Peter Derycz - CEO Alan Urban - CFO.

Scott Billeadeau - Walrus Partners George Melas - MKH Management.

Good afternoon, everyone. And thank you for participating in today's conference call to discuss Research Solutions Financial Results for its Fiscal Second Quarter Ended December 31, 2016.

Earlier today the company issued a press release discussing these results and a copy of the release is available for viewing and can be downloaded from the Investor Relations section of the company's Web site. Joining us today are Research Solutions' President and CEO, Peter Derycz; and the company CFO, Alan Urban.

Following their remarks, we will open the call for your questions. Then, before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by the management. I will also provide information regarding the company's use of non-GAAP financial information.

I would like to remind everyone today's that this call will be recorded and made available for replay via a link in the Investor Section of the company’s Web site. Now, I'd like to turn the call over to Research Solutions' President and CEO, Peter Derycz. Sir, please proceed..

Thank you, operator. Good afternoon and thank you all for joining. During our second quarter, we continue to emphasize the development and sales of our SaaS platform business and our progress is evident in its continued revenue momentum.

In fact platform revenue more than doubled when compared to the same quarter last year and grew 27% on a sequential quarterly basis. Additionally, approximately two-thirds of this growth came from new customers, which reaffirms the sizeable market of small to medium size businesses; our platform solution enables us to target.

We continue to invest for future growth in our platform business, bolstering our U.S. deal sales with two new hires covering the mid-Atlantic and Midwest regions as well as the addition of key technology personnel. Our platform is essentially a virtual store that can be accessed from anywhere 24 hours a day, seven days a week.

We also strengthened our international presence with the addition of two new European based resellers which cover key markets within Scandinavia and mainland Europe including Germany, France, Switzerland, Netherlands and other countries.

While our transaction business still accounts for the majority of our revenue, platforms continue to yield the highest margins coming in at 79.2% during the quarter compared to transactions which yielded 20.5%. Alan will have more say about our financial results, but I will say that we remain very bullish on our platform business.

We are pleased with the performance we are reporting today, which is further validation that our platform business has the potential to completely transform the size, growth profile and margin characteristics of our business. Before I dive further into our operational progress for the quarter and outlook for the remainder of the year.

I would like to turn the call over to our CFO, Alan Urban, who will walk us through some of the financial details for the quarter.

Alan?.

Thank you, Peter, and good afternoon everyone. Before I begin, please recall that we recently began reporting results from our SaaS platform and transaction businesses separately.

Platforms provide premium access to our research, intelligence, product and services on an annual subscription basis, while transactions primarily represent customer article purchases conducted via both paid premium platform access and [free-standard] [ph] platform access. Now, a few comments on our Q2 results.

Our platform subscription revenue increased 137% to 219,000 compared to the same year ago quarter, which was driven by a 159% increase in total platform deployments to 96. This translates into 20 month incremental deployments in our second quarter.

With a total platform deployment up over 28% over the previous quarter, the quarter ended with platform annual recurring revenue up 126% on a year-over-year basis to 905,000 and up 20% sequentially. Please see today's press release for how we define and use annual recurring revenue and other non-GAAP terms.

Transaction revenue increased 3% to $5.9 million compared to the same year ago quarter driven primarily by a 9% increase in active customer accounts to 936. The number of corporate customers was up 5% to 754 and academic customers were up 27% to 182. Together this will be 7% increase in transaction to 193,490.

While customer and transaction count were up high single digit, this year's holiday calendar have less work days than past year, slightly impacting our Q2 transaction revenue. However, transactions have historically produced reliable repeat revenue. Total revenue was $8.5 million compared to $9.3 million in the same year ago quarter.

The decrease was primarily attributable to a $1.1 million decline in our legacy reprint and ePrints business. As we stated quarter volumes often fluctuate from period to period depending upon customer need, marketing budgets and content that this approved for external distribution.

While this segment is cash flow positive, it is a low margin business that requires limited time and resources. Moving on to gross margins, our platform business gross margins declined by 220 basis points to 79.2% driven by the addition of new data sources.

While the addition of new data sources to our platform increases platform cost in the short run, rapidly growing platform revenue will lessen this impact over the long run. Total gross margin was up 160 basis points to 18.7% compared to the same year ago quarter.

The improvement was primarily driven by increased revenue from higher margin platform sales and a slightly higher gross margin percentage from our non-core reprints and ePrints business due to lower content costs.

Our total operating expenses increased to $2.4 million compared to $1.9 million in the same year ago quarter due to further investment in our sales force and to a lesser extent technology personnel to support increased platform sales and deployments.

Net loss totaled $800,000 or negative $0.04 per share compared to a net loss of $300,000 or negative $0.02 per share in the same year ago quarter. Adjusted EBITDA totaled negative $500,000 compared to a slight positive in the same year ago quarter.

Both net loss and adjusted EBITDA reflect the aforementioned personnel investments in our fast growing platform business. Moving on to the balance sheet, cash and equivalent at December 31, 2016 increased to 10% to $6.7 million versus $6.1 million at June 30, 2016.

There were no outstanding borrowings under our revolving line of credit with Silicon Valley Bank, which provides for the [lessor] [ph] $4 million or 80% of eligible accounts receivable.

Overall, our balance sheet continues to remain very clean with cash and receivables comprising nearly all of our assets and accounts payable and accrued expenses representing nearly all of our liabilities. And we have no long-term liabilities or other debt. This completes our financial summary. I would like to turn the call back to Peter.

Peter?.

Thank you, Alan. Over the course of last year, we have continued to invest and make significant progress in enhancing our cloud-based SaaS research intelligence platform.

Paying careful attention to our client's needs and listening their feedback as also helped us create new ways to monetize our platform and increase greater use per user as well as deliver new ways of information access that build upon our core strength and proprietary IP.

As such during the second quarter, we continued to add new and innovative features to the product. We are taking the modularity in our platform to a whole new level, in particular with regards to the end-user experience. In the R&D sector, corporate knowledge workers have a variety of work flow that they need connected.

The newest version of our platform will not only help these end users get more efficient in their work flows that will bring them an entirely new level of functionality that works on any device. Our users will be able to move seamlessly from their desktop at the office, to their mobile phone on the train or subway and to their tablet at their home.

Mobile responsiveness is key to the future of our platform as this agile development of new features and functionality, you will be hearing a lot more about all of this as we enter our fourth fiscal quarter.

New capabilities and ways for the customer to engage with the platform that made the product a more engaging and indispensable tool for corporate and academic researchers and scientists around the world. We have quickly become the world-class leader in our space evidenced by the growth in our platform deployment and customers.

These are exciting times for our technology development. In addition to our continued investment and the enhancement to the platform, we have also placed considerable emphasize on growing our sales team. As I mentioned, we bolstered our U.S. field sales with the addition of two new hires.

We have two additional provisions we are looking to fill for the Southern U.S. region and in the West. Additionally, we added two European based resellers that cover very key markets for our business in Europe. These resellers give us a lot more feet on the ground and we can possibly deploy with no upfront costs.

Additionally, our resellers have established relationships with R&D organizations led by scientific software solutions such us ours. So we are pretty enthusiastic about kicking-off calendar 2017 with these resellers in place and look forward to supporting them full heartedly in their regional sales, marketing and communications efforts.

Please recall the power of our reseller model lies in our ability to service more international customers without setting up offices or deploying capital to other regions. So, even as we add to our sales and marketing teams and support staff, we believe we can continue to stay relatively lean and efficient.

Such reseller relationships can also be a first multiplier for us, not only in terms of sales, upsells and renewals, but also in terms of post sales support and training.

This can be especially helpful as we look to penetrate certain international markets on a regional basis where local language support is important, not only for localized sales support, but also for future localized product development.

As further evidenced that our strategy is on track, in January, we signed our 100th platform customer and we also hit the $1 million in annual recurring revenue milestone.

While our primary customer base in the past has been large enterprises, we believe the investment and enhancement of our platform is giving us access to a much larger market, a small to medium sized businesses, but we are seeing an increase in subscriptions from companies in this broader market.

There are 100s of 1000s of research based organizations in the world that are really just starting to scratch the surface with our sales and marketing expansion. We plan to debut an enhanced version of our platform by the end of March, which will show expanded capabilities, features and functionality.

When combined with the predictability of our transactions business, the outlook for the remainder of our fiscal year is strong. Alan and I will now open up the call for questions.

Operator?.

We'll now begin the question-and-answer session. [Operator Instructions] The first question comes from Scott Billeadeau with Walrus Partners. Please go ahead..

Hi, guys. Thanks for taking my call.

Could you maybe give us an update on how big is the ePrints and reprints, we're just trying to figure out when the treadmill stops moving and you actually start seeing some growth because -- are the ePrints or reprints essentially going to kind of continue to taper off for the pursuable future?.

Thanks, Scott. This is Peter.

Yes, well, it's hard to say, these -- historically you've had a very difficult time predicting where that business is headed, it’s really ebbs and flows, up and down, it's been -- we're going to downtrend last quarter, but so unfortunately we just really don't know, it's been unpredictable, don't think we've resources to run it, but it has unpredictability to it.

I can't say that this is going to grow explosively or that it's going to disappear..

Yes..

It's very, very difficult. It's been historically difficult to predict..

Okay.

And in terms of the -- bringing on the new platform clients, is there -- is there kind of an ASP or average monthly or what can you share in terms of what -- what sticking or what do you see as kind of per customer, the average monthly revenue kind of -- is it based on size, but maybe give us a little feelings for how a big customer versus little customer in the implementation process and how quick they come on so to speak?.

Yes. Maybe it's a little rollout. The smaller they can't, but faster as for them to decide along the sales process as well as easier is to well among the platform, talking about the larger pharma customer, they may have a lot of different needs from that allocation respective that I think a lot of the rollout.

So I think the deployment can go as fast in the few weeks to a few months depending on the size of the company. And that goes well for the platform size. So platforms from a few thousand dollars up to 60-year platform deals and so that's also really dependent on the customer size.

The average is panning out to around that $10,000 to $12,000 range at this point. And in addition to that, there is a meaningful additional transaction revenue when we add a platform customer. So it's not just the platform fee that end up getting recorded to the revenue, it's over time there are also transactions that recorded as well..

That's what going to be my follow-up just -- and again the platform business, you're breaking it out, is kind of new there is probably a couple of guys that have been in there. And when you look at your transaction revenue, how much of that now is off the platform, I should say comes from those that are paying platform fees versus those that aren't..

Alan, do you have number on that..

Yes. We don't really set metric, in the future we may to add a lot to those platform sales or new platform sales, so we just don't have enough data either..

Yes. It's about two-thirds of our platform sales..

Sales price is actually $9500 through the end of the second quarter..

And so that's true. About two-thirds of the platform sales as Alan mentioned has come from brand new customers that we've ever heard up before. So it's really just the one-third of those platform sales had been going to distant customers, but two-thirds to brand new organizations..

Interesting, okay, yes, so it makes a way easier for them to do transaction is to get them on the platform..

Yes..

Okay. And then, one more question before I'll hop back and see if anyone else has one.

As mentioned adding some sales folks at Mid-Atlantic, Midwest, couple of European resellers, was there kind of as you decided those markets -- where those obvious holes where you just didn't have anyone talking to customers or maybe give a feel for what we expect to see couple of more in the next couple of quarters, what's going to be the ramp and filling out that the sales team..

Yes. I think we have a little more to go. I mean in choosing where, the key factor that comes into play, one is what you mentioned is an obvious hole. That's the obvious hole we try to plug. But then we're also looking at where the density is. We may be present in a particular region, but the density is higher than we're staffed for.

So in that case we'll add our sales resource based on density. So Northeast, West so on place like that -- we'll add just based on density. And then in Europe, it's a bit of a different dynamic. We don't have European offices. We don't want to open any European offices at this point.

So we're relying really on remote sales people there as well as these value-added resources that we added recently who have been be able to give us a lot more feet on the ground than what we can do by trying to open up a sales office..

Okay. And then, I will just follow-up just and then I'll hop back. Those I guess just two follow-ups, one would be in Europe, are those guys exclusive to certain territories and then in the U.S., the new sales guys, what kind of guys are these -- where do you get them from, what's kind of a background of the guys you bring on..

Yes. It is part of our research is since we're pivoting to our platform business and software as a service..

Yes..

We've looked for value-added resellers that currently have a large present selling scientific software to R&D based organizations, both in the corporate sector as well as the academic sector. And so it's sort of a formula that's worked for us in Japan and we sort of replicating that out in Europe. So that was sort of the basis of our research.

We didn't want to find great distributors of any kind of software, any kind of tools, we really want to focus on scientific information solutions, which is what we are. And so we just held on these two organizations we do -- we did give them certain regional exclusives, and yes, and then at the end of the day we'll support them.

We do have some resources on the ground there we can support them with, and then, but at the end, it's all based on performance..

Okay. Thanks guys..

Thank you, Scott..

[Operator Instructions] The next question comes from Scott Billeadeau with Walrus Partners. Please go ahead..

Hi, guys. I guess it's just us..

Have one more on the queue, but -- yes..

Okay. I'll just add, so I was -- in terms of looks like we've got from a balance sheet -- you've got the money you need and just going to be prudently spending.

And then on the gross margins on the platform side we got 79ish, what is long run for that, is that in terms of what you think you need to spend at least for the foreseeable future, is this about what you'd expect or what's the game plan?.

Go ahead, Peter..

Well, I was just going to say, we have little track record there as well, but what we're looking at is trying to keep it at those levels, we're improving it slightly. But what we're making data investments as a platform customer count grows.

We do want to add more data and more different types of contents to the platform and that sort of some of the expenditures happened and expect that gross margin.

Alan?.

Yes. That's exactly what I was going to say, Peter, is that we are bettering the platform, adding more data sources to the platform and when that happens platform cost increase. So in the short-term you may see a slight dip in the margin.

However, the revenue -- platform revenue is growing quite rapidly so those short-term increases will sort of normalize as time goes on. And I think a standard SaaS margin is what we should expect from we're around 80% range..

Great. Thanks..

The next question is from George Melas with MKH Management. Please go ahead..

Thank you. And so I joined the conference late, so I missed most of the prepared remarks, so I hope I do not ask any questions that are redundant. On the platform size, is the idea to try to add 25 customers a quarter or do you see that accelerating once you have the -- the next gen of the platform..

Hi, George. This is Peter. Of course, we've liked to accelerate as much as possible. I think we've got a bit of a track record where that sort of have been -- what you call it's sort of have been around there has been the addition rate, but we are growing our sales reps –into the number of sales reps.

We are spending a bit more on marketing, and then, as I mentioned and the answer to Scott is that we added these value-added resellers as well. So our intent here is to ramp-up the customer acquisition..

Okay.

So you are making it clear, you are making some investments there, how many sales reps you have right now in the U.S., Peter?.

Yes. We don't disclose the exact number. I can just say that at this point our entire sales and marketing group that would include people that work for us in sales as well as communications and marketing, total about 25..

Okay. And I think that usually you mentioned your win rate versus the competition as you stayed as high, you guys win in the past..

Can you repeat that question?.

The win rate, do you have an impressive win rate versus your peers, has that stayed at that level in this particular quarter..

Yes. When we go into RFPs that's where certain organizations are invited to bid on the company's business. When we go into our key situations, we can actually track, especially we are there because we are very specific and we do win 9 out of 10 RFPs..

Okay, great. And so your total customers right now are north of 900, how many of those do you expect to actually adopt your platform in that. I'm not sure, I don't want to say in the next 12 months, but at what point you expect how many of those are good candidates for the platform may be that's the first question..

Yes. That is a good question. We don't put on any projections. But I think -- I think that we have high hopes of getting lot of recent customers satisfied with the additional functionality of our platform such an extent that they would -- into become platform customers.

We have dedicated part of our sales and marketing team to what we call account management and that is part of their responsibility is to make sure customers are informed all the new feature and functionalities we're rolling out.

And then if there is an opportunity to bring additional satisfaction to customer with our platform then they go through the upsell. I would like to think that there is lot of ordinance in terms of customers and there is lot of people that come and go I'd say in there.

But I wouldn't be surprised if one day you see us with hundreds of our customers on the platform..

Okay. Okay. Actually if we look at from the account management perspective, although it's less than 900 customers.

How many candidates or the platform and the question here is basically some of them are not candidates for the platform and if so why they cannot be?.

I think there is two sort of answer to that question. I think in the early days there is much functionality and features in the platform compared to what we are today and what we're going to be in two years time. So, I think the main driver for that is, we're going to be how useful as the platform to the customers as we developed it over time.

And of course, listening to our existing customers is one of the main inputs we have to bringing new features and functionality.

So having said that, there is some people that just come and order articles from us and they don't need to keep track of anything, they don't need special reporting, don't need to integrate other data sources and so there is going to be handful of customers that just need to buy articles and we're happy to do that.

But, I think the real solution for us over time is to just keep on improving the platform, so it means something and helps everyone of our customers get more efficient..

Okay. Is that to just back the larger customers [indiscernible] in-house platform or in-house systems or sort of waiting for you to develop more functionality than to become potential and then they become potential customer. As you develop those functionality, the market could exponentially increase..

Yes. And we I mentioned during the call that the way -- the architectural approach we are taking to the platforms are getting very granular towards the end user. They really want the individual end user to really feel like they have got a tool that speaks to them and that it's in the workflow and because [indiscernible] part of their workflow.

And so based on that granularity, we think we are going to be able to deploy meaningful functionality that could be useful to every end-user. And once these functionality may not be useful to all of these users, but I think we can -- some parts of the platform will end up speaking to every single user out there that we have..

Okay. And then, just one final question, in very, very broad perspective, has it really changed, anything changed in the market or with your competitors in the last -- in the quarter? Any industry development those of us who are not that knowledgeable about the industry might -- they might want to know? Maybe nothing happened, I'm just asking..

Yes. I think there are a lot of developments in terms of science becoming more important to humanity, the chance that converts foundation really bought -- recently bought a scientific discovery organization they intended to make free on the Internet. There is a lot of talk about big data about diving in deeper into the data.

We are definitely going deeper into the data. We are definitely going to be bringing -- connecting different data sources together that may not be that obvious to the user or may not be that easy for the user to accomplish. So there is a lot going on out there.

The amount of data is exploding and growing quite a bit and that creates a lot of opportunity to help user with getting organized. You will probably just in the broad news, we will hear about big data, relational data and so on. But, in our space we have seen a lot of that.

And I think there are these tools, they are more sophisticated and helping people organize information that will display some of these in-house deal tools that company's have built or processes and procedures that they have people doing at this point..

Okay. Thank you very much for taking my question..

Thank you..

This concludes our question-and-answer session. Before we conclude today's call. I would like to provide Research Solutions' Safe Harbor statements that include important cautions regarding forward-looking statements made during today's call, as well as statements regarding the company's use of non-GAAP financial information.

Statements made by management during today's call contain forward-looking statements that include information relating to future events and future financial and operating performance.

Examples of such forward-looking statements in this presentation includes, but are not limited to statements regarding the expected continued improvement and market acceptance of the company's product and services and the expected continued growth in transaction and platform deployment that the company will continue to state a very lean and efficient organization and that the company faces few barriers in terms of achieving greater global expansion and revenue growth.

Such forward-looking statements should not be interpreted as a guarantee of future performance or results and will be not necessarily be accurate indications of the times at, or by, which that performance or those results will be achieved.

The forward-looking statements were based on information available at the time they are made and/or management's good faith beliefs as that the 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 and/or suggested by the forward-looking statements.

Important factors that could cause differences include but are not limited to changes in economic conditions, general competitive factors, acceptance of company's products in the market, the company's success in obtaining new customers, and new platform deployments, the company's success in technology and product development, the company's ability to execute its business model and strategic plans, the company's success in integrating acquired entities and assets and all the risks and related information described from time-to-time in the company's filing with the SEC that is the Securities and Exchange Commission, including the financial statements and related information contained in the company's annual report on Form 10-K and interim quarterly report on Form 10-Q.

The company undertakes no obligation to publicly update or revise any forward-looking statements whether because of new information, future events, or otherwise. The company also assumes no obligation to update the cautionary information provided in the presentation.

Today's presentation also included financial measures defined as non-GAAP financial measures by the SEC.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared or presented in accordance with the Generally Accepted Accounting Principles accepted in the U.S., otherwise referred to as GAAP.

Please refer to a more detailed discussion about the company's use of non-GAAP measures and their reconciliation to the nearest GAAP measures in today's earnings press release. Finally, I'd like to remind everyone that the recording of today's call will be available for replay after 8 P.M. Eastern today and through February 28, 2017.

Please refer to today's press release for dial-in instructions. Thank you for joining us for the presentation. You may now disconnect..