Research Solutions Reports Fiscal First Quarter 2015 Financial Results

Article Galaxy Revenue Grows 17% to $5.2 Million, Driving Adj. EBITDA up 272% to $192,000

Article Galaxy Customer Base Expands 33% to 752 Active Customers, with Article Galaxy Gross Profit up 27% to $1.3 Million

News provided by

Research Solutions, Inc.

Nov 05, 2014, 04:05 ET

ENCINO, Calif., Nov. 5, 2014 /PRNewswire/ -- Research Solutions, Inc. (OTCQB:RSSS), a pioneer in facilitating the flow of information from publishers of scientific, technical and medical (STM) content to life science enterprises, academic institutions and other research-intensive organizations, reported financial results for its fiscal first quarter ended September 30, 2014.

Fiscal First Quarter 2015 Financial Highlights vs. Year-Ago Quarter

Article Galaxy revenue increased 17% to $5.2 million
Article Galaxy transactions increased 17% to 140,821
Article Galaxy gross profit up 27% to $1.3 million, with gross profit as a percentage of revenue up 200 basis points to 24.9%
Active Article Galaxy customer accounts increased 33% to 752
Diluted income per share from continuing operations of $0.00, compared to a loss per share of $0.01
Adjusted EBITDA increased 272% to $192,000

Fiscal First Quarter 2015 Financial Results

Total revenue in the fiscal first quarter of 2015 increased 14% to $7.5 million, compared to $6.6 million in the same year-ago quarter. The increase is primarily attributable to the company's migration from its legacy print business to Article Galaxy, its digital, cloud-based, SaaS solution. Article Galaxy revenue increased 17% in the fiscal first quarter of 2015 to $5.2 million, compared to $4.4 million in the same year-ago quarter.

The increase in Article Galaxy revenue was driven by an increase in transactions, which was up 17% to 140,821 in the fiscal first quarter versus 120,760 in the same year ago quarter. The number of active customer accounts conducting transactions increased by 33% to 752 in the fiscal first quarter, versus 564 in the same year-ago quarter (see the definition of transactions and active customer accounts in the section, "Transactions and Active Customer Accounts," below).

Total gross profit in the fiscal first quarter increased 25% to $1.5 million compared to $1.2 million in the same year-ago quarter. Article Galaxy gross profit increased 27% to $1.3 million versus $1.0 million in the year-ago quarter. Article Galaxy gross margin increased 200 basis points to a record 24.9% in the fiscal first quarter, versus gross margin of 22.9% in the same year-ago quarter.

Net income from continuing operations in the fiscal first quarter improved to a net loss of $7,000 or $0.00 per diluted share from a net loss of $97,000 or ($0.01) per diluted share in the same year-ago quarter.

Adjusted EBITDA increased 272% to $192,000 compared to $51,000 in the same year-ago quarter (see definition and further discussion about the presentation of adjusted EBITDA, a non-GAAP term, below).

Cash at September 30, 2014 totaled $1.5 million compared to $1.9 million at June 30, 2014. The decrease in cash is primarily due to cash used in discontinued operations.

As of September 30, 2014, there were no outstanding borrowings under the company's revolving line of credit with Silicon Valley Bank, which is the lesser of $4,000,000 or 80% of eligible accounts receivable. This amount equaled approximately $1,725,000 of available credit at September 30, 2014.

At September 30, 2014, the company had net operating loss carry forwards of approximately $7.0 million applicable to federal tax liability expiring in 2030 and approximately $4.6 million applicable to state tax liability expiring in 2020.

Further details about the company's results in fiscal first quarter 2015 are available in its quarterly report on Form 10-Q, available in the investor relations section of the company's website at www.researchsolutions.com.

Management Commentary

"In the fiscal first quarter of 2015 our momentum continued to build, with Article Galaxy attracting many new customers and producing double-digit revenue growth with record gross margins," said Research Solutions president and CEO, Peter Derycz. "This performance reflects our transition from a hybrid digital-print business to a fully digital solution is nearly complete.

"Our superior user experience and strengthened sales force were key drivers for attracting new customers in Q1 2015. In fact, our customer acquisition efforts have realized a 90% closing rate when our solution is evaluated against our competitors. Further, we've been seeing virtually no attrition from existing customers, demonstrating the 'stickiness' of our business model.

"During the quarter we added several key new customers from life science and research-intensive organizations, which now includes four out of the top five drug companies ranked by R&D performance in 2014. Our sales pipeline is the strongest it has ever been, and we are in advanced discussions with one of the largest pharmaceutical companies in the world to become one of our top 10 customers.

"From an operational perspective, we continue to invest in improving the Article Galaxy platform to enhance the speed and convenience when customers procure STM content for their research purposes as well as ensure scalability as our customer list grows. We are encouraged with all of the positive feedback we receive from our customers and remain confident in our industry-leading position.

"We look forward to sharing our positive outlook at the upcoming LD Micro conference in Los Angeles on December 2, 2014, where we will be presenting and then meeting with institutional investors and equity analysts throughout the day."

Conference Call

Research Solutions President and CEO Peter Derycz and CFO Alan Urban will host the conference call, followed by a question and answer period.

Date:	Wednesday, November 5, 2014
Time:	5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number:	1-866-516-3002
International dial-in number:	1-253-237-1159
Conference ID:	22257978

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 Group at 1-949-574-3860.

The conference call will be broadcast live and available for replay at www.media-server.com/m/p/wgwgxv33 and via the investor relations section of the company's website at www.researchsolutions.com.

A replay of the conference call will be available immediately after 8:00 p.m. Eastern time on the same day through November 29, 2014.

Toll-free replay number:	1-855-859-2056
International replay number:	1-404-537-3406
Replay ID:	22257978

Fiscal First Quarter 2015 Financial Summary Tables

The following financial information should be read in conjunction with the unaudited financial statements and accompanying notes filed by the company with the Securities and Exchange Commission on November 5, 2014 in its Quarterly Report on Form 10-Q for the period ended September 30, 2014, and which can be viewed at www.sec.gov.

(table amounts in 000's)	2014		2013		2014-2013 $ Change		2014-2013 % Change
*Revenue:*
Article Galaxy	$	5,224,629	$	4,468,634	$	755,995		16.9	%
Reprints and ePrints		2,328,767		2,148,796		179,971		8.4	%
Total revenue	$	7,553,396	$	6,617,430	$	935,966		14.1	%


	Three Months Ended September 30,
	2014		2013		2014-2013 $ Change		2014-2013 % Change
*Gross Profit:*
Article Galaxy	$	1,300,151	$	1,023,174	$	276,977		27.1	%
Reprints		199,654		174,529		25,125		14.4	%
Total gross profit	$	1,499,805	$	1,197,703	$	302,102		25.2	%

	Three Months Ended September 30,
	2014			2013			2014-2013 Change *
*Gross Profit As a percentage of revenue:*
Article Galaxy		24.9	%		22.9	%		2.0	%
Reprints and ePrints		8.6	%		8.1	%		0.5	%
Total		19.9	%		18.1	%		1.8	%


			* The difference between current and prior period gross profit as a percentage of revenue

	Three Months Ended September 30,
	2014		2013		2014-2013 $ Change		2014-2013 % Change
*Net Income (Loss):*
Loss from continuing operations		(6,936)		(97,050)		90,114		92.9	%
Income (loss) from discontinued operations		1,152,951		(45,897)		1,198,848		2,612.0	%
Total net income (loss)	$	1,146,015	$	(142,947)	$	1,288,962		901.7	%

Transactions and Active Customer Accounts
We define a transaction as an order for a unit of copyrighted content fulfilled or managed in Article Galaxy.

We define active customer accounts as the sum of the average whole and partial customers for the respective quarter or year. A whole customer is one with at least one Article Galaxy transaction in every month of the respective quarter or year. A partial customer is one with at least one Article Galaxy transaction in one or more months, but not every month of the respective quarter or year.

For example, if a customer has at least one transaction in every month of the quarter, they are counted as a whole customer. However, if they have at least one transaction in only one of the three months of the quarter, they are counted as a partial customer (one third of a customer).

On an annual basis, if a customer has at least one transaction in every month of the year, they are counted as a whole customer. However, if they have at least one transaction in only six of the twelve months of the year, they are counted as a partial customer (one half of a customer).

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 attached tables 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), provision for income taxes, depreciation and amortization, stock-based compensation, income (loss) from discontinued operations, and other potential adjustments that may arise.

Reconciliation of Adjusted EBITDA to net income (loss):

(table amounts in 000's)	Three Months Ended September 30,
	2014		2013
Net income (loss)	$	1,146,015	$	(142,947)
Add (deduct):
Interest expense		3,198		993
Other income (expense)		10,549		(786)
Provision for income taxes		5,438		7,682
Depreciation and amortization		72,088		47,551
Stock-based compensation		107,719		93,114
Income (loss) from discontinued operations		(1,152,951)		45,897
Adjusted EBITDA	$	192,056	$	51,504

About Research Solutions
Research Solutions, Inc. (OTCQB:RSSS) and its wholly-owned subsidiary Reprints Desk, Inc. (www.reprintsdesk.com) are pioneers in facilitating the flow of information from the publishers of scientific, technical, and medical (STM) content to enterprise customers in life science and other research intensive organizations. Our customers include 70% of the top 25 pharma companies in the world. Our cloud based software-as-a-service (SaaS) solution, Article Galaxy, provides customers with access to hundreds of thousands of newly published articles each year in addition to the tens of millions of existing articles that have been published in the past, helping them to identify the content that is critical to their research. We have arrangements with numerous STM content publishers that allow electronic access and distribution of their content. In addition to serving end users of content, we also serve STM publishers by facilitating compliance with applicable copyright laws.

About Reprints Desk®
Reprints Desk improves how journal articles and clinical reprints are accessed, procured, and legally used in evidence-based promotions, medical affairs, and scientific, technical, and medical (STM) research. Organizations fueled by intellectual property choose Reprints Desk because of its collaborative business approach, efficient article supply system and services, and commitment to quality post-sales support. Reprints Desk has ranked #1 in the every Document Delivery Vendor Scorecard from industry analyst and advisory firm Outsell Inc. since 2008.

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; 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 Annual Report on Form 10-K and interim Quarterly Reports on Form 10-Q. Examples of forward-looking statements in this release include statements related to our new strategic focus, customer and revenue growth, and profitability. The Company assumes no obligation to update the cautionary information in this release.

Research Solutions, Inc. and Subsidiaries Consolidated Balance Sheets

	September 30,		June 30,
	2014		2014
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,535,415	$	1,884,667
Accounts receivable, net of allowance of $49,494 and $49,467, respectively		4,173,768		3,994,987
Prepaid expenses and other current assets		67,743		83,031
Prepaid royalties		599,534		552,689
Current assets of discontinued operations		-		1,481,183
Total current assets		6,376,460		7,996,557

Other assets:
Property and equipment, net of accumulated depreciation of $519,382 and $494,459, respectively		93,220		108,914
Intangible assets, net of accumulated amortization of $477,691 and $430,704, respectively		16,738		55,235
Deposits and other assets		9,657		9,709
Noncurrent assets of discontinued operations		-		872,212
Total assets	$	6,496,075	$	9,042,627

Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Accounts payable and accrued expenses	$	5,512,396	$	5,749,694
Other liability		187,907		-
Current liabilities of discontinued operations		-		3,598,444
Total current liabilities		5,700,303		9,348,138

Long term liabilities:
Long term liabilities of discontinued operations		-		113,415
Total liabilities		5,700,303		9,461,553

Commitments and contingencies

Stockholders' equity (deficiency):
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; 17,862,742 and 17,600,242 shares issued and outstanding, respectively		17,863		17,600
Additional paid-in capital		15,513,489		15,406,033
Accumulated deficit		(14,712,641)		(15,858,656)
Accumulated other comprehensive income (loss)		(22,939)		16,097
Total stockholders' equity (deficiency)		795,772		(418,926)
Total liabilities and stockholders' equity (deficiency)	$	6,496,075	$	9,042,627

Research Solutions, Inc. and Subsidiaries Consolidated Statements of Operations and Other Comprehensive Income (Loss)

	Three Months Ended
	September 30,
	2014		2013

Revenue	$	7,553,396	$	6,617,430
Cost of revenue		6,053,591		5,419,727
Gross profit		1,499,805		1,197,703

Operating expenses:
Selling, general and administrative		1,415,468		1,239,313
Depreciation and amortization		72,088		47,551
Total operating expenses		1,487,556		1,286,864
Income (loss) from operations		12,249		(89,161)

Other income (expenses):
Interest expense		(3,198)		(993)
Other income (expense)		(10,549)		786
Total other income (expense)		(13,747)		(207)

Loss from continuing operations before provision for income taxes		(1,498)		(89,368)
Provision for income taxes		(5,438)		(7,682)

Loss from continuing operations		(6,936)		(97,050)

Discontinued operations:
Loss from discontinued operations		(395,344)		(45,897)
Gain from deconsolidation of former French subsidiary		1,548,295		-
Net income (loss) from discontinued operations		1,152,951		(45,897)

Net income (loss)		1,146,015		(142,947)

Other comprehensive income (loss): Foreign currency translation		(4,356)		(36,974)
Comprehensive income (loss)	$	1,141,659	$	(179,921)

Basic income (loss) per common share:
Income (loss) per share from continuing operations	$	-	$	(0.01)
Income (loss) per share from discontinued operations	$	0.07	$	-
Net income (loss) per share	$	0.07	$	(0.01)
Basic weighted average common shares outstanding		17,406,012		16,970,465

Diluted income (loss) per common share:
Income (loss) per share from continuing operations	$	-	$	(0.01)
Income (loss) per share from discontinued operations	$	0.07	$	-
Net income (loss) per share	$	0.07	$	(0.01)
Diluted weighted average common shares outstanding		17,407,428		16,970,465