Executive Summary / Key Takeaways

• Research Solutions (RSSS) is transforming into a vertical Software-as-a-Service (SaaS) and Artificial Intelligence (AI) powerhouse, simplifying research workflows for scientific, technical, and medical (STM) content. This strategic shift, bolstered by recent acquisitions, is driving significant margin expansion and cash flow generation.
• The company's proprietary AI-powered platforms, including Scite.ai and Article Galaxy, offer unique competitive advantages through hallucination mitigation, near full-text search capabilities on paywalled content, and publisher-independent access, directly enhancing research efficiency and reducing costs for customers.
• Financial performance in fiscal year 2025 demonstrates strong momentum, with platform revenue increasing by 35.80% year-over-year, gross margins expanding to 87.50% for platforms, and record adjusted EBITDA and cash flow from operations.
• Strategic investments in sales and marketing, coupled with a reorganized sales team and a focus on cross-selling AI-driven solutions, are expected to accelerate Annual Recurring Revenue (ARR) growth, despite current macroeconomic headwinds and longer sales cycles.
• Management anticipates continued profitability expansion, aiming for blended gross margins above 50% within 12-15 months and sustained double-digit Adjusted EBITDA margins, while exploring capital allocation options beyond acquisitions.

The Evolution of Scientific Research: Research Solutions' AI-Driven Imperative

Research Solutions, Inc. (NASDAQ:RSSS) is at the forefront of revolutionizing how research-intensive organizations discover, access, and manage scientific, technical, and medical (STM) content. Established in 2006 with the acquisition of Reprints Desk, the company has strategically evolved from a content delivery service to a vertical Software-as-a-Service (SaaS) and Artificial Intelligence (AI) enterprise. This transformation is designed to simplify complex research processes, ultimately saving time and money for corporate, academic, and government researchers globally.

The company's strategic pivot was significantly accelerated by the fiscal year 2024 acquisitions of Resolute Innovation, Inc. (ResoluteAI) and Scite, Inc. (Scite). These acquisitions were not merely additive; they were transformational, integrating advanced AI and natural language processing (NLP) into the core research workflow. This strategic move positions Research Solutions to capitalize on the burgeoning demand for AI-powered research tools, a market increasingly seeking efficiency and accuracy. The company's overarching strategy is to be "the AI solution for research," leveraging its unique access and rights to global research content.

Technological Edge: Combating Hallucinations and Streamlining Discovery

At the heart of Research Solutions' competitive advantage lies its differentiated technology, particularly within its Platforms segment. The company's cloud-based SaaS solutions, including Scite.ai, Resolute.ai, Article Galaxy, and the References solution, are powered by advanced AI models, including Generative AI. These tools are designed to enhance every stage of the research workflow:

• Discovery Tools (Scite.ai & Resolute.ai): These platforms facilitate search across virtually all STM articles and adjacent datasets like Patent, Clinical Trial, Regulatory, and Competitive Intelligence data. Scite.ai, in particular, offers full-text search capabilities on most of the world's STM content, where publisher rights are granted.
• Access (Article Galaxy & Article Galaxy Scholar): These solutions enable organizations to efficiently manage existing content entitlements and acquire new articles at the lowest possible cost, ensuring copyright compliance for various re-use cases, including AI applications and training.
• Manage (References solution): This platform provides comprehensive reference management, collaboration tools, and secure access to scientific content, streamlining research workflows and boosting productivity.

A critical technological differentiator for Research Solutions is its approach to hallucination mitigation in AI. Unlike more generalized AI tools, Scite.ai's Generative AI assistants provide "highly accurate results with a very low incidence of hallucinations" by operating within a Retrieval Augmented Generation framework focused exclusively on STM content. This is achieved through "Smart Citations," which expose in-text citation statements, their location in the document, and whether they provide supporting or contrasting evidence for a cited claim. This unique capability, which allows mining an article's full text and showing snippets, is "market-leading" and a core reason for winning deals, as researchers express "continued frustration with ChatGPT making things up."

The company's commitment to innovation is evident in its continuous R&D. Recent developments include deploying new Large Language Model (LLM) models into Scite Assistant, offering users choice and "cutting-edge advances in AI." A new "tables mode" leverages AI for data extraction, enabling researchers to create spreadsheets and analyze reports based on specific data points like sample size or study limitations. Research Solutions maintains an "AI model agnostic" approach, allowing rapid deployment of new models. Furthermore, the company is actively expanding its "AI data strategy" by adding publishers' content to Scite and offering a new PDM/AI rights product, which allows customers to purchase text and data mining rights for both new and previously acquired articles. This initiative aims to provide a comprehensive solution for corporate researchers to compliantly use generative AI tools with scientific journal content at scale.

For investors, this technological differentiation translates into a strong competitive moat. The ability to provide trustworthy, hallucination-mitigated AI insights, combined with comprehensive content access and rights management, drives customer value through time savings, cost reduction, and enhanced research quality. This directly supports higher customer retention, cross-selling opportunities, and ultimately, improved financial performance and market positioning.

Competitive Landscape: Niche Strength in a Highly Contested Arena

The markets in which Research Solutions operates are "highly competitive," with competition primarily centered on "price, service, technology and niche focus." Direct competitors include major players like RELX Group (RELX) (via its Elsevier division), Clarivate PLC (CLVT), and John Wiley & Sons, Inc. (WLY), all offering various STM content and research platforms.

RELX, through Elsevier, commands a significant presence with an extensive content library and established institutional partnerships. Clarivate excels in data analytics and AI-driven insights, while John Wiley & Sons benefits from a strong brand in academic publishing. Compared to these larger entities, Research Solutions holds a specialized niche. Its strength lies in its focused SaaS platform and transactional content delivery model, which can offer greater efficiency and adaptability. For instance, its technology provides notably faster access for transactional users, potentially improving market share in efficiency-driven segments. The company believes "many customers and potential customers are less price sensitive if the service levels are high and the technology creates efficiency and/or management information that has not been available previously."

Research Solutions differentiates itself by offering a "publisher-independent" solution for STM content access through Article Galaxy, providing a single system for electronic and print materials. Scite's unique AI capabilities, particularly its "citation index on steroids" and near full-text search on paywalled content with hallucination mitigation, are key differentiators against competitors whose AI tools often rely solely on open-access content. Piracy is also acknowledged as "perhaps, our most serious competitor."

While Research Solutions' scale is smaller than some rivals, potentially leading to higher customer acquisition costs, its focused approach allows for agility and customer-specific customization. The company's customer loyalty is strong, reflected in "low single-digit gross churn rate" and "high single-digit net churn rate." Furthermore, the company strategically views "downward pressure on library budgets" as an opportunity, as its Scite platform is "typically much less expensive than the incumbent search platforms in libraries today," and Article Galaxy Scholar provides a cost-effective, pay-as-you-go model. Research Solutions' market share in the corporate segment is estimated to be "single digit," indicating significant room for expansion.

Financial Performance: A Transformational Year and Expanding Profitability

Fiscal year 2024 marked a "transformational year" for Research Solutions, characterized by record financial performance and strategic acquisitions. The positive momentum continued into fiscal year 2025, demonstrating the scalability of its business model.

For the fiscal year ended June 30, 2025, total revenue reached $49.06 million, a 9.90% increase from $44.62 million in the prior year. This growth was primarily fueled by the Platforms segment, which saw revenue surge by 35.80% to $18.96 million. This increase was driven by "additional deployments to new and existing customers, expansion from existing customers and additional revenue from a full year of the Scite acquisition." The Platforms segment's contribution to total revenue grew to approximately 38% in Q3 FY25, up from 33% in Q3 FY24, reflecting the ongoing strategic shift. Annual Recurring Revenue (ARR) stood at $20.4 million as of March 31, 2025, representing a 23% year-over-year increase, with B2B ARR at $13.5 million and B2C ARR at $6.9 million. Net incremental ARR growth in Q3 FY25 was approximately $1.2 million, with 43 net B2B platform deployments.

The shift towards higher-margin platform revenue is significantly impacting profitability. Total gross profit for FY25 increased by 23.20% to $24.20 million, with the overall gross margin expanding to 49.30% from 44% in FY24. The Platforms segment achieved an impressive gross margin of 87.50% in FY25, up 230 basis points from 85.20% in FY24, primarily due to "proportionally lower personnel and hosting costs." The Transactions segment, while experiencing a 1.80% revenue decrease to $30.10 million in FY25 due to "lower volume of paid orders," maintained a gross margin of 25.30%.

Operating expenses for FY25 totaled $21.69 million, an increase of 6.30% from FY24. This rise was largely attributed to strategic investments in sales and marketing, which increased by 55.70% to $5.36 million, driven by "greater personnel costs, including a new CRO, consulting and training expenses and marketing discretionary advertising spend, most of which is related to the additional cost base associated with the Scite acquisition." Technology and product development expenses also increased by 3.50% to $5.63 million. Despite these investments, the company achieved net income of $1.27 million in FY25, a significant turnaround from a net loss of $3.79 million in FY24. Adjusted EBITDA for FY25 was $5.27 million, a 134.80% increase from $2.24 million in FY24, with a trailing twelve-month adjusted EBITDA margin of 10.4% in Q3 FY25. Management is focused on achieving the "Rule of 40," with the combined platform growth and EBITDA margin reaching 34.1% in Q3 FY25 and 33.1% on a trailing twelve-month basis.

Liquidity remains robust, with cash and cash equivalents growing to $12.23 million as of June 30, 2025, from $6.10 million a year prior. Cash flow from operations was $7.02 million for FY25, a substantial increase from $3.55 million in FY24. On a trailing twelve-month basis, cash flow from operations exceeded $6.7 million, outpacing adjusted EBITDA by approximately 1.3 times, indicating strong earnings quality. The company has no outstanding borrowings on its revolving line of credit and no long-term debt. The Scite earn-out, finalized at $15.40 million, will be paid 62% in cash and 38% in common stock over eight quarterly installments, starting in August 2025.

Strategic Outlook and Key Considerations

Research Solutions is poised for continued growth, driven by its strategic focus on AI and SaaS. Management anticipates "another record year" for the company in FY25, with profitability and Adjusted EBITDA expected to strengthen. The company is "on the doorstep towards pushing through 50% plus blended gross margins" within the next 12 to 15 months, or sooner, and believes its Adjusted EBITDA margin "can continue to expand as ARR grows."

Strategic initiatives include further investments in sales and marketing to build a "predictable and disciplined sales process and sales team." The reorganization into dedicated corporate and academic sales teams is expected to accelerate deal flow. Product development will focus on improving user and customer experience across Scite and Article Galaxy, deepening AI integration, and enhancing analytics. The company continues to pursue M&A opportunities that align with its product strategy, are accretive to growth and EBITDA, and offer significant cross-selling potential, noting that "valuations continue to be lower than 24 months ago."

However, the company acknowledges several risks. Macroeconomic headwinds "continue to restrict budgets across the corporate and academic customer base," leading to longer sales cycles (now "in excess of 120 days") and increased customer due diligence. While "no material change in churn" directly attributable to budget cuts has been observed, non-controllable churn from customer acquisitions or business closures remains a factor. The rapid evolution of AI technology presents competitive challenges, requiring continuous resource expenditure to maintain an edge. Furthermore, the company relies on a small number of content publishers, with approximately 45% of its content cost derived from its three largest suppliers, posing a risk if these relationships are disrupted. ResoluteAI has also been "underperforming" in new sales compared to initial expectations.

Conclusion

Research Solutions is undergoing a profound transformation, leveraging its vertical SaaS and AI capabilities to redefine scientific research workflows. The company's strategic acquisitions of ResoluteAI and Scite have been pivotal, establishing a technological moat built on hallucination-mitigated AI insights and comprehensive, publisher-independent content access. This technological leadership, coupled with a disciplined sales strategy and a focus on expanding higher-margin platform revenue, is driving impressive financial performance, marked by record revenue, expanding gross margins, and robust cash flow generation.

While macroeconomic pressures and the inherent complexities of a rapidly evolving AI landscape present challenges, Research Solutions' proactive investments in product innovation, sales force optimization, and strategic partnerships position it for sustained growth. The company's clear path to over 50% blended gross margins and expanding Adjusted EBITDA margins underscores its increasing financial strength. For investors, Research Solutions offers a compelling opportunity to participate in a company that is not only executing a successful strategic pivot but is also fundamentally enhancing the efficiency and integrity of scientific discovery in an AI-driven world.