Red Violet, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”). This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends, or results as of the date they are made. 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. 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, 2019 filed on March 12, 2020 (“2019 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. We intend that all forward-looking statements be subject to the safe harbor provisions of PSLRA. 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,” “us,” “our,” “red violet,” or the “Company,” refer to Red Violet, Inc. and its consolidated subsidiaries. Overview 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. We specialize in data fusion and analytics, providing cloud-based, mission-critical solutions to enterprises with use cases including fraud detection, risk mitigation, due diligence and marketing. Through our intelligent platform, CORE TM , we uncover the relevance of disparate data points utilizing our analytical capabilities to provide real-time and insightful views of people, businesses, assets and their interrelationships. Leveraging proprietary technology and applying machine learning and advanced analytical and decision-making capabilities, CORE provides compelling solutions to public and private sector organizations through intuitive, easy-to-use analytical applications. We empower clients across markets and industries to better execute all aspects of their business, from managing risk, recovering debt, identifying fraud and abuse, and ensuring legislative compliance, to identifying and acquiring customers. With a massive data repository of approximately nine petabytes of public-record, proprietary and publicly-available data, as well as self-reported consumer information and behavioral signals, we transform data into intelligence for our customers to enable better data-driven decisioning. We presently market our solutions primarily through two brands, idiCORE™, our flagship product, and FOREWARN ® . idiCORE is a next-generation, investigative solution used to address a variety of organizational challenges including due diligence, risk mitigation, identity authentication and legislative compliance, by financial services companies, insurance companies, healthcare companies, law enforcement and government, collections, law firms, retail, telecommunication companies, corporate security and investigative firms. 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 June 30, 2020 and 2019, idiCORE had 5,375 and 4,370 billable customers and FOREWARN had 40,857 and 19,721 users, respectively. The Company defines a billable customer of idiCORE as a single entity that generated revenue in the last month 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. A unique person can only have one user account. 14 We generate substantially all of our revenue from licensing our solutions. Customers access our solutions through a hosted environment using an online interface, batch processing, API and custom integrations. We recognize revenue from licensing fees (a) on a transactional basis determined by the customer’s usage, (b) via a monthly fee or (c) from a combination of both. Revenue pursuant to pricing contracts containing a monthly fee is recognized ratably over the contract period. Pricing contracts are generally annual contracts or longer, with auto renewal. Revenue from pricing contracts represented 79 % and 73 % of total revenue for the three and six months ended June 30 , 20 20 , respectively , as compared to 62% and 64% for the three and six months ended June 30, 2019, respectively. Our go-to-market strategy leverages (a) an inside sales team that cultivates relationships, and ultimately closes business, with their end-user markets, (b) a strategic sales team that provides a more personal, face-to-face approach for major accounts within certain industries, and (c) distributors, resellers, and strategic partners that have a significant foothold in many of the industries that we have not historically served, as well as to further penetrate those industries that we do serve. Our sales model generally begins with a free trial followed by an initial purchase on a transactional basis or minimum-committed monthly spend. As organizations derive benefits from our solutions, we are able to “land and expand” within larger organizations as additional use cases expand across departments, divisions and geographic locations and customers become increasingly reliant on our solutions in their daily workflow. In order for us to continue to develop new products, grow our existing business and expand into additional markets, we must generate and sustain sufficient operating profits and cash flow in future periods. This will require us to generate additional sales from current products and new products currently under development. We continue to build out our sales organization to drive current products and to introduce new products into the marketplace. In December 2019, a novel strain of coronavirus, now known as Covid-19, was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In March 2020, the World Health Organization characterized Covid-19 as a pandemic. We have taken numerous steps, and will continue to take further actions as appropriate, in our approach to minimizing the impact of the Covid-19 pandemic. To ensure the health and well-being of our employees, beginning in March 2020, we instructed employees at our offices to work from home on a temporary basis. During the second quarter of 2020, we implemented cost containment strategies across all areas of the organization, including continued curtailment of Company travel and partnering with suppliers, landlords and vendors for price concessions and payment deferrals during this interim period. As a result of preventative and protective actions taken by federal, state and local governments, including the implementation of stay-at-home orders and social distancing policies which resulted in significantly reduced commercial activity, and certain temporary government-imposed moratoria on collection customers’ activities, we experienced reduced transactional volume. In addition, we took a proactive customer-centric approach working with customers who were impacted by Covid-19. Customers who had minimum contractual commitments and requested concessions because they were temporarily unable to meet their minimum contractual commitments as a result of Covid-19 were granted reductions, or eliminations where applicable, of minimums on a month-to-month basis during the second quarter. The end date of the customer’s agreement was extended by one month for each month of the temporary concession. In April 2020, we provided concessions to a total of 124 customers, representing $130 thousand reduction of minimum committed spend. In May 2020, we provided concessions to a total of 123 customers, representing $129 thousand reduction of minimum committed spend. In June 2020, we provided concessions to a total of 72 customers, representing $83 thousand reduction of minimum committed spend. 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 can 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. 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 (the “Loan”). We will continue to assess the CARES Act and other applicable government legislation aimed at assisting businesses during the Covid-19 pandemic. In accordance with best practices and guidance from the Centers for Disease Control and Prevention, we implemented protective safeguards, including daily temperature checks, mandatory wearing of masks, social distancing, plexiglass protective barriers, and an entire office HVAC UV-C system. We began our first phase of employees returning to the Boca Raton, Florida office in June 2020. We will continue to assess the need and timing of additional employees returning to the office. Given the dynamic nature of this health emergency, the full impact of the Covid-19 pandemic on our ongoing business, results of operations and overall financial performance cannot be reasonably estimated at this time. 15 Critical Accounting Policies and Estimates Management’s d i scussion and ana l ysis of financial condition and results of oper a tions are based upon our condensed consolidated financial statement s , which have been prepared in accordance with acc o un t ing principles generally a c c e pted in the Unit e d St a tes (“G A AP”). The preparati o n of these financial statements requires us to make estimates and judgments that affect the reported amounts of ass e ts, li a bi l it i es, revenues and expenses, and r e lated disclosure of contingent a ssets and liabilities. On an ongo i ng basis, we evaluate our estimates, including those related to the allowance for doubtful accounts, useful lives of property and equipment and intangible ass e ts, recoverability of the carrying amounts of goodwill and intangible assets, share-based compensation and income tax provision. We base our e s timates on historical ex p e rience a n d on various other assumptions that are believed to be reason a ble under the circumstances, the results of which form the basis f or making judgments ab o ut the ca rrying valu e s of a s s e ts and l i abi l it i es t hat a r e not readily apparent from other sources. Actual results may differ from these est i ma t es under di f ferent assumptions or conditions. For additional information, please refer to our 2019 Form 10-K. There have been no material changes to Critical Accounting Policies and Estimates disclosed in our 2019 Form 10-K. Recently issued accounting standards See Note 1(b), “ Recently issued accounting standards,” in “Notes to Condensed Consolidated Financial Statements.” Second Quarter Financial Results For the three months ended June 30, 2020 as compared to the three months ended June 30, 2019: • Total revenue decreased 3% to $7.1 million. Platform revenue increased 11% to $6.9 million. Services revenue decreased 82% to $0.2 million. • Net loss narrowed 34% to $2.5 million. • Adjusted EBITDA increased 155% to $0.9 million. • Gross profit decreased 1% to $3.5 million. Gross margin increased to 50% from 49%. • Adjusted gross profit increased 7% to $4.5 million. Adjusted gross margin increased to 63% from 58%. • Generated $1.8 million in cash from operating activities in the second quarter. • Cash and cash equivalents were $13.8 million as of June 30, 2020. Covid-19 Impact, Recovery and Opportunity • Our high-margin, platform revenue business demonstrated strong resilience throughout the Covid-impacted period. As a result, on less revenue our adjusted EBITDA more than doubled to $0.9 million and our positive cash flow from operating activities increased $1.7 million compared to prior year. • Business trends in the quarter have been positive since April, experiencing a 12% increase in monthly revenue for June compared to the April low. June provided our highest monthly new customer applications for the year, surpassing our pre-Covid monthly high, and up 33% compared to April low. • The positive momentum building throughout the second quarter has continued in July with monthly revenue up 9% and new customer applications up 8% over June. • Government actions, including stay-at-home orders, social distancing policies, and temporary collections moratoria resulted in reduced transactional volumes during the quarter. However, transactional volumes in July returned to pre-Covid levels. • Our services revenue, comprised of our ancillary collections market offering, idiVERIFIED™, which is purely transactional and of a lower margin profile, experienced sharp volume declines in April attributed to transitory collections moratoria, forbearance programs and government stimulus. However, this offering showed signs of recovery in the quarter and into July. Given current visibility, customer feedback and the overall economic impact on consumer financial profiles, we believe we will realize pent-up demand in the back half of 2020 with strong tailwinds extending throughout 2021. • During the quarter, we took a proactive customer-centric approach working with those impacted by the pandemic, temporarily granting requests for reductions, or eliminations where applicable, of minimum monthly contractual commitments on a month-to-month basis during the second quarter. The end date of the customers’ agreement was extended by one month for each month of the temporary concession. 16 • In April we provided concessions to a total of 124 customers, representing $130 thousand reduction of minimum committed spend. In May we provided concessions to a total of 123 customers, representing $129 thousand reduction of minimum committed spend. In June we provided concessions to a total of 72 customers, representing $83 thousand reduction of minimum committed spend. In July we provided concessions to a total of 20 customers, representing $42 thousand reduction of minimum committed spend. • As our business model has proved resilient during this unprecedented time, we are well positioned within the markets we serve and with the solutions we provide to quickly return to our pre-Covid growth levels in the near-term. The pandemic has accelerated the pace of digital transformation for virtually every business, creating a confluence of micro and macro trends that will provide strong momentum for our business for years to come through growth in e-commerce, demand for cloud efficiency and scale, increased reliance on fraud mitigation solutions as greater transactions move online, the necessity of solving for data fragmentation, and the need for enhanced understanding of consumer risk and financial profiles. Platform revenue consists of both contractual and transactional revenue generated from our data fusion technology platform, CORE. It includes all revenue generated through our idiCORE and FOREWARN solutions. The cost of revenue, which consists primarily of data acquisition costs, remains relatively fixed irrespective of revenue generation. Services revenue consists of transactional revenue generated from our idiVERIFIED service. The cost of revenue, which consists primarily of third-party servicer costs, is variable. 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 gross profit and adjusted gross margin. Adjusted EBITDA is a financial measure equal to net loss, the most directly comparable financial measure based on GAAP, excluding interest income, net, depreciation and amortization, share-based compensation expense, and write-off of long-lived assets and others, as noted in the tables below. 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 June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Net loss $ (2,532 ) $ (3,850 ) $ (4,013 ) $ (5,228 ) Interest income, net - (37 ) (31 ) (77 ) Depreciation and amortization 992 681 1,902 1,299 Share-based compensation expense 2,342 3,609 4,563 3,883 Write-off of long-lived assets and others 106 (47 ) 217 77 Adjusted EBITDA $ 908 $ 356 $ 2,638 $ (46 ) The following is a reconciliation of gross profit, the most directly comparable GAAP financial measure, to adjusted gross profit: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Revenue $ 7,056 $ 7,245 $ 16,356 $ 12,979 Cost of revenue (exclusive of depreciation and amortization) 2,587 3,052 5,879 5,721 Depreciation and amortization of intangible assets 934 617 1,784 1,171 Gross profit 3,535 3,576 8,693 6,087 Depreciation and amortization of intangible assets 934 617 1,784 1,171 Adjusted gross profit $ 4,469 $ 4,193 $ 10,477 $ 7,258 Gross margin 50 % 49 % 53 % 47 % Adjusted gross margin 63 % 58 % 64 % 56 % 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 gross profit and adjusted gross margin 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. 17 We believe adjusted EBITDA, 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 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. 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). We believe adjusted gross profit provides useful information to our investors by eliminating the impact of non-cash depreciation and amortization, and specifically the amortization of software developed for internal use, providing a baseline of our core operating results that allow for analyzing trends in our underlying business consistently over multiple periods. Adjusted gross margin is calculated as adjusted gross profit as a percentage of revenue . Adjusted EBITDA, 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 GAAP. The way we measure adjusted EBITDA, 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. Results of Operations Three months ended June 30, 2020 compared to three months ended June 30, 2019 Revenue . Revenue decreased $0.1 million or 3% to $7.1 million for the three months ended June 30, 2020 from $7.2 million for the three months ended June 30, 2019. As a result of government mandated stay-at-home orders and certain moratoria on our customer’s business activities as a result of Covid-19, we experienced reduced transactional volume for the three months ended June 30, 2020. In addition, we took a proactive customer centric approach working with customers who were impacted by Covid-19. Customers who had minimum contractual commitments and requested concessions because they were temporarily unable to meet their minimum contractual commitments as a result of Covid-19 were granted reductions, or eliminations where applicable, of minimums on a month-to-month basis. The end date of the customer’s agreement was extended by one month for each month of the temporary concession. As a result of these Covid-19 related factors, revenue from new customers decreased $0.7 million or 43%, and growth revenue from existing customers decreased $0.1 million or 6%, partially offset by base revenue from existing customers increasing $0.6 million or 13% for the three months ended June 30, 2020. Our idiCORE billable customer base grew from 4,370 customers as of June 30, 2019 to 5,375 customers as of June 30, 2020. 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 decreased $0.5 million or 15% to $2.6 million for the three months ended June 30, 2020 from $3.1 million for the three months ended June 30, 2019. 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. The decrease in cost of revenue was primarily attributable to the decrease in transactional based data acquisition costs. 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 51% of our total data acquisition costs for the three months ended June 30, 2020 compared to approximately 41% for the three months ended June 30, 2019. 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 37% for the three months ended June 30, 2020 from 42% for the three months ended June 30, 2019. 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 decreased $0.3 million or 13% to $1.7 million for the three months ended June 30, 2020 from $2.0 million for the three months ended June 30, 2019. 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 decrease during the three months ended June 30, 2020 was primarily attributable to an aggregate of $0.2 million decrease in sales commissions from decreased revenue. 18 General and administrative expenses . General and administrative expenses de creased $ 1 . 1 million or 21 % to $ 4 . 3 million for the three months ended June 30 , 20 20 from $ 5 .4 million for the three months ended June 30 , 201 9 . The de crease during the three months ended June 30 , 2020 was primarily attributable to the $ 1 . 3 million de crease in share-based compensation expense . For the three months ended June 30, 2020 and 2019, our general and administrative expenses consisted primarily of employee salaries and benefits of $1.0 million and $1.0 million, share-based compensation expense of $2.2 million and $3.5 million, and professional fees of $0.5 million and $0.4 million, respectively. Depreciation and amortization . Depreciation and amortization expenses increased $0.3 million or 46% to $1.0 million for the three months ended June 30, 2020 from $0.7 million for the three months ended June 30, 2019. The increase in depreciation and amortization for the three months ended June 30, 2020 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after June 30, 2019. Loss before income taxes . L oss before income taxes narrowed $1.4 million or 34% to $2.5 million for the three months ended June 30, 2020 from $3.9 million for the three months ended June 30, 2019. The decrease in loss before income taxes was primarily attributable to the decrease in share-based compensation expense of $1.3 million, sales commission of $0.2 million, and our cost of revenue as a percentage of revenue, which was partially offset by the increase in depreciation and amortization of $0.3 million. Income taxes . Income tax expense of $0 was recognized for the three months ended June 30, 2020 and 2019. A full valuation allowance on the deferred tax assets was recognized as of June 30, 2020 and 2019. See Note 6, “Income Taxes,” included in “Notes to Condensed Consolidated Financial Statements,” for details. Net loss . Net loss narrowed $1.4 million or 34% to $2.5 million for the three months ended June 30, 2020 from $3.9 million for the three months ended June 30, 2019, as a result of the foregoing . Six months ended June 30, 2020 compared to six months ended June 30, 2019 Revenue . Revenue increased $3.4 million or 26% to $16.4 million for the six months ended June 30, 2020 from $13.0 million for the six months ended June 30, 2019. This increase was driven by strong growth in usage from existing customers, with base revenue from existing customers increasing $3.6 million or 45% and growth revenue from existing customers increasing $0.3 million or 16%. This growth was partially offset by a decrease in revenue from new customers of $0.6 million or 19%. In the second half of the period, we experienced reduced transactional volume as a result of government mandated stay-at-home orders and certain moratoria on our customer’s business activities as a result of Covid-19. In addition, we took a proactive customer centric approach working with customers who were impacted by Covid-19. Customers who had minimum contractual commitments and requested concessions because they were temporarily unable to meet their minimum contractual commitments as a result of Covid-19 were granted reductions, or eliminations where applicable, of minimums on a month-to-month basis. The end date of the customer’s agreement was extended by one month for each month of the temporary concession. 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 $0.2 million or 3% to $5.9 million for the six months ended June 30, 2020 from $5.7 million for the six months ended June 30, 2019. 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. The increase in cost of revenue was primarily attributable to the increase in flat-fee based data acquisition costs, which was partially offset by the decrease in transactional based data acquisition costs. 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 44% of our total data acquisition costs for the six months ended June 30, 2020 compared to approximately 41% for the six months ended June 30, 2019. 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 36% for the six months ended June 30, 2020 from 44% for the six months ended June 30, 2019. 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. 19 Sales and marketing expenses . Sales and marketing expenses increased $0. 4 million or 12 % to $ 3 . 9 million for the six months ended June 30, 2020 from $ 3 .5 million for the six months ended June 30, 2019. 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 six months ended June 30, 2020 was primarily attributable to an aggregate of $0. 3 million increase in salaries and benefits, as we continue to invest in the expansion of our sales organization, and sales commissions from increased revenue. General and administrative expenses . General and administrative expenses increased $0.9 million or 12% to $8.7 million for the six months ended June 30, 2020 from $7.8 million for the six months ended June 30, 2019. The increase during the six months ended June 30, 2020 was primarily attributable to the $0.6 million increase in share-based compensation expense. For the six months ended June 30, 2020 and 2019, our general and administrative expenses consisted primarily of employee salaries and benefits of $2.2 million and $2.0 million, share-based compensation expense of $4.3 million and $3.7 million, and professional fees of $1.2 million and $1.2 million, respectively. Depreciation and amortization . Depreciation and amortization expenses increased $0.6 million or 46% to $1.9 million for the six months ended June 30, 2020 from $1.3 million for the six months ended June 30, 2019. The increase in depreciation and amortization for the six months ended June 30, 2020 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after June 30, 2019. Loss before income taxes . L oss before income taxes narrowed $1.2 million or 23% to $4.0 million for the six months ended June 30, 2020 from $5.2 million for the six months ended June 30, 2019. The decrease in loss before income taxes was primarily attributable to the increase in revenue and the decrease in our cost of revenue as a percentage of revenue, which was partially offset by the increase in share-based compensation expense of $0.7 million, salaries and benefits and sales commission of $0.5 million, and depreciation and amortization of $0.6 million. Income taxes . Income tax expense of $0 was recognized for the six months ended June 30, 2020 and 2019. A full valuation allowance on the deferred tax assets was recognized as of June 30, 2020 and 2019. See Note 6, “Income Taxes,” included in “Notes to Condensed Consolidated Financial Statements,” for details. Net loss . Net loss narrowed $1.2 million or 23% to $4.0 million for the six months ended June 30, 2020 from $5.2 million for the six months ended June 30, 2019, 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. Liquidity and Capital Resources Cash flows provided by (used in) operating activities . For the six months ended June 30, 2020, net cash provided by operating activities was $3.0 million, primarily the result of the net loss of $4.0 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 and noncash lease expenses) totaling $7.1 million. For the six months ended June 30, 2019, net cash used in operating activities was $1.1 million, primarily the result of the net loss of $5.2 million, adjusted for certain non-cash items, as mentioned above, totaling $5.7 million, and the cash used as a result of changes in assets and liabilities of $1.6 million, primarily the result of the increase in accounts receivable and decrease in operating lease liabilities. Cash flows used in investing activities . For the six months ended June 30, 2020 and 2019, net cash used in investing activities was $3.1 million and $2.9 million, respectively, primarily as a result of capitalized costs included in intangible assets. Cash flows provided by financing activities . For the six months ended June 30, 2020 and 2019, net cash provided by financing activities was $2.2 million and $0, respectively. On May 5, 2020, we received funding under a promissory note dated May 5, 2020 evidencing the Loan in the principal amount of $2.2 million under the CARES Act. The Loan has a two-year term and matures on May 5, 2022. The interest rate on the Loan is 1.0% per annum. Payments can be deferred until loan forgiveness is determined, or if the Company does not apply for forgiveness, then 10 months after the covered period ends. As of June 30, 2020, we had material commitments under certain data licensing agreements of $10.8 million. We anticipate funding our operations using available cash and cash flow generated from operations, and the Loan proceeds under the CARES Act, within the next twelve months. 20 We reported net loss of $ 2 .5 million and $ 3 . 9 million for the three months ended June 30, 2020 and 2019, respectively , and $ 4 . 0 million and $ 5 . 2 million for the six months ended June 30 , 2020 and 201 9 , respectively . As of June 30 , 2020 , we had a total shareholders’ equity balance of $ 4 3 . 7 million. As of June 30, 2020, we had cash and cash equivalents of approximately $13.8 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. We further believe that our financial resources will allow us to manage the impact of Covid-19 on the Company's business operations for the foreseeable future. However, subject to revenue growth, our ability to generate positive cash flow, and the potential impact of Covid-19, we may have to raise capital through the issuance of additional equity and/or debt, which, if we are able to obtain, could have the effect of diluting stockholders. Any equity or debt financings, if available at all, may be on terms which are not favorable to us. Off-Balance Sheet Arrangements As of June 30, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information required by this item.