Good morning, and welcome to FiscalNote’s Q4 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Sara Buda, Vice President of Investor Relations. Thank you. Please go ahead.

Hi everybody, welcome to the FiscalNote Q4 2022 earnings call. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance but are rather 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 material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's EDGAR system and our website as well as the risks and other important factors discussed in today's earnings 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 and the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to FiscalNote’s Chairman, CEO and Co-Founder, Tim Hwang.

Thanks, Sarah. Thank you for joining us this morning. On today's call, I will review our fourth quarter and full year results for 2022 and offer some perspective on the fundamentals of our business as we build an enduring growth company with compounding subscription revenue growth, strong gross margin and over time, an impressive free cash flow model. I'll then turn it over to our CFO, Jon Slabaugh, to talk about the details of our financials and our outlook for the year as we swiftly move towards the inflection point of profitability. Before I begin, as many of you are new to the FiscalNote story, let me start with an overview of who we are and what we do. At FiscalNote, we're on a mission to help our customers make sense of a complicated and constantly changing world we live in. We do this by delivering a proprietary SaaS platform that uses artificial intelligence to collect, analyze and synthesize massive amounts of regulatory, legal and policy information. We then apply human intelligence and workflows to make this data usable and actionable for our customers. Changes in policies, regulations and laws impact the decision-making of almost every organization around the world from changes in regulation, the mandatory reporting requirements to the organizations must comply with often on a global basis. As such, we're building an enduring company for the world's most important and influential decision-makers. These customers range from hundreds of government agencies and public sector customers in the Department of Defense, the White House, every member of the House Senate in the United States Congress into better reserve and public sector organizations in Europe and Asia to major corporate customers, including half the Fortune 100 that need to stay on top of an ever-shifting regulatory, political and geopolitical landscape in…

Thank you, Tim, and good morning. I'm going to spend some time providing further details on the fourth quarter and fiscal year 2022. I'll also discuss what to expect in terms of financial performance for this year and walk through our path to positive adjusted EBITDA and over time, positive free cash flow. Let me start with revenue. Fourth quarter revenue was $31.4 million, marking growth of 29% year-over-year in total and 18% growth on an organic basis. Full year 2022 revenue was $113.8 million, marking 37% growth year-over-year in total and 15% growth on an organic basis, which excludes the 2021 and 2022 acquisitions and Sunset revenue. Non-GAAP revenue was $115.7 million for the year. We are proving our strategy of delivering compounding growth, driven by mid-teens organic growth and accretive strategic tuck-in acquisitions that we can immediately cross-sell and upsell to our customers. This has been our track record, and we expect to continue this revenue performance moving forward. Fourth quarter subscription revenue, which makes up almost 90% of our total revenue was $27.3 million, an increase of $6.4 million or about 31% from a year ago and 15% growth on an organic basis. Full year 2022 subscription revenue was over $100 million, an increase of approximately 36% year-over-year in total and 13% growth on an organic basis, which again excludes the 2021 and 2022 acquisitions and Sunset revenue. Our advisory advertising and other revenue was $4.1 million in the fourth quarter and $13.2 million for the year, a growth of 49% year-over-year. We exited 2022 with run rate revenue of $127 million in total, marking 14% year-over-year growth. Run rate revenue is defined as ARR plus non-subscription revenue earned during the past 12 months. It is a key management metric and serves as a baseline for the…

Thank you. [Operator Instructions] Our first question comes from Matt VanVliet from BTIG.

I guess, first, Tim, you mentioned that Europe could be as large potentially as the U.S. market, but only 10% of the company today is coming from that region. Maybe walk through kind of what the recent hiring plans have been to expand in that market? What other additional investments are you expecting over the next couple of years? And then ultimately, kind of what kind of revenue growth or other growth metrics you can share? Are you expecting in both '23 and maybe 24% from Europe specifically?

Yes, thank you. I appreciate the question. So I think the first thing is that we have been in the European market for a couple of years now. We started off in the Brussels market by really looking at European commission information, European data information in addition to information coming from different member states. And that's really just a reflection of the continued expansion of the data and opportunities that we see overall in the market. Additionally, over the course of the last couple of years, we have made a number of acquisitions in the European market that have expanded the scope of our footprint as well as the customer base that we have in the marketplace. So I'll point you to a couple of companies like Oxford Analytica Dragonfly, most recent acquisitions, DT Global and others that have expanded our footprint throughout the United Kingdom as well as Western and Eastern Europe. Those acquisitions by themselves actually constitute the beginning foundations of what we see as a larger European opportunity. And so a couple of different things. The first thing is just the continued application of our technology in the European market enable us to have to add more data for our customers. The second thing is just the reality that there's a large number of multinational companies and European governments that we continue to be able to sort of bring into our overall customer roster. We're not really giving guidance right now, particularly to the European market, but it is a very big focus of ours as a management team, and it's something that we're continuing to keep an eye on here.

Okay. Very helpful. And then when you look at the recent partnership announcement with OpenAI, I know you expanded on a little bit on the call, but curious in terms of how you’re thinking about that being sort of a product or monetizing that partnership? Is it something that eventually you’ll turn into or build out specific use cases or products around? Or is this really geared towards enhancing the current platform and just sort of pushing ahead on your competitive advantage there in which you can either cross-sell a little bit more of that or raise prices over time to include that functionality?

Yes. So I think the first thing about the partnership that we have with OpenAI is just really that's a reflection of the decade log investment that we've made in artificial intelligence and data collection have been making in the legal and regulatory space. As you mentioned in our press release, we are the only legal regulatory partner for Open AI as part of their kind of chat GPT plug-in program here overall. So there's a couple of different areas that we're really looking at. So the first is enhancements to customer experiences -- so we are in a situation right now as a technology industry where interactions with computers are fundamentally changing, where we're seeing the opportunities to enhance customer experiences quite rapidly. And the inclusion of these new technologies is just another reflection of Fiscal's continuing ability to innovate for the future and actually bring in some of these capabilities, right? So we talked about a couple of these things earlier in the call, things like personalization, better search relevancy, better efficiency in terms of data collection, those are all areas where customers are going to see improvements as a result of the data collection efforts that we have as well as broader partnerships that we have, inclusive of open AI. I think -- the last thing I do want to touch on is something that I briefly touched on in my earlier remarks, which is that we do expect to see some efficiencies from automation as well. And so those come in the form of things like faster time to market, reduced R&D expenses, faster product cycle innovations. Those things all have direct impacts on our income statement. And of course, the combination of better customer experiences and more efficient R&D operations, we do expect to see a real impact for the business overall here.

Great. And then, if I could just squeeze one last one in around the SBB, I guess, issues going on there. Any impact that you're seeing on the M&A pipeline directly from that or valuations sort of, I guess, resetting lower on some of the fallout there. Any update on the M&A pipeline around sort of recent events would be very helpful.

I don’t think that the SCB situation has had a material impact on M&A, but I will comment that from a macroeconomic perspective, we are seeing a large number of deals come across our inboxes. And so as we evaluate those deals, we have seen a material shift in terms of expectations of folks as well as the expectations around structure or price or whatever the case may be. We are constantly evaluating deals every single week, and we are trying to make good decisions around the types of markets we want to be and the types of products we want to be in. And of course, the way that we structure those deals to minimize dilution for shareholders and ultimately drive the most equity value for the business. So in short, no impact from SPP, but obviously, there are broader macroeconomic impacts here.

Our next question comes from Mike Latimore from Northland Capital Markets.

Yes. Congrats on the strong finish to the year there. I guess just on the last comment there. So you said that you saw a material shift in expectations. But basically, is the point there that just valuation expectations have been coming down this year. Is that the point?

Mike, it's Jon Slim. We have seen expectations kind of rationalizing and not only in terms of headline value but also the willingness to work around structure, inclusive of structure consideration and earn-outs. So I think that it's fair to say that the types of transactions that we've been looking at are actionable at lower multiples than maybe previous years?

Okay. Got it. Great to see the NRR over 100%. I guess, do you view that as sustainable? Or could that improve this year? And maybe touch on 1 or 2 points that really kind of moved it over 100% during the year.

Sure. We've asked Josh Resnick, our President and Chief Operating Officer, to join us here on the call, and I'll let him comment on that.

Hi Mike. Yes, I can address that on NRR. So you can expect to see NRR continue to remain relatively consistent, should fluctuate quarter-to-quarter, but remain relatively consistent. We're very focused on hitting the 2 key levers to drive it, gross retention and upsell, cross-sell. And with a lot of the changes that we've been making on the revenue side, in particular, we've been seeking a lot about how we structure our account management, customer success function to help drive that on the retention side, in particular. And with our new Chief Revenue Officer in place, have been adjusting our go-to-market focus to help drive new logo sales as well.

Okay, great. And then, just on the broader demand environment -- can you talk a little bit about what you've seen in the fourth quarter, first quarter, say, relative to third quarter in terms of just deal sizes, sales cycles, and maybe distinguish a little bit between government and commercial sectors.

Sure. So we had talked back in Q3 about seeing some pauses and a little bit of hesitancy in the private sector. We saw that continue into Q4, mainly in new logo in the enterprise. We’re still seeing some budget hesitancy which is factored into our guidance for the year. We still believe our solutions are critical, which is what’s still driving this – the mid-teens organic growth that we’re forecasting. We’re helping enterprises with existential issues that they have around risk and opportunity could be cybersecurity, data privacy regulations, expansion and contraction of lines of business. So we’re still seeing a tremendous amount of value, and we’re seeing our ACVs grow. So we feel like there’s a lot of help there, although still from the macro environment still driving a bit of that budget presence, especially on the enterprise side. So continuing to see a balance of growth in private and public sector, although public tends to be that kind of steadier, more reliable backbone, and we expect to drive more growth through private sector going forward.

But in terms of that private sector dynamic, any change since the third quarter? Or is the environment similar to what you saw in the third quarter?

I think the environment is still generally similar. Still trying to work through a lot of the malaise in the macro environment that you see and hoping to see some improvement as the year goes along. But again, we factored that into our guidance for the year.

Yes, great. And then, just last on the few acquisitions you made over the past year. Can you talk about have you seen improved growth rates or good cross-sells or just a little bit more on the traction from the most recent acquisitions.

Sure, Mike. We've seen really impressive acceleration out of the acquisitions when we filed the 10-K later, there'll be some breakouts in details there. I'll share with you that the legacy business grew at a rate of 11% year-over-year, while the acquisition cohort from 2021 and '22 were in the 20 -- I think 21% growth for those was 23%, 23% for the acquisition group. And that just represents putting it on the platform, giving them access to our customer base and really letting our business development team do their work to drive revenue growth.

Our next question comes from Rudy Kessinger from D.A. Davidson.

Jon, you said -- I think you said a year from now, you expect about $30 million plus in cash. And so I guess you're effectively saying $30 million or less of cash burn over the next 12 months. Is that inclusive of your expectations of future acquisitions over the next 12 months? Or is that just based on the core business as it is today with no acquisitions take in?

Sure. That's excluding any acquisitions you might do between now and then, it's the operating model that we've built for the business as it stands today and taking into consideration growth, operating expense, the CapEx and seasonality of the business as well. And just as a point of clarification that when I say a year from now, I'm referring to a year from today as well.

Okay. So effectively end of Q1 -- end of Q1 '24, not Q4 '23, Okay. And then what is the -- what's the go-forward interest expense. I don't know if you can break it out especially for Q1 or for the full year, but roughly $6.1 million in Q4. You made another acquisition in Q1 brought us some more debt. What's -- and rates have changed us? What's the go-forward interest expense for Q1 and calendar '23?

I think I referenced this in the call, the cash interest expense is $4.5 million to $5 million. And in light of the recent change you might use the higher end of...

Okay. I think you might have broken up at the end of the year. And then maybe just one last for me. In Q4, I know we'll get this in the 10-K, but how much revenue came from DT Global and ASO in Q4? And then when we look at your revenue guide for '23, how much revenue do you have baked in there from Dragonfly DT Global and Aicel?

3000 in Q4 for those 2 entities. When we think about the year going forward, Rudy, the guidance we gave, we gave it kind of with and then in the -- I guess in the previous filing, gave a range of Dragonfly revenue, which was 6.5 million pounds or at $7 million. So you can back that out of the guidance range as well. So when you do that, I think you wind up with an organic growth rate at Dragonfly of approximately 13% to 17%...

Okay. Got it. That’s it for me.

We may do some work to back out Aicel in Data Hunt [ph], specifically if that's something you want to follow up on.

For D&A [ph]?

Yes, D&A.

Okay. Thanks.

[Operator Instructions] Our next question comes from Mike Albanis from Hutton [ph].

Congrats on a nice Q4, and so I finish to the year. I just had one clarifying question for you. I think about 2023 guidance; I think you mentioned additional at the midpoint, an additional $25 million revenues, 80% margin, so $20 million incremental gross margin and then an incremental 3% to 4% in OpEx kind of on top of your current, I guess, cost basis plus some savings that you had talked about. Can you just kind of walk me through that one more sense.

Right. So the increase in OpEx is primarily related to the addition of Dragonfly, which came with revenue and obviously some expenses. What we've done to date is in full do perspective take $6 million to $7 million of operating expense out of the business in the year. That number translates to probably closer to $12 million on a full year basis. And that's -- those are adjustments that we're working with Josh and his team to make we have made and will continue to make over the course of the year.

Got it. Okay, great.

We have no further questions. I'd like to turn the call back over to Tim Hwang for closing remarks.

Great. Well, I want to thank everybody for joining us on the call here. We obviously had a great full year in 2022. We've given guidance on a positive and really exciting 2023 here. And so really look forward to our next call, and appreciate everybody jumping on the call here. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.