FiscalNote Holdings, Inc.

Good evening, my name is Pam and I will be your conference operator today. At this time, I would like to welcome everyone to the Fiscal Note Holdings Incorporated first quarter 2025 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. With that, I would now like to turn it over to the company to begin the conference.

Good evening. My name is Bob Burrows, Investor Relations for Fiscal Note, and we are pleased you all could join us. The purpose of today's call is to discuss Fiscal Note's first quarter 2025 financial results and guidance for both the full year and second quarter of 2025. Joining me with prepared comments are Josh Resnick, CEO and President, and John Slavaugh, CFO and Chief Investment Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow these prepared comments. Please note, today's press release and related current report on Form 8K are available on the company website. In terms of important housekeeping, please take note of the following. During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For discussion of the material risks and important factors that could affect our actual results, as well as the risks and other important factors discussed in today's earnings release, Please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release or the updated version of the corporate overview presentation, both of which are available on the investor relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. Finally, We use key performance indicators, or KPIs, in evaluating the performance of our business. These include annual recurring revenue, or ARR, and net revenue retention, or NRR. Once again, I refer you to the earnings release or the updated corporate deck for definitions of these important metrics. And with that, I'd like to turn the call over to Fiscal Notes CEO and President, Josh Resnick. Josh?

Thank you, Bob, for that introduction. And thank you to everyone joining us this evening. I'm pleased to be here to provide key updates on fiscal note, including our first quarter 2025 financial results and insights on what lies ahead. We're maintaining the disciplined approach we established last quarter, staying focused on managing the business with clarity and rigor. As the business evolves, our core pillars remain unchanged. even as we shift emphasis between them to best support our growth and overall performance. As a reminder, we are guided by three key objectives. One, consistent and rapid expansion of adjusted EBITDA margins. Two, prudent management of debt and a sustained acceleration towards positive free cash flow. And three, building a resilient foundation for profitable, durable growth. Let me walk you through where we stand on each. First, regarding adjusted EBITDA, we are pleased to report adjusted EBITDA of $2.8 million in the first quarter of this year, exceeding expectations. Our continued focus on streamlining the business, prioritizing initiatives that are primed for sustainable growth, and driving efficiency across the organization is improving operating leverage and driving expanded adjusted EBITDA margins and adjusted EBITDA. Notably, our adjusted EBITDA margin in Q1 was 10%, as compared with 4% for the same period one year earlier. These consistent gains reflect our disciplined, steadfast approach, and we expect to consistently grow adjusted EBITDA over time. Second, on managing our debt and accelerating the path to positive free cash flow. Achieving sustainable free cash flow is a top priority, and we are fully committed to reaching that goal consistently and reliably, just as we've done with adjusted EBITDA. In addition to our operational improvements, we've made deleveraging a central focus, reducing our senior term loans by $96 million since December 31st, 2023. As a result, our cash interest expense has declined from $5 million per quarter to $2 million. The combined impact of greater efficiency and significant debt reduction is propelling us rapidly towards positive free cash flow. For the 12 months ending March 31st, 2025, as compared with the same period two years earlier, we have improved trailing 12-month free cash flow by more than $70 million. This has been a steady improvement regardless of circumstance, and as a result, positive free cash flow is within reach. The third pillar, growth, is where we're in the midst of a meaningful transition. I'll briefly recap where we've been, explain where we are now, and highlight what that means for where we're going. And as I did last quarter, I'll also provide more context and metrics to show what's driving our outlook and why we remain confident in future growth despite recent challenges. Q1 results tell two stories. We beat revenue expectations for the quarter. with $27.5 million. However, as anticipated, we have not yet resumed ARR growth. I want to be clear, we are reaffirming our full year revenue guidance. As we've said before, the first half of 2025 was expected to be a period of transition. Two months ago, on our 2024 year end call, I explained that our guidance for full year 2025 reflected a slow start to the year partly due to execution shortfalls at the end of 2024. So it's no surprise to see this reflected in our Q1 ARR. On that same call, I also shared that we had taken swift action and implemented key management changes. Since then, hands-on leadership has driven real progress, particularly in better pipeline development and operational focus. Pipeline grew notably in Q1 following these changes, and that momentum has accelerated significantly over the past 10 weeks. I'll point to a couple of interesting highlights within that. First, as I noted in March, inbound demand has been strong. In Q1, total inbound pipeline rose 20% compared to the same period last year, driven by intensifying regulatory complexity and strong interest in policy notes. We're seeing strong traction in Europe, where targeted investments and management changes helped us double pipeline creation in Q1 compared to the same period in 2024. Of course, that pipeline needs to move through the funnel and convert, and that takes time. But these are clear, encouraging signs for the trajectory of the business. Moreover, the work we're doing to accelerate product innovation will support conversion and retention over time. To that point, we remain extremely confident in the strength of the new PolicyNote platform and in how our commitment to product-led growth is shaping how we operate. We publicly announced PolicyNote in January. With PolicyNote, we're not simply iterating. We'll be fundamentally transforming the user experience by consolidating our global to local data, proprietary insights, and AI into one powerful platform. The response so far has been exciting, and we're already seeing a clear positive impact on the user experience. As an example, for an initial cohort of highly at risk customers that we migrated from our legacy platforms, engagement levels have increased significantly. 75% of those accounts are now healthy in light of significantly higher levels of activity, and more than a third are what we consider power users. Beyond that cohort, I also want to offer a deeper look at how we evaluate usage across all accounts. For instance, we track how frequently customers are using the platform to get the core information they need. One key metric here is search frequency, how often users are actively searching for information. And we're seeing results that not only surpass our legacy platforms, but also exceed or meet relevant industry benchmarks. We also look at how effectively the platform moves beyond information and into insights. This includes tracking how customers engage with our AI tools to derive deeper insights. And again, we're seeing strong adoption and very high levels of activity. We closely monitor these and many other metrics in great depth. While there's a limit to the level of detail I can offer in the context of today's call, I wanted to highlight how we think about engagement and the type of results that we're seeing. because these are very promising signals and these behaviors are critical drivers of long-term retention and renewals. As encouraging as our usage data is, the product-led transformation at FiscalNote extends well beyond the engagement metrics. We've meaningfully accelerated our pace of innovation, consistently rolling out new features and enhancements that improve the user experience and expand the value of the platform. Since launching PolicyNote, we've rolled out numerous additional enhancements and 15 major new features, including an executive orders widget with automated AI-powered insights, intelligent alert management, a bill similarity algorithm, and more. This is integral to how our product and engineering teams are now operating under new leadership, increasing productivity, re-architecting sprint structures and implementing and tracking key velocity metrics. This piece of innovation is critical. It demonstrates to customers and prospects that PolicyNote is not only powerful, but it's evolving quickly to meet their needs in the midst of a rapidly changing environment. Here's a clear example. On April 2nd, President Trump announced sweeping tariffs with significant implications for global trade. Organizations of all types and sizes needed a way to assess the ramifications and respond. Just two weeks later, on April 16th, we launched a new tariff tracker in PolicyNote, enabling customers to identify, understand, and manage the business impact. That's an exceptionally fast turnaround for a feature of this complexity and importance. Equally important, this level of execution extends beyond product and engineering. It reflects tighter, more aligned execution across the business. Our go-to-market teams were fully in sync with product, and on the very day we launched the tariff tracker, they set nearly 200 meetings and generated close to a million dollars in new pipeline, which already is turning into new wins. This is how we will drive growth. Consistent, high-velocity product innovation paired with disciplined, high-impact, go-to-market execution. We're encouraged by the engagement we're seeing with PolicyNote and more broadly by the tangible impact of our accelerated pace of innovation. A strong indicator of customer confidence is the growing volume of multi-year deals. Clients won't commit to multi-year contracts unless they have conviction in the quality of the insights, the strength of the platform, and the credibility of the product roadmap. In Q1, Even in the midst of a volatile economic environment, new corporate customers committed to multi-year agreements for our policy insights at more than double the rate of a year ago as measured by ARR. Mathematically, this will have a direct impact on gross retention and revenue in 2026. Beyond that, it's a clear signal of trust, not just in what we've built today, but in our ability to keep delivering meaningful innovation in the long run. In summary, we continue to excel at the operational discipline that has driven consistent growth in adjusted EBITDA, accelerated our path to positive free cash flow, and laid the groundwork for sustained growth in the future. Where stronger execution has been needed, we've acted decisively and the improvements are already taking hold. We're thrilled with the progress with PolicyNote, the rapid acceleration of product innovation, and our success in translating that into real commercial momentum. These are the building blocks of long-term success. We are reaffirming our full-year guidance, even notwithstanding our latest asset sale, because we see clear progress and have strong conviction in our execution. Looking beyond this year, I remain deeply confident in the future we're building at fiscal note. With that, I'll turn the call over to John to take us through our Q1 2025 financial results. John?