FiscalNote Holdings Aktie

Good afternoon. My name is Janine, and I will be your conference operator for today. At this time, I would like to welcome everyone to FiscalNote Holdings, Inc. First Quarter 2026 Financial Results Conference Call. [Operator Instructions] And with that, I will now hand the call over to the company to begin the conference.

Good evening. My name is Yojin Yoon, Investor Relations for FiscalNote, and we are pleased you can join us this evening. The purpose of today's call is to discuss FiscalNote's first quarter 2026 financial results and guidance for both the full year and second quarter of 2026. Joining me with prepared remarks are Josh Resnik, Chief Executive Officer and President; and Jon Slabaugh, Chief Financial Officer and Chief Investment Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow. Please note, today's press release is available on the Investor Relations portion of the company website. In terms of housekeeping, please take note of 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 for a reconciliation of these measures to their most directly comparable GAAP financial measures. 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. With that, I'd like to turn the call over to FiscalNote's CEO and President, Josh Resnik.

Thank you, Yojin, and thanks to everyone for joining us today. I'm glad to be here to discuss FiscalNote's first quarter 2026 results and to provide an update on where we stand strategically as we move through what I believe is a genuinely exciting time for this company. We are a more profitable company than we were a year ago. We are on a defined path to positive free cash flow, and we are entering new markets with robust tailwinds.

The market conditions around us, AI adoption, agentic enterprise workflows, the emergence of prediction markets are moving in our direction, and I'm confident in our ability to take advantage of them. With that context, let me walk you through the quarter. On the financials, Q1 GAAP revenue came in at $20 million and adjusted EBITDA at $1 million, both consistent with our guidance. The Q1 ARR of $75.7 million reflects dynamics that we highlighted in March, along with some procurement delays in the public sector that pushed some renewals to Q2. Neither dynamic is changing our outlook, and we are reaffirming our full year revenue guidance.

What's worth highlighting is the profitability trajectory. You should expect to see a rapid step-up in adjusted EBITDA in the second half of this year, approximately doubling our adjusted EBITDA margin profile compared to the same period in 2025 as our restructuring fully phases in, and we are reaffirming our adjusted EBITDA guidance for 2026. For several years, we have worked to improve our adjusted EBITDA profile by sharpening our focus, instilling operational discipline and cutting spending that did not serve our core mission. In 2026, we are accelerating that trajectory significantly as the workforce transformation and operational restructuring we announced in March, much of it enabled by broad AI deployment, are designed to produce structural improvements in our operating leverage without sacrificing the opportunity for growth.

Equally important is that these structural changes are a springboard to positive free cash flow. Excluding onetime restructuring costs, we anticipate generating positive free cash flow for the current 12-month period, starting with the current quarter and ending March 31, 2027, and we expect to remain free cash flow positive on a trailing 12-month basis thereafter. This will be a first in FiscalNote's history, that is not a small thing. It reflects years of deliberate work to focus this business and improve operations and marks a genuine turning point and the opening of a promising new chapter.

Earlier this year, we completed the migration of our customers off of our largest legacy platform onto PolicyNote, a major milestone in our platform consolidation strategy. Early results are validating the approach. Usage indicators continue to be highly encouraging. Across all key user actions, PolicyNote continues to outperform the legacy FiscalNote platform in terms of both adoption and frequency. In addition, for the cohort of contracts that have come up for renewal post migration, PolicyNote net retention performance continues to exceed our legacy platforms, which underscores the directional improvement we're seeing.

The sample set is still limited, but the signal is the right one. Looking ahead, we will continue building on the more than 35 major feature releases we delivered in 2025, focusing especially on agentic workflows and leveraging our proprietary trusted data in the PolicyNote platform.

What makes PolicyNote different is not just that it's AI native. It's that the AI is grounded in a set of data and insights that no one else has, including proprietary analysis from our teams at CQ who have been covering U.S. federal policy for 80 years. The depth and quality of our information is simply unmatched, including analysis of the more than $7 trillion flowing through the federal budget and its downstream impacts on U.S. and global policy. When our customers use PolicyNote, they're not just accessing public data through an AI interface. They're accessing decades of expert judgment, structured and made actionable in ways that the general purpose AI platform simply cannot replicate.

Going forward, customer expectations are changing rapidly, opening doors for us to meet their needs in better and more sophisticated ways. Customers will increasingly expect platforms that understand their specific world and work proactively on their behalf, not just access to data, but intelligent action on their priorities. That's the direction of our investment in PolicyNote, focused on two areas in particular. First, personalized and configurable agentic workflows tied to our data. We've already begun this work within PolicyNote, and it's where a significant portion of our forward product investment will go.

The goal is to give each customer an experience that's shaped by their specific policy priorities, stakeholders and decision workflows, not a generic feed of information, but a system that learns and acts on their behalf. Second, proactive intelligence informed by what we see across our platform at scale. With thousands of customers across the private sector, public sector and NGO community, we develop a unique understanding of how policy issues are moving and what is capturing attention across the market.

We can use that aggregate view without ever compromising the confidentiality of any individual customer to service emerging issues and signal shifts that a customer might not yet know to look for. The platform gets smarter, the more it's used, and our customers benefit from that collective signal. Both of these investments reflect the same underlying principle. The more deeply our intelligence is woven into how a customer operates, the more value we deliver. And that principle extends well beyond our own platform.

Policy Note is where customers come to us. But increasingly, customers want to bring our intelligence to them, embedded directly into their own environments, workflows and AI agents. This is an exciting opportunity, and we're moving quickly to capture it. In March, we launched an expanded PolicyNote API with native support for the Model Context Protocol, MCP, an emerging standard that has achieved rapid adoption across the agentic AI ecosystem. This enables platforms built on Claude, OpenAI, Gemini and Microsoft to incorporate FiscalNote's legislative, regulatory and stakeholder intelligence as a trusted embedded data layer. And in April, we extended the API with district matching functionality, giving advocacy organizations instant access to federal, state and local legislative district data and enabling grassroots civic engagement at a scale that previously required significant custom development.

Since launch, we're seeing demand from a broad spectrum of customers, ranging from large enterprises ready to make substantial commitments to global self-serve customers beginning with free tests. To the latter point, this is the beginning of a true product-led growth motion as more than 1/3 of website sign-ups for the API are from outside the U.S., reflecting organic global demand for this data that we are now able to serve at a scale our sales team alone could never reach.

We plan to continue to expand the scope of data sets available through the API. And over the course of this year, we will also offer alternative pricing options, including consumption-based pricing that we expect will serve our customers' needs and expectations. Significantly, as customers leverage our API to combine our data with their own internal data, such as their operations, their customer base and their market intelligence as well as with other third-party data sets, our insights become far more valuable.

Think of our data the way you think about GPS signals, precise, authoritative and valuable on their own, but transformative once they're combined with real-time context. A GPS coordinate means one thing in isolation, but combined with traffic patterns, your schedule and local conditions, it becomes the intelligence that gets you where you need to go. Our policy data works the same way. Once embedded in a customer's own environment, it doesn't just inform, it drives decisions and becomes more central to how they operate.

We expect that dynamic to drive deeper engagement and higher average contract values over time. The economics here are attractive. Incremental cost of data delivery via our APIs is low. The infrastructure is already built and the addressable market expands significantly when customers can access our intelligence through a product-led motion and use it with any platform, any workflow, any agent. The upside is substantial and the investment required to capture it is not.

In February, we announced our strategic entry into political prediction markets. This is not a tangential bet. It's a natural adjacency that leverages FiscalNote's unique combination of authoritative data and expert analysis to occupy a defining role at the intersection of policy intelligence and outcome-based forecasting. Our role in this market is not to build or operate an exchange. It's to be the trusted intelligence layer that makes these markets more accurate, more credible and more useful to participants. Our structured legislative data sets, decades of domain expertise, a deep understanding of how policy outcomes actually develop give us a foundation for more precise contract specification and more defensible resolution frameworks, advantages that new entrants will find very difficult to replicate.

In March, we entered a strategic partnership with Good Wolf Studios to develop and monetize political prediction content and interactive products, and we expect to launch an initial offering midyear. These products are distinct from prediction markets themselves, but are designed to engage users in the same ecosystem through formats that may include gaming, content and interactive forecasting. Unlike exchange-operated prediction markets, they do not carry the same regulatory requirements, and they will create new engagement opportunities for our thousands of existing customers as well as new users, opening monetization models that are additive to our existing lines of business.

The prediction market opportunity is attractive because the primary inputs are data assets, analytical models and institutional relationships already exist. We're not making a capital-intensive bet. We're applying assets that we have already built to a market that is growing rapidly around us. The long-term prize here is significant. Political and policy risk is one of the last major categories of risk that has not yet been systematically priced by financial markets, and that is changing fast.

And as this ecosystem matures, our role as the trusted intelligence layer should become increasingly valuable. I also want to address FiscalNote's listing situation directly. Trading of our Class A common stock was suspended from the New York Stock Exchange on March 25. The delisting itself has had no impact on our day-to-day operations or our ability to serve customers, but restoring our listing on a national exchange remains a clear priority, and we're actively working toward that goal. In the interim, we have applied to uplift to the OTCQB Venture market, an important intermediate step that carries higher disclosure and governance standards and enables participation from a broader subset of institutional investors.

We expect this transition in the near term, subject to OTC markets approval. In conclusion, FiscalNote today is a fundamentally transformed organization. We're focused on our mission, more profitable in our operations and strategically positioned to compete and grow in new large markets with powerful tailwinds. When I look at the assets we've built, the opportunities in front of us through APIs, product-led growth and prediction markets and the trajectory of our profitability transformation, I'm confident in our strategy and in the strength of this team.

We expect to be free cash flow positive on a next 12-month basis and to remain so going forward. We expect the API and MCP business to become a growing contributor as adoption expands. And we expect our role in the political prediction market ecosystem to become increasingly valuable as the market matures. Taken together, this is a company that is more focused, more profitable and better positioned than it was a year ago, and we're moving with urgency to capture the opportunity in front of us. With that, I'll turn it over to Jon to walk through the financials in more detail. Jon?

Thank you, Josh. Good evening, and thank you for joining FiscalNote's First Quarter 2026 Earnings Call. Before turning to the financial results, I'll briefly highlight a few updates since year-end. As Josh mentioned and as previously disclosed in our 8-K filing, following the delisting of our Class A common stock from the New York Stock Exchange, our shares and warrants now trade on OTC markets under the symbol NOTE and NOTEWS. Importantly, our operations remain unchanged, and we continue to focus on disciplined execution, efficiency and clear pathways to return to sustainable long-term revenue growth and increased margins.

And with that, I will turn to financial results. First quarter 2026 results. Total revenue for Q1 2026 was $20 million, within our guidance range of $20 million to $21 million. Subscription revenue continues to be the foundation of our business and represents 95% of total revenue for the quarter, reinforcing the durability and predictability of our recurring revenue model. Non-subscription revenue was $1 million, lower than the prior year, primarily due to the timing of advisory engagements and a decline in the advertising revenues.

As of the end of the first quarter, annual recurring revenue, or ARR, was $75.7 million. This decline from $84.1 million at year-end was primarily driven by the loss of a small number of large customers who did not transition to our PolicyNote platform, along with ongoing federal spending headwinds related to DOGE and previously discussed revenue timing dynamics. On an organic basis, excluding divested businesses and discontinued products, subscription revenue declined approximately 11% year-over-year. Net revenue retention was 89% for the quarter compared to 93% in Q1 of 2025, reflecting the same retention challenges and the federal headwind factors already incorporated into our revenue guidance.

The GAAP net loss for the first quarter was $43.6 million, which includes a noncash goodwill impairment charge of $35.6 million recorded during the quarter. Excluding this charge, GAAP net loss was approximately $8 million. Adjusted EBITDA for the first quarter was $1 million, in line with our guidance. Adjusted EBITDA margin was 5.1% compared with 10.1% in Q1 of 2025, with the year-over-year margin compression primarily reflecting the revenue decline occurring ahead of the full realization of cost savings from actions implemented towards the end of the first quarter.

Those actions are progressing as planned, and we are already driving meaningful improvements in our operating cost structure, including a net reduction of approximately 37 full-time equivalent employees during the quarter, bringing total headcount to approximately 370 as of March 31, 2026. We expect these cost initiatives to more fully benefit margins in the coming quarter, which we will address further in our guidance.

On a year-over-year basis, cost of revenues, including amortization, was $4.2 million, a decrease of 41% compared with $7 million in Q1 of 2025, primarily reflecting lower amortization of capitalized software development costs as well as the impact of divested businesses. Research and development expense was $2 million, down 34% from $3.1 million, reflecting workforce reductions and the impact of divested businesses. Sales and marketing expense was $5.7 million, a decrease of 26% from $7.8 million, reflecting the impact of divested businesses and a more focused go-to-market approach.

Editorial expense was $3.6 million, a decrease of 25% from $4.8 million, primarily reflecting the impact of business dispositions. General and administrative expense was $9.5 million, a decrease of 42% from $16.3 million, reflecting lower personnel costs, significantly reduced transaction and integration expenses and the absence of divested business overhead. GAAP gross margin was 79% for the quarter, and adjusted gross margin was 87%, consistent with prior periods and reflecting the strong underlying economics of our subscription platform. Turning to the balance sheet.

At March 31, 2026, cash, restricted cash and short-term investments totaled $26.5 million, essentially flat with year-end. Operating cash flow was positive at $3 million for the quarter, primarily reflecting the benefit of seasonal renewal activity in the first quarter. While this performance highlights the underlying cash-generating characteristics of the business, it is important to view it in the context of normal first quarter seasonality, and we expect to achieve positive free cash flow on a trailing 12-month basis at the end of the first quarter 2027. In other words, over the next 12 months.

Our debt outstanding, excluding fair value adjustments, was $131.9 million at March 31, 2026, compared with $136.2 million at year-end. Outlook for 2026. Over the past several quarters, we have taken significant actions to reduce organizational costs, drive operating efficiencies and consolidate our platforms and complete the divestiture of non-core assets. Our streamlined cost structure and strong adjusted gross margins provide a more efficient foundation as we continue to align the business for improved performance. As we move forward, our priorities are focused on driving adoption of deeper engagement with the PolicyNote platform, expanding the delivery of our proprietary data through new channels, including APIs and emerging agentic workflows, enabling customers to embed our insights directly into their operations, building pipeline momentum across both existing and new markets and continuing to enhance operating leverage through disciplined cost management, AI adoption and ongoing platform consolidation.

We are not updating our full year 2026 revenue guidance of $80 million to $83 million or adjusted EBITDA guidance of $14 million to $16 million this time. Our adjusted EBITDA margin trajectory throughout the year is expected to improve materially from Q1's 5.1% as we realize the full annualized benefit of our headcount and cost actions in subsequent quarters. For the second quarter of 2026, we expect GAAP revenue between $19.5 million and $20.5 million and adjusted EBITDA of approximately $2.5 million. Finally, I want to address our path to positive free cash flow.

Based on the operating improvements we are implementing and our current outlook for revenue and profitability, we expect FiscalNote to achieve trailing 12-month positive free cash flow by the end of the first quarter of 2027 and to remain free cash flow positive thereafter. This objective remains a priority based upon our streamlined operating structure, continued margin expansion and disciplined capital management. To summarize, Q1 2026 results were in line with guidance, reflecting our continued cost discipline and solid execution.

As we move through 2026, we remain focused on driving operating leverage, increasing adoption of the PolicyNote platform, maintaining disciplined financial management as we progress towards sustainable profitability and positive free cash flow. At the same time, we are advancing new revenue opportunities, including in the prediction markets and through non-platform offerings such as our agentic APIs. We are also actively working to address our capital structure and remain committed to transparent communication with our stakeholders throughout the process.

With that, I'll turn the call back to the operator so we can begin the Q&A session.

[Operator Instructions] Our question comes from the line of Richard Baldry from ROTH Capital.

Sort of a technical question on the balance sheet, but the long-term debt moved up to the current side, I think that has something to do with the delisting thing. If you moved over to the OTC, does that satisfy the listing requirement codicils? Or can you walk us through sort of where you're at on the discussions with the debt holders?

Sure, Rich. It's Jon, and thank you for the question. So the movement off in the New York Stock Exchange did create a noncompliance event with certain subordinated convertible note holders. We have since kind of -- we've since entered into arrangements with them that gives us time to kind of come up with a longer-term solution. But because that's not finalized, we have to classify all the debt in the -- as current. But we are, as I said, working towards an amenable solution to all of our creditors, and we'll report out when the time comes when we have kind of a path forward.

Okay. Then we talked about the net retention number came down in the quarter. Can you talk about sort of early trends in Q2, if there's any changes to that or improvements to that, that you've seen?

Sure. We spoke about kind of the attrition of a couple of large customers, and those had a disproportionate effect on the calculation of net retention in the first quarter. The first quarter is a quarter where we have a fair amount of renewal, and that had an impact. We fully can't report on the second quarter yet, but it would be -- we feel good about that being in line with historical levels and where it needs to be in order for us to affirm our guidance for the year.

I guess last for me, the guidance for Q2 would either be down $0.5 million or up sequentially $0.5 million and the difference on sentiment would be pretty marked. Can you talk about what the key factors are to determine whether we set a floor or whether we could start climbing or we don't know if we set a floor yet on the revenues?

We have a lot of visibility into the revenue for the remainder of the year because of the nature of the recurring revenue contracts. We have certainly a lot of initiatives in place to stabilize and secure revenue and Josh talked about a couple of the new initiatives, particularly around APIs and ultimately around the prediction markets as well. But most importantly, the migration of customers to the PolicyNote platform is a stabilizing event for our customer base and should have a very positive impact on net retention -- gross and net retention. So going forward, it's hard to say exactly when we hit the last kind of dollar decline, but we feel good about the numbers moving up sequentially across the course of the year...

It's Josh. I was just going to add, just also you can be thinking about the API initiative that we have, we are seeing good strong demand for the APIs -- both at an enterprise level and from a product-led growth perspective in terms of sign-ups we're just getting straight to the website. So that's something that we're looking at to help support that growth going forward as well.

There are no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a good evening.

Ladies and gentlemen, good afternoon. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Holdings, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] And with that, I would now like to turn the call over to the company to begin the conference.

Good evening. My name is Yojin, Investor Relations for fiscal note, and we are pleased you could join us this evening. The purpose of today's call is to discuss FiscalNote's fourth quarter and full year 2025 financial results and guidance for 2026. Joining me with prepared remarks are Josh Resnik, Chief Executive Officer and President; and Jon Slabaugh, Chief Financial Officer and Chief Investment Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow.

Please note today's press release related current report on Form 8-K and updated version of the corporate overview presentation are all available on the Investor Relations portion of the company website. In terms of important housekeeping, please take note of 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 for the updated version of the corporate overview presentation, for a reconciliation of these measures to their most directly comparable GAAP financial measures. 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.

With that, I'd like to turn the call over to FiscalNote's CEO and President, Josh Resnik.

Thank you, Yojin and thanks to everyone for joining us. I'm glad to be here to discuss FiscalNote's full year 2025 results and to share our strategic vision for 2026 and beyond. Over the past year and including the recent market expansions and the additional streamlining that we announced today, we've made significant changes to strengthen our foundation and align our strategy with evolving customer needs and market opportunities. The FiscalNote you see today is more profitable, more agile and better positioned for the future. As outlined in today's press release, we are guiding to approximately $1 million of adjusted EBITDA in the first quarter and reflecting the cost actions announced today, $14 million to $16 million for the full year. This implies adjusted EBITDA of roughly $13 million to $15 million across the remaining 3 quarters with margins expected to exceed 20% in that same period. That represents a meaningful step change in profitability and approximately doubles our adjusted EBITDA margin profile compared to the same period in 2025.

Separate from adjusted EBITDA, what's vitally important is that after implementing the changes announced today and excluding onetime costs associated with the restructuring, we expect FiscalNote will generate positive free cash flow for the 12 months ending March 31, 2027. This is a significant inflection point and represents the start of a promising new chapter in FiscalNote's evolution. These efforts have provided the company with a much stronger foundation, and we are now taking a new leap forward to positive free cash flow, while also positioning the company to take advantage of opportunities in 2 new high-growth markets.

Today, we announced a plan to reduce our cash operating expenses by over 19%, significantly accelerating our ongoing operational transformation through changes to personnel as well as in-sourcing third-party spend. More specifically, we are implementing a workforce transformation plan that will reduce headcount by approximately 25% year-over-year. This is a continuation of our operational discipline that is now being accelerated by rapid advancements in generative and agentic AI. As you know, we have already eliminated more than $35 million in annual cash operating expenses over the past 3 years. We've done this through applying a clear strategic focus and ensuring that our operating structure and cadence reflects that focus, reducing investment in noncore and unprofitable areas. And as an organization that was born during the age of Big Data, when AI was known as machine learning and natural language processing, we have always operated at the leading edge of what we now call artificial intelligence.

We've been deploying the most recent forms of generative and agentic AI over the past year with the greatest focus in our R&D organization to strong results. We now have 100% adoption of AI tooling across our engineering organization, which is translating directly into development cycles that are now approximately 3x faster than before with work that previously took months now often completed in weeks and work that took weeks increasingly delivered in days. In Q4, our R&D teams used AI in 88% of their completed development work, enabling them to accomplish 70% more than they did in the same period 1 year prior. This is a clear example of what becomes possible when these tools are deployed effectively at scale. The bulk of reductions tied to today's announcement are in our commercial teams, content generation and G&A.

I'll walk you through how we're doing this and what that means for what you can expect going forward. We are reducing our commercial organization by approximately 24% on an expense basis and approximately 18% on a headcount basis, as we continue to align our go-to-market structure with how customers increasingly discover, evaluate and adopt our products. These actions include eliminating certain highly compensated senior roles and increasing automation of our outbound marketing activities, allowing us to operate more efficiently without reducing capacity. We also are deploying agentic AI workflows to significantly increase the speed, customization and scalability of client support, enabling higher service levels with a leaner team while maintaining coverage. In parallel, we are accelerating our transition toward product-led growth by expanding our API offerings and exploring additional low-friction purchasing mechanisms, including credit card-based, self-serve onboarding and emerging agentic AI payment models, allowing customers to access and scale usage of our data without traditional sales engagement.

We also are improving the efficiency of our content operations, by approximately 20% on an expense basis and approximately 33% on a headcount basis by leveraging generative AI for segments of our content production and deploying agentic workflows to automate certain routine editorial and publishing tasks, including managing publication workflows into our CMS. These initiatives reduced manual effort and lower-value activities while increasing speed and consistency of output. Importantly, we are minimizing changes in our highest-value areas, including bespoke monitoring and analytical services for clients as well as the CQ Roll Call newsroom's core reporting capabilities. Overall, our objective is to use AI to enhance productivity and scalability, while preserving the human expertise and differentiated coverage that define our premium offerings.

In G&A, we're reducing by approximately 12% on an expense basis through targeted and aggressive vendor savings. In parallel with the rapid advancement of agentic AI capabilities in recent months, we are deploying these tools at scale across the broader organization. This initiative combines targeted top-down transformation initiatives, along with organic adoption at the team level to improve productivity and execution across a broad set of function. As part of this effort, we are beginning to pair managers and team members with AI platforms, effectively creating human plus AI operating dyads that expand individual capacity and enable higher impact work. We view this as a strategic evolution in how modern companies are built and run recognizing that AI tools are increasingly becoming true force multipliers and that incremental adoption alone will not be sufficient to capture their full value.

Taken together, these actions are designed to structurally improve our operating leverage while preserving the drivers of retention, expansion and long-term growth. Our relative investment in product and R&D has increased with a larger share of capital allocated to investment in PolicyNote and emerging growth initiatives while reducing lower return cost areas. By simplifying workflows, reducing manual effort and reallocating capital towards scalable product capabilities, we expect to support both margin expansion and more efficient revenue generation over time. This is what gives us increased confidence in achieving consistent positive free cash flow while continuing to invest in the strategic initiatives that will define FiscalNote's next phase.

Importantly, we believe this transformation positions the company to grow more efficiently as customer consumption models continue to evolve. This transformation comes at a pivotal moment as we sit at an inflection point in how policy intelligence is consumed, trusted and acted on. This creates new avenues for FiscalNote to apply its data expertise and relationships and FiscalNote is well positioned for these new growth opportunities. Our company has a uniquely valuable set of assets. Global to local data spanning more than 100 countries and over 16,000 local districts assembled from highly fragmented and unstructured sources, award-winning proprietary analysis that is widely recognized for its expertise and objectivity. Deep domain expertise built over many years and thousands of trusted relationships with leading institutions across the private sector, public sector and NGO community.

The problem in our core business has not been the assets. Even setting aside our proprietary data and analysis, the public data sets are highly fragmented, unstructured and difficult to collective scale and making them decision-ready requires extensive normalization, context and domain expertise, which is where FiscalNote creates differentiated value. And while FiscalNote started doing this more than a decade ago, I think it has now become clear to everyone how important this data is to organizations around the world, making this valuable data even more ripe for consumption. The challenge with our core business then has not been the data, the problem has been the delivery mechanism. Our valuable data sets have been constrained by legacy platforms that were siloed and increasingly unable to keep pace with technology. That created a gap between the value we had and the value that we were able to deliver to our customers.

And beyond our own platform challenges, those interested in the data were limited in their ability to maximize value by combining our insights with their own internal data set as well as accessing our data through other platforms of their choosing. In short, the policy intelligence that we provide is highly valuable to organizations of all types around the world and with the right delivery mechanism, we believe FiscalNote can build a growing, thriving and highly profitable business. We've responded by rethinking delivery end-to-end, strengthening our platform while ensuring our intelligence can flow into new channels that are opening up meaningful, scalable growth opportunities.

The launch of PolicyNote a year ago was our first step in changing our own delivery mechanism. We knew that the impact of PolicyNote would take some time to develop and in a moment, I'll explain where we are on that path. But beyond PolicyNote itself, because we focus on our strengths and policy and have done the foundational work to ensure that our valuable insights can be leveraged outside our own platforms. We also placed ourselves in the path of significant new opportunities as the world around us is changing. As a result, at this new inflection point for information consumption, FiscalNote is uniquely positioned to take advantage of the growing demand for political and policy intelligence through new markets that barely existed a year ago, specifically prediction markets and AI-driven consumption. These are transformative new areas with the potential to scale quickly.

First, I'll touch on PolicyNote. In 2025, we executed the first phase of the PolicyNote migration, completely transitioning customers off of the legacy FiscalNote platform. Usage metrics on PolicyNote remained strong throughout 2025, with key activity adoption and frequency of use higher in PolicyNote compared to the legacy FiscalNote platform over a similar time period, indicating that a greater share of users have made PolicyNote part of their regular workflow. For example, the share of users viewing legislation rose by 250% and the share viewing alerts increased by 88%. These stats and others indicate both broader usage and repeat engagement.

In addition, as we continue to build a longer track record of customer performance on PolicyNote, we are seeing signs of improved retention compared with legacy platform cohorts. While PolicyNote currently represents only a portion of our overall customer base, and broader factors such as budget constraints, higher customer experience on legacy systems and ongoing platform refinement continue to influence results. We believe that these early trends point to the potential for stronger underlying customer health over time as the platform matures and adoption expands.

In that theme, as Jon will discuss in more depth, we have experienced some headwinds that are worth addressing directly. A small number of large enterprise customers chose to cancel without migrating to PolicyNote and therefore, did not have the opportunity to evaluate the new platform. In addition, broader macroeconomic pressures continue to influence client budgeting decisions across parts of our customer base. Looking ahead, PolicyNote is not standing still, and we still have more work to do. From a product development standpoint, we continue to invest in improving the core user experience as well as adding new AI-powered enhancements. I'm confident in the work our product and R&D teams are doing building on the more than 35 major features we launched in 2025, including AI legislative drafting, social listening for early policy signals, build comparison and AI-generated tariff impact reports. Going forward, we plan to focus on creating a differentiated experience that is heavy on agenetic workflow, tied to our unique and proprietary mix of specialized data and insights.

In summary, when PolicyNote is completed, it will be an all-in-one platform for customers who want to leverage an AI-native policy-specific vertical platform with trusted data and expertise. On the PolicyNote back end, we are leveraging best-in-class AI technology so that our customers get the benefit of advancements by the industry's leading platforms. But our in-depth prompt engineering and our ability to leverage continually updated accurate data sets and proprietary analysis, give PolicyNote customers an important edge over what they can get from AI agents built on top of general purpose platforms. Nonetheless, we also embrace the fact that the world is rapidly changing and the ways in which users want to consume our trusted information has and will continue to change. Users have more options for information discovery and consumption. The barriers to creating their own custom platforms are coming down. Third-party AI platforms are getting better and the use of agents is proliferating. This creates new opportunities for us.

And I'll now turn to a discussion of our policy intelligence as the infrastructure for AI-driven consumption outside of our PolicyNote platform. The world is changing rapidly and customers increasingly will want to consume authoritative policy intelligence inside their own environments, embedded directly into their own enterprise tools, workflows and AI agents rather than through a stand-alone platform. Alongside the emergence of new contexts, such as prediction markets, which I'll discuss shortly, this shift has the potential to unlock a significant expansion in demand for FiscalNote's unique blend of data and expertise. We believe this represents a large and durable growth opportunity and one where we are well positioned to lead combining the infrastructure layer for how policy intelligence is operationalized in AI-driven environments.

Over the past year, as part of the PolicyNote transformation, we completed foundational work to modernize and enhance our APIs. More recently, we extended that capability by introducing native support for the model context protocol or MCP. And for those of you for whom MCP is a new term, it's an emergent standard with extremely high adoption rates within the agentic AI community. Earlier this month, we formally announced the expansion of the PolicyNote API alongside the launch of these MCP wrappers. This enables MCP compatible AI agents and platforms, including those built on Claude, OpenAI, Google Gemini or Microsoft ecosystems to discover, query and integrate FiscalNote's legislative, regulatory and stakeholder intelligence as a first-class trusted and verified operational data layer within their workflows.

Importantly, the value of FiscalNote does not reside in any single delivery interface. It resides in the depth and breadth of our data, our domain expertise, our governance processes, our commitment to accuracy and the trust we have built with customers over many years. As intelligence increasingly moves into automated systems, these capabilities position FiscalNote as a critical operating layer or infrastructure that enables AI agents and enterprise workflows to function with confidence in high-stakes policy environments. This shift significantly expands our total addressable market by making our intelligence programmatically accessible we can attract a broader ecosystem of developers, partners and third-party platforms that may never have purchased a traditional software product but are highly willing to embed and rent trusted infrastructure. This creates the potential for FiscalNote to scale alongside the growth of AI native enterprise applications and agentic AI decision support systems globally. This is already live in market.

We have enterprise customers actively using our APIs today, including organizations such as Lumen Technologies and ICE Data Services, a subsidiary of Intercontinental Exchange, which operates multiple futures markets and stock exchanges. These deployments are generating revenue and represent early proof points for what we believe can become a meaningful and scalable growth engine. Strategically, this approach opens FiscalNote to new categories of customers, including enterprises building internal decision tools, smaller organizations seeking targeted on-demand access and developers creating AI-native products who need appropriately sourced and verified data. It also supports a true product-led growth motion where teams can provision API keys, explore documentation and begin integrating our intelligence without a lengthy custom sales or onboarding process.

Over time, as more third-party applications and automated workflows rely on our infrastructure, FiscalNote can benefit from an additional strategic advantage, the creation of richer, longitudinal data and usage signals. This continuous feedback loop can further strengthen our internal models, improve product quality and reinforce our data mode in ways that are difficult for competitors to replicate. From a commercial perspective, we're exploring both consumption-based pricing models and hybrid structures that allow customers to shift spend between seat-based licenses and API usage credit. Given the scarcity and mission-critical nature of governed policy intelligence and the real-world financial and operational outcomes it influences, we believe we can maintain pricing integrity across delivery models.

Finally, this expanding business model is expected to be highly profitable. The core infrastructure has already been built, incremental cost of delivery is low and the absence of per seat scaling constraints allows revenue to grow efficiently as usage expands. In summary, making our intelligence programmatically accessible allows FiscalNote to participate more directly in new ecosystems where high-quality policy insight is becoming mission-critical. And now I'd like to discuss a second major application of our capabilities and one where we see particularly compelling growth potential, political prediction markets. Our entry into this space is exciting, highly relevant and extremely adjacent. It is a high conviction extension of the same foundational assets that define FiscalNote today.

The proprietary data that we've assembled, our domain expertise, our predictive modeling capabilities and our deep understanding of regulatory and geopolitical dynamics all translate naturally into the needs of participants in prediction markets. The market itself has undergone a structural transformation. In the United States, prediction market volume expanded from approximately $9 billion in 2024 to roughly $44 billion in 2025, a fourfold increase in just 1 year and current trends suggest the market could approach a $150 billion annualized run rate in 2026. Institutional validation is also accelerating. Bloomberg has integrated prediction market signals into the terminal and major trading firms are beginning to establish dedicated prediction market desks.

At the regulatory level, the CFTC's future-proof initiative has signaled a meaningful shift towards treating political event contracts as legitimate derivatives rather than speculative wagering instruments. In its recent announcement regarding potential rulemaking indicates a desire to mature the applicable regulatory frameworks and bring greater trust and transparency to these markets. Taken together, these developments point to the early stages of what we believe could become a significant new category within institutional financial markets. Longer term, event-based derivatives tied to policy and geopolitical outcomes, could represent a market measured in the hundreds of billions and potentially approaching $1 trillion in annual volume as they become embedded in brokerage platforms, corporate risk management frameworks and macro trading strategies. Even a modest participation in this ecosystem would represent a meaningful opportunity relative to FiscalNote's current revenue base.

Our role in this market is distinct. We are not seeking to build or operate in exchange. Instead, we are focused on providing the differentiated intelligence layer that improves market quality and usability, including proprietary political risk data, contract design insights and analytical overlays to help market participants interpret signals more effectively. This approach allows us to leverage our core strengths while avoiding the capital intensity associated with exchange infrastructure. To support this strategy, we're partnering with specialized infrastructure providers, including 365Prediction founded by Dr. Laila Mintas. These partnerships enable us to access exchange, clearing and distribution capabilities while concentrating our investment on areas where we believe we can create the most value.

We also believe FiscalNote is uniquely positioned to help raise the bar for market integrity. Factors such as accuracy, governance, transparency and trusted resolution criteria will determine whether prediction markets evolve into institutional-grade financial infrastructure. These are precisely the areas where FiscalNote has built credibility over many years. Our structured legislative data sets and domain expertise which spend decades and cover multiple jurisdictions, provide a foundation for more precise contract specification and more defensible resolution frameworks, advantages that new entrants may find difficult to replicate. In parallel with these efforts, we also are developing and testing a portfolio of related products, some of which are previewed at PoliticalPredictions.com aimed at other elements of this new ecosystem.

From a capital perspective, the prediction market opportunity is attractive because the primary inputs are data assets, analytical models and institutional relationships already exist. As a result, we can pursue meaningful participation in this market without requiring significant incremental investment. We recognize that investors will naturally focus on 3 areas as this initiative progresses. First, timing of revenue contribution. While prediction markets represent a large and rapidly growing opportunity, monetization will scale over time as partnerships mature and products gain traction. Second, margin profile. Given the infrastructure light nature of our role, we believe incremental revenue in this area has the potential to be highly attractive from a profitability standpoint.

And third, early indicators of success. In the first year, we will be focused on metrics such as product adoption, partner integrations, user engagement and the development of new revenue streams tied to transactional activity and content distribution. Taken together, we view prediction markets as a logical and potentially transformative extension of FiscalNote's capabilities, one that allows us to participate in the evolution of how policy risk is priced, hedged and acted upon globally. Stepping back, the FiscalNote you see today is fundamentally different from the company that existed just a year ago. First, we have reshaped the core business. PolicyNote is now a modern AI forward policy intelligence platform that is driving strong engagement. With the transition well underway, and operational efficiencies taking hold, we see a clear path for this business to become a high-margin, free cash flow generative engine over time.

Second, we are opening meaningful new growth vectors that leverage the same underlying assets. Our expanded API capabilities and native MCP support position FiscalNote as an infrastructure layer provider of authoritative policy intelligence for the enterprise AI ecosystem. This represents a large, highly scalable product-led opportunity, one that allows us to expand total addressable market while requiring relatively modest incremental capital. Third, our entry into political prediction markets reflects another natural extension of our capabilities into one of the fastest-growing financial market categories globally. By focusing on the intelligence layer, data analytics, contract design and governance, we can participate in this ecosystem in a capital-efficient way, while helping to raise the quality and credibility of market signals.

Underpinning all of this, is a deliberate operational transformation. We are deploying AI at scale across the organization to simplify workflows, automate routine work and increase productivity. This allows us to pursue new opportunities with a reduced cost base, strengthening operating leverage as we grow and achieving positive free cash flow on a defined near-term time line. As a result, while FiscalNote is a more focused company today, we believe we are also a more profitable and more strategically positioned company. We have worked to make the core business structurally stronger, and we are entering large emerging markets with meaningful tailwinds without taking balance sheet risk or making capital-intensive bets.

Looking ahead over the next 12 to 18 months, investors should expect to see continued progress across all 3 dimensions. We expect FiscalNote to be free cash flow positive by the end of Q1 2027. We expect the API and MCP business to become a growing contributor as adoption expands across enterprise and developer ecosystem. And we expect the prediction markets initiative to demonstrate early commercial traction through partnerships, product launches and expanding engagement. We also will continue to explore opportunities to optimize our portfolio through the strategic divestiture of noncore assets. Taken together, we believe these actions position FiscalNote to grow more efficiently, participate in new categories of demand and create long-term shareholder value.

With that, I'll turn it over to Jon to walk through the financials in more detail. Jon?

Thank you, Josh. Good evening, everyone, and thank you for joining FiscalNote's Fourth Quarter and Full Year 2025 Earnings Call. Before getting into the details of the quarter, I want to start with a brief framing comment. 2025 was a year of significant operational execution and strategic transition for FiscalNote. Over the course of the year, we simplified the company, divested several noncore assets, streamlined our cost structure and focused the business squarely on our core policy intelligence platform and subscription-driven model. As a result of these efforts, FiscalNote today is a more focused company with improved operating leverage and a clear path forward towards sustainable profitability and positive free cash flow.

Fourth quarter 2025 results. Total revenue for Q4 2025 was $22.2 million, within our guidance range. Subscription revenue continues to be the foundation of our business and represented approximately 93% of total revenue for the full year, reinforcing the durability and predictability of our recurring revenue model. As of the end of the fourth quarter, annual recurring revenue or ARR was $84.1 million. On a pro forma basis, ARR remained relatively stable compared to the third quarter, reflecting stabilization in the core business following product fund setting and divestiture activities earlier in the year.

On the retention side, net revenue retention was approximately 96% for the quarter, in line with expectations as clients migrate onto the PolicyNote platform. The GAAP net loss for the fourth quarter was $22.9 million, and this includes a noncash goodwill impairment charge of $12.4 million recorded in the quarter. Adjusted EBITDA for the fourth quarter was $2.5 million, exceeding our recent guidance of approximately $2 million and representing the tenth consecutive positive quarter for this important metric. I will speak to comparative results in a minute when I address our full year performance, but I first want to highlight several key operational milestones achieved in the fourth quarter. The product and account management team successfully completed the migration of customers from the legacy FiscalNote platform to the new PolicyNote platform. The sales team increased the share of multiyear contracts among private sector customers from 17% to 40%, representing a 235% increase from the fourth quarter of 2024 to the fourth quarter of 2025 and our sales development efficiency doubled from the integration of more AI technology into the daily workflows.

Full year 2025 results. For fiscal year 2025, total revenue was $95.4 million compared with $120.3 million in 2024. And within our previous full year guidance range, as mentioned, ARR at year-end for 2025 was $84.1 million versus $107.5 million at the end of 2024. The year-over-year decline in GAAP revenue and ARR was largely driven by the strategic divestitures of several noncore businesses, including Board.org on March 11, 2024, Aicel on October 31, 2024, Oxford Analytica and Dragonfly on March 31, 2025, and TimeBase on July 1, 2025. These divestitures collectively generated $144.9 million of gross cash proceeds for the company, approximately 4.8x divested ARR and the transactions were all aligned with our strategy to simplify the company, concentrate resources on our core policy business and deleverage the company's balance sheet. On a pro forma basis, which excludes the impact of divested businesses, full year GAAP revenue declined by 7% or approximately $7 million and ARR declined by 9% or approximately $8 million.

This contraction reflects the impact of DOGE, nonrenewals from legacy products and the sales execution challenges we addressed earlier in 2025. As mentioned, subscription revenue represented approximately 93% of total revenue in 2025. Throughout the year, the company continued executing the structural efficiency initiatives and operating discipline across the organization. And as Josh mentioned, we have taken steps recently to further reduce cost and increase efficiency. In 2025, increased efficiency resulted from eliminating expenses from divested businesses, streamlining our efforts on the consolidated PolicyNote platform and productivity gains from the adoption of AI tools. As a result, we saw meaningful year-over-year reductions across each of our major functional expense categories.

For the full year 2025, the functional expense categories were the following: the cost of revenue was $21.2 million compared with $25.6 million in 2024, representing a decrease of $4.4 million or approximately 17% year-over-year. This decline primarily reflects the impact of divested businesses as well as efficiencies from platform consolidation. The sales and marketing expense was $26.6 million compared with $35.1 million in the prior year, a reduction of $8.5 million or approximately 24% year-over-year. This decline primarily reflects the impact of divested businesses as well as a more focused go-to-market strategy. Editorial expense, which supports our policy analysis and content operations was $14.9 million compared with $18.5 million in 2024, representing a decrease of $3.6 million or approximately 19% year-over-year. This decline primarily reflects the impact of divested businesses.

The research and development expense was $9.6 million compared with $12.8 million in the prior year representing a decline of $3.2 million or 25% year-over-year. R&D investments remain focused primarily on the development of the PolicyNote platform and AI-driven policy intelligence capabilities. Finally, general and administrative expenses were $52.1 million compared with $50.2 million in 2024, an increase of $1.9 million or approximately 4% year-over-year. After adjusting for noncash stock-based compensation and depreciation as well as severance costs related to the divested businesses and our debt refinancing, our general and administrative costs decreased by approximately $6.5 million or 21%. This reflects continued cost discipline and the benefits of organizational simplification following the divestitures completed over the past 2 years. Taken together, these reductions demonstrate the significant structural cost improvements implemented across the organization during 2025 positioning the company with more efficient operating model going forward.

Turning to the margins. For the full year, the gross margin was approximately 78%, consistent with the prior year. Our adjusted gross margin was approximately 87%, highlighting the strong underlying economics of our subscription platform after adjusting for noncash amortization expense. For the full year, adjusted EBITDA totaled $10.3 million, also slightly above our previous full year guidance and demonstrating continued progress in improving the company's operating leverage. The company's full year 2025 adjusted EBITDA margin was 10.8%, up from 8.1% in 2024, and this operating leverage-driven performance represents another milestone on the path to even higher adjusted EBITDA margins.

Turning to the balance sheet. At the end of 2025, cash and short-term investments totaled $26.9 million providing solid liquidity as we move into 2026. During the year, we also completed the August 2025 refinancing, which strengthened our capital structure and extended our debt maturity profile. At December 31, 2025, the company had approximately $136.2 million of total debt outstanding, including $74.1 million under our senior term loan facility. We remain focused on continued balance sheet improvement and disciplined capital allocation.

Outlook for 2026. Over the past several quarters, we have taken significant structural cost actions across the organization, including operating efficiencies, platform consolidation and the completion of noncore divestitures. As we look to 2026, our priorities remain focused on driving adoption and deeper engagement with the PolicyNote platform delivering our proprietary data sets in new ways and into new markets, including through prediction platforms and agentic APIs, enabling customers to further embed our content into their internal workflows, rolling out an extensive workforce and vendor transformation program to further advance already strong operating discipline and leveraging our institutional expertise with artificial intelligence to further streamline internal operations across every functional department. Together, we expect these initiatives to drive continued margin improvement and greater operating efficiency in 2026.

These actions and our strategic focus are designed to immediately increase adjusted EBITDA margins to levels in excess of 20%. And as Josh mentioned, generate trailing 12-month free cash flow by the end of Q1 2027. Simultaneously, we will maintain disciplined and targeted capital allocation aim to drive an anticipated return to revenue growth. For full year 2026, we are forecasting GAAP revenue in a range of $80 million to $83 million and adjusted EBITDA in a range of $14 million to $16 million. For the first quarter of 2026, we expect GAAP revenue between $20 million and $21 million and adjusted EBITDA of approximately $1 million.

Our full year profitability charges are achievable due to the significant workforce transformation and other cost actions we are implementing. We expect these measures to drive progressive improvement in adjusted EBITDA throughout the year resulting in higher and increasing margins as we exit the year. Our Q1 results will reflect seasonally high expenses related to our annual audit, operational costs that have since been eliminated or reduced and the most current revenue pacing. The first quarter saw higher than normal seasonal cancellations, primarily among customers not yet transitioned to the PolicyNote platform and compounded by economic headwinds and geopolitical complexities. These cancellations in our current pacing are fully incorporated into the company's revenue guidance.

Finally, I want to address the path to positive free cash flow. Based on the operating improvements we are implementing and our current outlook for revenue and profitability, we expect FiscalNote to achieve trailing 12-month positive free cash flow by the end of the first quarter 2027 and to remain free cash flow positive thereafter. This milestone reflects the cumulative impact of our streamlined operating structure, continued margin expansion and disciplined capital management. We believe this trajectory positions FiscalNote to deliver sustainable, long-term profitability and increasing shareholder value.

To summarize, 2025 is a year of significant execution and transformation for FiscalNote. We simplified the business, strengthened the balance sheet and launched a next-generation platform that we believe will drive improved retention, stronger customer engagement and long-term growth. As we move into 2026, we remain focused on operating leverage, platform adoption and disciplined financial execution as we continue progressing towards sustainable profitability and positive free cash flow while also seeking to develop new revenue opportunities in the prediction markets and non-platform products such as our agenetic APIs.

With that, I'll turn the call back to the operator so we can begin the Q&A session.

[Operator Instructions] And our first question comes from the line of Mike Latimore with Northland Capital Markets.

So the -- I mean, just the gross margins continue to be really strong. Should we view them as sustainable? Or do some of these cost initiatives have a positive impact there?

Thanks for the question, Mike. It's Jon. Over time, I think we'll find ways to squeeze additional margin points. I wouldn't kind of guide anything on that front, but we are finding that that's an area where technology is helping drive incremental savings. So it should be the case that as we kind of roll forward throughout the year, the margin improvement on the bottom line will in part be driven by higher gross margins.

Okay. And now that you've got all the customers migrated to PolicyNote, are there any incremental savings that would come from basically having everybody on that platform? And also any initial indications of kind of cross-sell opportunities now with sort of a very unified platform?

Sure, Mike. This is Josh. I can address that. So just one point of clarification when you say all the customers. So what we've migrated in 2025 were all the customers on the legacy FiscalNote platform where FiscalNote had its -- that platform had its main focus in state and federal data. And so we're still in progress of additional migrations and bringing over additional data sets, which include expanding global data sets that are available on PolicyNote and migrating local and additional federal as well. So as we've said, the transition PolicyNote will take some time. It's -- we accomplished a lot in 2025. We're very pleased with having moved everyone off of the legacy FiscalNote platform, still more work to do there. We still -- we will have some additional cost savings through deprecation of the back end of FiscalNote platform, which will happen in the first half of this year and that is built into our operating plan for the year.

Got it. Okay. Great. And then with regard to the -- just kind of the pipeline, can you give us some color or flavor on maybe enterprise versus government versus NGO, relative health? And then does your new agentic AI capabilities, does that help all 3? Or does it help like enterprise more than government or something?

Sure. So I can address that one as well. So in terms of agenetic AI, we think that, that's a very, very big opportunity for us going forward as you see more organizations of all types seek to consume this type of data through their own custom platforms they may build internally as well as through other AI agents and the like. Where I think you'll see that is this part of a very long-term transformation in terms of how data gets consumed. I think what you'll see are some people in the large enterprise and who want to build internal custom platforms and will need to import our data into their platform. Those are use cases that we have live today with our API. And so we do expect that to see continued growth there and we view that as a real opportunity for us.

I think you'll also see some of that in the SMB side where people have more different types of use cases don't need internal custom platforms, but want to consume the data on a periodic basis. And it's hard for them to do it through a platform like ours today. But by enabling them to access that through AI agents, it opens new doors for that consumption as well. And in terms of pipeline health overall, we're seeing a good success right now in mid-market and public sector after a rough 2025 seems to be returning more to the levels that we've typically seen in the past.

Great. And then just on the prediction market opportunity. I think on the original call, you talked about maybe the like tip sheets and fantasy league being potentially quicker to market maybe. I guess, any just sort of view on the go-to-market plan for tip sheets, fantasy leagues timing as such.

Sure. Yes, we do see -- those are going to be some of the earlier things that you see. And when we talk about what you can expect to see in prediction markets, generally, that ties into that in terms of the content generation around that, in terms of opportunities to drive some higher levels of engagement and potentially some transactional revenue around that. We have been working on those, and I would expect that you'll hear more from us on some of those initiatives in the coming weeks.

[Operator Instructions] And our next question comes from the line of Zach Cummins with B. Riley Securities.

Jon, I wanted to ask you just on the initial revenue guidance. Is that essentially just pushing forward the current run rate you have going exiting Q1 of this year? Or do you have, I would say, noncore business exits or anything else that's currently considered in the initial 2026 revenue guidance?

Yes. So if you -- the proportions going forward should be about the same. And I mentioned that 23 -- or I'm sorry, 93% of our total revenue was subscription. So the other 7% is kind of in that other category. So as we -- as you think about that revenue guidance range, you should assume that 93% to 95% of it will be subscription. So that would suggest and ARR will be down a little bit initially, and we -- as we go through the year, expect it to come back up. And it's part of our -- really kind of our seasonal cadence where it's not common for the ARR to drop a little bit in the first quarter. You mentioned that also kind of in my remarks, I think, about just a little bit of the visibility we have into the first quarter. So our guidance fully incorporates kind of our current run rate kind of coming into the year and pipelines and expectations for the year.

Understood. And is there any way that we can get a little more detail around some of the enterprise customers that ultimately decided to churn off instead of moving over to PolicyNote. It feels like you've had a lot of success on the migration front, especially as more of these customers got the new PolicyNote platform in front of them. So I was just curious if there's any additional insight into that churn or if it was more budget constraints on why there wasn't interest from that cohort of customers?

In terms of like the large enterprises who we -- yes so...

Yes.

So Zach, Josh, I'm happy to address that. So as you recall, the migration plan naturally contemplated moving some of the largest enterprise over latest in the year, wanting to make sure that we had all the right use cases built out, data sets in and the like and to meet some of the complex workflow needs that they would have. So I think part of it is a reflection of the fact that a lot of them would have made their decision by the time it was time for them to migrate. So you would have seen some churn for that reason in terms of the time line of migration essentially coming in kind of beyond their internal deadlines. And then there -- as we said, there's been some impact from macro and uncertainty and the like that I think were drivers there as well.

So what we're seeing on PolicyNote is still very high levels of engagement that we're very pleased with. We know that we're moving in the right direction with it. We're planning to continue to add valuable data sets to expand the global data sets and the like. And the longer that people are on it, the more they will get bound to that platform. So for a user -- for a platform like this to be very effective, what you want is to drive the engagement, drive the usage and overall see customers get bound to that platform as it becomes a natural part of their ongoing workflow and as they see that value over time. So we're still in the relatively early innings of PolicyNote because it takes time for those user behaviors to build up. But we're encouraged by the engagement levels that we see and what we're starting to see around our ability to retain customers when they're on the platform and so we expect to see that continue to improve over time.

Understood. And final question for me, maybe towards Josh is just as you undertake some pretty considerable transformation initiatives within the business this year, can you give me a sense of your confidence in being able to drive growth with more of a product-led approach moving forward and essentially a pretty meaningful change in terms of just the monetization from seat-based licenses to more of a usage-based model?

Sure, Zach. Yes, I feel very confident in it. What we're seeing is an environment where our data is -- continues to be incredibly valuable to customers and it's very unique. The fact that we have our proprietary analysis on top of these difficult to get fragmented data sets we sit very well positioned. So all of these changes in the industry, changes in the way that people are consuming information, that becomes opportunity for us, both in terms of expanding use cases for how customers may want to interact with our data, but also in terms of how they think about the value of that data.

So as we think about whether it's volume-based pricing, outcome-based pricing, whether it's hybrid models where users are able to switch between seat-based and consumption-based, we actually feel very good about our ability to maintain pricing integrity in that type of environment. And overall, from a very high-level outlook, the more we're able to make this unique and valuable data available to people who want to consume it and the more they make good use of it and realize the value that it has, that's where good things will happen, and we expect to see revenue growth driven by that over time. So we feel very good about that opportunity.

[Operator Instructions] And there are no further questions at this time. Ms. Yoon, I will turn the call back over to you for any closing remarks.

Thank you. That concludes our call this evening. We appreciate everyone's participation and look forward to speaking with all of you again in the future. Goodbye.

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

Good evening. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Holdings, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]

With that, I will now turn the call over to the company to begin. Please go ahead.

Good evening. My name is Bob Burrows, Investor Relations for FiscalNote, and we are pleased you all could join us. The purpose of today's call is to discuss FiscalNote's third quarter 2025 financial results and guidance for both the fourth quarter and full year of 2025. Joining me with prepared comments are Josh Resnik, CEO and President; and Jon Slabaugh, 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, related current report on Form 8-K and updated version of the corporate overview presentation can all be found on the Investor Relations portion of the company website. In terms of important housekeeping, please take note of 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 for a reconciliation of these measures to the most directly comparable GAAP financial measure. And 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.

And with that, I'd like to turn the call now over to FiscalNote's CEO and President, Josh Resnik. Josh?

Thank you, Bob, and thanks to everyone for joining us today. I'm glad to be here to discuss FiscalNote's third quarter 2025 results and to share an update on the progress we've made on our strategic objectives. We've been clear and consistent as to our priorities. Put simply, we continue to take a disciplined, focused approach to managing the business, and you see that reflected in our adjusted EBITDA profitability as well as our management of the balance sheet and progress towards free cash flow. This, in turn, enables us to build a durable foundation for long-term profitable growth.

In Q3, revenue totaled $22.4 million, in line with guidance, and adjusted EBITDA was $2.2 million, exceeding guidance. This translates to a margin of 10% and represents the fifth consecutive quarter of adjusted EBITDA margins at or above 10%, reflecting the ongoing benefits of our cost discipline, sharper prioritization of core growth initiatives and improving operating leverage. On a pro forma basis, excluding noncash and other nonrecurring charges and the impact of the 2024 divestitures, OpEx decreased by approximately 8%, reflecting continued cost discipline and operating efficiency.

On this front, we're adopting additional automation-based approaches to certain aspects of our operations, which should drive higher productivity across the enterprise and yield incremental improvements to our overall profile over time. During the quarter, we also shored up our balance sheet with maturities extended out by 4 years, thus strengthening our capital structure and providing long-term flexibility to execute on our strategy. I'll turn to growth and commercial momentum now. This quarter, we stabilized ARR with a modest quarter-to-quarter increase on a pro forma basis.

This signals an initial stabilization of the core business and underscores that the strategic actions we're taking are starting to produce tangible results. Most importantly, it reflects early traction as we continue building a product-led organization positioned for higher levels of long-term growth. I'll explain some of the factors behind the current results, and we'll also walk through how this fits in the context of our transformation of the business. Inbound demand remains strong, indicating a continued need for our solutions as well as specific interest in Policy, and our teams are maintaining a healthy sales pipeline. Corporate new logo sales also showed continued momentum in Q3.

I noted last quarter that win rates among enterprise clients rose 400 basis points quarter-over-quarter. In Q3, we saw that momentum continue with another 400 basis point improvement in that segment when compared with Q2. Year-to-date, across all corporate segments, win rates are up 500 basis points overall. And equally important, we're not just winning more, we're winning higher-value deals. Average contract values have trended meaningfully upward over the course of the year.

And notably, corporate multiyear contracts for our policy data now account for approximately 50% of new logo ARR, up from about 20% in early 2024, a 2.5x increase that strengthens revenue visibility and is expected to support further improvements in gross retention in 2026. This progress in corporates is especially noteworthy in light of the ongoing volatility in the federal space, including continued disruption this quarter due to the extended government shutdown. Strong corporate performance has helped offset that pressure and should serve as a solid foundation for further growth as conditions in the federal sector stabilize over time.

Our product innovation continues to underpin this progress. And in Q3, we released a series of meaningful enhancements to policy notes, including AI-powered legislative drafting, social listening to identify early policy signals, upgraded reporting and AI-generated tariff impact reports. More recently, we launched Bill Comparison, an AI-driven capability that allows users to instantly redline and compare versions of pending bills, a powerful example of our ability to leverage advanced AI to deliver meaningful incremental value to our users and increasingly move towards automating customer workflows.

Year-to-date, our product team has now launched more than 35 major enhancements to the PolicyNote platform since its launch in January. These continuous improvements are reinforcing PolicyNote as a cornerstone of our ecosystem and a key contributor to strengthening customer engagement and retention. Usage trends on PolicyNote remain overwhelmingly positive across all nature of metrics that we track internally, including the behaviors that indicate high usage frequency, product stickiness and highly valuable integration into customer workflows.

We view these patterns as early indicators of future improvements to gross and net retention. And combined with our increasing success in new logo sales, they are expected to serve as the foundation for durable long-term growth. This is why we have placed a focus on moving our existing customers on to PolicyNote. And to that end, migration to PolicyNote continues to go well with the vast majority of accounts using our legacy FiscalNote platform having been successfully transitioned to PolicyNote.

This will put us in a position to have completed the migration from the legacy FiscalNote platform by the end of this calendar year as planned. As for our 2025 guidance, Jon will walk through that in more detail. But importantly, the update we've given for both total revenues and adjusted EBITDA remain within our previous ranges and reflect our current outlook on the business with 2 months before year-end. In summary, we continue to see growing momentum in our corporate pipeline and steady progress in our migration of PolicyNote, which together provide a clear path to renewed sustainable growth.

These results reflect steady execution, disciplined management and tangible progress against our strategic priorities. While there is still work ahead, the trajectory is positive, and we remain confident in our ability to deliver sustainable growth, expanding profitability and long-term value for shareholders.

With that, I'll turn it over to Jon to walk through the financials in more detail. Jon?

Thank you, Josh. Good evening, and thank you for joining us. In the third quarter, FiscalNote successfully met its previous guidance for both total revenue and adjusted EBITDA. As a result, we're updating our full year revenue guidance to a range of $95 million to $96 million with adjusted EBITDA projected to be approximately $10 million. Both figures remain within our previously established ranges.

This updated guidance reflects the strong performance observed in our core business while also accounting for the specific impacts of our public sector business due to unusual disruptions in the federal sector. Overall, operationally, the business is showing resilience and indications of stabilization in the core policy products. Underlying our operations, we also secured our capital structure in a way that affords us the runway and flexibility necessary to execute on our product-led strategy.

On that note, FiscalNote previously had several convertible notes on its balance sheet, all subordinate to our senior term loan. These notes carried significant payment and maturity obligations starting in 2025 and continuing into 2026 and 2027, preventing the company from refinancing its senior debt. The August transactions replaced and/or amended these convertible notes, reducing their balance and eliminating most of our annual PIK interest. These transactions enabled FiscalNote to refinance its senior term loan and collectively, the transactions allow us to better manage our capital structure and provide a stronger foundation for our product-led growth strategy moving forward.

The new debt stack can be found in both the revised corporate overview presentation issued today in conjunction with our earnings release and in the Form 10-Q. With that as a backdrop, let me dive into some of the key drivers behind our third quarter financial results. Total revenue for Q3 2025 was $22.4 million, above the midpoint of our forecast of $21 million to $23 million. When compared to the prior year, revenue was $7 million lower, primarily due to the divestiture of ACL in October of 2024, Oxford Analytica and Dragonfly at the end of Q1 2025 and TimeBase at the end of Q2 2025.

Subscription revenue, which remains the cornerstone of our business, was $21.2 million for the quarter, $6 million lower, again, largely due to divestitures. Subscription revenue accounted for 94% of total revenue, slightly higher than our historical trend of 92%. On a pro forma basis, after adjusting for the impact of the mentioned divestitures, Q3 2025 subscription revenue was $1.8 million lower than the prior year period, reflecting our continued transition to PolicyNote from the legacy FiscalNote platform. As of Q3 2025, annual recurring revenue was $84.8 million versus $92.2 million in 2024 on a pro forma basis, a decline of $7.4 million.

As Josh spoke to earlier, on a sequential basis, Q3 2025 ARR increased by $100,000 versus Q2 2025 on a pro forma basis, adjusting for the divestitures. This is an important indicator of our mounting momentum for our PolicyNote platform launched in January of this year. For the third quarter 2025, net revenue retention was 98%, level with the prior year and up 200 basis points over the second quarter on a pro forma basis. Principal operating expenses in Q3 2025 extended the trend of year-over-year decreases, reflecting the impact of ongoing efficiency measures initiated in 2023, advanced in 2024 and maintained across 2025.

Such discipline is essential to our path to expanding operating margins and adjusted EBITDA going forward. Looking at expenses in more detail. Q3 2025 cost of revenue decreased by $1.5 million or 23% versus prior year. R&D decreased by $1.2 million or 36% Sales and marketing decreased by $2.8 million or 31% and editorial decreased by $1.4 million or 30%. As for G&A, we saw an increase of $3.3 million or 31%, which included approximately $3.1 million of noncash charges and approximately $4.3 million of cash costs related to our refinancing activities, the sale of TimeBase as well as other nonrecurring costs, which we recorded in G&A during the quarter.

Excluding these items, G&A would have declined year-over-year as well. Total Q3 2025 operating expenses fell by $4 million or 11% versus the prior year. On a pro forma basis, excluding noncash and other nonrecurring charges and the impact of the 2024 divestitures, OpEx decreased by approximately $1.7 million or 8%. Q3 2025 gross margin was 79%, level with the prior year on a GAAP basis. Q3 2025 adjusted gross margin was 87% as compared to 86% in the prior year. Both reflect the impact of disciplined cost management.

Adjusted EBITDA was a positive $2.2 million, a decline over the prior year due to the mentioned divestitures but slightly above the guidance we gave and the ninth consecutive quarter of positive performance on this important profitability metric. Going forward, we will continue to drive increasing operating leverage across the business while steadily expanding our top line through product-led growth. Cash and cash equivalents, including short-term investments at the end of Q3 2025 were $31.8 million, reflecting a sufficient cash level to fund our continuing progress turning around the core business and transitioning into a durable and sustainable growth engine.

Finally, let me speak to guidance. We are updating our guidance remaining within our previous guidance range. Specifically, we are narrowing the forecast to now expect full year 2025 revenue of approximately $95 million to $96 million from a previous range of $94 million to $100 million and full year 2025 adjusted EBITDA of approximately $10 million from a previous range of $10 million to $12 million. As a consequence, we are expecting fourth quarter 2025 total revenues of $22 million to $23 million and adjusted EBITDA of approximately $2 million.

Overall, our Q3 and year-to-date performance demonstrate a healthy business with increasing strength and resilience. Our streamlined operating plan prioritizes innovation, consistently generating positive customer feedback and highlighting the value of policy Notes enhancement since its January launch. We are also committed to prudent cash management, controlling capital expenditures, reducing cash interest expense and operating expenses.

These efforts are all aimed at accelerating our progress towards positive free cash flow and sustainable, profitable long-term growth. Year-to-date, we have achieved a great deal in 2025, and we are encouraged by the clear positive trends we are seeing across the product and customer metrics, which drive everything. We know we are on the right path, and we look forward to reporting our continued success in establishing durable growth in the business and creating substantial value for customers and shareholders alike.

That concludes my prepared remarks. I'll turn it over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions]

Your first question is from the line of Mike Latimore with Northland Capital Markets.

Good to see the ARR, NRR improvement here. Nice to see. Josh, on the -- I think you said that ACV of deals or ACV overall is getting bigger. Can you give a little more color on that? Is it more users at current customers, more usage across the customer base or some solid cross-sells like global data?

Sure, Mike. Thanks for the question. The single biggest driver behind the higher ACVs really is leveraging global data more. We've done some work to restructure our global data packages, and I think have done a very good job bringing those to market. That, in turn, extends use cases through the enterprise, which makes it prime for our larger corporate clients, so the larger enterprise and extending down through to mid-market. So we see a lot of potential for that going forward as well.

Got you. Okay. And then you've been migrating customers to policy node. Sometimes when companies do those kind of migrations, they see churn pick up. It seems like you haven't seen any change materially in churn with these migrations. Is that fair?

Yes, that's correct. We haven't really seen any meaningful migration-related churn. We've had a very positive experience moving customers on to PolicyNote, both in terms of how the migration itself has gone, but also as we've mentioned, with the usage metrics and engagement that we see once customers are on there.

Got it. And then I think you highlighted new logo bookings were good again. I just wanted to clarify that you said that. And then was that trajectory as expected or any different from what you were thinking?

So Mike, yes, that's correct. So we did see continued improvement in new logo bookings for corporates in particular, where we do expect to see continued improvements in advancements over time. What we've seen has been success on win rates, success on the higher ACVs and success in continuing to sign new customers to multiyear commitments. And again, we think that's a factor of better execution that we've seen, better offerings that we have, both in terms of policy note, specifically the global data packages and the like. We believe that we're delivering significant value to these customers and can continue to drive improvements in ACVs over time.

Got it. And then just one question on kind of operating efficiency. I think you mentioned that there might be opportunity for more automation within the business over time. I guess, can you just provide a little more detail on that and maybe the magnitude of the effect there?

Sure, Mike. I'd be happy to do that. So what I'm referring to there are areas where we're really starting to see some tangible success in different areas of the business, leveraging automation in different ways. And so for example, we've been doing a better job of taking advantage of opportunities with using Agentic AI and our coding with our R&D teams.

And we've seen that reflected in tangible success with new features that we've been able to launch much more quickly, leveraging Agentic AI than what we would have been able to do without. And that's an example where I expect to see much higher productivity, which will enable us to drive more advanced features for our customers more quickly, which should help improve productivity and top line. And again, with our -- the way we're operating the business, our expanding margins, more and more of those top line dollars will flow right to the bottom line.

There are also other areas of the business where we're leveraging more automation and actually driving internal efficiencies, being able to accomplish more with less. And I expect we'll see both flavors of improvements continue over time. It will be a real focus of ours for 2026. So no tangible discussion around that until we get to talking about 2026 numbers at a later point, but it's something that we're really starting to see some uptake and opportunity there.

[Operator Instructions]

Your next question is from Zach Cummins with B. Riley Securities.

This is Ethan Widell calling in for Zach Cummins. To start, it sounds like good news with ARR stabilizing. Can you maybe speak a little bit to your expectations with regard to a time line for renewed year-over-year ARR growth?

Thanks for the question, Ethan. So we don't guide on ARR. So we're not providing specific guidance there. And again, as we -- at a later point as we talk about 2026, we'll start to talk specifically about what that looks like. What I'll say is that, generally speaking, we're encouraged by the progress that we're seeing in the business. We've talked a lot about the transformation that we've made operationally, the transformation that we've seen through PolicyNote, and we're encouraged by this early traction and stabilization that we're seeing now. The single biggest lever for us in the long term is going to be -- will be around gross retention and net retention.

And again, as we've said, part of the foundation for those improvements in gross retention will come through PolicyNote, the better product, the higher engagement, better experience, et cetera, as well as what we're able to do with multiyears from a new logo standpoint. And we're going to keep pushing on the new logo improvements as well. And -- but again, when we're talking about kind of what you can expect on a year-over-year basis in the future and so on, that will be a discussion at a later point.

Understood. I appreciate that color. And then with regard to the federal government shutdown, can you maybe quantify the impact that you're seeing there? And when you speak to volatility in the federal space, is that primarily from the shutdown? Or are there other elements at play there?

Yes. In regards to federal government, we've talked about this throughout the year as we've been seeing the developments in federal. And we've talked previously about the fact that just through the efficiency efforts within federal, limitations on spending and the like that we were seeing some friction and impact. to that segment of our business over the course of the year. We're now seeing some added impact through the extended shutdown. The extent of that impact is not perfectly clear because, again, the kind of the length of shutdown is still remaining unclear. I would say, though, for the full year, you could estimate the overall impact at somewhere between $2 million and $3 million.

There are no further questions. Mr. Burrows, I'll turn the call back over to you for closing remarks.

Thank you, Tamika. That concludes our call this evening, and we appreciate everyone's participation and look forward to speaking with all of you again in the future. Good night.

This concludes today's conference call. You may now disconnect.

Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Holdings, Inc. Second Quarter 2025 Financial Results Conference Call. [Operator Instructions]

With that, I would now like to turn it over to the company to begin the conference.

Good evening. My name is Bob Burrows, Investor Relations for FiscalNote, and we are pleased you all could join us. The purpose of today's call is to discuss FiscalNote's second quarter 2025 financial results and guidance for both the full year and third quarter of 2025.

Joining me with prepared comments are Josh Resnik, CEO and President; and Jon Slabaugh, 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, related current report on Form 8-K and updated version of the corporate overview presentation are all available on the Investor Relations portion of the company website.

In terms of important housekeeping, please take note of 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 for a 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.

With that, I'd like to turn the call over to FiscalNote's CEO and President, Josh Resnik. Josh?

Thank you, Bob, and thanks to everyone joining us today. I'm pleased to be here to share FiscalNote's second quarter 2025 results and update you on the progress we've made on our strategic priorities. We remain committed to the disciplined approach that has served us well, managing the business with rigor and focus.

Our 3 core objectives remain the same. One, consistent expansion of adjusted EBITDA margins. Two, managing the company's balance sheet and achieving positive free cash flow. Three, building a durable foundation for profitable growth. As I've said on past calls, I'll walk you through where we stand on each, touching briefly on the first 2 and then focusing mainly on the company's growth.

First, adjusted EBITDA. We delivered adjusted EBITDA of $2.8 million in Q2, exceeding guidance. This represents an adjusted EBITDA margin of 12%, an increase compared to 4% on a pro forma basis in the same period last year. This improvement reflects the ongoing benefits of our cost discipline, sharper prioritization of core growth initiatives and improving operating leverage. We expect to continue to expand margins over the long term as these improvements compound. As adjusted EBITDA margins further expand, our path to positive free cash flow remains clear.

So with that, I'll turn to our second core objective: management of the balance sheet and achieving positive free cash flow. Managing the company's indebtedness as well as achieving and sustaining positive free cash flow remain among our highest priorities. Yesterday we announced the substantial refinancing of our senior term loan provided exclusively through funds managed by MGG Investment Group. Importantly, MGG is providing a new facility which will not mature until 2029.

MGG conducted thorough diligence before making its commitment, including a deep review of FiscalNote's operational performance, market position and strategic plan. And I'm especially pleased to welcome MGG as our new long-term capital partner.

Achieving positive free cash flow continues to be a primary focus of ours, and we are confident in our approach and our path. As a reminder, we have made significant progress towards positive free cash flow as we have rightsized the business. Over the trailing 12 months, we have improved free cash flow by more than $68 million compared with the same period 2 years prior.

Our cash interest expense will increase slightly with this refinance, by less than $2 million annually, due to the higher balance on the new senior term loan. But because we continue to streamline our operations, its incremental interest expense is more than offset. And therefore, our accelerated path to positive free cash flow remains unchanged.

Our third core objective relates to growth and commercial momentum, and I'll turn to that now. Revenue for the quarter came in at $23.3 million, above the guidance midpoint, and we are reaffirming our full year guidance. Our performance in Q2 reflects both the company's continued transition as well as encouraging signs of momentum.

As expected, ARR growth has not yet resumed. This is consistent with what we've said to expect in the first half of 2025. We've previously discussed the unacceptable execution challenges that impacted the start of the year. And in a moment, I'll discuss some of the improvements we're seeing in our pipeline and sales metrics following the swift operating changes we made as a result.

Those challenges, together with the impact of the known customer retention and expansion issues in our legacy products, as well as atypical instability in the U.S. federal sector, have contributed to the organic ARR and revenue declines. We expect better from the business in the future and we continue to remain encouraged by the trajectory of our pipeline and the tangible progress and execution.

What are we seeing that gives us that confidence? We continue to see strong demand for our products. And that demand is now translating into improvements in new logo sales. Our top-of-funnel metrics remain strong. Inbound leads for our policy products are up more than 20% year-over-year, and our corporate new logo pipeline was 45% higher at the end of Q2 than it was at the end of Q1.

I spoke to some of these top-of-funnel trends at our last earnings call in May and I noted it would take time to see these improvements reflected in new logo sales. Well, we're now seeing exactly that. Quarter-over-quarter we saw an improvement of 400 basis points in corporate win rates from Q1 to Q2 as well as a significant increase in average contract value, especially with our largest corporate customers where we've seen high demand for our new global data packages.

And we are continuing to see customers vote with their wallets in the form of multiyear commitments. As was the case in Q1, in Q2, on a year-over-year basis, we more than doubled the rate at which our new private sector customers are signing on to multiyear commitments for our policy data. This demonstrates the confidence and conviction our customers have, and it should translate directly into gross retention improvements in 2026, cutting straight to the heart of our greatest growth challenge.

In addition to strong commercial demand and multiyear commitments, we're seeing clear evidence that PolicyNote is driving the levels of engagement that we expect will fuel gross retention and net retention over time. In June, we announced that PolicyNote now has more daily active users than our legacy FiscalNote platform, a major milestone in our transformation. Core engagement metrics such as search frequency and use of the AI assistant, both of which I've discussed before, remain strong.

And now that PolicyNote has been in market for just over 6 months, we can also begin looking at how usage trends develop over time. The pattern is encouraging. A few weeks into a new customer engagement, usage begins to rise steadily, with the average customer using the platform roughly 30% more at the end of their first quarter than at the midpoint. This indicates that users are finding value in the platform, embedding PolicyNote in their workflows and becoming subvisual users. This is a strong indicator of customer health and something that we expect will translate into improvements in gross retention over time.

We're continuing to add new features and enhancements to PolicyNote at a rapid pace. In Q2 alone, we delivered more than 10 major updates, including AI-powered capabilities for legislative drafting and bill outlook, significant upgrades to our AI alerts and AI assistant and a new onboarding flow designed to drive engagement from the very beginning of the user experience.

These improvements are having tangible impact. For example, new PolicyNote customers are now setting alerts, which we consider to be a high-value customer activity, far sooner after account activation than on our legacy platform. So we believe that this consistent visible investment in PolicyNote inspires customer confidence and deepens customer engagement, which we expect will be the cornerstone for stronger customer retention and greater expansion opportunities through cross-sell and upsell in the future.

What does all this mean for FiscalNote's future growth? Top-of-funnel and new logo sales are trending well. The challenge continues to be gross and net retention on our legacy product suite for the reasons that I've discussed a number of times. But we believe we have the right solution, PolicyNote. And we expect that over time as we continue to add more data sets, features and customers to PolicyNote, a process we've said would take time, we will see retention improve and ARR and revenues return to growth.

Migration to PolicyNote continues to go well and is ahead of schedule, and we expect to deprecate at least 1 large legacy platform this calendar year. So we're on the right track. We're moving expeditiously. And we continue to believe that with continued progress, we will see ARR growth resume in the second half of this year and then accelerate further in 2026 and beyond.

In summary, in Q2 and recent days, we have expanded adjusted EBITDA margin, announced the refinancing of our senior term loan and continued building path to sustained positive free cash flow and continue to strengthen PolicyNote and accelerate product innovation, and we saw continued acceleration of key sales metrics.

While the first half of 2025 has been a period of transition, we are executing with focus and intensity. Our product-led strategy is working. Our operational discipline is holding. And the building blocks for long-term profitable growth are firmly in place. We remain confident in our ability to deliver on our full year guidance and create meaningful shareholder value in the years ahead.

With that, I'll turn it over to Jon to walk through the financials in more detail. Jon?

Thank you, Josh. Good evening, and thank you for joining FiscalNote's second quarter 2025 conference call.

We are pleased to announce that we came in above the midpoint of our guidance range on revenue and exceeded guidance on adjusted EBITDA for the quarter. We are also reaffirming our full year forecast, evidence that our product-led growth strategy and disciplined operating approach is on track and gaining momentum.

On top of that, our recent refinancing significantly expanded our runway and operational flexibility. In that regard, yesterday, we announced that FiscalNote entered into definitive agreements to refinance our senior debt and restructure substantially all of our subordinated debt. This series of transactions will provide FiscalNote with a clear long-term runway and operating flexibility to execute on driving efficient, product-led growth. These transactions are scheduled to close in mid-August, subject to customary closing conditions.

Upon closing, we will replace our current senior credit facility with a new $75 million senior secured term loan with the maturity extended to 2029. This new loan is supported exclusively by funds managed by MGG Investment Group. Excess proceeds from the new facility together with new subordinated convertible debt will be used to pay off or refinance certain existing subordinated debt, including an amendment to our largest long-term subordinated creditor to extend the maturity of its remaining balance to 2029.

In aggregate, this transaction serves as an important step for FiscalNote and for our ongoing efforts to stabilize and strengthen our capital structure while we accelerate execution of the product-led growth strategy. The transactions provide additional time to realize the full potential of the PolicyNote platform and manage our capital structure, supporting management's commitment to generating sustainable levels of growth, profitability and positive free cash flow.

In light of the timing of these transactions, there are a few customary additional disclosures required in our 10-Q filing. We plan to file our Form 12b-25 to extend the filing deadline for the second quarter 2025 Form 10-Q. This will give us time to finalize the additional disclosures. We plan to file our 10-Q by August 18.

Absent this transaction, we otherwise would have filed on time. Recall that we took a similar step earlier this year upon the closing of the divestiture of Oxford Analytica and Dragonfly and we successfully filed our Form 10-K under similar circumstances.

With that as a backdrop, let me dive into some of the key drivers behind our second quarter financial results. Total revenue for Q2 2025 was $23.3 million, above the midpoint of our forecast of $21 million to $23 million. When compared to the prior year, revenue was $6 million lower, due primarily to the divestiture of Aicel in October of 2024 and Oxford Analytica and Dragonfly at the end of Q1 2025.

Subscription revenue, which remains the cornerstone of our business, was $21.4 million for the quarter, $5.7 million lower, again, largely due to the divestitures. Subscription revenue accounted for 92% of total revenues, consistent with our historical trend.

On a pro forma basis, after adjusting for the impact of the Aicel, Oxford Analytica and Dragonfly divestitures, Q2 2025 subscription revenue was $1.8 million lower than the prior year, indicating that we are still working through our transition to PolicyNote from the legacy FiscalNote platform. As we roll out the new PolicyNote platform, we expect to return to stable, consistent top line growth, something we anticipate starting over the next few quarters.

Turning to our key performance metrics. As of Q2 2025, annual recurring revenue was $85.9 million, versus $93.6 million in 2024, on a pro forma basis, a decline of $7.7 million. As you've heard from Josh earlier, this was expected and is unacceptable performance for the business. It reflects a combination of the underperformance of new logo and sales funnel execution in Q1, ongoing legacy platform retention issues and recent reported instability in the public sector. We are focused on improvement and remain very encouraged by the trajectory of our top line and the tangible progress of execution we are seeing.

Looking ahead, and as you also heard from Josh, we anticipate ARR growth beginning in the second half of 2025. For the second quarter of 2025, net revenue retention was 96%, versus 98% in the prior year, reflecting the underperformance at the end of 2024 that we have previously discussed and believe we have addressed going forward. For both ARR and NRR, we expect most metrics to improve by year-end 2025 driven by PolicyNote and other clear signs of customer engagement that we are seeing.

Principal operating expenses in Q2 2025 continued the trend of year-over-year decreases, reflecting the impact of ongoing efficiency measures initiated in 2023, advanced in 2024 and 2025. Such discipline is essential to our path to expanding operating margins and adjusted EBITDA going forward. As we simplified our business model, additional cost savings accrued from the divestitures of Board.org, Aicel, Oxford Analytica and Dragonfly Intelligence, in addition to savings from sunsetting various noncore products.

Looking at expenses in more detail, Q2 2025 cost of revenues decreased by $2 million or 28% versus prior year. R&D decreased by $900,000 or 29%. And the sales and marketing decreased by $2.3 million or 26%.

As for G&A, we saw a slight increase of $100,000 or 1%. Importantly, approximately $5.4 million of noncash M&A and other nonrecurring costs were recorded in G&A during the quarter. Excluding these items, G&A would have declined year-over-year.

Taken together, total Q2 2025 operating expense fell by $6.5 million or 17% versus the prior year. On a pro forma basis, excluding noncash and other nonrecurring charges, the impact of the 2024 divestitures, OpEx decreased by approximately $4 million or 15%.

The gross margin in Q2 2025 was 79%, 200 basis points higher than prior year on a GAAP basis, primarily due to the impact of divested businesses and sunset products. Adjusted gross margin was 86% in Q2 2025 as compared to 85% in the prior year. Both reflect the impact of our disciplined cost management.

Adjusted EBITDA was a positive $2.8 million, higher than the prior year, above our guidance of approximately $2 million and the eighth consecutive quarter of positive performance on this important profitability metric.

Sustained positive adjusted EBITDA, even after the pro forma impact of the divestitures through June 30, is the direct result of actions that we've taken to improve our operating efficiency, streamline the product portfolio and reduce the overall cost structure of the business. And as you've heard me say before in past calls, we will drive increasing operating leverage across the business while steadily expanding our top line through product-led growth.

Cash and cash equivalents, including short-term investments, at the end of Q2 2025 were $39.2 million, an increase over both the prior-year period and the year-end 2024 balance, driven primarily by the influx of cash due to seasonality and the Oxford Analytica and Dragonfly divestitures which closed on March 31.

Finally, let me talk about guidance. We are reaffirming our full year 2025 revenue forecast in the range of $94 million to $100 million and adjusted EBITDA in the range of $10 million to $12 million. We are forecasting third quarter 2025 revenues in the range of $22 million to $23 million and adjusted EBITDA of approximately $2 million. Josh referenced this affirmation speaks to the resilience of our streamlined and effective operating model, and the momentum-building is a direct result of our product-led growth strategy.

In summary, FiscalNote reflects increasing strength and resilience. Our streamlined and disciplined operating plan is focused on innovation that is becoming increasingly valuable to our customers, helping them navigate today's increasingly complex political landscape.

As we continue to drive to stabilize the business and return to a path of sustainable growth and customer retention, we are also working to expand operating leverage and, therefore, adjusted EBITDA, both in absolute dollars and on a margin basis. Finally, we prudently manage our cash by controlling CapEx, cash interest expense and managing our operating expenses, all in the pursuit of accelerating the path to positive free cash flow and, therefore, sustainable growth.

2025 is an important year for this company. And as we move into the second half of 2025, we are encouraged by the clear positive trends we are seeing across our product and customer metrics, which drive everything. And we remain confident that we are making significant process (sic) [ progress ] in reestablishing a clear definitive path for durable growth and sustainable profitability.

That concludes my prepared remarks. I'll turn it over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] Our first question will come from the line of Mike Latimore with Northland Capital Markets.

Congrats on all the progress this year. Looks good. You talked about returning to ARR growth in the second half. Is the -- do you assume a similar contribution from new logo improvement and NRR improvement, or is 1 or 2 of those variables more important to return to ARR growth?

Thanks, Mike, for the comment and the question. Appreciate it. So we're seeing good success with new logo, as I discussed just a few moments ago. We're seeing a lot of improvements in pipeline. We're seeing increased win rates. We're seeing ACVs go higher. So we're pleased with the progress on new logo. Of course, we'd like to see continued progress from here as well and continuing to grow those ACVs, improve win rates, et cetera.

The difference really will come from our retention and expansion. So that's where we're still seeing those challenges with existing relationships on the legacy platform. And we expect to see gross and net retention improve, both as a result of PolicyNote, as we migrate more customers on to PolicyNote, and also with some of the offerings that we have in markets.

So we've also put out some revamped global data packages as well, which we think will help with expansion in revenue too. We're seeing great success with those and those are helpful drivers when it comes to ACVs. We're seeing very good, healthy demand for that global data, which is really a strong differentiator for us in market.

So long story short, we want to see continued progress on logo, but the biggest difference maker going forward will be those improvements to gross and net retention that we expect to see.

All right. Got it. That makes sense. And then I think you've -- in terms of additional product enhancements, I think you're planning on some enterprise-level features, I believe, and also integrating the last couple of data sets here. I guess, one, is that a correct assertion? And then second, if so, is that something planned for this year or is that kind of going to next year?

Sure. So we are still continuing to enhance PolicyNote, and you can think of it in a couple of different ways. So one is continuing to add core data sets and enterprise features. When we first launched PolicyNote, it was designed for the most straightforward use cases. And so we're continuing to add some of the more complex enterprise-grade features as we speak. And as we do that, we're migrating more and more enterprise customers onto the platform. So we're going to continue that work to build that out so that we can accelerate the migrations. And those migrations are going well and are actually ahead of schedule.

We're also continuing to implement new kind of incremental features, things like our Tariff Tracker, things like some of our more advanced AI features like we have with now the ability to actually write draft legislation for you in the platform. And so features that are really accelerating the platform forward, leapfrogging the competition, so we're continuing to build those out as well from an innovation perspective.

We're going to continue the migration over the course of this year and next year. So that's about what you can expect in terms of migrating all of our customers onto new platform. And like I said, what we're doing in parallel is both some of those core features to facilitate and accelerate those migrations, but also, at the same time, launching new innovations to make sure that we're propelling PolicyNote forward in parallel.

Great. And then I guess just last one for me. In terms of the federal and NGO verticals, can you just give a -- just maybe a little more color on how they're behaving, and has there been any change during the year?

Sure. So on federal, as we noted in our comments, we are seeing atypical instability in federal this year, which we've spoken to before just given all the changes in the federal government. That continues to be something that we monitor. It's kind of a continually shifting landscape.

Even you had earlier in the year heavy activity from DOGE, which created a lot of volatility, and you still now are seeing just some shifts within federal, both in terms of some areas where there's increased stability and continuing to see relationships and contracts return, but also as there's just continued shifts within the government in terms of their own staffing and how that translates into their needs, licenses and so on.

And as we've said before, the instability has obviously introduced some challenges; it also introduces opportunities for us as well. Our solutions, we believe, drive great efficiencies for all our customers, including federal. And so we think that there's a lot of need for our platforms. We offer unique proprietary content that's very informative for policymakers. So again, a need there as well. And so that's something we're just continuing to monitor the progress with the federal government throughout the year. So no significant changes from what we've spoken about before. It's just something that's continuing.

NGOs, I would say the same. I assume your question kind of relates to how does federal funding changes impact NGOs. And I would say kind of same thing there. We're still seeing NGOs be actually fairly active with things like advocacy in this type of environment. And again we have a very strong advocacy platform for them to use as well. And so there's still -- we still see opportunity in that sector.

And our next question will come from the line of Zach Cummins with B. Riley Securities.

This is Ethan Widell calling in for Zach Cummins. I think to start with, it sounds like your retention metrics are kind of starting to trend well. I guess, what levers do you think you need to pull there from here to continue to improve retention? Is that primarily product-led as discussed on the call so far? Or is there anything else?

Sure, Ethan. Thanks for the question. So of course, from a long-term trending perspective, we talked mostly about the products and the introduction of PolicyNote. And we are seeing really strong engagement metrics there, which give us a tremendous amount of confidence in how PolicyNote will impact retention in the future.

And one of the more interesting things, now that PolicyNote has been out in market for 6 months now, is we're able to look at some of that usage, not just a snapshot in a moment, but over time. So that's where -- I spoke earlier about how we're seeing user engagement increase as the relationship continues. That's a very strong sign and something that bodes very well for how PolicyNote will impact our retention going forward.

But there's more -- but there's definitely more to it as well. So as I mentioned, there's also the opportunity, we've introduced new global data packages, which help with expansion revenue, and it's something that we're seeing great success with, especially within our enterprise segment. And so that's something that we see as something that's connecting very well with customers.

We're also seeing great confidence from customers when they buy. So we talked about multi-years. So again, for the second quarter in a row, we've more than doubled the pace at which we're signing new corporate customers to multi-years for our policy data. That's significant in part because of the indicator of confidence that it gives, but also because that will translate directly into gross retention improvements in 2026. So we know just mathematically that that will have an impact as well.

And then we've also talked about some of the changes that we've made operationally as well. So as Jon and I both mentioned in our remarks, the level of performance that we saw at the end of last year and heading into Q1 was just not acceptable. And so we've made operational changes as well. And that includes in areas that directly impact retention and cross-sell/upsell. And so we're excited with the progress we're making operationally there, and we believe that that will have an impact on all of our customer relationships and our ability to retain and grow those relationships over time.

So product is certainly important, and it's certainly very encouraging what we're seeing there. But it's far from the only thing that we're seeing that will help drive improvements in gross and net retention.

Got it. That's super helpful. And then maybe to double-click on one of those points. You mentioned doubling the rate of signing multiyear commitments. I guess how do you view this as impacting the slope of revenue growth ultimately going forward?

So the increase in multi-years, as I said, will impact gross retention over time, right? So it's just less of that business coming up for renewal in any given quarter.

What's most important to me when I think about long-term health is really, like I said, fundamentally, the product and the engagement that we have with our users on a day-to-day basis. That's why we focus so much on that, and I'm so encouraged by it. But obviously, with multi-years, the more we can decrease that frequency at which those relationships are coming up for renewal, the more we'll have stability in that business. And our success in new logo will then be additive to what we have instead of essentially replacing what we lose when our retention isn't where it should be.

And we have no further questions at this time. I'll hand the call back to Bob Burrows for any closing comments.

Thank you, Regina. That concludes our call this evening. We appreciate everyone's participation on the call. And we look forward to speaking with all of you again in the future. Goodbye.

This concludes today's conference call. Thank you for joining. You may now disconnect.