Research Solutions achieves 20% ARR growth and first-ever 50% gross margin in fiscal 2025, while positioning strategically for AI-driven future.

OPERATOR - (00:01:03)

To all sites on hold. We appreciate your patience and ask that. You please continue to stand by. Your program will begin momentarily.

Steven Hoosier - Investor Relations - (00:02:13)

Please stand by. Your program is about to begin. Good afternoon everyone and thank you for participating in today's conference call to discuss Research Solutions financial and operating results for its fiscal fourth quarter and full year ended June 30, 2025. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steven Hoosier, Investor Relations.

David - (00:02:47)

Thank you David and good afternoon everyone. Thank you for joining us today for the Research Solutions fourth quarter and full fiscal year 2025 earnings call. On the call with me today are Roy W. Olivier, President and Chief Executive Officer Bill Northern, Chief Financial Officer and Josh Nicholson, Chief Strategy Officer. After the market closed this afternoon, the Company issued a press release announcing its results for the fourth quarter and full year 2025. The release is available on the company's website at researchsolutions.com before Roy and Bill begin their prepared remarks, I would just like to remind you that some of the statements made during today's call will be forward looking and are made under the Private Securities Litigation Reform act of 1995. Actual results may differ materially from those expressed or implied due to a variety of factors. We refer you to Research Solutions recent filings with the SEC for a more detailed discussion of the risks and 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 that this call will be recorded and made available for replay via the Company's Investor Relations website. I would now like to turn the call over to Roy W. Olivier.

Roy W. Olivier - President and Chief Executive Officer - (00:04:11)

Roy thank you Stephen. Good afternoon and welcome. Thanks for joining us. Overall, we're pleased with the progress of the business in FY25. We set many new records for the company's performance, including 21 million in ARR. We grew ARR 20% in FY25 and remain focused on hitting our $30 million platform ARR target by the end of FY27. This is not guidance, but a BHAG, which stands for Big Hairy Audacious Goal. Our acquisition pipeline is strong and we have several opportunities that we believe would allow us to hit that goal faster. To do that, we need to execute well on several fronts. First, we need to execute from a product perspective in terms of providing unique value delivered at the right time in the customer journey. Much of this involves development of our existing products and expanding how AI can help researchers accelerate research in a copyright compliant way. While we can always improve, we continue to make good progress in this area. Second, we need to continue to execute in our marketing and sales teams. Marketing has done a great job in building top of funnel leads through marketing activities including digital spending, webinars, white papers and more. We see strong results in this area. As you know, we brought in a new Chief Revenue Officer in November of 2024 and have seen strong B2B sales in the second half of the year. We expect that to continue in FY26. Third, we seek organically and through acquisitions unique value that can be software, tools, content or a combination of content that we believe are not only unique today, but will remain unique in the AI world. We'll discuss this a bit more later in the call in terms of how we think about our strategy going forward. Finally, and most importantly, we need to have the right strategy. We have been a company in transition from a transaction based company into a vertical SaaS company for many years. We are now in what may turn out to be a period that will drive massive change in the segments we serve due to the impact AI will have on research workflows. Over the past several years we have built a great set of software and other research tools to support research as we look forward. Large large language models (LLMs) have the potential to drive massive change to research workflows, so we must pivot our strategy to be where the customer is and deliver unique value at the right time, at the right place in the research workflow. In short, we will continue to improve software tools for our customers to simplify and accelerate the research process. But we will also need to improve our software APIs and create new AI based solutions to support larger customers who will standardize on one LLM but need some unique value and data that we can provide. Our AI based products are organically growing at almost 4x the pace of our legacy products today. We expect to see strong tailwinds from AI in the next few quarters and we think we are uniquely positioned to take advantage of that as we update and expand our products. Josh Nicholson will provide some context about that updated strategy later in the call. For now, I'd like to pass the call over to Bill to walk through our fiscal fourth quarter and full year 2025 financial results in detail and then I'll come back with some additional comments. Bill.

Bill Northern - Chief Financial Officer - (00:08:02)

Thank you Roy and good afternoon everyone. I will Start by first summarizing the fourth quarter results and then we'll discuss the full fiscal year results. Please note for comparisons between the fourth quarter 2025 and the fourth quarter of 2024, those comparisons are fully organic. For fiscal year 2025, the results include 12 months of contribution from the site acquisition compared to approximately seven months in fiscal year 2024. The fourth quarter was another really strong quarter for our business and served as further validation of how our ongoing shift to SAS revenue is translating into expanding margins, profitability and cash flow. Total revenue for the fourth quarter of fiscal 2025 was 12.4 million compared to 12.1 million in the fourth quarter of fiscal 2024. Our platform subscription revenue increased 21% from the prior year quarter to approximately 5.2 million. The growth was primarily driven by growth in both B2C and B2B platform revenue, including for the latter a net increase of platform deployments and upsells and cross sells into existing customers as a mix of total revenue, Platform revenue accounted for over 40% of the revenue in the quarter for the first time at 42% compared to 35% in the prior year quarter. We ended the quarter with 20.9 million in annual recurring revenue or ARR, up 20% year over year. The result included another impressive quarter of B2B ARR growth. You may recall that in our last quarter's call I commented that net ARR growth in Q3 was a company organic record of 736,000. This quarter was very close to that result as net B2B ARR growth was 724,000 which compares to 407,000 in the prior year quarter. We also added 38 net new platform deployments the last quarter. The growth was well balanced between new sales and upsells and occurred across both site and article Galaxy products. The total company ARR at quarter end breaks down as 14.2 million in B2B ARR and approximately 6.7 million in normalized ARR associated with sites B2C subscribers. We did experience a modest sequential decline in B2C ARR as the late spring into summer is seasonally a difficult time for that product. As a result, the net total incremental ARR growth for the quarter was approximately 567,000. Please see today's press release for how we define and use annual recurring revenue and other non GAAP items. Transaction revenue for the fourth quarter was approximately 7.3 million compared to 7.9 million in the prior year quarter. We started seeing some year over year declines in paid transaction order volumes in February of 2025 and that trend continued through our fourth quarter. Our total active customer count for the quarter was 1,338 compared to 1,398 in the same period a year ago. Gross margin for the fourth quarter was 51%, a 450 basis point improvement over the fourth quarter of 2024. This was the first time in the company's history that blended gross margin has been in excess of 50% for a quarter and platform gross profit contributed over 70% of the total gross profit in the quarter. The platform business recorded a gross margin of 88.5% compared to 85.3% in the prior year quarter. This was an unusually high result and I suspect it could come down some in future quarters, but not materially. Gross margin in our transaction business was 24.1% compared to 25.4% in the prior year quarter. The decrease was primarily attributable to lower fixed cost coverage due to the lower revenue base. I expect transaction gross margins to look more like this quarter's result in future quarters should we continue to experience similar year over year declines in transaction revenue. Total operating expenses in the quarter were 5.1 million compared to 5 million in the prior year quarter as increased sales and marketing expenses and general and administrative expenses were partially offset by lower stock compensation costs. I will comment that while sales and marketing expenses were up year over year, they were down sequentially. This is due to some seasonality we have in our accruals that typically produce a sequential reduction in sales and marketing expense between Q3 and Q4. As a result, I expect sales and marketing expense to look more like what we saw in the third quarter of 2025 as we look ahead to future quarters. Lastly, the Q4 result for general and administrative expenses did include over $100,000 in severance related charges that were accrued at year end. Other income for the quarter was 1.2 million and was primarily attributable to a favorable adjustment to the final earnout determination for site. Other expenses for the prior year quarter totaled 3.5 million which included a 4.3 million 3 million charge related to an earnout adjustment in that period. For site, net income for the quarter was 2.4 million or $0.07 per diluted share compared to a net loss of 2.8 million or $0.09 per diluted share in the prior year quarter. Adjusted EBITDA for the quarter was 1.6 million which was a 13% margin and a new company quarterly record compared to 1.4 million in the fourth quarter of last year. Now let me turn to our results for the full fiscal year 2025, which was also another record year for the company in many respects. Total revenue for fiscal 2025 was approximately 49.1 million, a 10% increase from fiscal 2024. Platform subscription revenue increased 36% to roughly 19 million. From an AR perspective, we added over 2.1 million in net B2B ARR for the fiscal year, and total deployments ended the year at 1,171, up 150 for the year. Net B2C ARR increased just under 1.4 million for the year. Transaction revenue for fiscal 2025 was 30.1 million, a 2% decrease from the prior year. The decrease, as previously mentioned, is attributable to the declines in order volumes we experienced in the second half of the fiscal year. Gross margin for fiscal 2025 was 49.3%, a 530 basis point improvement over fiscal 2024. The result represents a 23% year over year increase in the company's gross profit. Total operating expenses in fiscal 2025 were 21.7 million compared to 20.4 million in the prior year. The increase is attributable to higher sales and marketing expenses offset by lower general and administrative expense and lower stock compensation expense. We intentionally invested in sales and marketing expenses in fiscal 2025 and believe we are seeing some of that payoff with the recent quarterly performance in net B2B ARR growth. Other expense for the year was 1.2 million compared to other expense of 2.9 million in fiscal 2024. Both years reflect net adjustments net expense adjustments of 1.7 million and 5.1 million, respectively, made related to the site earnout. Net income for fiscal 2025 is 1.3 million, or $0.04 per diluted share, compared to a net loss of 3.8 million, or $0.13 per diluted share in the prior year. Adjusted EBITDA for the year was 5.3 million, a company record compared to 2.2 million in fiscal 2024. It also represents the first time in the Company's history that full fiscal year's adjusted EBITDA margin crossed the 10% threshold. Before I discuss cash flow on our balance sheet, I would like to take a minute to discuss the final determination of the site earnout. Final earnout was determined to be 15.4 million. This was to be paid 50% in cash and 50% in stock over eight quarters. However, through an offer to cite shareholders, we increased the cash mix portion of the earnout payment to approximately 62%. We made this offer given the confidence we have in our cash flow and the desire to issue less shares as part of the overall transaction purchase price. We made the first payment on the earn out in August which consisted of approximately 1.3 million in cash and approximately 265,000 shares. Future cash payments will be approximately 1.2 million each quarter and the shares to be issued will change quarterly based on a market calculation of their value prior to the distribution of the shares. The payments will be every three months and will be completed in May 2027 turning to cash Flow it has been very satisfying to see the transformation in cash flow in the business over the past few years. Our cash flow has continued to outperform our adjusted ebitda, which I think is a testament to the quality of our earnings and the validity of our SaaS revenue mix shift model. In fiscal 2025 we generated over $7 million in cash flow from operations, which is almost double the result from the last year of approximately 3.6 million. This cash flow has translated into a nice cash build on our balance sheet. I will remind everyone that when we completed the site acquisition in December 2023, our cash balance dropped to 2.7 million. Now, only 18 months later, we were able to end fiscal year 2025 with a cash balance of 12.2 million and there are no outstanding borrowings under our $500,000 revolving line of credit. As a result, barring any strategic M and A type activities, we expect that we can make the site earn out payments in fiscal year 2026 and still end the year with a higher cash balance than we have today. As we look ahead, we are enthusiastic about the momentum in our B2B ARR growth and believe that can continue. There are some competitive pressures we are experiencing in the B2C space that may affect near term growth, but we remain positive regarding the long term prospects for that business as well as our ability to convert certain groups of B2C users to larger B2B platform sales. Lastly, transaction revenue growth was challenging in the back half of fiscal 2025. We expect it to continue to be challenging in the first half of fiscal year 2026, but are optimistic about a flattening of the declines or even a possibility of a return to low levels of growth as we get into the back half of fiscal 2026. From an expense standpoint, we will continue to invest in sales and marketing as well as in technology and product development while aiming to reduce our overall general and administrative spend. From an adjusted EBITDA perspective, I expect to follow the same seasonality as last year, with the first quarter being potentially a slight dip sequentially from this quarter, but a beat to last year's Q1 result. Q2 will likely be our weakest quarter and then our strongest quarters will be in the back half of the year. All things considered, we remain on track to have another record year of performance. Further, our present cash balance paired with our expanding adjusted EBITDA and cash flow leave us better positioned than ever to execute on M and A opportunities. I'll now turn the call back over to Roy.

Roy W. Olivier - President and Chief Executive Officer - (00:21:15)

Roy, thanks. Yeah, thanks Bill. A few additional comments about our FY25 results as a reminder, we made several investments during the year, some of which are we invested in a new Chief Revenue Officer who joined in November of 24 and has overhauled the way we go to market. These changes have driven nice results in the second half of the year and we expect to continue to see that in FY26. As a result of his efforts, we have signed more large contracts in recent months, including several over 100,000 in ARR than we've closed in the company's history. We've also seen strong results from the new Academic Focus sales team we formed in early FY25. It's our fastest growing segment and generated new bookings equal to the long standing corporate focused team. That said, our business remains 80 plus percent corporate customers. We made a change in leadership over our transactions business. As previously noted, that business has seen headwinds but we have some levers we can pull to improve results. The new theme is aggressively evaluating ways to do that and working with our product management and software engineering teams to implement those improvements. We have seen some short term successes and will report more in our Q1 call. We've also made several changes to the software engineering and software development teams over the year. We believe those changes will accelerate development velocity and provide more high value features to our customers. As we go through FY26, we revamped how we identify and pursue acquisition targets. As a result of the changes we made, we have a large pipeline in place today. The targets we have are actionable, meaning valuation expectations, seem realistic and add new workflows or content that we believe will fit well into our customer base. In addition, we believe our products are a fit into their customer base. I'm confident we'll be able to move forward with one or more deals in FY26. In addition, given our strong cash generation I believe we can finance those deals primarily through senior debt and cash. I have a strong bias towards sellers who want to stay with the company and grow the combined business and want stock to do so. However, I expect deal structures will be more weighted toward cash closed we also invested resources and time to create a new source of revenue with the recently announced AI rights production. Every customer of ours is concerned about copyright compliance and wants to make sure they have the rights they need when they need them. The best example of that recently is AI rights. Our solution allows the customer to know what rights they have in a single click and acquire rights as needed. It allows the customer to use AI, provides new revenue source to the publishers and adds real value to our product. It's been very well received by customers and our publishing partners, including some of our largest customers. I've got a few more comments about the future, but right now I'd like to pass it over to Josh, our Chief Strategy Officer, to walk you through some of the things we're doing to drive growth in this new AI driven world.

Josh Nicholson - Chief Strategy Officer - (00:24:42)

Josh thanks Roy and hello everyone. Today I'd like to highlight some of the broader shifts we're seeing across the web with the rise of LLMs and chatbots and how these changes are creating new challenges as well as opportunities for us. Increasingly more people are performing what the Wall Street Journal called zero click search. That is, people are turning to AI as answer engines and getting good enough answers without having to click through to the underlying data, whether that's a news article, a Reddit thread, or in our case a scientific article. As Roy and Bill have highlighted, this is manifesting on our side, with dockedel transaction revenue slipping and publishing partners reporting declines in traditional statistics such as full text reads and downloads. Our internal surveys from users point specifically to AI being the reason people are acquiring less articles. In short, AI is shifting demand from article retrieval to structured reasoning, which means the future of research and our products must be tasked and data based. Over the last few calls I've highlighted how our AI strategy is to focus on specific researcher based workflows with AI, differentiating ourselves from more general tools by focusing on the first and last mile of the researcher journey, something that might be too small or too complex for a generic tool to accomplish. We'll continue to focus on specific researcher needs as we develop our products and go to market approach, but we will also increasingly look to be where the customer is or what we call a headless strategy. We see Site and Article Galaxy increasingly being used as an API first platform. Our customers are no longer just logging into a single interface, they are embedding Site directly into their own systems, dashboards and even generative AI assistance. This headless strategy is intentional. By decoupling our services from a fixed ui, we enable developers and institutions to pull citation graphs, evidence summaries and rights cleared full text content directly into their workflows. Already we have deployed various API first deals across both products, some of which have been our largest contracts ever for our respective product Site and Article Galaxy. This approach allows us to go where the user is through integrations into internal built tools, third party products and to shift our focus from an arms race to an arms supplier. We have launched an AI TDM rights offering that allows our customers to easily and securely get AI rights to articles they have acquired. And while many publishers might negotiate these rights directly, it's important for us to display that information for our users and to make it possible to acquire the rights where necessary. Closely tied to this, we are exploring working directly with publishers to enable AI models and agents to discover discover content and source AI rights from a single pan publisher resource called an MCP or Model Context Protocol. We believe such infrastructure is the future of how large language models interact with research articles, presenting a path for AI models to securely query scientific articles, retrieve citations, verify claims and integrate trustworthy literature directly into its reasoning process. In practice, this means that whether you're a pharmaceutical company building an in house assistant, an academic using a generic AI your company has licensed, or a publisher enabling AI driven services, Research Solutions becomes the compliant safe bridge between proprietary content licensing and reliable AI output. Taken together, these initiatives mean Research Solutions is no longer just a distributor of articles or a platform. We're positioning ourselves as the building blocks of scientific AI infrastructure that ensures research content is accessible, reliable and legally cleared for the age of generative AI. I'm excited by our progress as a team and I think we're uniquely positioned to serve the needs of publishers and researchers in an AI native world. Thank you again and I'll now turn it back to Roy to wrap up.

Roy W. Olivier - President and Chief Executive Officer - (00:28:28)

Hey, thanks Josh. I mentioned in my introductory comments the things we need to execute on in FY26 and beyond. The most important one of those things is strategy. We have spent a lot of time in FY25 looking over looking, thinking about all the different things we do and what we might do that is unique. A few of those things are managing the customer's library of scientific research, including what rights came with those articles, the ability to easily access rights the customer needs when they need it, the site badge, which is like a FICO score or Rotten Tomato score for an article being evaluated and that is unique in the market today. The site search, which includes searching beyond the paywall for most of the world's content. This generates better results, is copyright compliant, and actually improves sales of articles for the publisher. Generally, the large LLMs search abstracts and have near zero behind the paywall access. Because of all of this site generates far fewer hallucinations in its results. We also deliver articles from 2,000 plus publishers. A vast majority of those are delivered in a few seconds and we integrate curated data from several sources to improve AI generated output. We have the ability to do that today given the databases we acquired as part of the Resolute acquisition. That is a big part of our headless strategy because it will offer our customers curated databases to include in Site Assistant or other AI generated output. In short, I think we're on the right track in terms of an updated strategy that will position us well in the new AI world. We also think the operational improvements and investments mentioned above will enable us to execute that strategy both organically and through acquisitions. One final comment. I did mention in the pre release of our earnings back in August that we were focused or that we continue to be focused on the weighted rule of 40. We in FY25 the calculation was a 34 in the rule of 40, and as we think about our FY26 we expect to make continued progress toward the 40 number. Just to as a reminder, the weighted rule of 40 is your ARR growth rate as a percentage times 1.33 plus our adjusted EBITDA margin as a percentage times 0.67. So with a little more weighting on growth, we continue to lean toward investing in growth to make it to the weighted rule of 40. After all that, we remain excited about where we are, our position and where we're going. And I'd like to turn the call back over to the operator for questions. Operator Absolutely.

OPERATOR - (00:31:35)

At this time, if you'd like to ask a question, please press the Star and one keys on your telephone keypad. Keep in mind you can remove yourself from the question queue at any time by pressing Star, Star and two. We'll take our first question from Jacob Steffen with Lake Street. Please go ahead. Your line is open.

Jacob Steffen - Equity Analyst at Lake Street - (00:31:56)

Hey guys, thanks for taking the questions. Maybe just first wondering if you could touch on the nice sequential uptick in ASP? Maybe help us kind of think through some of the drivers of this. Was it more cross sell upsells or kind of larger new deal activity?

Roy W. Olivier - President and Chief Executive Officer - (00:32:16)

Bill, you want to take that one?

Bill Northern - Chief Financial Officer - (00:32:20)

Yeah, sure. No, we are, I mean, part of what we've seen with the onboarding of the new CRO and some of the sales trading that we've been doing is that we are actually getting larger deals. And so I think Roy mentioned, you know, we had, we've got announced just recently a couple hundred thousand dollars deals in, and these are in the past few months. We've seen some of the larger deals in our, in our company's history. I'll also say there was sort of a period where we had some churn from Resolute. in the past, which was traditionally more of a larger deal where that, that basically caused a decline in our ASP. And so that has kind of weaned off and now we're in a. We're in a place where we can sort of build back ASP and I think it will be a focus as we, you know, do additional sales training, bring on some better, you know, salespeople over time and, you know, again, continue to see some larger deals also just as relates to some of the API type deals that Josh was talking about.

Jacob Steffen - Equity Analyst at Lake Street - (00:33:28)

Okay, got it. And to kind of ask one question further on Resolute, obviously you noted some turn issues kind of starting off there, but how are you using the product? How do you see the Resolute software adapting to your new strategy of being the API provider for LLMs?

Roy W. Olivier - President and Chief Executive Officer - (00:33:51)

Well, Resolute's always had a strong API. It has not necessarily had a strong UI in their software. So Resolute works much better in this headless strategy than it works as a product, unless we go in and rewrite big parts of the product, which we have not wanted to do. So we haven't talked about Resolute in a number of quarters because it's a product we don't focus on. We focus on a heavy investment in Sight and heavy investment in Article Galaxy, which of course are driving all of our growth. However, as we develop this headless strategy, we talked about being able to plug in the 13 additional databases via API into the workflow. Kind of resurrected that product in terms of selling that data to customers. And Josh, you may have a few other comments on that. Go ahead if you do.

Josh Nicholson - Chief Strategy Officer - (00:34:39)

Yeah, I'd really just emphasize that, you know, There are these 13 highly curated databases kind of coming to us for an API to get end access to the article, to get clinical trials, to get research articles, to get, you know, news articles. All these different things, you know, is a big value add for customers. And so I'm personally excited because it's kind of been right there in front of us for a while and it's very easy to, to execute on. The one thing I would also say about the API first deals is that by embedding ourselves, you know, into the infrastructure of some of these large companies, I think those contracts become very sticky. And so I'm personally quite excited by the Resolute databases really, you know, coming back to life as a focus for us. Okay, maybe just one last one more on the kind of competitive environment in this, in this headless strategy. Are you aware of anybody else that's kind of doing, running the same API strategy to kind of plug in with the larger LLMs?

Jacob Steffen - Equity Analyst at Lake Street - (00:35:45)

You want to take that, John?

John - (00:35:46)

Yeah, I think what we're starting to see in the ecosystem is some publishers doing this. And so if you look at Wiley, you know, I think the third largest publisher, they are directly, you know, opening up their articles or segments of their articles to LLM providers such as Anthropic. On their recent earning call, they talk about leaning more into AI and specifically AI licensing deals. And so I think we're going to start to see this across the ecosystem from publishers themselves. I think publishers will have somewhat of a challenge becoming a pan publisher source for this, largely because competitors don't want to give their content to other competitors. And so this is what we're talking about when we say we're pretty uniquely positioned is that we work with, you know, virtually all publishers. We're already driving them revenue. And this is really, as Roy and I have said in the past, kind of a shift from Docdel to rights Dell. So I increasingly see, you know, these bits of articles or chunks of articles, and specifically the data from articles being, you know, something that's valuable, that integrates directly into tools, whether that's a hyperscaler or whether that's an internally, you know, licensed LLM at a large corporate or even an academic institution. So I think it's an exciting time and I think, you know, there's, there's a lot of people kind of looking at this and trying to say how do we bridge this gap between research articles and AI? Okay, got it. Very helpful. I appreciate it. Guys.

OPERATOR - (00:37:18)

We'll take our next question from Richard Baldry with Roth Capital. Please go ahead. Your line is open.

Richard Baldry - (00:37:25)

Thanks. Same question I asked last quarter. Sort of. The COGS line was actually slightly down on the platform side while revenues were up pretty good. Can you talk again about sort of the trends there, whether this is sort. Of getting to peak optimization Think about it that way. Or is there further cost improvements? that can come on the platform side even as the top line scaling.

Roy W. Olivier - President and Chief Executive Officer - (00:37:53)

Bill, you want to take that?

Bill Northern - Chief Financial Officer - (00:37:55)

Yeah, sure, yeah. Some of this is, you know, effectively using our cash. I mean really where this is coming from is we sort of stabilized the labor base there that grows kind of just with like, you know, not a lot of additional headcount but just cost of living increases, things like that. But we've really, you know, tried where we could to lower or limit the increase in the hosting cost. And some of what we, we've been able to do is take, you know, the cash flow that we've had and apply that to some prepayments where we prepay some of our space with Amazon Web Services and other providers and as a result we're actually getting it cheaper over time by prepaying. So I'm not sure how much, I'm not sure how much we can do that going forward to sort of see it decrease. But I think we can do that to the extent that, you know, it will increase less than at the pace that we're growing to revenue. Which again is why I think you're seeing some very high numbers on the gross margin side for platforms. We're also seeing in certain areas AI becoming cheaper. So as we grow, some of the AI providers we use get cheaper over time and so that's impacting the number as well. Okay, then on the AI related deals.

Richard Baldry - (00:39:17)

Being, you know, 4x the growth rate of, of non AI, you know, do you think that can continue at this pace? Is there sort of, eventually the scale of that base gets big enough that it, you know, can't keep up at that sort of delta. How do we think about that headed into the next sort of year or two as a driver?

Roy W. Olivier - President and Chief Executive Officer - (00:39:37)

Yeah, I think we expect to see similar Results in the B2B space. In the B2C space. We don't expect it to grow as much as it did in FY25 simply because the base is getting bigger and it is getting more competitive. But Josh or Bill, I invite you to add any comments you might have.

Josh Nicholson - Chief Strategy Officer - (00:39:58)

Yeah, I mean I would just again emphasize, I think with this headless strategy, you know, this is internal tools or internal companies using internal AI and you know, this allows us to price based on like the usage of this. Right. The calls that they're making to our API. So what we're, we're seeing is, you know, as these tools ramp up, it's less looking at here's 100 person, you know, seat license versus here's a company wide integration into a tool that they're heavily training on. And so I think that will, you know, command larger check sizes at B2B. And I think as we started to prove that out, those will continue to grow because we're going into places the companies are already investing a lot of money into.

Richard Baldry - (00:40:49)

Great. And last for me, can we dig. A little deeper into the strength in the deals above 100k? So are you going after a different type of customer or are you going. After the different value prop? Are they larger deals per customer and how are you achieving that on sort of a similar customer base or is it different verticals? How are you getting sort of larger. Deals out of what presumably is a similar customer set?

Roy W. Olivier - President and Chief Executive Officer - (00:41:20)

Yeah, there's a few moving parts. One is the new sales process. And the new CRO has brought in a number of new people who are not kind of pre programmed with an expectation of what we should sell a product at. And a big part of the new sales process is spending time qualifying the customer and understanding what their pain points are, what value we can use to address those pain points and what the economic impact to them will be if we do. And then the products are being priced accordingly. So I think part of it is, and I think it's probably a big part of it is sales execution and the way we're selling now. Secondarily, we did wholesale change the pricing on the academic segment of the business. Not much of that is reflected in FY25. But what we did do in 25 is we experimented with different pricing points. In other words, when we acquired Site, they had a fairly set pricing model for libraries. We sold at that price point, we sold at price points way above that price point. And we kind of played around with pricing in FY25 until we figured out a new model that we recently implemented. So some of it is just our standard pricing has changed and I guess that would be the two, the two main drivers that I can think of. Bill, is there any more that you can comment on?

Bill Northern - Chief Financial Officer - (00:42:47)

Not too much. I do think it's a sales execution thing. And really before we frame a proposal to a customer, really trying to understand their pain points and how much value the product is going to deliver for them and then pricing that value accordingly. Got it. Thanks.

Richard Baldry - (00:43:08)

Congrats on a good year.

Roy W. Olivier - President and Chief Executive Officer - (00:43:12)

Thank you.

OPERATOR - (00:43:14)

And as a reminder, if you'd like to ask a question, please press the Star and one keys on your telephone keypad. We'll take our next question from Derek Greenberg with Maxim Group Please go ahead. Your line is open.

Derek Greenberg - (00:43:29)

Hi. Thanks for taking my questions. The first question I have is just on a recent partnership you guys announced with Libkey and the integration there, I was wondering if you could just talk a little bit more about this partnership and the opportunity there. Yeah, does that address?

Roy W. Olivier - President and Chief Executive Officer - (00:43:50)

I'll jump in and Josh, you can have some comments. But basically in the academic segment, Libkey is a big player in the library, providing a product that's called a link resolver. And a link resolver, what it basically does is when you do a search and you get an answer to your search in terms of a scientific article, it kind of resolves where you go to get to the link to obtain that article. And they've been doing that for a number of years. Private company successful. And we also work with, frankly, three other link resolver companies that we worked with for a number of years and so putting together the Third Iron deal. Third Iron is the company that owns and created Link Resolver. I'm sorry, the Libkey product. You know, we've run a number of webinars in conjunction with them which introduce us into their libraries and keep in mind academics new to us. You know, I don't think we have more than 200 academic customers. There are, you know, 10,000 plus libraries out there that we can sell into. So we view partnering with 3rd Iron around Libkey is an opportunity to expand our academic business as well as kind of revisiting the partnerships we have with some other providers that provide a product like Libkey to expand into their academic library business. Josh, anything you want to add?

Josh Nicholson - Chief Strategy Officer - (00:45:15)

I don't have too much to add except to say that, you know, we look at a variety of different services that, you know, Roy mentioned to get our users access, whether that's subscription based access that they have from their university, or whether they're an individual at a university, access to the content as quickly as possible. And so there's really kind of like a hierarchy of needs and looking at how can we make sure we're facilitating access for the end user in the most robust and kind of efficient way possible. And I think leveraging our partnership with Libkey is one piece of that.

Derek Greenberg - (00:45:52)

Okay, got it. Turning to the cross sell between site and Article Galaxy, I was wondering if you had any statistics you were willing to provide in terms of what percent of Article Galaxy customers are also customers of site. I recall previously you said this was single digits and you were looking to get to double digits. Just wondering how things are progressing on that Side.

Roy W. Olivier - President and Chief Executive Officer - (00:46:23)

Yeah, we have not disclosed that number. You know, I can tell you that. And Bill, correct me if I'm wrong, a vast majority of the site sales in FY25 are to what we call a new new customer. In other words, we're not doing business with them. On the article Galaxy side we do some cross sells and a lot of times those cross sells are pretty big from an ARR perspective. But I think if you look at it from a logo perspective, vast majority of the logos are new new customers. Bill, anything to correct that?

Bill Northern - Chief Financial Officer - (00:46:52)

Yeah, I would still describe it, excuse me, as low to mid single digit penetration. On the article Galaxy customer base. Okay, thank you, that's helpful. My last question is just on margins. We saw some really good improvement this year. Ebitda margins growing 5% doubling year over year. I was wondering looking towards 26, how we see expansion relative to this year in margins and how you expect, I guess, operating expenses to grow compared to revenue.

Roy W. Olivier - President and Chief Executive Officer - (00:47:37)

Bill?

Bill Northern - Chief Financial Officer - (00:47:38)

Yeah, I think, you know, part of the question for us is how much do we, how much do we invest back into sales and marketing and tech and product development? As I said, we're trying to basically try to keep investing in the sort of those two top lines on our expense base, sales and marketing, tech, product and while cutting sales or excuse me cutting G and A things like stock comp where we can. But I will say so in other words, I think we'll, we'll definitely cross the 10 margin threshold for the year. We want to stay above that. I think next year we can be above where we, we are today but we may temper that a bit. In other words, I think we could run you know, 15 loss but I don't think we're going to do that. I think we'll invest back into it and so you know, we'll, we'll kind of be somewhere in between that kind of 10 to 15 range and, and that's where I expect we'll kind of end up from an even margin. I think, you know, I think gross margin will continue to expand. You know, that'll be 50 plus, you know, for the year, next year. And you know, expense base, tough to say. I mean I, you know, again I think it could, we'll kind of pull levers where we need to pull levers. But you know, again could be 10% growth on the sort of SGA type bucket. But again, I think I'll have more Update on the Q1 call as we see our Q1 results come in and as we sort of further define and chart out how we're going to, you know, manage expenses and invest in growth for the rest of the year. I do think, you know, transactions are a key element of this and I am, you know, on our own internal models, as I said, we're modeling the down at least for the first half of the year. And so if you are sort of building models and such, I would do similar from that standpoint until we start to see that turn the other way. But given that, I still think we'll be, you know, kind of at the levels I talked about as we look ahead to 26. Okay, great, thank you, that's very helpful.

Roy W. Olivier - President and Chief Executive Officer - (00:49:56)

I did get one question, did get one question via email. Can we explain the strategy to stem the decline and resume growth in the transactions business to address that? What I would say is, you know, the current thinking is product improvement to improve conversion percentages and I think part B of that is understanding what's driving the change. In other words, we're seeing a significant year over year increase in monthly average users users and weekly average users, which is great. But what we're seeing is a big increase in them acquiring free documents and not paying for documents. As Josh mentioned, we recently did a survey that suggested some of our customers, around 10% of our customers are buying less documents because they can get a good enough answer from AI. So our current thinking is to improve. We have massive amount of traffic and in sight and we have a massive amount of traffic in article galaxy. And so our current thinking is to work to make to improve the conversion rate to also take advantage of the opportunity. Oh, you just bought this article. Here's three other articles like it. Oh, you just bought this article. Here's five articles that have a supporting statement in them related to the one you acquired or have a contrasting statement in them related to the one that you acquired. Do you want to buy these? So it's really I use the thing, I use the comment internally. We want to be the Amazon of Dr. We want to make it super easy. It's not as easy as it could be today. We want a suggestive sell. We don't really do that today at all and do some other things. And as I mentioned, we already took action on one barrier and saw a pretty nice improvement which if it were to continue for the all 52 weeks because we look at weekly data, you know, would would be a high six figure improvement in revenue to that business. And as you know, that's a pretty EBITDA profitable business for us. So we've got a number of things in the works. But you know strategically we focus on SaaS revenue and AI but we do have a fairly large around 60 people that work on the dockedel business. The leader in that business now is a guy who's very technologically savvy and he's gone through every internal process, every customer process that we have with the intent of how do we make this more seamless and more suggestive to drive more sales in that business. Back to you operator.

OPERATOR - (00:52:31)

And there are no further questions on the phone line at this time. So I'll turn the program back to you Roy for any additional or closing remarks.

Roy W. Olivier - President and Chief Executive Officer - (00:52:39)

Okay well thanks everybody for your time and I look forward to connecting in November to discuss our first quarter fiscal 2026 results. Have a great day.

OPERATOR - (00:52:50)

This does conclude the research solutions fiscal and operating results for its fiscal fourth quarter and full year ended June 30, 2025. Thank you for your participation and you may disconnect at this time. Thanks. Thank you.