Research Solutions, Inc. (RSSS) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals improved financial health with increased net income and EBITDA. Despite a slight margin decline, cash flow and cash reserves are stable. The company's strategic focus on AI and B2B pipeline growth is promising, though B2C challenges persist. Management's disciplined cost management and optimistic guidance for the second half, despite transactional segment challenges, indicate a positive outlook. Analysts' concerns about AI and revenue impacts are noted but not alarming. Overall, the company's strong financial performance and strategic initiatives suggest a positive stock price movement.
Key Financial Performance
Total Revenue $11.8 million, a slight decrease from $11.9 million in the second quarter of fiscal 2025. The decline was attributed to churned accounts and volume reductions from a few larger customers.
Platform Subscription Revenue $5.2 million, a 14% increase year-over-year. This growth was driven by a net increase of 47 platform deployments and expansion within the existing customer base through upsells and cross-sells.
Annual Recurring Revenue (ARR) $21.8 million, up 14% year-over-year. This consisted of $15.3 million in B2B ARR and $6.4 million in normalized ARR from B2C subscribers. The growth was attributed to strong B2B performance and prioritization of cohort quality in B2C.
Incremental ARR $560,000, the highest organic second quarter in company history. This was driven by strong B2B performance and strategic marketing adjustments in B2C.
Transaction Revenue $6.6 million, a decrease from $7.3 million in the prior year quarter. The decline was due to churned accounts and volume reductions from a small number of larger customers.
Gross Profit $6.2 million, a 6% increase year-over-year. The improvement was due to a revenue mix shift towards higher-margin platform business and expanding gross margins in the platform segment.
Gross Margin 52.4%, a 350 basis point improvement over the second quarter of 2025. The increase was driven by the shift towards higher-margin platform revenue and improved efficiency in the platform business.
Platform Business Gross Margin 88.1%, a 160 basis point increase year-over-year. The improvement was due to slower growth in labor and hosting costs compared to revenue growth.
Transaction Business Gross Margin 24%, a slight decrease from 25.2% in the prior year quarter. The decline was attributed to lower fixed cost leverage and pressure on copyright-related margins.
Operating Expenses $5.4 million, a decrease from $5.7 million in the prior year quarter. The reduction was due to lower general and administrative expenses and stock-based compensation, offsetting increased sales and marketing investments.
Net Income $547,000 or $0.02 per diluted share, compared to a net loss of $2 million or $0.07 per share in the prior year quarter. The prior year's loss included a $2.4 million charge related to a contingent earn-out liability.
Adjusted EBITDA $1.3 million, a 36% increase from $963,000 in the prior year quarter. The improvement was driven by higher profitability and disciplined working capital management.
Cash Flow from Operations $1.4 million, a 35% increase from $1 million in the second quarter of fiscal 2025. The growth was attributed to higher profitability and disciplined working capital management.
Cash and Cash Equivalents $12.3 million as of December 31, 2025, compared to $12.2 million on June 30, 2025. This included $2.6 million in cash payments related to a site earn-out.
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Operating Highlights
API and AI Integration: The company is shifting from selling seat-based software subscriptions to selling infrastructure, enabling customers to integrate services directly into their systems and AI tools. This approach is driving larger and stickier contracts.
Answers and Access Platform: The company is evolving from a document delivery business to an 'Answers and Access' platform, providing both research answers and access to articles. This model integrates citation verification and copyright compliance.
B2B Growth: Strong results in the B2B segment with 47 net new deployments and a 6% ASP increase during the quarter. The company is focusing on annual and multiyear agreements as primary growth drivers.
B2C Challenges: Softness in B2C ARR due to a pullback in marketing channels and lagging trial-to-subscriber conversion. The company is prioritizing cohort quality and retention over short-term growth.
Revenue and ARR Growth: Platform subscription revenue increased by 14% to $5.2 million, and ARR reached $21.8 million, up 14% year-over-year. Incremental ARR for the quarter was $560,000, the highest organic second quarter in company history.
Gross Margin Improvement: Gross margin improved to 52.4%, driven by a revenue mix shift towards higher-margin platforms and expanding gross margins in the platform business.
AI and LLM Integration: The company is leveraging AI and large language models (LLMs) to provide citation-backed, copyright-compliant research tools. This includes integrating with tools like Claude and ChatGPT to deliver peer-reviewed articles and rights management data.
Focus on Infrastructure: The company is positioning itself as mission-critical infrastructure for research decisions, emphasizing API sales and integration into customer systems.
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Risk or Challenges
Year-over-Year Transaction Decline: The company experienced a decline in year-over-year transactions, primarily due to one churned account and significant volume reductions from a few larger customers. This decline is expected to continue in the second half of the year.
Increased Competition in B2C Segment: The company is facing increased competition in the B2C segment, which is expected to remain a headwind for the second half of the year.
Softness in B2C ARR: The B2C ARR experienced softness, driven by a pullback in certain marketing channels where trial-to-subscriber conversion was lagging. This has led to prioritizing cohort quality and retention over short-term growth.
Pressure on Copyright-Related Margins: The transaction business experienced a decrease in gross margin, partly due to pressure on copyright-related margins.
AI Disruption Concerns: The company acknowledges potential disruption from AI tools in enterprise software that accelerates work. However, it believes its unique capabilities and data are less exposed to these disruptions.
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Guidance & Outlook
Revenue Expectations: The company expects a decline in year-over-year transactions to continue in the second half of the year, driven by corporate research intensity and academic budgets.
B2C Segment Outlook: Increased competition in the B2C segment is expected to persist as a headwind for the second half of the year. The company is prioritizing cohort quality and retention over short-term B2C growth.
B2B Segment Growth: The company will continue to focus on B2B annual and multiyear agreements as the primary growth driver. Strong results in B2B ARR bookings and net ARR bookings are expected to continue, supported by product and sales process improvements.
Platform Subscription Revenue: Ongoing platform subscription growth is anticipated, with a focus on API integration sales and evolving from document delivery to an Answers and Access platform.
Profitability and Cash Flow: The company aims to exceed fiscal 2025 EBITDA levels in each of the remaining quarters of fiscal 2026 and drive further growth in cash flows. The balance sheet is expected to remain flexible to fund high-return growth initiatives.
AI and API Integration: The company is focusing on API and AI integration, transitioning to selling infrastructure rather than seat-based software subscriptions. This shift is expected to drive larger and stickier contracts.
Market Trends and AI: The company is positioning itself as a research intelligence business, leveraging AI to provide verified, compliant, citation-backed infrastructure for scientific research. This includes integrating with LLMs and offering unique capabilities like rights management and access to peer-reviewed content.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you provide insights into the B2B pipeline and the impact of the headless API and AI model?
A:The B2B pipeline has grown consistently quarter-over-quarter and year-over-year. Many of the deals now involve API integrations with larger customers, resulting in much larger deals.
Q:What are the trends in the B2C business, and is it returning to growth in the second half?
A:The B2C business faces challenges with competitive digital marketing spend and lower conversion rates of trials to users compared to a year ago. While trial numbers remain consistent, conversion rates have dropped. Efforts are being made to improve conversion rates through new features and functionalities. However, management excluded B2C from their second-half growth projections.
Q:What are the top three areas of focus for the interim CFO, Dave Kutil?
A:Dave Kutil is focusing on operating expense rigor through a cost savings program, addressing churn by understanding its root causes, and improving working capital management to increase cash flow and meet projections.
Q:How is AI being utilized internally to improve productivity and efficiency?
A:AI is being heavily used in software development, review processes, and accessibility checks. Internal training is ongoing to expand AI usage across teams, leading to improved productivity and efficiency. However, AI is seen as a productivity multiplier rather than a cost reduction tool.
Q:What is the market opportunity for infrastructure-level services and higher ASPs?
A:The company serves the same vertical markets with a similar TAM but sees potential for 20%-30% higher ASPs. New pricing models are being explored due to the different ways products are used, such as API calls instead of user-based metrics. The company is optimistic about these changes but acknowledges the need for further development.
Q:What is the outlook for the transactional segment in the second half?
A:The transactional segment is expected to decline year-over-year due to churn from one large customer. However, the second half is expected to be stronger than the first half, with normal seasonality and usage fluctuations.
Q:Is there a potential threat from LLM providers licensing similar content?
A:LLM providers may eventually duplicate some capabilities, but the company is positioned to serve the long tail of medium and small publishers that lack the resources to create their own MCPs. The company also provides a unified solution for customers who prefer not to manage multiple agreements with publishers.
Q:How are relationships with smaller publishers evolving, and what are the hurdles?
A:The company has long-standing relationships with smaller publishers and is actively engaging them to provide AI rights and MCP functionalities. The main hurdles include convincing publishers of the value and navigating budgetary constraints. Progress is being made, and the company sees potential for new revenue opportunities.
Q:Are new B2B customers embracing the API business?
A:Yes, new B2B customers are embracing the API business, which offers a higher floor for pricing and straightforward testing. The value proposition includes access to patents, research articles, and the ability to buy or rent articles in one place, making it an attractive option.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the exact impact of AI on cost reduction, stating that AI is primarily a productivity multiplier. Additionally, they were vague about the specific revenue impact of new functionalities and services with smaller publishers, citing that it is still too early to tell.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI integration
AI research
API AI
ARR booking
Answers Access
Article Galaxy
Researchers article
account
answer
approach
article right
conference
delivery Answers
document delivery
entitlement article
flexibility
fulfillment
infrastructure researcher
integration sale
leverage
library entitlement
marketing investment
mission
model Researchers
patent
problem
product sale
research solution
science
seat
segment result
service
site
softness
stage
stock
system
tool
RSSS Transcript
Research Solutions, Inc. (RSSS) Q2 2026 Earnings Call Transcript
Positive2-12
The earnings call reveals improved financial health with increased net income and EBITDA. Despite a slight margin decline, cash flow and cash reserves are stable. The company's strategic focus on AI and B2B pipeline growth is promising, though B2C challenges persist. Management's disciplined cost management and optimistic guidance for the second half, despite transactional segment challenges, indicate a positive outlook. Analysts' concerns about AI and revenue impacts are noted but not alarming. Overall, the company's strong financial performance and strategic initiatives suggest a positive stock price movement.
Research Solutions, Inc. (RSSS) Q1 2026 Earnings Call Transcript
Unknown11-13
The earnings call presents mixed signals: positive aspects include strong AI product growth, improved net income, and a sustainable G&A reduction. However, the company faces challenges with transaction revenue, unclear AI rights product performance, and limited visibility in the transaction segment. While adjusted EBITDA and cash flow improved, the market may remain cautious due to the uncertainties in guidance and execution. The overall sentiment is neutral, as the positive financial performance is counterbalanced by potential risks and uncertainties in future growth.
Research Solutions, Inc. (RSSS) Q4 2025 Earnings Call Prepared Remarks Transcript
Positive9-18
The earnings call shows strong financial performance with record high adjusted EBITDA and cash flow, a significant improvement in net income, and a growing cash balance. The Q&A highlights strategic partnerships and product improvements, particularly in the API strategy and academic segment, which are expected to drive future growth. Despite a slight decline in transaction revenue, the overall outlook is positive with expectations of continued growth and margin improvement. The absence of clear guidance on operating expenses is a minor concern, but overall sentiment remains positive.
Research Solutions, Inc. (RSSS) Q3 2025 Earnings Call Transcript
Positive5-9
The company shows strong financial performance with record-high adjusted EBITDA and cash flow, increased ARR, and improved gross margins. Despite competitive pressures and economic concerns, the transition to SaaS revenue and strategic investments in sales and marketing are promising. The Q&A highlighted proactive growth strategies and AI utilization, although some responses lacked clarity. The absence of shareholder return programs is a minor negative. Overall, the positive financial metrics and optimistic future guidance suggest a positive stock price movement.
RSSS Report
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