Research Solutions Inc (RSSS) 2026 Q1 法說會逐字稿

(Operator Instructions) Good afternoon, everyone, and thank you for participating in today's conference call to discuss research solutions, financial and operating results for its fiscal 2026 first quarter ended September 30, 2025. (Operator Instructions) I would now like to turn the conference over to your host, John Beisler, Investor relations.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Research Solutions first quarter fiscal year 2026 earnings call. On the call with me today are Roy W. Olivier, President and Chief Executive Officer, Bill Northern, Chief Financial Officer, and Josh Nicholson, Chief Strategy Officer.

After the market closed this afternoon, the company issued a press release announcing its results for the first quarter of fiscal 2026. The release is available on the company's website, researchsolutions.com. Before Roy, Bill, and Josh 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 1,995.

Actual results may differ materially from those expressed 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 and uncertainties 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, the GAAP measures is included in today's earnings press release as well.

Finally, I would like to again remind everyone this call is being recorded and made available for replay via a link on the company's website. I would now like to turn the call over to President and CEO Roy W. Olivier. Roy?

Thank you, John. The first quarter continued our progress in improving our B2B new logo sales teams as well as our transformation to becoming a comprehensive SA and AI solution for scientific research. It is the strongest organic first quarter B2B results on record. Total ARR for the quarter is up 21% driven by that strong B2B performance.

That performance includes closing some of the largest deals in the company's history, including new platform sales to Real Chemistry, a TOP10 pharma company, and others. This resulted in the company's ESP increasing and also contributed to driving our second highest quarterly adjusted EBITDA result as well as strong cash flow.

I'd like to pass it over to Bill to walk you through the financial, the, I'm sorry, the fiscal first quarter financial results in detail, and then I'll wrap up with some comments and outlook for the remainder of the year. And Josh will discuss our strategy, Bill.

Thank you, Roy, and good afternoon, everyone. Total revenue for the first quarter of fiscal 2026 was $12.3 million compared to $12 million in the first quarter of fiscal 2025. Our platform subscription revenue increased 18% to $5.1 million. The growth was primarily driven by a net increase of platform deployments from last year as well as upsells and cross-sales into our existing customer base.

We ended the quarter with $21.3 million in annual recurring revenue or ARR, up 21% year over year, which consisted of roughly $14.8 million in B2B ARR and approximately $6.5 million in normalized ARR associated with site's B2C subscribers. By Q1 standards, this was a strong quarter for ARR growth. Total incremental ARR for the quarter was 375,000 compared to 195,000 in the prior year quarter, which represents a 92% increase.

Moreover, B2B growth was especially strong at 561,000 for the quarter, up from only 128,000 last year. While we did experience a decline in B2C ARR, last year's increase was relatively minimal in what is seasonally a challenging time for B2C growth. Additionally, on a positive note, we are also seeing an increase in B2C leads that are transitioning into B2B business.

Please see today's press release for how we define and use annual recurring revenue and other non-GAAP items. Transaction revenue for the first quarter was $7.2 million compared to $7.7 million in the prior year quarter. You may recall from our fourth quarter fiscal year 2025 earnings call. In which we discussed an 8% decline.

In transaction revenue that we expected transaction growth to continue to be challenging minimally through the first half of fiscal 2026. As a result, the decline for the quarter was in line with our expectations and was actually a little improved over the decline we experienced in the fourth quarter of fiscal 2025.

Our total active customer account for the quarter was 1,326 compared to 1,390 in the same period a year ago. Gross profit for the first quarter was $6.2 million, up 8% from the prior year quarter. Gross margin was 50.6%, a 270-basis point improvement over the first quarter of 2025.

The increase is due to the ongoing revenue mix shift towards our higher margin platforms business, which was also enhanced by expanding gross margins in the platforms business. Platform revenue accounted for 42% of the revenue in the quarter compared to 36% in the prior year quarter. On a trailing 12-month basis, the company blended gross margin now stands at 50%.

The platform business recorded gross margin of 88.1%, a 70-basis point increase compared to the prior year quarter. We have been able to continue to expand gross margins in the platform's business as our labor and hosting costs continue to increase at a proportionally slower pace than our revenues. Gross margin in our transaction business was 23.8% compared to 25.7% in the prior year quarter.

The decrease was primarily attributable to lower copyright margins and lower fixed cost leverage due to the reduced revenue base. Total operating expenses in the quarter were $5.3 million compared to $5.1 million in the prior year quarter. Higher sales and marketing expenses were partially offset by lower general and administrative expenses and lower stock-based compensation expenses.

We have made a concerted effort to keep general and administrative costs contained as we increase investment in other parts of the business. Net income for the quarter was $749,000 or $0.02 per diluted share compared to $669,000 or $0.02 per diluted share in the prior year quarter.

Adjusted EBITDA for the quarter was $1.5 million compared to $1.3 million in the year ago quarter, a 16% increase. This was the second-best adjusted EBITDA performance in company history, and with Q3 and Q4 typically being our strongest quarters for adjusted EBITDA, we are off to a very strong start for the year.

Turning to our balance sheet, cash and cash equivalents as of September 30, 2025, were $12 million versus $12.2 million on June 30, 2025. It is important to note that during the quarter we made our first payment of the site earnout which consisted of $1.3 million in cash and the issuance of approximately 265,000 shares.

Despite the cash outlay related to the earn out, we are almost back to where we ended Q4, which means our operational cash flow remains very healthy. Cash flow from operations was $1.1 million compared to 843,000 in the first quarter of fiscal 2025, a 31% increase. We continue to believe that we can grow our cash balance in fiscal year 2026 while also continuing to service the site earnout from operational cash flow.

Further, there are no outstanding borrowings under our revolving line of credit. As we look ahead, we are off to a good start for fiscal year 2026. As you may recall from our prior earnings call, I discussed some of the seasonality in our business with respect to adjusted EBITDA. Typically, we see a dip in adjusted EBITA between Q1 and Q2.

Before rebounding to higher levels of adjusted EBITDA in Q3 and Q4, with Q4 usually being our best quarter of performance. We think that it is likely that this seasonality will play out again in fiscal 2026. But we think the dip will be less pronounced in Q2 from where it was last year. And there's also a shot at some EBITDA growth sequentially between Q1 and Q2.

All that said, our goal remains to experience outperformance to fiscal 2025 in each of the remaining quarters for the fiscal year. To the extent we can execute on that. It will be another record year for the company, and we will continue to experience expansion in cash flows generated by the company. I'll now turn the call back to Roy. Roy?

Thanks Bill. A few comments about the transaction business. In last quarter's call, we discussed that we thought the year over year decline was driven by zero-click searches. Further research suggests that may not be the case. Our academic segment is growing and the corporate segment is declining, with about 60% of that decline coming from one churned account.

The remaining churn dollars are primarily to customers who are very large and are buying less year over year. Both report that this is based primarily on the current economic environment or changes in their research priorities. In short, three customers are largely driving the year over year results. As we started investing about this time last year in more to B2B sales resources.

We continue to actively monitor these investments to ensure that we are seeing a return on them. In looking at the first half of FY25. Actual results versus our current forecast for the same period in FY 26, we expect to see new ARR growth to be materially higher than the incremental sales investments we made. We expect the new logo teams to generate.

Over $1 in new arar for every $1 invested. We expect to see the churn upsell team generate a bit under $1 in arR for every $1 we've invested. This suggests a payback period of a little over one year. On products that have a six-to-eight-year lifetime value. In my view, we need to continue to show improvement on the upsell churn teams, but overall, the investments we have made are working.

As previously discussed, the new sales process is resulting in rising ASPs. We continue to set records in terms of total contract ARR and per seat ARR through better sales execution, especially with our AI-based products. While we saw less than expected B2C netRR growth in Q1, we're starting to see more traction toward B2B strategic revenues from B2C.

As B2C are primarily month to month subscribers who are attending school or researchers in a corporate account that are trying out the product. We're seeing an increasing number of those users TRY the product and then report back to their academic or corporate enterprise that it should consider an enterprise subscription.

A year ago, in Q1 FY25, about 50,000 of our total sales pipelines came from this B2C to B2B channel. At the end of Q1 FY26/ $1 million of our pipeline came from BtoC. Now I'd like to turn the call over to Josh to talk a little bit about our current thinking on product strategy usage. Josh.

Thanks, Roy. Thanks, Roy, and hello everyone. I'm going to spend a few minutes connecting what we're seeing in the market to the strategic decisions we've been making over the last few quarters, especially around AI rights, site, Article Galaxy, and our role as publishers. So a few key trends worth calling out. One is enterprises want to use AI on their articles. Another is publishers are moving into AI licensing,

and then a third one is the AI usage of articles is not being tracked. In response to these market trends, we have made various product additions, tweaks to our go to market offerings, and made sure we're aligned with where the market is going. On the first point, enterprises wanting to use AI on research articles, we've launched an AI rights offering in Article Galaxy called Rights Dell.

Rights Dell allows the researcher to acquire AI rights for documents they already own. The revenue we charge for those rights is split between the publisher and research solutions in a similar manner to the transaction business we have today. This gives publishers a way to monetize AI usage of their content either on an article-by-article basis or across a company's existing library.

We believe this will grow platform seat revenues, lead to more cross sales, increased transactional purchases, and ultimately decrease churn. On the second point, publishers moving into AI licensing, we are working with our publisher partners to offer an AI gateway product based on site in which customers can purchase the rights to use AI with all of that publisher's content to materially improve the productivity of their research teams.

This would create an AarR upsell opportunity for publishers in their academic and corporate customers and as a revenue share with research solutions while deepening our role as their AI technology partners. This is a major challenge for our industry, especially the long tail of medium and small publishers, and as we solve this GAAP, it could make sites smart citations a key part of AI infrastructure

and a key partner to publishers. On the third point, AI usage of articles not being tracked. Today, the industry standard is counter-compliant usage metrics. These usage metrics show how many times articles have been downloaded or read, and they're central to how libraries and publishers assess the value and ROI of subscription spending. There's no equivalent for AI usage today.

By working with publishers to deploy our AI gateway, we can introduce AI-specific usage metrics that play a similar role to counter for traditional usage, giving publishers visibility, creating a basis for pricing and value discussions, and enabling a clear upsell and revenue share opportunity for AI analytics and rights on top of existing subscriptions.

This would be a huge value to both the publisher and our corporate and academic users. Researchers expect tools like Site Assistant and Article Galaxy to help them answer concrete questions, summarize bodies of work, and find key insights across many articles using AI.

We believe we're well positioned to do that in a copyright compliant way that delivers real value to customers while generating new sources of revenue for research solutions and our publisher partners. Thanks again for having me, and I'll turn it back to Roy.

Thanks, Josh. Looking forward, we expect to focus on several areas for the remainder of the year. First, improve site B2C net growth through product improvements. The pace of delivering those improvements. The marketing and sales messaging around our unique capabilities in this segment.

Second, continue to show improvements in overall arR growth and ESP growth through better sales execution and improving our products. Third, demonstrate improvements in the retention and upsell part of the business by driving proactive versus reactive customer engagement through better health scoring and product improvements.

fourth, continue to innovate in the transaction or docktail space to return that business to a flat to slow growth business. And lastly, manage our cost structure to continue progress toward our goal of a weighted rule of 40. With that, I'd like to turn the call back over to our operator for Q&A, operator.

(Operator Instructions) Our first question comes from Jacob Stefan with Lake Street Capital Markets. Please go ahead.

Yeah, thanks guys. Nice quarter on the B2B growth and, on profitability as well. I just want to talk about the attached rate on the AI rights add-on product. Maybe you could help us think, through attach rate on a kind of new logo deals, versus kind of current customer add-ons and, maybe just, part B of that question would be how significant that in the overall ASP uplift is that we're seeing.

Yeah, I don't think we have a clear answer to either of those questions. The product is brand new. We've sold it only to some existing customers, and we are currently signing up more and more publishers to participate in that product. So, I think the next quarter or two we'll start to get better visibility on an attached rate. To your second question, there has been some industry chatter recently about what type of uplift on ARR.

SAS or AI, well, vertical Sas companies expect by adding AI to their vertical SAs solution. And one of those studies suggests the uplift opportunity is about 50% of the ARR. As a reminder, our kind of AG business is about 11.something million dollars in ARR, so that could be a material uplift. However, we have a long way to go before we really understand what the real rate is going to be. Bill or Joshua, feel free to add to that.

I think he, I'll just say Yeah, I'll just say that it was not a big contributor to the ASP increase for this quarter. That was more, the larger, new logo deals that Roy talked about, earlier in the call.

Yeah, okay, yeah, thanks for the color there. I'm wondering also maybe you could help us think through some of the overall product, strategy shift in B2C, maybe how are you planning to actually increase the attached rate, or the, and the net churn as well? That would be helpful.

On BBC I think from the, go ahead, Josh.

I think from the product perspective, how we got to success was being pretty critical on every single aspect from sign up to completion of using, say, site search or site assistant. I think we lost a little bit of that and, slowed us down in kind of the velocity and so we're back on pace and I think, rigorously looking at every single metric from sign up to conversion and rigorously testing. Right,

so a lot of testing to optimize and make sure that you know we're competitive with that, and I think that's, maybe a little bit of a reflection of joining a company where it takes some time to kind of get into that fit or swing, but I think now the velocity has really hit, and I think, product is, starting to catch back up.

Yeah, very helpful to comment. I think just comment on that further, we have obviously much more competition today than we did a year ago, and that is certainly impacting the, conversion rate on the product, and I think Josh and the team are doing a lot of really great work now in terms of rolling out product improvements that we think will materially move that conversion rate back up to where we'd like it to be.

Turn on that product turn on that product's actually been improving, so, turns going up, lifetime value is going up, the issue we're having is new subscriber sign up conversion from trial, which is not where we'd like it to be and not, it's below where it was last year, and I think that's partly product and partly messaging and being clear about the distinct advantages we have by having access to content behind the paywall.

Okay, interesting. I, I'm wondering if Maybe you could help us think how long is the trial period on that product and are you seeing that you know maybe students sign up for, just the trial and then cancel it you know basically to get them through one paper or something like that is that kind of what you're seeing?

Yeah, the trial is Just seven days. Hold on, yeah, hold on, let me just mention, a churn is improving. In other words, we have materially less churn this year than a year ago, so they're not signing up and they're not signing up for seven days and leaving. Lifetime values going up.

However, in the spring people cancel because they're going to be out of school for summer and then they re-sign up in the fall and so the re-sign up process or attracting new people in the fall is where we go through a trial which Josh just mentioned is seven days and then we convert. That to subscribers and our conversion rate's not where we'd like it to be. Sorry, Josh, go ahead.

Yeah, I was just going to say, it is seven days and you know in many cases the product has improved significantly in terms of the output you get out of it, where it was you can get a few paragraphs, you can get now a 15 page fully referenced report and so to your point, sometimes you know the success of the product means they're solving their problems quicker

and so, we think about all these different aspects, not just conversion rate, but how many queries are they doing, what is the weekly active users, the monthly active users. And I think again you know we need to be really disciplined looking at those numbers across the board and then optimizing kind of the product decisions around what gets deployed. Does that increase the conversion rate?

What does that do to the lifetime value of the customer and then also, the usage of various KPIs, and so we are, I would say, in a much better position now. We've also started to really leverage a lot of AI in our own development work.

Which has greatly accelerated the ability to deploy new features and a lot of UIU exchanges that are necessary for testing, you can easily run a test on this button moving here versus there and what does that do to conversion rates and things like that.

Okay, got it, very helpful guys, thank you, nice work.

Our next question comes from Richard Baldry with Roth Capital. Please go ahead.

Thanks. So of hoping you could drill a little more deeper into the call it non-typical or non-seasonal strength you saw in ARR in the first quarter then looked up versus prior years, and it was, multiples of what you've seen before. Is there a breakdown where you think that's coming from? Was there any sort of pull forwards that we have to be cautious about, looking forward, or is there something sustainably higher going on there? Thanks.

Yeah, there was no pull forwards, I would say over the last year we have, upgraded. Well over half of our sales teams we've spent, well in the six figures on training an entirely new sales process where we work with the customer closely to understand the problem we're solving and assess the value of solving that problem for the customer and then pricing accordingly.

And I think just having a much more disciplined and focused sales process in addition to marketing is doing a great job driving top of the funnel leads into that sales team resulted in the arR that we posted. Bill or Josh, you're welcome to add to that.

I'll just add that the you know some of it also was again some of the larger deals but I think that's not a onetime thing you know we have again we started talking about it last quarter and then obviously some this quarter and the sales team is focused and I&I know we have other deals in the pipeline now that are,

kind of some similar size to some of what we saw in Q1 so that definitely helps the situation when you can land, one to two to three of those in a quarter. But I think that's something that you know we have a chance to do each quarter going forward as well.

And switching to the expense side, the G&A is the lowest in almost two years, I think. Is there again, anything one time oriented there, or sort of out of pattern that would reverse itself, or is this sort of a sustainable level? How do we think about that forward?

Yeah, as I said, we had some concerted effort to keep the cost down. I think in some prior quarters we may have had some legal and stuff there is, we did have an executive, departure at the end of, last quarter, so some of that reduction there is that, executive, no longer being in the business, and we were sort of able to, kind of replace that with some resources that are just, more efficient from a cost perspective.

So, I do think it's decent, sort of to think about it as a run rate with maybe a little bit of exception here and there as being a little bit low, barring some kind of something that drives legal expense or a runtime recruiting item of some sort, I think we can modestly increase that through the year.

And then last for me, so switching gears to AI internally as opposed to talking externally, this seems like the pace of new offerings from the companies increasing. How much is AI enabling sort of either efficiency gains or productivity gains and how much more do you think you can do with that? We're sort of hearing that a lot of companies are really embracing it internally, not just externally now Yeah, on the internal side.

Go ahead.

Yeah, I would say on the internal side, we've made some changes. They're not fully kind of deployed across all of the team, but a lot of that is the AI to greatly speed up development, and it's pretty inspiring to watch. And so, a lot of this, co-pilot and different AI coding tools are now part of a workflow.

From senior developers to junior developers, we've clearly put it in guardrails in place and rules to use this AI and so it's secure and it's largely done around light UI UX changes and not large features. It's hard to quantify it, but it is dramatic. And I think that allows us to shift a lot of things that are important to the business, that might seem superficial but matter a lot, right?

And again, that is the workflow of getting that PDF in a second, making sure you're AI compliant using that PDF. Asking a question and getting an answer from the literature, all those things built on that foundation of relationships and data that we have needs to be done seamlessly,

and I think the AI tools that we're now using primarily in development, are greatly accelerating the pace, and I think we'll continue to see that pace as it rolls out to more teams, and more people on the development, team.

Yeah, the only thing I would add to that is I think in the next, one to two quarters we'll be implementing some AI on the support side of the business to improve that. I don't think the development, AI impact that Josh talked about or the support team impact is going to result in cost structure reduction, if anything, what it's going to do is free up.

Software engineers to work on the more important stuff or it's going to free up support people to do a better job covering our existing support workload unless we see an unusual percentage of our account base start to use the AI chat tools to solve their issues as opposed to sending in a ticket to us if that makes sense.

Yeah, got it, thanks.

(Operator Instructions). Our next question comes from Derek Greenberg with Maxim Group. Please go ahead.

Hi, thanks for taking. My questions. I wanted to touch on just the transaction segment. You guys have called out already that that was largely due to three customers churning and largely first half will be impacted. I was wondering if you had any visibility into the second half yet and if maybe we'll see potential relievement due to just lapping when the initial declines had happened.

Yeah, just to be clear, it's three customers, one churned, the other two are simply buying less year over year, so they didn't churn, they're just, it's just reduced spend on their side. In terms of visibility in the second half, I don't, certainly don't think I do. Bill, do you have any comments on that?

We really don't, I think part of the reason we said that we think the second half will be better is we started experiencing the sharp declines in January of last year and it really sort of accelerated in February. So we are seeing a little bit of stabilization as I mentioned, the decline this quarter was a little bit less than last quarter, and we're seeing some things that, we're seeing growth in our academic business.

And we're obviously adding more platform customers, so when you look at that, that's more, hunched than anything at this point that, we'll start to see improvement. I'm not saying it'll necessarily be growing in three and fourth, but hopefully we're seeing a reduction in that decline, just given some of those factors.

Okay, thank you. That's helpful. Then in terms of second quarter, I was wondering if you saw any impact from the government shutdown in regard to any of your end markets your customers.

No, we have not seen any material impact in government. Well, our government, in government, corporate, or academic.

Okay, got it. And then I was wondering if you could just give an update too. I know on the last call you kind of introduced this concept of I have this strategy plugging directly into customers workflows. I was wondering if you had any updates there. That'd be great, yeah.

Really no updates other than, we continue to make, product changes to be where the puck is going. We continue to support many large customers with that strategy today, and I would say I don't know what the percentage is, but a material part of our pipeline. Is headless work because more of our larger corporate clients are frankly building their own internal LLM or tool set.

And so what they're looking to do is connect us into the parts of the workflow where they need specific problems solved whether it's AI rights document rights, site citation information, or something else.

Okay, got it. And then just my last question was just on M&A. You guys have previously said you were expecting at least one acquisition this year. I was just wondering how the pipeline's looking, how the market's looking, if there are any updates there.

Yeah, active pipeline, good discussions. I don't think we have something that'll close by the end of the year, but we have a lot of things that are pretty close.

Got it thank You.

Thank you. This does conclude today's question-and-answer session. I will now turn the call back over to Roy for any additional or closing remarks.

Well, thanks everyone for joining us on our call today. Bill and I will participate in the Southwest Ideas Conference on November 20, Qualified investors interested in participating should contact Three Part Advisors. We look forward to speaking with you in February to discuss our second quarter of fiscal 2026 results. Have a great day.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.