Research Solutions, Inc. Q2 FY2025 earnings call

• Overall, pleased with second quarter results with strong net new ARR and deployments.
• Sales team reorganization into corporate-focused and academic-focused teams contributed to strong results.
• Closed Resolute.ai transaction on July 28, 2023, and Scite transaction on December 1, 2023.
• Marketing team driving B2B top-of-the-funnel work and B2C signups.
• Focus on building a professional sales team, including 45 employees attending sales training in January.
• Product focus on improving UX/CX across Scite and Article Galaxy Platforms, integrating AI, and enhancing instrumentation and analytics.
• Cautiously investing in growth, primarily in sales and marketing, with a new CRO hired.

Total revenue for the second quarter of fiscal 2025 was $11.9 million, a 15.5% increase from the second quarter of fiscal 2024. Platform subscription revenue increased 47% to $4.6 million, accounting for about 39% of total revenue compared to ~30% in the prior year quarter. Transaction revenue was $7.3 million, a 1.7% increase from the prior year quarter. Annual recurring revenue (ARR) ended the quarter at $19.1 million, up 23% year-over-year, with $12.7 million in B2B ARR and approximately $6.4 million in normalized ARR associated with Scite’s B2C subscribers. Gross margin for the second quarter was 48.9%, with Platforms business recording a gross margin of 86.5% and Transaction business at 25.2%.

• Expect acceleration in bookings in Q4 and FY 2026 Q1, which will cause CAC and CAC-to-LTV to return to normal levels.
• SG&A expenses not expected to shift materially upwards or downwards from Q2 levels.
• Q3 and Q4 expected to be the strongest quarters for profitability.

• Potential impact of AI costs and their fluctuations.
• Seasonality affecting business performance, particularly in B2C.
• Uncertainties related to earn-out assumptions and their potential impact on financial results.

Q: Could you help understand new logo wins versus cross-sells in the $1.5 million incremental ARR?

A: A lot of the quarter was driven by net new sales and new logos, with outperformance in new logo generation and some cross-selling of Scite into existing Article Galaxy customers but underperforming on upselling customers.

Q: What's the impact of seasonal factors on B2C?

A: B2C is usually strong in fiscal Q2 and Q3, with a pause in mid-December to mid-late January, but typically expects good performance in the quarter with slowdown at the end of Q4.

Q: How does AI cost trend and impact?

A: Costs have halved since joining Research Solutions, with costs potentially fluctuating but not materially impacting numbers in the short-term. The advantage lies in exclusive content access and focusing on vertical AI for researchers' workflows.

Q: About the earn-out calculation in May and payout?

A: Once calculated in May, the payout is half cash, half stock, over eight quarters, with payments expected to start in July.

Q: What drove the 75% pro forma revenue growth for Scite?

A: Mix of new sale and cross-sell, with most emphasis on new sale, leveraging Scite's product under Research Solutions' umbrella with sales and marketing support, and the split of sales teams leading to academic sales success.