Red Violet, Inc.

Good day, ladies and gentlemen, and welcome to Red Violet's third quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this call is being recorded. I would now like to introduce you to our host for today's conference call, Camilo Ramirez, Vice President in Finance and Investor Relations. Please go ahead.

Good afternoon and welcome. Thank you for joining us today to discuss our third 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 events 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 Violet's business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. Reconciliations of these non-GAAP financial measures and their most directly comparable U.S. 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, CAMILA.

GOOD AFTERNOON AND THANK YOU TO EVERYONE JOINING US TODAY TO DISCUSS OUR THIRD QUARTER 2023 RESULTS. We are pleased to report a quarter of record revenue and solid profitability. Notwithstanding the economic uncertainty, we continue to see strength in new customer onboarding and robust, consistent volumes throughout the quarter. We generated a record $15.8 million of revenue in the quarter, a 5% increase over prior years. To provide some additional perspective on this year-over-year increase, we had a tough comparison from last year as the 2022 third quarter included $1.8 million of one-time transactional revenue, which, as you may recall, reduced our percentage of contractual revenue to 68% in that quarter. This quarter, Without the benefit of any material one-time revenue, we still generated record revenue and our contractual revenue percentage reverted to 79%. Our continued commitment to operational excellence, including expense management, translated nicely into high margins, free cash flow, and profitability. Given our consistent performance, We continue to invest in our product roadmap while still repurchasing shares and growing cash on our balance sheet. This is yet another quarter further strengthening the foundation of the business while executing upon our long-term strategic plan. Now onto the numbers. For the quarter, total revenue was $15.8 million. we produced $12.5 million in adjusted gross profit, resulting in adjusted gross margin of 79% in the third quarter. Adjusted EBITDA for the quarter was $5.4 million with a margin of 34%. We generated $3.3 million in free cash flow for the quarter and ended the quarter with $34.2 million in cash on the balance sheet. Our IDI billable customer base grew by 272 customers sequentially from the second quarter, ending the third quarter at 7,769 customers. For Warren, added 21,819 users during the third quarter, ending the quarter at 168,000 356 users. Over 330 realtor associations are now contracted to use 4WARN. As it relates to IDI, we continue to see solid demand for identity and fraud solutions. Diving in a bit on segments in financial and corporate risk, we drove double-digit percentage revenue growth driven by solid and consistent volumes throughout the quarter. Some of our competitors that have greater concentration in consumer financial transactions that are heavily impacted by high interest rates and inflation, such as auto, mortgage and retail, experienced a slowdown in volumes in the back half of the third quarter. We did not experience that slowdown. given that our solutions are used by a highly diverse set of end users and for a variety of disparate use cases. Within our investigative vertical, we saw strong growth with solid contribution from law enforcement, an area that we have been and will continue to be highly focused on and where we are making nice traction. In collections, revenue increased a few percentage points Note, this was the first quarter of collections revenue growth in over a year and the highest quarterly revenue mark since the first quarter of 2022. As we have discussed previously, collections was adversely impacted during the pandemic due to, among other things, government subsidies to consumers and moratoria on certain collections activity. With higher borrowing costs and inflationary impacts, consumers have worked off much of those excess savings, are becoming more reliant on credit, and delinquencies and repossessions are rising in certain low credit consumer populations. While premature in predicting a durable turnaround in our collections vertical, repossessions have been trending higher for some time, and we are now seeing increasing evidence of a recovery for this vertical. Our emerging market, which is comprised of multiple industries, was down by double digits on a percentage basis versus prior year, largely attributable to the one-time transactional revenue that I mentioned previously. IDI's real estate vertical, which does not include forewarned, remained relatively flat. As to ForeWarn, ForeWarn continues to demonstrate strength as the only proactive safety solution for the real estate industry. Over 330 realtor associations throughout the U.S. are now contracted to use ForeWarn. We recently proudly announced an agreement with Florida Realtors, the largest state realtor association in the United States, to purchase ForeWarn services for its 238,000 members beginning January As well, in October, we announced that Georgia Multiple Listing Service, the largest MLS in the state of Georgia and one of the largest MLSs in the United States, contracted to provide forewarned services to its 52,000-plus MLS subscribers. We begin recognizing revenue for Georgia MLS this month, November 2023. and for Florida Realtors in January of 2024. As to our stock repurchase program, we have purchased 97,181 shares of the company's common stock year to date through November 3rd, 2023 at an average price of $18.29 per share. We currently have $2.3 million remaining under the company's $5 million stock repurchase program. In sum, I am very proud of our team's performance in delivering a solid third quarter, continuing a string of consistently strong quarters, which demonstrate our ability to navigate an uncertain economic period, all while investing in and growing our business, strengthening our balance sheet, and buying back stock. These results reflect our team's dedication, our unwavering focus on customer satisfaction, and our commitment to delivering long-term value for our shareholders. We look forward to sustaining this momentum and continuing to deliver exceptional results in closing out the year and throughout 2024. I will turn it over to Dan to discuss the financials.