Seeking Alpha
Profile| Send Message|
( followers)  

Derycz Scientific's Quest To Harness All The World's Scientific Knowledge

Derycz Scientific (DYSC) is a California-based technology company that has quietly aggregated more scientific content than the largest libraries in the world. The Company has received numerous high profile awards for its products, and its CEO, Peter Derycz, is obsessed with making his customers "happy." And his customers love him for it. New accounts are signing-up in droves and it's a "who's-who" list of worldwide information-consuming corporations, including top-tier global pharmaceuticals, bio-techs, energy companies, legal libraries and law firms, even information publishers themselves.

Their customers (in over 100 counties) have ordered over 50 million articles to date and continue to order content like kids downloading iTunes apps. DYSC's marketplace is growing exponentially. Its revenues are expected to exceed $50 million next year and it should be cash-flow positive in just its fifth full year in business. And it's CEO and Founder, Peter Derycz, like Steve Jobs, is determined to build a company that will dominate a multi billion dollar industry.

But first, in order to comprehend DYSC's mission, you need to understand what the Bibliome is…which is defined by Wikipedia as the "totality of biological texts."

In other words everything that has ever been written about science (and medicine), from Einstein's "Theory of Relativity" to the latest medical journal, is part of the Bibliome. Think the Universe and you get the picture.

The problem is that so far no-one has ever put the Bibliome in one spot…and the likelihood that anyone will ever do so is remote. One reason is that the Bibliome is growing at a rate so fast that researchers, scientists and regulatory administrators just can't keep up. In 2002, an article was written by Les Grivell, the Manager of E-BioSci, entitled "Mining the bibliome: searching for a needle in a haystack?". In his article he states, "New computing tools are needed to effectively scan the growing amount of scientific literature for useful information."

Grivell talks about how large the body of the Bibliome is and how fast it is growing. According to DYSC, there are now 7 times more pier-reviewed scientific journal articles being published every-year than books.

So imagine if you are a researcher or a government regulatory administrator working for a large pharma company and everyday you need to access information. Traditionally you would have to research the Company's library or the internet, but then if you needed to reference an article or journal how long would it take to get the permission and how time consuming would it be for the Company?

Enter Peter Derycz. His business model is much like that of Apple's (NASDAQ:AAPL) iTunes. Using iTunes, a website that will protect their copyright, musicians, authors and other artists are able to safely and securely mass-market their music over the internet. Users of iTunes, on the other hand, see it as an easy and affordable way to buy "select" music, books and other copyright material for their personal use and enjoyment.

For Derycz, it's that simple. On one hand he has hundreds of the biggest scientific information publishers (including the American Medical Association for which he has exclusive Reprint/ePrint rights) that provide him the right to resell their content. On the other hand he has the world's largest consumers of scientific information, including international pharmaceutical companies such as Pfizer (NYSE:PFE), Novartis (NYSE:NVS), Merk (NYSE:MRK), and AstraZeneca (NYSE:AZN), who need to buy article reprints in a cost effective and legal way, enabling them to proceed with their business of drug discovery and product sales.

And like Steve Jobs, Peter Derycz is one of the leaders in the field of information aggregation. In 1989, well before the Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY) and iTunes became household names, Peter Derycz co-founded Infotrieve, Inc. He quickly grew the company to the point where, in 2003, a private equity firm bought him out. In 2006, with his non-compete expired, Derycz set-out to "build a better mousetrap." He founded Derycz Scientific with ReprintsDesk, Inc, as the operating subsidiary which generates the bulk of the Company's revenues.

DYSC's future is filled with innovative and exiting developments. Its new "SMS Strategy" or "Social-Mobile-Search," which it unveiled on its last earnings call was mostly missed by the street, but is worth looking into. In the call, Peter Derycz explained the strategy as follows:

Our product portfolio is also expanding as our new social, mobile and search tools come online. Article Galaxy is now live, as is Bibliogo, which rapidly won the Software & Information Industry Association's "CODiE" award in the category of Best Online Science or Technology Service. The accolades keep coming in. We're honored and humbled, and wake up each day with the satisfaction of knowing that we're a valuable part of our customer's information workflows.

Financial Turn-Around and Future Outlook

While the business grew, the results from operations remained poor and Derycz knew he had to put his foot down to turn things around. In the Fall of 2011, he replaced his CFO and brought in his original partner from the Infotrieve days, Alan Urban. Under Urban's tenure, the results speak for themselves. In his first earnings call in February of this year, Urban promised quick and immediate results…and he delivered.

On May 16th, DYSC held its Q3 conference call. In just one quarter they went from a money losing operation to cash flow positive, generating $335,000 in positive cash flow from their core US operations. They wrote down their European operations, which remained a drag on their cash flow in the amount of $84,000 for the quarter. Despite this, they reported a net consolidated cash flow of $251,000.

While this was in itself excellent news, they also announced two major events that seemed to go largely unnoticed by the investment community. First, DYSC signed several multi year contracts with large pharmaceutical companies, which will add a minimum of $10,000,000 in additional revenue starting in fiscal 2013 (which starts July 1st).

According to the Q&A on the May call, they expect the margin on this business to be 15% range. That should hopefully drop $1.5mm to the bottom line on an annualized basis. Second, they rolled out their new high margin Software-as-a-Service (SaaS) offerings, Bibliogo and Article Viewer mobile app as part of their Article Galaxy platform. I'm not sure how much of this they can sell in their fiscal 2013, but whatever they sell, it's sure to make a profit with 80% margins.

Taking into account what we learned from the May call, Q1 (9/30/12) or Q2 (12/31/12) quarterly numbers could look something like this: earnings from current US Operations improve by 25% in the next few quarters generating $443,000; Europe operations are neutral, no profit or loss; new pharma contracts generate quarterly income of $375,000; SASS service sells $500,000 per quarter, generating $400,000.

DYSC has significant loss carry-forwards, so they pay no tax for some time, therefore, their net could be in the $1.2mm range or $.07 cents a share. Annualized this could amount to $.28 cents a share on over $50 million in sales. With a 15 PE, this stock could be over $4.00 by year-end. A comparable in the space is TheStreet, Inc. (NASDAQ:TST). TheStreet generated $57mm in revenue in 2011 and had a loss of $8.5 million and its market cap is currently $70 million. DYSC total market cap today is $22 million and its stock trades around $1.30.

Disclosure: I am Long Derycz Scientific, Inc.

Disclaimer: All financial analysis is not to be construed as a recommendation by the Author to buy or sell DYSC. Author does not make any representations or warranties as to the accuracy of this information. Readers are cautioned to complete their own due diligence before making any decision to buy or sell these of any securities.

Source: The Information Aggregator Investors Don't Know (But Its Customers Love)