoing operations. Adjusted net income is a non-GAAP financial measure equal to net income (loss), excluding share-based compensation
expense, amortization of share-based compensation capitalized in intangible assets, and discrete tax items, and including the tax effect of adjustments. We
define adjusted earnings per share as adjusted net income divided by the weighted average shares outstanding. Our adjusted gross profit is a measure used
by management in evaluating the business’s current operating performance by excluding the impact of prior historical costs of assets that are expensed
systematically and allocated over the estimated useful lives of the assets, which may not be indicative of the current operating activity. Our adjusted gross
profit is calculated by using revenue, less cost of revenue (exclusive of depreciation and amortization). We believe adjusted gross profit provides useful
information to our investors by eliminating the impact of non-cash depreciation and amortization, and specifically the amortization of software developed
for internal use, providing a baseline of our core operating results that allow for analyzing trends in our underlying business consistently over multiple
periods. Adjusted gross margin is calculated as adjusted gross profit as a percentage of revenue. We believe FCF is an important liquidity measure of the
cash that is available, after capital expenditures, for operational expenses and investment in our business. FCF is a measure used by management to
understand and evaluate the business’s operating performance and trends over time. FCF is calculated by using net cash provided by operating activities,
less purchase of property and equipment and capitalized costs included in intangible assets.
29
Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF are
not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, financial measures presented in accordance
with US GAAP. In addition, FCF is not intended to represent our residual cash flow available for discretionary expenses and is not necessarily a measure of
our ability to fund our cash needs. The way we measure adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share,
adjusted gross profit, adjusted gross margin, and FCF may not be comparable to similarly titled measures presented by other companies, and may not be
identical to corresponding measures used in our various agreements.
30
Quarterly Financial Data (unaudited)
The following tables set forth the Company's unaudited quarterly consolidated statements of operations data and reconciliations of certain directly
comparable US GAAP financial measures to non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income,
adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF for each of the eight quarters in the two-year period ended December 31,
2023. The Company has prepared the quarterly unaudited consolidated statements of operations data on a basis consistent with the audited consolidated
financial statements included elsewhere in this 2023 Form 10-K. In the opinion of management, the financial information in these tables reflects all
adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of this data. This information
should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this 2023 Form 10-K. The results
of historical periods are not necessarily indicative of the results for any future period.
(In thousands, except share data) (Unaudited)
Revenue
Costs and expenses:
Cost of revenue (exclusive of
depreciation and amortization)
Sales and marketing expenses
General and administrative expenses
Depreciation and amortization
Total costs and expenses
Income (loss) from operations
Interest income, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted average shares
outstanding:
Basic
Diluted
(In thousands) (Unaudited)
Net income (loss)
Interest income, net
Income tax expense (benefit)
Depreciation and amortization
Share-based compensation expense
Litigation costs
Write-off of long-lived assets and
others
Adjusted EBITDA
Revenue
Net income (loss) margin
Adjusted EBITDA margin
(In thousands, except share data) (Unaudited)
Net income (loss)
Share-based compensation expense
Amortization of share-based
compensation capitalized
in intangible assets
Discrete tax items
Tax effect of adjustments
Adjusted net income
Earnings (loss) per share:
Basic
Diluted
Adjusted earnings per share:
Basic
Diluted
Weighted average shares
outstanding:
Basic
Diluted
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
9/30/2023
12/31/2023
$
12,729
$
12,494
$
15,026
$
13,069
$
14,626
$
14,680
$
15,837
$
15,061
Three Months Ended
3,170
2,391
5,353
1,534
12,448
281
1
282
175
107
0.01
0.01
$
$
$
2,920
2,822
5,300
1,613
12,655
(161 )
-
(161 )
44
(205 ) $
(0.01 ) $
(0.01 ) $
3,067
2,623
5,465
1,713
12,868
2,158
125
2,283
25
2,258
0.16
0.16
$
$
$
3,054
2,998
7,119
1,815
14,986
(1,917 )
225
(1,692 )
(148 )
(1,544 ) $
(0.11 ) $
(0.11 ) $
3,179
3,889
5,241
1,916
14,225
401
286
687
(29 )
716
0.05
0.05
$
$
$
3,240
3,078
5,075
2,054
13,447
1,233
315
1,548
160
1,388
0.10
0.10
$
$
$
3,313
3,365
5,223
2,171
14,072
1,765
346
2,111
(10,384 )
12,495
0.90
0.87
$
$
$
3,337
3,501
6,907
2,211
15,956
(895 )
387
(508 )
562
(1,070 )
(0.08 )
(0.08 )
$
$
$
13,543,607
14,047,635
13,776,479
13,776,479
13,748,587
13,764,262
13,964,010
13,964,010
13,997,154
14,236,771
13,961,862
14,172,024
13,952,426
14,329,878
13,985,426
13,985,426
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
9/30/2023
12/31/2023
Three Months Ended
$
107
$
(1 )
175
1,534
1,387
15
3
3,220
12,729
$
$
1 %
25 %
(205 ) $
-
44
1,613
1,406
76
-
2,934
12,494
$
$
(2 %)
23 %
$
2,258
(125 )
25
1,713
1,273
37
4
5,185
15,026
$
$
15 %
35 %
(1,544 ) $
(225 )
(148 )
1,815
1,439
4
171
1,512
13,069
$
$
(12 %)
12 %
Three Months Ended
$
716
(286 )
(29 )
1,916
1,384
3
2
3,706
14,626
$
$
5 %
25 %
$
1,388
(315 )
160
2,054
1,305
45
-
4,637
14,680
$
$
9 %
32 %
$
12,495
(346 )
(10,384 )
2,171
1,369
1
56
5,362
15,837
$
$
79 %
34 %
(1,070 )
(387 )
562
2,211
1,328
-
19
2,663
15,061
(7 %)
18 %
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
9/30/2023
12/31/2023
$
107
1,387
(205 ) $
1,406
$
2,258
1,273
(1,544 ) $
1,439
$
716
1,384
$
1,388
1,305
$
12,495
1,369
(1,070 )
1,328
174
-
-
1,668
$
0.01
$
0.01
$
0.12
$
0.12
$
184
-
-
1,385
$
(0.01 ) $
(0.01 ) $
0.10
$
0.10
$
198
-
-
3,729
$
0.16
$
0.16
$
0.27
$
0.27
$
210
-
-
105
$
(0.11 ) $
(0.11 ) $
0.01
$
0.01
$
222
-
-
2,322
$
0.05
$
0.05
$
0.17
$
0.16
$
235
-
-
2,928
$
0.10
$
0.10
$
0.21
$
0.21
$
249
(10,272 )
(1,275 )
2,566
$
0.90
$
0.87
$
0.18
$
0.18
$
263
-
(251 )
270
(0.08 )
(0.08 )
0.02
0.02
13,543,607
14,047,635
13,776,479
14,109,243
13,748,587
13,764,262
13,964,010
14,205,633
13,997,154
14,236,771
13,961,862
14,172,024
13,952,426
14,329,878
13,985,426
14,307,797
31
$
$
$
$
$
$
$
$
(In thousands) (Unaudited)
Revenue
Cost of revenue (exclusive of
depreciation and amortization)
Depreciation and amortization
of intangible assets
Gross profit
Depreciation and amortization
of intangible assets
Adjusted gross profit
Gross margin
Adjusted gross margin
(In thousands) (Unaudited)
Net cash provided by operating
activities
Less:
Purchase of property and equipment
Capitalized costs included in
intangible assets
Free cash flow
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
9/30/2023
12/31/2023
$
12,729
$
12,494
$
15,026
$
13,069
$
14,626
$
14,680
$
15,837
$
15,061
Three Months Ended
(3,170 )
(1,472 )
8,087
(2,920 )
(1,551 )
8,023
(3,067 )
(1,659 )
10,300
(3,054 )
(1,758 )
8,257
(3,179 )
(1,858 )
9,589
(3,240 )
(1,995 )
9,445
(3,313 )
(2,112 )
10,412
$
1,472
9,559
$
1,551
9,574
$
1,659
11,959
$
1,758
10,015
$
1,858
11,447
$
1,995
11,440
$
2,112
12,524
$
64 %
75 %
64 %
77 %
69 %
80 %
63 %
77 %
66 %
78 %
64 %
78 %
66 %
79 %
(3,337 )
(2,154 )
9,570
2,154
11,724
64 %
78 %
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
9/30/2023
12/31/2023
Three Months Ended
$
2,430
$
2,525
$
3,145
$
4,359
$
1,531
$
3,547
$
5,789
$
4,204
(113 )
(108 )
(50 )
(102 )
(44 )
(7 )
(47 )
$
(1,794 )
523
$
(2,099 )
318
$
(2,246 )
849
$
(2,317 )
1,940
$
(2,273 )
(786 )
$
(2,236 )
1,304
$
(2,412 )
3,330
$
(24 )
(2,103 )
2,077
32
Results of Operations
Year ended December 31, 2023 compared to year ended December 31, 2022
Revenue. Revenue increased $6.9 million or 13% to $60.2 million for the year ended December 31, 2023 from $53.3 million for the year ended December
31, 2022. Revenue from new customers increased $0.5 million or 11%, base revenue from existing customers increased $6.1 million or 15%, and growth
revenue from existing customers increased $0.3 million or 4%. Our IDI billable customer base grew from 7,021 customers as of December 31, 2022 to
7,875 customers as of December 31, 2023, and our FOREWARN user base grew from 116,960 users to 185,380 users during that same period. Revenue
from new customers represents the total monthly revenue generated from new customers in a given period. A customer is defined as a new customer during
the first six months of revenue generation. Base revenue from existing customers represents the total monthly revenue generated from existing customers in
a given period that does not exceed the customers' trailing six-month average revenue. A customer is defined as an existing customer six months after their
initial month of revenue. Growth revenue from existing customers represents the total monthly revenue generated from existing customers in a given period
in excess of the customers' trailing six-month average revenue.
Cost of revenue (exclusive of depreciation and amortization). Cost of revenue increased $0.9 million or 7% to $13.1 million for the year ended December
31, 2023 from $12.2 million for the year ended December 31, 2022. Our cost of revenue primarily includes data acquisition costs. Data acquisition costs
consist primarily of the costs to acquire data either on a transactional basis or through flat-fee data licensing agreements, including unlimited usage
agreements. We continue to enhance the breadth and depth of our data through the addition and expansion of relationships with key data suppliers,
including our largest data supplier, which accounted for 49% and 48% of our total data acquisition costs for the years ended December 31, 2023 and 2022,
respectively. Other cost of revenue items include expenses related to third-party infrastructure fees.
As the construct of our data costs is primarily a flat-fee, unlimited usage model, the cost of revenue as a percentage of revenue decreased to 22% for the
year ended December 31, 2023 from 23% for the year ended December 31, 2022. We expect that cost of revenue as a percentage of revenue will continue
to decrease over the coming years as our revenue increases. Historically, at scale, the industry business model’s cost of revenue will trend between 15% and
30% as a percentage of revenue.
Sales and marketing expenses. Sales and marketing expenses increased $3.0 million or 28% to $13.8 million for the year ended December 31, 2023 from
$10.8 million for the year ended December 31, 2022. Sales and marketing expenses consist of salaries and benefits, advertising and marketing, travel
expenses, and share-based compensation expense, incurred by our sales team, and provision for bad debts. The increase during the year ended December
31, 2023 was primarily attributable to an increase of $1.4 million in salaries and benefits and sales commissions, $0.9 million in provision for bad debts,
$0.3 million in advertising and marketing, and $0.2 million in share-based compensation expense.
General and administrative expenses. General and administrative expenses decreased $0.8 million or 3% to $22.4 million for the year ended December 31,
2023 from $23.2 million for the year ended December 31, 2022. For the years ended December 31, 2023 and 2022, our general and administrative expenses
consisted primarily of employee salaries and benefits of $11.8 million and $11.8 million, share-based compensation expense of $4.9 million and $5.2
million, and professional fees of $3.2 million and $3.7 million, respectively.
Depreciation and amortization. Depreciation and amortization expenses increased $1.7 million or 25% to $8.4 million for the year ended December 31,
2023 from $6.7 million for the year ended December 31, 2022. The increase in depreciation and amortization for the year ended December 31, 2023
resulted primarily from the amortization of software developed for internal use that became ready for its intended use after December 31, 2022.
Interest income, net. Interest income increased $0.9 million or 280% to $1.3 million for the year ended December 31, 2023 from $0.4 million for the year
ended December 31, 2022. This was primarily due to interest income earned on investments in certain money market funds.
Income before income taxes. Income before income taxes increased $3.1 million or 439% to $3.8 million for the year ended December 31, 2023 from $0.7
million for the year ended December 31, 2022. The increase was primarily attributable to the increase in revenue, decrease in our cost of revenue as a
percentage of revenue, and decrease in professional fees, which was partially offset by the increase in employee salaries and benefits and sales
commissions of $1.4 million, depreciation and amortization of $1.7 million, and $0.9 million in provision for bad debts.
33
Income taxes. Income tax benefit of $9.7 million was recognized for the year ended December 31, 2023 compared to income tax expense of $0.1 million
for the year ended December 31, 2022. A full valuation allowance on the deferred tax assets was recognized as of December 31, 2022 to reduce the
deferred tax assets to the amount that is more likely than not to be realized. During the year ended December 31, 2023, the Company released the valuation
allowance as the Company concluded that the realization of the deferred tax assets as of December 31, 2023 is more likely than not. See Note 8, “Income
Taxes,” included in “Notes to Consolidated Financial Statements.”
Net income. Net income was $13.5 million for the year ended December 31, 2023 compared to $0.6 million for the year ended December 31, 2022, as a
result of the foregoing.
Effect of Inflation
We believe the persistent inflationary pressure throughout 2023 and 2022 has contributed to deteriorating macroeconomic conditions and increased
recession fears, causing businesses to slow their spending, which have resulted in, and may continue to result, in fluctuations in volumes, pricing and
operating margins for our services. Also, higher interest rates imposed to combat inflation, may reduce the demand for credit, which may lead to a decline
in the volume of services we provide to our customers in the banking or financial industry, or other industries that are affected by these types of disruptions.
However, the rates of inflation experienced in recent years have had no material impact on our financial statements as we have attempted to recover
increased costs by increasing prices for our services, to the extent permitted by contracts and competition.
Liquidity and Capital Resources
Cash flows provided by operating activities. For the year ended December 31, 2023, net cash provided by operating activities was $15.1 million, primarily
the result of the net income of $13.5 million, adjusted for certain non-cash items (consisting of share-based compensation expense, depreciation and
amortization, write-off of long-lived assets, provision for bad debts, noncash lease expenses, and deferred income tax benefit) totaling $5.6 million, and the
cash used as a result of changes in assets and liabilities of $4.1 million, primarily the result of the increase in accounts receivable, and prepaid expenses and
other current assets, and the decrease in accounts payable and operating lease liabilities. For the year ended December 31, 2022, net cash provided by
operating activities was $12.5 million, primarily the result of the net income of $0.6 million, adjusted for certain non-cash items (consisting of 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) totaling $13.2 million, and the cash used as a result of changes in assets and liabilities of $1.3 million, primarily the result of the increase in
accounts receivable and other noncurrent assets, and the decrease in operating lease liabilities, which was offset by the increase in accounts payable and
accrued expenses and other current liabilities.
Cash flows used in investing activities. For the years ended December 31, 2023 and 2022, net cash used in investing activities was $9.1 million and $8.8
million, respectively, primarily as a result of capitalized costs included in intangible assets.
Cash flows used in financing activities. For the year ended December 31, 2023, net cash used in financing activities was $5.7 million, mainly the result of
$2.0 million in taxes paid related to the net share settlement of vesting of RSUs, and $3.7 million paid in aggregate for the repurchase of common stock
pursuant to a stock repurchase program that the board of directors authorized on May 2, 2022 (the "Stock Repurchase Program"), authorizing the
repurchase of up to $5.0 million of our common stock. Subsequently on December 19, 2023, the board of directors authorized the repurchase of an
additional $5.0 million of our common stock. For the year ended December 31, 2022, net cash used in financing activities was $6.1 million, mainly the
result of $5.2 million in taxes paid related to the net share settlement of vesting of RSUs during the year and $0.9 million paid in aggregate for the
repurchase of common stock pursuant to the Stock Repurchase Program.
As of December 31, 2023, we had material commitments under certain data licensing agreements of $19.8 million. We anticipate funding our operations
using available cash and cash flow generated from operations within the next twelve months.
We reported net income of $13.5 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we
had a total shareholders’ equity balance of $86.1 million.
As of December 31, 2023, we had cash and cash equivalents of $32.0 million. Based on projections of growth in revenue and operating results in the next
twelve months, and the available cash and cash equivalents held by us, we believe that we will have sufficient cash resources to finance our operations and
expected capital expenditures for the next twelve months.
Subject to revenue growth and our ability to generate positive cash flow, we may have to raise capital through the issuance of additional equity and/or debt,
which, if we are able to obtain, could have the effect of diluting stockholders. Any equity or debt financings, if available at all, may be on terms which are
not favorable to us.
34
Off-Balance Sheet Arrangements
We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. In addition, we do not
engage in trading activities involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise
form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This 2023 Form 10-K contains certain “forward-looking statements” within the meaning of the PSLRA, Section 27A of the Securities Act, and Section 21E
of the Exchange Act. Such forward-looking statements contain information about our expectations, beliefs or intentions regarding our product development
and commercialization efforts, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by
the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected
events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these
statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or
implied by the forward-looking statements.
Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These
factors include the following:
•
•
•
•
•
•
•
•
•
•
Our products and services are highly technical and if they contain undetected errors, our business could be adversely affected and we may have to
defend lawsuits or pay damages in connection with any alleged or actual failure of our products and services.
If we fail to respond to rapid technological changes in the data and analytics sector, we may lose customers and/or our products and/or services may
become obsolete.
Because our networks and information technology systems are critical to our success, if unauthorized persons access our systems or our systems
otherwise cease to function properly, our operations could be adversely affected and we could lose revenue or proprietary information, all of which
could materially adversely affect our business.
Data security and integrity are critically important to our business, and breaches of security, unauthorized access to or disclosure of confidential
information, disruption, including distributed denial of service (“DDoS”) attacks or the perception that confidential information is not secure, could
result in a material loss of business, substantial legal liability or significant harm to our reputation.
If we fail to maintain and improve our systems, our certifications, our technology, and our interfaces with data and customers, demand for our
services could be adversely affected.
Our business is subject to various governmental regulations, laws, and orders, compliance with which may cause us to incur significant expenses or
reduce the availability or effectiveness of our solutions, and the failure to comply with which could subject us to civil or criminal penalties or other
liabilities.
The outcome of litigation, inquiries, investigations, examinations, or other legal proceedings in which we are involved, in which we may become
involved, or in which our customers or competitors are involved, could subject us to significant monetary damages or restrictions on our ability to
do business.
Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions, including derivative
actions, which could limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its
directors, officers, other employees, or the Company's stockholders, and may discourage lawsuits with respect to such claims.
Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.
Future issuances of shares of our common stock in connection with acquisitions or pursuant to our stock incentive plan could have a dilutive effect
on your investment.
35
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The concentration of our stock ownership may limit individual stockholder ability to influence corporate matters.
We are no longer an “emerging growth company,” however, we are still a “smaller reporting company,” and the reduced disclosure requirements
applicable to smaller reporting companies may make our common stock less attractive to investors.
We expect that we may need additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all, when or
as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable
or exchangeable for, our common stock, our existing stockholders would experience further dilution.
We do not currently intend to pay dividends on our common stock.
We have a history of losses which makes our future results uncertain.
Environmental issues, including any future reporting obligations in connection with environmental issues, may adversely impact our business and
operations.
We depend, in part, on strategic alliances and joint ventures to grow our business. If we are unable to develop and maintain these strategic alliances
and joint ventures, our growth may be adversely affected.
If we consummate any future acquisitions, we will be subject to the risks inherent in identifying, acquiring, and operating a newly acquired
business.
Our relationships with key customers may be materially diminished or terminated, which could adversely affect our business, financial condition,
and results of operations.
If we lose the services of key personnel, it could adversely affect our business.
Our revenue is concentrated in the U.S. market across a broad range of industries. When these industries or the broader financial markets
experience a downturn, demand for our services and revenue may be adversely affected.
We could lose our access to data sources which could prevent us from providing our services.
We must adequately protect our intellectual property in order to prevent loss of valuable proprietary information.
We face intense competition from both start-up and established companies that may have significant advantages over us and our products.
There may be further consolidation in our end-customer markets, which may adversely affect our revenue.
To the extent the availability of free or relatively inexpensive consumer and/or business information increases, the demand for some of our services
may decrease.
If our newer products do not achieve market acceptance, revenue growth may suffer.
Our products and services can have long sales and implementation cycles, which may result in substantial expenses before realizing any associated
revenue.
If our outside service providers and key vendors are not able to or do not fulfill their service obligations, our operations could be disrupted and our
operating results could be harmed.
Consolidation in the data and analytics sector may limit market acceptance of our products and services.
We may incur substantial expenses defending against claims of infringement.
36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this item.
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements and the Notes thereto, together with the report thereon of our independent registered public accounting firm are
filed as part of this report, beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d–15(e) of the Exchange Act) as of December 31, 2023. We maintain
disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow for timely decisions regarding required disclosure.
Based on the evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), the Company’s Chief
Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2023.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-
15(f) of the Exchange Act) for the Company. Management, under the supervision of and with the participation of the Company’s Chief Executive Officer
and Chief Financial Officer, conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria
set forth by the Committee of Sponsoring Organizations (the "COSO") of the Treadway Commission in Internal Control-Integrated Framework (2013).
Management concluded that the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) was
effective as of December 31, 2023, based on criteria in Internal Control-Integrated Framework (2013) issued by the COSO.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with management's evaluation pursuant to Rules
13a-15(d) or 15d-15(d) of the Exchange Act during the last fiscal quarter of 2023 that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that
management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
37
Item 9B. Other Information.
On March 5, 2024, the Company and Jeffrey Dell, Chief Information Officer, entered into an amendment to his Employment Agreement dated April 9,
2019 and as amended on November 9, 2020 and May 8, 2023 (collectively, the “Dell Employment Agreement”), to provide that if the Company terminates
the Dell Employment Agreement without cause or any successor of the Company refuses to accept assignment of the Dell Employment Agreement or if
Mr. Dell terminates the Dell Employment Agreement and employment with the Company for Good Reason (as defined in the Dell Employment
Agreement), the Company shall pay to Mr. Dell the greater of (x) his base salary for the remainder of the term and (y) two (2) years of his base salary, in
each case in accordance with the Company’s payroll practices in effect from time to time, provided, however, Mr. Dell is not in violation of the
Confidentiality, Nondisclosure, Noncompetition, Nonsolicitation and Nondisparagement Agreement entered into in connection the Dell Employment
Agreement.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
38
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item is incorporated by reference to the definitive proxy statement for our 2024 Annual Meeting of Stockholders to be
filed with the SEC within 120 days of December 31, 2023.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to the definitive proxy statement for our 2024 Annual Meeting of Stockholders to be
filed with the SEC within 120 days of December 31, 2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to the definitive proxy statement for our 2024 Annual Meeting of Stockholders to be
filed with the SEC within 120 days of December 31, 2023.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to the definitive proxy statement for our 2024 Annual Meeting of Stockholders to be
filed with the SEC within 120 days of December 31, 2023.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to the definitive proxy statement for our 2024 Annual Meeting of Stockholders to be
filed with the SEC within 120 days of December 31, 2023.
39
Item 15. Exhibits and Financial Statement Schedules.
(a) List of documents filed as part of this report:
PART IV
1. Financial Statements: The information required by this item is contained in Item 8 of this 2023 Form 10-K.
2. Financial Statement Schedules: The information required by this item is included in the consolidated financial statements contained in Item 8 of this
2023 Form 10-K.
3. Exhibits: The following exhibits are filed as part of, or incorporated by reference into, this 2023 Form 10-K.
Exhibit No.
2.1
Exhibit Description
Separation and Distribution Agreement by and between Cogint, Inc. and Red
Violet, Inc., dated February 27, 2018.
Form
File No.
Exhibit
Filing Date
Herewith
Incorporated by Reference
Filed
Form 10
001-38407
2.1
February 28, 2018
3.1
3.2
4.1
10.1+
10.2+
10.3+
10.4+
10.5+
10.6
10.7+
10.8+
10.9+
Amended and Restated Certificate of Incorporation of Red Violet, Inc.
Amended and Restated Bylaws of Red Violet, Inc.
Description of Registrant's Securities.
Form of Restricted Stock Unit Agreement Pursuant to the Red Violet, Inc. 2018
8-K
8-K
10-K
Form 10
001-38407
001-38407
001-38407
001-38407
3.1
3.2
4.1
10.2
March 27, 2018
March 27, 2018
March 12, 2020
February 28, 2018
Stock Incentive Plan.
Employment Agreement, dated March 26, 2018, by and between Red Violet and
8-K
001-38407
10.2
March 27, 2018
Derek Dubner.
Employment Agreement, dated March 26, 2018, by and between Red Violet and
8-K
001-38407
10.3
March 27, 2018
James Reilly.
Employment Agreement, dated March 26, 2018, by and between Red Violet and
8-K
001-38407
10.4
March 27, 2018
Dan MacLachlan.
Red Violet, Inc. 2018 Stock Incentive Plan.
Form of Indemnification Agreement.
Executive Chairman Services Agreement, effective as of August 7, 2018, by and
8-K
8-K
10-Q
001-38407
001-38407
001-38407
10.5
10.6
10.1
March 27, 2018
March 27, 2018
August 8, 2018
between Red Violet, Inc. and Michael Brauser.
Form of 2018 Time- and Performance-Based Restricted Stock Unit Award
10-Q
001-38407
10.2
November 7, 2018
Agreement.
Employment Agreement between Red Violet, Inc. and Jeffrey Dell entered into
10-Q
001-38407
10.1
August 5, 2019
on April 9, 2019.
10.10+
Form of 2019 Time- and Performance-Based Restricted Stock Unit Award
10-K
001-38407
10.13
March 12, 2020
Agreement.
10.11+
10.12+
Amendment to Red Violet, Inc. 2018 Stock Incentive Plan.
Separation Agreement dated February 16, 2021 by and between Red Violet, Inc.
8-K
8-K
001-38407
001-38407
10.1
10.1
June 4, 2020
February 17, 2021
and Michael Brauser.
10.13+
First Amendment to Employment Agreement dated November 9, 2020 by and
10-K
001-38407
10.15
March 10, 2021
between Red Violet, Inc. and Derek Dubner.
10.14+
First Amendment to Employment Agreement dated November 9, 2020 by and
10-K
001-38407
10.16
March 10, 2021
between Red Violet, Inc. and James Reilly.
10.15+
First Amendment to Employment Agreement dated November 9, 2020 by and
10-K
001-38407
10.17
March 10, 2021
between Red Violet, Inc. and Daniel MacLachlan.
10.16+
First Amendment to Employment Agreement dated November 9, 2020 by and
10-K
001-38407
10.18
March 10, 2021
between Red Violet, Inc. and Jeffrey Dell.
10.17
10.18+
10.19+
Form of Securities Purchase Agreement, dated as of November 19, 2021.
Amendment to Red Violet, Inc. 2018 Stock Incentive Plan.
Second Amendment to Employment Agreement dated May 8, 2023 by and
8-K
8-K
10-Q
001-38407
001-38407
001-38407
10.1
10.1
10.1
November 19, 2021
May 26, 2022
August 7, 2023
between Red Violet, Inc. and Derek Dubner.
10.20+
Second Amendment to Employment Agreement dated May 8, 2023 by and
10-Q
001-38407
10.2
August 7, 2023
between Red Violet, Inc. and James Reilly.
10.21+
Second Amendment to Employment Agreement dated May 8, 2023 by and
10-Q
001-38407
10.3
August 7, 2023
between Red Violet, Inc. and Daniel MacLachlan.
10.22+
Second Amendment to Employment Agreement dated May 8, 2023 by and
10-Q
001-38407
10.4
August 7, 2023
21.1
23.1
31.1
31.2
between Red Violet, Inc. and Jeffrey Dell.
Subsidiaries of Red Violet, Inc.
Consent of Grant Thornton LLP.
Certification of Chief Executive Officer filed pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer filed pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a) of the Securities and Exchange Act
40
X
X
X
X
32.1*
32.2*
of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97.1
101.INS
RedViolet, Inc. Clawback Policy.
Inline XBRL Instance Document – the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase
Documents.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).
+ Management contract or compensatory plan or arrangement.
X
X
X
X
X
X
* This certification is deemed furnished and not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by
reference into any filing under the Securities Act or the Exchange Act.
Item 16. Form 10-K Summary.
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The Company has elected not to include such
summary information.
41
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
March 7, 2024
RED VIOLET, INC.
By:
/s/ Derek Dubner
Derek Dubner
Chief Executive Officer
By:
/s/ Daniel MacLachlan
Daniel MacLachlan
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
/s/ Derek Dubner
Derek Dubner
/s/ Daniel MacLachlan
Daniel MacLachlan
/s/ Peter Benz
Peter Benz
/s/ Steven D. Rubin
Steven D. Rubin
/s/ Robert Swayman
Robert Swayman
/s/ Lisa Stanton
Lisa Stanton
/s/ William Livek
William Livek
Chief Executive Officer and Chairman
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
42
Date
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Report of independent registered public accounting firm (PCAOB ID number: 248)
Consolidated balance sheets as of December 31, 2023 and 2022
Consolidated statements of operations for the years ended December 31, 2023 and 2022
Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2023 and 2022
Consolidated statements of cash flows for the years ended December 31, 2023 and 2022
Notes to consolidated financial statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Red Violet, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Red Violet, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
December 31, 2023 and 2022, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2017.
Fort Lauderdale, Florida
March 7, 2024
F-2
RED VIOLET, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
December 31, 2023
December 31, 2022
$
32,032 $
ASSETS:
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $159 and $60 as of
December 31, 2023 and 2022, respectively
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Right-of-use assets
Deferred tax assets
Other noncurrent assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current portion of operating lease liabilities
Deferred revenue
Total current liabilities
Noncurrent operating lease liabilities
Deferred tax liabilities
Total liabilities
Shareholders' equity:
Preferred stock—$0.001 par value, 10,000,000 shares authorized, and 0 shares
issued and outstanding, as of December 31, 2023 and 2022
Common stock—$0.001 par value, 200,000,000 shares authorized, 13,980,274 and
13,956,404 shares issued, and 13,970,846 and 13,956,404 shares outstanding, as of
December 31, 2023 and 2022
Treasury stock, at cost, 9,428 and 0 shares as of December 31, 2023 and 2022
Additional paid-in capital
Accumulated deficit
Total shareholders' equity
Total liabilities and shareholders' equity
See notes to consolidated financial statements
F-3
$
$
$
7,135
1,113
40,280
592
34,403
5,227
2,457
9,514
517
92,990 $
1,631 $
1,989
569
690
4,879
1,999
-
6,878
31,810
5,535
771
38,116
709
31,647
5,227
1,114
-
601
77,414
2,229
1,845
692
670
5,436
598
287
6,321
-
-
14
(188 )
94,159
(7,873 )
86,112
92,990 $
14
-
92,481
(21,402 )
71,093
77,414
RED VIOLET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
Revenue
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization)
Sales and marketing expenses
General and administrative expenses
Depreciation and amortization
Total costs and expenses
Income from operations
Interest income, net
Income before income taxes
Income tax (benefit) expense
Net income
Earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended December 31,
2023
2022
$
60,204 $
13,069
13,833
22,446
8,352
57,700
2,504
1,334
3,838
(9,691 )
13,529 $
0.97 $
0.96 $
$
$
$
53,318
12,211
10,834
23,237
6,675
52,957
361
351
712
96
616
0.04
0.04
13,974,125
14,134,021
13,759,296
14,107,144
See notes to consolidated financial statements
F-4
RED VIOLET, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in thousands, except share data)
Common stock
Treasury stock
Amount
Shares
Amount
Additional
paid-in
capital
Accumulated
deficit
Balance at December 31, 2021
Vesting of restricted stock units
Increase in treasury stock resulting
from shares withheld to cover
statutory taxes
Common stock repurchased
Retirement of treasury stock
Share-based compensation
Net income
Balance at December 31, 2022
Vesting of restricted stock units
Increase in treasury stock resulting
from shares withheld to cover
statutory taxes
Common stock repurchased
Retirement of treasury stock
Share-based compensation
Net income
Balance at December 31, 2023
Shares
13,488,540 $
770,210
-
-
(302,346 )
-
-
13,956,404 $
309,416
-
-
(285,546 )
-
-
13,980,274 $
13
1
-
-
-
-
-
14
-
-
-
-
-
-
14
- $
-
- $
-
91,434 $
(1 )
(22,018 ) $
-
(252,346 )
(5,200 )
(50,000 )
302,346
-
-
- $
-
(878 )
6,078
-
-
- $
-
-
-
(6,078 )
7,126
-
92,481 $
-
(99,234 )
(195,740 )
285,546
-
-
(9,428 ) $
(1,992 )
(3,755 )
5,559
-
-
(188 ) $
-
-
(5,559 )
7,237
-
94,159 $
-
-
-
-
616
(21,402 ) $
-
-
-
-
-
13,529
(7,873 ) $
Total
69,429
-
(5,200 )
(878 )
-
7,126
616
71,093
-
(1,992 )
(3,755 )
-
7,237
13,529
86,112
See notes to consolidated financial statements
F-5
RED VIOLET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation expense
Write-off of long-lived assets
Provision for bad debts
Noncash lease expenses
Deferred income tax (benefit) expense
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other noncurrent assets
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Operating lease liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Capitalized costs included in intangible assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Taxes paid related to net share settlement of vesting of restricted stock units
Repurchases of common stock
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid for interest
Cash paid for income taxes
Share-based compensation capitalized in intangible assets
Retirement of treasury stock
Right-of -use assets obtained in exchange of operating lease liabilities
Operating lease liabilities arising from obtaining right-of-use assets
See notes to consolidated financial statements
F-6
Year Ended December 31,
2023
2022
$
13,529 $
8,352
5,386
6
1,088
576
(9,801 )
(2,688 )
(342 )
84
(598 )
100
20
(641 )
15,071
(122 )
(9,024 )
(9,146 )
(1,992 )
(3,711 )
(5,703 )
222 $
31,810
32,032 $
- $
82 $
1,851 $
5,559 $
1,919 $
1,919 $
$
$
$
$
$
$
$
$
616
6,675
5,505
177
174
547
89
(1,973 )
(172 )
(464 )
624
1,450
(171 )
(618 )
12,459
(373 )
(8,456 )
(8,829 )
(5,200 )
(878 )
(6,078 )
(2,448 )
34,258
31,810
-
39
1,621
6,078
-
-
RED VIOLET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share data)
1. Principal activities
Red Violet, Inc. (“red violet,” or the “Company”), a Delaware corporation, is a software and services company building proprietary technologies and
applying analytical capabilities to deliver identity intelligence. The Company’s technology powers critical solutions, which empower organizations to
operate with confidence. The Company’s solutions enable the real-time identification and location of people, businesses, assets and their interrelationships.
These solutions are used for purposes including risk mitigation, due diligence, fraud detection and prevention, regulatory compliance, and customer
acquisition. The Company’s AI/ML-driven identity intelligence platform, CORETM, is purpose-built for the enterprise, yet flexible enough for organizations
of all sizes, bringing clarity to massive datasets by transforming data into intelligence. The Company drives workflow efficiency and enables organizations
to make better data-driven decisions.
Leveraging cloud-native proprietary technology and applying machine learning and advanced analytical capabilities, CORE provides essential solutions to
public and private sector organizations through intuitive, easy-to-use analytical interfaces. With massive data assets consisting of public record, proprietary,
and publicly-available data, the Company’s differentiated information and innovative platform and solutions deliver identity intelligence – entities,
relationships, affiliations, interactions, and events. The Company’s solutions are used today to enable frictionless commerce, to ensure safety, and to reduce
fraud and the concomitant expense borne by society.
The Company has only one operating segment, as defined by Accounting Standards Codification ("ASC") 280, “Segment Reporting.”
2. Summary of significant accounting policies
(a) Basis of preparation and liquidity
The accompanying consolidated financial statements have been prepared by red violet in accordance with accounting principles generally accepted in the
United States (“US GAAP”).
The Company reported net income of $13,529 and $616 for the years ended December 31, 2023 and 2022, respectively. Net cash provided by operating
activities was $15,071 and $12,459 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had an
accumulated deficit of $7,873.
As of December 31, 2023, the Company had available cash and cash equivalents of $32,032, an increase of $222 from $31,810 as of December 31, 2022.
Based on this available cash and cash equivalents, and the projections of growth in revenue and operating results in the coming year, the Company believes
that it will have sufficient cash resources to finance its operations and expected capital expenditures for the next twelve months from the date the financials
are issued.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company
and its subsidiaries have been eliminated upon consolidation.
(b) Use of estimates
The preparation of consolidated financial statements in accordance with US GAAP requires red violet’s management to make estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions
include the revenue recognition, allowance for doubtful accounts, useful lives of intangible assets, recoverability of the carrying amount of goodwill and
intangible assets, share-based compensation, and income tax provision. These estimates are often based on complex judgments and assumptions that
management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.
(c) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and bank deposits with original maturities of three months or less, which are unrestricted as to
withdrawal and use.
F-7
The Company’s cash and bank deposits were held in major financial institutions located in the United States, which management believes have high credit
ratings. The cash and bank deposits held in the United States, denominated in USD, amounted to $32,032 and $31,810 as of December 31, 2023 and 2022,
respectively.
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist principally of cash investments. The
Company places its temporary cash instruments with well-known financial institutions within the United States, and, at times, may maintain balances in
United States banks in excess of the $250 US Federal Deposit Insurance Corporation insurance limit. The Company monitors the credit ratings of the
financial institutions to mitigate this risk.
(d) Accounts receivable
Accounts receivable are due from customers and are generally unsecured, which consist of amounts earned but not yet collected. None of the Company’s
accounts receivable bear interest. In some arrangements, a right to consideration for the Company's performance under the customer contract may occur
before invoicing to the customer, resulting in an unbilled accounts receivable. As of December 31, 2023, the current and noncurrent portion unbilled
accounts receivable of $829 and $371, respectively, were included within accounts receivable and other noncurrent assets, respectively, on the consolidated
balance sheets. As of December 31, 2022, the current and noncurrent portion unbilled accounts receivable of $923 and $464, respectively, were included
within accounts receivable and other noncurrent assets, respectively, on the consolidated balance sheets.
The allowance for doubtful accounts is management’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.
Management determines the allowance based on reviews of various factors, including historical experience, the age of the accounts receivable balance,
customer-specific facts, economic conditions, and other factors that may affect the Company's ability to collect from customers. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does
not have any off-balance-sheet credit exposure related to its customers. The amount of the allowance for doubtful accounts was $159 and $60 as of
December 31, 2023 and 2022, respectively, which was included within accounts receivable, net, on the consolidated balance sheets.
(e) Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation or amortization. Expenditures for maintenance, repairs, and minor renewals are
charged to expense in the period incurred. Betterments and additions are capitalized. Property and equipment are depreciated on the straight-line basis over
the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their estimated useful lives or lease terms that are
reasonably assured. The estimated useful lives of property and equipment are as follows:
Computer and network equipment
Furniture, fixtures and office equipment
Leasehold improvements
5-7 years
5 years
7 years
When items of property and equipment are retired or otherwise disposed of, loss/income is charged or credited for the difference between the net book
value and proceeds received thereon.
(f) Intangible assets other than goodwill
The Company’s intangible assets are initially recorded at the capitalized actual costs incurred, their acquisition cost, or fair value if acquired as part of a
business combination, and amortized on a straight-line basis over their respective estimated useful lives, which are the periods over which the assets are
expected to contribute directly or indirectly to the future cash flows of the Company. The Company’s intangible assets represent software developed for
internal use. Intangible assets have estimated useful lives of 5-10 years.
In accordance with ASC 350-40, “Software — Internal use software,” the Company capitalizes eligible costs, including salaries and staff benefits, share-
based compensation expense, travel expenses incurred by relevant employees, and other relevant costs of developing internal-use software that are incurred
in the application development stage when developing or obtaining software for internal use. Once the software developed for internal use is ready for its
intended use, it is amortized on a straight-line basis over its useful life.
(g) Goodwill
Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. As of December 31, 2023 and 2022, the
balance of goodwill of $5,227 was as a result of the acquisition of Interactive Data, LLC (“Interactive Data”), a wholly-owned subsidiary of red violet,
effective on October 2, 2014.
F-8
In accordance with ASC 350, “Intangibles - Goodwill and Other,” goodwill is tested at least annually for impairment, or when events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis
in determining whether it is more likely than not that its fair value exceeds the carrying value. A quantitative step one assessment involves determining the
fair value of each reporting unit using market participant assumptions. Should an impairment exist, the Company would recognize an impairment charge
for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.
The measurement date of the Company’s annual goodwill impairment test is October 1. On October 1, 2023 and 2022, the Company performed qualitative
assessments on the reporting unit and, based on this assessment, no events have occurred to indicate that it is more likely than not that the fair value of the
reporting unit is less than its carry amount. The Company did not record a goodwill impairment loss during the years ended December 31, 2023 and 2022,
and as of December 31, 2023, there was no accumulated goodwill impairment loss.
For purposes of reviewing impairment and the recoverability of goodwill, the Company must make various assumptions regarding estimated future cash
flows and other factors in determining the fair values, including market multiples, discount rates, etc.
(h) Impairment of long-lived assets
Finite-lived intangible assets are amortized over their respective useful lives and, along with other long-lived assets, are evaluated for impairment
periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with ASC 360-
10-15, “Impairment or Disposal of Long-Lived Assets.” In evaluating long-lived assets for recoverability, including finite-lived intangibles and property
and equipment, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance
with ASC 360-10-15. To the extent that estimated future undiscounted cash inflows attributable to the asset, less estimated future undiscounted cash
outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset
and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the
lower of carrying value or fair value less costs to sell.
Asset recoverability is an area involving management judgment, requiring assessment as to whether the carrying value of assets can be supported by the
undiscounted future cash flows. In calculating the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such
as revenue growth rates, gross margin percentages and terminal growth rates.
The Company did not record an impairment loss of long-lived assets during the years ended December 31, 2023 and 2022.
(i) Fair value of financial instruments
ASC 820, “Fair Value Measurements and Disclosures,” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.
These tiers include:
•
•
•
Level 1 – defined as observable inputs such as quoted prices in active markets;
Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The fair value of the Company’s cash and cash equivalents, receivables, and payables approximate their carrying amount because of the short-term nature
of these instruments. The fair value of the noncurrent portion of unbilled accounts receivable included in other noncurrent assets approximates its carrying
amount.
(j) Revenue recognition
The Company recognized revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“Topic 606”). Under this standard, revenue is
recognized when control of goods or services is transferred to the Company’s customers, in an amount that reects the consideration the Company expects
to be entitled to in exchange for those goods or services. The Company’s performance obligation is to provide on demand information and identity
intelligence solutions to its customers by leveraging its proprietary technology and applying machine learning and advanced analytics to its massive data
repository. The pricing for the customer contracts is based on usage, a monthly fee, or a combination of both.
F-9
Revenue is generally recognized on (a) a transactional basis determined by the customers’ usage, (b) a monthly fee, or (c) a combination of both. Revenue
pursuant to transactions determined by the customers’ usage is recognized when the transaction is complete, and either party may terminate the
transactional agreement at any time. Revenue pursuant to contracts containing a monthly fee is considered to be a single performance obligation consisting
of a series of distinct services, and is recognized ratably over the contract period, which is generally 12 months, and the contract shall automatically renew
for additional, successive 12-month terms unless written notice of intent not to renew is provided by one party to the other at least 30 days or 60 days prior
to the expiration of the then current term. Variable fees are allocated to each distinct month in the series for which they are earned. The Company’s revenue
is recorded net of applicable sales taxes billed to customers.
Available within Topic 606, the Company has applied the portfolio approach practical expedient in accounting for customer revenue as one collective
group, rather than individual contracts. Based on the Company’s historical knowledge of the contracts contained in this portfolio and the similar nature and
characteristics of the customers, the Company has concluded the financial statement effects are not materially different than if accounting for revenue on a
contract by contract basis.
Revenue is recognized over a period of time. The Company’s customers simultaneously receive and consume the benefits provided by the Company’s
performance as and when provided. Furthermore, the Company has elected the “right to invoice” practical expedient, available within Topic 606, as its
measure of progress, since it has a right to payment from a customer in an amount that corresponds directly with the value of its performance completed-to-
date. In some arrangements, a right to consideration for the Company's performance under the customer contract may occur before invoicing to the
customer. The Company's revenue arrangements do not contain significant financing components.
For the years ended December 31, 2023 and 2022, 79% and 75% of total revenue was attributable to customers with pricing contracts, respectively, versus
21% and 25% attributable to transactional customers, respectively. Pricing contracts are generally annual contracts or longer, with auto renewal.
If a customer pays consideration before the Company transfers services to the customer, those amounts are classied as deferred revenue. As of December
31, 2023 and 2022, the balance of deferred revenue was $690 and $670, respectively, all of which is expected to be realized in the next 12 months. In
relation to the deferred revenue balance as of December 31, 2022, $670 was recognized into revenue during the year ended December 31, 2023.
As of December 31, 2023, $15,821 of revenue is expected to be recognized in the future for performance obligations that are unsatisfied or partially
unsatisfied, related to pricing contracts that have a term of more than 12 months, of which $8,662 of revenue will be recognized in 2024, $4,610 in 2025,
$1,710 in 2026, and $839 in 2027. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company excludes
variable consideration related entirely to wholly unsatisfied performance obligations and contracts and recognizes such variable consideration based upon
the right to invoice the customer.
Sales commissions are incurred and recorded on an ongoing basis over the term of the customer relationship. These costs are recorded in sales and
marketing expenses.
In addition, the Company elected the practical expedient to not disclose the value of unsatised performance obligations for (i) contracts with an original
expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for
services performed.
(k) Cost of revenue (exclusive of depreciation and amortization)
The Company’s cost of revenue primarily includes data acquisition costs and other cost of revenue. Data acquisition costs consist primarily of the costs to
acquire data either on a transactional basis or through flat-fee data licensing agreements, including unlimited usage agreements. Data acquisition costs are
recognized based on a straight-line amortization method. Other cost of revenue includes expenses related to third-party infrastructure fees.
(l) Advertising and promotion costs
Advertising and promotion costs are charged to operations as incurred. Advertising and promotion costs, included in sales and marketing expenses
amounted to $541 and $261 for the years ended December 31, 2023 and 2022, respectively.
F-10
(m) Share-based compensation
The Company accounts for share-based compensation to employees in accordance with ASC 718, “Compensation—Stock Compensation.” Under ASC
718, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the
award and, for those awards subject only to service conditions, the Company recognizes the costs on a straight-line basis over the requisite service period
for the entire award the employee is required to provide service in exchange for the award, which generally is the vesting period. For awards with
performance and service conditions, we begin recording share-based compensation when achieving the performance criteria is probable and we recognize
the costs using the accelerated attribution method. The Company accounts for forfeitures as they occur.
The Company has issued share-based awards with performance-based vesting criteria. Achievement of the milestones must be probable before the
Company begins recording share-based compensation expense. When the performance-based vesting criteria is considered probable, the Company begins
to recognize compensation expense at that time. In the period that achievement of the performance-based criteria is deemed probable, US GAAP requires
the immediate recognition of all previously unrecognized compensation since the original grant date. As a result, compensation expense recorded in the
period that achievement is deemed probable could include a substantial amount of previously unrecorded compensation expense related to the prior
periods. For any share-based awards where performance-based vesting criteria is no longer considered probable, previously recognized compensation cost
would be reversed. As of December 31, 2023, the Company has achieved the performance-based criteria for all share-based awards with performance-
based vesting criteria, except for the Criteria Four and Criteria Five awards, as defined in Note 10.
(n) Income taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which requires the use of the asset and liability method of
accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in income in the period that the change in tax rates or laws is
enacted. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the
deferred tax assets will not be realized. As of December 31, 2022, the Company had a full valuation allowance of $8,033. During the year ended December
31, 2023, the Company released the valuation allowance previously recorded on its deferred tax assets. The Company concluded that, due to its established
historical cumulative positive income before income taxes plus permanent differences for the recent years, projections of future taxable income, and the
reversal of taxable temporary differences, the realization of the deferred tax assets as of December 31, 2023 is more likely than not.
ASC 740 clarifies the accounting for uncertain tax positions. This interpretation requires that an entity recognizes in the consolidated financial statements
the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position.
Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. The Company’s accounting policy is to accrue interest and penalties
related to uncertain tax positions, if and when required, as interest expense and a component of other expenses, respectively, in the consolidated statements
of operations.
(o) Earnings per share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the periods. Diluted
earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into
common stock and is calculated using the treasury stock method for stock options and unvested shares. Common equivalent shares are excluded from the
calculation in the loss periods as their effects would be anti-dilutive.
(p) Contingencies
In the ordinary course of business, the Company is subject to loss contingencies that cover a wide range of matters. An estimated loss from a loss
contingency such as a legal proceeding or claim is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to make
a reasonable estimate of the amount of loss.
F-11
(q) Significant concentrations and risks
Concentration of credit risk
Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents, and accounts
receivable. As of December 31, 2023 and 2022, all of the Company’s cash and cash equivalents were deposited in financial institutions located in the
United States, which management believes are of high credit quality. Accounts receivable are typically unsecured and are derived from revenue earned
from customers. The risk with respect to accounts receivable is mitigated by credit evaluations the Company performs on its customers and its ongoing
monitoring process of outstanding balances.
Concentration of customers
For the years ended December 31, 2023 and 2022, no individual customer accounted for more than 10% of the total revenue.
One individual customer accounted for 11% of the Company’s accounts receivable, net, as of December 31, 2023, and one individual customer accounted
for 11% of the Company’s accounts receivable, net, as of December 31, 2022.
Concentration of suppliers
The Company’s products and services depend extensively upon continued access to and receipt of data from external sources, including data received from
the major credit bureaus, including the Company’s largest data supplier. The Company’s other data suppliers include strategic partners, as well as various
government and public records databases. The Company’s largest data supplier, with whom the Company has expanded its relationship while securing what
it believes to be favorable business terms over the years, accounted for 48% and 49% of the Company’s total data acquisition costs for the years ended
December 31, 2023 and 2022, respectively. The amended and renewed term of the agreement with this supplier ends June 30, 2026. The Company may
elect to extend the term for an additional twelve months upon written notice to this supplier at least 30 days prior to the end of the amended and renewed
term. During the term of the agreement, either party has the right to terminate the agreement: (i) in the event of the other party’s failure to cure a material
breach, and (ii) in the event of the other party’s insolvency. In addition, this supplier may terminate this agreement by providing not less than 12 months’
advance written notice to the Company and the Company may terminate this agreement by providing not less than 24 months’ advance written notice to
this supplier. As of December 31, 2023, the remaining minimum purchase commitments through the end of the amended and renewed term is $13.4
million. If the Company is unable to maintain its relationship with its largest data supplier, its ability to provide products and services could be negatively
impacted, as it would need to secure comparable data on similar terms, which would require significant time, expense, and resources, and may in the short-
term adversely affect its reputation, business, financial condition and results of operations and, if it is unable to establish a similar relationship with other
data suppliers over time, could have a long-term material impact on its business and financial condition.
As of December 31, 2023 and 2022, among data suppliers, one data supplier accounted for 27% and 40% of the Company’s total accounts payable,
respectively.
(r) Recently issued accounting standards
In December 2023, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standard Updates (“ASU”) No. 2023-09, "Income Taxes
(Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09)," which improves the transparency of income tax disclosures by requiring consistent
categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also
includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning
after December 31, 2024. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company is
currently evaluating the guidance to determine its impact on our consolidated financial statements and related disclosures.
F-12
3. Earnings per share
For the years ended December 31, 2023 and 2022, the basic and diluted earnings per share was as follows:
(In thousands, except share data)
Numerator:
Net income
Denominator:
Weighted average shares outstanding:
Basic
Diluted
Earnings per share:
Basic
(1)
Diluted
Year Ended December 31,
2023
2022
$
13,529 $
616
13,974,125
14,134,021
13,759,296
14,107,144
$
$
0.97 $
0.96 $
0.04
0.04
(1) For the years ended December 31, 2023 and 2022, diluted weighted average shares outstanding are calculated by the inclusion of unvested restricted
stock units ("RSUs").
4. Accounts receivable, net
Accounts receivable, net consists of the following:
(In thousands)
Accounts receivable
Less: Allowance for doubtful accounts
Total accounts receivable, net
The movement of allowance for doubtful accounts is shown below:
(In thousands)
Beginning balance
Charges to expenses
Write-offs
Ending balance
5. Property and equipment, net
Property and equipment, net consists of the following:
(In thousands)
Computer and network equipment
Furniture, fixtures and office equipment
Leasehold improvements
Total cost
Less: Accumulated depreciation
Property and equipment, net
December 31, 2023
December 31, 2022
7,294 $
(159 )
7,135 $
Year Ended December 31,
2023
2022
60 $
1,088
(989 )
159 $
5,595
(60 )
5,535
28
174
(142 )
60
$
$
$
$
December 31, 2023
December 31, 2022
$
$
1,127 $
787
53
1,967
(1,375 )
592 $
1,082
776
53
1,911
(1,202 )
709
Depreciation of property and equipment of $233 and $235 was recorded for the years ended December 31, 2023 and 2022, respectively.
6. Intangible assets, net
Intangible assets other than goodwill consist of the following:
(In thousands)
Software developed for internal use
Amortization
period
5-10 years
Gross amount
63,545
$
December 31, 2023
Accumulated
amortization
$
(29,142 ) $
Net
34,403
Gross amount
52,678
$
December 31, 2022
Accumulated
amortization
$
(21,031 ) $
Net
31,647
F-13
The gross amount associated with software developed for internal use represents capitalized costs of internally-developed software, including eligible
salaries and staff benefits, share-based compensation, travel expenses incurred by relevant employees, and other relevant costs.
Amortization expenses of $8,119 and $6,440 were included in depreciation and amortization expense for the years ended December 31, 2023 and 2022,
respectively. As of December 31, 2023, intangible assets of $5,287, included in the gross amounts of software developed for internal use, have not started
amortization, as they are not ready for their intended use.
The Company capitalized costs of software developed for internal use of $10,875 and $10,077 during the years ended December 31, 2023 and 2022,
respectively.
As of December 31, 2023, estimated amortization expenses related to the Company’s intangible assets for 2024 through 2029 and thereafter are as follows:
(In thousands)
Year
2024
2025
2026
2027
2028
2029 and thereafter
Total
7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
(In thousands)
Accrued payroll and related expenses
Accrued data acquisition costs
Sales tax payable
Income tax payable
Miscellaneous expenses payable
Total
8. Income taxes
December 31, 2023
9,452
8,285
6,833
5,217
2,774
1,842
34,403
$
December 31, 2023
December 31, 2022
1,685 $
131
50
16
107
1,989 $
1,600
116
38
-
91
1,845
$
$
The Company is subject to federal and state income taxes in the United States. The income taxes on income before income taxes consisted of the following:
(In thousands)
Current
Federal
State
Deferred
Federal
State
Valuation allowance
Income tax (benefit) expense
Year Ended December 31,
2023
2022
16 $
94
110
(2,139 )
371
(8,033 )
(9,801 )
(9,691 ) $
-
7
7
1,149
392
(1,452 )
89
96
$
$
F-14
The Company’s effective income tax (benefit) expense differed from the U.S. corporate statutory income tax rate for the years ended December 31, 2023
and 2022. A reconciliation is as follows:
(In thousands)
Tax on income before income taxes
Effect of state taxes (net of federal income tax effect)
Research and development tax credits
Excess tax benefit from share-based compensation
Nondeductible executive compensation
Other permanent differences
State rate change
Changes in valuation allowance
Income tax (benefit) expense
$
$
2023
806
515
(3,213 )
135
300
(115 )
(86 )
(8,033 )
(9,691 )
Year Ended December 31,
21 % $
13 %
-84 %
4 %
8 %
-4 %
-2 %
-209 %
-253 % $
2022
150
428
-
(731 )
1,789
(57 )
(31 )
(1,452 )
96
21 %
60 %
0 %
-103 %
251 %
-8 %
-4 %
-204 %
13 %
Components of deferred tax assets and liabilities consist of the following:
(In thousands)
Deferred tax assets:
Net operating loss carryforwards
Research and development tax credits
Share-based compensation
Accounts receivable
Operating lease liabilities
Deferred revenue and others
Valuation allowance
Deferred tax liabilities:
Intangible assets
Right-of-use assets
Property and equipment
Net deferred tax assets (liabilities)
December 31, 2023
December 31, 2022
$
$
8,786 $
3,165
941
41
661
177
13,771
-
13,771
3,475
633
149
4,257
9,514 $
10,802
-
759
16
342
184
12,103
(8,033 )
4,070
3,889
295
173
4,357
(287 )
As of December 31, 2023, the Company had gross federal and state net operating loss carryforwards of $36,486 and $24,021, respectively. Federal net
operating losses have an indefinite life and do not expire. State net operating losses of approximate $7,108 expire beginning in 2029 and the remaining
could be carried forward indefinitely. As of December 31, 2023, the Company has $3,165 of research and development tax credits which begin to expire in
2039. The Company’s federal and state net operating losses, and research and development tax credits, are not subject to annual Section 382 limitations due
to ownership changes that could impact the future realization.
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. On a periodic basis, management evaluates and determines the amount of valuation allowance
required and adjusts such valuation allowance accordingly. Primarily due to cumulative pre-tax losses, management determined a full valuation allowance
of $8,033 was necessary as of December 31, 2022, to reduce the deferred tax assets to the amount that is more likely than not to be realized. During the
year ended December 31, 2023, the Company released the valuation allowance previously recorded on its deferred tax assets. The Company concluded
that, due to its established historical cumulative positive income before income taxes plus permanent differences for the recent years, projections of future
taxable income and the reversal of taxable temporary differences, the realization of the deferred tax assets as of December 31, 2023 is more likely than not.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts,
circumstances and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained,
the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be
sustained, no tax benefit has been recognized in the Company’s financial statements.
F-15
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law, and new authoritative rulings. Due to
the existence of net operating loss carryforwards since inception, all of the Company’s income tax filings remain open for tax examinations.
The Company does not have any unrecognized tax benefits as of December 31, 2023 and 2022.
9. Common stock and preferred stock
Common stock and treasury stock
As of December 31, 2023 and 2022, the number of authorized shares of common stock was 200,000,000, with a par value of $0.001 per share, of which,
13,980,274 and 13,956,404 shares of common stock were issued, respectively, which included shares of treasury stock of 9,428 and 0, respectively.
During the year ended December 31, 2022, the changes in the number of issued shares of common stock and treasury stock was due to the following
factors:
•
•
An aggregate of 770,210 shares of common stock issued as a result of the vesting of RSUs, of which, 252,346 shares of common stock were withheld
to pay withholding taxes upon such vesting, which were reflected in treasury stock, with a cost of $5,200. The treasury stock of 252,346 shares was
then retired fully during the year ended December 31, 2022.
On May 2, 2022, the board of directors of the Company authorized the repurchase of up to $5.0 million of the Company's common stock from time to
time, and subsequently on December 19, 2023, the board of directors authorized the repurchase of an additional $5.0 million of the Company's
common stock (the "Stock Repurchase Program"). The Stock Repurchase Program does not obligate the Company to repurchase any shares and may
be modified, suspended, or terminated at any time and for any reason at the discretion of the board of directors. During the year ended December 31,
2022, the Company repurchased 50,000 shares of common stock under the Stock Repurchase Program, which was reflected in treasury stock, with a
cost of $878. The treasury stock of 50,000 shares was then retired fully during the year ended December 31, 2022.
During the year ended December 31, 2023, the changes in the number of issued shares of common stock and treasury stock was due to the following
factors:
•
•
An aggregate of 309,416 shares of common stock were issued as a result of the vesting of RSUs, of which, 99,234 shares of common stock were
withheld to pay withholding taxes upon such vesting, which were reflected in treasury stock, with a cost of $1,992. The treasury stock of 99,234
shares was then retired during the year ended December 31, 2023.
During the year ended December 31, 2023, the Company repurchased 195,740 shares of common stock under the Stock Repurchase Program, which
was reflected in treasury stock, with a cost of $3,755. Related treasury stock of 186,312 shares, with a cost of $3,567, was retired during the year
ended December 31, 2023, which resulted in a treasury stock balance of $188 as of December 31, 2023.
Preferred stock
As of December 31, 2023 and 2022, the Company had 10,000,000 shares of preferred stock with par value of $0.001 per share authorized, and there were
no shares of preferred stock issued or outstanding.
10. Share-based compensation
On March 22, 2018, the board of directors of the Company and Cogint, Inc. (“cogint”) (now known as Fluent, Inc.), in its capacity as sole stockholder of
the Company prior to the Company’s spin-off from cogint on March 26, 2018 (the “Spin-off”), approved the Red Violet, Inc. 2018 Stock Incentive Plan
(the “2018 Plan”), which became effective immediately prior to the Spin-off. A total of 3,000,000 shares of common stock were authorized to be issued
under the 2018 Plan. On June 3, 2020, the Company’s stockholders approved an amendment to the 2018 Plan to increase the number of shares of common
stock authorized for issuance under the 2018 Plan from 3,000,000 shares to 4,500,000 shares, and on May 25, 2022, the Company's stockholders approved
an amendment to the 2018 Plan to increase the number of shares of common stock authorized for issuance under the 2018 Plan from 4,500,000 shares to
6,500,000 shares.
The primary purpose of the 2018 Plan, as amended, is to attract, retain, reward and motivate certain individuals by providing them with an opportunity to
acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success of the Company, so
as to strengthen the mutuality of the interests between such individuals and the stockholders of the Company.
F-16
As of December 31, 2023, there were 1,997,455 shares of common stock available for future issuance under the 2018 Plan, as amended.
To date, all stock incentives issued under the 2018 Plan have been in the form of RSUs. RSUs granted under the 2018 Plan vest and settle upon the
satisfaction of a time-based condition or with both time- and performance-based conditions. The time-based condition for these awards is generally
satisfied over three or four years with annual vesting. Details of unvested RSUs activity during the years ended December 31, 2023 and 2022 were as
follows:
(3)
(1)
(2)
Unvested as of December 31, 2021
Granted
Vested and delivered
Withheld as treasury stock
Vested not delivered
Forfeited
Unvested as of December 31, 2022
Granted
Vested and delivered
Withheld as treasury stock
Vested not delivered
Forfeited
Unvested as of December 31, 2023
(2)
(1)
(3)
Number of units
Weighted average
grant-date fair value
1,306,953
561,100
(517,864 )
(252,346 )
(8,716 )
(44,995 )
1,044,132
399,900
(210,182 )
(99,234 )
(8,900 )
(107,998 )
1,017,718
$
$
$
$
$
$
$
$
$
$
$
$
$
18.85
18.29
15.86
16.71
22.81
26.30
20.64
20.39
21.48
21.56
22.12
20.79
20.10
(1) For the year ended December 31, 2022, the Company granted an aggregate of 561,100 RSUs to certain employees and members of the Company's
board of directors at grant date fair values ranging from $16.00 to $28.75 per share, with a vesting period ranging from two to four years. For the year
ended December 31, 2023, the Company granted an aggregate of 399,900 RSUs to certain employees and members of the Company's board of
directors at grant date fair values ranging from $16.17 to $20.92 per share, with a vesting period ranging from 4 months to four years.
(2) Withheld as treasury stock represents shares withheld to pay statutory taxes upon the vesting of RSUs. Refer to Note 9 for details.
(3) Vested not delivered represents RSUs that have been vested but the delivery of the common stock underlying such RSUs were deferred.
There were certain grants of RSUs with both time- and performance-based conditions. Details of such grants of RSUs were as follows:
(1)
RSU grants with
performance criteria
Criteria One
Criteria Two
Criteria Three
(4)
Criteria Four
Criteria Five
(3)
(5)
(2)
Grant dates
9/5/2018 - 1/16/2019
8/28/2019 - 9/8/2020
8/28/2019 - 11/20/2020
7/30/2021
9/12/2023
Number
of units
Weighted average
grant-date
fair value
Amortization of share-based compensation
Year Ended December 31,
Vesting period
2023
2022
1,577,500
277,500
455,000
120,000
12,000
2,442,000
$
$
$
$
$
7.66
12.27
15.44
15.13
20.39
3-4 years $
3-4 years
3 years
5 years
0.3 years
$
-
$
(5 )
-
-
-
(5 ) $
6
278
491
-
-
775
(1) Such RSU grants shall not vest unless and until the Company has, for any fiscal quarter in which the RSUs are outstanding, achieved certain
performance criteria in gross revenue and positive adjusted EBITDA. Provided the performance criteria are met, the RSUs will vest in accordance
with the time-based requirements contained in the award agreement over three or four years. As of June 30, 2019, the Company determined that the
Criteria One was met. As of December 31, 2022, all shares underlying such awards have vested and been issued in accordance with their time-based
vesting requirement.
(2) Such RSU grants shall not vest unless and until the Company has, for any fiscal quarter in which the RSUs are outstanding, achieved certain
performance criteria in gross revenue and positive adjusted EBITDA. Provided the performance criteria are met, the RSUs will vest in accordance
with the time-based requirements contained in the award agreement over three or four years. The Company determined that Criteria Two was met as
of March 31, 2021. As of December 31, 2023, all shares underlying such awards are expected to vest and be issued in accordance with their time-
based vesting requirement.
F-17
(3) Such RSU grants shall not vest unless and until the Company has, for any fiscal quarter in which the RSUs are outstanding, achieved certain
performance criteria in gross revenue and positive adjusted EBITDA. Provided the respective performance criteria are met, the RSUs will vest in
accordance with the time-based requirements contained in the award agreement over three years. As of the respective grant dates, the Company
determined that it was probable that the Criteria Three would be met and therefore, began to record the related amortization expense on the grant
dates. The Company determined that the performance criteria were met as of March 31, 2022. As of December 31, 2023, all shares underlying such
awards are expected to vest and be issued in accordance with their time-based vesting requirement.
(4) On July 30, 2021, the Company granted 120,000 RSUs, subject to performance-based requirements, to one non-executive employee, which was
subsequently modified on November 7, 2022, with a fair value of $15.13 per share as of the modification date. Such RSU grants shall not vest unless
and until the Company has achieved certain revenue for a portion of its business prior to the achievement date deadline for each performance
milestone. As of December 31, 2023, the Company determined that a total of 24,000 RSUs have forfeited as related performance milestones were not
met, unless there is a change in control on or prior to June 30, 2026. No amortization of share-based compensation expense has been recognized for
the remaining RSUs, because, as of December 31, 2023, the Company determined that it is not probable that any performance criteria will be met in
the future. The remaining 96,000 RSUs, which were subsequently forfeited as a result of the termination of employment of the non-executive
employee on February 2, 2024, were included in "Unvested as of December 31, 2023" with a fair value of $15.13 per share.
(5) On September 12, 2023, the Company granted 12,000 RSUs, subject to performance-based requirements, to one non-executive employee, with a grant
date fair value of $20.93 per share. Such RSU grants shall not vest unless and until the Company has achieved certain revenue for a portion of its
business for the period from July 1, 2023 to December 31, 2023. No amortization of share-based compensation expense has been recognized for these
RSUs, because, as of December 31, 2023, the Company determined that such performance criteria were not met. The 12,000 RSUs were included in
"Forfeited" during the year ended December 31, 2023.
As of December 31, 2023, unrecognized share-based compensation expense associated with the granted RSUs amounted to $16,551, which is expected to
be recognized over a weighted average period of 2.4 years.
Share-based compensation was allocated to the following accounts in the consolidated financial statements for the years ended December 31, 2023 and
2022:
(In thousands)
Sales and marketing expenses
General and administrative expenses
Share-based compensation expense
Capitalized in intangible assets
Total
11. Related party transactions
Year Ended December 31,
2023
2022
462 $
4,924
5,386
1,851
7,237 $
290
5,215
5,505
1,621
7,126
$
$
On November 15, 2023, the Company purchased 49,600 shares of its common stock from Nantahala Capital Management, LLC, a greater than 5%
stockholder, at a price of $20.00 per share, under the Stock Repurchase Program.
12. Leases
On January 1, 2019, the Company adopted Leases (Topic 842) using the modified retrospective method applied to all leases existing at the date of initial
application. The Company elected the practical expedients to not reassess whether any existing contracts are or contain leases, not reassess the lease
classification for any existing leases, and not reassess initial direct costs for any existing leases, upon the adoption of Leases (Topic 842).
The Company leases its corporate headquarters of 21,020 rentable square feet in accordance with a non-cancellable 89-month operating lease agreement as
amended and effective in January 2017, with an option to extend for an additional 60 months. On September 20, 2023, the Company entered into an
amendment to its corporate headquarters lease agreement to exercise the extension option for an additional 60 months through June 30, 2029 (the
"Amended Lease"), with an option to further extend for an additional 60 months. The Company also leases an additional office space of 6,003 rentable
square feet in accordance with a non-cancellable 90-month operating lease agreement entered into in April 2017, with an option to extend for an additional
60 months. The extension option is not included in the determination of the lease term as it is not reasonably certain to be exercised.
F-18
For the years ended December 31, 2023 and 2022, a summary of the Company’s lease information is shown below:
(In thousands)
Lease cost:
Operating lease costs
Other information:
Cash paid for operating leases
Right-of-use assets obtained in exchange for operating
lease liabilities
Weighted average discount rate for operating leases
(2)
(1)
Year Ended December 31,
2023
2022
$
$
$
699 $
765 $
1,919 $
10 %
672
743
-
-
(1) The Amended Lease resulted in an addition of $1,919 to right-of-use assets and operating lease liabilities, as of September 20, 2023 (the
"Remeasurement Date").
(2) The Company used 10.0%, its estimated incremental borrowing rate for similar secured assets, as the discount rate for the Amended Lease to
determine the present value of the lease payments because the implicit rate is not readily determinable. The discount rate was calculated on the basis
of information available as of the Remeasurement Date. The Company used 8.0%, its estimated incremental borrowing rate for similar secured assets
calculated on the basis of information available as of January 1, 2019, the initial application date, as the discount rate for the leases that existed prior
to the Remeasurement Date, to determine the present value of the lease payments.
As of December 31, 2023 and 2022, the weighted average remaining operating lease term was 4.9 years and 1.9 years, respectively.
As of December 31, 2023, scheduled future maturities and present value of the operating lease liabilities are as follows:
(In thousands)
Year
2024
2025
2026
2027
2028
2029 and thereafter
Total maturities
Present value included in condensed consolidated balance sheet:
Current portion of operating lease liabilities
Noncurrent operating lease liabilities
Total operating lease liabilities
Difference between the maturities and the present value of operating lease liabilities
13. Commitments and contingencies
(a) Capital commitment
December 31, 2023
790
580
519
535
551
279
3,254
569
1,999
2,568
686
$
$
$
$
The Company incurred data costs of $9,531 and $9,171 for the years ended December 31, 2023 and 2022, respectively, under certain data licensing
agreements. As of December 31, 2023, future material capital commitments under certain data licensing agreements were $19,829, shown as follows:
(In thousands)
Year
2024
2025
2026
Total
December 31, 2023
8,177
7,702
3,950
19,829
$
F-19
(b) Employment agreements
The Company has employment agreements with certain executives, mainly including its Chief Executive Officer, President, Chief Financial Officer and
Chief Information Officer, which provide for compensation and certain other benefits and for severance payments under certain circumstances.
(c) Contingency
The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the
amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements to
not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the
degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not record
liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.
The Company may be involved in litigation from time to time in the ordinary course of business. The Company does not believe that the ultimate
resolution of any such matters will have a material adverse effect on its business, financial condition, results of operations, or cash flows. However, the
results of such matters cannot be predicted with certainty and the Company cannot assure you that the ultimate resolution of any legal or administrative
proceeding or dispute will not have a material adverse effect on its business, financial condition, results of operations, and cash flows.
F-20
SUBSIDIARIES
Exhibit 21.1
Name
IDI Holdings, LLC
Interactive Data, LLC
Red Violet Technologies, LLC
IDI Verified, LLC
Forewarn, LLC
Red Violet Blockchain and Analytical Solutions, LLC
Whoodle, LLC
HolSol, LLC
Jurisdiction of Organization
Delaware
Georgia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 7, 2024, with respect to the consolidated financial statements included in the Annual Report of Red Violet, Inc. on
Form 10-K for the year ended December 31, 2023. We consent to the incorporation by reference of said report in the Registration Statements of Red Violet,
Inc. on Form S-8 (File No. 333-224147, File No. 333-238947 and File No. 333-265289).
Exhibit 23.1
/s/ Grant Thornton LLP
Fort Lauderdale, Florida
March 7, 2024
Exhibit 31.1
I, Derek Dubner, certify that:
(1) I have reviewed this Annual Report on Form 10-K of Red Violet, Inc.;
CERTIFICATIONS
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
March 7, 2024
By: /s/ Derek Dubner
Derek Dubner
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Daniel MacLachlan, certify that:
(1) I have reviewed this Annual Report on Form 10-K of Red Violet, Inc.;
CERTIFICATIONS
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
March 7, 2024
By: /s/ Daniel MacLachlan
Daniel MacLachlan
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report on Form 10-K of Red Violet, Inc. for the fiscal year ended December 31, 2023, as filed with
the U.S. Securities and Exchange Commission (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge and belief, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Red Violet,
Inc.
March 7, 2024
By: /s/ Derek Dubner
Derek Dubner
Chief Executive Officer
(Principal Executive Officer)
The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not being
filed as part of the Report or as a separate disclosure document of Red Violet, Inc. or the certifying officers.
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report on Form 10-K of Red Violet, Inc. for the fiscal year ended December 31, 2023, as filed with
the U.S. Securities and Exchange Commission (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge and belief, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Red Violet,
Inc.
March 7, 2024
By: /s/ Daniel MacLachlan
Daniel MacLachlan
Chief Financial Officer
(Principal Financial and Accounting Officer)
The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not being
filed as part of the Report or as a separate disclosure document of Red Violet, Inc. or the certifying officers.
RED VIOLET, INC.
CLAWBACK POLICY
(Adopted on November 3, 2023)
EXHIBIT 97.1
1.
INTRODUCTION
Red Violet, Inc. (the “Company”) is adopting this Clawback Policy (this "Policy"), effective as of October 2, 2023 (the “Effective date”), to
provide for the Company’s criteria and process of recovering certain Incentive‐based compensation erroneously awarded to or earned or received by
certain officers under certain circumstances.
This Policy is administered by the Compensation Committee (the “Committee”) of the Company’s board of directors (the “Board”). The
Committee will have full and final authority to make any and all determinations required under this Policy. Any determination by the Committee with
respect to this Policy will be final, conclusive and binding on all parties. The Board may amend or terminate this Policy at any time upon the
recommendation of the Committee.
This Policy is intended to comply with Section 10D of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D‐1
thereunder, and the applicable rules of the Nasdaq Stock Market or any other national securities exchange on which the Company’s securities are then
listed (the “Exchange”) and will be interpreted and administered consistent with that intent.
2. EFFECTIVE DATE
This Policy will apply to all incentive‐based compensation received by an Affected officer on or after the Effective date to the extent
permitted or required by applicable law or the rules of the Exchange.
3. DEFINITIONS
For purposes of this Policy, the following definitions apply:
“Affected officer” means any current or former “officer” as defined in Exchange Act Rule 16a‐1.
“Erroneously awarded compensation” means the amount of Incentive‐based compensation received that exceeds the amount of Incentive‐
based compensation that otherwise would have been received had it been determined based on the Restatement, computed without regard to any taxes
paid. In the case of Incentive‐based compensation based on stock price or total shareholder return, where the amount of Erroneously awarded
compensation is not subject to mathematical recalculation directly from the information in the Restatement, the amount will reflect a reasonable
estimate of the effect of the Restatement on the stock price or total shareholder return upon which the incentive‐based compensation was received, as
determined by the Committee in its sole discretion. The Company will maintain documentation of the determination of that reasonable estimate and
provide the documentation to the Exchange as required by the Exchange.
“Financial reporting measure” means any measure that is determined and presented in accordance with the accounting principles used in
preparing the Company’s financial statements, and any measures that are derived wholly or in part from those measures, whether or not the measure is
presented within the financial statements or included in a filing with the Securities and Exchange Commission. Stock price and total shareholder return
are financial reporting measures.
“Incentive‐based compensation” means any compensation that is awarded, earned or vested based in whole or in part on the attainment of a
Financial reporting measure. Base salaries, bonuses or equity awards paid solely upon satisfying one or more subjective standards, strategic or
operational measures, or continued employment are not considered incentive‐based compensation, unless the awards were granted, paid or vested
based in part on a Financial reporting measure.
“Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement
under the securities laws, including any required accounting restatement that corrects errors (1) that are material to previously issued financial
statements, or (2) that are not material to previously issued financial statements but would result in a material misstatement if the errors were left
uncorrected in the current report or the error correction was recognized in the current period.
4. RECOVERY
If the Company is required to prepare a Restatement, the Company will seek to recover and claw back reasonably promptly all Erroneously
awarded compensation received on or after the Effective date by an Affected officer:
(a) After beginning service as an Affected officer;
(b) Who served as an Affected officer at any time during the performance period for that Incentive‐based compensation;
(c) While the Company has a class of securities listed on the Exchange; and
(d) During the three completed fiscal years immediately preceding the date on which the Company was required
to prepare the Restatement (including any transition period within or immediately following those three completed fiscal years that results from a
change in the Company’s fiscal year, determined in accordance with the rules of the Exchange).
To the extent any amounts are determined by the Committee to be Erroneously awarded compensation, if, after the release of earnings for any
period for which a Restatement subsequently occurs and prior to the announcement of the Restatement for that period, the Affected officer sold any
shares of Company common stock acquired under an equity incentive award that constitutes Incentive‐based compensation, the Company will also seek
to recover and claw back reasonably promptly the excess of (1) the actual aggregate sales proceeds from the Affected officer’s sale of those shares, over
(2) the aggregate sales proceeds the Affected officer would have received from the sale of those shares at a price per share determined appropriate by
the Committee in its discretion to reflect what the Company’s common stock price would have been if the Restatement had occurred prior to such sales;
on condition that the aggregate sales proceeds determined by the Committee under this clause (2) with respect to shares acquired upon exercise of an
option may not be less than the aggregate exercise price paid for those shares.
For purposes of this Policy:
(1)Erroneously awarded compensation is deemed to be received in the Company’s fiscal year during which the Financial reporting
measure specified in the Incentive‐based compensation is attained, even if the payment or grant of the Incentive‐based compensation occurs after the
end of that period; and
(2)the date the Company is required to prepare a Restatement is the earlier of (1) the date the Board, the Committee or any officer of
the Company authorized to take such action concludes, or reasonably should have concluded, that the Company is required to prepare the Restatement,
and (2) the date a court, regulator, or other legally authorized body directs the Company to prepare the Restatement.
(3)Notwithstanding anything in this Policy, in no event will the Company be required to award any Affected officers an additional
payment or other compensation if the Restatement would have resulted in the grant, payment or vesting of Incentive‐based compensation that is
greater than the Incentive‐based compensation actually received by the Affected officer. The recovery of Erroneously awarded compensation is not
dependent on if or when the Restatement is filed.
5.
SOURCES OF RECOUPMENT
To the extent permitted by applicable law, the Committee may, in its discretion, seek recoupment of Erroneously awarded compensation from
an Affected officer from any of the following sources: (1) prior Incentive‐based compensation payments; (2) future payments of Incentive‐based
compensation; (3) cancellation of outstanding Incentive‐based compensation; and (4) direct repayment. To the extent permitted by applicable law, the
Company may offset such amount against any compensation or other amounts owed by the Company to the Affected officer.
If an Affected officer fails to repay all Erroneously awarded compensation to the Company when due, the Company will, or will cause one or
more of its subsidiaries to, take all actions reasonable and appropriate to recover the Erroneously awarded compensation from the Affected officer;
and in that case the Affected officer will be required to reimburse the Company and its subsidiaries for any and all expenses reasonably incurred
(including legal fees) by the Company or any of its subsidiaries in recovering the Erroneously awarded compensation.
6. LIMITED EXCEPTIONS TO RECOVERY
Notwithstanding the foregoing, the Committee, in its discretion, may choose to forgo recovery of Erroneously awarded compensation under
the following circumstances, on condition that the Committee (or a majority of the independent members of the Board) has made a determination that
recovery would be impracticable because:
(a) the direct expense paid to a third party to assist in enforcing this Policy would exceed the recoverable amounts, and in which case the
Company has made a reasonable attempt to recover the Erroneously awarded compensation, has documented that attempt and has (to the extent
required) provided that documentation to the Exchange;
(b) recovery would violate home country law where the law was adopted prior to November 28, 2022, and in which case the Company
provides an opinion of home country counsel to that effect to the Exchange that is acceptable to the Exchange; or
(c) recovery would likely cause an otherwise tax‐qualified retirement plan, under which benefits are broadly available to employees of the
Company, to fail to meet the requirements of the Internal Revenue Code of 1986.
7.
INDEMNIFICATION AND INSURANCE
Neither the Company nor any of its subsidiaries is permitted to indemnify or reimburse any Affected officer against the recovery of
Erroneously awarded compensation. In addition, the Company and its subsidiaries are prohibited from paying the premiums on an insurance policy that
would cover an Affected officer’s potential clawback obligations, or entering into any agreement that exempts any Incentive‐based compensation from
this Policy or that waives the Company’s or any of its subsidiary’s rights to recover Erroneously awarded compensation in accordance with this Policy,
and this Policy will supersede any such agreement.
8.
SEVERABILITY
If any provision of this Policy or the application of any such provision to any Affected officer is adjudicated to be invalid, illegal or
unenforceable in any respect, that invalidity, illegality or unenforceability will not affect any other provisions of this Policy, and the invalid, illegal or
unenforceable provisions is to be deemed amended to the minimum extent necessary to render that provision or application enforceable.
9. NO IMPAIRMENT OF OTHER REMEDIES
This Policy does not preclude the Company from taking any other action to enforce an Affected officer’s obligations to the Company or limit
any other remedies that the Company may have available to it and any other actions that the Company may take, including termination of employment,
institution of civil proceedings, or reporting of any misconduct to appropriate government authorities. The Company will comply with the disclosure,
documentation and records requirements related to this Policy under Section 10D of the Exchange Act, applicable listing rules of the Exchange and
applicable Securities and Exchange Commission filings. This Policy is in addition to the requirements of Section 304 of the Sarbanes‐Oxley Act of
2002 that are applicable to the Company’s chief executive officer and chief financial officer. Any right of recovery under this Policy is in addition to,
and not in lieu of, any other remedies or rights of recovery that may be available to the Company and any of its subsidiaries under applicable law,
regulation or rule or under the terms of any similar policy in any employment agreement, offer letter, compensation plan, equity award agreement, or
similar agreement and any other legal remedies available to the Company or any of its subsidiaries. The Committee may require that any employment
agreement, offer letter, compensation plan, equity award agreement, or any other agreement entered into on or after the Effective date will, as a
condition to the grant of any benefit thereunder, require an Affected officer to agree to abide by the terms of this Policy.
* * * *
ATTESTATION AND ACKNOWLEDGEMENT
OF
CLAWBACK POLICY
By my signature below, I acknowledge and agree that:
•
•
I have received and read the attached Clawback Policy (this "Policy").
I hereby agree to abide by all of the terms of this Policy both during and after my employment with the Company, including, without limitation,
by promptly repaying or returning any Erroneously awarded compensation or other compensation to the Company as determined in accordance
with this Policy.
Signature:_________________________
Name: ___________________________
Date: ____________________________