Research Solutions' Peter Derycz: Article Galaxy Is A Growing Business

| About: Research Solutions, (RSSS)

Summary

Article Galaxy is a growing business.

Runway for growth is huge.

Legacy business is profitable.

Mariusz Skonieczny: Classic Value Investors

Welcome to Classic Value Investors, my name is Mariusz Skonieczny. Today, I have with me Peter Derycz who is the CEO of Research Solutions, Inc. (OTCQB:RSSS). Peter, thank you for joining me.

Peter Derycz: Research Solutions, Inc

Thank you.

Mariusz Skonieczny: Classic Value Investors

Can you talk a little bit about what Research Solutions does because it is not that easy to understand it if you are not in the business?

Peter Derycz: Research Solutions, Inc

Our current business is like Amazon's (NASDAQ:AMZN) book and e-books business. We provide on-demand access to scientific, technical, and medical information, primarily to research based companies like pharma companies and biotech companies. And what we do is we have a platform called Article Galaxy which is a platform where you can get access to anything that has ever been published in hard sciences. In the same way you can buy books and e-books from Amazon we do the same thing with Article Galaxy but in scientific literature space. And that's sort of our platform now and it is growing and it is becoming more of a software too as well so we are adding more additional layers to make it more valuable.

Mariusz Skonieczny: Classic Value Investors

The organizations that use Article Galaxy as you mentioned are research oriented organizations. They pay for it as if they were buying books. They don't pay for it on a monthly basis, am I correct?

Peter Derycz: Research Solutions, Inc

You are correct. Now we have a bit of transition going on in the company where we are introducing another revenue line to the mix that we talk about it sometimes on the earnings calls. We do sell exactly like you said - articles on a one-off-basis just like Amazon sells books and e-books and we are also layering on what we call platform sales so we are selling the system itself as a software solution and I guess one way to look at it is how Amazon charges you platform fees for Amazon Prime which gets you a bunch of other privileges. We are doing the same thing. So if anyone wants us to turn on certain advanced features within Article Galaxy, we will charge the customer an additional annual platform fee for that.

Mariusz Skonieczny: Classic Value Investors

Is this new platform something new or is this something that you had for many years?

Peter Derycz: Research Solutions, Inc

We have been building the Article Galaxy platform for a few years now. I guess what's new is really that fact that it's gotten so advanced and has some really great features and productivity tools in it that it is worth for companies to start paying for the platform. So the platform fee part of it is new. The platform itself, we have been building it for a few years now.

Mariusz Skonieczny: Classic Value Investors

I see. What about the second part of your business that you have? I believe it is called ePrints?

Peter Derycz: Research Solutions, Inc

We have a legacy business line which was actually our first business line. It is called Reprints and ePrints business line and we break down the revenues in the financials. That business line is $10 million a year annual business line and it has to do mainly with medical marketing uses of scientific literature. So when a pharma wants to sell a drug and the drug has positive mentions in the scientific literature, they want to get that scientific literature out to clinicians so that they can be influenced in the prescribing patterns. That is our legacy business. It is our first business line. It was pre Article Galaxy and a lot of those Reprints and ePrints are actually delivered on paper and used for marketing uses. You have pharma reps visiting clinicians or going to conferences or so on. That's our historic business line.

Mariusz Skonieczny: Classic Value Investors

From what I understand the ePrints is the profitable portion of your business and you use that cash flow that it generates, I believe it is $1 million per year, and you use it to drive growth in Article Galaxy, am I right?

Peter Derycz: Research Solutions, Inc

Yeah, you got part of that right. The Reprints and ePrints is a cash generator for us. It is pretty stable business. It doesn't grow by leaps and bounds but it is pretty stable business and it is kicking off close to $1 million in cash which we do use to reinvest in the Article Galaxy platform to make Article Galaxy more powerful every year. Article Galaxy's revenues now are over two times those of the Reprints and ePrints' business.

Mariusz Skonieczny: Classic Value Investors

When you mention ePrints as a legacy business, do you not expect it to be around for a long time? How much longer is it going to be generating cash flow and driving the growth of the other business?

Peter Derycz: Research Solutions, Inc

Well, I think it is going to be around for a long as pharmaceutical marketing is around. It is standard part of what pharma companies do with their marketing. That business has been pretty steady going into this year. What we do see is a lot of fluctuations, a lot of seasonality or fluctuations from one quarter to another in its revenue. Sometimes there is a lot of pharma marketing going on and we get a lot of revenue and sometimes there is little marketing going on in which case, revenues drop. So it is very sort of fluctuates but it this point, it pretty much stays at a steady annual $1 million rate.

Mariusz Skonieczny: Classic Value Investors

Now going back to Article Galaxy again. Obviously this is the business you are focusing a lot of energy on where the other one you don't have to do too much to maintain it. If you look five years ahead, what kind of plans do you have for that business just to give investors an idea of what they could hope for in the future?

Peter Derycz: Research Solutions, Inc

There are over 700,000 research based organizations around the world and our mission and desires are centered around having Article Galaxy be deployed on the desktop of every researcher in the world and there is quite a few of them. So we really want to be to scientific research what Lexis Nexis is to legal research or what Bloomberg is to financial research. If you are in the financial community, you have Bloomberg terminals. If you are a law firm, you will have Lexis or Westlaw. And we think that if you are a research based organization, you will be using Article Galaxy.

Mariusz Skonieczny: Classic Value Investors

Did you say the number was 700,000 organizations?

Peter Derycz: Research Solutions, Inc

Yeah. There are actually to be more precise, there are 772,000 research based organization in the world.

Mariusz Skonieczny: Classic Value Investors

Within that number, do you just mean corporations or do you also include academia in it because from what I understand you entered the academia world not too long ago?

Peter Derycz: Research Solutions, Inc

Correct. So that's across all organizations. That's private enterprise. It's government research institutes as well as universities. And we then launched a version of Article Galaxy that is geared towards the academics or what they call the university market. And so we are getting a lot of customer adoption in the university market and the revenue in the sort of trailing behind I believe it is about 10 percent of our customer accounts is from the academic market now and about 5 percent of revenue but it is growing and we think that the university market is starting to discover what Article Galaxy can do.

Mariusz Skonieczny: Classic Value Investors

But you entered the academic market not too long ago, am I correct?

Peter Derycz: Research Solutions, Inc

Correct. We got specialized pricing and things like that and a few other things that we do from the technology side that we integrated into the platform to be able to more specifically address that economic market because we think it is pretty huge. We want to be ready for that as it evolves into different ways of acquiring information.

Mariusz Skonieczny: Classic Value Investors

Was it difficult to break into that market at first?

Peter Derycz: Research Solutions, Inc

Yes, I think it is difficult because we were highly focused on the corporate market. A lot of our marketing and sales was going into the corporate market so when we approached the academic market, a lot of people didn't know about us so we had to start building brand and reputation and try to get the word to spread. Initially universities tend to operate on smaller chain cycles than private enterprises so universities establish budgets much in advance and they change these around but processes and procedures and buying patterns tend to stay pretty stable so we have to really plugging away at it and as they discover us and find us and change their budgets and change their operating procedures, they can incorporate us in their information workflows.

Mariusz Skonieczny: Classic Value Investors

If you get more traction within the academic market, is this out of question that your company could be looking at having revenues of $100 million a year? Am I being too optimistic?

Peter Derycz: Research Solutions, Inc

Well, we don't put out projections like that but you can make some predictions. We have about 850 paying organizations today as customers generating revenues for Article Galaxy and as I mentioned there are literally hundreds of thousands of them so if we can multiply our customer base from 850 to 900 accounts and multiply that to 4,000 to 5,000 accounts, then you will see us at those numbers.

Mariusz Skonieczny: Classic Value Investors

In other words, the room for growth is there.

Peter Derycz: Research Solutions, Inc

Absolutely.

Mariusz Skonieczny: Classic Value Investors

Can you talk a little bit about your competition?

Peter Derycz: Research Solutions, Inc

We compete against a lot of different systems and organizations. To break them out for you there is direct competition on the article selling. So if people want to buy an article, there are many places to buy articles just like there are many places to buy a book. Right? Amazon is not the only game in town for books. The same situation exists with articles being sold through Article Galaxy and we do compete that with publishers' own websites with customers wanting to pull out the credit card and go buy an article and register on that publisher's website, they can easily do that. We compete against piracy. We compete against do-it-yourselfers. We can have customer hire a bunch of people and have them go and bring them all these articles anyway they can. Aside from that, we have a platform side of Article Galaxy and on that side, we would be competing against some software companies but they tend to not be great or able at all to deliver the information content that people need. In the academic market, we compete against a system called interlibrary loans where universities are sending pieces of information to each other. They are a little bit slow and cumbersome. Other than that it is about changing people's habits and getting people to find a value here and start adopting.

Mariusz Skonieczny: Classic Value Investors

Thank you very much Peter for taking the time to do this interview with me. I don't have any more questions. If you have anything else you want to add, please go ahead. If not, then thank you very much.

Peter Derycz: Research Solutions, Inc

We are just getting started here. Article Galaxy is getting a lot of attention now. Over the years, we have been focusing on Article Galaxy. We think the technology is evolving greatly and we are improving it and we think we can get to having thousands or tens of thousands of corporations and research organizations around the world as customers.

Mariusz Skonieczny: Classic Value Investors

Ok perfect. Thank you for your time.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in RSSS over the next 72 hours.

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