On April 28th, 2020, RIWI Q1 2020 financials were released. It was a record quarter for RIWI as they earned $1.3 million in revenue. This was accomplished with a 37.7% net profit margin. It’s a great start to 2020 and Q2 should follow suit.
For my thoughts on the full year 2019 results click here.
Disclosure: I own shares of RIW.CN
1.1 Q1 2020: Balance Sheet
A strength of RIWI is its balance sheet. $3.2 million in cash and no debt. The $1.2 million in accounts receivables is a big increase from Q1 2019 but it has just entered the balance sheet.
All of the $1.2 million in accounts receivables have been billed in the last 30 days. It’s a pretty boring balance sheet which is a wonderful thing.
1.2 Q1 2020: Income Statement
The big number in Q1 was $1.3 million in revenue. This was a 96% increase over Q1 2019. Record revenue was earned with a 37.7% net profit margin. In January Riwi announced a $1.1 million contract for their security line. The contract is with a G7 agency mandated to protect international security.
I am very bullish on RIWI and its participation in the security/intelligence industry. RIWI offers unique technology with the ability to quickly gather important data. This in combination with the security clearance that CEO Neil Seeman has earned and I think this is a major competitive advantage for RIWI. RIWI has been vetted by the US State Department and given them multiple positive performance reviews.
Technology costs increased in Q1 to $160,757. This is a departure from the decreases we were seeing. RIWI explains that this is mainly due to a change in how they expense personnel costs. There was also an increase in up-front costs due to integration into third-party portals.
1.3 Q1 2020: Balance Sheet
Growth in cash from operating activities is lagging due to the $1 million in accounts receivables. The unbilled revenue is a nice little perk. It’s always a good thing to be paid in advance for services to be performed throughout the year.
2.0 Riwi Q1 2020: MD&A
2.1 Page #1
Right before the end of Q1 RIWI announced that it had signed a $1 million contract to gather data in relation to COVID-19. This is a very significant contract and it is only over a six-month duration.
I am not surprised that RIWI is able to benefit from the COVID-19 pandemic. RIWI has real-world experience in collecting pandemic data. CEO Seeman describes it best in his letter to shareholders:
RIWI was created to collect data on the H1N1 pandemic. The roots of the company are set in pandemic research. We are already starting to see the result of this expertise with the $1 million contract.
If we look a little bit closer, more insight can be taken from the initial contract news release and CEO Seeman’s letter to shareholders.
First, who is ThinkData Works? ThinkData Works is an aggregator of data sets from numerous data collectors. After poking around the site the data sets are almost endless. From real estate open houses, healthcare data, consumer price index, drilling activity in Alberta, and many more.
After a search on ThinkData’s Namara portal, this was the only RIWI data set that came up.
This data set was updated as recently as February 3rd, 2020. It is very likely that RIWI’s COVID-19 data set would not be searchable as the data is for a healthcare company using ThinkData’s platform.
According to Owler.com ThinkData Works has $7.5 million in estimated annual revenue. If accurate this is not a huge company but still could provide RIWI future opportunities with their clients.
2.2 Possible Contract Expansion?
But back to the news release. The contract could be increased through two avenues. The contract is only for six months so it seems logical that it could be extended for another six months and beyond. This is alluded to in the news release as the contract is described as the “first agreement”. The trajectory of COVID-19 is uncertain. The need to gather data on infection rates, preventative measures, economic sentiment, and other data points could go on for years.
Secondly, CEO Seeman says in his letter to shareholders that the contract can be expanded to work on all countries affected by COVID-19. I don’t think there are many countries that are not affected providing RIWI lots of room for expansion past the sixteen initial countries.
It appears likely that this contract is renewed beyond the initial six months.
2.3 Page #4
In addition to the ThinkData contract, RIWI has seen an increase in sales opportunities in relation to COVID-19. Again, it seems logical that companies would trust RIWI given its experience in prior pandemic research.
2.4 Page #4
On page four we see RIWI’s long term focus, increasing recurring revenue business. At the end of Q1 RIWI had secured $2.5 million in recurring revenue business.
At the end of 2019 RIWI classified its revenue into three categories: 50% subscription-based recurring revenue, 40% is long-term contracts of six months or longer that have a reasonably strong chance of being renewed or expanded, and 10% is long term rapid response work. So in 2019 RIWI had $1.5 million in what I would consider recurring revenue. Long term consistent revenue that can be counted upon for an extended period of time is what I consider recurring revenue.
The above definition is what RIWI is using in Q1 2020. So based on this definition RIWI has classified the $1 million ThinkData COVID-19 contract as recurring revenue as it falls into the (ii) category. Classifying a six-month contract as recurring revenue RIWI runs the risk of having its recurring revenue number fluctuate if these shorter-term contracts do not renew. It feels like they are trying to force revenue into the “recurring revenue” bucket. Investors really love to see “recurring revenue” because it is predictable but it seems a little premature to classify a six-month contract as recurring revenue.
Circling back to my earlier point about the ThinkData contract likely expanding, RIWI also agrees that it has a “reasonably strong chance of being renewed or expanded” based on its classification of the contract as recurring revenue. In the end as long as the revenue turns into profit and cash flow it’s not super important how they classify it.
The strategic partnership payments are new for RIWI. The strategic partnership payments were $155,000 in Q1, not an insignificant amount. In Q1 strategic payments were 11.7% of revenue. I assume that these payments are front end loaded, meaning the payments are made in one quarter while the revenue is recognized over multiple quarters. This is something I’d like to get some more information on as it could have a pretty large effect on margins.
Overall a very successful quarter for RIWI. I think it is important to look at RIWI from an annual perspective and not on a quarterly basis. My intention with my quarterly write-ups is not to dissect every quarter but to try and keep up-to-date with the overall performance of the company. As Ian Cassel says, buy and verify. I don’t plan on getting overly excited or disappointed by a single quarter’s results.
The two large contracts are a great development for the company. And even better they were in two different segments: security and health. As I mentioned above the COVID-19 contract is very interesting as there are multiple avenues to increase the total revenue.
Q2 is setting up for similar results. I don’t think much, if any, of the COVID-19 contract has been realized as revenue. The stock price has also responded very favourably. As of writing this RIWI is up to $3.80 a share.
I really like the company and management as I have stated before. The revenue per quarter will be lumpier than traditional SaaS companies which I think presents opportunities to buy when revenue does not meet expectations.
Disclosure: I own shares of RIW.CN
Do Your Own Research | Disclaimer
Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
I swear I proof read all of my posts multiple times but always seem to miss errors. Apologies in advance.