Research Solutions, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2020, with fiscal 2019 comparisons. This is not a standalone 2019 Q4 filing; it includes unaudited quarterly data, including fiscal Q4 2020.
Business context
Research Solutions provides annual subscriptions to its cloud-based research intelligence platform and transaction-based delivery of scientific, technical and medical articles. Its customers are primarily life-science and other research-intensive organizations. The company reported two wholly owned subsidiaries and 139 full-time employees as of September 18, 2020.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $31.06 million | $28.79 million |
| Gross profit / margin | $9.64 million / 31.0% | $8.34 million / 29.0% |
| Operating loss | $851,895 | $1,254,963 |
| Net loss | $662,242 | $959,958 |
| Operating cash flow | $2.42 million | $576,446 |
| Cash and cash equivalents at year-end | $9.31 million | $5.35 million |
- Platform revenue rose 38.5% to $3.89 million; transaction revenue rose 4.6% to $27.17 million. Gross profit increased 15.5%.
- Operating expenses increased 9.3% to $10.49 million, including higher sales and marketing and general and administrative costs. The company remained loss-making, though continuing-operations loss narrowed 33.6%.
- Adjusted EBITDA, a non-GAAP measure, was $142,883 versus negative $364,475. It should not be treated as a substitute for GAAP earnings or cash flow.
- Operating cash flow improved, with cash-flow statement changes including higher accounts payable and accrued expenses and deferred revenue; prepaid royalties increased $720,367. Financing cash flow included $1.875 million from warrant exercises, partly offset by $321,601 in share repurchases.
- Current assets were $14.72 million and current liabilities $9.95 million, implying working capital of approximately $4.77 million. Total liabilities were $9.95 million; no line-of-credit borrowings were outstanding. The company reported approximately $2.09 million of available credit under its secured SVB facility.
- FY2020 Q4 revenue was $7.89 million and net loss was $559. The filing’s quarterly table reports these amounts for the quarter ended June 30, 2020.
Changes, outlook and risks
- Revenue growth was attributed to new and expanded platform deployments and new transaction customers. Gross margin improved by 2 percentage points, primarily reflecting lower platform data costs and transaction copyright and personnel costs as a proportion of revenue.
- Management provided no numerical revenue or earnings guidance. Its stated priorities include organic customer growth, product development, new market penetration and possible strategic acquisitions.
- Management said COVID-19 had not, to the filing date, caused significant negative effects on operations or cash flows, but future effects remained uncertain.
- Key risks include reliance on a small number of content suppliers (the three largest represented 44% of content costs in FY2020), publisher and copyright risks, competition and piracy, technology or cybersecurity disruption, foreign currency exposure, and the possibility of continued losses. No customer accounted for more than 10% of revenue.
- The company recognized a $117,445 gain from the final earn-out on the sale of its discontinued Reprints and ePrints business; it stated no further consideration was due after June 30, 2020. Legal proceedings in the ordinary course were not expected by management to have a material financial effect.
- The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of June 30, 2020; the auditor did not provide an internal-control audit opinion.
Investor facts to verify
- Whether platform growth and gross-margin improvement continued after FY2020, and whether the company reached sustained GAAP profitability.
- The quality and sustainability of operating cash flow, including the contribution from increased payables and deferred revenue.
- Publisher concentration, availability of key content, and the effect of copyright or piracy developments.
- Liquidity and covenant headroom under the secured SVB credit facility, which matures February 14, 2022.
- Potential dilution from outstanding options, warrants and equity awards; the filing reported 26.03 million common shares outstanding at June 30, 2020.