Earnings Call Transcript - RSSS Q4 2025

Operator, Operator

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 Hooser, Investor Relations.

Steven Hooser, Investor Relations

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 Nurthen, 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, 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 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?

Roy Olivier, CEO

Thank you, Steven. Good afternoon, and warm thanks for joining us. Overall, we're pleased with the progress of business in FY '25. We set many new records for the company's performance, including $21 million in ARR; we grew ARR 20% in FY '25 and remain focused on hitting our $30 million platform ARR target by the end of FY '27. This is not guidance, but a BHAG or a 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. The market has done a great job in building top of funnel leads through marketing activities, including digital spend, webinars, and white papers; 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 FY '26. 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 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 language models 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, in 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 data that we can provide. Our AI-based products are organically growing at almost 4 times 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 Nurthen, CFO

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 7 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 SaaS 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 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 would 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 earn-out determination per site. Other expenses for the prior year quarter totaled $3.5 million, which included a $4.3 million charge related to an earn-out adjustment in that period per 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 ARR 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 expenses and lower stock compensation expenses. We intentionally invested in sales and marketing expenses in fiscal 2025 and believe we are seeing some of that pay off with the recent quarterly performance in net B2B ARR growth. Other expenses for the year were $1.2 million compared to other expenses of $2.9 million in fiscal 2024. Both years reflect net expense adjustments of $1.7 million and $5.1 million, respectively, made related to the site earn-out. Net income for fiscal 2025 was $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 the 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 earn-out. The final earn-out was determined to be $15.4 million. This was to be paid 50% in cash and 50% in stock over 8 quarters. However, through an offer to site shareholders, we increased the cash mix portion of the earn-out payment to approximately 62%. We made this offer given the confidence we have in our cash flow and the desire to issue fewer shares as part of the overall transaction purchase price. We made the first payment on the earnout 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 3 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 has 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'll 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&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 decline 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 expenses. 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&A opportunities.

Roy Olivier, CEO

Thanks, Bill. A few additional comments about our FY '25 results. As a reminder, we made several investments during the year, some of which included investing 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 FY '26. 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-focused sales team we formed in early FY '25. 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 team is aggressively evaluating ways to do that and is working with our product management and software engineering teams to implement those improvements. We have seen some short-term successes and we'll 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 FY '26. We revamped how we identify and pursue acquisition targets, and 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 fit into their customer base. I'm confident we'll be able to move forward with one or more deals in FY '26. 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 at close. We also invested resources and time to create a new source of revenue with the recently announced AI rights product. 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 and provides a 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?

Josh Nicholson, Chief Strategy Officer

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 large language models 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 is 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 transaction revenue slipping and publishing partners reporting declines in traditional usage-based statistics such as full text reads and downloads. Our internal surveys from users point specifically to AI being the reason people are acquiring fewer articles. In short, AI is shifting demand from article retrieval to structured reasoning, which means the future of research and our products must be task and data-based. Over the last few calls, I've highlighted how our AI strategy focuses 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 will 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 assistants. 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 products, Site and Article Galaxy. This approach allows us to go where the user is through integrations into internally built tools and third-party products and to shift our focus from an arms race to an ARM supplier. We have launched an AI TDM rights offering that allows our customers to easily and securely get AI rights for articles they have acquired. 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 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 the path for AI models to securely clear scientific articles, retreat citations, verify claims, and integrate trustworthy literature directly into their 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, but positioning ourselves as the building blocks of scientific AI, the 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 Olivier, CEO

Thanks, Josh. In my introductory comments, I addressed the key areas we need to focus on in fiscal year 2026 and beyond, with strategy being the most crucial. In fiscal year 2025, we dedicated significant time to evaluating our initiatives and exploring unique opportunities. Notably, we are managing customers' libraries of scientific research, ensuring access to rights associated with articles; providing a site badge, similar to a FICO score or Rotten Tomatoes rating for evaluated articles, which is a unique feature in the current market; and offering site search capabilities that extend beyond paywalls for much of the world's content. This results in improved search outcomes, is compliant with copyright, and enhances publishers' article sales. Typically, large language model searches focus on abstracts and have minimal access to content behind paywalls, leading to fewer inaccuracies in our results. We deliver articles from over 2,000 publishers, with most being available in seconds. Additionally, we integrate curated data from multiple sources to enhance AI-generated results, a capability strengthened by our recent database acquisitions through the Resolute purchase. This aspect is integral to our headless strategy, as it provides customers with curated databases, insights, assistive technologies, and other AI outputs. Overall, I believe we are advancing with a strategy that will effectively position us in the emerging AI landscape. We are also confident that the operational improvements and investments highlighted earlier will facilitate our strategic execution both organically and via acquisitions. Finally, I previously mentioned in our earnings pre-release in August that we are concentrating on the weighted rule of 40. Our FY 2025 performance was a 34 in this metric, and as we look ahead to FY 2026, we anticipate ongoing progress toward the target of 40. Just to clarify, the weighted rule of 40 combines our annual recurring revenue growth rate, weighted at 1.33, with our adjusted EBITDA margin, weighted at 0.67, placing greater emphasis on growth. We continue to prioritize investments in growth to achieve the weighted rule of 40. We are genuinely optimistic about our current position, our future direction, and I will now hand the call back to the operator for questions.

Operator, Operator

We'll take our first question from Jacob Stephan with Lake Street.

Jacob Stephan, Analyst

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 Olivier, CEO

Bill, do you want to take that one?

Bill Nurthen, CFO

Yes, certainly. As we've integrated the new Chief Revenue Officer and implemented sales training, we've started to secure larger deals. Recently, we announced several contracts worth a couple of hundred thousand dollars, marking some of the most significant deals in our company's history. There was a time when we experienced some churn from Resolute, which typically contributed to larger deals, leading to a decrease in our average selling price. That has since stabilized, and we are now in a position to rebuild our average selling price. This will be a priority as we continue with our sales training, hire better sales talent over time, and pursue more substantial deals, including the API-related opportunities discussed by Josh.

Jacob Stephan, Analyst

Okay. Got it. And you kind of ask one question further on Resolute. Obviously, you noted some churn issues 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 Olivier, CEO

Well, Resolute has always had a strong API and 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. 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 Site and Article Galaxy, which 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

Yes. I'd really just emphasize that there are these 13 highly curated databases coming to us for an API to get access to the article, to get clinical trials, to get research articles, to get news articles, all these different things is a big value add for customers. 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 execute on. The one thing I would also say about the API-first deals is that by embedding ourselves into the infrastructure of some of these large companies, I think those contracts become very sticky. I'm personally quite excited by the Resolute databases really coming back to life as a focus for us.

Jacob Stephan, Analyst

Okay. Maybe just one last one, more on the competitive environment in this headless strategy. Are you aware of anybody else that's running the same API strategy to plug in with the larger LLMs?

Roy Olivier, CEO

Do you want to take that, Josh?

Josh Nicholson, Chief Strategy Officer

Yes. I think what we're starting to see in the ecosystem is some publishers doing this. If you look at why we think the third-largest publisher, they are directly opening up their articles or segments of their articles to LLM providers such as Anthropic. On their recent earnings call, they talked about leaning more into AI and specifically AI licensing deals. 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. This is what we're talking about when we say we're pretty uniquely positioned, that we work with virtually all publishers. We're already driving them revenue. As Roy and I have said in the past, this is a shift from being a distributor to being more of a value-added provider. I increasingly see these bits of articles or chunks of articles, and specifically the data from articles, being something that's valuable that integrates directly into tools, whether that's a hyperscaler or whether that's an internally licensed LLM at a large corporate or even an academic institution. So I think it's an exciting time, and I think there's a lot of people looking at this and trying to bridge the gap between research articles and AI.

Operator, Operator

We'll take our next question from Richard Baldry with ROTH Capital.

Richard Baldry, Analyst

Same question I asked last quarter, 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 the peak optimization, I think about it that way? Or is there further cost improvements that can come on the platform side even as the top line is scaling?

Roy Olivier, CEO

Bill, do you want to take that?

Bill Nurthen, CFO

Yes, sure. Some of this is effectively using our cash. I mean really where this is coming from is we've sort of stabilized the labor base there; that grows just with not a lot of additional headcount, but just cost of living increases, things like that. We've really tried where we could to lower or limit the increase in the hosting cost. Some of what we've been able to do is take 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. As a result, we're actually getting it cheaper over time by prepaying. I'm not sure how much we can do that going forward to see it decrease, but I think we can do that to the extent that it will increase less than at the pace that we're growing the 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. That's impacting the numbers as well.

Richard Baldry, Analyst

Okay. Then on the AI-related deals being 4 times the growth rate of non-AI, do you think that can continue at this pace? Is there sort of eventually the scale of that base gets big enough that it 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 Olivier, CEO

Yes. 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 FY '25 simply because the base is getting bigger and it is getting more competitive. But Josh or Bill, I'd invite you to add any comments you might have.

Josh Nicholson, Chief Strategy Officer

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

Richard Baldry, Analyst

Great. And last for me would be, can we dig a little deeper into the strength in the deals above $100,000? So are you going after a different type of customer? Or are you going after a different value prop? Are they larger deals per customer? How are you achieving that on a similar customer base? Or is it different verticals? How are you getting larger deals out of what presumably is a similar customer set?

Roy Olivier, CEO

Yes, there are several factors at play. One is the new sales process, and the new Chief Revenue Officer has introduced several new team members who don't have preconceived notions about our product pricing. A significant aspect of the new sales process involves taking time to qualify the customer and understand their challenges, identifying the value we can provide to address those issues, and assessing the economic impact on them if we succeed, and subsequently pricing that value appropriately. I believe sales execution is a crucial element of this change. Additionally, we made significant adjustments to the pricing within the academic segment of our business; however, not much of that will be evident in fiscal year 2025. In that year, we tested various pricing points. For instance, when we acquired Site, they had a fairly established pricing model for libraries; we initially sold at that price point and also experimented with higher price points, adjusting our pricing strategy throughout fiscal year 2025 until we developed a new model that we recently put into place. So, some of this reflects changes to our standard pricing. Those are the two key factors I can identify. Bill, do you have anything else to add?

Bill Nurthen, CFO

Not too much. I do think it's a sales execution thing. And really, before we frame a proposal to a customer, we're 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.

Operator, Operator

We'll take our next question from Derek Greenberg with Maxim Group.

Derek Greenberg, Analyst

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.

Roy Olivier, CEO

Yes. To address that, I'll jump in and then Josh can add some comments. Essentially, in the academic segment, LibKey plays a significant role in libraries by offering a product known as a Link Resolver. This product helps users access scientific articles by directing them to the appropriate sources when they conduct searches. LibKey has been in the market for several years as a private company and has been quite successful. We also collaborate with three other link resolver companies that we have partnered with for a long time. The recent deal with Third Iron, which owns LibKey, has allowed us to conduct several webinars together to connect with their library clients. It's important to note that the academic sector is relatively new for us, as we currently have fewer than 200 academic customers, while there are over 10,000 libraries available for us to target. We see our partnership with Third Iron and LibKey as a significant opportunity to expand our presence in the academic market, as well as to reevaluate our existing partnerships with other providers who offer similar products to broaden our reach in academic libraries. Josh, do you want to add anything?

Josh Nicholson, Chief Strategy Officer

I don't have too much to add except to say that we look at a variety of different services that 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. There’s a hierarchy of needs, and we're looking at how we can make sure we're facilitating access for the end user in the most robust and efficient way possible. I think leveraging our partnership with LibKey is one piece of that.

Derek Greenberg, Analyst

Okay. Got it. Turning to the cross-sell between Site and Article Galaxy. I was wondering if you have any statistics you're 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. I was just wondering how things are progressing on that side.

Roy Olivier, CEO

Yes, we haven't shared that figure. However, I can say that a significant majority of the site sales in FY '25 are with what we refer to as new customers. These are not ones we have previously partnered with on the Article Galaxy side. We do engage in some cross-selling, which can be quite substantial in terms of annual recurring revenue. If you assess it from a logo standpoint, most of the logos are indeed new customers. Bill, do you have any corrections to that?

Bill Nurthen, CFO

Yes. I would still describe it, excuse me, as low to mid-single-digit penetration on the Article Galaxy customer base.

Derek Greenberg, Analyst

Okay. That's helpful. My last question is just on margins. We saw some really good improvement this year, with EBITDA margins growing 5%, doubling year-over-year. I was wondering, looking towards '26, how do we see expansion relative to this year in margins, and how do you expect operating expenses to grow compared to revenue?

Roy Olivier, CEO

Bill?

Bill Nurthen, CFO

I think part of the question for us is how much we will reinvest in sales and marketing as well as technology and product development. We're focused on continuing to invest in those areas while reducing general and administrative costs wherever possible, such as cutting back on stock compensation. I believe we will exceed the 10% margin threshold for the year and aim to maintain that level. For next year, I think we can achieve a margin higher than where we are currently, but we may moderate our expectations a bit. We could potentially exceed 15%, but I anticipate that we will reinvest some of that back, resulting in an EBITDA margin somewhere between 10% and 15%. I expect our gross margin to continue growing, reaching over 50% next year. As for our expense base, it's difficult to predict; we will adjust as necessary. I'll provide more details in the first quarter call as we receive our Q1 results and refine our strategy for managing expenses and investing in growth for the remainder of the year. Transactions are a crucial part of this strategy. According to our internal models, we are projecting some declines for at least the first half of the year, so I recommend others build their models with that in mind until we see a turnaround. Despite this, I still believe we will achieve the levels I mentioned as we look toward 2026.

Roy Olivier, CEO

I received a question via e-mail asking about our strategy to halt the decline and restore growth in the transactions business. My response is that we are currently focusing on product improvements to boost conversion rates. Additionally, we are trying to understand the factors behind the changes we are seeing. We've noted a significant year-over-year increase in monthly and weekly average users, which is encouraging. However, there's a notable trend of users acquiring more free documents rather than paid ones. Recently, we conducted a survey that indicated about 10% of our customers are purchasing fewer documents because they find satisfactory answers from AI. Our plan is to enhance our site and capitalize on the large traffic we have, particularly in Article Galaxy. We aim to improve the conversion rate by suggesting related articles to users who make purchases. Our goal is to become the Amazon of document delivery, making it extremely easy for customers. At present, we aren't doing this effectively, but we've already taken steps to address one barrier and saw a significant improvement. If this trend continues, it could lead to a substantial increase in revenue for our business, which is already quite profitable in terms of EBITDA. We have several initiatives underway and are strategically focused on SaaS revenue and AI, but we also have a dedicated team of about 60 people working on the document delivery side. The current leader in this area is very tech-savvy and is reviewing every process to make it smoother and more suggestive to increase sales.

Operator, Operator

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

Roy Olivier, CEO

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, Operator

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.