FiscalNote(NOTE) - 2023 Q2 - Quarterly Report

PART I: Financial Information Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position and performance as of June 30, 2023 Condensed Consolidated Balance Sheets Total assets decreased to $423.0 million while total liabilities rose to $329.2 million, reducing stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $37,260 | $60,388 | | Goodwill | $208,077 | $194,362 | | Total assets | $422,960 | $433,157 | | Liabilities & Equity | | | | Deferred revenue, current portion | $48,800 | $35,569 | | Long-term debt, net | $214,700 | $161,980 | | Total liabilities | $329,240 | $288,467 | | Total stockholders' equity | $93,720 | $144,690 | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues grew 20.9% in Q2 2023, though operating losses widened while the net loss for the quarter and H1 improved Q2 2023 vs Q2 2022 Performance (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Total Revenues | $32,842 | $27,174 | | Operating Loss | $(16,978) | $(11,739) | | Net Loss | $(30,973) | $(38,360) | | Basic and Diluted EPS | $(0.23) | $(2.57) | H1 2023 vs H1 2022 Performance (in thousands, except per share data) | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Total Revenues | $64,371 | $53,245 | | Operating Loss | $(44,349) | $(24,149) | | Net Loss | $(50,246) | $(66,711) | | Basic and Diluted EPS | $(0.38) | $(3.65) | Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) Stockholders' equity declined to $93.7 million, primarily due to the net loss and a common stock settlement - Total stockholders' equity decreased from $144.7 million at the end of 2022 to $93.7 million at June 30, 2023[16] - Key activities impacting equity in H1 2023 include a net loss of $50.2 million, stock-based compensation of $12.0 million, and the return of 5,881,723 shares of common stock valued at $21.4 million as part of a settlement[16][18] Condensed Consolidated Statements of Cash Flows Net cash used in operations and investing increased, leading to an overall $23.1 million decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(20,206) | $(18,348) | | Net cash used in investing activities | $(9,096) | $(6,041) | | Net cash provided by financing activities | $6,564 | $19,727 | | Net change in cash, cash equivalents, and restricted cash | $(23,121) | $(5,014) | Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, acquisitions, debt, goodwill impairment, and other financial items - The company operates as a single operating segment, providing global policy and market intelligence by combining AI technology with analytics and expert insights[19][32] - The company's liquidity is a key consideration, with cash and restricted cash at $38.1 million as of June 30, 2023, which management believes is sufficient for the next twelve months[28][29] - A goodwill impairment charge of $5.8 million was recognized during the first quarter of 2023 related to the ESG reporting unit[87] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes Q2 and H1 2023 performance, focusing on revenue growth, operating losses, and liquidity - FiscalNote is a technology provider of global policy and market intelligence, using AI to deliver actionable insights to a diverse customer base[186] - The July 2022 Business Combination was accounted for as a reverse recapitalization, providing net cash proceeds of $65.6 million[187][188] - The company focuses on growth through cross-selling, expanding its enterprise and government client base, and strategic acquisitions[197][198] Key Performance Indicators Annual Recurring Revenue (ARR) grew to $120.2 million, while Net Revenue Retention (NRR) was 98% Key Performance Indicators | Metric | June 30, 2023 | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | :--- | | Annual Recurring Revenue (ARR) | $120.2M | $113.3M | $103.5M (organic) | | Run-Rate Revenue | $135.0M | $126.7M | $115.4M (organic) | | Net Revenue Retention (NRR) | 98% | N/A | 99% | Results of Operations Q2 2023 revenue rose 20.9% to $32.8 million, but operating expenses grew 28.0%, widening the operating loss Revenue Change Drivers (Q2 2023 vs Q2 2022, in thousands) | Driver | Change ($) | Change (%) | | :--- | :--- | :--- | | Impact of 2021 Acquisitions deferred revenue adj. | $737 | 100% | | Increase from 2022 Acquisitions | $501 | 100% | | Increase from 2023 Acquisitions | $1,771 | 100% | | Increase from organic business | $2,247 | 9% | | Total Subscription Revenue Change | $5,130 | 21% | - Cost of revenues increased by 23% in Q2 2023, primarily due to costs from recent acquisitions and higher amortization of capitalized software and developed technology[245] - General and administrative expenses rose by $6.1 million (61%) in Q2 2023, driven by $4.2 million in incremental stock-based compensation and $1.2 million in public company costs[255] Liquidity and Capital Resources Cash stood at $38.1 million while total debt increased to $230.3 million, with a covenant waiver obtained post-quarter Total Debt Principal plus PIK (in thousands) | Instrument | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | New Senior Term Loan | $157,421 | $150,647 | | New GPO Note | $46,794 | - | | Convertible Notes | $13,094 | $12,219 | | Dragonfly Seller Convertible Notes | $11,668 | - | | Total | $230,301 | $164,291 | - As of June 30, 2023, the company was marginally below the minimum ARR covenant on its New Senior Term Loan but received a waiver from lenders on August 3, 2023[282] - On June 30, 2023, the company entered into an Exchange and Settlement Agreement, issuing a new subordinated convertible note with an initial principal of $46.8 million and cancelling 5.9 million shares of Class A Common Stock[284] Quantitative and Qualitative Disclosures About Market Risks The company is primarily exposed to market risks from foreign currency, interest rates, and inflation - The company's primary market risks are foreign currency exchange, interest rates, and inflation[330] - Interest rate risk is linked to the $157.0 million variable-rate New Senior Term Loan, where a 1% rate increase would raise annual cash interest expense by approximately $1.6 million[333][334] - Foreign currency fluctuations negatively impacted total revenue by approximately 1.0% for the first six months of 2023 compared to the prior year[332] Controls and Procedures Disclosure controls were deemed ineffective due to a prior material weakness, though financials are fairly presented - Management concluded that due to a prior material weakness, the company's disclosure controls and procedures were not effective as of June 30, 2023[337] - Notwithstanding the material weakness, management believes the financial statements in the 10-Q are presented fairly in all material respects[337][338] PART II: Other Information Legal Proceedings The company is not party to any legal proceeding expected to have a material adverse effect - The company is not currently party to any legal proceeding expected to have a material adverse effect[340] Risk Factors No material changes to risk factors were reported since the last annual filing - No material changes to risk factors were reported since the last Form 10-K filing[341] Other Information The company amended its Credit Agreement, modifying financial covenants and deferring a fee payment - On August 3, 2023, the company entered into Amendment No. 3 to its Credit Agreement[346] - The amendment modified financial covenants (Minimum Adjusted EBITDA and Minimum ARR) and postponed a deferred fee payment from July 2023 to July 2024[347]