Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”). This Form 10-Q 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, including the impact of the coronavirus (“Covid-19”) pandemic on our operating results. These factors include those contained in this Form 10-Q, as well as the disclosures made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 9, 2022 (“Form 10-K”), and other filings we make with the Securities and Exchange Commission. 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 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. To the extent that our business is negatively impacted due to a variety of factors, including the impact of Covid-19 on our operating results, we may implement longer-term cost reduction efforts in order to mitigate such impacts.
References in this discussion and analysis to “we,” “us,” “our,” “red violet,” or the “Company,” refer to Red Violet, Inc. and its consolidated subsidiaries.
Overview
Red Violet, Inc. (“we,” “us,” “our,” “red violet,” or the “Company”), 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 June 30, 2022 and 2021, IDI had 6,817 and 6,141 billable customers and FOREWARN had 101,261 and 67,578 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 three months ended June 30, 2022 and 2021, 80% and 81% of total revenue was attributable to customers with pricing contracts, respectively, versus 20% and 19% attributable to transactional customers, respectively. For the six months ended June 30, 2022 and 2021, 78% and 80% of total revenue was attributable to customers with pricing contracts, respectively, versus 22% and 20% 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 and the six months ended June 30, 2022, 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 first half of 2023. Given the ongoing uncertainty and the unpredictable nature of the pandemic, including the emergence of new variants and the development, availability, distribution and effectiveness of vaccines, 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.
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 ("CARES Act 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 three and six months ended June 30, 2021. We will continue to assess the CARES Act and other applicable government legislation aimed at assisting businesses during the Covid-19 pandemic.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues 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.
For additional information, please refer to our Form 10-K. There have been no material changes to Critical Accounting Policies and Estimates disclosed in our Form 10-K.
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Recently issued accounting standards
See Note 1(b), “Recently issued accounting standards,” in “Notes to Condensed Consolidated Financial Statements.”
Second Quarter Financial Results
For the three months ended June 30, 2022 as compared to the three months ended June 30, 2021:
•Total revenue increased 15% to $12.5 million. Platform revenue increased 15% to $12.2 million. Services revenue increased 6% to $0.3 million.
•Gross profit increased 16% to $8.0 million. Gross margin increased to 64% from 63%.
•Adjusted gross profit increased 17% to $9.6 million. Adjusted gross margin increased to 77% from 75%.
•Net loss was $0.2 million compared to a net income of $1.8 million (inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the Cares Act Loan).
•Adjusted EBITDA decreased 6% to $2.9 million.
•Cash from operating activities increased 10% to $2.5 million.
•Cash and cash equivalents were $32.3 million as of June 30, 2022.s
Second Quarter and Recent Business Highlights
•Added 225 customers to IDI during the second quarter, ending the quarter with 6,817 customers.
•Surpassed 100,000 users on FOREWARN during the second quarter, ending the quarter with 101,261 users. Over 205 REALTOR® Associations are now contracted to use FOREWARN.
•Released idiTRACE, a premier SSN Trace solution for background screening organizations.
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 expense (income), 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.
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Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net (loss) income |
|
$ |
(205 |
) |
|
$ |
1,761 |
|
|
$ |
(98 |
) |
|
$ |
1,183 |
|
Interest expense (income), net |
|
|
- |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
9 |
|
Income tax expense |
|
|
44 |
|
|
|
- |
|
|
|
219 |
|
|
|
- |
|
Depreciation and amortization |
|
|
1,613 |
|
|
|
1,330 |
|
|
|
3,147 |
|
|
|
2,588 |
|
Share-based compensation expense |
|
|
1,406 |
|
|
|
2,165 |
|
|
|
2,793 |
|
|
|
4,211 |
|
Gain on extinguishment of debt |
|
|
- |
|
|
|
(2,175 |
) |
|
|
- |
|
|
|
(2,175 |
) |
Litigation costs |
|
|
76 |
|
|
|
6 |
|
|
|
91 |
|
|
|
126 |
|
Write-off of long-lived assets and others |
|
|
- |
|
|
|
41 |
|
|
|
3 |
|
|
|
61 |
|
Adjusted EBITDA |
|
$ |
2,934 |
|
|
$ |
3,132 |
|
|
$ |
6,154 |
|
|
$ |
6,003 |
|
Revenue |
|
$ |
12,494 |
|
|
$ |
10,879 |
|
|
$ |
25,223 |
|
|
$ |
21,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income margin |
|
|
(2 |
%) |
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|
16 |
% |
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|
0 |
% |
|
|
6 |
% |
Adjusted EBITDA margin |
|
|
23 |
% |
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|
29 |
% |
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|
24 |
% |
|
|
28 |
% |
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The following is a reconciliation of gross profit, the most directly comparable US GAAP financial measure, to adjusted gross profit:
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Three Months Ended June 30, |
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Six Months Ended June 30, |
|
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Revenue |
|
$ |
12,494 |
|
|
$ |
10,879 |
|
|
$ |
25,223 |
|
|
$ |
21,096 |
|
Cost of revenue (exclusive of depreciation and amortization) |
|
|
(2,920 |
) |
|
|
(2,720 |
) |
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|
(6,090 |
) |
|
|
(5,481 |
) |
Depreciation and amortization of intangible assets |
|
|
(1,551 |
) |
|
|
(1,272 |
) |
|
|
(3,023 |
) |
|
|
(2,475 |
) |
Gross profit |
|
|
8,023 |
|
|
|
6,887 |
|
|
|
16,110 |
|
|
|
13,140 |
|
Depreciation and amortization of intangible assets |
|
|
1,551 |
|
|
|
1,272 |
|
|
|
3,023 |
|
|
|
2,475 |
|
Adjusted gross profit |
|
$ |
9,574 |
|
|
$ |
8,159 |
|
|
$ |
19,133 |
|
|
$ |
15,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
64 |
% |
|
|
63 |
% |
|
|
64 |
% |
|
|
62 |
% |
Adjusted gross margin |
|
|
77 |
% |
|
|
75 |
% |
|
|
76 |
% |
|
|
74 |
% |
In order to assist readers of our condensed 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’ 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.
Results of Operations
Three months ended June 30, 2022 compared to three months ended June 30, 2021
Revenue. Revenue increased $1.6 million or 15% to $12.5 million for the three months ended June 30, 2022 from $10.9 million for the three months ended June 30, 2021. Base revenue from existing customers increased $1.8 million or 22%, while growth revenue from existing customers decreased $0.1 million or 4%, and revenue from new customers decreased $0.1 million or 13%. Our IDI billable customer base grew from 6,141 customers as of June 30, 2021 to 6,817 customers as of June 30, 2022, and our FOREWARN user base grew from 67,578 users to 101,261 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.
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Cost of revenue (exclusive of depreciation and amortization). Cost of revenue increased $0.2 million or 7% to $2.9 million for the three months ended June 30, 2022 from $2.7 million for the three months ended June 30, 2021. 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. 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 approximately 48% of our total data acquisition costs for the three months ended June 30, 2022 compared to approximately 50% for the three months ended June 30, 2021. 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 23% for the three months ended June 30, 2022 from 25% for the three months ended June 30, 2021. 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 $0.5 million or 20% to $2.8 million for the three months ended June 30, 2022 from $2.3 million for the three months ended June 30, 2021. 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 three months ended June 30, 2022 was primarily attributable to an increase of $0.4 million in salaries and benefits, and sales commissions resulting from increased revenue.
General and administrative expenses. General and administrative expenses increased $0.4 million or 8% to $5.3 million for the three months ended June 30, 2022 from $4.9 million for the three months ended June 30, 2021. For the three months ended June 30, 2022 and 2021, our general and administrative expenses consisted primarily of employee salaries and benefits of $2.5 million and $1.6 million, share-based compensation expense of $1.3 million and $2.0 million, and professional fees of $0.9 million and $0.7 million, respectively.
Depreciation and amortization. Depreciation and amortization expenses increased $0.3 million or 21% to $1.6 million for the three months ended June 30, 2022 from $1.3 million for the three months ended June 30, 2021. The increase in depreciation and amortization for the three months ended June 30, 2022 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after June 30, 2021.
Gain on extinguishment of debt. On May 5, 2020, we received the CARES Act Loan in the principal amount of $2.2 million. On June 16, 2021, we received a notice from the Lender that the full principal amount of the CARES Act Loan and its accrued interest had been fully forgiven, resulting in a gain on extinguishment of debt of $2.2 million during the three months ended June 30, 2021.
(Loss) income before income taxes. Loss before income taxes was $0.2 million for the three months ended June 30, 2022 compared to income before income taxes of $1.8 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the three months ended June 30, 2021. The improvement in loss before income taxes, exclusive of the one-time gain of $2.2 million on the 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 $1.3 million, professional fees of $0.2 million, and depreciation and amortization of $0.3 million.
Income tax expense. Income tax expense of $44 thousand and $0 was recognized for the three months ended June 30, 2022 and 2021, respectively. A valuation allowance on the deferred tax assets was recognized as of June 30, 2022 and 2021, to reduce the deferred tax assets to the amount that is more likely than not to be realized. See Note 6, “Income Taxes,” included in “Notes to Condensed Consolidated Financial Statements.”
Net (loss) income. Net loss was $0.2 million for the three months ended June 30, 2022 compared to a net income of $1.8 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the three months ended June 30, 2021, as a result of the foregoing.
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Six months ended June 30, 2022 compared to six months ended June 30, 2021
Revenue. Revenue increased $4.1 million or 20% to $25.2 million for the six months ended June 30, 2022 from $21.1 million for the six months ended June 30, 2021. Base revenue from existing customers increased $4.2 million or 27%, while growth revenue from existing customers remained consistent, and revenue from new customers decreased $0.1 million or 4%. Our IDI billable customer base grew from 6,141 customers as of June 30, 2021 to 6,817 customers as of June 30, 2022, and our FOREWARN user base grew from 67,578 users to 101,261 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 increased $0.6 million or 11% to $6.1 million for the six months ended June 30, 2022 from $5.5 million for the six months ended June 30, 2021. 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. 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 approximately 48% of our total data acquisition costs for the six months ended June 30, 2022 compared to approximately 49% for the six months ended June 30, 2021. 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 24% for the six months ended June 30, 2022 from 26% for the six months ended June 30, 2021. 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 $0.6 million or 14% to $5.2 million for the six months ended June 30, 2022 from $4.6 million for the six months ended June 30, 2021. 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 six months ended June 30, 2022 was primarily attributable to an increase of $0.6 million in salaries and benefits, and sales commissions resulting from increased revenue.
General and administrative expenses. General and administrative expenses increased $1.3 million or 13% to $10.7 million for the six months ended June 30, 2022 from $9.4 million for the six months ended June 30, 2021. For the six months ended June 30, 2022 and 2021, our general and administrative expenses consisted primarily of employee salaries and benefits of $5.0 million and $3.0 million, share-based compensation expense of $2.6 million and $3.9 million, and professional fees of $1.8 million and $1.5 million, respectively.
Depreciation and amortization. Depreciation and amortization expenses increased $0.5 million or 22% to $3.1 million for the six months ended June 30, 2022 from $2.6 million for the six months ended June 30, 2021. The increase in depreciation and amortization for the six months ended June 30, 2022 resulted primarily from the amortization of software developed for internal use that became ready for its intended use after June 30, 2021.
Gain on extinguishment of debt. On May 5, 2020, we received the CARES Act Loan in the principal amount of $2.2 million. On June 16, 2021, we received a notice from the Lender that the full principal amount of the CARES Act Loan and its accrued interest had been fully forgiven, resulting in a gain on extinguishment of debt of $2.2 million during the six months ended June 30, 2021.
Income before income taxes. Income before income taxes was $0.1 million for the six months ended June 30, 2022 compared to $1.2 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the six months ended June 30, 2021. The significant improvement in income before income taxes from a loss, exclusive of the one-time gain of $2.2 million on the 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 $2.6 million, professional fees of $0.3 million, and depreciation and amortization of $0.5 million.
Income tax expense. Income tax expense of $0.2 million and $0 was recognized for the six months ended June 30, 2022 and 2021, respectively. A valuation allowance on the deferred tax assets was recognized as of June 30, 2022 and 2021, to reduce the deferred tax assets to the amount that is more likely than not to be realized. See Note 6, “Income Taxes,” included in “Notes to Condensed Consolidated Financial Statements.”
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Net (loss) income. Net loss was $0.1 million for the six months ended June 30, 2022 compared to net income of $1.2 million, inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan, for the six months ended June 30, 2021, 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.
Liquidity and Capital Resources
Cash flows provided by operating activities. For the six months ended June 30, 2022, net cash provided by operating activities was $5.0 million, primarily the result of the net loss of $0.1 million, adjusted for certain non-cash items (consisting primarily of share-based compensation expense, depreciation and amortization, write-off of long-lived assets, provision for bad debts, noncash lease expenses, and deferred income tax expense) totaling $6.5 million, and the cash used as a result of changes in assets and liabilities of $1.4 million, primarily the result of the increase in accounts receivable and prepaid expenses and other current assets, and the decrease in accounts payable, deferred revenue and operating lease liabilities. For the six months ended June 30, 2021, net cash provided by operating activities was $3.5 million, primarily the result of the net income of $1.2 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, and gain on extinguishment of debt) totaling $5.0 million, and the cash used as a result of changes in assets and liabilities of $2.6 million, primarily the result of the increase in accounts receivable and prepaid expenses and other current assets, and the decrease in accounts payable, accrued expenses and other current liabilities and operating lease liabilities.
Cash flows used in investing activities. For the six months ended June 30, 2022 and 2021, net cash used in investing activities was $4.1 million and $2.6 million, respectively, primarily as a result of capitalized costs included in intangible assets.
Cash flows used in financing activities. For the six months ended June 30, 2022 and 2021, net cash used in financing activities was $2.8 million and $0, respectively. We paid taxes of $2.8 million related to the net share settlement of vesting of RSUs during the six months ended June 30, 2022.
As of June 30, 2022, we had material commitments under certain data licensing agreements of $30.6 million. We anticipate funding our operations using available cash and cash flow generated from operations within the next twelve months.
We reported net loss of $0.2 million and net income of $1.8 million (inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan) for the three months ended June 30, 2022 and 2021, respectively, and net loss of $0.1 million and net income of $1.2 million (inclusive of a one-time gain of $2.2 million on the extinguishment of debt from the forgiveness of the CARES Act Loan) for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had a total shareholders’ equity balance of $69.9 million.
As of June 30, 2022, we had cash and cash equivalents of approximately $32.3 million. Based on projections of growth in revenue and operating results in the next twelve months, and the available cash and cash equivalents held by us, we believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months.
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
As of June 30, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.