Research Solutions, Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited quarterly report covers the three and six months ended December 31, 2018, the second quarter and first half of fiscal 2019. The company provides SaaS research-platform subscriptions and transactions delivering scientific, technical and medical content to research-intensive customers.
Financial performance and position
| Metric | Three months ended Dec. 31, 2018 | Prior-year quarter | Six months ended Dec. 31, 2018 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $6.99 million | $6.82 million | $13.94 million | $13.57 million |
| Gross profit / margin | $1.99 million / 28.4% | $1.74 million / 25.4% | $3.94 million / 28.2% | $3.49 million / 25.7% |
| Operating loss | $664,557 | $702,429 | $898,429 | $1.53 million |
| Loss from continuing operations | $648,235 | $703,933 | $867,843 | $1.53 million |
| Net loss | $592,537 | $624,580 | $770,425 | $1.40 million |
| Adjusted EBITDA (non-GAAP) | $(191,511) | $(342,019) | $(293,379) | $(855,761) |
- Quarterly platform revenue rose 61.5% to $667,545; transaction revenue decreased 1.4% to $6.32 million. For the half-year, platform revenue grew 56.8% and transactions declined 0.7%.
- Cash and cash equivalents were $4.76 million at December 31, 2018, down $146,652 from June 30, 2018. Six-month operating cash use was $22,719, versus $690,161 in the prior-year period.
- Working capital was $2.80 million; current assets were $9.61 million and current liabilities were $6.81 million. Stockholders’ equity was $2.96 million.
- No borrowings were outstanding on the revolving credit facility. Approximately $2.15 million was available under the facility, which matures December 31, 2019; the company reported covenant compliance. The facility rate was 6.75% at period-end. Lease liabilities totaled $269,923; the filing reports no other outstanding borrowings.
Material changes versus prior period
- First-half revenue increased 2.7%, while gross profit rose 12.9% and gross margin expanded 2.5 percentage points. Management attributed platform growth to new deployments and expansion among existing customers; transaction revenue was lower due mainly to reduced orders from existing customers, partly offset by new customers.
- First-half operating expenses declined 3.6%, including lower sales and marketing costs, partly offset by higher technology and product-development and general and administrative costs. The quarterly loss improved only modestly: stock-based compensation expense increased 44.1% to $453,288 in the quarter.
- Net loss includes contingent earn-out gains from the 2017 sale of the Reprints and ePrints business: $55,698 for the quarter and $97,418 for the six-month period. These gains reduced the reported net loss but do not represent continuing operating revenue.
Outlook, commentary and risks
- The filing provides no quantitative revenue, earnings, cash-flow or other forward guidance. Management says the company may incur losses for an indeterminate period and may never achieve or sustain profitability; extended losses or negative cash flow could hinder operations and expansion.
- Management describes continued development of its SaaS platform and interactive research-workflow tools. These are business initiatives, not quantified financial forecasts.
- Foreign-exchange movements may affect operating costs, particularly Mexican-peso costs; the company does not hedge currency exposure. It reported a $15,005 foreign-currency transaction loss for the first half.
- Three vendors represented 11%–18% each of the disclosed vendor concentration measure during the periods presented. The filing also identifies reliance on publisher arrangements to source and license content.
- The company adopted ASC 606 on July 1, 2018; management reported no financial-statement impact. Disclosure controls were assessed as effective at a reasonable-assurance level, and no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether rapid platform growth can continue and translate into sustained overall revenue growth, given nearly flat-to-declining transaction revenue.
- Whether gross-margin improvement can offset operating expenses and bring continuing operations and adjusted EBITDA to break-even.
- Cash conversion and working-capital movements, including prepaid royalties, deferred revenue and accounts receivable.
- Availability and renewal or replacement of the credit facility before its December 2019 maturity, and continued compliance with its covenants.
- The sustainability of the discontinued-business earn-out gains and the effects of vendor/content-provider concentration, foreign exchange and stock-based compensation.