Red Violet, Inc. 10-Q

Item 1. Financial Statements. RED VIOLET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share data) (unaudited) September 30, 2020 December 31, 2019 ASSETS: Current assets: Cash and cash equivalents $ 12,441 $ 11,776 Accounts receivable, net of allowance for doubtful accounts of $ 20 and $ 40 as of September 30, 2020 and December 31, 2019, respectively 2,920 3,543 Prepaid expenses and other current assets 616 722 Total current assets 15,977 16,041 Property and equipment, net 555 660 Intangible assets, net 26,977 24,034 Goodwill 5,227 5,227 Right-of-use assets 2,279 2,620 Other noncurrent assets 93 289 Total assets $ 51,108 $ 48,871 LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 2,199 $ 2,138 Accrued expenses and other current liabilities 775 1,571 Current portion of operating lease liabilities 536 491 Current portion of long-term loan 1,059 - Deferred revenue 180 128 Total current liabilities 4,749 4,328 Noncurrent operating lease liabilities 2,052 2,459 Long-term loan 1,093 - Total liabilities 7,894 6,787 Shareholders' equity: Preferred stock—$ 0.001 par value, 10,000,000 shares authorized, and 0 shares issued and outstanding, as of September 30, 2020 and December 31, 2019 - - Common stock—$ 0.001 par value, 200,000,000 shares authorized, 12,371,665 and 11,657,912 shares issued, 12,146,910 and 11,554,765 shares outstanding, as of September 30, 2020 and December 31, 2019 13 12 Treasury stock, at cost, 224,755 and 103,147 shares as of September 30, 2020 and December 31, 2019 ( 3,083 ) ( 1,255 ) Additional paid-in capital 67,082 59,187 Accumulated deficit ( 20,798 ) ( 15,860 ) Total shareholders' equity 43,214 42,084 Total liabilities and shareholders' equity $ 51,108 $ 48,871 See notes to condensed consolidated financial statements 2 RED VIOLET, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue $ 9,267 $ 8,257 $ 25,623 $ 21,236 Costs and expenses: Cost of revenue (exclusive of depreciation and amortization) 2,703 3,122 8,582 8,843 Sales and marketing expenses 2,217 1,925 6,139 5,428 General and administrative expenses 4,147 3,498 12,844 11,259 Depreciation and amortization 1,118 750 3,020 2,049 Total costs and expenses 10,185 9,295 30,585 27,579 Loss from operations ( 918 ) ( 1,038 ) ( 4,962 ) ( 6,343 ) Interest (expense) income, net ( 7 ) 46 24 123 Loss before income taxes ( 925 ) ( 992 ) ( 4,938 ) ( 6,220 ) Income taxes - - - - Net loss $ ( 925 ) $ ( 992 ) $ ( 4,938 ) $ ( 6,220 ) Loss per share: Basic and diluted $ ( 0.08 ) $ ( 0.09 ) $ ( 0.42 ) $ ( 0.59 ) Weighted average number of shares outstanding: Basic and diluted 12,072,716 10,917,673 11,758,907 10,497,036 See notes to condensed consolidated financial statements 3 RED VIOLET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Amounts in thousands, except share data) (unaudited) Common stock Treasury stock Additional paid-in Accumulated Shares Amount Shares Amount capital deficit Total Balance at June 30, 2019 10,286,613 $ 10 - $ - $ 45,253 $ ( 10,012 ) $ 35,251 Vesting of restricted stock units 666,049 1 - - ( 1 ) - - Increase in treasury stock resulting from shares withheld to cover statutory taxes - - ( 103,147 ) ( 1,255 ) - - ( 1,255 ) Issuance of common stock upon direct offering to certain investors, net of issuance costs of $ 55 681,000 1 - - 7,435 - 7,436 Share-based compensation - - - - 1,615 - 1,615 Net loss - - - - - ( 992 ) ( 992 ) Balance at September 30, 2019 11,633,662 $ 12 ( 103,147 ) $ ( 1,255 ) $ 54,302 $ ( 11,004 ) $ 42,055 Balance at June 30, 2020 11,707,829 $ 12 ( 103,147 ) $ ( 1,255 ) $ 64,806 $ ( 19,873 ) $ 43,690 Vesting of restricted stock units 663,836 1 - - ( 1 ) - - Increase in treasury stock resulting from shares withheld to cover statutory taxes - - ( 121,608 ) ( 1,828 ) - - ( 1,828 ) Share-based compensation - - - - 2,277 - 2,277 Net loss - - - - - ( 925 ) ( 925 ) Balance at September 30, 2020 12,371,665 $ 13 ( 224,755 ) $ ( 3,083 ) $ 67,082 $ ( 20,798 ) $ 43,214 Common stock Treasury stock Additional paid-in Accumulated Shares Amount Shares Amount capital deficit Total Balance at December 31, 2018 10,266,613 $ 10 - $ - $ 41,052 $ ( 4,784 ) $ 36,278 Vesting of restricted stock units 686,049 1 - - ( 1 ) - - Increase in treasury stock resulting from shares withheld to cover statutory taxes - - ( 103,147 ) ( 1,255 ) - - ( 1,255 ) Issuance of common stock upon direct offering to certain investors, net of issuance costs of $ 55 681,000 1 - - 7,435 - 7,436 Share-based compensation - - - - 5,816 - 5,816 Net loss - - - - - ( 6,220 ) ( 6,220 ) Balance at September 30, 2019 11,633,662 $ 12 ( 103,147 ) $ ( 1,255 ) $ 54,302 $ ( 11,004 ) $ 42,055 Balance at December 31, 2019 11,657,912 $ 12 ( 103,147 ) $ ( 1,255 ) $ 59,187 $ ( 15,860 ) $ 42,084 Vesting of restricted stock units 713,753 1 - - ( 1 ) - - Increase in treasury stock resulting from shares withheld to cover statutory taxes - - ( 121,608 ) ( 1,828 ) - - ( 1,828 ) Share-based compensation - - - - 7,896 - 7,896 Net loss - - - - - ( 4,938 ) ( 4,938 ) Balance at September 30, 2020 12,371,665 $ 13 ( 224,755 ) $ ( 3,083 ) $ 67,082 $ ( 20,798 ) $ 43,214 See notes to condensed consolidated financial statements 4 RED VIOLET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (unaudited) Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 4,938 ) $ ( 6,220 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,020 2,049 Share-based compensation expense 6,416 5,290 Write-off of long-lived assets 117 30 Provision for bad debts 360 398 Noncash lease expenses 341 313 Interest expense 7 - Changes in assets and liabilities: Accounts receivable 263 ( 1,458 ) Prepaid expenses and other current assets 106 40 Other noncurrent assets 109 254 Accounts payable 61 235 Accrued expenses and other current liabilities ( 803 ) ( 183 ) Deferred revenue 52 9 Operating lease liabilities ( 362 ) ( 322 ) Net cash provided by operating activities 4,749 435 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 98 ) ( 71 ) Capitalized costs included in intangible assets ( 4,310 ) ( 4,413 ) Net cash used in investing activities ( 4,408 ) ( 4,484 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares, net of issuance costs - 7,436 Proceeds from long-term loan 2,152 - Taxes paid related to net share settlement of vesting of restricted stock units ( 1,828 ) - Net cash provided by financing activities 324 7,436 Net increase in cash and cash equivalents $ 665 $ 3,387 Cash and cash equivalents at beginning of period 11,776 9,950 Cash and cash equivalents at end of period $ 12,441 $ 13,337 SUPPLEMENTAL DISCLOSURE INFORMATION Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Share-based compensation capitalized in intangible assets $ 1,480 $ 526 Right-of-use assets obtained in exchange of operating lease liabilities $ - $ 3,042 Operating lease liabilities arising from obtaining right-of-use assets $ - $ 3,387 See notes to condensed consolidated financial statements 5 RED VIOLET, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share data) (unaudited) 1. Summary of significant accounting policies (a) Basis of preparation The accompanying unaudited condensed consolidated financial statements of Red Violet, Inc. (“red violet” or the “Company”), a Delaware corporation, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for any future interim periods or for the full year ending December 31, 2020. The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”). The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date included in the 2019 Form 10-K, but does not include all disclosures required by GAAP. The Company has only one operating segment, as defined by Accounting Standards Codification (“ASC”) 280, “ Segment Reporting .” Principles of consolidation The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation . (b) Recently issued accounting standards As an emerging growth company, the Company has left open the opportunity to take advantage of the extended transition period provided to emerging growth companies in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), however, it is the Company’s present intention to adopt any applicable new accounting standards timely. In August 2018, Financial Accounting Standard Board (“FASB”) issued ASU No. 2018-15 (“ASU 2018-15”), “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. It also requires the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This guidance will be effective for the Company for annual reporting periods beginning after December 15, 2020, on a retrospective or prospective basis and early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures. 6 2. Loss per share Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and is calculated using the treasury stock method for unvested shares. Common equivalent shares are excluded from the calculation in the loss periods as their effects would be anti-dilutive. Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except share data) 2020 2019 2020 2019 Numerator: Net loss $ ( 925 ) $ ( 992 ) $ ( 4,938 ) $ ( 6,220 ) Denominator: Weighted average shares outstanding - Basic and diluted (1) 12,072,716 10,917,673 11,758,907 10,497,036 Loss per share: Basic and diluted: $ ( 0.08 ) $ ( 0.09 ) $ ( 0.42 ) $ ( 0.59 ) (1) A total of 1,529,657 unvested restricted stock units (“RSUs”) have been excluded from the diluted loss per share for the three and nine months ended September 30, 2020, and 1,954,910 RSUs have been excluded for the three and nine months ended September 30, 2019, as the impact is anti-dilutive. 3. Intangible assets, net Intangible assets other than goodwill consist of the following: September 30, 2020 December 31, 2019 (In thousands) Amortization Period Gross Amount Accumulated Amortization Net Gross Amount Accumulated Amortization Net Software developed for internal use 5-10 years $ 35,480 $ ( 8,503 ) $ 26,977 $ 29,690 $ ( 5,656 ) $ 24,034 The gross amount associated with software developed for internal use represents capitalized costs of internally-developed software, including eligible salaries and staff benefits, share-based compensation, travel expenses incurred by relevant employees, and other relevant costs. Amortization expenses of $ 1,063 and $ 689 for the three months ended September 30, 2020 and 2019, respectively, and $ 2,847 and $ 1,860 for the nine months ended September 30, 2020 and 2019, respectively, were included in depreciation and amortization expense. As of September 30, 2020, intangible assets of $ 2,635 , included in the gross amounts of software developed for internal use, have not started amortization, as they are not ready for their intended use. The Company capitalized costs of software developed for internal use of $ 1,646 and $ 1,708 during the three months ended September 30, 2020 and 2019, respectively, and $ 5,790 and $ 4,939 during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, estimated amortization expense related to the Company’s intangible assets for the remainder of 2020 through 2025 and thereafter are as follows: (In thousands) Year September 30, 2020 Remainder of 2020 $ 1,095 2021 4,776 2022 4,898 2023 4,821 2024 4,215 2025 and thereafter 7,172 Total $ 26,977 4. Goodwill Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. As of September 30, 2020 and December 31, 2019, the balance of goodwill of $ 5,227 was as a result of the acquisition of Interactive Data, LLC, a wholly-owned subsidiary of red violet, effective on October 2, 2014. 7 In accordance with ASC 350, “Intangibles - Goodwill and Other,” goodwill is tested at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. The measurement date of the Company’s annual goodwill impairment test is October 1 . For the periods ended September 30, 2020 and 2019, no goodwill impairment charges were recorded. 5. Revenue recognition On January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers,” (“Topic 606”) using the modified retrospective method applied to all contracts that were not completed contracts at the date of initial application. Revenue is recognized when control of goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s performance obligation is to provide on demand solutions to its customers by leveraging its proprietary technology and applying machine learning and advanced analytics to its massive data repository. The pricing for the customer contracts is based on usage, a monthly fee, or a combination of both. Available within Topic 606, the Company has applied the portfolio approach practical expedient in accounting for customer revenue as one collective group, rather than individual contracts. Based on the Company’s historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers, the Company has concluded the financial statement effects are not materially different than if accounting for revenue on a contract by contract basis. Revenue is recognized over a period of time since the performance obligation is delivered in a series. The Company’s customers simultaneously receive and consume the benefits provided by the Company’s performance as and when provided. Furthermore, the Company has elected the “right to invoice” practical expedient, available within Topic 606, as its measure of progress, since it has a right to payment from a customer in an amount that corresponds directly with the value of its performance completed-to-date. The Company's revenue arrangements do not contain significant financing components. For the three months ended September 30, 2020 and 2019, 68 % and 66 % of total revenue was attributable to customers with pricing contracts, respectively, versus 32 % and 34 % attributable to transactional customers, respectively. For the nine months ended September 30, 2020 and 2019, 71 % and 65 % of total revenue was attributable to customers with pricing contracts, respectively, versus 29 % and 35 % attributable to transactional customers, respectively. Pricing contracts are generally annual contracts or longer, with auto renewal. If a customer pays consideration before the Company transfers services to the customer, those amounts are classified as deferred revenue. As of September 30, 2020 and December 31, 2019, the balance of deferred revenue was $ 180 and $ 128 , respectively, all of which is expected to be realized in the next 12 months. In relation to the deferred revenue balance as of December 31, 2019, $ 0 and $ 128 was recognized into revenue during the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, $ 2,626 of revenue is expected to be recognized in the future for outstanding performance obligations, primarily related to pricing contracts that have a term of more than 12 months. $ 602 of revenue will be recognized in the remainder of 2020, $ 1,860 in 2021, $ 138 in 2022, and $ 26 in 2023 and thereafter. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company excludes variable consideration related entirely to wholly unsatisfied performance obligations and contracts and recognizes such variable consideration based upon the right to invoice the customer. Sales commissions are incurred and recorded on an ongoing basis over the term of the customer relationship. These costs are recorded in sales and marketing expenses. In addition, the Company elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed. 6. Income taxes The Company is subject to federal and state income taxes in the United States. The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if its estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. For the three and nine months ended September 30, 2020 and 2019, the Company’s effective income tax rate was 0 %, differing from the statutory federal income tax rate of 21 %, and the difference is primarily the result of the full valuation allowance applied against the Company’s deferred tax assets. 8 The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the Company’s financial statements. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. All of the Company’s income tax filings since 2017 remain open for tax examinations. The Company does no t have any unrecognized tax benefits as of September 30, 2020 and December 31, 2019. 7. Common stock and treasury stock Common stock As of September 30, 2020 and December 31, 2019, the number of issued shares of common stock was 12,371,665 and 11,657,912 , respectively, which included shares of treasury stock of 224,755 and 103,147 , respectively. The change in the number of issued shares of common stock was due to an aggregate of 713,753 shares of common stock issued as a result of the vesting of RSUs. Treasury stock As of September 30, 2020 and December 31, 2019, the Company held 224,755 and 103,147 shares of treasury stock, with a cost of $ 3,083 and $ 1,255 , respectively, as a result of the shares withheld to pay withholding taxes upon the vesting of RSUs. 8. Share-based compensation On March 22, 2018, the board of directors of the Company and Fluent, Inc., in its capacity as sole stockholder of the Company at that time, approved the Red Violet, Inc. 2018 Stock Incentive Plan (the “2018 Plan”). A total of 3,000,000 shares of common stock were authorized to be issued under the 2018 Plan. The primary purpose of the 2018 Plan is to attract, retain, reward and motivate certain individuals by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success of the Company, so as to strengthen the mutuality of the interests between such individuals and the stockholders of the Company. On June 3, 2020, the Company’s stockholders approved an amendment to the 2018 Plan to increase the number of shares of common stock authorized for issuance under the 2018 Plan from 3,000,000 shares to 4,500,000 shares . As of September 30, 2020, there were 1,525,624 shares of common stock available for future issuance under the 2018 Plan, as amended. To date, all stock incentives issued under the 2018 Plan have been in the form of RSUs. RSUs granted under the 2018 Plan vest and settle upon the satisfaction of a time-based condition or with both time- and performance-based conditions. The time-based condition for these awards is generally satisfied over three or four years with annual vesting. Details of unvested RSU activity during the nine months ended September 30, 2020 were as follows: Number of units Weighted average grant-date fair value Unvested as of December 31, 2019 2,237,827 $ 8.88 Granted 21,500 $ 20.67 Vested and delivered ( 592,145 ) $ 7.79 Withheld as treasury stock ( 121,608 ) $ 7.72 Vested not delivered ( 8,417 ) $ 11.25 Forfeited ( 7,500 ) $ 12.11 Unvested as of September 30, 2020 1,529,657 $ 9.52 As of September 30, 2020, unrecognized share-based compensation expense associated with the granted RSUs amounted to $ 7,969 , which is expected to be recognized over a remaining weighted average period of 1.6 years. 9 Share-based compensation was allocated to the following accounts in the condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 Sales and marketing expenses $ 151 $ 114 $ 460 $ 290 General and administrative expenses 1,702 1,293 5,956 5,000 Share-based compensation expense 1,853 1,407 6,416 5,290 Capitalized in intangible assets 424 208 1,480 526 Total $ 2,277 $ 1,615 $ 7,896 $ 5,816 9. Related party transactions Services Agreement On August 7, 2018, the Company entered into a services agreement with Mr. Michael Brauser (the “Consultant”), a greater than 10 % stockholder, pursuant to which, the Consultant will be providing recommendations on organizational and capital structure, future financing needs and future acquisitions or strategic transactions (“Services Agreement”), for a term of one year , automatically renewing for additional one-year periods unless either party provides written notice to the other of its intent not to renew not fewer than 30 days prior to the expiration of the then-current term. Under the Services Agreement, the Consultant receives cash compensation of $ 30 per month and is entitled to participate in the Company’s incentive compensation plan. The Company recognized consulting service fees relating to the Services Agreement of a total of $ 90 during the three months ended September 30, 2020 and 2019, and $ 270 during the nine months ended September 30, 2020 and 2019. In addition, amortization of share-based compensation expense of $ 343 and $ 343 for the three months ended September 30, 2020 and 2019, respectively, and $ 1,022 and $ 1,458 for the nine months ended September 30, 2020 and 2019, respectively, was recognized in relation to the RSUs previously granted to the Consultant. 10. Long-term loan On May 5, 2020, the Company received funding under a promissory note dated May 5, 2020 (the “Promissory Note”) evidencing an unsecured non-recourse loan in the principal amount of $ 2,152 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (the “Loan”). The Loan to the Company was made through Legacy Bank of Florida (the “Lender”). Long-term loan as of September 30, 2020 consists of the following: (In thousands) September 30, 2020 Principal amount $ 2,152 Included in condensed consolidated balance sheet: Current portion of long-term loan $ 1,059 Long-term loan (non-current) 1,093 $ 2,152 The Loan has a two-year term and matures on May 5, 2022 . The interest rate on the Loan is 1.0 % per annum. Pursuant to the Promissory Note, payments shall be deferred for the first six months of the term of the Loan, followed by 18 approximately equal monthly installments of principal and interest. The Promissory Note contains customary events of default relating to, among other things, payment defaults, and breach of representations and warranties, or other provisions of the Promissory Note. As a result of the passage of the Paycheck Protection Program Flexibility Act of 2020 on June 5, 2020, the U.S. Small Business Administration (“SBA”), provided updated guidance that payments can be deferred until the loan forgiveness is determined, or if the Company does not apply for forgiveness, then 10 months after the Covered Period (as defined below) ends. The Loan may be forgiven partially or fully if the Loan proceeds are used for covered payroll, rent and utility costs incurred during the 24-week period that commenced on the date of funding (the “Covered Period”), and if at least 60 % of the proceeds are used for covered payroll costs. Any forgiveness of the Loan will be subject to approval by the SBA and the Lender. The Company will be required to apply for such forgiveness within 10 months after the Covered Period. Because the Loan exceeds $ 2,000 , the Company anticipates the U.S. Department of Treasury will audit the loan. Although the Company used the proceeds of the Loan for such covered purposes and intends to apply for forgiveness by the end of December 2020, it can provide no assurance that the Company will obtain forgiveness of the Loan in whole or in part. As the Loan was effective in May 2020, the fair value of the Loan approximates its carrying amount as of September 30, 2020. 10 11. Leases On January 1, 2019, the Company adopted Leases (Topic 842) using the modified retrospective method applied to all leases existing at the date of initial application. The Company elected the practical expedients to not reassess whether any existing contracts are or contain leases, not reassess the lease classification for any existing leases, and not reassess initial direct costs for any existing leases, upon the adoption of Leases (Topic 842). The Company leases its corporate headquarters of 21,020 rentable square feet in accordance with a non-cancelable 89 -month operating lease agreement as amended and effective in January 2017. The Company also leases an additional office space of 6,003 rentable square feet in accordance with a non-cancellable 90 -month operating lease agreement entered into in April 2017, with an option to extend for additional 60 months. The extension option is not included in the determination of the lease term as it is not reasonably certain to be exercised. For the three and nine months ended September 30, 2020 and 2019, a summary of the Company’s lease information is shown below: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 Lease cost: Operating lease costs $ 168 $ 168 $ 504 $ 504 Other information: Cash paid for operating leases $ 177 $ 172 $ 527 $ 513 Right-of-use assets obtained in exchange for operating lease liabilities $ - $ - $ - $ 3,042 Weighted average discount rate for operating leases (1) - - - 8 % (1) The Company used 8.0 %, its estimated incremental borrowing rate for similar secured assets, as the discount rate for the leases to determine the present value of the lease payments because the implicit rate in each lease is not readily determinable. The discount rate was calculated on the basis of information available as of January 1, 2019, the application date. As of September 30, 2020, the weighted average remaining operating lease term was 4.1 years. As of September 30, 2020, scheduled future maturities and present value of the operating lease liabilities are as follows: (In thousands) Year September 30, 2020 Remainder of 2020 $ 178 2021 724 2022 743 2023 765 2024 542 2025 and thereafter 77 Total maturities $ 3,029 Present value included in condensed consolidated balance sheet: Current portion of operating lease liabilities $ 536 Noncurrent operating lease liabilities 2,052 Total operating lease liabilities $ 2,588 Difference between the maturities and the present value of operating lease liabilities $ 441 12. Commitments and contingencies (a) Capital commitment The Company incurred data costs of $ 2,093 and $ 1,946 for the three months ended September 30, 2020 and 2019, respectively, and $ 6,396 and $ 5,501 for the nine months ended September 30, 2020 and 2019, respectively, under certain data licensing agreements. As of September 30, 2020, material capital commitments under certain data licensing agreements were $ 9,012 , shown as follows: (In thousands) Year September 30, 2020 Remainder of 2020 $ 1,745 2021 5,615 2022 1,652 Total $ 9,012 11 (b) Contingencies The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the Company’s financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated . The Company may be involved in litigation from time to time in the ordinary course of business. The Company does not believe that the ultimate resolution of any such matters will have a material adverse effect on its business, financial condition, results of operations or cash flows. However, the results of such matters cannot be predicted with certainty and the Company cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on its business, financial condition, results of operations and cash flows. (c) Covid-19 update 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. The Company has taken numerous steps, and will continue to take further actions as appropriate, in its approach to minimizing the impact of the Covid-19 pandemic on the Company’s business, results of operations and financial performance. To ensure the health and well-being of its employees, beginning in March 2020, the Company instructed employees at its offices to work from home on a temporary basis. Starting in the second quarter of 2020, the Company 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, the Company experienced reduced transaction volume in the second and third quarters of 2020. Transaction volume returned to pre-Covid levels by the end of the third quarter 2020, except for collection customer volume, which was down $ 1.0 million, primarily attributable to the Company’s idiVERIFIED service, which is an ancillary collections market offering that is purely transactional and of a lower margin profile, for the three months ended September 30, 2020, compared to the three months ended March 31, 2020. The Company expects collection customer transaction volume, including that of its idiVERIFIED service, to return to pre-Covid levels in the first half of 2021. During the second and third quarters of 2020, the Company 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. During the second quarter of 2020, the Company provided concessions to a total of 152 customers, representing a $ 342 reduction in minimum committed spend. During the third quarter of 2020, the Company provided concessions to a total of 22 customers, representing a $ 94 reduction in minimum committed spend. To further support the Company’s liquidity, beginning April 1, 2020, the Company elected, under Section 2302 of the 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, the Company received the Loan under the CARES Act as discussed in Note 10 above. The Company 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, the Company implemented protective safeguards, including daily temperature checks, mandatory wearing of masks, social distancing, plexiglass protective barriers, and an entire office HVAC UV-C system. The Company began its first phase of employees returning to the Boca Raton, Florida office in June 2020. The Company 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 the Company’s ongoing business, results of operations and overall financial performance cannot be reasonably estimated at this time. 12