Red Violet blows away Q2 earnings expectations

In last week’s review of small cap DaaS Q2 earnings - there was one standout posting a 29% return for the quarter - Red Violet. We decided to dive deeper.

Double digit growth, 52 week highs and rapid GTM expansion

Off the heels of raising 8 million in growth financing in Q2 2019 (NASDAQ: RDVT) CEO Derek Dubner commented “Investment in specific areas of the Company will accommodate increasing demand in the near term and will lay the foundation for the acceleration of our business, including investment in sales, our technology team, and marketing personnel.”

Fast forward to 2024, that observation proved to be prescient.

“We are pleased to deliver a very strong quarter, achieving new highs across all key metrics driven by broad-based demand for our solutions,” Dubner commented, this time in August of 2024. 

Dubner clarified that the second quarterly results in 2024 were the strongest in his company's history. Last week, the company’s stock reached a price of $28.75, a 52-week high. Furthermore, Red Violet’s two main products, IDI and FOREWARN, were able to add over 200 and 27,000 customers and users, respectively. They’ve also added over 20 employees in marketing and sales over the last year to keep up with the rapid expansion of its customer base. 

“We’ve added more resources within the sales department, and we’ve added much more marketing resources to really go out and efficiently attack that market,” CFO Dan MacLachlan said in their Q2 earnings call. “And, we’ve seen as we’ve discussed now for a few quarters great growth really from new customer adoption across the board.”

Red Violet’s year-over-year revenue growth reached 30%, with an EBITDA margin of 36%. Despite the company’s relatively small market cap (just under $400 million), it's looking to take advantage of its consistent and rapid growth rates. Compared to the months ending in June of 2023, Red Violet’s net income has increased by 90%.

Managing risk across verticals

Red Violet focuses on developing technology to help its clients manage risk, specifically targeting debt control and identity fraud. By providing real-time identification and location of people and businesses, its products guide its clients to confidently make decisions. 

Its IDI product, which uses AI and machine learning to help its clients with identity and information solutions, is seeing massive revenue growth in investigative and corporate risk industries. 

FOREWARN provides identity verification and risk assessment solutions for verticals that depend on face-to-face interactions, such as real estate, where background checks and information validation are crucial. Over 490 REALTOR® Associations have partnered with FOREWARN and made its services available to members.

“A large cohort of the consumer population is doing very well as they have portfolios of equities, real estate, and investments delivering solid income, which is driving new account openings and purchases and increasing reliance on our solutions in the way of identity verification and KYC,” Dubner said.

The identity data ‘arms dealer’

Other analytics companies, such as Clarivate, focus on providing services to more defined verticals, such as pharmacy and biotechnology. Red Violet’s niche is, according to Cove Street Capital Small Cap Value Fund, “being an ‘arms dealer’ of personal identity data that powers other data service company solutions.”

Competitors like BRIDGE and Acxiom apply a similar model to Red Violet’s, in that they use an extensive database to identify people and businesses, but focus on marketing and developing ad campaigns. 

“We are investing in the business to continue to widen the moat around our cloud-native technology platform, to develop differentiated solutions, and to enhance our marketing efforts, which are increasing brand awareness, all of which continue to power our further penetration of existing and new verticals,” Dubner added in the Q2 2024 earnings call.

The push into the public sector

Red Violet is looking to scale upwards to enterprise clients, and capitalizing gains from its more recently entered verticals in the public sector, such as government. 

Dubner and MacLachlan plan to apply a unique focus on law enforcement due to its increased potential for revenue growth. 

“…we look back about 18 months or so ago, we verticalized that area and put specific sales resources within law enforcement,” MacLachlan said. “We had felt the product was where it needed to be. We had a lot of differentiation in the way we presented the data and information as well as specific tools that can be utilized within law enforcement agencies.”

Looking towards an even stronger second half of the year.

When asked about Red Violet’s expectations heading into the second half of 2024, Dubner made it clear that he and his team are riding the momentum and not looking back. 

“We’re very excited about our positioning right now. We are executing upon that pipeline as we keep mentioning,” the CEO said. “And, that pipeline is accelerating for us and we believe that we will continue to carry the momentum throughout the year and into ‘25, especially where some of those newer areas that we keep talking about.”