Good afternoon, everyone, and thank you for participating in today's Conference Call to Discuss Research Solutions' Financial and Operating Results for its First Fiscal 2021 Quarter Ended September 30, 2020. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steven Hooser, Investor Relations.

Please go ahead..

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Research Solutions' first quarter fiscal 2021 Earnings Call. On the call today are Peter Derycz, President and Chief Executive Officer; and Alan Urban, Chief Financial Officer.

After the market closed this afternoon, the company issued a press release announcing its results for the first quarter fiscal 2021. The release is available on the company's website at researchsolutions.com.

Before Peter and Alan 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 projected 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 link on the company's website.

With that, I'd now like to turn the call over to Peter Derycz, Research Solutions' President and Chief Executive Officer.

Peter?.

Thank you, Steven, and thanks to everyone joining us for our first quarter fiscal 2021 results. We hope all of you remain healthy and safe as the COVID-19 pandemic continues.

Since we spoke in September for our year-end results, we have continued to build upon success we achieved in fiscal 2020, including increasing our platform deployments, entering into new partnerships and enhancing our product offerings.

We added 31 net new deployments in the first quarter and reported another record for annual recurring revenue at $4.7 million, up from $4.4 million at the end of fiscal 2020 and a 35% increase from the same quarter a year ago.

I’m delighted to see the continued traction due to the one-stop shop offering of our Article Galaxy platform that helps life science and other organizations save time and money, provide an enterprise-wide system of record and accelerate their research.

A large number of our customers operate within the life sciences industry and are researching potential therapeutics and vaccines to address the COVID-19 pandemic. We continue to provide our COVID Research Viewer Gadget, which provides access to copyright-free materials when available.

We are proud to help contribute to this cause by helping these researchers find treatments for the virus in the hopes that we can all return to a level of normalcy. I will speak more on the various initiatives that we are implementing shortly.

But first, I'd like to pass it over to Alan, to walk through our fiscal first quarter financial results in detail.

Alan?.

Thank you, Peter, and good afternoon, everyone. Our first quarter total revenue was $7.7 million, a 2% increase from the first quarter of fiscal 2020.

Our platform subscription revenue increased 33% to approximately $1.1 million, primarily driven by a net increase in platform deployments over last year, including 31 net deployments in the first quarter.

The quarter ended with $4.7 million in annual recurring revenue, up 7% sequentially and 36% year-over-year, reflecting our continued sales efforts, high up-sell and low churn of platform customers. Please see today's press release for how we define and use annual recurring revenue and other non-GAAP terms.

Our transaction revenue decreased 2% to $6.6 million, compared to $6.7 million in the prior year quarter. The total transaction count, which includes paid and unpaid articles on a year-over-year basis increased from approximately 216,000 to 226,000. Our total active customer count decreased by 44 to 1,190.

Within the total active customer count, academic customers increased by four to a total of 285 and corporate customers decreased by 48 to 805, which is essentially flat compared to the Q4 quarter. Now turning to gross margins. Our total gross margin was 31.6%, a 110 basis point improvement over the first quarter of 2020.

The increase is due to the ongoing revenue mix shift towards our higher margin platforms business. The platform business recorded gross margin in the quarter of 82.1%, a 30 basis point decrease compared to the prior year quarter.

The decrease is primarily attributable to a proportional increase in the allocation of platform labor costs, but still within our platform target gross margin range of high 70% to low 80%. Gross margin in our transactions business decreased 100 basis points to 22.9%. The decrease was due to a proportional increase in labor and copyright costs.

Total operating expenses in the quarter were $2.4 million virtually unchanged from the prior year quarter, as lower sales and marketing and general and administrative costs offset higher product development costs. Net income for the quarter was $15,000 or $0.00 per share compared to a net loss of $81,000 or $0.00 per share in the prior year quarter.

Adjusted EBITDA improved to $167,000 compared to $36,000 in the year ago quarter. Turning to our balance sheet, cash and cash equivalents as of September 30, 2020 increased to $10.2 million versus $9.3 million on June 30, 2020. There were no outstanding borrowings under our $2.5 million revolving line of credit.

And we have no long-term debt or liabilities. As long as our revenue mix continues to shift towards our higher margin platforms business and operating expenses remained essentially flat. We expect to generate positive EBITDA, net income and cash flow, further strengthening our financial position.

Our ability to add to our cash position and remain debt-free in the middle of the COVID-19 pandemic speaks to the strength of our organization and keeps us well positioned to respond to any changes that may arise as well as consider potential acquisitions should be presented an opportunity that makes strategic and financial sense.

I'll now turn the call back to Peter.

Peter?.

Thanks, Alan. As our first quarter results show, we continue to focus on the growth of our Platform segment. We believe Article Galaxy offers multiple benefits for both small and large organizations. While larger organizations carry a larger average sales price, the universe of potential customers in small and medium businesses is much greater.

And these customers often face the same if not greater needs due to the lack of internal resources while facing the same regulatory and competitive landscapes of larger life sciences companies. As Alan mentioned earlier, our sales and marketing expense for the quarter decreased on a year-over-year basis.

This is primarily due to our reducing media spend and other marketing spend that we felt was not generating a sufficient return. However, our number of net new deployments increased year-over-year and sequentially compared to the fourth quarter.

While this reflects just one quarter’s data point, it does offer proof that how we allocate our marketing dollars matters more than the absolute dollar amount of sales and marketing spend. I'm excited to report that our Article Galaxy+ offering has been positively received and was adopted by more than half of our new deployments in the first quarter.

We are looking to add more publishers as part of this offering. As mentioned in our previous call in July, we hired Michiel van der Heijden as our Chief Product Officer. Michiel spent the prior nine years at Springer Nature focused on technology and development, and previously was Head of Product Management at Elsevier.

Michiel and his group will focus on continued customer-centric product innovation and management, as well as further strengthening our product development capabilities. Shortly after the end of the quarter, we announced our partnership with Biotechnology Innovation Organization also known as BIO.

BIO is the world's largest trade association representing biotechnology companies in the United States and 30 other countries. And their business solutions unit is the industry's largest cost savings purchasing program for their more than 4,500 member organizations.

These organizations can now subscribe to our Article Galaxy platform at a discounted rate and gain access to more than 70 million journal articles. This partnership fits squarely in our wheelhouse; provide workforce solutions for R&D companies, including those within the life sciences sector.

In addition, over the past few weeks, we rolled out a number of automation and UI improvements that will result in a significantly improved customer experience. Our team also did some analysis on the cost benefit proposition for our customers using Article Galaxy and Article Galaxy+.

The end result of the automation improvement combined with the cost benefit analysis led us to conclude that Article Galaxy provides the fastest and lowest cost alternative for research teams to legally access published scientific research. This is true for both small and medium-sized businesses, as well as larger organizations.

This analysis really shows the value of both Article Galaxy and Article Galaxy+. We are incorporating this information into the training of our sales, marketing and customer happiness team, so they can effectively communicate these improvements and help existing and potential customers understand the power and value of our platform.

It's truly a world-class product that helps R&D organizations to save time and money as well as accelerate their research. Overall, our commitment to providing must have information resources remains intact, and we will continually examine ways to make our platform and other services more efficient and effective.

We believe demand trends for our product remain favorable, and expect our lead generation and sales efforts will also contribute to additional deployments and revenue growth. This, combined with our strong balance sheet, leaves us well positioned for continued progress throughout fiscal 2021 and beyond.

With that, I'd now like to turn the call back over to the operator for Q&A.

Operator?.

We'll now begin the question-and-answer session. [Operator Instructions] There are no questioners in the queue. So I'd like to turn the conference back over to Peter Derycz for closing remarks..

Actually, operator, they’re piling up..

My mistake. Sorry, my mistake. The first question comes from George Melas from MKH Management. Please go ahead..

Thank you very much, operator. Good morning, Peter and Alan. Seems like a good quarter, good continuation of the growth.

Maybe, Peter, can you go into a little bit more detail on the sales and marketing side, what seems to be working and where do you think you might be able to put more resources to possibly accelerate net new deployments?.

Yes, George, thanks. Yes. As you know, we reorganized sales and marketing a couple of years ago that really focus on the Platform business. And as part of that, it's not just a matter of bringing the leadership in and getting these reorganized, but there's also – we’re experimenting doing some things that work and some things that didn't.

And then, so basically, yes, we've recently just started sort of streamlining that specifically on the marketing side, eliminated some campaigns that weren't working and focused on ones that did. We were never big believers in spending with out of control.

So now that we’ve sort of got more of a formula going and the partnerships was also seeing, sort of what’s working, what’s not, and then product enhancements, things like the Article Galaxy+ finding out what’s working, we’ve realized that it’s not really a matter of like how many sales reps you’re trying out on the street.

It’s really, what kind of support you’re getting them? What kind of warm – in good lead generation you’re doing, appointment setting, and digital initiatives that are supporting sales.

So, I think we’re sort of fine-tuning our customer acquisition cost, and now that we’re fine-tuning it, we’re looking at sort of what worked and maybe, applying more resources to items that work.

Then like I said, it’s more about support and lead generation, and it is actually about sales reps on the street, because they’re not even on the street anymore. But yes, that’s sort of the area that we’re finding to get more bang for our buck..

Okay, great. Thank you very much. Appreciate..

Yes. We’ll be putting that just additional thoughts on that. We’ll be adding – we’ll be giving the bio partnership, a really good run for its money, as well. So, there’s going be some effort there. There’s a lot of companies in there that you have to reach out to..

Okay. Next question comes from Peter Rabover from Artko Capital. Please go ahead..

Hey, guys. So yes, that’s a good segue. I wanted to ask more about the partnerships that you’ve had – you’ve had a few partnerships, Springer, I think, it’s evo the other one that it’s not really sure and you’ve had, I don’t know, 112 platform additions in the last 12 months.

So, I’m just curious out of those 112, how many were partnerships related just – how the partnerships working, et cetera, with respect to getting those sales and getting those platforms?.

Yes. I think, well, the partnerships are all have a different nature, right and different ones, sort of came on board as partnerships sort of the beginning of the year. And then there were some integrations that occurred later in the year and so on.

So I’d say, the – you figures just to how many of those deals are driven by partnerships, but I can say that, the Springer Nature deal has been a good deal driver or enhancer. We were getting a good number of deals that are opting in for – that our Article Galaxy sales it up for Article Galaxy Plus. So, we’re seeing some good some traction there.

BIO, the brand-new, so I have no comment there; however, I can say that, BIO has been really interactive, put a team on the partnership, but we put a team on the partnership.

And then, yes, and good leads and lead generation, I think coming from some of the other partnerships, some more than others, but, yes, I’m sure not all partnerships are going to work out equally. But I’d say that, right now at this point, BIO and Springer Nature are the ones that generating more action, I’d say..

Okay. Thanks. And then if you’ve had it a little bit of a price, average price this quarter.

Is there any reason for that?.

No. I think it’s just standard fluctuation over time, it goes up. But yes, there’s no deals with drop off, in terms of as turn or new deals. And I think you’ll be added a lot of deals and maybe, they’re a little bit smaller in nature. So, it just maybe just drop the average per sales price down slightly. It’s very slight drop..

Okay.

And then what’s your renewal return rate, I guess, has been?.

Yes. We don’t put up the exact figures, but it’s single digit. We have a low logo churn; call it, single digit, logo churn. and then that’s more than made up for by the renewals and upsells, so, which gives us total negative churn, and when you’re looking at dollars, so churns great. I think the product stands up well.

It gets used and deployed, and people like it and sort of stick with it, year-over-year. And on top of that, we have an amazing customer happiness group that does customer support to a level that none of our peers in our industry do.

And then our ability to then take that sort of great customer experience throughout the year, and then turn that into a renewal and an upsell, just a great set up there in the customer happiness group. So, we’re pretty happy about that..

Okay. Great.

And then I guess maybe very nebulous question, potentially nebulous answer, but what’s the – I guess development pipeline outside of customers in terms of more partnerships or whether they’re technical partnerships or M&A or anything like that, if you pick up that over any opportunities that you’re seeing?.

Yes. We’re selectively choosing which partners we want to work with. So, we don’t want to do 100 partnerships. We want to do a handful that we can really focus on and dedicate resources to and get resources allocated to from our partner.

So that’s just going be an ongoing process, as part of that mix and just general developing the business we are looking at – starting to look at M&A as a possible avenue for customer acquisition, product enhancement and so on, it’s early days, but if you look get us, where we are now compared to where we were a year ago, we were not NASDAQ.

We had half the balance sheet.

COVID was still, we hadn’t gone past COVID-19, I think even started a year ago, but – so I think we’re sitting here now on this side of COVID, the side of NASDAQ, the side of our balance sheet that we have, and we’re saying, hey, what the M&A could be an interesting opportunity if we can find – if we can find something that is right size that has a good EBITDA profile customer count profile, and fits well with our product strategy, then we’d definitely start taking a look at those types of opportunities..

Yes.

I mean maybe, on the other side of that, how, like wedded are you, or how important is the transaction side of the business to the platform side of the business? I mean, I guess at this point, it’s profitable, it’s growing and I guess as a long-time shareholder, I would say it’s probably, almost it’s hindering the stock profile, the company profile, in terms of growth – revenue growth, because you’re obviously growing the platforms business, but the transactions business is so much bigger and obviously, it’s not growing and declining.

So, would it make sense to potentially separate those two, or do a transaction like you’ve done in the past with industry just curious. .

Yes. Those possibility – however, the products are pretty intertwined at this point.

When you look at the product, sort of our thinking on the product strategy right now is that product sort of falls into three categories, what we call knowledge delivery, which is the transactions business, knowledge management, which brings more of the platform features and functionality to support the knowledge that was delivered, and the knowledge creation where, hey, now that knowledge has been delivered, the managed, connect, helping the creation of new knowledge.

So I’d say, knowledge delivery is a key attribute now. And so that makes, makes for a situation where the transaction business and the platform businesses are pretty intertwined at this point.

I think for the right offer for the right deal or right situation or right role, we could probably figure out a way to keep them connected technically, but maybe not from a business perspective, but I just don’t see that kind of a situation rising in the short-term, maybe a longer-term proposition, but as the platform gets more involved in the management and knowledge creations on areas..

Great. Thanks. Those were just kind of short in our question, but thank you for the color..

Yes. no, thanks not, thanks people like you were able to look under the covers and see what’s really going on with the emergence of this platform business.

And yes, we do know that it’s the combination or the – let’s say the consolidated numbers don’t really tell the whole story and to show it was like, you have really looked under the hood and understood what’s really going on here, but yes, we understand that not everybody’s under screen, we’re able to get under that hood..

Great. Okay. I’ll hop off and unless somebody else ask questions. Thanks for the nice words. .

Thank you..

[Operator Instructions] The next question comes from [indiscernible]. Please go ahead..

Hi, guys. Thanks for taking my questions. Good quarter.

Just following along a little bit on the certainly a transaction, but I guess more specifically with – wondering if you could highlight a little bit on the platform deployments, are you starting to deploy smaller, larger midsize firm? What’s kind of the mix and is there any change in kind of the average the ASPs for the types of deployments you’re doing at this point in time?.

Yes. I’d say, new, new accounts committed, a lower average sales price and the average sales price overall is because once customers grown onto the platform and grown in size, we’re starting to take advantage of more features, the price starts increasing. So, I’d say new-new will always be probably at a lower rate than the average for most deals.

However, we do get some – we do get some larger deals that pop around that come in at the higher than the average sales price. So, there’s the occasional large life science company that comes around maybe deal. But I’d say for the most part, our efforts and the activity that’s actually occurring on the street is in small and medium size companies.

So that’s what we’re continuing to see most of the action. .

Great. Yes.

I was going to follow-up with that and just in terms of, you had mentioned the small and midsize enterprises, and is there a different go-to market strategy there, or is it – do you need more volumes of calls since, as you go a little bit downstream and maybe, you’re not technically going downstream, but just that that’s where the opportunity is.

Maybe, if you could, as you mentioned, you’re kind of optimizing, sales and marketing spend, you must be finding different ways to get to that particular universe, which sometimes is more costly to get to, but any thoughts there would be great?.

Yes. I think, well there’s a couple of areas. One is, yes, we are fine tuning our marketing to be more SEO-driven, having the right content available and having the right information right at the right time for the right type of being – question is being typed into a search engine.

So, you will see definitely our website and our let’s say, online materials, evolve quite a bit over the next six months. So that’s definitely a thing. And then we’re looking at partnerships like dealing with partnership, dealing with BIO, they represent a huge number of biotech companies around the world. And most of them are small and medium size.

So, you can sort of look at what we’re doing on the partnership side, and find that we’re looking to do that. I’d say on the large account side, those accounts – those are – it’s a bit of a different nature of the large accounts to know about us.

And I think those deals are more driven by RFPs or special situations where a need is written at a large company, they know we were out there and they contact us. So it's more purchasing driven, or RFP driven and then managed – typically those deals are managed by an information professional or a librarian in conjunction with purchasing.

So it's a different cloud, but we definitely looking for a web lead generation and online lead generation and appointment setting and things like that sort of the volume..

Okay. Great. And then in terms of platform, as you start to certainly – as you mentioned, you probably start a deployment and the goal is to somewhat land and expand certainly, and you did kind of say, I think you had briefly mentioned about kind of churn, which is technically positive, because the dollar value of churn is positive.

Although you may lose some of the same customer sales is increasing as you land and expand. Are there any metrics in terms of – we got nine widgets they can turn on. And the average customer has turned on two, a new customer has zero and a mature customer has six, not knowing.

I mean, is there some – do you have something like that or the idea of you can constantly go back to a current customer with another thing, that they can turn on? And trying to get a feel for what is left in the current customer base or someone you've brought on three or four years ago, what's left in the tank to get from some customer like that. .

Yes. Well, definitely it's data-driven, when it comes to renewal and upselling ahead of the point of renewal, account manager on the customer happiness team reached out to the customer with basically what I call an account review, and that account review is data-driven.

So we look at things like – basic things like, the number of users using the platform, once it's installed, the user base grow or did the company grow during – since we first signed contract with them.

So user growth is a big one and then we also do look at activity on the platform to determine whether new features that are relevant to them today, that just weren't relevant when they first signed on. So that could be the case that when they started, they started out small.

And then, now that they're into it, few new things to turn on, can help them a lot, so that's also the case. And then the third case in that arena is, hey, the platform itself is improving.

So whether something was on or off the day you signed up is one thing, but the fact that during the year, this platform is actually getting better and there is new things that just weren't even there to decide on in the past, should be able to continue to drive the growth. And we do see product development.

– strategic product development as a key driver of our growth going forward for new deals and for renewals and upsells..

So certainly you have a dashboard kind of new user at least in terms of when the renewal comes up, users – what features and then, how about pricing. Is pricing an issue yet? Or is it adding more to the platform to keep pricing? There is usually kind of a little bit of both of those.

But what you’ve got from – for a pricing power? Have you not really explored that yet?.

Yes, actually of course, I don’t think we’re under priced, but yes there is – that side of things, and then market reality as well, sometimes customers, they have limited budget increase capability and so on. So we have to – we're also realistic in our approach.

But I definitely think that when you look at the vendor mix that our customers are using, they have a lot of vendors that charging them a lot more than we’re charging, I'd say.

And so I think, as long as we're delivering the very foundation of continuous innovation and continuous innovation that's useful for them, then I believe, then we'll be able to start moving into a higher category of, let's say vendor on their priority list..

Yes. You got to give him more, but if you're giving him more, you should be able to at least get some, even small pricing trends, positive pricing and you can support it by new stuff you're packing into the platform over time, so. All right, well, good. Thanks guys. That's all the questions I had. Appreciate it..

All right. Thank you, Scott. Appreciate it as well..

This concludes the question-and-answer session. I would like to turn the conference back over to Peter Derycz for any closing remarks..

Yes. Thank everybody for attending, and those would be listening on the recording as well. We're making good progress here, stocks not reflecting that, but we think it'll eventually reflect that we're seeing good activity on the expansion of our shareholders.

And, yes, we're going to keep working on innovation, keep working on products that matter for life sciences and help science move forward with what we're doing. So thank you all and, we'll see you next quarter..

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day..