Research Solutions, Inc.
(OTCQB:RSSS)

Research Solutions, Inc. (RSSS)

Research Solutions Reports Fiscal Third Quarter 2016 Financial Results

Article Galaxy Revenue up 15% to Record $6.5 Million, Driven by Sixth Consecutive Quarter of 20%+ Year-over-Year Growth in Transactions

May 16, 2016

ENCINO, Calif., May 16, 2016 /PRNewswire/ -- Research Solutions, Inc. (OTCQB: RSSS), a pioneer in providing on-demand access to scientific, technical and medical (STM) information for life science companies, academic institutions, and other research intensive organizations, reported financial results for its fiscal third quarter ended March 31, 2016.

Fiscal Third Quarter 2016 Highlights vs. the Year-Ago Quarter

  • Revenue generated by Article Galaxy, the company's cloud-based SaaS solution for accessing STM content, increased 15% to a record $6.5 million
  • Article Galaxy gross profit climbed 11% to $1.6 million.
  • Article Galaxy transactions increased 24% to 198,160, marking the sixth consecutive quarter of more than 20% year-over-year growth in transactions.
  • Active Article Galaxy customer accounts increased 16% to 902, with academic customer accounts increasing 43% to 139 and corporate accounts increasing 13% to 763.
  • Adjusted EBITDA up 9% to $227,600.

Fiscal Third Quarter 2016 Operational Highlights

  • Completed the transition of The Research Investment's customer base onto the Article Galaxy platform. The new customers comprise several Fortune 500 companies, including two of the Fortune 10. The acquisition increased Article Galaxy's market penetration of the energy and chemicals sectors, and the already greater than 70 percent penetration of the world's top 25 pharma companies.
  • Access Copyright selected Article Galaxy as the preferred source for document delivery services for its Canadian customers. The win maintained Research Solution's 90-plus percent closing rate for new customer acquisitions when Article Galaxy is evaluated against its competitors.
  • BrowZine Web Edition from Third Iron was integrated with Article Galaxy, simplifying researcher access to journal content. The integration enables mutual customers to easily navigate from non-subscribed journal content identified in BrowZine to Article Galaxy, where they can access or order subscribed content and instantly download PDFs.
  • LYRASIS, a consortium of 1,200 libraries and cultural institutions, gained access to Article Galaxy's A-Z Academic Article Delivery Collection comprised of more than 40,000 academic publications and hundreds of thousands of book titles. 
  • Major client wins for Article Galaxy included a Top 30 global pharma and the expansion of the global deployment for a Top 20.

Fiscal Third Quarter 2016 Financial Results         

Article Galaxy revenue increased 15% in the fiscal third quarter of 2016 to $6.5 million or 75% of revenue. Revenue generated by the company's legacy business, Reprints and ePrints, declined 30% to $2.2 million or 25% of revenues. Reprints and ePrints order volume typically fluctuates from quarter-to-quarter depending upon customer marketing budgets and the publication of journal articles that match their requirements. For example, in the previous quarter Reprints and ePrints revenue increased 23% over the year-ago quarter to $3.5 million.

Total revenue in the third fiscal quarter of 2016 was $8.7 million, off 1% from $8.8 million in the same year-ago quarter. Total revenue for the nine months ended March 31, 2016 increased 7% to $26.1 million from $24.3 million in the same year-ago period. The marginal decrease in revenue in the quarterly period was primarily due to a net decrease in orders from existing Reprint and ePrint customers, which was partially offset by a net increase in revenue generated by new Article Galaxy transactions.

Article Galaxy transactions were up 24% to 198,160 in the fiscal third quarter versus 159,719 in the same year ago quarter. The number of Article Galaxy active customer accounts conducting transactions increased by 16% to 902 in the third quarter, as compared to 775 in the same year-ago quarter (see the definition of transactions and active customer accounts in the section, "Transactions and Active Customer Accounts," below). Academic accounts increased 43% to 139, and corporate accounts increased 13% to 763 over the same comparable periods.

Article Galaxy gross profit increased 11% to $1.6 million, with Reprints and ePrints gross profit declining by 33% to $190,100. Virtually all of the gross profit generated by Reprints and ePrints falls to the company's bottom line, given there is little related sales or administrative costs and all employee costs are included in cost of sales. Total gross profit in the fiscal third quarter increased 4% to $1.8 million compared to $1.7 million in the year-ago period.

Article Galaxy gross margin declined 80 basis points to 24.2%, and Reprints and ePrints gross profit decreased 40 basis points to 8.6%. The marginal decline in Article Galaxy gross revenue was primarily due to a reduction in average service fee revenue per transaction on some newly acquired large customer accounts. Total gross margin decreased by 90 basis points to 20.2%.

Net income from continuing operations in the fiscal third quarter totaled $32,400 or $(0.00) per diluted share, compared to a net loss of $1,800 or $(0.00) per diluted share in the same year-ago quarter.

Adjusted EBITDA totaled $227,600 in the fiscal third quarter compared to $208,500 in the same year-ago quarter (see definition and further discussion about the presentation of adjusted EBITDA, a non-GAAP term, below).

Cash and equivalents at March 31, 2016 totaled $1.9 million compared to $1.4 million at June 30, 2015. The increase in cash was primarily due to cash generated by operating activities.

As of March 31, 2016, there were no outstanding borrowings under the company's revolving line of credit with Silicon Valley Bank, which provides the lesser of $4.0 million or 80% of eligible accounts receivable. This amount equaled approximately $3.2 million of available credit at March 31, 2016.

At March 31, 2016, the company had net operating loss carry forwards of approximately $10.1 million applicable to federal tax liability expiring in 2030 and approximately $6.2 million applicable to state tax liability expiring in 2020.

Further details about the company's results for the fiscal third quarter of 2016 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

"During our third fiscal quarter, Article Galaxy continued to gain momentum across the board," said Research Solutions president and CEO, Peter Derycz. "Strong growth in new customer acquisitions, including in Academia, drove Article Galaxy transactions and revenue to record levels. In fact, it marked our sixth consecutive quarter of more than 20% year-over-year growth in transactions.

"This performance reflects the tremendous progress we've made in enhancing Article Galaxy in terms of better security, more time- and cost-saving features, and creating even easier access for researchers around the world. These enhancements have made Article Galaxy an even more engaging and indispensable tool, and have sustained our enviable position as the global leader in our space. As these features stimulate greater engagement, they generate more transactions per user and greater monetization within the platform. 

"Our leadership has also continued to attract new partnerships that broaden our market share and create even greater competitive barriers to entry. During the quarter, this included the integration of Article Galaxy with BrowZine, preferred vendor status granted by Access Copyright, and the onboarding of additional Fortune 500 and Top 25 pharma customers from TRI. We also continued to gain solid traction in Academia by signing a consortium of more than 1,200 libraries and cultural institutions.

"While Academia now represents more than 15% of all our total Article Galaxy customer accounts, we see our entry into this market at still very much in the nascent stage, especially given its size. By last estimates, the Academia STM market was measured at $4.5 billion, or nine times the size of the corporate market.

"Our ability to listen to our customers and innovate with new features has made Article Galaxy the clear choice for Academia or any research intensive organization looking for an easier and more cost-effective way to access STM information. Addressing their needs has also led to new ways for us to monetize Article Galaxy and increase user engagement. So, we will continue to reinvest in our platform to further these positive results.

"Given the demonstrated superiority of our Article Galaxy platform and our clear competitive lead, our biggest challenge now is how to best leverage and maximize our sales and marketing resources to drive growth domestically and internationally. Our broadening international presence is perhaps one of the most important aspects to consider when evaluating our Article Galaxy business model, especially with international revenue exceeding domestic in the last quarter.

"This global expansion is made possible due to the fact that at the core of Article Galaxy is a virtual store that is open 24/7, and accessible on any device anywhere in the world. So, for us to reach and service more international customers, it doesn't require setting up new offices or deploying other regional resources. We can continue to stay a lean and efficient organization. These essential factors highlight the tremendous leverage and scalability in our model, and the few barriers we face in terms of achieving greater global expansion and revenue growth.

"As we enter the final quarter of our fiscal year, we expect to maintain our double digit growth in Article Galaxy transactions and achieve another year of record revenue. This performance will be driven by the uniqueness of our Article Galaxy platform that continues to attract new customers and generate greater use per user."

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: Monday, May 16, 2016
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-free dial-in number: 1-888-428-9480
International dial-in number: 1-719-325-2329
Conference ID: 4055202               

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 the company at +1 (415) 533-8308.

The conference call will be broadcast live and available for replay here 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 May 30, 2016.

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay ID: 4055202                       

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 May 16, 2016 in its Quarterly Report on Form 10-Q for the period ended March 31, 2016, and which can be viewed at www.sec.gov.

 

 




Three Months Ended March 31,





2016



2015



2016-2015
$ Change


2016-2015
% Change


Quarterly Revenue:













Article Galaxy



$

6,515,161



$

5,666,717



$

848,444



15.0

%

Reprints and ePrints




2,209,056




3,168,464




(959,408)



(30.3)

%

Total revenue



$

8,724,217



$

8,835,181



$

(110,964)



(1.3)

%






































Nine Months Ended March 31,





2016



2015



2016-2015
$ Change


2016-2015
% Change


Nine Month Revenue:













Article Galaxy



$

17,936,176



$

15,962,850



$

1,973,326



12.4

%

Reprints and ePrints




8,130,368




8,356,787




(226,419)



(2.7)

%

Total revenue



$

26,066,544



$

24,319,637



$

1,746,907



7.2

%


















 




















Three Months Ended March 31,



2016



2015



2016-2015
$ Change


2016-2015
% Change


Quarterly Gross Profit:












Article Galaxy


$

1,574,925



$

1,418,647



$

156,278



11.0

%

Reprints



190,089




284,820




(94,731)



(33.3)

%

Total gross profit


$

1,765,014



$

1,703,467



$

61,547



3.6

%

 



Three Months Ended March 31,



2016



2015



2016-2015
Change *


As a percentage of revenue:










Article Galaxy



24.2

%



25.0

%



(0.8)

%

Reprints and ePrints



8.6

%



9.0

%



(0.4)

%

Total



20.2

%



19.3

%



0.9

%

 



Nine Months Ended March 31,



2016



2015



2016-2015
$ Change


2016-2015
% Change


Nine Month Gross Profit:












Article Galaxy


$

4,205,026



$

3,984,152



$

220,874



5.5

%

Reprints



710,637




728,872




(18,235)



(2.5)

%

Total gross profit


$

4,915,663



$

4,713,024



$

202,639



4.3

%

 



Nine Months Ended March 31,



2016



2015



2016-2015
Change *


As a percentage of revenue:










Article Galaxy



23.4

%



25.0

%



(1.6)

%

Reprints and ePrints



8.7

%



8.7

%



0.0

%

Total



18.9

%



19.4

%



(0.5)

%














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

 



Three Months Ended March 31,




2016



2015




2016-2015
$ Change


2016-2015
% Change


Quarterly Net Income (Loss):













Income (loss) from continuing operations


$

32,376



$

(1,816)



$

34,192



(1,882.8)

%

Income from discontinued operations



-




-




-



-

%

Total net income (loss)


$

32,376



$

(1,816)



$

34,192



(1,882.8)

%







Nine Months Ended March 31,




2016



2015




2016-2015
$ Change


2016-2015
% Change


Nine Month Net Income (Loss):













Loss from continuing operations


$

(444,869)



$

(102,928)



$

(341,941)



(332.2)

%

Income from discontinued operations



-




1,152,951




(1,152,951)



(100.0)

%

Total net income (loss)


$

(444,869)



$

1,050,023



$

(1,494,892)



(142.4)

%

 

 

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

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

 



Three Months Ended
March 31,


Nine Months Ended
March 31,



2016


2015



2016



2015

Net income (loss)


$

32,376


$

(1,816)


$

(444,869)


$

1,050,023

Add (deduct):













Interest expense



6,389



3,875



14,382



11,666

Other (income) expense



25,639



(275)



18,229



(898)

Foreign currency transaction (gain) loss



(2,829)



57,647



4,293



94,118

Provision for income taxes



5,210



17,526



22,510



24,893

Depreciation and amortization



30,310



25,005



61,144



157,885

Stock-based compensation



130,568



106,521



551,698



328,038

(Income) loss from discontinued operations



-



-



-



(1,152,951)

Adjusted EBITDA


$

227,663


$

208,483


$

227,387


$

512,774

 

About Research Solutions
Operating through its wholly owned subsidiary, Reprints Desk®, Inc., Research Solutions, Inc. (OTCQB: RSSS) is a pioneer in providing on-demand access to scientific, technical, and medical (STM) information for life science companies, academic institutions and other research intensive organizations. More than 70 percent of the top 25 pharmaceutical companies in the world rely on services powered by Research Solutions. Article Galaxy™, the company's cloud-based software-as-a-service (SaaS) solution, gives customers access to the over one million newly published articles each year in addition to tens of millions of articles previously published, helping them to create and speed discoveries, save time and money, and remain copyright-compliant.  Research Solutions has arrangements with numerous STM content publishers that allow electronic access and distribution of their content. In addition to serving end users of content, the company also serves STM publishers by facilitating compliance with applicable copyright laws. For more information about Research Solutions, visit www.researchsolutions.com.

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 every Document Delivery Vendor Scorecard from industry analyst and advisory firm Outsell Inc. since 2008. For more information about Reprints Desk, visit www.reprintsdesk.com.

Important Cautions Regarding Forward-Looking Statements
This release contains "forward-looking statements" that include information relating to future events and future financial and operating performance. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to: 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 such forward looking statements in this release include statements regarding the expected continued improvement and market acceptance of the Article Galaxy platform, and the expected growth of Article Galaxy revenue, transactions, and customers. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Trademarks are the property of their respective owners.

Investor Relations Contact:
Alan Urban, CFO
Research Solutions, Inc.
Tel +1 (818) 646.2202
ir@researchsolutions.com

Media Contact:
Ian Palmer, Chief Sales and Marketing Officer
Research Solutions, Inc.
Tel +1 (415) 533-8308
ipalmer@reprintsdesk.com


 

 


Research Solutions, Inc. and Subsidiaries

Consolidated Balance Sheets








March 31,


June 30,



2016


2015



(unaudited)



Assets





Current assets:





Cash and cash equivalents


$

1,923,970


$

1,354,158

Accounts receivable, net of allowance of $52,858 and $69,731, respectively



5,503,938



4,889,937

Prepaid expenses and other current assets



133,562



70,195

Prepaid royalties



187,901



372,581

Total current assets



7,749,371



6,686,871








Other assets:







Property and equipment, net of accumulated depreciation of $629,693 and $585,410, respectively



87,800



83,238

Intangible assets, net of accumulated amortization of $6,350 and $0, respectively



114,450



-

Deposits and other assets



9,365



9,471

Total assets


$

7,960,986


$

6,779,580








Liabilities and Stockholders' Equity







Current liabilities:







Accounts payable and accrued expenses


$

6,175,743


$

5,611,453

Deferred revenue



617,711



75,311

Total current liabilities



6,793,454



5,686,764








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; 18,582,860 and 18,242,125  shares issued and outstanding, respectively



18,514



18,242

Additional paid-in capital



16,719,637



16,188,358

Accumulated deficit



(15,529,306)



(15,084,437)

Accumulated other comprehensive loss



(41,313)



(29,347)

Total stockholders' equity



1,167,532



1,092,816

Total liabilities and stockholders' equity


$

7,960,986


$

6,779,580

 

 

Research Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations and Other Comprehensive Income (Loss)

(Unaudited)








Three Months Ended


Nine Months Ended



March 31,


March 31,



2016


2015


2016


2015










Revenue


$

8,724,217


$

8,835,181


$

26,066,544


$

24,319,637

Cost of revenue



6,959,203



7,131,714



21,150,881



19,606,613

Gross profit



1,765,014



1,703,467



4,915,663



4,713,024














Operating expenses:













Selling, general and administrative



1,665,090



1,659,152



5,244,267



4,622,406

Depreciation and amortization



30,310



25,005



61,144



157,885

Total operating expenses



1,695,400



1,684,157



5,305,411



4,780,291

Income (loss) from operations



69,614



19,310



(389,748)



(67,267)














Other income (expenses):













Interest expense



(6,389)



(3,875)



(14,382)



(11,666)

Other income (expense)



(25,639)



275



(18,229)



898

Total other expenses



(32,028)



(3,600)



(32,611)



(10,768)














Income (loss) from continuing operations before provision for income taxes



37,586



15,710



(422,359)



(78,035)

Provision for income taxes



(5,210)



(17,526)



(22,510)



(24,893)














Income (loss) from continuing operations



32,376



(1,816)



(444,869)



(102,928)














Discontinued operations:













Loss from discontinued operations



-



-



-



(395,344)

Gain from deconsolidation of former French subsidiary



-



-



-



1,548,295

Income from discontinued operations



-



-



-



1,152,951














Net income (loss)



32,376



(1,816)



(444,869)



1,050,023














Other comprehensive income (loss):

Foreign currency translation



(6,603)



(962)



(11,966)



(7,656)

Comprehensive income (loss)


$

25,773


$

(2,778)


$

(456,835)


$

1,042,367














Basic income (loss) per common share:













Income (loss) per share from continuing operations


$

-


$

-


$

(0.03)


$

(0.01)

Income per share from discontinued operations


$

-


$

-


$

-


$

0.07

Net income (loss) per share


$

-


$

-


$

(0.03)


$

0.06

Basic weighted average common shares outstanding



17,707,900



17,457,404



17,642,449



17,440,275














Diluted income (loss) per common share:













Income (loss) per share from continuing operations


$

-


$

-


$

(0.03)


$

(0.01)

Income per share from discontinued operations


$

-


$

-


$

-


$

0.07

Net income (loss) per share


$

-


$

-


$

(0.03)


$

0.06

Diluted weighted average common shares outstanding



18,464,000



17,457,404



17,642,449



17,893,217

 

SOURCE Research Solutions, Inc.


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