Release Date: November 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Research Solutions Inc (NASDAQ:RSSS) reported a 20% increase in total revenues and a 67% increase in platform revenue for the quarter.
• The company achieved a 60% increase in annual recurring revenue (ARR), with B2B contributing $12.2 million and B2C contributing $5.4 million.
• Adjusted EBITDA improved significantly, with $1.3 million generated in the quarter and $4 million on a trailing twelve-month basis.
• Gross margin reached a new company record of 47.9%, with platform business contributing almost two-thirds of the gross profit.
• The company has no long-term debt or liabilities, and cash flow from operations was positive at $843,000 for the quarter.

Negative Points

• Deployments and incremental ARR were lower than average due to factors like lower B2C subscription revenue growth during summer and extended sales cycles.
• Higher than expected non-controllable churn was driven by customer acquisitions and business closures.
• The company experienced underperformance by the Upsell team and more churn than expected.
• There is some seasonality negatively affecting the transactions business in Q2 due to the impact of the holidays.
• Resolute AI, a recent acquisition, is underperforming in terms of new sales compared to expectations.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with RSSS.

Q: What contributed to the decrease in platform costs this quarter, and is this reduction sustainable? A: (CFO) The decrease was due to labor reductions and reworking hosting costs, particularly in the resolute business. While some reductions are permanent, costs might increase slightly if headcount is added or experimental projects drive hosting costs up. The current margin of 87.4% might fall but should remain above 85%.

Q: How should we interpret the changes in sales and marketing versus R&D expenses this quarter? A: (CFO) Sales and marketing expenses increased due to ramped-up advertising spend and hiring a new CRO. R&D expenses decreased slightly. Overall, SG&A expenses might align more with Q3 of last year, with some increases in sales and marketing.

Q: Can you elaborate on the M&A opportunities and the nature of inbound inquiries? A: (CEO) We are recognized as active dealmakers in the space, attracting inbound inquiries. We focus on acquisitions that enhance our product strategy, offer strategic advantages, and present strong cross-sell opportunities. Direct competitor takeouts are limited, so we focus on strategic fits.

Q: What caused the lower deployments in the quarter despite the new logo team hitting targets? A: (CEO) Lower deployments were expected due to seasonality in the academic segment, underperformance by the Upsell team, and higher churn. The academic segment saw fewer decisions in Q1, but we anticipate a rebound in Q2.

Q: What are the priorities for the new Chief Revenue Officer? A: (CEO) The new CRO has a 90-day plan focusing on learning the business and implementing standardized training across sales and related teams. His track record includes structured processes that significantly increase ARR growth, which we aim to replicate here.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.