Research Solutions Reports Fiscal Second Quarter 2017 Financial Results

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Feb 14, 2017, 15:05 ET

ENCINO, Calif., Feb. 14, 2017 /PRNewswire/ -- 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 100^th 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):		5,195		(7,066)		1,912			(5,363)
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