Research Solutions, Inc. — Form 10-K Summary
Business context and reporting period
This filing reports fiscal 2021, the year ended June 30, 2021, with fiscal 2020 comparisons. The filing also provides unaudited fourth-quarter results for the quarter ended June 30, 2021; this is not a calendar-2020 fourth-quarter report. Research Solutions sells annual subscriptions to a cloud-based research platform and delivers individual scientific, technical and medical articles to research-intensive customers.
Financial performance and condition
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $31.76 million | $31.06 million |
| Platform revenue | $5.14 million | $3.89 million |
| Transaction revenue | $26.62 million | $27.17 million |
| Gross profit / gross margin | $10.29 million / 32.4% | $9.64 million / 31.0% |
| Operating loss | $283,032 | $851,895 |
| Net loss | $285,089 | $662,242 |
| Operating cash flow | $1.87 million | $2.42 million |
| Cash at year-end | $11.00 million | $9.31 million |
FY2021 adjusted EBITDA, a non-GAAP measure, was $700,203 versus $142,883. Cash flow from operations was positive despite the GAAP net loss; it benefited substantially from a $1.28 million increase in deferred revenue. At June 30, 2021, current assets were $16.90 million and current liabilities were $11.49 million. There were no borrowings on the Silicon Valley Bank line of credit; approximately $1.49 million was available under the facility, which matures February 14, 2022. Stockholders’ equity was $5.43 million.
For the unaudited quarter ended June 30, 2021, revenue was $8.22 million versus $7.89 million in the prior-year quarter, gross profit was $2.74 million versus $2.51 million, and net loss was $88,876 versus $559.
Changes versus the prior year
- Revenue rose 2.2%: platform subscriptions increased 32.0%, reflecting new deployments and expansion among existing customers; transaction revenue declined 2.0%, primarily from lower order volume.
- Gross profit increased 6.7%, and gross margin improved 1.4 percentage points to 32.4%. Platform and transaction gross margins each declined year over year, which management attributed mainly to proportionally higher personnel and, for transactions, copyright costs.
- Operating expenses increased 0.8%. Technology and product development costs rose 24.6%, while sales and marketing costs fell 17.3%, primarily due to lower advertising and consulting expenses.
- Net loss narrowed from $662,242 to $285,089. FY2020 included a $117,445 gain from discontinued operations; FY2021 had no such gain.
- Cash increased $1.69 million. Operating cash generation was lower than in FY2020, and FY2021 financing cash flow was negative, including common-stock and option/warrant repurchases.
Outlook, risks and unusual items
The company gave no quantified revenue, earnings or cash-flow guidance. Management described growth plans including subscription expansion, product development, cross-selling, new customer channels and potential acquisitions. It reported no significant adverse COVID-19 impact on operations or cash flows to date, but future effects remained uncertain.
- Key risks include continued losses (accumulated deficit of $21.46 million), dependence on a small number of content suppliers, intense competition and content piracy, technology and cybersecurity disruption, intellectual-property claims, and the possibility of needing additional capital.
- Three largest content suppliers represented approximately 41% of content costs in FY2021, versus 44% in FY2020. No customer generated more than 10% of annual revenue, but one customer represented 14% of year-end accounts receivable.
- The credit facility is secured by company assets and includes financial covenants; the company reported compliance at year-end. Foreign-currency movements may affect costs, and the company does not hedge currency exposure.
- Legal proceedings in the ordinary course were not expected by management to have a material financial-statement effect. No off-balance-sheet arrangements were reported.
- The auditor issued an unqualified opinion on the financial statements. Revenue recognition for single-article transactions was identified as a critical audit matter, particularly the judgment involved in presenting revenue gross or net. Management reported effective internal controls; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Confirm the period being analyzed: the 10-K covers FY2021, and its June 2021 quarter is the fourth quarter of that fiscal year.
- Assess whether subscription growth can continue to offset lower transaction order volume and the relatively low transaction gross margin.
- Review the source and sustainability of operating cash flow, especially the contribution from deferred revenue and payables.
- Check the status and terms of the credit facility after its February 2022 maturity date, as well as covenant compliance and actual borrowing availability.
- Monitor supplier concentration, customer receivable exposure, and the company’s ability to sustain profitability without relying on non-GAAP adjustments.
- Consider potential dilution: the filing reported 3.26 million options, 50,000 warrants and 245,252 unvested restricted shares outstanding at June 30, 2021.