Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Research Solutions Inc (NASDAQ:RSSS) reported a 15.5% increase in total revenue for the second quarter of fiscal 2025 compared to the same period in fiscal 2024.
• Platform subscription revenue increased by 47%, driven by a net increase in platform deployments and contributions from the acquisition of Site.
• The company achieved a record number of organic net new deployments, attributed to the reorganization of the sales team into corporate and academic-focused teams.
• Gross margin improved by 540 basis points to 48.9%, driven by a revenue mix shift towards higher-margin platform business.
• Adjusted EBITDA for the quarter was $963,000, a significant increase from $318,000 in the prior year quarter, indicating improved profitability.

Negative Points

• Research Solutions Inc (NASDAQ:RSSS) experienced a net loss of $2 million for the quarter, compared to a net loss of $54,000 in the prior year quarter.
• The company noted a slowdown in B2C sign-ups at the end of the quarter due to the holiday break, which is expected to impact January results.
• Gross margin in the transaction business decreased by 50 basis points to 25.2%, primarily due to lower service fees and fewer paid transactions.
• Operating expenses increased to $5.7 million from $4.9 million in the prior year quarter, driven by higher costs in sales, marketing, and technology development.
• The company anticipates additional expenses in sales and marketing investment in the coming quarters, which may negatively impact customer acquisition costs and lifetime value ratios in the short term.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Sign with RSSS.

Q: Can you provide more details on the new logo wins versus cross-sales contributing to the $1.5 million incremental ARR in the quarter? A: (Bill Northland, CFO) The quarter was primarily driven by net new sales, with a significant outperformance in new logo generation. While upselling to existing customers was below expectations, cross-selling the site into existing Article Galaxy customers was successful. (Roy W. Olivier, CEO) It was mainly new logos, with some upsells into our base, but not at the level seen a couple of years ago.

Q: How does the seasonality of the academic calendar impact the B2C business? A: (Roy W. Olivier, CEO) The B2C business is typically strong in fiscal Q2 and Q3, with a pause from mid-December to mid-January. We expect good performance in this quarter, with a slowdown at the end of Q4 as students leave for summer. (Josh Nicholson, Chief Strategy Officer) The seasonality of universities impacts the business, affecting both students and professors.

Q: How have AI costs trended over time, and what are the expectations for the next 12 months? A: (Josh Nicholson, Chief Strategy Officer) As new models are deployed, we assess their cost and performance. Since joining Research Solutions, AI costs have halved. While costs could rise with new models, AI advancements often lead to efficiency gains, potentially reducing costs over time. (Bill Northland, CFO) Costs have been decreasing as we scale up searches, but this is not expected to materially impact short-term numbers.

Q: What is Research Solutions' competitive advantage in AI, and how does exclusive content access play a role? A: (Josh Nicholson, Chief Strategy Officer) Exclusive content access is a key advantage, but the focus is also on applying AI in specialized ways within research workflows. This vertical AI approach differentiates us from generalized tools like ChatGPT, allowing us to go deep on researcher workflows and leverage data advantages.

Q: Can you explain the earnout calculation and payment schedule? A: (Bill Northland, CFO) The earnout will be calculated in May and paid over eight quarters, half in cash and half in stock. Payments are expected to start around July, depending on the acceptance of the numbers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.