Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2017; filed November 14, 2017. The comparison period is the three months ended September 30, 2016. The company provides SaaS research-platform subscriptions and sources and delivers scientific, technical, and medical articles.
Key financial results
| Metric | Q1 FY2018 | Q1 FY2017 | Change |
|---|---|---|---|
| Revenue | $6.75 million | $6.18 million | Up 9.2% |
| Gross profit / margin | $1.75 million / 25.9% | $1.43 million / 23.2% | Profit up 22.0%; margin up 2.7 percentage points |
| Operating expenses | $2.58 million | $1.93 million | Up 33.7% |
| Loss from continuing operations | $(830,114) | $(506,555) | Loss increased $323,559 |
| Net loss | $(772,965) | $(410,666) | Loss increased $362,299 |
| Adjusted EBITDA (non-GAAP) | $(513,742) | $(358,278) | Loss increased $155,464 |
| Cash used in operating activities | $(1.15) million | Cash provided: $533,686 | Cash flow deteriorated |
Platforms revenue grew 125.5% to $387,945, while Transactions revenue increased 5.9% to $6.36 million. The filing attributes growth to additional platform deployments and transaction orders from new customers. Transaction gross margin improved, partly because of increased copyright discounts; platform costs rose faster than platform revenue. Higher sales and marketing, general and administrative, and stock-based compensation expenses more than offset gross-profit growth. The quarter’s $57,149 gain from discontinued operations was contingent consideration related to the June 2017 sale of the Reprints and ePrints business.
Liquidity, cash flow, and obligations
- Cash and cash equivalents were $4.54 million at September 30, 2017, down $1.23 million from June 30, 2017. Operating cash use reflected the net loss and a $1.77 million decrease in accounts payable and accrued expenses, partly offset by collections that reduced accounts receivable.
- Working capital was $3.58 million; stockholders’ equity was $3.81 million. Current assets were $9.73 million and current liabilities were $6.15 million.
- No borrowings were outstanding under the secured Silicon Valley Bank revolving credit line. Approximately $2.34 million of availability remained at quarter-end. The facility matured October 31, 2017; the company said it was seeking an extension to October 31, 2019, with terms and covenants expected to change.
- Lease liabilities totaled approximately $412,000, including current and long-term portions. The company reported no off-balance-sheet arrangements.
Outlook, risks, and notable items
- No numerical guidance was provided. Management cautioned that losses may continue for an indeterminate period and that the company may never achieve sustained profitability; prolonged losses and negative cash flow could impair its ability to operate and expand.
- Credit availability depended on renewal or amendment of the bank facility after its October 31, 2017 maturity. The filing states the company was compliant with facility covenants at September 30, 2017.
- Three vendors represented 15%, 12%, and 11% of quarterly cost of revenue, respectively; no customer represented 10% or more of revenue. The company noted currency exposure from Mexican-peso costs and stated that it does not hedge currency risk.
- Stock-based compensation rose to $286,242 from $102,589. The company granted 286,647 restricted shares and recorded compensation expense associated with vested awards and an option modification.
- Management assessed disclosure controls and procedures as effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether the Silicon Valley Bank credit line was extended, and the resulting availability, pricing, and covenant terms.
- Whether platform growth and improved transaction margins can continue while operating expenses are rising faster than revenue.
- Cash runway and the drivers of negative operating cash flow, particularly movements in payables and receivables.
- Future contingent consideration from the sold Reprints and ePrints business and the related discontinued-operation accounting.
- Vendor concentration, foreign-currency exposure, and the effect of equity awards on expenses and dilution.