Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2024; the quarter is the company’s fiscal third quarter, despite the request metadata’s “2023 Q3” label. Financial statements are unaudited. Research Solutions provides SaaS research platforms and facilitates transactions for scientific, technical and medical articles.
Financial performance and position
| Metric | Three months ended March 31, 2024 | Year-over-year change | Nine months ended March 31, 2024 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $12.12 million | +17.1% | $32.49 million | +17.1% |
| Gross profit / margin | $5.48 million / 45.2% | +36.1%; margin +6.3 percentage points | $14.00 million / 43.1% | +29.8%; margin +4.2 percentage points |
| Operating income (loss) | $87,663 | Down from $133,139 | ($1.43 million) | Down from ($16,675) |
| Net income (loss) | $76,301 | Down 67.8% | ($965,370) | Compared with $195,877 income |
| Adjusted EBITDA, non-GAAP | $960,740 | Up from $559,382 | $838,311 | Down from $1.19 million |
| Operating cash flow | Not presented for the quarter | $1.59 million | Down from $1.87 million |
Quarterly platform revenue rose 75.7% to $3.95 million, while transaction revenue grew 0.9% to $8.16 million. For the nine-month period, platform revenue increased 51.7% and transaction revenue 6.8%. Management attributed platform growth to customer deployments and expansion, including revenue from ResoluteAI and Scite; transaction growth reflected higher paid order volume and, for the nine-month period, the FIZ asset acquisition.
Operating expenses increased 38.5% in the quarter and 42.9% for the nine months, including higher personnel, sales and marketing, product development, acquisition-related amortization and stock-based compensation. Nine-month results also included greater legal expenses, including proxy- and acquisition-related costs, and separation costs for a former officer. Gross margin improved overall, although platform cost as a share of revenue rose, primarily due to ResoluteAI hosting costs; transaction margins improved with higher copyright margins.
At March 31, 2024, cash was $4.22 million, versus $13.55 million at June 30, 2023. Current assets were $13.18 million and current liabilities $17.88 million. Accounts receivable was $7.32 million and deferred revenue $8.87 million. The filing reports no outstanding borrowings at the maturity of the SVB facility; it does not report funded debt at March 31. Stockholders’ equity was $14.13 million. Cash declined primarily because of acquisition spending.
Material changes, outlook and risks
- Acquisitions: The company acquired ResoluteAI in July 2023 and Scite in December 2023. Nine-month investing cash outflow was $10.08 million, primarily $7.31 million for Scite and $2.72 million for ResoluteAI. Provisional goodwill totaled $16.49 million and acquired intangible assets were $11.03 million; purchase-price allocations were not final. The contingent earnout liability was $8.79 million at March 31.
- Liquidity facilities: The $2.5 million SVB revolving line matured February 28, 2024 and was not renewed; it had no borrowings at maturity. After quarter-end, the company obtained a secured $500,000 PNC revolving line, maturing April 15, 2025, at daily SOFR plus 2.5%. No borrowings were outstanding as of May 13, 2024.
- Guidance and commentary: The filing provides no quantified revenue, earnings or cash-flow guidance. Management describes plans to develop additional platform offerings using ResoluteAI and Scite technology, including AI-enabled research and analysis capabilities.
- Risks and contingencies: Management said inflation had not materially affected operations to date but could raise costs and pressure working capital. The company does not hedge foreign-currency exposure. Two vendors represented 27% and 10% of nine-month cost of revenue, respectively. Management reported no material change to the risk factors in its prior Form 10-K. Acquisition earnouts, incomplete purchase accounting and future amortization are notable items to monitor.
- Controls: 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 platform growth and improved gross margins persist after accounting for acquired businesses and their hosting and personnel costs.
- Cash consumption and working-capital needs, particularly given cash of $4.22 million, current liabilities exceeding current assets, and limited replacement credit availability.
- Final purchase-price allocations, goodwill and intangible-asset valuations, amortization, and the eventual amount of acquisition earnout payments.
- Whether operating expense growth can be contained and the business can return to sustained GAAP profitability; nine-month net loss was $965,370 despite positive adjusted EBITDA.
- Potential dilution and compensation costs: 32.28 million common shares were outstanding at March 31, and stock-based compensation was $1.73 million for the nine-month period.