Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2014 (the company’s fiscal first quarter of 2015); comparative period is the three months ended September 30, 2013. The filing was signed November 5, 2014. Research Solutions provides STM article-delivery, reprint and ePrint services through Article Galaxy and related offerings.
Financial performance
| Metric | Quarter ended Sept. 30, 2014 | Prior-year quarter |
|---|---|---|
| Revenue from continuing operations | $7.55 million | $6.62 million |
| Gross profit / gross margin | $1.50 million / 19.9% | $1.20 million / 18.1% |
| Operating income (loss) | $12,249 | $(89,161) |
| Continuing-operations net loss | $(6,936) | $(97,050) |
| Net income (loss), including discontinued operations | $1.15 million; $0.07 per diluted share | $(142,947); $(0.01) per diluted share |
| Adjusted EBITDA (non-GAAP) | $192,056 | $51,504 |
| Operating cash flow, continuing operations | $(86,806) | $104,175 |
| Cash and cash equivalents at period end | $1.54 million | $1.40 million at Sept. 30, 2013 |
Revenue increased 14.1% year over year: Article Galaxy revenue rose 16.9% to $5.22 million, and Reprints and ePrints rose 8.4% to $2.33 million. Management attributed increases to orders from new customers. Gross margin improved by 1.8 percentage points, with lower content acquisition costs and, for Article Galaxy, slightly reduced production expenses. Operating expenses rose 15.6% to $1.49 million, mainly from higher compensation and professional fees and increased depreciation and amortization.
Liquidity, debt and balance sheet
- At September 30, cash was $1.54 million, working capital was $676,157, and stockholders’ equity was $795,772. Cash declined $349,252 from June 30, 2014.
- Total operating cash flow was negative $121,309, including negative $34,503 from discontinued operations. Continuing-operations operating cash use primarily reflected a $237,298 decrease in accounts payable and accrued expenses.
- The company had no borrowings under its secured revolving credit line. Approximately $1.725 million of availability remained, subject to a facility cap of the lesser of $4.0 million or 80% of eligible receivables. The line matures October 31, 2015; the stated rate was 5.75%, and the company reported compliance with its covenants.
- Total liabilities were $5.70 million, primarily current accounts payable and accrued expenses. The filing reports no outstanding borrowings under the credit line; it does not present a separate continuing-operations debt balance.
Material changes, unusual items and outlook
- The company relinquished control of former French subsidiary TAAG on September 15, 2014, after an insolvency filing; TAAG entered judicial liquidation on October 6. TAAG was classified as discontinued operations, and comparative information was recast. It represented 22.1% of consolidated revenue in fiscal 2014.
- Deconsolidation generated a non-cash gain of $1.548 million, driving reported net income despite a $6,936 loss from continuing operations. Excluding the gain, the reported bottom line would not reflect the quarter’s underlying continuing-operations result.
- TAAG’s discontinued operations recorded a $395,344 quarterly loss. Management, citing French counsel, said general liability for TAAG’s unsatisfied liabilities was remote, but recorded $187,907 for specific liabilities it considered probable.
- Management said cash, available credit and expected cash flow should support operations for the next twelve months and beyond, while cautioning that losses and negative cash flow could continue and profitability may not be sustained. No specific revenue or earnings guidance was provided.
- Foreign currency movements are a risk: the company reported a $142,207 adverse exchange-rate effect on cash and said it does not hedge currency exposure. Customer and vendor concentration disclosures included one customer at 11% of revenue and two vendors at 14% and 13% of purchases, respectively.
- 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.
Most important facts for investors to verify
- Whether continuing-operations growth and improved gross margin persist, and whether customer additions translate into sustained order volume.
- Cash conversion and liquidity: continuing operations used cash despite higher revenue, and remaining credit availability depends on eligible receivables and covenant compliance.
- The scope and ultimate resolution of TAAG-related liabilities, liquidation proceedings, and any further effects of its deconsolidation.
- The $1.548 million non-cash gain’s effect on reported net income and the distinction between GAAP results and Adjusted EBITDA.
- Future effects of customer/vendor concentration, foreign exchange exposure, and adoption of new accounting standards; the filing says the impact of the new revenue standard was still under assessment.