Research Solutions Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 19, 2024

Key Takeaways

  • Record full-year $44.6 million in revenue (+18%), including $14 million in platform subscriptions (+61%) and $30.7 million in transaction services, driving ARR to $17.4 million (up 84% YoY).
  • Platform revenue now represents 35% of total sales, lifting blended gross margin to 44% for the year (Q4 margin at 46.5%), with further expansion expected as the platform mix increases.
  • Q4 adjusted EBITDA reached a company record of $1.4 million (+70% YoY) and full-year EBITDA was $2.2 million, complemented by $3.6 million in operating cash flow despite $1 million in proxy-related expenses.
  • Acquisitions of Resolute AI and Syte broadened AI-driven discovery and analysis capabilities, with Syte cross-sells adding ~$290 K in B2B ARR in Q4 and a strong B2C demand generation engine established.
  • Management expects softer Q1 FY 2025 ARR growth due to B2C seasonality and extended B2B sales cycles, though pipelines remain strong and the long-term profitability outlook is intact.
AI Generated. May Contain Errors.
Earnings Conference Call
Research Solutions Q4 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good day, and welcome to the Research Solutions, Inc. fourth quarter twenty twenty-four earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to John Beisler. Please go ahead.

John Beisler
John Beisler
Head of Investor Relations at Research Solutions

Thank you, Nick, and good afternoon, everyone. Thank you for joining us today for Research Solutions' fourth quarter and full fiscal year twenty twenty-four earnings call. On the call today are Roy W. Olivier, President and Chief Executive Officer, and Bill Northern, Chief Financial Officer. After the market closed this afternoon, the company issued a press release announcing its results for the fourth quarter and full year fiscal twenty twenty-four. The release is available on the company's website at researchsolutions.com. Before Roy and Bill begin 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 nineteen ninety-five. Actual results may differ materially from those expressed or implied due to a variety of factors.

John Beisler
John Beisler
Head of Investor Relations at Research Solutions

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 this call will be recorded and 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?

Roy Olivier
Roy Olivier
CEO at Research Solutions

Thank you, John. Overall, it was a strong year for the company as we showed continued progress in many strategic areas of the business, resulting in a transformational year. We completed the acquisitions of ResoluteAI in July of 2023 and Scite in December of 2023. Both advanced our leadership position in discovery and analysis capability to our growing suite of research tools. Scite continues to outperform on better-than-expected B2C sales and strong execution on our cross-sell efforts for the B2B side. Scite's B2B business was about $400,000 when we closed the acquisition, and you may recall we added about $250,000 in Q3. In Q4, we added approximately $290,000, which further proves our robust cross-selling strategy progress.

Roy Olivier
Roy Olivier
CEO at Research Solutions

We remain uniquely positioned to maintain and build on our strong position as a leading vertical SaaS and AI company, supporting research-intensive organizations. Some of our other meaningful accomplishments during the year that further strengthen our overall value proposition include building a predictable B2C demand generation engine that will produce results as seasonality subsides in the early fall, rebranding to create a cohesive messaging across our portfolio of products and drive internal alignment, which launched this week publicly. Growing the B2B pipeline by simplifying messaging and execution and refocusing on cross-sells and upsells. We integrated Article Galaxy and Scite to further strengthen our research platform value prop. We achieved our highest levels of automated delivery in Q4. 76.8% of articles with DOIs were delivered instantly to our researchers.

Roy Olivier
Roy Olivier
CEO at Research Solutions

We also realigned the software engineering and product management organizations to improve execution, speed to market, and to better align execution with our strategy. Moving to our financial accomplishments, the company generated $44.6 million in revenue, including $14 million in platform revenue and $30.7 million in DocDel or transactions revenue during the year, all company records. In addition, we generated $2.2 million in EBITDA and $3.6 million in cash flow from operations. Keep in mind that this is in spite of over $1 million in costs associated with the proxy matter we dealt with in the year. ARR stands at $17.4 million, an 84% year-over-year improvement, and our platform customer count exceeded 1,000 for the first time in the company's history.

Roy Olivier
Roy Olivier
CEO at Research Solutions

Overall, we're proud of the results and excited about the future of our business. I'd like to discuss the business outlook in more detail and provide some context regarding FY 2025 later in the call. For now, I'll pass the call over to Bill to walk you through our fiscal fourth quarter and full year 2024 financial results in detail, and then I'll wrap up with some comments and outlook for fiscal 2025. Bill?

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Thank you, Roy, and good afternoon, everyone. I will begin with a recap of our results for the fourth quarter of fiscal 2024. Total revenue for the fourth quarter of fiscal 2024 was $12.1 million, a 22% increase from the fourth quarter of fiscal 2023 and a new company high for quarterly revenue. Our platform subscription revenue increased 86% to approximately $4.3 million. The growth was primarily driven by platform revenue from the Scite acquisition and a net increase of platform deployments from last year on our core Article Galaxy platform. We ended the quarter with $17.4 million in annual recurring revenue, or ARR, up 84% year over year, and a little over 5% sequentially. We added about $867,000 of incremental ARR in the quarter, split relatively evenly between B2B and B2C ARR.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Scite growth in both B2B and B2C ARR in the quarter was strong and remains above expectations. Additionally, we continue to have good cross-sell success of Scite within our Article Galaxy customer base. Of the 17.4 million in ARR at fiscal year-end, about 12.1 million is B2B ARR, and approximately 5.4 million is ARR associated with Scite's B2C platform. 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 7.9 million, a 2.6% increase from the prior year quarter. Our total active customer count for the quarter was 1,398, compared to 1,404 in the same period a year ago.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Gross margin for the fourth quarter was 46.5%, a 710 basis point improvement over the fourth quarter of 2023, and a new company high mark for blended gross margin. The increase is due to the ongoing revenue mix shift towards our higher margin platforms business. To provide some perspective on this mix shift, two years ago, in our fourth quarter, platform revenue accounted for about 22% of the total revenue, and we had a blended gross margin of 38.3%. Today, the platform revenue mix has been raised to 35% of revenue, and that has moved the blended gross margin to 46.5%. In Q4, the platform business contributed 65% of the total gross profit.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

As the revenue mix shift continues to move in the direction of platform revenue, gross margin should continue to go up, and this will ultimately drop more to our bottom line. The platform business recorded gross margin of 85.3%, a decrease compared to 88.1% in the prior year quarter, but within our target gross margin range of low to mid-80%. The decrease is related to the inclusion of ResoluteAI's revenues, which generate a lower gross margin. Gross margin in our transaction business increased 60 basis points to 25.4%. The increase was primarily attributable to increased copyright margins. This is at the high end of our range, and we should expect that transaction gross margin should stay in a range of roughly 24.5% to 25.5%.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Total operating expenses in the quarter were $5 million, compared to $3.7 million in the prior year quarter. The increase is fully attributable to the addition of the cost bases brought over from the ResoluteAI and Scite acquisitions, including the non-cash depreciation and amortization associated with those acquisitions. Note, there is some seasonality in the Q4 number, which likely reduced the expenses between $200,000 and $300,000 for the quarter. So this quarter's results should not be assumed to be a straight line run rate for our SG&A expense going forward. Our improved gross margin and the containment of operating expenses in Q4 produced a strong income from operations result. Operating income was $662,000, compared to $255,000 in the prior year quarter, a 159% increase, and also a new company record.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Other expense for the quarter totaled $3.5 million, which includes a $4.3 million charge related to increase in the earn-out assumption for Scite, offset by a reduction in the earn-out assumption for ResoluteAI, which now sets that earn-out expectation to zero. The increase in the Scite earn-out assumption is based upon the strong activity in the second half of fiscal 2024 and our expectations for the remainder of their earn-out period in fiscal year 2025. It should be noted that this number could change again, either upwards or downwards, as we move closer to the final determination of Scite's earn-out in May 2025. Net loss for the quarter was $2.8 million, or $0.09 per diluted share, compared to net income of $376,000, or $0.01 per diluted share in the prior year quarter.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Adjusted EBITDA for the quarter reached a new high at $1.4 million, compared to $825,000 in the year ago quarter, a 70% increase. Now, let me turn to our results for the full year fiscal 2024. Before I begin, I'd like to remind everyone that our full year fiscal 2024 includes results of approximately 11 months of contribution from ResoluteAI and 7 months from Scite. Total revenue for fiscal 2024 was $44.6 million, an 18% increase from fiscal year 2023. Platform subscription revenue increased 61% to approximately $14 million. Total deployments at year-end were 1,021, a net increase of 186 deployments from the end of fiscal year 2023.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Transaction revenue for fiscal 2024 was $30.7 million, a 5.7% increase from the prior year. This year's results include a full contribution from the customer contracts acquired from FIZ Karlsruhe, compared to just six months in fiscal 2023.... Going forward, we expect revenues from the transaction segment to be flat to low single digit positive, as transaction purchases from new customers are offset by the benefits offered within our software platform. Gross margin for fiscal 2024 was 44%, a 500 basis point improvement over fiscal 2023, and again, the improvement is due to the ongoing mix shift to platform revenue. Total operating expenses in fiscal 2024 were $20.4 million, compared to $14.5 million in the prior year.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

The increase is primarily attributable to the addition of the cost bases associated with ResoluteAI and Scite, as well as about $1.5 million in proxy and M&A-related expenses incurred in the fiscal year, and then additionally, some modest growth in our core cost base. Net loss for fiscal 2024 was $3.8 million, or 13 cents per diluted share, compared to net income of $572,000, or 2 cents per diluted share in the prior year. Adjusted EBITDA for the quarter was $2.2 million, or for the year, excuse me, was $2.2 million, compared to $2 million in fiscal 2023, an 11% increase. The adjusted EBITDA result includes $1.4 million of the aforementioned proxy and M&A-related expenses experienced in the fiscal year.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Turning to cash flow on our balance sheet, the business continues to deliver strong cash flow. Cash flow from operations in the last half of our fiscal year was approximately $4 million. Recall, after we did the Scite acquisition, our cash balance on December 31, 2023, was $2.7 million. That balance at fiscal year-end now stands at $6.1 million in cash and cash equivalents. I will note that Q3 and Q4 are seasonally our best times for cash flow, so I would not expect anything nearly as strong in the first quarter of 2025. Last year, recall, we actually burned cash in Q1, as this is the time we pay out our fiscal year-end bonuses.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

That said, barring any acquisition activity, we do expect to increase cash throughout the year, and the vast majority of that increase will come in Q3 and Q4 of fiscal 2025. As of fiscal year-end, there were no outstanding borrowings under our new $500,000 revolving line of credit, and we have no debt. Looking back on fiscal 2024, I did mention that I thought Q3 and Q4 would be pretty clean and that they would give us an opportunity to demonstrate the profit and cash flow potential of the business. We do believe this has played out well and has served to validate our thesis for profit expansion as the platform revenue becomes a larger and larger component of our overall revenue mix.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

As we look ahead to fiscal 2025, I will note that our early views show some softness in Q1 ARR growth. Some of this has to do with the seasonality in B2C ARR, which slows in the summer months, and some of this is in our B2B ARR, where we are experiencing longer sales cycles. That said, we still have some time left in the quarter, and our pipelines remain strong. B2C revenue has already started picking up in September. Overall, the profit profile and potential for the business has not changed. We believe we remain on track to deliver long-term value to our shareholders. I'll now turn the call back to Roy. Roy?

Roy Olivier
Roy Olivier
CEO at Research Solutions

Thanks, Bill. As I mentioned before, in many ways, it was a transformational year for Research Solutions. The two acquisitions increased our total addressable market through providing us with tools, analysis tools, and a new revenue segment with the B2C business. In addition, Scite brought unique capability with the AI assistant, full-text search capability of STM content, Scite Badge, and supporting contrasting snippets, all of which help researchers better evaluate research and further strengthen our overall value proposition. Moving forward, some of these changes will impact the seasonality of the business. The B2C revenue segment, which is over 30% of the ARR, is impacted by the academic calendar. A large portion of that business is driven by students who tend to take the summer and part of December and January off, which impacts our churn and sign-up rates in that business.

Roy Olivier
Roy Olivier
CEO at Research Solutions

Turning to the B2B side of the business, academic enterprise sales is largely driven by budget cycles of universities. Those institutions typically budget and buy at two points during the year, covering the December to January and June and July periods. B2B academic is the strongest year-over-year growth segment within Research Solutions. In FY 2025, we are deliberately splitting our single sales team into a corporate team and an academic team, as we have broader product offerings to support higher growth in the academic segment. We will continue to innovate, offering new products and rolling out new features across our Article Galaxy, Article Galaxy Scholar, and Scite platforms. Over the year, we launched many new features in our three main sources of revenue, including Smart Folders and Article Galaxy, which automatically populate with scientific, technical, or medical content results based on your search criteria.

Roy Olivier
Roy Olivier
CEO at Research Solutions

We had an instant in-platform delivery in the Article Galaxy Scholar or academic version of that platform. And through integration with Article Galaxy, we had a pricing and availability of STM content and search results in the Scite platform. We also continued to add new publishers to the Scite platform's full service capability. In the last half of FY 2024, we added four new publishers and have several more in the works. We also continue to build relationships to provide the most available and accurate access to information possible to our users, as evidenced by our partnership with Jisc, J-I-S-C, announced earlier this summer, providing more than 280 higher education research institutions in the U.K. to access Scite's capabilities. Macroeconomic headwinds continue to restrict budgets across the corporate and academic customer base.

Roy Olivier
Roy Olivier
CEO at Research Solutions

Yesterday's rate cut announcement by the Fed should be the first step to reignite venture capital funding within the biotech sector, but time will tell how much it will truly free customer capital constraints. We continue to work diligently with our existing customers for them to recognize the efficiency and cost savings available through our core platform offerings. We also remain highly focused in searching and evaluating M&A opportunities with the business and have several active conversations ongoing. As a reminder, our strategy is to focus on opportunities that align with our product and company strategy, are accretive to our growth and EBITDA goals, and represent a sizable cross-sell opportunity for us. Valuations continue to be lower than twenty-four months ago, and we will capitalize on that if the target fits our overall objectives.

Roy Olivier
Roy Olivier
CEO at Research Solutions

I want to reiterate that we remain uniquely positioned to maintain and build on our strong position as a leading vertical SaaS and AI company, supporting research-intensive organizations. During the past year, we experienced a number of one-time external distractions. However, we maintained our strong financial performance with multiple records and improved positioning from a year ago. Those one-time items are predominantly behind us and we believe our current record financial performance and future quarterly performance, where we will see profitability and EBITDA continue to strengthen, will not go unnoticed in the market. I'd like to thank our investors for their continued support and our entire team for driving another record year. With that, I'd like to turn it back over to the operator for Q&A. Operator?

Operator

Thank you. We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star, then two. At this time, we will pause momentarily to assemble our roster. And our first question today comes from Jacob Steffen with Lake Street. Please go ahead.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets

Yeah. Hey, guys, thanks for taking the questions. I just wanted to talk about maybe some of the cross-selling success that you're seeing with Scite and Article Galaxy. Maybe it would be kind of helpful if you could help us understand, you know, what percentage of Article Galaxy customers also subscribe to Scite, or maybe just any commentary around that.

Roy Olivier
Roy Olivier
CEO at Research Solutions

Yeah, we have not publicly disclosed those numbers, but I would say it's a single-digit percentage of the Article Galaxy customer base. So we still have a tremendous amount of opportunity to achieve our target, which is well into the double-digit cross-sells.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets

Okay, got it. That's helpful. Maybe, you know, some comments you made regarding the Q1 twenty-five softness and ARR growth. I wanted to see if you could kind of help us think about overall impact here. Maybe is this kind of like a flat quarter over quarter ARR growth, or is this kind of low, mid-single digit? I guess, what are you seeing there?

Roy Olivier
Roy Olivier
CEO at Research Solutions

Yeah, I don't. You know, I, I'm uncomfortable providing guidance because we typically do have a very strong end-of-quarter push. You know, B2C-

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets

Yeah

Roy Olivier
Roy Olivier
CEO at Research Solutions

It has been challenging because you have basically, you know, June, July, August is the summer months, and then you start to see a pickup in the first, second week of September. So we've seen a strong pickup, you know, in September, but the first two months of the quarter were not great. They were where we expected them to be, but they're not going to show the kind of improvement that we saw in Q3 and Q4 of last year. On the B2B side, you know, we continue to see some a lot more deliberation around making decisions to move forward. We have not seen our win or loss rate materially change. What we've seen is the days to sale continue to extend. At one point, you know, our days to sale was around 90 days.

Roy Olivier
Roy Olivier
CEO at Research Solutions

You know, today it's running in excess of a hundred and twenty days. However, our customer acquisition costs on the B2B side continue to be in what I would consider to be good but not necessarily great territory. And what I mean by that is we're running 18, 19 months CAC on B2B, versus if you go back 18 months or two years, we were running 13 or 14 months. So, and that is directly related to just the extension. So, you know, we're cautious about Q1, but we'll see how the quarter ends.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets

Yeah, and maybe

Roy Olivier
Roy Olivier
CEO at Research Solutions

Yeah.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets

It sounds like, you know, as... Sorry, go ahead, Bill.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Yeah, sorry. I was just going to add to that. Yeah, I think the main, the main thing is, you know, if you look back Q3, Q4, on the B2C side, we had really tremendous growth there. I mean, I think Q3 was almost-

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets

Mm-hmm

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Like $950,000, Q4, versus $460,000. I think the main thing we're trying to communicate is it's just not gonna be near that on the B2C side, you know, at least that's our expectation right now, just given, you know, with the seasonality in the business. It has been picking up towards the end. We'll see where it ends up, but I think we're just trying to set some expectation mainly around that, just given we've had two really good, strong quarters.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

I will say we did sort of budget for some of this as well, and so it's not completely out of expectation, and our budget plan still ends in a nice place at the end of the fiscal year. And additionally, as I said in my, you know, sort of comments, our profit potential remains intact. You know, so even if there is some softness there, it's. We're still gonna have a pretty nice EBITDA quarter in the business. So I just wanted to add those comments as well.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets

Okay. Got it. No, appreciate that. That's all the questions I had.

Operator

Our next question comes from Richard Baldry with Roth Capital. Please go ahead.

Richard Baldry
Richard Baldry
Managing Director at Roth Capital Partners

Thanks. Very curious, given, you know, the strength you've had this year on the back of the acquisitions, how far do you think you are through the integration process on sort of the cost side, the integrating the teams? And then second, you know, how far along would you call, like, a full pipeline alignment on the cross-sale side do you think you've managed to climb?

Roy Olivier
Roy Olivier
CEO at Research Solutions

I'm not sure I understand the last part of the question about how far along are we on alignment of the pipeline and the cross-sell, but let me answer the first part first. In terms of integration of cost, I think we're largely complete. I'll let Bill comment on that, if he's got some additional comments here in a second. I think in terms of you know, integration of Scite, Resolute, Article Galaxy, Article Galaxy Scholar, I would say that, you know, Scite is integrated with Article Galaxy, Article Galaxy Scholar, to the extent that there is single sign-on in place. We have pricing and availability in Scite. You can click to obtain an article in Scite. You can see all of Scite Badges and information within Article Galaxy.

Roy Olivier
Roy Olivier
CEO at Research Solutions

You can click to, you know, read the snippets and read everything. So that integration is largely complete, and the two products work together very, very well. I think what's left to do is to streamline the user interface, and the workflow so that it's not two things that are working well together, it's one seamless workflow as you work through research. And that'll be done in the first half of the fiscal year, along with our, you know, typical monthly releases that improve our platform products. We're typically doing releases at least every month, in many cases, every two weeks. In regards to Resolute, we've not integrated fully with either product. We are planning on integrating some of the Resolute data into the Scite product.

Roy Olivier
Roy Olivier
CEO at Research Solutions

That will happen after we have reworked the workflow of the two products working together. The delay in getting that done is simply prioritizing the products that are generating results and revenue and growth, over products that have not been performing where we'd like them to perform, so due to Resolute's results, we've just scheduled that behind getting Scite and Article Galaxy more tightly integrated than they already are. Anything you want to add to that, Bill?

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

I think that makes sense. The other thing, just on cross-selling, is we do have basically the sales team, pretty much fully cross-trained on being able to sell Scite now. So again, some of the early cross-sell success that we had was basically with, you know, some of the sales force just not even being trained yet on it. And so we've been able to do that, and I think that'll help us get some more penetration into our existing customer base, as well as some new sales as we move forward. From the cost side of things, most of the integration cost-wise is done.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

The one thing we've been working on, which we're hoping to see some improvement on this year, is, you know, I do mention in my comments a lot that the year-over-year platform gross margin is down because Resolute has some cost that is dragging that down. And we have been working to take that cost out of the business, and have had some success there recently. And so my hope is that we can start to, you know, inch that platform gross margin up a little bit more, as we build through the year here.

Richard Baldry
Richard Baldry
Managing Director at Roth Capital Partners

Great. The last one may be, when we think about the M&A pipeline, and prospects, you know, for it, do you feel like there's, you know, an ample number of targets to go after that, you know, on a reasonable hit rate, do you think there's, you know, meaningful M&A to come? And then maybe sort of put that against the backdrop of, you know, how large or how frequently do you feel like you have the bandwidth internally to do these, you know, is fiscal 2024 sort of a good model in your mind, above pace, below pace? Or, you know, as you get larger, you know, is there a scale-up that kind of typically could happen with the M&A at the same time?

Roy Olivier
Roy Olivier
CEO at Research Solutions

Yeah, I think I would say, in terms of your question on is there targets out there, yeah, there's a universe of targets out there, ranging from a lot of very, very interesting startups, which you probably read about every day in the AI space. But a number of businesses that are, you know, a few hundred thousand, a million to five million in revenue. There's even a few we look at that are north of 10 million in revenue. Obviously, those become beyond our capacity to execute on them for the most part. So I believe that, you know, we can do one, possibly two, depending on size and whether or not they can run independently, deals a year.

Roy Olivier
Roy Olivier
CEO at Research Solutions

I don't expect to do another deal in calendar 2024, but we do have a number of conversations, and we have a number in the backlog that are kind of scheduled behind that, so you know, for us, we're gonna be a little more choosy now about things that are accretive to our growth objectives and our EBIT objectives and fit our product strategy, so I don't know if that helps. Bill, anything you want to add?

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

No, I think you covered that one good.

Richard Baldry
Richard Baldry
Managing Director at Roth Capital Partners

Great. Thanks for your help.

Operator

Again, if you have a question, please press star, then one. Our next question comes from Alan Klee with the Maxim Group LLC. Please go ahead.

Alan Klee
Managing Director at Maxim Group LLC

Good afternoon. Could you go into explaining a comment you made that seasonality in fiscal 4Q numbers reduced operating expenses by around $200,000? What is behind that, and does that mean that all else being equal, that will jump $200,000 next quarter? Thank you.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Yeah, sure, Alan. Yeah, so, yeah. So essentially, yeah, we tend to hold a lot of our accruals on the sales team through the fiscal year as they can, you know. We've seen in the past where a number of them can get on a hot streak towards the end of the year and, you know, over, you know, hit their target, get into accelerators and things like that. And so, so basically, at the end of, you know, Q4, over the last couple years now, we've had,

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

you know, we've basically gotten to the end, and some people didn't make their numbers, and we've reversed some of those bonus accruals. And that's really what's taken down the number to the $200,000-$300,000 that I mentioned. Yeah, if you straight line out, you should add that back in, and I think, you know, Q3's run rate is probably a more representative run rate of our SG&A expense versus Q4.

Alan Klee
Managing Director at Maxim Group LLC

That's helpful. Thank you, and then you talked about that most of your growth opportunities are in academic and that you're splitting a sales force for that. Could you talk a little about why you think academic is more attractive and with the type of opportunities you're going after?

Roy Olivier
Roy Olivier
CEO at Research Solutions

No, just to be clear, what I said is academic is our fastest-growing segment. The three segments we play in are corporate, academic, and government. So because Scite has a very strong academic product and because of the investments we've made in improving Article Galaxy Scholar, plus some industry trends around more and more content is being delivered via OA or it's free, yet subscription prices for universities from publishers continue to go up, even though a bigger and bigger percentage of that content is free. We have seen more libraries adopt Article Galaxy as a way to manage their costs, and we've seen a number of libraries acquire and be interested in the Scite platform on the enterprise side.

Roy Olivier
Roy Olivier
CEO at Research Solutions

So it's simply, the Scite product plus the AG product are performing well, and that segment is growing faster than our government segment or our corporate segment. That said, we will continue to focus heavily on the corporate segment, where we think our market share is single digit. We will just simply have dedicated academic salespeople because the workflow in a university library is different from the workflow in a corporate setting.

Roy Olivier
Roy Olivier
CEO at Research Solutions

And budget cycle, decision-makers, all that is quite a bit different from a corporate environment. So we think that we can accelerate the sales of both areas, corporate and academic, by having dedicated salespeople that understand the sales process, the decision-making process, the workflow, et cetera. So, we're not splitting it because we think academic is better than corporate. We're splitting it to get more focus on both and accelerate the growth on both. Anything you want to add, Bill?

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

No, I think that makes sense.

Alan Klee
Managing Director at Maxim Group LLC

Got it. Thank you so much. That's it for me.

Operator

Our next question comes from Avi Fisher with Longcast Advisors. Please go ahead.

Avi Fisher
Founder and Portfolio Manager at Longcast Advisors

Hey, guys. Thanks for taking my questions. I mean, 12% EBITDA margins, you're- you've hit the double-digit side. Is that sustainable, do you think, going forward?

Roy Olivier
Roy Olivier
CEO at Research Solutions

Bill, you want to address that?

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Yes. Yeah, sure. Yeah, no, I do think it's sustainable. Again, I think we will have. We will continue to have the seasonality in the business that we have, where we will build EBITDA. My expectation is we will build EBITDA onward from Q1 through Q4. So, you know, from that perspective, it'll. You may see it sort of dip below as we kind of go into Q1, and you have that the outperformance in Q3, Q4, like you saw this year. But, you know, we do think the business is capable of that.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

You know, the one caveat is we always, you know, manage on. Basically that Rule of 40, and if we see some more opportunities and we see opportunities for growth and laying down more advertising expense and things like that, we'll do that, but we'll also communicate that to everybody as well. I still think it's probably, you know, low double digits, but I do think it's possible to maintain that on a fiscal year basis.

Avi Fisher
Founder and Portfolio Manager at Longcast Advisors

I mean, that's great. If you look at 1Q24, if you back out the proxy expenses, you were at about 4%. So it sounds like, you know, 1Q25 should jump over that, even if it steps down from 12% sequentially.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Yes.

Avi Fisher
Founder and Portfolio Manager at Longcast Advisors

Great. I mean, I think the EBITDA margin growth and the operating cash flow is incredible. You guys are doing great work. I have a question about the days to sales expanding, so you've been trying to expand your corporate customer base, right? Outside of the core customers into new markets, and I'm curious about how that's going, how much of that plays into the increased days to sales. Are you going after different customers? Are you adjusting your sales effort towards that? I'm just wondering if you could offer some color around that. Thank you.

Roy Olivier
Roy Olivier
CEO at Research Solutions

Yeah, that's a great question, and I think we're still focused on largely the same customer, customers. I know, in other words, the same verticals underneath the corporate segment and academic libraries underneath the academic segment. Having multiple products adds some complexity, so we have to be careful as we're selling to not overcomplicate the sales process, which drags out your days to sale, by trying to sell multiple products in the first contract. So, you know, in my past life, we always tried to keep it simple, land and expand. Here, we try to do the same thing, but a lot of people, when we're talking to them about product A, and they find out we have product B, they're like: "Oh, that's interesting. We'd be interested in that as well." And that adds a little bit to the days to sale.

Roy Olivier
Roy Olivier
CEO at Research Solutions

I will say, though, my interpretation of some of the stretching of the days to sale. There's a part of it, and it's. I don't think it's a majority of it, that is related to just increased number of products and complexity of, of the sale associated with trying to sell multiple products. I think a lot of it is we're seeing customers who absolutely run a comparison between our product and other products, which adds time to the process. We've seen a lot of customers do longer procurement process, which includes more IT involvement to evaluate our security posture, and those sorts of issues. And we've seen involvements where customers ask us to score against, a lot of different things around environmental and other issues that add time to sale.

Roy Olivier
Roy Olivier
CEO at Research Solutions

So a lot of it seems to be, you know, really driven by a longer process on the procurement side of the customers that are making the buying decisions. But as I mentioned earlier, we haven't seen a material change in our percent of pipeline that closes. We've not seen a material change in deals marked won or deals marked lost to competition. So, you know, it appears to us to be simply companies being more deliberate and more thoughtful before they pull the trigger than two years ago.

Avi Fisher
Founder and Portfolio Manager at Longcast Advisors

So what you're describing is the marketplace as it is for your existing customers?

Roy Olivier
Roy Olivier
CEO at Research Solutions

No, I'm describing as it is for any customer we talk to, and Bill mentioned we have a hundred and eighty-six net new logos in the quarter. We run between, you know, a hundred and a hundred and eighty-six a quarter. Vast majority of those are new, new. In other words, they're people we have. These are not cross sells.

Avi Fisher
Founder and Portfolio Manager at Longcast Advisors

Right.

Roy Olivier
Roy Olivier
CEO at Research Solutions

These are new into a new customer.

Avi Fisher
Founder and Portfolio Manager at Longcast Advisors

Okay. All right. And, oh, so it's just two years ago compared to new, new customers two years ago? I get that. And you, you'd mentioned earlier, you expect... You talked about some of the complexity of having two products. So that way, you expect that to go away by the end of fiscal twenty-five because you're gonna be further integrating things?

Roy Olivier
Roy Olivier
CEO at Research Solutions

No, we'll continue to sell these products as modules. They'll be better integrated. I think the workflow and value to the customer will be more apparent, but we will sell discovery tools, which is Scite and ResoluteAI. We will sell access tools, which is Article Galaxy and Article Galaxy Scholar, and we will sell reference management tools, and if you buy multiple, you may get a package discount for buying multiple, but they are individual products on the contract that carry an individual price.

Avi Fisher
Founder and Portfolio Manager at Longcast Advisors

Okay. Doesn't sound that complicated to me, but of course, I'm not a corporate customer. I appreciate your taking the questions, and I'll follow up later. Thank you.

Roy Olivier
Roy Olivier
CEO at Research Solutions

Thank you.

Bill Nurthen
Bill Nurthen
CFO at Research Solutions

Thank you.

Operator

That concludes our question and answer session. I would like to turn the conference back over to Roy Olivier for any closing remarks.

Roy Olivier
Roy Olivier
CEO at Research Solutions

All right. Thanks, everybody, for joining us on our call today. I look forward to speaking to you in November to discuss our first quarter fiscal twenty twenty-five results. Have a great day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • John Beisler
      John Beisler
      Head of Investor Relations
    • Bill Nurthen
      Bill Nurthen
      CFO
    • Roy Olivier
      Roy Olivier
      CEO
Analysts
    • Richard Baldry
      Managing Director at Roth Capital Partners
    • Alan Klee
      Managing Director at Maxim Group LLC
    • Avi Fisher
      Founder and Portfolio Manager at Longcast Advisors
    • Jacob Stephan
      Senior Research Analyst at Lake Street Capital Markets
Powered by Quartr