8-K: FiscalNote Exceeds Forecasts with Fourth Consecutive Quarter of Positive Adjusted EBITDA

FiscalNote reports strong Q2 2024 results, exceeding previous forecasts with positive adjusted EBITDA for the fourth consecutive quarter and raising full-year profitability outlook.

Summary

• FiscalNote announced its Q2 2024 financial results, exceeding previous forecasts with total revenues of $29.2 million and adjusted EBITDA of $1.8 million.
• This marks the fourth consecutive quarter of positive adjusted EBITDA, and the first year of positive adjusted EBITDA on a trailing LTM basis.
• The company has raised and tightened its full-year adjusted EBITDA forecast to approximately $8 million, reflecting continued operational efficiencies.
• Q3 2024 is forecasted to have total revenues of approximately $29 million and adjusted EBITDA of approximately $2 million.
• Subscription revenue was $27.1 million, a decrease of 8% year-over-year, but increased by 3% excluding the impact of the Board.org divestiture.
• Advisory, advertising, and other revenue decreased by 38% year-over-year, but decreased by 31% excluding the impact of Board.org.
• Run-Rate Revenue (RRR) was $121 million, flat year-over-year excluding the impact of Board.org.
• Annual Recurring Revenue (ARR) was $109 million, a 2% increase year-over-year excluding the impact of Board.org.
• Net Revenue Retention (NRR) remained steady at 98%.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong financial performance and strategic initiatives, but also acknowledges some challenges and risks. The positive adjusted EBITDA and raised guidance are strong positives, but the revenue decline and customer retention issues temper the overall sentiment.

Positives

• FiscalNote exceeded its Q2 2024 financial forecasts for both revenue and adjusted EBITDA.
• The company achieved its first year of positive adjusted EBITDA on a trailing LTM basis.
• The full-year adjusted EBITDA forecast has been raised and tightened, indicating improved profitability.
• The company is actively investing in AI product development and strategic partnerships.
• FiscalNote's Dragonfly offering continues to receive top industry recognition.
• Operating expenses decreased due to the sale of Board.org and efficiency measures.

Negatives

• Total revenue decreased by 11% year-over-year, primarily due to the divestiture of Board.org.
• Subscription revenue decreased by 8% year-over-year, although it increased by 3% excluding the impact of Board.org.
• Advisory, advertising, and other revenue decreased by 38% year-over-year, although it decreased by 31% excluding the impact of Board.org.
• Run-Rate Revenue (RRR) declined by 11% year-over-year, although it was flat excluding the impact of Board.org.
• Annual Recurring Revenue (ARR) declined by 9% year-over-year, although it increased by 2% excluding the impact of Board.org.
• The company experienced lower than expected customer retention rates due to macroeconomic headwinds and delays in product enhancements.

Risks

• The company faces risks related to macroeconomic headwinds impacting customer retention.
• Delays in the launch of certain product enhancements have negatively impacted revenue growth.
• The strategic review by the Board of Directors may not result in any transaction or other outcome.
• The company's ability to achieve and sustain organic growth is subject to various factors.
• There are risks associated with international operations, including compliance complexity and currency fluctuations.
• The company relies on third-party systems and data, which could pose risks if not properly integrated or maintained.
• The company faces competition from larger, well-funded companies.

Future Outlook

FiscalNote expects to deliver its first full calendar year of adjusted EBITDA profitability in 2024 and anticipates accelerated growth rates in 2025 as it re-allocates resources to high-performing offerings and realizes the benefits of recent product and organizational initiatives. The company has raised and tightened its full-year adjusted EBITDA forecast to approximately $8 million and forecasts Q3 2024 total revenues of approximately $29 million and adjusted EBITDA of approximately $2 million.

Management Comments

• Tim Hwang, Chairman, CEO, and Co-founder of FiscalNote, stated that the company continues to assess avenues to leverage its market-leading policy data sets for the benefit of global customers.
• Jon Slabaugh, Chief Financial Officer, said that Q2 results exceeded forecasts and that the company continues to invest in its product strategy and extract operating efficiencies.
• Jon Slabaugh also noted that the company is reallocating capital to higher returning products and customer segments to improve margins and profitability.

Industry Context

FiscalNote operates in the competitive policy and global intelligence market, where AI-driven SaaS solutions are increasingly important. The company's focus on AI product development and strategic partnerships aligns with industry trends. The recognition of its Dragonfly offering highlights its position in the political risk sector.

Comparison to Industry Standards

• FiscalNote's adjusted EBITDA profitability is a positive sign, as many SaaS companies in the growth phase often prioritize revenue growth over immediate profitability.
• The company's 98% Net Revenue Retention (NRR) is strong, indicating good customer loyalty and the potential for future growth. This is comparable to other successful SaaS businesses.
• The company's focus on AI-driven products is in line with the industry trend of leveraging AI to enhance product offerings and improve efficiency.
• The strategic partnerships with Creolytix and Empowered Systems are similar to other companies in the sector that are looking to expand their reach and integrate their solutions with other platforms.
• The recognition of FiscalNote's Dragonfly offering by Chambers and Partners is a strong indicator of its competitive position in the global political risk market, comparable to other top-tier intelligence providers.

Stakeholder Impact

• Shareholders will likely view the positive adjusted EBITDA and raised guidance favorably.
• Customers will benefit from the company's continued investment in product innovation and platform enhancements.
• Employees may be impacted by the company's reallocation of resources and focus on efficiency.
• Suppliers and creditors may be impacted by the company's financial performance and strategic decisions.

Next Steps

• The company will continue to invest in new products and product enhancements.
• FiscalNote will focus on reallocating resources towards higher returning sources of revenue.
• The company will continue to evaluate all strategic value-maximizing options available to the Company.
• The company will host a conference call to discuss the financial results.

Key Dates

Keywords

FiscalNote, Adjusted EBITDA, AI, SaaS, Policy Intelligence, Financial Results, Subscription Revenue, Strategic Review, Run-Rate Revenue, Annual Recurring Revenue, Net Revenue Retention