FiscalNote Holdings, Inc. Q3 FY2023 earnings

FiscalNote Holdings reported third quarter 2023 revenue of $34.01 million, up 17.0% from $29.07 million in the prior-year quarter. Year-to-date revenue reached $98.38 million, up 19.5% from $82.32 million. The company narrowed its operating loss to $13.46 million from $44.13 million, and its net loss to $14.47 million from $109.00 million. Diluted loss per share improved to $0.11 from $1.63. Operating margin was negative 39.6%, up 112.2 percentage points from negative 151.8%. The quarter marked the first period of positive adjusted EBITDA, which came in at $0.7 million, one quarter earlier than initially forecast. That compares to an adjusted EBITDA loss of $7.4 million in the prior-year quarter. Non-GAAP adjusted gross profit was $28.4 million, an 83% adjusted gross margin. The company said the improvement reflected durable recurring revenue streams and cost management actions.

Operational metrics showed steady growth. Run-rate revenue increased 14% to $138 million as of September 30, 2023, compared to $121 million a year earlier. Annual recurring revenue rose 14% to $123 million, with organic ARR at $116 million, a 7% pro forma increase. Net revenue retention was approximately 100% in the third quarter, up from 99% in the third quarter of 2022. The corporate large enterprise customer base continued to outperform, with net revenue retention above 105% on a trailing twelve-month basis. Subscription revenue comprised approximately 89% of total revenue. The company announced several AI-focused initiatives, including FiscalNote AI Co-pilot, FiscalNote Risk Connector with its first anchor customer True Digital Group, and FiscalNoteGPT. It also expanded enterprise accounts with a large health insurance provider, a large law firm, and an American multinational health care services company. FiscalNote serves approximately 5,000 customers worldwide.

Guidance for the fourth quarter of 2023 calls for adjusted EBITDA of approximately $2.5 million, or an annualized $10 million exiting the year, which marks a year-on-year improvement of approximately $8 million compared to the fourth quarter of 2022. For the full year 2023, total run-rate revenue is expected to be $139 million to $141 million, representing 10% to 11% growth over the prior year. The company also guided to a full-year adjusted EBITDA loss of approximately $8 million, within the range previously provided and marking an improvement of roughly $16 million or 67% year-over-year. FiscalNote attributed the lower revenue and run-rate revenue outlook primarily to lower non-subscription revenue and slower pipeline conversion as resources shift toward larger enterprise accounts amid a more challenging macro environment. Management expects adjusted EBITDA profitability moving forward and, over time, adjusted EBITDA and free cash flow margins in line with other information services companies.

The balance sheet and cash flow items carry risks. Operating cash flow was negative $11.73 million for the quarter, an improvement from negative $39.15 million in the prior-year quarter. Capital expenditures were $1.87 million, down 33.6% from $2.82 million. Deferred revenue stood at $46.71 million, up 19.0% from $39.24 million, and remaining performance obligations were $100.71 million, up 12.0% from $89.94 million. Cash and cash equivalents inclusive of short-term investments totaled $24.4 million, while the company had negative working capital of $41.4 million excluding cash and short-term investments. Total principal plus paid-in-kind debt outstanding was $231.8 million, including a $156.0 million senior term loan. The company also reported approximately $94 million of additional debt capacity. The board formed a Special Committee to evaluate a potential go-private transaction involving CEO and co-founder Tim Hwang, though no specific proposal has been made. FiscalNote stated it was in compliance with all debt covenants at September 30, 2023, and it expects to increase its cash position in the first quarter of 2024 through continued compounding increases to prepaid ARR and seasonally strong collections.