Red Violet signals robust 2026 growth as public sector and enterprise deals build pipeline

Earnings Call Insights: Red Violet, Inc. (RDVT) Q3 2025

MANAGEMENT VIEW

* Derek Dubner, Chairman & CEO, reported "another record-breaking quarter, delivering new highs across all key financial metrics" and highlighted the strong uptake and expanding utilization of Red Violet's products across a diverse set of industries. Dubner detailed that "revenue for the quarter came in at a record $23.1 million, up 21%" and emphasized continued investment in platform capabilities, product advancements, go-to-market expansion, and AI integration.
* Dubner noted that "we added over 300 customers to IDI during the quarter, ending the third quarter at over 9,800 customers," along with more than 25,000 users added to FOREWARN and over 590 realtor associations now contracted.
* Dubner announced a "$15 million increase to our share repurchase program," stating that "we purchased 15,437 shares of common stock at an average price of $42.26" in the quarter.
* Daniel MacLachlan, Chief Financial Officer, stated, "We achieved new highs across all key financial metrics, underscoring the scalability, efficiency and durability of our business model."

OUTLOOK

* Management expressed confidence in closing out 2025 as "another record year for Red Violet." Dubner described the enterprise pipeline as "the strongest we've seen to date" and signaled ongoing investments in go-to-market capabilities and AI initiatives.
* MacLachlan indicated that "the expectation for us is that we continue to have incredible leverage at that gross margin level" and projected Q4 gross margin to be "right around that 83% to 84%, call it, 82%, 83%, 84% gross margin level."
* Dubner added, "we are, as I mentioned, firing on all cylinders and extremely excited about 2026, where those larger opportunities are there for us to win."

FINANCIAL RESULTS

* Revenue for the quarter was reported at $23.1 million, with adjusted gross profit of $19.4 million and a record adjusted gross margin of 84%.
* Adjusted EBITDA reached $9 million, resulting in a margin of 39%. Adjusted net income was $5.8 million, with adjusted earnings of $0.39 per diluted share.
* Free cash flow was $7.3 million. Cash and cash equivalents totaled $45.4 million at September 30, 2025. Operating cash flow for the quarter was $10.2 million, and free cash flow grew 51% from the prior year.
* FOREWARN revenue grew at a double-digit percentage rate, now with over 590 associations contracted. Gross revenue retention was 96%.
* Contractual revenue was 75% of total revenue, down 2 percentage points from the prior year.

Q&A

* Josh Nichols, B. Riley Securities: Questioned the traction in public and enterprise sector wins, asking about the impact and addressable market. Dubner responded that "in the last 6 months or so, we're really starting to see the green shoots" and highlighted a win with a large state toll authority and a multiyear contract with one of the largest payroll processors. MacLachlan added, "there's at least 49 other states to kind of figure out and go after" and stated, "today, the revenue from those 2 areas has not been a meaningful contributor to our growth."
* Eric Martinuzzi, Lake Street Capital Markets: Asked about FOREWARN renewals, pricing, and feature expansion. MacLachlan replied that "the continued renewals and usage and increase in usage in the user base has been amazing" and affirmed strong retention with "some escalations within some of those agreements."
* Martinuzzi inquired about IDI's customer pipeline and gross margin expectations. MacLachlan explained, "the pipeline for what I would say is the next, call it, 2, 3, 4 quarters is extremely strong," but noted seasonal effects in Q4. On gross margin, MacLachlan expected "Q4 at this point would be in line with what we've seen in Q3."
* Martinuzzi also questioned share buyback strategy at current prices. Dubner responded, "our best use of capital is investing in this business... 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."

SENTIMENT ANALYSIS

* Analysts expressed positive sentiment, reflecting confidence in the company's trajectory and interest in expansion opportunities, as seen in Nichols' and Martinuzzi's questions about enterprise wins and FOREWARN's growth.
* Management maintained a confident and optimistic tone, with Dubner stating, "we are firing on all cylinders and extremely excited about 2026," and MacLachlan reaffirming the strength of the pipeline and margin expectations.
* Compared to the previous quarter, both analysts and management sustained or increased their positive outlook, with more emphasis on enterprise pipeline conversion and share repurchase flexibility.

QUARTER-OVER-QUARTER COMPARISON

* Revenue increased from $21.8 million in Q2 2025 to $23.1 million in Q3 2025. Adjusted gross profit and margin both set new records, while adjusted EBITDA margin improved from 35% to 39% quarter-over-quarter.
* Customer additions remained strong, with over 300 new IDI customers in both quarters. FOREWARN associations rose from over 575 to over 590.
* Management's tone shifted from emphasizing internal operational improvements and data initiatives in Q2 to highlighting external wins and pipeline strength in Q3, especially in the public sector and enterprise verticals.
* Analysts' questions this quarter focused more on monetization of large contracts and scalability, versus last quarter's emphasis on operational leverage and retention.

RISKS AND CONCERNS

* Management acknowledged seasonality in Q4 due to fewer business days, which may affect sequential customer growth.
* The real estate vertical, excluding FOREWARN, experienced a slight year-over-year decline due to high home prices and interest rates.
* MacLachlan referenced the "relatively fixed cost of revenue" model as a mitigant, supporting stable margins despite seasonality or volume fluctuations.

FINAL TAKEAWAY

Red Violet's third quarter of 2025 showcased record-setting financial performance, robust customer growth, and strong execution in both core and emerging markets. The company signaled increasing momentum in enterprise and public sector opportunities, with management expressing strong confidence in further expansion through 2026. Investments in AI, platform capabilities, and customer-facing solutions are expected to drive continued operational efficiency and margin strength, supporting ongoing shareholder value creation.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/rdvt/earnings/transcripts]

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