ladies and gentlemen good afternoon and thank you for standing by my name is abby and i will be your conference operator today at this time i would like to welcome everyone to the fiscal no holdings incorporated fourth quarter and full year 2024 financial results conference call all lines have been placed on mute to prevent any background noise after the speakers remarks there will be a question and answer session if you would like to ask a question during that time simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to the company. You may begin.

Good evening. My name is Bob Burrows, Investor Relations for Fiscal Notes, and we are pleased you all could join us. The purpose of today's call is to discuss Fiscal Notes' fourth quarter and full year 2024 financial results and 2025 outlook. Joining me with prepared comments are Josh Resnick, President and CEO, and John Slava, 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 8K are available on the company website. In terms of important housekeeping, it is important to mention 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 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. With that, I'd like to turn the call over to Fiscal Notes CEO and President, Josh Resnick.

Thank you, Bob, for that introduction. And thanks to everyone for being here this evening. I'm pleased to join you as we cover key updates on the company, including our fourth quarter and full year 2024 financial results, our 2025 guidance, and what lies ahead for fiscal notes. With that, let's dive into the state of the company as we have continued to transform the business with clear focus and swift execution. We've emphasized three crucial pillars of this transformation. One, we are consistently and rapidly expanding adjusted EBITDA margin. Two, we are managing our debt and accelerating our path to positive free cash flow. And three, we are building a strong foundation for long-term, profitable, sustainable growth. I'll discuss each of these now. First, regarding adjusted EBITDA margins, today we announced $9.8 million in adjusted EBITDA for 2024, a year-over-year improvement of more than $17 million and 1,400 basis points. This is an incredible accomplishment by our teams. It means that the company is operating vastly differently than in the past. To get there, we've been extremely disciplined in our operations. We've streamlined our management structure, sunset unprofitable and non-core initiatives, and made additional changes throughout the organization that enable us to drive greater efficiencies. For 2025, we're guiding to an adjusted EBITDA range of $10 million to $12 million, even after the impact of the anticipated divestiture of Oxford Analytica and Dragon Plus. This is more than double 2024 adjusted EBITDA margins on a pro forma basis. We've said before that we will focus on areas that are primed for profitable growth, simplify our product portfolio, and reduce organizational complexity. Excellence matters in what we do. And as we simplify and focus, you're increasingly seeing that excellence manifested in our expanding margins. And as we drive growth in the future, which I'll address in a few moments, we expect to see more of that revenue drop straight to the bottom line to fuel profit expansion and an acceleration towards positive free cash flow. Second, regarding managing our debt and accelerating the path to positive free cash flow, we have committed to taking the steps necessary to improve our capital structure. In 2024, we reduced our senior debt materially, and with the anticipated divestiture of Oxford Analytica and Dragonfly expected to close by the end of this month, we will have paid down our senior debt by more than 60% in the past year. Just as we had previously committed to transforming our operations and achieving adjusted EBITDA profitability, which we did sooner than was expected of us, we are now equally focused on paying down our debt and working towards positive free cash flow. Accordingly, a direct outcome of this debt reduction is a proportional decrease in our anticipated cash interest payments. And as I just noted, we are continuing to expand operating margins and drive greater efficiencies across the business, meaning that a greater proportion of our revenue is dropping to the bottom line. And beyond operating margins, we also are focused on disciplined management of capital expenditures, where we expect to achieve greater efficiencies as we consolidate our policy products onto a single platform policy note and deprecate multiple legacy platforms the collective result of these efforts lower cash interest expense increasing operating margins and reduction in capex is that we are accelerating the path to positive free cash flow. As John will discuss, our cash flow from operations improved significantly by more than 30 million dollars in 2024. Our path and progress towards positive free cash flow is clear and it should also be clear by now that when we commit to a path, we apply relentless focus and determination to achieve it. Third, regarding our foundation for long-term, profitable, sustainable growth. On our last call, I explained that our investment in product will fuel future growth by impacting customer engagement, retention, and expansion revenue. This is our strategy. It is sound, and it is working. I'll share more details in a moment, and I'm excited to provide deeper visibility into what we're doing and how we know it's working. That said, I also want to be direct about our 2025 revenue guidance and how it fits within the context of our plans and progress. Simply put, this year's guidance reflects in part the fact that the company's typical end-of-year ARR uptick did not materialize at the end of 2024. Needless to say, that falls short of our standards. We've moved quickly to address it, implementing key management changes that are already driving meaningful improvements in execution. At the same time, our investment in product, including the public launch of Policy Note in January, is driving momentum, as I'll discuss. The combination of these factors is impacting our leading indicators. specifically pipeline and customer engagement, which should drive a return to ARR growth in the second half of this year and serve as the foundation for sustained GAAP revenue growth in 2026 and beyond. We are confident in our path, and I will take you through exactly what is fueling our confidence in more detail. As I noted, in January of this year, we announced the launch of Policy Notes. PolicyNote builds on FiscalNote's decade of applying AI to policy and regulation as an AI-first platform that will consolidate all of our policy-related data and content via a single-user interface. This is foundational for product-led sales and growth and will be a centerpiece for efficient, scalable innovation for the future. While it's still early in PolicyNotes' life cycle, we're already seeing strong engagement and promising adoption trends. Customers using the platform are actively leveraging our advanced AI features and, more importantly, finding real value in it. We're closely monitoring usage to refine experiences and enhance workflows in ways that will drive customer engagement and retention. Notably, we're seeing the new features and experience in Policy Notes drive higher levels of customer activity, a strong signal of its potential to broadly increase both gross and net retention in the future. In addition, the qualitative feedback we're hearing from customers is overwhelmingly positive, with users highlighting the platform's intuitive experience and tangible impact on their organization. Since the launch of PolicyNote, we've also seen greater momentum in sales and marketing with increased inbound interest and a higher conversion rate as leads move through the funnel. More corporate clients are also committing to multi-year agreements. In the corporate sector, so far in Q1 of this year, the share of new logo ARR on multi-year contracts in our policy business is almost double what it was a year ago. This demonstrates the market's confidence in our offerings and our product roadmap, as well as our customers' expectation of continued reliance on our data, proprietary analysis, and AI features. Additionally, the rise in multi-year commitments serves as a clear signal of anticipated improvements in gross retention, positioning us for stronger top-line revenue growth in 2026 and beyond. A product transformation is not an overnight fix, but it is a lasting one, and especially here, where we're not just redesigning a product, but rather, we're consolidating our platforms, creating an entirely new AI-forward experience, and establishing a culture of product excellence and product-led sales and growth across the company. We expect that the indicators of future revenue growth, some of which I've just discussed, will continue to become more apparent over the course of this year as we return to ARR growth and our momentum accelerates, which will be further reflected in GAAP revenue growth in 2026. As for 2025, beyond these trends, we're also keeping an eye on market volatility. This is certainly true in the private sector, where macroeconomic unpredictability is likely to impact corporate buying decisions and timelines over the course of the year. In addition, unlike past years, we're also seeing some volatility in the public sector due to changes in the federal government. However, our platforms deliver essential data, information, and insights that enhance government efficiency, a value proposition that remains strong as federal spending comes under greater scrutiny, and that even serves to further the administration's goals of reducing overall government spend. By our estimates, the government saved $10 for every dollar spent with us. reinforcing the critical role we play. Given this, we currently do not anticipate these changes to have a material impact on our business. And in fact, we see potential upside as agencies shift their operation and spending priorities. That said, the dynamic nature of the government landscape is unprecedented, and the ultimate impact is difficult to predict at this time. Of course, we'll continue to closely monitor developments as the year goes on. Regardless of near-term variability, we're executing on a clear and compelling plan for long-term, sustainable, profitable growth. We have a diverse base of more than 4,000 customers, spanning a wide range of industries and market sectors. We solve complex global challenges that are becoming increasingly difficult for organizations to manage. Our transformational new product integrates the best in data, proprietary insights, and AI to deliver more powerful and efficient solutions for our customers. We've sharpened our focus by continuing to improve and streamline operations and by divesting non-core businesses, ensuring that our teams can execute with excellence. Looking ahead to the future, we'll continue to leverage our technology and industry expertise to automate more and more aspects of policy and regulatory workflows, driving greater share of wallet and high growth for the long run. At its core, we are executing a proven, time-tested playbook for success in information services and SaaS. We provide data and content that solves a high-value problem for end users. We offer insights via a technology platform with a best-in-class user experience, and we'll acquire new users, retain those accounts, and expand relationships over time. I'm extremely confident in our ability to do this. and I'm excited for what the future holds for Fiscal Notes. With that, I'll now turn the call over to John to take us through the company's 2024 financial results. John?

Thank you, Josh. Good afternoon, and thank you for joining Fiscal Notes' 2024 year-end conference call. As Josh mentioned, we're pleased to announce that we met and exceeded previous financial guidance for 2024, and I will dive into some of the key drivers behind our performance. Total revenue for Q4 2024 was $29.5 million, ahead of our forecast and lower than the prior year period, primarily due to the divestiture of Board.org. Subscription revenue remains the cornerstone of our business, and while flat on a sequential basis, it accounted for 92% of total in-quarter revenue consistent with our historical trends. Now, looking at some of the key performance metrics, as of Q4 2024, annual recurring revenue was $107 million versus $109 million in 2023 on a pro forma basis after adjusting for the impact of the ASIL and board.org divestitures. As Josh noted, we expect policy note to have a meaningful, positive impact as 2025 unfolds, and we're planning for ARR growth in the second half of 2025 that will translate into gap revenue growth in 2026. For the fourth quarter, 2024, net revenue retention was 98% versus 99% in the prior year. This is in line with our historical trends in a metric we are focused on improving over time through continued product innovation. Principal operating expenses in Q4 2024 continued the trend of year-over-year decreases, reflecting the benefits of efficiency measures first initiated in 2023 and consistently carried forward across the entirety of 2024. We also realized cost savings following the Board.org and ASIL divestitures, and we realized additional savings from sunsetting a few small, non-core products. Cost of revenues decreased by $6 million, or 53% in Q4, primarily due to previous technology-related amortization expenses that became fully amortized in 2024. R&D decreased by $1.1 million, or 28%. Sales and marketing decreased by just under $3 million, or 28%, and G&A decreased by $4.5 million, or 27%. Taken together, total operating expenses in Q4 2024 fell by over $11 million versus the prior year, or 24%, when excluding the goodwill impairment charge recorded in Q4 2023. On a pro forma basis, excluding non-cash charges and the impact of the divestitures of Board.org and ASIL, OPEX decreased approximately $1.8 million, or 6%. Gross margins in Q4 2024 improved, primarily due to the amortization expense recorded and cost of sales fully amortizing earlier in the year. Our adjusted gross margin improved to 87% in Q4 of 2024, as compared to 83% in the prior comparable quarter. Gap net loss for Q4 2024 was $13.4 million, significantly lower than the prior year period, due in part to a large non-cash goodwill impairment charge recorded in Q4 of 2023. In 2024, we did not record any goodwill impairment charges. Adjusted EBITDA was a positive $3.3 million, higher than the prior year, above our guidance of $2.5 million in the sixth consecutive quarter of positive adjusted EBITDA. The improvement to adjusted EBITDA, even after the pro forma impact of the divestiture of Board.org and ASIL, is the result of actions we've taken to improve operating efficiency. We will continue to increase operating leverage and realize additional efficiencies wherever and whenever possible. A few full-year highlights in 2024 include total revenues worth $120.3 million, lower year-over-year due to the impact of the various divestitures in 2024, but slightly above our guidance. Gross margin came in at 79%, and adjusted gross margin was 86%. And in terms of profitability, adjusted EBITDA was a positive $9.8 million, higher than the prior year and above the guidance of approximately $9 million. This performance in 2024 represents the first full year of positive adjusted EBITDA in our history, an important milestone in achievement. Cash and cash equivalents, including short-term investments at year-end 2024, were $35.3 million. And in terms of our debt stack, we ended 2024 with a substantially reduced senior term loan balance of $89 million following the two divestitures during the year. In aggregate, we reduced this balance by $70 million over a one-year span, clear evidence of our commitment to deleverage the capital structure. simplify the product mix, and focus on the core policy business servicing more than 4,000 top-tier customers across the globe. The senior term loan will be further reduced by the pending close of the recently announced asset sales. And before I get to guidance for 2025, I want to take a moment and touch on one final important metric for 2024. Cash flow from operations was negative $5.3 million in 2024. A $30 million improvement compared to the full year 2023. We took numerous steps to improve the operations and financial footing of the company in 2023 and 2024. And the trend lines indicate that we were on a clear path towards achieving positive operating cash flow. Finally, let me move to our forecast for 2025. For background and context, it is important to keep the following considerations in mind. Our forecast incorporates the impact of the assumed completed divestiture of Oxford Analytica and Dragonfly Intelligence initially announced in late February, which we expect to close later this month following the receipt of regulatory clearance. Importantly, our 2025 forecast includes total revenues of approximately $3 million and a nominal amount of adjusted EBITDA from these two businesses in the first quarter of 2025. Given these transactions, there are a few customary additional disclosures required in our 10-K filing. Therefore, we plan to file a Form 12-B-25 to extend the 2024 Form 10-K filing deadline. This will give us a bit more time to finalize the additional disclosures, including full-year performance financial information giving effect to the transaction after closing. Absent this transaction, we would otherwise be prepared to file on time, and we expect to file by the extended April 1st deadline. The forecast also reflects realization of additional efficiency initiatives, driving a substantially expanded adjusted EBITDA margin, more than double on a pro forma basis versus 2023. These initiatives, combined with a further reduction of our debt service costs, will accelerate our progress towards positive free cash flow. We anticipate our new Policy Note platform to have an increasing impact on customer engagement and retention over the course of the year as we migrate more users to the platform and offer additional enhancements, features, and micro products. In turn, we expect this will have an increased positive impact on ARR across the year, with a weighting on the second half, contributing to a higher, more substantial revenue growth rate in 2026. Finally, and as Josh alluded to earlier, our forecast is informed by our ongoing evaluation of current market volatility, in particular the private sector where macroeconomic unpredictability is likely to impact corporate buying decisions and timelines over the course of the year. In addition, it was informed by our assumptions regarding changes within the federal government. Our 2025 forecast reflects our current expectations based on the most recent information available and is subject to adjustment based on changes in business conditions across the year. With that as a backdrop, we are forecasting full year 2025 total revenues in the range of $94 to $100 million and adjusted EBITDA in a range of $10 to $12 million. And for pacing across the year, we are also forecasting first quarter 2025 total revenues in a range of $26 to $27 million and adjusted EBITDA of approximately $2 million. In summary, our business experienced significant change in 2024 and ended the year in a more stable and resilient position than at the outset of the year. Our expectations for 2025 reflect the building strength and resilience of our streamlined and disciplined operating plan and focused product roadmap. As we work to drive growth and retention in our customer base, we also look to realize increasing operating leverage and therefore expanding adjusted EBITDA, both in absolute dollars as well as margins. Additionally, we will continue to control annual CapEx while managing, and where possible, reducing cash interest expense, all in pursuit of accelerating the path to positive free cash flow. That concludes my prepared remarks. I'll turn it over to the operator to begin the question and answer session. Operator.

Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We ask that you please limit yourself to one question. Again, it is star one if you would like to join the queue. And your first question comes from the line of Jesse Sobelson with D. Borel Capital. Your line is open.

Hey, everyone. Thanks for taking my questions here. I was just curious, on this new Policino platform, would you be able to disclose how many of your existing customers have begun to adopt it since the January launch and what the initial feedback has been?

Hey, Jesse. This is Josh. Thanks for the question. We're not right now disclosing how many customers are using that versus using our other platforms. But I will tell you, we are getting good engagement on the platform. We're monitoring activity very closely, as you can imagine, for a new product. Some of the things that we're seeing are very high activity on the part of the accounts who are using it. That includes both at the account level and the individual user level. We're also looking to see what exactly they're engaging with and trying to gauge what value they're getting out of the features that we have. And we're very pleased to see that they're engaging to a high degree with our AI features, including our AI assistant, our AI alerting, and the like. And that helps tell us the value that they're getting out of it as well. So, in other words, they're able to quickly get to the answers they're trying to get to, which is what proves out value to them. And as an example with our AI alerts, that does a good job of letting them know about things they weren't even aware that they needed to be tracking. So, again, tremendous value add for customers. So we're seeing them, the levels of engagement that we like to see, we're seeing them engage with the types of features that we want to see as well to know they're getting value. And then we're also engaging highly to get qualitative feedback out of customers as well. And, again, that's validating what we're seeing in the data in terms of usage and in terms of benefits to their organization. So, again, examples being discovering policy changes they otherwise would not have been aware of, and that's something that's highly valuable to our end users. So we're continuing to monitor closely, looking at the data. That helps inform future product development as well, and we'll be excited to move more customers over the platform over time.

Great. I appreciate the detail there. Just one real quick one for me, and I'll jump back in the queue. You've done a great job reducing debt this year and near to completing a $40 million asset sale, which is pretty material. Going forward, have you determined what the target leverage ratio for the business might be, and do you have any thoughts on how quickly you might be able to get there? And thanks again.

Sure, Jesse. It's John, and thanks for the question. We are thinking about both bringing the leverage down in kind of an absolute amount, but also relative to our EBITDA. And we do plan to bring that kind of into a more conventional leverage model in the next couple of years. I think as we think about kind of EBITDA stepping up and debt stepping down, I can't really give specific targets, but we do think about it in that context and want to bring the leverage down into the two to three times leverage range over the foreseeable future.

And your next question comes from the line of Zach Cummins with B. Riley Securities. Your line is open.

Hi, good afternoon. Thanks for taking my questions. And just failing off of the balance sheet question. Once the divestments of Oxford Analytica and Dragonfly close, hopefully at the end of this month, do you give us a sense of maybe what kind of the pro-former balance sheet would look like at that point? I know you disclosed an anticipated amount you were hoping to pay down against the senior debt, but just curious if you give any sort of insight around that.

Somewhat limited when we talk about prospectively, but I think the debt, we're making about a $30 million dollar 29 point something million dollar reduction to the senior term loan that'll obviously bring down our cash interest expense to right around two million dollars per quarter which I think is gonna be helpful for us in the long term and there's you know we still have a couple of subordinated convertible notes behind that it and we'll continue to kind of manage those and think about ways to deleverage those over time as well understood and just my one quick follow-up

just so i'm level setting kind of a pro format expectation for the coming year within your slides that you provided can you give us a sense of what all is stripped out of kind of the q1 guidance and and also the uh 2025 guidance when comparing to those proforma 2024 numbers.

When you say stripped out, the guidance for Q1 is our gap revenue guidance. So there's nothing really pro forma out. I think you're talking about where we compare that to the pro forma number for the prior year. Correct.

Yeah. Yeah.

And the difference there would be is roughly $3 million of revenue attributable to the Dragonfly and Oxford businesses in the first quarter that will kind of not be there in subsequent quarters after we close that transaction.

Helpful. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

Thanks.

And as a reminder, it is star one if you would like to ask a question. And your next question comes from the line of Mike Lattimore with Northland Capital Markets. Your line is open.

Hi, this is Vijay Devar for Mike Lattimore. A couple of questions. So what percent of global intelligence customers are using the co-pilot?

I'm sorry, can you repeat the question?

Yes, what percent of global intelligence customers are using the co-pilot version? Yeah, go.

Well, that's a feature that's generally available through the product to all subscribers, so they all have the opportunity to engage with it. We don't disclose kind of metrics around customer usage, but it is something that was a broadly presented feature for the product.

Yeah, because, this is Josh, I can just add qualitatively, as John was saying, we don't disclose down to that level of metric. I will say we have had very good usage of the FNGI co-pilot, and both in terms, again, of share of accounts, breadth of accounts, and frequency of visits and the like. So we're very pleased with the metrics that we saw for that experience. But we don't give specific metrics to that level of detail. Understood.

And secondly, how were upsells and cross-sells in the quarter for the co-pilot?

Again, we don't disclose down to that level. Copilot, again, I can say generally was helpful or has been helpful in enabling those customers to discover new content, new products they weren't otherwise using. It was a good channel to drive some product-led sales. But, again, we don't disclose metrics down to that level.

Thank you.

And we have no further questions at this time. I will now turn the conference back over to the company for closing remarks.

Thank you, Abby. This, again, is Bob Burroughs. That concludes our call this evening, and we appreciate everyone's participation. With any additional questions, please contact any of us at any time. Again, all the materials related to the company's fourth quarter and full year 24 financial results are available on the FiscalNet website. We look forward to speaking with all of you again in the future. Goodbye.

Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.