Research Solutions, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter and nine months ended March 31, 2021 (the third quarter of fiscal 2021), not calendar 2020 Q3. Filed May 13, 2021. The company provides SaaS research-platform subscriptions and transactional delivery of scientific, technical and medical content.
Financial performance and liquidity
- Quarterly revenue: $8.34 million, up 3.6% year over year. Platform revenue rose 32.1% to $1.34 million; transaction revenue declined 0.5% to $7.00 million.
- Quarterly profitability: Gross profit was $2.70 million, up 6.4%, with a 32.4% gross margin versus 31.6%. Operating income was $50,070, compared with an $11,155 operating loss. Net income was $49,748, versus $11,946; reported basic and diluted EPS rounded to $0.00.
- Nine-month results: Revenue was $23.54 million, up 1.6%; gross profit was $7.54 million, up 5.8%, and gross margin improved to 32.0% from 30.8%. Operating loss narrowed to $194,020 from $847,005. Net loss was $196,213, versus $661,683; the prior period included a $117,445 gain from discontinued operations.
- Cash flow: Nine-month operating cash flow was $2.22 million, compared with $1.30 million. Cash increased $1.92 million to $11.23 million. Operating cash flow benefited substantially from increases in accounts payable/accrued expenses ($1.21 million) and deferred revenue ($1.08 million), partly offset by increased receivables ($564,000).
- Balance sheet and debt: Current assets were $17.31 million and current liabilities $12.16 million; working capital was approximately $5.15 million. No borrowings were outstanding on the secured revolving credit facility; approximately $1.89 million was available, with a February 2022 maturity. Total liabilities were $12.16 million and stockholders’ equity $5.16 million.
Material changes versus prior comparable period
- Subscription-platform growth drove revenue and gross-profit gains, while transaction revenue fell, attributed primarily to lower order volume. Transaction gross margin also weakened: 22.8% for the quarter versus 24.2%, and 22.7% for nine months versus 23.6%.
- Quarterly technology and product-development expense increased 23.9%; nine-month expense increased 20.7%, reflecting higher personnel and consulting costs. Nine-month sales and marketing expense declined 14.5%, and general and administrative expense declined 5.9%.
- Cash was up from $9.31 million at June 30, 2020. The company ended its office lease in January 2021 and reported no lease liability at March 31, 2021.
Outlook, risks and unusual items
- The filing gives no quantified revenue or earnings guidance. Management described ongoing development of platform “gadgets” to expand research workflows and functionality, but did not provide measurable targets or a forecast.
- Management reported no significant COVID-19-related adverse effect on operations or cash flows to date, but warned the pandemic could reduce article orders or platform subscriptions; future effects remain uncertain.
- Vendor concentration is notable: two unnamed vendors accounted for 22% and 13% of quarterly revenue in 2021. The company also has foreign-currency exposure, principally through Mexican-peso costs, and does not hedge currency risk.
- During the nine months, the company repurchased $150,386 of common stock from employees for tax withholding and spent $308,313 repurchasing options and warrants from a former director. A 2021 employee share-repurchase authorization allows up to $400,000. Stock-based compensation was $786,084 for the nine months.
- The company reported compliance with its credit-facility covenants and effective disclosure controls as of March 31, 2021. It reported no off-balance-sheet arrangements.
Most important facts for investors to verify
- Confirm the reporting-period mismatch: this is the quarter ended March 31, 2021, despite the request’s “2020 Q3” label.
- Assess whether platform growth can continue and offset slower transaction volumes and declining transaction margins.
- Review the sustainability of operating cash flow, given its reliance on higher payables and deferred revenue.
- Check the current status and terms of the credit facility, which was scheduled to mature in February 2022.
- Review vendor concentration, COVID-19 exposure, foreign-exchange sensitivity, and the dilution implications of options, warrants and stock awards.