Q2 2025 FiscalNote Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen. And my name is Chris and I will be your conference operator. Today at this time, I would like to welcome everyone. To the fiscal note Holdings Incorporated.
Good evening. My name is Bob Burrows. Investor relations for fiscal notes and we are pleased. You all could join us.
The purpose of today's call is to discuss fiscal notes. Second quarter 2025 Financial results and guidance for both the full year and third quarter of 2025
Joining me with prepared, comments are Josh, Resnik CEO and president and John Slava, 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 related current report on formate K and updated version of the corporate overview. Presentation are all available on the investor relations portion of 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 action results could differ materially from expectations reflected in any forward-looking statements.
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 for 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.
With that. I'd like to turn the call over to fiscal notes CEO and president, Josh Resnik Josh,
Thank you Bob and thanks to everyone joining us today.
I'm pleased to be here to share fiscal month of second quarter, 2025 results and update. You on the progress we've made on our strategic priorities.
We remain committed to the disciplined approach that has served us, well managing the business with rigor and focus.
our 3 core objectives remain the same 1 consistent expansion of adjusted VBA margin
2 managing the company's balance sheet and achieving positive. Free cash flow.
3, building a durable foundation for profitable growth.
As I've said on the past calls, I'll walk you through where we stand on each touching, briefly on the first 2 and then focusing mainly on the company's growth.
First adjusted Ava.
We delivered adjusted Eva of 2.8 million in Q2 exceeding guidance.
This represents an adjusted ebit on margin of 12%. An increase compared to 4% on a ProForm of basis in the same period last year.
This Improvement reflects the ongoing benefits of our cost. Discipline sharper prioritization of core growth initiatives and improving operating Leverage
We expect to continue to expand margins over the long term as these improvements compound.
As adjusted. Eva margins further, expand or path, to positive, free cash, flow remains clear.
So with that, I'll turn to our second core objective management of the balance sheet and achieving positive free cash flow.
Managing the company's indebtedness as well as achieving and sustaining positive free cash flow remain among our highest priorities.
Yesterday we announced a substantial refinancing of our senior term loan provided exclusively through funds managed by mgg Investment Group.
importantly, mgg is providing a new facility which will not mature until 2029
MGT conducted thorough diligence before making its commitment, including a deeper view of fiscal notes, operational performance Market position and strategic plan, and I'm a specialist pleased to welcome mgg as our new long-term capital partner.
Achieving positive, free cash, flow continues to be a primary focus of ours and we are confident in our approach and our past.
As a reminder, we have made significant progress towards positive, free cash flow as we have right-sized the business.
Over the traveling 12 months. We have improved free cash flow by more than 68 million. Compared with the same period 2 years prior.
Our cash interest expense will increase slightly with this refinance by less than 2 million dollars annually.
Due to the higher balance on the new senior term loan.
But because we continue to streamline our operations. This incremental interest expense is more than offset.
And therefore, our accelerated path to positive free cash. Flows remains unchanged.
our third core objective relates to growth and Commercial momentum, an alternative that now
revenue for the quarter came in at 2, 3. 3, 2,
Our performance in Q2 reflects. Both the company's continued transition as well as encouraging signs of momentum.
As expected are our growth has not yet resumed.
This is consistent with what we've said to expect in the first half of 2025.
We've previously, discussed the unacceptable execution challenges that impacted the start of the year. And in a moment I'll discuss some of the improvements we're seeing in our Pipeline and sales metrics following the Swift operating changes. We made as a result.
As well as atypical instability in the US Federal sector have contributed to the organic ARR and revenue decline.
We expect better from the business in the future, and we continue to remain encouraged by the trajectory of our pipeline and the tangible progress in execution.
What are we seeing? That gives us that confidence.
We continue to see strong demand for our products, and that demand is now translating into improvements in new logo sales.
Our top of funnel metrics remains strong.
Inbound lead for our policy products are up more than 20% year-over-year and our corporate new logo pipeline was 45% higher at the end of Q2 than it was at the end of q1.
I spoke to some of these top of funnel trends at our last earnings call in May and I noted it would take time to see these improvements reflected in new logo sales.
Well, we're now seeing exactly that.
Quarter over quarter, we saw an improvement of 400 basis points in corporate. Win rates from q1 to Q2, as well as the significant increase in average contract value.
Especially with our largest corporate customers where we've seen high demand for our new global data packages.
And we are continuing to see customers vote with their wallets in the form of multi-year commitments.
As was the case in q1 in Q2, on a year-over-year basis, we more than doubled the rate at which our new private sector customers are signing on to multi-year commitments for our policy data.
This demonstrates, the confidence and conviction, our customers have and it should translate directly into gross retention improvements in 2026, cutting straight to the heart of our greatest growth challenge.
In addition to strong commercial demand and multi-year commitments, we're seeing clear evidence, that policy note is driving the levels of Engagement that we expect will fuel gross retention and net retention over time.
In June, we announced the policy now now has more daily active users than our Legacy fiscal note platform,
A major milestone in our transformation.
Core engagement metrics, such as search frequency and use of the AI assistant—both of which have been discussed before—remain strong.
And now the policy note has been in market for just over 6 months, we can also begin. Looking at how usage Trends develop over time.
The pattern is encouraging.
A few weeks into a new customer engagement usage begins to rise steadily with the average customer using the platform roughly 30%, more at the end of their first quarter. And at the midpoint,
this indicates that users are finding value in the platform.
And embedding policy note in their workflows and becoming habitual users.
This is the strong indicator of customer health and something that we expect will translate into improvements in Gross retention over time.
We're continuing to add new features and enhancements to policy note at a rapid pace.
In Q2 alone, we delivered more than 10 major updates, including AI powered capabilities for legislative Drafting and Bill outlooks.
Significant upgrades to our AI alerts and AI assistance and a new onboarding flow designed to drive engagement from the very beginning of the user experience.
These improvements are having tangible impacts. For example, new policy. No customers are Now setting alerts which we consider to be a high-value customer activity.
Far sooner after account activation than on our Legacy platform.
So we believe that, this consistent visible investment and policy note inspires customer confidence and deepens customer engagement, which we expect will be the Cornerstone for stronger, customer retention and greater expansion opportunities through cross-sell and upsell in the future.
What does all this mean for fiscal notes? Future growth
Top of funnel and new logo sales are trending. Well,
The challenge continues to be gross and net retention on our Legacy products suite for the reasons that I've discussed, a number of times.
But we believe we have the right solution policy notes and we expect that over time as we continue to add more data sets features and customers to policing us.
Our process, we've said, would take time.
We will see retention improve, and ARR and revenues return to growth.
Continues to go well and is ahead of schedule. And we expect a deprecated at least 1 large Legacy platform. This calendar year.
so, we're on the right track, we're moving expeditiously, and we continue to believe that with continued progress, we will see our growth resumed in the second half of this year, and then accelerate further in 2026 and Beyond
In summary in Q2 and recent days.
We've expanded adjusted Eva. Margins announced the refinancing of our senior term loan and continued building path to sustained, positive free cash flow and continue to strengthen policy notes and accelerate product Innovation, and we saw continued acceleration of key sales metrics.
While the first half of 2025 has been a period of transition, we are executing with focus and intensity.
Our product LED strategy is working our operational. Discipline is holding and the building blocks for long-term profitable growth are firmly in place.
We remain confident in our ability to deliver on our full year, guidance and create meaningful shareholder value in the years ahead.
With that, I'll turn it over to John to walk through the financials in more detail, John.
Thank you, Josh, good evening, and thank you for joining fiscal notes, second quarter 2025 conference call. We are pleased to announce that we came in above the midpoint of our guidance range on revenue and exceeded guidance, on adjusted evaa for the quarter.
We are also reaffirming our full year forecast evidence that our product LED growth strategy. And disciplined. Operating approach is on track and gaining momentum. On top of that, our recent refinancing significantly expanded our Runway and operational flexibility. In that regard yesterday, we announced that fiscal note entered into definitive agreements to refinance. Our senior debt and restructured substantially all of our subordinated debt. This series of transactions will provide fiscal note with a clear long-term, Runway and operating flexibility to execute on driving efficient product LED growth. These transactions are scheduled to close in mid, August subject to customary closing conditions upon closing, we will replace our current senior credit facility with a new 75 million, senior secured Term Loan with the maturity extended. To 2029, this new loan is supported exclusively by funds managed by mgg Investment Group.
Group excess proceeds from the new facility together with new subordinated. Convertible debt will be used to pay off or refinance certain existing subordinated debt including an amendment to our largest long-term subordinated. Creditor to extend the maturity of its remaining balance to 2029
In aggregate. This transaction serves as an important step for fiscal note, and for our ongoing efforts to stabilize and strengthen our capital structure while we accelerate execution of the product leg growth strategy,
The transactions provide additional time, to realize the full potential of the policy. No platform and manage our capital structure supporting Management's commitment to generating sustainable levels of growth profitability and positive free cash flow.
In light of the timing of these transactions. There are a few customary additional disclosures required in our 10q filing.
We plan to file a form. 12b 25 to extend the filing deadline for the second quarter of 2025 form 10q. This will give us time to finalize the additional disclosures we plan to file our 10q by August 18th.
Absent this transaction we otherwise would have filed on time. Recall that we took a similar step earlier this year upon the closing of the deveste of Oxford analytica in dragonfly, and we successfully filed our form 10K under similar circumstances with that as a backdrop, let me dive into some of the key drivers behind our second quarter Financial results.
Total revenue for Q2 2025 was 23.3 Million above the midpoint of our forecasts of 21 to 23 million, when compared to the prior year, Revenue was 6 million dollars lower due primarily to the deveste of Asel in October of 2024 and Oxford analytica and dragonfly at the end of q1 2025.
Subscription Revenue, which Remains the Cornerstone of our business with 21.4 million for the quarter.
Sent with our historical trend.
On a pro forma basis. After adjusting for the impact of the asil, Oxford analytica, and dragonfly devices. Q2 2025 subscription, revenue is 1.8 million lower than the prior year indicating that we are still working through our transition to policy note from the Legacy fiscal note platform,
As we roll out, the new policy, new note platform. We expect to return to stable consistent Topline growth. Something we anticipate starting over the next 2 quarters.
Turning to our key performance metrics, as of Q2, 2025 annual recurring, Revenue was 85.9 Million versus 93.6 million in 2024 on a pro forma basis, a decline of 7.7 million as you've heard from Josh earlier, this was expected and is unacceptable performance for the business.
It reflects the combination of the underperformance of new logo and sales funnel execution in Q1, ongoing legacy platform retention issues, and recent reported instability in the public sector. We are focused on improvement and remain very encouraged by the trajectory of our top line and the tangible progress of execution we are seeing looking ahead. As you also heard from Josh, we anticipate ARR growth beginning in the second half of 2025.
The second quarter, 2025 net revenue retention was 96% versus 98% in the prior year, reflecting the underperformance of the end of 2024 that we have previously, discussed and believe we have addressed going forward.
For both ARR and nrr. We expect most metrics to improve by year. End 2025 driven by policy, note, and other clear signs of a cut in customer engagement that we are seeing
principal operating expenses in Q2 2025 continued, the trend of year-over-year decreases reflecting the impact of ongoing efficiency measures initiated in 2023, advanced in 2024 and 2025
Such discipline is essential to our path to expanding operating margins and adjusted ebit dog. Going forward.
As we simplified our business model additional cost savings accured from the devest searches of board.org Asel, Oxford analytica and dragonfly intelligence.
In addition to savings from sunsetting, various non-core products.
Looking expenses in more detail, Q2 2025 costs of revenues decreased by million dollars or 28% versus prior year, R&D decreased by 900,000 or 29% and the sales and marketing decreased by 2.3 million or 26%, as for GNA, we saw a slight increase of $100,000 or 1% importantly.
Lie, approximately 5.4 million of non-cash m&a and other non-recurring calls were recorded in GNA. During the quarter, excluding these items GNA would have declined year-over-year.
To.
the gross margin in Q2 2025 was 79% 200 basis points higher than prior year on a gap basis primarily due to the impact of domestic businesses in Sunset products
Adjusted gross margin was 86% in Q2 202025 as compared to 85% in the prior year, both reflect the impact of our discipline cost management.
Adjusted Eva was a positive 2.8 million higher than the prior year above. Our guidance of approximately $2 million in the eighth consecutive quarter of positive performance on this important profitability metric.
Sustained positive adjusted Eva, even after the pro-forma impact of the destitutes through June 30.
Is the direct result of actions that we've taken to improve our operating efficiency streamline the product portfolio and reduce the overall cost structure of the business. And as you've heard me, say before, in past calls, we will drive increasing operating leverage across the business while steadily expanding our top line through product-led growth.
By the influx of cash due to seasonality in the Oxford analytica and dragonfly devices which closed on March 31st.
Finally, let me talk about guidance.
We are reaffirming our full year 2025 revenue forecast. In the range of 94 to 100 million and adjusted, Evita in a range of 10 to 12 million dollars. We are forecasting, third quarter 2025 revenues, in the range of 22 to 23 million and adjusted evida of approximately 2 million dollars.
Josh referenced this affirmation speaks to the resilience of our streamlined and effective operating model. And the momentum building is a direct result of our product LED growth strategy. In summary fiscal note, reflects increasing strength and resilience our streamlined and disciplined operating plan is focused on Innovation. That is becoming increasingly valuable to our customers. Helping them navigate today's increasingly complex political landscape as we continue to drive to stabilize the business and return to a path of sustainable growth and customers to retention. We are also working to expand operating leverage and therefore adjusted Eva both in absolute dollars and on a margin basis. Finally we prudently manage our cash by controlling capex, cash interest expense and managing our operating expenses. All in the pursuit of accelerating. The path to positive free cash flow and therefore sustainable growth.
2025 is an important year for this company. And as we move into the second half of 2025, we are encouraged by the clear positive Trends. We are seeing across our product and customer metrics.
Which Drive everything and we remain confident that we are making significant process in. Reestablishing a clear definitive path for durable growth and sustainable profitability. That concludes my prepared remarks. I'll turn it over to the operator to begin the question and answer session operator.
At this time, I'd like to remind everyone in order to ask a question, press star, then the number 1 on your telephone keypad. Our first question will come from the line of Mike Latimore with Northland Capital markets. Please go ahead.
Excellent. Thanks very much. Uh, congrats on all the progress this year looks good.
um,
You talked about returning to our our ARR growth, uh, in the second half. Um, is, is the, uh, do you assume a similar contribution from, you know, new logo Improvement and in our our Improvement or is 1 or 2 of those more important to return to our our growth?
Hey thanks. Uh, Mike for the comment and the question uh, appreciate it. So, um, we're seeing good success um, with new logo. Uh, as I uh, discussed just a few moments ago, we're seeing a lot of improvements in pipeline. We're seeing um, increased twin rates, we're seeing acbs, go higher. So we're pleased with progress uh, on new logo, you know, of course we'd like to see continued progress from here as well. And, uh, continuing to, um, grow those acb's, improve 1 rates, Etc.
Um, the the difference really will come from um, uh, our retention and expansion. So that's where, you know, we're still seeing those challenges with existing relationships on the Legacy platforms and we expect to see, uh, gross and net retention improve. Um, both as a result of policy note. As we migrate more customers on a policy note, um, and also, uh, with some of the offerings that we have in market. So we've also um, um, put out some revamped global data packages as well, which we think will help with expansion Revenue too. Uh, we're seeing great success with those and those are helpful drivers when it comes to acbs. Um we're seeing very good healthy demand for that global data which is really uh strong differentiator for us in marketing. So um, long story short, we want to see continued progress on these logo but the biggest Difference Maker going forward will be those improvements to gross and net retention that we expect to see.
All right, I got it. Got it. Make sense. And then um,
I think you've, uh, in terms of additional product enhancements, I think you're planning on some Enterprise level features I believe. And also integrating
The last couple data sets here, I guess 1 is. Is that is that? Is that a correct? Uh, assertion and then second? If so, is that something planned for this year? Or is that kind of going to next year?
Um, you know, as we speak and as we do that, we're migrating more and more, Enterprise customers, uh, onto the platform. So we're going to continue that work, uh, to build that out so that we can accelerate the migrations and those migrations are going well and are actually ahead of schedule. We're also continuing to implement new, um, uh, new kind of incremental features, um, things like, you know, our tariff tracker things like, um, some of our more advanced AI features like we have with now, the ability to actually write draft legislation for you in the platform and so features that are really accelerating the platform forward lead frogging the competition. Um, so we're continuing to build those out as well. Um, from an innovation perspective, um, we're going to continue the migration over the course of this year and next year. So, um, you, you know, that's about what you can expect in terms of migrating all of our customers onto new platform. And, like I said, what we're doing in, parallel is both, um, some of those core features.
To facilitate, uh, and accelerate those migrations, but also at the same time, launching new Innovations, to make sure that we're propelling policy notes forward in parallel.
Great great. And I guess just lasts 1 for me in terms of the federal and NGO, verticals. Can you just give a, you know, just a little more color on how they're behaving. And, you know, has there been any change during the year?
Sure. So on federal you know as we noted um in our comments we are seeing you know, atypical instability and federal this year which we've spoken to before just given all the changes in the federal government that continues to be something that that we monitor. Um, you know, it's it's kind of a, a continually shifting landscape. Um, even, you know, you had earlier in the year, heavy activity from Doge which created a lot of volatility, um, and you still now are seeing just some shifts within Federal, um, both in terms of some areas where there's increased stability and, um, continuing to see relationships and contracts return. But also, as there's just continued shifts within the government in terms of their own Staffing and how that translates into their needs licenses. And so on, and as we've said before, um, you know, the instability, um, you know, has obviously introduced some challenges, it also introduces opportunities for us as well, you know, our Solutions, We Believe Drive Great Efficiencies For All
All our customers, including Federal. And so, we think that there's a lot of Need for, um, for our platforms. We offer unique proprietary content. That's very informative for policy makers. So, again, a need there as well. And so that's something we're just continuing to monitor the progress, um, with the federal government throughout the year. Um, so no significant changes from what we've spoken about about before. It's just something that's continuing ngos, I would say the same, you know, I've seen your question kind of relates to how does, you know, Federal funding changes impact ngos and I would say kind of same thing there where um we're still seeing um ngos be actually you know, fairly active with things like advocacy um in this type of environment. And um you know again we have a very strong advocacy platform for them to use as well and so um you know there's still um we still see opportunity in that sector.
Yep. Okay.
My appreciate it.
Again, if you'd like to ask a question, press star, then the number 1 on your telephone keypad. And our next question, will come from the line of does that come in with B Riley Securities. Please go ahead.
Hi there. This is Ethan, widell calling in for his Zach humans. Uh, thanks for checking my questions, I think, um, to to start with, you know, it it sounds like, um, your retention metrics are, uh, kind of starting to Trend. Well, I I guess what? Levers.
Do you think you need to pull there from here to, um, continue to improve retention? Is that primarily product LED as as any of discussed on the call so far? Or is there anything else?
Introduce new uh global data packages which help with expansion revenue and is something that we're seeing great success with especially within our Enterprise segment. And so that's something that, um, we see is something that's connecting very well with customers. Um, we're also seeing, uh, great Confidence from customers when they buy. So, we've talked about, uh, multi-years. So, um, again, for the second quarter in a row, we've more than doubled the pace at which we're signing new corporate customers to multi-year for our policy data. That's significant in part because the indicator of confidence that it gives but also because that will translate directly into gross retention improvements in 2026. So we know, you know, just mathematically that that will have an impact as well. And then we've also talked about um, some of the changes that we've made operationally as well. So uh, as John and I both mentioned in our remarks, um, you know, the level of performance that we saw at the end of last year and heading into q1 was just not acceptable and so we've made operational changes as well.
And that includes in areas that directly impact um, retention and cross sell upsell, and so we're excited that the progress. We're making operationally there and we believe that, that will have an impact on all of our customer relationships and our ability to retain and grow those relationships over time. So product is um, certainly important. And is certainly very encouraging what we're seeing there but as far from the only thing that we're seeing that will help Drive improvements in growth and net retention.
Got it. That's super helpful. Thank you. And then, um, maybe to double click on on 1 of those points. Um, you mentioned doubling the rate of, uh, signing multi-year, commitments, I guess, how do you, um,
View this as impacting, the slope of of of Revenue growth, ultimately going forward.
So um, the increase in multi-years as I said will, um, will impact gross retention, uh, over time, right? So it's just um, less of that business coming up for renewal in any given quarter. Um, you know what's most important to me, when I think about long-term health is really, like I said, fundamentally the product and the engagement that we have with our users on day-to-day basis. That's why I focus so much on that and I'm so encouraged by it. But obviously with multi-years, the more we can decrease that frequency at, which those relationships are coming up for Renewal the more we'll have stability in that business. And um our success in new logo will then be added to what we have. Instead of um, you know, essentially replacing what we lose when a retention isn't where it should be
Understood. Well I appreciate all the extra color. Thank you.
Sure, thank you.
And we have no further questions at this time. I'll hand the call back to Bob burrows for any closing comments.
Uh, thank you Regina that, concludes our call this evening. We appreciate everyone's participation on the call, and we look forward to speaking with all of you again in the future, goodbye.
this concludes today's
conference call.
For joining, you may.