Article Galaxy Total Revenue for Fiscal 2016 Increased 13% to a Record $24.1 Million

ENCINO, Calif. – September 20, 2016 – 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 fourth quarter and full year ended June 30, 2016. All quarterly comparisons are to the same year-ago quarter.

As of this reporting period, the company will begin to report its Article Galaxy’s subscriptions and transactions results separately: Article Galaxy SaaS Platforms represent customer deployments that provide premium access to Article Galaxy on a subscription basis, while Article Galaxy Transactions represent all customer transactions conducted via both paid premium and free standard platform access.

Fiscal Fourth Quarter 2016 Highlights

• Total revenue was up 10% to 8.3 million, with adjusted EBITDA up 61% to $162,000.
• Active Article Galaxy Transaction customer accounts increased 12% to 909.
• Article Galaxy transactions increased 17% to a 192,000, increasing related revenue by 12% to $6.0 million and gross profit up 8% to $1.3 million.

Fiscal Full Year 2016 Highlights

• Total revenue was up 8% to a $34.4 million, with adjusted EBITDA lower by 37% to $389,000.
• Number of Article Galaxy SaaS Platform deployments increased 210% to 59, with related revenue increased by 127% to $402,000, and subscription-based annual billing run-rate by 146% to $581,000.
• Article Galaxy transactions increased 23% to 742,000, driving related revenue up 12% to a record $23.7 million and gross profit up 4% to $5.3 million.
• Active Article Galaxy Transaction customer accounts increased 14% to 873, with corporate customers up 9% to 733, and academic customers up 48% to 140.
• Cash and equivalents at June 30, 2016 totaled $6.1 million versus $1.4 million at June 30, 2015.

Fourth Quarter Operational Highlights

• Announced plans to focus on a software-as-a-service (SaaS) offerings in 2017 that will deliver a best-in-class research platform for businesses and business professionals. The company's legacy transactional research retrieval services will be one of many integrated product features and service offerings within the new platform.
• Completed a private placement financing with gross proceeds of $5.2 million. The company plans to use the proceeds to accelerate the development, sales and marketing of its next generation Article Galaxy research intelligence SaaS platform.
• Beta-launched new information search and alerting service for researchers and scientists designed to collect, track and deliver research retrieval requests. Includes an “Ask an Expert” feature powered by Article Galaxy’s advanced workflow tools and staffed by a panel of subject matter experts with advanced degrees in science, technology, engineering, medicine, mathematics, and information science.
• Signed new distribution agreement with WorldWide Information Services, a leading periodicals subscription agent for universities and corporations in South Africa with a client base that includes 90% of South African academic institutions.

Fiscal Fourth Quarter and Full Year 2016 Financial Results             

Revenue
Article Galaxy Transaction revenue increased 12% to $6.0 million in the fourth quarter, and for the year was up 12% to $23.7 million. These results were driven by a 17% increase in the number of Article Galaxy transactions to 191,376 in the fourth quarter, and a 23% increase to 741,849 in the full year.

For the full year, Article Galaxy SaaS Platform subscription-based revenue increased 127% to $402,000, which was driven primarily by a 210% increase in Article Galaxy SaaS platform deployments. The annual billing run-rate of subscription Article Galaxy SaaS Platforms at year end totaled $581,000, which was up 146% from the end of fiscal 2015.

Also driving results for the quarter was a 12% increase in Article Galaxy active customer accounts conducting transactions, which totaled 909 in the quarter. Active corporate accounts increased by 7% to 756, while academic accounts increased by 43% to 153.

For the full year 2016, Article Galaxy active customer accounts conducting transactions was up 14% to 873, with corporate accounts increasing 9% to 733 and academic accounts up 48% to 140. (See below definitions of transactions and active customer accounts in the section, “About Transactions and Active Customer Accounts.”)

Revenue generated by the company’s legacy business, Reprints and ePrints, declined 2% to $10.3 million for the year. Reprints and ePrints order volumes typically fluctuate from period-to-period depending upon customer marketing budgets and the publication of journal articles that match their requirements.

Total company revenue in the fourth quarter was up 10% to $8.3 million, and for the year was up 8% to $34.4 million.

Gross Profit
Gross profit from Article Galaxy transactions was up 8% to $1.3 million for the quarter, and up 4% to $5.3 million for the year.

Gross profit from Article Galaxy platforms was $106,000 for the quarter and $328,000 for the year.

Reprints and ePrints gross profit declined 29% to $155,000 in the fourth fiscal quarter and was lower by 9% to 866,000 for the fiscal year. Virtually all of the gross profit generated by Reprints and ePrints falls to the bottom line given that there is little related sales or administrative costs and all employee costs are included in cost of sales.

Total gross profit in the fourth quarter was up 3% to $1.6 million, and up 5% to $6.5 million for the year.

Gross Profit as a Percentage of Revenue
Article Galaxy transactions gross margin decreased 70 basis points to 22.0% in the fourth quarter and declined 1.6 % to 22.4% for the fiscal year.

Gross margin for Article Galaxy SaaS Platforms was 82.0% in the fourth quarter and 81.6% for the fiscal year.

Reprints and ePrints gross margin in the fourth quarter was down 280 basis points to 7.3% and deceased 60 basis point to 8.4% for the fiscal year.

Overall company gross margin in the fourth quarter was down 20 basis points from the year ago quarter to 19.1%, and declined 40 basis points to 18.9% for the full fiscal year.

Loss from Continuing Operations and Adjusted EBITDA
In the fourth quarter, net loss from continuing operations totaled $53,000 or $(0.00) per diluted share, which was an improvement from a net loss of $439,000 or $(0.02) per diluted share in the same year-ago quarter.

For the full year, loss from continuing operations totaled $498,000 or $(0.03) per diluted share, improving from a net loss of $542,000 or $(0.03) per diluted share in fiscal 2015.

Adjusted EBITDA for the fiscal fourth quarter was up 61% to $162,000, and was lower by 37% to $389,000 for the fiscal year (see definition and further discussion about the presentation of adjusted EBITDA, a non-GAAP term, below).

At June 30, 2016, the company had net operating loss carry forwards of approximately $8.7 million applicable to federal tax liability expiring in 2030, and approximately $4.9 million applicable to state tax liability expiring in 2020.

Cash and Credit Availability
Cash and equivalents at June 30, 2016 totaled $6.1 million versus $1.4 million at June 30, 2015. The increase in cash was primarily due to cash from the June 2016 financing.

As of June 30, 2016, the company had no outstanding borrowings under its 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 $3.4 million of available credit at June 30, 2016, and the company had no long-term liabilities or debt.

Further details about the company’s results in fiscal 2016 are available in its annual report on Form 10-K, which is available in the investor relations section of the company’s website at www.researchsolutions.com.

Management Commentary
“Throughout the year, platform deployments and transactions related to Article Galaxy—our cloud-based SaaS solution for low-cost access to full-text scholarly research—continued to gain momentum,” said Research Solutions president and CEO, Peter Derycz. “In fact, Article Galaxy’s revenue record growth was driven by 23% growth in transactions and 210% increase in the number of Article Galaxy SaaS Platform deployments.

“These strong results reflect an increasing focus on deploying our higher margin, subscription-based Article Galaxy SaaS Platforms that provide premium features and functionality to our customers. By yearend, these deployments totaled 59, or nearly three times more than last year, and they were generating an annual run rate of $581,000 in recurring subscription-based billings.

“When reporting our results, historically we have combined Article Galaxy Transactions and SaaS Platforms into one line. However, given the growing amount of our recurring subscription-based revenue and its significantly greater gross margin, it seemed appropriate to begin breaking out this portion of our revenue.

“We’re also excited about how this new business line is developing. While revenue from Article Galaxy Transactions is still many times greater than revenue from Article Galaxy SaaS Platforms, Article Galaxy SaaS Platforms gross margin has been at 82%, or about four times Article Galaxy Transactions at 22%. Further, while Article Galaxy Transactions represent repeat revenue, Article Galaxy SaaS Platforms generate even more predicable recurring revenue, and which moreover reflects the strengthening leverage in our business model.

“We have also continued to see our customer acquisition efforts maintaining a 90-plus percent closing rate when our solution is evaluated against the competition. We’re finding that in most instances, when it comes to platform sales, we have virtually no competition except for a customer’s home-grown system which is typically inefficient, costly and far less useful and capable than Article Galaxy.

“In all, our ability to innovate with new features and enhancements has made Article Galaxy the clear choice for research-intensive organizations. Paying careful attention to their needs has also helped us to create new ways to monetize Article Galaxy and increase greater use per user. We plan on reinvesting our available resources into enhancing our platform, and preparing for its next stage of growth and development.

“Along these lines, we are now focused on delivering new software-as-a-service offerings in 2017 that will provide a best-in-class research platform for businesses and business professionals. Our legacy transactional research retrieval services will continue to be one of many integrated product features and service offerings within the new platform.

“These new SaaS offerings will represent a natural evolution for us, enabling us to expand into multiple new and lucrative market segments. We’re confident that our existing blue chip customer base will benefit from the new SaaS offerings, as well as help us to shape it into a blockbuster research intelligence platform.

“Meanwhile, given the already existing superiority of Article Galaxy and our great competitive lead, we believe our biggest challenge remains mainly in how we leverage and maximize our sales and marketing resources to drive growth both domestically and internationally. We recognize this involves the buildout and training of a sales force that is skilled in platform sales, and we’ve already been making good progress in this regard.

“Broadening our international presence is an important aspect to our Article Galaxy business model, and one to consider when evaluating future prospects. A key element driving this international expansion is at the core of Article Galaxy, which is a virtual store and cash register that is open 24 hours a day, seven days a week, and accessible on any device anywhere in the world.

“Reaching and servicing more international customers, or domestic customers for that matter, doesn’t require setting up new offices or deploying other regional resources. Therefore, as we grow our sales and marketing team, we believe we can continue to stay a very lean and efficient organization.

“All of this highlights the strong leverage and scalability in our model, and the few barriers we face in terms of achieving greater global expansion and revenue growth. Now, as we begin our new fiscal year, we expect to maintain our steady growth in Article Galaxy transactions and SaaS Platform deployments, with this continuing to be driven by the uniqueness of Article Galaxy that attracts both increased customer usage and new customer wins.”

Conference Call
Research Solutions president and CEO, Peter Derycz, and CFO Alan Urban will host an investor conference call later today to discuss the company’s results and the outlook, followed by a question and answer period.

Date: September 20, 2016

Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)

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

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

Conference ID: 10001638

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 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 today and through October 14, 2016.

Toll-free replay number: 1-877-870-5176

International replay number: 1-858-384-5517

Replay ID: 10001638

About Article Galaxy SaaS Platform
Article Galaxy is a cloud-based SaaS solution that consists of proprietary software and Internet-based interfaces that allow customers to initiate orders, manage transactions, obtain reporting, automate authentication, improve seamless connectivity to corporate intranets, and enhance the information resources they already own, or have access to via subscriptions or internal libraries, as well as organize workgroups to collaborate around scientific information.

As a cloud-based SaaS solution, Article Galaxy is deployed as a single system across the company’s entire customer base. Customers access Article Galaxy securely through online web interfaces and via web service APIs, which enable customers to leverage Article Galaxy features and functionality from within proprietary and other third party software systems. Article Galaxy can also be configured to satisfy a customer’s individual preferences in areas such as user experience, business processes, and spend management. As an SaaS solution, Article Galaxy benefits from efficiencies in scalability, stability and development costs, resulting in significant advantages versus multiple instance or installed desktop software alternatives. The company leverages these technical efficiencies to fuel rapid innovation and competitive advantage.

About Article Galaxy Transactions and Active Customer Accounts
The company defines a transaction as an order for a unit of copyrighted content fulfilled or managed in Article Galaxy. Active Customer Accounts are defined 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 12 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 GAAP results, management also considers the non-GAAP measure of adjusted EBITDA. Management believes that this non-GAAP measure provides useful information about its 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.

Below is a reconciliation of Adjusted EBITDA to net income (loss):

About Research Solutions
Research Solutions, Inc. (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’ wholly owned subsidiary, Reprints Desk, Inc. Article Galaxy, the company's cloud-based 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.

Cautionary Note Regarding Forward-Looking
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. The Company assumes no obligation to update the cautionary information in this release.

Source: Research Solutions