FiscalNote Holdings Stock

Good evening. My name is Holly, and I will be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Holdings, Inc. Second Quarter 2026 Financial Results Conference Call. [Operator Instructions]

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

Good evening. My name is Yojin Yoon, Investor Relations for FiscalNote, and we are pleased you could join us. The purpose of today's call is to discuss FiscalNote's second quarter 2026 financial results and guidance for both the full year and third quarter of 2026.

Joining me with prepared remarks are Key Compton, Chief Executive Officer and President; and Jon Slabaugh, Chief Financial Officer and Chief Investment Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow.

Please note, today's press release is available on the Investor Relations portion of the company website. In terms of housekeeping, please take note of the following. During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements.

For a discussion of the material risks and important factors that could affect our actual results as well as the risks and other important factors discussed in today's earnings release, please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release or the updated version of the corporate overview presentation for a reconciliation of these measures to their most directly comparable GAAP financial measure.

Finally, we use key performance indicators, or KPIs, in evaluating the performance of our business. These include annual recurring revenue, or ARR, and net revenue retention, or NRR.

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

Thank you, Yojin, and thank you to everyone who has joined this call today. This is my first earnings call as CEO, so I'll begin with some brief context.

I was first introduced to FiscalNote 7 years ago in 2019 when the company was still operating as a private business. I became an investor the following year and joined the Board in 2021. So I stepped into this role with real conviction about what this company is and what it can become. I'm roughly 30 days in, so rather than present a sweeping new strategy today, I want to share my observations about the opportunities I see here as well as some of the challenges that we are working to solve.

Let me begin with the quarterly financials. Q2 landed within the guidance range for revenue and below guidance for adjusted EBITDA. Revenue was approximately $19.6 million versus guidance of $19.5 million to $20.5 million, which is down approximately 16% year-over-year. That year-over-year decline reflects the headwinds discussed before, including pressure in the federal and broader public sector, a cautious macro environment and the churn we absorbed earlier in the year. Adjusted EBITDA was approximately $2.3 million, which was $200,000 below guidance. Our adjusted EBITDA margin was 11.9% compared with 5.1% in the first quarter, approximately flat from where we were a year ago.

Our ARR was $74.9 million. This represents a contraction of roughly $800,000 quarter-over-quarter and is a meaningful deceleration from the ARR decline earlier in the year. Quarterly net revenue retention improved to 98% from 89% in the first quarter. These results reflect a notable reduction in client churn attributable to our platform consolidation and retention efforts, which are beginning to take effect. Our current focus is on continued stabilization of our core business, prioritizing capital discipline and returning to growth. We are also navigating conversations related to the recent delisting from the New York Stock Exchange. These conversations are cooperative and progressing constructively.

Now let me say a few words about my first few weeks as CEO. The foundation of this business is the high quality of our client base, combined with our unmatched ability to deliver legislative, regulatory and policy intelligence from truly unique sources. Our combination of proprietary data and content underpins an ability to provide outcomes that no competitor can match. Our content team at Congressional Quarterly have covered U.S. federal policy for 80 years, a heritage that our longtime customers, including former and current Hill staff, regard as the definitive source of information on Capitol Hill. Additionally, our Roll Call business has reported from inside Washington for decades, and our journalists produce content that is consistently syndicated on a national and global basis.

On the data side of our business, we aggregate, structure and verify the corpus of rules, laws and regulations that originate from all levels of government, including municipal, state, federal and international. And we deliver this data with speed, veracity and accuracy that truly matters to our client base. These 2 pillars, comprehensive verified data and unsurpassed human-generated intelligence reinforce each other. Our expert journalism and analysis provide meaning to the data and the data provides scale and structure. Together, they produce the intelligence our customers rely on to run their businesses and do their jobs. All of this is proprietary to us. It is end-to-end, and it is not replicated by our competitors.

Importantly, our products and services cannot be produced by general-purpose AI. To make the depth concrete, consider federal spending. We cover all 12 annual appropriation bills and the roughly $7 trillion of federal budget they direct, tracking them as they move through each and every markup. That tracking includes every vote and every amendment from discussion drafts to subcommittee meetings to floor action to the President's desk. We have maintained this definitive record for decades, anchoring our analytical insights in deep and historical data. And this is the kind of depth that lets customers see precisely where a decision that affects them is heading or may be heading.

Our industry leadership, inclusive of Congressional Quarterly and Roll Call, drives our value proposition and is central to our ability to timely policy and regulatory intelligence for our customers.

Now let me help you understand why this differentiates us and why AI makes it even more valuable. There is considerable discussion about how AI is disrupting business models that are SaaS-based. Much of this discussion is about how AI can better write code or rapidly process large amounts of publicly available information. What AI cannot do is anticipate legislation that has not yet been written. The same goes for data that has not been verified, sits behind a firewall or requires human reporting and analysis. FiscalNote provides new data and analysis each and every day.

We continuously aggregate, synthesize, verify and make it available, actionable and effective. And our business model enables us to deliver this through multiple channels, including our subscription-based software platform and our AI accessible APIs. Consider what we saw this past quarter. A major global technology company had been building its own policy data tool by scraping publicly available data. In an extended head-to-head trial, our data proved superior, delivering far more complete and far more reliable results than what they could produce on their own.

The end result was that this company selected us, and they are now using our policy Note MCP APIs as their trusted source. As for where we see growth, we are building organically on the core assets that we own today: our people, our culture and a client base of more than 3,300 customers. Historically, the company has grown through acquisition. Today, we are focused on the renewed growth of our core foundational operations and our unrivaled domain expertise. The clearest opportunity is to serve our existing customers more deeply, extending beyond new customer acquisition and supporting growth opportunities for our clients.

We deliver today into government affairs across both public and private sectors. Looking forward, we are exploring how our policy and regulatory expertise can extend into adjacent areas such as appropriations, government spending and areas that directly impact our client revenues. Rules, laws and regulations are a global phenomenon, and they are expanding, not contracting, providing durable tailwinds for our products and services. We are also continuing to lean into our API and MCP server ecosystem, the same channel through which that previously mentioned global technology customer selected us. This expansion allows organizations to embed our trusted data directly into their own AI workflows.

The most advanced deployments may replace or evolve our daily use software dashboards, but most uses will augment what we already provide today. The demand for this is global, can be self-serviced and is growing rapidly. Facilitating the deployment of AI is also a growth opportunity for our professional services, where there is a clear demand to help our customers adopt AI-driven workflows. Policy and government affairs teams are focused on policy, not building AI systems, so they are increasingly looking to us to be their trusted partner and to help them put these tools to work, and that is the opportunity.

Let me close by saying that I am particularly excited to be leading such an exceptional organization of highly skilled and motivated employees. Most of my time and energy is being spent on growing the core business, and I will have a lot more to share in the quarters ahead. Thankfully, the environment we operate in, while complex, is shifting in ways that favor us. As the worlds of Washington, D.C. and Silicon Valley become increasingly entangled, our business will see more tailwinds and the demand for our products and services will continue to grow.

We own and operate highly differentiated proprietary assets. We have large and loyal customers who depend on the intelligence we provide, and we have a go-forward operating model that is sharper and more focused. This is a company with a unique heritage, strong foundation and a clear set of opportunities, and I am consequently very confident in the path ahead.

With that, I will turn it over to Jon to walk through the financials. Jon?

Thank you, Key. Good evening, and thank you for joining FiscalNote's Second Quarter 2026 Conference Call. For the quarter, revenue came in within our guidance range, while adjusted EBITDA was slightly below our guidance. We are also updating our full-year outlook, which I will cover in guidance.

Let me start with our capital structure and then turn to the quarter's financial results. Following the delisting of our Class A common stock from the New York Stock Exchange, we are evaluating various paths, including relisting options while also working with our lenders through short-term forbearance agreements related to our debt agreements. We have engaged an external adviser to help us develop and evaluate alternatives. These discussions have been constructive, stabilizing and strengthening our capital structure remains among our highest priorities.

And with that as a backdrop, let me turn to the key drivers behind our second quarter financial results. Total revenue for Q2 2026 was $19.6 million, within our guidance range of $19.5 million to $20.5 million compared with the prior year period, revenue was $3.7 million lower, reflecting continued softness in subscription revenue and a decline in our non-subscription revenue. Subscription revenue, which remains the cornerstone of our business, was $18.8 million and accounted for approximately 96% of total revenue, consistent with our historical trend. Subscription revenue declined by $2.6 million or 12% versus the prior year.

On a pro forma basis, excluding the impact of TimeBase, which we sold on January 1, 2025, subscription revenue declined by $2.3 million or 11%. Non-subscription revenue was $800,000, a decline of $1.1 million or 59%, driven primarily by lower advertising and event revenue.

Turning to our key performance metrics. As of June 30, 2026, annual recurring revenue was $74.9 million versus $85.9 million in the prior year. On an as-reported basis, ARR declined $11 million or approximately 13%. On a pro forma basis, ARR declined by $9.8 million or approximately 12%. Quarterly net revenue retention was 98%, up from 89% in the first quarter and compared with 96% in the prior year period, reflecting a reduction in our client churn as our platform consolidation and retention efforts take hold.

Looking at expenses in more detail. Q2 2026 cost of revenue decreased by $1 million or 20% versus prior year. Research and development decreased by $700,000 or 30% and sales and marketing decreased by $2.2 million or 33%. Editorial remained flat at $3.4 million and general and administrative decreased by $2.1 million or 19%. On a GAAP basis, total operating expense increased by $13 million or 42% versus prior year due primarily to the noncash goodwill impairment charge recorded in the second quarter. Excluding the goodwill impairment, amortization, stock-based compensation and the impact of divestitures, transaction-related costs, severance and other noncash charges, operating expenses declined by $2.4 million or 12%.

Gross margin in Q2 2026 was 80% on a GAAP basis compared with 79% in the prior year, and adjusted gross margin was 88% compared with 86% in the prior year, both reflecting our continued cost discipline. The GAAP net loss for the second quarter was $27.8 million, which includes a noncash goodwill impairment charge of $19.1 million. Excluding this charge, GAAP net loss was approximately $8.7 million. Adjusted EBITDA was $2.3 million, approximately $200,000 below our guidance of approximately $2.5 million. Adjusted EBITDA margin was 11.9% compared with 5.1% in the first quarter and approximately flat with the 12% adjusted EBITDA margin in the prior year period. Our cost actions continue to benefit our operating structure, including a net reduction of approximately 27 full-time equivalent employees during the quarter, bringing the total headcount to approximately 343 as of June 30, 2026.

Finally, let me speak to guidance. We have updated our full year 2026 forecast and issued our forecast for the third quarter. We are lowering our full year forecast to revenue of $75 million to $78 million, down from our prior guidance of $80 million to $83 million and adjusted EBITDA of $9 million to $11 million, down from our prior guidance of $14 million to $16 million. This revision reflects continued softness in the federal and broader public sector, a cautious private sector spending environment and lower non-subscription revenue, partially offset by continued cost discipline and operating efficiencies.

For the third quarter of 2026, we expect revenue of $19 million to $20 million and adjusted EBITDA of approximately $3.5 million, with the benefit of first half restructuring actions weighted towards the second half. Overall, we remain focused on disciplined cost management, stabilizing the core business and managing our capital structure as we work to return the company to growth. That concludes my prepared remarks.

I'll turn it over to the operator to begin the question-and-answer session. Operator?

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

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

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

During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and important factors that could affect our actual results as well as the risks and other important factors discussed in today's earnings release, please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system. Additionally, non-GAAP financial measures will be discussed on this conference call.

Please refer to the tables in our earnings release or the updated version of the corporate overview presentation for a reconciliation of these measures to their most directly comparable GAAP financial measures. Finally, we use key performance indicators or KPIs in evaluating the performance of our business. These include annual recurring revenue or ARR and net revenue retention or NRR. With that, I'd like to turn the call over to FiscalNote's CEO and President, Josh Resnik.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Please note today's press release related current report on Form 8-K and updated version of the corporate overview presentation are all available on the Investor Relations portion of the company website. In terms of important housekeeping, please take note of the following. During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and important factors that could affect our actual results as well as the risks and other important factors discussed in today's earnings release, please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system.

Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release for the updated version of the corporate overview presentation, for a reconciliation of these measures to their most directly comparable GAAP financial measures. Finally, we use key performance indicators or KPIs in evaluating the performance of our business. These include annual recurring revenue or ARR and net revenue retention or NRR.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes.

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

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

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

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

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

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

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

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

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

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

Good evening. My name is Bob Burrows, Investor Relations for FiscalNote, and we are pleased you all could join us. The purpose of today's call is to discuss FiscalNote's third quarter 2025 financial results and guidance for both the fourth quarter and full year of 2025. Joining me with prepared comments are Josh Resnik, CEO and President; and Jon Slabaugh, CFO and Chief Investment Officer.

Other members of the senior management team will be available as needed during the Q&A session that will follow these prepared comments. Please note today's press release, related current report on Form 8-K and updated version of the corporate overview presentation can all be found on the Investor Relations portion of the company website. In terms of important housekeeping, please take note of the following.

During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and important factors that could affect our actual results as well as the risks and other important factors discussed in today's earnings release, please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system.

Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release or the updated version of the corporate overview presentation for a reconciliation of these measures to the most directly comparable GAAP financial measure. And finally, we use key performance indicators or KPIs in evaluating the performance of our business. These include annual recurring revenue or ARR, and net revenue retention, or NRR.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Operator Instructions]

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

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

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

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

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

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

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

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

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

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

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

[Operator Instructions]

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

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

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

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

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

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

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

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

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