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Research Solutions Reports Fiscal Second Quarter 2017 Financial Results

ENCINO, Calif. – February 14, 2017 – Research Solutions, Inc. (OTCQB: RSSS), a pioneer in providing cloud-based solutions for scientific research, reported financial results for its fiscal second quarter ended December 31, 2016.

Fiscal Second Quarter 2017 Summary vs. Year-Ago Quarter

  • Total revenue was $8.5 million compared to $9.3 million.
  • Platform revenue was up 137% to $219,000 with a 159% increase in total platform deployments to 96. Annual recurring revenue was up 126% to $905,000.
  • Transaction revenue was up 3% to $5.9 million with customer count up 9% to 936. Transaction count was up 7% to approximately 193,000.
  • Total gross margin was up 160 basis points to 18.7%.
  • Net loss was $(0.8) million or $(0.04) per share, compared to a net loss of $(0.3) million or $(0.02) per share. The increased loss was due to the company’s continued investment in its recurring revenue platform business.

Management Commentary

“During the second quarter, our platform business continued its strong revenue momentum, growing more than double the same quarter last year and 27% on a sequential quarterly basis,” said Peter Derycz, president and CEO of Research Solutions. “Roughly two-thirds of this growth came from new customers, reaffirming the sizeable market of small-to-medium sized businesses our platform solution enables us to target.

“While customer and transaction count in our transaction business were up high-single digits, this year’s holiday calendar had less work days than past seasons, slightly impacting second quarter revenue. However, transactions have historically produced fairly reliable repeat revenue.

“We continued to invest for future growth in our platform business, bolstering our U.S. field sales with two new hires covering the Mid-Atlantic and Midwest regions, as well as the addition of key technology personnel. Since our platform is essentially a virtual store that can be accessed from anywhere, 24 hours a day, seven days a week, we also strengthened our international presence with the addition of two new, European-based resellers which cover the key markets within Scandinavia and mainland Europe, including Germany, France, Switzerland, The Netherlands, and others.”

“We have seen these strategic investments continue to drive the intended results,” continued Derycz. “In fact, in January we signed our 100th platform customer and hit the $1 million in annual recurring revenue milestone. We plan to debut an enhanced version of the platform by the end of March, which will show expanded capabilities, features and functionality. When combined with the predictability of our transactions business, we believe the outlook for the remainder of our fiscal year is strong.”

Fiscal Second Quarter 2017 Financial Results     

Total revenue was $8.5 million compared to $9.3 million in the same year-ago quarter. The decrease was primarily attributable to a 31% ($1.1 million) decline in the company’s legacy Reprints and ePrints business. Order volumes often fluctuate from period-to-period depending upon customer marketing budgets and the publication of journal articles matching their requirements. While this segment is cash flow positive, it is a low margin business that requires limited resources and time.

Platform subscription revenue was up 137% to $219,000 compared to $93,000 in the year-ago quarter. The increase was due to a 159% increase in total platform deployments to 96. The quarter ended with annual recurring revenue up 126% to $905,000 (see the company's definition of annual recurring revenue below).

Transaction revenue increased 3% to $5.9 million compared to $5.7 million in the year-ago quarter, driven primarily by a 9% increase in active customer accounts to 936. In addition, transaction count was up 7% to approximately 193,000 (see the company's definition of active customer accounts and transactions below).

Total gross margin was up 160 basis points to 18.7% compared to 17.1% in the year-ago quarter. The improvement was primarily driven by increased revenue from higher margin platform sales and slightly higher margin from the company’s non-core Reprints and ePrints business due to lower content costs.

Total operating expenses increased to $2.4 million compared to $1.9 million in the year-ago quarter, driven primarily by further investment in the company’s sales force and, to a lesser extent, technology personnel to support increased platform sales and deployments.

Net loss in the fiscal second quarter was $(0.8) million or $(0.04) per share, compared to a net loss of $(0.3) million or $(0.02) per share in the same year-ago quarter. Adjusted EBITDA totaled $(0.5) million compared to a slight positive in the same year-ago quarter (see definition and further discussion about the presentation of Adjusted EBITDA, a non-GAAP term, below). Both the net loss and Adjusted EBITDA reflect the aforementioned personnel investments in the company’s fast-growing platform business.

Cash and cash equivalents at December 31, 2016 increased 10% to $6.7 million compared to $6.1 million at June 30, 2016. There were no outstanding borrowings under the company’s revolving line of credit with Silicon Valley Bank, which provides the lesser of $4 million or 80% of eligible accounts receivable. Additionally, the company had no long-term liabilities or other debt.

Further details about these results are available in the company’s quarterly report on Form 10-Q, which is available in the investor relations section of the company’s website at www.researchsolutions.com.

Conference Call

Research Solutions President and CEO Peter Derycz and CFO Alan Urban will host an investor conference call to discuss these quarterly results and the company’s outlook, followed by a question and answer period.

Date: Tuesday, February 14, 2017

Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)

Toll-free dial-in number: 1-855-327-6837

International dial-in number: 1-631-891-4304

Conference ID: 10002411          

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios at 1-949-574-3860.    

The conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=122859 and via the investor relations section of the company’s website at www.researchsolutions.com.  

A replay of the conference call will be available after 8:00 p.m. Eastern time on the same day through February 28, 2017.

Toll-free replay number: 1-844-512-2921

International replay number: 1-412-317-6671

Replay ID: 10002411   

Fiscal Second Quarter 2017 Financial and Operational Summary Table

 

 

 

Quarter Ended December 31,

 

 

 

2016 $

2015 $

Change $

Change %

 

Revenue:

 

 

 

 

 

 

Platforms

     219,137

       92,578

      126,559

136.7%

 

 

Transactions

   5,866,562

  5,702,733

       163,829

2.9%

 

 

Reprints and ePrints

   2,444,368

   3,519,915

(1,075,547)

-30.6%

 

Total Revenue

   8,530,067

   9,315,226

     (785,159)

-8.4%

 

Gross Profit:

 

 

 

 

 

 

Platforms

       173,514

         75,401

         98,113

130.1%

 

 

Transactions

   1,201,872

   1,230,783

       (28,911)

-2.3%

 

 

Reprints and ePrints

       222,626

       290,118

       (67,492)

-23.3%

 

Total Gross Profit

   1,598,012

   1,596,302

           1,710

0.1%

 

Gross profit as a % of revenue:

 

 

 

 

 

 

Platforms

79.2%

81.4%

-2.3%

 

 

 

Transactions

20.5%

21.6%

-1.1%

 

 

 

Reprints and ePrints

9.1%

8.2%

0.9%

 

 

Total Gross Profit

18.7%

17.1%

1.6%

 

 

Operating Expenses:

 

 

 

 

 

 

Sales and marketing

       854,724

       498,835

     355,889

71.3%

 

 

General and administrative

   1,226,181

   1,092,187

     133,994

12.3%

 

 

Depreciation and amortization

         32,426

         16,096

       16,330

101.5%

 

 

Stock-based compensation

       303,097

       277,389

       25,708

9.3%

 

 

Foreign currency transaction loss

         17,631

           5,805

       11,826

203.7%

 

Total Operating Expenses

   2,434,059

   1,890,312

     543,747

28.8%

 

Income (loss) from operations

     (836,047)

     (294,010)

     (542,037)

184.4%

 

Other Income (Expenses):

 

 

 

 

 

 

Interest expense

         (3,000)

         (3,000)

                 -  

0.0%

 

 

Other income (expense)

           5,424

         4,641

             783

16.9%

 

 

Provision for income taxes

         (9,337)

         (6,056)

         (3,281)

54.2%

 

Total Other Income (Expenses):

         (6,913)

         (4,415)

         (2,498)

56.6%

 

Net income (loss)

(842,960)

(298,425)

(544,535)

182.5%

 

Adjusted EBITDA

(482,893)

5,280

(488,173)

9245.7%

 

Transactions:

 

 

 

 

 

 

Transaction count

       193,490

       181,135

         12,355

6.8%

 

 

Corporate customers

             754

             719

                 35

4.9%

 

 

Academic customers

             182

             143

                 39

27.3%

 

 

Total customers

             936

             862

                 74

8.6%

 

 

 

 

Six Months Ended December 31,

 

 

 

2016 $

2015 $

Change $

% Change

 

Revenue:

       

 

 

Platforms

    391,209

    151,041

     240,168

159.0%

 

 

Transactions

   11,872,961

     11,269,974

         602,987

5.4%

 

 

Reprints and ePrints

     3,924,613

       5,921,312

     (1,996,699)

-33.7%

 

Total Revenue

   16,188,783

     17,342,327

     (1,153,544)

-6.7%

 

Gross Profit:

 

 

 

 

 

 

Platforms

         315,622

         122,102

         193,520

158.5%

 

 

Transactions

     2,493,272

       2,507,999

          (14,727)

-0.6%

 

 

Reprints and ePrints

         318,515

         520,548

        (202,033)

-38.8%

 

Total Gross Profit

     3,127,409

       3,150,649

          (23,240)

-0.7%

 

Gross profit as a % of revenue:

 

 

 

 

 

 

Platforms

80.7%

80.8%

-0.2%

 

 

 

Transactions

21.0%

22.3%

-1.3%

 

 

 

Reprints and ePrints

8.1%

8.8%

-0.7%

 

 

Total Gross Profit

19.3%

18.2%

1.2%

 

 

Operating Expenses:

 

 

 

 

 

 

Sales and marketing

     1,435,502

         995,476

         440,026

44.2%

 

 

General and administrative

     2,437,189

       2,155,449

         281,740

13.1%

 

 

Depreciation and amortization

           62,895

           30,834

           32,061

104.0%

 

 

Stock-based compensation

         405,686

         421,130

          (15,444)

-3.7%

 

 

Foreign currency transaction loss

           20,955

             7,122

           13,833

194.2%

 

Total Operating Expenses

     4,362,227

       3,610,011

         752,216

20.8%

 

Income (loss) from operations

   (1,234,818)

       (459,362)

        (775,456)

168.8%

 

Other Income (Expenses):

 

 

 

 

 

 

Interest expense

           (6,000)

           (7,993)

              1,993

24.9%

 

 

Other income (expense)

           10,134

             7,410

              2,724

36.8%

 

 

Provision for income taxes

         (22,942)

         (17,300)

            (5,642)

-32.6%

 

Total Other Income (Expenses):

       (18,808)

         (17,883)

               (925)

5.2%

 

Net income (loss)

    (1,253,626)

      (477,245)

     (776,381)

162.7%

 

Adjusted EBITDA

    (745,282)

        (276)

     (745,006)

269929.7%

 

Platforms:

       

 

 

ARR (Annual recurring revenue)

       905,157

       401,325

       503,832

125.5%

 

 

Deployments

                   96

                  37

                   59

159.5%

 

 

ASP (Average sales price)

          9,429

        10,847

         (1,418)

-13.1%

 

Transactions:

       

 

 

Transaction count

         384,870

         352,313

            32,557

9.2%

 

 

Corporate customers

                 759

                706

                   53

7.5%

 

 

Academic customers

                 178

                135

                   43

32.0%

 

 

Total customers

                 936

                841

                   96

11.4%

  

Active Customer Accounts, Transactions and Annual Recurring Revenue

The company defines active customer accounts as the sum of the total quantity of customers per month for each month in the period divided by the respective number of months in the period. The quantity of customers per month is defined as customers with at least one transaction during the month.

A transaction is an order for a unit of copyrighted content fulfilled or managed in the platform.

The company defines annual recurring revenue as the value of contracted platform subscription recurring revenue normalized to a one-year period.

Use of Non-GAAP Measure – Adjusted EBITDA

Research Solutions' management evaluates and makes operating decisions using various financial metrics. In addition to the company's GAAP results, management also considers the non-GAAP measure of Adjusted EBITDA. Management believes that this non-GAAP measure provides useful information about the company's operating results.

The tables below provide a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure. Adjusted EBITDA is defined as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes, depreciation and amortization, stock-based compensation, and other potential adjustments that may arise.

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):

 

 

Three Months Ended December 31,

 

 

 

2016 $

 

 

2015 $

 

2016-2015  Change $

Net loss

 

 

(842,960)

 

 

(298,425)

 

 

(544,535)

Add (deduct):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

3,000

 

 

3,000

 

 

-

Other (income) expense

 

 

(5,424)

 

 

(4,641)

 

 

(783)

Foreign currency transaction loss

 

 

17,631

 

 

5,805

 

 

11,826

Provision for income taxes

 

 

9,337

 

 

6,056

 

 

3,281

Depreciation and amortization

 

 

32,426

 

 

16,096

 

 

16,330

Stock-based compensation

 

 

303,097

 

 

277,389

 

 

25,708

Adjusted EBITDA

 

 

(482,893)

 

 

5,280

 

 

(488,173)

 

 

 

Six Months Ended December 31,

 

 

 

2016 $

 

 

2015 $

 

2016-2015 Change $

Net loss

 

 

(1,253,626)

 

 

(477,245)

 

 

(776,381)

Add (deduct):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

6,000

 

 

7,993

 

 

(1,993)

Other (income) expense

 

 

(10,134)

 

 

(7,410)

 

 

(2,724)

Foreign currency transaction loss

 

 

20,955

 

 

7,122

 

 

13,833

Provision for income taxes

 

 

22,942

 

 

17,300

 

 

5,642

Depreciation and amortization

 

 

62,895

 

 

30,834

 

 

32,061

Stock-based compensation

 

 

405,686

 

 

421,130

 

 

(15,444)

Adjusted EBITDA

 

 

 

 

 

(745,282)

 

 

(276)

 

 

(745,006)

 

 

About Research Solutions

Research Solutions, Inc. (OTCQB: RSSS) is a pioneer in cloud-based research intelligence and retrieval solutions for R&D-driven organizations. More than 70 percent of the top 25 pharmaceutical companies in the world rely on services delivered by Research Solutions’ wholly owned subsidiary Reprints Desk. The company’s Software-as-a-Service (SaaS) platform provides customers with on-demand access to, and augmented data from, tens of millions of scientific, medical, and technical (STM) documents, helping them to accelerate acquisition at the point of discovery, save time and money, and remain copyright-compliant. For more information, visit www.researchsolutions.com.

Important Cautions Regarding Forward-Looking Statements

Certain matters discussed in this press release may be forward-looking statements. Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; acceptance of the company's products in the market; the company's success in obtaining new customers and new platform deployments; the company's success in technology and product development; the company's ability to execute its business model and strategic plans; the company's success in integrating acquired entities and assets, and all the risks and related information described from time to time in the company's filings with the Securities and Exchange Commission ("SEC"), including the financial statements and related information contained in the company's Securities and Exchange Commission Annual Report on Form 10-K and interim Quarterly Reports on Form 10-Q. The company assumes no obligation to update the cautionary information in this release.

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

December 31,

 

June 30,

 

 

2016 $

 

2016 $

 

 

(unaudited)

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

 

6,748,627

 

 

6,076,875

Accounts receivable, net of allowance of $47,035 and $52,084, respectively

 

 

5,065,558

 

 

5,761,860

Prepaid expenses and other current assets

 

 

220,750

 

 

164,610

Prepaid royalties

 

 

1,217,915

 

 

173,665

Total current assets

 

 

13,252,850

 

 

12,177,010

Other assets:

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $667,067 and $642,051, respectively

 

 

70,530

 

 

82,207

Intangible assets, net of accumulated amortization of $583,280 and $546,679, respectively

 

 

77,998

 

 

104,848

Deposits and other assets

 

 

18,968

 

 

7,594

Total assets

 

 

13,420,346

 

 

12,371,659

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

7,140,143

 

 

5,690,768

Deferred revenue

 

 

1,167,529

 

 

639,834

Total current liabilities

 

 

8,307,672

 

 

6,330,602

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock; $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized; 23,875,188 and 23,809,593 shares issued and outstanding, respectively

 

 

23,875

 

 

23,810

Additional paid-in capital

 

 

21,966,029

 

 

21,642,763

Accumulated deficit

 

 

(16,835,921)

 

 

(15,582,295)

Accumulated other comprehensive loss

 

 

(41,309)

 

 

(43,221)

Total stockholders’ equity

 

 

5,112,674

 

 

6,041,057

Total liabilities and stockholders’ equity

 

 

13,420,346

 

 

12,371,659

 

See notes to condensed consolidated financial statements 

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31,

 

December 31,

 

 

2016 $

 

2015 $

 

2016 $

 

2015 $

 

 

 

 

 

 

 

 

 

Revenue

 

 

8,530,067

 

 

9,315,226

 

 

16,188,783

 

 

17,342,327

Cost of revenue

 

 

6,932,055

 

 

7,718,924

 

 

13,061,374

 

 

14,191,678

Gross profit

 

 

1,598,012

 

 

1,596,302

 

 

3,127,409

 

 

3,150,649

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

2,401,633

 

 

1,874,216

 

 

4,299,332

 

 

3,579,177

Depreciation and amortization

 

 

32,426

 

 

16,096

 

 

62,895

 

 

30,834

Total operating expenses

 

 

2,434,059

 

 

1,890,312

 

 

4,362,227

 

 

3,610,011

Loss from operations

 

 

(836,047)

 

 

(294,010)

 

 

(1,234,818)

 

 

(459,362)

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,000)

 

 

(3,000)

 

 

(6,000)

 

 

(7,993)

Other income

 

 

5,424

 

 

4,641

 

 

10,134

 

 

7,410

Total other income (expenses)

 

 

2,424

 

 

1,641

 

 

4,134

 

 

(583)

Loss from operations before provision for income taxes

 

 

(833,623)

 

 

(292,369)

 

 

(1,230,684)

 

 

(459,945)

Provision for income taxes

 

 

(9,337)

 

 

(6,056)

 

 

(22,942)

 

 

(17,300)

Net loss

 

 

(842,960)

 

 

(298,425)

 

 

(1,253,626)

 

 

(477,245)

Other comprehensive income (loss):

Foreign currency translation

 

 

5,195

 

 

(7,066)

 

 

1,912

 

 

(5,363)

Comprehensive loss

 

 

(837,765)

 

 

(305,491)

 

 

(1,251,714)

 

 

(482,608)

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

 

(0.04)

 

 

(0.02)

 

 

(0.05)

 

 

(0.03)

Weighted average common shares outstanding, basic

and diluted

 

 

23,200,975

 

 

17,656,087

 

 

23,166,272

 

 

17,610,079

  

 See notes to condensed consolidated financial statements

Source: Research Solutions, Inc.

 

Topics: Earnings, quarterly results, Earnings Releases