Red Violet, Inc. Stock

Good day, ladies and gentlemen, and welcome to Red Violet's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon, and welcome. Thank you for joining us today to discuss our second quarter 2026 financial results.

With me today is Derek Dubner, our Chairman and Chief Executive Officer; and Dan MacLachlan, 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 risks 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 risks 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, adjusted net income, adjusted earnings per share and free cash flow. Reconciliations of these non-GAAP financial measures to 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.

Good afternoon, everyone, and thank you for joining us. We are pleased to report another exceptional quarter. The identity intelligence market has never been more active, and our results this quarter reflect that reality in full. Q2 was our strongest quarter across every financial metric. Revenue, gross margins, EBITDA, net income and cash flow from operations all reached new highs simultaneously. Layer on top of that the highest single quarter customer additions in our history and the most significant expansion of FOREWARN since its founding, and Q2 is a monumental quarter of strong double-digit growth with margins and profitability that continue to set new records.

Since our initial listing in 2018, Red Violet has now delivered 31 quarters of double-digit revenue growth, including 22 quarters of 20% or greater. Second quarter revenue was a record $26.7 million, up 23% over prior year. Our adjusted gross margin was a record 86%. Adjusted EBITDA increased 48% to $11.2 million, producing a 42% margin, both new highs. Adjusted net income increased 58% to $7.2 million, resulting in adjusted earnings of $0.50 per diluted share, both records. And cash flow from operations increased 42% to a record high of $10.6 million.

Let me walk you through what is driving this performance. Every industry we serve is navigating a world that has become fundamentally harder to operate in without identity intelligence at the center of it. The interactions that matter most, verifying an application, onboarding a customer, processing a claim, executing a transaction, engaging in in-person interactions, investigating a crime, now occur in an environment that has been fundamentally transformed. Fraud and synthetic identity have exploded, fueled by AI tools that have put sophisticated impersonation capabilities within reach of virtually anyone. The in-person channel, where human judgment provided a layer of verification has been largely displaced by digital interactions that move instantly and at massive scale.

Regulatory and legal exposure for identity failures has increased materially and reputational risk has never been more immediate or more consequential in a world where a single breach makes headlines. And the speed and volume of digital transactions has compressed the window to catch a bad actor to near 0. Organizations are not adding identity intelligence to their workflows as a nice-to-have. They are building it in because the cost of getting identity wrong financially, legally and reputationally has never been higher. That dynamic is what is driving our growth, and it is not slowing. If anything, AI is accelerating it.

As AI-powered interactions become more prevalent, the need to know with certainty who is on the other side of that interaction becomes more urgent, not less. Our platform sits precisely at that intersection, and we believe we are architected for it in ways our competition simply is not. Our proprietary entity resolution engine, IRON, constructs an identity graph that is living and breathing, continuously capturing, normalizing, validating, resolving and assimilating data. AI is not something we layered on after the fact. It is embedded in the foundation of how the platform operates. The result is a widening structural advantage. Legacy competitors are retrofitting AI onto infrastructure that was never designed for it. We are accelerating on infrastructure that was purpose-built for exactly this moment.

We believe that gap widens every quarter, and Q2's results reflect the market recognizing that. I want to spend a moment on the 447 new IDI customers we added in Q2 because I think the number deserves more than a passing reference. 447 new customers in a single quarter is the highest in any quarter in Red Violet's history. It surpasses the 400 we added in Q1, which was itself one of the highest quarterly additions in our history. Back-to-back quarters of new customer additions at this level is not a coincidence. It is a very meaningful indicator. What it indicates is accelerating recognition. Our platform is increasingly being identified as a must-have in our customers' workflows, not a nice-to-have, not one of several options under evaluation, but a foundational capability that organizations are building their operating processes around.

When we talk to customers, what we hear consistently is that the depth and accuracy of our identity graph and the speed and scalability of the platform that powers it is simply not replicable elsewhere, and the market is reaching that conclusion at an accelerating rate. We ended Q2 with 10,869 total IDI customers, a customer base built across financial services, insurance, law enforcement, government, health care, real estate, collections, background screening, investigative services and more. Each customer represents an organization that has made an active decision that IDI belongs in their workflow.

The strength of Q2 was broad-based. We've spoken in prior quarters about the K-shaped economic environment and how it creates tailwinds for us at both ends of the spectrum. In that elevated transaction activity at the higher end drives demand from financial services, insurance and background screening support, while financial stress at the other end drives demand from collections, repossession, investigative and legal. That dynamic remains fully intact. But what we are increasingly convinced of is that this is not simply a cyclical condition we happen to be benefiting from. It reflects a structural shift in how the economy has stratified. We do not see it changing anytime soon, and we believe it gives our demand profile a durability and breadth that few businesses can claim.

Beyond the macro environment, the vertical level results in Q2 were exceptional. 4 of our 5 verticals reached their highest quarterly revenue levels in our company's history. That is not a function of one strong segment carrying the rest. It's a reflection of broad simultaneous demand across the business.

I want to turn now to FOREWARN because what is happening there is significant as well. FOREWARN is the leading proactive safety solution in the marketplace for identity verification prior to face-to-face engagement. That's not a marketing characterization. It's the operational reality for hundreds of thousands of real estate professionals across the country who rely on FOREWARN every day before meeting a stranger for the first time.

In Q2, we added over 25,000 new users, ending the quarter with over 443,000 users on FOREWARN. 660 REALTOR Associations are now contracted nationwide. To frame that, there are approximately 1,300 REALTOR Associations in the country. We are contracted with more than half of them. When more than half of all REALTOR Associations in the country have made FOREWARN available to their members, the absence of that protection is no longer a neutral position. It is a liability exposure to their members and to themselves.

FOREWARN has done more than merely establish itself in real estate. It has become the standard bearer for proactive, data-driven identity intelligence and safety before face-to-face engagement. FOREWARN is no longer just a product. It is a network. And like the most valuable networks, it grows more powerful with every new participant. Associations adopt FOREWARN, establish a new professional norm within their membership, and that norm spreads to peer associations to neighboring markets and then to adjacent professions. Each new user makes the network more embedded, more referenced and harder to displace. That's the definition of a moat, and FOREWARN has built one. That network is now expanding beyond real estate in the most significant way since FOREWARN's founding.

Last month, we announced the expansion of FOREWARN into home health care. FOREWARN for home health care equips home health care providers and agencies with previsit household insights, giving caregivers real-time safety intelligence before they arrive at a patient's residence and giving organizations a documented proactive approach to workplace safety. The parallel to real estate is direct and compelling. Home health care workers deliver critical care in environments that are unknown, unpredictable and uncontrolled, often alone without the visibility and safeguards that their colleagues in hospitals or other care facilities take for granted.

Workplace violence, harassment and unfamiliar household conditions are well-documented occupational hazards in the industry. And many incidents go unreported, leaving agencies with limited insight into the true scope of risk their workforce faces daily. FOREWARN was purpose-built to close that knowledge gap and the same solution that became the standard in real estate is now available to an industry facing the identical challenge.

The addressable market is substantial. There are an estimated 4 million home health aides and more than 12,000 Medicare-certified home health agencies in the United States. Whether an individual caregiver needs previsit insights via a mobile app on the way to a visit or an agency needs a deeply integrated API solution connecting directly into its scheduling or workforce management system, FOREWARN delivers. The benefits extend beyond a single visit, building caregiver confidence, strengthening retention, equipping staff with previsit situational awareness and supporting workplace violence prevention efforts at the organizational level.

We enter home health care with a proven platform, the trusted brand and an established playbook for scaling through professional and enterprise relationships. The real estate experience taught us how to build adoption, how to shift professional norms and how to construct a community around a shared safety imperative. We are applying those lessons with intention here. The opportunity is significant, and we are pursuing it with the same disciplined focus that built FOREWARN into what it is today.

As we recently announced, Red Violet completed a public offering, raising approximately $109 million in net proceeds from both new and existing investors, which we intend to use for working capital, general corporate purposes in connection with potential strategic acquisitions. I want to spend a moment on what that means and why now. Since our spin-off in 2018, we've been intentionally conservative in how we built this business. Building a cash-generative, self-sustaining business was always the goal. And while we did raise modest capital twice along the way, $7.5 million in 2019 and $21 million in 2021, those were targeted, purposeful raises that accelerated specific initiatives and were quickly absorbed into a self-funding model.

From that point forward, our own cash flow generation funded the business, investing in the platform, the data, the team and the go-to-market capabilities that have produced the financial results we reported today. The conservative path we took was a deliberate choice, and we are proud of it. It is not the path every company takes and the results speak for themselves. But the opportunity in front of us today is of a different magnitude. We've spent years building the leading technology platform for identity intelligence, a proprietary layered AI-embedded architecture built on a foundation that competitors cannot replicate quickly or cheaply or even at all. And that foundation is what makes our opportunity already in motion.

Let me be specific about what that means. We have a multiyear, well-defined product road map significantly underway. Our organic opportunity is enormous. AI has compressed our development cycles materially. What once required multiple engineering resources and extended time lines can now be accomplished faster and with greater precision. That acceleration does not just mean we build existing road map items faster, it expands what's on the road map itself. Vertical application layers purpose-built for specific industries, natural language interfaces that give customers new ways to access our intelligence beyond traditional UI searches or AI API calls. Products that would not have been feasible to build at our scale 2 years ago are now within reach.

At the same time, we continue to invest in the organic expansion of our data and platform capabilities. Our entity resolution engine is not static. It continuously captures, normalizes, validates, resolves and assimilates data into the graph and generates proprietary data and signals from our own platform activity. Each new data source we bring in to fuel the engine and each new linkage we establish opens additional verticals to serve and new use cases within verticals we already serve. This is an organic self-reinforcing growth engine that compounds over time.

We are also observing inorganic opportunities in the way of strategic acquisitions, and we have defined a clear framework for how we will evaluate them. We are looking for targets that meet one or more of three criteria. First, acquiring unique data assets that expand our longitudinal identity graph and drive new use cases. Second, acquiring enabling technology that accelerates product development or brings differentiated capabilities where a build-versus-buy analysis favors acquisition. Third, expanding our vertical market presence by adding industry expertise, customer relationships and accelerating penetration into adjacent verticals where we've targeted or are beginning to establish a foothold.

We have significant runway remaining in the United States, competing against much larger but far less differentiated incumbents across a TAM we have just begun to penetrate, and that is where our primary focus lies. That said, where a target meeting one or more of these criteria also brings an established international presence, that is a meaningful added dimension we will weigh in our evaluation. What I want to be equally clear about is our discipline. We evaluate acquisitions first on strategic fit and synergies. Does it advance the road map? Does it strengthen the platform? Does it serve a customer base we want to serve? Valuation and accretion follow from that. We have a high bar.

We've walked away from potential transactions in the past, and we will continue to do so if the fit is not right. The capital we have raised gives us the capacity to act when the right opportunity presents itself, not the obligation to act for its own sake. Against all of that, the AI opportunity we have constructed is the force multiplier. We see 5 distinct dimensions. First, risk signal intelligence, the continued use of AI to analyze our identity graph and massive transaction volumes to surface risk signals that only our foundational data can generate. Second, intelligent data aggregation, AI-driven ingestion of publicly available unstructured data, continuously identifying, extracting and assimilating new signals into the identity graph in real time.

Third, as discussed, new customer interaction layers, moving beyond static interfaces and API calls to vertical application layers and natural language interfaces, giving customers new modalities to access our intelligence. Fourth, enterprise workflow automation, AI-driven automation across internal operations, including compliance, new customer onboarding and customer support, increasing productivity enterprise-wide without proportional headcount growth. The goal, operating leverage expands as AI replaces manual processes across the enterprise. Fifth, AI-augmented development. AI augmented coding that compresses our development cycles, enabling faster product iteration, broader road map execution and higher engineering output without linear team expansion. More features faster.

The same proprietary foundation expanded into new products and verticals at a pace competitors are unlikely to match. The capital we have raised positions us to pursue these opportunities with the urgency and scale they deserve while maintaining the financial discipline that has defined this company since its founding. We remain disciplined in how we deploy capital. We have the strongest set of strategic growth vectors in the company's history, and we have never been more confident in the opportunities ahead. Thank you to our team, our customers, our partners and our current investors, and a welcome to our new investors.

With that, I will turn it over to Dan.

Thanks, Derek, and good afternoon, everyone. Derek walked you through the headline results, so I want to focus on what connects them. This was another quarter where growth and profitability moved together. Revenue reached a new high and our profitability and cash flow grew even faster, which is the operating leverage this model was built to produce. It is also a continuation of what we laid out last quarter. When we crossed the $100 million run rate, we delivered the margins we committed to years earlier. This quarter, we pushed further with adjusted gross margin and adjusted EBITDA margin both reaching new highs, and we did it while continuing to invest across the platform. Delivering strong margins while investing for growth is exactly the balance we intend to strike as we put our expanded capital base to work. Our balance sheet is now stronger than at any point in our history.

With that, let me take you through the quarter. For clarity, all the comparisons I will discuss today will be against the second quarter of 2025, unless noted otherwise. Total revenue was a record $26.7 million, up 23% over the prior year. We generated $22.9 million in adjusted gross profit, the highest in our history, delivering record adjusted gross margin of 86%, up 2 percentage points. Adjusted EBITDA came in at a record $11.2 million, up 48% over the prior year. Adjusted EBITDA margin was up 7 percentage points to a record 42%. Adjusted net income increased 58% to $7.2 million, resulting in adjusted earnings of $0.50 per diluted share, both new highs. When we think about our margin profile, we think about it on an annualized basis. As most of those who have followed our story know, our adjusted EBITDA margin is seasonally strongest in the first 3 quarters of the year and moves down in the fourth as a result of the accrual of year-end incentive compensation. Consistent with the commentary we provided last quarter, we continue to expect full year adjusted EBITDA margin to be in the high 30s.

Turning to the details of our P&L. As mentioned, revenue for the second quarter was $26.7 million with 4 of our 5 revenue verticals hitting all-time highs. Within IDI, we added a record 447 billable customers during the quarter, ending with 10,869 customers. Financial and Corporate Risk delivered another quarter of strong, well-diversified growth. Background screening was a clear standout, growing at an outsized pace as we continue to enhance our offerings and market reach. Financial services grew solidly on expanded usage across our existing customer base and insurance, where we have only recently dedicated sales resources, posted healthy gains on a growing pipeline.

Investigative was our fastest-growing vertical this quarter on a percentage basis with all 4 industries: law enforcement, private investigators, bail bond and process servers, all posting strong double-digit growth. Law enforcement, in particular, continued its run of sequential revenue growth in every quarter since the fourth quarter of 2021. Collections had another strong quarter with growth surpassing 20%, driven by underlying recurring demand. This reinforces the sustained recovery we have described for several quarters.

With consumer delinquencies remaining high, more accounts are entering collections and our existing customers are relying on our solutions at higher volumes to locate and recover them. We see a constructive backdrop as this cycle continues to unfold. Emerging markets delivered strong growth this quarter, led by retail, repossession and legal, with additional contribution from marketing and education. Strength across these many industries speaks to the versatility of our platform, and we see meaningful opportunity ahead across this vertical.

Finally, IDI's real estate vertical, which does not include FOREWARN, declined modestly. While we have seen some early signs of encouraging activity, we remain tempered in our expectations for any near-term recovery as the industry continues to face headwinds from limited inventory, elevated interest rates and stubbornly high home prices. As to FOREWARN, we continue to prove that we are the go-to proactive safety solution for real estate professionals, delivering another quarter of strong double-digit revenue growth, adding 25,493 users to FOREWARN during the quarter, ending at 443,173 users. We now have 660 REALTOR Associations contracted to use FOREWARN, and we are proud to say that we maintain a 100% renewal rate among our association customers.

Overall, contractual revenue accounted for 77% of total revenue in the quarter, consistent with prior year. Gross revenue retention remained strong at 95%, down 2 percentage points. Moving back to the P&L. Our cost of revenue, exclusive of depreciation and amortization increased $0.3 million or 9% to $3.8 million. Adjusted gross profit increased 25% to a record $22.9 million, resulting in a record adjusted gross margin of 86%, up 2 percentage points. Our sales and marketing expenses increased $0.1 million or 2% to $5.8 million for the quarter, driven primarily by marketing and other selling expenses.

General and administrative expenses increased $1 million or 14% to $8.3 million, driven primarily by higher personnel costs. Depreciation and amortization increased $0.1 million or 5% to $2.8 million for the quarter. Net income increased $2.3 million or 85% to $5 million for the quarter. Adjusted net income increased $2.6 million or 58% to $7.2 million, the highest to date, resulting in record adjusted earnings of $0.50 per diluted share.

Moving on to the balance sheet. Cash and cash equivalents were $50 million at June 30, 2026, compared to $43.6 million at December 31, 2025. Current assets totaled $65.2 million compared to $56.5 million at year-end, while current liabilities were $6 million, down from $7.9 million. We generated $10.6 million in cash from operating activities in the second quarter compared to $7.5 million in the same period last year. Free cash flow for the quarter was $7.2 million, a 50% increase from $4.8 million a year ago. Year-to-date through June 30, 2026, we purchased 74,500 shares of company stock at an average price of $41.87 per share under our stock repurchase program. As of June 30, 2026, we had $15.5 million remaining under the program.

In closing, this was a standout quarter across the board. Revenue, profitability and cash flow each reached new highs. We delivered strong margins as we scaled and we added a record number of new customers to IDI, which reflects both the strength of demand and how well our platform is meeting it. What stands out most though, is the position this quarter leaves us in. A strong balance sheet reinforced by the capital from our recently completed offering gives us more flexibility than at any point in our history to invest behind the strongest pipeline of strategic initiatives we have ever had. We intend to put that capital to work in the same way we run the rest of the business with discipline and an eye toward long-term returns. We are confident in what lies ahead, and we look forward to sharing our progress in the quarters to come.

With that, our operator will now open the line for Q&A.

[Operator Instructions] And I show our first question comes from the line of Josh Nichols from B. Riley.

Congrats again on the record results. I wanted to dig in a little bit to the IDI customer adds. I mean that's a significant acceleration from what already was very strong [Technical Difficulty] some of the stuff that you're winning, is it more greenfield stuff you're taking directly from any insights you have on where you [Technical Difficulty] customers or any update on the federal public that typically has some longer sales cycles would be helpful.

Thanks, Josh. This is Derek. Unfortunately, your line broke up a few times. So I'm going to do my best -- we'll do our best at addressing the questions, which I think we gleaned from what we heard. First, yes, we're very excited. We added 447 customers to IDI. And you had a question there regarding greenfield versus those of the competition. That's what's always excited us about this business being -- this team has been doing this for the better part of 2.5 decades. We've been in identity verification and due diligence. And as we've told you and we've probably told many others is that we see our solutions applicable to every industry because who would enter into a transaction without understanding who's on the other side of that transaction.

So we're not only competing for the industry, the customers within the industries and verticals that we serve. But over these last couple of decades, with the Internet and with all of the various use cases on the Internet, mobile, e-commerce and social and the online transactions and really with everything we all do every single day with these online transactions, it creates more demand to understand identity intelligence and to clear a transaction or to understand whether or not to move into any transaction, who's on the other side of the table.

So with each emerging technology, and we've seen this with the gig economy, we've seen this with fintech. We've seen this with BNPL. We've seen this with online sports betting. With each emerging technology, it creates more demand for the solutions that we provide. So we're seeing a healthy mix of both and have continuously seen that healthy mix for quite some time.

Dan, anything to add there?

Yes, Jon. I think you were also, again, commenting a little bit on larger customer pipeline potentially. Again, you were breaking up a little bit. But I'll give you a little bit of color, right, on these new customers and what they look like compared to historically. We've focused over the last several years on moving up tier, right, into medium and larger enterprise. And that pipeline has grown dramatically. That pipeline is converting. As you know, annually, we put out a larger customer commentary number around customers in excess of $100,000. As last reported, that has grown nicely. That's something we report annually, but internally, we're very happy with how that metric is trending.

We look forward to reporting that number in a few quarters from now. But what excites us is it's not just that $100,000 above customer, right? It's all the cohorts inside that customer mix. It's the $10,000 to $25,000 customer. It's the $25,000 to $100,000 customer. These wins are winning significantly larger cohorts than they have in the past. And so that really what excites us for what we've seen in our growth and the potential to continue to accelerate that.

Josh, I think you also -- it's Derek again. You had a question regarding progress within our Public Sector division. And we've been focused for the last couple of years, as you know, there, building -- bringing in a leader, excuse me, and building a go-to-market team around that. We've made great strides in state and local law enforcement. In fact, I'm proud to say this quarter, this past quarter, we won one of the largest law enforcement agencies in the country. And we displaced one of the largest incumbents out there. They have been using them for years. And in fact, we became aware that at the 11th hour, the incumbent offered to cut the price in order to induce the renewal of the contract. And we saw and heard communications regarding that the agency said, "No, IDI has a better product, and I'm getting better intelligence and my investigators are happier with it with locating subjects and performing investigations. So we're willing to spend more. It's a better product."

So we're very proud of that. That's a proof point of the progress there, and we continue to sign up law enforcement agencies at a very fast pace. At the state level, also nice progress. We've talked about this a little bit. We've won a number of secretaries of state and different state-level organizations for eligibility requirements, identity, collections purposes, all of the -- basically, interestingly enough, a lot of the federal use cases, but at the state level, SNAP, Medicare, Medicaid, fraud and other investigations.

At the very top federal level, the public sector, a little slower to convert than we would like to see. But what we're seeing is that type of insight is also being told by our peers out there and that it's a matter of just timing, a little slower to convert with technology implementations, procurement, budgeting. It's a little bit less clear in federal. And so they're moving a little bit slower. But with that, we're still very excited. The pipeline for federal grows and the testing continues, and we're hearing positive results. So we just think it's a matter of when, not if, and we're very happy with the progress we're seeing.

Appreciate that's some really good detail there. Hopefully, I'm not breaking up. Just one more question for me. Seeing the FOREWARN expansion, I know that it's been a while in the making, you've really established yourself as the clear leader in the real estate market and now you're taking that to home health. What can you do to kind of help quantify the size of the home health market in terms of like revenue opportunity? Or how does that compare to real estate? Is it going to be priced similarly? And is the company going to look to start exercising some of its pricing power that has become the kind of go-to standard in real estate?

Yes, Josh, as we said, so our estimates are 4 million licensed home health care workers, 12,000 agencies we've got pen to paper on what we think that is. It's a new entry for us. So forgive us for being a little bit close to vest on that. It's a competitive environment, and others are looking to see where we're going and how we size the market and how we also have some rather, I don't want to say unique, but very targeted ways with who we're interfacing with and how we're going to penetrate that market. So -- but we're excited about the opportunity. It's extremely sizable, and it has just many of the same characteristics, as I said, not only at the individual user level about walking into an uncontrolled, unpredictable environment.

But you've got these very large agencies that are very concerned about the safety of the health care worker. And there are also more and more laws, occupational laws coming down the pike to want to ensure the safety of these health care workers. So at the agency level, they're looking for ways of doing this. So not always just app in hand, but also, as we mentioned, API integration into their own scheduling and their own workforce automation. And what's exciting about that is it tends to be a profession, a lot like the real estate profession where perhaps the individual entrepreneur maybe moves between agencies, and there's a lot of movement. And so this is exciting because we're hearing from the agencies that this builds retention. This shows that they care. It's enduring and it increases the safety of their membership.

So again, a direct parallel for the real estate associations and the real estate environment. So we're excited.

And I show our next question comes from the line of Mark Hagen from Lake Street Capital Markets.

So given the growth acceleration, are you planning to step up product or personnel investment? Or do you think you guys have what you need for the next 18 months or so?

Yes, Mark, it's Dan. I appreciate the question. So yes, if you look at us historically, I mean, we've continued to invest both in our product development engineers, our infrastructure and our go-to-market capabilities. So if you look at the last several years, we've added between 30 or 40 new team members each year. But what's great about that, and of course, the business model that we have here is that even with that incremental investment, we've been able to continue to expand margins and really show the profitability and leverage of the business.

So our expectation with the opportunity that we have in front of us, we'll continue to invest in product development, AI engineers, infrastructure, go-to-market similarly to how we have in the past, and that's mostly around team members. But again, because of the operating leverage, even with that investment, we continue to believe that we'll be able to drive incremental margins over time.

Yes, Mark, this is Derek. I would just add there. This is exciting for us. This is the largest opportunity set we've ever had sitting right in front of us because, as I mentioned a lot on the call, we've built an extraordinary architecture, an extraordinary infrastructure that's so differentiated and rather unique and we think it's really being recognized. And so as Dan mentioned, we've been investing, and that includes in layering more AI on an infrastructure that is already AI-enabled and ready to optimize. So we're leaning in. I hope that's clear, and we're excited about that.

We expect to, as Dan said, maintain very healthy EBITDA margins while doing that. And I think the model has proven the capability of doing that. But make no mistake, this is a very early-stage company. We're not $1 billion in revenue. We're $100 million in revenue. So we have a lot to do with a lot of opportunity to go get, and that's our plan.

I'm showing no further questions in the queue at this time. I'd like to turn the call back over to Derek Dubner, Chairman and Chief Executive Officer, for closing remarks.

We're pleased to report another record quarter for Red Violet and the launch of FOREWARN's most significant vertical expansion in its history. The secular tailwinds driving demand for identity intelligence are the strongest we have seen. Our platform, cloud-native, AI embedded built on a proprietary entity resolution engine that constructs a differentiated identity graph is more competitively differentiated today than at any point in our history. We appreciate your continued support and look forward to updating you on our progress next quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, ladies and gentlemen, and welcome to Red Violet's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your first host for today's conference, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon, and welcome. Thank you for joining us today to discuss our first quarter 2026 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer; and Dan McLachlan, 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 risks 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 the risks 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, adjusted net income, adjusted earnings per share and free cash flow. Reconciliations of these non-GAAP financial measures to 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.

Good afternoon, everyone, and thank you for joining us. Before I walk through the quarter, I want to recognize our team. The results we're reporting today, record revenue, record margins, record EBITDA and one of the strongest quarters for new customer onboarding in our company's history are a direct outcome of disciplined execution. This is a team that consistently delivers and that consistency is what drives the results you're seeing today. Now to the quarter. Revenue for the first quarter was a record $25.8 million, up 17% year-over-year. It's important to note that the prior year period included $1.2 million of one-time transactional revenue. So the underlying growth this quarter is stronger than the headline suggests.

Adjusted gross profit increased 20% to $22 million, resulting in a record adjusted gross margin of 85%. Adjusted EBITDA increased 27% to $10.7 million with a record margin of 41%. Adjusted net income was $6.6 million, producing record earnings of $0.46 per diluted share, and operating cash flow increased 32% to $6.6 million. This marked yet another quarter of consistent execution with high-teen growth and continued expansion in margins and cash flow. On the customer front, IDI added 400 new billable customers, one of the highest quarterly additions in our history, bringing total customers to 10,422. FOREWARN grew to more than 417,000 users with over 640 REALTOR associations under contract.

These metrics reflect increasing adoption, deeper integration and the growing reliance our customers place on our platform in their daily operations. At the same time, we continue to see a significant and expanding opportunity set in front of us, particularly as AI continues to unlock new capabilities across analytics, data aggregation and customer interaction. Given the strength of our model and the level of cash flow we are generating, we are well positioned to invest proactively into that opportunity. Importantly, our opportunity in AI is not just about access to tools. It is about the foundation that we have built that those tools operate on. Our longitudinal identity graph built and refined over time through real-world usage is what enables us to generate actionable signals, not just data outputs.

AI enhances our ability to analyze the foundational graph, identify patterns and surface risk and insight with greater speed and precision. Similarly, our ability to aggregate and fuse new data is directly tied to our ability to resolve that data to unique individuals within our identity graph. Aggregating data is one thing but correctly attributing it to the right individual over time is something entirely different. Whether it is distinguishing between thousands of individuals with the same name, resolving generational differences or identifying underbanked consumers with limited public data, our platform is architected to unify fragmented data into a persistent, accurate identity, a continuously maintained and correctly attributed view of an individual over time, all powered by our proprietary engine.

As we bring in additional data inputs, AI further enhances our ability to validate that data against our graph, then link and extract meaningful insight, reinforcing and extending the advantage we have built over the past decade. Across customer workflows, AI is also enhancing how our solutions are experienced, improving responsiveness, deepening integration and increasing the utility of our platform in day-to-day decisioning. Internally, we are seeing accelerating adoption of AI across the organization from engineering and security to operations and customer support, driving significant gains in productivity and development velocity.

Within our technology organization, in particular, development velocity has accelerated materially with teams leveraging AI and agentic tools to code, test and deploy at rates we have not previously experienced. What historically required multiple resources can now often be accomplished by a single engineer operating with AI augmentation, significantly increasing our pace of product development and innovation. What we are observing is a compounding effect. As adoption deepens across the organization, the pace of improvement is accelerating, driving efficiency gains internally while simultaneously strengthening the value we deliver to customers. We are just scratching the surface.

The net effect is that AI is acting as a force multiplier, increasing the value of our data, accelerating our pace of innovation, strengthening our position within the markets we serve, and further enhancing our AI embedded layered architecture, which is fundamentally differentiated from the legacy technology stacks of our competition. Switching topics for a moment. I also want to revisit something we said several years ago, and Dan will go into it in more detail.

At that time, we outlined what this business would look like at a $100 million annual revenue run rate, specifically, adjusted gross margins exceeding 80% and adjusted EBITDA margins in the range of 35% to 40%. We had our skeptics, but that was guided by this team's knowledge and experience building similar businesses over the past three decades. Today, at our current scale, we already are delivering 85% adjusted gross margins and 41% adjusted EBITDA margins. This level of performance reflects the durability of our business and the operating leverage inherent in the model as we grow.

We ended the quarter with $43.5 million in cash. We currently have $15.6 million remaining under our stock repurchase program after repurchasing 73,250 shares at an average price of $41.90 per share during the first quarter and through April 30, 2026. We will continue to allocate capital with discipline, balancing share repurchases with continued investment in our platform, data assets and go-to-market capabilities. This was a strong start to 2026 and the continuation of the consistent, disciplined execution that defines who we are. With that, I'll turn it over to Dan.

Thanks, Derek, and good afternoon, everyone. We are off to an excellent start in 2026, delivering the highest revenue, adjusted gross profit and adjusted EBITDA in our history, results that reflect the strength of our platform, the expanding reach of our solutions and the consistency with which we are executing. I want to take a moment to put these results in context because I think it speaks to something important about this team and this business model.

As Derek mentioned, in March of 2022, we laid out a framework on our earnings call of what this business looks like at $100 million in annual revenue. At the time, our run rate was approximately $45 million, our adjusted gross margin was 75%, and our adjusted EBITDA margin was 25%. We told you that at $100 million in annualized revenue, you could expect adjusted gross margin to exceed 80% and adjusted EBITDA margin to be in the range of 35% to 40%. We meant it and we built toward it.

This quarter, we crossed that revenue threshold for the first time on $25.8 million in quarterly revenue, a $100 million-plus annual run rate, we delivered adjusted gross margin of 85% and adjusted EBITDA margin of 41%. Disciplined execution against a multiyear road map at the margins we said we would deliver is not something every management team can point to, but we can. And we're just getting started. At maturity, this business model is capable of adjusted gross margins in excess of 90% and adjusted EBITDA margins approaching 65%. The first quarter of 2026 is evidence we are on the right path to get there.

But we take a long-term view of this business, and we are not managing to a near-term margin target. We are managing towards the full potential of what we have built. Over the past decade, we have constructed a differentiated data and analytics platform, one that ingests, normalizes and delivers intelligence at scale across a broad and growing set of use cases and end markets. The foundation we have built is what makes our AI opportunity actionable. AI is accelerating how we develop and deploy new capabilities, compressing development cycles and broadening the solutions we can bring to market. It is enhancing our customers interact with our products, improving the speed and precision with which identity intelligence is surfaced and acted upon and it is reshaping how we think about operational efficiency and scale, enabling us to accelerate productivity across the entire business. We are already seeing these benefits, and we expect their impact to compound.

As we continue investing in AI, product development and go-to-market capabilities, we expect adjusted EBITDA margins in the near term to trend in the mid- to high 30% range. We view that as a reflection of deliberate investment in the long-term growth of the business. The path to 65% adjusted EBITDA margins runs directly through the investments we are making today. Turning now to our first quarter results. For clarity, all the comparisons I will discuss today will be against the first quarter of 2025, unless noted otherwise.

Total revenue was a record $25.8 million, up 17% over the prior year. As Derek noted earlier, Q1 '25 included $1.2 million in one-time transactional revenue from two significant customer wins. Normalizing for that, our underlying growth rate this quarter would have been greater than 20%. We generated $22 million in adjusted gross profit, the highest to date, delivering a record adjusted gross margin of 85%, up 2 percentage points. Adjusted EBITDA came in at a record $10.7 million, up 27% over the prior year. Adjusted EBITDA margin expanded 3 percentage points to 41%, a new high. Adjusted net income increased 29% to $6.6 million, resulting in adjusted earnings of $0.46 per diluted share, both new highs.

Turning to the details of our P&L, as mentioned, revenue for the first quarter was $25.8 million with solid performance across the business. Within IDI, we saw broad-based growth across our verticals with particular strength in financial and corporate risk and investigative. We added 400 billable customers sequentially to end the quarter with 10,422 customers.

Financial and corporate risk was our fastest-growing vertical, with background screening leading the way with exceptional growth, continuing to benefit from the targeted product development and go-to-market investments we have made over the past year. Financial services delivered strong growth driven by deeper customer integration and volume expansion. In addition, both corporate risk and insurance contributed meaningful growth, rounding out a solid showing across the vertical.

Investigative posted robust double-digit gains across every industry, including law enforcement, private investigators, bail bonds, and process servers. Law enforcement, in particular, continues its impressive trajectory, and we remain focused on deepening our penetration of the public sector. This vertical is expanding as a share of our total revenue, and we see significant runway ahead.

Collections delivered steady gains this quarter. The recovery dynamic we have discussed in prior quarters remains intact, and we continue to see volume expansion from our existing customer base as the industry works through elevated delinquency levels. The vertical is maintaining its steady recovery, and we view it as a meaningful tailwind to our growth outlook. Emerging markets delivered healthy underlying expansion this quarter. The $1.2 million in one-time transactional revenue in Q1 '25 we noted earlier was concentrated in this vertical, which creates a tough year-over-year comparison.

Normalizing for that, the underlying growth rate was robust and in line with the demand momentum we continue to see across these industries. Retail, government, legal, repossession, and marketing all contributed to meaningful growth. We remain encouraged by the breadth of activity throughout emerging markets as a significant long-term growth driver for the business.

Lastly, IDI's real estate vertical, which excludes FOREWARN, delivered modest growth year-over-year, but is starting to show signs of stabilization following the prolonged pressure that elevated rates and affordability constraints have placed on housing activity. While the macro environment remains a headwind, we are encouraged by the trajectory and believe we are well-positioned as conditions gradually improve.

As to FOREWARN, the platform continued its impressive performance, delivering strong double-digit revenue expansion this quarter. We exited the quarter with over 417,000 users, up from 325,000 users a year ago. FOREWARN continues to gain traction with real estate professionals who rely on it as an essential part of their daily workflow. We now have over 640 REALTOR associations contracted to use FOREWARN. Overall, contractual revenue accounted for 75% of total revenue in the quarter, up 1 percentage point from the prior year. Gross revenue retention remained strong at 95%, down 1 percentage point.

Moving back to the P&L, our cost of revenue, exclusive of depreciation and amortization, increased $0.1 million or 4% to $3.8 million. Adjusted gross profit increased 20% to a record $22 million, resulting in a record adjusted gross margin of 85%, up 2 percentage points from the prior year.

Our sales and marketing expenses increased $0.5 million or 8% to $5.9 million for the quarter, driven primarily by higher personnel-related expenses. General and administrative expenses increased $1.7 million or 28% to $7.9 million, driven primarily by higher personnel costs and acquisition-related activity.

Depreciation and amortization increased $0.2 million or 10% to $2.8 million for the quarter. Net income increased $1 million or 28% to $4.4 million for the quarter. Adjusted net income increased $1.5 million or 29% to $6.6 million, the highest to date, resulting in record adjusted earnings of $0.46 per diluted share. Moving on to the balance sheet. Cash and cash equivalents were $43.5 million at March 31, 2026, compared to $43.6 million at December 31, 2025. Current assets totaled $57.3 million compared to $56.5 million at year-end, while current liabilities were $5.1 million, down from $7.9 million.

We generated $6.6 million in cash from operating activities in the first quarter compared to $5 million in the same period last year. Free cash flow for the quarter was $3.1 million, a 24% increase from $2.5 million a year ago. In the first quarter and through April 30, 2026, we purchased 73,250 shares of company stock at an average price of $41.90 per share under our stock repurchase program. As of April 30, 2026, we had $15.6 million remaining under the repurchase program.

In closing, crossing the $100 million revenue run rate threshold this quarter is a milestone worth acknowledging, but it is not a finish line. The same discipline and focus that got us here is what will take us to the next level. We have a clear line of sight to continued margin expansion, a platform that is scaling efficiently, and a team that is constantly and consistently delivering on what it said it would do.

We are confident in our ability to build on this momentum, and we look forward to updating you on the progress throughout the year. With that, our operator will now open the line for Q&A.

[Operator Instructions] Our first question today is from Eric Martinuzzi with Lake Street Capital Markets.

Congrats on the $100 million run rate. That's a very significant milestone that I know you guys have been working a long time to achieve. So it's great to see that. I had a question regarding, we're always looking for kind of what's next. And given the achievement of those targets that you laid out back in March of 2022, do we have, you talked a little bit in your prepared remarks, Dan, about the at maturity type model having in excess of 90% gross margins and then approaching the 65% on the adjusted EBITDA. Obviously, that's the goal. Is there a time line you're willing to communicate?

Thanks, Eric. I appreciate the question. Yes, look, I mean, we're really excited, obviously, about crossing that revenue threshold. And I think that's a milestone that obviously is a good marker for us. But as I said earlier, it's just the beginning. It's not a finish line, so to speak. And so when we talk about some of the timelines to kind of get to that maturity, right, we're not really going to put a timeline on that today because we don't issue formal guidance and, kind of pinning a year of maturity state outlook would be inconsistent with how we manage the business. What it comes down to is kind of the structure of the business model.

We operate a data and analytics platform with a largely fixed cost base. Once the platform is built and the data is in place, the marginal cost of an incremental transaction is very small. That means as revenue scales, an outsized share, as you know, of every dollar flows to the bottom line. Our cost structure is built to support a meaningfully larger business than where we are today, and we are continuing to invest in that cost structure to enable future growth. So 65% at maturity isn't a forecast and it isn't a target. It's the model output when you take a high fixed cost, low marginal cost platform and you let it scale to its natural operating leverage. So for timelines, it's really about continuing what we're doing, building a good foundational business and moving quickly as we can towards those underlying metrics.

Okay. And then the other notable achievement here was the new customer onboarding, as you went through the different verticals you serve, I didn't really pick up on anything that was a substantial change, versus your commentary last quarter, and maybe I'm incorrect there. But what do you attribute the Q1, typically a time when you do onboard a significant number of new customers? Or is there something going on in the macro or with the brand that's allowing you to achieve those numbers?

Thanks, Eric. It's Derek. Q1 is generally strong. Industries tend to enter the new year with a little bit of wind in their sales. Maybe they're ready to deploy those budgets and get going. But I think what we would say about that is we have produced near record onboarding or at least at the very highs of our average, 12-month average for quite a while now. And we've always said that those are a great leading indicator of the revenue generation and success of the business in the out months.

And obviously, that's bearing true, and that's why we use it as exactly that, a leading indicator. It's a confluence of many things that are ongoing within the organization. I think we're doing a very nice job of marketing ourselves, being present at conferences, engaging with our customers and, delivering what they want in products and solutions. We have always said we're very customer-centric, and we will never change. And so when we think about the next series of developments, whether it be functionality, for example, within an application for a certain industry, we're talking to our customers. We're finding out what they want, what they don't see in the competitive environment, and we execute upon that.

And so I'm very proud of the organization, and that's why I started out with a thank you to the team. It is really brilliant execution over the last 18 months. And we've got an extraordinarily strong road map. And because of the AI implementations across the organization, we're seeing acceleration there. And so it's got us very enthusiastic that we're very well positioned for the future.

Got it. Last question for me. You talked about the growth in the quarter was up 17%, but really would have been even stronger when you back out the $1.2 million from the year ago quarter. My math has the kind of apples-to-apples growth at around 24%. I know you're not in the business of giving guidance here, but seasonal trends in the business historically would have Q2 up from Q1. Is there any reason that, that trend would be different this year?

Thanks, Eric. This is Dan again. Look, I mean, historically and traditionally, first quarter has always been a really strong quarter for us. Obviously, we talked Q1 of '25 had a little additional in there and kind of one-time transactional. But going back historically, we always had a good first quarter out of the gate. We try to replicate and grow that in Q2. Last year, I think if you look, I mean, we were probably down sequentially by about $200,000. But of course, we were going against that kind of transactional comp. So for us, yes, we're not providing any formal guidance.

And for us, when we think about the business and going back to 2024, 2025, we talked about early on reaccelerating the growth rate. Obviously, in 2024, 2025, we were able to do that. And so for us, it's one foot in front of the other and continuing to execute. But I think from a sequential basis, we have a great foundation coming out of the gate at $25.8 million. And the expectation is we can leverage that and over the next couple of quarters, obviously grow from there.

And first quarter, we talked about April, for the most part, is closed. And what we saw in April was just an extremely strong month. And so we're excited about what's happening in the business and looking forward to continuing to perform for the near, medium and long term.

Our next question comes from Josh Nichols with B. Riley Securities.

Great to see the company taking back some stock this quarter. I wanted to ask a little bit -- two questions for me. One, about scaling up the go-to-market strategy historically, you've been a little bit more narrowly focused. But when we think about broadening out, inside sales, strategic sales and distribution, what are your plans to grow those channels this year? And how are you investing in that?

Yes. Thanks, Josh, this is Dan. I'll take that. And look, I mean, if you look historically, especially kind of in that go-to-market line, which we do provide some supplemental metrics around kind of our sales and marketing personnel. And we've invested there. We've invested in the marketing front a number of years ago, bringing in a highly skilled leader to build out that team.

And as Derek talked about earlier, we're at the conferences we need to be at. We're at the trade shows we need to be at. We're continuing to engage with the customers. And that starts with a solid marketing foundation and building out from there. When you think about our sales go-to-market type strategy, we've built out an extremely efficient and productive inside sales team. I think of that as kind of the engine of the organization, highly skilled, verticalized subject matter experts across a broad group of industries and verticals.

And tactically, over the last several years, we've built out more of our strategic side, right, in a number of areas where we've made investments, and we've built out the strategic team. So for us, when we look at growth, yes, it's not only in some of those pockets where we've been investing in, it's also across the broad and diverse industries and verticals we serve. We kind of call out five main verticals in which we operate and kind of break down revenue. But when you look at the amount of industries that roll up into the verticals, it's around 25, 26 different industries.

So, the great thing about the growth that we've seen this quarter and we've seen consistently, it is broad-based. It is in a number of areas, and it's not concentrated in one use case or one customer. And so, that's what obviously gives us a lot of confidence today to talk about how the business has been performing and how we expect it to perform in the future.

Yes, Josh, it's Derek. I know you're aware, but I'll state it very unequivocally that we are an early-stage company, and we're sitting in front of an enormous market opportunity, and we're very fortunate that we're generating very healthy cash flow. So with that opportunity in front of us, that's really the summary of our call today is that we're going to invest. The opportunity is that large. And our goal isn't to set necessarily a record EBITDA margin tomorrow.

For us, you know this, Josh, we're building a very healthy foundational business with a view of 10 years out. And so the answer across the board is we expect to grow our team. You know this team, it's going to be methodical. It's going to be deliberate, and it's going to be directly in line with where the opportunity demands it. And that includes go-to-market, your question, but product, data and definitely on the AI-driven capabilities.

And so what that will create over time is an inflection point, right? We will get where the revenue scales meaningfully without a commensurate increase in the headcount because of what we're doing today and tomorrow. And that's the model. We're not one of those companies that has bloated through the pandemic or using AI as an excuse to eliminate personnel or a missed quarter or anything else.

Net-net, today, more employees, but a team that's going to operate at fundamentally a much higher level of productivity. And then that will flatten out, and you'll see those margins just drive, drive, drive.

Thanks, Derek, you touched on it -- always good to hear you talk a little bit about your thoughts on technology and the impact and tailwinds that you think that's going to bring to the business. Clearly, it's a rapidly evolving environment. Agentic capabilities with AI or something, right, that has gotten a lot of focus recently. I'm curious maybe if you want to opine for a minute, just how you're thinking about investing in that, enhancing the company's agentic capabilities and what that could do for the business as it scales up over the next few years?

Yes. Sure, Josh. Thank you for the question. I appreciate it. We've spent some time on this in the fourth quarter in our earnings and full year and -- but I'm very happy to revisit it. AI, we don't perceive that as a threat to our business. It's a tailwind for us. And I'll restate it again, AI alone cannot replicate our data. We've built this longitudinal identity graph.

It's billions of unified records. And it's tested and modeled and refined over years of actual usage. And that's the foundation that AI needs to run on. So for us, -- we've got this healthy foundation built, and we can layer it with AI on top of it and better serve our customers in all different ways in the risk signals we're generating so that through an API connection, our customers see it when they come into the office in the morning versus the competition's solutions.

Our competition is working on trying to complete migrations from the cloud -- to the cloud, from other architectures. We are optimized. This is cloud-native, AI embedded from day one. And so for us, we are using AI to, as we said, compress the development cycles, implement more AI across the organization. It's pulsating through the products in what we're doing every day, vibe coding, agentic. And we're very excited because as the customers especially small and medium sized, become more adept at using it, developing it and getting agents, for example, into their workflow. We're completely usage-based.

We're volume-based. So that means they will access our products in much faster fashion, less manual activity and more demand for the identities that we can clear every single day. And it's necessary to come back to us, right? We've talked about this. One person's identity on a given day to open a new bank account is only good for that moment in time. The next day, that person's identity and profile has changed.

They might have been arrested the night before. They might be now divorced. They might have financial stress that occurred, a bankruptcy filing, a very large judgment. So the next time commercial or public sector see that consumer, they need to then again clear that identity and make a critical decision about that individual. So we've been building for this for the last 11 years.

We've built this identity graph to be extraordinarily high confidence. AI can only be directionally correct. We need to be accurate. Law enforcement is making critical decisions every day using our products, financial services, all of our industries. So we're really well positioned. We're very excited about the innovation that's going on and the product road map and very excited about introducing new products and updating you on that.

I'm showing no further questions at this time. So, I would like to turn it back to Derek Dubner for final remarks.

Thank you. As we close, I want to reiterate that our performance this quarter reflects the strength of our strategy, the resilience of our business model and the continued trust of our clients and partners. We remain focused on disciplined execution, responsible growth and delivering long-term value to our shareholders. While the macro environment continues to evolve, we are confident in our positioning, our technology and our team. We appreciate your continued support, and we look forward to updating you on our progress next quarter.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Good day, ladies and gentlemen, and welcome to the Red Violet's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Now I would like to introduce your host for today's conference call, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon, and welcome. Thank you for joining us today to discuss our fourth quarter and full year 2025 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer; and Dan MacLachlan, our Chief Financial Officer. Our call today will begin with comments with 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 provision of the Private Securities Litigation Form Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties [indiscernible] company's business. The company undertakes no obligation to update the information provided on this call. For a discussion of the risks 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, adjusted net income, adjusted earnings per share and free cash flow. Reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures 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.

Good afternoon, and thank you for joining us today to discuss our fourth quarter and full year 2025 financial results. We are pleased to report a record fourth quarter and a strong finish to 2025. The year was defined by disciplined execution, sustained momentum and broad-based demand across our markets. Adoption of our solutions remained robust, driven by the strength of our cloud-native intelligence platform, and the expanding integration of our identity graph within customer workflows.

Our team executed at a high level and the strategic investments we have made over the past 2 years are translating into measurable operating performance. We entered 2026 from a position of strength with confidence in our architecture, our trajectory and the opportunity ahead. Let's briefly run through the numbers.

Revenue for the quarter was up 20% to a record $23.4 million, producing record adjusted gross profit of $19.5 million, translating to adjusted gross margin of 83%. Adjusted EBITDA for the quarter was up 33% to $5.9 million, producing an adjusted EBITDA margin of 25%. Adjusted net income increased 53% to $3.1 million, resulting in adjusted earnings of $0.21 per diluted share.

We generated free cash flow of $3.7 million during the quarter. For the second consecutive year, we [ booked ] the fourth quarter seasonality we had traditionally experienced, delivering sequential revenue growth and establishing a new record quarter. Our IDI billable customer base grew by 169 customers sequentially from the third quarter, ending the fourth quarter at 10,022 customers. FOREWARN, added 17,809 users during the fourth quarter, ending the quarter at 390,018 users. Over 620 REALTOR Associations are now contracted to use FOREWARN.

For the year, revenue increased 20% to $90.3 million, producing adjusted gross profit of $75.4 million and adjusted EBITDA of $31 million. Adjusted EBITDA margin was 34% for the year. We saw continued growth in the on-boarding of top-tier customers with 127 customers contributing over $100,000 of revenue in 2025, compared to 96 customers in 2024. We generated $18.2 million in free cash flow in 2025, compared to generating $14.4 million in 2024.

The momentum we generated in the first 3 quarters extended through the fourth quarter and capped a strong year overall. Demand was well balanced across our verticals, underscoring the versatility of our platform and its growing integration into regulated and mission-critical environments. We continue to see expanding enterprise adoption as customers embed our intelligence more deeply into core operational workflows, further strengthening the durability and visibility of our revenue base.

Throughout the year, we continue to execute against a robust product road map, advancing capabilities across our cloud-native AI-enabled platform. We made targeted investments in data science, product development and go-to-market resources to support innovation and long-term growth. At the same time, we executed upon our strategic plan announced last year of increased automation across key areas of the organization, enhancing efficiency and productivity, while maintaining operating discipline. We believe there remains meaningful opportunities to further automate and optimize workflows across the business, which we expect will continue to improve performance and scalability over time.

On the pervasive topic of AI, there has been significant discussion in the market about artificial intelligence, potentially commoditizing software. We believe it's important to distinguish between AI as a capability and the infrastructure required to deliver mission-critical intelligence at scale. Our platform is not a front-end application layered on top of a model. It is a full technology stack, a purpose-built cloud infrastructure, distributed and parallel computing architecture, proprietary data ingestion and normalization systems, rigorous validation frameworks, governance and security controls, API layers and embedded machine learning workflows, all integrated to create and continuously refine a longitudinal identity graph developed and validated over many years.

Our management team has been building platforms and companies in this sector for nearly 3 decades. This is our third platform in the identity and analytics space. And throughout that time, we've repeatedly been asked how we compete with larger incumbents, or what prevents new entrants from replicating what we build? The answer has never been a single model or a single data set. It has been the integration of architectural design, proprietary engineering, accumulated data intelligence, regulatory alignment and disciplined execution over time.

From the earliest days of our first company in the late '90s we recognize that solving identity at scale required parallel computing and proprietary processing frameworks. We developed our own internal language and systems to ingest, normalize, validate and unify large volumes of structured and unstructured data. [ Iron ] is our proprietary entity resolution, data processing and machine learning framework, purpose built to resolve identities with precision, scalability and computational efficiency that generic frameworks cannot easily replicate. It serves as the core intelligence layer within our architecture, enabling high-confidence identity resolution across complex and fragmented data environments.

Our AI-assisted development capabilities operate natively within this framework, allowing us to further optimize performance and accelerate innovation. This intellectual property is not publicly available and remains foundational to the construction and continuous refinement of our identity graph. These capabilities were not developed in response to the current AI cycle. They've been embedded in our architecture and our operating philosophy from inception.

Artificial intelligence, including generative AI is a powerful accelerator. It can shorten development cycles, enhance automation and improve analytical decision. But AI alone does not create a durable platform, a unified longitudinal identity graph, or the regulatory grade workflows that our customers depend on. Environments where accuracy, consistency and auditability are essential. As AI capabilities continue to evolve, we believe the platforms that will benefit most are those already architected with embedded AI, deep analytical frameworks and secure cloud-native infrastructure. In that respect, AI strengthens and extends the advantages we have built. It does not replace them.

Moreover, certain competitors continue to operate on legacy, on-premises or hybrid architectures that were not designed for modern cloud-native deployment, or deeply embedded machine learning. Because our platform was architected from inception as a cloud-native system with AI integrated directly into core workflows, we believe we are structurally better positioned to incorporate new advancements rapidly and continue widening our competitive moat.

Much of the current AI discussion has centered on agent-based [indiscernible] and what that could mean for traditional per-seat software models. It's important to understand that our revenue model is, and always has been, usage-based, supported by contractual minimums. Approximately 90% of our revenue is volume driven. The limited portion that is seat-based exists primarily in regulated environments, including law enforcement and collections, where seats are limited to direct human interaction and any automated use is converted to volume-based pricing. Importantly, we view increasing AI adoption by our customers, including agent-based automation and workflow augmentation as a productivity enhancer. As automation reduces manual effort and accelerates decision-making, we expect transaction volumes and data velocity across our platform to increase. In that context, AI is not a substitute for our solutions. It's a catalyst for greater utilization of that.

Expanding the depth and breadth of data within our intelligence engine to serve additional use cases and industries has long been a core element of our strategy. We have consistently enriched our identity graph with new data attributes and analytical capabilities to broaden its applicability across verticals. As AI reduces the cost and time required to build application layers and orchestration tools, we believe competitive advantage increasingly shifts towards platforms that control the intelligence engine. Because we control that engine via our cloud-native platform and longitudinal identity graph, we are now positioned not only to continue expanding horizontally across industries, but also to expand vertically by building and integrating more workflow, case management, and application layer capabilities directly on top of our platform, allowing us to internalize key orchestration layers and further embed our intelligence at the center of customer operations.

At the same time, we continue to deploy AI-enabled capabilities to aggregate and contextualize fragmented data across our identity graph, uncover deeper relational linkages between entities, identifying structure -- excuse me, surface risk signals with greater precision and deliver more intuitive workflow-driven interfaces. Advancements in AI-assisted development are accelerating our road map, compressing development cycles and broadening the solutions we can deliver. In that respect, AI is not simply enhancing our existing capabilities. It is expanding the strategic scope of our platform, and deepening our integration within customer workflows.

Now I'll turn it over to Dan to discuss the financials.

Thank you, Derek, and good afternoon, everyone. The fourth quarter marked a record finish to an exceptional year for Red Violet. Defined by strong revenue growth, expanding margins and meaningful cash generation. Importantly, we accomplished this while continuing to invest in the business for the long term. Adding more than 30 team members during the year with a focus on product development and go-to-market expansion. These investments were deliberate and strategic. Expanding our AI-driven capabilities and broadening our market reach, all without compromising financial performance.

We continue to scale the business both vertically, deepening adoption across existing markets customers and use cases, and horizontally by introducing new products and expanding into new industries. That strategy is translating into larger and more valuable customer relationships. With 127 customers now contributing over $100,000 in annual revenue in 2025, up 31 customers from the prior year. It is also expanding the reach of our platform as we surpassed 10,000 customers on IDI, and more than 620 REALTOR Associations contracted to use FOREWARN. Collectively, these results position us with strong momentum as we enter 2026, supported by a larger and more diversified customer base, expanding platform adoption and continued operating leverage.

Turning now to our fourth quarter results. For clarity, all the comparisons I will discuss today will be against the fourth quarter of 2024, unless noted otherwise. Total revenue was a record $23.4 million, up 20% over the prior year. We generated a record $19.5 million in adjusted gross profit, delivering adjusted gross margin of 83%, up 1 percentage point. As is typical in the fourth quarter, personnel costs include year-end incentive compensation tied to annual performance. Even with this seasonal expense, adjusted EBITDA increased 33% to $5.9 million, producing adjusted EBITDA margin of 25%, up 2 percentage points. Adjusted net income increased 53% to $3.1 million, resulting in adjusted earnings of $0.21 per diluted share.

Turning to the details of our P&L. Revenue for the fourth quarter was a record $23.4 million. For the second consecutive year, we outperformed the typical fourth quarter seasonality, delivering sequential revenue growth and establishing a new quarterly high. Within IDI, we continue to see strong demand for our solutions and healthy customer expansion, adding 169 billable customers sequentially to end the quarter with 10,022 customers. Our financial and corporate risk vertical continues to deliver consistent strong revenue performance, driven by solid results across our core financial services customers, including banking, insurance, and broader corporate risk. The background screening industry also continues to perform exceptionally well, supported by the introduction of additional products, enhanced functionality and new integrations over the past year, driving meaningful growth and momentum in the fourth quarter.

Our Investigative vertical delivered another strong quarter, supported by continued demand across state and local law enforcement agencies, as well as broader investigative customers. We added approximately 200 law enforcement customers in 2025, reflecting the growing reliance on our platform within the public safety community. Performance in the quarter was driven by increased transaction volumes, new agency wins, and the further embedding of our solutions into day-to-day investigative workflows.

Our Emerging Markets vertical was an important contributor to revenue growth in the fourth quarter, generating meaningful expansion across a broad and diverse set of customer segments. While we remain in the early stages of penetration within many of these markets, adoption continues to build, providing clear runway for sustained growth. Collections maintained its positive trajectory in the quarter, delivering another period of high teens revenue growth. The continued recovery in this vertical is translating into sustained demand and improved activity levels, reinforcing our competitive position and long-term opportunity in the market. Lastly, IDI's real estate vertical, excluding FOREWARN, declined modestly year-over-year as elevated home prices and interest rates continue to constrain affordability and dampen overall housing activity.

Turning to FOREWARN. Revenue growth remained robust in the fourth quarter, driven by the platform's increasing adoption within the daily workflows of real estate professionals. We ended the year with over 620 REALTOR Associations under contract and more than 390,000 users on the platform. Contractual revenue represented 77% of total revenue in the quarter, consistent with the prior year. Gross revenue retention remained strong at 95%, and down 1 percentage point.

Moving back to the P&L. Our cost of revenue, exclusive of depreciation and amortization increased $0.4 million or 12%, to $3.9 million. Adjusted gross profit increased 21% to a record $19.5 million, resulting in an adjusted gross margin of 83%, up 1 percentage point from the prior year. Our sales and marketing expenses increased $0.4 million or 9%, to $5.3 million for the quarter, driven primarily by higher personnel-related expenses. General and Administrative expenses increased $1.5 million, or 18%, to $9.8 million, primarily reflecting higher personnel-related costs. Personnel expenses are typically elevated in the fourth quarter due to year-end incentive compensation and bonus accruals tied to annual performance for the executive leadership team. Depreciation and amortization increased $0.3 million, or 12% to $2.8 million for the quarter. Net income increased $1.9 million, or 226%, to $2.8 million for the quarter. Adjusted net income increased $1.1 million, or 53% to $3.1 million, resulting in adjusted earnings of $0.21 per diluted share.

Moving on to the balance sheet. Cash and cash equivalents were $43.6 million at December 31, 2025, compared to $36.5 million at December 31, 2024. Current assets totaled $56.5 million, compared to $46.2 million, while current liabilities were $7.9 million, down from $10.3 million. We generated $6.7 million in cash from operating activities in the fourth quarter, unchanged over prior year. Free cash flow for the quarter was $3.7 million, compared to $4.4 million in the same period last year.

In the fourth quarter and through February 27, 2026, we purchased 57,812 shares of company stock at an average price of [ $0.4401 ] per share. In total, we have purchased 611,733 shares at an average price of $22.26 per share under our stock repurchase program. As of February 27, 2026, we had [indiscernible] million remaining under the repurchase program.

In closing, 2025 marked another year of disciplined execution and record financial performance for Red Violet. We delivered 20% revenue growth, expanded adjusted gross margin to 84%, adjusted EBITDA margin to 34% and generated $18.2 million in free cash flow. This performance reflects the consistent execution of our team and the increasing efficiency of the business. We believe the scale and financial strength we have built provide a durable base for continued profitable growth.

With that, our operator will now open the line for Q&A.

[Operator Instructions] Our first question for today will be coming from the line of Josh Nichols of B. Riley Securities.

Great to see the company bucking the 4Q seasonality trend yet again. Looking at the enterprise pipeline, I know you secured a couple of wins. You mentioned like a toll [indiscernible] and payroll processor, I think the other quarter. Just any update on how that progressing, or generally what you're seeing in terms of like the enterprise customer pipeline when we look at 2026?

Yes. Thanks, Josh. This is Dan, and I'll take that question. So yes, I mean, when we look at that enterprise pipeline and specifically that higher tier customer. We've been excited and we've given some color on some recent wins. Obviously, we just announced a record number of customers in excess of $100,000 a year, almost a 30% increase -- just over a 30% increase in that customer cohort. And that's really representative of how that pipeline is developed and how that pipeline continues to develop.

So we're excited about the investments we've made, the continued execution to move from lower to medium to higher tier customers, and it's reflected in the cohort as announced today. 127 customers in excess of $100,000 in revenue a year. And so that pipeline continues to develop well, and we're converting into real meaningful customer wins.

And then just a follow-up. A lot of additions continue to see in like the [indiscernible] agency vertical 200-plus this year. When you look at like the 2026 growth trajectory, like what are the top 1 or 2 opportunities that you think are going to move the needle specifically in those end markets, because you serve so many?

Yes. Thanks, Josh, Derek here. Great to talk to you. The end markets that I think that today, at least, we are most excited about continue to be public sector and background screening support. And I think as Dan mentioned, we announced we won a large payroll processor in Q3 last year. That contract kicks in this year. And so we're very excited about that. That proves our differentiation in the marketplace. Testing and winning against very strong competition out there.

And then in public sector, we continue to make very nice action, as Dan talked about, and you talked about in law enforcement. And we are seeing some great progress at state level as well. with a number of use cases in the way of eligibility requirements and identity verification. And those use cases really are so broad. They capture so many of various agencies, if you will, use cases. So we continue to see progress there, and we continue to win those. And again, I think we've got a model that's very replicable, and we can replicate it across every state, given the uptake there.

And our next question is coming from the line of Eric Martinuzzi of Lake Street Capital Markets.

I also wanted to focus on the higher tier customers that is very substantial growth there in those accounts that are doing over $100,000 annually. I know you've talked when you're asked the question about hey, where can the business go? That there are, let's call them, whale-sized accounts in the $5 million to $10 million annually. Are there any of those prospects, those types of whale prospects in the pipeline that you guys feel are -- or closer could happen in 2026? Or is it still too soon to consider them in the funnel?

Eric, this is Dan. I appreciate the question. And yes, I mean, we have those opportunities now in the pipeline. We also have those opportunities as customers. The third quarter reference we made to one of the largest payroll processors in the country that we won. Ultimately, the volume of that customer over time as we continue to expand that relationship can be a multimillion dollar a year customer. The minimum commitment is probably around low to mid-6 figures starting in 2026, which is great. But we think the opportunity to expand that relationship goes into the 7 figures and plus. So yes, we're really excited about the pipeline, but we're also excited about some of these recent large wins that are really representative of those type of customers you're talking about.

Okay. And I know it was probably last summer, you had a pretty substantial data rights agreement that you're able to renew on favorable terms. As far as 2026 goes, do we have anything of that nature, a substantial data rights exposure that we're working on? Or is it relatively small in comparison?

Yes. There's really no material licensing renewal agreement that is coming up. I mean we structure these agreements, as you know, long term unlimited use, fixed fee structures. We obviously entered into a renewal for another 6 years at the time, which would bring us past 20, 30 of our largest data provider, and we announced that, of course, midyear this year, which was great. But no, at this time, in the near term, there really is no material license agreements that are coming up for renewal.

Okay. And then as far as the 2026 outlook goes, you just finished the year where you grew 20%, and a quarter where you grew 20%. I know you're not in the guidance business. But right now, I've got kind of a mid-teens growth rate for 2026. Is that a good place to start out? Or are you confident that it's going to be 20% plus?

Yes, Eric. No, look, I appreciate the question. And as you know, we don't provide formal guidance. Going back the start of 2024, our goal really, and we publicly disclosed was to reaccelerate revenue growth and sustain that momentum over the next several years. 2024, a great year of growth. As you mentioned, 2025 was a strong 20% growth. And we would expect 2026 to continue to deliver healthy top line expansion.

So yes, I mean, our goal for the business is to continue to accelerate and drive the business and what you've seen consistently in the last couple of years. But we're not going to provide any formal guidance as it sits today.

All right. And then you generated cash in the quarter, you did put some cash to work on your share repurchase program. Number of different levers you can pull there. You've done things like a onetime dividend in the past. You've used it to invest in data rights. M&A. What's the -- here in the next 6 months, what's the likely use of cash?

Thanks, Eric. It's Derek. The likely use of cash is definitely going to be investing in this business. They're just, as I mentioned in my commentary, so much opportunity. And the AI-enabled development that's occurring, which is accelerating deployments and creating such opportunities across everybody's environment, it's especially true for us. So that horizontal expansion I talked about, that was always part of our key strategic plan, has now become also a vertical expansion where we know how our customers interact with us and we can provide them better tools. And we can do that, we believe, in rather fast fashion in the development world as far as time goes so that we can get even further ingrained in their workflows. So that is our priority # 1.

Our next question will come from the line of David [indiscernible] of [ Emerson ] Investments.

Just to put a finer point on it. I think, Dan, you mentioned payroll processor. There was none of that in Q4. What about the toll authority? Was there any of that revenue in the Q4 number?

So there was some revenue from the payroll processor in Q4. The contractual minimum commitment of that processor which is a multiyear agreement does not start into 2026. So we did see some of that revenue, but just early stages, nothing meaningful. And the toll authority at this point has been working on integration and some volume expansion. So very minimal revenue as a result of that win in Q4.

Great. And I was hoping -- it was nice to see the growth in high-spending customers. But could you help us understand, is that coming from new customer wins [indiscernible] initial commitments? Or is that from growth in existing customer spend?

So it's a combination of both, which is great. And it's not only just growth in that cohort. We're seeing that growth across other cohorts, not just moving from one to the other, but expanding in each, right? So whether it's the $10,000 to $25,000 a year customer, the $25,000 to $100,000 a year customer, or the $100,000-plus customer. Each of those cohorts are expanding nicely as we look at them. But it's a combination of both.

It's some customers increasing volume, right? So when we win a big customer, they don't necessarily move all their volume at once. But slowly over time, we get the majority of their volume or it's a new customer win that happens to be a large six-figure plus [indiscernible] customer that [indiscernible] win. So it's been a good combination of both existing customers and new higher-tier customers.

So when I think about -- I know you don't provide breakdown of FOREWARN revenue versus IDI revenue. But if I were to say revenue per IDI customer were to go -- I mean, I have it growing at a high single-digit rate, but then I'm also mixing in some new high initial [indiscernible] customers in there. Are you -- is it safe to assume that existing customers are growing spend at sort of a mid-single digit rate, like 5% to 6%, maybe a little bit more?

It's safe to assume a little bit more than that, yes.

Okay. Great. And then on headcount, I was a little bit surprised to see the sales and marketing head count come down. I think we had initially discussed, you'd be hiring a little bit more aggressively. So I don't know if there was some shuffling there, or maybe phasing out less productive salespeople. Can you discuss that a little bit? And then what should we think about hiring and overall head count for '26?

Yes. You're absolutely right in pointing that. It's kind of a little bit of end of the year. You're going to see a little ebb and flow. We always, as an organization, has focused on doing a really good job of bringing what I would say, the C and D players up to A and B levels. And unfortunately, if those C and D players are not able to kind of get to that level to churn out the bottom, so to speak. So we had a little bit of that at the end of the year. It makes sense, especially as you're kind of ending the year, looking at final [indiscernible] then looking into next year and what your growth model and expectations should be for reps.

So we had a little bit of that, but you'll see, I'm assuming here after we report the first quarter, kind of the reversion back in that sales and marketing line for some of those employees that just kind of we netted out at the end of the year. I think as we look at 2026 from an overall growth perspective, I think it would be very consistent with what we saw in 2025. In 2025, we added just over 30 new team members mostly around product development and then go to market. The expectation would be very similar to that in 2026, a focus on product development, AI, as well as go-to-market initiatives. So I think it'd be consistent with prior year.

All right. Great. And could you just highlight because you mentioned AI. I know it's embedded in the core engine, but just in terms of operational things, whether it's back office, finance, sales function. Are you utilizing AI to help the business at all maybe to keep head count growth less than where it's been?

Absolutely, David. Yes, this is Derek. And what I would say is that we announced in 2025, our strategic initiative to automate more. And so we've been doing that since we've been looking across the enterprise to understand where we can automate using AI. There are so many tools that we could be using. And so we've been making good progress. But as I stated in my comments, that we would expect there is a lot more to do there.

We're not a mature company. We didn't hire heavily during the pandemic. We're not looking to cut back. We're not citing AI for that. We are growing very quickly, and we're investing in the business. And that investment is for growth. And so as we continue to increase automation by hiring to do that, and increased productivity, then we would expect the out-years, if you will, or at least later that you're going to see all of that efficiency and productivity. So right now, it's a little bit more investment, but then we will bear the fruit of that investment.

And that concludes today's Q&A session. I would like to turn the call back over to Derek Dubner for closing remarks. Please go ahead.

Thank you. As we look ahead, we're still in the early innings of a much larger opportunity. The digital transformation of identity, risk and decisioning continues to accelerate, and we've built the infrastructure and intelligence engine to serve as a foundational platform in that evolution.

Our momentum, expanding enterprise relationships and continued innovation around AI-enabled capabilities position us to extend our reach, both horizontally across industries, and vertically within customer workflows. We're building for scale, deepening our integration in mission-critical environments and strengthening the long-term economics of the business. We are excited about where we stand today and even more excited about where this platform can go.

Thank you for joining today's program. You may all now disconnect. This does conclude today's conference call.

Good day, ladies and gentlemen, and welcome to Red Violet's Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon, and welcome. Thank you for joining us today to discuss our third quarter 2025 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer; and Daniel MacLachlan, 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 risks 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 risks 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, adjusted net income, adjusted earnings per share and free cash flow. Reconciliations of these non-GAAP financial measures to 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.

Good afternoon, and thank you for joining us today to discuss our third quarter financial results. We are pleased to report another record-breaking quarter, delivering new highs across all key financial metrics. This quarter's results reflect the exceptional effort and focus of our team and the continued confidence our customers place in Red Violet's platform and solutions.

We continue to see strong uptake and expanding utilization of our products across a diverse set of industries. Our momentum remains broad-based and durable. The business continues to scale efficiently while delivering record financial results. We've built a virtuous cycle. Our innovation created the industry's leading cloud-native platform and solutions, which are driving record growth and financial performance, which, in turn, fuels continued investment, creating powerful competitive advantages. We continue to invest in areas that define our future, platform capabilities, product introductions and advancements, go-to-market expansion and the continued integration of AI across our operations.

Now, let's briefly run through the numbers. Revenue for the quarter came in at a record $23.1 million, up 21%. Our adjusted gross profit was a record $19.4 million, resulting in a record adjusted gross margin of 84%. Adjusted EBITDA for the quarter was a record $9 million, resulting in a record margin of 39%. Adjusted net income for the quarter was a record $5.8 million, producing record adjusted earnings of $0.39 per diluted share.

During the quarter, we generated a record $7.3 million in free cash flow. Once again, we added over 300 customers to IDI during the quarter, ending the third quarter at over 9,800 customers. Within FOREWARN, we added over 25,000 users and ended the quarter with over 590 realtor associations now contracted to use FOREWARN.

The momentum we've observed throughout the year continued. Volumes across the platform were strong and steady throughout the third quarter. We have historically noted when onetime transactional revenue impacts our results. In this quarter, there were no meaningful onetime transactions. Performance reflects consistent core business activity.

Our investigative vertical continues to be strong with our steady focus on law enforcement agency and investigative customers. Our emerging markets vertical was strong as well, driven by retail, legal, repossession, government and health care. In government, with recent wins, including a large state toll authority, state Departments of Revenue, Secretary of State offices and more, we are very encouraged by the path set by our Public Sector division.

As well, momentum from collections and financial and corporate risk carried over. Given this traction and the fact that our strong performance is yielding robust cash generation, we have the flexibility to keep investing in our highest impact initiatives without compromising profitability. As we continue to advance opportunities across our enterprise pipeline, which is the strongest we've seen to date, investment in go-to-market capabilities is ongoing, expanding teams in various verticals. The bottom line is that we are firing on all cylinders and finally tuned where we sit today.

Our Rule of 40 score notched an impressive 60%. Notwithstanding, we are not content. We are using AI to advance multiple initiatives that enhance the intelligence and efficiency of our platform, further distancing ourselves from the competition. Specifically, automation of internal workflows to reduce cycle times and scale productivity, expansion and enrichment of proprietary data assets, strengthening our competitive moat and application of advanced models to detect and interpret risk signals, improving the speed and precision of our insights.

Each of these initiatives reinforces our broader strategy to make our solutions smarter, faster and more valuable with every iteration. Moreover, these endeavors will ultimately drive operational efficiency and translate to an even stronger margin profile in the future. While our larger competitors are burdened by legacy systems and bureaucratic decision-making, our strategic investments in modern platform technology allow us to better serve customers today while building structural advantages that will keep us at the forefront for years to come.

Finally, we announced a $15 million increase to our share repurchase program. We had approximately $3.9 million remaining from our previous authorization. And given the healthy balance sheet growth, notwithstanding our continued investment in our business, we believe the share repurchase program is an important element of our broader capital allocation strategy. In the third quarter, we purchased 15,437 shares of common stock at an average price of $42.26. And to date, in totality under the program, we have purchased 553,921 shares at a weighted average price of $20. Now I'll turn it over to Dan to discuss the financials.

Thanks, Derek, and good afternoon, everyone. We are pleased to report another exceptional quarter, extending the strong momentum established in the first half of the year. We achieved new highs across all key financial metrics, underscoring the scalability, efficiency and durability of our business model. Our sales pipeline continues to expand with an increasing number of larger customer wins across our verticals. With this momentum and disciplined execution, we remain confident in our ability to deliver a strong finish to the year.

Turning now to our third quarter results. For clarity, all the comparisons I will discuss today will be against the third quarter of 2024, unless noted otherwise. Total revenue was a record $23.1 million, up 21% over the prior year. We generated a record $19.4 million in adjusted gross profit, delivering a record adjusted gross margin of 84%, up 1 percentage point.

Adjusted EBITDA came in at a record $9 million, an increase of 35% over the prior year, producing a record adjusted EBITDA margin of 39%, up 4 percentage points. Adjusted net income increased 75% to a record $5.8 million, resulting in record adjusted earnings of $0.39 per diluted share.

Turning to the details of our P&L. As mentioned, revenue for the third quarter was $23.1 million, with balanced growth across verticals. Within IDI, we continue to see strong demand for our solutions and healthy customer expansion, adding 304 billable customers sequentially to end the quarter with 9,853 customers. Our investigative vertical continues to perform exceptionally well, reflecting sustained demand from both new and existing law enforcement agencies and investigative customers. Growth was driven by higher transaction volumes, new customer wins and deeper integration of our solutions into customer workflows.

Our emerging markets vertical delivered another strong quarter with the retail, legal, repossession, government and health care industries, all contributing meaningful growth. Demand across these industries underscores the versatility of our platform and its ability to address a diverse range of use cases. Collections delivered another quarter of strong performance, marking its second consecutive period of high teens revenue growth. The steady recovery within collections continues to build momentum, and we believe we are well positioned to capture further growth as a trusted leader in this space.

Our Financial and Corporate Risk vertical delivered strong growth this quarter, driven by solid performance across our core financial services customers and continued traction within the background screening industry. Over the past year, we have expanded our presence in this space through targeted product innovation and enhanced go-to-market execution, resulting in several significant new customer wins, including a recent contract with one of the largest payroll processors in the country. The return on these investments is increasing, further strengthening our position in the market and driving continued company-wide growth.

Lastly, IDI's real estate vertical, which excludes FOREWARN, experienced a slight year-over-year decline as high home prices and interest rates continued to pressure affordability and weigh on housing activity. Turning now to FOREWARN, which continues to strengthen its position as the leading proactive safety tool for real estate professionals. Revenue grew at a solid double-digit percentage rate, driven by ongoing adoption and engagement across realtor associations.

During the quarter, we added more than 25,000 users and now have over 590 associations contracted to use FOREWARN. Contractual revenue accounted for 75% of total revenue in the quarter, down 2 percentage points from the prior year. Gross revenue retention remained strong at 96%, improving by 2 percentage points over prior year.

Moving back to the P&L. Our cost of revenue, exclusive of depreciation and amortization increased $0.3 million or 9% to $3.6 million. Adjusted gross profit increased 23% to a record $19.4 million, resulting in a record adjusted gross margin of 84%, up 1 percentage point from the prior year.

Our sales and marketing expenses increased $0.6 million or 12% to $5.4 million for the quarter, driven primarily by higher personnel-related expenses. General and administrative expenses increased $0.8 million or 13% to $6.8 million, reflecting higher personnel-related costs. Depreciation and amortization increased $0.3 million or 11% to $2.7 million for the quarter.

Net income increased $2.5 million or 145% to $4.2 million for the quarter. Adjusted net income increased $2.5 million or 75% to a record $5.8 million, resulting in record adjusted earnings of $0.39 per diluted share. Moving on to the balance sheet. Cash and cash equivalents were $45.4 million at September 30, 2025, compared to $36.5 million at December 31, 2024.

Current assets totaled $58 million compared to $46.2 million at year-end, while current liabilities were $6.9 million, down from $10.3 million. We generated a record $10.2 million in cash from operating activities in the third quarter compared to $7.2 million in the same period last year. Free cash flow for the quarter was a record $7.3 million, a 51% increase from $4.8 million a year ago.

We purchased 15,437 shares of company stock at an average price of $42.26 per share under our stock repurchase program during the third quarter. On November 3, 2025, the Board authorized a $15 million increase in the company's stock repurchase program. Currently, we have $18.9 million remaining under the repurchase program.

In closing, our third quarter results reflect another period of consistent execution and profitable growth. We continue to extend our leadership across markets, deliver record performance and strengthen our foundation for long-term value creation. We remain confident in our ability to close out 2025 as another record year for Red Violet. With that, our operator will now open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Josh Nichols of B. Riley.

Great to see another record quarter. A lot of good things to unpack with record EBITDA margins, bumping rate up against 40%. You're hiring, the share buyback clearly indicating that you have some really good confidence about the trajectory the business is on. You mentioned 2 big wins, the toll authority and then the large payroll processor. Maybe if you want to just give us a little bit more detail about some of the traction you're seeing in those larger public and enterprise sector customers and how you see that playing out over the coming months and throughout next year?

Sure. Thanks, Josh. Derek here. Nice to talk to you. As you know, for the last 18 months or so, we've been investing in our public sector division and our background screening solutions. We've brought a number of new products to market and have built in some really differentiated capabilities in the platform to serve those markets. And we've also invested in our teams. We've surrounded a number of thought leaders with some very terrific individuals to go to market and penetrate those markets.

And given that those are a little bit of a longer sales cycle, it's nice to see that in the last 6 months or so, we're really starting to see the green shoots. We did win one of the larger state toll authorities against very significant -- a very large competitor, and they clearly saw the differentiation in our products and our solutions in testing. And so we're very excited about that.

As I mentioned, we're also winning at a number of Departments of Revenue and Secretaries of State for a number of very interesting use cases across the public sector. And these are wins that we can sort of model and duplicate across the country. So we're very excited about those opportunities.

In payroll processing and in the background screening area, as we mentioned, we did enter into a multiyear contract with one of the largest payroll processors. And we're very excited about that opportunity, and we are also testing with others of the same size in both public sector and background screening. So yes, you can hear our confidence. We are very pleased with the results. We are, as I mentioned, firing on all cylinders and extremely excited about 2026, where those larger opportunities are there for us to win.

And then just diving in on that, I mean, to win this large toll award, pretty significant here. And you made a point that you think this is replicable. Any kind of color that you could give us on like how many of these large toll authorities or payroll processing background screeners are and the opportunity to win those in terms of the addressable market?

Yes, Josh, this is Dan. Thanks for the question. So look, when we talk about public sector, and Derek gave some color about being able to potentially leverage that win and replicate it across the number of states, right? I mean, at this point, probably every state in the country has some kind of sized whole authority, whether that's more of a jurisdictional local size or across the whole state. So we think that market is substantial.

And we've only just tapped the surface, obviously, announcing one of the larger wins, but there's at least 49 other states to kind of figure out and go after, which is great. When we talk about the background screening industry, that is just an enormous industry. We spent the last 18 to 24 months, as Derek talked about, really building out our product suite, our team, our go-to-market strategy and the opportunity pipeline that has developed over the last 12 months -- and the conversion of that pipeline to win in the last 6 months, including one of the largest payroll processors in the country, is just extremely exciting.

As you can imagine, you could probably name off a handful of the large payroll processors, right? There's some really big players in the space. And then there's a broad range of what I would kind of consider kind of the medium range. So we're just getting started in both of those. And today, the revenue from those 2 areas has not been a meaningful contributor to our growth. And that's what makes us so excited going into 2026. As these start to develop, as the contracts come to fruition, the volumes take shape, we're extremely excited about what this will allow us to accomplish in 2026 with landing these and additional over the course of the near and medium term.

Our next question comes from the line of Eric Martinuzzi of Lake Street Capital Markets, LLC.

Mike, congrats on the strong quarter as well. I wanted to dive into FOREWARN. The -- you had a nice expansion there in the number of realtor associations using FOREWARN. I think you've said in the past that there's roughly 1,100 realtor associations nationwide, and we're now at over 590 of them that are FOREWARN customers.

Curious to know if you've had any renewals in that installed base? And then what's been sort of the ability to raise ARPU on that installed base? And if you have a plan to add additional features, functionality where that could be a potential on renewal for that installed base.

Yes, Eric, thanks. This is Dan, and I appreciate the question. Yes. One of the great things that we've seen in FOREWARN since we brought this to market, call it, 5 or 6 years ago is that the uptake within the associations and the continued renewals and usage and increase in usage in the user base has been amazing. And so yes, we've seen a number of renewals over the last 5 years. Most of the contracts are 1- to 2-year agreements. Some are a little bit longer than that.

So we've been through a number of renewal cycles with great retention, obviously, across the board. And we do have some escalations within some of those agreements from year-to-year. But we've been really focused on going out and grabbing market share and haven't spent a tremendous amount of time looking at kind of optimizing the price point. We think we've done a good job. We've feel that we're priced very well in the market. But we do have the ability with renewals and continued expansion to increase prices as we move to newer associations and as we come up for renewals.

And Eric, this is Derek. You're absolutely right that with an installed base of close to 400,000 users, it's an incredible asset. They are the type of users that interact very frequently. We've priced FOREWARN intentionally to be unlimited searches for the safety of the individual professionals so that they search each and every time they're contacted by a prospect to verify identity.

And because of that, because of how much the real estate professional really has expressed to us, they love FOREWARN. We have a number of features that we're looking at developing, and we've been interacting with surveys and other means of communication with these realtors to understand what they'd like to see. And that is definitely informing the product road map around FOREWARN's additional features. And of course, then there comes the opportunity to build in some pricing around some excellent features above and beyond.

Understood. The growth in the IDI side of the house, I know not all customers are created equal, but it was relatively similar number of customers. You added 308 customers in Q2 and 304 customers in Q3. What does the pipeline look like for Q4?

So yes, the pipeline for what I would say is the next, call it, 2, 3, 4 quarters is extremely strong. And we're very excited about the larger opportunities within that pipeline. And of course, we've made mention on some of those larger opportunities that just fell in and we've contracted here recently in the third quarter and subsequent to the third quarter.

So one thing I will say is, and as you know, fourth quarter, we do have what I would consider a seasonal slower quarter in regards to less business days in November and December. 20% or so of our business is still transactional revenue. So we do see a little bit of seasonality just from less business days when you look at the holidays in November and December.

So we're very excited about the continued onboarding and that pipeline of customers. But from a sequential basis, the expectation is you wouldn't necessarily see another 300 in incremental or sequential growth in customers. But compared to fourth quarter of last year, we're confident that you'll see some really strong growth within the customer base.

Got it. You started to touch a little bit there on my gross margin question. And I was looking back a year ago, you were down sequentially on gross margin, and I think it was tied to the transaction volumes. Is that your expectation here in Q4 of '25 versus Q3 of '25?

You're saying sequentially on the gross margin number, whether the expectation is we would be a little down or consistent?

Correct.

Yes. The expectation for us is that we continue to have incredible leverage at that gross margin level. It's a relatively fixed cost of revenue for us. So we would think that Q4 at this point would be in line with what we've seen in Q3, right around that 83% to 84%, call it, 82%, 83%, 84% gross margin level.

Got it. I said that was my last, but I got to ask you on the buyback. Your average price of the repurchases in Q3 at $42.26. Looking at the stock today at $54.53, is the current share price attractive to the management team and the Board?

I would say, yes, it is attractive to the management team and the Board. We're very excited about what we've built. We know that we have differentiated assets in our platform and our solutions that clearly have competitive advantages over the competition. And for us, it's just a matter of the continual customer realization of that in the marketplace. So -- and we haven't even talked about the new product road map and all the things that we're working on.

So we're extremely excited for '26, '27 and beyond. And make no mistake, our best use of capital is investing in this business because of the enormous opportunities at our foot right in front of us. But to have the buyback as just one more essential tool in the toolbox of the capital allocation strategy we believe that it has served us very well. We've been very opportunistic. And we believe that should we use any of those dollars and buy back our stock that we'll look back 2 years from now, and we'll feel the same.

This concludes the question-and-answer session. I would now like to turn it back to Derek Dubner for closing remarks.

To close, Red Violet continues to execute exceptionally well operationally, financially and strategically. We are performing with focus and precision against a strategy designed to sustain growth, expand profitability and deepen our competitive edge. With a talented team, a scalable model and clear strategic direction, we remain confident in our ability to continue creating meaningful value for our customers and shareholders.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.