Delivers 17% Revenue Growth Year-over-Year
Amidst Ongoing Enterprise Demand For FiscalNote’s Trusted,
AI-enabled Global Regulatory, Policy, and Market
Intelligence
Announces FiscalNote AI Co-Pilot Program to
Extend its Leadership in AI for the Legal and Policy Sector and
Enable Incremental Go-To-Market Channels
Board of Directors Appoints Special
Committee to Evaluate Potential Transactions, Including with
FiscalNote’s CEO and Co-Founder
FiscalNote Holdings, Inc. (NYSE: NOTE) (“FiscalNote” or the
“Company”), a leading AI-driven technology provider of policy and
global intelligence, today announced financial results for the
third quarter ended September 30, 2023. These results mark the
Company’s first quarter of Adjusted EBITDA profitability, one
quarter earlier than initially forecast. The results also reflect
another quarter of solid year-over-year recurring revenue growth
and high gross margins driven by ongoing demand for FiscalNote’s
trusted, AI-enabled global policy and market intelligence and the
Company’s efficient SaaS delivery model.
Third Quarter 2023 Financial Highlights
- Revenue increased 17% to $34.0 million, within the
guidance range the Company previously provided, compared to $29.1
million in Q3 2022.
- Subscription revenue, which comprises approximately 89%
of total revenue, grew 15% year-over-year of which 7% was on an
organic basis.
- The Company’s corporate large enterprise customer
base(1)(4) continues to represent the Company’s largest
customer group with ARR growth rates and NRR rates well above
Company average.
- Gross profit was $23.6 million representing 69% gross
margin, and non-GAAP adjusted gross profit(2) was $28.4
million representing 83% non-GAAP adjusted gross margin(2).
- GAAP net loss of ($14.5) million or $(0.11) per
share.
- Adjusted EBITDA of $0.7 million(2), consistent with the
guidance the Company previously provided and an increase of
approximately $8 million year-over-year as compared to Q3 of 2022.
This reflects a conversion rate of more than 160% of incremental
GAAP revenue to Adjusted EBITDA year-over-year. It also marks an
annualized improvement of over $30 million in Adjusted EBITDA as
compared to where the Company started this year in Q1. Over one
year ago, FiscalNote communicated its goal to be profitable on an
adjusted EBITDA basis by the end of 2023. The Company has now
achieved that goal one quarter ahead of plan, exceeding both
initial Company-provided and market expectations.
- Cash and cash equivalents (inclusive of short-term
investments) of $24.4 million and approximately $94 million of
additional debt capacity.*
Third Quarter 2023 Operational Metrics
- Run-Rate Revenue(1) increased to $138 million as of
September 30, 2023 an increase of 14% as compared to $121 million
as of September 30, 2022. Organic Run-Rate Revenue(1)(3)
increased to $129 million in the period, a 7% increase
year-over-year on a pro forma basis.
- Annual Recurring Revenue(1) ("ARR") rose to $123
million as of September 30, 2023, representing 14% total growth
year-over-year and 8% growth over the prior year on a pro forma
basis. Organic ARR(3) was $116 million as of September 30, 2023,
representing a 7% growth rate on a pro forma basis.
- Net Revenue Retention(1) ("NRR") was
approximately 100% in the third quarter as compared to 99% in the
third quarter of 2022. NRR rates among the Company’s corporate
large enterprise customer base(1)(4)continue to trend above 100% on
a quarterly basis and above 105% on a trailing twelve month
basis.
FiscalNote also announced it will develop FiscalNote AI
Co-pilot, a new AI solution specifically geared for policy and risk
management professionals to facilitate the day-to-day work of
creating legislation, advocacy outreach, constituent
communications, regulatory responses, and global risk analysis.
FiscalNote Co-pilot combines the power of large language models,
FiscalNote’s trusted industry leading policy and geopolitical data,
and customers’ data, all in a seamless workflow to provide
intelligent assistance for the world’s most important decision
makers.
Separately, the Company announced its Board of Directors (the
“Board”) has established a Special Committee in response to
statements made by the Company’s CEO and Co-founder, Tim Hwang,
regarding his interest in putting together a consortium to explore
a potential go-private transaction. Mr. Hwang has not provided any
specific proposal, and there can be no assurance that one will be
made. The Special Committee will evaluate, together with its
advisors, any proposal it receives from Mr. Hwang regarding such a
transaction, as well as any other transaction proposals submitted
to the Company. The Special Committee, composed of Michael
Callahan, Manoj Jain, Stanley McChrystal and Anna Sedgley, has the
full power and authority of the Board to take any and all actions
on behalf of the Board as it deems necessary to evaluate and
negotiate a potential go-private transaction and alternatives to
any transaction proposed by Mr. Hwang. There can be no assurance
that the foregoing will result in any transaction or any other
strategic change or outcome, or as to the timing of any of the
foregoing. The Company does not expect to comment further on this
unless and until the Special Committee has reviewed and recommended
and the Board has approved a specific transaction or until the
Company determines that further disclosure is appropriate or
required by law.
The Special Committee has retained Skadden, Arps, Slate, Meagher
& Flom LLP as its legal advisor and intends to retain a
financial advisor to assist with this review process.
Q3 and Recent Business Highlights
In the third quarter and in recent weeks, FiscalNote has
achieved notable operational and business milestones which reflect
its ongoing leadership in global policy, risk mitigation, and
market intelligence including:
- The first anchor customer for AI-powered FiscalNote Risk
Connector, a new, internally-developed risk intelligence solution:
As announced in the Company’s separate press release issued this
week, True Digital Group, a large financial technology company, is
partnering with FiscalNote to help True Digital’s financial clients
harness the power of FiscalNote’s data and AI capabilities to
identify risks within an organization’s supply chains, as well as
the organization’s customers, investors, partners, and any other
vectors through which a risk could materialize. This partnership
will connect FiscalNote with hundreds of other banking institutions
across the U.S. who could use Risk Connector to map 3rd and 4th
party vendors and monitor critical risks.
- Expanded enterprise customer accounts: The Company secured
major new enterprise wins and expansions this quarter including an
American multinational health care services company, a large health
insurance provider, a large law firm, and expanded other accounts
in the tech, legal, industrial, defense, and manufacturing
sector.
- New enhancements to FiscalNote EUIT: FiscalNote announced new
features of its comprehensive European regulatory and policy
intelligence platform including automated, AI-powered transcripts
of all EU parliamentary committee meetings available in near-real
time after the meetings’ conclusion and enhanced stakeholder data
across all 705 Members of the European Parliament.
- FiscalNoteGPT: FiscalNote introduced the first proprietary
platform incorporating generative AI and large language model (LLM)
capabilities customized for legislative, regulatory, and policy
workflows. This large language model has been specifically adapted
to a wide range of legal and regulatory data to support a diverse
set of natural language processing (NLP) tasks within the legal and
regulatory industry.
Financial Outlook
FiscalNote delivered on its expectation for Adjusted EBITDA
profitability in the third quarter of 2023, one quarter earlier
than previous guidance, and expects ongoing Adjusted EBITDA growth
in the fourth quarter as the Company continues to deliver
year-over-year revenue growth, maintain strong adjusted gross
profit margins in the 80% range, and realize the benefits of its
cost management actions.(6)
Guidance for the fourth quarter of 2023 is as
follows:
- GAAP revenue of $34 million to $35 million, representing
8% to 11% year-over-year growth.
- Adjusted EBITDA(2)(6)of approximately $2.5 million for
the quarter and an annualized Adjusted EBITDA of approximately $10
million exiting the year. This marks a year-on-year improvement of
approximately $8 million in adjusted EBITDA profitability compared
to Q4 2022 reflecting the benefits of the efficiency programs the
Company implemented in 2023.
Guidance for full year 2023 is as follows:
- GAAP revenue of $132 million to $133 million,
representing 16% to 17% year-over-year growth.
- Total run-rate revenue(1)(5) of $139 million to $141
million, representing growth of 10% to 11% over the prior
year.
- An adjusted EBITDA(2)(6) loss of approximately $8
million for the full year, within the range previously provided and
marking an improvement of approximately $16 million or 67%
year-over-year. FiscalNote expects adjusted EBITDA profitability
moving forward and, over time, expects to achieve adjusted EBITDA
and free cash flow margins in line with other information services
companies long-term.
FiscalNote expects to increase its cash position in Q1 of 2024
through continued compounding increases to prepaid ARR and
seasonally strong collections.
Net revenue retention rates and new logo acquisition remain
strong among the Company’s corporate large enterprise customer
base(1)(4). Despite this ongoing momentum, the Company’s guidance
for Q4 and FY 2023 revenue and run-rate revenue are lower than
previously provided primarily due to lower non-subscription revenue
and slower than expected pipeline conversion as the Company shifts
resources to larger enterprise accounts amidst a more challenging
macro.
“Our primary objective for this year was to reach Adjusted
EBITDA profitability and we are delighted to reach this inflection
point in the third quarter, one quarter earlier than initially
forecast. This is a testament to the durability of our revenue
streams and the hard work of our teams. We are delivering on our
commitment to build an enduring, profitable, sustainable
compounding growth company for the world’s most important decision
makers,” said Tim Hwang, Chairman, CEO, and Co-founder of
FiscalNote. “As we exit 2023 we are well positioned. We have
durable recurring revenue streams from a growing base of 5,000
customers, 80% adjusted gross margins and a proven leadership
position in AI for the legal and policy sector. In recent quarters,
we have aligned our cost structure to drive ongoing Adjusted EBITDA
profitability and positioned our sales teams to extend our
successes in large enterprise accounts. With this foundation in
place, now is the time for us to shift our focus to driving new
growth opportunities and developing new channels to extend the
value of our AI leadership to a broad base of customers and
partners. Our AI co-pilot program will build on the AI innovations
and partnerships we established this year and provide incremental
opportunities for new revenue streams, channels, and go to market
strategies. We are excited about the opportunities ahead as we
build on our adjusted EBITDA profitability and re-accelerate
growth.”
Additional information regarding the non-GAAP financial measures
discussed in this release, including an explanation of these
measures and how each is calculated, is included below under the
heading “Non-GAAP Financial Measures.” A reconciliation of GAAP to
non-GAAP financial measures has also been provided in the financial
tables included below. Information regarding our key performance
indicators is included below under “Key Performance
Indicators.”
Quarterly Conference Call
FiscalNote will host a conference call today, Tuesday, November
14, 2023, at 9:00 a.m. Eastern Time (U.S.) to review the Company's
financial results for the third quarter ended September 30, 2023
and its outlook. To access this call, dial 1 (888) 660-6510 for the
U.S. or Canada, or 1 (929) 203-0882 for callers outside the U.S. or
Canada with the conference ID 1271923. A live webcast of the
conference call will be accessible from the Investor Relations
section of FiscalNote's website at
https://investors.fiscalnote.com/, and a recording will be archived
and accessible at https://investors.fiscalnote.com/. An audio
replay of this conference call will also be available through
December 9, 2023, by dialing 1-800-770-2030 for the U.S. or Canada,
or 1-647-362-9199 for callers outside the U.S. or Canada, and
entering 1271923.
* In connection with its public listing, FiscalNote entered into
a 5-year senior secured term loan of up to $250 million, including
$150 million of committed financing at closing with an additional
uncommitted accordion facility for $100 million, subject to certain
conditions.
(1) “Run-Rate Revenue,” “Annual Recurring Revenue” or “ARR”, and
“Net Revenue Retention” or “NRR” are key performance indicators
(KPIs). Please see "Key Performance Indicators" in this earnings
release for the definitions and important disclosures regarding
these measures.
(2) Non-GAAP measure. Please see "Non-GAAP Financial Measures"
in this earnings release for definitions and important disclosures
regarding these financial measures, including reconciliations to
the most directly comparable GAAP measure.
(3) Organic run-rate revenue and organic ARR for Q3 2023 include
businesses acquired as of December 31, 2022, plus Aicel
Technologies (for which a definitive acquisition agreement was
signed as of December 31, 2021, with closing conditioned upon
FiscalNote’s public listing).
(4) Reference to ARR growth trends and NRR from enterprise
customers or other customer types represents the majority of the
Company’s ARR but excludes approximately $8M of ARR from acquired
entities that are not yet integrated into this reporting
system.
(5) Total run-rate revenue includes completed acquisitions but
does not include any future acquisitions under consideration.
(6) Because of the variability of items impacting net income and
unpredictability of future events, management is unable to
reconcile without unreasonable effort the Company's forecasted
adjusted EBITDA to a comparable GAAP measure.
About FiscalNote
FiscalNote (NYSE: NOTE) is a leader in policy and global
intelligence. By uniquely combining data, technology, and insights,
FiscalNote empowers customers to manage political and business
risk. Since 2013, FiscalNote has pioneered technology that delivers
critical insights and the tools to turn them into action. Home to
CQ, FrontierView, Oxford Analytica, VoterVoice, and many other
industry-leading brands, FiscalNote serves approximately 5,000
customers worldwide with global offices in North America, Europe,
Asia, and Australia. To learn more about FiscalNote and its family
of brands, visit FiscalNote.com and follow @FiscalNote.
Forward-Looking Statements
Certain statements in this press release may be considered
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. Forward-looking statements
generally relate to future events or FiscalNote’s future financial
or operating performance. For example, statements regarding
FiscalNote’s financial outlook for future periods, expectations
regarding profitability, capital resources and anticipated growth
in the industry in which FiscalNote operates are forward-looking
statements. In some cases, you can identify forward-looking
statements by terminology such as “pro forma,” “may,” “should,”
“could,” “might,” “plan,” “possible,” “project,” “strive,”
“budget,” “forecast,” “expect,” “intend,” “will,” “estimate,”
“anticipate,” “believe,” “predict,” “potential” or “continue,” or
the negatives of these terms or variations of them or similar
terminology. Such forward-looking statements are subject to risks,
uncertainties, and other important factors that could cause actual
results to differ materially from those expressed or implied by
such forward-looking statements.
Factors that may impact such forward-looking statements include
FiscalNote’s ability to effectively manage its growth; changes in
FiscalNote’s strategy, future operations, financial position,
estimated revenue and losses, forecasts, projected costs, prospects
and plans; the terms of any proposal FiscalNote may receive for a
go-private transaction; the impact of the announcement of the
formation of the Special Committee and review of a potential
go-private transaction on FiscalNote’s business and its ability to
implement any potential go-private transaction; FiscalNote’s
future capital requirements; demand for FiscalNote’s services and
the drivers of that demand; FiscalNote’s ability to provide highly
useful, reliable, secure and innovative products and services to
its customers; FiscalNote’s ability to attract new customers,
retain existing customers, expand its products and service
offerings with existing customers, expand into geographic markets
or identify areas of higher growth; FiscalNote’s ability to
successfully identify acquisition opportunities, make acquisitions
on terms that are commercially satisfactory, successfully integrate
potential acquired businesses and services, and subsequently grow
acquired businesses; risks associated with international
operations, including compliance complexity and costs, increased
exposure to fluctuations in currency exchange rates, political,
social and economic instability, and supply chain disruptions;
FiscalNote’s ability to develop, enhance, and integrate its
existing platforms, products, and services; FiscalNote’s
estimated total addressable market and other industry and
performance projections; FiscalNote's reliance on third-party
systems and data, its ability to integrate such systems and data
with its solutions and its potential inability to continue to
support integration; potential technical disruptions,
cyberattacks, security, privacy or data breaches or other technical
or security incidents that affect FiscalNote’s networks or systems
or those of its service providers; FiscalNote’s ability to obtain
and maintain accurate, comprehensive, or reliable data to support
its products and services; FiscalNote’s ability to introduce new
features, integrations, capabilities, and enhancements to its
products and services; FiscalNote’s ability to maintain and improve
its methods and technologies, and anticipate new methods or
technologies, for data collection, organization, and analysis to
support its products and services; competition and competitive
pressures in the markets in which FiscalNote operates, including
larger well-funded companies shifting their existing business
models to become more competitive with FiscalNote;FiscalNote’s
ability to protect and maintain its brands; FiscalNote’s ability to
comply with laws and regulations in connection with selling
products and services to U.S. and foreign governments and other
highly regulated industries;FiscalNote’s ability to retain or
recruit key personnel; FiscalNote’s ability to effectively maintain
and grow its research and development team and conduct research and
development; FiscalNote’s ability to adapt its products and
services for changes in laws and regulations or public perception,
or changes in the enforcement of such laws, relating to artificial
intelligence, machine learning, data privacy and government
contracts; adverse general economic and market conditions reducing
spending on our products and services; the outcome of any known
and unknown litigation and regulatory proceedings; FiscalNote’s
ability to successfully establish and maintain public
company-quality internal control over financial reporting; and the
ability to adequately protect FiscalNote’s intellectual property
rights.
These and other important factors discussed in FiscalNote’s SEC
filings, including its most recent reports on Forms 10-K and 10-Q,
particularly the "Risk Factors" sections of those reports, could
cause actual results to differ materially from those indicated by
the forward-looking statements made in this press release. These
forward-looking statements are based upon estimates and assumptions
that, while considered reasonable by FiscalNote and its management,
are inherently uncertain. Nothing in this press release should be
regarded as a representation by any person that the forward-looking
statements set forth herein will be achieved or that any of the
contemplated results of such forward-looking statements will be
achieved. You should not place undue reliance on forward-looking
statements, which speak only as of the date they are made.
FiscalNote undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required under
applicable securities laws.
FiscalNote Holdings,
Inc.
Condensed Consolidated
Statements of Operations
(Unaudited)
(in thousands, except shares and
per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Revenues:
Subscription
$
30,057
$
26,075
$
87,986
$
73,186
Advisory, advertising, and other
3,952
2,996
10,394
9,130
Total revenues
34,009
29,071
98,380
82,316
Operating expenses: (1)
Cost of revenues
10,441
8,699
28,863
23,581
Research and development
4,540
5,629
14,170
15,438
Sales and marketing
11,235
11,830
35,222
31,722
Editorial
4,516
4,218
13,533
11,240
General and administrative
14,418
38,945
48,813
59,535
Amortization of intangible assets
2,899
2,601
8,614
7,818
Impairment of goodwill
-
-
5,837
-
Transaction costs (gains), net
(579
)
1,275
1,138
1,257
Total operating expenses
47,470
73,197
156,190
150,591
Operating loss
(13,461
)
(44,126
)
(57,810
)
(68,275
)
Interest expense, net
8,018
42,894
21,853
89,672
Change in fair value of financial
instruments
(7,157
)
(21,910
)
(18,850
)
(18,524
)
Gain on PPP loan upon extinguishment
-
-
-
(7,667
)
Loss on debt extinguishment, net
-
45,250
-
45,250
Loss on settlement
-
-
3,474
-
Other expense, net
207
928
245
1,543
Net loss before income taxes
(14,529
)
(111,288
)
(64,532
)
(178,549
)
Provision (benefit) from income taxes
(62
)
(2,286
)
181
(2,836
)
Net loss
(14,467
)
(109,002
)
(64,713
)
(175,713
)
Other comprehensive loss
(1,006
)
(1,003
)
(1,037
)
(1,777
)
Total comprehensive loss
$
(15,473
)
$
(110,005
)
$
(65,750
)
$
(177,490
)
Net loss
$
(14,467
)
$
(109,002
)
$
(64,713
)
$
(175,713
)
Deemed dividend
-
(24,351
)
-
(26,570
)
Net loss used to compute loss per
share
$
(14,467
)
$
(133,353
)
$
(64,713
)
$
(202,283
)
Loss per share attributable to common
shareholders:
Basic
$
(0.11
)
$
(1.39
)
$
(0.49
)
$
(4.52
)
Diluted
$
(0.11
)
$
(1.63
)
$
(0.49
)
$
(5.03
)
Weighted average shares used in computing
loss per shares attributable to common shareholders:
Basic
128,832,502
96,117,011
131,994,563
44,757,851
Diluted
128,832,502
96,235,930
131,994,563
44,876,770
(1) Amounts include stock-based
compensation expenses, as follows:
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Cost of revenues
$
45
$
13
$
185
$
36
Research and development
328
504
1,080
609
Sales and marketing
1,041
721
1,718
828
Editorial
120
513
292
560
General and administrative
4,690
28,292
14,937
28,835
FiscalNote Holdings,
Inc.
Condensed Consolidated Balance
Sheets
(Unaudited)
(in thousands, except shares, and
par value)
September 30, 2023
December 31, 2022
Assets
Current assets:
Cash and cash equivalents
$
16,489
$
60,388
Restricted cash
844
835
Short-term investments
7,113
-
Accounts receivable, net
13,753
14,909
Costs capitalized to obtain revenue
contracts, net
3,194
2,794
Prepaid expenses
3,490
4,315
Other current assets
3,300
2,764
Total current assets
48,183
86,005
Property and equipment, net
6,410
7,325
Capitalized software costs, net
15,406
13,946
Noncurrent costs capitalized to obtain
revenue contracts, net
4,248
3,976
Operating lease assets
18,247
21,005
Goodwill
206,887
194,362
Customer relationships, net
57,737
56,348
Database, net
19,351
21,020
Other intangible assets, net
23,859
28,728
Other non-current assets
535
442
Total assets
$
400,863
$
433,157
Liabilities and Stockholders'
Equity
Current liabilities:
Current maturities of long-term debt
$
68
$
68
Accounts payable and accrued expenses
12,710
13,739
Deferred revenue, current portion
45,708
35,569
Customer deposits
1,129
3,252
Contingent liabilities from acquisitions,
current portion
411
696
Operating lease liabilities, current
portion
3,227
6,709
Other current liabilities
1,871
2,079
Total current liabilities
65,124
62,112
Long-term debt, net of current
maturities
213,157
161,980
Deferred tax liabilities
2,695
714
Deferred revenue, net of current
portion
998
918
Contingent liabilities from acquisitions,
net of current portion
1,710
883
Operating lease liabilities, net of
current portion
26,837
29,110
Public and private warrant liabilities
2,765
18,892
Other non-current liabilities
4,008
13,858
Total liabilities
317,294
288,467
Commitment and contingencies (Note 17)
Stockholders' equity:
Class A Common stock ($0.0001 par value,
1,700,000,000 authorized, 120,604,828 and 123,125,595 issued and
outstanding at September 30, 2023 and December 31, 2022,
respectively)
11
12
Class B Common stock ($0.0001 par value,
9,000,000 authorized, and 8,290,921 issued and outstanding at
September 30, 2023 and December 31, 2022)
1
1
Additional paid-in capital
851,047
846,205
Accumulated other comprehensive loss
(1,822
)
(785
)
Accumulated deficit
(765,668
)
(700,743
)
Total stockholders' equity
83,569
144,690
Total liabilities and stockholders'
equity
$
400,863
$
433,157
FiscalNote Holdings,
Inc.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended September
30,
2023
2022
Operating Activities:
Net loss
$
(64,713
)
$
(175,713
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation
1,007
892
Amortization of intangible assets and
capitalized software development costs
19,068
14,482
Amortization of deferred costs to obtain
revenue contracts
2,602
1,922
Impairment of goodwill
5,837
-
Non-cash operating lease expense
2,885
4,856
Stock-based compensation
18,212
30,868
Operating lease asset impairment
-
378
Loss on settlement
3,474
-
Other non-cash expenses
(688
)
218
Bad debt expense
267
90
Change in fair value of acquisition
contingent consideration
(138
)
(2,192
)
Unrealized gain loss on securities
115
-
Change in fair value of financial
instruments
(18,850
)
(18,524
)
Deferred income tax provision
(benefit)
(80
)
(2,708
)
Paid-in-kind interest, net
3,987
10,491
Non-cash interest expense
3,035
50,512
Loss on debt extinguishment, net
-
45,250
Gain on PPP Loan forgiveness
-
(7,667
)
Changes in operating assets and
liabilities:
Accounts receivable, net
2,560
(4,211
)
Prepaid expenses and other current
assets
1,935
(1,151
)
Costs capitalized to obtain revenue
contracts, net
(3,263
)
(2,808
)
Other non-current assets
(119
)
(395
)
Accounts payable and accrued expenses
(6,389
)
3,566
Deferred revenue
6,141
8,581
Customer deposits
(2,182
)
(1,917
)
Other current liabilities
(754
)
(5,677
)
Contingent liabilities from acquisitions,
net of current portion
(39
)
(1,267
)
Operating lease liabilities
(5,844
)
(6,296
)
Other non-current liabilities
(6
)
921
Net cash used in operating
activities
(31,940
)
(57,499
)
Investing Activities:
Capital expenditures
(5,957
)
(8,859
)
Purchases of short-term investments
(7,369
)
-
Cash paid for business acquisitions, net
of cash acquired
(5,010
)
1,125
Net cash used in investing
activities
(18,336
)
(7,734
)
Financing Activities:
Proceeds from Business Combination
-
175,000
Issuance costs of Common Stock
-
(45,242
)
Proceeds from long-term debt, net of
issuance costs
6,000
166,013
Principal payments of long-term debt
(80
)
(189,023
)
Proceeds from exercise of public
warrants
-
4,469
Proceeds from exercise of stock options
and ESPP purchases
650
386
Repurchase of common stock
-
(88
)
Net cash provided by financing
activities
6,570
111,515
Effects of exchange rates on cash
(184
)
(451
)
Net change in cash, cash equivalents, and
restricted cash
(43,890
)
45,831
Cash, cash equivalents, and restricted
cash, beginning of period
61,223
33,009
Cash, cash equivalents, and restricted
cash, end of period
$
17,333
$
78,840
Supplemental Noncash Investing and
Financing Activities:
Issuance of Class A common stock upon
redemption of preferred stock
$
-
$
475,781
Issuance of Class A common stock and Class
B common stock in connection with Business Combination
$
-
$
346,797
Acquisition of warrant liabilities
$
-
$
34,947
Accretion of redemption value of preferred
stock
$
-
$
26,570
Issuance of common stock in connection
with business acquisitions
$
-
$
8,590
Warrants issued in conjunction with
long-term debt issuance
$
178
$
436
Issuance of Class A common stock upon
exercise of public warrants
$
-
$
263
Fees payable to debt holders settled
through increase of debt principal
$
-
$
100
Property and equipment purchases included
in accounts payable
$
323
$
-
Supplemental Cash Flow
Activities:
Cash paid for interest
$
15,290
$
28,974
Cash paid for taxes
$
16
$
68
Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”), we use
certain non-GAAP financial measures to clarify and enhance our
understanding, and aid in the period-to-period comparison, of our
performance. Where applicable, we provide reconciliations of these
non-GAAP measures to the corresponding most closely related GAAP
measure. Investors are encouraged to review the reconciliation of
each of these non-GAAP financial measures to its most comparable
GAAP financial measure. While we believe that these non-GAAP
financial measures provide useful supplemental information,
non-GAAP financial measures have limitations and should not be
considered in isolation from, or as a substitute for, their most
comparable GAAP measures. These non-GAAP financial measures are not
prepared in accordance with GAAP, do not reflect a comprehensive
system of accounting and may not be comparable to similarly titled
measures of other companies due to potential differences in their
financing and accounting methods, the book value of their assets,
their capital structures, the method by which their assets were
acquired and the manner in which they define non-GAAP measures.
Adjusted Revenue
Adjusted revenue represents revenue adjusted to include amounts
that would have been recognized if deferred revenue was not
adjusted to fair value in connection with acquisition accounting.
Adjusted revenue is presented because we use this measure to
evaluate performance of our business against prior periods and
believe it is useful for investors as an indicator of the
underlying performance of our business. Adjusted revenue is not a
recognized term under U.S. GAAP. Adjusted revenue does not
represent revenues, as that term is defined under GAAP, and should
not be considered as an alternative to revenues as an indicator of
our operating performance. Adjusted revenue as presented herein is
not necessarily comparable to similarly titled measures presented
by other companies.
Adjusted Gross Profit and Adjusted Gross Profit Margin
We define Adjusted Gross Profit as Adjusted Revenue minus cost
of revenues, before amortization of intangible assets that are
included in costs of revenues. We define Adjusted Gross Profit
Margin as Adjusted Gross Profit divided by Adjusted Revenues.
We use Adjusted Gross Profit and Adjusted Gross Profit Margin to
understand and evaluate our core operating performance and trends.
We believe these metrics are useful measures to us and to our
investors to assist in evaluating our core operating performance
because it provides consistency and direct comparability with our
past financial performance and between fiscal periods, as the
metrics eliminate the non-cash effects of amortization of
intangible assets and deferred revenue, which are non-cash impacts
that may fluctuate for reasons unrelated to overall operating
performance.
Adjusted Gross Profit and Adjusted Gross Profit Margin have
limitations as analytical tools, and you should not consider them
in isolation, or as a substitute for analysis of our results as
reported under GAAP and should not be considered as replacements
for gross profit and gross profit margin, as determined by GAAP, or
as measures of our profitability. We compensate for these
limitations by relying primarily on our GAAP results and using
non-GAAP measures only for supplemental purposes. Adjusted Gross
Profit and Adjusted Gross Profit Margin as presented herein is not
necessarily comparable to similarly titled measures presented by
other companies.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP
financial measures. EBITDA represents earnings before interest
expense, income taxes, depreciation and amortization. Adjusted
EBITDA reflects further adjustments to EBITDA to exclude certain
non-cash items and other items that management believes are not
indicative of ongoing operations. We define Adjusted EBITDA Margin
as Adjusted EBITDA divided by Adjusted Revenue.
We disclose EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
because they are key measures used by management to evaluate our
business, measure our operating performance and make strategic
decisions. We believe that EBITDA, Adjusted EBITDA and Adjusted
EBITDA Margin are useful for investors and others in understanding
and evaluating our operating results in the same manner as
management. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
should not be considered as substitutes for net loss, net loss
before income taxes, or any other operating performance measure
calculated in accordance with GAAP. Using these non-GAAP financial
measures to analyze our business would have material limitations
because the calculations are based on the subjective determination
of management regarding the nature and classification of events and
circumstances that investors may find significant. In addition,
although other companies in our industry may report measures titled
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin or similar
measures, such non-GAAP financial measures may be calculated
differently from how we calculate non-GAAP financial measures,
which reduces their comparability. Because of these limitations,
you should consider EBITDA, Adjusted EBITDA, and Adjusted EBITDA
Margin alongside other financial performance measures, including
net income and our other financial results presented in accordance
with GAAP.
Adjusted Revenues
The following table presents our calculation of Adjusted
Revenues for the periods presented, and a reconciliation of this
measure to our GAAP revenues for the same periods:
Three Months Ended September
30,
Nine Months Ended September
30,
(In thousands)
2023
2022
2023
2022
Subscription revenue
$
30,057
$
26,075
$
87,986
$
73,186
Deferred revenue adjustment
-
123
-
1,853
Adjusted subscription revenue
30,057
26,198
87,986
75,039
Advisory, advertising, and other
revenue
3,952
2,996
10,394
9,130
Adjusted Revenues
$
34,009
$
29,194
$
98,380
$
84,169
Adjusted Gross Profit and Adjusted Gross Profit
Margin
The following table presents our calculation of Adjusted Gross
Profit and Adjusted Gross Profit Margin for the periods
presented:
Three Months Ended September
30,
Nine Months Ended September
30,
(In thousands)
2023
2022
2023
2022
Adjusted Revenues
$
34,009
$
29,194
$
98,380
$
84,169
Costs of revenue
(10,441
)
(8,699
)
(28,863
)
(23,581
)
Amortization of intangible assets
4,796
2,832
10,454
6,664
Adjusted Gross Profit
$
28,364
$
23,327
$
79,971
$
67,252
Adjusted Gross Profit Margin
83
%
80
%
81
%
80
%
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
The following table presents our calculation of EBITDA, Adjusted
EBITDA, and Adjusted EBITDA Margin for the periods presented:
Three Months Ended September
30,
Nine Months Ended September
30,
(In thousands)
2023
2022
2023
2022
Net loss
$
(14,467
)
$
(109,002
)
$
(64,713
)
$
(175,713
)
Provision (benefit) from income taxes
(62
)
(2,286
)
181
(2,836
)
Depreciation and amortization
8,030
5,743
20,074
15,374
Interest expense, net
8,018
42,894
21,853
89,672
EBITDA
1,519
(62,651
)
(22,605
)
(73,503
)
Deferred revenue adjustment (a)
-
123
-
1,853
Stock-based compensation
6,224
30,043
18,212
30,868
Change in fair value of financial
instruments (b)
(7,157
)
(21,910
)
(18,850
)
(18,524
)
Loss on debt extinguishment, net
-
45,250
-
45,250
Other non-cash (gains) charges (c)
(704
)
(948
)
5,227
(9,286
)
Acquisition related costs (d)
12
431
1,391
1,003
Employee severance costs (e)
560
149
1,310
149
Non-capitalizable debt raising costs
-
-
316
403
Other infrequent costs (f)
-
-
-
20
Costs incurred related to the transaction
(g)
81
1,791
415
2,250
Loss contingency (h)
201
286
4,091
286
Adjusted EBITDA
$
736
$
(7,436
)
$
(10,493
)
$
(19,231
)
Adjusted EBITDA Margin
2.2
%
(25.5
)%
(10.7
)%
(22.8
)%
(a)
Reflects deferred revenue fair value adjustments arising from
the purchase price allocation in connection with the 2021
Acquisitions.
(b)
Reflects the non-cash impact from the mark to market adjustments
on our financial instruments.
(c)
Reflects the non-cash impact of the following: (i) impairment of
goodwill of $5,837 in the first quarter of 2023, (ii) loss from
equity method investment of $34 in the first quarter of 2023, a
loss from equity method investment of $56 in the second quarter of
2023, and a gain from equity method investment of $147 in the third
quarter of 2023, (iii) charge of $2 in the first quarter of 2023,
charge of $2 in the second quarter of 2023, and a gain of $672 in
the third quarter of 2023 from the change in fair value related to
the contingent consideration and contingent compensation related to
the 2021, 2022, and 2023 Acquisitions; (iv) unrealized loss on
short-term investments of $115 in the third quarter of 2023; (v)
gain of $1,320 in the first quarter of 2022, a charge of $271 in
the second quarter of 2022, and a gain of $948 in the third quarter
of 2022 from the change in fair value related to the contingent
consideration and contingent compensation related to the 2021
Acquisitions, (vi) gain of $7,667 related to the partial
forgiveness of our PPP Loan during the first quarter of 2022, and
(vii) $378 impairment charge recognized in the first quarter of
2022 related to the abandonment of one of our leases upon adoption
of ASC 842 on January 1, 2022.
(d)
Reflects the costs incurred to identify, consider, and complete
business combination transactions consisting of advisory, legal,
and other professional and consulting costs.
(e)
Severance costs associated with workforce changes related to
business realignment actions.
(f)
Costs incurred related to litigation we believe to be outside of
our normal course of business totaling $20 in the first quarter of
2022.
(g)
Includes non-capitalizable transaction costs incurred within one
year of the Business Combination.
(h)
Reflects (i) $3,474 non-cash loss contingency charge related to
the settlement with GPO FN Noteholder LLC recorded in the second
quarter of 2023 and (ii) accounting and legal costs incurred
associated with the settlement with GPO FN Noteholder LLC totaling
$168 in the first quarter of 2023, $248 in the second quarter of
2023, $201 in the third quarter of 2023, and $286 in the third
quarter of 2022.
Key Performance Indicators
We also monitor the following key performance indicators to
evaluate growth trends, prepare financial projections, make
strategic decisions, and measure the effectiveness of our sales and
marketing efforts. Our management team assesses our performance
based on these key performance indicators because it believes they
reflect the underlying trends and indicators of our business and
serve as meaningful indicators of our continuous operational
performance.
Annual Recurring Revenue (“ARR”)
Approximately 90% of our revenues are subscription based, which
leads to high revenue predictability. Our ability to retain
existing subscription customers is a key performance indicator that
helps explain the evolution of our historical results and is a
leading indicator of our revenues and cash flows for subsequent
periods. We use ARR as a measure of our revenue trend and an
indicator of our future revenue opportunity from existing recurring
subscription customer contracts. We calculate ARR on an account
level by annualizing the contracted subscription revenue, and our
total ARR as of the end of a period is the aggregate thereof. ARR
is not adjusted for the impact of any known or projected future
customer cancellations, upgrades or downgrades, or price increases
or decreases. The amount of actual revenue that we recognize over
any 12-month period is likely to differ from ARR at the beginning
of that period, sometimes significantly. This may occur due to
timing of the revenue bookings during the period, cancellations,
upgrades, or downgrades and pending renewals. ARR should be viewed
independently of revenue as it is an operating metric and is not
intended to be a replacement or forecast of revenue. Our
calculation of ARR may differ from similarly titled metrics
presented by other companies.
Run-Rate Revenue
Management also monitors run-rate revenue, which we define as
ARR plus non-subscription revenue earned during the last twelve
months. We believe run-rate revenue is an indicator of our total
revenue growth, incorporating the non-subscription revenue that we
believe is a meaningful contribution to our business as a whole.
Although our non-subscription business is non-recurring, we
regularly sell different advisory services to repeat customers. The
amount of actual subscription and non-subscription revenue that we
recognize over any 12-month period is likely to differ from
run-rate revenue at the beginning of that period, sometimes
significantly.
Net Revenue Retention (“NRR”)
Our NRR, which we use to measure our success in retaining and
growing recurring revenue from our existing customers, compares our
recognized recurring revenue from a set of customers across
comparable periods. We calculate our NRR for a given period as ARR
at the end of the period minus ARR contracted from new clients for
which there is no historical revenue booked during the period,
divided by the beginning ARR for the period. For our federal
government clients, we consider subdivisions of the same executive
branch department or independent agency (for example, divisions of
a single federal department or agency) to be a single customer for
purposes of calculating our account-level ARR and NRR. For our
commercial clients, we consider subdivisions of the same legal
entity as separate customers. Customers from acquisitions are not
included in NRR until they have been part of our condensed
consolidated results for 12 months. Our calculation of NRR for any
fiscal period includes the positive recurring revenue impacts of
selling additional licenses and services to existing customers and
the negative recognized recurring revenue impacts of contraction
and attrition among this set of customers. Our NRR may fluctuate as
a result of a number of factors, including the growing level of our
revenue base, the level of penetration within our customer base,
expansion of products and features, and our ability to retain our
customers. Our calculation of NRR may differ from similarly titled
metrics presented by other companies.
Source: FiscalNote
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231114963836/en/
Media Nicholas Graham FiscalNote press@fiscalnote.com
Investors Sara Buda FiscalNote IR@fiscalnote.com
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