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RIWI Q3 2019 Financial (RIW.CN)

On November 26th, 2019, RIWI announced its Q3 2019 financials. RIWI is a disruptive data collection company based out of Toronto. They use random domain intercept technology to collect predictive data from around the world. This technology utilizes the infrastructure of the internet to get short surveys in front of any web user. The data collected is presented to clients on a continuous basis to assist in major decision-making processes.

I analyzed their most recent investor deck here.

To give their financials some context RIWI provided 2019 projected growth for their three business lines:

  1. Global Private Enterprise, “at least 150% growth in 2019″‘;
  2. Global Security, “sustained revenue growth over the next 5-20 years”
  3. and Global Citizen Engagement, “management expects its 2019 revenues to exceed 150% of its 2019 revenues.”

These are the revenue projections that management provided and what I am using to judge the company. I also expected RIWI to be profitable throughout 2019. Q2 was a disappointment however management has stressed that the company should be assessed on yearly results, not quarterly. There is a lot to like about the results and trends displayed in the RIWI Q3 2019 results.

RIWI Q3 2019 Income Statement

RIWI Q3 2019 Income Statement

In Q3 RIWI announced the highest quarter of revenue they have earned to date. It was a milestone quarter for RIWI as they surpassed $1 million in revenue for Q3, an increase of 26%. RIWI also returned to profitability with $543, 974 in net income. For the year revenue (nine months ending September 30th) RIWI’s revenue grew 37%.

RIWI is laser-focused on profitable growth and cost controls. RIWI was able to decrease technology costs by 26% in the quarter despite growing revenue to an all-time high. General and administrative costs also decreased in Q3 by 6%. Total expenses were down quarter over quarter in Q3 and up only 10.8% over nine months.

Revenue growth outpacing expenses equates to operational leverage. RIWI achieved a 54% profit margin in the quarter. Although RIWI is trending well below their projected revenue increases for 2019 this can be excused when they operate at a margin of 54%.

Cost reductions and efficiency are mentioned throughout all of RIWI’s releases. This is also a major theme in RIWI’s letter to shareholders. They have not been able to achieve the revenue growth they thought they could but they have definitely executed on managing costs and profitability.

RIWI at Ld Micro 2019

This is a great example of CEO Seeman and his views on cost controls.

“We love profits. I mean we love top-line growth as well but we are obsessed with every dollar, G&A, all the right stuff, all the stuff my dad taught me.”

RIWI Q3 2019 Balance Sheet

RIWI is sitting on a nice cash pile of $2.3 million, or $0.12 a share. Their cash balance will continue to grow as they stack a profitable quarter on top of a profitable quarter. If assessing RIWI on working capital this number increases to $3.6 million.

Debt? RIWI has no debt. This results in an excellent looking balance sheet that continues to strengthen as RIWI matures as a company.

RIWI’s Future Growth

In their MD&A (which are excellent by the way) RIWI outlines how they think they can achieve future growth. RIWI is a great example of how companies should write their releases. Each release includes information about the business and how it operates not just on financials.

A focus of RIWI is to identify and hire an experienced sales leader. Management has determined that to fuel RIWI’s future growth they are in need of an expanded salesforce “with a focus on winning new private sector customers worldwide.” In addition to sourcing new contracts, an expanded sales staff frees up CEO Neil Seeman, CTO Alton Ing, and Head of Research Danielle Goldfarb, to advance research and commercialization. Essentially RIWI’s brightest minds no longer focus on sales, instead, they focus on developing new products and services.

In addition to expanding its sales team, RIWI has created “productized” offerings. These offerings allow new and existing sales staff to more easily sell RIWI and its capabilities. The sales team can more clearly communicate RIWI’s value proposition by pointing to more specific services. Some of their product offerings include U.S. 2020 election tracker, message testing, risk and stability trackers, data feeds from a variety of sectors, and online and ‘gig-economy’ trackers. The ability to collect a data set and sell it to multiple clients is a huge advantage for RIWI and are very high margin sales.

These productized offerings are a significant advancement for RIWI in my opinion. Until now I felt their value proposition was still a bit abstract and it was up to the client to figure out how to use RIWI’s powerful technology. These offerings show clients some very specific uses for RIWI’s domain intercept technology and should help to convert sales.

Things I’ll Be Watching

Although the quarter was excellent in terms of profitability RIWI is still trending well below their revenue projections made for 2019. I am in the camp of under-promise over-deliver. This is the second time that RIWI has missed on their projections. In 2015 in their initial prospectus they estimated that they would be cash flow positive by the end of 2015.

Unfortunately, this did not happen. I am willing to give RIWI a pass on these misses. I am a huge fan of CEO Neil Seeman. To date, I have not met him to date but everything I have read and heard about him is excellent. RIWI is still a very young company so it is expected that they will experience some growing pains. I can forgive CEO Seeman for a couple of misses but this is something I will be watching in the future.

Customer Concentration

RIWI Customer Concentration
RIWI Customer Concentration

RIWI reported that 31% of its revenue was generated from one customer. This exposes RIWI to some additional risk. If they were to lose the client it would greatly impact the company. I suspect this risk will be a short-term risk. RIWI is still expanding its network of potential clients and if they can keep growing revenue at their current pace this concentration should lessen.

Developments After the Quarter

On October 29th, 2019, RIWI announced it had signed a new contract with Bank of America Securities. The contract is for three years with a payment of $543,000. Bank of America is a repeat client. RIWI has booked $1.6 million in revenue from Bank of America Securities since August 2017.

This type of work will continue to get RIWI noticed in the finance industry. I expect over the coming years these contracts will be more and more common for RIWI.

RIWI Q3 2019 Conclusion

I was very happy with RIWI’s quarter. They returned to profitability after Q2. Management has stressed that their business should be assessed on a year to year basis and not based on one quarter. This is clearly apparent in their financials as they grew net income 584% in the past twelve months. It is good to be reminded every once in a while to not focus so closely on quarterly results but yearly or even longer.

The share price sank as low as $1.75 but rebounded nicely after the Q3 release. I just missed getting filled before earnings at $1.75 but added to my position at $2.31.

Based on the past twelve months RIWI is trading at 45x earnings. This number appears high but I think it is reasonable based on :

  • their profitability (54% net income margin in Q3);
  • growth rate (42% revenue growth past twelve months);
  • 50% recurring revenue;
  • asset-light business model;
  • low float share count;
  • no debt, cash-rich balance sheet;
  • Intelligent Fanatic management with as CEO Neil Seeman put it “all my skin in the game”.

The company is experiencing even more success than when I initially bought it at $3.00. RIWI is currently my third largest position.

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