管理層發言
Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Holdings, Inc. Second Quarter 2025 Financial Results Conference Call. With that, I would now like to turn it over to the company to begin the conference.
Good evening. My name is Bob Burrows, Investor Relations for FiscalNote, and we are pleased you all could join us. The purpose of today's call is to discuss FiscalNote's second quarter 2025 financial results and guidance for both the full year and third quarter of 2025. Joining me with prepared comments are Josh Resnik, CEO and President; and Jon Slabaugh, CFO and Chief Investment Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow these prepared comments. Please note today's press release, related current report on Form 8-K and updated version of the corporate overview presentation are all available on the Investor Relations portion of the company website. In terms of important housekeeping, please take note of the following. During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and important factors that could affect our actual results as well as the risks and other important factors discussed in today's earnings release, please refer to our SEC filings which are available either on our company website or the Securities and Exchange Commission's EDGAR system. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release or the updated version of the corporate overview presentation for a reconciliation of these measures to their most directly comparable GAAP financial measure. Finally, we use key performance indicators or KPIs in evaluating the performance of our business. These include annual recurring revenue, or ARR, and net revenue retention, or NRR. With that, I'd like to turn the call over to FiscalNote's CEO and President, Josh Resnik. Josh?
Thank you, Bob, and thanks to everyone joining us today. I'm pleased to be here to share FiscalNote's second quarter 2025 results and update you on the progress we've made on our strategic priorities. We remain committed to the disciplined approach that has served us well, managing the business with rigor and focus. Our three core objectives remain the same. One, consistent expansion of adjusted EBITDA margins. Two, managing the company's balance sheet and achieving positive free cash flow. Three, building a durable foundation for profitable growth. As I've said on past calls, I'll walk you through where we stand on each, touching briefly on the first two and then focusing mainly on the company's growth. First, adjusted EBITDA. We delivered adjusted EBITDA of $2.8 million in Q2, exceeding guidance. This represents an adjusted EBITDA margin of 12%, an increase compared to 4% on a pro forma basis in the same period last year. This improvement reflects the ongoing benefits of our cost discipline, sharper prioritization of core growth initiatives, and improving operating leverage. We expect to continue to expand margins over the long term as these improvements compound. As adjusted EBITDA margins further expand, our path to positive free cash flow remains clear. So with that, I'll turn to our second core objective: management of the balance sheet and achieving positive free cash flow. Managing the company's indebtedness as well as achieving and sustaining positive free cash flow remain among our highest priorities. Yesterday we announced the substantial refinancing of our senior term loan provided exclusively through funds managed by MGG Investment Group. Importantly, MGG is providing a new facility which will not mature until 2029. MGG conducted thorough diligence before making its commitment, including a deep review of FiscalNote's operational performance, market position, and strategic plan. And I'm especially pleased to welcome MGG as our new long-term capital partner. Achieving positive free cash flow continues to be a primary focus of ours, and we are confident in our approach and our path. As a reminder, we have made significant progress towards positive free cash flow as we have rightsized the business. Over the trailing twelve months, we have improved free cash flow by more than $68 million compared with the same period two years prior. Our cash interest expense will increase slightly with this refinance, by less than $2 million annually, due to the higher balance on the new senior term loan. But because we continue to streamline our operations, its incremental interest expense is more than offset. Therefore, our accelerated path to positive free cash flow remains unchanged. Our third core objective relates to growth and commercial momentum, and I'll turn to that now. Revenue for the quarter came in at $23.3 million, above the guidance midpoint, and we are reaffirming our full-year guidance. Our performance in Q2 reflects both the company's continued transition as well as encouraging signs of momentum. As expected, ARR growth has not yet resumed. This is consistent with what we've said to expect in the first half of 2025. We've previously discussed the unacceptable execution challenges that impacted the start of the year. In a moment, I'll discuss some of the improvements we're seeing in our pipeline and sales metrics following the swift operating changes we made as a result. Those challenges, along with the impact of the known customer retention and expansion issues in our legacy products, as well as atypical instability in the U.S. federal sector, have contributed to the organic ARR and revenue declines. We expect better from the business in the future and we continue to remain encouraged by the trajectory of our pipeline and the tangible progress in execution. What are we seeing that gives us that confidence? We continue to see strong demand for our products, and that demand is now translating into improvements in new logo sales. Our top-of-funnel metrics remain strong. Inbound leads for our policy products are up more than 20% year-over-year, and our corporate new logo pipeline was 45% higher at the end of Q2 than it was at the end of Q1. I spoke to some of these top-of-funnel trends at our last earnings call in May and I noted it would take time to see these improvements reflected in new logo sales. Well, we're now seeing exactly that. Quarter-over-quarter we saw an improvement of 400 basis points in corporate win rates from Q1 to Q2 as well as a significant increase in average contract value, especially with our largest corporate customers where we've seen high demand for our new global data packages. We are continuing to see customers vote with their wallets in the form of multiyear commitments. As was the case in Q1, in Q2, on a year-over-year basis, we more than doubled the rate at which our new private sector customers are signing on to multiyear commitments for our policy data. This demonstrates the confidence and conviction our customers have, and it should translate directly into gross retention improvements in 2026, cutting straight to the heart of our greatest growth challenge. In addition to strong commercial demand and multiyear commitments, we're seeing clear evidence that PolicyNote is driving the levels of engagement that we expect will fuel gross retention and net retention over time. In June, we announced that PolicyNote now has more daily active users than our legacy FiscalNote platform, a major milestone in our transformation. Core engagement metrics such as search frequency and use of the AI assistant, both of which I've discussed before, remain strong. Now that PolicyNote has been in market for just over 6 months, we can also begin looking at how usage trends develop over time. The pattern is encouraging. A few weeks into a new customer engagement, usage begins to rise steadily, with the average customer using the platform roughly 30% more at the end of their first quarter than at the midpoint. This indicates that users are finding value in the platform, embedding PolicyNote in their workflows and becoming habitual users. This is a strong indicator of customer health and something that we expect will translate into improvements in gross retention over time. We're continuing to add new features and enhancements to PolicyNote at a rapid pace. In Q2 alone, we delivered more than 10 major updates, including AI-powered capabilities for legislative drafting and bill outlook, significant upgrades to our AI alerts and AI assistant, and a new onboarding flow designed to drive engagement from the very beginning of the user experience. These improvements are having a tangible impact. For example, new PolicyNote customers are now setting alerts, which we consider to be a high-value customer activity, far sooner after account activation than on our legacy platform. We believe that this consistent visible investment in PolicyNote inspires customer confidence and deepens customer engagement, which we expect will be the cornerstone for stronger customer retention and greater expansion opportunities through cross-sell and upsell in the future. What does all this mean for FiscalNote's future growth? Top-of-funnel and new logo sales are trending well. The challenge continues to be gross and net retention on our legacy product suite for the reasons that I've discussed a number of times. But we believe we have the right solution, PolicyNote. We expect that over time, as we continue to add more data sets, features, and customers to PolicyNote—a process we've said would take time—we will see retention improve and ARR and revenues return to growth. Migration to PolicyNote continues to go well and is ahead of schedule, and we expect to deprecate at least one large legacy platform this calendar year. So we're on the right track. We're moving expeditiously, and we continue to believe that with continued progress, we will see ARR growth resume in the second half of this year and then accelerate further in 2026 and beyond. In summary, in Q2 and recent days, we have expanded adjusted EBITDA margin, announced the refinancing of our senior term loan, continued building a path to sustained positive free cash flow, continued to strengthen PolicyNote and accelerate product innovation, and saw continued acceleration of key sales metrics. While the first half of 2025 has been a period of transition, we are executing with focus and intensity. Our product-led strategy is working. Our operational discipline is holding. The building blocks for long-term profitable growth are firmly in place. We remain confident in our ability to deliver on our full-year guidance and create meaningful shareholder value in the years ahead. With that, I'll turn it over to Jon to walk through the financials in more detail. Jon?
Thank you, Josh. Good evening, and thank you for joining FiscalNote's second quarter 2025 conference call. We are pleased to announce that we came in above the midpoint of our guidance range on revenue and exceeded guidance on adjusted EBITDA for the quarter. We are also reaffirming our full-year forecast, evidence that our product-led growth strategy and disciplined operating approach is on track and gaining momentum. On top of that, our recent refinancing significantly expanded our runway and operational flexibility. In that regard, yesterday, we announced that FiscalNote entered into definitive agreements to refinance our senior debt and restructure substantially all of our subordinated debt. This series of transactions will provide FiscalNote with a clear long-term runway and operating flexibility to execute on driving efficient product-led growth. These transactions are scheduled to close in mid-August, subject to customary closing conditions. Upon closing, we will replace our current senior credit facility with a new $75 million senior secured term loan with the maturity extended to 2029. This new loan is supported exclusively by funds managed by MGG Investment Group. Excess proceeds from the new facility, together with new subordinated convertible debt, will be used to pay off or refinance certain existing subordinated debt, including an amendment to our largest long-term subordinated creditor to extend the maturity of its remaining balance to 2029. In aggregate, this transaction serves as an important step for FiscalNote and for our ongoing efforts to stabilize and strengthen our capital structure while we accelerate the execution of the product-led growth strategy. The transactions provide additional time to realize the full potential of the PolicyNote platform and manage our capital structure, supporting management's commitment to generating sustainable levels of growth, profitability, and positive free cash flow. In light of the timing of these transactions, there are a few customary additional disclosures required in our 10-Q filing. We plan to file our Form 12b-25 to extend the filing deadline for the second quarter 2025 Form 10-Q. This will give us time to finalize the additional disclosures. We plan to file our 10-Q by August 18. Absent this transaction, we otherwise would have filed on time. Recall that we took a similar step earlier this year upon the closing of the divestiture of Oxford Analytica and Dragonfly, and we successfully filed our Form 10-K under similar circumstances. With that as a backdrop, let me dive into some of the key drivers behind our second quarter financial results. Total revenue for Q2 2025 was $23.3 million, above the midpoint of our forecast of $21 million to $23 million. When compared to the prior year, revenue was $6 million lower, due primarily to the divestiture of Aicel in October of 2024 and Oxford Analytica and Dragonfly at the end of Q1 2025. Subscription revenue, which remains the cornerstone of our business, was $21.4 million for the quarter, $5.7 million lower, again, largely due to the divestitures. Subscription revenue accounted for 92% of total revenues, consistent with our historical trend. On a pro forma basis, after adjusting for the impact of the Aicel, Oxford Analytica, and Dragonfly divestitures, Q2 2025 subscription revenue was $1.8 million lower than the prior year, indicating that we are still working through our transition to PolicyNote from the legacy FiscalNote platform. As we roll out the new PolicyNote platform, we expect to return to stable, consistent top-line growth, something we anticipate starting over the next few quarters. Turning to our key performance metrics. As of Q2 2025, annual recurring revenue was $85.9 million, versus $93.6 million in 2024, on a pro forma basis, a decline of $7.7 million. As you've heard from Josh earlier, this was expected and is unacceptable performance for the business. It reflects a combination of the underperformance of new logo and sales funnel execution in Q1, ongoing legacy platform retention issues, and recent reported instability in the public sector. We are focused on improvement and remain very encouraged by the trajectory of our top line and the tangible progress of execution we are seeing. Looking ahead, and as you also heard from Josh, we anticipate ARR growth beginning in the second half of 2025. For the second quarter of 2025, net revenue retention was 96%, versus 98% in the prior year, reflecting the underperformance at the end of 2024 that we have previously discussed and believe we have addressed going forward. For both ARR and NRR, we expect most metrics to improve by year-end 2025 driven by PolicyNote and other clear signs of customer engagement that we are seeing. Principal operating expenses in Q2 2025 continued the trend of year-over-year decreases, reflecting the impact of ongoing efficiency measures initiated in 2023, advanced in 2024, and 2025. Such discipline is essential to our path to expanding operating margins and adjusted EBITDA going forward. As we simplified our business model, additional cost savings accrued from the divestitures of Board.org, Aicel, Oxford Analytica, and Dragonfly Intelligence, in addition to savings from sunsetting various noncore products. Looking at expenses in more detail, Q2 2025 cost of revenues decreased by $2 million or 28% versus the prior year. R&D decreased by $900,000 or 29%. And the sales and marketing decreased by $2.3 million or 26%. As for G&A, we saw a slight increase of $100,000 or 1%. Importantly, approximately $5.4 million of noncash M&A and other nonrecurring costs were recorded in G&A during the quarter. Excluding these items, G&A would have declined year-over-year. Taken together, total Q2 2025 operating expense fell by $6.5 million or 17% versus the prior year. On a pro forma basis, excluding noncash and other nonrecurring charges, the impact of the 2024 divestitures, OpEx decreased by approximately $4 million or 15%. The gross margin in Q2 2025 was 79%, 200 basis points higher than prior year on a GAAP basis, primarily due to the impact of divested businesses and sunset products. Adjusted gross margin was 86% in Q2 2025 as compared to 85% in the prior year. Both reflect the impact of our disciplined cost management. Adjusted EBITDA was a positive $2.8 million, higher than the prior year, above our guidance of approximately $2 million and the eighth consecutive quarter of positive performance on this important profitability metric. Sustained positive adjusted EBITDA, even after the pro forma impact of the divestitures through June 30, is the direct result of actions that we've taken to improve our operating efficiency, streamline the product portfolio, and reduce the overall cost structure of the business. And, as you've heard me say before in past calls, we will drive increasing operating leverage across the business while steadily expanding our top line through product-led growth. Cash and cash equivalents, including short-term investments, at the end of Q2 2025 were $39.2 million, an increase over both the prior-year period and the year-end 2024 balance, driven primarily by the influx of cash due to seasonality and the Oxford Analytica and Dragonfly divestitures which closed on March 31. Finally, let me talk about guidance. We are reaffirming our full-year 2025 revenue forecast in the range of $94 million to $100 million and adjusted EBITDA in the range of $10 million to $12 million. We are forecasting third quarter 2025 revenues in the range of $22 million to $23 million and adjusted EBITDA of approximately $2 million. Josh referenced this affirmation speaks to the resilience of our streamlined and effective operating model, and the momentum-building is a direct result of our product-led growth strategy. In summary, FiscalNote reflects increasing strength and resilience. Our streamlined and disciplined operating plan is focused on innovation that is becoming increasingly valuable to our customers, helping them navigate today's increasingly complex political landscape. As we continue to drive to stabilize the business and return to a path of sustainable growth and customer retention, we are also working to expand operating leverage and, therefore, adjusted EBITDA, both in absolute dollars and on a margin basis. Finally, we prudently manage our cash by controlling CapEx, cash interest expense, and managing our operating expenses, all in the pursuit of accelerating the path to positive free cash flow and, therefore, sustainable growth. 2025 is an important year for this company. As we move into the second half of 2025, we are encouraged by the clear positive trends we are seeing across our product and customer metrics, which drive everything. We remain confident that we are making significant progress in reestablishing a clear definitive path for durable growth and sustainable profitability. That concludes my prepared remarks. I'll turn it over to the operator to begin the question-and-answer session.
分析師問答
Our first question will come from Mike Latimore with Northland Capital Markets.
Congratulations on all the progress this year. It looks promising. You mentioned returning to annual recurring revenue growth in the second half. Do you expect a similar contribution from improvements in new logos and net revenue retention, or is one of those factors more critical for returning to ARR growth?
Thanks, Mike, for the comment and the question. Appreciate it. So we're seeing good success with new logos, as I discussed just a few moments ago. We're seeing a lot of improvements in the pipeline. We're seeing increased win rates. We're seeing ACVs go higher. So we're pleased with the progress on new logos. Of course, we'd like to see continued progress from here as well in continuing to grow those ACVs, improve win rates, etc. The difference really will come from our retention and expansion. That's where we're still seeing those challenges with existing relationships on the legacy platform. We expect to see gross and net retention improve, both as a result of PolicyNote as we migrate more customers onto PolicyNote, and also with some of the offerings that we have in markets. We've also put out some revamped global data packages as well, which we think will help with expansion in revenue too. We're seeing great success with those, and those are helpful drivers when it comes to ACVs. We're seeing very good, healthy demand for that global data, which is really a strong differentiator for us in market. Long story short, we want to see continued progress on logos, but the biggest difference maker going forward will be those improvements to gross and net retention that we expect to see.
Got it. That makes sense. I think you’re planning additional product enhancements, including some enterprise-level features and integrating the last couple of data sets. Is that correct? If so, will these be implemented this year or are they expected to roll out next year?
Sure. So we are still continuing to enhance PolicyNote, and you can think of it in a couple of different ways. One is continuing to add core data sets and enterprise features. When we first launched PolicyNote, it was designed for the most straightforward use cases. We're continuing to add some of the more complex enterprise-grade features as we speak. As we do that, we're migrating more and more enterprise customers onto the platform. We're going to continue that work to build that out so that we can accelerate the migrations. Those migrations are going well and are actually ahead of schedule. We're also continuing to implement new incremental features, such as our Tariff Tracker and other advanced AI features, like the ability to draft legislation within the platform. These features are driving the platform forward, leapfrogging the competition, so we're continuing to build those out as well from an innovation perspective. We're going to continue the migration over the course of this year and next year. That's about what you can expect in terms of migrating all of our customers onto the new platform. And, like I said, what we're doing in parallel is both some of those core features to facilitate and accelerate those migrations, but also launching new innovations to ensure we're propelling PolicyNote forward.
Great. And then I guess just last one for me. In terms of the federal and NGO verticals, can you just give a little more color on how they're behaving, and has there been any change during the year?
Sure. So on federal, as we noted in our comments, we are seeing atypical instability in federal this year, which we've spoken to before. This continues to be something that we monitor. It's kind of a constantly shifting landscape. Earlier in the year, there was heavy activity from DOGE, which created a lot of volatility, and you are still seeing shifts within federal, both in terms of areas of increased stability and continuing to see relationships and contracts return, but also as there's continued shifts within the government regarding staffing and how that translates into their needs, licenses, and so on. The instability has introduced some challenges; it also creates opportunities. Our solutions drive great efficiencies for all our customers, including federal. So we think that there's a significant need for our platforms. We offer unique proprietary content that is very informative for policymakers, creating a demand there as well. NGOs are also active in this environment, as we see advocacy playing a role. We have a strong advocacy platform for them to use, demonstrating ongoing opportunity in that sector.
And our next question will come from the line of Zach Cummins with B. Riley Securities.
This is Ethan Widell calling in for Zach Cummins. I think to start with, it sounds like your retention metrics are starting to trend well. I guess, what levers do you think you need to pull there to continue to improve retention? Is that primarily product-led as discussed on the call so far? Or is there anything else?
Sure, Ethan. Thanks for the question. From a long-term perspective, we talked mostly about products and the introduction of PolicyNote. We're seeing strong engagement metrics, which give us confidence in how PolicyNote will positively affect retention in the future. One interesting facet is that we're able to analyze usage trends over time, not just snapshots. We're observing a strong increase in user engagement as relationships develop, which bode well for how PolicyNote will influence retention. However, there are more elements at play. We've introduced new global data packages that enhance expansion revenue, connecting well with our customers. Multi-year commitments are another bright spot; we've doubled the pace at which we're signing new corporate customers to multi-year agreements. This indicates confidence in our solutions and will enhance gross retention in 2026. Additionally, operational changes have been made to address previous performance issues. We're looking at all these factors combined, and we believe they will drive improvements in our customer retention and growth over time.
Got it. That's super helpful. To double-click on one of those points, you mentioned doubling the rate of signing multiyear commitments. How do you view this impacting the slope of revenue growth ultimately going forward?
The increase in multi-year agreements will positively impact gross retention over time, minimizing the number of contracts up for renewal in any given quarter. The key to long-term health is promoting the product and ensuring our users are engaged with it daily. This focus on engagement is crucial. Of course, reducing renewal frequency provides stability, allowing our success in acquiring new logos to contribute to growth rather than merely replacing lost revenue due to retention issues.
And we have no further questions at this time. I'll hand the call back to Bob Burrows for any closing comments.
Thank you, Regina. That concludes our call this evening. We appreciate everyone's participation on the call. We look forward to speaking with all of you again in the future. Goodbye.
This concludes today's conference call. Thank you for joining. You may now disconnect.