Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2020, the company’s fiscal first quarter of 2021. The filing compares results with the three months ended September 30, 2019. Financial statements are unaudited.
Business context and key financial metrics
Research Solutions provides annual subscriptions to its cloud-based research intelligence platform and transactional access to scientific, technical and medical (STM) articles.
| Metric | Quarter ended Sep. 30, 2020 | Prior-year quarter |
|---|---|---|
| Revenue | $7.75 million | $7.60 million |
| Gross profit / gross margin | $2.45 million / 31.6% | $2.32 million / 30.5% |
| Operating income (loss) | $16,915 | ($126,703) |
| Net income (loss) | $14,645 | ($81,457) |
| Operating cash flow | $923,473 | $309,732 |
| Adjusted EBITDA (non-GAAP) | $167,180 | $35,650 |
Platforms revenue was $1.14 million; transaction revenue was $6.61 million. Cash and cash equivalents were $10.19 million at quarter-end, up from $9.31 million at June 30, 2020. Current assets were $15.93 million and current liabilities $10.98 million. The company had no borrowings under its revolving credit facility; approximately $2.06 million was available. Stockholders’ equity was $5.00 million. The balance sheet reports $45,550 of current lease liabilities; the filing reports no outstanding line-of-credit debt.
Changes versus the prior comparable period
- Revenue increased 2.0% year over year. Platform revenue rose 33.3%, attributed to deployments to new and existing customers and expansion with existing customers; transaction revenue declined 2.0%, primarily due to lower order volume.
- Gross profit increased 5.7%, and gross margin improved by 1.1 percentage points to 31.6%. Platform gross profit rose 32.8%, while transaction gross profit fell 6.1%.
- Operating expenses were nearly flat, down 0.4%. Technology and product development costs rose 24.8%, while sales and marketing and general and administrative expenses declined.
- The company moved from a net loss to net income. The prior-year quarter included a $26,191 gain from discontinued operations; no such gain was recorded in the current quarter.
- Operating cash flow increased, with the current-period cash generation driven principally by a $1.03 million increase in accounts payable and accrued expenses, partly offset by a $322,191 increase in prepaid royalties.
Outlook, risks and unusual items
- The filing provides no quantified revenue, earnings or cash-flow guidance.
- Management said it had not experienced significant COVID-19-related adverse effects on operations or cash flows to date, but warned that the pandemic could reduce article orders or platform subscriptions and materially affect financial performance. Future impacts remain uncertain.
- The SVB credit facility matures February 14, 2022, is secured by company assets, and carries a 5.5% rate as of September 30, 2020. The company reported compliance with its covenants at quarter-end.
- Foreign-exchange movements are a risk, particularly because Mexican subsidiary costs are in pesos; the company does not hedge currency exposure. It recorded a $24,249 foreign-currency transaction gain, versus a $12,123 loss in the prior-year quarter.
- Stock-based compensation was $170,791. Unrecognized compensation was $451,628 for options and $595,133 for restricted stock, to be expensed as awards vest. Options, warrants and unvested restricted shares may dilute shareholders.
- After quarter-end, the company received $62,500 from a warrant exercise on October 5, 2020 and issued net shares upon a cashless option exercise on October 26, 2020.
- Management reported effective disclosure controls at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether platform growth can continue and transaction order volume stabilizes, given the quarter’s opposing trends in the two revenue streams.
- The sustainability of operating cash flow, which was materially supported by higher accounts payable and accrued expenses.
- Current credit-facility availability and covenant compliance, along with the company’s liquidity needs as operating conditions evolve.
- The potential financial impact of COVID-19 and exposure to publisher/vendor concentration, currency movements and customer credit risk. One customer represented 15% of receivables at September 30; two vendors represented 18% and 13% of quarterly cost of revenue.
- Reported earnings per share are displayed as “$—” in the filing; verify the underlying per-share amount and diluted-share calculation rather than interpreting the display as zero.