Peter Derycz - CEO Alan Urban - CFO.

Analysts:.

Good afternoon, everyone and thank you for participating in today's conference call to discuss Research Solutions Financial Results for its Fiscal Fourth Quarter and Full Year Ended June 30, 2017.

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

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

Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link in the Investor’s Section of the company's website. I will now turn the call over to Peter Derycz, Research Solutions' President and CEO..

Thank you, operator and good afternoon everyone. I'll open the call with a brief state of our business and then pass the call to Alan to speak about our financial results. Finally, I will return to address other details and our outlook.

As our preliminary results indicated, the market momentum for our SaaS platform business continued to grow during the quarter. Deployments of our cloud-based subscription solution known as Article Galaxy increased to 140 at the end of the quarter with annual recurring revenue growing by triple digits to approximately $1.4 million.

We continued to invest in this business as demonstrated by the April launch of the new version of our platform, which featured a completely redesigned user interface with more friendly navigation capabilities and enhanced technology and infrastructure.

In our transaction business, the proactive measures we are taking to improve revenue and gross margins are having their intended effect. Fourth quarter transaction revenue increased 8% year-over-year with double-digit transaction count growth and a 40 basis point gross margin improvement.

Our results also reflect the sale of our RePrints and ePrints just prior to our June 30 fiscal year end. Divestiture enables us to focus solely on our high margin recurring revenue platform business. Before commenting further, I'd 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 morning everyone. As Peter mentioned, we sold our RePrints and ePrints business line on June 30 and their results are excluded from the numbers discussed today for all periods. Now, a few comments on our Q4 results compared to the same prior year period.

Our platform subscription revenue increased 145% to 318,000 compared to the year ago quarter, which was driven by a 137% increase in total platform deployments to 140. This translates into 24 incremental deployments in Q4.

The quarter ended with annual recurring platform revenue, up 137% on a year-over-year basis to $1.4 million and up 22% sequentially. Please see today's press release for how we define and use annual recurring revenue and other non-GAAP terms. Transaction revenue was up 8% to $6.5 million compared to the same year ago quarter.

This was driven by 11% growth in total customer count to 1,011. In addition, the number of corporate customers was up 7% to 810 and academic customers were up 31% to 201. Together, this drove 11% increase in transactions to approximately 212,000.

Total consolidated revenue increased 11% to $6.8 million compared to $6.2 million in the same year-ago quarter. Moving on to gross margins, our platform business saw gross margins decline by 430 basis points to 77.7%. This decline was driven by the addition of new data sources that further enhanced our platform.

While the addition of new data sources increases our cost of revenue in the short-term, we believe these investments are necessary to creating a highly valued and differentiated offering for our customers. Our target gross margin in platform should be in the high 70s to low 80% range.

Gross margin in our transaction business was up 40 basis points to 22.4%. As mentioned on our third quarter call, we are taking actions to improve margins including price increases and costs reductions, and the results of these efforts were a key driver of the year-over-year improvement.

Consolidated gross margin increased 180 basis points to 25% compared to 23.2% in the same year ago quarter. The increase was driven by revenue mix shift to our higher margin platform business.

Our total operating expenses increased by $2.5 million compared to $1.6 million in the same year-ago quarter, driven primarily by our planned investment in sales and marketing and technology personnel to support increased platform sales and deployments.

Net loss from continuing operations totaled $800,000 or negative $0.03 per share compared to a net loss of $200,000 or negative $0.01 per share in the same year-ago quarter. Adjusted EBITDA totaled negative $600,000 compared to roughly breakeven in the year-ago quarter.

Both net loss and adjusted EBITDA reflect sales, marketing, and personnel investments in our growing platform business.

As we look to fiscal 2018, we expect to narrow our losses each quarter looking towards breakeven adjusted EBITDA in approximately 18 months by stabilizing or even reducing operating expenses while benefiting from greater expected platform revenue.

Moving on to the balance sheet; cash and cash equivalents at June 30, 2017 were $5.8 million versus $6.1 million at June 30, 2016. There were no outstanding borrowings under our revolving line of credit.

Our balance sheet continues to remain clean with cash and receivables comprising nearly all of our assets and accounts payable and accrued expenses representing nearly all of our liabilities. This completes our financial summary. I'll now turn the call back to Peter.

Peter?.

Thanks, Alan. So now, more details on the progress of our Platform business. Our fourth quarter was another step forward in our development and enhancement of the product. We continued to add valuable data sources improving the user experience and value of the platform.

As we announced last week, we've partnered with RedLink, a rapidly growing provider of business analytics to academic publishers and libraries to provide our platform customers a complete overview of usage and other statistics to help with collection decision making.

As the single point of billing and 24/7 support, the combined solution provides a better path to data driven decision making, enabling researchers to manage their literature, procurement methodologies, and budgets more efficiently than they have before.

As mentioned in my opening, we continue to accelerate the number of organizations deploying our platform solutions in the fourth quarter; and this momentum has continued so far in our fiscal 2018.

We continued to get more efficient at acquiring new customers through content generation, digital and inbound marketing, and traditional sales prospecting which has allowed us to continue to expand our pipeline.

In addition, we have created an account management group dedicated to upselling our existing Article Galaxy transaction customers that are not yet using the platform.

Account management is a key priority for us as it helps our existing customer stay informed on our improvements as well as provide a key feedback channel for customer driven improvement requests. In fact, our account management team accounted for one-third of our platform deployments this year.

As we add new platform customers that have the additional benefit of increasing our transaction business, as more articles are ordered, the benefits of our platform increased with the customer as we interconnect their research with related data. This creates a virtuous cycle that feeds itself.

In the coming months, we will be doing other things to shorten sales cycle like the free trials of our self-sign-up option. This particular capability will go live in early calendar 2018. In April, we launched a new version of our platform what we are calling Article Galaxy 1.5.

As mentioned earlier, this new platform delivers a completely redesigned user interface with more friendly navigation capabilities and enhanced technology infrastructure, improved order history and new functionalities, enabling quick lookup of reuse rights, availability option, and online mentions of journal articles.

In the coming months, our customers and prospects will see major releases of new functionality in the form of more advanced scientific information management tools, corporate scientific data libraries, as well as our new gadget store.

As some of you may know, all features and functionality in our new platform are delivered by very smart little apps, we call gadgets. As part of our expanded development capabilities, we're able to continuously launch new gadgets and gadget improvements.

In the gadget store, customers and prospects alike will be able to get an in-depth view of each and every one of our gadgets.

We believe these technological enhancements paired with our free trials and self registration capabilities will provide the basis for increased and more efficient lead generation which we believe will lead to increased deployment and transactions. This is all exciting stuff and we're calling it Article Galaxy 2.0.

Given the continued momentum in our platform business and the exciting upcoming launch of version 2.0, we believe the outlook for our business has never been brighter. With that I'd now like to turn the call back over to the operator for Q&A.

Operator?.

Yes, thanks for attending the call. We really look forward to continuing to focus on our platform and growing our business as we enter our new fiscal year. Thanks again.

Operator?.

Before we conclude today's call, I'd 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 include, but are not limited to statements regarding the expected continued improvement and market acceptance of the company's products and services, and the expected continued growth in transaction and platform deployments that the company will continue to stay 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 the performance or those results will be achieved. The forward-looking statements were based on information available at this time.

They are made in our management's good faith belief that as at 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 filings 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 reconciliations to the nearest GAAP measures in today's earnings press release. Finally, I would like to remind everyone that the recording of today's call will be available for replay after 8 P.M. Eastern today and through October 2, 2017.

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