Red Violet, Inc. Common Stock 2026 Q2 Earnings Call

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, adjusted 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. 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. The speed and volume of digital transactions has compressed the window to catch a bad actor to near zero. 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. 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, healthcare, 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. Four of our five 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. 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 healthcare.