RDVT - Red Violet

I’ll lead with this - RDVT has a market cap of just about $300M, so I know that it won’t be considered “investable” to a large number on this board, but it is one that I feel all should at least be keeping on their radar.

Red Violet is a data-fusion software business based in Boca Raton, FL. Their flagship asset is their “CORE” technology platform which fuses otherwise siloed data sets (i.e. property records, criminal records, court records, employment records, motor vehicle records, social media and on and on) into a single contiguous data set that can offer a complete view of just about any individual in the country.

Here are the main investment thesis points:

Tremendous sales growth
Here are RDVT’s quarterly YoY revenue growth figures:
Q1 2018 - 111.51%
Q2 2018 - 96.14%
Q3 2018 - 89.07%
Q4 2018 - 73.92%
Q1 2019 - 72.45%
Q2 2019 - 85.34%
Q3 2019 - 89.38%
Q4 2019 - reports March 5, 2020

As you can see, the business has been growing at a pretty impressive clip over the last 7 quarters.

But that’s not even the best part…
The beauty of Red Violet’s business model lies in their fixed-cost structure. Their primary cost of creating their product is acquiring the source data, which is bought by RDVT under multi-year contracts with a fixed pricing schedule. That means that after the product is built, which it is, every incremental sale is essentially 100% profit margin.

Expanding Gross Margins
Here are RDVT’s quarterly gross profit margin figures:

Q1 2018 - 39.34%
Q2 2018 - 46.69%
Q3 2018 - 48.78%
Q4 2018 - 51.06%
Q1 2019 - 53.45%
Q2 2019 - 57.87%
Q3 2019 - 62.19%
Q4 2019 - reports March 5, 2020

As you can see, gross profit margins have been expanding at a steady clip over the last 7 quarters as well thanks to the fixed-cost business model. Management believes that gross margins will peak and stabilize in the 80-90% range once they achieve a 50MM run rate (which could be achieved in as soon as one year).

For good measure, here are RDVT’s free cashflow figures (in millions):

Q1 2018 - (2.8)
Q2 2018 - (2.4)
Q3 2018 - (1.6)
Q4 2018 - (1.2)
Q1 2019 - (1.2)
Q2 2019 - 0.1
Q3 2019 - 1.5 (18% of revenue)
Q4 2019 - reports March 5, 2020

As you can see, RDVT has recently become free cashflow generative. The trajectory has been fairly steady, and there is no reason to believe that this trend will not continue well into the future.

It should also be noted that, according to the balance sheet, RDVT has 13.3M in cash and just 7.6M in total liabilities.

A complicated history
There are more reasons to like RDVT, beyond just their financial statements.
The data fusion industry was essentially founded by a man named Hank Asher in 1992. Asher’s first data fusion business “DBT online” was bought out for $150M in 1999.
Immediately after being bought out, Asher teamed up with current CEO of RDVT Derek Dubner and current CIO of RDVT Jeff Dell to build a competing data fusion business called “Seisint”.
Seisint was acquired just 5 years later in 2004 for $775M.
After a 4 year hiatus, Asher began building another data fusion business called TLO “The Last One” with the current CEO of RDVT Derek Dubner, RDVT’s current President James Reilly, and RDVT’s current CFO Dan MacLachlan.
Unfortunately, Asher died suddenly in 2013, and because much of the TLO’s funding came from loans from Asher’s estate, it became a big complicated mess when his daughters got involved. The business ultimately was sold in bankruptcy court to TransUnion for $154M.
In 2014, the same team minus Asher regrouped and started a new business TBO “The Best One”, which was renamed to “Cogint”, then merged with “Fluent”, which was then was spun back out as Red Violet.

The point is this: The current RDVT management team is highly experience in this industry. I would go as far to say as their experience is unparalleled. They also clearly believe in the business, as insiders own 23% of the business. They also have plenty of experience in negotiating buy-outs, which I hypothesize will most likely be RDVT’s ultimate fate.

These are just some of the main points. For a more complete analysis of RDVT, you should really read this terrific SA article written by VG capital (linked below).


P.S. I pitched Cardlytics(CDLX) to this board on 9/3/2019 at $38 (now $96) and Intellicheck(IDN) on 12/9/2019 at $7.5 (now $9, but was $10+ before the most recent corona virus sell-off). I’ll be doing a write up on SMSI too in the near future.

Here are my current holdings:
APPS - 27.8%
RDVT - 21.6%
IDN - 20.7%
AYX - 15.2%
SMSI - 14.8%

YTD ROI - 13.4%


Thanks for the analysis. Looking forward to your SMSI report and would also be interested in your APPS analysis.

Question…how saturated is this market? How big is the market? Other players? I’m not familiar in this space.



1 Like

Hey Fisher,

Good questions. RDVT cites a “$10B+ serviceable market today with ~$100B in total addressable market TAM” in their investor presentation, but as we all know, TAMs should be taken with a grain of salt.
However, TLO, which was acquired by TransUnion in bankruptcy court generated $1.5B in revenue in 2018 and has had a 14-16% CAGR over the last few years. Also, LexisNexis, which would have actually had the winning bid for TLO if their lawyer wasn’t late to submitting their offer, generates about $5B in revenue per year.
TLO and LexisNexis would be roughly competitive to RDVT’s idiCore, so using their revenues you can get a rough idea of the TAM. However, remember, there is a clear and obvious secular trend propelling the data fusion industry forward.
What’s the moat?
Apparently there are only a handful of people that have the knowledge necessary to build a robust data fusion platform. Also, idiCore uses its own programming language that was built by RDVT themselves, making it nearly impossible to just replicate. Now, someone like Google, with their vast amount of data and resources, could obviously try to build a competing product and crush RDVT. However, it would take a lot of effort and I think that, if they were really dead set on entering the data fusion industry, the path of less resistance would be to just acquire RDVT and build off of what they already have.

I would post my analysis on APPS, but someone else brought up the name to the board several months ago and it wasn’t welcomed. APPS doesn’t fit many of the criteria of a “Saul” stock, so out of respect to him, I’ll refrain from bringing it back up in detail.