Good day, ladies and gentlemen, and welcome to Red Violet's First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Camilo Ramirez, Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon, and welcome. Thank you for joining us today to discuss our first quarter 2023 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer; and Dan MacLachlan, our Chief Financial Officer. Our call today will begin with comments from Derek and Dan, followed by a question-and-answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our Investors page on our website, www.redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. The company undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainties associated with Red Violet's business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information related to adjusted gross profit, adjusted gross margin, adjusted EBITDA and adjusted EBITDA margin and free cash flow. Reconciliations of these non-GAAP financial measures to their most direct comparable U.S. GAAP financial measure are provided in the earnings press release issued earlier today. In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet's Chairman and Chief Executive Officer, Derek Dubner.

Thanks, Camilo, and good afternoon to those joining us today to discuss our results for the first quarter of 2023. We are pleased to report another quarter of strong performance, the result of broad-based demand across our fraud and identity product suite. We generated solid revenue growth and these dollars are flowing nicely to the bottom line, driving healthy cash generation and profitability. We continue to invest in our business penetrate our target markets and advance our product road map. Finally, during the quarter, we fine-tuned the organization to drive maximum productivity and efficiency going forward. Now turning to the numbers. For the quarter, total revenue was $14.6 million, a 15% increase over prior year. We produced $11.4 million in adjusted gross profit, resulting in adjusted gross margin of 78% in the first quarter, up 3 percentage points. Adjusted EBITDA for the quarter was $3.7 million, up 15% over prior year. Adjusted EBITDA margin remained consistent at 25% for the quarter. Additionally, we had a onetime $500,000 write-off of bad debt, which Dan will detail later. Excluding this onetime expense, our adjusted EBITDA for the quarter would have been $4.2 million and would have produced a 29% adjusted EBITDA margin. Our IDI billable customer base grew by 235 customers sequentially from the fourth quarter, ending the first quarter at 7,256 customers. FOREWARN, added 14,388 users during the first quarter, ending the quarter at 131,348 users. Over 255 realtor associations are now contracted to use FOREWARN. We are seeing solid demand for our -- excuse me, our identity and fraud solutions. Further, each month of the first quarter saw our new customer applications at their 12-month highs. While these new customer applications do not contribute to immediate revenue, they are an encouraging leading indicator that our focus on high sales productivity,…

Thank you, Derek, and good afternoon. We are pleased with our solid start to the year. We are consistently building our opportunity pipeline and seeing meaningful progress with higher tier prospects. Despite the ongoing challenges in the broader economic environment, we were extremely pleased with our new customer growth in the first quarter. We added 235 customers to IDI and over 14,300 users to FOREWARN, including some key relationship wins resulting from our solutions outperforming the competition in head-to-head testing. As we have discussed on previous calls, we continue to see softness within our collections and real estate marketing verticals. Both areas experienced slightly negative growth in the first quarter compared to prior year. Outside these 2 areas, we saw nice growth across the board with increased demand for our identity and fraud solutions. Adding to some of the commentary that Derek provided earlier on employee head count, throughout the first quarter, we focused on optimizing the efficiency of our teams while increasing productivity. As a result, we saw a reduction in head count with most of that reduction happening towards the end of the first quarter. While our baseline head count will ebb and flow a bit around the current 170 employee mark, we do believe that current employee head count provides plenty of leverage for our continued growth and scale in 2023 and beyond. Meaning for the remainder of the year, we should see savings of approximately $0.3 million a quarter in employee-related SG&A expenses and approximately $0.2 million a quarter and cash-related expenses for internally developed software. Turning now to our first quarter results. For clarity, all the comparisons I will discuss today will be against the first quarter of 2022, unless noted otherwise. Total revenue was $14.6 million, a 15% increase over prior year. We produced…

[Operator Instructions] Our first question comes from David Polansky at Immersion Investment LLC.

Good job on the customer adds, I think on the IDI side, that's the most amount of Q1 as you've had in several years. Can you talk, I guess, at a high level what industries you're seeing strengthen and where those new customers are coming from? And then importantly, what size are they relative to sort of your historic IDI customer base? I know we've sort of been on this journey from the SMB side going after more of an enterprise client base. So can you just talk about the makeup of those 235 new IDI customers?

Great. Yes, sure. Thanks for the question. Really appreciate, and this is Dan. See, David, when we look at kind of the broad base of the markets we serve, we're seeing good uptake across the board in that customer mix, right? So when you look at those 235 customers, we added is very broad-based, good portion within financial services, a good portion within the investigative space, had some nice wins within public sector and some of the law enforcement area as well. Broadly, we're seeing it across the board with the exception of collections. As we stated many times, we know that market has been pretty stagnant for a number of -- almost a number of years now. But ultimately, we're seeing it across the board within financial services, identity, investigative, seeing some good pickup in background screening and some other areas.

Something that relates -- sorry, go ahead.

As it relates to your second question around size of customers. What we've seen now, especially when we look at our development pipeline is that we've seen a lot more at kind of the higher tier starting to fall in. What we do know with a lot of those kind of medium and larger enterprises is that when they do start to fall in and become customers, they don't immediately move all of their volume over to your business, right? So ultimately, what we see as a tremendous opportunity with these new customers that we're adding today to really land and expand over time. The expectation is we'll continue to see volume increases in these new customers over the near and medium term. But for the most part, when we're looking at the number of 235, it's going to be consistent with what we've seen on new customer growth in the past from a revenue standpoint. But ultimately, a lot more potential, we believe, in these new customer adds than we've seen historically if you look back 12 months or even 24 months ago.

Okay. Great. And are you seeing any cautiousness from financial service customers on moving to you guys? I mean, what -- there's obviously a lot of issues going on in the finance and banking sector right now? Are you kind of seeing anything just from a macro level, I guess, or sort of business as usual?

Yes. Thanks, David. This is Derek. I appreciate the question. And I'll also address a bit of your prior question as to what drove the new customer growth. As we mentioned, we did conduct an exercise to drive greater productivity across the organization. With that, we also had some strong internal discussions around our go-to-market given some of the economic uncertainty out there and the fact that, that could play into our strengths that we have, we believe, to be the best solutions in market and we can drive those efficiently for customers that are being negatively impacted out there while using other solutions. So we feel like we gained advantages there, combined with some of the new marketing initiatives we spoke of in getting our story out there a bit more aggressively. So we believe that all of those in combination were responsible for generating some of those strong results. As far as the climate, if you will, at the larger enterprises down to medium and small, not so much seeing it in smaller to medium-sized enterprises. When we do open up a new discussion at the larger enterprises that we speak about and that we have been attacking and building out our large enterprise pipeline for the last 18 months. You do encounter a bit of hesitation on spend. And when you do win the business, there's a bit of caution on how much volume is diverted to you initially. But that said, we feel very good about how our solutions are executing in market. We're getting very strong feedback from those in testing as well as those that we're winning and that the volumes are coming on slowly, and we do anticipate that to accelerate. So even given what we're seeing in the economy, we're very optimistic about our business, some of the new product launches and even more optimistic about those on the product road map that are going to be coming out later in the year.

Okay. Great. And on FOREWARN, that was, I mean, also a really good quarter in terms of net adds. I think we have been thinking about this as doing like sort of 10,000 net adds a quarter. Do you think there's something that broke and is going to kind of push you over that moving forward to sort of the 14,000, 15,000 net adds a quarter? Or is that should we keep thinking about that as like roughly like I don't know, like 9,000 to 10,000.

Well, I think that -- this is Derek again. Thank you, David. I think that's a fair, what I would call perhaps a conservative a safe outlook. What we're seeing is sort of that snowball effect of more associations being much more receptive to that initial call and also reaching out to us to understand what is FOREWARN? Why do my other associations have it? Why am I hearing it from the realtor base that I should get this proactive safety solution that they're saying is essential. So our expectation and certainly our efforts are geared toward acceleration. But again, that would be a conservative way of viewing it.

At this time, I will now turn the call back over to Derek Dubner for closing remarks.

Thank you. We are pleased to report another solid quarter and a start to 2023. We continue to experience broad-based demand in the market across our innovative identity and fraud solutions suite, are seeing nice traction testing with larger enterprise prospects and as mentioned, have optimized our resources to drive productivity and efficiency while driving growth. We are well positioned for 2023 and beyond. Good afternoon.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.