Total Fiscal 2015 Revenue from Continuing Operations up 12% to $31.9 million.  

Article Galaxy Fiscal 2015 Revenue up 14% to Record $21.4 Million, with Adj. EBITDA up 232% to $613,000, Driven by a 21% Growth in Active Customer Accounts

ENCINO, Calif., September 8, 2015 – Research Solutions, Inc. (OTCQB:RSSS), a pioneer in providing on-demand access to scientific, technical and medical (STM) information for research-driven companies and academic institutions, reported financial results for its fiscal fourth quarter and full year ended June 30, 2015.

Financial Highlights

• Total revenue from continuing operations in fiscal 2015 increased 12% to $31.9 million, driven primarily by the continued successful transition from the company’s legacy print business to its cloud-based, SaaS solution, Article Galaxy.
• Article Galaxy segment revenue increased 14% in fiscal 2015 to record $21.4 million, with gross profit up 16% to $5.2 million and gross margin up 40 basis points to 24.5%.
• Adjusted EBITDA increased 232% to $613,000 in fiscal 2015 versus a loss of $464,000.
• Since initiating a $250,000 common stock repurchase program last November, the company has purchased approximately 55,000 shares for $50,000.

Fiscal Fourth Quarter Operational Highlights

• Article Galaxy transactions increased 23% to 163,137
• Active Article Galaxy total customer accounts increased 14% to 811, with academic accounts increasing 156% to 107 (see the definition of transactions and active customer accounts in the section, “Transactions and Active Customer Accounts,” below).
• Reprints Desk partnered with the Association of Southeastern Research Libraries (ASERL) to improve access for hard-to-find materials.
• Elected former Elsevier CEO John Regazzi to the board of directors, increasing the total number of board members to seven, with four now serving independently. Subsequent to the end of the quarter, Regazzi was appointed chairman of the board, succeeding Peter Derycz, who remained president, CEO and director

Fiscal Fourth Quarter 2015 Financial Results as Compared to the Same Year-Ago

Total revenue in the fiscal fourth quarter of 2015 decreased 1% to $7.6 million, compared to $7.7 million in the same year-ago quarter. The decrease was primarily attributed to a 20% decline in the company’s legacy print-based business, Reprints and ePrints, which was partially offset by 8% growth in the company’s cloud-based SaaS solution, Article Galaxy.

The increase in Article Galaxy revenue was primarily attributable to increased orders resulting from the acquisition of new customers, with the total number of active customer accounts conducting transactions increasing 14% to 811 and this driving a 23% increase in transactions to 163,137.

The onboarding of new customers from major pharma and research-intensive organizations was reflected in a 20% adoption growth rate of Article Galaxy in the second half of the year. However, given this strong adoption rate and the unusual large size of certain new customers, particularly in pharma, the company’s sales and marketing teams spent a greater percentage of their time with onboarding newly signed clients, as compared to previous quarters. This had a temporary impact on Article Galaxy’s revenue growth rate in the fiscal fourth quarter, coming in at 8% year-over-year versus 14% in the previous quarter. After marking its 10^th consecutive quarter of year-over-year double-digit revenue growth for Article Galaxy in fiscal Q3, the company expects this double-digit growth rate to resume in subsequent quarters.

Total gross profit in the fiscal fourth quarter declined 5% to $1.46 million, with Article Galaxy gross profit decreasing 3% to $1.2 million. Article Galaxy gross margin declined 280 basis points to 23.0% in the fiscal fourth quarter, versus gross margin of 25.8% in the year-ago quarter. 

Net loss from continuing operations in the fiscal fourth quarter totaled $439,000 or ($0.03) per diluted share, which compares to a net loss of $60,000 or $0.00 per diluted share in the same year-ago quarter.

Adjusted EBITDA in the fiscal fourth quarter totaled $100,000, which remained virtually flat compared to $104,000 in the year-ago quarter (see definition and further discussion about the presentation of adjusted EBITDA, a non-GAAP term, below).

Fiscal Year 2015 Financial Results

Total revenue from continuing operations increased 12% to $31.9 million in fiscal 2015, compared to $28.4 million in 2014. The increase was primarily attributable to increased orders resulting from the acquisition of new customers for Article Galaxy. Article Galaxy revenue increased 14% in 2015 to a record $21.4 million, compared to $18.7 million in 2014

The increase in Article Galaxy revenue was driven by a 21% increase in transactions, which totaled 602,413 in fiscal 2015, with the total number of active customer accounts conducting transactions increasing by 21% to 768.

Total gross profit increased 13% to $6.2 million in fiscal 2015, with Article Galaxy segment gross profit increasing 16% to $5.2 million. Article Galaxy segment gross margin increased 40 basis points to 24.5%.

Net loss from continuing operations in 2015 totaled $542,000 or ($0.03) per diluted share, which narrowed by 50% from a net loss of $1.1 million or ($0.06) per diluted share in 2014.

Adjusted EBITDA in 2015 totaled $613,000 compared to an adjusted EBITDA loss of $463,000 in 2014 (see definition and further discussion about the presentation of adjusted EBITDA, a non-GAAP term, below).

Cash at June 30, 2015 totaled $1.4 million compared to $1.9 million at June 30, 2014. The decrease in cash was primarily due to the use of cash by discontinued operations, as well as by the activities of continuing operations and the effect of foreign exchange rates.

As of June 30, 2015, there were no outstanding borrowings under the company’s revolving line of credit with Silicon Valley Bank that provides the lesser of $4,000,000 or 80% of eligible accounts receivable. Based on this formula, the available revolving credit at June 30, 2015 was approximately $2,182,000.

At June 30, 2015, the company had net operating loss carry forwards of approximately $6.8 million applicable to federal tax liability that expires in 2030, with approximately $5.0 million applicable to state tax liability expiring in 2020.

Further details about the company’s results in 2015 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

“Fiscal 2015, was highlighted by key customer wins and the successful execution of strategic initiatives that drove growth and increased shareholder value,” said Research Solutions president and CEO, Peter Derycz. “The double-digit growth of Article Galaxy across the board in terms of revenue, gross profit, total transactions and new customer wins further validates our decision in 2014 to focus all of our resources towards global sales of this cloud-based, SaaS solution.

“During the second half of fiscal 2015, we added several key new customers in major pharma and research-intensive organizations that accelerated the adoption rate of our solution by more than 20%. However, given the extraordinary size of these new customers, our sales and marketing teams experienced some resource bandwidth issues, with a greater percentage of their time engaged in the onboarding process rather than focused on the acquisition of new customers. This resulted in single-digit or 8% growth in Article Galaxy revenue in the fourth quarter, breaking our 10-quarter double-digit growth streak. However, we expect Article Galaxy to resume its double-digit growth, and not only due to our new customers, but also because of the processes we’ve now implemented that make onboarding more streamlined. 

“While we will always work to address our customer’s evolving needs and refine the functionality of our breakthrough method for accessing STM content, our overall focus has now shifted more toward sales and deployment, and particularly expanding our global reach. Our expanded global efforts were reflected in the 60% increase in our sales force during fiscal 2015. This expanded force is also now addressing other large end-markets beyond our traditional corporate world, such as academia, and a good portion of our sales staff is now dedicated to these ‘academic’ efforts.

“In contrast to the corporate world, academia has very different, long-established methods and systems for accessing and budgeting for STM content. So, while the sales cycle may be longer for more strategic and embedded customer relationships within the academic sector, this is offset by the much larger size of this market as compared to the corporate world. In the academic market, our progress was demonstrated by the record increase in our customer count during 2015. In fact, academic accounts now represent more than 13% of all Article Galaxy customer accounts.

“While actual Article Galaxy usage and revenue generation from academia is still very much at the nascent stage, the market represents a $4.5 billion, greenfield market opportunity that we estimate to be nine times the size of our traditional corporate market. Given the positive disruptive nature of Article Galaxy and its uniquely capable browser widget, we enjoy a first mover advantage in the world of digital information access for STM researchers.

“Other key performance metrics also trended well in fiscal 2015. Cost of revenue as a percentage of revenue from Article Galaxy decreased 40 basis points to 75.5% due to lower production expenses and decreased content acquisition costs. SG&A decreased 6% during fiscal 2015 primarily due to a decrease in professional service fees. As a result, we expect to sustain or even improve our gross profit as a percentage of revenue in the new fiscal year.

“From a technical perspective, during the year we made several enhancements to the Article Galaxy platform and then announced several more subsequent to year end. These recent enhancements help researchers accelerate their work by streamlining access to key STM information, as well as enhance corporate rights management and compliance. The stage is now set for even further major enhancements coming this fall, which includes our new article rentals module.  These enhancements will continue to make Article Galaxy by far the most highly-valued research efficiency tool available anywhere in the world.

“We wrapped up the fourth quarter with the appointment of John Regazzi as our new chairman of the board. John is a widely recognized pioneer of the STM information industry and brings to our board more than 40 years of corporate, government and academic experience. This includes as former CEO of Elsevier, the world’s largest STM publisher and information services provider. In many regards, gaining John’s greater commitment to Research Solutions represents a major coup—and certainly timely, as we begin what we anticipate to be another record year of growth and development.”

Fiscal 2016 Outlook

“In fiscal 2016, we see Article Galaxy continuing to gain momentum, as our expanded global sales force engages new corporate and academic customers,” said Derycz. “We expect to maintain our double-digit growth in Article Galaxy transactions, with this positive outlook supported by our recent enhancement to the Article Galaxy user experience as well as company operational improvements.

“Article Galaxy now offers STM industry breakthroughs in terms of workflow efficiency and improved journal content access with now ‘in browser’ pdf downloads from non-subscribed resources, as well as other time-saving features. Other key enhancements to the Article Galaxy Widget includes the ability for users to bookmark, securely share and export journal article citations. We see all of these new features and efficiencies translating into higher revenue per customer.

“We look forward to sharing our developing story at the upcoming 4^th Annual Liolios Gateway Conference being held this week in San Francisco.”

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, September 8, 2015
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number: 1-866-516-3002
International dial-in number: 1-253-237-1159
Conference ID: 16837698  

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.   

The conference call will be broadcast live and available for replay at edge.media-server.com/m/p/2nm4tagd 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 September 16, 2015.

Toll-free replay number: 1-855-859-2056
International replay number: 1-404-537-3406
Replay ID: 16837698

Fiscal Fourth Quarter and Full Year 2015 Financial Summary Tables

The following financial information should be read in conjunction with the unaudited financial statements and accompanying notes filed by the company with the Securities and Exchange Commission on September 8, 2015 in its Annual Report on Form 10-K for the period ended June 30, 2015, and which can be viewed at www.sec.gov.

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):

About Research Solutions

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

About Reprints Desk®

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

Forward-Looking Statements

Certain matters discussed in this press release may be forward-looking statements.  Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; acceptance of the Company's products in the market; the Company's success in obtaining new customers; the Company's success in technology and product development; the Company's ability to execute its business model and strategic plans; the Company's success in integrating acquired entities and assets, and all the risks and related information described from time to time in the Company's filings with the Securities and Exchange Commission ("SEC"), including the financial statements and related information contained in the Company's Annual Report on Form 10-K and interim Quarterly Reports on Form 10-Q.  Examples of forward looking statements in this release include statements regarding the Company’s global expansion.  The Company assumes no obligation to update the cautionary information in this release.