Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2016; comparable periods are the three and six months ended December 31, 2015. The company provides SaaS research tools, scientific article delivery, and reprints/ePrints to research-intensive organizations.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2016 |
|---|---|---|
| Revenue | $8.53 million | $16.19 million |
| Gross profit / gross margin | $1.60 million / 18.7% | $3.13 million / 19.3% |
| Operating loss | $836,047 | $1.23 million |
| Net loss | $842,960 | $1.25 million |
| Net loss per share, basic and diluted | $0.04 | $0.05 |
| Adjusted EBITDA, non-GAAP | $(482,893) | $(745,282) |
- For the six months, cash provided by operating activities was $776,562; investing activities used $25,842 and financing activities used $82,354. Cash increased $671,752 to $6.75 million.
- At December 31, cash was $6.75 million, working capital was $4.95 million, total assets were $13.42 million, and stockholders’ equity was $5.11 million. The filing reports no outstanding line-of-credit borrowings.
- The revolving credit facility is the lesser of $4 million or 80% of eligible receivables; approximately $2.78 million was unused. It matures October 31, 2017, is secured by company assets, and the company reported covenant compliance at quarter-end. The stated interest rate was 5.75%.
Changes versus prior comparable periods
- Quarterly revenue declined 8.4% year over year; six-month revenue declined 6.7%. Reprints and ePrints revenue fell 30.6% for the quarter and 33.7% for the six months, attributed to lower orders from existing customers.
- Platform revenue rose 136.7% for the quarter and 159.0% for the six months, attributed to new customer deployments. Transaction revenue increased 2.9% and 5.4%, respectively, primarily with orders from new customers.
- Gross margin improved to 18.7% from 17.1% for the quarter and to 19.3% from 18.2% for the six months. Despite this, operating expenses rose 28.8% quarterly and 20.8% for the six months, including higher sales and marketing and general and administrative costs.
- Net loss widened to $842,960 from $298,425 for the quarter and to $1.25 million from $477,245 for the six months, primarily due to higher operating expenses. Adjusted EBITDA also declined, from $5,280 to $(482,893) quarterly and from $(276) to $(745,282) for the six months.
- Operating cash flow was higher than the prior-year six-month period, but reflected working-capital movements, notably increased accounts payable and accrued expenses, partly offset by prepaid royalties.
Outlook, risks, and notable items
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management cautions that losses may continue for an indeterminate period and that profitability may not be achieved or sustained.
- Revenue from reprints/ePrints is transaction-based and may fluctuate with customers’ marketing budgets and suitable journal content. The business also depends on publisher content and copyright arrangements; the filing identifies customer and vendor concentrations.
- Foreign-exchange movements may affect the Mexican subsidiary’s costs; the company reports that it does not hedge currency exposure. It also notes that cash held at financial institutions may at times exceed FDIC insurance limits.
- Stock-based compensation was $405,686 for the six months. Potentially dilutive securities at December 31 included 3,122,277 options and 1,985,000 warrants; these were excluded from diluted loss per share as anti-dilutive.
- A four-year office lease begins February 1, 2017, with monthly base rent of $10,354, subject to lease adjustments. Management was assessing the impact of forthcoming revenue-recognition and lease accounting standards.
- Management concluded disclosure controls and procedures were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether platform growth and transaction-order gains can offset continued weakness in reprints/ePrints.
- Whether operating expenses can be managed to restore operating profitability, and how much reported operating cash flow depends on working-capital timing.
- Current borrowing availability, receivables eligibility, covenant headroom, and the facility’s October 2017 maturity and renewal terms.
- The potential impact of outstanding options, warrants, restricted stock, and future stock-based compensation on dilution and expenses.
- The effect of the new lease and adoption of the accounting standards noted in the filing; the filing does not provide a clear quantified estimate of these impacts.