“`html

Image source: The Motley Fool.

FiscalNote (NYSE: NOTE)
Q3 2024 Earnings Call
Nov 12, 2024, 5:00 p.m. ET

FiscalNote Reports Strong Q3 2024 Results Amid Leadership Transition

Agenda for Today’s Earnings Call

• Prepared Remarks
• Questions and Answers
• Call Participants

Opening Remarks

Operator

Ladies and gentlemen, thank you for holding. My name is Krista, and I will be your conference operator today. Welcome to the FiscalNote third quarter 2024 financial results conference call. To minimize background noise, all lines have been muted. After the speakers’ remarks, we will have a question-and-answer session.

[Operator instructions] Thank you. I will now turn the conference over to the company. Please go ahead.

Bob Burrows — Investor Relations

Good evening. I’m Bob Burrows, founder and principal of Western Avenue Advisers LLC, serving as interim investor relations officer for FiscalNote since April. Thank you for joining us as we discuss our third quarter 2024 financial results and the recent leadership changes.

Joining me today are Tim Hwang, chairman, CEO, and co-founder; Josh Resnik, president and COO; and Jon Slabaugh, CFO and CIO. Other senior management team members will be available for questions following our remarks. Copies of our press release, the Form 10-Q for the quarter, and our updated corporate overview are available on our website. Now, here are some important points to note.

Key Considerations for Investing in FiscalNote

Before you decide to invest in FiscalNote, take a moment to reflect:

The Motley Fool Stock Advisor analyst team has identified the 10 best stocks for investors currently, and FiscalNote has not been selected. The stocks that made their list are expected to generate significant returns in the coming years.

For example, consider Nvidia, which made this list on April 15, 2005. If you had invested $1,000 at that time, it would now be worth $890,169!*

Stock Advisor serves as a straightforward guide for investors, with portfolio-building guidance, analyst updates, and two new stock picks each month. Since its launch in 2002, the Stock Advisor service has provided a return that exceeds the S&P 500 by more than four times.*

See the 10 stocks »

*Stock Advisor returns as of November 11, 2024

During this call, we will make certain forward-looking statements in relation to our business. These statements are not promises of future performance and are subject to various risks and uncertainties. To understand the significant risks that may impact actual results, please review our SEC filings available on our company website or the Securities and Exchange Commission’s EDGAR system.

We will also discuss non-GAAP financial measures. For a reconciliation of these metrics to the most comparable GAAP measures, please see the tables in our earnings release or the updated corporate presentation on our website. Key performance indicators, including run rate revenue, annual recurring revenue (ARR), and net retention revenue (NRR), are also relevant to assessing our business. Definitions of these metrics can be found in the earnings release or corporate deck.

Now, I would like to hand the call over to FiscalNote’s co-founder, chairman, and CEO, Tim Hwang. Tim?

Leadership and Future Direction of FiscalNote

Timothy Hwang — Co-Founder, Chair, and Chief Executive Officer

Thank you, Bob, for that introduction. I appreciate everyone here with us tonight. I’m looking forward to discussing our Q3 2024 results, the current state of the business, and the announced leadership transition.

To begin, I want to explain the decision to transition leadership to Josh Resnik starting January 1, 2025. Since founding FiscalNote over a decade ago, our mission has been to help clients navigate the complex and ever-changing landscape by providing a proprietary AI-enabled platform that organizes regulatory, political, and macroeconomic information.

Reflecting on our journey, I’ve seen how we evolved from initial ideas about machine learning and data analytics to becoming a leader in our field. In today’s environment, we serve as the Bloomberg Terminal for regulatory, legislative, and strategic risk, equipped with a repository of technical expertise, exclusive data, and analytical tools.

Our extensive coverage includes data on legislation across 80,000 cities and every major federal regulatory agency. We provide in-depth profiles of policymakers and millions of legislative bodies, helping organizations make informed decisions.

I’m proud that our team has grown to several hundred dedicated individuals worldwide, serving thousands of clients, from the White House to the Department of Defense and nearly half of the Fortune 100. We empower decision-makers with vital intelligence.

“““html

FiscalNote Transitions Leadership as It Prepares for Future Growth

FiscalNote, a company known for its commitment to innovation, announces a change in leadership as it embarks on its next growth phase.

Since its inception, FiscalNote has thrived due to a focus on customer needs, employee satisfaction, and continuous innovation. Beginning with three founders and a laptop, the company has transformed the aggregation of legal data, improved cloud collaboration, and advanced generative AI technologies. As FiscalNote looks ahead, it’s time for new leadership to guide the next stage of growth.

After nearly 12 years as CEO, I have decided to step down to become executive chair. This change allows me to reconnect with my founding roots and drive FiscalNote toward new successes. I am eager to work closely with Josh Resnik, our current president and COO, who I believe is the ideal leader for this new phase. I will remain dedicated to our mission, focusing on strategic initiatives, fostering innovation, and reinforcing our culture.

FiscalNote’s future looks promising. Our products are crucial for clients navigating an unpredictable geopolitical climate. As we continually innovate at the intersection of legal services and artificial intelligence, this leadership transition opens fresh opportunities for growth. Our aim is to become the dominant player in our industry over the coming years.

It has truly been an honor to lead FiscalNote. In the next month and a half, Josh and I will collaborate with the senior team to ensure a smooth transition. By January 1, we will be poised to carry our mission forward, impacting our customers’ lives globally.

Josh Resnik — President and Chief Operating Officer

Thank you, Tim, for your thoughtful words. I appreciate everyone joining us today as we discuss our progress and future outlook. Tim’s leadership has profoundly influenced my journey at FiscalNote.

Initially, start-ups depend heavily on their founders. Tim’s vision, creativity, and passion for FiscalNote have set a remarkable example. I am grateful he will remain actively involved in shaping our next chapter.

I bring experience from top global companies and hands-on roles in tech start-ups. My background supports growth and innovation strategically. As we both transition into our new roles, I look forward to collaborating closely with Tim.

Now, I’d like to address the current state of FiscalNote. Over the past two years, we have successfully adjusted our cost structure, achieving five consecutive quarters of positive adjusted EBITDA, including our latest quarter. We are now revising our full-year 2024 adjusted EBITDA outlook to around $9 million, reflecting the hard work of our team and the disciplined management of the company.

This year, we aimed for adjusted EBITDA profitability and surprised ourselves by achieving it a quarter ahead of schedule. In 2024, we plan to build on that success, despite market conditions.

Our strategy includes refining our product offerings to focus on areas demonstrating the most promise for profitable growth. This refinement process has included the sale of Board.Org and Aicel while discontinuing underperforming products. Such strategic moves help reduce complexity, improve our financial leverage, and foster efficient growth.

Excellence is vital; we cannot achieve it if our teams are overstretched by low-impact initiatives. To bolster our operations, we are carefully reviewing our product mix to enhance customer value delivery, which will in turn lead to better profit margins.

We have optimized our sales processes and are replicating successful strategies across teams worldwide to drive customer engagement and improve sales performance.

AI technology remains a key component of our product innovation. For instance, our new copilots for policy and global intelligence leverage these tools to provide customers with critical insights quickly, enhancing productivity and outcomes.

Moreover, we are excited to have Can Babaoglu as our new chief product officer, whose expertise will play a crucial role in our product strategy. Can, known for leading the rapid success of Casetext, brings invaluable experience in creating customer-focused technologies, including generative AI.

FiscalNote’s dedication to innovation and customer service remains strong, and under this new guidance, we are confident in our path forward.

“`

FiscalNote Reports Strong Q3 2024 Results Amid Strategic Growth Initiatives

Solid Revenue from Subscriptions

FiscalNote has reported total revenue of $29.4 million for Q3 2024. This figure aligns with expectations but shows a decrease compared to the previous year, largely due to the sale of Board.Org. Subscription revenue remains vital, making up 93% of overall revenue, consistent with the company’s long-term trends.

Product Innovation and Focus on Growth

Under the guidance of a newly appointed chief product officer, FiscalNote is actively enhancing its product offerings. The company aims to phase out outdated platforms while focusing on creating fresh product experiences that tackle customer challenges. Generative AI will play a pivotal role in delivering customer value, helping to lower customer acquisition costs and streamline operations, all while improving customer satisfaction.

Capital Structure Improvements On the Horizon

FiscalNote is committed to bolstering its capital structure. Following the successful sales of Board.Org and Aicel, further opportunities to maximize shareholder value will be pursued. This step is part of a larger strategy aimed at fostering sustainable growth and profitability.

Continued Financial Efficiency

FiscalNote’s operating expenses for Q3 2024 decreased significantly, highlighting ongoing cost-saving measures. Expenses fell by over $11 million, a 24% reduction year-over-year. The company is focusing on maintaining strong gross margins, which reached 79% on a GAAP basis this quarter, showing improvements over the previous years.

Positive EBITDA Trajectory

The adjusted EBITDA for the quarter was positive at $3.4 million, contrasting with just under $1 million from the prior year. This marks five consecutive quarters of positive adjusted EBITDA, totaling $9.4 million over the last year. This trend showcases the successful implementation of strategic initiatives that drive profitability.

Looking Ahead with Optimism

As Josh, the new CEO, steps into his role, he expresses excitement about the future for FiscalNote. The strategic initiatives undertaken are designed to position the company for sustainable growth, with continuous investment in product enhancements. As the new chapter begins, all eyes will be on how these strategies unfold through 2025 and beyond.

Jon A. Slabaugh’s Insights on Financial Performance

Jon A. Slabaugh, Chief Financial Officer, noted the significance of current efforts in driving growth. He commended the team’s accomplishments over the year and reinforced the importance of strategic financial management. Total revenue metrics, subscriber figures, and expense reductions highlight FiscalNote’s resilience and commitment to future growth.

The focus on international expansion and growing core markets reflects the company’s dedication to capitalizing on opportunities while ensuring operational efficiency. Expectations are set high, with continued efforts to enhance shareholder value and customer satisfaction.

FiscalNote Updates Financial Outlook Amid Strategic Changes

FiscalNote has shared its revised financial guidance for 2024 and reported significant changes in its capital structure following a strategic asset sale.

Debt Reduction and Profit Outlook

The company ended the quarter with total debt of $168 million, a decrease from $172 million at the end of the second quarter. This shift reflects the positive effects of selling Aicel and repaying a portion of its principal debt. Looking ahead, FiscalNote has adjusted its profit expectations, raising its full-year 2024 adjusted EBITDA forecast to $9 million, up from the previous estimate of $8 million made in August.

In contrast, FiscalNote lowered its total revenue forecast for 2024 to $120 million, slightly down from $121 million. This reduction is attributed to the sale of Aicel and anticipated declines in advisory revenue as the company assesses its business trajectory. Despite these changes, improved operational efficiency is expected to support profitability.

Notably, the forecasted adjusted EBITDA marks the first full year of profitability for FiscalNote. The company is committed to further debt reduction and optimizing its product portfolio, which aims to enhance customer experience and retention into 2025.

Fourth Quarter Projections

Looking specifically at Q4 2024, the company anticipates approximately $29 million in total revenues and around $2.5 million in adjusted EBITDA. These estimates take into account previous product divestitures and ongoing trends.

Strategic Review and Future Direction

FiscalNote’s board is actively exploring various strategic alternatives to maximize shareholder value. Updates on this review will be made available when appropriate. As a summary, the company has maintained stability over the first nine months of 2024 and is well-positioned for future success.

Continued operational efficiency initiatives and a focused product strategy are essential to reinforcing FiscalNote’s role as a vital partner for its diverse clientele.

Questions & Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions] Your first question comes from Jesse Sobelson with D. Boral Capital.

Jesse Sobelson — Analyst

Hi, everyone. Thanks for taking my question. Congrats on the leadership changes; I believe investors will welcome this shift.

Looking ahead, what is the medium-term goal for the capital structure following recent asset sales and improved profitability? Specifically, do you have a target for net debt-to-EBITDA? How do you intend to reach that goal?

Jon A. Slabaugh — Chief Financial Officer and Chief Investment Officer

Thanks for the question, Jesse. We are actively considering the right capital structure moving forward. Our focus remains on reducing the cost of capital and servicing that through anticipated cash flow in the coming years. As we prepare our budget and planning for the future, we will determine the appropriate level of long-term debt the company can manage. Our aim is to lower overall debt to enhance long-term equity value.

Jesse Sobelson — Analyst

Got it. A quick follow-up regarding the AI copilot program. Could you provide insights into customer reactions to these new technologies? Has there been any progress since the pilot launches earlier this year?

Josh Resnik — President and Chief Operating Officer

Sure, Jesse. We’ve launched two copilots this year: one focused on policy and another on global intelligence. The global intelligence copilot integrates our data and analysis, allowing users to get rapid answers to pressing issues. Customer feedback has been overwhelmingly positive, with strong engagement metrics, including return visits and repeat inquiries.

The copilot for policy was a different type of rollout, allowing users to engage with a specific feature of our core product. This initiative has yielded valuable lessons on user interactions, informing improvements in our core offerings.

Jesse Sobelson — Analyst

Thank you for your responses.

Josh Resnik — President and Chief Operating Officer

Thank you.

Operator

Your next question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

“`html

Company Leadership Discusses Profitability and Growth Strategies

Key Insights on Gross Margin Sustainability

Michael Latimore, an analyst, inquired about the sustainability of gross margins amidst a favorable profitability outlook. Jon A. Slabaugh, Chief Financial Officer and Chief Investment Officer, assured that the improvement in gross margins stemmed from the divestiture of Board.Org, which featured a different cost structure. Moreover, by reducing emphasis on higher-cost advisory services, the focus has shifted toward core subscription businesses that boast significant margins.

Path to Growth Through New Products

Latimore pressed for clarity on whether new product launches would stimulate growth. Josh Resnik, President and Chief Operating Officer, highlighted the essential nature of customer experience. He mentioned that enhancing engagement and retention would support cross-selling and up-selling opportunities. The objective is to introduce innovative experiences to existing products for sustained growth and improved profitability.

Government Sector Performance in Q3

Latimore also aimed to understand the performance of government bookings in the third quarter. Resnik confirmed that government performance remained strong in Q3, contributing positively to future projections.

Focus on Core Revenue Streams

Latimore questioned what percentage of revenue stems from non-core products. Slabaugh refrained from providing specific figures but emphasized that a significant portion of revenue is derived from long-term core businesses. The ongoing evaluation will help streamline operations further.

Leadership Transition – A New Chapter Ahead

Ethan Widell of B. Riley Securities asked Timothy Hwang, the Co-Founder and Chief Executive Officer, about the timing of the leadership transition. Hwang reflected on his 12-year journey since starting the company with limited resources, highlighting record profitability and a solid customer base. He expressed confidence in transitioning leadership to Josh Resnik, who has collaborated with him closely for nearly six years.

Growth Strategy for Fiscal 2025

In discussing future growth, Resnik outlined key assumptions as the company prepares for fiscal 2025. He explained that they are concentrating on sectors exhibiting potential—particularly international markets and corporate segments. Strategies focus on optimizing product offerings and enhancing customer experiences, laying the groundwork for future growth.

Competitive Landscape Insights

John Roy from Water Tower Research sought insights into the competitive landscape for new products and possible market expansion. The company is evaluating existing competition and identifying suitable opportunities for growth, emphasizing the importance of understanding market dynamics and potential competitors.

“`

FiscalNote Discusses Growth Potential in International Markets

Josh Resnik — President and Chief Operating Officer

Josh Resnik provided insights on the company’s international strategy, emphasizing the value of existing global data sets and market analysis tools. “The international areas showing promise rely heavily on the assets we already possess,” Resnik explained. He noted that there is current customer engagement, which supports the potential demand for these data sets. Resnik is optimistic about future opportunities grounded in the enhancements made to these offerings, which aim to foster better interactions with existing clients. “We are focused on retention, cross-sell, and upsell tactics that leverage our current core products,” he added. While new client acquisition is also a focus, the current improvements take priority.

Did that help answer the question?

John Roy — Analyst

That sounds promising. You really have a solid foundation to explore these new areas.

Josh Resnik — President and Chief Operating Officer

Absolutely.

Operator

We currently have no further questions. I will now hand the call over to Bob Burrows for closing remarks.

Bob Burrows — Investor Relations

Thank you, Krista. This concludes our call for the evening. We appreciate everyone’s participation. Should you have any additional questions, please reach out to us. Remember, all materials related to the company’s third quarter ’24 financial results can be found on the FiscalNote website. We look forward to connecting again soon. Good night.

Operator

[Operator signoff]

Duration: 0 minutes

Call Participants:

Bob Burrows — Investor Relations

Timothy Hwang — Co-Founder, Chair, and Chief Executive Officer

Josh Resnik — President and Chief Operating Officer

Jon A. Slabaugh — Chief Financial Officer and Chief Investment Officer

Jesse Sobelson — Analyst

Michael Latimore — Analyst

Ethan Widell — B. Riley Financial — Analyst

John Roy — Analyst

More NOTE analysis

All earnings call transcripts

This article is a transcript of the conference call produced for The Motley Fool. While we strive for accuracy, there may be errors or omissions in this transcript. The Motley Fool does not assume any responsibility for your use of this content and encourages independent research, including listening to the call and reading the company’s SEC filings. Please refer to our Terms and Conditions for important details, including our disclosure policy.

FiscalNote is a transcription service used by The Motley Fool. The Motley Fool has no positions in any of the stocks mentioned and has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.