RED VIOLET, INC. Management report and analysis of the financial situation and operating results. (Form 10-K)

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You should read the following discussion in conjunction with our consolidated
financial statements and related notes included in this 2021 Form 10-K. This
2021 Form 10-K contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), about
our expectations, beliefs, or intentions regarding our business, financial
condition, results of operations, strategies, or prospects. You can identify
forward-looking statements by the fact that these statements do not relate
strictly to historical or current matters. Rather, forward-looking statements
relate to anticipated or expected events, activities, trends, or results as of
the date they are made. Because forward-looking statements relate to matters
that have not yet occurred, these statements are inherently subject to risks and
uncertainties that could cause our actual results to differ materially from any
future results expressed or implied by the forward-looking statements. Many
factors could cause our actual activities or results to differ materially from
the activities and results anticipated in forward-looking statements. These
factors include those contained in Part I, "Item 1A. Risk Factors" of this 2021
Form 10-K. We do not undertake any obligation to update forward-looking
statements, except as required by law. We intend that all forward-looking
statements be subject to the safe harbor provisions of the PSLRA. These
forward-looking statements are only predictions and reflect our views as of the
date they are made with respect to future events and financial performance.

Overview

Red Violet, Inc., a Delaware corporation, is dedicated to making the world a
safer place and reducing the cost of doing business. We build proprietary
technologies and apply analytical capabilities to deliver identity intelligence.
Our technology powers critical solutions, which empower organizations to operate
with confidence. Our solutions enable the real-time identification and location
of people, businesses, assets and their interrelationships. These solutions are
used for purposes including risk mitigation, due diligence, fraud detection and
prevention, regulatory compliance, and customer acquisition. Our intelligent
platform, CORETM, is purpose-built for the enterprise, yet flexible enough for
organizations of all sizes, bringing clarity to massive datasets by transforming
data into intelligence. We drive workflow efficiency and enable organizations to
make better data-driven decisions.

Organizations are challenged by the structure, volume and disparity of data. Our
platform and applications transform the way our customers interact with
information, presenting connections and relevance of information otherwise
unattainable, which drives actionable insights and better outcomes. Leveraging
cloud-native proprietary technology and applying machine learning and advanced
analytical capabilities, CORE provides essential solutions to public and private
sector organizations through intuitive, easy-to-use analytical interfaces. With
massive data assets consisting of public record, proprietary and
publicly-available data, our differentiated information and innovative platform
and solutions deliver identity intelligence - entities, relationships,
affiliations, interactions, and events. Our solutions are used today to enable
frictionless commerce, to ensure safety, and to reduce fraud and the concomitant
expense borne by society.

While our platform powers many diverse solutions for our customers, we presently
market our solutions primarily through two brands, IDI™ and FOREWARN®. IDI is a
leading-edge, analytics and information solutions provider delivering actionable
intelligence to the risk management industry in support of use cases such as the
verification and authentication of consumer identities, due diligence,
prevention of fraud and abuse, legislative compliance, and debt recovery.
idiCORE™ is IDI's flagship product. idiCORE is a next-generation, investigative
solution used to address a variety of organizational challenges including due
diligence, risk mitigation, identity authentication and regulatory compliance,
by financial services companies, insurance companies, healthcare companies, law
enforcement and government, collections, law firms, retail, telecommunication
companies, corporate security and investigative firms. FOREWARN is an app-based
solution currently tailored for the real estate industry, providing instant
knowledge prior to face-to-face engagement with a consumer, helping
professionals identify and mitigate risk. As of December 31, 2021 and 2020, IDI
had 6,548 and 5,726 billable customers and FOREWARN had 82,419 and 48,377 users,
respectively. The Company defines a billable customer of IDI as a single entity
that generated revenue during the last three months of the period. Billable
customers are typically corporate organizations. In most cases, corporate
organizations will have multiple users and/or departments purchasing our
solutions, however, the Company counts the entire organization as a discrete
customer. The Company defines a user of FOREWARN as a unique person that has a
subscription to use the FOREWARN service as of the last day of the period. A
unique person can only have one user account.

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We generate substantially all of our revenue from licensing our solutions.
Customers access our solutions through a hosted environment using an online
interface, batch processing, API and custom integrations. We recognize revenue
from licensing fees (a) on a transactional basis determined by the customer's
usage, (b) via a monthly fee or (c) from a combination of both. Revenue pursuant
to pricing contracts containing a monthly fee is recognized ratably over the
contract period. Pricing contracts are generally annual contracts or longer,
with auto renewal. For the years ended December 31, 2021 and 2020, 80% and 73%
of total revenue was attributable to customers with pricing contracts,
respectively, versus 20% and 27% attributable to transactional customers,
respectively.

We endeavor to understand our customers' needs at the moment of first
engagement. We continuously engage with our customers and evaluate their usage
of our solutions throughout their life cycle, to maximize utilization of our
solutions and, hence, their productivity. Our go-to-market strategy leverages
(a) an inside sales team that cultivates relationships, and ultimately closes
business, with their end-user markets, (b) a strategic sales team that provides
a more personal, face-to-face approach for major accounts within certain
industries, and (c) distributors, resellers, and strategic partners that have a
significant foothold in many of the industries that we have not historically
served, as well as to further penetrate those industries that we do serve. We
employ a "land and expand" approach. Our sales model generally begins with a
free trial followed by an initial purchase on a transactional basis or
minimum-committed monthly spend. As organizations derive benefits from our
solutions, we are able to expand within organizations as additional use cases
are presented across departments, divisions and geographic locations and
customers become increasingly reliant on our solutions in their daily workflow.

In order for us to continue to develop new products, grow our existing business
and expand into additional markets, we must generate and sustain sufficient
operating profits and cash flow in future periods. This will require us to
generate additional sales from current products and new products currently under
development. We continue to build out our sales organization to drive current
products and to introduce new products into the marketplace.

During 2020, we experienced significantly reduced commercial activity in
numerous aspects of our business as a result of the preventative and protective
actions taken by federal, state and local governments to combat Covid-19,
including the implementation of stay-at-home orders, social distancing policies
and certain temporary government-imposed moratoria on collection customers'
activities. During 2021, we saw ongoing improvement in our results of
operations, with the exception of our idiVERIFIED service, which is an ancillary
collections market offering that is purely transactional and of a lower margin
profile. We expect our idiVERIFIED service volume to return to pre-Covid levels
in the second half of 2022. We continue to take precautionary measures intended
to minimize the risk of the Covid-19 pandemic to our employees, our customers,
and the communities in which we operate. These measures may result in
inefficiencies, delays and additional costs to our business. The Covid-19
pandemic and its impact on us and the economy has significantly limited our
ability to forecast our future operating results, including our ability to
predict revenue and expense levels, and plan for and model future operating
results. Furthermore, the full impact of the Covid-19 pandemic on our ongoing
business, results of operations and overall financial performance cannot be
reasonably estimated at this time. We will continue to evaluate the nature and
extent of the impact of the Covid-19 pandemic to our business, including the
emergence of new variants and the development, availability, distribution and
effectiveness of vaccines.

To further support our liquidity, beginning April 1, 2020, we elected, under
Section 2302 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act"), to defer payment of the employer portion of Social Security payroll tax.
Under the CARES Act, employers could forgo timely payment of the employer
portion of Social Security taxes that would otherwise be due from March 27, 2020
through December 31, 2020, without penalty or interest charges. Employers must
pay 50% of the deferred amount by December 31, 2021, and the remainder by
December 31, 2022. We paid 50% of the deferred amount in December 2021. On May
5, 2020, we received funding under a promissory note dated May 5, 2020
evidencing an unsecured non-recourse loan in the principal amount of $2.2
million under the CARES Act (the "Loan"), which was fully forgiven by Legacy
Bank of Florida (the "Lender") and the U.S. Small Business Administration in
June 2021, resulting in a gain on extinguishment of debt of $2.2 million during
the year ended December 31, 2021. We will continue to assess the CARES Act and
other applicable government legislation aimed at assisting businesses during the
Covid-19 pandemic.

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Industry trends and uncertainties

Operating results are affected by the following factors that impact the data and analytics industry in United States:

The macroeconomic conditions, including the availability of affordable credit
and capital, interest rates, inflation, employment levels and consumer
confidence, influence our revenue. Macroeconomic conditions also have a direct
impact on overall technology, marketing and advertising expenditures in the U.S.
As marketing budgets are often more discretionary in nature, they are easier to
reduce in the short term as compared to other corporate expenses. Future
widespread economic slowdowns in any of the industries or markets our customers
serve could reduce the technology and marketing expenditures of our customers
and prospective customers.

Our revenue is also significantly influenced by industry trends, including the
demand for business analytics services in the industries we serve. Companies are
increasingly relying on business analytics and related technologies to help
process data in a cost-efficient manner. As customers have gained the ability to
rapidly aggregate data generated by their own activities, they are increasingly
expecting access to real-time data and analytics from their service providers as
well as solutions that fully integrate into their workflows. The increasing
number and complexity of regulations centered around data and provision of
information services makes operations for businesses in the data and analytic
sector more challenging.

The enactment of new or amended legislation or industry regulations pertaining
to consumer or private sector privacy issues could have a material adverse
impact on information and marketing services. Legislation or industry
regulations regarding consumer or private sector privacy issues could place
restrictions upon the collection, sharing and use of information that is
currently legally available, which could materially increase our cost of
collecting and maintaining some data. These types of legislation or industry
regulations could also prohibit us from collecting or disseminating certain
types of data, which could adversely affect our ability to meet our customers'
requirements and our profitability and cash flow targets.

Company-specific trends and uncertainties

Our results of operations are also directly impacted by company-specific factors, including:

Some of our competitors have substantially greater financial, technical, sales
and marketing resources, better name recognition and a larger customer base.
Even if we introduce advanced products that meet evolving customer requirements
in a timely manner, there can be no assurance that our new products will gain
market acceptance.

Certain companies in the data and analytics sector have expanded their product
lines or technologies in recent years as a result of acquisitions. Further, more
companies have developed products which conform to existing and emerging
industry standards and have sought to compete on the basis of price. We
anticipate increased competition from large data and analytics vendors.
Increased competition in the data and analytics sector could result in
significant price competition, reduced profit margins or loss of market share,
any of which could have a material adverse effect on our business, operating
results and financial condition. There can be no assurance that we will be able
to compete successfully in the future with current or new competitors.

Significant Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with US GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates, including those related to the allowance for doubtful accounts,
useful lives of intangible assets, recoverability of the carrying amounts of
goodwill and intangible assets, share-based compensation and income tax
provision. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

We believe that the following significant accounting policies govern our most significant judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue recognition

We recognize revenue in accordance with ASC 606, "Revenue from Contracts with
Customers" ("Topic 606"). Under this standard, revenue is recognized when
control of goods or services is transferred to the Company's customers, in an
amount that re?ects the consideration the Company expects to be entitled to in
exchange for those goods or services. Our performance obligation is to provide
on demand information and identity intelligence solutions to our customers by
leveraging our proprietary technology and applying machine learning and advanced
analytics to our massive data repository. The pricing for the customer contracts
is based on usage, a monthly fee, or a combination of both.

Revenue is generally recognized on (a) a transactional basis determined by the
customers' usage, (b) a monthly fee or (c) a combination of both. Revenue
pursuant to transactions determined by the customers' usage is recognized when
the transaction is complete, and either party may terminate the transactional
agreement at any time. Revenue pursuant to contracts containing a monthly fee is
considered to be a single performance obligation consisting of a series of
distinct services, and is recognized ratably over the contract period, which is
generally 12 months, and the contract shall automatically renew for additional,
successive 12-month terms unless written notice of intent not to renew is
provided by one party to the other at least 30 days or 60 days prior to the
expiration of the then current term. Variable fees are allocated to each
distinct month in the series for which they are earned. Our revenue is recorded
net of applicable sales taxes billed to customers.

Available within Topic 606, we have applied the portfolio approach practical
expedient in accounting for customer revenue as one collective group, rather
than individual contracts. Based on our historical knowledge of the contracts
contained in this portfolio and the similar nature and characteristics of the
customers, we have concluded the financial statement effects are not materially
different than if accounting for revenue on a contract by contract basis.

Revenue is recognized over a period of time. Our customers simultaneously
receive and consume the benefits provided by our performance as and when
provided. Furthermore, we have elected the "right to invoice" practical
expedient, available within Topic 606, as our measure of progress, since we have
a right to payment from a customer in an amount that corresponds directly with
the value of our performance completed-to-date. Our revenue arrangements do not
contain significant financing components.

For the years ended December 31, 2021 and 2020, 80% and 73% of total revenue was
attributable to customers with pricing contracts, respectively, versus 20% and
27% attributable to transactional customers, respectively. Pricing contracts are
generally annual contracts or longer, with auto renewal.

If a customer pays consideration before we transfer services to the customer,
those amounts are classi?ed as deferred revenue. As of December 31, 2021 and
2020, the balance of deferred revenue was $0.8 million and $0.5 million,
respectively, all of which is expected to be realized in the next 12 months. In
relation to the deferred revenue balance as of December 31, 2020, $0.5 million
was recognized into revenue during the year ended December 31, 2021.

As of December 31, 2021, $7.7 million of revenue is expected to be recognized in
the future for performance obligations that are unsatisfied or partially
unsatisfied, related to pricing contracts that have a term of more than 12
months, of which $4.4 million of revenue will be recognized in 2022, $2.6
million in 2023, and $0.7 million in 2024. The actual timing of recognition may
vary due to factors outside of our control. We exclude variable consideration
related entirely to wholly unsatisfied performance obligations and contracts and
recognizes such variable consideration based upon the right to invoice the
customer.

Sales commissions are incurred and recognized continuously over the term of the customer relationship. These costs are recognized in sales and marketing expenses.

In addition, we elected the practical expedient to not disclose the value of
unsatis?ed performance obligations for (i) contracts with an original expected
length of one year or less and (ii) contracts for which we recognize revenue at
the amount to which we have the right to invoice for services performed.

Provisions for bad debts

We maintain allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Management determines
whether an allowance needs to be provided for an amount due from a customer
depending on the aging of the individual receivable balance, recent payment
history, contractual terms and other qualitative factors such as status of
business relationship with the customer. Historically, our estimates for
doubtful accounts have not differed materially from actual results. The amount
of the allowance for doubtful accounts was $0.03 million and $0.04 million as of
December 31, 2021 and 2020, respectively.

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Income taxes

We account for income taxes in accordance with ASC 740, "Income Taxes," which
requires the use of the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are computed based upon the difference between the financial statement and
income tax basis of assets and liabilities using the enacted tax rate applicable
when the related asset or liability is expected to be realized or settled.
Deferred income tax expenses or benefits are based on the changes in the asset
or liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. As of December 31, 2021
and 2020, we had a valuation allowance of $9.5 million and $7.6 million,
respectively. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change.

ASC 740 clarifies the accounting for uncertain tax positions. This
interpretation requires that an entity recognizes in the consolidated financial
statements the impact of a tax position, if that position is more likely than
not of being sustained upon examination, based on the technical merits of the
position. Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs.
The Company's accounting policy is to accrue interest and penalties related to
uncertain tax positions, if and when required, as interest expense and a
component of other expenses, respectively, in the consolidated statements of
operations.

Intangible assets other than goodwill

Our intangible assets are initially recorded at the capitalized actual costs
incurred, their acquisition cost, or fair value if acquired as part of a
business combination, and amortized on a straight-line basis over their
respective estimated useful lives, which are the periods over which the assets
are expected to contribute directly or indirectly to the future cash flows of
the Company. The Company's intangible assets represent software developed for
internal use. Intangible assets have estimated useful lives of 5-10 years.

In accordance with ASC 350-40, "Software - internal use software," we capitalize
eligible costs, including salaries and staff benefits, share-based compensation,
travel expenses incurred by relevant employees, and other relevant costs of
developing internal-use software that are incurred in the application
development stage when developing or obtaining software for internal use. Once
the software developed for internal use is ready for its intended use, it is
amortized on a straight-line basis over its useful life.

Good will

In accordance with ASC 350, "Intangibles - Goodwill and Other," goodwill is
tested at least annually for impairment, or when events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable, by assessing qualitative factors or performing a quantitative
analysis in determining whether it is more likely than not that its fair value
exceeds the carrying value. A quantitative assessment involves determining the
fair value of each reporting unit using market participant assumptions. An
entity should recognize an impairment charge for the amount by which the
carrying amount of a reporting unit exceeds its fair value up to the amount of
goodwill allocated to that reporting unit.

On October 1, 2021 and 2020, we performed qualitative assessments on the
reporting unit and, based on this assessment, no events have occurred to
indicate that it is more likely than not that the fair value of the reporting
unit is less than its carry amount. We concluded that goodwill was not impaired
as of December 31, 2021 and 2020.

For purposes of reviewing impairment and the recoverability of goodwill, we must
make various assumptions regarding estimated future cash flows and other factors
in determining the fair value of the reporting unit, including market multiples,
discount rates, etc.

Impairment of long-lived assets

Finite-lived intangible assets are amortized over their respective useful lives
and, along with other long-lived assets, are evaluated for impairment
periodically whenever events or changes in circumstances indicate that their
related carrying amounts may not be recoverable in accordance with ASC
360-10-15, "Impairment or Disposal of Long-Lived Assets." In evaluating
long-lived assets for recoverability, including finite-lived intangibles and
property and equipment, the Company uses its best estimate of future cash flows
expected to result from the use of the asset and eventual disposition in
accordance with ASC 360-10-15. To the extent that estimated future undiscounted
cash inflows attributable to the asset, less estimated future undiscounted cash
outflows, are less than the carrying amount, an impairment loss is recognized in
an amount equal to the difference between the carrying value of such asset and
its fair value. Assets to be disposed of and for which there is a committed plan
of disposal, whether through sale or abandonment, are reported at the lower of
carrying value or fair value less costs to sell.

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Asset recoverability is an area involving management judgment, requiring
assessment as to whether the carrying value of assets can be supported by the
undiscounted future cash flows. In calculating the future cash flows, certain
assumptions are required to be made in respect of highly uncertain matters such
as revenue growth rates, gross margin percentages and terminal growth rates.

We concluded that there was no impairment in December 31, 2021 and 2020.

Stock-based compensation

We account for share-based compensation to employees in accordance with ASC 718,
"Compensation-Stock Compensation." Under ASC 718, we measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award and, for those awards subject only to
service condition, recognizes the costs on a straight-line basis over the period
the employee is required to provide service in exchange for the award, which
generally is the vesting period. For awards with performance and service
conditions, we begin recording share-based compensation when achieving the
performance criteria is probable and we recognize the costs using the
accelerated attribution method.

The fair value of RSUs is determined based on the number of shares granted and
the quoted price of our common stock. The estimated number of stock awards that
will ultimately vest requires judgment, and to the extent actual results or
updated estimates differ from our current estimates, such amount will be
recorded as a cumulative adjustment in the period estimates are revised. Changes
in our estimates and assumptions may cause us to realize material changes in
share-based compensation expense in the future.

We have issued share-based awards with performance-based vesting criteria.
Achievement of the milestones must be probable before we begin recording
share-based compensation expense. When the performance-based vesting criteria is
considered probable, we begin to recognize compensation expense at that time. In
the period that achievement of the performance-based criteria is deemed
probable, US GAAP requires the immediate recognition of all previously
unrecognized compensation since the original grant date. As a result,
compensation expense recorded in the period that achievement is deemed probable
could include a substantial amount of previously unrecorded compensation expense
related to the prior periods. For any share-based awards where performance-based
vesting criteria is no longer considered probable, previously recognized
compensation cost would be reversed. As of December 31, 2021, we have deemed the
achievement of the performance-based criteria to be probable for all share-based
awards with performance-based vesting criteria, except for the Criteria Four
award, as defined in Note 10, "Share-based compensation," included in "Notes to
Consolidated Financial Statements."

We apply ASU 2018-07, "Improvements to Nonemployee Share-Based Payment
Accounting," which generally expands the scope of ASC 718, Compensation - Stock
Compensation, to include share-based payment transactions for acquiring goods
and services from nonemployees and supersedes the guidance in ASC 505-50,
Equity-Based Payments to Non-employees, which previously included the accounting
for nonemployee awards.

Recently issued accounting standards

See Item 8 of Part II, “Financial Statements and Supplementary Data – Note 2. Summary of Significant Accounting Policies – (s) Recently Issued Accounting Standards”.

Fourth quarter financial results

For the three months ended December 31, 2021 compared to the three months ended December 31, 2020:

Total revenue increased by 26% to reach $11.3 million. Platform revenue grew 25% to
$10.8 million. Services revenue increased by 31% to reach $0.5 million.

Net loss decreased 5% to $1.8 million.

Adjusted EBITDA increased by 9% to reach $1.3 million.

Gross margin increased by 35% to reach $6.9 million. Gross margin increased from 57% to 62%.

Adjusted gross profit increased 33% to $8.3 million. Adjusted gross margin increased from 70% to 74%.

Cash flow from operating activities increased by 10% to reach $2.0 million.

Cash and cash equivalents were $34.3 million from December 31, 2021.

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Annual financial results

For the year ended December 31, 2021 compared to the year ended December 31, 2020:

Total revenue increased by 27% to reach $44.0 million. Platform revenue grew 31% to
$42.5 million. Services revenue fell 25% to $1.5 million.

The net income was $0.7 million compared to a loss of $6.8 million.

Adjusted EBITDA increased by 85% for $10.9 million.

Gross margin increased by 43% to reach $27.7 million. Gross margin increased from 56% to 63%.

Adjusted gross profit increased 41% to $32.8 million. Adjusted gross margin increased from 67% to 75%.

Cash flow from operating activities increased by 37% to reach $8.9 million.

Platform revenue consists of both contractual and transactional revenue
generated from our technology platform, CORE. It includes all revenue generated
through our idiCORE and FOREWARN solutions. The cost of platform revenue, which
consists primarily of data acquisition costs, remains relatively fixed
irrespective of revenue generation. Services revenue consists of revenue
generated from our idiVERIFIED service, which is an ancillary collections market
offering that is purely transactional and of a lower margin profile. The cost of
services revenue, which consists primarily of third-party servicer costs, is
variable.

Use and Reconciliation of Non-GAAP Financial Measures

Management evaluates the financial performance of our business on a variety of
key indicators, including non-GAAP metrics of adjusted EBITDA, adjusted EBITDA
margin, adjusted gross profit and adjusted gross margin. Adjusted EBITDA is a
financial measure equal to net (loss) income, the most directly comparable
financial measure based on US GAAP, excluding interest (income) expense, net,
income tax expense, depreciation and amortization, share-based compensation
expense, gain on extinguishment of debt, litigation costs, and write-off of
long-lived assets and others, as noted in the tables below. We define adjusted
EBITDA margin as adjusted EBITDA as a percentage of revenue. We define adjusted
gross profit as revenue less cost of revenue (exclusive of depreciation and
amortization), and adjusted gross margin as adjusted gross profit as a
percentage of revenue.

                                        Three Months Ended December 31,            Year Ended December 31,
(In thousands)                            2021                   2020               2021              2020
Net (loss) income                    $       (1,784 )       $       (1,875 )    $        655       $   (6,813 )
Interest (income) expense, net                   (1 )                    6                 7              (18 )
Income tax expense                              198                      -               198                -
Depreciation and amortization                 1,466                  1,196             5,399            4,216
Share-based compensation expense              1,418                  1,648             6,615            8,064
Gain on extinguishment of debt                    -                      -            (2,175 )              -
Litigation costs                                  -                      -               126                -
Write-off of long-lived assets and
others                                            9                    222               104              474
Adjusted EBITDA                      $        1,306         $        1,197      $     10,929       $    5,923
Revenue                              $       11,258         $        8,963      $     44,022       $   34,586

Net (loss) income margin                        (16 %)                 (21 %)              1 %            (20 %)
Adjusted EBITDA margin                           12 %                   13 %              25 %             17 %




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The following is a reconciliation of gross margin, the most directly comparable GAAP financial measure, to adjusted gross margin:

                                        Three Months Ended December 31,           Year Ended December 31,
(In thousands)                            2021                  2020               2021              2020
Revenue                              $        11,258       $         8,963     $     44,022       $   34,586
Cost of revenue (exclusive of
depreciation and
 amortization)                                (2,927 )              (2,694 )        (11,195 )        (11,276 )
Depreciation and amortization of
intangible assets                             (1,407 )              (1,143 )         (5,170 )         (3,990 )
Gross profit                                   6,924                 5,126           27,657           19,320
Depreciation and amortization of
intangible assets                              1,407                 1,143            5,170            3,990
Adjusted gross profit                $         8,331       $         6,269     $     32,827       $   23,310

Gross margin                                      62 %                  57 %             63 %             56 %
Adjusted gross margin                             74 %                  70 %             75 %             67 %


In order to assist readers of our consolidated financial statements in
understanding the operating results that management uses to evaluate the
business and for financial planning purposes, we present non-GAAP measures of
adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted
gross margin as supplemental measures of our operating performance. We believe
they provide useful information to our investors as they eliminate the impact of
certain items that we do not consider indicative of our cash operations and
ongoing operating performance. In addition, we use them as an integral part of
our internal reporting to measure the performance and operating strength of our
business.

We believe adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and
adjusted gross margin are relevant and provide useful information frequently
used by securities analysts, investors and other interested parties in their
evaluation of the operating performance of companies similar to ours and are
indicators of the operational strength of our business. We believe adjusted
EBITDA eliminates the uneven effect of considerable amounts of non-cash
depreciation and amortization, share-based compensation expense and the impact
of other non-recurring items, providing useful comparisons versus prior periods
or forecasts. Adjusted EBITDA margin is calculated as adjusted EBITDA as a
percentage of revenue. Our adjusted gross profit is a measure used by management
in evaluating the business's current operating performance by excluding the
impact of prior historical costs of assets that are expensed systematically and
allocated over the estimated useful lives of the assets, which may not be
indicative of the current operating activity. Our adjusted gross profit is
calculated by using revenue, less cost of revenue (exclusive of depreciation and
amortization). We believe adjusted gross profit provides useful information to
our investors by eliminating the impact of non-cash depreciation and
amortization, and specifically the amortization of software developed for
internal use, providing a baseline of our core operating results that allow for
analyzing trends in our underlying business consistently over multiple periods.
Adjusted gross margin is calculated as adjusted gross profit as a percentage of
revenue.

Adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted
gross margin are not intended to be performance measures that should be regarded
as an alternative to, or more meaningful than, financial measures presented in
accordance with US GAAP. The way we measure adjusted EBITDA, adjusted EBITDA
margin, adjusted gross profit and adjusted gross margin may not be comparable to
similarly titled measures presented by other companies, and may not be identical
to corresponding measures used in our various agreements.

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Quarterly financial data (unaudited)

The following tables set forth the Company's unaudited quarterly consolidated
statements of operations data and reconciliations of certain directly comparable
US GAAP financial measures to non-GAAP financial measures, including adjusted
EBITDA, adjusted EBITDA margin, adjusted gross profit and adjusted gross margin,
for each of the eight quarters in the two-year period ended December 31, 2021.
The Company has prepared the quarterly unaudited consolidated statements of
operations data on a basis consistent with the audited consolidated financial
statements included elsewhere in this 2021 Form 10-K. In the opinion of
management, the financial information in these tables reflects all adjustments,
consisting only of normal recurring adjustments, which management considers
necessary for a fair presentation of this data. This information should be read
in conjunction with the audited consolidated financial statements and related
notes included elsewhere in this 2021 Form 10-K. The results of historical
periods are not necessarily indicative of the results for any future period.

                                                                                     Three Months Ended
(In thousands, except
share data) (Unaudited)    3/31/2020         6/30/2020         9/30/2020         12/31/2020        3/31/2021         6/30/2021        9/30/2021        12/31/2021
Revenue                   $      9,300      $      7,056      $      9,267      $      8,963      $     10,217      $     10,879     $     11,668     $     11,258
Costs and expenses:
Cost of revenue
(exclusive of
 depreciation and
amortization)                    3,292             2,587             2,703             2,694             2,761             2,720            2,787            2,927
Sales and marketing
expenses                         2,176             1,746             2,217             1,959             2,221             2,349            2,154            2,208
General and
administrative expenses          4,434             4,263             4,147             4,983             4,550             4,890            4,127            6,244
Depreciation and
amortization                       910               992             1,118             1,196             1,258             1,330            1,345            1,466
Total costs and
expenses                        10,812             9,588            10,185            10,832            10,790            11,289           10,413           12,845
(Loss) income from
operations                      (1,512 )          (2,532 )            (918 )          (1,869 )            (573 )            (410 )          1,255           (1,587 )
Interest income
(expense), net                      31                 -                (7 )              (6 )              (5 )              (4 )              1                1
Gain on extinguishment
of debt                              -                 -                 -                 -                 -             2,175                -                -
(Loss) income before
income taxes                    (1,481 )          (2,532 )            (925 )          (1,875 )            (578 )           1,761            1,256           (1,586 )
Income tax expense                   -                 -                 -                 -                 -                 -                -              198
Net (loss) income         $     (1,481 )    $     (2,532 )    $       (925 )    $     (1,875 )    $       (578 )    $      1,761     $      1,256     $     (1,784 )
(Loss) earnings per
share:
Basic                     $      (0.13 )    $      (0.22 )    $      (0.08 )    $      (0.14 )    $      (0.05 )    $       0.14     $       0.10     $      (0.14 )
Diluted                   $      (0.13 )    $      (0.22 )    $      (0.08 )    $      (0.14 )    $      (0.05 )    $       0.13     $       0.09     $      (0.14 )
Weighted average number
of
 shares outstanding:
Basic                       11,583,214        11,617,342        12,072,716 
      12,173,301        12,207,193        12,269,412       12,741,723       13,158,638
Diluted                     11,583,214        11,617,342        12,072,716        12,173,301        12,207,193        13,560,714       13,645,208      
13,158,638

                                                                                     Three Months Ended
(In thousands)
(Unaudited)                3/31/2020         6/30/2020         9/30/2020         12/31/2020        3/31/2021         6/30/2021        9/30/2021       
12/31/2021
Net (loss) income         $     (1,481 )    $     (2,532 )    $       (925 )    $     (1,875 )    $       (578 )    $      1,761     $      1,256     $     (1,784 )
Interest expense
(income), net                      (31 )               -                 7                 6                 5                 4               (1 )             (1 )
Income tax expense                   -                 -                 -                 -                 -                 -                -              198
Depreciation and
amortization                       910               992             1,118             1,196             1,258             1,330            1,345            1,466
Share-based
compensation expense             2,221             2,342             1,853             1,648             2,046             2,165              986            1,418
Gain on extinguishment
of debt                              -                 -                 -                 -                 -            (2,175 )              -                -
Litigation costs                     -                 -                 -                 -               120                 6                -                -
Write-off of long-lived
assets and
 others                            111               106                35               222                20                41               34                9
Adjusted EBITDA           $      1,730      $        908      $      2,088      $      1,197      $      2,871      $      3,132     $      3,620     $      1,306
Revenue                   $      9,300      $      7,056      $      9,267      $      8,963      $     10,217      $     10,879     $     11,668     $     11,258

Net (loss) income
margin                             (16 %)            (36 %)            (10 %)            (21 %)             (6 %)             16 %             11 %            (16 %)
Adjusted EBITDA margin              19 %              13 %              23 %              13 %              28 %              29 %             31 %             12 %

                                                                                     Three Months Ended
(In thousands)
(Unaudited)                3/31/2020         6/30/2020         9/30/2020         12/31/2020        3/31/2021         6/30/2021        9/30/2021        12/31/2021
Revenue                   $      9,300      $      7,056      $      9,267      $      8,963      $     10,217      $     10,879     $     11,668     $     11,258
Cost of revenue
(exclusive of
 depreciation and
amortization)                   (3,292 )          (2,587 )          (2,703 )          (2,694 )          (2,761 )          (2,720 )         (2,787 )         (2,927 )
Depreciation and
amortization
 of intangible assets             (850 )            (934 )          (1,063 )          (1,143 )          (1,203 )          (1,272 )         (1,288 )         (1,407 )
Gross profit                     5,158             3,535             5,501             5,126             6,253             6,887            7,593            6,924
Depreciation and
amortization
 of intangible assets              850               934             1,063             1,143             1,203             1,272            1,288            1,407
Adjusted gross profit     $      6,008      $      4,469      $      6,564      $      6,269      $      7,456      $      8,159     $      8,881     $      8,331

Gross margin                        55 %              50 %              59 %              57 %              61 %              63 %             65 %             62 %
Adjusted gross margin               65 %              63 %              71 %              70 %              73 %              75 %             76 %             74 %




                                       29
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Operating results

Year ended December 31, 2021 compared to the year ended December 31, 2020

Revenue. Revenue increased $9.4 million or 27% to $44.0 million for the year
ended December 31, 2021 from $34.6 million for the year ended December 31, 2020.
This increase was driven by base revenue from existing customers that increased
$9.9 million or 41%, which was partially offset by a decrease in revenue from
new customers of $0.2 million or 6% and growth revenue from existing customers
of $0.2 million or 3%. As a result of certain Covid-19 related government
mandated collections moratoria remaining in place during the period, our
idiVERIFIED service, which is an ancillary collections market offering that is
purely transactional and of a lower margin profile, was down $0.5 million for
the year ended December 31, 2021. We expect our idiVERIFIED service volume to
return to pre-Covid levels in the second half of 2022. Our IDI billable customer
base grew from 5,726 customers as of December 31, 2020 to 6,548 customers as of
December 31, 2021, and our FOREWARN user base grew from 48,377 users to 82,419
users during that same period. Revenue from new customers represents the total
monthly revenue generated from new customers in a given period. A customer is
defined as a new customer during the first six months of revenue generation.
Base revenue from existing customers represents the total monthly revenue
generated from existing customers in a given period that does not exceed the
customers' trailing six-month average revenue. A customer is defined as an
existing customer six months after their initial month of revenue. Growth
revenue from existing customers represents the total monthly revenue generated
from existing customers in a given period in excess of the customers' trailing
six-month average revenue.

Cost of revenue (exclusive of depreciation and amortization). Cost of revenue
decreased $0.1 million or 1% to $11.2 million for the year ended December 31,
2021 from $11.3 million for the year ended December 31, 2020. Our cost of
revenue primarily includes data acquisition costs. Data acquisition costs
consist primarily of the costs to acquire data either on a transactional basis
or through flat-fee data licensing agreements, including unlimited usage
agreements. The decrease in cost of revenue was primarily attributable to the
decrease in transactional based data acquisition costs associated with the
reduction in our idiVERIFIED services revenue. We continue to enhance the
breadth and depth of our data through the addition and expansion of
relationships with key data suppliers, including our largest data supplier,
which accounted for 49% of our total data acquisition costs for the year ended
December 31, 2021 compared to 46% for the year ended December 31, 2020. Other
cost of revenue items include expenses related to third-party infrastructure
fees.

As the construct of our data costs is primarily a flat-fee, unlimited usage
model, the cost of revenue as a percentage of revenue decreased to 25% for the
year ended December 31, 2021 from 33% for the year ended December 31, 2020. We
expect that cost of revenue as a percentage of revenue will continue to decrease
over the coming years as our revenue increases. Historically, at scale, the
industry business model's cost of revenue will trend between 15% and 30% as a
percentage of revenue.

Sales and marketing expenses. Sales and marketing expenses increased $0.8
million or 10% to $8.9 million for the year ended December 31, 2021 from $8.1
million for the year ended December 31, 2020. Sales and marketing expenses
consist of salaries and benefits, advertising and marketing, travel expenses,
and share-based compensation expense, incurred by our sales team, and provision
for bad debts. The increase during the year ended December 31, 2021 was
primarily attributable to an increase of $0.3 million in salaries and benefits,
and $0.6 million in sales commissions and $0.2 million in merchant processing
fees, resulting from increased revenue, which was partially offset by the
decrease in provision for bad debts of $0.3 million.

General and administrative expenses. General and administrative expenses
increased $2.0 million or 11% to $19.8 million for the year ended December 31,
2021 from $17.8 million for the year ended December 31, 2020. For the years
ended December 31, 2021 and 2020, our general and administrative expenses
consisted primarily of employee salaries and benefits of $8.4 million and $5.3
million, share-based compensation expense of $6.1 million and $7.5 million, and
professional fees of $3.2 million and $2.8 million, respectively.

Depreciation and amortization. Depreciation and amortization expenses increased
$1.2 million or 28% to $5.4 million for the year ended December 31, 2021 from
$4.2 million for the year ended December 31, 2020. The increase in depreciation
and amortization for the year ended December 31, 2021 resulted primarily from
the amortization of software developed for internal use that became ready for
its intended use after December 31, 2020.

Gain on extinguishment of debt. At May 5, 2020we received the loan for a principal amount of $2.2 million under the CARES Act. At June 16, 2021we received a notice from the lender that the total principal amount of the loan and its accrued interest had been fully forgiven, resulting in a gain on extinguishment of the indebtedness of $2.2 million during the year ended December 31, 2021.

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Income (loss) before income taxes. Income before income taxes was $0.9 million,
inclusive of a one-time gain of $2.2 million on the extinguishment of debt from
the forgiveness of the Loan, for the year ended December 31, 2021 compared to a
loss of $6.8 million for the year ended December 31, 2020. The significant
decrease in loss before income taxes (exclusive of the one-time gain on
extinguishment of debt) was primarily attributable to the increase in revenue,
decrease in our cost of revenue as a percentage of revenue, and decrease in
share-based compensation expense, which was partially offset by the increase in
employee salaries and benefits and sales commissions of $4.0 million, and
depreciation and amortization of $1.2 million.

Income taxes. Income tax expense of $198 and $0 was recognized for the years
ended December 31, 2021 and 2020, respectively. A valuation allowance on the
deferred tax assets was recognized as of December 31, 2021 and 2020, to reduce
the deferred tax assets to the amount that is more likely than not to be
realized. See Note 8, "Income Taxes," included in "Notes to Consolidated
Financial Statements."

Net income (loss). Net income was $0.7 million, inclusive of a one-time gain of
$2.2 million on the extinguishment of debt from the forgiveness of the Loan, for
the year ended December 31, 2021 compared to a net loss of $6.8 million for the
year ended December 31, 2020, as a result of the foregoing.

Effect of inflation

The rates of inflation experienced in recent years have had no material impact
on our financial statements. We attempt to recover increased costs by increasing
prices for our services, to the extent permitted by contracts and competition.

Cash and capital resources

Cash flows provided by operating activities. For the year ended December 31,
2021, net cash provided by operating activities was $8.9 million, primarily the
result of the net income of $0.7 million, adjusted for certain non-cash items
(consisting of share-based compensation expense, depreciation and amortization,
write-off of long-lived assets, provision for bad debts, noncash lease expenses,
gain on extinguishment of debt, and deferred income tax expense) totaling $10.7
million, and the cash used as a result of changes in assets and liabilities of
$2.4 million, primarily the result of the increase in accounts receivable, and
the decrease in accounts payable, accrued expenses and other current
liabilities, and operating lease liabilities. For the year ended December 31,
2020, net cash provided by operating activities was $6.5 million, primarily the
result of the net loss of $6.8 million, adjusted for certain non-cash items
(consisting of share-based compensation expense, depreciation and amortization,
write-off of long-lived assets, provision for bad debts, and noncash lease
expenses) totaling $13.5 million, and the cash used as a result of changes in
assets and liabilities of $0.2 million, primarily the result of the decrease in
accrued expenses and other current liabilities and operating lease liabilities.

Cash flows used in investing activities. Net cash used in investing activities
for the years ended December 31, 2021 and 2020 was $5.2 million and $5.7
million, respectively, primarily as a result of capitalized costs included in
intangible assets of $5.0 million and $5.5 million for the years ended December
31, 2021 and 2020, respectively.

Cash flows provided by financing activities. For the year ended December 31,
2021, net cash provided by financing activities was $17.6 million. On November
19, 2021, we entered into definitive securities purchase agreements with certain
investors for the sales of our common stock in a registered direct offering for
net proceeds of $20.9 million. In addition, we paid taxes of $3.3 million
related to the net share settlement of vesting of RSUs during the year ended
December 31, 2021. For the year ended December 31, 2020, net cash provided by
financing activities was $0.3 million. On May 5, 2020, we received the Loan in
the principal amount of $2.2 million under the CARES Act. On June 16, 2021, we
received a notice from the Lender that the full principal amount of the Loan and
its accrued interest had been fully forgiven, resulting in a gain on
extinguishment of debt of $2.2 million during the year ended December 31, 2021.
In addition, we paid taxes of $1.8 million related to the net share settlement
of vesting of RSUs during the year ended December 31, 2020.

From December 31, 2021we had material commitments under certain data license agreements of $33.1 million. We expect to fund our operations using available cash and cash flow generated from operations over the next twelve months.

We reported net income of $0.7 million and a net loss of $6.8 million for the
years ended December 31, 2021 and 2020, respectively. As of December 31, 2021,
we had a total shareholders' equity balance of $69.4 million.

From December 31, 2021we had cash and cash equivalents of $34.3 million. Based on projections of revenue growth and operating results over the next twelve months, and the free cash and cash equivalents we hold, we believe that we will have sufficient cash resources to fund our operations. and planned capital expenditures for the next twelve months.

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We further believe that our financial resources will allow us to manage the
impact of Covid-19 on the Company's business operations for the foreseeable
future. However, subject to revenue growth, our ability to generate positive
cash flow, and the potential impact of Covid-19, we may have to raise capital
through the issuance of additional equity and/or debt, which, if we are able to
obtain, could have the effect of diluting stockholders. Any equity or debt
financings, if available at all, may be on terms which are not favorable to us.

Off-balance sheet arrangements

We do not have any outstanding off-balance sheet guarantees, interest rate swap
transactions or foreign currency forward contracts. In addition, we do not
engage in trading activities involving non-exchange traded contracts. In our
ongoing business, we do not enter into transactions involving, or otherwise form
relationships with, unconsolidated entities or financial partnerships that are
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes.

                           FORWARD-LOOKING STATEMENTS

This 2021 Form 10-K contains certain "forward-looking statements" within the
meaning of the PSLRA, Section 27A of the Securities Act, and Section 21E of the
Exchange Act. Such forward-looking statements contain information about our
expectations, beliefs or intentions regarding our product development and
commercialization efforts, business, financial condition, results of operations,
strategies or prospects. You can identify forward-looking statements by the fact
that these statements do not relate strictly to historical or current matters.
Rather, forward-looking statements relate to anticipated or expected events,
activities, trends or results as of the date they are made. Because
forward-looking statements relate to matters that have not yet occurred, these
statements are inherently subject to risks and uncertainties that could cause
our actual results to differ materially from any future results expressed or
implied by the forward-looking statements.

Many factors could cause our actual activities or results to differ materially
from the activities and results anticipated in forward-looking statements. These
factors include the following:

The ongoing and developing Covid-19 pandemic and the global response to it may
adversely impact our business, our future results of operations and our overall
financial performance.

Our products and services are highly technical and if they contain undetected
errors, our business could be adversely affected and we may have to defend
lawsuits or pay damages in connection with any alleged or actual failure of our
products and services.

If we fail to respond to rapid technological changes in the data and analytics
sector, we may lose customers and/or our products and/or services may become
obsolete.

Because our networks and information technology systems are critical to our
success, if unauthorized persons access our systems or our systems otherwise
cease to function properly, our operations could be adversely affected and we
could lose revenue or proprietary information, all of which could materially
adversely affect our business.

Data security and integrity are of critical importance to our business, and breaches of security, unauthorized access or disclosure of confidential information, disruptions, including distributed denial of service attacks ( “DDoS”) or the perception that confidential information is not secure, could result in material loss of business, substantial legal liability or material damage to our reputation.

If we fail to maintain and improve our systems, certifications, technology and interfaces with data sources and customers, demand for our services could be adversely affected.

Our business is subject to various governmental regulations, laws and orders,
compliance with which may cause us to incur significant expenses or reduce the
availability or effectiveness of our solutions, and the failure to comply with
which could subject us to civil or criminal penalties or other liabilities.

The outcome of litigation, investigations, investigations, reviews or other legal proceedings in which we are involved, in which we may be involved or in which our customers or competitors are involved could expose us to damages significant pecuniary charges or restrictions on our ability to do business.

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Our bylaws designate the Court of Chancery of the State of Delaware as the sole
and exclusive forum for certain actions, including derivative actions, which
could limit a stockholder's ability to bring a claim in a judicial forum that it
finds favorable for disputes with the Company and its directors, officers, other
employees, or the Company's stockholders and may discourage lawsuits with
respect to such claims.

The market price of our shares has been and may continue to be volatile, and the value of an investment in our common shares may decline.

Future issuances of shares of our common stock in connection with acquisitions
or pursuant to our stock incentive plan could have a dilutive effect on your
investment.

The concentration of our shareholding may limit the ability of individual shareholders to influence the affairs of the company.

We are an “emerging growth company” and cannot be certain that the reduced reporting requirements available to emerging growth companies will make our common stock less attractive to investors.

We expect that we may need additional capital in the future; however, such
capital may not be available to us on reasonable terms, if at all, when or as we
require additional funding. If we issue additional shares of our common stock or
other securities that may be convertible into, or exercisable or exchangeable
for, our common stock, our existing stockholders would experience further
dilution.

We have a history of losses which makes our future results uncertain.

We depend, in part, on strategic alliances, joint ventures and acquisitions to
grow our business. If we are unable to make strategic acquisitions and develop
and maintain these strategic alliances and joint ventures, our growth may be
adversely affected.

If we make future acquisitions, we will be subject to the risks inherent in identifying, acquiring and operating a newly acquired business.

Our relationships with key customers may be significantly reduced or interrupted.

If we lose the services of key personnel, it could adversely affect our business.

Our revenues are focused on the US market across a wide range of industries. When these industries or broader financial markets experience a downturn, demand for our services and our revenues may be adversely affected.

We may lose our access to data sources that may prevent us from providing our services.

We must adequately protect our intellectual property to prevent the loss of valuable proprietary information.

We face intense competition from start-ups and established companies that can have significant advantages over us and our products.

There may be further consolidation in our end-customer markets, which could adversely affect our revenues.

To the extent that the availability of free or relatively inexpensive consumer and/or business information increases, demand for some of our services may decrease.

If our new products are not accepted by the market, revenue growth could suffer.

Our products and services may have long sales and implementation cycles, which may result in significant expenditures before realizing the associated revenue.

If our external service providers and key suppliers are unable or fail to meet their service obligations, our operations could be disrupted and our results of operations could be affected.

Consolidation in the data and analytics industry may limit market acceptance of our products and services.

We may incur substantial expenses defending against infringement claims.

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