Research Solutions, Inc. Q1 FY2026 earnings call

• The first quarter saw progress in improving B2B new logo sales teams and transformation to a comprehensive SaaS and AI solution for scientific research, with strongest organic first quarter B2B results on record. Total ARR up 21% driven by strong B2B performance, including large deals like with Real Chemistry.
• Platform subscription revenue growth driven by net increase in platform deployments, upsells, and cross-sells. ARR includes $14.8M B2B ARR and $6.5M B2C normalized ARR. Transaction revenue decline in line with expectations, with Academic segment growing and corporate segment declining due to churn and reduced spend from large customers.
• Gross margin improved due to revenue mix shift towards higher-margin platforms business, with platform revenue占比 increasing. Cash and cash equivalents at $12M as of September 30, 2025, and cash flow from operations up 31% from prior year quarter.
• Product strategy updates include AI rights offering in Article Galaxy (RightDel) to monetize AI usage of research articles, working with publishers on AI gateway product based on Scite to address AI licensing and usage tracking, and focusing on improving B2C net ARR growth, ARR and ASP growth, retention and upsell, and innovation in transaction business.

Total revenue for the first quarter of fiscal 2026 was $12.3 million compared to $12 million in the first quarter of fiscal 2025. Platform subscription revenue increased 18% to $5.1 million, accounting for 42% of the quarter's revenue (36% in prior year quarter). Transaction revenue was $7.2 million compared to $7.7 million in the prior year quarter. Annual recurring revenue (ARR) was $21.3 million, up 21% year-over-year, with roughly $14.8 million in B2B ARR and approximately $6.5 million in normalized ARR for Scite's B2C subscribers. Gross profit was $6.2 million, up 8% from the prior year quarter, with gross margin at 50.6%, a 270 basis point improvement. Platform business recorded gross margin of 88.1%, a 70 basis point increase compared to the prior year quarter, while transaction business gross margin was 23.8% compared to 25.7% in the prior year quarter.

• Expect to outperform fiscal 2025 in each of the remaining quarters of fiscal 2026. Seasonality is expected to play out with Q2 dip less pronounced than last year and possible EBITDA growth sequentially between Q1 and Q2. Goal is to have each remaining quarter of fiscal year outperform fiscal 2025.

• Market competition could impact B2C conversion rates. Economic environment may affect corporate customers' spending on research solutions. Product innovation may not keep pace, leading to slower revenue growth. Acquisition progress may be slower than expected, impacting strategic growth.

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

A: Yes. 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. I think the next quarter or 2, we'll start to get better visibility on an attach rate. To your second question, there has been some industry chatter recently about what type of uplift on ARR SaaS or AI? Well, vertical SaaS companies expect by adding AI to their vertical SaaS solution. 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-point-something million 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 Josh, feel free to add to that.

Q: 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 attach rate and the net churn as well? That would be helpful.

A: Go ahead, Josh.

A: I think from the product perspective, how we got to success was pretty critical on every single aspect from sign-up to completion of using, say, Scite search or Scite 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? A lot of testing to optimize and make sure that we're competitive with that. 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. I think now the velocity has really hit. I think product is starting to catch back up.

Q: Hoping you could drill a little deeper into the, call it, non-typical or non-seasonal strength you saw in ARR in the first quarter that looked up versus prior years, and it was multiples of what you've seen before. Can you sort of break down 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?

A: Yes, 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 into the 6 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. 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.

Q: Switching to the expense side. The G&A is the lowest in almost 2 years, I think. Again, anything onetime 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?

A: Yes. 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. 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. 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 onetime recruiting item of some sort, I think we can modestly increase that through the year.

Q: Then last for me, sort of switching gears to AI internally as opposed to talking externally. This seems like the pace of new offerings from the companies is increasing. How much is AI enabling sort of either efficiency gains or productivity gains? 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.

A: Go ahead.

A: Yes. 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. So a lot of this copilot and different AI coding tools are now part of a workflow from senior developers to junior developers. We've clearly put 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, so not large features. It's hard to quantify it, but it is dramatic. 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? 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. I think the AI tools that we're now using primarily in development are greatly accelerating the pace. I think we'll continue to see that pace as it rolls out to more teams and more people on the development teams.

Q: I wanted to touch on just the transaction segment. You guys had called out already that, that was largely due to 3 customers churning and largely first half will be impacted. I was wondering if you had any visibility into the second half yet? If maybe we'll see potential release due to just lapping when the initial declines had happened.

A: Yes. Just to be clear, it's 3 customers, 1 churn, the other 2 are simply buying less year-over-year, so they didn't churn. In terms of visibility in the second half, certainly don't think I do. Bill, do you have any comments on that?

A: 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. We are seeing a little bit of stabilization. As I mentioned, the decline this quarter was a little bit less than last quarter. We're seeing some things that we're seeing growth in our academic business, and we're obviously adding more platform customers. When you look at that, that's more hunch than anything at this point that we'll start to see improvement. I'm not saying it will necessarily be growing in Q3 and 4, but hopefully, we're seeing a reduction in that decline just given some of those factors.

Q: Then in terms of second quarter, I was wondering if you saw any impact from the government shutdown regards any of your end markets, your customers?

A: No, we have not seen material impact in government. Well, in government, corporate or academic.

Q: 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 a headless strategy plugging directly into customers' workflows. I was wondering if you had any updates there, that would be great.

A: Really no updates other than we continue to make product changes to be where the [indiscernible] is going. We continue to support many large customers with that strategy today. 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. 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, citation information or something else.

Q: 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 is looking, how the market is looking, if there are any updates there?

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