FiscalNote Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion provides information that FiscalNote’s management believes is relevant to an assessment and understanding of FiscalNote’s condensed consolidated results of operations and financial condition. The discussion should be read together with the unaudited interim condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Certain monetary amounts, percentages and other figures included below have been subject to rounding adjustments as amounts are presented in thousands or millions, as the context describes. Percentage amounts included below have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts may vary from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements included elsewhere herein. Certain other amounts that appear below may not sum due to rounding.

This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q. Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “FiscalNote,” “we,” “us,” or “our” refer to the business of Old FiscalNote, which became the business of New FiscalNote and its subsidiaries following the Closing.

Overview

FiscalNote is a leading technology provider of global policy and regulatory intelligence. It delivers critical, actionable legal and policy insights in a rapidly evolving political, regulatory and macroeconomic environment. By combining artificial intelligence (AI) technology, other technologies with analytics and workflow tools, and expert peer insights, FiscalNote provides data and information that enables customers to manage policy change, address regulatory developments, and mitigate policy risk. In its core products, FiscalNote ingests unstructured data on legislative and regulatory developments, and overlays that data with sophisticated in-house AI and data science experts to deliver structured, relevant and actionable information in order to facilitate key operational and strategic decisions by global enterprises, midsized and smaller businesses, government institutions, trade groups and nonprofits. FiscalNote delivers that intelligence through its suite of public policy and issues management products, coupled with expert research and analysis of markets and geopolitical events, as well as powerful tools to manage workflows, advocacy campaigns and constituent relationships.

Business Combination

On July 29, 2022, the Company consummated the transactions contemplated by the Agreement and Plan of Merger, dated as of November 7, 2021, and as amended on May 9, 2022, (the “Merger Agreement”), by and among FiscalNote Holdings, Inc., a Delaware corporation (“Old FiscalNote”), Duddell Street Acquisition Corp., a Cayman Islands exempted company (“DSAC”), and Grassroots Merger Sub, Inc., a Delaware Corporation and a wholly owned direct subsidiary of DSAC (“Merger Sub” and, together with DSAC, the “DSAC Parties”). Pursuant to these transactions, Merger Sub merged with and into Old FiscalNote, with Old FiscalNote becoming a wholly owned subsidiary of DSAC (the “Business Combination” and, collectively with the other transactions described in the Business Combination Agreement, the “Transactions”). In connection with the closing of the Transactions, DSAC domesticated and continued as a Delaware corporation under the name of “FiscalNote Holdings, Inc.” (“New FiscalNote”). Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “FiscalNote,” “we,” “us,” or “our” refer to the business of Old FiscalNote, which became the business of New FiscalNote and its subsidiaries following the closing on July 29, 2022. Subsequent to the closing of the Business Combination, the Company's Class A common stock and public warrants began trading on the New York Stock Exchange (“NYSE”) under the symbols “NOTE” and “NOTE.WS,” respectively. The Company accounted for the Business Combination as a reverse recapitalization whereby Old FiscalNote was determined as the accounting acquirer and DSAC as the accounting acquiree. Accordingly, the Business Combination was treated as the equivalent of Old FiscalNote issuing stock for the net assets of DSAC, accompanied by a recapitalization. The net assets of DSAC are stated at historical cost, with no goodwill or other intangible assets recorded.

Factors Impacting the Comparability of Our Operating Results

Dispositions

On March 31, 2025, we completed the sale of Dragonfly and Oxford Analytica for $40.0 million in cash. The Company recorded a gain of $15.7 million during the three months ended March 31, 2025.

On October 31, 2024, we completed the sale of Aicel Technologies business ("Aicel") for $9.7 million comprising of $8.5 million of cash and the assumption of an existing convertible note issued by Aicel in 2022, with an outstanding total principal and accrued paid-in-kind interest amount of $1.2 million. The Company recorded a gain of $0.5 million from the sale of Aicel in the fourth quarter of 2024.

On March 11, 2024, we completed the sale of Board.org for $90.9 million in cash at closing. The Company recorded a gain on sale of business of $71.5 million during the three months ended March 31, 2024.

These businesses contributed the following:

• Subscription revenue of approximately $3.5 million and $6.6 million for the three months ended March 31, 2025 and 2024
• Non-subscription revenue of approximately $0.7 and $0.8 for the three months ended March 31, 2025 and 2024
• ARR of approximately $14.2 million and $15.2 million at December 31, 2024 and March 31, 2024

Product rationalization

From time to time, management reviews the Company’s existing products and services based on their financial profile and other strategic factors. In connection with such reviews, management decided to cease actively selling and therefore sunset certain non-core products representing, in aggregate, subscription revenue of approximately $0.1 million during the three months ended March 31, 2025 and 2024.

At the beginning of the first quarter of 2025 the Company had approximately 571 employees. As a result of the Company's business dispositions, product rationalization, business simplification, and cost takeout actions, the Company's full-time equivalent headcount reduced by approximately 115 from the beginning of the first quarter of 2025 through March 31, 2025. As a result, the Company has seen a reduction in overall cash costs across all operating expenses. Management will continue evaluating for additional rationalization opportunities to further reduce the complexity of the business and reduce ongoing operating expenses.

We continue to invest for future growth. We are focused on several key growth levers, including cross-selling and upselling opportunities at existing clients, expanding our client base with a focus on enterprise and government customers, expansion into adjacent markets and deepening our offerings for regulated industries or sectors. Several of these growth drivers require investment in and refinement of our go-to-market approach and, as a result, we may continue to incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses specific to subscription revenue.

We plan to invest a portion of our available capital resources in building innovative products, attracting new customers and expanding our leadership role in the legal and regulatory information market to drive growth organically. We evaluate acquisitions and investment opportunities in complementary businesses to supplement our existing platform, enable us to enter new markets and ensure that we are well positioned to provide critical insights to the regulated sectors of the future. Past acquisitions have enabled us to deliver innovative solutions in new categories and enhance the functionality of our existing products. Strategic acquisitions may be a component of our growth strategy in the future.

Key Performance Indicators

In addition to our GAAP results further described and discussed below in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we monitor the following key performance indicators to evaluate growth trends, prepare financial projections, make strategic decisions, and measure the effectiveness of our sales and marketing efforts. Our management team assesses our performance based on these key performance indicators because it believes they reflect the underlying trends and indicators of our business and serve as meaningful indicators of our continuous operational performance.

Annual Recurring Revenue (“ARR”)

Over 90% of our revenues are subscription based, which leads to high revenue predictability. We use ARR as a measure of our revenue trend and an indicator of our future revenue opportunity from existing recurring subscription customer contracts. We calculate ARR on a parent account level by annualizing the contracted subscription revenue, and our total ARR as of the end of a period is the aggregate thereof. ARR is not adjusted for the impact of any known or projected future customer cancellations, upgrades or downgrades, or price increases or decreases. The amount of actual revenue that we recognize over any 12-month period is likely to differ from ARR at the beginning of that period, sometimes significantly. This may occur due to timing of the revenue bookings during the period, cancellations, upgrades, or downgrades and pending renewals. ARR should be viewed independently of revenue as it is an operating metric and is not intended to be a replacement or forecast of revenue. Our calculation of ARR may differ from similarly titled metrics presented by other companies.

Our ARR at March 31, 2025 and December 31, 2024, was $87.7 million and $107.5 million, respectively. ARR at December 31, 2024 and March 31, 2024, excluding products we discontinued in 2023, and the impact of the sale of Board.org, Aicel, Oxford Analytica, and Dragonfly, was $93.3 million and $94.2 million, respectively.

Net Revenue Retention (“NRR”)

Our NRR, which we use to measure our success in retaining and growing recurring revenue from our existing customers, compares our recognized recurring revenue from a set of customers across comparable periods. We calculate our NRR for a given period as ARR at the end of the period minus ARR contracted from new clients for which there is no historical revenue booked during the period, divided by the beginning ARR for the period. We calculate NRR at our parent account level. Our calculation of NRR for any fiscal period includes the positive recurring revenue impacts of selling additional licenses and services to existing customers and the negative recognized recurring revenue impacts of contraction and attrition among this set of customers. Our NRR may fluctuate as a result of a number of factors, including the level of our revenue base, the level of penetration within our customer base, expansion of products and features, the timing of renewals, and our ability to retain our customers. Our calculation of NRR may differ from similarly titled metrics presented by other companies. NRR, excluding the impact of Board.org, Aicel, Oxford Analytica, and Dragonfly, was 93% and 96% for the three months ended March 31, 2025 and 2024, respectively.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. Where applicable, we provide reconciliations of these non-GAAP measures to the corresponding most closely related GAAP measure. Investors are encouraged to review the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure. While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures.

Adjusted Gross Profit and Adjusted Gross Profit Margin

We define Adjusted Gross Profit as Total revenues minus cost of revenues, before amortization of capitalized software development costs and acquired developed technology, before impairment of intangible assets that are included in costs of revenues. We define Adjusted Gross Profit Margin as Adjusted Gross Profit divided by Total revenues.

We use Adjusted Gross Profit and Adjusted Gross Profit Margin to understand and evaluate our core operating performance and trends. We believe these metrics are useful measures to us and to our investors to assist in evaluating our core operating performance because they provide consistency and direct comparability with our past financial performance and between fiscal periods, as the metrics eliminate the non-cash effects of amortization of intangible assets and deferred revenue, which are non-cash impacts that may fluctuate for reasons unrelated to overall operating performance.

Adjusted Gross Profit and Adjusted Gross Profit Margin have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. They should not be considered as replacements for gross profit and gross profit margin, as determined by GAAP, or as measures of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes. Adjusted Gross Profit and Adjusted Gross Profit Margin as presented herein are not necessarily comparable to similarly titled measures presented by other companies.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA reflects further adjustments to EBITDA to exclude certain non-cash items and other items that management believes are not indicative of ongoing operations. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by Total Revenues.

We disclose EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin in this Quarterly Report on Form 10-Q because these non-GAAP measures are certain key measures used in conjunction with GAAP measures used by the Chief Operating Decision Maker in making decisions to assist management in evaluating our business, measuring our operating performance and making strategic decisions. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are useful for investors and others in understanding and evaluating our operating results in the same manner as management. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for net loss, net loss before income taxes, or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business would have material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate non-GAAP financial measures, which reduces their comparability. Because of these limitations, you should consider EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP.

Key Components of Results of Operations

Revenues

We derive our revenues from subscription revenue arrangements and advisory, advertising and other revenues. Subscription revenues accounted for approximately 92% of our total revenues for both the three months ended March 31, 2025 and 2024.

Subscription revenues

Subscription revenues consist of revenue earned from subscription-based arrangements that provide customers the right to use the Company’s software and products in a cloud-based infrastructure. Subscription revenues are driven primarily by the number of active licenses, the types of products and the price of the subscriptions. The Company also earns subscription revenues by licensing to customers its digital content, including transcripts, news and analysis, images, video and podcast data.

Our subscription arrangements generally have contractual terms of 12 months or more and are non-refundable regardless of the actual use of the service. Subscription revenues are recognized ratably over the non-cancellable contract terms beginning on the commencement date of each contract, which is the date our service is first made available to customers.

Advisory, advertising, and other revenues

Advisory revenues are typically earned under contracts for specific deliverables and are non-recurring in nature, although we regularly sell different advisory services to repeat customers. One-time advisory revenues are invoiced according to the terms of the contract, usually delivered to the customer over a short period of time, during which revenues are recognized.

Advertising revenues are primarily generated by delivering advertising in our own publications (Roll Call and CQ) in both print and digital formats. Revenues for print advertising are recognized upon publication of the advertisement. Revenues for digital advertising are recognized over the period of the advertisement or, if the contract contains impression guarantees, based on delivered impressions.

Cost of revenues, including amortization

Cost of revenues, including amortization primarily consists of expenses related to hosting our service, the costs of data center capacity, amortization of developed technology and capitalized software development costs, certain fees paid to various third parties for the use of their technology, services, or data, costs of compensation, including bonuses, stock compensation, benefits and other expenses for employees associated with providing professional services and other direct costs of production. Also included in cost of revenues, including amortization are our costs related to the preparation of contracted advisory deliverables, as well as costs to develop, publish, print and deliver our publications underlying our books revenue.

Research and development

Research and development expenses include the costs of compensation, including bonuses, stock compensation, benefits and other expenses for employees associated with the creation and testing of the products we offer, related software subscriptions, consulting and contractor fees and allocated overhead.

Sales and marketing

Sales and marketing expenses consist primarily of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses for our sales and marketing staff, including commissions, related software subscriptions, consulting fees, marketing programs and allocated overhead. Marketing programs consist of advertising, events, corporate communications, brand building and product marketing activities.

Editorial

Editorial expenses consist of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses for the editorial team involved in acquiring, creating, and distributing content and allocated overhead.

General and administrative

General and administrative expenses are primarily related to our executive offices, finance and accounting, human resources, legal, internal operations and other corporate functions. These expenses consist of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses, along with professional fees, depreciation and other allocated overhead.

Amortization of intangible assets

Amortization expense relates to our finite-lived intangible assets, including developed technology, customer relationship, databases and tradenames. These assets are amortized over periods of between three and twenty years. Finite-lived intangible assets are tested for impairment when indicators are present, and, if impaired, are written down to fair value. No impairment of intangible assets has been identified during any financial period included in our accompanying condensed consolidated financial statements.

Interest expense, net

Interest expense, net, consists of expense related to interest on our borrowings, the amortization and write off of debt issuance costs and original discount, and interest related to certain derivative instruments.

Change in fair value of financial instruments

The fair value of financial instruments are accounted for in accordance with ASC 815 and ASC 480. The warrant and derivative liabilities are marked to market each reporting period in accordance with ASC 820 with all gains and losses being recorded within the consolidated statement of operations and comprehensive income (loss).

Income taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the condensed consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the condensed consolidated statements of operations and comprehensive income (loss) in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are expected to be realized based on the weighting of positive and negative evidence.

Results of Operations

The period-to-period comparisons of our results of operations have been prepared using the historical periods included in our condensed consolidated financial statements. The following discussion should be read in conjunction with those condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Comparison of the Consolidated Results for the Three Months Ended March 31, 2025 and March 31, 2024

The following table presents our results of operations for the periods indicated:

(In thousands)

NM - Not meaningful

Revenue:

Subscription revenue

Subscription revenue of $25.2 million for the three months ended March 31, 2025 decreased $4.4 million, or 15%, from $29.6 million for the three months ended March 31, 2024.

The comparability of our revenues between periods was impacted by the Board.org and Aicel sale of businesses described under “Factors Impacting the Comparability of Our Results of Operations” above. The table below presents the primary items that impacted the comparability of our subscription revenues between periods.

(In thousands)

The decrease in subscription revenue during the three month periods is largely due to the impact from the sale of Board.org on March 11, 2024, the sale of Aicel on October 31, 2024, and the decline in the Company's NRR on a pro forma basis. The decrease in organic subscription revenue is primarily the result of customer retention challenges combined with the impact of Federal government cuts.

Advisory, advertising, and other revenue

Advisory, advertising, and other revenue was $2.3 million for the three months ended March 31, 2025, as compared to $2.5 million for the three months ended March 31, 2024. The decrease of $0.2 million, or 8%, was due to timing of advisory income and a decrease in book revenue partially offset by revenue for advocacy campaigns.

Revenues by Geography

The below tables present our revenues split by geographic region for the periods presented:

(In thousands)

Revenues by geography are determined based on the region of the FiscalNote contracting entity, which may be different than the region of the customer. North America revenues decreased primarily for the reasons stated above. Asia revenues decreased primarily due to the sale of Aicel in October 2024.

Cost of revenues, including amortization

Cost of revenues, including amortization was $7.0 million for the three months ended March 31, 2025, as compared to $7.2 million for the three months ended March 31, 2024. The decrease of $0.3 million, or 4%, was primarily attributable to the sale of businesses including Board.org, Aicel, Dragonfly and Oxford Analytica partially offset by an increase in amortization expense of $1.1 million, which related to the introduction of PolicyNote.

Research and development

Research and development expense was $3.1 million for the three months ended March 31, 2025 as compared to $3.5 million for the three months ended March 31, 2024. The decrease of $0.4 million, or 11%, was primarily attributable to a decrease of $0.1 million for the sale of businesses and a result of workforce planning actions.

Sales and marketing

Sales and marketing expense was $7.8 million for the three months ended March 31, 2025 as compared to $9.4 million for the three months ended March 31, 2024. The decrease of $1.7 million, or 18%, was primarily attributable to a decrease attributable to the sale of Board.org, Aicel, Dragonfly and Oxford Analytica and a decrease of stock compensation expense of $0.3 million.

Editorial expense

Editorial expense was relatively flat at $4.8 million for the three months ended March 31, 2025 as compared to $4.7 million for the three months ended March 31, 2024.

General and administrative

General and administrative expense was $16.3 million for the three months ended March 31, 2025 as compared to $16.1 million for the three months ended March 31, 2024. The increase of $0.2 million, or 1%, was primarily attributable to an increase in consulting expenses partially offset by a decrease attributable to the sale of Board,org, Aicel, Dragonfly and Oxford Analytica.

Amortization of intangibles

Amortization of intangibles was $2.3 million for the three months ended March 31, 2025 as compared to $2.7 million for the three months ended March 31, 2024.

Interest expense, net

Interest expense was $5.1 million for the three months ended March 31, 2025 as compared to $7.4 million for the three months ended March 31, 2024. The decrease in interest expense of $2.2 million was primarily due to the repayment of the Senior Term Loan.

Change in fair value of financial instruments

Change in fair value of financial instruments was a $0.7 million gain for the three months ended March 31, 2025 as compared to a $0.5 million loss for the three months ended March 31, 2024. The change is the result of the change in the fair value of the warrant liabilities offset by changes in the Dragonfly Seller Convertible Notes, GPO Convertible Note, and the Era Third Convertible Notes.

Certain Non-GAAP Measures

We present certain non-GAAP financial measures including Adjusted Gross Profit, Adjusted Gross Profit Margin and Adjusted EBITDA. Our management team assesses our performance based on these non-GAAP measures because it believes they reflect the underlying trends and indicators of our business and serve as meaningful indicators of our continuous operational performance. We believe these measures are useful for investors for the same reasons. Investors should be aware that these measures are not a substitute for GAAP financial measures or disclosures. Where applicable, we provide reconciliations of these non-GAAP measures to the corresponding most closely related GAAP measure.

Adjusted Gross Profit and Adjusted Gross Profit Margin

The following table presents our calculation of Adjusted Gross Profit and Adjusted Gross Profit Margin for the periods presented:

(In thousands)

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin

The following table presents our calculation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the periods presented:

(In thousands)

(a) Reflects the gain on disposal for the Dragonfly and Oxford Analytica on March 31, 2025 and the gain on sale of Board.org on March 11, 2024.

(b) Reflects the non-cash impact from the mark to market adjustments on our financial instruments.

(c) Reflects the non-cash impact of the following: (i) charge of $40 in the first quarter of 2025 related to the unrealized loss on investments; (ii) charge of $315 for fees satisfied with Common Stock of the Company; (iii) charge of $1,784 from the loss on debt extinguishment; (iv) charge of $49 in the first quarter of 2024 related to the unrealized loss on investments; and (v) gain of $4 in the first quarter of 2024 from the change in fair value related to the contingent consideration and contingent compensation related to the 2021, 2022, and 2023 Acquisitions.

(d) Reflects the costs incurred related to the sale of Oxford Analytica and Dragonfly in Q1 2025 and Board.org in Q1 2024, principally consisting of transaction advisory, accounting, tax, and legal fees.

(e) Severance costs associated with workforce changes related to business realignment actions.

(f) Reflects costs incurred related to the Special Committee.

Liquidity and Capital Resources

Historically the Company’s cash flows from operations have not been sufficient to fund its current operating model and the Company funded operations through debt and selling assets. At March 31, 2025, the Company’s cash, cash equivalents, restricted cash, and short-term investments were $46.9 million compared to $35.3 million at December 31, 2024.

The Company had a negative working capital balance of $32.5 million (excluding cash and short-term investments) at March 31, 2025 and had an accumulated deficit of $811.1 million and $806.9 million as of March 31, 2025 and December 31, 2024, respectively, and incurred net losses (excluding the gain on sale of businesses) of $20.0 million for the three months ended March 31, 2025 and $21.0 million for the three months ended March 31, 2024, respectively. Management expects that significant on-going operating and capital expenditures will be necessary to continue to implement the Company’s business plan of entering new markets and investing in infrastructure and product development.

On March 31, 2025, the Company closed the sale of its Oxford Analytica and Dragonfly businesses, receiving $40.0 million. $27.1 million of the sale proceeds were used to repay principal on our Senior Term Loan and approximately $1.8 million were used for payment of related prepayment and exit fees. In conjunction with the sale of Oxford Analytica and Dragonfly, the Company amended the Credit Agreement for its Senior Term Loan, which, among other things, revised certain of its financial debt covenants.

Our ability to maintain our minimum cash requirement, fund our future cash interest requirements under our senior term loan and fund our operating expenses and capital expenditure requirements will depend in part on general economic, financial, competitive, legislative, regulatory and other conditions that may be beyond our control.

The Company has implemented various cost saving measures throughout 2024 and 2025 to rationalize its cost structure and is actively evaluating additional cost saving opportunities and sources of capital because the Company does not expect its cash flows from operations to be sufficient to fund its cash requirements in the next 12 months and beyond. The Company may execute other strategic alternatives to maximize stakeholder value, including further expense reductions, sale of all or portions of the business, corporate capital restructuring or formal reorganization, or liquidation of assets. Volatility in the credit markets may have an adverse effect on our ability to obtain debt financing. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, or may require us to agree to unfavorable terms, and our existing stockholders may experience significant dilution.

Our historical financing activities included borrowings under senior secured credit facilities, senior secured promissory notes, convertible debt, and preferred share issuances. Our principal debt plus paid-in kind interest outstanding as of March 31, 2025 and December 31, 2024 consisted of the following (excluding any fair value adjustments and debt discounts, as applicable):

(In thousands)

Senior Term Loan

On July 29, 2022, in connection with the closing of the business combination with DSAC, FiscalNote entered into a $150.0 million senior credit agreement (the “Credit Agreement”) and an uncommitted incremental loan facility totaling $100.0 million available upon notice if the Company meets certain financial growth criteria and other customary requirements (the “New Incremental Term Facility”) (collectively the “Senior Credit Facility”). The annual interest of the Senior Term Loan consists of two components: (a) a cash interest component of the greater of (i) Prime Rate plus 5.0% per annum and (ii) 9.0% payable monthly, and (b) interest payable in kind component of 1.00% per annum, payable in kind monthly. The Senior Credit Facility will mature on July 29, 2027.

On March 17, 2023, the Company, entered into Amendment No. 1 (“Amendment No. 1”) to the Credit Agreement. Among other things, Amendment No. 1 provided for the extension of an incremental term loan by one of the lenders to the borrowers under the facility in the principal amount of $6.0 million which was received by the Company on March 31, 2023, on the same terms as the existing term loans (the “Incremental Facility”).

On May 16, 2023, the Company, entered into Amendment No. 2 ("Amendment No. 2") to the Credit Agreement. Among other things, Amendment No. 2 joined Dragonfly Eye Limited (“Dragonfly”) and Oxford Analytica Limited (“Oxford Analytica”), each a wholly owned subsidiary of the Company, as Guarantors under the Credit Agreement.

On August 3, 2023, the Company entered into Amendment No. 3 ("Amendment No. 3") to the Credit Agreement. Among other things, Amendment No. 3 provides for: (a) the extension of the July 2023 Deferred Fee from July 29, 2023 to July 29, 2024, (b) the increase of the July 2023 Deferred Fee from $1.7 million to $2.0 million, (c) an increase of the Restatement Date Final Payment (as defined in Amendment No. 3) from $7.4 million to $9.0 million and (d) the revision to the minimum ARR and adjusted EBITDA covenants (as both are defined in the Credit Agreement).

In connection with the completion of the sale of Board.org on March 11, 2024, the Company also entered into Amendment No. 4 to the Credit Agreement (the “Amendment No. 4”), pursuant to which, among other things, the lenders consented to the release the liens on Board.org’s assets and permitted the consummation of the sale in exchange for the permanent retirement of $65.7 million of term loans under the Credit Agreement. The Company also made a payment of $1.3 million and $5.8 million of related prepayment and exit fees, respectively.

In addition, Amendment No. 4 extended the commencement of amortization payments under the Credit Agreement from August 15, 2025 to August 15, 2026, with such payments to fully amortize the term loans by the maturity date of July 15, 2027. Amendment No. 4 also increased the Company’s minimum liquidity covenant to $22.5 million and modified the Company’s minimum ARR and adjusted EBITDA in order to appropriately reflect the sale of Board.org and the absence of its future contributions to the Company’s overall financial performance and position.

In connection with the completion of the sale of Aicel Technologies on October 31, 2024, the Company repaid $5.0 million of principal outstanding under the Credit Agreement. The Company also made a payment of $0.3 million of related prepayment and exit fees, respectively.

In connection with the completion of the sale of Oxford Analytica and Dragonfly on March 31, 2025, the Company also entered into Amendment No. 5 to the Credit Agreement (“Amendment No. 5”), pursuant to which, among other things, the lenders consented to releasing the liens on Oxford Analytica and Dragonfly's assets and permitting the consummation of the sale in exchange for the permanent retirement of $27.1 million of term loans under the Senior Term Loan and payment of $1.8 million of related prepayment and exit fees. In Amendment No. 5, the lenders also waived their rights upon default retroactive to December 31, 2024. Amendment No. 5 also increased the Company’s minimum liquidity covenant and modified the Company’s minimum ARR and adjusted EBITDA covenants, as defined in the Senior Term Loan, in order to appropriately reflect the sale of Oxford Analytica and Dragonfly and the absence of their respective future contributions to the Company’s overall financial performance and position.

During the three months ended March 31, 2025, we made cash interest payments totaling $2.8 million related to the Senior Term Loan.

The Senior Term Loan is senior to all other debt and has a first priority lien on substantially all of the Company’s assets. The Senior Term Loan contains customary negative covenants related to borrowing, events of default and covenants, including certain non-financial covenants and covenants limiting the Company’s ability to dispose of assets, undergo a change in control, merge with or acquire stock, and make investments, in each case subject to certain exceptions. In addition to the negative covenants, there were four financial covenants in place at March 31, 2025: a minimum cash balance requirement, minimum annual recurring revenue requirement, an adjusted EBITDA requirement (as defined in the Credit Agreement, as amended) and a capital expenditure limitation. As of and for the three months ended March 31, 2025, the Company was in compliance with all of the covenants. Upon the occurrence of an event of default, in addition to the lenders being able to declare amounts outstanding under the Senior Term Loan due and payable the lenders can elect to increase the interest rate by 5.0% per annum.

See Note 8 “Debt” to the condensed consolidated financial statements included elsewhere herein.

GPO Convertible Note

On June 30, 2023 (the “Subscription Date”), the Company entered into an Exchange and Settlement Agreement (the “Exchange and Settlement Agreement”) with GPO FN Noteholder LLC (the “Investor”) pursuant to which (i) the Investor returned 5,881,723 shares of Class A Common Stock held by the Investor to the Company for cancellation, (ii) the Company issued to the Investor a subordinated convertible promissory note in an initial principal amount of $46.8 million (the “GPO Convertible Note”), and (iii) the parties agreed to a mutual settlement and release of all claims (including, but not limited to, any claims by the Investor for additional shares or money damages resulting from the entry into the Merger Agreement, relating to or arising from the conversion of the Amended and Restated Senior Secured Subordinated Promissory Note, dated December 29, 2020, previously issued by a subsidiary of the pre-business combination FiscalNote Holdings, Inc. to the Investor. The exchange and settlement are non-cash exchanges in the condensed consolidated statement of cash flows. The before mentioned transactions closed on July 3, 2023.

The GPO Convertible Note will mature on July 3, 2028, unless earlier redeemed or repurchased by the Company or converted in accordance with the terms thereof. The GPO Convertible Note bears interest at a rate of 7.50% per annum payable quarterly in arrears, as follows: (i) for the first year following the date of issuance, interest will be payable in kind by adding interest to the principal amount of the GPO Convertible Note; and (ii) for any period thereafter, interest will be payable in cash or freely tradeable shares of Class A Common Stock, at the Company’s option, with the value per share determined with reference to the trailing 30-day volume weighted average trading price prior to the interest payment date, subject to certain exceptions under which the Company will be permitted to pay PIK Interest.

The GPO Convertible Note is subordinate to the Company’s obligations under its New Senior Term Loan which limits certain actions that the Company and the Investor may take under the GPO Convertible Note. At any time prior to the July 3, 2028, the Investor is entitled to convert all or any portion of the principal amount of the GPO Convertible Note and accrued interest thereon into shares of Class A Common Stock at $7.43 per share. The GPO Convertible Note is subject to customary anti-dilution adjustments for stock splits and similar transactions and, subject to standard exceptions, weighted average anti-dilution protection. The principal amount, together with accrued interest thereon, of the GPO Convertible Note is redeemable by the Company in whole or in part based on certain conditions as defined in the GPO Convertible Note.

Convertible Notes

Purchased Original Notes

On March 17, 2025 and March 20, 2025, investors holding two convertible notes originally issued in 2020 and assumed by the Company in connection with the Business Combination, with a principal and accrued paid-in-kind interest balance of $5.7 million (the "Purchased Original Notes"), sold their convertible notes to EGT 11 LLC (the "Exchange Investor"). In connection with the acquisition of the Purchased Original Notes by the Exchange Investor, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) on March 17, 2025, pursuant to which the Company cancelled the Purchased Original Notes and in exchange (i) issued a convertible note to the Exchange Investors, for $5.5 million on March 17, 2025 and (ii) issued a second convertible note for $0.3 million on March 20, 2025 (collectively, the "Third Era Convertible Note"). The acquisition of the Purchased Original Notes by the Exchange Investor and the Exchange Agreement resulted in the extinguishments of the Purchased Original Notes.

Amended Legacy Notes

On March 25, 2025 (the "Amendment Date"), the Company entered into a letter agreement (the “Amendment”) with the holders (the "Legacy Investors") of two convertible notes originally issued in 2020 and assumed by the Company in connection with the Business Combination (the "Legacy Notes") with a principal and accrued paid-in-kind interest balance of $10.9 million (the "Legacy Notes") modifying certain provisions in favor of each of the Legacy Investors. The Legacy Notes are unsecured and earn payable in kind interest of 15% per annum, payable annually in arrears. The Maturity Date of the Legacy Notes was July 31, 2025 (the “Original Maturity Date”), however, the Amendment extends the Original Maturity Date to April 15, 2026 (the "Extended Maturity Date"). The repayment of the Legacy Notes may be accelerated upon certain events of default, as defined with the Legacy Notes.

Subject to certain limitations, the Amendments permit the Company to convert, at its election and from time to time, up to the Applicable Amount (as defined below) of the Legacy Notes into shares (the “Legacy Conversion Shares”) of the Company’s common stock at a conversion price based on the volume weighted average market price of the common stock for the five consecutive trading day period prior to the date of conversion (the “Conversion Price”). The “Applicable Amount” for purposes of the Company’s conversion right means up to 20% of the outstanding principal amount of the Legacy Notes as of the Amendment Date plus paid-in-kind interest through the Original Maturity Date, and the Company may only subsequently exercise its conversion right after all Legacy Conversion Shares previously issued to the Legacy Investors have been sold. In addition, if the Legacy Investors’ sales of the Legacy Conversion Shares do not generate net cash proceeds equal to the Repayment Amount by the Original Maturity Date, the interest rate under the Legacy Notes would be increased to 25% per annum (the “Additional Interest”) and the then-outstanding principal amount of the Legacy Notes plus all paid-in-kind interest (reduced by the net cash proceeds received by the Legacy Investors from the prior sales of the Legacy Conversion Shares, plus any previous cash payments made by the Company to the Legacy Investors (after payment of all brokerage fees, costs and expenses in selling the Legacy Conversion Shares and/or Additional Shares, if any) would be doubled (the "Maturity Date Repayment Amount Difference” and with the Additional Interest, the “Extended Maturity Date Payment”).

Dragonfly Seller Convertible Note

On January 27, 2023, we acquired Dragonfly and financed part of the purchase with the issuance of convertible notes. The Dragonfly Convertible Note is subordinate to our New Senior Credit Facility, accrues interest of 8% per annum, payable in kind or in cash, and matures in January 2028.

Era Convertible Notes

First Era Convertible Note

On December 8, 2023 and January 5, 2024, we issued convertible notes in an aggregate principal amount of $6.3 million in connection with the Company's strategic commercial partnership with Era. During the three months ended June 30, 2024, the Company converted the Era Convertible Notes into 6,852,099 shares of Common Stock, pursuant to the terms of the convertible notes, as amended, and accordingly satisfied all obligations thereunder.

Second Era Convertible Note

On November 12, 2024, we issued convertible notes in an aggregate principal amount of $5.5 million to an affiliate of Era. The Company issued 7,926,401 shares of common stock during the fourth quarter of 2024, and accordingly satisfied all obligations thereunder. On January 23, 2025 Era returned 1,071,458 shares of the Company's common stock pursuant to the terms of the convertible note.

Third Era Convertible Note

On March 17, 2025, pursuant to the Exchange Agreement, the Company issued a convertible note to the Exchange Investors, for $5.8 million. Pursuant to the Exchange Agreement, the Company also issued 2,596,050 shares of common stock. The Third Era Convertible Note matures on March 17, 2028, is convertible at the Company's option, and remains outstanding on March 31, 2025.

PPP Loan

The PPP Loan requires monthly principal and interest payments of approximately $9 thousand until maturity in 2025.

Capital expenditures

Capital expenditures primarily consist of purchases of capitalized software costs and property and equipment. Our capital expenditures program includes discretionary spending, which we can adjust in response to economic and other changes in our business environment to grow our business. We typically fund our capital expenditures through cash flow from operations and external financing. In the event that we are unable to obtain the necessary funding for capital expenditures, our long-term growth strategy could be significantly affected. Our total capital expenditures were $1.9 million and $1.7 million for the three months ended March 31, 2025 and 2024, respectively.

Cash Flow Summary

The following tables summarizes our cash flows for the periods presented:

Operating activities

Cash provided by operating activities consists of net loss adjusted for certain non-cash items including depreciation and amortization, stock based compensation, changes in fair value of warrant liabilities, non-cash interest expense, and loss on debt extinguishment, as well as the effect of changes in working capital and other activities.

Cash provided by operating activities in the three months ended March 31, 2025 was $3.3 million, an increase of $0.5 million compared to the three months ended March 31, 2024. The primary factors affecting our net operating cash flows during this period was our net loss of $4.3 million, which includes non-cash income and expense items totaling $0.5 million, including a gain on disposal of business of $15.7 million, non-cash and paid-in kind interest expense of $3.0 million, stock-based compensation expense of $3.4 million, loss on debt extinguishment of $1.8 million, a gain due to the change in fair value of financial instruments of $0.7 million, non-cash lease expense of $0.5 million, amortization and depreciation of $7.0 million, other non-cash items of $0.2 million, and the effect of changes in operating assets and liabilities that resulted in cash inflows of $8.1 million.

Cash provided by operating activities in the three months ended March 31, 2024 was $2.7 million, a change of $15.6 million from cash used in operating activities of $12.8 million compared to the three months ended March 31, 2023. The primary factors affecting our net operating cash flows during this period was our net income of $50.6 million, which includes non-cash income and expense items totaling $55.4 million, including a gain on disposal of $71.6 million, non-cash and paid-in kind interest expense of $2.8 million, stock-based compensation expense of $6.2 million, a loss due to the change in fair value of financial instruments of $0.5 million, non-cash lease expense of $0.3 million, amortization and depreciation of $6.4 million, and the effect of changes in operating assets and liabilities that resulted in cash inflows of $7.5 million.

Investing activities

Net cash provided by investing activities in the three months ended March 31, 2025 was $38.3 million compared to $89.2 million in the three months ended March 31, 2024. Net cash provided by investing activities in the three months ended March 31, 2025 primarily consisted of cash proceeds from the sale of a business of $40.3 million partially offset by cash paid of $2.0 million of capital expenditures primarily related to software development costs. Net cash provided by investing activities in the three months ended March 31, 2024 primarily consisted of cash proceeds from the sale of a business of $90.9 million partially offset by cash paid of $1.7 million of capital expenditures primarily related to software development costs.

Financing activities

Net cash used in financing activities in the three months ended March 31, 2025 was $28.8 million, compared to $71.8 million for the three months ended March 31, 2024. Net cash used in financing activities during the three months ended March 31, 2025 primarily consisted of payments of long-term debt and deferred financing costs primarily related to Amendment 5 to the Credit Agreement of $27.2 million and payments from deferred financing costs of $1.8 million offset by the proceeds from the issuance of stock options and ESPP purchases of $0.1 million. Net cash used in financing activities during the three months ended March 31, 2024 primarily consisted of payments of long-term debt and deferred financing costs primarily related to Amendment 4 to the Credit Agreement and the sale of Board.org of $72.8 million partially offset by the proceeds from the issuance of Era Convertible Notes of $0.8 million and proceeds from the issuance of stock options and ESPP purchases of $0.2 million.

Commitments and Contingencies

Our principal commitments consist of obligations under leases for office space. For more information regarding our lease obligations, see Note 5 “Leases” to the condensed consolidated financial statements included elsewhere herein. For more information regarding our debt service obligations, see Note 8 “Debt” to the condensed consolidated financial statements included elsewhere herein. See also Note 16 "Commitments and Contingencies" to the condensed consolidated financial statements included elsewhere herein.

Off-Balance Sheet Arrangements

During the periods presented, we did not engage in any off-balance sheet financing activities or other arrangements that have or are reasonably likely to have a current or future material effect on our financial condition or results of operations.

Recently Issued Accounting Pronouncements

For information regarding new accounting pronouncements, and the impact of these pronouncements on our condensed consolidated financial statements, if any, refer to Note 1 of the notes to our financial statements included in this Quarterly Report on Form 10-Q.

Critical Accounting Estimates and Policies

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that involve a significant level of estimation uncertainty and are reasonably likely to have a material impact on the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

There were no significant and material changes in our critical accounting policies and use of estimates during the three months ended March 31, 2025, as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates and Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on April 1, 2025.

We are exposed to market risks in the ordinary course of our business. These risks primarily consist of inflation risk and fluctuations in interest rates and foreign currency exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Foreign Currency Exchange Risk

We use the U.S. Dollar ("USD") as our reporting currency. Our local subsidiaries transact generally in their local currency, considered the functional currency for that subsidiary. Our foreign currency exchange rate risk is related to translation of our assets and liabilities from the subsidiaries' functional currencies to USD. These adjustments are recorded in accumulated other comprehensive income (loss) on our consolidated balance sheets. Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British Pound Sterling and Australian Dollar. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States as well as the European Union, United Kingdom, Australia, and India. Our results of operations and cash flows in the future may be adversely affected due to an expansion of non-U.S. dollar denominated contracts, growth of our international entities and changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our cash denominated in foreign currency. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage the risk relating to fluctuations in currency rates.

Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenues, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into USD. Total revenues for the three months ended March 31, 2025, was impacted by approximately 1.0% compared to the three months ended March 31, 2024.

Interest Rate Risk

We are subject to market risk associated with changing interest rates within our variable rate Senior Term Loan. Our exposure to changes in interest rates is associated with the Prime Rate.

As of March 31, 2025, we had outstanding borrowings on our Senior Term Loan of $61.7 million, which bear cash interest at a floating rate based on the Prime Rate plus an applicable margin. At March 31, 2025, the interest rate on our Senior Term Loan was 13.0%. Assuming no change in the outstanding borrowings on our Senior Term Loan, we estimate that a one percentage point increase in the Prime Rate would increase our annual cash interest expense by approximately $0.6 million.

Inflation Risk

Although we do not believe inflation has had a material impact on our financial condition, results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on our business.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2025, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of the disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on April 1, 2025.