Also, this is a start up, and I understand the need to attract talent. However, in 2018, the top three officers collected $8.2 million in compensation.
Do you have a link to this information? The reason I ask is to determine how that compensation was paid, cash? options? bonuses? Looking at a total number but not knowing how it is made up is not too helpful.
Denny Schlesinger
Actually Tinker, they do have venture capital invested. BUT, I am not sure of the quality of the investment companies.
Gordon
I am sure legitimate venture capital would not authorize a company like this to pay 3 officers $8.2 million dollars of money that could go into the company.
But whatever. The discussion has create a lot of info on both sides. The oxygen it is consuming far exceeds what it is worth, but we all love talking of such things.
No, I will not be a single share from this company, nor ever advise anyone to do so, unless they are speculating and wanting to ride momentum (not business fundamentals).
And since we all make up our own minds, making up your own dang minds. To me this is a no-brainer.
Tinker
I no longer have the link up, but I found it on google. It was an SEC filing. I believe the three received stock in the company. Better than cash, but I am still thinking that is a lot of compensation given the company’s performance. The CEO’s stock was paid because the company hit a revenue goal.
You mean the top three officers in this company (all with histories of abuse as noted by the SEC), in what we all know are cash strapped start ups, took this desperately needed and rare cash horde, and instead of investing it into their “legitimate” business, paid “other people’s money” (ie, those who bought the stock) to themselves?
it’s mostly stock based comp, not cash
per page 13 of their last proxy:
https://www.sec.gov/Archives/edgar/data/1720116/000119312519…
Salary Bonus Stock Awards Total
Derek Dubner, CEO $284k $150k $2.88m $3.32m
James Reilly, President $228k $50k $2.11m $2.39m
Daniel MacLachlan, CFO $226k $125k $2.11m $2.46m
The cash portion of their salaries, including bonuses, aren’t out of line for a publicly traded company of their size, especially given the growth in recent years
Given that they just went public in 2018, it’s not surprising that the SBC amounts would be very high that year. It’s consistent with what we’ve seen in all of the other SaaS companies we follow in the year that they IPO’d, and then the amount falls off significantly after that IPO year.
-mekong
Here is the link on salaries, It was not an SEC filing: https://www.execpay.org/news/red-violet-inc-2018-compensatio…
I’d like to address a couple concerns that were raised, but that have not yet been discussed:
CITIZEN SCIENTIST AND AYX:
The following concern was raised by 12x and Tinker:
“Yes, Alteryx can exactly recreate this product with a citizen data scientist and a week or two of time. Don’t even need a real data scientist to pull that off. Seriously.”
The short answer is – yes, anyone CAN do so.
The Long answer – why would they?
To do the citizen scientist thing, each company would have to have a department/person dedicated to finding the data, paying for the data, having the expertise to structure disparate data into a usable data set, then the expertise to analyze that data, and to produce an actionable product.
RDVT already has the data. They provide ‘fused’ data sets to a company at the level that company wants/needs, whether it’s a complete analysis, or a data set the customer can parse as needed. See points 1, 2, 3, and 4, below.
ZS, CRWD, OKTA, and other SaaS companies use a similar plan: offer to a customer a product that eliminates an entire department (and the associated costs) for that customer. Offer it at a level that the end-user wants.
Here’s what RDVT says in the Q1 19 Newsletter:
“Putting it simplistically, we aggregate, assimilate, analyze and link this data, thereby transforming it into intelligence for use by organizations to solve for a variety of challenges, from basic to extremely complex. We call it data fusion. “
“Our platform was designed to be data and industry agnostic”
“first understanding our customers’ needs, and then providing the right solution and a level of service that the competition is either unwilling or unable to provide. “
“We serve not only end-user customers, but we also power the back end of various companies,”
MOAT:
RDVT built the background infrastructure, and, going forward, can offer their product at a low cost, perhaps lower than their competitors. See points 5 and 6 below.
RDVT has existing relationships and contracts for raw data assets. These are FIXED cost. Once RDVT has ‘fused’ the data, it can sell that data set to many different customers, with no increase in RDVT’s costs for the data. See #6 below.
From the Q1 19 Newsletter:
5. “We license the majority of our raw data assets under long-term, flat-fee unlimited use contracts. (We also generate proprietary data sets internally.)”
From the SA article linked by Saul.
6. “The beauty of this business model is in its cost structure. The primary cost of creating the product is the source data, which is bought by RDVT under multi-year contracts with a fixed pricing schedule. This means that once you’ve got your core product built and have a trained sales force in place, every incremental sale made is 100% profit because you’ve already paid for the data but you can sell it an unlimited amount of times. “
ralph
Ralph,
The Long answer – why would they?
To do the citizen scientist thing, each company would have to have a department/person dedicated to finding the data, paying for the data, having the expertise to structure disparate data into a usable data set, then the expertise to analyze that data, and to produce an actionable product.
RDVT already has the data. They provide ‘fused’ data sets to a company at the level that company wants/needs, whether it’s a complete analysis, or a data set the customer can parse as needed. See points 1, 2, 3, and 4, below.
ZS, CRWD, OKTA, and other SaaS companies use a similar plan: offer to a customer a product that eliminates an entire department (and the associated costs) for that customer. Offer it at a level that the end-user wants.
It’s not so much “why would a company do what RDVT is doing when they can just hire RDVT to do it just as they would CRWD or OKTA.” It’s moreso, what’s stopping another company from duplicating what RDVT has done and competing with them, and showing scale at a very, very small size for a public company. What’s stopping a company from going to any of the various background check companies out there?
Is there something proprietary RDVT has done? They have no patents. Splunk has many. CrowdStrike has patents. Are there any patents for their “data fusion” technology or is it just jargon for compiling data from a few sources and putting them together? Well no, they don’t have any patents for data fusion.
This website, findchips.com, could very well be doing what RDVT calls “data fusion” because they are compiling data from multiple sources and putting them on one website. They are offering the same service that many other are. Their website has all the buzzwords on it though: “Access price, inventory, unique market intelligence and advanced analytics for all your parts.” You’d think they have the equivalent of self driving car technology the way they talk.
And from what I can tell, RDVT is offering tenant background checks, along with a bunch of other companies. My opinion is this “data fusion” is a buzzword they made up so it sounds difficult and proprietary. And their idea of “big data” is just pulling data from various 3rd party sources and putting them together.
12x brings up another excellent question:
I’m trying to just clarify the “uniqueness” or “competitive advantage” of Red Violet.
Over the past weekend, I was pondering the ‘data fusion’ question.
I’d just finished a novel, in which AI/ML and aggregation, fusion, and analysis of massive (peta bytes) of data were integral to the story.
That got me thinking about this topic.
FB and Google are notorious for collecting data, invading privacy, using the data in less than consumer friendly ways.
Apple
Microsoft
All the ‘apps’ that now require access to a user’s location, photos, etc information.
All the other companies who place tracking cookies on your devices.
TTD?
ROKU?
Credit Card, Visa, MasterCard, Paypal, etc companies?
Shareable
The FICO companies
TransUnion (TRU - bought the TLO from bankruptcy, therefore has LEGACY product similar to RDVT?)
Experian
EquiFax
LexisNexis provides datasets to the LEGAL profession, specifically to ‘advance the rule of Law around the world’.
There have to be others.
The question then becomes: Is RDVT better than the competition?
RDVT says some of the competition is using legacy software, some of the competition is unable or unwilling to provide the datasets RDVT provides.
RDVT says their Platform was designed to be data and industry agnostic.
RDVT is designed specifically for the Cloud. It maintains server farms with as needed scalability and software for data compilation and analysis, the competition is ‘legacy’ in an innovator’s dilemma situation.
It’s been mentioned that the founders of RDVT are ‘serial entrepreneurs’. They’ve founded then sold several companies. Therefore, RDVT is a candidate for being sold?
ralph, BTW is not recommending RDVT. Do your own Due Diligence!
RDVTs compensation is worth a close look. Though I’ve been generally happy with what I’ve found by my own due diligence (https://www.sec.gov/Archives/edgar/data/1720116/000119312519…). For instance, I was also initially turned off by the big payout to only a few executives. But when I did due diligence on the compensation, I realized much of recent large payouts were aligned with shareholders’ interests. There was an award that required $7 million in revenue and positive adjusted EBITDA in a single quarter. Then it would be paid out one-third annually over three years in share-based compensation.
The award required the team to basically double revenue from quarterly levels seen in early 2018; adjusted quarterly EBITDA in the first quarter of 2018 was a loss of $1.4 million on $3.3 million in revenue.
I think if the board presented that target at the time, any shareholder would have said they were on board – particularly given the low stock price was at the time. Such an achievement would obviously bring more shareholder interest and increase the stock price, awarding shareholders alongside the executive team.
And no one would have predicted the revenue target would have been achieved so quickly. The reason the award is as big as it is is partly because the stock has soared and awarded shareholders.
Further, some of the initial payouts seem justified to me in the fact that Red Violet was a spinoff of a smaller segment and it’s a risky business to leave the parent company and build a software product that will lose money in the beginning before it scales…
Finally, I’ll add that executive retention and the fact that insiders aren’t selling despite the bad taste litigation against Michael Brauser has left helps give me some confidence.
All of this said, I want to caution all of you that I was in this stock when it was much cheaper; the margin of safety at the time helped compensate for some of the uncertainties and the risks you have brought up. However, I have held on this long only because management keeps exceeding my expectations and because 2020 looks like an exciting year with, likely featuring soaring revenue (and if management is right, accelerating revenue growth) and positive cash flow.
But there’s no way around it. This is a stock that needs to be watched closely.
Even if it’s not an outright scam I think there’s every reason to believe the guys in control of this company will operate in a manner to maximize their own gain and not be a shareholder friendly company.
Fascinating stuff.
So I decided to look at the third guy at the top of shareholders in RDVT. Ryan Schulke.
Can you guess who’s the currently the CEO of Fluent? (FLNT). Same company that Dubner and Brauser were or still are involved with.
Fluent was Cognit(COGT) prior to that Interactive Data(IDC) which Dubner founded.
IDC had a shareholder lawsuit when it sold, became Cognit, which had or settled lawsuits involving insider trading and became its current incarnation Fluent Inc., which has had its own issues with the law.
If you guessed Ryan Shulke you would be correct. So the current CEO of Fluent is the third largest individual shareholder of RDVT.
I’m not one to tell other people what to do, but I know even if I could make a fast buck off a company like this I wouldn’t. I don’t loom the other way, never have never will. From a family of NYC law enforcement and another side third generation FBI. I guess it’s just in my blood not to enable the bad guys.
That’s at least what I see. Plenty of other companies to invest in. I don’t need to be part of empowerIng guys like this.
TMB
Hey…they have a TAM of $98 BILLION…$260 BILLION worldwide…and are right on their way there with quarterly revenue of $8 million ;).
Maybe someone could use them to “risk mitigate” Red Violet itself!
12x,
you keep saying over and over again that what Red Violet does is just a commodity, that anyone can do it, etc etc.
But you make no attempt to explain 89.4% revenue growth. Commodity companies facing competition don’t grow at 89%, they just DON’T.
You also make no attempt to explain gross margins growing sequentially 3% or 4% each quarter. Commodity companies simply don’t do that either. Last quarter it was at 62.2%, up from 48.8% a year ago. Commodity companies simply don’t do that either.
Logically, you would infer that there must be something wrong with your hypothesis, and you would start looking for alternatives instead of repeating something which seems totally illogical, and which is proven wrong by the facts of the case.
Saul
Regarding stock based compensation, if the company goes broke the stock based compensation is worth ZILCH. As per an earlier post, these people didn’t just flip their granted shares, moreover, there might be restrictions on the sale of these shares. It’s a bad idea to fixate on a number without understanding what that number really means.
BTW, I’m not making a stock recommendation to buy or to sell, I’m only challenging some preconceptions.
Denny Schlesinger
TMB says:
IDC had a shareholder lawsuit when it sold, became Cognit, which had or settled lawsuits involving insider trading and became its current incarnation Fluent Inc., which has had its own issues with the law.
If you guessed Ryan Shulke you would be correct. So the current CEO of Fluent is the third largest individual shareholder of RDVT.
It’s also worth noting that the Red Violet was a spin-out from Fluent. Every shareholder of Fluent became a shareholder of Red Violet, including Shulke.
So, IMO, Shulke owning shares today is no more nefarious than Red Violet being associated with Cogint in the first place. In fact, one could reasonably say that this is a small positive sign–that the CEO of the parent company had enough confidence in the spinoff to keep his shares for two years rather than liquidating them after his lockup expired.
Here is the link on salaries, It was not an SEC filing: https://www.execpay.org/news/red-violet-inc-2018-compensatio…
This is a secondary source. Had you gone to the original SEC filing you might be scandalized by
**Name Stock Awards All Other Compensation Total**
Michael Brauser $3,845,000 $470,000 $4,315,000
or you might be relieved by the fact that these stock grants vest in one, two, or three years.
https://secfilings.nasdaq.com/filingFrameset.asp?FilingID=13…
Denny Schlesinger
I will add to Saul’s writeup above, that RDVT’s auditor, since 2017, has been Grant Thornton, one of the most reputable midsize audit/accounting firms on the globe. They aren’t using some rinky dink local audit firm that would bend over backwards and sign off on anything for their business. Grant Thornton has a reputation that outweighs the wants of any small client like Red Violet.
I am not sure how much weight should be given to this on its own. Many Chinese companies that investors will refuse to invest in are also using reputable audit firms including GT. I use to use them many years ago for accounting services in Asia as well.
I am sure all audit firms also have a few black eyes as well
https://sg.finance.yahoo.com/news/grant-thornton-fined-65000…
https://goingconcern.com/another-grant-thornton-u-k-audit-to…
“It’s also worth noting that the Red Violet was a spin-out from Fluent. Every shareholder of Fluent became a shareholder of Red Violet, including Shulke.”
I didn’t see that. So then my next question is this.
Is it normal for one micro cap company to keep changing its name, it’s ticker symbol, then again spin off an asset to become an entirely new micro cap when there is a history of class action lawsuits, insider trading allegations against the prior companies. Why the changes?
And why won’t RDVT just be the next one in a line of shady companies? All of a sudden these guys saw the light, changed their ways and decided to work for their shareholders?
TMB
But you make no attempt to explain 89.4% revenue growth. Commodity companies facing competition don’t grow at 89%, they just DON’T.
Well, they certainly can when they are at very low revenue levels in a much larger potential TAM when no one else is yet offering the same service. But, if that starts to be real money and it is true that it is readily replicated, then the competition will come. And, it is likely to come from very well funded competition.