Peter Derycz - President and CEO Alan Urban - CFO

Peter Rabover - Artko Capital George Melas - MKH Management

Thank you, operator, and good afternoon, everyone. I’ll open the call with a few brief comments about our fourth quarter and fiscal year 2018, and then pass the call to Alan to speak about our results in greater detail.

Finally, I will return to address other initiatives and our outlook. We ended fiscal 2018 on a strong note, sustaining the momentum we experienced in our Platform business in the first three quarters and reporting steady growth in our Transactions business.

Our mission to deliver workflow efficiency solutions to organizations in life sciences, technology, and academia is working, but I’d like to point out a couple strategic accomplishments underlying our performance. At the beginning of our fiscal year, we launched the Gadget Factory, which builds and delivers smart apps to our Platform users and allows us to tailor to specific industry verticals.

Our Gadget framework has evolved since then to bring nearly daily innovation to our users, and it is a critical component of our customer attraction, retention, and satisfaction. We have built hundreds of gadgets and gadget enhancements since launching the Gadget Factory.

Our Gadget Factory is comprised of scientists and engineers working hand in hand to build cool gadgets that save our research customers’ time and money; therefore accelerating their research as well as making it more efficient. I’ll highlight a few of these later on this call.

We grew our Platform deployments by 62% ending the year with 227 active customers and 2.3 million in annual recurring revenue at a gross margin of nearly 80%. Most new subscribers continue to come from the vastly underserved small and medium-sized business markets, and we remain committed to further penetrating this market in the future.

During the fourth quarter, we successfully migrated almost every customer to Version 2.0 of our Article Galaxy platform and launched Version 2.1 in May, and we continue to receive excellent feedback. We began to take steps to retool our sales and marketing departments, focusing on more efficient ways of acquiring customers.

While this strategy is still in the early innings, it began to have impact on our fiscal 2018 results, and we are even more excited about our plans in fiscal '19 and beyond. I will have more to say about this shortly.

As a whole, a lot was accomplished in fiscal 2018. We simplified and improved our business, took our technology to a new level, and significantly reorganized our approach to selling and marketing.

In fiscal 2019, we’re looking to bring a whole new level of happiness and return on investments to our customers and shareholders, as well as providing an exciting, satisfying, and flexible place to innovate and work for our team. But before I expand upon this and other initiatives, I’d like to pass the call to Alan to walk through our fiscal Q4 results in detail.

Alan?

Thank you, Peter, and good afternoon, everyone. Jumping right into our fiscal fourth quarter results, our Platform subscription revenue increased 66% to $529,000 in Q4 which was driven by a 62% increase in total Platform deployments to 227.

This translates into 19 net new incremental deployments in Q4. The quarter ended with 2.3 million in Platform annual recurring revenue, up 14% sequentially and 64% year-over-year.

Please see today's press release for how we define and use annual recurring revenue and other non-GAAP terms. Our transaction revenue was up 2% to 6.6 million compared to the same year-ago quarter.

This was driven by 7% growth in total customer count to 1,081. In addition, the number of corporate customers was up 5% to 851 and academic customers were up 14% to 230.

Together, this drove a slight increase in Transaction count to approximately 213,000. Together, these businesses delivered consolidated revenue growth of 5% to 7.2 million versus 6.8 million in the same year-ago quarter.

Moving on to gross margins, our Platform business saw gross margins increase by 310 basis points to 80.8% compared to the same year-ago quarter. This increase was driven by proportional decreases in third-party data costs.

Our target Platform gross margin remains in the high 70% to low 80% range. Gross margin in our Transactions business was up 50 basis points to 22.9%, and we continue to take actions to improve margins, such as price increases and cost efficiencies.

Consolidated gross margins increased 220 basis points to 27.2% compared to the same year ago quarter, primarily due to the continued revenue mix shift to our higher margin Platform business, and a 50-basis-point increase in our Transactions business. Our total operating expenses decreased to $2.1 million compared to $2.5 million in the same year-ago quarter.

The decrease was primarily due to the continued optimization of sales and marketing resources and open positions. Net loss from continuing operations totaled 136,000 or negative $0.01 per share compared to a net loss of 757,000 or negative $0.03 per share in the year ago quarter.

Adjusted EBITDA totaled negative 27,000 compared to negative 608,000 in the same year ago quarter. While year-over-year adjusted EBITDA continues to improve, we remain opportunistic to future growth opportunities if we believe it could further accelerate Platform customer adoption and revenue growth.

Moving on to the balance sheet, cash and equivalents at June 30, 2018 amounted to $4.0 [ph] million versus $5.8 million at June 30, 2017. There were no outstanding borrowings under our revolving line of credit, and our balance sheet continues to remain clean with cash and receivables comprising nearly all of our assets and accounts payable, accrued expenses, and deferred revenue representing nearly all of our liabilities.

This completes our financial summary. I’ll now turn the call back to Peter.

Peter?

Thanks, Alan. I’d like to spend more time on our Platform business.

As we mentioned, the strong growth in this business continues. We expect to sustain this momentum by executing upon two key initiatives.

First, we will continue to make framework additions that provide the customer with an enriching user experience. As I mentioned, Version 2.1 went live in May and we launched some powerful new features and gadgets to further enhance collaboration between work groups and improve the efficiencies of importing and exporting useful data between the platform and external databases in sources of information.

One example of these gadgets is our PubsHub Journals and Congresses gadgets, which allows researchers to search through thousands of peer-reviewed journals and congresses where they can learn about new research or submit their own research publications. Additionally, in October, we are launching our Records Manager gadget that allows users to gather research that’s important to them, organize it and even collaborate around it with colleagues in their work groups.

Drag-and-drop functionality will be added over time so that key research in any gadget can be easily integrated into Records Manager as well as other gadgets in such a way as to create an ecosystem of gadget functionality and efficiency. We now plan to launch Version 2.2 in early October.

Although we initially expected this version to go live in early summer, we delayed the release to ensure all new capabilities would function properly and finalize the pricing structure of the self-registration aspect of the Platform. As we have mentioned previously, Version 2.2 will feature new self-registration capabilities that will allow for more efficient lead generation and frictionless sign-ups, which we believe will drive more deployments in the future.

This new framework will also be launching new platform gadgets and gadget enhancements on a daily basis. With the Platform, users will be able to submit new gadget ideas to our Gadget Factory that can create and implement suggestive gadgets to all users on the Platform.

Our gadget-oriented systems architecture allows us to be super agile in response to customer requests for new functionality and tailor the Platform to specific verticals. We believe this highly collaborative experience with our customers will deliver exceptional new gadgets that we may never have thought of, ultimately improving the user experience and building a community within the Platform.

Second way to continue our Platform momentum is reconstructing our sales and marketing organizations to not only drive our growth but do it in a way that optimizes efficiency and investment returns. We are seeing this initiative come to fruition as we recently announced the hiring of Rogier van Erkel, our new Chief Sales Officer; and Yohann Georgel, our new Chief Marketing Officer.

In addition to those announced team members, we consolidated a few activities into a new customer happiness group led by our own industry veteran Shane Hunt. Our customer happiness group is focused on customer retention as well as educating and upselling existing customers as new gadgets and gadget enhancements are released.

These three groups; sales, marketing and customer happiness will be the three engines driving our Platform growth in fiscal 2019 and beyond. Rogier brings over 10 years of experience in sales management expertise, most recently leading a global sales team for Elsevier, one of the world’s major providers of scientific, technical and medical information.

Yohann brings over 10 years of experience in marketing, most recently serving as the senior director of digital marketing for PrimeSport, a leader in providing direct access to sporting events across the world. Both Rogier and Yohann possess deep knowledge in their respective fields and have proven their ability to lead and grow dynamic sales and marketing teams.

With these two at the helm of our sales and marketing departments, we anticipate efficiently acquiring more customers through digital marketing, content generation and focused sales management. As we rapidly expand and focus on further penetrating 7 billion Platform market, particularly the underserved SMB market, our new sales and marketing leaders will be crucial in becoming a key work focus solution for R&D-driven businesses.

Our customer happiness group led by Shane who has been with us for six years will ensure that customers onboarded by our sales and marketing activities find a happy home with our cutting-edge Platform and grow with us. In summary, our strong fourth quarter and fiscal year 2018 results are an indication that our strategy remains on track and we expect to continue this momentum into fiscal year 2019.

We believe the new features in Version 2.2 of our Platform, particularly self registration and the ability for a user to suggest new gadgets, will continue to drive growth in our Platform business. These upgrades, along with the new leadership and restructuring of our sales and marketing teams, positions us well to further penetrate the multibillion dollar Platform market.

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

Hi, guys. Can you hear me?

Sure we can.

Peter, I just wanted to follow up. At what point do you think – I think you guys have mentioned you have about 225 Platform customers, and what will be kind of the magic number for the industry you think to think of this as a proof of concept that it is a must-have instead of a novelty?

Yes, I think for the customers that are using it, it is already a must-have and that sort of manifests itself in our negative churn rate at this point. So, I think for that group, yes, but in terms of the wider market, I think we’re going to just really have to prove that we can get a lot of new categories of users with our new self-registration capabilities.

So these self-registration capabilities are pretty close to going live, and I think we’re interested in measuring and providing key performance indicators to you and everybody else with regards to what the ramp up is in the different categories of buyers. We’re going to really have sort of like free users, we’re going to have paid professional users, workgroups as well as enterprise.

So, enterprise is going to be expanded upon, and so I think if we see some uptake in all these different categories, I think we’ll be in a good spot. I think just measuring enterprise only won’t be enough.

I think we’ll have to really collect and disclose data on some of the other categories. We’re looking – for me, in my mind, I’m looking at no reason why we shouldn’t have a 1,000 or 2,000 or 5,000 or 10,000 enterprise customers.

It’s just a matter of time and getting thereby making it easy to become a customer which we just haven’t done in the past.

Okay, great. And then could you maybe comment on your, I guess, expectations as a proportion of the Platform revenue like kind of a normal run rate for the Gadget Factory?

Is that something you think will be a meaningful revenue contributor or no?

Yes, the Gadget Factory is just a way for us to be super responsive to the market. And so, when new customers or prospective customers come onboard, and they say, oh, this isn’t what I thought it was.

I tried to use this module in your system, it’s lacking this button. We’re going to say, oh, great.

We’re lacking something. Tell us what it is, suggest a gadget or a gadget enhancement, and our Gadget Factory is just designed there to be responsive to make the product evolve very, very quickly so that customers that may not find exactly what they want can quickly get satisfaction, and we think that if a customer is taking the time to explain to us what they find that’s missing or what they would like to see in the platform and we take the time to respond to that, that we will be not only responding to that one prospect or that one customer but we will be responding to the market at large, because there’re probably a lot more people like that.

Okay. Would you be open to other developers I guess putting on gadgets or apps on your platform where you could – kind of revenue generating for them that you’d be open to?

Yes, so we have sort of a very broad, let’s say a three-stage strategy I would call it that we don’t really talk about a lot, but initially when we build out the Platform, it was built on our ideas and that was based on feedback from our existing customers. So there’s a lot of internally generated idea, which I would call Phase 1 of idea generation around here.

With the Version 2.2 launch to the Platform, we’re entering what I call Phase 2 which is, hey, the market can suggest some ideas. This is great.

We can build a community of customers and prospects that can help make our platform a more useful tool. And then, I do see in the future, which I don’t have a date for you, but I do see a future that’s just like what you’re mentioning is why not after Phase 2 and well on its way, why not put a SDK out, software development kit out to help other people just build gadgets that they could think are cool on their own time and just submit them for approval into our gadget framework sort of like what some of these app marketplaces do.

But I do see that as a Phase 3. Right now, we’re barely entering Phase 2, so we’re still in our infancy here with gadget development, but that’s sort of the way I see it long term.

Okay, great. Thank you so much for the color.

I appreciate it.

No, thank you. These were great questions.

Thank you. Hi, Peter.

Hi, Alan. I have a question on the enterprise sales.

When you are making that sales and approaching potential prospects, whether they are SMB or enterprise, and that’s probably quite different than hopefully part of the answer. What are you replacing in terms of Platform or application?

In a way it’s kind of – what is the hurdle to making a sale at the enterprise level?

Yes, I think that’s a good question. I would say that we are running into a lot of homegrown solutions, so our Platforms are unique in what it does and it’s becoming more and more unique as the gadgets developed and all the feature and functionality start becoming visible.

So, I think it’s really a matter of people building yourself. So we have a lot of situations where we have small companies that are growing and they have some staff doing some pieces of it and they’ve written some custom code that do other pieces of it, but then those types of setups tend to break down as they try to scale up.

And so, I think we see a lot of replacements of let’s say just homegrown and staff-driven type of processes. There are some competitors in the transaction part of our business where we’re selling articles.

So in that case, yes, we compete in an open marketplace where anybody can buy any article they want from any publisher, and in that arena we also compete against piracy as well. But the good thing on the enterprise side is that most of our customers don’t think too highly of piracy and like to do things properly, so they want a platform that can help deliver efficiency as well as compliance.

And so yes, piracy, a bit of do-it-yourself and a few competitors here and there of different categories that do pieces of [indiscernible].

Okay. And Peter, is that why sort of the SMB field is not quite greenfield but almost greenfield because they haven’t really built sort of elaborate homegrown platforms but maybe larger corporations have, so it will take some time to maybe display these homegrown platforms?

Yes, I think in that sense it’s all about marketing. Right now – historically, we do have a lot of large customers, lot of large pharma, a lot of large biotech, aerospace engineering.

There are a lot of big names and they’re customers of ours that use our Platform. So it is what I would call a super industrial strength Platform from a security perspective, from an authentication perspective and from the future and functionality that the Platform provides.

So what we’re doing is we’re democratizing in a way the tools that a lot of the big customers have and bringing them down to these SMB, small and medium-sized businesses. And there’s just so many of them and they’re in so many different places that we think that the way we’re going to get them as customers is not by going around knocking on doors.

All the big companies, we know who the big companies are, we know which doors to knock on, there’s only 20 Top 20 pharma. But we can target about hundreds of thousands of small and medium-sized research-based organizations.

It’s really about marketing. How can they find out about what we do?

And so that’s why we’ve setup the self-registration capabilities of the Platform so anybody that runs into us for whatever reason can sign up and get an account right away. And then we’ve also, like I mentioned during the call, we organized our sales and marketing organization so that we become a lot more marketing driven and find – we’re not knocking on doors but the people are signing up.

And then from the people that sign up, we can find new enterprise customers in there.

Okay. And then maybe just another quick question on sort of workgroup collaboration.

Can that be done across companies so it would be intercompany collaboration whether it’s between companies or company and an academic institution or is it really sort of within the confines of one enterprise?

Yes, we find our strength to be in the areas of authentication, corporate security, data security and so on. So we think the strength of our application is that we can actually build walls between organizations so that the scientist and researcher of one organization cannot see and collaborate with let’s say scientists and researchers at a competing corporation.

So we do feel that our strength is in building research efficiency silos, one for each research-based organization. Now, if they want to invite each other to come into their account and things like that, there are mechanisms for doing that.

But by its very nature the platform is designed to keep research confidentiality in mind, keep authentication in mind and keep security in mind.

Okay. Thank you very much.

You’re welcome.