Executive Summary / Key Takeaways

• Research Solutions (RSSS) is undergoing a significant transformation, shifting towards a higher-margin vertical SaaS and AI model focused on the scientific, technical, and medical (STM) research market, driven by strategic acquisitions of Scite and Resolute.ai.
• The increasing contribution of the high-margin Platforms segment (87.4% gross margin in Q3 FY25) is rapidly expanding blended gross margins (49.5% in Q3 FY25) and driving record Adjusted EBITDA ($1.4M in Q3 FY25) and cash flow from operations ($2.9M in Q3 FY25).
• Core technological differentiators, particularly Scite's AI-powered Smart Citations and near full-text search capabilities, offer unique value propositions like hallucination mitigation and efficient data extraction, positioning RSSS competitively against broader AI tools and traditional research platforms.
• Strategic investments in sales and marketing, including team reorganization and process standardization, are beginning to yield results, contributing to strong ARR growth (23% YoY to $20.4M in Q3 FY25) and record organic B2B net incremental ARR.
• While macroeconomic headwinds, seasonality in B2C, and longer B2B sales cycles present challenges, management is optimistic about continued ARR growth, profit expansion towards a 50%+ blended gross margin and $30M ARR target, and leveraging a strengthening balance sheet for strategic M&A.

A Transformational Shift in Research Intelligence

Research Solutions, Inc. is carving out a distinct niche in the evolving landscape of scientific, technical, and medical (STM) research intelligence. Operating as a vertical SaaS and AI company, RSSS is strategically positioned to simplify the complex research process for corporate, academic, and government organizations. Its core mission revolves around providing tools that save researchers time and money, enabling more efficient discovery, access, and management of critical scientific content.

The company's journey has been marked by a recent period of significant transformation, fundamentally reshaping its business model and market positioning. Historically rooted in transactional content delivery, RSSS has aggressively pursued a strategic shift towards a higher-margin, recurring revenue model through key acquisitions. The purchases of Resolute.ai in July 2023 and, more significantly, Scite.ai in December 2023, were pivotal moments. These deals were explicitly aimed at advancing RSSS's capabilities in discovery and analysis, adding sophisticated AI-powered tools, and expanding the total addressable market, including establishing a new B2C segment via Scite. This strategic pivot is not merely additive; it is foundational to the company's future growth and profitability.

The Technological Edge: AI, Smart Citations, and Content Access

At the heart of Research Solutions' strategy lies its differentiated technology platform, now significantly enhanced by AI. The platform is structured around three core pillars: Discovery Tools (Scite.ai, Resolute.ai), Access (Article Galaxy, Article Galaxy Scholar), and Manage (References). AI models, including Natural Language Processing (NLP), Large Language Models (LLMs), and Generative AI, are integral across these solutions, powering unique insights and improving user experience.

Scite.ai stands out with its innovative use of AI to create "Smart Citations." Unlike traditional citations, Smart Citations provide context by showing the in-text citation statements from citing articles and classifying whether the cited claim is supported or contrasted. This feature is a core differentiator, enabling researchers to quickly evaluate the credibility and relevance of a publication. Furthermore, where publishers grant rights, Scite.ai offers near full-text search capability on STM content. This allows its Generative AI assistants, operating within a Retrieval Augmented Generation framework focused on STM, to provide highly accurate results with a significantly lower incidence of hallucinations compared to broader AI tools like ChatGPT. Management highlights this hallucination mitigation as a key reason customers are increasingly turning to Scite for research-focused workflows.

The Article Galaxy platform complements this by offering a publisher-independent solution for accessing STM content. It allows organizations to manage their existing subscriptions and acquire individual articles efficiently and cost-effectively. This unique position provides researchers with a single source for a vast universe of content, including electronic and even older print materials. RSSS is leveraging this access to develop new offerings, such as providing customers the ability to purchase Text and Data Mining (TDM) rights for articles, facilitating the use of content in AI applications and for training AI models. This is seen as a significant opportunity, particularly for providing TDM rights from the "long tail" of small and medium publishers to large corporate customers.

While Resolute.ai's standalone performance has been a concern, the value is seen in integrating its databases into the combined platform, further enriching the discovery layer. The ongoing product development focuses on improving the user experience and customer experience across Scite and Article Galaxy, deepening AI integration, and enhancing analytics tools for both internal use and customer ROI reporting.

Positioning in the Competitive Arena

Research Solutions operates within a competitive landscape that includes larger, more established players like Clarivate (CLVT) (which encompasses ProQuest) and agile, AI-focused firms like AlphaSense. Clarivate offers a broad suite of research and intellectual property tools, leveraging a vast content library and established market position. AlphaSense focuses heavily on AI-driven enterprise intelligence, emphasizing speed and real-time insights.

Compared to these rivals, RSSS positions itself as a specialist in the STM research workflow, offering unique technological advantages. Scite's Smart Citations and hallucination-mitigating AI assistant, built on proprietary content access, provide a differentiated value proposition, particularly appealing to research-intensive organizations that demand accuracy and trustworthiness. Management notes that Scite is often less expensive than incumbent academic search platforms, presenting an opportunity in budget-constrained environments. Article Galaxy's publisher-independent model offers flexibility and cost management benefits that differentiate it from publisher-specific or subscription-heavy alternatives.

While precise, directly comparable market share figures for all niche competitors are not publicly detailed, RSSS's ability to secure competitive wins, such as the large academic deal with the University of California for Article Galaxy Scholar and corporate wins driven by past positive experiences, suggests its offerings resonate with customers. Management believes RSSS stacks up well against competitors due to the unique capabilities of Scite and Article Galaxy, although effective communication of these differentiators is key to winning deals. Challenges remain, particularly in the B2B segment, where sales cycles have lengthened due to increased customer due diligence and complex procurement processes, a trend observed across the market. However, churn to competitors has decreased, indicating that customer losses are more often due to external factors like acquisitions or business closures rather than competitive takeaways.

Financial Performance: The SaaS Mix Shift Pays Off

The strategic pivot towards SaaS is clearly reflected in RSSS's recent financial performance. The Platforms segment, with its significantly higher gross margins (87.4% in Q3 FY25, 87.1% YTD FY25), is becoming an increasingly dominant contributor to overall profitability. In Q3 FY25, Platforms revenue grew by 22.4% year-over-year to $4.84 million, while Transactions revenue saw a slight decrease of 4.2% to $7.82 million, primarily due to lower paid order volume in the quarter. For the nine months ended March 31, 2025, Platforms revenue surged 42.3% to $13.77 million, while Transactions revenue remained relatively flat, increasing just 0.2% to $22.85 million.

This revenue mix shift has dramatically improved blended gross margins, reaching 49.5% in Q3 FY25, a 430 basis point improvement year-over-year, and 48.8% YTD FY25, a 570 basis point improvement. Management expects this trend to continue, targeting blended gross margins above 50% in the next 12 to 15 months or sooner.

The growth in the Platforms segment is driving strong Annual Recurring Revenue (ARR) expansion. RSSS ended Q3 FY25 with $20.4 million in ARR, a 23% increase year-over-year, crossing the $20 million milestone for the first time. Net incremental ARR growth was a strong $1.2 million in Q3 FY25, including a company organic record of $736,000 in B2B net incremental ARR. This growth is broad-based, spanning both Scite and Article Galaxy, across new sales and upsells, and in both B2B and B2C segments. The academic segment, in particular, is noted as the fastest-growing B2B segment.

Profitability and cash flow have seen significant improvements as a result of the expanding margins and controlled operating expenses. Adjusted EBITDA reached a record $1.4 million in Q3 FY25, up 47.7% year-over-year. On a trailing twelve-month basis as of March 31, 2025, Adjusted EBITDA was $5.1 million, representing a 10.4% margin, a key milestone for the company. Cash flow from operations has also been robust, generating $2.9 million in Q3 FY25 and $4.76 million YTD FY25, a substantial increase from the prior year. On a trailing twelve-month basis, operating cash flow exceeded $6.7 million.

This strong cash generation is bolstering the balance sheet, with cash and cash equivalents increasing to $9.85 million as of March 31, 2025, providing flexibility for strategic initiatives and the upcoming Scite earn-out payments.

Operating expenses, while increasing year-over-year, are largely attributable to the inclusion of acquired cost bases and deliberate investments in sales and marketing aimed at driving future growth. Management is focused on holding the line on general and administrative expenses while strategically investing in areas expected to yield higher ARR bookings and improve sales predictability.

Outlook and Strategic Priorities

Management is optimistic about the company's trajectory, expecting continued expansion in margins and cash flow as ARR grows towards the next target of $30 million. They anticipate a strong finish to fiscal year 2025, with the possibility of Q4 Adjusted EBITDA being similar to Q3, even if transaction revenue sees a seasonal decline. Fiscal year 2025 is expected to be another record year.

Key drivers for future growth include continued organic ARR expansion, successful cross-selling of Scite into the Article Galaxy base (where penetration is currently low), recovery and growth in the B2C segment following seasonal slowdowns, and leveraging the reorganized and newly trained sales teams to improve execution and accelerate bookings, particularly in Q4 FY25 and Q1 FY26. The focus on improving churn management and account management is also a priority.

Product development will continue to enhance the integrated platform, improving user workflows and leveraging AI for greater efficiency and insight. The initiative to offer TDM rights is a strategic move to capture value from the growing demand for AI-enabled research and data analysis.

The strengthening balance sheet and more realistic M&A valuation environment position RSSS to actively evaluate strategic acquisition opportunities that align with its product roadmap, add customers or content, and offer significant cross-sell potential. While no formal plans beyond acquisitions were announced, management indicated they are exploring options to further increase shareholder value.

Risks and Challenges

Despite the positive momentum, several risks and challenges warrant attention. Macroeconomic headwinds continue to exert pressure on customer budgets, potentially impacting sales cycles and willingness to commit to new platform investments. The decrease in transaction volume in Q3 FY25, while potentially seasonal, requires monitoring to determine if it signals a longer-term trend.

Seasonality in the B2C segment tied to the academic calendar will continue to cause fluctuations in ARR growth and profitability on a sequential basis. Longer B2B sales cycles, attributed to increased customer due diligence and procurement complexity, could delay bookings. While churn to competitors is down, non-controllable churn due to customer acquisitions or business closures remains a factor.

The contingent earnout liability related to the Scite acquisition, while revalued based on performance expectations, introduces some uncertainty due to its Level 3 valuation nature. The underperformance of the ResoluteAI platform as a standalone product is also a challenge, although the strategic value is seen in its potential integration. Finally, while investments in sales and marketing are expected to yield results, there is a short-term impact on profitability metrics like CAC and CAC-to-LTV.

Conclusion

Research Solutions is executing a compelling transformation, successfully shifting its revenue mix towards a higher-margin SaaS and AI model. The strategic acquisitions of Scite and Resolute.ai have fundamentally enhanced its technological capabilities, particularly in AI-powered research discovery and analysis, creating valuable differentiators like Smart Citations and hallucination mitigation. This pivot is yielding tangible financial benefits, driving significant expansion in gross margins, Adjusted EBITDA, and cash flow from operations, demonstrating the scalability and profit potential of the business.

While challenges from macroeconomic conditions, seasonality, and sales cycle lengths persist, the company's investments in sales execution, product integration, and AI capabilities, coupled with a strengthening balance sheet, position it for continued ARR growth and profitability expansion. The focus on cross-selling, capturing the academic market opportunity, and exploring new revenue streams like TDM rights further supports the long-term investment thesis. For investors, RSSS represents a story of strategic evolution, leveraging technology and operational improvements to unlock value in the specialized STM research market, with clear indicators pointing towards further financial strengthening and potential shareholder value creation.