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 FiscalNote 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. [Operator Instructions] 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 FiscalNote and we are pleased you all could join us. The purpose of today's call is to discuss FiscalNote'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 Resnik, CEO and President; and Jon Slabaugh, 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 8-K 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 a 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 FiscalNote's CEO and President, Josh Resnik. 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 FiscalNote, 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 loan by $96 million since December 31, 2023. As a result, our…

Thank you, Josh. Good evening, and thank you for joining FiscalNote's first quarter 2025 conference call. As Josh mentioned, we're pleased to announce that we exceeded both our revenue and adjusted EBITDA guidance for the quarter. Let me dive into some of the key drivers behind our performance. Total revenue for Q1 2025 was $27.5 million, above our forecast of $26 million to $27 million. When compared to the prior year, revenue was $4 million lower, primarily due to the divestiture of Board.org and Aicel in 2024. Subscription revenue remains the cornerstone of our business. It accounted for 92% of our total in-quarter revenue, consistent with our historical trends. Our focus on the core policy business, together with the launch of the migration to PolicyNote should help maintain these high contributions from subscription revenues going forward. Turning to our key performance metrics. As of Q1 2025, annual recurring revenue was $88 million versus $94 million in 2024 on a pro forma basis after adjusting for the impact of the Aicel, Board.org, Oxford Analytica and Dragonfly divestitures. As Josh said previously, we expect PolicyNote to have a meaningful positive impact on 2025 as it unfolds. We are planning for ARR growth from this level in the second half of 2025. For the first quarter of 2025, net revenue retention was 93% versus 96% in the prior year. While a disappointing outcome, it reflects the underperformance at the end of 2024 that we have previously discussed and believe we have addressed going forward. We remain focused on improving this important metric over time, through continued product innovation. Principal operating expenses in Q1 2025, continued the trend of year-over-year decreases, reflecting the continuing benefits of ongoing efficiency measures initiated in 2023, advanced in 2024 and continuing into 2025. We also realized cost savings…

[Operator Instructions]. Your first question comes from the line of Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Hi, everybody. Thanks for taking the question and congrats on the results. So just curious about the sales force and the sales function. You mentioned in the back half of 2024 there was some disruption in that process perhaps due to some cuts in that area. It seems like it's getting back on track now. Can you just give us a sense of the go-to-market and how that's evolving over time?

Sure, Glenn. This is Josh. I can address that. So yes, the changes that we're talking about towards the end of Q4 were less about reductions that we've made and more really just about execution issues that we saw out of management. So we've restructured and replaced management. And what we're seeing now is much better execution and it's really much better execution throughout the funnel. So in addition to what we're seeing from the inbound, where I mentioned that we've seen increased interest and demand, our outbound is functioning much better. We're building a much stronger pipeline. And we're seeing that connection point, as I mentioned, between the go-to-market teams and the product teams as well. So as we're bringing the product along, as we're driving more product innovation, we're turning that innovation into commercial results much more quickly as well. So that's really what we're talking about there.

Great. That’s helpful. And on PolicyNote, you pointed to a lot of interesting anecdotal evidence around the acceptance and uptake. Can you give us a sense of what sample size we're talking about and just the expectation still of the time frame for when you hope to have everyone converted over to that platform?

Yes, sure. Glenn, happy to do that as well. So, we are working to migrate our core customers over time. We expect to have all of our core customers, the ones who are using us for policy data insights, et cetera, on the new platform sometime next year. We're accelerating migration as much as possible now in light of the early results. We plan to be in a position to start deprecating actually to start deprecating platforms this year for sure to be in position to deprecate at least one of the larger legacy platforms later this year. So we're working on getting those customers on there at scale right now. And like I mentioned, we've been really encouraged by the progress that we're seeing. We’ve migrated -- so I mentioned a couple of different cohorts that we've done. I can't give you exact numbers in terms of number of customers but we're really confident in the share of customers that we have right now, meaning we're confident that what we see represents a broad enough slate of the types of customers who should be on there that they're using them at high enough scale where we understand validity of the data and such and where we're really starting to have an impact on what we can do from both a new logo standpoint and a retention standpoint as well.

Great. Josh, that’s very helpful. Thanks. I’ll jump back in the queue.

Thank you.

Your next question comes from Jesse Sobelson with D. Boral Capital. Please go ahead.

Hey guys. Really just want to reiterate this is a great quarter. The reiteration of guidance is really great news here. We can really see the shift turning and it sounds like PolicyNote is really gaining some great traction to help drive this confidence in the second half ARR rebound. I just wanted to kind of ask on a clarification piece here. On the numbers piece the revenue guidance for second quarter is $22 million to $24 million, and it's a little bit below Q1 levels. I just wanted to confirm that the primary driver of the sequential decline was the recent transactions that you've done with Dragonfly and Oxford. Is that correct?

Sure. Jon, do you want to address that?

Hi Jesse. I'm sorry about that. Phone problem. Josh, did you answer the question?

Yes, Jon, you can go ahead.

Okay. Thanks for the question, Jesse. It's Jon. You're correct. The difference would be solely attributable to the revenue that we recognized in the first quarter from the divested businesses Dragonfly and Oxford. And there'll be details breaking out the pro forma in the filings that are coming out later.

Great. Just confirming, it sounds like the business is stabilizing here. Another housekeeping one for me is just when it comes to the balance sheet, there was this additional sale of -- I think it's a time policy. I apologize for the exact name. I don't have it in front of me, but just where exactly are we with the balance sheet today and any anticipated cash that's supposed to come in from transactions and what the debt balance is just to make sure on a pro forma basis, I'm in the right ballpark here.

Sure. So from the balance sheet that will be coming out shortly, we did announce a transaction. We entered into a transaction with Thomson Reuters to sell a division operating in Australia. It is a smaller division, and we disclosed the purchase price to be in the neighborhood of $6.5 million. And I would pencil in about half of that going to reduce debt after taxes, fees and expenses related to the transaction.

Okay. Great. And then just a bigger picture here. It seems that the Board continually reviews some strategic options to maximize shareholder value. I'm just kind of curious if you guys can share any updates on framework criteria being used to evaluate any outcomes. And if there's anything -- if we're still considering asset sales here or if the product portfolio is where we should expect it to be today? Thank you.

Josh, do you want to take that?

Yeah. Yeah, I can take that. So yeah, thanks for the question on that, Jesse. I would just say there, there's not too much we can say about Board activity beyond what's been said publicly. So I'll just essentially reiterate that the Board is, of course, constantly considering ways in which to maximize value of the company. And so that's really the long and short at the end of the day in terms of what I can say there. In terms of future divestitures, I would say that you've seen a majority of what there is from the portfolio. That's not to say that there wouldn't be future opportunities as well. And again, we'll consider what opportunities there may be down the road as well.

Great. Thank you for taking my questions.

Your next question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

Thank you. Congrats on the great results there. Nice to hear the pipeline is growing here. I guess, can you give a little more detail on what you're seeing in the pipeline? Is that coming from upsells, cross-sells, new logos, any particular verticals? And is it -- yes, I guess that would be a starting point.

Sure, Mike. Happy to address that. So when I'm talking about the increase in pipeline, really, what I'm talking about is two different pieces to it. So one is inbound pipeline, so new logo, and that would be across sectors, and that's reflecting, I think, a higher focus in light of regulatory complexity as well as interesting policy note. And then in terms of outbound pipeline, again, what I'm referring to there is around new logo. And again, it actually cuts across different sectors as well. So it's not just one particular area. We are seeing -- as I've mentioned in my remarks, but also we've talked about on previous calls, we are seeing continued high level of interest and demand in Europe in particular. But what I'm referring to when I'm talking about pipeline is really across the board, but mostly focused on new logo.

Got it. And then in terms of just the federal sector particularly U.S. government, a lot of changes there. It seems like you quickly can also offer new products that enable your customers to understand those changes at the same time. But can you just talk a little bit about the health of the federal vertical here? And yes, I guess just your view on the health of the federal vertical.

Sure Mike. Happy to do that. So, yes, I mean certainly as you're alluding to right there's volatility in the federal market unlike anything that there's been previously. We've seen some of that volatility, nothing material for us. Where we have had issues unrelated to our specific products just part of some of the shifts within government itself, re-staffing, budgets being in question et cetera. There's been -- we do see opportunity in the federal sector as well. Our products do help organizations be more efficient. So, we estimate that the government saves $10 for every dollar that they spend with us. So, we actually think there's opportunity to drive more value over time. And then we also see -- again, as you alluded to as well, a need for the type of information and insights that we provide. And again especially as there's more and more interest in platforms and AI as a focus to drive efficiency and drive insights and information, we believe that's something that plays to our favor in the long run.

Great. And just last one I guess kind of on a similar topic. You announced you hired an advisor that came from Palantir, I'm just kind of curious what is he focused on?

So, yes, we actually did engage him to focus on federal government. So, someone who has driven significant federal contracting, leveraging AI platforms in the past, we brought him in to provide advice and support for our commercial teams as we think much more about our opportunities in that sector. And he's provided our teams with some helpful insights.

Okay, very good. Congrats again. Thanks a lot.

Thanks Mike.

[Operator Instructions] The next question comes from Zach Cummins with B. Riley Securities. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. Really, Josh, my one question is just focused on your confidence in a lot of this new pipeline continuing to progress and getting across the finish line in terms of new deals. I'm just curious on kind of the typical pace we should be expecting and how you're making those assumptions when making a return to year-over-year ARR growth in the coming quarters?

Sure Zach. Thanks for the question. Yes, look, we feel very confident. And this is why we're starting to be more transparent about things like pipeline, about things like product engagement, et cetera. We're very confident that we understand what the drivers have been for some of the past underperformance and we're very confident that we're doing the right things to address those. So, that goes to things like the go-to-market execution, which we look at data very deeply and we see that pipeline and see the opportunities that we have against it. We know about the product and we know that our customers and prospects need this information they recognize the importance of it to their organization. So, we see that level of demand out there. And again that's partly reflected in the inbound that we're seeing as well. And we know that the product that we have can really address those needs in a way that's really powerful for the organizations who we're working with. And we see that reflected in the product metrics that we look at and the level of engagement that we see. So we feel very confident in terms of what we're doing, the execution against it and what that means for the long term. And then we're looking at things like sales cycles quality of the funnel et cetera as we think about the second half of this year. And again, that's why we're reaffirming guidance is we feel confident in what we're going to deliver in the second half of the year. There's obviously risk points out there that we see as much as anybody else including economic volatility et cetera. But we've built that in, in terms of how we think about the opportunities here. And like I said, we feel very good about what we're building. And pipeline certainly it needs to convert. We've got to push it through. But with how we're managing the business, with what we're seeing from an execution standpoint and with what we're seeing from engagement with our customers engagement with prospects and the level of demand we feel very good.

Understood. That's helpful. And just my one follow-up question is around the level of multi-year deals that you're now seeing. I mean can you give us a little more insight into that? And is that part of the new go-to-market transformation? Do you have a bigger emphasis on trying to secure these multi-year contracts with customers?

So yes, that's a great question, Zach. So, we actually -- along with the introduction of PolicyNote, we felt very solid and confident in the product. We know that one of the challenges we've had obviously has been the product which translates into being able to speak to customers and prospects about what is your vision? How are you innovating? You need customers to believe not just in what you're doing today, but what you'll be doing tomorrow, 12 months from now, 24 months from now and so on. And so, with the introduction of PolicyNote in market, we did make it a point about emphasis to start to seek multi-year commitments. And that's where we're really pleased to see that pay off and see prospects engage and sign on to multiyear at the levels that I mentioned. Except for the new corporate logos being more than double the rate of what we saw a year ago. That's really incredible. And so to be clear, it's not driven by aggressive discounting for multi-years or anything like that. So it was a point of our strategy to seek the multi-years, but we're not doing anything artificial to achieve it. We're achieving it because of the confidence that prospects have in the fact that they're going to need this data. They're confident that they're going to want to get it from us. They're confident that our product is the one that they want to bet on for multi-year commitments. So we feel very good about that and what that says about their confidence in us for the long run.

Understood. Well, thanks for taking our questions and best of luck with the rest of the quarter.

Thank you, Zach.

There are no further questions at this time. Mr. Burrows, I turn the call back over to you for any closing remarks.

Thank you, Pam. That concludes our call this evening. We appreciate everyone's participation on today's call. With any additional questions, please contact any of us. Again, all materials related to the company's first quarter 2025 financial results are available on the FiscalNote website. We look forward to speaking with all of you again in the future. Goodbye.

This concludes today's conference call. You may now disconnect.