NOTE - NYSE

Good morning, and welcome to FiscalNote’s Q4 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Sara Buda, Vice President of Investor Relations. Thank you. Please go ahead.

Hi everybody, welcome to the FiscalNote Q4 2022 earnings call. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance but are rather 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 material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's EDGAR system and our website as well as the risks and other important factors discussed in today's earnings release. Additionally, non-GAAP financial measures and other KPIs will be discussed on this conference call. Please refer to the tables in our earnings release and the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to FiscalNote’s Chairman, CEO and Co-Founder, Tim Hwang.

Thanks, Sarah. Thank you for joining us this morning. On today's call, I will review our fourth quarter and full year results for 2022 and offer some perspective on the fundamentals of our business as we build an enduring growth company with compounding subscription revenue growth, strong gross margin and over time, an impressive free cash flow model. I'll then turn it over to our CFO, Jon Slabaugh, to talk about the details of our financials and our outlook for the year as we swiftly move towards the inflection point of profitability. Before I begin, as many of you are new to the FiscalNote story, let me start with an overview of who we are and what we do. At FiscalNote, we're on a mission to help our customers make sense of a complicated and constantly changing world we live in. We do this by delivering a proprietary SaaS platform that uses artificial intelligence to collect, analyze and synthesize massive amounts of regulatory, legal and policy information. We then apply human intelligence and workflows to make this data usable and actionable for our customers. Changes in policies, regulations and laws impact the decision-making of almost every organization around the world from changes in regulation, the mandatory reporting requirements to the organizations must comply with often on a global basis. As such, we're building an enduring company for the world's most important and influential decision-makers. These customers range from hundreds of government agencies and public sector customers in the Department of Defense, the White House, every member of the House Senate in the United States Congress into better reserve and public sector organizations in Europe and Asia to major corporate customers, including half the Fortune 100 that need to stay on top of an ever-shifting regulatory, political and geopolitical landscape in countries around the world. These customers rely on this more every day, help interpret the impact of policies, legislation and macroeconomic shifts on their institutions, more importantly, to take actions which achieve their business objectives and minimize political and economic risk; this forms the basis of our durable and long-term growth. Since we found the company, we have been building a category creator, which constantly innovates to turn insights into action, convert challenges into opportunities and mitigate risk to protect operation. In a sense, we have become an increasingly mission-critical and ubiquitous Bloomberg terminal of political, legislative and regulatory information at the local, state, federal and global level. We've invested tens of millions of dollars in almost 10 years building a defensible combination of data, information and artificial intelligence technology to select, synthesize and make sense of an exploding pace and volume of dynamic unstructured regulatory, political and legal information around the world as well as the software workflow tools to help our customers respond. The same way that other information companies, such as S&P Global, IHS Markit, FactSet, MorningStar, CoStar and Avalara have innovated in their respective information field. Fiscal continues to deliver mission-critical information that has a direct impact on our customers' operations. Now, let me summarize the company's financial position that serves as the platform for our compounding profitable growth in 2023 and beyond. Our revenue continued to grow with a large customer base that renews contracts and subscriptions every year. For 2022, we grew our GAAP revenue 37% year-on-year to about $114 million, further evidence of our ability to deliver compounding growth even in a difficult macro environment. Looking at management KPIs, we grew our run rate revenue to $127 million, of which $125 million was organic. Our annual recurring revenue which represents 90% of total revenue with $113 million, marking growth of 14% year-over-year and 13% on an organic basis and we increased our net revenue retention to over 100% on a trailing 12-month basis, a strong reflection of our successful cross-sell and upsell model and the must-have mission-critical solutions we deliver for our customers. Further, we also provided guidance for 2023 that indicates another strong year of growth and momentum for FiscalNote with GAAP revenue of $136 million to $141 million, marking growth of 20% to 24% year-over-year. We also expect run rate revenue of $148 million to $155 million for the year, underpinned by our recurring revenue with thousands of blue chip customers and high retention rates. As we're proving, our durable business model creates a high degree of predictability. We take our customers from the previous year, renew them and upsell those customers with new products and capabilities to grow our business while simultaneously adding to customers each year. These customers continue to renew at high retention rates because of the strength of our products and the deep customer relationships that we have built. Fiscal has always been differentiated given not only recurring revenue base, but also with high adjusted gross margins, which are in the 80% range. These adjusted gross margins, the result of our SaaS business model, AI pedigree and data-rich products provide the basis for strong free cash flow in the future. We remain on track to be adjusted EBITDA positive in the fourth quarter of this year. Furthermore, our growth, high net retention, stable adjusted gross margin and increasing efficiency in our operations mean that we are on track towards impressive free cash flow margins in the future beyond this near-term adjusted positive EBITDA profitability milestone. We are well capitalized from a cash perspective due to the public listing process and the proceeds we have obtained in the summer of last year. We are capitalized fully and do not require any additional capital raises to achieve our plan of positive adjusted EBITDA profitability and free cash deposit margins. And finally, to complement our recurring revenue organic model, we continue to find deeply additive M&A opportunities for growth, as evidenced by our most recent acquisition, which is penis capabilities into new geographies and customers such as Eastern Europe and Africa with DT Global, new technologies such as alternative and macroeconomic data and APAC with Aicel Technologies [ph], our adjacent products and capabilities such as terrorism, cyber and operational risk analysis for governments and companies with Dragonfly [ph]. These acquisitions continue to fuel additional growth vectors for the company in a number of new directions and provide a pathway to long-term compounding growth. Our acquisition pipeline remains active, but we continue to be thoughtful and diligent as we pursue accretive acquisition and valuations aligned with the fundamentals of the business and deal structure that minimize solution. We are prudent at strategic capital allocators and will always be judicious to prioritize investments that drive the highest return for our shareholders and deliver results for our customers. Jon will get into the specifics of our financial results and the details for our outlook of 2023. Now, let me touch on the strong fundamentals of the business that serve as a platform for our growth in 2023 and position Fiscal to deliver outpaced returns over time as we continuous to allocate our attention and capital towards driving long-term profitable growth. First, our strategy begins with the large total addressable market with secular trends related to the ever-increasing and rapidly changing regulatory geopolitical and economic operating environment. Experts have sized our TAM at $37 billion, which is what companies in the organizations spend every single year on products and services related to legal, regulatory and policy information. Our market is driven by political events and the regulatory environment that we do not see slowing down. As always, the world continues to become more and more complex and volatile for our customers. Military conflicts in civil and regions across the globe, local market supply disruptions, the transition to a new energy economy and emerging technologies for regulators and politicians around the world to respond with new regulations, which in turn creates uncertainty for all organizations. These trigger events create demand for our products as our insights and answers help customers make sense with this exploding volume of unstructured dynamic regulatory policy and macroeconomic information to address uncertainties, manage risk and make decisions about operations and strategy. Historically, making sense of all this information has been a manual and opaque process. We believe it remains a massive underserved opportunity to use AI to structure, normalize and analyze and digitize all this information. Fiscal is now positioned better than ever and better than anyone to help the world understand what exactly is going on in policymaking around the world. from all-out war and military conflict in Eastern Europe to be awakening of a new relationship with our public services after the deadly of pandemic in over a century, the world is an increasingly complex and uncertain place, and we believe Fiscal is well positioned to be the primary beneficiary of the ongoing policy and regulatory complexity and risk exposure. We are still just getting started. As an example, the European market stands as one of the most regulated markets in the planet, and yet only 10% of our revenue comes from this market. We are at the beginning stages of our European expansion, and I believe that similar to other large-scale information services leaders, we can build a business that can rival a size for our North American business with just our current products today. Of course, we're simulating the pushing the boundaries that we provide to our customers through constant innovation and by expanding to areas such as ESG and compliance that provide new avenues for growth into the future. Ultimately, we see multiple growth factors for Visa to capture the large market of legal, regulatory and policy information. The second component of our fundamentals is our scalable operating model that long term will enable us to drive conversion of incremental revenue to operating profit. The model is quite simple. We have a proven mid-teens organic growth. Add to that, our M&A program of tuck-in acquisitions that broaden our reach and cross-sell. We renew our customers year after year and expand our relationships by adding new data sets and products. This is the compounding recurring revenue growth model we've proven. With this model, we're driving adjusted gross margins in the 80% range. We've also built a strong operational foundation in R&D, sales and marketing and G&A to support the operations of a large growing durable public company at the forefront of AI -- we now have global operations from Washington, D.C., New York, Austin, Texas; Madison, Wisconsin, London, Brussels for down, sold Singapore, Sydney and Taipei that give us more reach than ever before and the operations to meet our global opportunities. Moving forward, we can build on this foundation to drive growth. Further, as Jon will detail, we have made and will continue to drive efficiencies in the organization using technology and workflow improvements and by finding areas of expense we can drive efficiency. Finally and perhaps most important is our fundamental competitive advantage, a unique and defensible combination of data, AI and human intelligence. We have an incredibly comprehensive amount of data that we have collected over the past decade of significant relevance to what governments and the private sector are interested in. We also have an incredibly comprehensive AI platform that we use to aggregate, synthesize and structure this domain specific data. And we have the human intelligence and the software workflow to make it usual and actionable for our customers. Further, our AI models incorporate the insights we gain from the thousands of customers that we have every single day to enrich our products. This combination of AI and data creates our sustainable technology both. As we have seen in many industries, we're beginning to see significant advances in artificial intelligence, which is especially encouraging for fiscal as advances in AI technologies, including chat GPT and GPP4 served to enhance and accelerate our business through both increased demand and increased operational efficiency. We believe the combination of generalized foundational AI models with this domain-specific models will create defensible insights that will further enable us to efficiently optimize our data collection efforts while building novel applications and user experiences that enhance efficiency for fiscal customers. The advantages of AI acceleration should manifest itself in multiple ways. One, in areas related to customer experiences, such as faster prototyping and data collection efforts using our machine learning and tremendous data advantage. Another is more efficient and effective operations such as a larger level of personalization, content dissemination and review for more efficient customer service and engineering automation. We have and will continue to incorporate elements of AI at all levels of the company to drive competitive advantages and differentiation as well as better operating margins for the company. Lastly, for instance, we announced our collaboration with OpenAI, which demonstrates our continued market leadership in AI, leveraging the most cutting-edge technologies in this space. This expanded user interaction to language models such as open AI will help create a flywheel to drive future product development for fiscal income specific models, enhanced accuracy and relevancy for our customers and enable us to swiftly extend our leadership in the application of AI and large language models related to the specialized data sets. In sum, for those of you who know our team, we know that we are appearance building an efficient business with strong fundamentals and for deploying a resilient capital allocation model for long-term growth and cash flow. That's exactly what we've built here at FiscalNote. Our capital management strategy support our foundational goal to be an enduring profitable leader in our sector. All capital allocation strategies are aimed at allocating our time and capital on those actions attract the greatest return and that minimize solution for shareholders. Given the strong fundamentals of a recurring revenue business with high gross margins, we believe we have more flexibility than others to allocate capital to the areas of greatest return. To that end, as a team, we are inherently cost focused, given this emphasis on efficient capital allocation. We have and will continue to drive efficiencies in our business while ensuring we are innovating for the future. With our cash on the balance sheet and access to our accordion, we have sufficient capital to support our growth and fund our M&A. As we achieve our adjusted EBITDA profitability goal this year, we will be well positioned to drive margins in line with other leaders in information services. Before I turn it over to Jon, let me comment on the dynamics we're seeing in the public markets. By all accounts, this company is in a great position on a fundamental basis, we continue to grow, continue to maintain strong relationships with customers through our retention and subscription model, continue to support high gross margin and long-term free cash flow generation and continue to innovate for the future by expanding our product suite and geographic footprint. Despite this, as you can see, there is a clear disconnect between those fundamentals of our business and our public market valuation. We believe this implication is temporary. As long as the fundamentals continue to deliver for the business, there will always be options to create value for shareholders in the long run. What we are doing and will continue to do as a management team is to build an enduring long-term growth company for the future, one that delivers great products and services for long-standing customers and maintain the high rate of gross profit for reinvestment in the future. So despite short-term technical gyrations in the public markets, our leadership remains steady, and the long-term opportunity for fiscal mood has never been more clear. As the same investor Bendam Gram [ph] said, in the short term, the stock market is a voting machine in the long term, it's a weighing machine. In 2023, we are in an environment with a pie coming out and recurring revenues matter, high gross margins battery, long-standing customer relationships to matter, deeply experienced and committed management team scattered and differentiated technology and proprietary product investments matter. When the dust settles from the capital market and after the market have sorted through and identified the real businesses with strong fundamentals, I believe fiscal let will and has proven itself as a business that matters. In summary, as we look back on 2022 on the fundamental basis, I'm delighted with the business and our progress. We believe Fiscal is well positioned to be the primary beneficiary of global policy complexity given the myriad of political, economic and operational challenges that exist. We are improving our compounding growth model through our combination of organic growth and accretive M&A underpinned by our diverse and blue chip customer base. We are building an enduring and resilient business and a growing and increasingly important market. We are growing in new geographies, markets, product areas and customer segments that create continuous investors for top line growth and innovation. Furthermore, advancements in AI benefit us in customer differentiation and targeting the top line and efficiency and automation on the bottom line given the event data advantage that we have. We are further delivering on the commitments we outlined in our last call by coming in at the high end of our revenue guidance with strong net retention and high gross margins. We are executing on our 2023 plan for ongoing revenue growth with a clear path to profitability. We are fully capitalized on our plan. Over time, this will translate into growing free cash flow margin, enabling us to lower our cost of capital and grow our business into the future. And finally, we are led by disciplined, experienced and exceptionally talented management team with a relentless focus on sustainable profitable growth and smart capital allocation to build an enduring company for the future. Every single day, we work to earn the trust of thousands of the biggest and most important companies, government and people in the world who rely on fiscal solutions to discover and navigate the impact of government policy making on the organization, and more importantly, we take actions which to achieve their business objectives. This was and remains the heart of our vision for Kistler and have never been more passionate about the mission and more optimistic about our future growth opportunities. With that, I'll turn it over to Jon to discuss our financial performance and outlook.

Thank you, Tim, and good morning. I'm going to spend some time providing further details on the fourth quarter and fiscal year 2022. I'll also discuss what to expect in terms of financial performance for this year and walk through our path to positive adjusted EBITDA and over time, positive free cash flow. Let me start with revenue. Fourth quarter revenue was $31.4 million, marking growth of 29% year-over-year in total and 18% growth on an organic basis. Full year 2022 revenue was $113.8 million, marking 37% growth year-over-year in total and 15% growth on an organic basis, which excludes the 2021 and 2022 acquisitions and Sunset revenue. Non-GAAP revenue was $115.7 million for the year. We are proving our strategy of delivering compounding growth, driven by mid-teens organic growth and accretive strategic tuck-in acquisitions that we can immediately cross-sell and upsell to our customers. This has been our track record, and we expect to continue this revenue performance moving forward. Fourth quarter subscription revenue, which makes up almost 90% of our total revenue was $27.3 million, an increase of $6.4 million or about 31% from a year ago and 15% growth on an organic basis. Full year 2022 subscription revenue was over $100 million, an increase of approximately 36% year-over-year in total and 13% growth on an organic basis, which again excludes the 2021 and 2022 acquisitions and Sunset revenue. Our advisory advertising and other revenue was $4.1 million in the fourth quarter and $13.2 million for the year, a growth of 49% year-over-year. We exited 2022 with run rate revenue of $127 million in total, marking 14% year-over-year growth. Run rate revenue is defined as ARR plus non-subscription revenue earned during the past 12 months. It is a key management metric and serves as a baseline for the upcoming year. On an organic basis, run rate revenue was $125 million, also reflecting a 14% growth on a pro forma basis. We grew our total annual recurring revenue, or ARR, to $113 million as of December 31, an increase of 14% to the same period in 2021. Organic ARR was $112 million as of year-end. This represents a 15% growth rate when compared to our ARR at December 31, 2021, on a pro forma basis. We ended the year with NRR or net revenue retention of approximately 100% on a trailing 12-month basis. While NRR rates can fluctuate slightly from quarter-to-quarter, we are delighted to reach the 100% mark, which affirms pre-FiscalNotes, build and buy strategy, leveraging our customer relationships with strong cross-sell and upsell efforts. Looking at gross profit, we continue to enjoy strong margins. Our Q4 gross profit was $23.1 million, representing a 73% margin. Our fourth quarter non-GAAP gross margin was $25.6 million, representing an 81% gross margin after adjusting for deferred revenue and amortization. For full year 2022, our gross profit was $81.8 million or 72% margin. and our non-GAAP gross profit was $92.8 million, reflecting an 80% gross margin. Sales and marketing costs were $42 million for the year. The notable increase from a year ago, largely due to acquisitions. R&D expenses were $20.7 million for the year, a reduction of about $4 million from a year ago due in part to increased software capitalization. Editorial content costs in '22 were approximately $16 million, a $1 million increase over last year. G&A expenses for 2022 was $77 million. This includes approximately $37 million of noncash items, primarily related to the accounting treatment of noncash stock-based compensation expenses that were triggered as a result of our Data public listing transaction. Excluding these noncash charges, G&A was approximately $39.5 million, an increase of $11 million from a year ago, largely driven by increased public company expenses. I will provide some 2023 OpEx details in a minute. Our total interest expense for the full year was $95.7 million, which includes significant onetime noncash charges related to the conversion of our legacy convertible notes as part of our business combination and public listing process. Our fourth quarter interest expense of approximately $6 million reflects our cash and noncash interest expense, reflective of our current debt profile -- going forward, we expect to pay approximately $4.5 million to $5 million of cash interest each quarter. Also contributing to our net loss in 2022 was a noncash charge for $11.7 million related to a loss contingency recognized as a result of the previously announced proposed lender settlement agreement. Offsetting some of our onetime charges, we had a noncash gain of approximately $16.1 million related to the mark-to-market of the public and private warrant liabilities and a $7.7 million cash -- noncash gain from the forgiveness of the company's PPP loan. The GAAP net loss for fiscal year 2022 was $218 million, which is reconciled to our adjusted EBITDA loss of $24.4 million in our press release. Our balance sheet remains solid with $61.2 million of cash and cash equivalents as of December 31. We conduct extensive cash forecasting and scenario planning on a regular basis. We have sufficient capital to support our growth initiatives and fund our past to positive adjusted EBITDA in the fourth quarter of this year and beyond. Further, we are taking steps to reduce our cash expenditures. This brings me to our guidance for 2023. For the full year, we forecast a run rate revenue of $148 million to $155 million, inclusive of the recent acquisition of Dragonfly and excluding any future acquisitions we may make. We expect GAAP revenue of $136 million to $141 million, marking growth of 20% to 24% year-over-year, including the acquisition of Dragonfly -- on an organic basis, in 2023, we expect to deliver another year of mid-teens organic growth. In terms of cadence during the year, for those who have followed FiscalNote, you already know that a significant portion of the revenue growth occurs in the third and fourth quarters. Our sales team is staffed and optimized for growth, an effort that will lead to higher recognized revenue throughout the course of the year and into 2024. We expect adjusted gross margins to be approximately 80% and adjusted EBITDA loss between $8 million and $6 million for the full year, achieving adjusted EBITDA profitability in Q4. And now looking at the first quarter, we expect revenue between $31 million and $32 million with an adjusted EBITDA loss of $7 million to $6 million. While this level of adjusted EBITDA loss may seem high in light of our full year guidance, Q1 includes $1.5 million of seasonal public company costs, including our first year audit after listing and seasonally low revenue recognition from our nonrecurring revenue. Regarding operating expenses, we have taken steps to reduce costs in order to increase efficiency and productivity. These measures will drive significant benefits that will translate into meaningful bottom line improvements starting in Q2 and Q3, paving the way to adjusted EBITDA profitability in Q4 of this year. This includes many efforts across the board, such as adjusting our talent allocation models and locations, aligning our revenue-generating teams to the highest potential clients and market segments, improving our internal processes and workflows and consolidating, reducing and eliminating spend with external contractors and vendors. For example, we have already relocated the majority of our customer support teams to lower-cost offshore locations improved business development productivity by modifying our service model and coverage ratios, consolidated product development and related R&D teams and eliminated many external vendors and contractors significantly reducing the spend with some of our larger technology vendors. We continue to actively evaluate and restructure our business processes and operations across the company. We will realize additional savings in 2023 from these ongoing cost initiatives. As a result, these improvements are driving strong conversion of incremental revenue to adjusted EBITDA. Specifically in 2023, at the guidance midpoint, we are adding approximately $25 million of incremental revenue year-over-year. With 80% adjusted gross margins, this will drive approximately $20 million of incremental gross profit. During this time, we will add only $3 million to $4 million of marginal OpEx, inclusive of acquisitions. This converts to a year-on-year EBITDA improvement of $17 million. We are achieving this by realizing $6 million to $7 million of in-year expense reductions from the efficiencies I just highlighted. Beyond 2023, we will continue to drive strong EBITDA conversion as we maintain high adjusted gross margins and leverage the relatively fixed operational foundation. As Tim mentioned, we are actually pursuing M&A, which has been and will continue to be a building block of fiscal most long-term growth strategy. We are being selective to ensure we find the right targets at the right valuation and focusing on opportunities that uniquely address our customers' most pressing needs and will drive predictable and sustainable compound in growth and accretive EBITDA. We have always been resourceful to structure and met our acquisitions. And at our current stock price, we will continue to use structure to minimize dilution of existing shareholders. We have been successful with this approach in the past, and we have a robust pipeline of actionable opportunities that reflect the realities of today's M&A environment. Further, you can see from our updated credit agreement we recently filed, our lenders remain flexible and continue to be supportive of the company's focused strategic acquisition program. Finally, I'd like to comment on our cash position and future liquidity. As I mentioned previously, fiscal we finished 2022 was $61.2 million of cash on the balance sheet. This cash balance fully supports our planned growth and path to adjusted EBITDA profitability later this year in free cash flow. For context, under our current operating model, we expect to have our cash balance to exceed $30 million a year from now without additional equity infusions. FiscalNote is fully capitalizing currently has no plans to raise additional equity capital. Fiscal operates on a bottoms-up budget in a multiyear plan tied to our strategy. We track performance, respond to variances and update monthly forecast to make sure we're on track to meet financial expectations. As discussed, we've taken actions to reduce our operating expenses, and we're continuing to optimize our operations across the board. We are prepared to take additional actions if needed in the future. In addition, we're working aggressively to accelerate free cash flow and will comment further on a subsequent call. In closing, we're delivering on top line growth as we execute our strategy to build a compounding growth, profitable business that provides mission-critical solutions to the world's most important decision makers. There are secular trends for filling our business and creating sustainable demand from increasing regulation to geopolitical complexity to macroeconomic uncertainty, only FiscalNote has the breadth of AI-enhanced data and human intelligence to help customers navigate this increasing operational complexity. Demand for our products is strong today and will only grow as we add data, workflows and new adjacent solutions with highly predictable recurring revenue, strong gross margins and ongoing cost management, our path to profitability is clear and accelerating, and we have the operational structure and capital we need to scale this business and drive long-term value. We look forward to working with you, our shareholders as we continue to build an enduring market leader for the future. With that, I open it up to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from Matt VanVliet from BTIG.

I guess, first, Tim, you mentioned that Europe could be as large potentially as the U.S. market, but only 10% of the company today is coming from that region. Maybe walk through kind of what the recent hiring plans have been to expand in that market? What other additional investments are you expecting over the next couple of years? And then ultimately, kind of what kind of revenue growth or other growth metrics you can share? Are you expecting in both '23 and maybe 24% from Europe specifically?

Yes, thank you. I appreciate the question. So I think the first thing is that we have been in the European market for a couple of years now. We started off in the Brussels market by really looking at European commission information, European data information in addition to information coming from different member states. And that's really just a reflection of the continued expansion of the data and opportunities that we see overall in the market. Additionally, over the course of the last couple of years, we have made a number of acquisitions in the European market that have expanded the scope of our footprint as well as the customer base that we have in the marketplace. So I'll point you to a couple of companies like Oxford Analytica Dragonfly, most recent acquisitions, DT Global and others that have expanded our footprint throughout the United Kingdom as well as Western and Eastern Europe. Those acquisitions by themselves actually constitute the beginning foundations of what we see as a larger European opportunity. And so a couple of different things. The first thing is just the continued application of our technology in the European market enable us to have to add more data for our customers. The second thing is just the reality that there's a large number of multinational companies and European governments that we continue to be able to sort of bring into our overall customer roster. We're not really giving guidance right now, particularly to the European market, but it is a very big focus of ours as a management team, and it's something that we're continuing to keep an eye on here.

Okay. Very helpful. And then when you look at the recent partnership announcement with OpenAI, I know you expanded on a little bit on the call, but curious in terms of how you’re thinking about that being sort of a product or monetizing that partnership? Is it something that eventually you’ll turn into or build out specific use cases or products around? Or is this really geared towards enhancing the current platform and just sort of pushing ahead on your competitive advantage there in which you can either cross-sell a little bit more of that or raise prices over time to include that functionality?

Yes. So I think the first thing about the partnership that we have with OpenAI is just really that's a reflection of the decade log investment that we've made in artificial intelligence and data collection have been making in the legal and regulatory space. As you mentioned in our press release, we are the only legal regulatory partner for Open AI as part of their kind of chat GPT plug-in program here overall. So there's a couple of different areas that we're really looking at. So the first is enhancements to customer experiences -- so we are in a situation right now as a technology industry where interactions with computers are fundamentally changing, where we're seeing the opportunities to enhance customer experiences quite rapidly. And the inclusion of these new technologies is just another reflection of Fiscal's continuing ability to innovate for the future and actually bring in some of these capabilities, right? So we talked about a couple of these things earlier in the call, things like personalization, better search relevancy, better efficiency in terms of data collection, those are all areas where customers are going to see improvements as a result of the data collection efforts that we have as well as broader partnerships that we have, inclusive of open AI. I think -- the last thing I do want to touch on is something that I briefly touched on in my earlier remarks, which is that we do expect to see some efficiencies from automation as well. And so those come in the form of things like faster time to market, reduced R&D expenses, faster product cycle innovations. Those things all have direct impacts on our income statement. And of course, the combination of better customer experiences and more efficient R&D operations, we do expect to see a real impact for the business overall here.

Great. And then, if I could just squeeze one last one in around the SBB, I guess, issues going on there. Any impact that you're seeing on the M&A pipeline directly from that or valuations sort of, I guess, resetting lower on some of the fallout there. Any update on the M&A pipeline around sort of recent events would be very helpful.

I don’t think that the SCB situation has had a material impact on M&A, but I will comment that from a macroeconomic perspective, we are seeing a large number of deals come across our inboxes. And so as we evaluate those deals, we have seen a material shift in terms of expectations of folks as well as the expectations around structure or price or whatever the case may be. We are constantly evaluating deals every single week, and we are trying to make good decisions around the types of markets we want to be and the types of products we want to be in. And of course, the way that we structure those deals to minimize dilution for shareholders and ultimately drive the most equity value for the business. So in short, no impact from SPP, but obviously, there are broader macroeconomic impacts here.

Our next question comes from Mike Latimore from Northland Capital Markets.

Yes. Congrats on the strong finish to the year there. I guess just on the last comment there. So you said that you saw a material shift in expectations. But basically, is the point there that just valuation expectations have been coming down this year. Is that the point?

Mike, it's Jon Slim. We have seen expectations kind of rationalizing and not only in terms of headline value but also the willingness to work around structure, inclusive of structure consideration and earn-outs. So I think that it's fair to say that the types of transactions that we've been looking at are actionable at lower multiples than maybe previous years?

Okay. Got it. Great to see the NRR over 100%. I guess, do you view that as sustainable? Or could that improve this year? And maybe touch on 1 or 2 points that really kind of moved it over 100% during the year.

Sure. We've asked Josh Resnick, our President and Chief Operating Officer, to join us here on the call, and I'll let him comment on that.

Hi Mike. Yes, I can address that on NRR. So you can expect to see NRR continue to remain relatively consistent, should fluctuate quarter-to-quarter, but remain relatively consistent. We're very focused on hitting the 2 key levers to drive it, gross retention and upsell, cross-sell. And with a lot of the changes that we've been making on the revenue side, in particular, we've been seeking a lot about how we structure our account management, customer success function to help drive that on the retention side, in particular. And with our new Chief Revenue Officer in place, have been adjusting our go-to-market focus to help drive new logo sales as well.

Okay, great. And then, just on the broader demand environment -- can you talk a little bit about what you've seen in the fourth quarter, first quarter, say, relative to third quarter in terms of just deal sizes, sales cycles, and maybe distinguish a little bit between government and commercial sectors.

Sure. So we had talked back in Q3 about seeing some pauses and a little bit of hesitancy in the private sector. We saw that continue into Q4, mainly in new logo in the enterprise. We’re still seeing some budget hesitancy which is factored into our guidance for the year. We still believe our solutions are critical, which is what’s still driving this – the mid-teens organic growth that we’re forecasting. We’re helping enterprises with existential issues that they have around risk and opportunity could be cybersecurity, data privacy regulations, expansion and contraction of lines of business. So we’re still seeing a tremendous amount of value, and we’re seeing our ACVs grow. So we feel like there’s a lot of help there, although still from the macro environment still driving a bit of that budget presence, especially on the enterprise side. So continuing to see a balance of growth in private and public sector, although public tends to be that kind of steadier, more reliable backbone, and we expect to drive more growth through private sector going forward.

But in terms of that private sector dynamic, any change since the third quarter? Or is the environment similar to what you saw in the third quarter?

I think the environment is still generally similar. Still trying to work through a lot of the malaise in the macro environment that you see and hoping to see some improvement as the year goes along. But again, we factored that into our guidance for the year.

Yes, great. And then, just last on the few acquisitions you made over the past year. Can you talk about have you seen improved growth rates or good cross-sells or just a little bit more on the traction from the most recent acquisitions.

Sure, Mike. We've seen really impressive acceleration out of the acquisitions when we filed the 10-K later, there'll be some breakouts in details there. I'll share with you that the legacy business grew at a rate of 11% year-over-year, while the acquisition cohort from 2021 and '22 were in the 20 -- I think 21% growth for those was 23%, 23% for the acquisition group. And that just represents putting it on the platform, giving them access to our customer base and really letting our business development team do their work to drive revenue growth.

Our next question comes from Rudy Kessinger from D.A. Davidson.

Jon, you said -- I think you said a year from now, you expect about $30 million plus in cash. And so I guess you're effectively saying $30 million or less of cash burn over the next 12 months. Is that inclusive of your expectations of future acquisitions over the next 12 months? Or is that just based on the core business as it is today with no acquisitions take in?

Sure. That's excluding any acquisitions you might do between now and then, it's the operating model that we've built for the business as it stands today and taking into consideration growth, operating expense, the CapEx and seasonality of the business as well. And just as a point of clarification that when I say a year from now, I'm referring to a year from today as well.

Okay. So effectively end of Q1 -- end of Q1 '24, not Q4 '23, Okay. And then what is the -- what's the go-forward interest expense. I don't know if you can break it out especially for Q1 or for the full year, but roughly $6.1 million in Q4. You made another acquisition in Q1 brought us some more debt. What's -- and rates have changed us? What's the go-forward interest expense for Q1 and calendar '23?

I think I referenced this in the call, the cash interest expense is $4.5 million to $5 million. And in light of the recent change you might use the higher end of...

Okay. I think you might have broken up at the end of the year. And then maybe just one last for me. In Q4, I know we'll get this in the 10-K, but how much revenue came from DT Global and ASO in Q4? And then when we look at your revenue guide for '23, how much revenue do you have baked in there from Dragonfly DT Global and Aicel?

3000 in Q4 for those 2 entities. When we think about the year going forward, Rudy, the guidance we gave, we gave it kind of with and then in the -- I guess in the previous filing, gave a range of Dragonfly revenue, which was 6.5 million pounds or at $7 million. So you can back that out of the guidance range as well. So when you do that, I think you wind up with an organic growth rate at Dragonfly of approximately 13% to 17%...

Okay. Got it. That’s it for me.

We may do some work to back out Aicel in Data Hunt [ph], specifically if that's something you want to follow up on.

For D&A [ph]?

Yes, D&A.

Okay. Thanks.

[Operator Instructions] Our next question comes from Mike Albanis from Hutton [ph].

Congrats on a nice Q4, and so I finish to the year. I just had one clarifying question for you. I think about 2023 guidance; I think you mentioned additional at the midpoint, an additional $25 million revenues, 80% margin, so $20 million incremental gross margin and then an incremental 3% to 4% in OpEx kind of on top of your current, I guess, cost basis plus some savings that you had talked about. Can you just kind of walk me through that one more sense.

Right. So the increase in OpEx is primarily related to the addition of Dragonfly, which came with revenue and obviously some expenses. What we've done to date is in full do perspective take $6 million to $7 million of operating expense out of the business in the year. That number translates to probably closer to $12 million on a full year basis. And that's -- those are adjustments that we're working with Josh and his team to make we have made and will continue to make over the course of the year.

Got it. Okay, great.

We have no further questions. I'd like to turn the call back over to Tim Hwang for closing remarks.

Great. Well, I want to thank everybody for joining us on the call here. We obviously had a great full year in 2022. We've given guidance on a positive and really exciting 2023 here. And so really look forward to our next call, and appreciate everybody jumping on the call here. Thank you very much.