Red Violet, Inc. Q2 FY2025 earnings call

• Financials: Revenue for the quarter was $21.8 million, up 14% year-over-year (excluding $1M onetime transactional revenue, growth was 21%). Adjusted gross profit was $18.2 million with a record adjusted gross margin of 84%. Adjusted EBITDA was $7.6 million, margin 35%. Adjusted net income was $4.1 million, $0.28 per diluted share. Free cash flow was $4.8 million.
• Growth Drivers: Revenue growth broad-based across law enforcement, legal, government, financial services, and collections. Expansion within existing customer base is key, with strong revenue retention.
• Operational Focus: Focus on increasing productivity via automation and machine learning in business functions. Advancements in proprietary data aggregation and ownership, with AI initiatives to enhance fraud detection, data quality, and operational visibility.
• Margin and Cash Flow: Cost of revenue stable at $3.5M. Sales and marketing expenses increased $1.2M, general and administration expenses increased $1.5M, but margin expansion due to productivity efforts.

IDI: Revenue growth across verticals. Law enforcement investigative vertical had double-digit revenue growth with over 200 new law enforcement agencies added. Emerging markets vertical led in revenue growth dollars from legal, government, and retail. Collections had high teens revenue growth, financial/corporate risk vertical had record revenue (excluding $1M onetime revenue from prior year), while IDI's real estate vertical (excluding FOREWARN) declined due to affordability pressures. FOREWARN: Delivered strong double-digit revenue growth, added over 21,000 users, and had over 575 REALTOR Associations under contract. Contractual revenue accounted for 77% of total revenue in the quarter, up 3 percentage points from the prior year. Gross revenue retention was 97%, an increase of 3 percentage points.

• Management is confident in the second half of 2025 based on current momentum. Continued focus on large enterprise sales pipeline and expansion within existing customer base. Investment in AI, product development, and data initiatives to drive long-term growth.

• Risks associated with business operations, market uncertainties, competition, and compliance with regulations as discussed in the company's SEC filings.

Q: Concerns about securing larger enterprise accounts, progress made.

A: Been investing in go-to-market teams, made progress with testing and winning some larger account business, pipeline continues to grow.

Q: Impact of government budget increases on opportunities.

A: Opportunities in public sector due to administration changes and bill passage, with existing public sector entry and testing of larger opportunities.

Q: FOREWARN expansion into other verticals.

A: Actively testing and marketing FOREWARN into key areas outside real estate, with beta testing and plans to provide updates in 2026.

Q: Data supplier amendment details.

A: Extension of data supplier agreement term to April 30, 2031, with same terms and minimal price escalation.

Q: Retention rate and expectations.

A: Retention at 97%, expected to remain around 95%-96% due to tailwinds in collections vertical and product stickiness.

Q: Cash flow and capital allocation.

A: Cash from ops $7.5M, no onetime items. Capital allocation includes evaluating share repurchase, M&A, and continued investment in AI and business growth.