Executive Summary / Key Takeaways

• Red Violet's CORE platform, a cloud-native identity intelligence engine leveraging AI/ML, is a key differentiator driving accelerated revenue growth and expanding profitability by transforming disparate data into actionable insights for critical enterprise workflows.
• The company is successfully executing a multi-year strategy to move upmarket, evidenced by the significant increase in higher-tier customers and strong growth in key verticals like Investigative, Financial & Corporate Risk, and Emerging Markets, including initial penetration into large government opportunities.
• Recent financial performance, particularly in Q1 2025, demonstrates robust top-line growth (26% year-over-year) coupled with notable margin expansion (83% adjusted gross margin, 38% adjusted EBITDA margin), reflecting operational leverage inherent in its fixed-cost data model.
• Strong cash flow generation is enabling continued strategic investments in go-to-market capabilities, product development (including AI/LLM initiatives), and proprietary data assets, while also supporting shareholder returns through dividends and buybacks.
• Despite macroeconomic uncertainty and competitive pressures from larger players, Red Violet's diversified, mission-critical solutions and technological agility position it for sustained momentum, though execution risks in new markets and potential impacts from litigation warrant monitoring.

The Foundation of Identity Intelligence: Red Violet's CORE Platform

Red Violet, Inc. is fundamentally an identity intelligence company, dedicated to enhancing safety and efficiency by providing critical information solutions. At the heart of its operations lies the proprietary, AIML-driven platform known as CORE™. Unlike many legacy systems in the industry, CORE was architected natively in the cloud, a foundational advantage that management highlights as granting unrivaled scalability, agility, and the ability to innovate rapidly.

The CORE platform is designed to bring clarity to massive datasets by transforming raw data into actionable intelligence. It achieves this by applying machine learning and advanced analytical capabilities to a vast repository of public record, proprietary, and publicly-available data assets. This process enables the real-time identification and location of people, businesses, assets, and, crucially, their complex interrelationships.

The tangible benefits of this technology are central to Red Violet's value proposition across its diverse customer base. For instance, the platform powers solutions used for identity verification, risk mitigation, due diligence, fraud detection and prevention, regulatory compliance, and customer acquisition. By providing real-time analytics and presenting connections that might otherwise be missed, CORE drives workflow efficiency and empowers organizations to make better, data-driven decisions. The company's solutions are instrumental in enabling frictionless commerce, ensuring safety, and reducing the significant costs associated with fraud and abuse.

Red Violet continues to invest heavily in expanding the capabilities of the CORE platform and enhancing its data assets. Strategic priorities include intensifying proprietary data generation and aggregation, leveraging AI to derive deeper insights and identify risk signals. R&D initiatives are focused on areas like analyzing data to extract events, relationships, and assets, training transformer models for fraud detection, and exploring the use of large language models (LLMs) and natural language processing (NLP) to provide novel ways for customers to interact with the solutions. New product development includes capabilities like account monitoring and Know Your Business (KYB). These technological advancements are not merely incremental improvements; they are intended to widen the competitive moat, further fuel the platform, refine data linkages, enhance signal detection, and ultimately bolster the company's already robust margins. For investors, this focus on differentiated, cloud-native technology and continuous innovation is critical, as it underpins the company's ability to compete effectively, maintain pricing power in certain niches, and drive long-term growth.

Navigating the Competitive Terrain

Red Violet operates within a competitive landscape dominated by large, established players in the identity intelligence and data analytics space, including giants like Equifax (EFX), TransUnion (TRU), RELX Group (RELX) (via LexisNexis), and Verisk Analytics (VRSK). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, these larger rivals command significant portions of the market, particularly in traditional credit reporting and enterprise-scale data solutions.

Compared to these larger entities, Red Violet positions itself as a more agile, technologically advanced challenger. Management emphasizes that while major competitors are still investing heavily to transition their legacy systems to the cloud, Red Violet's platform was built there from the ground up. This provides a structural advantage in scalability and rapid innovation. The company's CORE platform is described as offering superior solutions with unique capabilities that surpass even larger competitors, particularly in its ability to fuse disparate data points and provide real-time, actionable intelligence.

Financially, Red Violet's recent revenue growth trajectory (25% in 2024, 26% in Q1 2025) has outpaced the more stable, but typically slower, growth rates of some larger competitors like RELX (8-10% in 2024) and TRU (7-9% in 2024). Red Violet's gross margins (83% adjusted in Q1 2025) are competitive, even exceeding some larger players like EFX (56% in 2024) and TRU (60% in 2024), reflecting the operational leverage of its data model. However, larger competitors often exhibit stronger profitability metrics further down the income statement, such as higher operating and net margins (e.g., VRSK's 44% operating margin and 33% net margin in 2024), and potentially stronger returns on capital (ROIC, ROE), indicative of their scale and optimized infrastructure.

Red Violet's competitive strategy involves leveraging its technological differentiation to win business, particularly as it moves upmarket. Management reports seeing wins against competitors, even securing contracts that have been held by rivals for years. This success is attributed to the platform's data accuracy, derived relationships and connections, and unparalleled search capability and functionality, as well as specialized tools like the differentiated mobile app for law enforcement.

The company's go-to-market strategy, which includes inside sales, strategic sales teams, and partners, combined with a "land and expand" approach, is designed to penetrate these larger accounts and expand within existing relationships. While its smaller scale can result in higher operating costs per unit in some areas compared to the most efficient large players, Red Violet's focus on specific verticals and its technological edge are key to capturing market share. The company acknowledges the significant revenue generated by competitors in large markets like government and sees its current "minuscule penetration" there as a substantial future opportunity. Indirect competitors, including general AI platforms and specialized startups, also pose a threat by potentially offering lower-cost alternatives or highly focused capabilities, which could pressure pricing and market share if Red Violet doesn't continue to innovate and demonstrate superior value.

Operational Momentum and Financial Strength

Red Violet's strategic focus and technological foundation are translating into tangible operational and financial results. The first quarter of 2025 marked another period of record performance, building on the momentum established throughout 2024, where the company achieved sequential record revenue in every quarter, defying typical seasonality.

Total revenue for Q1 2025 reached $22.0 million, a significant 26% increase compared to $17.5 million in Q1 2024. This growth was broad-based, driven by both strong onboarding of new customers (revenue from new customers increased 80%) and stable recurring revenue from the existing customer base (revenue from existing customers increased 20%). The company's move upmarket is evident in the growth of higher-tier customers; the number of customers contributing over $100,000 annually grew from 72 in 2023 to 96 in 2024, and further to well over 100 (close to 110) in the trailing twelve months as of Q1 2025.

Operational metrics also reflect this expansion. The IDI billable customer base grew to 9,241 by the end of Q1 2025, adding 315 customers sequentially. The FOREWARN user base saw impressive growth, adding 21,918 users in Q1 2025 to reach 325,336 users, marking its 20th consecutive quarter of sequential revenue growth. Over 545 REALTOR Associations are now contracted to use FOREWARN, up from over 525 in Q4 2024.

Profitability metrics demonstrate increasing operational leverage. Adjusted gross profit increased 33% to $18.3 million in Q1 2025, resulting in a record adjusted gross margin of 83%, up from 79% in Q1 2024. This expansion is partly due to the fixed-cost nature of the company's primary data licensing structure, where cost of revenue as a percentage of revenue decreased to 17% in Q1 2025 from 21% in Q1 2024, a trend management expects to continue as revenue grows. Adjusted EBITDA increased 47% to $8.4 million, yielding a record adjusted EBITDA margin of 38%, a six-percentage-point increase from 32% in Q1 2024. While sales and marketing expenses increased significantly (46%) due to investments in personnel, and G&A expenses also rose (7%), the strong revenue growth and gross margin expansion flowed through to the bottom line. Net income increased 93% to $3.4 million in Q1 2025, up from $1.8 million in Q1 2024.

The company's financial health is further underscored by its strong cash flow generation. Net cash provided by operating activities increased 16% to $5.0 million in Q1 2025. Free cash flow, defined as operating cash flow less capital expenditures (purchases of property and equipment and capitalized intangible costs), was $2.5 million in Q1 2025, following $14.4 million generated in the full year 2024. This robust cash generation provides the flexibility to fund continued strategic investments and return capital to shareholders, as demonstrated by the $4.2 million special cash dividend paid in February 2025.

As of March 31, 2025, the company held $34.6 million in cash and cash equivalents and had $91.8 million in total shareholders' equity, with minimal debt.

Outlook and Strategic Trajectory

Management expresses strong confidence in Red Violet's ability to sustain its accelerated growth trajectory throughout 2025 and beyond. This optimism is grounded in the continued execution of its strategic priorities and the inherent durability of its business model.

The company expects the momentum seen in Q1 2025 to continue, driven by the ongoing success in onboarding new customers and expanding relationships within the existing base, particularly among larger enterprise and government accounts. The "land and expand" model is expected to yield increasing returns as these larger customers find additional use cases for Red Violet's solutions across their organizations. Management sees significant runway for growth in areas like the public sector, background screening support, and marketing services, where penetration is currently low.

Strategic investments are planned to continue in 2025 at a pace consistent with 2024 levels, focusing on expanding the go-to-market teams (sales leaders, account managers, strategic sellers) and investing in product development and infrastructure. While these investments will impact operating expenses, management anticipates that the operational leverage from revenue growth and gross margin expansion will allow EBITDA margins in 2025 to remain consistent with the 2024 level (just over 30%), even as they invest to drive revenue growth in 2025, 2026, and 2027.

The company's outlook is also supported by its perspective on the economic environment. While acknowledging macroeconomic volatility, inflation, and rising interest rates as potential headwinds that could impact transaction volumes in certain areas (like the IDI real estate vertical), management believes the diversity of their customer base and the mission-critical nature of their solutions provide resilience. They note that challenges faced by lower-income consumers can actually increase demand in verticals like collections and investigations, creating a countercyclical balance. Barring unforeseen circumstances, they expect this environment to continue benefiting the business.

Looking ahead, the company has $22.035 million in revenue expected from unsatisfied performance obligations on pricing contracts over 12 months, providing some visibility into future revenue, although actual timing may vary. Material capital commitments, including $11.5 million under data licensing agreements and a new $3.0 million minimum annual commitment for cloud services starting May 2025, are expected to be funded by existing cash and operating cash flows. While future growth or strategic initiatives could necessitate additional financing, the current liquidity position appears robust.

Risks and Considerations

While Red Violet's outlook is positive, investors should be mindful of potential risks and challenges. Macroeconomic conditions, including persistent inflation and elevated interest rates, could continue to impact transaction volumes and potentially lead to moderated discretionary spending by customers, particularly in certain industries. Fluctuations in pricing dynamics and operating margins could also arise from these conditions.

Competitive pressures from larger, well-resourced players remain a significant factor. While Red Violet's technology offers differentiation, larger competitors benefit from scale, established relationships, and potentially greater financial capacity for aggressive pricing or extensive R&D. The ability to continue winning against ingrained competition and expand market share will be crucial.

Specific legal risks, such as the Daniels Law litigation in New Jersey, pose a potential near-term impact. An adverse ruling could result in significant damages and injunctive relief, although the company is vigorously defending itself and anticipates insurance coverage for defense costs and potential liability, subject to policy limits. Other ordinary course litigation could also arise.

Execution risk is inherent in the company's strategic initiatives, particularly the ambitious move upmarket and expansion into new verticals like government. Successfully penetrating these large, complex organizations requires significant investment and effective sales execution. The ability to continue attracting and retaining key personnel for these growth initiatives is also important.

Finally, while the fixed-cost nature of data licensing is currently contributing to margin expansion as revenue grows, significant changes in data acquisition costs or licensing terms could impact profitability. The new cloud services commitment also introduces a material minimum annual expense.

Conclusion

Red Violet is executing a compelling growth story, powered by its differentiated, cloud-native CORE platform and a strategic focus on penetrating larger enterprise and government markets. The company's recent financial performance, highlighted by strong revenue growth and expanding margins in Q1 2025, underscores the operational leverage inherent in its business model and the effectiveness of its investments in technology and go-to-market capabilities.

While operating in a competitive landscape with much larger rivals and facing potential macroeconomic headwinds and specific litigation risks, Red Violet's diversified, mission-critical solutions provide a degree of resilience. The company's continued investment in its core technology, particularly in AI and data assets, is designed to widen its competitive moat and support future growth. With a strong balance sheet and robust cash flow generation funding its strategic initiatives and shareholder returns, Red Violet appears well-positioned to continue its momentum. The key for investors will be monitoring the company's progress in expanding its footprint within larger accounts, the successful development and adoption of new AI-driven solutions, and its ability to navigate the competitive and legal landscape effectively. The trajectory suggests a company successfully leveraging its technological foundation to capture increasing value in the identity intelligence market.