Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2015, compared with the periods ended March 31, 2014. This is fiscal 2015’s third quarter; the filing metadata’s “2014 Q3” label does not match the filing period.
Business context
Research Solutions provides scientific, technical and medical information services through Article Galaxy, a cloud-based article delivery platform, and transactional reprint and ePrint services. In September 2014, the company relinquished control of its former French subsidiary, TAAG, which entered liquidation; its results are presented as discontinued operations.
Financial performance
| Metric | Three months ended March 31, 2015 | Three months ended March 31, 2014 | Nine months ended March 31, 2015 | Nine months ended March 31, 2014 |
|---|---|---|---|---|
| Revenue | $8.84 million | $6.79 million | $24.32 million | $20.79 million |
| Gross profit | $1.70 million | $1.40 million | $4.71 million | $3.91 million |
| Gross margin | 19.3% | 20.6% | 19.4% | 18.8% |
| Operating income (loss) | $19,310 | $(446,184) | $(67,267) | $(989,224) |
| Net income (loss) | $(1,816) | $(676,333) | $1.05 million | $(1.27) million |
| Adjusted EBITDA (non-GAAP) | $208,483 | $(307,204) | $512,774 | $(567,856) |
- Quarterly revenue rose 30.1%; Article Galaxy revenue increased 14.4% and Reprints/ePrints increased 72.5%. Management attributed growth to new customers and increased orders from existing customers.
- Nine-month revenue rose 17.0%. Gross profit increased 20.5%; gross margin improved 0.6 percentage points. Quarterly gross margin declined 1.3 percentage points, as cost of revenue grew faster than revenue.
- Nine-month net income includes a $1.55 million non-cash gain from TAAG deconsolidation. Excluding discontinued operations and that gain, continuing operations recorded a $102,928 loss.
- Cash and cash equivalents were $1.37 million at March 31, 2015, down $511,631 from June 30, 2014. Nine-month operating cash use was $153,631 overall, including $119,128 from continuing operations. Investing cash use was $95,221 and financing cash use was $118,120.
- Current assets were $8.15 million and current liabilities $7.39 million, yielding reported working capital of $756,379. Stockholders’ equity was $866,194, compared with a $418,926 deficiency at June 30, 2014.
- No line-of-credit borrowings were outstanding. The SVB facility allows the lesser of $4.0 million or 80% of eligible receivables; approximately $2.56 million was unused. It was secured by company assets, bore 5.75% interest at quarter-end and matured October 31, 2015. The company reported compliance with its covenants.
Material changes, outlook and risks
- TAAG deconsolidation removed its assets and liabilities from the balance sheet and generated the non-cash gain noted above. TAAG had represented 22.1% of consolidated revenue in fiscal 2014 before discontinued-operations presentation.
- The company recorded a $187,907 liability for specific TAAG-related obligations; management, based on French counsel, said general liability for TAAG’s unsatisfied liabilities was remote.
- Management believed cash, available credit and expected cash flows would fund operations for the next 12 months. It also cautioned that losses may continue for an indeterminate period and profitability may not be sustained. No quantitative revenue or earnings guidance was provided.
- Cash generation remains exposed to working-capital movements: receivables increased $1.60 million during the nine-month period, partly offset by a $1.45 million increase in accounts payable and accrued expenses. Vendor A supplied 25% of quarterly cost of revenue and 19% for the nine-month period.
- The company disclosed foreign-currency transaction losses of $57,647 for the quarter and $94,118 for the nine months, and stated it does not hedge currency exposure. Reprints/ePrints order levels may fluctuate with customer marketing budgets and relevant publications.
- The board had authorized up to $250,000 in share repurchases. The filing reports 53,300 program shares repurchased for approximately $49,482 during the quarter, with $200,518 remaining under authorization.
- Management concluded disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subsequent results and cash collections support management’s 12-month liquidity assessment, particularly given operating cash use and the facility’s October 2015 maturity.
- How much of the nine-month reported profit is attributable to the one-time, non-cash TAAG deconsolidation gain; continuing operations remained loss-making for the period.
- Whether revenue growth can translate into improved margins, especially as quarterly gross margin fell and Reprints/ePrints costs remain a high proportion of revenue.
- The status and settlement of the $187,907 TAAG-related liability and any further exposure arising from the French liquidation.
- The filing’s share-repurchase figures: the equity note reports 53,300 program shares, while the statement of stockholders’ equity reflects a 54,370-share reduction that includes other repurchases; reconcile the amounts and related cash cost.