Business context and reporting period
Research Solutions, Inc. provides a cloud-based research intelligence platform and transactional delivery of scientific, technical and medical content. This 10-Q covers the three months ended September 30, 2018—the company’s fiscal first quarter of fiscal 2019—and compares results with the same quarter of 2017. Financial statements are unaudited.
Key financial results
| Metric | Quarter ended September 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $6.95 million | $6.75 million |
| Gross profit / gross margin | $1.95 million / 28.0% | $1.75 million / 25.9% |
| Operating loss | $234,000 | $828,000 |
| Loss from continuing operations | $220,000 | $830,000 |
| Net loss | $178,000, or $0.01 per share | $773,000, or $0.04 per share |
| Adjusted EBITDA, non-GAAP | $(102,000) | $(514,000) |
| Cash used in operating activities | $300,000 | $1.15 million |
- Platform revenue increased 51.8% to $589,000; transaction revenue was essentially flat at $6.36 million. Gross profit rose 11.3%, and total cost of revenue fell to 72.0% of revenue from 74.1%.
- Operating expenses declined 15.4% to $2.18 million, chiefly reflecting lower sales and marketing and stock-based compensation expense; technology and product development expense increased.
- The $178,000 net loss includes a $42,000 gain from contingent consideration related to the 2017 sale of the Reprints and ePrints business. Continuing operations remained loss-making.
- Cash and cash equivalents were $4.53 million at September 30, down $381,000 from June 30. Working capital was $2.97 million and stockholders’ equity was $3.14 million.
- There were no borrowings on the revolving credit facility; approximately $2.25 million was available. Total lease liabilities were $299,000. No cash was used for investing activities; financing cash use of $75,000 was for share repurchases.
Changes, outlook and risks
- Compared with the prior-year quarter, revenue grew 3.0%, while gross margin improved by 2.1 percentage points and operating loss narrowed by $594,000. Operating cash use also decreased substantially.
- Management attributed platform growth to additional deployments and customer expansion. Transaction growth was minimal. The filing provides no quantified guidance or forecast.
- Management cautioned that losses may continue for an indeterminate period and that profitability may not be achieved or maintained; prolonged losses and negative cash flow could hinder operations and expansion.
- The company adopted ASC 606 on July 1, 2018, with no reported financial-statement impact. It reported compliance with its credit-facility covenants. The facility is secured by company assets and matures December 31, 2019.
- Foreign-exchange movements may affect costs, including Mexican-peso-denominated costs; the company does not hedge currency exposure. Three vendors represented 18%, 11% and 11% of quarterly purchases. No customer represented 10% or more of revenue.
- The company repurchased 34,200 shares during the quarter for approximately $75,000 under an employee tax-withholding program. Disclosure controls were assessed as effective at a reasonable-assurance level; management reported no material change in internal control over financial reporting.
Investor facts to verify
- Whether platform growth and the improvement in gross margin can continue while transaction revenue remains nearly flat.
- Whether the company can reduce operating cash use and reach profitability, given continuing losses and the reported liquidity position.
- The quality and sustainability of Adjusted EBITDA improvement, including the effect of stock-based compensation and the discontinued-operations gain.
- Available borrowing capacity and covenant compliance under the asset-secured credit facility, as well as vendor concentration and unhedged foreign-exchange exposure.
- Potential dilution from outstanding options, warrants and restricted stock; the filing reports 3.27 million options, 1.89 million warrants and 435,000 unvested restricted shares at quarter-end.