Red Violet (RDVT) delivered another clean beat. Adjusted earnings of $0.47 per share topped the $0.41 consensus and the $0.44 Earnings Whisper number by 6.8%. Revenue of $27.75 million edged past the $27.34 million estimate by 1.5%. Earnings grew 56.7% year over year, and revenue rose 20.2%, pushing trailing twelve-month revenue above $100 million for the first time. The headline is unambiguously solid. What sits beneath it is a quarter that eased from an exceptional second quarter on nearly every rate-of-change measure. That is the central tension: the absolute numbers set records, while the trajectory flattened.
The quality of the beat holds up well, with a couple of caveats. GAAP net income rose 29% to $5.4 million, or $0.35 per diluted share versus $0.29 a year ago. Operating income grew a healthier 26%, to $5.8 million. However, interest income nearly tripled to $1.1 million on the proceeds from the $108.7 million equity raise. That income is excluded from adjusted EBITDA but flows through adjusted net income, so part of the bottom-line beat came from the balance sheet rather than operations. Cash generation was the strongest part of the report. Operating cash flow hit a record $12.7 million, up 25%, and free cash flow reached a record $8.8 million, up from $7.2 million in Q2 and $3.1 million in Q1. Revenue quality also improved. Contractual revenue rose to 78% of the mix from 77% in Q2 and 75% in Q1, and gross revenue retention ticked up to 96% from 95%.
The softer side shows up in the sequential comparisons. Revenue growth slowed to 20% from 23% in Q2, though it remains above Q1's 17%. Adjusted EBITDA margin slipped to 40% from 42%, and adjusted EBITDA growth decelerated sharply to 22% from 48%. Adjusted gross margin eased to 85% from a record 86%. G&A jumped 32% on personnel and acquisition-related activity, and the bad-debt provision rose. Adjusted EPS fell sequentially to $0.47 from $0.50 as new shares diluted the per-share result. That pressure has not fully played out: weighted basic shares were 15.3 million in the quarter, but 16.05 million were outstanding at quarter-end. Customer momentum also cooled. IDI added 383 customers versus a record 447 in Q2, and FOREWARN added 19,688 users versus 25,493.
The most concerning operating detail was IDI's real estate vertical outside FOREWARN, which worsened to a high-single-digit decline. That vertical showed modest growth in Q1 and a modest decline in Q2. Management acknowledged that tentative Q2 recovery signs did not carry through and now expects the softness to persist. Federal public-sector conversion also remains slow. Against that, all five verticals grew, collections growth was among its strongest, and background screening and insurance accelerated.
The call preserved a credible growth story. Management said September was the best revenue month in company history and that October was just as good, which offers some reassurance on fourth-quarter momentum. A new multi-year Secretary of State contract was signed in October. The law enforcement footprint now exceeds 1,000 of roughly 17,000 agencies, leaving a long runway. FOREWARN launched a free Community Alerts feature intended to strengthen network effects, and unannounced AI-driven applications are in development. The $165.7 million of cash and Treasuries, with no debt, gives management room to act on an M&A funnel it described as offering more and more opportunities. Red Violet does not issue formal guidance, but it reaffirmed its mid-to-high-30s adjusted EBITDA margin framework, which it continues to exceed. The CEO's tone stayed confident ('firing on all cylinders') but was noticeably more restrained than Q2's superlatives.
The market setup is more demanding than the surprise implies. Shares closed at $79.58 ahead of the report, up 16.2% since the open after the August release. That leaves the stock about 39% above its 200-day moving average and only 4.3% below the 52-week high of $83.15 set on October 28. Investor sentiment improved meaningfully, rising from 0.22 to 0.41 on the -1 to +1 scale, and the Earnings Whispers trend signals are uniformly positive. The stock therefore entered the print near the top of its range with expectations elevated, conditions in which deceleration tends to get more scrutiny than records.
The bottom line is that Red Violet's franchise looks healthier than ever on cash flow, retention and contractual mix, and the beat was genuine. Still, the quarter marked a step down from Q2's pace in growth, margins and customer adds. Bears have legitimate ammunition in the deteriorating real estate vertical, rising G&A and the share dilution still to come. Bulls can point to record monthly revenue in September and October, new public-sector wins and a war chest built for acquisitions.