RESEARCH SOLUTIONS INC 2026 Q4 Earnings Call

Thank you, operator. Good afternoon, everyone, and welcome to the Research Solutions fourth quarter and full fiscal year 2026 earnings call. On the call today are Roy W. Olivier, Chairman and Chief Executive Officer, Dave Kutil, 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 fourth quarter of full year fiscal 2026. The release is available on the company's website at researchsolutions.com. Before management begins 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 1995. 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 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 to GAAP measures is included in the earnings press release issued this afternoon. Finally, I would like to remind everyone that this call will be recorded and will be made available for replay via a link on the company's website. I would now like to turn the call over to Roy W. Olivier. Roy? Thank you, John.

It was a busy year at Research Solutions in all respects. The corporate and academic sales teams did a nice job growing year-over-year while upgrading our sales process and sales team. We turned over almost 50% of our sales team during the year and have expanded sales headcount going into FY27. We continued to transition to a more structured sales process that has resulted in closing larger deals than we have in the past, raised our average sales price, or ASP, on both products, and resulted in 105 net new deployments for the year. While the new sales teams are doing well and we feel very good about that continuing in FY27, the upsell and renewal teams continue to need focus. We appointed a new leader to run that team, strengthened and expanded the team, and realigned the structure around customer size and location.

We also implemented a tool to do a better job measuring customer health and kicking off automated and manual workflows based on those results. For example, we can kick off an engagement workflow to a specific cohort of users who have not used the software or used what we know are high-value features. We started all this in early FY 2026 and saw a nice improvement in renewal rates in Q4 of FY 2026. We expect this work to positively impact net ARR growth as we go into and through FY 2027. We did report a 14% B2B ARR growth during the year, raising our high gross margin platform revenue from 39% of total revenue last year to over 43% this year, which translated into another year of positive results in terms of operating income, net income, EBITDA, and cash flow.

In addition to increased spend in sales, we made some additional investments in product development and software engineering, which helped us release two new key AI products, in addition to increasing development velocity on our core Scite and Article Galaxy products. In addition, we made several internal changes to improve productivity and output, including using AI to help us write and test code. All these improvements drove a large increase in development productivity. In fact, in the third quarter of FY 2025, we were doing about 50 software updates a month. In June of 2026, we did 200, a 4x improvement. Most importantly, we released two AI products that extend the unique capability of Scite and Article Galaxy to be accessible in ChatGPT, Claude, or Copilot. This is part of our intent to, quote, "be where the researchers are working," end quote, and those products have been well-received by our customers.

As noted in our press release, we did about $800,000 in AI-related bookings in Q4, and we have built a strong pipeline of interest in those products that we expect will close in FY 2027. I think much of what we did in FY 2027 will set us up nicely to grow the business profitably in FY 2027. I'd like to pass the call over to Dave to walk you through the fiscal fourth quarter and full year FY 2026 financial results in detail, and then I'll discuss our goals in FY 2027 and wrap up with some comments and the outlook for the year ahead.

Dave? Thank you, Roy, and good afternoon, everyone.

I'll start my comments with a recap of our fourth quarter, followed by a summary of fiscal 2026 results.

Total revenue for the fourth quarter of fiscal 2026 was $12.1 million, compared to $12.4 million in the fourth quarter of fiscal 2025, as increased platform revenue was more than offset by a decrease in transaction revenue. Our platform subscription revenue was $5.3 million, compared to $5.2 million in the prior year quarter. The growth was driven by an increase in B2B platform ARR due to a mix of new logo generation and upsells and cross-sales into our existing customer base, partially offset by decline in B2C ARR. We added 29 net new platform deployments in the quarter, bringing total deployments to 1,276 at year-end. We ended the quarter with $22.5 million in annual recurring revenue, up 7.8% year-over-year, which breaks down as approximately $16.2 million in B2B ARR and approximately $6.3 million in normalized ARR associated with Scite B2C subscribers.

B2B ARR grew $2 million, or 14.1%, versus the year ago period, and included AI-related ARR of $800,000, which grew 125% sequentially from the third quarter of fiscal 2026. Please see today's press release for how we define and use annual recurring revenue and other non-GAAP terms. Transaction revenue for the fourth quarter was approximately $6.8 million, compared to $7.3 million in the prior year quarter, a decline of approximately 6.7%. That result represents a meaningful improvement from the 11% year-over-year decline we reported in the third quarter and is consistent with the stabilization trend we discussed on last quarter's call. Our total active customer count for the quarter was 1,323, compared to 1,338 in the same period a year ago. Gross margin for the fourth quarter was 53%, a 200 basis point improvement over the fourth quarter of 2025 and a new quarterly record for the company.

The increase was due to the ongoing revenue mix shift towards our higher margin platforms business, which now represents 43% of our total revenue. The platform business recorded gross margin of 87.3%, compared to an all-time high of 88.5% in the prior year quarter, but still well within our target range of mid 80% gross margin. Gross margin in our transactions business was 26%, compared to 24.1% in our prior quarter. The increase was primarily attributable to improved margins on our copyright content, reflecting favorable publisher mix and pricing, partially offset by lower service fee margins. Total operating expenses in the quarter were $5.6 million, compared to $5.1 million in the prior year quarter, as increased sales and marketing expenses and upfront investments in AI were partially offset by lower general and administrative costs compared to the fourth quarter of fiscal 2025.

Other expense for the quarter was $135,000, compared to income of $1.2 million in the prior year quarter. The prior year result was primarily attributable to a favorable adjustment to the final earn-out determination for Scite in the fourth quarter of fiscal 2025. As a reminder, as of August 2nd, we have completed five quarters of earn-out payments, with three additional payments remaining in fiscal 2027. Net income for the quarter was $666,000, or $0.02 per diluted share, compared to $2.4 million, or $0.09 per diluted share in the prior year quarter. Adjusted EBITDA for the quarter was $1.4 million, compared to $1.6 million for the fourth quarter of last year. Now let me turn to the full year fiscal 2026 results. Total revenue for fiscal 2026 was approximately $48.3 million, compared to $49.1 million in fiscal 2025. Platform subscription revenue increased roughly 10% to $20.8 million.

Total deployments at year-end were 1,276, a net increase of 105 deployments from the end of fiscal 2025, and our average sales price increased 4.7% due to the upselling efforts mentioned earlier. From an ARR perspective, we added approximately $2 million of net B2B ARR during the fiscal year, while normalized B2C ARR declined by approximately $380,000 for the full year. Transactions revenue for fiscal 2026 was $27.5 million, compared to $30.1 million in the prior year, a decline of approximately 8.7%, as transaction purchases from new customers were more than offset by lower volumes from a small number of large customers and the transactions-related benefits offered within our platform subscriptions. As I noted earlier, the year-over-year trend improved as we exited the fiscal year. Gross margin for fiscal 2026 was 51.9%, a 260 basis point improvement over fiscal 2025.