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FiscalNote Holdings, Inc. (NOTE)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered $29.2M revenue and $1.8M adjusted EBITDA, exceeding company’s prior forecast, with GAAP gross margin at 77% and adjusted gross margin at 85%; this marked the fourth consecutive quarter of positive adjusted EBITDA .
  • Full-year 2024 guidance was lowered for total revenue to approximately $121M (from $123–$127M) and raised/tightened for adjusted EBITDA to approximately $8M (from $7–$9M), signaling focus on profitability amid retention headwinds .
  • Initial Q3 2024 outlook calls for ~$29M revenue and ~$2M adjusted EBITDA; management cited macro-related churn and product launch delays, but expects improved retention and accelerating growth in 2025 as new AI products scale .
  • Board-led strategic review continues and remains a potential stock catalyst; the company highlighted ongoing evaluation of “all strategic options” to maximize shareholder value .

What Went Well and What Went Wrong

What Went Well

  • Exceeded Q2 forecast and achieved the fourth straight quarter of positive adjusted EBITDA; adjusted gross margin expanded 500 bps YoY to 85% (77% GAAP) on operating efficiencies and mix shift away from sunset products .
  • Momentum in AI product strategy: launch of Copilot for Policy and “AI Product Day 2024” drove engagement; management emphasized building a policy/regulatory “Bloomberg Terminal” with proprietary data and AI .
  • Operating expense discipline: total OpEx fell 25% YoY in Q2; R&D (-29%), S&M (-23%), and G&A (-30%) supported margin gains and sustained adjusted EBITDA profitability .

What Went Wrong

  • Lower-than-expected retention rates in recent quarters reduced ARR growth, forcing a cut to full-year revenue guidance; management attributed this to macro headwinds and delays in product enhancements .
  • YoY revenue decline (-11%) in Q2 (post Board.org divestiture) and advisory/advertising revenue down 38% YoY as non-core offerings were discontinued .
  • Cash reporting discrepancy between press release and call: CFO cited ~$38M cash at quarter-end, while the balance sheet shows $30.6M cash and $7.1M short-term investments—suggesting the call referenced cash including short-term investments .

Financial Results

Headline financials (quarterly)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$34.265 $32.112 $29.246
GAAP Gross Margin %67% 77% 77%
Adjusted Gross Margin %83% 85% 85%
Net Income (Loss) ($USD Millions)$(50.748) $50.599 $(12.764)
Diluted EPS ($USD)$(0.39) $0.37 $(0.09)
Adjusted EBITDA ($USD Millions)$2.987 $1.217 $1.774
Adjusted EBITDA Margin %9% 3.8% 6.1%

Notes:

  • Q1 2024 net income/EBITDA reflect a $71.6M gain on sale of Board.org; adjusted EBITDA strips non-recurring items .

Revenue breakdown (subscription vs. advisory/other)

MetricQ4 2023Q1 2024Q2 2024
Subscription Revenue ($USD Millions)$31.096 $29.626 $27.151
Advisory, Advertising, Other ($USD Millions)$3.169 $2.486 $2.095
Subscription % of Total~90% ~92% ~93%

Key performance indicators (KPIs)

KPIQ4 2023Q1 2024Q2 2024
Run-Rate Revenue (RRR, $USD Millions)$140 $122 $121
Pro Forma RRR ($USD Millions)$130 $122 $121
Annual Recurring Revenue (ARR, $USD Millions)$126 $110 $109
Pro Forma ARR ($USD Millions)$119 $110 $109
Net Revenue Retention (NRR)99% 96% 98%

Q2 2024 vs Company Guidance vs Consensus

MetricActual Q2 2024Company Guidance (as of 05/09/2024)S&P Global Consensus
Revenue ($USD Millions)$29.246 ~ $29 Unavailable via S&P Global at time of request
Adjusted EBITDA ($USD Millions)$1.774 ~ $1 Unavailable via S&P Global at time of request

Consensus note: Wall Street consensus (S&P Global Capital IQ) could not be retrieved (SPGI request limit exceeded); consensus data unavailable at the time of analysis.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenues ($USD Millions)FY 2024$123–$127 (05/09/2024) ~ $121 (08/08/2024) Lowered
Adjusted EBITDA ($USD Millions)FY 2024$7–$9 (05/09/2024) ~ $8 (08/08/2024) Raised/Tightened
Total Revenues ($USD Millions)Q3 2024N/A~ $29 (08/08/2024) Initial guide
Adjusted EBITDA ($USD Millions)Q3 2024N/A~ $2 (08/08/2024) Initial guide

Drivers: The FY revenue cut was attributed to “lower than expected rates of customer retention” driven by macro headwinds and delayed product enhancements, while FY adjusted EBITDA was raised/tightened on continued operating efficiencies and resource reallocation to higher-return segments .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
AI/technology initiativesIntroduced FiscalNoteGPT, Risk Connector, and AI CoPilots; emphasized domain-specific AI and partnerships (OpenAI, Microsoft, Google) Launched Copilot for Policy; “AI Product Day” showcased roadmap; positive customer/analyst reception and product-led growth motion Strengthening
Macro/retentionQ4 noted macro-related sales cycle pressure; Q1 reaffirmed transformation year and seasonality; aiming for double-digit growth in 2025 Churn/retention softness cited; guidance cut on revenue; management expects improvements with product enhancements in 2H24/2025 Mixed/near-term headwind
Product performance/portfolio mixStreamlined portfolio; sunset non-core products; risk/security and Europe cited as growth areas Continued investment in AI and core offerings; advisory/other revenue reduced as non-strategic offerings sunset Mix optimizes margins
Regional trends (Europe)Europe ~15% of revenue; double-digit growth opportunity highlighted “Modest growth” in Europe continues; leveraging Dragonfly integration Stable/modestly positive
Regulatory/legal/strategic reviewSpecial Committee reviewing strategic options; Board.org sale at ~7x ARR highlighted undervaluation and balance sheet improvements Strategic review continues; Board maintains all options to maximize shareholder value Ongoing/catalyst
R&D execution/operational efficiency~$25M annualized expense reduction; adjusted EBITDA positive ahead of plan OpEx down 25% YoY; fourth straight positive adjusted EBITDA; adjusted gross margin expansion Sustained efficiency gains

Management Commentary

  • “We continue to assess avenues to leverage our market leading political, legislative, and regulatory policy data sets… while we pursue our long term growth strategy of increased market share and improving revenue growth and sustained profitability.” — Tim Hwang, CEO .
  • “Our second quarter results exceeded our forecast, as we continued to both invest in our product strategy and extract operating efficiencies… we raised and tightened our profitability forecast… We expect to drive higher customer engagement, retention rates, and revenue growth in 2025 and beyond.” — Jon Slabaugh, CFO .
  • “We are the market-leading AI platform for the regulatory, legislative, policy and geopolitical intelligence sectors, essentially the Bloomberg Terminal for regulatory and legislative and strategic risk.” — Tim Hwang (prepared remarks) .
  • “Gross margins remained strong… 77% GAAP and 85% adjusted… improvements primarily reflect our focus on consistent adjusted EBITDA growth and the impact of the sale of Board.org, sunset products and improved efficiencies.” — Jon Slabaugh .

Q&A Highlights

  • Revenue guidance cut drivers: Macro-related churn and slower decision-making; initiatives around product improvements and customer scoring aim to improve retention .
  • Strategic actions: No current plans for further divestitures; Board continues to evaluate options to maximize shareholder value .
  • Bookings/seasonality: Healthy new logo pipeline; second-half bookings expected to improve despite macro softness .
  • Cash/debt context: CFO noted ~$38M cash at quarter-end and total debt (incl. accrued interest) ~$172M; balance sheet shows $30.6M cash and $7.1M short-term investments (supporting the ~$38M figure) .
  • Copilot adoption and GTM: Product-led growth approach for AI Copilots; upsell/cross-sell into enterprise base and partnerships under exploration .

Estimates Context

  • S&P Global consensus for Q2 2024 could not be retrieved due to a data access limit; consensus data unavailable at the time of analysis.
  • Relative to internal guidance, Q2 revenue ($29.2M) and adjusted EBITDA ($1.8M) both modestly exceeded targets (~$29M and ~$1M), but the FY revenue guide was cut to ~$121M and adjusted EBITDA raised/tightened to ~$8M, implying potential downward revisions to sell-side revenue estimates and upward revisions to profit/margin expectations .

Key Takeaways for Investors

  • FiscalNote is prioritizing profitability and operating leverage: Q2 adjusted EBITDA positive for the fourth straight quarter; adjusted gross margin at 85% with OpEx down 25% YoY .
  • Near-term revenue headwinds reflect retention softness and macro, but management expects AI product launches and platform enhancements to support improved engagement and 2025 acceleration .
  • Subscription revenue remains ~90%+ of total with durable high-margin characteristics; advisory/other will stay smaller after sunset actions .
  • Strategic review remains an overhang/catalyst; prior asset sale (Board.org) highlighted intrinsic value relative to market pricing .
  • Watch Q3 execution vs. guide (~$29M revenue, ~$2M adjusted EBITDA) and ARR/NRR trajectory into year-end as indicators of retention improvement .
  • For trading: Positive EBITDA momentum and tightened FY profit guide are supportive, but revenue guide cut and commentary on churn/macro temper top-line near term—stock likely to react to evidence of improving retention/product uptake and any strategic outcomes .
  • Medium-term thesis: If AI Copilots scale and Europe/security segments grow as expected, operating leverage could expand further, supporting margin-led rerating as revenue re-accelerates in 2025 .