NOTE - NYSE

Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Fourth Quarter and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the conference to Buda, Vice President of Investor Relations. Sara, you may begin.

Hi, everybody. Welcome to the FiscalNote Investor call. 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 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 the material risks and important factors that could affect our actual results, please refer to our SEC filings available on the SEC 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 or 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, Sara. Thank you for joining us this morning. On today's call, we'll review our fourth quarter and full year results for 2023. We will also offer perspective on our strengthened balance sheet position with the recent divestiture of one of our noncore businesses which underscores our focused product strategy and our commitment to driving a strong return on invested capital. This transaction, combined with our achievement of adjusted EBITDA profitability in Q3, one quarter earlier than we initially forecast. Our beat of adjusted EBITDA expectations in the fourth quarter from the base of a transformational 2023 for FiscalNote. In addition to hearing from Jon and me, we'll also hear from our President and COO, Josh Resnik, who will discuss our priorities for 2024. First, let me remind you of some of the core funds of FiscalNote. We're on a mission to help our customers make sense of the complicated constantly changing world we live in by delivering a proprietary AI-enabled platform that aggregates and organizes regulatory, political and macroeconomic information and analyze the impacts on their organizations. We are the market-leading AI platform for the regulatory policy and geopolitical intelligence sector, essentially the Bloomberg Terminal for regulatory and public policy risk. We operate in a large and growing $40 billion addressable markets, driven by increasing geopolitical uncertainty and real complexity that impacts almost every organization, from government and nonprofit organizations to large enterprises who operate globally in a highly regulated environment. We have a strong and enduring competitive mote underpinned by our decade-long investment in data, AI and human intelligence. Our AI leadership is supported by a deep portfolio and is recognized by the world's most preeminent AI platforms. We are passionate about our customer success, thousands of organizations ranging from government agencies and public sector organizations to major corporate customers in the Fortune 100, rely on FiscalNote every day to help interpret the impact of policies, legislation and macroeconomic shifts or institutions and more importantly, to take actions which achieve these objectives and minimize political and economic risk. These customers rely on FiscalNote every day, discover, process and navigate the impact of government policy making on the organizations and more importantly, to take actions, which achieve their business objectives and minimize political and economic risk. This forms the base of our durable and long-term growth. We enjoy recurring compounding revenue streams with customers or new to these subscriptions year after year and have a proven business model of successful upsell and cross-sell by offering incremental data sets, products and capabilities that enhance and expand our customer value. We have strong financial momentum supported by healthy compounding top line growth, ongoing adjusted EBITDA profitability and a solid cash position. We are relentlessly focused on capital allocation strategies that support our goal to build a durable, profitable compounding growth company providing unique value to the world's most important decision makers. As we scale this business, to $250 million, $500 million, $1 billion in recurring revenue we expect to deliver long-term free cash flow margins in line with other information services lead of scale. The same way that other information companies, such as S&P Global, IHS Markit, FactSet, Morningstar, CoStar and Avalara have innovated their respective information fields. FiscalNote continues to deliver in critical information that has directly impacted our customers' operations and create an entirely new category within the data and information services space. Further, our AI pedigree and our vast array of valid trusted data, we are in a unique position and have a clear competitive advantage. Now let me touch on today's news and what it means for organization moving forward. Today, we announced the sale of Board.org. This is a noncore division of our business that represent about 10% of our total revenue, but sold for $103 million, including $95 million in upfront cash and an $8 million earn-out. The total consideration for this noncore divestiture represents almost 50% of our recent market cap and 7x revenue multiple based on 2023 ARR, while we currently trade close to 2x. This underscores the stark and real disconnect between the underlying fundamentals of business and our public valuation. The transaction underscores the underlying value and desirable characteristics of durable recurring revenue businesses that make up the vast majority, approximately 90% of FiscalNote revenue base and truly to undervalue the remaining company is relative to its intrinsic value. I'll expand on this disconnect in our special committee process shortly. But first, let me provide some context behind the strategy for this recent divestiture and the resulting positive impact on our capital position. Board.org is a peer-to-peer executive community platform focused on structured collaborative insights for executives, response for marketing, operations, HR and other leadership positions within the organization. We acquired the business in 2021 for a total conversion of approximately $14.3 million including $10 million in cash and $4.3 million in convertible securities. Over the last three years, our management team drove strong growth for the division by providing sales, marketing and operational resources to further network and broaden their community platforms, highlighting just another example of the impressive performance and execution of those of the overall team. Strategically, the divestiture made sense particularly in light of our decision to rationalize our product portfolio and double down on the AI offerings and products that are core to our gross strategy and the policy, regulatory and operational risk sector. Operationally, Board.org runs largely as an independent business with an organization, which makes the divestiture process relatively straightforward. And of course, financially, it was a win-win as well. We drove a 125% IRR and 9.5x cash-on-cash return in just under three years since we acquired the business. It transformed our balance sheet, allowing us to reduce debt by over $65 million, reduce our interest expense. It significantly increased our cash position by approximately $15 million. This transaction does not change the fundamental nature recurring revenue, high gross margins and positive adjusted EBITDA. On all accounts, this is a very strong transaction for us and underscores our commitment to deploying a rigorous and thoughtful capital allocation strategy. The realization of a triple digit IRR on an acquired asset as a result of our sound management on compounding recurring revenues is just another testament to the smart capital allocation approach we are taking within the business. We are optimizing our balance sheet to invest in the products and offerings that are core to our strategy and that offer the strongest long-term profitable growth while preserving and enhancing shareholder value. At this point, before I get into the details of 2023 and our plans for 2024, I'll comment briefly on the statement we made in our November call regarding the appointment of a special committee by the Board to evaluate any proposal I may submit to pursue a go-private transaction. The Board and the committee along with their advisers continue to review the Company's ongoing plans and evaluate all strategic options available to the Company. As I've said before, I believe the stock has tremendous valued on a fundamental basis. The valuation achieved for our Board divestiture underscores it further. We have a clear AI leadership position in our sector. We generate compounding recurring revenue ARR from thousands of customers. We drive consistent 80% high adjusted gross margins. We have an operational foundation that drives extremely high operating leverage. We are profitable on an adjusted EBITDA basis. And we now have an aligned capital structure to support our growth plans. Despite the underlying strength of fundamentals, our current stock price continues to be misaligned with our view of the value of our business. I fully expect the stock to rerate to align with the strength of our fundamentals over time. However, as I've said before, if the public markets do not recognize the value of our fundamentals, we will take action to realize the valuation we deserve and drive the best value for shoulders. Regardless of the outcome, we remain relentlessly committed to executing our strategy. As we do so, I'm confident our valuation will reflect the fundamental strength of the organization. Now let me run through some highlights of 2023 and then turn it over to Josh to discuss our 2024 transformation that positions us for accelerating growth long term. From a financial position, 2023 was a positive year with a number of milestones. We grew total revenue 17% year-on-year. Subscription revenue, which represents approximately 90% of total revenue, grew 18% year-on-year. On an organic basis, our total revenue grew 7% and our subscription revenue grew 9% year-on-year. Our adjusted gross margins remained strong in the 8% range. We achieved our goal to be adjusted EBITDA positive one quarter earlier than we had projected. And we exited the year with the fourth quarter adjusted EBITDA of $3 million, which exceeded the Company's previous guidance range of approximately $2.5 million and marks an $8.2 million year-over-year improvement compared to an adjusted EBITDA loss of $5.2 million in the fourth quarter of 2022. This transformation of our operational structure is remarkable. This relentless focus on adjusted EBITDA profitability was the cornerstone of 2023 achievements with every member of FiscalNote’s team focused on driving this milestone. Now as we enter 2024, having executed on a path to positive adjusted EBITDA and an enhanced balance sheet, we are pivoting to growth and have a measurable actual plan for returning to double-digit growth in 2025. We are setting a goal for the organization to achieve $250 million of run rate revenue over the next five years and to do it on a profitable adjusted EBITDA basis. Josh will detail the specifics shortly. What is clear is that we already have the foundation elements in place to drive this long-term growth. First, we have clear unparalleled AI leadership in our sector. In 2023, we introduced new applications for our AI products, including FiscalNoteGPT, Risk Connector and FiscalNote Co-Pilot. Our FiscalNote AI Co-Pilot program is a series of AI-enabled applications that provide intelligent assistance for policy and risk management professionals. The Co-pilot program leverages our decade-long investment in AI, ML and NLP and proprietary and defensible reasoning and data aggregation tools as well as the tens of thousands of proprietary and public verticalized data sets and comprehensive information that is going to collect to provide lightweight applications with very specific use cases. This year, through the Co-pilot program, we will launch a constellation of AI agents that include quick applications catered to our initial customer percentage that automate the day-to-day work of creating legislation, drafting regulatory and legal analysis, advocacy outreach and constituent communications or regulatory responses. In doing so, our Co-pilots will reduce countless hours that our customers spend drafting legislation, responding to legislation, communicate constituents and other tasks. Our Co-pilot program will provide incremental growth path to complement our proven durable base of recurring revenue solutions. Within our core offerings, we're also driving new applications for our AI products as well. Last year, we introduced FiscalNote Risk Connector, our internally developed risk intelligence solution for enterprise and government organizations. Risk Connector brings the power of our proprietary data and AI capabilities to map relationships and identify risks within the organization supply chains as well as an organization's customers, investors, partners and any other vectors through which a risk materialize. In Q4, we announced that we secured our first anchor for Risk Connector. And today, we have a number of large-scale opportunities pipeline. Second, we have broad and deep proprietary data and intelligence. We continue to add new data and intelligence to expand our customer value. In 2023, we added new geopolitical and security intelligence capabilities through the integration of Dragonfly, leading to several successful cross-sell opportunities within our enterprise sector. We also expanded our EU IT offering, providing stakeholder coverage and data for all 75 members of the European Parliament. Finally, we have a base of thousands of customers that offer tremendous growth opportunities. We continue to enjoy strong relationships with the government, ranging from the DoD to the FBI to the CIA to the Office of the President with some relationship spanning decades. Internationally, we have relationships with public sector organizations throughout the EU and Asia and leading nongovernmental organizations continue to rely on FiscalNote every day to advance their agendas within the political process. Our enterprise customer base, which continues to be our fastest growing, highest NRR customer group, offers significant growth opportunities as we introduce new enterprise products with higher ACVs and continue to upsell and cross-sell. Additionally, our Europe expansion is on track as well with new wins both in the enterprise sector and public sector alike. Europe is approximately 15% of our revenue today, a notable increase from a year ago, and we see significant upside here as well. As we've said before, we are at the beginning of exchanges of European expansion, and I believe that similar to other large-scale information services leaders, we can build a business that can rise side of our North America business today with just our current products. In closing, at the start of 2023, we told you that we would become profitable on an adjusted EBITDA basis, and we did one quarter earlier than expected. We told you that we feel confident in our balance sheet in business and would take steps necessary to bolster that confidence, and we did. We told we will continue to lead the market on launching new and innovative legal and regulatory AI products and we did. We will continue to deliver and exceed expectations through sound management, innovative product development and strategic execution. These are the foundational elements in place today that serve as a platform for our transformation in 2024 and a return to accelerating growth next year and beyond. We remain committed to building a durable, profitable compounded growth company that provides unique value to the world's most important decision makers and scaling this business to $250 million, $500 million, $1 billion recurring revenue. Now let me turn it over to Josh to discuss the specific elements of our growth acceleration plan and our strategy for profitable growth moving forward.

Thank you, Tim. I'm delighted to be here. From an operating perspective, 2023 was a significant and positive change as we transform the organization and eliminate approximately $25 million in annualized expense and brought the Company to adjusted EBITDA profitability. As Tim mentioned, throughout last year, considerable management time and attention was placed on this goal as every member of our leadership team and our operating teams, we're relentlessly focused on driving costs out of the business. This impacted every area of our operations. Every manager, team member was clear on our priority and tackled it with incredible tenacity. And I want to take the moment to thank our teams for their rigor and dedication in making it happen and for doing it one quarter sooner than forecast. But profitability wasn't just an end in itself. All that work resulted in an efficient operating model that we're building on in order to drive sustained profitable growth for the long term. And as we enter 2024, and even as we continue to operate profitably, we're returning our focus to growth. We fully expect to achieve $250 million in organic run rate revenue within the next five years and we will apply the same relentless focus and determination that we used to deliver adjusted EBITDA profitability to drive that level of sustained profitable growth for the future. In light of that, let me tell you how the work we did in 2023 is impacting this year and what it means going forward. First, I'll tell you about the transformation of our commercial organization. In 2023, after bringing on our new Chief Revenue Officer, Richard Henderson, we made significant changes to our sales operating model, including implementing aggressive performance management measures and adjusting our coverage model. This has resulted in a leaner, more effective sales team that will serve as a foundation for our future growth. We flushed out underperformers and have been placing them with talent that is better evaluated, better trained, and better positioned to succeed. In addition, late in the year, we made numerous changes to drive specific focus on crop and retention. Among these changes, are adding resources focused on cross-sell into our existing account base and increased focus and attention on our largest accounts. With the scale of large enterprises that we already have relationships with today, and the breadth of our product offerings, we see a tremendous opportunity here. Most recently, we also implemented an improved delivery model for customer success and account management related to our global intelligence product, leveraging the same model that we deployed elsewhere in the organization around this time last year and which resulted in improved retention across the impacted portfolio of products while reducing cost to serve by almost 20%. We fully expect to realize the same improvements with this new round of changes over the course of 2024, just as we did from the earlier range in 2023. Keep in mind, transforming a team in this way takes time to bear fruit. Collectively, these changes are substantial and involve a significant realignment of resources. Improving the talent profile of the team takes time to have a full impact, the new cross-sell teams will take time to ramp and the high six-figure deals we take from our top accounts will have longer sales cycles. And with our most recent changes involving the restructuring of customer success and account management, we're trading some year and disruption for long-term gain as we build the right foundation for sustainable and profitable growth. We're confident that these most recent changes will generate a strong return in the form of substantial improvements to gross and net retention for the course of 2024 and beyond. Second, I want to address the improvements we've made with our products by streamlining and simplifying our existing portfolio, creating room to reinvest capital into the areas of our business that are most likely to drive higher growth. Over the course of 2023, we took a hard look at the products that align with the long-term strategy and decided to focus on those with the greatest potential for profitable growth. This has enabled us to reallocate our teams, our capital and our collective focus, products and platforms that have a more significant long-term impact. In our core products and markets, this has enabled data expansion and enhancement including the launch of our global policy dashboard, which now provides the most comprehensive directory of global policy data in the market. Beyond our current core products, we also have launched new products, as Risk Connector, our AI-powered solution to manage operational and supply chain risks. Risk Connector is now in use with large enterprises in financial services and tech and we look forward to its continued growth. We also have other innovative new products in the pipeline, including our AI Co-pilots as well as an exciting and unique AI-powered data platform that I look forward to discussing with you at a later date. Most important, though, I want to be clear about what this refined product portfolio will mean for FiscalNote over time. Just as I spoke about swapping out underperforming sales reps, upgrading talent and bringing that talent into a stronger operating ecosystem. And justice changes like that can create some short-term disruption, but will result in long-term sustainable and profitable growth. The same is true with our revamped product portfolio. New sales talent takes time to ramp and new products. 2023 was about creating greater capacity to bring new products and enhancements to market. In 2024, we'll see more product launches even as we see the 2023 launches and enhancements take route and as we invest in their growth. And in 2025, we'll really see the benefits of all this work as we return to double-digit growth. Our final initiative for 2024 is to further accelerate our product development. This complements the changes in our sales organization and expand beyond the specific product initiatives that I just outlined. We'll increase the velocity of our work on new products as well as enhancements to our current portfolio, delivering best-in-class user experiences on top of scalable platforms with the right speed and flexibility to optimize top line impact and bottom-line value, serving as the foundation for an enduring sustainable growth system. These changes, which began in 2023 and will continue into this year, combined with our extensive expertise in AI will support the ongoing acceleration of our revenue growth and will also ensure that as the growth materializes, we have more capital available to invest in new initiatives and still deliver on an expanding bottom line. In sum, 2023 was a year of cost alignment. In 2024, we're completing our organizational transformation, returning our focus to growth and building the foundation for double-digit growth in 2025 and beyond. Our priorities are clear and our teams are aligned. Our same teams who delivered adjusted EBITDA profitability one quarter sooner than planned, who took us from a $25 million adjusted EBITDA loss in 2022 to positive adjusted EBITDA in the second half of 2023, will deliver on our growth projections as well. We have a leaner and more effective commercial organization. We have a more focused set of products and markets and have created more capacity for new product launches. We're accelerating the pace of our product development and will leverage our expertise in AI to rapidly bring new AI-centered products and features to market. The result is an efficient product-led organization positioned for long-term growth. Now let me turn it over to Jon for a review of the financial results and our outlook for 2024.

Thank you, Josh. And let me start off by highlighting some notable achievements over the past few months. In 2023, management brought the business to adjusted EBITDA profitability in just two quarters. Q4 versus Q1 represented a 31-point margin improvement resulting in a go-forward business with extremely strong operating leverage and FiscalNote divested a noncore business, resulting in a radically improved balance sheet with lower debt, higher cash and lower interest expense. Overall, I'm delighted with our position today and the growth opportunities as we move forward. Now let me run through our Q4 and 2023 results as reported including the Board.org divestiture, the impact of certain sunset products and provide a view of the upcoming you, I'll start with revenue. Fourth quarter revenue was $34.3 million, marking 9% growth year-over-year in total and 1% on an organic basis. Full year 2023 revenue was $132.6 million, marking 17% growth year-over-year in total and 7% growth on an organic basis. Revenue growth for Q4 and for the full year was negatively impacted by underperformance in our non-subscription project-based revenue. Non-subscription revenue, which accounts for about 10% of total revenue was essentially flat for the full year and declined by about $1 million in Q4, as we pointed out in our last call. Conversely, our recurring subscription revenue, which makes up 90% of our total revenue remains solid. Subscription revenue grew 14% in Q4, 7% organically and 18% for the full year, 9% organically. We exited 2023 with run rate revenue of $140 million, marking 10% year-over-year growth in total. On an organic basis, run rate revenue was $130 million, reflecting 4% growth on a pro forma basis as defined in our press release. We grew our total annual recurring revenue, or ARR, to $126 million as of December 31, an increase of 11% compared to the same period in 2022. Organic ARR was $119 million as of year-end, growth of 6% on a pro forma basis. We ended the year NRR or net revenue retention of approximately 99% on a quarterly basis. NRR rates can fluctuate slightly from quarter-to-quarter, and we often see quarterly NRR rates start in the mid-90s early in the year and strengthened in the second half. Longer term, we expect NRR to trend consistently above 100% as we continue to scale and expand our enterprise offering. Moving to profitability efforts, we continue to enjoy strong gross margins. Our Q4 GAAP gross margin was 67% and non-GAAP gross margin was 83% after adjusting for the deferred revenue haircut in 2022 and amortization. For the full year 2023, our gross margin was 70% and our non-GAAP gross margin is 82%. Sales and marketing costs were $10.5 million for the quarter, a decrease of approximately $400,000 year-on-year even after the addition of Dragonfly. We are striving to be more efficient in our customer acquisition cost. On a full year basis, sales and marketing increased by about $3 million due to the acquisition of Dragonfly, which we integrated throughout the year. Moving forward, our Q4 sales and our team expense is a good indication of our ability to optimize our go-to-market and become more efficient and effective in our customer acquisition. R&D expenses were $4 million for the fourth quarter and $18.2 million for the year, a year-on-year reduction of about $1.3 million in Q4 and a reduction of $2.6 million for the year. This is due to our cost reduction efforts. Editorial content costs were approximately $4.3 million for the quarter and approximately $18 million for the year. Similar to sales and marketing, this marks a decrease of about $400,000 in Q4 versus last year and an increase of about $2 million for the full year primarily as a result of our Dragonfly acquisition. The most notable expense reduction is visible in our G&A. G&A expense for Q4 was $16.7 million compared to $18.3 million in Q4 of 2022. Included in both periods are significant noncash items. This includes approximately $8.3 million and $7.1 million of noncash items in Q4 of 2023 and 2022, respectively. These noncash items primarily related to the accounting treatment of noncash stock-based compensation expenses. Excluding noncash nonrecurring items, G&A was approximately $8.4 million in Q4 of 2023, a decrease of about $2.8 million from a year ago. For the full year, G&A in 2023 was $65.6 million. Excluding stock compensation and other noncash, nonrecurring expenses, G&A was $40.9 million, a net increase of approximately $1 million, largely reflecting the impact of the full year public company expenses in the acquisition of Dragonfly, offset by in-year cost savings actions. The operating loss for the full year 2023 was $97.7 million in total. Our total interest expense for 2023 was approximately $30 million. I will get into the details of how this will change going forward following the successful sale of Board.org and related changes to our credit relationship. The GAAP net loss for 2023 was $115.5 million, which is reconciled to our adjusted EBITDA loss of $7.5 million for the full year in our press release. We exited 2023 with Q4 GAAP net loss of $50.7 million and adjusted EBITDA profitability of $3 million, as mentioned by Josh and Tim, management is laser-focused on driving positive adjusted EBITDA last year. To the extent these actions had a short effect on revenue growth, we are confident in FiscalNote's ability to return to double-digit growth rates quickly and drive increasing adjusted EBITDA margins as we do. We ended the year with $24.4 million of cash, which is equivalent as of December 31. Now let me talk about the Board.org divestiture and the impact on our cash, debt and interest expense moving forward. After working capital adjustments, the total proceeds of the transaction at closing were approximately $92 million. After taking account for related fees and expenses, net proceeds were used to reduce our senior term loan debt by approximately $66 million and increased our cash by approximately $15 million. Our senior term debt is now $92.7 million. This reduces cash interest expense by approximately $2.2 million per quarter or approximately $9 million annually. Moving forward, we expect our quarterly cash interest expense to be approximately $3.2 million and our P&L interest expense would be approximately $4.5 million, subject to interest fluctuations. In recognition of this impactful transaction and how the transaction reaffirms the overall value and strength of FiscalNote, our seniors also offer to extend the required principal payments until August of 2026. This brings me to our 2024 guidance. First, you will see from our 10-K and 8-K, which will be filed shortly, Board.org generated approximately $13.6 million of revenue and approximately $5 million of EBITDA in 2023. In addition, as we mentioned earlier, we have made the decision to sunset approximately $4 million 2023 revenue associated with products that no longer align with our current product strategy. Excluding Board.org and sunset products, our pro forma 2023 Q metrics would have been GAAP revenue of approximately $115 million, consisting of subscription revenue of approximately $105 million and non-subscription revenue of approximately $10 million. Run rate revenue of approximately $121 million, ARR of approximately $111 million. And adjusted EBITDA loss of $12.5 million. With this as a backdrop, we were offering the following initial full year guidance for 2024. GAAP revenue of $123 million to $127 million, total run rate revenue of $126 million to $134 million and adjusted EBITDA of $7 million to $9 million. We are also biting Q1 guidance. We expect Q1 revenues of approximately $31 million and adjusted EBITDA of approximately $1 million for the quarter. As we said in the release, our Q1 adjusted EBITDA guidance reflects some seasonal expenses in Q1 that do not reoccur in subsequent quarters during the year. The guidance reflects the removal products that we send set as of January 1, but Q1 and full year to approximately two months of Board.org as we closed the transaction on March 11. 2024 is a year of transformation. This forecast by example opportunities for upside throughout the year as we use on fundamental execution and pulling multiple levers for short- and long-term revenue growth and escalating margins. In summary, the business is in a strong position. We're optimizing our organization for long-term growth and profitability and our Board.org transaction was a win-win on all accounts. From a product alignment that if it made sense as we made the decision to align our product strategy and invest in products that are strategic to our core regulatory offerings and then offer the greatest potential for upsell, cross-sell and transformational upside. From a sales and go-to-market perspective, Board.org was marketed and sold to a different set of buyers within the enterprise. As such, there's essentially no cross-sell or upsell with our other products and offerings. From an organizational perspective, Board.org largely operates as an independent business group within FiscalNote. From an M&A perspective, it generated a very strong return on invested capital, demonstrating the power of our corporate development missions and business execution. Finally, perhaps most importantly, from a balance sheet perspective. It gave us the opportunity to significantly reduce our debt and improve our cash position. I'm delighted with the outcome. We now have the capital true go-to-market capabilities and operational model that positions FiscalNote for accelerating growth next year and ongoing operational leverage moving forward. With that, we will now open up the call for questions. Operator?

[Operator Instructions]. Your first question comes from the line of Mike Latimore from Northland Capital Markets. Please go ahead.

All right. Yes. Thanks very much. Congrats on the strong EBITDA results and that the valuation here on the Board.org sales, right? As you think about -- if you think about NRR for the year, are you assuming NRR kind of stays where it's been? Or do you expect some change in that number and if so, why?

Mike, thanks. This is Josh. We do expect NRR rate to improve over the course of the year. So, you should see improvements starting in the second half. We've got expansive cross-sell opportunity across our core business and expect to see a lot of the changes that we talked about earlier that we put in place really start to pick up over the course of the year.

Got it. And then it sounds like also important for growth will be your strategic account initiative coming to fruition. I mean, can you talk a little bit about kind of where that stands in terms of just the sales focus, the pipeline, how bookings have been trending, sales cycles in the kind of strategic segment?

Yes, sure thing. So, we definitely have a focus on strategic accounts. Generally speaking, we see a tremendous opportunity to increase through cross-sell and upsell to our largest relationships. We know we've seen that with a number of our larger accounts. And our team is really focused on doing full account-by-account analysis for white space and green space to really drive that growth this year, and we're excited about the pipeline that we have. There's been -- over the course of 2023, you know there were macro pressures that we've talked about that impacted sales cycles, especially on the larger accounts. But we expect to see a lot of our efforts bear-fruit there this year.

Great. And then just last one on the Co-pilot strategy. How much kind of effort are you going to put behind that? Is that a big focus from a marketing perspective? And just remind us on the kind of pricing and revenue dynamics there?

Yes. So, the Co-pilot strategy for us is quite a large strategy in terms of being able to leverage the existing data and content that we have and packaging it into a new go-to-market strategy that's more aligned with how a lot of AI companies are going to market today. And so, you'll kind of hear from us over the course of the next couple of weeks as we go out and really launch a series of these Co-pilot into the market. But just imagine all the stuff that we're working on with respect to our legislative regulatory data and then, of course, how we're packaging that and then the workflow automation tools that we're coming to market with an accelerated basis. So, we'll have some more information as we come out in the next few weeks.

Your next question comes from the line of Richard Baldry from Roth MKM. Please go ahead.

Wondering, as you go through your strategic review, are there any other products that see more stand-alone left-oriented a cross-sell, upsell that you'd be considering divesting?

Hi, Rich, it's Jon. We aren't presently evaluating other individual products for divestiture right now. We continue to monitor the portfolio but have no plans to do this. This was kind of a situation where we were approached by someone who saw strategic value in the asset and it made sense to us no plans.

Okay. And then with the balance sheet stepped up the way it has been, can you talk about your own willingness now to continue to pursue maybe tuck-in acquisitions on a go-forward or near basis?

Absolutely. The corporate development team has been hard at work, maintaining active dialogues and discussions with acquisition targets that would be strategic tuck-ins, kind of on the smaller side for our core lines of business. I mean, we refocus, we'll spend a lot of time evaluating those opportunities in an acquisition and partnership standpoint. The execution really the timing of the execution will depend on a number of things, including kind of valuations in the marketplace, our stock price and the ability of us to engage effectively with prospective sellers.

Okay. And a lot of people spend a lot time on AI and sell it to other people, but I also think it's important to kind of understand what it can do internally in terms of cost or cost leverage sort of intermediate term, long term? Specifically, for you guys, do you think it has an ability to help you on the editorial side? Are there ways you can bring it in-house to get you better leverage long term?

Sure. This is Josh. I can address that. So yes, we're absolutely looking at how we leverage AI for internal tooling. We've been actually deploying it across teams for some time now. We continue to get efficiencies out of it and expect to get more efficiencies over time. And that's just part of the reason why we feel very good about our cost base going forward even as we accelerate growth.

And two last small ones, but you're talking about where you think the direction of the nonrecurring revenues should go sort of near term or long term that's come down a little bit in the current quarter, center break some trending.

That's mostly seasonality and we did see projects kind of defer at the end of last year, which had an impact on how we finished out the year. Historically, it's been about 10% of the revenue, and that feels like the right number going forward, but it could fluctuate up or down just depending on where we gain traction and it's how our enterprise clients want to engage with this special use case for scenario planning and whatnot.

Last maybe, when you think about the rebound to accelerating growth, are there metrics internally that sort of maybe we can't see like ARPU or cohort analysis, sales tenure duration sort of number stepping up that give you that confidence or the pipeline you're actually seeing? Just anything that sort of makes that more concrete for us.

Yes, sure. I mean, there's a ton of metrics that we look at internally as we track across our products and our various sales pipelines. And we look down to account levels, as I mentioned, for example, with regard to our strategic accounts that we're doing an account-by-account look at where the whitespace and greenspace is for expansion. And we're really doing that across the board. So, we look at that, both for new logo as well as for retention and cross-sell, upsell. There's a lot that we look at very deep in the business to understand where the pipeline is going and where we have the best opportunity to move the needle the quickest. That's what the teams are doing every day.

Great. And congrats on the divestiture. It looks like it moves a lot of dials in the Company.

Your next question comes from the line of Rudy Kessinger from D.A. Davidson. Please go ahead.

I'll have my congrats on the sale, a very great return on that business and help piece the balance sheet a bit here. I guess just on some of these go-to-market changes and realignments, I know you, guys, had first started talking about these changes more of a focus on strategic and enterprise about six months ago now. And so, when do you expect the change really to start to have an effect and result in greater sales productivity and higher levels of growth? Should we expect that first part of this year, second half of this year and not until next year? Just what are your thoughts on that?

Sure, Rudy. Yes. So, we've been implementing changes over time, and we're seeing them take root and then expand them across the full organization. So, one example, as I mentioned in my remarks, were some changes we made to coverage across our customer success and management functions across certain parts of the business. We saw success in the form of reduced cost to serve as well as improvements in retention. And so, we're in that model and expanding that through the rest of the business. We've been stage-gating it both to make sure that we can make the right progress but also for change management throughout the organization and also trying to time that as well as possible given the various sales cycles and the like. And so, you should start to see those changes and others take over the course of the year and really reflect in second half growth this year and then heading of course, in 2025.

Okay. Jon, then I've got two questions for you. Firstly, the Company's results just in terms of top line performance, generally since the [indescribable] [Ds-back] process, kind of in line to slightly below your quarterly revenue guidance. And so, when we think about the Q1 guide, the full year guide for this year, should we think of your guidance philosophy being roughly similar to have been in the past? Or is there anything in the guide where you're trying to be more conservative in terms of close rates and pipeline conversion, et cetera?

It's a good question, Rudy. And look, we reserve in the same trend as well. And we tried to guidance this year where we felt like we can meet and exceed consensus and be closer to the top end of the range, hopefully, have an opportunity to update you later in the year with good news. We certainly fully confident in the first quarter. At this point in the quarter, we have a lot of visibility to that. And we'll provide more kind of more robust details as we roll out next quarter and report for quarter and give you kind of guidance towards second and third.

Okay. And then just lastly, on free cash flow, I know you're not giving cash flow guidance, but $8 million EBITDA at the midpoint, $9.5 million cash interest, I believe you've said in the past $4 million, $8 million CapEx. It would seem, assuming no changes in net working capital and potentially with some stronger bookings in the second you get a positive boost there. But it seems like the business this year should earn probably high single digits to low double digits in free cash flow. Is that math roughly accurate?

I think that's right to potentially a little bit lower, but right around $9 million to $12 million is probably a good number. If you think about our cash interest expense and our CapEx really hasn't changed as a result of the Board.org divestiture. So, our fixed charges in that capacity was somewhere in the neighborhood of kind of maybe 18 to 20, 18 to 21. But depending on how we track from an EBITDA standpoint that kind of defines it in the -- as you described it. And we certainly have the cash on the balance sheet to fund that for the year. And as we expect continue to progressively increase revenue and adjusted EBITDA, we'll be pacing towards being free cash flow positive, and we'll give you more kind of insights on that as we progress through the year.

Okay. Congrats again, it looks like a very good tail here.

Your next question comes from the line of

Congrats again on the very successful sale of Board.org. Josh, I wanted to dig a little bit deeper into some of the changes that you made, your customer success and retention teams. But I mean, can you talk about, I dig a little bit deeper into the changes that you made with that specific team and how far along you are in terms of rolling that out to the rest of the teams.

Sure. I can go into some level of detail. I mean the most important is making sure that we have the right focus from those teams in terms of coverage models against our accounts as well as having the right strategies in place for cross-sell and upsell. So -- and we -- most significant is we put some changes in the earlier part of last year, so around this time last year. As I mentioned, we saw our ability to do greater coverage. It included refining our approach by size of count, automating more for smaller accounts and putting a greater focus on our larger accounts which helped with both the cost basis and, as I said, with our actual retention results. And then, we implemented that across our geopolitical business towards the mid-Q4 of 2023. And so, that's where we expect to see similar improvements across the board over the course of the rest of the business as this year goes on.

Got it. Understood. And just curious, in terms of what you're hearing from customers in terms of buying patterns, I know it was pretty challenging throughout 2023. Just curious if that has changed a little bit since you've turned the page into a new year. And I guess, just a subset of that question. Does the fact that it's an upcoming election year have any sort of impact in terms of customer or potential customer demand you could see?

Sure. So, generally speaking on the macro, I would say buying sentiment is, I would say, has been on the whole better this quarter. Still on conservatism out there, so not fully seeing a return to past patterns yet. But we're -- some people are still wait and see, but we're optimistic for the year. And then in terms of election and impact on sales cycle, elections and -- it's a massive election year globally and that does drive greater -- we see greater engagement with our products, generally speaking, around election coverage. So generally speaking, that can drive demand. And as long as the macro isn't negatively impacted so that you don't see budgets tremendously negatively impacted. That can be a help for us from a sales perspective.

Your next question comes from the line of Mike Albanese from EF Hutton. Please go ahead.

Nice job on the quarter. Just a quick one for me. I want to go back to kind of your infrastructure, I guess, cost structure. You've done a nice job reducing cost, I think, to the tune of $20 million, $25 million over the last year. I mean, we're through this, we're kind of through the cost and then you could take out that you kind of guide market while you were doing these initiatives. Are we kind of through that now? Is there still more low-hanging fruit that you can take out? I know someone asked a question about AI and kind of finding operational efficiency through that. I'm sure that there's some more cost you can identify and take out. But just as we go back to the original restructuring that you had discussed, is that behind us now? Or is there still more to take out as we look into 2024?

Yes, sure, Mike. I would say the bulk of that is behind us. We're all where we want to be from a cost perspective and a structure perspective. We're always going to be improving and shifting as an organization as any organization would as we see the opportunity to leverage AI internally to drive more activity and automation over time, too. And so -- and we'll always be finding ways to optimize throughout the organization. But for the most part in terms of where you're getting at kind of the bulk of those cost initiatives, we've worked our way through that and expect to grow from here while staying relatively consistent from a cost perspective.

Got it. Great. Okay. And then I guess just a follow-up to that. As we think about looking out into next year in 2025, I think you can get back to double-digit revenue growth. I mean how can we think of the organic growth in your cost structure as you're adding revenue and cross-selling. I mean just generally, again, what you're saying that you've kind of reached a level that you can really generate the operating leverage from here, but I'm sure there's some incremental increases as you grow. How can we think about that?

Sure, Mike. Adding on to Josh's comments about cost savings. I think as we think about it, R&D content and G&A expenses are relatively fixed at this point. I think we've got a lot of operational leverage out of the cost structure there. There may be opportunities to trim expenses here and there as we move forward. But -- and then, we do see some potential improvements in gross margins down the road, but not dramatically. I think that's good number to keep in your model. And then our sales and marketing costs will increase as we go forward and increase revenue, not dollar for dollar or proportionally, but we will see some increases in the cost to drive that revenue going forward. So, as we're situated, I think we have a lot of operating leverage on incremental revenue.

We have no further questions in our queue at this time. I will now turn the call back over to Tim Hwang for closing remarks.

Great. Thank you, everybody, for jumping on this call and feel to reach out if you have any additional questions. Thank you so much.