8-K: FiscalNote Exceeds Q3 Forecast, Raises Full-Year Adjusted EBITDA Guidance

FiscalNote reported strong Q3 2024 results, exceeding forecasts and raising its full-year adjusted EBITDA guidance, while also announcing a leadership succession plan.

Summary

• FiscalNote announced its Q3 2024 financial results, exceeding previous forecasts with total revenues of $29.4 million and adjusted EBITDA of $3.4 million.
• The company has achieved its fifth consecutive quarter of positive adjusted EBITDA.
• FiscalNote raised its full-year 2024 adjusted EBITDA guidance to approximately $9 million, up from $8 million, and revised its full-year revenue guidance to approximately $120 million, down from $121 million.
• The company's Q4 2024 guidance projects total revenues of $29 million and adjusted EBITDA of $2.5 million.
• Aicel Technologies was divested for $9.65 million as part of a strategy to reduce complexity and deleverage the balance sheet.
• The company is focusing on core business, product development, and operational efficiencies to drive growth and profitability.
• A leadership succession plan was announced, with Tim Hwang transitioning to Executive Chairman and Josh Resnik becoming CEO effective January 1, 2025.
• Subscription revenue declined by 9% year-over-year, but increased by 2% excluding the impact of the Board.org sale.
• Run-Rate Revenue declined by 14% year-over-year, but was 4% lower excluding the impact of the Board.org divestiture.
• Annual Recurring Revenue (ARR) declined by 11% year-over-year, but was flat excluding the impact of the Board.org divestiture.
• Net Revenue Retention (NRR) was 99% for the nine months ended September 30, 2024.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with improved profitability and strategic initiatives, but also acknowledges some revenue declines and challenges. The raised EBITDA guidance and leadership succession plan are positive signals, but the revenue decline and NRR decrease temper the overall sentiment.

Positives

• FiscalNote exceeded its Q3 2024 financial forecasts for both revenue and adjusted EBITDA.
• The company has achieved five consecutive quarters of positive adjusted EBITDA, demonstrating improved profitability.
• The full-year adjusted EBITDA guidance was raised, indicating confidence in future performance.
• The divestiture of Aicel Technologies is expected to simplify the business and improve operating efficiency.
• The appointment of a new Chief Product Officer and continued product development efforts, including FiscalNote Copilot, are expected to drive future growth.
• The company is actively deleveraging its balance sheet and reducing business complexity.
• The company is focused on improving customer experience and retention rates.
• The company has secured a $5.5 million investment from Era Global Technologies, LLC.
• Operating expenses decreased by 24% year-over-year.

Negatives

• Total revenues decreased by 14% year-over-year, primarily due to the divestiture of Board.org.
• Subscription revenue decreased by 9% year-over-year, although it increased by 2% excluding the impact of the Board.org sale.
• Advisory, advertising, and other revenue decreased by 44% year-over-year, primarily due to the discontinuation of certain non-strategic products and the sale of Board.org.
• Run-Rate Revenue declined by 14% year-over-year, although it was 4% lower excluding the impact of the Board.org divestiture.
• Annual Recurring Revenue (ARR) declined by 11% year-over-year, although it was flat excluding the impact of the Board.org divestiture.
• Net Revenue Retention (NRR) decreased by 100 basis points year-over-year.

Risks

• The company's ability to achieve and sustain organic growth is subject to various factors.
• Changes in the company's strategy, operations, or financial position could impact future performance.
• The company's ability to service its debt and maintain compliance with debt covenants is a risk.
• Demand for the company's services and its ability to attract and retain customers are critical to its success.
• The company faces competition and competitive pressures in its markets.
• The company's reliance on third-party systems and data poses a risk.
• Potential technical disruptions, cyberattacks, or data breaches could affect the company's operations.
• The outcome of any litigation or regulatory proceedings could impact the company.
• The strategic review undertaken by the Board of Directors may not result in any transaction or other outcome.
• The company's ability to integrate acquired businesses and services successfully is a risk.

Future Outlook

FiscalNote expects to continue to drive deleveraging of its capital structure, reduce complexity of its product portfolio, and strengthen customer experience and retention rates through the ongoing optimized product strategy and roadmap through to the end of 2024 and in 2025. The company anticipates improving growth rates and continued profitability into 2025 and beyond.

Management Comments

• Tim Hwang, Chairman, CEO, and Co-founder of FiscalNote, stated that the company continued to make progress on strengthening its product strategy and roadmap, enhancing its leadership team, and extracting operating efficiencies.
• Jon Slabaugh, Chief Financial Officer, said that the company's performance in the third quarter reflects the strength of its core business and that they remain well positioned for sustained profitability for the remainder of 2024 and expect improving growth rates and continued profitability into 2025 and beyond.

Industry Context

This announcement reflects a trend in the SaaS industry towards focusing on profitability and operational efficiency. The divestiture of non-core assets and the emphasis on core products align with strategies employed by other SaaS companies to streamline operations and improve financial performance. The leadership succession plan is a common practice in growing companies to ensure long-term stability and strategic direction.

Comparison to Industry Standards

• FiscalNote's adjusted EBITDA margin of 12% in Q3 2024 is a significant improvement compared to the 2% in Q3 2023, indicating a positive trend towards profitability. This is a key metric that investors in the SaaS space will be watching closely.
• Companies like Palantir Technologies and C3.ai, which also operate in the AI and data analytics space, have been under pressure to demonstrate profitability, and FiscalNote's focus on adjusted EBITDA is in line with this industry trend.
• The divestiture of non-core assets, such as Aicel Technologies, is a strategy similar to what other SaaS companies like Salesforce have done to focus on their core offerings and improve efficiency.
• The leadership succession plan is a common practice in growing companies to ensure long-term stability and strategic direction, similar to what has been seen at companies like Microsoft and Google.
• FiscalNote's Net Revenue Retention (NRR) of 99% is a good result, but slightly below the 100% of the previous year. Companies like Snowflake and Datadog often report NRR above 120%, indicating that FiscalNote has room for improvement in this area.

Management Changes

Stakeholder Impact

• Shareholders will likely view the improved profitability and raised EBITDA guidance positively.
• Employees may be impacted by the leadership transition and ongoing efficiency measures.
• Customers should benefit from the company's focus on improving customer experience and product development.
• Suppliers and creditors may be impacted by the company's deleveraging efforts.

Next Steps

• The company will continue to focus on deleveraging its balance sheet.
• The company will continue to simplify and reduce the complexity of its product portfolio.
• The company will continue to improve customer experience and retention rates.
• The company will continue to evaluate all strategic options to maximize shareholder value.
• The company will host a conference call to discuss the financial results.

Key Dates

Keywords

FiscalNote, Financial Results, Adjusted EBITDA, SaaS, Policy Intelligence, AI, Divestiture, Leadership Succession, Revenue, ARR, Run-Rate Revenue, Net Revenue Retention