What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-07 · 78 added, 130 removed, 126 unchanged (62% of the section changed)

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Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements.

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.

Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.

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, 2022 filed on March 8, 2023 (“Form 10-K”), and other filings we make with the Securities and Exchange Commission.

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These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

To the extent that our business is negatively impacted due to a variety of factors, including the impact of Covid-19 on our operating results, we may implement longer-term cost reduction efforts in order to mitigate such impacts.

References in this discussion and analysis to “we,”

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and its consolidated subsidiaries.

Red Violet, Inc.

(“we,”

“us,”

“our,”

“red violet,”

or the “Company”), a Delaware corporation, is dedicated to making the world a safer place and reducing the cost of doing business.

Red Violet, Inc., a Delaware corporation, is dedicated to making the world a safer place and reducing the cost of doing business.

We build proprietary technologies and apply analytical capabilities to deliver identity intelligence.

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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 September 30, 2022 and 2021, IDI had 6,873 and 6,314 billable customers and FOREWARN had 110,051 and 74,377 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.

As of March 31, 2023 and 2022, IDI had 7,256 and 6,592 billable customers and FOREWARN had 131,348 and 91,490 users, respectively.

We define a billable customer of IDI as a single entity that generated revenue during the last three months of the period.

Billable customers are typically corporate organizations.

In most cases, corporate organizations will have multiple users and/or departments purchasing our solutions, however, the Company counts the entire organization as a discrete customer.

The Company defines a user of FOREWARN as a unique person that has a subscription to use the FOREWARN service as of the last day of the period.

In most cases, corporate organizations will have multiple users and/or departments purchasing our solutions, however, we count the entire organization as a discrete customer.

We define a user of FOREWARN as a unique person that has a subscription to use the FOREWARN service as of the last day of the period.

A unique person can only have one user account.

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

For the three months ended September 30, 2022 and 2021, 68% and 80% of total revenue was attributable to customers with pricing contracts, respectively, versus 32% and 20% attributable to transactional customers, respectively.

For the nine months ended September 30, 2022 and 2021, 74% and 80% of total revenue was attributable to customers with pricing contracts, respectively, versus 26% and 20% attributable to transactional customers, respectively.

For the three months ended March 31, 2023 and 2022, 75% and 77% of total revenue was attributable to customers with pricing contracts, respectively, versus 25% and 23% attributable to transactional customers, respectively.

We endeavor to understand our customers’

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We continue to build out our sales organization to drive current products and to introduce new products into the marketplace.

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 nine months ended September 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.

To further support our liquidity, beginning April 1, 2020, we elected, under Section 2302 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), to defer payment of the employer portion of Social Security payroll tax.

Under the CARES Act, employers could forgo timely payment of the employer portion of Social Security taxes that would otherwise be due from March 27, 2020 through December 31, 2020, without penalty or interest charges.

Employers must pay 50% of the deferred amount by December 31, 2021, and the remainder by December 31, 2022.

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 ("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 nine months ended September 30, 2021.

Critical Accounting Policies and Estimates

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in “Notes to Condensed Consolidated Financial Statements.”

Third Quarter Financial Results

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

First Quarter Financial Results

For the three months ended March 31, 2023, as compared to the three months ended March 31, 2022:

Total revenue increased 15% to $14.6 million.

Platform revenue increased 31% to $14.8 million.

Services revenue decreased 29% to $0.2 million.

Gross profit increased 19% to $9.6 million.

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Adjusted EBITDA increased 15% to $3.7 million.

Cash from operating activities decreased 9% to $3.1 million.

Cash and cash equivalents were $31.3 million as of September 30, 2022.

Third Quarter and Recent Business Highlights

Added 56 customers to IDI during the third quarter, ending the quarter with 6,873 customers.

Added 8,790 users to FOREWARN during the third quarter, ending the quarter with 110,051 users.

Over 225 REALTOR ® Associations are now contracted to use FOREWARN.

Continue to enhance our go-to-market capabilities with the expansion of our sales team, including key new hires focused on several strategic areas within fraud and identity where we are seeing strong traction.

To date, we have purchased a total of 50,000 shares of the Company’s common stock at an average price of $17.52 per share pursuant to the Company’s Stock Repurchase Program authorized by the board of directors on May 4, 2022.

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

It includes all revenue generated through our idiCORE and FOREWARN solutions.

The cost of platform revenue, which consists primarily of data acquisition costs, remains relatively fixed irrespective of revenue generation.

Services revenue consists of revenue generated from our idiVERIFIED service, which is an ancillary collections market offering that is purely transactional and of a lower margin profile.

The cost of services revenue, which consists primarily of third-party servicer costs, is variable.

Net cash from operating activities decreased 37% to $1.5 million.

Cash and cash equivalents were $30.8 million as of March 31, 2023.

First Quarter and Recent Business Highlights

Added 235 customers to IDI during the first quarter, ending the quarter with 7,256 customers.

Added 14,388 users to FOREWARN during the first quarter, ending the quarter with 131,348 users.

Over 255 REALTOR ® Associations throughout the U.S.

are now contracted to use FOREWARN.

Launched redesigned corporate websites, www.redviolet.com , www.ididata.com , and www.forewarn.com , providing a more valuable user experience with modern design, improved functionality, easier navigation, and greater detail on the breadth and applicability of our identity solutions.

Purchased 44,766 shares of the Company’s common stock year to date through May 5, 2023, at an average price of $16.88 per share pursuant to the Company’s $5.0 million Stock Repurchase Program that was authorized on May 2, 2022.

The Company has $3.4 million remaining under the Stock Repurchase Program.

Use and Reconciliation of Non-GAAP Financial Measures

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, the most directly comparable financial measure based on US GAAP, excluding interest (income) expense, 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.

Adjusted EBITDA is a financial measure equal to net income, the most directly comparable financial measure based on US GAAP, excluding interest income, net, income tax (benefit) expense, depreciation and amortization, share-based compensation expense, 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 September 30,

Nine Months Ended September 30,

We define FCF as net cash provided by operating activities reduced by purchase of property and equipment and capitalized costs included in intangible assets.

Three Months Ended March 31,

(In thousands)

Interest (income) expense, net

Income tax expense

Interest income, net

Income tax (benefit) expense

Depreciation and amortization

Share-based compensation expense

Gain on extinguishment of debt

Litigation costs

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Cost of revenue (exclusive of depreciation and

amortization)

Cost of revenue (exclusive of depreciation and amortization)

Depreciation and amortization of intangible assets

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Adjusted gross margin

In order to assist readers of our condensed consolidated financial statements in understanding the operating results that management uses to evaluate the business and for financial planning purposes, we present non-GAAP measures of adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted gross margin as supplemental measures of our operating performance.

The following is a reconciliation of net cash provided by operating activities, the most directly comparable US GAAP measure, to FCF:

Three Months Ended March 31,

(In thousands)

Net cash provided by operating activities

Purchase of property and equipment

Capitalized costs included in intangible assets

Free cash flow

In order to assist readers of our condensed consolidated financial statements in understanding the operating results that management uses to evaluate the business and for financial planning purposes, we present non-GAAP measures of adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin and FCF as supplemental measures of our operating performance.

We believe they provide useful information to our investors as they eliminate the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance.

In addition, we use them as an integral part of our internal reporting to measure the performance and operating strength of our business.

We believe adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted gross margin are relevant and provide useful information frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours and are indicators of the operational strength of our business.

We believe adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin and FCF are relevant and provide useful information frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours and are indicators of the operational strength of our business.

We believe adjusted EBITDA eliminates the uneven effect of considerable amounts of non-cash depreciation and amortization, share-based compensation expense and the impact of other non-recurring items, providing useful comparisons versus prior periods or forecasts.

Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue.

Our adjusted gross profit is a measure used by management in evaluating the business’

current operating performance by excluding the impact of prior historical costs of assets that are expensed systematically and allocated over the estimated useful lives of the assets, which may not be indicative of the current operating activity.

Our adjusted gross profit is a measure used by management in evaluating the business’s current operating performance by excluding the impact of prior historical costs of assets that are expensed systematically and allocated over the estimated useful lives of the assets, which may not be indicative of the current operating activity.

Our adjusted gross profit is calculated by using revenue, less cost of revenue (exclusive of depreciation and amortization).

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Adjusted gross margin is calculated as adjusted gross profit as a percentage of revenue.

Adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted gross margin are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, financial measures presented in accordance with US GAAP.

The way we measure adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted gross margin may not be comparable to similarly titled measures presented by other companies, and may not be identical to corresponding measures used in our various agreements.

We believe FCF is an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in our business.

FCF is a measure used by management to understand and evaluate the business’s operating performance and trends over time.

FCF is calculated by using net cash provided by operating activities, less purchase of property and equipment and capitalized costs included in intangible assets.

Adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin and FCF are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, financial measures presented in accordance with US GAAP.

In addition, FCF is not intended to represent our residual cash flow available for discretionary expenses and is not necessarily a measure of our ability to fund our cash needs.

The way we measure adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin and FCF may not be comparable to similarly titled measures presented by other companies, and may not be identical to corresponding measures used in our various agreements.

Results of Operations

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

Revenue increased $3.3 million or 29% to $15.0 million for the three months ended September 30, 2022 from $11.7 million for the three months ended September 30, 2021.

Revenue from new customers increased $1.1 million or 130%, base revenue from existing customers increased $1.6 million or 18%, and growth revenue from existing customers increased $0.6 million or 35%.

Our IDI billable customer base grew from 6,314 customers as of September 30, 2021 to 6,873 customers as of September 30, 2022, and our FOREWARN user base grew from 74,377 users to 110,051 users during that same period.

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 $0.3 million or 10% to $3.1 million for the three months ended September 30, 2022 from $2.8 million for the three months ended September 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 three months ended September 30, 2022 compared to approximately 49% for the three months ended September 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 20% for the three months ended September 30, 2022 from 24% for the three months ended September 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 $0.4 million or 22% to $2.6 million for the three months ended September 30, 2022 from $2.2 million for the three months ended September 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 September 30, 2022 was primarily attributable to an increase of $0.3 million in salaries and benefits, and sales commissions resulting from increased revenue.

General and administrative expenses .

General and administrative expenses increased $1.4 million or 32% to $5.5 million for the three months ended September 30, 2022 from $4.1 million for the three months ended September 30, 2021.

For the three months ended September 30, 2022 and 2021, our general and administrative expenses consisted primarily of employee salaries and benefits of $2.7 million and $2.0 million, share-based compensation expense of $1.2 million and $0.9 million, and professional fees of $1.0 million and $0.7 million, respectively.

Depreciation and amortization .

Depreciation and amortization expenses increased $0.4 million or 27% to $1.7 million for the three months ended September 30, 2022 from $1.3 million for the three months ended September 30, 2021.

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

Income before income taxes .

Income before income taxes increased $1.0 million or 82% to $2.3 million for the three months ended September 30, 2022 from $1.3 million for the three months ended September 30, 2021.

The increase in income before income taxes was primarily attributable to the increase in revenue, decrease in our cost of revenue as a percentage of revenue, which was partially offset by the increase in employee salaries and benefits and sales commissions of $1.0 million, share-based compensation expense of $0.3 million, professional fees of $0.3 million, and depreciation and amortization of $0.4 million.

Income tax expense .

Income tax expense of $25 thousand and $0 was recognized for the three months ended September 30, 2022 and 2021, respectively.

A valuation allowance on the deferred tax assets was recognized as of September 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 increased $1.0 million or 80% to $2.3 million for the three months ended September 30, 2022 from $1.3 million for the three months ended September 30, 2021, as a result of the foregoing.

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021

Revenue increased $7.4 million or 23% to $40.2 million for the nine months ended September 30, 2022 from $32.8 million for the nine months ended September 30, 2021.

Revenue from new customers increased $1.0 million or 38%, base revenue from existing customers increased $5.8 million or 23%, and growth revenue from existing customers increased $0.6 million or 12%.

Three months ended March 31, 2023 compared to three months ended March 31, 2022

Revenue increased $1.9 million or 15% to $14.6 million for the three months ended March 31, 2023 from $12.7 million for the three months ended March 31, 2022.

Revenue from new customers increased $0.9 million or 84%, and base revenue from existing customers increased $1.4 million or 14%, while growth revenue from existing customers decreased $0.4 million or 18%.

Our IDI billable customer base grew from 6,592 customers as of March 31, 2022 to 7,256 customers as of March 31, 2023, and our FOREWARN user base grew from 91,490 users to 131,348 users during that same period.

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

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Cost of revenue (exclusive of depreciation and amortization) .

Cost of revenue increased $0.9 million or 11% to $9.2 million for the nine months ended September 30, 2022 from $8.3 million for the nine months ended September 30, 2021.

Cost of revenue remained consistent at $3.2 million for the three months ended March 31, 2023 and 2022.

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 nine months ended September 30, 2022 compared to approximately 49% for the nine months ended September 30, 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 48% and 47% of our total data acquisition costs for the three months ended March 31, 2023 and 2022, respectively.

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 23% for the nine months ended September 30, 2022 from 25% for the nine months ended September 30, 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 22% for the three months ended March 31, 2023 from 25% for the three months ended March 31, 2022.

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

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Sales and marketing expenses .

Sales and marketing expenses increased $1.1 million or 17% to $7.8 million for the nine months ended September 30, 2022 from $6.7 million for the nine months ended September 30, 2021.

Sales and marketing expenses increased $1.5 million or 63% to $3.9 million for the three months ended March 31, 2023 from $2.4 million for the three months ended March 31, 2022.

The increase during the nine months ended September 30, 2022 was primarily attributable to an increase of $1.0 million in salaries and benefits, and sales commissions resulting from increased revenue.

The increase during the three months ended March 31, 2023 was primarily attributable to the increase of $0.7 million in salaries and benefits, and sales commissions, resulting from increased revenue, and $0.6 million in provision for bad debts.

General and administrative expenses .

General and administrative expenses increased $2.5 million or 19% to $16.1 million for the nine months ended September 30, 2022 from $13.6 million for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022 and 2021, our general and administrative expenses consisted primarily of employee salaries and benefits of $7.7 million and $5.0 million, share-based compensation expense of $3.8 million and $4.8 million, and professional fees of $2.8 million and $2.2 million, respectively.

General and administrative expenses decreased $0.2 million or 2% to $5.2 million for the three months ended March 31, 2023 from $5.4 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023 and 2022, our general and administrative expenses consisted primarily of employee salaries and benefits of $2.8 million and $2.5 million, share-based compensation expense of $1.3 million and $1.3 million, and professional fees of $0.6 million and $1.0 million, respectively.

Depreciation and amortization .

Depreciation and amortization expenses increased $1.0 million or 24% to $4.9 million for the nine months ended September 30, 2022 from $3.9 million for the nine months ended September 30, 2021.

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

Depreciation and amortization expenses increased $0.4 million or 25% to $1.9 million for the three months ended March 31, 2023 from $1.5 million for the three months ended March 31, 2022.

The increase in depreciation and amortization for the three months ended March 31, 2023 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after March 31, 2022.

Interest income, net .

Interest income of $0.3 million for the three months ended March 31, 2023 was primarily due to interest income earned on investments in certain money market funds.

There was no significant interest income, net for the three months ended March 31, 2022.

Income before income taxes .

Income before income taxes was $2.4 million for the nine months ended September 30, 2022 compared to $2.4 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 nine months ended September 30, 2021.

The significant $2.2 million increase in income before income taxes to $2.4 million for the nine months ended September 30, 2022 from $0.2 million, exclusive of the one-time gain of $2.2 million on the extinguishment of debt, for the nine months ended September 30, 2021, 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 $3.7 million, professional fees of $0.6 million, and depreciation and amortization of $1.0 million.

Income tax expense .

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

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

Income before income taxes was $0.7 million and $0.3 million for the three months ended March 31, 2023 and 2022, respectively.

The increase in income before income taxes for the three months ended March 31, 2023 was primarily attributable to the increase in revenue, decrease in our cost of revenue as a percentage of revenue, and increase in interest income, which was partially offset by the increase in employee salaries and benefits and sales commissions of $1.0 million, provision for bad debts of $0.6 million, and depreciation and amortization of $0.4 million.

Income taxes .

Income tax benefit of $0.03 million and income tax expense of $0.2 million was recognized for the three months ended March 31, 2023 and 2022, respectively.

A valuation allowance on the deferred tax assets was recognized as of March 31, 2023 and 2022, 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 was $2.2 million for the nine months ended September 30, 2022 compared to $2.4 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 nine months ended September 30, 2021, as a result of the foregoing.

Net income was $0.7 million for the three months ended March 31, 2023 compared to $0.1 million for the three months ended March 31, 2022, as a result of the foregoing.

Effect of Inflation

The rates of inflation experienced in recent years have had no material impact on our financial statements.

We attempt to recover increased costs by increasing prices for our services, to the extent permitted by contracts and competition.

We believe that the persistent inflationary pressure throughout 2022 and up to March 31, 2023 has contributed to deteriorating macroeconomic conditions and increased recession fears, causing businesses to slow their spending over the last several months, which have resulted, and may continue to result, in fluctuations in volumes, pricing and operating margins for our services.

Also, higher interest rates imposed to combat inflation, may reduce the demand for credit, which may lead to a decline in the volume of services we provide to our customers in the banking or financial industry, or other industries that are affected by these types of disruptions.

However, the rates of inflation experienced in recent years have had no material impact on our financial statements as we have attempted to recover increased costs by increasing prices for our services, to the extent permitted by contracts and competition.

Liquidity and Capital Resources

Cash flows provided by operating activities .

For the nine months ended September 30, 2022, net cash provided by operating activities was $8.1 million, primarily the result of the net income of $2.2 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 $9.6 million, and the cash used as a result of changes in assets and liabilities of $3.7 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.

For the nine months ended September 30, 2021, net cash provided by operating activities was $7.0 million, primarily the result of the net income of $2.4 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, interest expense, and gain on extinguishment of debt) totaling $7.4 million, and the cash used as a result of changes in assets and liabilities of $2.9 million, primarily the result of the increase in accounts receivable, and the decrease in accounts payable, accrued expenses and other current liabilities, and operating lease liabilities.

For the three months ended March 31, 2022, net cash provided by operating activities was $1.5 million, primarily the result of the net income of $0.7 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 deferred income tax (benefit) expense) totaling $4.1 million, and the cash used as a result of changes in assets and liabilities of $3.3 million, primarily the result of the increase in accounts receivable, prepaid expenses and other current assets and other noncurrent assets, and the decrease in accrued expenses and other current liabilities, and operating lease liabilities.

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, as mentioned above, 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.

Cash flows used in investing activities .

For the nine months ended September 30, 2022 and 2021, net cash used in investing activities was $6.4 million and $3.8 million, respectively, primarily as a result of capitalized costs included in intangible assets.

For the three months ended March 31, 2023 and 2022, net cash used in investing activities was $2.3 million and $1.9 million, respectively, primarily as a result of capitalized costs included in intangible assets.

Cash flows used in financing activities .

For the nine months ended September 30, 2022 and 2021, net cash used in financing activities was $4.7 million and $2.8 million, respectively.

For the nine months ended September 30, 2022, we paid taxes of $4.3 million related to the net share settlement of vesting of RSUs.

In addition, on May 4, 2022, we announced that the board of directors authorized the repurchase of up to $5.0 million of our common stock from time to time (the “Stock Repurchase Program”), and we paid an aggregate of $0.4 million for the repurchases of common stock.

For the nine months ended September 30, 2021, we paid taxes of $2.8 million related to the net share settlement of vesting of RSUs.

As of September 30, 2022, we had material commitments under certain data licensing agreements of $28.7 million.

For the three months ended March 31, 2023, net cash used in financing activities was $0.2 million, mainly the result of $0.2 million paid in aggregate for the repurchase of common stock pursuant to a stock repurchase program that the board of directors authorized on May 2, 2022 (the "Stock Repurchase Program"), authorizing the repurchase of up to $5.0 million of our common stock.

There were no significant financing activities for the three months ended March 31, 2022.

As of March 31, 2023, we had material commitments under certain data licensing agreements of $25.0 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 $2.3 million and $1.3 million for the three months ended September 30, 2022 and 2021, respectively, and $2.2 million and $2.4 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 nine months ended September 30, 2022 and 2021, respectively.

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

We reported net income of $0.7 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, we had a total shareholders’

equity balance of $73.4 million.

As of September 30, 2022, we had cash and cash equivalents of approximately $31.3 million.

As of March 31, 2023, we had cash and cash equivalents of approximately $30.8 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.

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Off-Balance Sheet Arrangements

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

As of March 31, 2023, 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.

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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