HENDERSON, Nev., Aug. 14,
2023 /PRNewswire/ --
Dear Fellow Shareholder,
You may have seen Peter Derycz's
press release dated August 4, 2023,
concerning Research Solutions, Inc. (Research Solutions or the
Company). We are writing you today to set the record straight.
We are disappointed with Mr. Derycz's letter not only because of
its misleading use of data points (which we intend to correct in
this statement), but also because of the timing and format he used
to raise his concerns. Mr. Derycz wrongfully ignores the
accomplishments of our CEO, Roy W.
Olivier, and the Research Solutions management team, which
are significant when you contrast all they have accomplished in a
little over two years versus the final ten years of Mr. Derycz's
tenure as CEO.
The Company issued a press release on August 14, 2023, pre-announcing its fiscal year
2023 earnings. Key items of note were:
- Revenue growth of 14% and decade-plus record organic growth for
the Company of 12%
- Positive GAAP net income for the first time since fiscal 2015
and for the first time ever in the Company's history when stripping
out one-time, non-recurring type items that caused the Company to
be profitable in fiscal 2013 and fiscal 2015
- Record Adjusted EBITDA of approximately $2.0 million
- Record cash flow from operations of approximately $3.4 million
Based upon the above, it is our view that there is an undeniable
positive momentum in the business under current leadership.
We believe the timing of Mr. Derycz's announcement, whether
intentional or not, is a distraction and disservice to this
momentum.
Lastly, Mr. Derycz's letter puts undue short-term emphasis on
stock price, which is hard to understand when compared to the stock
price performance during the final ten years of his tenure as
CEO. He fails to recognize (i) management's limited ability
to control stock price, (ii) macroeconomic trends that can affect
valuations for certain industries (such as SaaS software) or market
sizes of stock (such as microcaps), and (iii) the impact his and
his group's prior and present actions may have on stockholders
considering starting a new position in Research Solutions.
We, the independent directors of Research Solutions, hereby
communicate our full support for Mr. Olivier, the Research
Solutions management team and their strategic plan moving
forward.
Stock Price Performance
- Mr. Derycz's chart showing RSSS' stock performance related to
Mr. Olivier's tenure conveniently selects a start date of
October 4, 2021, when Mr. Olivier was
named permanent CEO, instead of using March
29, 2021, when Mr. Olivier was installed as interim CEO.
This is a theme of Mr. Derycz's letter, where Mr. Olivier's start
date changes in the letter depending upon the metric being used.
Had Mr. Derycz used March 29, 2021,
as the start date, the stock priced decline would have been
approximately 6% instead of the 22% quoted in his letter, and in
fact the stock price is up 5% when using an end date of
July 31, 2023, which is the day when
Mr. Derycz and his group filed their 13-D after the market
close.
- More important, Mr. Derycz's letter fails to note that the
stock rallied in the months following Mr. Olivier's appointment
and that Mr. Derycz and former members of Research Solutions
management team sold into that rally. In a presentation to the
Company's board delivered by the Company's third-party investor
relations firm, one comment attributed to a potential investor
read: "It seems like over the past two years, a big seller hits the
market every few months – including the Chairman. It does
not give us confidence in the business and since we don't know how
many more shares will be sold it keeps a ceiling on the
price."
- In addition, there are some important things to note regarding
the stock price under Mr. Derycz's prior tenure as CEO.
-
- In the 10 years proceeding Mr. Derycz's removal as CEO,
Research Solutions stock declined 36% while NASDAQ was up
367%1.
- During this same time Mr. Derycz's annual
compensation2 went from $244K to $666K, a
173% increase, totaling approximately $5.0M over the period.
- In addition, the named executive annual compensation during
that time went from approximately $712K to $1,627K, a
129% increase.
Increases in SG&A Expenses
- In Mr. Derycz's release he points out that the Company's
SG&A is up $3.7M since Mr.
Olivier became CEO but he fails to mention that in his role as
Executive Chairman he approved each year's budget or that the
increase in SG&A expense includes such items as:
-
- Over $600K in annual compensation
for Mr. Derycz who has little or no active role in the day-to-day
management of the Company. The employment agreement that
addresses his compensation expires in March of
20243.
- While management compensation grew materially under Mr.
Derycz's leadership, the company under-invested in its employees
and the business, including several of its systems. Since Mr.
Derycz's removal as CEO, the Company has:
-
- Upgraded the accounting system to its latest cloud supported
version, replacing an unsupported accounting system and the storage
of financial information within multiple third-party storage
providers.
- Implemented a company-wide CRM system replacing multiple
systems.
- Implemented a standard product management and software
development tool and shifted to the agile framework.
- Implemented a Human Resources Information System to support our
culture and start employee reviews. In addition, annual
raises for rank-and-file employees have increased to 5% on average
versus 3% during the final years of Mr. Dercyz's tenure.
- Increased the size of its software development team from 7 to
13, to accelerate upgrades and releases for its Platform software
product.
- Increased spending on M&A related activities including
legal expense on potential acquisitions that the management team
chose not to pursue further when diligence did not validate the
initial acquisition thesis.
- Hired a Controller to improve internal controls.
- Established reserves that were previously non-existent for
items such as potential sales tax exposure.
- Moved to a direct hire relationship with its employees in
Mexico. Prior to that Mr. Derycz employed these resources
through a third party, which saved money but exposed the Company to
legal risks under Mexican labor law. The Company's move to a proper
relationship with its employees in Mexico raised its operating costs by
approximately $400,000/year.
- In addition, Mr. Olivier and his management team were upfront
with investors in communicating the need for material investment in
the business during his first full fiscal year and that the level
of increase in year 1 would not be indicative of increases in
future years. To that point, in the Company's recent press
release, the Company disclosed that its SG&A expenses,
excluding items normally excluded from Adjusted EBITDA, will be
$12.7 million compared to
$12.4 million in the prior fiscal
year. This $0.3M year over year
increase is negligible or a reduction when you consider the Company
expensed approximately $0.2M related
to the Mexico employment change
noted above (started January 1, 2023,
so 50% of the annualized expense) and that the Company had
$0.2M in recruiting fees which were
out of the business' normal course.
- Lastly, Mr. Derycz's letter speaks to SG&A in
isolation, failing to compare the numbers with other positive
trends in the business. When viewed holistically, it shows
the Company is growing the business profitably while continuing to
invest in it. We believe the Company's strategy is starting
to show results as indicated by Mr. Derycz's last year as
CEO4 vs Research Solutions last full year under Mr.
Olivier5:
Summary Trailing
Twelve Month ("TTM") Performance in $ Millions
|
|
|
Mr. Derycz's
performance in his
last 12 mos as CEO*
|
Mr. Olivier's
performance in FY23
|
% Change
|
Platform Revenues
|
4.8
|
8.7
|
81 %
|
Transaction Revenue
|
26.7
|
29.0
|
9 %
|
Total Revenues
|
31.4
|
37.7
|
20 %
|
|
|
|
|
Annual Recurring Revenues
|
5.6
|
9.4
|
68 %
|
Adjusted EBITDA
|
0.7
|
2.0
|
186 %
|
|
Note: Adjusted EBITDA
in FY23 would have been approximately $2.5 million without Mr.
Derycz's compensation.
|
Decrease in New New Platform ARR and Deployments
- Mr. Derycz's analysis again fails to take into consideration
any change in the macroeconomic environment and the impact of that
change on specific industries. As the country exited the Covid-19
pandemic, it began experiencing material increases in inflation and
interest rates. These items factor into the budgeting and buying
decisions of potential customers. Moreover, a significant component
of the Company's existing and potential customers are in the
biotech industry, which historically does not perform well when
interest rates rise and access to capital is limited or
expensive.
- Mr. Derycz provides no industry comparable analysis to see how
the Company's performance compares to others selling similar
products in similar industries. We are aware of certain public
company peers that are struggling to grow both their top and bottom
lines in this market.
- Despite the market headwinds, the Company has grown its annual
Platform revenue at a compounded rate of approximately 30% during
Mr. Olivier's tenure.
- In addition, despite the market headwinds, the Company has
taken steps that have led to record Adjusted EBITDA and cash flows
for the business despite the challenging economic
environment.
Acquisition Strategy
- Mr. Derycz describes the Company's acquisition execution as
"too little too late," however, he is fully aware that the
acquisition strategy has been hampered by high trading multiples
during the early part of Mr. Olivier's tenure, making it difficult
to find actionable opportunities6. In fact, our
management team has been complimented by shareholders on numerous
occasions for being patient and not buying at the top of the
market.
- Despite this, the Company has completed two acquisitions during
Mr. Olivier's tenure, including the FIZ acquisition which has been
accretive to the Company's results while at the same time expanding
its list of transaction customers, which have the potential to be
upsold to the Company's software platform in the future.
- In addition, Mr. Derycz is fully aware that the Company has
two more potential acquisitions under executed non-binding Letters
of Intent (LOI) that the Company is working to close in the
coming months. Those acquisitions are expected to add
approximately $4M in ARR and both
targets are presently profitable. Whether intentional or not,
Mr. Derycz's actions are impacting the Company's ability to execute
on these opportunities.
High Turnover Among the Senior Management Team
- Mr. Derycz statements on turnover are high on opinion and
hearsay, but low on facts supporting his claims. Further, despite
his claims that turnover has "led to concern about the Company's
direction", the Company's results in this area include:
-
- Voluntary turnover for FY23 was approximately 9%, well below
the US Bureau of Labor Statistics 2022 (19%) and 2023 (16%) data
for the Information Industry7.
- The approval rating for the current CEO on Glass Door is
80%8.
- No material turnover in the direct reports of senior management
that was replaced.
- To recap, during the final 10-year period when Mr. Derycz was
CEO, during such time when he and his management team experienced
material increases in compensation, the prior management team:
-
- Did not grow Company revenues
- Did not run the Company profitably
- Did not achieve stock price appreciation for shareholders
- In addition, Mr. Derycz is fully aware of what drove the
turnover within the management team and did not formally object to
any of the changes made at that time.
- Turnover in senior management is common with a CEO change,
especially when switching to an operator-run business from a
founder-run business where some of the senior management team are
long-time friends and colleagues of the founder.
Conclusion
In conclusion, it is regrettable that the Company must go
through this during a time when Mr. Olivier and his team's hard
work over the past two years are beginning to produce
results. In addition to the business distraction, the proxy
fight process will be very expensive for the Company. We
remain committed, however, to supporting the management team
through this process so we can fully dedicate our time to executing
on the Company's strategic plan and increasing shareholder
value. We look forward to communicating further with you in
the coming weeks.
/s/ John Regazzi
/s/ Barbara Cooperman
/s/ Merrill McPeak
/s/ Eugene Robin
Forward-Looking Statements
Certain statements herein may contain "forward-looking
statements" regarding future events and Research Solutions, Inc's
("we," "us," "our," "Research Solutions" and/or the "Company")
future results. All statements other than statements of
historical facts are statements that could be deemed to be
forward-looking statements. These statements are based on current
expectations, estimates, forecasts, and projections about the
markets in which we operate and the beliefs and assumptions of our
management. Words such as "expects," "anticipates," "targets,"
"goals," "projects", "intends," "plans," "believes," "seeks,"
"estimates," "endeavors," "strives," "may," or variations of such
words, and similar expressions are intended to identify such
forward-looking statements. Readers are cautioned that these
forward-looking statements are subject to a number of risks,
uncertainties and assumptions that are difficult to predict,
estimate or verify. Therefore, actual results may differ materially
and adversely from those expressed in any forward-looking
statements. Such risks and uncertainties include those factors
described in the Company's most recent annual report on Form 10-K,
as such may be amended or supplemented by subsequent quarterly
reports on Form 10-Q, or other reports filed with the Securities
and Exchange Commission. Examples of forward-looking statements
herein include statements regarding our expected results for our
fiscal fourth quarter and fiscal year ended June 30, 2023, positive momentum in the business,
future personnel decisions, the effectiveness of the Company's
business strategy, the Company's acquisition strategy and the
Company's prospects for growth. The preliminary financial and
operating results presented herein are an estimate and subject to
the completion of the Company's financial closing and other
procedures and finalization of the Company's consolidated financial
statements for its year ended June 30,
2023, including the completion of the audit of the Company's
financial statements. Accordingly, actual financial and
operating results that will be reflected in the Company's Annual
Report on Form 10-K for the year ended June
30, 2023, including its audited financial statements, when
they are completed and publicly disclosed may differ from these
preliminary results. In addition, any statements regarding
the Company's estimated financial performance for the fourth
quarter 2023 do not present all information necessary for an
understanding of the Company's financial condition and results of
operations as of and for the quarterly period ended June 30, 2023. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance, achievements, or events and circumstances reflected in
the forward-looking statements will occur. Readers are
cautioned not to place undue reliance on these forward-looking
statements. The forward-looking statements are made only as of the
date hereof, and the Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking
statements. For more information, please refer to the Company's
filings with the Securities and Exchange Commission.
Additional Information and Where to Find It
Research Solutions intends to file with the Securities and
Exchange Commission (SEC) a proxy statement on Schedule 14A,
containing a form of WHITE proxy card, with respect to its
solicitation of proxies for Research Solutions' 2023 Annual Meeting
of Stockholders. This communication is not a substitute for any
proxy statement or other document that Research Solutions may file
with the SEC in connection with any solicitation by Research
Solutions. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ
THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO) FILED BY RESEARCH SOLUTIONS AND ANY OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE CAREFULLY
AND IN THEIR ENTIRETY BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT ANY SOLICITATION. Investors and security
holders may obtain copies of these documents and other documents
filed with the SEC by Research Solutions free of charge through the
website maintained by the SEC at www.sec.gov. Copies of the
documents filed by Research Solutions are also available free of
charge by accessing Research Solutions' website
at www.researchsolutions.com.
Participants
This communication is neither a solicitation of a proxy or
consent nor a substitute for any proxy statement or other filings
that may be made with the SEC. Nonetheless, Research
Solutions, its directors and executive officers and other members
of management and employees may be deemed to be participants in the
solicitation of proxies with respect to a solicitation by Research
Solutions. Information about Research Solutions' executive
officers and directors is available in Research Solutions' proxy
statement for the 2022 Annual Meeting of Stockholders, which was
filed with the SEC on October 7,
2022, and Statements of Change in Ownership on Forms 3, 4 or
5 filed with the SEC. These documents are or will be
available free of charge at the SEC's website
at www.sec.gov.
1 Source: Yahoo Finance
2 All compensation data from company filed proxy
statements 2011-2021
3 Source:
https://www.sec.gov/Archives/edgar/data/1386301/000155837021007086/rsss-20210331ex101931524.htm
4 Trailing twelve months ("TTM) from and for the period
ending March 31st,
2021
5 Fiscal year 2023, as reflected and interpreted
from the Company's press release on August
14th, 2023
6 According to the Software Equity Group the EV/TTM
Revenue Multiple peaked at 16x in Q3 21 and was 5.6 in Q2 23
7 As of August 9th,
2023
8 As of August
7th, 2023
View original content to download
multimedia:https://www.prnewswire.com/news-releases/open-letter-to-shareholders-from-research-solutions-board-committee-301900183.html
SOURCE Research Solutions, Inc.