Red Violet, Inc.

Good day, ladies and gentlemen, and welcome to Red Violet's first quarter earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Camilo Ramirez, Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon and welcome. Thank you for joining us today to discuss our first quarter 2023 financial results. With me today is Derek Dubner, our chairman and chief executive officer, and Dan McLaughlin, our chief financial officer. Our call today will begin with comments from Derek and Dan, followed by a question and answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our investors page on our website, www.redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risk and uncertainties associated with the company's business. The company undertakes no obligation to update the information provided on this call. For a discussion of risk and uncertainties associated with red violence business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information related to adjusted gross profit, adjusted gross margin, adjusted EBITDA, and adjusted EBITDA margin, and free cash flow. Reconciliations of these non-GAAP financial measures to their most direct comparable US GAAP financial measure are provided in the earnings press release issued earlier today. In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed, and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet's Chairman and Chief Executive Officer, Derek Dubner.

Thanks, Camilo. And good afternoon to those joining us today to discuss our results for the first quarter of 2023. We are pleased to report another quarter of strong performance, the result of broad-based demand across our fraud and identity product suite. We generated solid revenue growth, and these dollars are flowing nicely to the bottom line, driving healthy cash generation and profitability. We continue to invest in our business, penetrate our target markets, and advance our product roadmap. Finally, during the quarter, we fine-tuned the organization to drive maximum productivity and efficiency going forward. Now, turning to the numbers. For the quarter, total revenue was $14.6 million, a 15% increase over prior year. We produced $11.4 million in adjusted gross profit, resulting in adjusted gross margin of 78% in the first quarter, up three percentage points. Adjusted EBITDA for the quarter was $3.7 million, up 15% over prior year. Adjusted EBITDA margin remained consistent at 25% for the quarter. Additionally, we had a one-time $500,000 write-off of bad debt, which Dan will detail later. Excluding this one-time expense, our adjusted EBITDA for the quarter would have been $4.2 million, and would have produced a 29% adjusted EBITDA margin. Our IDI billable customer base grew by 235 customers sequentially from the fourth quarter, ending the first quarter at 7,256 customers. For Warren, added 14,388 users during the first quarter, ending the quarter at 131,348 users. Over 255 realtor associations are now contracted to use Forewarn. We are seeing solid demand for our identity and fraud solutions. Further, each month of the first quarter saw our new customer applications at their 12-month highs. While these new customer applications do not contribute to immediate revenue, they are an encouraging leading indicator that our focus on high sales productivity, new product launches, and the early stage execution of our marketing initiatives is yielding results. In the last several months, we have expanded our identity intelligence suite. While we have been serving and continue to serve solutions in support of the background screening industry, we've traditionally done so behind the scenes, powering others' branded solutions in the marketplace. With our release of IDI Trace in 2022 and garnering feedback from the background screening industry, we have recently launched IDI Crim. The combined solutions present an enhanced version of our identity verification solution for the background screening industry, providing significantly improved functionality and interoperability. In combination, these solutions enable background screening organizations to access industry-leading identity information, increase search speeds, and drive efficiency, all by uncovering alias and non-obvious address history combined with associated criminal records through customized search parameters and filters. In addition, we launched Core Identity, a comprehensive identity suite in and of itself to be leveraged individually or integrated into an organization's identity verification workflow for uses including know your customer identity verification, form fill, fraud and risk signals, and more. These additional product launches bolster our identity intelligence suite, giving us greater depth in addressing the needs of larger enterprise in both the public and private sectors. We believe our AI ML-powered platform, proprietary linking algorithms, and unified data assets provide best-in-class solutions and value to the markets we serve. Recall, from the fourth quarter of 2021, we provided some detail around a top customer that was acquired by a large information solutions provider. As part of the acquirer's cross-cutting initiatives, the acquirer sought to utilize its own data and much less of ours. At that time, this customer contributed approximately $600,000 in revenue per quarter. And upon the acquisition, we lost substantially all of that revenue. At the time, we stated that we firmly believed that the customer would experience a degradation in data quality and throughput, and could eventually increasingly revert back to our solutions. We are pleased to report that we recently entered into a two-year agreement with this customer containing a $105,000 minimum quarterly commitment during the term. While this does not guarantee a meaningful reversion back to the customer's previous volume, it is but one more example of our competitive differentiation demonstrating the superiority in accuracy, depth, and breadth of our data as well as our platforms performance. We are optimistic that this relationship will grow with the passage of time. As we discuss frequently, we take a long-term view of this business with the goal of growth upon a healthy foundation. A strong foundation will enable us to continue to weather any economic uncertainty. With that perspective, we continually monitor the economic landscape and its potential impact on the execution of our long-term strategic plan. Last year, we made significant investments in the business in the way of additional headcount. We hired 47 people, primarily in technology and sales. As with any significant onboarding exercise, we knew that there would be some small, natural attrition when we achieved our target onboarding goals. Notwithstanding, given the current economic environment and our desire to drive even greater productivity and efficiency, we evaluated the organization to take necessary steps to optimize our positioning. During the first quarter, we reduced our total headcount from 187 employees to the current 170 employees. We believe the current headcount provides a solid baseline for plenty of leverage moving forward. Note, the cost savings associated with this exercise are not reflected in our first quarter results. We are pleased to report we recently launched our redesigned corporate websites. The redesigned websites provide a more valuable user experience with modern design, improved functionality, easier navigation, and greater detail on the breadth and applicability of our identity solutions. This is but one of several marketing initiatives for 2023 and will provide a more informative and engaging experience as we further penetrate our markets. Lastly, providing an update to our $5 million stock repurchase program. In addition to the 50,000 shares we repurchased in 2022, year to date through May 5th, we have purchased an additional 44,766 shares of the company's common stock at an average price of $16.88 per share. The company has $3.4 million remaining under the stock repurchase program. Given current market conditions, We believe the strategic purchase of these shares as part of our broader capital allocation strategy is a good use of our capital in returning value to our shareholders. All in all, we are pleased with our performance in the first quarter, and we are off to a strong start to the year. We are seeing solid new customer acquisition, our testing and winning with larger enterprise prospects, and continue to execute upon our product roadmap, all while optimized for and driving healthy cash generation and high productivity. With that, I turn it over to Dan to discuss the financials.