Q3 2022 FiscalNote Holdings Inc Earnings Call
Q2 earnings conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd 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 again press the star one.
Thank you Sara Buda, Vice President of Investor Relations you May begin your conference.
Thank you operator and welcome everyone. 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 a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filings available on the SEC Edgar system, and our website as well as the risks and other important factors discussed in today's earnings press release.
Additionally, non-GAAP financial measures and other Kpis will be discussed on this conference call. Please refer to the tables in our earnings release for a reconciliation of non-GAAP measures to their most directly comparable GAAP financial measure with that I'd like to turn the call over to fiscal notes Chairman CEO and cofounder Kim Hong.
Thank you Sarah and I speak here today on our Q3 2022 earnings call, which marks our second earnings call as a public company.
Today I'm going to provide some insight on our mission as a company and the unparalleled value, we deliver to our commercial and public sector customers everyday cover.
Cover a brief summary of our quarterly results.
The foundation, we have in place today, and our strategy to leverage our unparalleled market leadership deliver consistent ongoing profitable compounded growth in the long term.
Then I'll turn it over to John Slaybaugh, Our Chief Financial Officer to discuss the details of our results and our outlook for year end.
Because many of you are new to the physical story, let me start with a brief reminder of who we are and the long term vision of the company.
At fiscal note, we're on a mission to help our customers make sense of the complicated political and regulatory royalty with it by building a SaaS technology products that help aggregated organized government formation.
Sandy impacted public policies on the organization.
Changes in laws regulations impact the decision making of almost every organization around the world from changes in a complicated tax code to operational changes companies and organizations must make on an ongoing basis.
<unk> products helped to make sense of the changing regulatory and legal obligations aggregating vast amounts of information and serving it to them on a regular basis, along with proprietary analysis using cutting edge machine learning and AI capabilities.
As such we're building an enduring and durable company for the world's most important decision makers ranging from hungry for government agencies from the White house to the CDC half of Fortune 100. These.
These organizations rely on <unk> every single day to help interpret the impact of policy laws and regulations to their institutions. We power decision makers in areas of international diplomacy foreign direct investment trade policy political strategy and everything in between.
Since we founded company 10 years ago, we have been building, a disruptive category creator, which constantly innovate to turn insights into action and convert challenges into opportunities.
In a sense, we have become an increasingly mission critical and ubiquitous Bloomberg terminal of political legal legislative and regulatory information at the local state federal and global levels.
This is a tremendously important time for our customers because the insights and answers we bring have a direct positive impact on the operations risk management and business strategy.
Geopolitical conflicts of the country, where they source supplies, the changing labor policies and wage regulations in states with employee talent.
Local sustainability regulations and municipalities they operate in.
The regulatory and policy environment changes constantly at all levels of government.
Traditionally, making sensible information, that's been Emmanuel and opaque process, but remains a massive underserved opportunity.
Only physical has the breadth of data and information and the depth of proprietary AI cloud based workflow software and analysis to make sense of this exploding volume of dynamic unstructured data and information.
As a result more than 5000 global customers in the commercial and public sectors depend on fiscal <unk> SaaS platforms and analysis to discover process and navigate the impact of government policy, making on the organization and more importantly to take actions, which achieve their business objectives.
First of all it's steady and long term compound the growth arises from a consistent need by organizations to respond to trigger events ranging from a new change and congressional leadership as part of an election rule changes on a regulatory agency for New Court case that may change the requirements of organizations around the country.
Given the myriad of political challenges exist, we believe physical is well positioned to be primary beneficiary of this policy complexity.
Okay.
Scott's approach to building a long term growth compound or we believe that there are two key components required to drive our strategy number one continuing our strategy for growth and customer acquisition and product development to increase our customer base and deepen our relationship with our customers and number two driving efficiency in our operations and drive sustainable profitable growth in the future.
Okay.
First on growth you saw from today's press release, we recently secured new commercial logos and extended key counts, including many fortune 100 enterprise customers across a wide range of industries and geographies.
A few weeks ago, we also announced several new contract wins expansions and renewals from our public sector clients across executive legislative and judicial branches of the United States government.
Together these surface great proof points about the value, we bring and the enduring and expanding nature of our relationships.
Additionally, we previously announced major enhancements to our European product lines and key integrations with companies like a sada for our ESG product line that provide new avenues for growth in both geographic and subject matter areas for fiscal note.
As part of our continued geographic expansion, we announced the acquisition of <unk> Global that gave us an expanding a great breadth of information and content in eastern Europe , and the middle East, particularly at the attention of the world turns in that direction.
Every day, we provide the world's most important decision makers with information SaaS workflow tools and expertise they need to navigate an increasingly complex volatile and unpredictable geopolitical environment.
I'm immensely proud of our teams and the critical work we do.
Second in our drive to deliver sustainable profitable growth into the future for the past several quarters fiscal has continued to make investments in areas of artificial intelligence automation and technology to drive a more sustainable rate of growth.
We've also reduced our cost to serve by expanding our scalable service model consolidating frontline management standardizing operations refining Kpis for effected performance management and shifting select customer support staff to lower cost geographies.
But that gives you a sense of what we do and the importance of our solutions for our customers.
I'd also like to talk to you about who we are as a company and how we are building, an enduring and resilient market leader of the future.
We're doing that by providing a SaaS based information platform, which helps solve critical information challenges specific to legal policy and economic data.
Building, a broad and diverse base of recurring revenue with global customers across public and private sectors.
And deploying a capital allocation strategy and operation model, which can drive long term sustainable growth.
We are undeniably a company focused on being a long term growth compounded our growth strategy is simple renew our base of customers every year cross sell and up sell new solutions and build on this platform to adjust truly transform the categories in the future.
Our listing this year it was an important milestone for fiscal <unk>.
And now we turn our attention to sustainable growth through smart capital allocation.
As leaders, we along with Josh <unk>, our President and Chief operating Officer, and John <unk>, Our Chief Financial Officer spent an extraordinary amount of time focused on capital management strategies, which support our foundational growth to be an enduring profitable leader in our sector.
As such as a team we will never choose a growth at any cost strategy. We are building this business for the long term.
And the decisions, we make will always be driven by our unrelenting focus on fundamental sustainable profitability cash flow the long term.
With that in mind as a reminder, <unk> has always been differentiated given not only its recurring revenue base, but also has high gross margins.
These gross margins results of our business model and software and data products provides the basis of strong cash flow in the future.
As we evaluate capital allocation strategies with analytical minimizing dilution for existing shareholders, while optimizing return and our internal investments across proppant sales as well as a future acquisition.
The combination of our recurring revenue business model a high gross margin that provides the foundation for increasing profitability in our management team focused on driving the highest return on capital both organically and Inorganically means we are laser focused on delivering long term shareholder value through our decision maker.
With this backdrop, let me give you a brief summary of our third quarter financials.
As you saw in the press release, we delivered GAAP revenue of $29 million for the quarter marketing growth of 34% year over year.
Our Q3, adjusted EBITDA that negative $7 4 million on track with internal plan.
We're reiterating our adjusted EBITDA guidance for 2022, and our goal of adjusted EBITDA profitability in Q4 of 2023.
Finally, our capital structure positions us well to drive organic and inorganic growth and support our path to profitability.
In addition to the standard metrics, which we share in our earnings release, we provide additional information to help you understand our business and our priorities as a management team. Our three core kpis are as follows.
Run rate revenue.
This is a key management metrics and is defined as <unk> plus non subscription revenue earned during the last 12 months run.
Run rate revenue was $121 million as of September 30th this much growth of 14% year on year, including 21 and 'twenty two acquisition.
Annual recurring revenue.
Annual current revenue was at $108 million at September 30 growth of 14% year over year net.
Net revenue retention net.
Net retention continues to be strong at 99% in Q3 consistent with the prior quarter.
Our growth in <unk> and our business continues to excel.
And this brings me to our guidance.
First we reiterated our adjusted EBITDA expectations for fiscal year 2022, we are clearly on path with our near term profitability goals, you've outlined despite macro market headwinds.
Our management team's primary goals adjusted EBITDA profitability and that is exactly what we are on track to deliver.
This is a continued focus and drive for the business that remains unwavering and unchanged. We have taken a number of initiatives, both structurally and culturally to drive sustainable profitable growth into the future.
Particularly given the environment, we all find ourselves we're prioritizing our commitment to profitability in order to be prudent capital Allocators and drive strong returns for our shareholders.
Second given our durable net revenue retention rates and the underlying recurring revenue fundamentals of the business. We added GAAP revenue as one of the metrics will guide us moving forward.
Third we updated our organic run rate revenue expectation, we expect organic run rate revenue to be in the range of $122 million to $126 million as of December 31 as defined in the release.
On that let me provide some perspective.
As of the end of Q2, we have not seen an adverse impact from changing macroeconomic conditions and our sales efforts and tracked throughout Q3 was secured a number of new high profile customers that you saw from today's press release.
Late in Q3, however in September we began to see some new prospects pause purchase decisions that the long getting sales cycles as a result of their own internal budget mandates brought on by the uncertainty about the macroeconomic forecast.
To be clear new business was still strong in the quarter just didn't come in at the levels. We initially forecasted due to the change in the macro environment.
That said our year over year <unk> growth remained strong and our in quarter net revenue retention rate is 99%.
This demonstrates our customers' line fiscal must have solutions to address essentially shoes now more than ever.
We feel confident that we will continue to secure new business and grow our relationships with our existing customers given the importance of our products as we have done for almost 10 years.
By way of example, currently customers are signing on or growing with us so that they can leverage our platform to manage their existential issues, they face and political economic and security risks.
As an example is the supply chain is impacted by turmoil in eastern Europe .
Finding incremental revenue opportunities by identifying and assessing new businesses, such as finding state and local government contracts up for bid.
And generate operational ROI by handling global compliance needs more effectively scaling the tracking and analysis on our platforms rather than through manual efforts our internal resources.
In sum, we believe we are more recession resistant than many enterprise SaaS companies due to the stability of our government customer base and the mission critical solutions, we provide to our government and enterprise customers.
But no company is completely immune to a more cautious enterprise decision, making cycle that occurs starting macroeconomic uncertainty.
Moving forward, we do have a number of indicators that indicate continued growth.
First given the critical nature of our solutions for both private sector and public sector organizations. The overall demand remains strong.
The business continues to have sound fundamentals delivering strong net revenue retention it organic RBR growth third in Q4, while still early days, we're starting to see an uptick in business activity as prospects gain clarity in their budget at many of them did not see before.
That said the time to close new business clearly elongated in this environment and we're being prudent in our forecast.
While we are not giving 'twenty three guidance today based on current activity, we expect to see fundamentals holdup as we drive sustainable mid teens organic growth year over year.
In short our compounding growth remains strong our GAAP revenue year over year growth of 34%. This quarter demonstrates continued growth with underlying <unk> and a rich pipeline of new business, we are well positioned to drive ongoing organic growth.
In addition to organic growth as a company we continue to actively pursue accretive value add acquisition, which provide cross sell and up sell opportunities, which in turn from incremental growth opportunities in new customer segments and geography, we.
We have a strong and proven track record of accretive acquisitions to support our organic growth.
As of today, our acquisition pipeline remains active.
However, being thoughtful as we pursue accretive acquisitions with valuation is aligned with the fundamentals of the business and the macro environment, we're operating in today.
As I said, we are prudent capital allocators, and we will always be judicious to prioritize investments that drive the highest return for our shareholders.
Spirit before I turn it over to John Let me summarize a few key points about fiscal <unk> and our strategy.
A long term growth compounded with a diverse and broad recurring revenue base of customers, which you renew and expand each year, which creates the foundation of enduring and durable business in the long term.
But proven operational delivery model and a competitive mode based on the breadth of data analytics and insights we built over the past 10 years and the depth of our proprietary AI and fast workflows.
We believe physical is well positioned to be a primary beneficiary of global policy complexity, given the myriad of political challenges that exist.
We are led by a disciplined experienced an exceptionally talented team with a relentless focus on sustainable profitable growth and smart capital allocation to build an enduring company for the future move.
Moving forward, we see several catalysts will enable us to outperform over the long term.
We will drive incremental growth and new value for our customers with additional datasets insights and solutions and workflows, giving us an expanding tam and runway for growth in the mid to long term.
We'll add new investments in software it was particularly in solutions that allow us to enter new transformative regulated sectors in the future.
We will continue to make growth investments in Europe , and APAC, we are tremendously early in our growth maturity.
And we will meet our near term and long term profitably target in doing so we ultimately lower our cost of capital, which allow us to continue to build an enduring growth company and accelerate our market leadership position.
You for your time and with that I'll hand, it over to John Slaybaugh, Our Chief Financial Officer, and Chief Investment Officer.
Thank you, Tim and good morning, everyone I'd like to start off by providing more detail around the substantial progress. We've made this quarter as we deliver on our profitability goals and further our strategy for becoming a long term compounding growth company.
Start off with revenue.
Third quarter GAAP revenue was $29 1 million.
Up 34% year over year.
Year to date revenue through September 30 was $82 3 billion.
Over 40% growth from the same period last year.
On an organic basis, our GAAP revenue growth rate was 13% year over year for Q3, and 14% year to date.
So at this stage is very clear our underlying growth remains strong as our M&A strategy has played out largely as we expected, adding scale and giving us cross sell upsell opportunities the build of our compounded growth model.
Subscription revenue, which makes up approximately 90% of our total revenue was $26 1 million, an increase of $5 9 million or 30% from a year ago.
Our advisory advertising and other revenue was $3 million in the quarter, an increase of $1 $4 million from a year ago.
As Tim mentioned run rate revenue is a key management metric defined as <unk> plus <unk>.
Scripture revenue earned during the last 12 months.
Physical notes run rate revenue exiting September was $121 million.
Increase of $15 million or 14% versus last year on a pro forma basis.
On an organic basis run rate revenue was $140 million timber 32022, including the <unk> acquisition, but excluding other businesses acquired in 2022.
Also reflecting a 14% year on year growth rate.
Our total annual recurring revenue or <unk> rose to $108 million at September 30, an increase of about $13 million or 14% compared to the same period in 2021 on a pro forma basis.
Organic <unk> also grew 14% year on year on a pro forma basis.
Net revenue retention.
Our measures fiscal note success in retaining and growing our <unk>.
Our existing customers.
<unk> was 99% for the quarter ending September 'twenty, two which is largely consistent with the same period in 2021.
Our net revenue retention rate does fluctuate depending on the quarter.
And the sales mix between workflow and information services.
Now, let's review some key profitability metrics.
Gross profit was $24 million in Q3, representing a 70% gross margin.
Adjusted gross profit was $23 $3 million in Q3, representing 80% gross margin to be clear on the difference adjusted gross profit adjusted for deferred revenue and amortization of intangible assets.
Gross profit dollars in Q3 increased 25% versus a year ago growth.
Gross margin percentages were down year over year, largely due to certain expense allocations from acquisitions moving forward, we expect non-GAAP gross profit margins to be relatively steady and the 75% to 80% range barring any unusual items or variances of future acquisitions.
Marketing costs were $11 8 million.
Great.
Notable increase from $7 $5 million a year ago, as we continue to invest in sales and marketing and accounting for incremental sales expenses related to acquisitions.
R&D expenses were $5 $6 million in Q3.
$6 $4 million a year ago.
Part due to increased software Capex editorial cost in Q3 were $4 2 million compared to $348 million in 2021.
G&A expenses were.
Unusual in this period and were significantly impacted by some nonrecurring items, including $28 9 million relating to the accounting treatment of noncash stock based compensation expense. There was triggered as a result of our destock transaction.
So total G&A for Q3 inclusive of these charges was $38 9 million.
Excluding these noncash charges G&A was $10 3 million, an increase of only about $1 million versus a year ago.
The operating loss for Q3, 2022 was $44 $1 billion in total excluding the noncash items I just mentioned the operating loss was $15 $5 million for the quarter.
Interest expense was also impacted by nonrecurring expenses associated with our public listing in August total interest expense was $42 $9 million. In Q3. This includes a nonrecurring noncash charge of $32 1 million recognized as interest expense related to the de recognition of beneficial convert.
<unk> features that were embedded within certain convertible notes.
Based on the Fed's most recent interest rate increase we expect annual cash interest expense to be approximately $18 million.
Offsetting some of this was a noncash gain of approximately $21 $6 million related to the mark to market of the public and private warrant liabilities of the company is required to fair value at each reporting date.
Excluding these noncash nonrecurring items the net loss for Q3 was $109 million on a GAAP basis.
Our adjusted EBITDA for Q3 was a loss of $7 4 million, which excludes these and other noncash items as detailed in the reconciliation we provided.
Our balance sheet remains in great shape with $78 million of cash and cash equivalents as of September 30.
We believe we have sufficient capital to support our growth initiatives and support our path to positive adjusted EBITDA is expected. This brings me to our guidance for 2022, we are reiterating our expectations for an adjusted EBITDA loss of approximately $23 million, which is the midpoint of our range for the full year 2022.
We are also reiterating our plan to be profitable on an adjusted EBITDA basis in the fourth quarter of 2023.
Only 12 short months from now.
We're managing expenses and have strong recurring revenue base, which positions us well to achieve our profit goals amidst uncertain economic environments.
But the revenue side, given our underlying recurring nature of our revenue streams and the relatively strong visibility we have into organic growth. We are instituting annual GAAP revenue guidance.
GAAP revenue for 2022 is expected to be between 112 with $114 million, which would represent about 36% year on year growth at the midpoint. This growth demonstrates the compounding nature of physical nodes business model.
With regard to the run rate revenue guidance, we provided in August as Tim mentioned, we're updating our expectation for organic run rate revenue to be in the range of $122 million to $126 million for 2022.
This is a deviation from our initial guidance due to economic headwinds and there is a corresponding elongated sales cycles, we began experiencing in September .
Particularly our larger new contracts the sales cycle for our government business remains relatively steady and unchanged.
Our M&A pipeline remains robust proprietary relationships and bilateral negotiations continue to be our most productive source of corporate development opportunities considering the current macroeconomic conditions physical node as being even more selective to ensure we find the right targets at the right valuations specifically we are focusing on.
Unity is a uniquely address our customers' most pressing needs it will drive predictable sustainable compounding growth. Our team has walked away from many opportunities this year, where we could not get comfortable with the targets value proposition or growth prospects.
We are also walked away from transactions, where valuation expert expectations, they're not fully adjusted to the current market or macroeconomic realities as Tim said, we're smart capital Allocators, and we will always prioritize the strategic acquisitions that drive the highest return for fiscal note shareholders, we have proven our ability to make.
Integrate and accelerate growth from acquisitions M&A is a building block of fiscal to its long term growth strategy. Our pipeline is robust and we will not push to make acquisitions simply to meet.
Target number fiscal note is currently progressing conversations with several attractive attractive acquisition targets that meet our disciplined criteria I look forward to providing an update on total run rate revenue inclusive of acquisitions in our year end results.
In the meantime, despite the macro environment, our IRR remind remained strong our net retention rates remained stable and we are driving strong sustainable GAAP revenue growth year over year.
This underscores the resilience of our business model and the critical nature of the services, we provide to our customers. Most importantly, we are on target to our primary goal to achieve adjusted EBITDA profitability in the near term.
In sum we are excited by the path in front of US today, we remain confident in our overall compounding growth trajectory.
We are executing on our strategy to build a sustainable profitable growth business that provides mission critical solutions for the world's most important decision makers.
Moving forward, we will continue to capitalize on our strong position to drive comp there on the profitable growth and we will.
Look forward to working with you our shareholders as we build an enduring market leader of the future with that we'll now open the call up to questions operator.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
And your first question comes from the line of Matt Van Vliet from <unk>. Your line is open.
Hey, good morning, Thanks for taking the question.
I guess first would love to maybe dig in a little deeper on what Youre seeing from some of the macro issues out there I think you mentioned enterprise is maybe a little more impacted.
But maybe just dive in.
Any particular regions or size of companies.
Industry verticals that Youre seeing continued strengthening and Conversely.
You might call out.
Might be might be a little weaker through the end of the year that you are starting to work more aggressively on.
Yeah. Thanks for the question.
So as I mentioned before the best way to think about our customer base is this portfolio of customers between private sector and public sector customers. So one of the things that we're looking at right now is.
On the public sector side, if there's any potential changes and whatnot that particular customer segment and as we mentioned before we have not seen any particular changes there and thats largely due to the fact that on the public sector side, you see a number of customers that are just really in line with congressional appropriation cycles or public sectors of RFP processes and the like.
That segment of our business continues to chug, along as you've seen in the past.
On the enterprise side that is really where we see some of the potential macroeconomic impacts and it's really not a particular sector or a particular industry in particular geography, it's fairly broad based and I think a lot of that just has to do with the fact that particularly as I mentioned before in September of this year.
There's just a lot of noise that people were kind of seeing in the market, whether it was around inflation or labor changes or kind of changes around the interest rate environment and whatnot. So.
My our supposition was effectively that.
Many of these companies were sitting there trying to make assessments around their P&L through the end of the year and that effectively elongated sales cycles that being said I mean, we did of course book a number of new customers.
One of the biggest indicators of course is whether or not.
<unk> continued to come in month over month quarter over quarter and that has continued to stay fairly stable and that obviously kind of gives us a lot of confidence in terms of our business strategy moving forward.
And then on that front from a sales capacity side of things.
I guess, where do you feel like if things are slowing even due to a small extent.
Seeing your targets for the end of the year, where do you where do you feel like you're at from a sales capacity side and overall execution side both into the end of the year and maybe an early 'twenty three plans.
Sort of hiring that still needs to be done or as a matter of kind of getting the deals that are in the pipeline booked with the team you have in place. Thanks.
Yes.
Sure Hi, Josh Resnick, President COO I can address that we actually feel pretty comfortable from a sales capacity standpoint.
We've invested in building out our sales teams over the course of the year and feel that we're well positioned.
To capture.
Business from from a new logo perspective from a renewal perspective, as we head into new year.
Yeah.
Alright, great. Thank you.
Your next question comes from the line of Mike Latimore from Northland Capital markets. Your line is open.
Alright, Thanks again, great to see the EBIT reiteration here.
I guess as I look to the fourth quarter I think your EBITDA guidance implies a fourth quarter EBITDA improvement by a few million dollars can you just talk a little bit about the levers there to get to that goal.
Yeah.
Okay.
Sure Mike Thanks for the question John .
In terms of the leverage first of all we have great visibility into the GAAP revenue recognized so we know our pacing to the end of the year and we've taken all the measures necessary from an operating standpoint too.
Look at the expenses.
We're in control of and make sure. They are in line with that level of revenue. So it's.
No we haven't.
Visibility into feel confident in reiterating that number.
Okay.
And then in terms of.
I'm sorry go ahead.
Yes, so basically just trying to block fantastic tackling on the Opex side of things.
That's right.
Okay and then.
In terms of the acquisition targets.
Can you talk a little bit about their valuation expectations, what you've been seeing.
Do things loosen up next year do you think.
Okay.
So I can get started and I'll pass over to John here. So one of the things that we've been seeing obviously from an M&A perspective is that many many companies have become more actionable in the past couple of months.
Due to a number of different factors. The first is primarily because many portions of the capital markets capital is effectively frozen up and so there is obviously a limited number of options for a number of companies that they kind of.
Reviews different strategic options like.
On top of that of course, you've seen changes in valuation expectations and so we think previously is that maybe in the height of 'twenty one there in our opinion unrealistic expectations with respect to valuation and so those valuations of all comes out, particularly amount of private and public capital markets.
Of course in the Grand scheme of things are really trying to pick through all these different companies that are in the market right now and trying to figure out which ones are aligned with our operating strategy, which ones. We can effectively kind of combined with our cross sell up sell strategy, and which ones will kind of accretively add towards our P&L. So that is something that we continue to do every single day we are.
In market right now with.
Several companies that we are pursuing on a pretty aggressive basis, and hopefully we will be able to kind of provide some incremental news for everybody in that short term here.
Okay, Great and then I guess, just lastly, any.
Use cases that you see.
Our demands intensifying or slowing early.
Hey, this is Josh I can address that.
Generally speaking as Tim touched upon in his remarks.
We're actually seeing a significant need.
Around.
Companies, who need to track regulation globally.
So as they face.
Issues that are essential for their business.
And then beyond that.
A lot around.
Identifying and assessing.
Needs related to changes in their business, whether it's seeking out incremental revenue opportunities that might be associated with government contracting opportunities as theyre looking for every new opportunity in this environment or even as they're looking to.
Dial back operations in certain areas and wanting to understand the potential regulatory risks that they might have associated with that or even understanding some of the economic forecasting associated with that.
So the use cases the privates.
Sorry.
Use cases in the private sector tend to be pretty broad and then as Tim touched upon earlier on the public sector side it tends to be.
Fairly steady around needs that are kind of generally consistent.
Across the board in governments.
So one of the things I mentioned in my remarks of course is that we effectively are thinking a lot about these quote unquote trigger events. These trigger events are effectively areas, where theres. Some political action that happens and then there is an onslaught of.
Demand or or requirements by customers and so you can probably imagine a number of these trigger events being things like new proposed legislation in Congress or a monumental Supreme Court.
Opinion that changes regulatory environments new trade.
Yes.
Agreements or whatever the case may be and films.
These trigger events are something that we watch out for quite aggressively and I think we've talked about this in Alaska.
Earnings call, but the.
The teams internally are very very attuned to try and identify what those trigger events might be an effectively going after them using marketing campaigns or sales collateral to try and really solve those problems for our customers on a day to day basis.
Great. Thank you.
Okay.
Your next question comes from the line of Rudy Kessinger from D. A Davidson your line is open.
Hey, guys. Thanks for taking my questions as I look at the revenue guidance I mean, I know you had previously given a GAAP revenue guide, but based on the non-GAAP revenue projection of $127 million and run rate of the deferred revenue adjustment.
Seems like the prior guide was probably sitting around $1 23, a 124, that's where the street was hitting so youre, taking it down by $11 million with just a quarter ago.
You guys reported pretty late on August 15th and so what what changed in the macro and how quickly did it change and in hindsight did you underestimate the macro impact at that point in time when you reported.
Q2, and gave the guide and secondly, just just with the magnitude of that take down the revenue guide just wherever your Q3 bookings relative to plan.
Okay.
Okay.
Well, so I think I mentioned that in <unk>.
Fortunately remarks here, but.
A lot of what we're looking at one in 2022.
Uncertainty that.
Really popped up in September of this year and the like and so as we're looking at.
Going into 2022, we were fairly confident that we are going to kind of hit the run rate revenue guidance.
Took that as an account we are providing with estimates.
It really really wasn't until September that we began to see the impacts from a new logo sales perspective.
I think I mentioned this before but the decision makers.
Secondly, we're starting to adjust their budgets on a pretty aggressive basis and these sales cycles, we saw more effectively along getting pretty dramatically and.
It was effectively something that we just had not anticipated.
Do you want to reiterate again, though that in many of our kind of segments, particularly in.
The ones, we just announced this morning, we do see continued <unk> growth.
We do continue to see our net retention continued stayed fairly steady and so it wasn't like there was any nature.
Change in the demand for our products when the needs for our products is just when youre looking at the new bookings of our customer base. Those sales cycles are effectively elongated so it.
It's hard to it's hard to predict in that type of environment, whether it's things like the sales cycle will be four months six months or nine months and Thats why were being a little bit more conservative when it comes to taking the December 31 point in time, and what we expect on a run rate revenue to be at that point.
And Rudy to the second part.
Regards to the big gap versus where we expected to be we are at the end of the third quarter between $78 million behind our original projections on run rate revenue.
We were also kind of seeing.
Taking adjustment against Q4, just to be conservative going forward, but we are seeing momentum now rebuilding the sales pipeline as well.
While we took the run rate revenue estimate down and as a result as you can imagine.
The flow through the GAAP revenue corresponds.
Yes, okay.
And again, there's several different ways you could look at it I guess one way.
Consensus and again kind of your prior projections, we're looking for GAAP revenue.
About $27 million in Q2 to $38 million in Q4, so about $11 million growth and now youre effectively targeting.
Just three five ish million dollars growth at the midpoint of the guide so again that substantial of it take down to the guide to what extent.
If you look at it between the macro and just sales execution irrespective of the macro to what extent that may be poor sales execution outside of the macro impact.
Results in the quarter and the updated guidance.
First of all just to clarify one thing. This is the first time you initiated through GAAP revenue guidance.
There is depth.
<unk> revenue was kind of built on consensus as a result is going to be looking at a run rate revenue.
I don't think there is a sales execution issue really speak to I think Josh you can weigh in but the.
New logo acquisition is really the source of the short shortfall.
You want to add there no that's right John I mean.
What we've seen has been exactly what we said where it's a macro issue.
Not specific to any particular individual.
We have.
Hi.
And as John was just saying a few minutes ago, we're actually seeing some of that fall in the pipeline now and so while we'll be conservative forecast we.
We do feel like we're seeing some promising trends.
And your next question comes from the line of Ben <unk> from <unk>. Your line is open.
Hey, guys I appreciate you taking the question.
On the.
The concept of sales cycles elongated a little bit any thoughts on using price.
As a tool to close is as you go into year end or.
Really kind of holding the line on pricing dynamics.
The product.
Sure I can address that I mean.
We're obviously.
Think about all the opportunities we have in front of us.
So that we can.
Promote our products as Tim said the way, we think about even events on the political landscape that might trigger buying opportunities for our clients. So we're really looking at all the opportunities we have in front of us to maximize revenue in the fourth quarter and beyond.
We actually think that.
Our products are of substantial value to our clients and we've actually.
Seen actually some.
Overall success in regards to our our contract value within our pricing and.
So we haven't felt the need to discount and don't want to of course discount the value with them as well, but we are thinking.
Expansively about what we need to do in order to drive revenue both in the near term and long term.
Also want to mention thank you our entire growth strategy.
Predicated on this ability fields that drives us cross sells and ourselves.
Fairly strong correlation between the.
The level of commitment that our customer is going to give to our products and.
And the ability for them to kind of continue to stay with us in the long term and so.
As we think about bolt on M&A strategies, new product innovations and new growth.
We have seen continued increases in our average contract length as Josh mentioned and Thats of course, a bundle with our increasing or stable net retention rates.
We just want to really drive the value of our products even in these macro environment. So.
It is a lever, but it's not one that we're using right now.
And there are no further questions at this time, Mr. Tim why now I will turn the call back over to you for some final closing comments alright, well I appreciate everybody jumping on the call here. As you mentioned, we are very committed to building a long term growth compounding business something that we're very excited about them. We'll continue to do in the future. So appreciate everybody jumping on the call. If you have any further questions.
Turning to for you to reach out to use their <unk> or John Slaybaugh on our team. Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect.