What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-04 · 104 added, 54 removed, 158 unchanged (50% of the section changed)

6 unchanged sentences

Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including the impact of the coronavirus (“Covid-19”) pandemic on our operating results.

These factors include those contained in this Quarterly Report on Form 10-Q, as well as the disclosures made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 9, 2022 (“Form 10-K”), and other filings we make with the Securities and Exchange Commission.

These factors include those contained in this Form 10-Q, as well as the disclosures made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 9, 2022 (“Form 10-K”), and other filings we make with the Securities and Exchange Commission.

We do not undertake any obligation to update forward-looking statements, except as required by law.

32 unchanged sentences

FOREWARN is an app-based solution currently tailored for the real estate industry, providing instant knowledge prior to face-to-face engagement with a consumer, helping professionals identify and mitigate risk.

As of March 31, 2022 and 2021, IDI had 6,592 and 5,902 billable customers and FOREWARN had 91,490 and 58,831 users, respectively.

As of June 30, 2022 and 2021, IDI had 6,817 and 6,141 billable customers and FOREWARN had 101,261 and 67,578 users, respectively.

The Company defines a billable customer of IDI as a single entity that generated revenue during the last three months of the period.

8 unchanged sentences

Pricing contracts are generally annual contracts or longer, with auto renewal.

For the three months ended March 31, 2022 and 2021, 77% and 80% of total revenue was attributable to customers with pricing contracts, respectively, versus 23% and 20% attributable to transactional customers, respectively .

For the three months ended June 30, 2022 and 2021, 80% and 81% of total revenue was attributable to customers with pricing contracts, respectively, versus 20% and 19% attributable to transactional customers, respectively.

For the six months ended June 30, 2022 and 2021, 78% and 80% of total revenue was attributable to customers with pricing contracts, respectively, versus 22% and 20% attributable to transactional customers, respectively.

We endeavor to understand our customers’

9 unchanged sentences

During 2020, we experienced significantly reduced commercial activity in numerous aspects of our business as a result of the preventative and protective actions taken by federal, state and local governments to combat Covid-19, including the implementation of stay-at-home orders, social distancing policies and certain temporary government-imposed moratoria on collection customers’

During 2021 and the first quarter of 2022, we saw ongoing improvement in our results of operations, with the exception of our idiVERIFIED service, which is an ancillary collections market offering that is purely transactional and of a lower margin profile.

During 2021 and the six months ended June 30, 2022, we saw ongoing improvement in our results of operations, with the exception of our idiVERIFIED service, which is an ancillary collections market offering that is purely transactional and of a lower margin profile.

We expect our idiVERIFIED service volume to return to pre-Covid levels in the first half of 2023.

4 unchanged sentences

We paid 50% of the deferred amount in December 2021.

On May 5, 2020, we received funding under a promissory note dated May 5, 2020 evidencing an unsecured non-recourse loan in the principal amount of $2.2 million under the CARES Act, which was fully forgiven by Legacy Bank of Florida and the U.S.

Small Business Administration in June 2021, resulting in a gain on extinguishment of debt of $2.2 million during the year ended December 31, 2021.

On May 5, 2020, we received funding under a promissory note dated May 5, 2020 evidencing an unsecured non-recourse loan in the principal amount of $2.2 million under the CARES Act ("CARES Act Loan"), which was fully forgiven by Legacy Bank of Florida (the "Lender") and the U.S.

Small Business Administration in June 2021, resulting in a gain on extinguishment of debt of $2.2 million during the three and six months ended June 30, 2021.

We will continue to assess the CARES Act and other applicable government legislation aimed at assisting businesses during the Covid-19 pandemic.

11 unchanged sentences

in “Notes to Condensed Consolidated Financial Statements.”

First Quarter Financial Results

For the three months ended March 31, 2022 as compared to the three months ended March 31, 2021:

Second Quarter Financial Results

For the three months ended June 30, 2022 as compared to the three months ended June 30, 2021:

Total revenue increased 15% to $12.5 million.

5 unchanged sentences

Adjusted gross margin increased to 77% from 75%.

Net income was $0.1 million compared to a loss of $0.6 million.

Adjusted EBITDA increased 12% to $3.2 million.

Net loss was $0.2 million compared to a net income of $1.8 million (inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the Cares Act Loan).

Adjusted EBITDA decreased 6% to $2.9 million.

Cash from operating activities increased 10% to $2.5 million.

Cash and cash equivalents were $34.8 million as of March 31, 2022.

First Quarter and Recent Business Highlights

Added 27 team members, including 18 members to our technology team, expanding our capabilities, depth and efficiency to drive product suite expansion.

Added 44 customers to IDI during the first quarter, ending the quarter with 6,592 customers.

Added 9,071 users to FOREWARN ® during the first quarter, ending the quarter with 91,490 users.

Over 200 REALTOR ® Associations throughout the U.S.

are now contracted to use FOREWARN.

Released idiCORE Mobile, an app-based solution providing customers with the power of IDI’s next-generation data fusion platform for investigative, due-diligence, and fraud prevention needs, all in the palm of their hands.

Cash and cash equivalents were $32.3 million as of June 30, 2022.s

Second Quarter and Recent Business Highlights

Added 225 customers to IDI during the second quarter, ending the quarter with 6,817 customers.

Surpassed 100,000 users on FOREWARN during the second quarter, ending the quarter with 101,261 users.

Over 205 REALTOR ® Associations are now contracted to use FOREWARN.

Released idiTRACE, a premier SSN Trace solution for background screening organizations.

Platform revenue consists of both contractual and transactional revenue generated from our technology platform, CORE.

5 unchanged sentences

Management evaluates the financial performance of our business on a variety of key indicators, including non-GAAP metrics of adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted gross margin.

Adjusted EBITDA is a financial measure equal to net income (loss), the most directly comparable financial measure based on US GAAP, excluding interest (income) expense, net, depreciation and amortization, share-based compensation expense, litigation costs, and write-off of long-lived assets and others, as noted in the tables below.

Adjusted EBITDA is a financial measure equal to net (loss) income, the most directly comparable financial measure based on US GAAP, excluding interest expense (income), net, income tax expense, depreciation and amortization, share-based compensation expense, gain on extinguishment of debt, litigation costs, and write-off of long-lived assets and others, as noted in the tables below.

We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue.

We define adjusted gross profit as revenue less cost of revenue (exclusive of depreciation and amortization), and adjusted gross margin as adjusted gross profit as a percentage of revenue.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net income (loss)

Interest (income) expense, net

Net (loss) income

Interest expense (income), net

Income tax expense

1 unchanged sentence

Share-based compensation expense

Gain on extinguishment of debt

Litigation costs

1 unchanged sentence

Adjusted EBITDA

Net income (loss) margin

Net (loss) income margin

Adjusted EBITDA margin

The following is a reconciliation of gross profit, the most directly comparable US GAAP financial measure, to adjusted gross profit:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Cost of revenue (exclusive of depreciation and amortization)

Cost of revenue (exclusive of depreciation and

amortization)

Depreciation and amortization of intangible assets

16 unchanged sentences

Results of Operations

Three months ended March 31, 2022 compared to three months ended March 31, 2021

Revenue increased $2.5 million or 25% to $12.7 million for the three months ended March 31, 2022 from $10.2 million for the three months ended March 31, 2021.

Base revenue from existing customers increased $2.4 million or 32%, growth revenue from existing customers increased $0.1 million or 5%, and revenue from new customers increased $0.05 million or 5%.

Our IDI billable customer base grew from 5,902 customers as of March 31, 2021 to 6,592 customers as of March 31, 2022, and our FOREWARN user base grew from 58,831 users to 91,490 users during that same period.

Three months ended June 30, 2022 compared to three months ended June 30, 2021

Revenue increased $1.6 million or 15% to $12.5 million for the three months ended June 30, 2022 from $10.9 million for the three months ended June 30, 2021.

Base revenue from existing customers increased $1.8 million or 22%, while growth revenue from existing customers decreased $0.1 million or 4%, and revenue from new customers decreased $0.1 million or 13%.

Our IDI billable customer base grew from 6,141 customers as of June 30, 2021 to 6,817 customers as of June 30, 2022, and our FOREWARN user base grew from 67,578 users to 101,261 users during that same period.

Revenue from new customers represents the total monthly revenue generated from new customers in a given period.

4 unchanged sentences

Cost of revenue (exclusive of depreciation and amortization) .

Cost of revenue increased $0.4 million or 15% to $3.2 million for the three months ended March 31, 2022 from $2.8 million for the three months ended March 31, 2021.

Cost of revenue increased $0.2 million or 7% to $2.9 million for the three months ended June 30, 2022 from $2.7 million for the three months ended June 30, 2021.

Our cost of revenue primarily includes data acquisition costs.

Data acquisition costs consist primarily of the costs to acquire data either on a transactional basis or through flat-fee data licensing agreements, including unlimited usage agreements.

We continue to enhance the breadth and depth of our data through the addition and expansion of relationships with key data suppliers, including our largest data supplier, which accounted for approximately 47% of our total data acquisition costs for the three months ended March 31, 2022 compared to approximately 45% for the three months ended March 31, 2021.

We continue to enhance the breadth and depth of our data through the addition and expansion of relationships with key data suppliers, including our largest data supplier, which accounted for approximately 48% of our total data acquisition costs for the three months ended June 30, 2022 compared to approximately 50% for the three months ended June 30, 2021.

Other cost of revenue items include expenses related to third-party infrastructure fees.

As the construct of our data costs is primarily a flat-fee, unlimited usage model, the cost of revenue as a percentage of revenue decreased to 25% for the three months ended March 31, 2022 from 27% for the three months ended March 31, 2021.

As the construct of our data costs is primarily a flat-fee, unlimited usage model, the cost of revenue as a percentage of revenue decreased to 23% for the three months ended June 30, 2022 from 25% for the three months ended June 30, 2021.

We expect that cost of revenue as a percentage of revenue will continue to decrease over the coming years as our revenue increases.

1 unchanged sentence

Sales and marketing expenses .

Sales and marketing expenses increased $0.2 million or 8% to $2.4 million for the three months ended March 31, 2022 from $2.2 million for the three months ended March 31, 2021.

Sales and marketing expenses increased $0.5 million or 20% to $2.8 million for the three months ended June 30, 2022 from $2.3 million for the three months ended June 30, 2021.

Sales and marketing expenses consist of salaries and benefits, advertising and marketing, travel expenses, and share-based compensation expense, incurred by our sales team, and provision for bad debts.

The increase during the three months ended March 31, 2022 was primarily attributable to an increase of $0.2 million in salaries and benefits, and sales commissions resulting from increased revenue.

The increase during the three months ended June 30, 2022 was primarily attributable to an increase of $0.4 million in salaries and benefits, and sales commissions resulting from increased revenue.

General and administrative expenses .

General and administrative expenses increased $0.8 million or 18% to $5.4 million for the three months ended March 31, 2022 from $4.6 million for the three months ended March 31, 2021.

For the three months ended March 31, 2022 and 2021, our general and administrative expenses consisted primarily of employee salaries and benefits of $2.5 million and $1.5 million, share-based compensation expense of $1.3 million and $1.9 million, and professional fees of $1.0 million and $0.7 million, respectively.

General and administrative expenses increased $0.4 million or 8% to $5.3 million for the three months ended June 30, 2022 from $4.9 million for the three months ended June 30, 2021.

For the three months ended June 30, 2022 and 2021, our general and administrative expenses consisted primarily of employee salaries and benefits of $2.5 million and $1.6 million, share-based compensation expense of $1.3 million and $2.0 million, and professional fees of $0.9 million and $0.7 million, respectively.

Depreciation and amortization .

Depreciation and amortization expenses increased $0.2 million or 22% to $1.5 million for the three months ended March 31, 2022 from $1.3 million for the three months ended March 31, 2021.

The increase in depreciation and amortization for the three months ended March 31, 2022 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after March 31, 2021.

Income (loss) before income taxes .

Income before income taxes was $0.3 million for the three months ended March 31, 2022 compared to a loss of $0.6 million for the three months ended March 31, 2021.

The significant improvement in income before income taxes from a loss was primarily attributable to the increase in revenue, decrease in our cost of revenue as a percentage of revenue, and decrease in share-based compensation expense, which was partially offset by the increase in employee salaries and benefits and sales commissions of $1.2 million, professional fees of $0.3 million, and depreciation and amortization of $0.2 million.

Income taxes .

Income tax expense of $0.2 million and $0 was recognized for the three months ended March 31, 2022 and 2021, respectively.

A valuation allowance on the deferred tax assets was recognized as of March 31, 2022 and 2021, to reduce the deferred tax assets to the amount that is more likely than not to be realized.

Depreciation and amortization expenses increased $0.3 million or 21% to $1.6 million for the three months ended June 30, 2022 from $1.3 million for the three months ended June 30, 2021.

The increase in depreciation and amortization for the three months ended June 30, 2022 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after June 30, 2021.

Gain on extinguishment of debt .

On May 5, 2020, we received the CARES Act Loan in the principal amount of $2.2 million.

On June 16, 2021, we received a notice from the Lender that the full principal amount of the CARES Act Loan and its accrued interest had been fully forgiven, resulting in a gain on extinguishment of debt of $2.2 million during the three months ended June 30, 2021.

(Loss) income before income taxes .

Loss before income taxes was $0.2 million for the three months ended June 30, 2022 compared to income before income taxes of $1.8 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the three months ended June 30, 2021.

The improvement in loss before income taxes, exclusive of the one-time gain of $2.2 million on the extinguishment of debt, was primarily attributable to the increase in revenue, decrease in our cost of revenue as a percentage of revenue, and decrease in share-based compensation expense, which was partially offset by the increase in employee salaries and benefits and sales commissions of $1.3 million, professional fees of $0.2 million, and depreciation and amortization of $0.3 million.

Income tax expense .

Income tax expense of $44 thousand and $0 was recognized for the three months ended June 30, 2022 and 2021, respectively.

A valuation allowance on the deferred tax assets was recognized as of June 30, 2022 and 2021, to reduce the deferred tax assets to the amount that is more likely than not to be realized.

See Note 6, “Income Taxes,”

included in “Notes to Condensed Consolidated Financial Statements.”

Net income (loss) .

Net income was $0.1 million for the three months ended March 31, 2022 compared to a net loss of $0.6 million for the three months ended March 31, 2021, as a result of the foregoing.

Net (loss) income .

Net loss was $0.2 million for the three months ended June 30, 2022 compared to a net income of $1.8 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the three months ended June 30, 2021, as a result of the foregoing.

Six months ended June 30, 2022 compared to six months ended June 30, 2021

Revenue increased $4.1 million or 20% to $25.2 million for the six months ended June 30, 2022 from $21.1 million for the six months ended June 30, 2021.

Base revenue from existing customers increased $4.2 million or 27%, while growth revenue from existing customers remained consistent, and revenue from new customers decreased $0.1 million or 4%.

Revenue from new customers represents the total monthly revenue generated from new customers in a given period.

A customer is defined as a new customer during the first six months of revenue generation.

Base revenue from existing customers represents the total monthly revenue generated from existing customers in a given period that does not exceed the customers' trailing six-month average revenue.

A customer is defined as an existing customer six months after their initial month of revenue.

Growth revenue from existing customers represents the total monthly revenue generated from existing customers in a given period in excess of the customers' trailing six-month average revenue.

Cost of revenue (exclusive of depreciation and amortization) .

Cost of revenue increased $0.6 million or 11% to $6.1 million for the six months ended June 30, 2022 from $5.5 million for the six months ended June 30, 2021.

Our cost of revenue primarily includes data acquisition costs.

Data acquisition costs consist primarily of the costs to acquire data either on a transactional basis or through flat-fee data licensing agreements, including unlimited usage agreements.

We continue to enhance the breadth and depth of our data through the addition and expansion of relationships with key data suppliers, including our largest data supplier, which accounted for approximately 48% of our total data acquisition costs for the six months ended June 30, 2022 compared to approximately 49% for the six months ended June 30, 2021.

Other cost of revenue items include expenses related to third-party infrastructure fees.

As the construct of our data costs is primarily a flat-fee, unlimited usage model, the cost of revenue as a percentage of revenue decreased to 24% for the six months ended June 30, 2022 from 26% for the six months ended June 30, 2021.

We expect that cost of revenue as a percentage of revenue will continue to decrease over the coming years as our revenue increases.

Historically, at scale, the industry business model’s cost of revenue will trend between 15% and 30% as a percentage of revenue.

Sales and marketing expenses .

Sales and marketing expenses increased $0.6 million or 14% to $5.2 million for the six months ended June 30, 2022 from $4.6 million for the six months ended June 30, 2021.

The increase during the six months ended June 30, 2022 was primarily attributable to an increase of $0.6 million in salaries and benefits, and sales commissions resulting from increased revenue.

General and administrative expenses .

General and administrative expenses increased $1.3 million or 13% to $10.7 million for the six months ended June 30, 2022 from $9.4 million for the six months ended June 30, 2021.

For the six months ended June 30, 2022 and 2021, our general and administrative expenses consisted primarily of employee salaries and benefits of $5.0 million and $3.0 million, share-based compensation expense of $2.6 million and $3.9 million, and professional fees of $1.8 million and $1.5 million, respectively.

Depreciation and amortization .

Depreciation and amortization expenses increased $0.5 million or 22% to $3.1 million for the six months ended June 30, 2022 from $2.6 million for the six months ended June 30, 2021.

The increase in depreciation and amortization for the six months ended June 30, 2022 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after June 30, 2021.

Gain on extinguishment of debt .

On May 5, 2020, we received the CARES Act Loan in the principal amount of $2.2 million.

Income before income taxes .

Income before income taxes was $0.1 million for the six months ended June 30, 2022 compared to $1.2 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the six months ended June 30, 2021.

The significant improvement in income before income taxes from a loss, exclusive of the one-time gain of $2.2 million on the extinguishment of debt, was primarily attributable to the increase in revenue, decrease in our cost of revenue as a percentage of revenue, and decrease in share-based compensation expense, which was partially offset by the increase in employee salaries and benefits and sales commissions of $2.6 million, professional fees of $0.3 million, and depreciation and amortization of $0.5 million.

Income tax expense .

Income tax expense of $0.2 million and $0 was recognized for the six months ended June 30, 2022 and 2021, respectively.

A valuation allowance on the deferred tax assets was recognized as of June 30, 2022 and 2021, to reduce the deferred tax assets to the amount that is more likely than not to be realized.

See Note 6, “Income Taxes,”

included in “Notes to Condensed Consolidated Financial Statements.”

Net (loss) income .

Net loss was $0.1 million for the six months ended June 30, 2022 compared to net income of $1.2 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the six months ended June 30, 2021, as a result of the foregoing.

Effect of Inflation

3 unchanged sentences

Cash flows provided by operating activities .

For the three months ended March 31, 2022, net cash provided by operating activities was $2.4 million, primarily the result of the net income of $0.1 million, adjusted for certain non-cash items (consisting primarily of share-based compensation expense, depreciation and amortization, write-off of long-lived assets, provision for bad debts, noncash lease expenses, and deferred income tax expense) totaling $3.3 million, and the cash used as a result of changes in assets and liabilities of $0.9 million, primarily the result of the increase in accounts receivable and prepaid expenses and other current assets, and the decrease in deferred revenue and operating lease liabilities, which was offset by the increase in accounts payable.

For the three months ended March 31, 2021, net cash provided by operating activities was $1.2 million, primarily the result of the net loss of $0.6 million, adjusted for certain non-cash items, as mentioned above, totaling $3.5 million, and the cash used as a result of changes in assets and liabilities of $1.7 million, primarily the result of the increase in accounts receivable and prepaid expenses and other current assets, and the decrease in accounts payable, accrued expenses and other current liabilities and operating lease liabilities.

For the six months ended June 30, 2022, net cash provided by operating activities was $5.0 million, primarily the result of the net loss of $0.1 million, adjusted for certain non-cash items (consisting primarily of share-based compensation expense, depreciation and amortization, write-off of long-lived assets, provision for bad debts, noncash lease expenses, and deferred income tax expense) totaling $6.5 million, and the cash used as a result of changes in assets and liabilities of $1.4 million, primarily the result of the increase in accounts receivable and prepaid expenses and other current assets, and the decrease in accounts payable, deferred revenue and operating lease liabilities.

For the six months ended June 30, 2021, net cash provided by operating activities was $3.5 million, primarily the result of the net income of $1.2 million, adjusted for certain non-cash items (consisting of share-based compensation expense, depreciation and amortization, write-off of long-lived assets, provision for bad debts, noncash lease expenses, and gain on extinguishment of debt) totaling $5.0 million, and the cash used as a result of changes in assets and liabilities of $2.6 million, primarily the result of the increase in accounts receivable and prepaid expenses and other current assets, and the decrease in accounts payable, accrued expenses and other current liabilities and operating lease liabilities.

Cash flows used in investing activities .

For the three months ended March 31, 2022 and 2021, net cash used in investing activities was $1.9 million and $1.3 million, respectively, primarily as a result of capitalized costs included in intangible assets.

As of March 31, 2022, we had material commitments under certain data licensing agreements of $31.6 million.

For the six months ended June 30, 2022 and 2021, net cash used in investing activities was $4.1 million and $2.6 million, respectively, primarily as a result of capitalized costs included in intangible assets.

Cash flows used in financing activities .

For the six months ended June 30, 2022 and 2021, net cash used in financing activities was $2.8 million and $0, respectively.

We paid taxes of $2.8 million related to the net share settlement of vesting of RSUs during the six months ended June 30, 2022.

As of June 30, 2022, we had material commitments under certain data licensing agreements of $30.6 million.

We anticipate funding our operations using available cash and cash flow generated from operations within the next twelve months.

We reported net income of $0.1 million and a net loss of $0.6 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had a total shareholders’

We reported net loss of $0.2 million and net income of $1.8 million (inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan) for the three months ended June 30, 2022 and 2021, respectively, and net loss of $0.1 million and net income of $1.2 million (inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan) for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, we had a total shareholders’

equity balance of $69.9 million.

As of March 31, 2022, we had cash and cash equivalents of approximately $34.8 million.

As of June 30, 2022, we had cash and cash equivalents of approximately $32.3 million.

Based on projections of growth in revenue and operating results in the next twelve months, and the available cash and cash equivalents held by us, we believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months.

3 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of June 30, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Quantitative and Qualitati ve Disclosures About Market Risk.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis