Research Solutions Q3 Earnings Call Highlights
Research Solutions (NASDAQ:RSSS) reported improved profitability in its fiscal 2026 third quarter, even as revenue declined from a year earlier and management said business-to-business churn remained a drag on growth.
The company, which provides cloud-based research workflow tools including Article Galaxy and scite, posted total revenue of $12.1 million for the quarter ended March 31, 2026, compared with $12.7 million in the prior-year quarter. President, Chairman and Chief Executive Officer Roy W. Olivier said the quarter showed “improving EBITDA and net income” but acknowledged that top-line growth came in below expectations.
“Churn continues to be an area that needs action,” Olivier said on the earnings call.
Platform Revenue Grows as Transaction Business Declines
Chief Financial Officer Dave Kutil said platform subscription revenue increased about 7% year over year to $5.2 million, driven by a net increase of 15 platform deployments and expansion within the existing customer base through upsells and cross-sells. Platform revenue represented about 43% of total revenue, up from roughly 38% in the same quarter last year.
The company ended the quarter with $22.1 million in annual recurring revenue, up 8.5% from a year earlier. That included approximately $15.7 million in B2B ARR and about $6.4 million in normalized ARR associated with scite’s B2C subscribers. Kutil said B2C ARR was down 7.5% year over year but had shown signs of improvement in recent months.
Transaction revenue fell to $7 million from $7.8 million a year earlier. Kutil attributed the decline to a previously discussed churned account and volume reductions from a small number of larger customers, while noting that the monthly trend within the quarter showed “meaningful directional improvement” and early signs of stabilization.
Research Solutions reported 1,346 active transaction customers, compared with 1,380 in the prior-year period.
Margins and Earnings Improve
Gross profit was $6.3 million, essentially flat in dollar terms despite lower revenue. Gross margin improved 220 basis points to 51.7%, reflecting a continued shift toward the company’s higher-margin platform business.
Platform gross margin was 86.4%, compared with 87.4% a year earlier, which Kutil said reflected modest hosting and infrastructure investments to support the company’s AI and integration roadmap. Transaction gross margin was 26%, essentially unchanged year over year.
Total operating expenses declined to $5.2 million from $5.7 million, helped by lower general and administrative expenses and lower stock-based compensation, partially offset by continued investment in sales, marketing and product development.
Net income rose to $860,000, or $0.03 per diluted share, from $216,000, or $0.01 per diluted share, in the prior-year quarter. Adjusted EBITDA increased 14% to $1.6 million from $1.4 million. On a trailing 12-month basis, adjusted EBITDA was $6 million, with an adjusted EBITDA margin of 12.3%.
The company ended the quarter with $12.1 million in cash and cash equivalents and no borrowings outstanding on its revolving line of credit. Cash flow from operations was $1 million for the quarter, down from $2.9 million a year earlier. Kutil said the decline reflected timing of customer billings and strategic prepayments rather than a change in underlying earnings power or receivables collectibility.
Churn Offsets New Bookings
Olivier said Research Solutions signed 61 new or upsell logos in the quarter, representing $961,000 in ARR. Churn totaled 46 logos, representing $398,000 in ARR. He said most churned accounts were smaller, though one large account represented about $130,000 of the total.
Olivier said about one-third of churn is uncontrollable, typically related to customer acquisitions, business closures or reorganizations that eliminate research functions. The remaining two-thirds is controllable, he said, adding that the churn was not related to AI usage.
In response to an analyst question from Lake Street Capital Markets’ Jacob Stephan, Olivier said churn often stems from limited engagement or customers not generating enough return on investment from the platform. He said the company is focusing on improved onboarding and training, monitoring low-usage accounts, using automated workflows to reengage customers and promoting features that correlate with stronger renewals.
The company’s corporate sales team booked about $400,000 in the quarter, while the academic team generated about $265,000 despite a seasonally slower period. Olivier said academic wins included deals in Johannesburg, Singapore and several top U.S. universities, including Texas A Corporate deals included both scite and Article Galaxy, with about 70% of those deals related to Article Galaxy.
AI Products and “Headless” Strategy Take Focus
Olivier highlighted two new AI-based products called MCPs, or Model Context Protocol connectors, which integrate large language models such as ChatGPT or Claude with Article Galaxy and scite. He described the products as part of the company’s “headless” strategy, intended to make Research Solutions’ tools available where customers are already working.
According to Olivier, the scite MCP launched about two months ago and the Article Galaxy MCP launched about one month ago. The company already has a sales pipeline of more than $1 million tied to the new products.
The MCPs allow users to ask questions within an AI tool and interact with scite content in a copyright-compliant manner, Olivier said. Users can then request articles, with the LLM connecting to Article Galaxy to retrieve content in a copyright-compliant way.
Research Solutions has also integrated databases from its Resolute acquisition into the MCPs. Olivier said current answers can include patent, clinical trial and major grant data, with additional datasets expected to be announced as they are added.
In the B2C business, Olivier said product enhancements and AI-based tools helped reverse a steady decline. He said the company generated fewer new trials on significantly lower digital ad spending while keeping monthly recurring revenue roughly flat quarter over quarter. Customer acquisition cost fell about 24%, and lifetime value increased.
Management Points to Q4 Stabilization Efforts
Kutil said Research Solutions enters the final quarter of fiscal 2026 aiming to deliver adjusted EBITDA growth over the prior year, supported by platform subscription growth, improved retention, stabilization in transactions and disciplined expense management.
Olivier said he expects year-over-year performance in document delivery to improve in the fourth quarter. He reiterated that declines have been driven largely by a handful of customers, including one large churned account and several customers conducting less research than a year earlier.
Regarding mergers and acquisitions, Olivier said the company continues to evaluate opportunities but noted that valuation expectations remain challenging. He said sellers’ expectations are still based on prior software valuations, even as concerns about AI have weighed on multiples.
“I’m happy with the cash flow, net income, EBITDA, sales execution, and product work we did in Q3,” Olivier said. “I don’t think our numbers reflect the great work we are doing in those areas. I do believe that progress will show up in future quarters and in FY 2027.”
About Research Solutions (NASDAQ:RSSS)
Research Solutions, Inc (NASDAQ:RSSS) is a provider of software and managed services that streamline access to and management of scientific, technical and medical research. The company's flagship platform automates the acquisition, licensing and delivery of journal articles, conference proceedings and other pay-walled content, enabling institutions to reduce administrative overhead and control subscription costs.
Key offerings include self-service workflows for document requests, enterprise-grade managed services for high-volume users, and analytics tools that deliver detailed reporting on spend, usage patterns and supplier performance.
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