FiscalNote(US:NOTE)2023-11-14 19:36Financial Data and Key Metrics - Q3 adjusted EBITDA was positive $700,000, marking the first quarter of profitability on an adjusted EBITDA basis, one quarter ahead of initial guidance [45][64][85] - Q3 revenue was $34 million, a 17% year-over-year increase, with subscription revenue accounting for 90% of total revenue at $30.1 million, up 15% year-over-year [67][77] - Run-rate revenue reached $138 million, a 14% year-over-year growth, with organic run-rate revenue at $129 million, reflecting 7% growth on a pro forma basis [45][77] - Net Revenue Retention (NRR) increased to 100%, driven by strong performance in large enterprise customer segments, with NRR rates trending above the company average [45][77] - Q3 gross profit was $23.6 million, representing 69% margins, while non-GAAP adjusted gross profit was $28.4 million, representing 83% adjusted gross profit margins [78] Business Line Data and Key Metrics - Subscription revenue grew 15% year-over-year to $30.1 million, driven by strong demand for regulatory and policy data solutions, particularly among large enterprises [77] - Non-subscription revenue, typically strong in the second half of the year, underperformed due to budget uncertainty and underperforming products [48][24] - The company launched new products like Risk Connector and FiscalNoteGPT, which are gaining traction in the market, with Risk Connector securing its first anchor customer [69][73] Market Data and Key Metrics - Large enterprise customers remain the fastest-growing segment, with NRR rates well above the company average, driven by strong demand for regulatory and policy data [77][84] - The company is expanding geographically, particularly in Europe, through both organic growth and acquisitions, to bring new datasets to customers [50] - The federal government vertical remains a steady revenue driver, though budget pressures have had some impact [1] Company Strategy and Industry Competition - The company is shifting focus to re-accelerate growth after achieving adjusted EBITDA profitability, with a refined product strategy centered on AI Co-Pilot agents [49][51] - The AI Co-Pilot program leverages the company's decade-long investments in AI, ML, and NLP, with plans to roll out lightweight, user-driven applications for legal and regulatory professionals [51][52] - The company is pursuing adjacencies to core products, such as Risk Connector, which focuses on supply chain risk management, and has seen early momentum with large enterprises [73] - The company is transitioning to a product-led growth model for generative AI products, aiming for faster revenue generation through per-user pricing and reduced go-to-market friction [31][52] Management Commentary on Operating Environment and Future Outlook - Management highlighted the challenging macroeconomic environment, which has led to longer sales cycles and slower pipeline conversions, particularly for larger enterprise deals [24][71] - The company expects to see a bounce-back in cash balance in Q1 2024 due to seasonally strong collections, with a focus on achieving consistent free cash flow generation [19][21] - Management remains confident in the company's ability to drive growth, particularly in large enterprise accounts, and expects to see strong conversion of incremental revenue to adjusted EBITDA in the long term [47][79] Other Important Information - The company has achieved $20 million in annualized OpEx cost savings through cost management programs while continuing to invest in innovation and growth [56] - The company filed a shelf registration for $100 million, providing flexibility in its capital structure to support organic and inorganic growth opportunities [57] - The CEO has expressed interest in exploring a going-private transaction, with the board appointing a special committee to evaluate strategic options [76] Summary of Q&A Session Question: How is the sales realignment driving upsell and cross-sell opportunities? - The company has restructured its sales team to focus on upsell and cross-sell opportunities, particularly in large enterprise accounts, with a dedicated team and optimized commission plans [60] Question: What is the impact of the macro environment on deal flow and deal sizes? - The macro environment has led to longer sales cycles and increased scrutiny on larger deals, though demand for core products remains strong [82] Question: What are the expectations for cash burn in Q4 and cash balance in Q1 2024? - The company expects a bounce-back in cash balance in Q1 2024 due to seasonally strong collections, with cash interest expense and CapEx around $7 million per quarter [19][21] Question: How is the company leveraging AI to improve efficiencies? - The company is developing AI Co-Pilot products to automate tasks for legal and regulatory professionals, with plans to roll out lightweight, user-driven applications [31][52] Question: What is the impact of underperforming products on revenue growth? - Underperforming products and slower pipeline conversions have impacted revenue growth, particularly in non-subscription revenue, which typically sees strong seasonality in the second half of the year [24][48]