Increases Q3 Profitability Guidance with
Expectation to be Profitable on an Adjusted EBITDA Basis in Q3
2023, a Quarter Earlier than Expected
Deepens its AI Leadership in the Legal,
Regulatory and Policy Sector with new Proprietary FiscalNoteGPT and
AI-Powered FiscalNote Risk Connector for Global Operational and
Supply Chain Risk Intelligence
FiscalNote Holdings, Inc. (NYSE: NOTE) (“FiscalNote” or
the “Company”), a leading AI-driven enterprise SaaS technology
provider of policy and global intelligence, today announced
financial results for the second quarter ended June 30, 2023. These
results mark another quarter of delivering results in-line with the
Company’s guidance driven by durable recurring revenue and high
gross margins that also form the basis for the accelerated
expectation of reaching adjusted EBITDA profitability next quarter
- a quarter earlier than the Company’s prior guidance. The results
reflect ongoing demand for FiscalNote’s trusted, AI-enabled policy
and market intelligence that empowers organizations to mitigate
risk and more confidently navigate their businesses in an
increasingly complex global geopolitical, economic, and regulatory
environment.
Second Quarter 2023 Financial Highlights
- Revenue increased 21% to $32.8 million, compared to
$27.2 million in Q2 2022 and consistent with the guidance range the
Company previously provided. Subscription revenue, which
comprises approximately 90% of total revenue, grew 21%
year-over-year of which 9% was on an organic basis.
- Gross profit was $23.4 million representing 71% gross
margin, and non-GAAP adjusted gross profit(1) was $26.4
million representing 80% non-GAAP adjusted gross margin(1).
- GAAP net loss of $(30.9) million.
- Adjusted EBITDA loss of $(4.3) million(1), consistent
with the guidance range the Company previously provided.
- Cash and cash equivalents of $38.1 million and
approximately $94 million of additional debt capacity.* The Company
continues to have sufficient capital to support its current growth
plans and M&A opportunities, and does not require additional
capital raises to achieve its plan.
Second Quarter 2023 Operational Metrics
- Run-Rate Revenue(2) increased to $135 million as of June
30, 2023 inclusive of businesses acquired in 2022 and 2023.
Organic Run-Rate Revenue(2)(3) increased to $126 million in
the period, a 6% increase from $119 million as of June 30, 2022 on
a pro forma basis.
- Annual Recurring Revenue(2) ("ARR") rose to $120
million at June 30, 2023 inclusive of businesses acquired in 2022
and 2023, representing 16% total growth year-over-year and 7%
growth over the prior year on a pro forma basis. Organic ARR(2)(3)
was $113 million as of June 30, 2023 compared to ARR of $107
million at June 30, 2022, representing a 6% growth rate on a pro
forma basis. The Company continues to deliver mid-teens organic ARR
growth among its base of corporate customers in the large
enterprise sector.
- Net Revenue Retention(2) was approximately 98% in the
second quarter.
Financial Outlook
FiscalNote is accelerating its path to profitability on an
Adjusted EBITDA basis and increasing its expectation for Adjusted
EBITDA profitability in the third quarter of 2023, one quarter
earlier than previous guidance, 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.(5)
Guidance for the third quarter of 2023 is as follows:
- GAAP revenue of $34 million to $35 million, representing
17% to 20% year-over-year growth.
- Adjusted EBITDA(1)(5) of positive $0.2 million to $1.0
million for the quarter, marking an increase from the Company’s
prior guidance of approximately break-even in the third quarter.
This marks a year-on-year improvement of between $7.6 million and
$8.4 million in adjusted EBITDA profitability compared to Q3 2022.
The Company has implemented efficiency programs that are expected
to significantly benefit adjusted EBITDA in the second half of
2023.
Guidance for full year 2023 is as follows:
- GAAP revenue of $136 million to $138 million,
representing 20% to 21% year-over-year growth, consistent with the
range of previously provided guidance, with a more narrow range to
reflect the increased visibility to the second half of the
year.
- Total run-rate revenue(2)(4) of $143 million to $150
million, representing growth of 13% to 18% over the prior year
inclusive of the Company’s acquisition of Dragonfly Eye, Ltd. in
January 2023. This is an update from the Company’s previously
provided run-rate revenue guidance range due, in part, to the
Company’s decisions to sunset revenue for select unprofitable
products and take other actions to drive accelerated profitability
of the overall Company.
- An adjusted EBITDA(1)(5) loss of $(8) million to $(6)
million for the full year, marking an improvement of approximately
71% year-over-year and consistent with previously-provided
guidance.
- The Company’s full year 2023 guidance indicates the Company
will achieve a fourth quarter 2023 adjusted EBITDA(1)(5) margin
of 7% to 12%.
FiscalNote expects adjusted EBITDA profitability growth moving
forward and, over time, expects to achieve adjusted EBITDA and free
cash flow margins in line with other information services companies
long-term.(5)
“Our operational and financial achievements in Q2 and our
expectation to reach the inflection point of Adjusted EBITDA
profitability next quarter, in Q3, reflect our unwavering
commitment to building 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. “In the year since our public listing, we have
continued to advance our position as the de facto AI leader in the
legal, policy and regulatory intelligence sector by growing our
customer base, closing and integrating accretive acquisitions that
expand our offerings, bringing new AI enabled products and
solutions to market, establishing partnerships with market leading
large language model engines and positioning the business for
profitability and free cash flow growth. Our recent new product
developments of FiscalNoteGPT and FiscalNote Risk Connector
exemplify this AI leadership and underscore the essential value we
bring to thousands of global customers who trust FiscalNote
intelligence every day to turn insights into actions, convert
challenges into opportunities, and mitigate risk to protect
operations. We look forward to extending our track record of
compounding growth, unmatched innovation, and customer excellence
in the second half of 2023 and beyond.”
In the second quarter and in recent weeks, FiscalNote has
received multiple industry recognitions for the Company’s
decade-long leadership in AI innovation and made several
advancements in the depth and breadth of its technology portfolio
including:
- Introduced FiscalNoteGPT, 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.
- Launched FiscalNote Risk Connector, a new, internally-developed
risk intelligence solution that harnesses the power of the
Company’s data and AI capabilities to reveal operational,
relational, and reputational risk for enterprises and government
organizations.
- Announced a collaboration with Microsoft to develop a plugin
for Microsoft’s new AI-powered Bing, enabling access to select
FiscalNote market-leading real-time data sets and content for
users. Similar to the Company’s recent selection as an inaugural
launch ‘trusted partner’ for OpenAI’s ChatGPT Plugin and its
integration partnership with Bard by Google, this integration
enables FiscalNote to capture critical insights into how users
engage generative models to understand political and regulatory
information.
- Awarded three new patents through its Aicel Technologies
subsidiary by the Korean Intellectual Property Office (KIPO). This
brings the Company’s total global intellectual property portfolio
to 17 patents, underscoring FiscalNote’s commitment to delivering
innovative AI and machine learning solutions and industry-leading
expertise in analyzing unstructured data.
- Selected as an inaugural launch partner for a new data
marketplace created by data, analytics, and AI company Databricks.
Through this partnership, FiscalNote will make select datasets
available for sale to Databricks’ expansive global base of more
than 9,000 customers, driving new customer acquisition
opportunities for FiscalNote.
- Introduced new, proprietary AI tools and an integration with
OpenAI’s ChatGPT, called VoterVoice SmartCheck. This makes
VoterVoice the first SaaS advocacy campaign platform to embed both
proprietary AI and ChatGPT into a patented platform.
Also in the second quarter and recent weeks the Company achieved
other notable operational and business milestones which reflect its
ongoing leadership in global policy, risk mitigation, and market
intelligence including:
- Continued to expand its enterprise customer accounts, which is
the Company’s largest and fastest growing customer base, by
securing new agreements in the second quarter with customers across
a variety of sectors, including retail, software, manufacturing,
energy, and health care, among others.
- Announced wide-ranging new customer agreements and renewals
across the global public sector, as overviewed in the Company’s
separate press release issued today.
- Added to the broad-market Russell 3000® Index at the conclusion
of the 2023 Russell indexes annual reconstitution on June 26, 2023.
The annual Russell indexes reconstitution captures the 4,000
largest U.S. stocks as of April 28, ranking them by total market
capitalization
- Established a first-of-its-kind partnership with Korea’s
Ministry of Foreign Affairs, providing a framework for the Ministry
to use FiscalNote’s proprietary data sets and enhanced AI
capabilities to assist the Ministry in responding to rapidly
changing international dynamics and associated domestic
policymaking needs.
- Published its second annual corporate Sustainability overview,
“Our Progress Toward a Sustainable Future: FiscalNote's
Sustainability & Social Impact Efforts.”
- Announced CEO Tim Hwang’s selection as an Ernst & Young
(EY) “Entrepreneur of the Year” 2023 award winner - one of the most
preeminent competitive awards for entrepreneurs and leaders of
high-growth companies.
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, Wednesday, August
9, 2023, at 9:00 a.m. Eastern Time (U.S.) to review the Company's
financial results for the second quarter ended June 30, 2023. 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
September 9, 2023, 11:59 p.m. ET (U.S.), 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) 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.
(2) “Run-Rate Revenue,” “Annual Recurring Revenue” or “ARR”, and
“Net Revenue Retention” are key performance indicators (KPIs).
Please see "Key Performance Indicators" in this earnings release
for the definitions and important disclosures regarding these
measures.
(3) Organic run-rate revenue and organic ARR for Q2 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) Total run-rate revenue includes completed acquisitions but
does not include any future acquisitions under consideration.
(5) 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 of 1995. 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; 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 June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Revenues:
Subscription
$
29,462
$
24,332
$
57,929
$
47,111
Advisory, advertising, and other
3,380
2,842
6,442
6,134
Total revenues
32,842
27,174
64,371
53,245
Operating expenses: (1)
Cost of revenues
9,485
7,712
18,422
14,882
Research and development
4,510
3,791
9,630
9,809
Sales and marketing
11,689
10,395
23,987
19,892
Editorial
4,752
3,346
9,017
7,022
General and administrative
16,174
10,033
34,395
20,590
Amortization of intangible assets
2,901
2,609
5,715
5,217
Impairment of goodwill
-
-
5,837
-
Transaction costs (gains), net
309
1,027
1,717
(18
)
Total operating expenses
49,820
38,913
108,720
77,394
Operating loss
(16,978
)
(11,739
)
(44,349
)
(24,149
)
Interest expense, net
7,154
24,255
13,835
46,778
Change in fair value of financial
instruments
2,987
2,048
(11,693
)
3,386
Gain on PPP loan upon extinguishment
-
-
-
(7,667
)
Loss on settlement
3,474
-
3,474
-
Other expense, net
167
494
38
615
Net loss before income taxes
(30,760
)
(38,536
)
(50,003
)
(67,261
)
Provision (benefit) from income taxes
213
(176
)
243
(550
)
Net loss
(30,973
)
(38,360
)
(50,246
)
(66,711
)
Other comprehensive (loss) gain
328
(859
)
(31
)
(774
)
Total comprehensive loss
$
(30,645
)
$
(39,219
)
$
(50,277
)
$
(67,485
)
Net loss
$
(30,973
)
$
(38,360
)
$
(50,246
)
$
(66,711
)
Deemed dividend
-
(10,614
)
-
(2,219
)
Net loss used to compute loss per
share
$
(30,973
)
$
(48,974
)
$
(50,246
)
$
(68,930
)
Earnings per share attributable to common
shareholders:
Basic and Diluted
$
(0.23
)
$
(2.57
)
$
(0.38
)
$
(3.65
)
Weighted average shares used in computing
earnings per shares attributable to common shareholders:
Basic and Diluted
134,117,122
19,020,367
133,601,798
18,876,752
(1) Amounts include stock-based
compensation expenses, as follows:
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Cost of revenues
$
82
$
13
$
140
$
23
Research and development
362
51
752
105
Sales and marketing
317
60
677
107
Editorial
106
24
172
47
General and administrative
4,615
417
10,247
543
FiscalNote Holdings,
Inc.
Condensed Consolidated Balance
Sheets
(Unaudited)
(in thousands, except shares, and
par value)
June 30, 2023
December 31, 2022
Assets
Current assets:
Cash and cash equivalents
$
37,260
$
60,388
Restricted cash
842
835
Accounts receivable, net
14,942
14,909
Costs capitalized to obtain revenue
contracts, net
2,998
2,794
Prepaid expenses
3,374
4,315
Other current assets
2,751
2,764
Total current assets
62,167
86,005
Property and equipment, net
6,724
7,325
Capitalized software costs, net
15,240
13,946
Noncurrent costs capitalized to obtain
revenue contracts, net
4,034
3,976
Operating lease assets
18,826
21,005
Goodwill
208,077
194,362
Customer relationships, net
59,951
56,348
Database, net
19,906
21,020
Other intangible assets, net
27,610
28,728
Other non-current assets
425
442
Total assets
$
422,960
$
433,157
Liabilities and Stockholders'
Equity
Current liabilities:
Current maturities of long-term debt
$
68
$
68
Accounts payable and accrued expenses
13,299
13,739
Deferred revenue, current portion
48,800
35,569
Customer deposits
2,019
3,252
Contingent liabilities from acquisitions,
current portion
1,082
696
Operating lease liabilities, current
portion
3,471
6,709
Other current liabilities
2,040
2,079
Total current liabilities
70,779
62,112
Long-term debt, net of current
maturities
214,700
161,980
Deferred tax liabilities
2,805
714
Deferred revenue, net of current
portion
1,224
918
Contingent liabilities from acquisitions,
net of current portion
1,710
883
Operating lease liabilities, net of
current portion
27,561
29,110
Public and private warrant liabilities
6,758
18,892
Other non-current liabilities
3,703
13,858
Total liabilities
329,240
288,467
Commitment and contingencies (Note 17)
Stockholders' equity:
Class A Common stock ($0.0001 par value,
1,700,000,000 authorized, 120,284,209 and 123,125,595 issued and
outstanding at June 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 June
30, 2023 and December 31, 2022)
1
1
Additional paid-in capital
845,725
846,205
Accumulated other comprehensive loss
(816
)
(785
)
Accumulated deficit
(751,201
)
(700,743
)
Total stockholders' equity
93,720
144,690
Total liabilities and stockholders'
equity
$
422,960
$
433,157
FiscalNote Holdings,
Inc.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended June
30,
2023
2022
Operating Activities:
Net loss
$
(50,246
)
$
(66,711
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation
671
581
Amortization of intangible assets and
capitalized software development costs
11,373
9,049
Amortization of deferred costs to obtain
revenue contracts
1,648
1,247
Impairment of goodwill
5,837
-
Non-cash operating lease expense
2,366
3,209
Stock-based compensation
11,988
825
Operating lease asset impairment
-
378
Loss on settlement
3,474
-
Other non-cash expenses
426
488
Bad debt expense (recovery)
229
(93
)
Change in fair value of acquisition
contingent consideration
(333
)
(1,537
)
Change in fair value of financial
instruments
(11,693
)
3,386
Deferred income tax provision
(benefit)
214
(513
)
Paid-in-kind interest, net
2,042
27,848
Non-cash interest expense
2,130
15,072
Gain on PPP Loan forgiveness
-
(7,667
)
Changes in operating assets and
liabilities:
Accounts receivable, net
1,644
(2,793
)
Prepaid expenses and other current
assets
2,284
(4,618
)
Costs capitalized to obtain revenue
contracts, net
(1,910
)
(2,071
)
Other non-current assets
18
-
Accounts payable and accrued expenses
(4,914
)
(1,217
)
Deferred revenue
9,595
13,019
Customer deposits
(1,233
)
(1,611
)
Other current liabilities
(797
)
(758
)
Contingent liabilities from acquisitions,
net of current portion
(39
)
(1,267
)
Operating lease liabilities
(4,974
)
(4,121
)
Other non-current liabilities
(6
)
1,527
Net cash used in operating
activities
(20,206
)
(18,348
)
Investing Activities:
Capital expenditures
(4,086
)
(6,041
)
Cash paid for business acquisitions, net
of cash acquired
(5,010
)
-
Net cash used in investing
activities
(9,096
)
(6,041
)
Financing Activities:
Proceeds from long-term debt, net of
issuance costs
6,000
19,478
Principal payments of long-term debt
(53
)
(30
)
Proceeds from exercise of stock options
and ESPP purchases
617
367
Repurchase of common stock
-
(88
)
Net cash provided by financing
activities
6,564
19,727
Effects of exchange rates on cash
(383
)
(352
)
Net change in cash, cash equivalents, and
restricted cash
(23,121
)
(5,014
)
Cash, cash equivalents, and restricted
cash, beginning of period
61,223
33,009
Cash, cash equivalents, and restricted
cash, end of period
$
38,102
$
27,995
Supplemental Noncash Investing and
Financing Activities:
Accretion of redemption value of preferred
stock
$
-
$
(8,390
)
Warrants issued in conjunction with
long-term debt issuance
$
178
$
436
Fees payable to debt holders settled
through increase of debt principal
$
-
$
100
PIK interest settled through issuance of
additional convertible notes to noteholders
$
-
$
10,734
Property and equipment purchases included
in accounts payable
$
343
$
28
Supplemental Cash Flow
Activities:
Cash paid for interest
$
9,924
$
3,263
Cash paid for taxes
$
49
$
70
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 June
30,
Six Months Ended June
30,
(In thousands)
2023
2022
2023
2022
Subscription revenue
$
29,462
$
24,332
$
57,929
$
47,111
Deferred revenue adjustment
-
737
-
1,730
Adjusted subscription revenue
29,462
25,069
57,929
48,841
Advisory, advertising, and other
revenue
3,380
2,842
6,442
6,134
Adjusted Revenues
$
32,842
$
27,911
$
64,371
$
54,975
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 June
30,
Six Months Ended June
30,
(In thousands)
2023
2022
2023
2022
Adjusted Revenues
$
32,842
$
27,911
$
64,371
$
54,975
Costs of revenue
(9,485
)
(7,712
)
(18,422
)
(14,882
)
Amortization of intangible assets
3,061
2,009
5,658
3,832
Adjusted Gross Profit
$
26,418
$
22,208
$
51,607
$
43,925
Adjusted Gross Profit Margin
80
%
80
%
80
%
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 June
30,
Six Months Ended June
30,
(In thousands)
2023
2022
2023
2022
Net loss
$
(30,973
)
$
(38,360
)
$
(50,246
)
$
(66,711
)
Provision (benefit) from income taxes
213
(176
)
243
(550
)
Depreciation and amortization
6,297
4,914
12,044
9,631
Interest expense, net
7,154
24,255
13,835
46,778
EBITDA
(17,309
)
(9,367
)
(24,124
)
(10,852
)
Deferred revenue adjustment (a)
-
737
-
1,730
Stock-based compensation
5,482
565
11,988
825
Change in fair value of financial
instruments (b)
2,987
2,048
(11,693
)
3,386
Other non-cash (gains) charges (c)
58
271
5,931
(8,338
)
Acquisition related costs (d)
157
500
1,379
572
Employee severance costs (e)
381
-
750
-
Non-capitalizable debt raising costs
110
-
316
403
Other infrequent costs (f)
-
-
-
20
Costs incurred related to the transaction
(g)
150
256
334
459
Loss contingency (h)
3,722
-
3,890
-
Adjusted EBITDA
$
(4,262
)
$
(4,990
)
$
(11,229
)
$
(11,795
)
Adjusted EBITDA Margin
(13.0
)%
(17.9
)%
(17.4
)%
(21.5
)%
(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 and $56 in the second quarter of 2023,
(iii) charge of $2 in the first quarter of 2023 and $2 in the
second 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) gain of $1,320 in the first
quarter of 2022 and a charge of $271 in the second quarter of 2022
from the change in fair value related to the contingent
consideration and contingent compensation related to the 2021
Acquisitions, (v) gain of $7,667 related to the partial forgiveness
of our PPP Loan during the first quarter of 2022, and (vi) $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 associated with 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 and $248
in the second quarter of 2023.
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.
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version on businesswire.com: https://www.businesswire.com/news/home/20230809082762/en/
Media Nicholas Graham FiscalNote press@fiscalnote.com
Investors Sara Buda FiscalNote IR@fiscalnote.com
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