FiscalNote Holdings, Inc. (NYSE:NOTE) Q3 2023 Earnings Call Transcript

FiscalNote Holdings, Inc. (NYSE:NOTE) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Good morning. My name is Wilson, I will be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Third Quarter 2023 Financial Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Sara Buda, Vice President of Investor Relations. You may begin.

Sara Buda: Hi, everybody. Welcome to the FiscalNote Q3 2023 earnings call. During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but 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 other important factors that could affect our actual results, please refer to the SEC filings available on the SEC’s EDGAR system and our website as well as the risks and other important factors discussed in today’s earnings release. Additionally, non-GAAP financial measures and other KPIs will be discussed on this conference call.

Please refer to the tables in our earnings release and the Investor Relations portions of our website for a reconciliation of these measures to their most comparable GAAP financial measure. With that, I’d like to turn the call over to FiscalNote’s Chairman, CEO and Co-Founder, Tim Hwang.

Tim Hwang : Thank you, Sara. On today’s call, we will review our third quarter results which mark our first quarter of adjusted EBITDA profitability. This is a tremendous milestone for the company. A year ago, we committed to adjusted EBITDA profitability, and that is exactly what we’ve delivered. In fact, we’ve delivered this one quarter earlier than we originally forecast, even amidst the more challenging macroeconomic environment. If you look at where we were when we began this year, we’ve essentially shifted our adjusted EBITDA from minus $7 million per quarter loss in Q1 to positive adjusted EBITDA in Q3. This is an annualized improvement of over $30 million in adjusted EBITDA, as compared to where the company started this year in Q1.

We have been laser focused on this milestone, and we are delighted to achieve it ahead of initial expectations. At the same time, we have made significant investments to accelerate our decades long leadership in AI, aligned our sales teams on the highest growth customers and refined our product portfolio. Now as we end 2023, it is time to build on foundation and turn our focus towards re-accelerating growth. I’ll get into the details of that growth strategy shortly. First, let me remind you of our mission here at FiscalNote and the value we bring to more than 5,000 customers every day. At FiscalNote, we’re on a mission to help our customers make sense of the complicated and costly changing world we live and delivering a proprietary, AI-enabled platform that aggregates and organizes regulatory, political and macroeconomic information and analyze the impact on their organization.

Changes in policies, regulations and laws impacted decision making of almost every organization around the world. Using our proprietary AI capabilities ,we aggregate, synthesize and analyze massive amounts of legislative policy, regulatory and macroeconomic data and information around the world and provide actionable intelligence to customers in a subscription model. As such, we built an enduring company for the world’s most important and influential decision makers, from hundreds of government agencies and public sector customers from the Department of Defense, the White House, every member of the House and Senate in the US Congress, the Federal Reserve, and public sector organizations in Europe and Asia to major corporate customers, including more than half the Fortune 100.

Beyond large enterprises, FiscalNote serves a wide and diverse range of business customers, ranging from healthcare and pharma, financial services, technology, energy, food and beverage, transportation, automotive industries and beyond. These customers rely on FiscalNote everyday to discover, process and navigate the impact of real policymaking under organization, and, more importantly, to take actions which achieve their business objectives, and minimize political and economic risk. This forms the basis of our durable and long-term growth. Helping our customers analyze over $6.4 trillion in government spending and tracking the over 500,000 elected officials in the United States, along with similar policymakers around the world is an immense digital challenge.

One that requires unrivaled information about the need to know policies, embedded workflows to manage regulatory risks, and powerful analytics and research to understand mission critical updates with every global conflict, every time the United States and China get into a spat over semiconductors, and every other new tariff, sanction, regulation and geopolitical disputes, disclose data and information are more relevant ever to help companies organization navigate through an increasingly challenging complex world, this is a $37 billion market opportunity that companies spend every year trying to obtain this critical information data. We have become an increasingly critical and ubiquitous Bloomberg terminal of political, legislative and regulatory information at the local, state, federal and global levels.

The same way that other information companies such as S&P Global, IHS market, FactSet, Morningstar, COSTAR and Avalara have innovated in their respective information fields. This will continue to deliver mission critical information that has a direct impact on their customers operations, and created an entirely new category within the data information services space. We’ve invested 10s of millions of dollars in almost 10 years building a defensible combination of data, intelligence and AI technology to collect, synthesize and make sense of an exploding pace and volume of dynamic unstructured regulatory, political and legal information around the world. And the software workflow tools help our customers respond. This forms the basis of our market leadership position, and is the underpinning of our durable growth strategy.

Further with our AI pedigree and our vast array of validated trusted data, we are in a unique position and have a clear competitive advantage. We are compounding growth company with a broad and diverse customer base against the backdrop of increasing global complexity uncertainty that we believe only Fiscal could address with our unique and proprietary products and datasets. Now, let me provide a brief summary of our Q3 results and our ongoing momentum as to reach the inflection point of adjusted EBITDA profitability next quarter and beyond. In Q3, we delivered another strong quarter of growth with revenue of $34 million. This marks an increase of 17% year-over-year, and is yet again consistent with the guidance we provided. We also enjoy consistent high gross profit margins.

Q3 adjusted gross profit margins were 83% in the quarter. These margins are hallmarks of Fiscal and stem from our SaaS business model, AI pedigree, and data rich products, all of which form the basis for strong free cash flow in the future. On the bottom line, our third quarter adjusted EBITDA was positive $700,000 in line with the guidance we provide on the last call, our cash and short term investments in third quarter was $24 million. Turning management KPIs, we delivered run rate revenue of $138 million. Our ARR was $123 million, growth of 14% year-on-year total, and growth of 8% on a pro forma basis. Our net revenue retention increased to 100% driven by ongoing success in our large enterprise customer base, where NRR continued to be well above company average.

So now let’s turn to the nuts and bolts of the business. First, we’ll review the things that are going well. Second, we’ll look at the things we need to improve on. And third, we’ll discuss the pathway for the company moving forward to accelerate growth that we’ve achieved profitability. First on the things that are going well. We are now profitable on an adjusted EBITDA basis. For the last year, considerable management time and attention has been placed on this goal. This delivers a tremendous inflection point of delivering positive adjusted EBITDA for the first time in the company’s history, and one quarter earlier than initially forecasts. We enabled strong operating leverage driving 160% conversion of incremental revenue to adjusted EBITDA this quarter.

To achieve this, we took a number of actions including reducing our G&A for efficiency, reducing our editorial and other expenses, shifting our R&D expenses and making hard decisions about product spend, and sunsetting underperforming unprofitable products. We made major changes in our sales team to focus on large enterprises with larger ACVs. This has proven to be the right strategy with impressive outcomes. By shifting our R&D spend to higher value, higher growth products. We have reinforced our competitive moat and secured AI partnerships with market leading organizations that recognize and accelerate the applicability of our market leading data, intelligence and AI. We are brought to market successful new products such as Risk Connector and FiscalNoteGPT, which are both starting to gain traction in the market.

By aligning our sales team and reallocating resources to focus on large enterprise accounts with larger ACVs, we have turned large enterprise into our largest fast growing customer group with NRR rates well above company average, trending well above 105% on an LTM basis. So there’s more upside here as we introduce new enterprise products with higher ACV and continue to upsell and cross sell. By modifying our go-to-market model and reallocating sales and marketing spend, we are starting to drive growth in the areas of business with the strongest upside potential. More importantly by taking cost actions across organization we have achieved adjusted EBITDA profitability and have initial plan and positioned the business for very strong conversions of incremental revenue to adjust EBITDA profit and ultimately, we have created durable profitable company with highly innovative products and a superior market leadership position.

We expect the company will continue to see strong conversion of incremental growth into adjusted EBITDA in the long term. Overall, the company has spent the last decade building an operational and technical infrastructure that is poised for rapid growth. With global operations ranging from Washington DC to London to Seoul and Sydney, the company has an extremely talented management team, data, technology and AI organization, as well as the go-to-market infrastructure to continue to grow. The changes we have made have resulted in a leaner, more disciplined organization poised for growth. All of this is a testament to the hard work and dedication of our teams, and the unparalleled value we deliver to our 5,000 customers every day. So where do we see areas of improvement for the business debt?

Candidly, we are watching two datapoints very closely within the business. First, while we have seen great uptick, growth in our subscription business, we have seen some challenges in our onetime non-subscription revenue, which is typically very strong in the second half of the year. With a challenging macro and some underperformance and some few noncore products. This onetime non-subscription revenue didn’t deliver on pace with their traditional seasonality. Second, we had some slower than expected pipeline conversions as you shift toward larger strategic accounts which are taking longer than expected to close also due to the macroeconomic environment. While we have retooled our product strategy to go after larger, bigger accounts, launched new products and features and structure to go-to-market teams to go after these deals.

Under the current macroeconomic environment, these deals are receiving more scrutiny and company P&L. So what is the company’s plan to reignite growth and profitability? Now that we’ve achieved the inflection point of adjusted EBITDA profitability, it is now time for us to shift our management time, focus and attention to allocate our time and resources and capital to accelerating growth. This is the singular focus of the operating team to drive sustained growth within the organization as we have done for the last 10 years. Fundamental to this growth reacceleration as a refined product strategy, this is where we drive incremental upside to the durable base of revenue that we have in place today. Let me give some context. First and foremost, we will sustain and build upon our core products with the strongest demand profiles.

Our regulatory and policy data solutions continue to be the strongest offerings in our portfolio with robust demand. Organizations are facing significant increase in regulatory complexity, and it is spreading globally, which creates uncertainty for all organizations as significant top line and bottom line impact for companies that operate globally as well. We spent the last decade applying proprietary AI expertise to structure, normalize, analyze and digitize vast amounts of regulatory, legal, macroeconomic and geopolitical information and to embed workflows to make data useful and actionable for customers. Today, thousands of organizations, including those in the public sector, and private sector rely on FiscalNote for regulatory and data policy solutions, as such, we will continue to invest and build upon the success of this core products, with new product enhancements, new datasets, and new AI workflows that reinforce our superior competitive position and bring unparalleled value to our customers.

We believe there’s ample opportunity to continue our land and expand strategy with our largest customers, as we continue to upsell and cross sell legal and regulatory datasets. Second, we will pursue adjacencies to core products in fast growing areas of risk and compliance. This includes products such as Risk Connector, our new internally developed risk intelligence solution that enables enterprise to reveal operational, relational and reputational risk. Risk Connector brings the power of our proprietary data and AI capabilities to map relationships, and identify risks within the organization supply chain, as well as organizations, customers, investors, partners, and any other vectors through which risk can materialize. This empowers large organizations of private and public sectors to anticipate, understand, quantify, and track risks emanating from their operations, and a full web of relationships in a way that current solutions cannot.

Only a few weeks after public launch, we already have our first anchor customer, and several other active proposals in market with large enterprises. We are delighted with the early momentum in this new product, which exemplifies our AI leadership and our unrelenting commitment to innovation that delivers customer value. Risk Connector is just one example of a product adjacency. We have additional products and development that will enable us to accelerate growth through adjacencies such as this. We also continue to pursue geographic adjacencies as well. This year we invest in our Europe expansion both organically and through acquisition, which allows us to be able to bring new datasets to our customers. Finally, we are investing in new generative AI capabilities for our customers with a new go-to-market strategy that we expect to result in faster revenue generation.

We are placing a substantial shift in our new product strategy to focus on AI Co-Pilot agents. Our first new product initiatives are our fiscal AI Co-Pilot program, through which we are developing a series of AI-enabled application that provides intelligence systems for policy and risk management professionals. The Co-Pilot program leverages our decade long investments in AI ML and NLP proprietary defensive reasoning and data aggregation tools as well as tens of thousands of proprietary and public verticalized datasets and comprehensive information that Fiscal can collect, provide lightweight applications in very specific use cases. The goal of Fiscal is to launch a constellation of AI agents that include quick application catered to our individual [inaudible] that automate the day to day work of creating legislation, drafting regulatory and legal analysis, doing advocacy outreach, and conducting constituent communications and regulatory responses.

In doing so, Co-Pilot will reduce countless hours that our customer spent drafting legislation, responding to legislation, communicating constituents within other tasks, delivered as lightweight self-serve apps, these Co-Pilot built in our FiscalNoteGPT generative AI platform we announced early this year and enable new go-to-market models with an array of FiscalNote products that are easy to sell, easy to deliver, and easy to scale across users. The value of FiscalNote customers is clear, as we essentially enable both existing and prospective customers to quickly and easily leverage our AI powered solutions to get their jobs done faster, with a high degree of confidence. The context of this Co-Pilot program is evident, despite major advances in AI and the use of large language models in the technology industry, there is a crucial need for organizations to specifically address the unique complexity that exists in the legal and regulatory world.

With our expertise in data ingestion, collection, cleansing and curation and of course, our extensive archive of legal and regulatory datasets from around the world, it is logical for FiscalNote to fill this void with FiscalNoteGPT and now our new AI Co-Pilot program. Of course, Fiscal Co-Pilot complements and builds upon our integration with large language model providers like OpenAI and Google. With our new Co-Pilot focus AI strategy will develop new go-to-market models aligned with expectations to per user pricing, we expect that these products will be sold on a per user basis. That allows users be able to purchase these products individually with a swipe of a credit card, substantially eliminating friction and a go-to-market process, enabling mass adoption for our generative AI tools and ensuring faster revenue generation.

We expect our Co-Pilot strategies to begin rolling out over the next several weeks and months as we embark upon building a constellation of AI agents on top of our data. Our Co-Pilot program marks yet another development in FiscalNote’s ongoing leadership as we develop and bring to market AI-enabled solutions, specifically aimed at the legal and regulatory sector. You can expect to hear more from us in the coming weeks about Fiscal and Co-Pilot and other new product developments that over time, provide incremental growth paths to complement our proven durable base and recurring revenue solutions. In summary, there have been a lot of changes in 2023 as we dedicated our time, energy and resources to achieving profitability. We’re now pivoting our focus to new avenues for accelerating growth in 2024 and beyond with a refined three pronged product strategy and go-to-market strategy that will enable us to build on our core products with the highest growth potential, pursue natural adjacencies to offerings to broaden our value to customers and develop new products with new channels for growth.

This reflects our ongoing commitment to building a durable, profitable compounding growth company that provides some unique value to the world’s most important decision makers in scaling this business to $200 million, $300 million, $500 million and $1 billion in recurring revenue and beyond. Separately, you all saw the disclosure that I have informed the board of my interest in exploring and leading a going private transaction. As a result, the board has appointed a special committee to evaluate any proposal I might admit in light of the company’s strategic options in the best interest of shareholders. While I can’t comment further, I will reiterate what I’ve said on our past calls, we have approximately $140 million in run rate revenue, a proven durable compounding recurring revenue model with more than 5,000 customers, 80% adjusted gross margins, and now have adjusted EBITDA profitability, the business has never been in a stronger position.

Yet our stock price does not reflect the strength of these fundamentals. We continue to trade well below other sectors specific information services leaders. Ultimately, we will always do what is in the best interest of shareholders to achieve a valuation that recognizes and reflects the value or fundamentals in our future growth opportunity as we build a long term, large scale market leader in AI-driven Information Services. Regardless of the outcome, the entire organization remain committed to growing our business that is delivering value for the world’s most important decision makers who trust FiscalNote to discover, process and navigate the impact of policy making an organization and more importantly, to take actions which achieve their business objectives, and minimize political and economic risk.

Now, let me turn it over to Jon for details on the financials and our outlook going forward.

Jon Slabaugh : Thank you, Tim. And good morning. I’ll spend some time going through the details of our quarter and then I’ll walk through some of the operational changes we’ve made in our commitment to ongoing adjusted EBITDA growth moving forward. Let me start with a quarter. Third quarter GAAP revenue was $34 million marking year-over-year growth of 17%. Third quarter subscription revenue which makes up approximately 90% of our total revenue was $30.1 million. This is an increase of 15% from a year ago and 7% growth on an organic basis. Excluding the non-cash deferred revenue adjustments from 2022. Our advisory and other revenue was $3.9 million, an increase of $1 million year-over-year. We exited Q3 with run rate revenue of $138 million in total marketing 14% year-over-year growth.

On an organic basis run rate revenue was $129 million, reflecting 7% growth on a pro forma basis as defined in a press release. NRR or Net Revenue Retention for the quarter was approximately 100%. A sequential quarter increase of 200 basis points in a year-over-year increase of 100 basis points. Let me provide some more details here because it is important to see the traction among our various customer groups. As you know, we have three primary customer groups we serve. Public sector, not for profit associations, and enterprises. As we said enterprise is our largest customer group, and large enterprise and strategic accounts represent the fastest growing highest NRR customers. And that has been the impetus for some of the changes we’ve made to our sales organization to capitalize on this underlying demand, and to extend our growth in large enterprises.

This quarter reinforced this is the right strategy. NRR rates among our large enterprise corporate customers continues to trend above the company average. Demand for our regulatory and policy data continues to be strong, particularly among large enterprises. It was some of the recent changes we’ve made from product strategy to sales allocation, we see opportunities for NRR rates in this large enterprise group to expand further. Like many companies, we tend to see a bit more churn in the small enterprise space, particularly in this macro. Turning to ARR. We grew our total annual recurring revenue, or ARR to $123 million as of September 30, an increase of 14% compared to the same period in 2022. Organic ARR is as we defined was $116 million as of quarter end.

This represents a 7% growth rate when compared to the ARR in Q3 of last year on a pro forma basis. While our ARR continues to trend up, it is slightly behind the pace we expected in Q3. This is largely due to budget tightening and longer sales cycle as we shift towards larger enterprise customers in the midst of the current macro environment. And a few of our ancillary products are underperforming expectations. That said, the pipeline rate remains robust. In the demand for our core policy, regulatory, geopolitical, macroeconomic, security and operational risk products continues to be strong. These products are crucial to help large enterprise customers manage global complexity, and operational risks. Large enterprise continues to be our fastest growing customer group on an organic basis.

Looking at gross profit, we continue to enjoy strong margins. Our Q3 gross profit was $23.6 million, representing 69% margins. Our third quarter non-GAAP adjusted gross profit was $28.4 million represented 83% adjusted gross profit margin after adjusting for amortization. Our adjusted gross profit margins remain consistently high in the 80% range quarter after quarter. In Q3, total operating expenses decreased by approximately $2 million year-over-year, excluding noncash stock-based compensation expenses, cost of revenue amortization and transaction costs. Sequentially from last quarter, total operating expenses declined by about $3.2 million excluding noncash stock-based comp and other noncash expenses. This combined with our Q4 cost action means we will realize almost $20 million of annualized OpEx cost savings this year.

We’re delivering on the cost management programs while continuing to invest in innovation and growth for the future. Within OpEx, sales and marketing costs were $11.2 million for the quarter, a decrease of $600,000 year-over-year even after acquisitions and a decrease of $450,000 last quarter with our sales realignment program. R&D expenses were $4.5 million, a $1 million decrease from last year and essentially flat from last quarter. Editorial costs were approximately $4.5 million. A slight increase year-over-year driven by acquisitions and a slight decrease from last quarter. G&A expenses for the quarter were $14.4 million excluding noncash stock-based compensation and other public company expenses, G&A was $9.5 million for the quarter This is a decrease of about $400,000 year-over-year and a decrease of almost $1 million sequentially from last quarter, reflecting the favorable impact of our ongoing expense management program.

The operating loss for Q3 was $13.5 million in total. This includes $6.2 million of stock-based compensation. Our total interest expense was $8 million, of this cash interest expense was approximately $5.4 million, which is a good proxy for our quarterly cash interest expense going forward, depending on rates. You will also note that our weighted average shares outstanding for Q3 2023 decreased by about 5.3 million shares for the last quarter, it is now 129 million shares. This is related to our previous disclosed exchange agreement with GPO pre-listing noteholder. A GAAP net loss for Q3 was $14.5 million. And as we forecasted adjusted EBITDA was a positive $700,000 this quarter, marking our first quarter of profitability on an adjusted EBITDA basis, one quarter ahead of our initial guidance.

We’re delighted to achieve this important milestone for the company which reflects our diligent cost management and solid top line growth. It is important to note that in Q3 we delivered 160% conversion of incremental revenue to adjusted EBITDA. This reflects the power of our business model. Despite the challenging macro, we are driving strong incremental revenue through new logo acquisition, cross sell, and upsell without adding incremental costs. This operating leverage is a strong indicator of what to expect as we move this company from adjusted EBITDA positive to a free cash flow generating growth company over time. Our balance sheet remains solid with approximately $24 million of cash, cash equivalents and short term investments as of September 30.

We expect to increase our cash position in Q1 of 2024 through continued compounding increases to prepaid ARR and seasonally strong collections. You see that we did file shelf registration. This is a three year $100 million registration that simply gives us flexibility and optionality in our capital structure. This is the right time to put a shelf in place. It is a common practice one year after public listing. As we committed, FiscalNote achieve positive adjusted EBITDA 12 months after our listing date, and a quarter ahead of schedule and without raising additional capital. Now that we have achieved positive adjusted EBITDA, our operations are self-sustaining. We are now actively looking at opportunities to strengthen our balance sheet, resources that will further accelerate organic and inorganic growth as we turn our focus to reaccelerating growth, we will have the capital structure and flexibility to invest strategically and drive our business to the next phase of growth.

Now, let me comment on our guide and how we are positioned for profitable growth next year and beyond. For Q4, we expect revenue of $34 million to $35 million. We expect positive adjusted EBITDA of approximately $2.5 million. The swing from a $7 million adjusted EBITDA loss in Q1 to $2.5 million adjusted EBITDA profit in Q4 is remarkable, particularly in light of the more challenging macro. For the full year, we expect GAAP revenue of $132 million to $133 million. This is a reduction from our prior guidance with the majority impact driven by lower non-subscription one time revenue. We expect run-rate revenue of $139 million to $141 million. As Tim mentioned, we’re making a lot of changes this year to position the company for greater growth.

We’ve realigned our salesforce, we’ve adapted our product strategy and sunset unprofitable products, and we’ve reduced our cost structure. At the same time, we’ve allocated capital to areas of the business with the strongest upside potential. As a result, we are well positioned as we exit the year. Our enterprise sales team are continuing to execute well again strong demand, particularly for our regulatory and policy data. Our AI leadership is broadening our market with new partnerships and enabling us to bring breakthrough innovations to market including Risk Connector, FiscalNoteGPT and now our FiscalNote Co-Pilot program. We have reached the inflection point of adjusted EBITDA profitability and paved the way for free cash flow over time.

With strong operating leverage, we are well positioned to drive compounding recurring revenue growth. All of this positions us for ongoing revenue and adjusted EBITDA growth in 2024 and beyond. With that, I will now open it up to questions. Operator?

See also 10 Best India ETFs and 40 Best Selling Items on Amazon Right Now.

Q&A Session

Operator: [Operator Instructions] The first question from the line of Matt Van Vliet with BTIG.

Matt Vliet: Yes, good morning. Thanks for taking the question. I guess first on the sales opportunity, not just in the fourth quarter, but maybe as we look out into 2024. And I guess sort of two factors there. One, what’s the sales realignment doing in terms of driving more upsell, cross sell. Anything from an actual process standpoint that you’ve put in? And then as we think about sort of the maturity of that sales team, especially at the larger enterprise accounts, where are we in terms of sort of reps fully ramped? Or what’s the mix of fully ramped? And then secondarily on that, where are you seeing the biggest impacts from the macro in terms of feedback from customers? And how is that impacting I guess, either deal flow, or maybe deal sizes?

Josh Resnik : Hey, Matt, this is Josh Resnick, I can address that. So in terms of upsell, cross sell opportunities, part of what we’ve been doing with the sales realignment has been adjusting the staffing responsibilities, quota setting, commission plans, and such to align around upsell and cross sell and have in fact established team that is focused specifically on upsell and cross sell because we do see significant opportunity up there. Especially when it comes to large enterprise clients. The team has gone through significant restructuring over the course of the year, we’ve been viewing that as an optimization of our approach to go-to-market, both in terms of how we structure the teams, but also in terms of overall the quality of the talent that we have in those teams.

And as well as our effectiveness, efficiency and speed in ramping new talent as we bring talent on board and continuing to build a pipeline of talent across the board that we can use to continue as we continue our growth down the road. And in terms of the macro impact, I would say we are still seeing strong demand for the products, we have a lot of confidence in our pipelines, including in regards to some of the new products that we’ve launched, such as Risk Connector, where we tend to see an impact really is on sales cycles. And really the time to bring those home as, as prospects see budget pressure internally.

Matt Vliet: Okay, very helpful. And then can you just remind us as we look at the guidance, I think you mentioned that on the one time that’s certainly being impacted by some of the products sunsetting and winding down of the underperforming products. But can you help us in terms of what the impact is on the subscription line limiting the growth there that maybe we were previously expecting? And then how that’s maybe balanced with the success of the better products, especially around the regulatory and policy data? Thanks.

Josh Resnik : Sure, Matt. So yes, as you noted, lower non-subscription so one time revenue, certainly played a large role in what we’re seeing. Second half is typically strong for one time revenue. And that hasn’t materialized this year, due to largely due to budget uncertainty related to the macro. On the ARR subscription side, we have seen some slower pipeline conversion, like I was saying, and especially as we move to larger enterprise deals where the sales cycle naturally is longer again, the macro is going to have an impact there.

Operator: Your next question comes from the line of Mike Latimore with Northland Capital Markets.

Mike Latimore: Great, thanks very much. Good morning. Yes, congrats on the positive EBITDA and sequential change was pretty impressive there, gross margin that seems to be at a record level and was also up sequentially. Can you just sort of describe the impacts there? Was this kind of de-emphasizing some of the lower value products? Is this sustainable? Just little more color on gross margin would be great.

Jon Slabaugh: Mike, I think we will continue to see the gross margins stay pretty consistent. We saw some benefits from some creditors this quarter that I don’t think we’ll be continuing to repeat quarter-over-quarter. So in terms of thinking about going forward, 80% adjusted gross margin numbers probably the right way to think about it.

Mike Latimore: Got it. Great and then on the just kind of some of the vertical effects here, the federal government vertical, have you seen any kind of nuances there that were unexpected?

Jon Slabaugh: Iin terms of revenue?

Mike Latimore: Bookings primarily and —

Jon Slabaugh: Okay. We got through a major, Josh, you might want to handle that. But we’ve done contingency planning around it as we think about guidance for the upcoming quarter. But sure, yes, go ahead.

Josh Resnik : Sorry. Yes. Mike, this, Josh, I would say it largely continues to be steady federal government tends to be a good steady revenue driver for us. We’ve seen some impact from budget pressures in the federal government not surprising given the atmosphere on Capitol Hill, but still largely remained steady.

Mike Latimore: Okay. And then the comment about this is the opportunity to kind of re-accelerate growth is the implication there that you would try to maintain current EBITDA margins while you reaccelerate growth? Or how do you think about balancing those two?

Jon Slabaugh: Mike, we will continue to drive the margin. We’re not giving any guidance with regards to 2024 at this time, but our operating plan will continue to push the company towards a more normal, industry normal and above operating and EBITDA margin over time.

Operator: Your next question comes from the line of Zach Cummins with B. Riley.