Red Violet (RDVT) Q3 2026 earnings review
Red Violet's sales grow 20%, but fewer new users join
Red Violet checks people's identities for banks, insurers and police forces, and demand held firm while its safety app slowed. Sales reached $27.8 million, and the company turned that into record cash from operations. Dubner said "the business is firing on all cylinders", and 78% of revenue now comes from customers on contracts. But FOREWARN, the app estate agents use before meeting a stranger, signed up fewer users than in June or a year ago.
| Revenue | $27.8 million +20% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.47 $0.41 a year ago |
| Cash from operations | $12.7 million +25% from a year ago |
| Full-year margin plan | Unchanged high thirties; 41% over nine months |
⚖️ Verdict: ⚪ Neutral
The case is unchanged: Red Violet again grew about 20% and held its cash profit margin near 40%, which is what it has done all year. The good news sits in the mix, because more revenue arrives under contract and the share of revenue kept from existing customers ticked back up. One caution: both measures of new demand eased from the spring, as business customer additions and app sign-ups each came in below the June quarter, and the money raised in August still has no stated use.
The question now is whether the spring's record customer additions turn into faster sales growth. One answer says these new accounts expand like earlier ones and lift growth above the low twenties; the other says they are smaller logos that merely replace spending lost elsewhere, leaving growth where it is. December-quarter revenue, reported with the full-year margin, will show which reading holds.
🐂 Bull Case
Sales Grew a Fifth With No One-Off Deals
Red Violet sells identity checks that tell a bank, an insurer or a police force who a person is. Revenue reached $27.8 million in the September quarter, 20% more than a year earlier. Chief executive Derek Dubner said sales over the past twelve months passed $100 million for the first time.
- Revenue: $27.8 million, a fifth above the same quarter of 2025
- Revenue under contract: 78% of the total, against 75% a year ago
- Cash from operations: a record $12.7 million, up 25%
- All five customer groups grew, with financial services and corporate risk "posted another strong quarter with growth spread across its core industries"
The comparison is clean, which matters because earlier years carried lumpy one-off orders. Dubner said "there were no meaningful onetime transactional revenue contributions" this time, so the increase came from everyday buying across a wide customer base. He added that "October was just as good" as September, the strongest month on the company's record.
What to watch: December-quarter revenue, due with the full-year results early next year. Red Violet has grown through the last two December quarters despite fewer working days, and a third would show the contracted base now carries the softest stretch of the year.
Data Costs Fall as a Share of Sales
Red Violet licenses the raw data behind its searches at mostly fixed prices, so each extra search adds little cost. Running the service took 14.5% of revenue this quarter, against 15.7% a year ago. Gross margin, the share of sales left after that cost, rose to 76% from 73%.
Selling costs eased as well, to 22.2% of revenue from 23.4%, even though finance chief Dan MacLachlan pointed to higher pay and a "higher provision for bad debt" inside that line. Because the data deals are largely fixed, extra volume drops into profit, which is how the cash profit margin reached 40%.
What to watch: the same two cost lines in the December quarter, when year-end incentive pay lands. Another fall in the data line would show the supply contracts signed out to 2031 still paying off as search volumes build.
Police Forces And States Keep Signing Up
Among Red Violet's investigative customers are police forces, private investigators, bail bondsmen and process servers, and MacLachlan called that the fastest-growing of its five customer groups. Police work led it. "We now serve more than 1,000 agencies compared to more than 17,000 agencies nationwide", he told investors.
The company added 383 paying business customers to IDI, its search service, taking the total to 11,252, a seventh above last year. Dubner named "a recent multiyear contract we signed in October with another Secretary of State", which follows earlier state-level wins.
What to watch: customer additions in the December quarter, which thin out every year on fewer working days. An intake above last December's 169 would show state and police wins filling the base faster than seasonality empties it.
🐻 Bear Case
Housing Weakness Still Cuts Real Estate Sales
Two products serve estate agents: IDI's search tools and FOREWARN, the app an agent opens to check who is coming to a viewing. MacLachlan said the IDI side is "declining at a high single-digit rate year-over-year", and that "we expect the softness to persist until market conditions improve".
He also said "The tentative signs of improvement we noted last quarter did not carry through". FOREWARN held the group up instead, with double-digit revenue growth, yet it signed up 19,688 users in the quarter. That intake was 25,493 in June, and the home-health version launched in July still carries no published figures.
What to watch: FOREWARN user intake in the December quarter, always the thinnest three months of the year. A return towards 25,000 would mark this quarter as timing, while a second slow quarter would point at the number of agents left to sell to.
More Software Pay Goes On The Balance Sheet
Red Violet counts part of its engineers' pay as an asset rather than a cost, because they build software the company runs itself. That spending reached $3.8 million in the quarter, or 13.5% of revenue, against 11.7% a year ago. Engineering staff numbered 89, up from 66.
The margins the business highlights add back the writedown of that software, so building faster lifts them. Free cash flow, which subtracts the spending, grew 21% while net income grew 29%. Dubner said the team now develops "these features and these products at 10x what we normally did", much of it using artificial intelligence.
What to watch: capitalised software against revenue in the December quarter. A further rise with the reported margin flat would mean the cost of the AI build sits on the balance sheet rather than in the profit shown to investors.
$166 Million Sits Idle While Deal Talk Continues
In August the group sold 1.9 million new shares and raised $108.7 million after fees. It closed September holding $165.7 million in cash and Treasury securities, with no debt. Red Violet has never bought a business of any size, so the money has no track record to lean on.
Dubner said "Our capital allocation strategy remains unchanged", putting the platform and data assets first. On acquisitions he promised discipline rather than speed: "When we see the one we want, we will transact", adding that "we have a very high bar, and we don't mind walking away from deals".
Waiting is cheap, because the cash earns interest, and other income reached $1.1 million from $0.4 million. But the share count rose 7.8%, so profit per share now advances more slowly than profit itself, and deal-hunting fees of $225,000 hit the quarter with nothing to show.
What to watch: an announced acquisition and the price paid. A purchase in the data or software niches Dubner described would put the money to the use he stated, while another quarter of fees without a transaction would show the raise ran ahead of the pipeline.
Risks This Quarter Didn't Answer
Four standing worries got no fresh numbers in these materials, and a fifth improved without any explanation. Each one has a specific reading that would move it, and each reading sits in a document the company already publishes.
- Federal agencies: no award named. Dubner said only that "we continue to make inroads, educating agencies about IDI"; a signed federal contract is the reading.
- FOREWARN revenue: still unpublished, as are the five customer groups' revenue and home-health pricing. A dollar figure would let anyone test the growth claim.
- Revenue kept from existing customers: 96% over the past year, back up from 95% in each of the prior three quarters, with no reason given. A second quarter at 96% would settle the drift.
- Privacy litigation: legal costs reached $269,000 over nine months against $73,000, and no one raised the cases on the call.
- Data suppliers: the largest one remains under contract to April 2031, and these materials add nothing on the renewal.
👓 Other Themes
FOREWARN Adds Free Community Alerts
Red Violet introduced Community Alerts in FOREWARN, the safety app estate agents use before meeting a stranger. MacLachlan said the feature "allows an agent to flag a concerning interaction and quickly alert the broader FOREWARN network". Dubner confirmed that "it is a free benefit inside the FOREWARN subscription", so it brings in no revenue for now.
Collections Grows As Debts Pile Up
Collections firms pay Red Violet to find people who have stopped paying their bills. MacLachlan said "Consumer delinquencies remain elevated, more accounts are entering collections", and he put this quarter among the strongest for that group since pandemic relief ended. Household credit, not the sales team, sets the pace here.
💲 Other KPIs
Money customers owe grew 31% from a year ago, outpacing sales. Unpaid bills now equal 49% of one quarter's revenue, against 45% a year earlier. The gap has widened for three quarters, and the company named a bigger bad-debt provision as one reason its selling costs rose.
Customers have paid in advance for service not yet delivered, and that balance nearly doubled over the year. It stays small next to quarterly sales, so it tracks contract timing rather than demand. The direction fits the shift towards billing under annual agreements.
Tax took 20% of pre-tax profit, against 15% a year ago, as the credits left from earlier losses run down. That shift held back the bottom line: reported profit per share rose 21%, while pre-tax profit advanced 38%.
🔮 Guidance
Unchanged. MacLachlan said spending on sales, engineering and infrastructure continues, yet the business can "continue to drive nice incremental margins". The first nine months ran at 41%. By our math the full-year plan therefore leaves a December-quarter margin near 29-33%, below the 40% just reported, because year-end incentive pay lands in that quarter. Each of the last three margin plans has come in low.
Unchanged. Staff reached 278 at the end of September, from 250 at the start of the year, so recruitment sits inside the annual plan. MacLachlan promised "additional incremental headcount on sales and marketing" plus more engineers, and said of the opportunity: "We're in the early innings." Sales and marketing staff stood at 108, barely changed over the year.
❓ Key Questions
How much does FOREWARN earn?
Users, associations and free features get published every quarter, but never a revenue figure. Without one, nobody can tell whether 462,861 users pay enough to matter, or how home health care is priced.
Why did fewer users join FOREWARN?
The app signed up 19,688 users, roughly 6,000 below the June quarter and the year-ago quarter. Management did not address the slowdown, so it is unclear whether it reflects seasonality, pricing or a smaller pool of remaining agents.
What will the $166 million buy, and when?
The cash has sat for a quarter while deal-related fees mounted. Investors deserve a size range, a sector and a deadline after which the board returns the money instead.
How much engineering pay goes on the balance sheet?
Capitalised software reached 13.5% of revenue from 11.7%. The split between what is expensed and what is treated as an asset decides how much of the 40% margin reflects cash costs.
Will you publish a sales outlook for 2027?
MacLachlan said the contracted revenue base gives clarity on the December quarter and 2027, yet the company still issues no numeric forecast. A range would let outsiders test that claim directly.