Your symbol, RSSS, on the NASDAQ. If you are involved in the research space, if you're in anything in an R&D capacity, they are here to help you with the R portion of that. Here today for the presentation is Roy Olivier, the company's CEO and with him is Bill Nurthen, the company's CFO. Roy.
Thanks, John. I currently live in Orlando, but I moved there from Milwaukee and in this room, I feel like I'm back in Milwaukee. It's going to start snowing any second. Well, I appreciate you coming to learn a little bit more about Research Solutions. As John mentioned, we support the R in R&D. We do it primarily in the corporate space, but we do have academic and government customers. But what I'm going to spend a little bit of time talking to you about today is what we do, what the size of the market is and the market opportunity, what our business model is, because it is evolving as we transition from an old business model to a new one, what our outlook is, and then Bill will cover some of our financials. We get to your favorite statement. I won't pause for you to read it.
I'll assume you've read it a thousand times before today, but basically, at a high level what we do is we're a vertical SaaS AI company, and we actually do have AI. It's not just part of the name. I'll describe that as we go through the products, and the problem we solve is the exponential growth in research publications, and what that's really resulted in is 66% of researchers say they're overwhelmed by the volume of research that they have to understand in order to develop the next drug, the next EV battery technology, or whatever research project they're working on. They also have a tremendous amount of research in our space you cannot repeat. In fact, one estimate is that companies spend about $28 billion a year trying to repeat a research paper and are unable to do it.
The other thing I would say is that all of our tools are really designed to address some of these areas. How do I make sure the research I'm looking at is high quality? How do I make sure that when I do a search and I get 20,000 or 25,000 results in that search, I can boil it down to something that's actionable for whatever project I'm working on? And then how can I analyze that to get outcomes, that outcome being a new drug, another paper that I want to get peer-reviewed and published, or a patent? A little bit about how we do that is I'll just talk about the research workflow, and this is another iteration if you've sat through some of my earlier presentations of the research workflow.
But big picture, the first thing researchers do is search or discover research related to whatever topic they're working on. The second thing they do is they need access to that research. The third thing they do is they go through an analysis process to understand how all that research is going to contribute to the project that they are working on. And during that process, they have a number of things they have to do to manage that research, including library and reference management, what's called rights management. In other words, do I have the rights to have an AI engine read this article and give me a summary? Do I have the rights to photocopy this article and give it to doctors or hand it out to other people in the organization? And they also have to collaborate because typically research is done in a team.
And so all of our tools are designed to address these particular areas. A couple of quotes. Our discovery tool is called Scite. It's an acquisition we completed about 10, 11 months ago. And here's a quote from a gentleman at Johns Hopkins School of Medicine. It talks about it being the easiest tool he's used to help find what he's looking for. Article Galaxy, which is the product that we've had for a number of years at Research Solutions. Here's a quote from somebody who's the director of biology and pharmacology talking about how it helps her and her research team take, I'm sorry, save a tremendous amount of time. And that's really the two products that are driving a vast majority of our growth. One is the Scite product, which has unique capability. I'll talk about more in a few minutes.
The other is the Article Galaxy product, which is our legacy product of how to acquire, manage, store, and create new content. Today, we have about 1,400 customers that are either buying software from us or buying articles from us. Here's a short list of some of the pharmaceutical companies. We do have installs in 70% of the top 20 pharma. It is over half of our revenue today as pharma, medical device, or biotech. Here's a listing of our growing university business. In fact, academic universities, when we say academic, we're referring primarily to an academic library. A university library is actually our fastest growing segment of revenue today. We've got a very interesting suite of tools there, both Scite and our Article Galaxy product. And then we service a lot of multinational companies that are using us all for the same thing to support research initiatives.
Whether that research is being done by somebody getting a PhD or done by a research organization with the intent to come up with a new drug or new EV battery technology, it's the same toolset. Our mission is to advance world's knowledge by simplifying the research process, and the market opportunity, these are pretty big numbers, but I will give you a little bit of color on this. We think our total addressable market is about $15 billion. We think about $11 billion of that is B2 C, and about $4 billion of that is B2 B. Let me touch on that for just a second. A B2 C researcher is primarily an academic researcher getting their PhD or master's that is using one of our products, typically the Scite product, to help them do their research.
That business for us today, we have about $17 million in annual recurring revenue. A five point something of that is B2 C. The rest is B2 B. B2 B are corporate clients, university organizations that are buying an enterprise license to service all of their students or all of their researchers or a team of researchers within a large organization. A little bit more about that. We do believe we're playing in a fast-growing underpenetrated market. That market is growing at about a 19 or is predicted to grow at about a 19% CAGR between now and 2030. We have an underpenetrated market in that when we track sales that we win or sales that we lose, eight out of 10 of those is typically installing a system like ours for the first time. It's not a competitive Pepsi-Coke war.
It's mostly moving into medium-sized clients and helping them adopt a toolset that looks a whole lot like the Bloomberg Terminals that you guys use every day, but it's for research. And lastly, we typically have high customer fidelity. Our renewal rates are typically 90 or north of 90%. Our net renewal rates have ranged between 100 and 110%. So once we land, we typically do expand and we typically have very, very high renewal rates. For those of you that want to go through the fine print, we did include on this slide which you can download from our investor page, a link to every source for how we came up with this TAM.
The caveat I will tell you about is we certainly look at number of companies, number of universities, and number of B2 C researchers, but we do dial back or haircut those numbers pretty substantially based on a couple of factors, the biggest of which is research intensity. In other words, if it's a university library and that university has never published a peer-reviewed scientific article, we do not count them in our TAM. We only count people that are active in research. I mentioned we're in several different vertical markets, and the way we think about the business, we think government, academic, corporate. Most of our business is in corporate. 80%-85% of our revenue is derived out of corporate today, and underneath corporate, we have installs in about 60 verticals, a few of which are shown here.
As you can see, our life sciences is over 50% of our revenue, but we have engineering, technology, chemicals, medical device, food, beverage, automotive, aerospace, tech. We're in a lot of different segments. A little bit more about those. We play in segments where research is the backbone of the industry, which is most industries. Basically, every research-intensive industry can benefit from our platform. We serve organizations in any size and sector. We have small installs that are five or 10 seats. Our average customer, if you just take our revenue and divide it, is about a 50-seat deal. At the high end, we have large pharmaceutical companies that have 2,000, 3,000 seats. And by the way, we do charge by the seat and by the version of software you buy. Do you buy the standard software or the pro software, etc.
We also, because we have a pretty diverse set of customers, we think that is a benefit to us. For example, when there was a pretty significant biotech slowdown a year and a half, two years ago, that affected our biotech business, but didn't affect a lot of our other verticals. I will also comment that people ask us, well, what happens in a downturn? Well, based on our research, research does not stop even during economic downturn. And this is a view of the Dot-com bubble in 2000 and the subprime crisis in 2008 and what was going on in terms of R&D spend during that time. Basically, it keeps going. They're committed to continued research.
Even after 2008, the public companies that we could find data for reduced their R&D expenditures by about 6.6% in the first quarter of 2009 and then started ratcheting it up every quarter thereafter. R&D expense also remains relatively stable during economic downturns. There's a lot of studies out there that predict continued tailwinds in terms of our larger customers continuing to see revenue growth, spending a percentage of that growth on R&D, and a growing percentage of that on software tools to support R&D, which is where we play. Business model, we have two primary sources of revenue, what we call the transaction revenue, which is basically the sale of the peer-reviewed scientific article. Do a search for bladder cancer, you find one, you need to buy it, that's a transaction to us.
The platform business, which is about 34% of revenue, that is typically the SaaS software. That's a subscription to either Scite, Article Galaxy, Article Galaxy Scholar, or one of our other products. The transactional business, as I mentioned, is the sale of the article. It's typically generated per transaction. It also is a relatively no-growth or low-growth business for us. We typically tell people to model it flat as we grow the platform revenue, and the reason for that is even though we expect platform revenue to grow very dramatically, as you're going to see in a second, the platform helps customers save money, which is a headwind to us organically growing that business.
So we bring new customers in, and as the platform helps them save money by more effectively deciding where do they subscribe, where do they prepay for a discount, how do they reuse an article within the copyright limits without paying for it a second, third, fourth time if that's a requirement, how do they do those things, the platform helps them do that. And of course, that creates a headwind toward our organic growth in the transaction business. The platform business, on the other hand, is basically cloud-based software that is either a month-to-month or annual subscription. The B2 B business is all annual subscription or longer. The B2 C business, the individual PhD candidate can subscribe month-to-month or they can subscribe annually. That business has substantially higher gross margins than the transaction business.
Bill will walk you through that in a little while, but the software business, 84-85% gross margin, transaction business, 24% gross margin. The growth characteristics of that business are certainly fast-growing, predictable, and we'll show you a few charts in that regard next. I think this is too small, but this is our ARR growth over the last few years. Starting on the left is the first quarter of FY22. Far right is Q1 of FY25. You can see we've grown ARR in that period from $6.3 million to about $17.6 million. And the top numbers, the yellow line is deployments, B2 B deployments, not B 2 C. So we've grown deployments from about 590 to about 1,030. Some of the key highlights are CAGR over the last eight years is growing that segment at about 40-46%.
It's highly stable, highly predictable cash flows due to strong retention. By the way, I mentioned their annual agreements. Most of them auto-renew. Most of them include an automatic price increase, and most of that price increase is usually accompanied with more seats, more features. There's an upsell component every year as we renew. As I mentioned, 80%+ gross margins, very scalable, and ample room for market expansion as we add new verticals or look for new segments. Transactional business, as I mentioned, it's flat-ish. The reason you see a little bit of growth here at the end is we did a customer acquisition to add some growth to that segment. We also, as we grow in academic, we see a lot of transactional revenue coming along with the academic business. Some highlights is it's a pretty stable business.
There's a little bit of seasonality to it, but it's pretty stable from a cash flow and even a generation perspective. The cash generated from that is typically reinvested in building SaaS products to grow the platform side of the business. And the investments funded by the transaction business cash flow help improve those offerings to drive growth in the future. There's not a lot of it. It's a non-cyclical business. And in fact, the most interesting thing to me coming in as an outsider is researchers, when they go on vacation, of course, research stops. So if you went through our conference call or earnings call transcripts from last year, like Easter fell on an odd date last year and killed our transaction business for that quarter because everybody took a week off. So transaction business went to zero for a week.
But then it bounced back the next quarter as they came back to work and had to catch up. We do expect document delivery going forward to be a single-digit growth business. And there's some notes in here about why we think that's a flat business, even though the transactional I'm sorry, even though the software platform business continues to grow at a pretty healthy rate. Our position is protected by what we consider to be multiple competitive advantages. One is Scite, which is the discovery tool, has a very advanced AI engine that's based on full text, full text and data mining rights, where when you do a search, we are looking at the text throughout the entire article as opposed to a lot of these search engines are looking at the abstract of the article or they only full text search the free articles.
So Scite did a nice job over six or seven years building out capability for full text search. We do not yet have 100% of the documents that are available, but we have a bigger percentage of those than virtually anybody else in the space. The other thing that Scite did is very unique is that instead of just showing you an article and how many times that article has been cited, it shows you how many times it's been cited, how many times it's been mentioned, how many other articles confirmed the findings of the article you're looking at, and how many other articles did not confirm the findings of the article you're looking at. So it comes back to research integrity, the quality of that article. We call it it's either a FICO score or a Rotten Tomatoes score on an article-by-article level.
The researcher knows, is this a good article that I want to buy or act on, or is it not? Some other things, we have a broad base of the scientific, technical, and medical articles that are available in the world. 85% of them we can deliver in one click. The other 15% of them, it takes us a few minutes or a few hours to get it. And those are based on long-term relationships with publishers. Today, we source material with almost 3,000 publishers, and most of the agreements we have in place with publishers have been in existence for more than a decade. We have the broadest scope out there other than we have one or two competitors that are close to us in terms of scope of delivery.
As I mentioned, our net renewal rates are typically over 100%, which offer a very high revenue stability for us. Today, we do have those relationships with publishers, researchers, and the societies. Here's a list of some of our publishing partners. Here's a list of some of the publications that are owned or published by those publishing partners. And as a result of what we've done, here's a list of some of the awards we've won, a People's Choice Award, an award for innovation in publishing, and then several more. From an outlook perspective, we talk about continued growth as we focus on growing strategic revenue or SaaS revenue while the transaction business remains relatively flat. I'm sorry, not fat, but flat.
We talk about expanding the market opportunity as we take advantage of the tailwind of just growth in the SaaS market sector, as well as, frankly, one of the tailwinds for us, I think for the next few years will be AI as we apply AI to the workflow. And I'll touch on that in a little more detail later. And AI and advanced analytics. And when we think about AI, one of the things we do that's very unique, we do not use an LLM that searches the internet because the internet is full of a lot of stuff that, shall we say politely, is not accurate.
So, if you search an LLM that's searching the internet and use our search engine, you're going to get much fewer hallucinations or bad answers from our search engine, which is focused exclusively on peer-reviewed scientific articles or other data sources that we can narrow the search to just that data that we know is accurate. We have, obviously, as I mentioned before, we have high renewal rates, and during this journey, we do plan on continuing to do tuck-in acquisitions to boost our growth as we go forward, but the other thing they will do is they will fill out product portfolio gaps. For example, today, if you do a search in our product, you're searching primarily peer-reviewed scientific articles.
We have people that say, "I'd like to see patent results alongside the results for peer-reviewed scientific articles related to my search term." Or, "I'd like to see any conference presentations that were done in the last two years, three years, four years about this subject." So if I search for EV battery technology related to fill in the blank, I not only want to see the articles that relate to that EV battery technology, I want to see the patents, and I want to see any conference presentation that was related to that. So we'll continue to add that type of capability as well as other software capability. I'm going to skip this slide because Bill's going to walk you through this transition as we continue to move from transactional revenue to platform revenue. I'll just focus on capital allocation for a minute.
A tremendous amount of our efforts is growing the business organically and reinvesting that profits into the business. We do want to, as I mentioned, acquire businesses that line up with our business strategy, our financial objectives, and more importantly, they fill in gaps in the product workflow of our users, and then we have certainly spent a lot of time recently talking about at what point do we generate enough of a cash balance to start buying back shares, especially a month or two ago when the stock was 250. We felt like it was a good opportunity to buy back shares, but we did not have a plan in place to do that. We want to make sure that as we look forward, we will have a plan in place to take advantage of those opportunities if they come up.
With this, I'll turn it over to Bill, who will walk you through the financials in a little bit more detail. Bill?
Yeah, thanks, Roy. This first slide is just a snapshot of some metrics just to give you some indication of our ownership and valuation and some of our recent trailing 12-month metrics. I won't go into this too much detail because all of this is publicly available information, so you can look through that. So here's what Roy was alluding to, which is kind of the story of the company, this platform transition. Historically, the company was in the transactions business, which is an article delivery business. That's the green lines there. And that, as you could see, is a very stable, kind of low-growth, low-margin business. It's about 25% gross margin, but very stable and very repetitive business.
Over time, the company then has moved into the SaaS software business, and you can see how much that has scaled and how rapidly that has scaled to about $17.6 million of annual recurring revenue. Now, that revenue is at an 85% plus gross margin and is typically 86%-87% range gross margin, so much higher profitability from that revenue, and it's becoming a larger and larger component of the revenue mix, and as Roy mentioned, we have about a 100% retention rate on that revenue as well, which is helping to grow it over time, so what happens is we've sort of reached this inflection point in the business now where this is becoming a bigger and bigger piece of the overall revenue mix of the company, so two years ago, it was about 23% of revenue, and the blended gross margin in the business was about 38.6%.
Flash forward to now, this is now about 36% of the revenue of the business, and the gross margin on a blended basis last quarter was about 48%, so that's a pretty big change, and if you just look at absolute gross profit, the platform is producing about two-thirds of the gross profit of the business, so this is an inflection point where now this is starting to really pick up and drop to our bottom line and generate profit and cash flow, and that's really what this next slide shows, so if you look at this slide, the blue is our Adjusted EBITDA, and the green is our cash flow from operations, and you can see how dramatically that has changed as the software has become more and more a component of our revenue.
And if you just look out at the trailing 12 months, we've now generated about almost $4 million in Adjusted EBITDA, and cash flow from operations has been more than that, cash flow from operations over $5.1 million. And when we close our Q2 on December 31st, we would expect when we anniversary those numbers that we'll see some increases there as well. And so, as you can see, it's really starting to have the model play out, and you can see this now really transforming the profitability of the company. That has helped us, as you can see the cash flow numbers, it has helped us grow cash. This is the snapshot of the balance sheet. We did the acquisition of Scite in December of 2023. That took our cash balance down to $2.7 million. In six months, we were back up to $6.1 million.
And then just reported our Q1 numbers, and now we're at $6.9 million of cash. And so very rapidly building up the cash again in the business. We can fund any organic growth that we want to do organically through the business. And so that does leave us sort of better positioned as time goes on, as cash builds, as EBITDA goes up, to be able to take advantage of strategic opportunities such as M&A or to do things like buybacks, which Roy mentioned. We also have a nice bucket of NOLs, which should also help offset some of our cash tax as we move into being a more regularly profitable company. And this is just the executive team and some information on their bios. And I think, Roy, I don't know if you want to come back.
Yeah, Bill and I joined the business.
I joined three and a half years ago. Bill joined two and a half, almost three years ago. We both had a former company that we grew and sold to private equity. I was there about nine years. It was a bulletin board stock. We relisted on NASDAQ and sold it to PE. You'll see a lot of PE background here. Sefton, who just joined us as the Chief Revenue Officer, MBA from Columbia, came from a lot of PE software organizations where he builds high-functioning sales organizations. Josh is the founder of Scite. He's a PhD in clinical biology that created that product out of frustration of the research process. He's our Chief Strategy Officer. Rick, CTO, a lot of private equity experience in his background. Corey came with the Scite acquisitions, doing a great job of building out top-of-funnel pipeline.
In fact, our pipelines are higher than they've ever been. Scott is kind of the copyright doc del guy. He knows more about copyright and workflow and all that related to how do we deliver these articles that we deliver than anybody else out there. Some why invest comments. I think I got the animation wrong on this, but number one, we are a fast-growing, best-in-class research productivity tool. We've had double-digit revenue growth. We feel like we have a strong economic moat protected by decades of agreements, very unique technology with the Scite product. As we shift from that transaction business to the platform business, you'll continue to see very nice progress in terms of EBITDA and cash generation out of the business. And our cash allocation strategy is very growth-focused. We want to grow the business, but we don't want to grow it unprofitably or at zero.
We want to continue to grow the top line as well as the bottom line and its ability to generate cash. So that big picture is the 50,000-foot view of Research Solutions. I'll shut up and open it up for questions. It's after lunch. Sugar lull. Yes, sir. For the platform growth, how much of that's expected to come from existing customers that just aren't current platform customers versus new logos? Yeah, that's a good question. A vast majority of our growth comes from new logos. When we launched the platform business, we had about 1,000 customers that were buying documents from us. Those customers that were upgradable have largely upgraded. There's a few hundred left. I think there's two or three hundred left. And they're not going to upgrade for various reasons. It doesn't work in their workflow.
They're lawyers, and they can't build back the platform to their clients, so they don't want to do it. So most of our growth comes from what we call new new. That's a new transaction customer and a new platform customer. When we look forward, though, we think that the Article Galaxy, the core business of Research Solutions, will continue to grow at around a 20% rate. We think that the B2C business, which came with Scite, is going to be a nice grower, but it's a double-digit grower over the next two and a half years. The biggest growth for us is going to come from the search segment. That's Scite and Resolute, the two companies we acquired.
We do expect that business to grow at a rate of over 100% for the next two and a half years because every one of the 1,400 customers that buy something from us starts that journey in search. And we think that the unique capability of Scite, and as we add patents and we add conference data, we think we're a really nice alternative. We'll have a freemium product and a paid product to grow that segment of the business. And that's where we see a lot of our growth coming from. Other questions?
Yes, sir.
Can you talk a little bit about the increase in SG&A from last year going into this year?
I'll let Bill talk about it. Yeah. Go ahead.
Yeah, actually, most of that is just the acquisitions being sort of coming on board.
So if you look at the cost base associated with Scite, which Scite did not start until December of last year. So this quarter we just reported did not have Scite at all. That is the vast majority of the increase. Other than that, we've had some very modest increase in a little bit in sales and marketing and some development costs. But for the most part, our base of cost is held relatively stable.
Yes, sir.
So I have a question on the total addressable market. It was hard for me to read in the back here, but I'm curious about some of the key assumptions in that $15 billion now. And how much of that is just from the B2C? And maybe if you would just kind of break down a couple of those key assumptions so I can read all of them.
Yeah.
I mean, I think I'm just getting back to the slide. Let me just check it. There we go, so B2B is based on university and corporate count. We layer in research intensity, so we take out people that don't publish documents, and we basically run that against the 60 verticals that we already participate in, so it's a pretty simple formula, and as I mentioned, there's a bunch of footnotes in this. You can go click on to get the details. On the B2C side, which is the bigger number, it's the $11 million number. You can do a Google search, and we actually included some reference points here of how many students there are getting undergrad, master's, PhD that would be a candidate for the product. We largely ignored that and we went to. There's a kind of a Facebook for research where they have 25 million subscribers.
And so we used the 25 million number. We looked at the number of overall. We separated out the universities that did not publish any papers. And the smaller of the two numbers was just using the 25 million number, which is verified researchers on a Facebook-type platform for researchers. But as I mentioned, I can't even read it, and I'm standing right next to it. All of these give you source data you can click on. It'll take you straight to the articles or where we sourced that data. Any other questions?
Yes, sir.
What's the typical cost for the subscription for a B2C customer?
$10 a month, $7 a month.
It's a little more than that. It depends if they pay annual. They get a little bit more of a break, but it's probably on average about $14-$15.
Yep.
Yes, sir.
Talking about competition, when you compete against a large organization like Clarivate, for example, where do you compete well and where are you maybe disadvantaged?
Yeah. Our competitive landscape gets more complicated as we add more products, right? So the only place we compete with Clarivate is on the search side. That's with the Scite product or the Resolute product. Clarivate, in many cases, is the incumbent that's been in that university library for, by the way, the other thing is Clarivate is primarily academic-focused. We're primarily corporate-focused. So we don't run into them in corporate clients almost ever. We run into them in university libraries where they're an incumbent. We're trying to displace them. Or in a lot of cases, we've ended up being next to them. So they end up using scite for its badge, its AI, and its snippets.
They use Clarivate as their core search engine because they've used it for 10 years, five years, whatever. That's where we run into Clarivate. When you look at the competitive landscape, there is a number of competitors in that search segment. Some are free. Some are paid. And scite's unique capability around full-text search, the badge, the snippets, no one else does today. It's a matter of, can we displace something that exists in a paid search customer with the scite product, or can we sell a product that'll live alongside it and give it enhanced capability? On the access side, our competitors are really two. One European company, one U.S. company. We stack up very well against them. We measure churn to them. We measure new sales from them. Most of the time, we get more than we lose.
and eight out of 10 times, we're not competing with anybody. The close lost is do nothing. It's stay with the manual process they use today. But as we add more tools, it's going to add more competitors in that segment. Any other questions? I got one minute left.