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RIWI 2020 Results

On March 2nd RIWI 2020 results were released.

The 2020 results look strong with 47% revenue growth and a 32% increase in EBIT.

RIWI’s focus in 2020 was the build-out of its sales team. In addition to hiring sales personnel, RIWI partnered with numerous data re-sellers in 2020.

Post year end results RIWI tried to quietly release that they have had some major changes at the executive level.

Previous RIWI posts: Q3, Q2, Q1.

Disclosure: I own shares of RIWI.V

RIWI 2020 Results: Balance Sheet

RIWI 2020 Balance Sheet
RIWI 2020 Balance Sheet

The balance sheet is exceptional with $4 million in cash and no debt. I will admit I gravitate to low or zero-debt companies not only because it provides some safety if the company enters rough times but they are just simpler. I have very little experience with debentures and the like. Some debt structures get quite complicated and can easily get outside of my comfort zone so I tend to stick with things I understand.

Total liabilities are quite a bit higher than in 2019 but don’t appear to be a concern and are well covered by cash on hand.

RIWI 2020 Results: Income Statement

RIWI 2020 Income Statement
RIWI 2020 Income Statement

The main focus of RIWI is revenue growth. The company has shown the ability to be profitable, now the goal is to grow revenue while maintaining that profitability. In order to reach $30 million in sales for the year-end, 2024 RIWI needs to grow revenue at a 57% CAGR, not a small feat. So while 47% revenue growth is very good they will need to accelerate their growth rate in the future to meet their objective.

As expected the spend on sales dramatically increased. This shouldn’t be a surprise. RIWI clearly communicated that they would be building out a professional sales staff in 2020. They hired a Chief Revenue Officer (who has since departed, more on that later).

In addition to building out its sales staff RIWI signed numerous partnerships:

RIWI Partnerships
RIWI 2020 Partnership Sales System

Some of these names are very well-known companies, Bloomberg, Battlefin, Benzinga and Amazon Web Services. It will be interesting to see how RIWI’s revenue mix develops in the future. As RIWI’s data gets in the hands of customers via their partnerships I hope this translates into direct contracts with these customers allowing RIWI to create custom data sets.

RIWI was able to secure some large contracts in 2020, including a $1.1 million contract to complete a series of rapid-response tasks on behalf of a G7 agency. The unfortunate thing is this contract ended at the end of 2020 and there has been no word that this contract has been renewed. RIWI also signed a second $1 million contract with ThinkData Works to service one of their healthcare clients. The duration of this contract was 6 months.

RIWI claims that 80% of its 2020 revenue is recurring, so $3.7 million of RIWI’s 2020 revenue was classified as recurring. The two contracts mentioned above account for 46% of revenue in 2020. This is based on the assumption that all of the revenue was recognized in 2020 (there is $437,000 in unbilled revenue on the balance sheet, this is work that has been completed but not yet billed). Whether or not these two large contracts renew will be a good test of RIWI’s classification of recurring revenue.

Revenue by Country

RIWI Revenue by Geographic Location
RIWI 2020 Results: Revenue Distribution

One thing RIWI must do better is increasing penetration in the United States. While it’s great that RIWI grew revenue in Canada by a significant amount RIWI’s long-term success will rely on sales outside of Canada. The Canadian market is simply not big enough to support RIWI’s aspirational goals. The numerous partnerships they have signed should increase exposure to U.S. customers but without meaningful U.S. growth, $30 million in 2024 is likely unattainable.

RIWI 2020 Results: Cashflow Statement

RIWI 2020 Cash Flow Statement
RIWI 2020 Cashflow Statement

The company continued to show a strong ability to generate cash. I calculated a cash conversion ratio of 19.63%. This isn’t something I’ve tracked in the past so I don’t have much to compare it to but this seems exceptionally strong. For every $1 in revenue RIWI generates it earns $0.19 in free cash flow.

RIWI 2020 Cash Conversion Ratio Excel

In terms of share based payments RIWI significantly decreased share based payments, mostly through changing director compensation from mostly share based compensation to cash. When a company has the balance sheet to protect their share count I encourage them to do so. Also why issue more options to a director who has been working on exiting his position.

Insider Sales

RIWI Canadian Insider Insider Sales Chart
Source: Canadian Insider

The insider selling has been consistent since long before this 6-month chart. Most of the selling is being done by Director Robert Pirooz and some by Eric Meerkamper (Global Head of Citizen Engagement). Robert Pirooz is a venture capitalist and on numerous boards. It’s logical that at some point he would be seeking to withdraw his capital from some of his investments. I checked SEDI to see if he has been selling off other positions. Unfortunately, there is only one other sale outside of RIWI, a single sale of Armor Minerals Inc. carried out privately. If he had been selling off other positions in size it could give an indication that the selling is not specific to RIWI, that doesn’t appear to be the case.

While it’s not RIWI’s position to comment on insider sales the volume and consistency of selling have cast a shadow over the company. This feels like a lost opportunity to communicate some reasoning for Mr. Pirooz continued selling. I don’t expect him to lay out his entire financial strategy but some comment would be appreciated.

Post Year-End News

Two big items of news were released in Q1 2021. They were that CRO Neil Weitzman had left the company and more recently CEO Neil Seeman is stepping down but remaining the chairman of the board.

When it was slyly announced that CRO Weitzman was leaving I was concerned. RIWI made a big deal out of his hiring and spoke in every interview about growing its sales team. From him to leave in about a year is not a good sign. Some would argue that RIWI was built to succeed in a pandemic due to their experience collecting data or prior pandemics. I thought the two $1 million contracts were a good sign RIWI can close larger contracts but they will need larger contracts to reach their goals. Mr. Weitzman was hired to spearhead RIWI’s sales buildout but something has changed in a year.

Then the bombshell that CEO Neil Seeman would no longer be CEO. CEO Neil Seeman is a significant portion of my RIWI thesis. It was essentially that RIWI has a proven effective and unique technology lead by a super-intelligent and motivated CEO. I believed Neil would be the CEO for years to come. He is the founder and seemed to indicate he had big goals for RIWI.

Speculation on Neil Seeman’s Change

I have speculated on the reasons for Neil’s departure. I got the indication in his many interviews that RIWI was his life’s work. So what changed? Maybe it was some physical or mental, family demands, or some other thing we don’t have the right to know about. Could it be he feels his lack of prior business experience is holding RIWI back? Being a public company is hard and very demanding. I think he has the intrapersonal intelligence to acknowledge someone with more business experience could be a better fit to get RIWI to the next level. I think it is possible Neil returns to academia but will still be very involved with RIWI. Hopefully, they provide more information at the AGM.

The news release was also oddly worded. RIWI’s lead director Kevin Mahoney said “Today’s leadership announcement is part of a thoughtful succession planning process led by Neil” then later a one-liner that consulting firm Korn Ferry has been engaged to search for the new CEO. They seem slightly contradictory to rely on an outside consulting firm when the succession plan has been so thoughtfully planned.

RIWI Product Maturity and Technology Investment

RIWI recently re-worked its website with a products tab that much more clearly outlines the services they provide. In the past, the solutions they provide their clients were somewhat obscure. RIWI has made its offerings much more clear. I think this type of product refinement and development can only lead to increased sales and shorter sales cycles.

In addition to product refinement, RIWI spent a considerable amount of money investing in its technology. RIWI explains its technology investments in the MD&A and I don’t have any technical expertise to provide any additional insight. During the Small Cap Discoveries interview (linked at the bottom), CFO Daniel Im said that RIWI will be investing in different projects as they experiment to try and find new products and solutions.

RIWI 2020 Technical Operational Innovation
RIWI Technical Operational Excellence

A big focus throughout the year has been making their data sets more accessible to their data partners. Investing in removing friction points between RIWI and potential buyers is a good use to money in my opinion.

Conclusion

So what am I doing with my RIWI position? Holding. When there is so much noise surrounding a company I return to the information with the most clarity, the financials.

RIWI Operational Execution Chart

RIWI 2020 results show the ability to grow profitably while reducing share dilution. I did not anticipate CEO Neil Seeman leaving the company and he was a significant reason why I invested. Thankfully he is not leaving completely and will remain Chairman of the Board. He still owns 34% of the company and has mentioned in previous interviews that a significant portion of his net worth is in RIWI. I envision Neil being very involved while passing the day-to-day operations off to the new CEO.

The share price has been hammered in 2021 and RIWI shares are at their lowest price since early 2019 all while growing revenue and building cash on the balance sheet. There are some alarm bells going off but I’ve decided to give RIWI time to find a new CEO and hope we get some additional explanation regarding why Neil stepped down. I may regret staying in RIWI but in the end, the financials are strong and I will be keeping an eye out for weakness. I have watched and listened to almost all of Ian Cassel’s interviews. He describes having a ruthless ability to sell companies that are showing signs of faltering. I think if he owed RIWI he would be selling at this time. I may regret holding and have considered selling but I think the potential for RIWI is still very good.

There is still more research to be done on RIWI and as always I reserve the right to change my mind.

Small Cap Discoveries Interview


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