Research Solutions, Inc. — Form 10-Q Summary
Reporting period: The filing is for the fiscal quarter and nine months ended March 31, 2019, filed May 15, 2019. This corresponds to fiscal 2019 Q3, despite the request metadata referring to 2018 Q3. Financial statements are unaudited.
Business context
The company provides cloud-based research-intelligence platform subscriptions and transactional sourcing and delivery of scientific, technical, and medical articles, primarily to life-science and other research-intensive organizations.
Financial performance and liquidity
| Metric | Three months ended March 31, 2019 | Nine months ended March 31, 2019 |
|---|---|---|
| Revenue | $7.38 million | $21.32 million |
| Gross profit / margin | $2.18 million / 29.5% | $6.12 million / 28.7% |
| Operating loss | $173,117 | $1.07 million |
| Net loss | $117,680 | $888,105 |
| Adjusted EBITDA (non-GAAP) | $(30,126) | $(323,505) |
- For the nine months, platform revenue grew 55.4% to $2.01 million; transaction revenue declined 1.3% to $19.31 million. Total revenue rose 2.2% year over year.
- Gross margin improved from 26.3% to 29.5% for the quarter and from 25.9% to 28.7% for the nine months. Management attributed the improvement mainly to lower third-party data costs and, for transactions, lower copyright costs or personnel costs.
- Nine-month net loss narrowed from $1.59 million to $888,105, and loss from continuing operations narrowed from $1.80 million to $1.02 million. Gross profit increased while operating expenses were broadly flat.
- Cash from operating activities was $575,130 for the nine months, versus cash used of $735,075 a year earlier. The 2019 inflow was supported by increases in accounts payable and accrued expenses ($1.05 million) and deferred revenue ($404,000), partly offset by a $647,000 increase in prepaid royalties.
- Cash and equivalents were $5.30 million at March 31, 2019, up from $4.91 million at June 30, 2018. Working capital was $2.76 million; current assets were $10.69 million and current liabilities $7.93 million.
- No borrowings were outstanding on the revolving credit facility; approximately $2.23 million was available. The facility matures December 31, 2019, is secured by company assets, and had a stated interest rate of 6.75%. The company reported covenant compliance. Lease liabilities totaled $239,555; the filing reports no other outstanding borrowings.
Changes, outlook, and risks
- Quarterly revenue grew 1.3%: platform revenue increased 53.0%, while transactions declined 2.4%, primarily from reduced orders by existing customers, partly offset by new-customer orders. Management cited new and existing customer deployments and expansions for platform growth.
- For the nine months, sales and marketing expense decreased 17.8%, while technology and product development expense increased 18.4%, primarily reflecting personnel costs. Stock-based compensation was $700,269 for the nine months.
- Net loss included $130,462 of gain from contingent earn-out proceeds on the 2017 sale of the Reprints and ePrints business. The comparable prior-period gain was $205,779.
- The company warns it may continue to incur losses and may never sustain profitability; it says extended losses and negative cash flow could impair operations and expansion. Foreign exchange movements may affect costs, and the company does not hedge currency exposure. Vendor concentration is notable: one vendor represented 18% of nine-month purchases and another 12%.
- No specific financial guidance or quantified forward outlook is provided. Management describes ongoing development of platform functionality and new “gadgets.” It adopted ASC 606 effective July 1, 2018 with no reported financial statement impact.
- Management concluded disclosure controls 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
- Reconcile the share repurchase disclosures: the filing reports 70,500 shares repurchased for $159,198 during the nine months, but also describes 70,500 shares as repurchased during the quarter; its monthly table lists 20,500 shares for March and none for January or February.
- Assess whether operating cash generation is repeatable, given the significant contribution from higher payables and deferred revenue and the increase in prepaid royalties.
- Track platform growth against the slight decline in transaction revenue, and monitor whether improved gross margins persist as platform costs rise.
- Review the December 2019 credit-facility maturity, covenant requirements, and available borrowing capacity; also consider ongoing operating losses and the company’s dependence on continued liquidity.
- Consider the impact of stock-based compensation and potential dilution: at March 31, options, warrants, and unvested restricted stock represented substantial potential share issuance; these were excluded from diluted loss per share as anti-dilutive.
- Distinguish GAAP results from Adjusted EBITDA, which is non-GAAP and excludes specified items, including stock compensation and the discontinued-operations gain.