8-K
Research Solutions, Inc. (RSSS)
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORTPursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report:
(Date of earliest event reported)
November 11, 2021
Research Solutions, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other Jurisdiction of Incorporation)
| 1-39256 | 11-3797644 |
|---|---|
| (Commission File Number) | (IRS Employer Identification No.) |
N/A
(Address of Principal Executive Offices and zip code)
(310) 477-0354
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol(s) | Name of each Exchange on which registered |
|---|---|---|
| Common stock, $0.001 par value | RSSS | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
On November 11, 2021, the Registrant announced its financial results for the first quarter ended September 30, 2021. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Item 2.02 and Exhibit 99.1 attached hereto is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as expressly set forth by specific reference in such filing.
| Item 8.01. | Other Events. |
|---|
On November 11, 2021, the Registrant held a conference call to discuss its earnings for the first quarter of fiscal year 2022. The script for the earnings conference call is attached hereto as Exhibit 99.2 and is incorporated herein by reference. A full recording of the earnings conference call will be available until December 9, 2021, by dialing 1-844-512-2921 and using the replay ID 10161728, and via the investor relations section of the Registrant’s website at http://researchsolutions.investorroom.com, or using the link https://viavid.webcasts.com/starthere.jsp?ei=1509870&tp_key=30d2e51d53.
| Item 9.01. | Financial Statements and Exhibits |
|---|---|
| (d) | Exhibits. |
| --- | --- |
| Exhibit | |
| --- | --- |
| Number | Description |
| 99.1 | Press Release issued November 11, 2021 entitled “Research Solutions Reports Fiscal First Quarter 2022 Results”. |
| 99.2 | Script for Research Solutions, Inc. First Quarter of Fiscal Year 2022 Earnings Call. |
| 104 | Cover Page Interactive Data File (embedded as Inline XBRL document). |
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| RESEARCH SOLUTIONS, INC. | ||
|---|---|---|
| Date: November 12, 2021 | By: | /s/ William Nurthen |
| William Nurthen | ||
| Chief Financial Officer |
3
Exhibit 99.1
FOR IMMEDIATE RELEASE
Research Solutions Reports Fiscal First Quarter2022 Results
Company Reports 33 Percent Increase in PlatformARR to $6.3 Million
HENDERSON, Nev., November 11, 2021 — Research Solutions, Inc. (NASDAQ: RSSS), a pioneer in providing cloud-based workflow solutions for R&D driven organizations, reported financial results for its fiscal first quarter ended September 30, 2021.
Fiscal First Quarter 2022 Summary
| · | Total revenue of $7.7 million, unchanged from prior-year quarter |
|---|---|
| · | Platform revenue up 32% to $1.5 million. Annual Recurring Revenue (“ARR”) up 33% to $6.3 million. |
| --- | --- |
| · | Gross profit up 9% from prior-year quarter. Total gross margin improved 275 basis points to 34.4%. |
| --- | --- |
| · | Loss of $0.01 per share, compared to earnings of nil per diluted share in the prior-year quarter |
| --- | --- |
| · | 37 net new platform deployments in the quarter compared to 31 in the prior-year |
| --- | --- |
“Our first quarter fiscal 2022 results reflect the continued focus on the growth of our Platforms business, with 37 net new deployments in the quarter and 158 deployments over the past 12 months,” said Roy W. Olivier, President and CEO of Research Solutions. “The combination of product initiatives and more focused sales and marketing efforts is leading to the addition of customers brand new to the company. With additional products set for launch later this year and the ability to use our strong balance sheet to make strategic acquisitions to supplement our organic growth, we believe we are well-positioned for continued success in fiscal 2022.”
Fiscal First Quarter 2022 Results
Total revenue was $7.7 million, unchanged from the same year-ago quarter.
Platform subscription revenue increased 32% to $1.5 million compared to approximately $1.1 million in the year-ago quarter. The increase was primarily due to an increase in the total number of paid Platform deployments, including 37 net deployments added in the quarter. The quarter ended with annual recurring revenue of $6.3 million, up 7% sequentially and 33% year-over-year (see the company's definition of annual recurring revenue below).
Transaction revenue was $6.2 million, compared to $6.6 million the first quarter of fiscal 2021. As previously noted, some of the decrease is related to the transaction savings that customers experience as they transition to the recurring revenue platform business. Transaction customer count for the quarter was 1,153, compared to 1,090 customers in the prior-year quarter (see the company's definition of active customer accounts and transactions below).
Total gross margin improved 275 basis points from the prior-year quarter to 34.4%. The increase was primarily driven by a continued revenue mix shift to the higher-margin Platform business.
Total operating expenses were $3.0 million, compared to $2.4 million in the first quarter of 2021. The increase was primarily due to higher general and administrative costs.
Net loss in the first quarter was ($372,000), or ($0.01) per share, compared to net income of $15,000, or nil per diluted share, in the prior-year quarter. Adjusted EBITDA was ($181,000), compared to $167,000 in the year-ago quarter (see definition and further discussion about the presentation of Adjusted EBITDA, a non-GAAP term, below).
Conference Call
Research Solutions Interim President and CEO Roy W. Olivier and CFO Bill Nurthen will host the conference call, followed by a question and answer period.
Date: Thursday, November 11, 2021
Time: 5:00 p.m. ET (2:00 p.m. PT)
Toll-free dial-in number: 1-844-825-9789
International dial-in number: 1-412-317-5180
Conference ID: 10161728
The conference call will be broadcast live and available for replay until December 9, 2021, by dialing 1-844-512-2921 and using the replay ID 10161728, and via the investor relations section of the company's website at http://researchsolutions.investorroom.com/.
Fiscal First Quarter Financial and Operational Summary Tables vs.Prior-Year Quarter
| Quarter Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | % Change | |||||||||
| Revenue: | ||||||||||||
| Platforms | $ | 1,509,874 | $ | 1,141,688 | $ | 368,186 | 32.2 | % | ||||
| Transactions | $ | 6,232,630 | $ | 6,606,737 | (374,107 | ) | -5.7 | % | ||||
| Total Revenue | 7,742,504 | 7,748,425 | (5,921 | ) | -0.1 | % | ||||||
| Gross Profit: | ||||||||||||
| Platforms | 1,264,218 | 937,736 | 326,482 | 34.8 | % | |||||||
| Transactions | 1,396,157 | 1,511,840 | (115,683 | ) | -7.7 | % | ||||||
| Total Gross Profit | 2,660,375 | 2,449,576 | 210,799 | 8.6 | % | |||||||
| Gross profit as a % of revenue: | ||||||||||||
| Platforms | 83.7 | % | 82.1 | % | 1.6 | % | ||||||
| Transactions | 22.4 | % | 22.9 | % | -0.5 | % | ||||||
| Total Gross Profit | 34.4 | % | 31.6 | % | 2.7 | % | ||||||
| Operating Expenses: | ||||||||||||
| Sales and marketing | 522,951 | 498,374 | 24,577 | 4.9 | % | |||||||
| Technology and product development | 821,460 | 622,961 | 198,499 | 31.9 | % | |||||||
| General and administrative | 1,497,223 | 1,161,061 | 336,162 | 29.0 | % | |||||||
| Depreciation and amortization | 2,896 | 3,723 | (827 | ) | -22.2 | % | ||||||
| Stock-based compensation | 171,110 | 170,790 | 320 | 0.2 | % | |||||||
| Foreign currency translation loss | 11,243 | (24,249 | ) | 35,492 | 146.4 | % | ||||||
| Total Operating Expenses | 3,026,883 | 2,432,660 | 594,223 | 24.4 | % | |||||||
| Income (loss) from operations | (366,508 | ) | 16,915 | (383,424 | ) | -2266.7 | % | |||||
| Other Income (Expenses): | ||||||||||||
| Other income (expense) | 276 | 235 | 41 | 17.4 | % | |||||||
| Provision for income taxes | (5,770 | ) | (2,505 | ) | (3,265 | ) | -130.3 | % | ||||
| Gain on sale of disc'd operations | - | - | - | |||||||||
| Total Other Income (Expenses): | (5,494 | ) | (2,270 | ) | (3,224 | ) | -142.0 | % | ||||
| Net income (loss) | $ | (372,002 | ) | $ | 14,645 | (386,648 | ) | -2640.1 | % | |||
| Adjusted EBITDA | $ | (181,259 | ) | $ | 167,179 | $ | (348,439 | ) | -208.4 | % | ||
| Quarter Ended September 30, | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||
| 2021 | 2020 | Change | % Change | |||||||||
| Platforms: | ||||||||||||
| ARR (Annual recurring revenue): | ||||||||||||
| Beginning of Period | $ | 5,880,179 | $ | 4,446,088 | $ | 1,434,091 | 32.3 | % | ||||
| Incremental ARR | 402,748 | 295,095 | 107,653 | 36.5 | % | |||||||
| End of Period | $ | 6,282,927 | $ | 4,741,183 | $ | 1,541,744 | 32.5 | % | ||||
| Deployments: | ||||||||||||
| Beginning of Period | 553 | 401 | 152 | 37.9 | % | |||||||
| Incremental Deployments | 37 | 31 | 6 | 19.4 | % | |||||||
| End of Period | 590 | 432 | 158 | 36.6 | % | |||||||
| ASP (Average sales price): | ||||||||||||
| Beginning of Period | $ | 10,633 | $ | 11,088 | $ | (454 | ) | -4.1 | % | |||
| End of Period | $ | 10,649 | $ | 10,975 | $ | (326 | ) | -3.0 | % | |||
| Transaction Customers: | ||||||||||||
| Corporate customers | 853 | 805 | 48 | 6.0 | % | |||||||
| Academic customers | 300 | 285 | 15 | 5.3 | % | |||||||
| Total customers | 1,153 | 1,090 | 63 | 5.8 | % |
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 (“ARR”) 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, gain on sale of discontinued operations, and other potential adjustments that may arise. Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):
| Quarter Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | % Change | |||||||||
| Net Income (loss) | $ | (372,002 | ) | $ | 14,645 | $ | (386,648 | ) | -2640.1 | % | ||
| Add (deduct): | ||||||||||||
| Other income (expense) | (276 | ) | (235 | ) | (41 | ) | -17.4 | % | ||||
| Foreign currency translation loss | 11,243 | (24,249 | ) | 35,492 | 146.4 | % | ||||||
| Provision for income taxes | 5,770 | 2,505 | 3,265 | 130.3 | % | |||||||
| Depreciation and amortization | 2,896 | 3,723 | (827 | ) | -22.2 | % | ||||||
| Stock-based compensation | 171,110 | 170,790 | 320 | 0.2 | % | |||||||
| Gain on sale of disc. ops. | - | - | - | |||||||||
| Adjusted EBITDA | $ | (181,259 | ) | $ | 167,179 | $ | (348,439 | ) | -208.4 | % |
About Research Solutions
Research Solutions, Inc. (NASDAQ: RSSS) provides cloud-based technologies to streamline the process of obtaining, managing, and creating intellectual property. Founded in 2006 as Reprints Desk, the company was a pioneer in developing solutions to serve researchers. Today, more than 70 percent of the top pharmaceutical companies, prestigious universities, and emerging businesses rely on Article Galaxy, the company's SaaS research platform, to streamline access to the latest scientific research and data with 24/7 customer support. For more information and details, please visit www.researchsolutions.comand www.reprintsdesk.com
Important Cautions Regarding Forward-Looking Statements
Certain statements in this press release may contain "forward-looking statements" regarding future events and our future results. All statements other than statements of historical facts are statements that could be deemed to be forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the markets in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "targets," "goals," "projects", "intends," "plans," "believes," "seeks," "estimates," "endeavors," "strives," "may," or variations of such words, and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward-looking statements are subject to a number of risks, uncertainties and assumptions that are difficult to predict, estimate or verify. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Such risks and uncertainties include those factors described in the Company's most recent annual report on Form 10-K, as such may be amended or supplemented by subsequent quarterly reports on Form 10-Q, or other reports filed with the Securities and Exchange Commission. Examples of forward-looking statements in this release include statements regarding additional customers, potential acquisitions and the Company’s prospects for growth. Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements. For more information, please refer to the Company's filings with the Securities and Exchange Commission.
Research Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
| June 30, | |||||
| 2021 | |||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | 10,871,336 | $ | 11,004,337 | ||
| Accounts receivable, net of allowance of 47,695 and 51,495, respectively | 4,702,686 | 4,717,453 | |||
| Prepaid expenses and other current assets | 207,813 | 270,252 | |||
| Prepaid royalties | 265,156 | 904,921 | |||
| Total current assets | 16,046,991 | 16,896,963 | |||
| Other assets: | |||||
| Property and equipment, net of accumulated depreciation of 825,050 and 824,123, respectively | 21,187 | 20,755 | |||
| Deposits and other assets | 876 | 906 | |||
| Total assets | 16,069,054 | $ | 16,918,624 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current liabilities: | |||||
| Accounts payable and accrued expenses | 6,461,726 | $ | 6,687,188 | ||
| Deferred revenue | 4,438,591 | 4,804,351 | |||
| Total current liabilities | 10,900,317 | 11,491,539 | |||
| 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; 26,594,119 and 26,498,215 shares issued and outstanding, respectively | 26,594 | 26,498 | |||
| Additional paid-in capital | 27,098,585 | 26,982,052 | |||
| Accumulated deficit | (21,833,890 | ) | (21,461,888 | ) | |
| Accumulated other comprehensive loss | (122,552 | ) | (119,577 | ) | |
| Total stockholders’ equity | 5,168,737 | 5,427,085 | |||
| Total liabilities and stockholders’ equity | 16,069,054 | $ | 16,918,624 |
All values are in US Dollars.
Research Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations and OtherComprehensive Loss
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| September 30, | ||||||
| 2021 | 2020 | |||||
| Revenue: | ||||||
| Platforms | $ | 1,509,874 | $ | 1,141,688 | ||
| Transactions | 6,232,630 | 6,606,737 | ||||
| Total revenue | 7,742,504 | 7,748,425 | ||||
| Cost of revenue: | ||||||
| Platforms | 245,656 | 203,952 | ||||
| Transactions | 4,836,473 | 5,094,897 | ||||
| Total cost of revenue | 5,082,129 | 5,298,849 | ||||
| Gross profit | 2,660,375 | 2,449,576 | ||||
| Operating expenses: | ||||||
| Selling, general and administrative | 3,023,987 | 2,428,938 | ||||
| Depreciation and amortization | 2,896 | 3,723 | ||||
| Total operating expenses | 3,026,883 | 2,432,661 | ||||
| Income (loss) from operations | (366,508 | ) | 16,915 | |||
| Other income | 276 | 235 | ||||
| Income (loss) from operations before provision for income taxes | (366,232 | ) | 17,150 | |||
| Provision for income taxes | (5,770 | ) | (2,505 | ) | ||
| Net income (loss) | (372,002 | ) | 14,645 | |||
| Other comprehensive income (loss): | ||||||
| Foreign currency translation | (2,975 | ) | 1,165 | |||
| Comprehensive income (loss) | $ | (374,977 | ) | $ | 15,810 | |
| Income (loss) per common share: | ||||||
| Basic | $ | (0.01 | ) | $ | — | |
| Diluted | $ | (0.01 | ) | $ | — | |
| Weighted average common shares outstanding: | ||||||
| Basic | 26,277,116 | 25,898,900 | ||||
| Diluted | 26,277,116 | 26,511,180 |
Research Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| September 30, | ||||||
| 2021 | 2020 | |||||
| Cash flow from operating activities: | ||||||
| Net income (loss) | $ | (372,002 | ) | $ | 14,645 | |
| Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||
| Depreciation and amortization | 2,896 | 3,723 | ||||
| Amortization of lease right | — | 30,778 | ||||
| Fair value of vested stock options | 71,999 | 77,627 | ||||
| Fair value of vested restricted common stock | 99,111 | 93,164 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 14,767 | (5,831 | ) | |||
| Prepaid expenses and other current assets | 62,439 | 1,366 | ||||
| Prepaid royalties | 639,765 | (322,191 | ) | |||
| Accounts payable and accrued expenses | (225,462 | ) | 1,032,896 | |||
| Deferred revenue | (365,760 | ) | 31,072 | |||
| Lease liability | — | (33,776 | ) | |||
| Net cash provided by (used in) operating activities | (72,247 | ) | 923,473 | |||
| Cash flow from investing activities: | ||||||
| Purchase of property and equipment | (3,643 | ) | (4,304 | ) | ||
| Net cash used in investing activities | (3,643 | ) | (4,304 | ) | ||
| Cash flow from financing activities: | ||||||
| Proceeds from the exercise of stock options | — | 14,100 | ||||
| Common stock repurchase | (54,481 | ) | (58,395 | ) | ||
| Net cash used in financing activities | (54,481 | ) | (44,295 | ) | ||
| Effect of exchange rate changes | (2,630 | ) | 903 | |||
| Net increase (decrease) in cash and cash equivalents | (133,001 | ) | 875,777 | |||
| Cash and cash equivalents, beginning of period | 11,004,337 | 9,311,556 | ||||
| Cash and cash equivalents, end of period | $ | 10,871,336 | $ | 10,187,333 | ||
| Supplemental disclosures of cash flow information: | ||||||
| Cash paid for income taxes | $ | 5,770 | $ | 2,505 |
Contact
Steven Hooser or John Beisler
Three Part Advisors
(214) 872-2710
shooser@threepa.com; jbeisler@threepa.com
#
Exhibit 99.2
Research Solutions, Inc.
Fiscal First Quarter 2022 Results – Earnings Call Script
Operator
Good afternoon, everyone, and thank you for participating in today's conference call to discuss Research Solutions' financial and operating results for its fiscal first quarter ended September 30, 2021. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steven Hooser, Investor Relations.
Steven
Thank you, (operator) and good afternoon, everyone. Thank you for joining us today for Research Solutions’ First Quarter Fiscal 2022 Earnings Call. On the call with me today are Roy W. Olivier, President and Chief Executive Officer; and Bill Nurthen, Chief Financial Officer. After the market closed this afternoon, the company issued a press release announcing its results for the first quarter of fiscal 2022. The release is available on the company’s website at researchsolutions.com.
Before Roy and Bill begin their prepared remarks, I would like to remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied due to a variety of factors. We refer you to Research Solutions' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. Also, on today's call, management will reference certain non-GAAP financial measures, which we believe provide useful information for investors. A reconciliation of those measures to GAAP measures is included in the earnings press release issued this afternoon.
Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link on the company's website. With that, I would now like to turn the call over to Roy.
- 1 -
Research Solutions, Inc.
Fiscal First Quarter 2022 Results – Earnings Call Script
Roy
Thank you, Steven, and thanks to everyone joining us for our first quarter fiscal 2022 results. I’m excited to introduce Bill Nurthen who joined us in October. Bill has 20+ years in corporate finance including multiple CFO roles. Bill and I worked together at ARI Network Services for 6 years and I’m confident that Bill can help us improve the business in many ways.
Our first quarter results reflect the continued momentum in SaaS platform portion our business. Overall, we met or exceeded our platform revenue targets regarding new customer platform deployments, platform upsells from existing transaction customers, expansion and upsell of existing platform contract renewals, and churn. We fell short of our transaction revenue targets which I will explain in more detail later in the call.
On a TTM bases we added 158 net new platforms up from 112 TTM platforms sold as of 9/30/20. Net new deployments for the quarter were slightly above last year and were consistent with our expectation as Q1 and Q2 are typically slower than Q3 and Q4.
Transaction sales were below expectation for the quarter. Overall transactions, including platform and non-platform is growing but % of those transactions generating revenue declined for the quarter YoY. That decline is primary due to churn within the non-platform customers. Looking at the total average number of monthly transactions in calendar 2020, and year to date in 2021, corporate and academic platform customers grew total transaction volume, or count, 14% year over year. In that same period those customers grew transaction revenue 6% YoY. In short, total transaction usage by platform customers is growing but revenue is not growing at the same rate because more customers are acquiring articles via non-billable sources like Open Access, subscriptions, tokens, or reuse rights. We expect to see continued volatility with transaction revenues going forward. The good news is that platform customers are seeing high returns on their investment as our platform helps them maximize the percentage of articles they can acquire at low or no costs which has kept our platform churn rates very low. I’ll have a few more comments on that later in the call.
- 2 -
Research Solutions, Inc.
Fiscal First Quarter 2022 Results – Earnings Call Script
Overall, the first quarter of fiscal 2021, other than transaction revenue, was a good start to the year and in line with our expectations. After Bill provides a bit more detail, I’ll be back to discuss what investments we are making this year to accelerate future revenue growth which are reflected in our first quarter’s results, particularly our EBITDA. For now, I’ll pass the call over to Bill to walk through our fiscal first quarter results in more detail. Bill?
Bill
Thanks, Roy. I'm excited be onboard and working together again. Good afternoon to everyone on the call.
Total revenue for the first quarter of fiscal year 2022 was $7.7 million, unchanged from the first quarter of fiscal year 2021.
Platform revenue increased 32% to $1.5 million primarily driven by a net increase of platform deployments over the past year, including 37 net new deployments in the first quarter. In addition, the number was also impacted by upselling within our current based of platform customers. Annual recurring revenue at the end of the quarter stood at $6.3 million, up 7% sequentially and 33% year-over-year, reflecting our continued sales and upselling efforts and low churn of existing platform customers. Please see today's press release for our definition and use of annual recurring revenue and other non-GAAP terms.
Transaction revenue for the quarter was $6.2 million, compared to $6.6 million from the prior-year quarter. While we are down from Q1 of last year for many of the reasons Roy discussed, I will also note that transaction revenue can also fluctuate and we experienced similar levels of transaction revenue back in the second quarter of our fiscal year 2021, before seeing a rebound in transactions for the remainder of that fiscal year.
- 3 -
Research Solutions, Inc.
Fiscal First Quarter 2022 Results – Earnings Call Script
Transaction customer count for the quarter was 1,153 vs 1,090 in the first quarter of fiscal year 2021, as we experienced roughly 5%-6% increases in both our corporate and academic customer counts.
Gross margin for the first quarter was 34.4 percent, a 275 basis point improvement over the first quarter of fiscal 2021. The increase is due to the revenue mix shift towards our higher-margin platform business and it should be noted that this is the Company's highest gross margin performance on record since the introduction of the platform revenue.
The platform business recorded gross margin of 83.7%, an approximately 160 basis point increase from the prior-year quarter and at the high end of our target gross margin range of high-seventy to low-eighty percent.
Gross margin in our transaction business decreased 50 basis points to 22.4%. The decrease is primarily related to a portion of our transaction cost of sales being fixed and allocating that cost over a lower level of transaction revenue in the quarter.
Total operating expenses in the quarter were $3.0 million compared to $2.4 million in the prior-year quarter, due primarily to higher technology and product development costs and higher general and administrative costs. In product development, we have expanded headcount to accelerate the development of new products and product extensions. In G&A we have some additional headcount expense related to both supporting organic and acquisitive growth, as well as some expense associated with upgrading some of our back-office systems.
Net loss for the quarter was $372,000, or one cent on a per share basis, compared to net income of $15,000, or nil on a per diluted share basis, in the prior year quarter. Adjusted EBITDA was negative $181 thousand compared to positive $167 thousand in the year ago quarter, with the difference being driven by the increase in operating expenses that I previously discussed.
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Research Solutions, Inc.
Fiscal First Quarter 2022 Results – Earnings Call Script
Turning to our balance sheet and cash flow, Cash and cash equivalents as of September 30, 2021, was $10.9 million compared to $11 million on June 30, 2021. The difference is largely related to the use of about $72,000 in cash flow from operations in the quarter. There were no outstanding borrowings under our $2.5 million revolving line of credit, and we have no long-term debt or liabilities.
In conclusion, I wanted to give some insight into our outlook for this year. First, we are pleased with the growth rate of the platform revenue and ARR and will continue our efforts to grow platform revenue and subscriptions at relatively similar rates. Second, there are some intentional investments we are making to maintain and potentially accelerate those growth rates. Roy will describe some of these in more detail, however, you will likely see the cost of those investments on the technology and product development line and G&A line of or income statement. We intend to invest in sales headcount as well and you may see some increases there, however, we believe we can offset a good portion of that investment by some reductions in discretionary marketing spend. In addition, there are a couple unique expense items to point out for this year. One is that there will be some cost related to the changes in the executive team that will hit the P&L. Second, there are some changes in the Mexico labor laws that have served to increase the cost of our labor force there by about $300,000 on an annualized basis. The net of all this is that while we expect gross profit be up year over year for fiscal year 2022, we expect adjusted EBITDA to be down, and to likely be negative for the year. As I noted before, this quarter was a record for gross margin and as the platform continues to grow, we should continue to see Company gross profit grow at faster rate than overall Company revenue. This gives us scale, and as we grow and are able to realize some of the investments we are making, this should start to have an impact not only on the bottom line but also on the overall cash produced by the operations of the business.
I'll now turn the call back to Roy.
Roy
Thanks, Bill.
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Research Solutions, Inc.
Fiscal First Quarter 2022 Results – Earnings Call Script
During last quarters call we reviewed our current thinking regarding our go forward strategy. I will not cover that again today, but it remains unchanged from the last call.
Regarding Transactions I’d like comment on what the platform is doing for our customers. We ran two customer cohorts and analyzed their results over time. The first cohort were customers that went live with the platform on or around January 1^st^, 2020 and had been non-platform customers for at least a year before the switch. Before implementing the platform, those customers were paying for around 97% of the articles, or transactions, they acquired. After implementing the platform that percentage dropped on average to 73% in the first year and 65% in the second year. This is due to the platform helping them leverage free content options like Open Access, Tokens, Subscriptions, and reuse rights. The second cohort we analyzed was our initial set of platform customers who implemented the platform in 2017 and are still using it today. Those customers have seen their paid articles, as a percentage of total articles acquired continue to decline. That group of customers has seen their percentage of paid articles decline from 59% in 2017 to 41% in 2020. This is strong evidence that the platform is doing what we intended it to do and speaks to why we have very low churn and negative net churn rates. It’s exciting to see the savings our platform is generating for our customers.
I mentioned in the last call that we would be making additional investments in several areas some of the largest being additional sales, product, and software engineering resources. Many of these investments have been underway and although they did negatively impact our EBITDA in Q1, these investments will start to pay off in additional sales growth in late FY22 and fully in FY23 and beyond. Some of those investments include:
| · | We are investing in additional salespeople and<br>new sales tools to help our prospecting teams generate more leads to the entire sales team. That investment will be about $200K over the<br>course of the year. Some of that specifically the prospecting system, is already generating results and should start building large sales<br>pipelines during the 2^nd^ half of the year. |
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Research Solutions, Inc.
Fiscal First Quarter 2022 Results – Earnings Call Script
| · | We are investing about $300K in the Article Galaxy<br>Scholar launch this year. As a reminder this is the version of Article Galaxy that is focused on university libraries. It has been<br>in soft launch, and we have had some early success. The additional investments are to expand the sales team and development teams to increase<br>sales in the 2^nd^ half of the year. |
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| · | We are investing about $400K to build a new product<br>that we expect to launch in late FY22. This product is related to our core Article Galaxy product, and we are excited about what<br>we think it can generate, in terms of revenues, starting in FY23. |
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| · | We are investing about $160K on our Business<br>Development team to identify and acquire companies that we think are accretive to our product and business strategy. I covered this top<br>in detail in the last call, so I won’t repeat it here. |
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I believe these investments will ultimately accelerate our growth rate in in the future allowing us to be more profitable as we scale the business.
As always, we appreciate your time and interest in Research Solutions. We have a great team that gets up every morning with a mission to provide tools and services to power research and knowledge creation for the world’s leading organizations. I am excited about our future and hope to speak with you again soon.
With that, I'd now like to turn the call back over to the operator for Q&A. Operator?
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