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RIWI Q2 2020 Financials

On July 27th RIWI Q2 2020 financials were released. The quarter was good but not spectacular.

RIWI generated $1 million in revenue and $117,000 in net income. The numbers look much stronger when comparing the first half of 2020 with the first half of 2019. This is the narrative the company wants you to focus on based on the new release.

RIWI is transitioning into a company focused on building out its sales staff to drive revenue. As a result sales and marketing expenses increased this quarter and I expect that to continue.

Disclosure: I own shares of RIWI.V

Riwi Q2 2020: Balance Sheet

Riwi Q2 2020 Balance Sheet
Riwi Q2 2020 Balance Sheet

Not much to see here except a pristine balance sheet. No debt and cash continues to build.

RIWI Q2 2020: Income Statement

Riwi Q2 2020 Income Statement
Riwi Q2 2020 Income Statement

Revenue for the quarter was $1 million. This was up 19% compared to Q2 2019 but a 24% decrease compared to Q1. I did expect a similar quarter to Q1 since they signed a large contract right at the end of Q1. Their explanation was that some revenue was pushed into Q3 due to COVID:

When looking at the first six months’ numbers the results are excellent, 617% growth in net income and 53% growth in revenue.

Total expenses were down in Q2 compared to 2019. This is due to RIWI compensating directors with cash compensation compared to stock-based compensation.

It is important to note that the $175,903 in director compensation is only for the first half of 2020. From now on director compensation will be paid quarterly.

I’m happy with the decision by management to start paying cash compensation. The company has the cash resources to do so and it limits dilution. It also gives fewer shares to Director Robert Pirooz to sell into the market.

I also should have highlighted Sales and Marketing expense.

As I mentioned in the intro RIWI is focused on adding to their sales staff. They hired Chief Revenue Officer Neil Weitzman in February. There have been numerous sales positions posted for RIWI in 2020. I don’t see any jobs posted on Linkedin at the moment so hopefully, they have found some high-quality people to fill the sales roles.

RIWI Q2 2020: Cash Flow Statement

RIWI Q2 2020 Cash Flow Statement
RIWI Q2 2020 Cash Flow Statement

Q2 was a very strong cash generative quarter however this was due to a large collection of accounts receivables. This was mostly cash generated in Q1.

RIWI re-invests very little back into the company. This allows a greater portion of their cash to become free cash flow. RIWI does their investing through the income statement into staffing, specifically sales staff.

MD&A Notes

Contracts
RIWI 2020 Contract Notes

This might be the most important note in the MD&A. Bank of America Securities renewed its agreement with RIWI for three years.

The United Nations contract is more verification that RIWI is providing a unique and valuable service. RIWI can respond quickly to a request for data to rapid-response task orders. New surveys can be implemented much faster than traditional data gathering methods.

Recurring Revenue
RIWI Recurring Revenue

I’ve raised this point before but I feel like it is worth raising again. RIWI tries to hard to fit some of their revenue into the “recurring revenue” classification. In my opinion, a six-month contract is not recurring revenue. They seem to be in a rush to declare revenue recurring to fit the narrative that they are data as a service company. RIWI wants to be acknowledged in a similar way as software as a service company when I’m not sure it really fits, not yet anyway.

RIWI Q2 2020 Customer Concentration
RIWI Customer Concentration

22% of revenue from the first half of 2019 didn’t return as customers. In the Q2 2019, MD&A RIWI did report that two-thirds of their revenue was classified as recurring. This is consistent with Customer D & E not renewing. This is a minor complaint, it’s something that I am watching anyhow.

Technology Advancement

I won’t pretend to know the technical advantages or disadvantages of event-driven architecture. This sounds like a very beneficial technical advancement. RIWI can now more easily integrate their data with other data sellers. In the next paragraph, RIWI mentions Vividata, Thinkdata Works and Eagle Alpha.

Conclusion

I did expect higher revenue than was earned in Q2 but the company remained profitable. I am also in agreement with the decision to pay directors in cash and not shares.

RIWI appears to have proven its technology and data. Now they are focusing on increases their sales staff. RIWI mentions some data re-sellers in their MD&A. I am curious about what the margins look like when sales are generated internally or their data is sold through a re-seller.

I am tempering my expectations for the coming quarters. It takes time to get new sales staff trained and making sales. The added expense in sales and marketing will likely hurt margins but the revenue growth should ramp up if the sales team is successful. The companies goal is to match or exceed the first half of 2020 revenue. If they can accomplish this they will generate approximately $4.6 million compared to $3.11 in 2019.

This would be a 47% increase. RIWI needs to sustain a similar pace to meet its stated goal of $30 million in revenue by 2025. RIWI has twice missed revenue and cash flow guidance which wrote about in my 2019 review.

Lastly I came across this article while reading about Eagle Alpha.

Quants Sound Warning as Everyone Chases Same Alternative Data

To quickly summarize, money spent on alternative data has grown seven-fold over the past five years. The number of data sets is growing even faster. One of the complaints in the article is the quality of the data. Many of these sets don’t seem to predict what they claim too.

The scientific and rigorous approach that RIWI takes when it crafts its questions, surveys, and data sets I think is a huge advantage. As a result, they have more consistent and accurate data. They have proven numerous times the predictive capability of their data and will again when they predict the 2020 U.S. Election.


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