Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2022. Although the request metadata says “2021 Q3,” this filing covers the third quarter of fiscal 2022. Comparative periods are the quarter and nine months ended March 31, 2021.
Business context
The company provides cloud-based research software subscriptions (“Platforms”) and transaction-based delivery of scientific, technical, and medical articles (“Transactions”). Its fiscal year ends June 30.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $8.76 million, up 5.0% | $24.37 million, up 3.5% |
| Platforms revenue | $1.79 million, up 32.9% | $4.90 million, up 32.2% |
| Transactions revenue | $6.97 million, down 0.4% | $19.47 million, down 1.8% |
| Gross profit / margin | $3.24 million / 37.0%, versus $2.70 million / 32.4% | $8.74 million / 35.8%, versus $7.54 million / 32.0% |
| Operating income (loss) | $(0.34) million, versus $0.05 million | $(1.19) million, versus $(0.19) million |
| Net income (loss) | $(0.34) million, versus $0.05 million | $(1.19) million, versus $(0.20) million |
| Adjusted EBITDA | $0.09 million, versus $0.24 million | $(0.25) million, versus $0.57 million |
| Operating cash flow | $(0.40) million for nine months, versus $2.22 million provided in the prior-year period |
Quarterly operating expenses increased 34.9% to $3.58 million, exceeding gross-profit growth. For the nine months, expenses rose 28.3% to $9.92 million. Higher technology and product development, general and administrative, and stock-based compensation costs contributed to the deterioration in operating results. Management attributed Platform growth to new and existing customer deployments and expansion; Transactions revenue declined primarily with lower order volume.
At March 31, 2022, cash and equivalents were $10.64 million, down from $11.00 million at June 30, 2021. Current assets were $17.56 million and current liabilities $12.43 million, including $5.34 million of deferred revenue. Accounts receivable was $5.62 million. Stockholders’ equity was $5.18 million. The company had no borrowings under its revolving credit line and approximately $2.20 million available; the line matures February 28, 2024. It was in compliance with the stated covenants.
Material changes and other developments
- Platform revenue growth was offset in part by slightly lower Transactions revenue. Gross margin improved as cost of revenue declined as a share of revenue.
- Operating cash flow shifted from positive $2.22 million to negative $0.40 million, primarily reflecting a $0.90 million increase in receivables, partly offset by increased deferred revenue and payables.
- Cash used in investing activities was $34,251, mainly equipment purchases. Financing activities provided $75,135, including option and warrant exercise proceeds, partly offset by $82,053 of share repurchases.
- Nine-month general and administrative expense included separation costs paid to a former officer. Stock-based compensation expense was $0.87 million for the nine months.
- On May 10, 2022, after the quarter, the company granted 63,371 restricted shares valued at $118,504, vesting over three years with a one-year cliff.
Outlook, risks, and contingencies
The filing provides no specific financial guidance or quantified outlook. Management stated that the future effects of COVID-19 on customers, suppliers, liquidity, and results remain uncertain, although the company had not experienced a significant adverse effect on operations or cash flows to date. Foreign currency fluctuations are a risk; the company does not hedge currency exposure and reported a $52,619 transaction loss for the nine-month period. Two vendors represented 21% and 13% of nine-month purchases, respectively. No customer represented 10% or more of revenue. The company reported no off-balance-sheet arrangements. Management judged disclosure controls 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 Platform subscription growth can continue and reverse or offset the modest decline in Transactions volume.
- Whether rising operating expenses can be contained, given the widening year-to-date operating loss and negative Adjusted EBITDA.
- Whether receivables convert to cash and operating cash flow recovers; review the drivers of the increased accounts receivable balance.
- Current availability and terms of the SVB credit line, covenant compliance, and the effect of amendments filed during the quarter.
- The continuing effects of COVID-19, foreign exchange movements, and reliance on key content vendors.
- Share-based compensation, employee tax-related repurchases, and potential dilution from outstanding options and restricted shares.