Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2020 (the third quarter of fiscal 2020), compared with the periods ended March 31, 2019. The condensed consolidated financial statements are unaudited. The filing describes a SaaS research-intelligence platform and transactional delivery of scientific, technical and medical content.
Financial performance
| Metric | Three months ended Mar. 31, 2020 | Nine months ended Mar. 31, 2020 |
|---|---|---|
| Revenue | $8.05 million, up 9.1% year over year | $23.17 million, up 8.7% |
| Gross profit and margin | $2.54 million; 31.6% (29.5% prior year) | $7.13 million; 30.8% (28.7% prior year) |
| Operating income (loss) | $(11,155), versus $(173,117) | $(847,005), versus $(1.07 million) |
| Net income (loss) | $11,946, versus $(117,680) | $(661,683), versus $(888,105) |
| Operating cash flow | Not separately provided for the quarter | $1.30 million, versus $575,130 |
- Quarter revenue growth included Platforms revenue of $1.02 million, up 35.9%, and Transactions revenue of $7.03 million, up 6.0%. For the nine-month period, Platforms revenue rose 40.8% and Transactions revenue rose 5.4%. Management attributed growth to deployments and expansion with new and existing customers, and transaction orders from new customers.
- Quarter gross margin improved 2.1 percentage points year over year; management cited proportionally lower third-party data costs and copyright and personnel costs. Nine-month gross margin also improved 2.1 points.
- Operating expenses increased 8.4% for the quarter and 11.0% for nine months. Year-to-date increases included sales and marketing, general and administrative costs, and stock-based compensation.
- Quarter net income included no discontinued-operations gain; the prior-year quarter included $33,044. Nine-month results included a $117,445 gain from earn-out proceeds on the previously sold Reprints and ePrints business, versus $130,462 in the prior-year period.
Financial position and liquidity
- At March 31, 2020, cash and cash equivalents were $8.25 million, compared with $5.35 million at June 30, 2019. Current assets were $14.23 million and current liabilities $9.59 million.
- Nine-month operating cash flow of $1.30 million reflected, among other items, increases in accounts payable and accrued expenses ($1.31 million) and deferred revenue ($992,000), partly offset by increases in receivables ($618,000) and prepaid royalties ($566,000). No cash was used for investing activities.
- Financing cash flow was $1.61 million, primarily from $1.875 million of warrant-exercise proceeds, partly offset by $269,000 of employee share repurchases. Cash growth therefore included a significant equity-financing contribution.
- No borrowings were outstanding under the SVB revolving credit line. The facility is the lesser of $2.5 million or 80% of eligible receivables; approximately $2.458 million was available. The company reported compliance with its covenants. Total liabilities included $112,775 of current lease liability; the filing reports no long-term lease liability at quarter-end.
- Common shares outstanding were 26,034,572 at March 31, 2020, up from 24,375,948 at June 30, 2019. The increase included 1.5 million shares issued upon warrant exercises.
Outlook, risks and unusual items
- The filing provides no quantified revenue, earnings or cash-flow guidance. Management said the COVID-19 pandemic had not, as of the filing, caused a significant negative impact on operations or cash flows, but warned that reduced article orders or platform subscriptions could materially harm business and financial performance. Future effects on customers, suppliers, liquidity and results remained uncertain.
- Other disclosed exposures include reliance on key content vendors (one vendor represented 21% of nine-month cost/revenue-related purchases as presented in the vendor concentration disclosure, and another 13%), foreign-currency fluctuations with no hedging, and customer receivables risk. No customer represented 10% or more of revenue or receivables.
- Adjusted EBITDA was $145,240 for the quarter versus $(30,126) a year earlier, and $(3,241) for nine months versus $(323,505). This is a company-defined non-GAAP measure; it does not replace GAAP earnings or operating cash flow.
- The company authorized up to $400,000 of 2020 share repurchases from employees to cover tax withholding on vested awards; $330,838 remained available at March 31. Disclosure controls were assessed as effective at a reasonable-assurance level, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Confirm the period: despite the request metadata referring to “2019 Q3,” this filing covers the quarter ended March 31, 2020.
- Assess whether platform growth and improved gross margins can continue, and whether transaction growth can offset the segment’s comparatively lower growth rate.
- Examine the quality and repeatability of operating cash flow, given the contribution from higher payables and deferred revenue, and separate that from warrant-exercise proceeds.
- Track the COVID-19 impact on customer demand, vendor supply and liquidity; the filing states the eventual effect was uncertain.
- Review share-count and compensation dilution, including outstanding options and the remaining 385,000 warrants, alongside the continuing nine-month GAAP operating and net losses.