Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2021, the company’s fiscal first quarter. Results are unaudited and compared with the three months ended September 30, 2020.
Business context
Research Solutions provides a cloud-based research software subscription platform and sells individual scientific, technical, and medical articles. Platform subscriptions are generally annual; article transaction revenue is recognized upon delivery.
Financial performance and liquidity
| Metric | Quarter ended Sep. 30, 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $7.743 million | $7.748 million | Down 0.1% |
| Gross profit / margin | $2.660 million / 34.4% | $2.450 million / 31.6% | Gross profit up 8.6%; margin up 2.8 percentage points |
| Operating income (loss) | $(0.367) million | $0.017 million | Declined by $0.383 million |
| Net income (loss) | $(0.372) million | $0.015 million | Declined by $0.387 million |
| Adjusted EBITDA | $(0.181) million | $0.167 million | Declined by $0.348 million |
| Operating cash flow | $(0.072) million | $0.923 million | Cash use versus cash generation |
- Platform revenue increased 32.2% to $1.510 million, reflecting deployments to new and existing customers and expansion from existing customers. Transactions revenue declined 5.7% to $6.233 million, primarily due to lower order volume.
- Total operating expenses rose 24.4% to $3.027 million. The company cited higher technology and product development costs, general and administrative costs, consulting, recruiting, legal, and personnel expenses.
- Cash and cash equivalents were $10.871 million at quarter-end, down $0.133 million from June 30, 2021. Total assets were $16.069 million and stockholders’ equity was $5.169 million.
- Current liabilities totaled $10.900 million, including $4.439 million of deferred revenue and $6.462 million of accounts payable and accrued expenses. The filing reports no outstanding borrowings under its credit line.
- The SVB revolving facility is the lesser of $2.5 million or 80% of eligible receivables, matures February 14, 2022, and had approximately $1.890 million available at September 30, 2021. The company was in compliance with its covenants; the stated interest rate was 5.5%.
- Operating cash use reflected the net loss and decreases in accounts payable and deferred revenue, partly offset by a reduction in prepaid royalties. Investing cash use was $3,643; financing cash use was $54,481 for employee tax-related share repurchases.
Material changes and management commentary
- Gross margin improved as total cost of revenue fell 4.1%, despite nearly flat revenue. Platform gross margin increased to 83.7% from 82.1%; transaction gross margin decreased to 22.4% from 22.9%.
- Management attributed the quarterly net loss primarily to increased operating expenses, partly offset by higher gross profit.
- Management said the company had not experienced significant COVID-19-related negative effects on operations or cash flows to date, but stated future impacts remain uncertain.
- The company is developing interactive platform apps intended to support research workflows; the filing provides no quantified outlook or guidance for future results.
- Management reported effective disclosure controls at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Risks, contingencies, and unusual items
- COVID-19 could reduce article orders or platform subscriptions and materially affect business and financial performance; the duration and severity of any impact are uncertain.
- The company does not hedge foreign currency exposure. It recorded an $11,243 foreign-currency transaction loss in the quarter; Mexican peso fluctuations may affect operating costs.
- Customer A represented 18% of accounts receivable at September 30, up from 14% at June 30. Two vendors represented 19% and 13% of quarterly revenue costs, respectively, as disclosed in the filing’s vendor concentration table.
- The credit facility is secured by consolidated assets and has a February 2022 maturity. Continued covenant compliance and renewal or replacement of the facility are relevant liquidity considerations.
- Quarterly stock-based compensation expense was $171,110. Potentially dilutive securities included 3.317 million options, 50,000 warrants, and 298,583 unvested restricted shares; they were excluded from diluted loss per share as anti-dilutive.
- Subsequent events: 100,000 restricted shares were issued to William Nurthen on October 4, 2021; on November 5, 2021, 50,000 warrants were exercised for $59,500.
- No specific litigation contingency amount or quantified future guidance is provided in the supplied filing text.
Most important facts for investors to verify
- Whether platform growth can offset continued softness in transaction order volume.
- Whether operating expenses stabilize and the company returns to positive operating income and cash flow.
- Cash conversion and working-capital movements, particularly deferred revenue, payables, and prepaid royalties.
- Credit-line availability, covenant compliance, and refinancing or renewal plans ahead of the February 2022 maturity.
- Potential effects of COVID-19, customer and vendor concentration, and unhedged foreign-currency exposure.
- The future expense and dilution impact of outstanding options and restricted stock awards.