FiscalNote Reports First Quarter 2024 Financial Results
Outlines Accelerated AI Product Strategy and Roadmap
-
Reports Q1 2024 total revenues of
$32.1 million and adjusted EBITDA of$1.2 million (1), both slightly exceeding previously provided guidance - Reaffirms forecast for FY 2024 and issues forecast for Q2 2024
-
Successfully completes Board.org divestiture for a total consideration of up to
$103.0 million - Accelerates its strategy of developing revolutionary AI Copilots to transform Legal, Regulatory, and Policy workflows using a new, proprietary modular framework
- Board of Directors continues to review all strategic options available to the Company to maximize shareholder value
These results mark another quarter of delivering on expected results driven by a blue chip customer base, durable recurring revenue and high gross margins, which form the basis of its increasing adjusted EBITDA and ongoing leadership in delivering AI-enabled policy and market information. The first quarter of 2024 represented an
The Company also unveiled an accelerated AI product strategy and roadmap that leverages the decade-long investment in collecting legislative, regulatory, and geopolitical information in 80 different countries as well as partnerships with
The Company has also been approached by both existing and new business partners to explore data licensing and/or co-selling the Company’s Copilots and AI Agents. As a result, the Company is exploring working with several large language model companies to potentially license portions of the Company’s data and AI portfolio with the goal of exposing a larger universe of users to its data.
“The performance in the first quarter was a good start to the year and reflects initial progress following our strategic initiatives throughout 2023 to rationalize our cost structure, divest non-core assets, and tighten the focus of our product mix,” said
Financial Highlights(2)
Q1 2024 vs. Q1 2023
|
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|
Three Months Ended |
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|
|
|
||||
($ in millions) |
|
|
2024 |
|
|
|
2023 |
|
|
% Change |
|
Total Revenues (formerly "GAAP Revenue") |
|
$ |
32.1 |
|
|
$ |
31.5 |
|
|
2 |
% |
Subscription Revenue as % of Total Revenues |
|
|
~92 |
% |
|
|
~90 |
% |
|
|
|
Gross Profit |
|
$ |
24.9 |
|
|
$ |
22.6 |
|
|
10 |
% |
Gross Margin |
|
|
77 |
% |
|
|
72 |
% |
|
500 |
bps |
Adjusted Gross Profit |
|
$ |
27.3 |
|
|
$ |
25.2 |
|
|
8 |
% |
Adjusted Gross Margin |
|
|
85 |
% |
|
|
80 |
% |
|
500 |
bps |
Net Income (Loss) |
|
$ |
50.6 |
|
|
$ |
(19.3) |
|
|
|
* |
Adjusted EBITDA |
|
$ |
1.2 |
|
|
$ |
(7.0) |
|
|
|
* |
Adjusted EBITDA Margin |
|
|
4 |
% |
|
|
(22) |
% |
|
|
|
Cash and Cash Equivalents |
|
$ |
43.6 |
|
|
$ |
46.7 |
|
|
|
|
bps - Basis Points |
|
|
|
|
|
|
|
|
|
|
|
* - percentage change is greater than +/- 100% |
First Quarter and Recent Operational Highlights
-
Completed the divestiture of Board.org, a non-core product offering, for total consideration of up to
$103.0 million , including$95.0 million in cash at close,$65.7 million of which was used to repay senior debt, delivering a strengthened balance sheet while also bolstering cash balances. -
Amended our Credit Agreement with our senior lenders to, among other things, extend the commencement of amortization payments to
August 15, 2026 , leaving the maturity date ofJuly 2027 unchanged. -
Introduced the
FiscalNote Global Intelligence Copilot, an AI-powered assistant to help customers assess the shifting global landscape, manage emerging developments, and mitigate risk involved with the world’s most pressing geopolitical, macroeconomic, security, and regulatory challenges. The Copilot is the first in a series of AI-powered copilots the Company will launch as it accelerates its roadmap of groundbreaking AI agents to transform legal, regulatory, and legislative workflows. - Secured a six-figure, multi-year agreement with a major state legislature for FiscalNote’s Fireside constituent relationship management solution.
-
Announced the launch of StressLens, a pioneering and innovative new AI product that equips
FiscalNote customers with the real-time ability to quantify the behavioral impact of leading decision makers and influencers across the financial, regulatory, and government domains. - European information, operational and security risk, and large enterprise business sectors showing strong, outperforming growth as Company invests behind growth.
Commenting on highlights from the first quarter,
First Quarter Financial Performance
Revenue (2)
|
|
Three Months Ended |
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|
|
||||||
($ in millions) |
|
2024 |
|
|
2023 |
|
|
% Change |
|
|||
Subscription revenue |
|
$ |
29.6 |
|
|
$ |
28.5 |
|
|
|
4 |
% |
Advisory, advertising, and other revenue |
|
|
2.5 |
|
|
|
3.0 |
|
|
|
(19 |
)% |
Total revenues |
|
$ |
32.1 |
|
|
$ |
31.5 |
|
|
|
2 |
% |
For Q1 2024, subscription revenue increased
For Q1 2024, advisory, advertising, and other revenue decreased
Key Performance Indicators (3)
|
|
As of |
|
|
|
|
||||||
($ in millions) |
|
2024 |
|
|
2023 |
|
|
% Change |
|
|||
Run-Rate Revenue (RRR) |
|
$ |
122 |
|
|
$ |
134 |
|
|
|
(9 |
)% |
Pro Forma RRR* |
|
$ |
122 |
|
|
$ |
121 |
|
|
|
1 |
% |
Annual Recurring Revenue (ARR) |
|
$ |
110 |
|
|
$ |
119 |
|
|
|
(8 |
)% |
Pro Forma ARR* |
|
$ |
110 |
|
|
$ |
107 |
|
|
|
3 |
% |
Net Revenue Retention (NRR) |
|
|
96 |
% |
|
|
96 |
% |
|
|
|
|
*Pro forma RRR and Pro forma ARR adjusts prior periods for the impact of the divestiture of Board.org. |
For Q1 2024, Run-Rate Revenue declined
For Q1 2024, ARR declined
For Q1 2024, NRR was 96%, level with the prior year.
Operating Expenses (2)
|
|
Three Months Ended |
|
|
|
|
||||||
($ in millions) |
|
2024 |
|
|
2023 |
|
|
% Change |
|
|||
Cost of revenues |
|
$ |
7.2 |
|
|
$ |
8.9 |
|
|
|
(19 |
)% |
Research and development |
|
|
3.5 |
|
|
|
5.1 |
|
|
|
(32 |
)% |
Sales and marketing |
|
|
9.4 |
|
|
|
12.3 |
|
|
|
(23 |
)% |
Editorial |
|
|
4.7 |
|
|
|
4.3 |
|
|
|
9 |
% |
General and administrative |
|
|
16.1 |
|
|
|
18.2 |
|
|
|
(12 |
)% |
Amortization of intangible assets |
|
|
2.7 |
|
|
|
2.8 |
|
|
|
(5 |
)% |
Other# |
|
|
0.0 |
|
|
|
7.2 |
|
|
NM |
|
|
Total operating expenses |
|
$ |
43.6 |
|
|
$ |
58.9 |
|
|
|
(26 |
)% |
# - Q1 2023 includes goodwill impairment charge as well as transaction costs incurred related to our historical acquisitions |
|
|||||||||||
NM - Not meaningful |
|
|
|
|
|
|
|
|
|
In Q1 2024, operating expenses decreased versus prior year, primarily as a result of cost control measures instituted throughout 2023 as well as the impact of sunset products, partially offset by a full quarter of Dragonfly expenses in Q1 2024 vs Q1 2023.
Financial Forecast
The Company reaffirms prior financial forecasts for full year 2024 and issues financial forecasts for Q2 2024, in both instances reflecting management’s expectations based on the most recent information available, including factors such as the impact of the divestiture of Board.org and the discontinuation of certain non-strategic products. The Company expects 2024 to deliver its first full year of adjusted EBITDA profitability in the Company’s history.
Full Year 2024
|
|
|
|
|
|
($ in millions) |
Current Range As of |
|
Action |
|
Previous Range As of |
Total Revenues |
|
|
Unchanged |
|
|
Total Run-Rate Revenue (3) |
|
|
Unchanged |
|
|
Adjusted EBITDA (1) (4) |
|
|
Unchanged |
|
|
Q2 2024
|
|
($ in millions) |
As of |
Total Revenues |
Approximately |
Adjusted EBITDA (1) (4) |
Approximately |
The Company expects to return to double digit growth rates in 2025 as the Company re-allocates sales and product resources to high-performing offerings and as it realizes the benefits of its recent product and organizational initiatives – including changes to sales coverage models for enhanced cross-sell, upsell and retention, further scaling of new products, and accelerated product development.
Strategic Review
As previously announced, following the formation by the Company’s Board of Directors (the Board) of a Special Committee (the Committee) in
Conference Call, Presentation Supplement, and Webcast Information
Company management will host a conference call, with an accompanying presentation supplement, at
LIVE
-
By phone
-
Dial for the
U.S. orCanada 1 (888) 660-6510 or for International 1 (929) 203-0882 and use the conference ID 1271923.
-
Dial for the
-
By webcast
- Visit the Investor Relations section of the Company’s website.
REPLAY
-
By phone (available through
Thursday, May 23, 2024 )-
Dial for the
U.S. orCanada 1 (800) 770-2030 or for International 1 (609) 800-9909 and enter the conference ID 1271923.
-
Dial for the
-
By webcast
- Visit the Investor Relations section of the Company’s website.
Footnotes
(1) |
Non-GAAP measure. See “Non-GAAP Financial Measures” and the reconciliation tables for the definitions and reconciliations of these non-GAAP financial measures to the most closely related GAAP financial measures. |
|
(2) |
All financial information incorporated within this press release is unaudited. |
|
(3) |
“Run-Rate Revenue,” “Annual Recurring Revenue,” and “Net Retention Revenue” are key performance indicators (KPIs). See “Key Performance Indicators” for the definitions and important disclosures related to these measures. |
|
(4) |
Because of the variability of items impacting net income and the unpredictability of future events, management is unable to reconcile without unreasonable effort the Company's forecasted adjusted EBITDA to a comparable GAAP measure. The unavailable information could have a significant impact on the non-GAAP measures. |
About
Safe Harbor Statement
Certain statements in this press release may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to future events or FiscalNote’s future financial or operating performance. For example, statements regarding FiscalNote’s financial outlook for future periods, expectations regarding profitability, capital resources and anticipated growth in the industry in which
Factors that may impact such forward-looking statements include FiscalNote’s ability to effectively manage its growth; changes in FiscalNote’s strategy, future operations, financial position, estimated revenue and losses, forecasts, projected costs, prospects and plans; the terms of any proposal
These and other important factors discussed in FiscalNote’s
Consolidated Statements of Operations (Unaudited) (in thousands, except shares and per share data) |
||||||||
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenues: |
|
|
|
|
|
|
||
Subscription |
|
$ |
29,626 |
|
|
$ |
28,467 |
|
Advisory, advertising, and other |
|
|
2,486 |
|
|
|
3,062 |
|
Total revenues |
|
|
32,112 |
|
|
|
31,529 |
|
Operating expenses: (1) |
|
|
|
|
|
|
||
Cost of revenues |
|
|
7,244 |
|
|
|
8,937 |
|
Research and development |
|
|
3,480 |
|
|
|
5,120 |
|
Sales and marketing |
|
|
9,415 |
|
|
|
12,298 |
|
Editorial |
|
|
4,660 |
|
|
|
4,265 |
|
General and administrative |
|
|
16,076 |
|
|
|
18,221 |
|
Amortization of intangible assets |
|
|
2,685 |
|
|
|
2,814 |
|
Impairment of goodwill |
|
|
- |
|
|
|
5,837 |
|
Transaction (gains) costs, net |
|
|
(4 |
) |
|
|
1,408 |
|
Total operating expenses |
|
|
43,556 |
|
|
|
58,900 |
|
Operating loss |
|
|
(11,444 |
) |
|
|
(27,371 |
) |
|
|
|
|
|
|
|
||
Gain on sale |
|
|
(71,599 |
) |
|
|
- |
|
Interest expense, net |
|
|
7,362 |
|
|
|
6,681 |
|
Change in fair value of financial instruments |
|
|
527 |
|
|
|
(14,680 |
) |
Other expense (income), net |
|
|
241 |
|
|
|
(129 |
) |
Net income (loss) before income taxes |
|
|
52,025 |
|
|
|
(19,243 |
) |
Provision from income taxes |
|
|
1,426 |
|
|
|
30 |
|
Net income (loss) |
|
|
50,599 |
|
|
|
(19,273 |
) |
Other comprehensive income (loss) |
|
|
5,591 |
|
|
|
(359 |
) |
Total comprehensive income (loss) |
|
$ |
56,190 |
|
|
$ |
(19,632 |
) |
|
|
|
|
|
|
|
||
Earnings (Loss) per share attributable to common shareholders (Note 14): |
|
|
|
|
|
|
||
Basic |
|
$ |
0.39 |
|
|
$ |
(0.14 |
) |
Diluted |
|
$ |
0.37 |
|
|
$ |
(0.14 |
) |
Weighted average shares used in computing earnings (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
||
Basic |
|
|
130,712,032 |
|
|
|
133,082,639 |
|
Diluted |
|
|
146,027,085 |
|
|
|
133,082,639 |
|
(1) Amounts include stock-based compensation expenses, as follows: |
|
|
|
|
|
|
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of revenues |
|
$ |
101 |
|
|
$ |
58 |
|
Research and development |
|
|
310 |
|
|
|
390 |
|
Sales and marketing |
|
|
426 |
|
|
|
360 |
|
Editorial |
|
|
100 |
|
|
|
66 |
|
General and administrative |
|
|
5,238 |
|
|
|
5,632 |
|
Consolidated Balance Sheets (Unaudited) (in thousands, except shares, and par value) |
||||||||
|
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
36,464 |
|
|
$ |
16,451 |
|
Restricted cash |
|
|
852 |
|
|
|
849 |
|
Short-term investments |
|
|
7,134 |
|
|
|
7,134 |
|
Accounts receivable, net |
|
|
14,381 |
|
|
|
16,931 |
|
Costs capitalized to obtain revenue contracts, net |
|
|
3,156 |
|
|
|
3,326 |
|
Prepaid expenses |
|
|
4,000 |
|
|
|
2,593 |
|
Other current assets |
|
|
3,679 |
|
|
|
2,521 |
|
Total current assets |
|
|
69,666 |
|
|
|
49,805 |
|
|
|
|
|
|
|
|
||
Property and equipment, net |
|
|
5,859 |
|
|
|
6,141 |
|
Capitalized software costs, net |
|
|
13,762 |
|
|
|
13,372 |
|
Noncurrent costs capitalized to obtain revenue contracts, net |
|
|
3,790 |
|
|
|
4,257 |
|
Operating lease assets |
|
|
18,070 |
|
|
|
17,782 |
|
|
|
|
164,334 |
|
|
|
187,703 |
|
Customer relationships, net |
|
|
46,720 |
|
|
|
53,917 |
|
Database, net |
|
|
18,274 |
|
|
|
18,838 |
|
Other intangible assets, net |
|
|
16,786 |
|
|
|
18,113 |
|
Other non-current assets |
|
|
499 |
|
|
|
633 |
|
Total assets |
|
$ |
357,760 |
|
|
$ |
370,561 |
|
|
|
|
|
|
|
|
||
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Current maturities of long-term debt |
|
$ |
67 |
|
|
$ |
105 |
|
Accounts payable and accrued expenses |
|
|
11,101 |
|
|
|
12,909 |
|
Deferred revenue, current portion |
|
|
45,034 |
|
|
|
43,530 |
|
Customer deposits |
|
|
839 |
|
|
|
3,032 |
|
Contingent liabilities from acquisitions, current portion |
|
|
113 |
|
|
|
130 |
|
Operating lease liabilities, current portion |
|
|
3,395 |
|
|
|
3,066 |
|
Other current liabilities |
|
|
3,212 |
|
|
|
2,878 |
|
Total current liabilities |
|
|
63,761 |
|
|
|
65,650 |
|
|
|
|
|
|
|
|
||
Long-term debt, net of current maturities |
|
|
152,962 |
|
|
|
222,310 |
|
Deferred tax liabilities |
|
|
2,062 |
|
|
|
2,178 |
|
Deferred revenue, net of current portion |
|
|
389 |
|
|
|
875 |
|
Operating lease liabilities, net of current portion |
|
|
25,845 |
|
|
|
26,162 |
|
Public and private warrant liabilities |
|
|
3,840 |
|
|
|
4,761 |
|
Other non-current liabilities |
|
|
2,805 |
|
|
|
5,166 |
|
Total liabilities |
|
|
251,664 |
|
|
|
327,102 |
|
Commitment and contingencies (Note 17) |
|
|
|
|
|
|
||
Stockholders' equity: |
|
|
|
|
|
|
||
Class A Common stock ( |
|
|
11 |
|
|
|
11 |
|
Class |
|
|
1 |
|
|
|
1 |
|
Additional paid-in capital |
|
|
866,932 |
|
|
|
860,485 |
|
Accumulated other comprehensive income ( loss) |
|
|
4,969 |
|
|
|
(622 |
) |
Accumulated deficit |
|
|
(765,817 |
) |
|
|
(816,416 |
) |
Total stockholders' equity |
|
|
106,096 |
|
|
|
43,459 |
|
Total liabilities and stockholders' equity |
|
$ |
357,760 |
|
|
$ |
370,561 |
|
Consolidated Statements of Cash Flows (Unaudited) (in thousands) |
||||||||
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
50,599 |
|
|
$ |
(19,273 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
304 |
|
|
|
336 |
|
Amortization of intangible assets and capitalized software development costs |
|
|
5,113 |
|
|
|
5,411 |
|
Amortization of deferred costs to obtain revenue contracts |
|
|
1,009 |
|
|
|
832 |
|
Gain on sale of business |
|
|
(71,599 |
) |
|
|
- |
|
Impairment of goodwill |
|
|
- |
|
|
|
5,837 |
|
Non-cash operating lease expense |
|
|
297 |
|
|
|
1,832 |
|
Stock-based compensation |
|
|
6,175 |
|
|
|
6,506 |
|
Other non-cash expenses |
|
|
- |
|
|
|
190 |
|
Bad debt expense |
|
|
29 |
|
|
|
156 |
|
Change in fair value of acquisition contingent consideration |
|
|
(4 |
) |
|
|
(156 |
) |
Unrealized loss on securities |
|
|
49 |
|
|
|
- |
|
Change in fair value of financial instruments |
|
|
527 |
|
|
|
(14,680 |
) |
Deferred income taxes |
|
|
(71 |
) |
|
|
(218 |
) |
Paid-in-kind interest, net |
|
|
2,035 |
|
|
|
970 |
|
Non-cash interest expense |
|
|
737 |
|
|
|
1,074 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
1,320 |
|
|
|
(696 |
) |
Prepaid expenses and other current assets |
|
|
(1,924 |
) |
|
|
619 |
|
Costs capitalized to obtain revenue contracts, net |
|
|
(932 |
) |
|
|
(1,126 |
) |
Other non-current assets |
|
|
148 |
|
|
|
27 |
|
Accounts payable and accrued expenses |
|
|
460 |
|
|
|
(3,225 |
) |
Deferred revenue |
|
|
10,436 |
|
|
|
10,002 |
|
Customer deposits |
|
|
(1,239 |
) |
|
|
(1,923 |
) |
Other current liabilities |
|
|
318 |
|
|
|
(1,222 |
) |
Contingent liabilities from acquisitions, net of current portion |
|
|
(13 |
) |
|
|
(39 |
) |
Operating lease liabilities |
|
|
(969 |
) |
|
|
(4,052 |
) |
Other non-current liabilities |
|
|
(64 |
) |
|
|
(8 |
) |
Net cash provided by (used in) operating activities |
|
|
2,741 |
|
|
|
(12,826 |
) |
|
|
|
|
|
|
|
||
Investing Activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
(1,692 |
) |
|
|
(1,869 |
) |
Cash proceeds from the sale of business, net |
|
|
90,884 |
|
|
|
- |
|
Cash paid for business acquisitions, net of cash acquired |
|
|
- |
|
|
|
(5,010 |
) |
Net cash provided by (used in) investing activities |
|
|
89,192 |
|
|
|
(6,879 |
) |
|
|
|
|
|
|
|
||
Financing Activities: |
|
|
|
|
|
|
||
Proceeds from long-term debt, net of issuance costs |
|
|
801 |
|
|
|
6,000 |
|
Principal payments of long-term debt |
|
|
(65,727 |
) |
|
|
(27 |
) |
Payment of deferred financing costs |
|
|
(7,068 |
) |
|
|
- |
|
Proceeds from exercise of stock options and ESPP purchases |
|
|
196 |
|
|
|
264 |
|
Net cash (used in) provided by financing activities |
|
|
(71,798 |
) |
|
|
6,237 |
|
|
|
|
|
|
|
|
||
Effects of exchange rates on cash |
|
|
(119 |
) |
|
|
(251 |
) |
|
|
|
|
|
|
|
||
Net change in cash, cash equivalents, and restricted cash |
|
|
20,016 |
|
|
|
(13,719 |
) |
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
17,300 |
|
|
|
61,223 |
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
37,316 |
|
|
$ |
47,504 |
|
|
|
|
|
|
|
|
||
Supplemental Noncash Investing and Financing Activities: |
|
|
|
|
|
|
||
Warrants issued in conjunction with long-term debt issuance |
|
$ |
- |
|
|
$ |
178 |
|
Amounts held in escrow related to the sale of Board.org |
|
$ |
785 |
|
|
$ |
- |
|
Property and equipment purchases included in accounts payable |
|
$ |
124 |
|
|
$ |
121 |
|
|
|
|
|
|
|
|
||
Supplemental Cash Flow Activities: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
5,303 |
|
|
$ |
4,740 |
|
Cash paid for taxes |
|
$ |
2 |
|
|
$ |
112 |
|
Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with
Adjusted Gross Profit and Adjusted Gross Profit Margin
We define Adjusted Gross Profit as Total Revenue minus cost of revenues, before amortization of intangible assets that are included in costs of revenues. We define Adjusted Gross Profit Margin as Adjusted Gross Profit divided by Total Revenues.
We use Adjusted Gross Profit and Adjusted Gross Profit Margin to understand and evaluate our core operating performance and trends. We believe these metrics are useful measures to us and to our investors to assist in evaluating our core operating performance because they provide consistency and direct comparability with our past financial performance and between fiscal periods, as the metrics eliminate the non-cash effects of amortization of intangible assets that may fluctuate for reasons unrelated to overall operating performance.
Adjusted Gross Profit and Adjusted Gross Profit Margin have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. They should not be considered as replacements for gross profit and gross profit margin, as determined by GAAP, or as measures of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes. Adjusted Gross Profit and Adjusted Gross Profit Margin as presented herein are not necessarily comparable to similarly titled measures presented by other companies.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA reflects further adjustments to EBITDA to exclude certain non-cash items and other items that management believes are not indicative of ongoing operations. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by Total Revenues.
We disclose EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin herein because these non-GAAP measures are key measures used by management to evaluate our business, measure our operating performance and make strategic decisions. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are useful for investors and others in understanding and evaluating our operating results in the same manner as management. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for net income (loss), net income (loss) before income taxes, or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business would have material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate non-GAAP financial measures, which reduces their comparability. Because of these limitations, you should consider EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP.
Adjusted Gross Profit and Adjusted Gross Profit Margin
The following table presents our calculation of Adjusted Gross Profit and Adjusted Gross Profit Margin for the periods presented:
|
|
Three Months Ended |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Total revenues |
|
$ |
32,112 |
|
|
$ |
31,529 |
|
Costs of revenue |
|
|
(7,244 |
) |
|
|
(8,937 |
) |
Amortization of intangible assets |
|
|
2,428 |
|
|
|
2,597 |
|
Adjusted Gross Profit |
|
$ |
27,296 |
|
|
$ |
25,189 |
|
Adjusted Gross Profit Margin |
|
|
85 |
% |
|
|
80 |
% |
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
The following table presents our calculation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the periods presented:
|
|
Three Months Ended |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Net loss |
|
$ |
50,599 |
|
|
$ |
(19,273 |
) |
Provision from income taxes |
|
|
1,426 |
|
|
|
30 |
|
Depreciation and amortization |
|
|
5,417 |
|
|
|
5,747 |
|
Interest expense, net |
|
|
7,362 |
|
|
|
6,681 |
|
EBITDA |
|
|
64,804 |
|
|
|
(6,815 |
) |
Gain on disposal of Board.org(a) |
|
|
(71,599 |
) |
|
|
- |
|
Stock-based compensation |
|
|
6,175 |
|
|
|
6,506 |
|
Change in fair value of financial instruments (b) |
|
|
527 |
|
|
|
(14,680 |
) |
Other non-cash charges (c) |
|
|
45 |
|
|
|
5,873 |
|
Acquisition and disposal related costs (d) |
|
|
704 |
|
|
|
1,222 |
|
Employee severance costs (e) |
|
|
107 |
|
|
|
369 |
|
Non-capitalizable debt raising costs |
|
|
254 |
|
|
|
206 |
|
Business Combination with DSAC (f) |
|
|
- |
|
|
|
184 |
|
Loss contingency (g) |
|
|
- |
|
|
|
168 |
|
Costs incurred related to the Special Committee (h) |
|
|
200 |
|
|
|
- |
|
Adjusted EBITDA |
|
$ |
1,217 |
|
|
$ |
(6,967 |
) |
Adjusted EBITDA Margin |
|
|
3.8 |
% |
|
|
(22.0 |
)% |
(a) |
Reflects the gain on disposal from the sale of Board.org on |
|
(b) |
Reflects the non-cash impact from the mark to market adjustments on our financial instruments. |
|
(c) |
Reflects the non-cash impact of the following: (i) charge of |
|
(d) |
In 2024 reflects the costs incurred related to the sale of Board.org, principally consisting of accounting, tax, and legal fees. In 2023 reflects the costs incurred to identify, consider, and complete business combination transactions consisting of advisory, legal, and other professional and consulting costs. |
|
(e) |
Severance costs associated with workforce changes related to business realignment actions. |
|
(f) |
Includes non-capitalizable transaction costs incurred within one year of the Business Combination with DSAC. |
|
(g) |
Reflects accounting and legal costs incurred associated with the settlement with |
|
(h) |
Reflects costs incurred related to the Special Committee. |
Key Performance Indicators
We monitor the following key performance indicators to evaluate growth trends, prepare financial projections, make strategic decisions, and measure the effectiveness of our sales and marketing efforts. Our management team assesses our performance based on these key performance indicators because it believes they reflect the underlying trends and indicators of our business and serve as meaningful indicators of our continuous operational performance.
Annual Recurring Revenue (“ARR”)
Approximately 90% of our revenues are subscription based, which leads to high revenue predictability. Our ability to retain existing subscription customers is a key performance indicator that helps explain the evolution of our historical results and is a leading indicator of our revenues and cash flows for subsequent periods. We use ARR as a measure of our revenue trend and an indicator of our future revenue opportunity from existing recurring subscription customer contracts. We calculate ARR on a parent account level by annualizing the contracted subscription revenue, and our total ARR as of the end of a period is the aggregate thereof. ARR is not adjusted for the impact of any known or projected future customer cancellations, upgrades or downgrades, or price increases or decreases. The amount of actual revenue that we recognize over any 12-month period is likely to differ from ARR at the beginning of that period, sometimes significantly. This may occur due to timing of the revenue bookings during the period, cancellations, upgrades, or downgrades and pending renewals. ARR should be viewed independently of revenue as it is an operating metric and is not intended to be a replacement or forecast of revenue. Our calculation of ARR may differ from similarly titled metrics presented by other companies.
Run-Rate Revenue
Management also monitors Run-Rate Revenue, which we define as ARR plus non-subscription revenue earned during the last 12 months. We believe Run-Rate Revenue is an indicator of our total revenue growth, incorporating the non-subscription revenue that we believe is a meaningful contribution to our business as a whole. Although our non-subscription business is non-recurring, we regularly sell different advisory services to repeat customers. The amount of actual subscription and non-subscription revenue that we recognize over any 12-month period is likely to differ from Run-Rate Revenue at the beginning of that period, sometimes significantly.
Net Revenue Retention (“NRR”)
Our NRR, which we use to measure our success in retaining and growing recurring revenue from our existing customers, compares our recognized recurring revenue from a set of customers across comparable periods. We calculate our NRR for a given period as ARR at the end of the period minus ARR contracted from new clients for which there is no historical revenue booked during the period, divided by the beginning ARR for the period. For our federal government clients, we consider subdivisions of the same executive branch department or independent agency (for example, divisions of a single federal department or agency) to be a single customer for purposes of calculating our account-level NRR. For our commercial clients, we calculate NRR at a parent account level. Customers from acquisitions are not included in NRR until they have been part of our consolidated results for 12 months. Accordingly, the 2022 and 2023 Acquisitions are not included in our NRR for the three months ended
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