Research Solutions, Inc. — Form 10-Q Summary
Business context and period: The company provides a cloud-based research intelligence platform and scientific, technical and medical content delivery services through Platforms, Transactions, and Reprints and ePrints. This report covers the three months ended September 30, 2016, the first quarter of fiscal 2017; comparisons are with the three months ended September 30, 2015. Financial statements are unaudited.
Key financial results
- Revenue: $7.66 million, down 4.6% from $8.03 million. Platforms revenue rose 194.3% to $172,072, and Transactions revenue rose 7.9% to $6.01 million; Reprints and ePrints revenue fell 38.4% to $1.48 million.
- Gross profit and margin: $1.53 million, down 1.6%; gross margin was 20.0%, compared with 19.4%.
- Operating expenses: $1.93 million, up 12.1%, including higher sales and marketing, general and administrative, and depreciation and amortization expenses. Stock-based compensation was $102,589, down from $143,741.
- Profitability: Operating loss was $398,771 versus $165,352. Net loss was $410,666, or $0.02 per share, versus $178,820, or $0.01 per share. Adjusted EBITDA, a non-GAAP measure, was negative $262,389 versus negative $5,556.
- Cash flow: Operating activities provided $533,686, compared with $110,521. Investing activities used $15,310; financing activities used $26,528, primarily for share repurchases. Cash increased $489,339 to $6.57 million.
- Liquidity and debt: Working capital was $5.52 million; current assets were $11.71 million and current liabilities $6.19 million. There were no borrowings under the revolving credit facility. Approximately $2.86 million of availability remained under the facility at September 30, 2016; it matures October 31, 2017, is secured by company assets, and carries a 5.75% rate at period-end.
- Equity and potential dilution: Stockholders’ equity was $5.70 million. Weighted-average shares were 23.13 million, up from 17.56 million. At quarter-end, options covered 2.72 million shares and warrants covered 1.99 million shares; these potential shares were excluded from diluted loss per share as anti-dilutive.
Changes, outlook and risks
- Management attributed the revenue decline primarily to lower Reprints and ePrints orders from existing customers, partly offset by growth in Platform deployments and Transactions orders from new customers. Reprints and ePrints volumes can fluctuate with customer marketing budgets and suitable published articles.
- Higher operating expenses were cited as the primary reason the net loss increased. Management cautioned that losses may continue for an indeterminate period and that sustained profitability is not assured. The filing provides no specific revenue or earnings guidance.
- Operating cash flow benefited substantially from a $1.18 million decrease in accounts receivable, partly offset by lower accounts payable and accrued expenses and increased prepaid royalties; cash generation therefore reflected working-capital movements as well as operations.
- The company was in compliance with its credit-facility covenants at September 30, 2016. It disclosed foreign-currency exposure, primarily from Mexican-peso costs, and said it does not hedge currency risk. One vendor represented 17% of revenue-related vendor activity in both comparison periods; no customer exceeded 10% of accounts receivable at quarter-end.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter. On November 10, 2016, the equity plan’s share authorization increased from 5 million to 7 million.
Important facts for investors to verify
- Whether the sharp decline in Reprints and ePrints revenue persists and whether Platform and Transactions growth can offset it.
- How much of operating cash flow is repeatable after the favorable accounts-receivable movement, and the company’s cash needs given continuing losses.
- The causes and implications of the increase in weighted-average shares, plus potential dilution from outstanding options, warrants, and the expanded equity plan.
- Credit-facility availability and covenant compliance as eligible receivables and cash balances change; the filing reports approximately $2.86 million unused capacity at quarter-end.
- The impact of customer and publisher/vendor concentration, order volatility, foreign-exchange movements, and future adoption of new accounting standards; management had not yet determined the effect of the revenue-recognition standard.