UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer |
(Address of principal executive offices, including zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 31, 2022, the registrant had
1
FISCALNOTE HOLDINGS, INC. FORM 10-Q TABLE OF CONTENTS |
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Page No. |
Cautionary Note Regarding Forward-Looking Statements |
3-4 |
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PART I. Financial Information (Unaudited): |
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Financial Statements |
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5 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
6 |
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Deficit) |
7 |
8 |
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9-40 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
41-55 |
Item 3. Quantitative and Qualitative Disclosures About Market Risks |
56 |
Item 4. Controls and Procedures |
56 |
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Part II. OTHER INFORMATION |
58 |
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Item 1. Legal Proceedings |
58 |
Item 1A. Risk Factors |
58 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
58 |
Item 3. Defaults upon Senior Securities |
58 |
Item 4. Mine Safety Disclosures |
58 |
Item 5. Other Information |
58 |
Item 6. Exhibits |
58 |
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SIGNATURES |
60 |
2
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that express FiscalNote Holdings Inc.’s (the “Company,” “FiscalNote,” “we,” “us,” or “our”) opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They may appear in a number of places throughout this Quarterly Report on Form 10-Q, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors,” and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our future results of operations, financial condition and liquidity; our prospects, growth, strategies and the markets in which FiscalNote operates. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting FiscalNote. Factors that may impact such forward-looking statements include:
3
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties described in the “Risk Factors” section of this Quarterly Report on Form 10-Q and the other documents filed by us from time to time with the U.S. Securities and Exchange Commission ("SEC"). The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on us and our business. There can be no assurance that future developments affecting us will be those that we have anticipated. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
4
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
FISCALNOTE HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except shares, and par value)
(Unaudited)
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September 30, 2022 |
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December 31, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net |
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Costs capitalized to obtain revenue contracts, net |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Capitalized software costs, net |
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Noncurrent costs capitalized to obtain revenue contracts, net |
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Operating lease assets |
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- |
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Goodwill |
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Customer relationships, net |
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Database, net |
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Other intangible assets, net |
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Other non-current assets |
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- |
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Total assets |
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$ |
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$ |
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Liabilities, Temporary Equity and Stockholders' Equity (Deficit) |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
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$ |
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Accounts payable and accrued expenses |
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Deferred revenue, current portion |
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Customer deposits |
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Contingent liabilities from acquisitions, current portion |
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Operating lease liabilities, current portion |
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- |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, net of current maturities |
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Convertible notes - related parties |
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- |
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Deferred tax liabilities |
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Deferred revenue, net of current portion |
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Deferred rent |
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- |
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Contingent liabilities from acquisitions, net of current portion |
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Sublease loss liability, net of current portion |
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- |
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Lease incentive liability, net of current portion |
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- |
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Operating lease liabilities, net of current portion |
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- |
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Warrant liabilities |
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- |
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Other non-current liabilities |
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Total liabilities |
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Temporary equity: |
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Redeemable, convertible preferred stock |
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- |
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Stockholders' equity (deficit): |
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Class A Common stock ($ |
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- |
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Class B Common stock ($ |
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- |
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Additional paid-in capital |
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- |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity (deficit) |
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( |
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Total liabilities, temporary equity and stockholders' equity (deficit) |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
FISCALNOTE HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except shares and per share data)
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues: |
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Subscription |
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$ |
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$ |
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$ |
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$ |
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Advisory, advertising, and other |
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Total revenues |
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Operating expenses: (1) |
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Cost of revenues |
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Research and development |
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Sales and marketing |
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Editorial |
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General and administrative |
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Amortization of intangible assets |
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Loss on sublease |
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- |
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- |
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- |
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Transaction costs, net |
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Total operating expenses |
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Operating loss |
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( |
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( |
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( |
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( |
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Interest expense, net |
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Change in fair value of warrant and derivative liabilities |
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( |
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( |
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( |
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Gain on PPP loan upon extinguishment |
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- |
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- |
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( |
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- |
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Loss on debt extinguishment, net |
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- |
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- |
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Other expense, net |
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Net loss before income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
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Benefit from income taxes |
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( |
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( |
) |
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( |
) |
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( |
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Net loss |
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( |
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( |
) |
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( |
) |
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( |
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Other comprehensive loss |
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( |
) |
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( |
) |
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( |
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( |
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Total comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Net loss |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Deemed dividend |
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( |
) |
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( |
) |
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( |
) |
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( |
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Net loss used to compute basic loss per share |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Marked-to-market fair value gain for private warrants |
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( |
) |
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- |
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( |
) |
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- |
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Net loss used to compute diluted loss per share |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Earnings per share attributable to common shareholders: |
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Basic |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Weighted average shares used in computing earnings per shares attributable to common shareholders: |
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Basic |
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Diluted |
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(1)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Cost of revenues |
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$ |
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$ |
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$ |
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$ |
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Research and development |
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Sales and marketing |
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Editorial |
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General and administrative |
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See accompanying notes to unaudited condensed consolidated financial statements.
6
FISCALNOTE HOLDINGS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(in thousands, except share data)
(Unaudited)
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Temporary Equity |
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Equity (Deficit) |
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Preferred Stock |
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Common Stock |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders' equity (deficit) |
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Shares |
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Amount |
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Shares |
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Amount |
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Balance at June 30, 2021 |
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$ |
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$ |
- |
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$ |
- |
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$ |
( |
) |
$ |
( |
) |
$ |
( |
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Retroactive conversion of shares due to Business Combination |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance at June 30, 2021, as converted |
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$ |
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- |
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$ |
- |
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$ |
( |
) |
$ |
( |
) |
$ |
( |
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Accretion of preferred stock to redemption value |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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( |
) |
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Exercise of stock options |
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- |
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- |
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- |
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- |
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- |
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Issuance of preferred stock and warrants |
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- |
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- |
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- |
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- |
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- |
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- |
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Shares issued in business acquisitions |
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- |
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- |
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- |
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- |
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- |
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Seller convertible notes issued at premium |
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- |
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- |
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- |
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- |
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- |
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- |
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Beneficial conversion feature, net of taxes |
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- |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Foreign currency translation loss |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Balance at September 30, 2021 |
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$ |
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$ |
- |
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$ |
- |
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$ |
( |
) |
$ |
( |
) |
$ |
( |
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||||||||
Balance at June 30, 2022 |
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$ |
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$ |
- |
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$ |
- |
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$ |
( |
) |
$ |
( |
) |
$ |
( |
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Retroactive conversion of shares due to Business Combination |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance at June 30, 2022, as converted |
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$ |
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- |
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$ |
- |
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$ |
( |
) |
$ |
( |
) |
$ |
( |
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Change in par value |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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Accretion of preferred stock to redemption value |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
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Issuance of Class A common stock upon redemption of preferred stock |
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( |
) |
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( |
) |
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- |
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- |
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Issuance of Class A common stock and Class B common stock in connection with Business Combination, net |
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- |
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- |
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- |
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- |
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Issuance of Class A common stock in connection with business acquisitions |
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- |
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- |
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- |
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|
- |
|
|
- |
|
|
|
|||
Issuance of Class A common stock upon exercise of public warrants |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
|||
Issuance of Class A common stock upon vesting of restricted share units |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Issuance of Class A common stock upon exercise of stock options |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
|||
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Net loss |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Foreign currency translation loss |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Balance at September 30, 2022 |
|
|
- |
|
$ |
- |
|
|
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
|
|
Temporary Equity |
|
|
Equity (Deficit) |
|
||||||||||||||||||||
|
|
Preferred Stock |
|
|
Common Stock |
|
Additional paid-in capital |
|
Accumulated other comprehensive loss |
|
Accumulated deficit |
|
Total stockholders' equity (deficit) |
|
||||||||||||
|
|
Shares |
|
Amount |
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
||||||||
Balance at December 31, 2020 |
|
|
|
$ |
|
|
|
|
$ |
- |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
||||
Retroactive conversion of shares due to Business Combination |
|
|
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
||
Balance at December 31, 2020, as converted |
|
|
|
$ |
|
|
|
|
$ |
- |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
||||
Accretion of preferred stock to redemption value |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
|
( |
) |
|
Exercise of stock options |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
|||
Issuance of preferred stock and warrants |
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
( |
) |
|
( |
) |
|||
Shares issued in business acquisitions |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
|||
Seller convertible notes issued at premium |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Capital distribution |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Beneficial conversion feature, net of taxes |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Net loss |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Foreign currency translation loss |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Balance at September 30, 2021 |
|
|
|
$ |
|
|
|
|
$ |
- |
|
$ |
- |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at December 31, 2021 |
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
|
( |
) |
|||
Retroactive conversion of shares due to Business Combination |
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|||
Balance at December 31, 2021, as converted |
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
|
( |
) |
|||
Change in par value |
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
Accretion of preferred stock to redemption value |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
|
( |
) |
|
Issuance of Class A common stock upon redemption of preferred stock |
|
|
( |
) |
|
( |
) |
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
||||
Issuance of Class A common stock and Class B common stock in connection with Business Combination, net |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
||||
Issuance of Class A common stock in connection with business acquisitions |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
|||
Issuance of Class A common stock upon exercise of public warrants |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
|||
Issuance of Class A common Stock upon vesting of restricted share units |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Issuance of Class A common stock upon exercise of stock options |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
|
||||
Repurchase of common stock |
|
|
- |
|
|
- |
|
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
|
||||
Net loss |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Foreign currency translation loss |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Balance at September 30, 2022 |
|
|
- |
|
$ |
- |
|
|
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
FISCALNOTE HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Amortization of intangible assets and capitalized software development costs |
|
|
|
|
|
|
||
Amortization of deferred costs to obtain revenue contracts |
|
|
|
|
|
|
||
Non-cash operating lease expense |
|
|
|
|
|
- |
|
|
Stock-based compensation |
|
|
|
|
|
|
||
Operating lease asset impairment |
|
|
|
|
|
- |
|
|
Contingent compensation expense |
|
|
|
|
|
- |
|
|
Bad debt expense |
|
|
|
|
|
|
||
Change in fair value of acquisition contingent consideration |
|
|
( |
) |
|
|
|
|
Change in fair value of derivative liabilities |
|
|
|
|
|
|
||
Change in fair value of warrant liabilities |
|
|
( |
) |
|
|
- |
|
Deferred income tax benefit |
|
|
( |
) |
|
|
( |
) |
Paid-in-kind interest, net |
|
|
|
|
|
|
||
Net loss attributable to equity method investment |
|
|
|
|
|
- |
|
|
Non-cash interest expense |
|
|
|
|
|
|
||
Loss on debt extinguishment, net |
|
|
|
|
|
- |
|
|
Loss on sublease |
|
|
- |
|
|
|
|
|
Gain on PPP Loan forgiveness |
|
|
( |
) |
|
|
- |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
Costs capitalized to obtain revenue contracts, net |
|
|
( |
) |
|
|
( |
) |
Other non-current assets |
|
|
( |
) |
|
|
- |
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Customer deposits |
|
|
( |
) |
|
|
( |
) |
Other current liabilities |
|
|
( |
) |
|
|
|
|
Deferred rent |
|
|
- |
|
|
|
|
|
Contingent liabilities from acquisitions, net of current portion |
|
|
( |
) |
|
|
- |
|
Lease liabilities |
|
|
( |
) |
|
|
- |
|
Sublease loss liability, net of current portion |
|
|
- |
|
|
|
( |
) |
Lease incentive liability, net of current portion |
|
|
- |
|
|
|
( |
) |
Other non-current liabilities |
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Investing Activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Cash paid for business acquisitions, net of cash acquired |
|
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Financing Activities: |
|
|
|
|
|
|
||
Proceeds from Business Combination |
|
|
|
|
|
- |
|
|
Issuance costs of common stock |
|
|
( |
) |
|
|
- |
|
Proceeds from long-term debt, net of issuance costs |
|
|
|
|
|
|
||
Principal payments of long-term debt |
|
|
( |
) |
|
|
- |
|
Proceeds from exercise of public warrants |
|
|
|
|
|
- |
|
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Repurchase of common stock |
|
|
( |
) |
|
|
- |
|
Net proceeds from issuance of preferred stock |
|
|
- |
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Effects of exchange rates on cash |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Net change in cash, cash equivalents, and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental Noncash Investing and Financing Activities: |
|
|
|
|
|
|
||
Issuance of Class A common stock upon redemption of preferred stock |
|
$ |
|
|
$ |
- |
|
|
Issuance of Class A common stock and Class B common stock in connection with Business Combination |
|
$ |
|
|
$ |
- |
|
|
Acquisition of warrant liabilities |
|
$ |
|
|
$ |
- |
|
|
Accretion of redemption value of preferred stock |
|
$ |
|
|
$ |
|
||
Issuance of common stock in connection with business acquisitions |
|
$ |
|
|
$ |
|
||
Warrants issued in conjunction with long-term debt issuance |
|
$ |
|
|
$ |
|
||
Issuance of Class A common stock upon exercise of public warrants |
|
$ |
|
|
$ |
- |
|
|
Fees payable to debt holders settled through increase of debt principal |
|
$ |
|
|
$ |
- |
|
|
Fair value of seller notes issued in connection with business combinations |
|
$ |
- |
|
|
$ |
|
|
Beneficial conversion feature in conjunction with long-term debt issuance, net of taxes |
|
$ |
- |
|
|
$ |
|
|
PIK interest settled through issuance of additional convertible notes to noteholders |
|
$ |
- |
|
|
$ |
|
|
Issuance of preferred stock in conjunction with debt modification |
|
$ |
- |
|
|
$ |
|
|
Property and equipment purchases included in accounts payable |
|
$ |
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
||
Supplemental Cash Flow Activities: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for taxes |
|
$ |
|
|
$ |
|
See accompanying notes to unaudited condensed consolidated financial statements.
8
FISCALNOTE HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except shares, par value, per share amounts, or as otherwise noted)
(Unaudited)
1. Summary of Business and Significant Accounting Policies
Description of Business
FiscalNote Holdings, Inc. (“FiscalNote,” or the “Company”) is a technology and data company delivering critical legal data and insights in a rapidly evolving economic, political and regulatory world. By combining artificial intelligence (“AI”), machine learning and other technologies with analytics, workflow tools, and expert research, FiscalNote seeks to reinvent the way that organizations minimize risks and capitalize on opportunities associated with rapidly changing legal and policy environments. Through a number of its products, FiscalNote ingests unstructured legislative and regulatory data, and employs AI and data science to deliver structured, relevant and actionable information that facilitates key operational and strategic decisions by global enterprises, midsized and smaller businesses, government institutions, trade groups, and nonprofits. FiscalNote delivers that intelligence through its suite of public policy and issues management products, coupled with expert research and analysis of markets and geopolitical events, as well as powerful tools to manage workflows, advocacy campaigns, and constituent relationships. The Company is headquartered in Washington, D.C.
On July 29, 2022 (the “Closing Date”), the Company consummated the transactions contemplated by the Agreement and Plan of Business Combination, dated November 7, 2021, as amended on May 9, 2022, (the “Merger Agreement”), by and among FiscalNote Holdings, Inc., a Delaware corporation (“Old FiscalNote”), Duddell Street Acquisition Corp., a Cayman Islands exempted company (“DSAC”), and Grassroots Merger Sub, Inc., a Delaware Corporation and a wholly owned direct subsidiary of DSAC (“Merger Sub” and, together with DSAC, the “DSAC Parties”). Pursuant to these transactions, Merger Sub merged with and into Old FiscalNote, with Old FiscalNote becoming a wholly owned subsidiary of DSAC (the “Business Combination” and, collectively with the other transactions described in the Business Combination Agreement, the “Transactions”). In connection with the closing of the Transactions (the “Closing”), DSAC domesticated and continued as a Delaware corporation under the name of “FiscalNote Holdings, Inc.” (“New FiscalNote”). Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “FiscalNote,” “we,” “us,” or “our” refer to the business of Old FiscalNote, which became the business of New FiscalNote and its subsidiaries following the Closing.
Basis of Presentation and Interim Financial Information
We accounted for the Business Combination as a reverse recapitalization whereby Old FiscalNote was determined as the accounting acquirer and DSAC as the accounting acquiree. This determination was primarily based on:
Accordingly, the Business Combination was treated as the equivalent of Old FiscalNote issuing stock for the net assets of DSAC, accompanied by a recapitalization. The net assets of DSAC are stated at historical cost, with
While DSAC was the legal acquirer in the Business Combination, because Old FiscalNote was determined as the accounting acquirer, the historical financial statements of Old FiscalNote became the historical financial statements of the combined company, upon the consummation of the Business Combination. As a result, the financial statements included in the accompanying unaudited interim condensed consolidated financial statements reflect (i) the historical operating results of Old FiscalNote prior to the Business Combination; (ii) the combined results of the Company and Old FiscalNote following the closing of the Business Combination; (iii) the assets and liabilities of Old FiscalNote at their historical cost; and (iv) the Company’s equity structure for all periods presented.
In connection with the Business Combination, the Company has converted the equity structure for the periods prior to the Business Combination to reflect the number of shares of New FiscalNote’s common stock issued to Old FiscalNote’s stockholders in connection with the recapitalization transaction. As such, the shares, corresponding capital amounts and earnings per share, as applicable, related to Old FiscalNote’s, convertible preferred stock, and common stock prior to the Business Combination have been retroactively converted as shares by applying the exchange ratio established in the Business Combination.
The accompanying condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, the condensed consolidated statements of operations and comprehensive loss, the condensed consolidated statements of temporary equity and stockholders' equity (deficit) for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 are unaudited.
These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the financial information and footnotes
9 | P a g e
required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s balance sheets as of September 30, 2022 and December 31, 2021, and its results of operations, including its comprehensive loss, temporary equity, stockholders' equity (deficit) for the three and nine months ended September 30, 2022 and 2021, and its cash flows for the nine months ended September 30, 2022 and 2021. All adjustments are of a normal recurring nature. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2022. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021.
Liquidity
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand, to meet its obligations as they become due.
The Company received approximately $
The Company's future capital requirements also depend on many factors, including sales volume, the timing and extent of spending to support research and development (“R&D”) efforts, investments in information technology systems, the expansion of sales and marketing activities, and execution on our acquisition strategy. Historically the Company’s cash flows from operations have not been sufficient to fund its current operating model. The Company believes with the cash on hand at September 30, 2022, and available borrowings under the New Senior Term Loan, it has sufficient liquidity to fund operations, capital expenditures, and certain capital acquisition activity for at least the next twelve months.
The Company's ability to fund its cash interest requirements under the New Senior Term Loan, acquisition strategy, operating expenses, and capital expenditure requirements will depend in part on general economic, financial, competitive, legislative, regulatory and other conditions that may be beyond the Company's control. Depending on these and other market conditions, the Company may seek additional financing. Volatility in the credit markets may have an adverse effect on the Company's ability to obtain debt financing as interest rates continue to increase. If the Company raises additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of the Company's common stock, or may require the Company to agree to unfavorable terms, and the Company's existing stockholders may experience significant dilution.
On April 13, 2020, the Company received funding in the principal amount of $
Under the CARES Act, employers were allowed to defer the deposit and payment of the employer’s share of the Social Security Tax that would otherwise be due on or after March 27, 2020, and before January 1, 2021. Starting in April 2020, on a monthly basis, the Company deferred paying the employer’s share of the Social Security Tax for a total amount of $
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions in the Company’s condensed consolidated financial statements and notes thereto. Significant estimates and assumptions made by management include the determination of:
10
Actual results could differ materially from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, which forms the basis for making judgments about the carrying values of assets and liabilities.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances have been eliminated in consolidation.
Segments
The Company operates as
Concentrations of Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company generally maintains its cash and cash equivalents with various nationally recognized financial institutions. The Company’s cash and cash equivalents at times exceed amounts guaranteed by the Federal Deposit Insurance Corporation.
The Company does not require collateral for accounts receivable. The Company maintains an allowance for its doubtful accounts receivable due to estimated credit losses. This allowance is based upon historical loss patterns, the number of days billings are past due, an evaluation of the potential risk of loss associated with delinquent accounts and current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss patterns. The Company records the allowance against bad debt expense through the condensed consolidated statements of operations, included in sales and marketing expense, up to the amount of revenues recognized to date. Any incremental allowance is recorded as an offset to deferred revenue on the condensed consolidated balance sheets. Receivables are written off and charged against the recorded allowance when the Company has exhausted collection efforts without success.
No single customer accounted for more than
Two vendors individually accounted for more than
Revenue Recognition
The Company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised goods or services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. The Company has elected to exclude sales and similar taxes from the transaction price.
The Company determines the amount of revenue to be recognized through the application of the following steps:
The Company derives its revenues from subscription revenue arrangements and advisory, advertising, and other revenues.
Subscription Revenue
Subscription revenue consists of revenue earned from subscription-based arrangements that provide customers the right to use the Company’s software and products in a cloud-based infrastructure. Subscription revenue is driven primarily by the number of active licenses,
11
the types of products and the price of the subscriptions. The Company also earns subscription-based revenue by licensing to customers its digital content, including transcripts, news and analysis, images, video, and podcast data. Subscription revenue is generally non-refundable regardless of the actual use and is recognized ratably over the non-cancellable contract term beginning on the commencement date of each contract, which is the date the Company’s service is first made available to customers.
The Company's contracts with customers may include promises to transfer multiple services. For these contracts, the Company accounts for individual promises separately if they are distinct performance obligations. Determining whether services are considered distinct performance obligations may require significant judgment. Judgment is also required to determine the standalone selling price (“SSP”) for each distinct performance obligation. In instances where SSP is not directly observable, such as when the Company does not sell the services separately, the Company determines the SSP using available information, including market conditions and other observable inputs.
The Company typically invoices its customers annually. Typical payment terms provide that customers pay within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue, depending on whether transfer of control to customers has occurred.
Deferred revenue results from amounts billed to or cash received from customers in advance of the revenue being recognized.
Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Contract assets are generated when contractual billing schedules differ from the timing of revenue recognition or cash collection and are included in other current assets in the accompanying condensed consolidated balance sheets.
Advisory, Advertising, and Other Revenues
Advisory revenue is typically earned under contracts for specific deliverables and is non-recurring in nature, although the Company may sell different advisory services to repeat customers. One-time advisory revenue is invoiced according to the terms of the contract, usually delivered to the customer over a short period of time, during which revenue is recognized.
Advertising revenue is primarily generated by delivering advertising in its own publications (Roll Call and CQ) in both print and digital formats. Revenue for print advertising is recognized upon publication of the advertisement. Revenue for digital advertising is recognized over the period of the advertisement or, if the contract contains impression guarantees, based on delivered impressions.
Book revenue is recognized when the product is shipped to the customer, which is when control of the product is transferred to the customer. Shipping and handling costs are treated as a fulfillment activity and are expensed as incurred.
Costs Capitalized to Obtain Revenue Contracts
The Company capitalizes incremental costs of obtaining a contract. Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions incurred for obtaining new contracts are deferred and then amortized as selling and marketing expenses on a straight-line basis over a period of benefit that the Company has determined to be approximately
Cost of Revenues
Cost of revenues primarily consists of expenses related to hosting the Company’s service, the costs of data center capacity, amortization of developed technology and capitalized software development costs, certain fees paid to various third parties for the use of their technology, services, or data, costs of compensation, including bonuses, stock compensation, benefits and other expenses for employees associated with providing professional services and other direct costs of production. Also included in cost of revenues are costs related to develop, publish, print, and deliver publications.
Cash, Cash Equivalents, and Restricted Cash
The Company considers cash on deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.
In 2017, as an incentive for entering into a lease and building out the Company’s head office in Washington, D.C., the District granted to the Company $
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over the assets’ estimated useful lives, which generally are
12
and equipment are evaluated for impairment in accordance with management’s policy for finite-lived intangible assets and other long-lived assets (see Note 6).
Depreciation expense was $
Capitalized Software Development Costs
The Company capitalizes costs to develop software for internal use, including website development costs, when it is determined the development efforts will result in new or additional functionality or new products. Costs incurred prior to meeting these criteria and costs associated with implementation activities and ongoing maintenance are expensed as incurred and included in operating expenses in the accompanying condensed consolidated statements of operations and comprehensive loss. Costs capitalized as internal use software are amortized on a straight-line basis over an estimated useful life that the Company has determined to be
Business Combinations
The Company must estimate the fair value of assets acquired and liabilities assumed in a business combination at the acquisition date. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair values of the tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the condensed consolidated statement of operations and comprehensive loss.
Acquisition-Related Intangibles and Other Long-Lived Assets
The Company recognizes acquisition-related intangible assets, such as customer relationships and developed technology, in connection with business combinations. The Company amortizes the cost of acquisition-related intangible assets that have finite useful lives generally on a straight-line basis. The Company evaluates acquisition-related intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups are measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group. This includes assumptions about future prospects for the business that the asset group relates to and typically involves computations of the estimated future cash flows to be generated by these businesses. Based on these judgments and assumptions, the Company determines whether the Company needs to take an impairment charge to reduce the value of the asset group stated on the Company’s condensed consolidated balance sheets to reflect its estimated fair value. When the Company considers such assets to be impaired, the amount of impairment the Company recognizes is measured by the amount by which the carrying amount of the asset group exceeds its fair value.
Goodwill Impairment
Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For purposes of assessing potential impairment, the Company estimates the fair value of its reporting units based on the price a market participant would be willing to pay in a potential sale of the reporting unit, and compares this amount to the carrying value of the reporting unit. If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. The annual goodwill impairment test is performed on October 1st. There were
Leases
The Company determines if an arrangement is a lease or contains a lease at the inception of the contract. The Company’s leases include certain variable lease payments associated with non-lease components, such as common area maintenance costs and real estate taxes, which are generally charged based on actual amounts incurred by the lessor. The non-lease components are combined with the lease component to account for both as a single lease component.
Lease liabilities, which represent the Company's obligation to make lease payments arising from the lease, and corresponding right-of-use assets, which represent the Company's right to use an underlying asset for the lease term, are recognized at the commencement date of the lease based on the present value of fixed future payments over the lease term. The Company calculates the present value of future payments using a discount rate equal to the Company’s incremental borrowing rate. For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term and lease expense relating to variable payments is expensed as incurred. The Company did
The Company subleases certain leased office spaces to third parties and recognizes sublease income on a straight-line basis over the sublease term as an offset to lease expense as part of the general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.
13
Warrant Liabilities
The Company evaluates its financial instruments, including its outstanding warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company has outstanding public and private warrants, both of which do not meet the criteria for equity classification and are accounted for as liabilities. Accordingly, the Company recognizes the warrants as liabilities at fair value and adjusts the warrants to fair value at each reporting period. The warrant liabilities are subject to re-measurement at each balance sheets date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations and comprehensive loss.
The fair value of the public warrants is estimated based on the quoted market price of such warrants. The fair value of the private warrants is estimated using a binomial option pricing model.
Stock-Based Compensation
Stock-based compensation awards consist of stock options and restricted stock units (collectively “stock-based awards”). The Company has historically issued stock options with exercise prices equal to the fair value of the underlying stock price. Prior to the completion of the Business Combination and listing of the Company’s Class A common stock on the public stock exchange, the fair value of Old FiscalNote common stock underlying the stock options was determined based on then-current valuation estimates at the time of grant. Because such grants occurred prior to the public trading of the Company’s Class A common stock, the fair value of Old FiscalNote common stock was typically determined with assistance of periodic valuation analyses from an independent third-party valuation firm.
The Company calculates the fair value of stock options using the Black-Scholes option-pricing model. For share-based awards with performance conditions, the Company periodically assesses whether the performance conditions have been met or are probable of being met in order to determine the timing and amount of compensation expense to be recognized for each reporting period. Compensation expense for all option awards is recorded on a straight-line basis over the requisite service period of the awards, which is generally the option’s vesting period. These amounts are reduced by the forfeitures as the forfeitures occur.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the condensed consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the condensed consolidated statements of operations and comprehensive loss in the period that includes the enactment date.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. The Company regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company’s judgments regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.
The Company’s tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, solely based on its technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income tax provision.
Foreign Currency Translation
The functional currency of the Company’s major foreign subsidiaries is generally the local currency. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component on the condensed consolidated statements of operations and comprehensive loss. Foreign currency transaction gains and losses are included in other expense, net in the condensed consolidated statements of operations and comprehensive loss for the period and historically have not been material.
Currency gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are included in accumulated other comprehensive loss.
Related Party Transactions
From time to time the Company has entered into related party transactions with certain of the Company's directors and officers. These transactions have historically included term loans, convertible debt, and convertible preferred stock.
Fair Value Measurements
14
The Company accounts for assets and liabilities in accordance with accounting standards that define fair value and establish a consistent framework for measuring fair value on either a recurring or a nonrecurring basis. Fair value is an exit price representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
Accounting standards include disclosure requirements relating to the fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Assets or liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
Recent Accounting Pronouncements Not Yet Effective
In June 2016, the FASB issued ASU 2016-13 Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments guidance with respect to measuring credit losses on financial instruments, including trade receivables. The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity's current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance will be effective for the Company’s year beginning January 1, 2023. The Company is currently evaluating the impact on the condensed consolidated financial statements upon adoption.
In August 2020, the FASB issued ASU 2020-06 Debt – Debt with Conversion and Other Options (ASC 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (ASC 815-40) guidance modifying the requirements for the accounting for convertible instruments and contracts in an entity’s own equity. The modifications eliminate certain accounting models for convertible debt instruments, eliminate certain requirements for equity classification of embedded derivatives and align earnings per share calculations for convertible instruments. The guidance is effective for the Company’s year beginning January 1, 2024. The Company is currently evaluating the impact on the condensed consolidated financial statements upon adoption.
The Company has evaluated all other issued and unadopted Accounting Standards Updates and believes the adoption of these standards will not have a material impact on its condensed consolidated statements of operations and comprehensive loss, balance sheets, or cash flows.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02 Leases (ASC 842) guidance for the accounting for leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheets for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company adopted ASU 2016-02 on January 1, 2022 using the effective date method. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, the Company's reporting for periods prior to January 1, 2022 continues to be in accordance with Leases (ASC 840). The Company elected the package of practical expedients which permits carrying forward historical accounting positions around lease identification, lease classification and initial direct costs for all leases commencing prior to January 1, 2022. The Company also made a policy election to not separate lease and non-lease components for all of its leases and to exclude leases with a term of 12 months or less at the commencement date from the lease asset and lease liability recognition and measurement requirements under ASC 842. Adoption of the standard on January 1, 2022 resulted in the recording of $
In December 2019, the FASB issued ASU 2019-12 Simplifying the Accounting for Income Taxes guidance modifying the requirements for the accounting for income taxes. The simplifications include changes in the accounting for (i) intra-period tax allocations, (ii) outside basis differences in business combinations, (iii) interim provisions, (iv) step-up in tax basis goodwill and (v) franchise and other taxes partially based on income, among other changes. The Company adopted ASC 2019-12 on January 1, 2022. The adoption of this new guidance did not have a material impact on the Company's condensed consolidated financial statements.
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In October 2021, the FASB issued ASU 2021-08 Business Combinations (ASC 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers guidance requiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with ASC 606, at fair value on the acquisition date. Under the new guidance the acquirer will recognize contract assets and contract liabilities at the same amounts recorded by the acquiree. The modifications improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The Company adopted ASC 2021-08 on January 1, 2022. The adoption of this new guidance did not have a material impact on the Company's condensed consolidated financial statements.
2. Business Combination with DSAC
On July 29, 2022, Old FiscalNote and DSAC consummated the transactions contemplated by the Business Combination Agreement. In connection with the Closing, each share of preferred stock of Old FiscalNote was converted into common stock and, immediately thereafter, each share of common stock of Old FiscalNote that was issued and outstanding immediately prior to the effective time of the Business Combination (other than excluded shares as contemplated by the Business Combination Agreement) was canceled and converted into the right to receive approximately
At the Closing, each option to purchase Old FiscalNote’s common stock, whether vested or unvested, was assumed and converted into an option to purchase a number of shares of New FiscalNote Class A common stock in the manner set forth in the Business Combination Agreement. Each restricted stock unit of Old FiscalNote was assumed and converted into restricted stock units of New FiscalNote settling in a number of New FiscalNote Class A common stock in the manner set forth in the Business Combination Agreement.
Pursuant to the terms of the Business Combination Agreement, the holders of Old FiscalNote equity instruments outstanding immediately prior to the Closing Date will be entitled to receive their proportionate allocation of additional shares subject to achievement of certain conditions (see Note 10).
In connection with the Closing, FiscalNote also entered into the $
The Company accounted for the Business Combination as a reverse recapitalization whereby Old FiscalNote was determined as the accounting acquirer and DSAC as the accounting acquiree. Refer to Note 1, Summary of Business and Significant Accounting Policies, for further details. Accordingly, the Business Combination was treated as the equivalent of Old FiscalNote issuing stock for the net assets of DSAC, accompanied by a recapitalization. The net assets of DSAC are stated at historical cost, with no goodwill or other intangible assets recorded.
Upon the closing of the Transactions and the New Senior Term Loan, the Company received total gross proceeds of $
16
3. Revenues
Disaggregation of Revenue
The following table depicts the Company's disaggregated revenue for the periods presented:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
|
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2022 |
|
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2021 |
|
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Subscription |
|
$ |
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|
$ |
|
|
$ |
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$ |
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Advisory |
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|
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Advertising |
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Books |
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Other revenue |
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|
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||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Revenue by Geographic Locations
The following table depicts the Company’s revenue by geographic operations for the periods presented:
|
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Three Months Ended September 30, |
|
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Nine Months Ended September 30, |
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2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
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|
|
|
|
|
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Australia |
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Asia |
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Total |
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$ |
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|
$ |
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|
$ |
|
|
$ |
|
Revenues by geography are determined based on the region of the Company's contracting entity, which may be different than the region of the customer. North America revenue consists solely of revenue attributed to the United States. For the three months ended September 30, 2022 and 2021, revenue attributed to the United Kingdom represented approximately
Contract Assets
The Company had contract assets of $
Deferred Revenue
Details of the Company’s deferred revenue for the periods presented are as follows:
Balance at December 31, 2020 |
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$ |
|
|
Acquired deferred revenue |
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|
|
|
Revenue recognized in the current period from amounts in the prior balance |
|
|
( |
) |
New deferrals, net of amounts recognized in the current period |
|
|
|
|
Effects of foreign currency |
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|
( |
) |
Balance at September 30, 2021 |
|
$ |
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
$ |
|
|
Acquired deferred revenue |
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|
|
|
Revenue recognized in the current period from amounts in the prior balance |
|
|
( |
) |
New deferrals, net of amounts recognized in the current period |
|
|
|
|
Effects of foreign currency |
|
|
( |
) |
Balance at September 30, 2022 |
|
$ |
|
Costs to Obtain
During the nine months ended September 30, 2022 and 2021, the Company capitalized $
Unsatisfied Performance Obligations
At September 30, 2022, the Company had $
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4. Business Combinations
2022 Acquisitions
Aicel Acquisition
On July 29, 2022, the Company acquired all of the outstanding stock of Seoul, South Korea-based Aicel Technologies (“Aicel”), an AI-driven enterprise SaaS company that delivers market intelligence and data insights. The acquisition consideration of $
Fair value of Class A common stock |
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$ |
|
|
Fair value of contingent consideration |
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Total |
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$ |
|
The fair value of the Class A common stock issued was estimated based on the fair value of the Company’s common stock on the date of the acquisition. The fair value of the contingent consideration is estimated based on the expected future cash flows and revenues along with the fair value of the Company’s Class A common stock on the date of acquisition.
The contingent consideration consists of shares of the Company’s Class A common stock and is scheduled to be delivered within eighteen months upon achievement of certain revenue targets pursuant to the terms of the prevailing purchase agreement. The contingent consideration is payable to certain selling shareholders and contains no future service conditions. The fair value of the contingent consideration was recorded as equity as the number of shares that ultimately may be issued upon achievement of the revenue targets is fixed. Classification as equity requires fair value measurement initially and there are no subsequent re-measurements. Settlement of equity-classified contingent consideration is accounted for within equity.
The acquisition also includes contingent payments in the form of up to $
The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of acquisition:
Cash and cash equivalents |
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$ |
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|
Current assets, net |
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Property and equipment, net |
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Equity method investment |
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Intangible assets |
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Deferred revenues |
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|
( |
) |
Other current liabilities |
|
|
( |
) |
Debt |
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|
( |
) |
Total net assets acquired |
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Goodwill |
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Total purchase price |
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$ |
|
The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill, which is primarily attributed to the future economic benefits arising from other assets acquired and could not be individually identified and separately recognized including expected synergies and assembled workforce. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and are preliminary and may change upon completion of the determination of the fair value of assets and liabilities assumed. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.
The following table sets for the components of identified intangible assets acquired and their estimated useful lives as of the date of acquisition:
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Estimated Fair Value |
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Estimated Useful Life (Years) |
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Developed technology |
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$ |
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Database |
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Customer relationships |
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Tradename |
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Total intangible assets acquired |
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$ |
|
|
|
|
18
The estimated fair values of the developed technology, database, customer relationships, and tradename were determined using the income approach. The approaches used to estimate the fair values use significant unobservable inputs including revenue and cash flow forecasts, customer attrition rates, and appropriate discount rates.
For federal income tax purposes, the Company plans to make a Section 338(g) election which would treat the transaction as an asset acquisition for federal income tax purposes which results in additional tax basis approximately equal to the fair value assigned at the acquisition date. The intangibles and goodwill are to be amortized over
DT-Global Asset acquisition
On September 30, 2022, the Company acquired certain assets of DT-Global Business Consulting, a Vienna, Austria subscription-based market intelligence company which provides in-depth expertise and analysis for Central & Eastern Europe, Commonwealth of Independent States, and Middle East-Africa areas. The aggregate purchase price was $
The Company accounted for this acquisition as an asset purchase. In connection with the acquisition, the Company incurred direct transaction costs of approximately $
For federal income tax purposes, the Company will obtain tax basis in the assets acquired equal to the purchase price, as adjusted and allocated, pursuant to IRC guidelines. The resulting intangible asset will be amortized over
2021 Acquisitions
During the year ended December 31, 2021 the Company acquired (a) The Oxford Analytica International Group Incorporated (“Oxford Analytica”), (b) Fireside 21, LLC (“Fireside”); (c) TimeBase Pty. Ltd. (“Timebase”); (d) Board.org, LLC (“Board.org”); (e) Equilibrium World Pte. Ltd. (“Equilibrium”); (f) Predata, Inc. (“Predata”), (g) Curate Solutions, Inc. (“Curate”), (h) Forge.ai, Inc. (“Forge”), and (i) FrontierView Strategy Group ("FrontierView") (collectively the “2021 Acquisitions”). In connection with the 2021 Acquisitions, the Company incurred $
The following table summarizes the Company’s acquisitions by region for the periods presented:
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2021 |
North America |
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Europe |
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|
Australia |
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|
Asia |
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Purchase Consideration for the 2021 Acquisitions
The fair value of the common stock issued was estimated based on the fair value of the Company’s common stock on the date of each acquisition. The fair value of the contingent consideration is estimated based on the expected future cash flows and revenues along with the fair value of the Company’s common stock on the date of acquisition.
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Oxford Analytica |
|
|
Fireside |
|
|
Timebase |
|
|
Board.org |
|
|
Equilibrium |
|
|
Predata |
|
|
Curate |
|
|
Forge |
|
|
FrontierView |
|
|
Total |
|
||||||||||
Acquisition date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Fair value of common stock (a) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||||
Fair value of seller notes |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Fair value of contingent consideration (b) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Fair value of contributed interests (c) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
19
Purchase Price Allocation for the 2021 Acquisitions
The excess of purchase consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill, which is primarily attributed to the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized including expected synergies and assembled workforce, for which there is generally no basis for income tax purposes.
|
|
Oxford Analytica |
|
|
Fireside (a) |
|
|
Timebase |
|
|
Board.org (a) |
|
|
Equilibrium |
|
|
Predata |
|
|
Curate |
|
|
Forge (b) |
|
|
FrontierView (a) |
|
|
Total |
|
||||||||||
Cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||||||
Other assets |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other liabilities |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Deferred tax liability |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Total net assets acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total purchase price |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Intangible assets from the 2021 Acquisitions
The estimated fair values of developed technology, customer relationships, databases, tradenames, and content library were determined using the income approach. The estimated fair value of the expert network was determined using a “with and without” analysis comparing expected revenues and cash flows with the expert network in place and those that would be expected if the expert network were not in place. The approach used to estimate the fair values use significant unobservable inputs including revenue and cash flow forecasts, customer attrition rates and appropriate discount rates.
|
|
Oxford Analytica |
|
|
Fireside |
|
|
Timebase |
|
|
Board.org |
|
|
Equilibrium |
|
|
Predata |
|
|
Curate |
|
|
Forge |
|
|
FrontierView |
|
|
Total Estimated Fair Value |
|
|
Estimated |
||||||||||
Developed technology |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Databases |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|||
Tradenames |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|||||||
Expert network |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|||
Content library |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|||
Total intangible assets acquired |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
Contingent Consideration for the 2021 Acquisitions
The contingent consideration consists of the Company’s common stock and restricted stock units and is generally scheduled to be delivered within to
|
|
Predata |
|
|
Curate |
|
|
Forge |
|
|
Total |
|
||||
Fair value of contingent consideration on the respective acquisition dates |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Changes to the fair value of contingent consideration |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Fair value of contingent consideration as of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Changes to the fair value of contingent consideration during the nine months ended September 30, 2022 |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Earned contingent consideration settled during the nine months ended September 30, 2022 |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Unearned contingent consideration reversal during the nine months ended September 30, 2022 |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Fair value of contingent consideration as of September 30, 2022 |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
20
Contingent Compensation for the 2021 Acquisitions
Certain of the 2021 Acquisitions also included contingent compensation in the form of cash and/or the Company’s common stock. The contingent compensation is generally scheduled to be delivered in to
|
|
Equilibrium (a) |
|
|
Predata |
|
|
Forge (b) |
|
|
FrontierView (c) |
|
|
Total |
|
|||||
Contingent compensation recognized during 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Contingent compensation settled in 2021 |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Contingent compensation liability as of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Contingent compensation recognized during nine months ended September 30, 2022 |
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|||
Contingent compensation settled during the nine months ended September 30, 2022 |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Unearned contingent compensation reversal during the nine months ended September 30, 2022 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Contingent compensation liability as of September 30, 2022 |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information presented below summarizes the combined results of operations for the Company and the 2021 Acquisitions as though the companies were combined as of January 1, 2021.
The unaudited pro forma financial information for all periods presented includes, among other items, amortization charges from acquired intangible assets, retention and other compensation accounted for separately from purchase accounting, interest expense (including amortization of various discounts) on acquisition debt issued to the various sellers, the impacts of common stock issued to the various sellers, and the related tax effects, but excludes the impacts of any expected operational synergies. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the 2021 Acquisitions been acquired on January 1, 2021.
The unaudited pro forma financial information for the three and nine months ended September 30, 2021 combine the historical results of the Company with the historical results of the 2021 Acquisitions for the period prior to the acquisition dates, and the effects of the pro forma adjustments discussed above.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
September 30, 2021 |
|
|||||
Revenues: |
|
|
|
|
|
|
||
Subscription |
|
$ |
|
|
$ |
|
||
Advisory, advertising, and other |
|
|
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Subscription revenue from the 2021 Acquisitions (excluding the deferred revenue haircut) recognized by the Company during the three and nine months ended September 30, 2021 totaled $
5. Leases
The Company has operating leases, principally for corporate offices under non-cancelable operating leases. The non-cancellable base terms of these leases typically range from to
21
lease. The period which is subject to an option to extend or terminate the lease is included in the lease term if it is reasonably certain that the option will be exercised.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
September 30, 2022 |
|
|||||
Operating lease cost (a) |
|
$ |
|
|
$ |
|
||
Variable lease cost |
|
|
|
|
|
|
||
Short-term lease cost |
|
|
|
|
|
|
||
Total lease costs |
|
$ |
|
|
$ |
|
||
Sublease income |
|
$ |
( |
) |
|
$ |
( |
) |
The following tables present the future minimum lease payments and additional information about the Company's lease obligations as of September 30, 2022:
2022 (remaining) |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
|
|
|
Less: Amounts representing interest |
|
|
|
|
Net minimum lease payments |
|
$ |
|
|
|
September 30, 2022 |
|
|
Weighted average remaining lease term (in years) |
|
|
|
|
Weighted average discount rate |
|
|
% |
The following table presents supplemental cash flow information for the period presented:
|
|
Nine Months Ended |
|
|
|
|
September 30, 2022 |
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash outflows for operating leases |
|
$ |
|
|
Supplemental noncash information on lease liabilities arising from obtaining operating lease assets: |
|
|
|
|
Operating lease assets obtained in exchange for lease obligations |
|
$ |
|
In March 2022, the Company ceased use of excess office space under one of its existing leases, with the intent to sublease this space. In accordance with ASC 360, the Company evaluated the asset group for impairment, which included the associated operating lease asset for the office space, as the change in circumstances indicated the carrying amount of the asset group may not be recoverable. The Company compared the expected future undiscounted cash flows for the office space to the carrying amount and determined that it was impaired. The Company recognized the excess of the carrying value over the fair value of the asset group, which totaled $
In April 2021, the Company entered into a modification of one of its existing subleases. The sublease modification was to confirm exercise of the renewal period but at a reduced rate. As a result of the sublease modification the Company remeasured its existing sublease loss liability to reflect the impact of the modification of the anticipated cash flows. Subsequently, the Company exercised its termination notification right on this lease which resulted in a termination fee payment of $
In November 2021, the Company acquired an office space lease as part of the acquisition of FrontierView. At December 31, 2021 the office space was unoccupied by any Company personnel and the Company intended to sublease the office space. Based on the terms of the existing lease along with an estimate of future cash flows from a proposed sublease, the Company recorded a lease loss liability of $
In 2017, as an incentive for entering into a lease and building out the Company’s head office in the District of Columbia, the District authorized a grant to the Company in the amount of $
22
6. Intangible Assets
The following table summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets by major class:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
Weighted Average |
|
|||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Remaining Useful Life (Years) September 30, 2022 |
|
|||||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||||
Developed technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Databases |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Tradenames |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Expert network |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Patents |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Content library |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Amortization of developed technology was recorded as part of cost of revenues in the amount of $
The expected future amortization expense for intangible assets as of September 30, 2022 is as follows:
2022 (remainder) |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
Capitalized software development costs
Capitalized software development costs are as follows.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
||||||
Capitalized software development costs |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
During the nine months ended September 30, 2022 and 2021, the Company capitalized interest on capitalized software development costs in the amount of $
7. Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill amounts are not amortized, but are rather tested for impairment at least annually during the fourth quarter.
The changes in the carrying amounts of goodwill, which is generally not deductible for tax purposes, is as follows:
Balance at December 31, 2021 |
|
$ |
|
|
Aicel acquisition |
|
|
|
|
Impact of foreign currency fluctuations |
|
|
( |
) |
Balance at September 30, 2022 |
|
$ |
|
23
8. Debt
The following presents the carrying value of the Company’s debt as of the respective period ends (in thousands):
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
New Senior Term Loan |
|
$ |
|
|
$ |
- |
|
|
Convertible notes |
|
|
|
|
|
|
||
Aicel Convertible Note |
|
|
|
|
|
- |
|
|
PPP loan |
|
|
|
|
|
|
||
First out term loan |
|
|
- |
|
|
|
|
|
Last out term loan |
|
|
- |
|
|
|
|
|
Senior Secured Subordinated Promissory Note |
|
|
- |
|
|
|
|
|
8090 FV Subordinated Promissory Note |
|
|
- |
|
|
|
|
|
Convertible notes - related parties |
|
|
- |
|
|
|
|
|
2021 seller convertible notes |
|
|
- |
|
|
|
|
|
2021 seller term loans |
|
|
- |
|
|
|
|
|
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
|
|
|
||
Less: Current portion |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
Concurrently with the Closing, FiscalNote, Inc., a wholly owned indirect subsidiary of FiscalNote Holdings, Inc., entered into a New Senior Term Loan consisting of a fully funded principal amount of $
The Prime Rate was
The Company may prepay the New Senior Term Loan in whole, subject to a
The New Senior Term Loan is senior to all other debt and has a first priority lien on substantially all of the Company’s assets. The New Senior Term Loan contains customary conditions related to borrowing, events of default and covenants, including certain non-financial covenants and covenants limiting the Company’s ability to dispose of assets, undergo a change in control, merge with or acquire stock, and make investments, in each case subject to certain exceptions. There is a financial covenant with respect to the New Senior Term Loan that requires the Company to maintain a minimum cash balance of $
The Company was in compliance with all of its required financial covenants as of September 30, 2022.
In connection with the Company’s acquisition of Aicel, the Company assumed a convertible note (“Aicel Convertible Note”) issued by Aicel in a private placement to a third-party lender dated July 27, 2022. The Aicel Convertible Note was issued in a principal amount of $
The Aicel Convertible Note can be converted upon the occurrence of certain events, including (i) Aicel initial public offering (“IPO”), (ii) change in control of Aicel (the acquisition of Aicel by FiscalNote did not constitute a change in control as defined in the purchase agreement), or (iii) sale of substantially all of Aicel’s assets (collectively, a “Conversion Event”). The Company has the right to convert the
24
Aicel Convertible Note into shares of common stock issued in an IPO, if (a) the Conversion Event is an IPO and (b) the price per share paid in an IPO is greater than the stipulated initial conversion price. The lender has the right to elect to convert the Aicel Convertible Note into shares of common stock upon the occurrence of a Conversion Event.
At any time after the second anniversary of the Aicel acquisition closing date until the earlier of (a) the Aicel Convertible Note maturity date, or (b) the occurrence of any liquidity event, the lender has the right to require FiscalNote to repurchase the outstanding principal in exchange for FiscalNote common stock. The lender will receive a number of shares of FiscalNote equal to the outstanding principal plus accrued interest divided by the FiscalNote common stock price and rounded to the nearest whole share.
Upon the occurrence of an event of default, in addition to the lenders being able to declare amounts outstanding under the Aicel Convertible Note due and payable the lenders can elect to increase the paid-in-kind interest rate to
The Company concluded that the contingent default interest provision was required to be bifurcated and treated as an embedded derivative liability. The associated value was immaterial and required no initial amount to be recorded. The Company determined that the remaining embedded features were clearly and closely related to the debt host and did not require bifurcation from the debt host.
The Aicel Convertible Note was recorded at its acquisition fair value of $
During the year ended December 31, 2021, the Company received gross proceeds of $
The Convertible Notes were classified into four distinct groupings with similar terms. The Convertible Notes had maturities between one and
Certain embedded contingent redemption rights were reflected as derivative liabilities and were accounted for at fair value with changes in fair value reflected in the condensed consolidated statement of operations and comprehensive loss. The discount to the Convertible Notes created by such embedded derivatives was amortized as additional interest expense over the terms of the Convertible Notes.
The issuance costs with respect to the Convertible Notes, which are recorded as a debt discount, were deferred and amortized as additional interest expense over the terms of the Convertible Notes.
The following table details the principal, interest and other amounts associated with the Convertible Notes as described above as of December 31, 2021:
|
|
December 31, 2021 |
|
|||||||||||||||||||||||||||||
|
|
Principal |
|
|
Deferred Financing Fees |
|
|
PIK Interest Accrual |
|
|
Debt Discount |
|
|
Amortization of Deferred Financing Fees |
|
|
Amortization of Deferred Debt Discount |
|
|
Derivative Liabilities |
|
|
Total |
|
||||||||
2019 Notes |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
2020 Notes |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
2021 Notes |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The holder of $
Concurrent with the Closing, certain convertible noteholders elected to convert their holdings of $
25
of the convertible notes. As certain of the convertible notes were treated as redemptions for accounting purposes as the holder converted pursuant to the variable-share conversion option, the Company recognized an aggregate loss of $
The Company incurred total interest expense related to the Convertible Notes, including the amortization of the various discounts, of $
On April 13, 2020, the Company received funding in the principal amount of $
In October 2020, FiscalNote, Inc., CQ Roll Call, VoterVoice, and Sandhill (all wholly-owned subsidiaries of FiscalNote Holdings, Inc. and collectively the “Borrower”), FiscalNote Holdings, Inc. and FiscalNote Holdings II, Inc. (collectively the “Guarantors”), Midcap Financial and Apollo ("Apollo"), Runway Growth Credit Fund Inc. as Agent (“Agent” or “Runway”), Arrowroot Capital IV, L.P. (“Arrowroot”), Corbel Capital Partners SBIC, L.P. (“Corbel”) and CFIC Partners II, LLC (“CFIC”) (collectively the “Old FiscalNote Lenders”) entered into various agreements ultimately providing for the Company to refinance its then existing long-term debt agreement. The transactions are collectively referred to as the “Old FiscalNote Refinancing” and the amended debt as the “Old FiscalNote Senior Term Loan.”
Pursuant to the terms of the New Senior Term Loan and concurrently with the Closing, the Company was required to repay the full outstanding balance of the Old FiscalNote Senior Term Loan of $
The Old FiscalNote Senior Term Loan consisted of the First Out Term Loan and the Last Out Term Loan. Each of these loans had differing terms and conditions as outlined below.
First Out Term Loan
On September 30, 2021, the Company entered into Amendment No. 9 to the Old FiscalNote Senior Term Loan (“Amendment No. 9”). As a result of Amendment No. 9, certain of the Company’s financial covenants were updated to reflect the impact of recent acquisitions, the Company’s recently acquired domestic subsidiaries were joined as subsidiary guarantors of the facility, and certain restrictive covenants were modified in light of the Company’s current operations, among other matters. The Company also increased its principal balance of the Old FiscalNote Senior Term Loan with the First Out Lender by $
On March 25, 2022 the Company entered into Amendment No. 11 to the Old FiscalNote Senior Term Loan (“Amendment No. 11”). As a result of Amendment No. 11, certain of the Company’s financial covenants were updated to reflect the Company's 2022 budget, FrontierView joined as a subsidiary guarantor of the facility, and certain restrictive covenants were modified in light of the Company’s current operations, among other matters. The Company also increased its principal balance of the Old FiscalNote Senior Term Loan by $
The Company was required to pay the First Out Lender monthly cash interest on the First Out Term Loan.
The First Out Term Loan contained a contingent default interest provision and a variable interest credit basis swap that were required to be bifurcated and treated as embedded derivative liabilities. An evaluation of the embedded features led to the conclusion that any associated value was immaterial and required no initial amount to be recorded.
26
A warrant to purchase
The First Out Term Loan had a carrying balance of $
Last Out Term Loans
The Company was required to pay the Last Out Lenders Payment-in-Kind (“PIK”) interest at
The Last Out Term Loans contained a $
The Last Out Term Loan contained a lender default put and contingent default interest that are required to be bifurcated and treated as embedded derivative liabilities. An evaluation of the embedded features led to the conclusion that any associated value was immaterial and required no initial amount to be recorded.
The Last Out Lenders purchased Series F Preferred Stock from Apollo concurrently with the purchase of the outstanding loans as part of the Old FiscalNote Refinancing. The preferred stock was accounted for as temporary equity at its redemption value up until the Closing Date. On the Closing Date, all of the Series F Preferred Stock was converted into Class A Common Stock of New FiscalNote pursuant to the terms of the Business Combination Agreement.
Warrants to purchase a total of
The Last Out Term Loan had a carrying balance of $
The Economist Group (“TEG”) Seller Note & Equity Sale
On December 29, 2020, (the "TEG" Closing Date), TEG, the Company, FN SPV Holdings Pty Ltd (“SPV”) and GPO FN Noteholder LLC (“GPO”) entered into various agreements (the “TEG Transactions”) to effect TEG’s divestiture of its investment in, and amounts due from, the Company.
On the TEG Closing Date, SPV purchased
The Company did not receive any payment as a result of the TEG Transactions. The New GPO Note also amended and restated the Original TEG Seller Note to provide for, among other things, the addition of various conversion options. The New GPO Note continued to bear PIK interest at
The New GPO Note was convertible into common shares upon certain specified circumstances (the “Conversion Shares”).
Promissory Note
The embedded conversion option (“ECO”) in the New GPO Note contained both fixed and variable share settlement conditions. The conditions requiring settlement in fixed shares are evaluated as a conversion feature while those settleable in a variable number of shares are evaluated as a redemption feature.
The New GPO Note contained a BCF initially valued at $
27
The redemption feature was required to be bifurcated as an embedded derivative liability. The redemption feature was initially recorded at its fair value of $
The New GPO Note had a carrying balance of $
Pursuant to the terms of the New GPO Note and concurrent with the Closing, the Company repaid $
Series E Preferred Shares
The SPV purchase of outstanding Series E PS from TEG was a transaction between Company shareholders and as such there was no financial statement adjustment required. There was a contingent arrangement fee which did not require an adjustment to the condensed consolidated financial statements until such time as the occurrence is deemed probable and estimable. In accordance with the terms of the Series E PS, the Company received
On December 29, 2021 the Company entered into a subordinated promissory note for $
The Company concluded that the mandatory repayment upon an event of default and the mandatory buyback events required bifurcation as embedded derivative liabilities (put rights) and was accounted for as a single combined derivative liability recorded at fair value. The embedded derivative liabilities were initially valued at $
The 8090 Note had a carrying balance of $
Pursuant to the terms of the New Senior Term Loan and concurrent with the Closing, the Company was required to repay the full outstanding balance of the 8090 Note of $
The Company recorded interest expense of $
Concurrent with, and in order to finance the acquisition of FrontierView on November 19, 2021, the Company entered into a $
28
conversion as defined within the agreement at $
The FrontierView Convertible Notes contained embedded features including automatic conversion upon a conversion event (both fixed and variable), optional conversion upon a change of control (both fixed and variable), optional redemption feature upon a change of control and redemption features upon an event of default. The conditions requiring settlement in fixed shares are evaluated as conversion features while those settleable in a variable number of shares are evaluated as redemption features.
The Company determined that the embedded conversion options were not clearly and closely related to the debt host. As the Company was a private company and its shares were not tradable, the shares would not be readily convertible to cash. Consequently, the embedded conversion options did not meet the net settlement criteria and thus, they did not meet the definition of a derivative. Upon settlement of the FrontierView Convertible Notes the Company determined there was no contingent beneficial conversion features.
The Company determined that the embedded redemption features were not clearly and closely related to the debt host and were required to be bifurcated from the debt host, and therefore were combined and accounted as a single embedded derivative liability. The Company determined that the fair value of the redemption features approximated
The FrontierView Convertible Notes had a carrying balance of $
Pursuant to the terms of the FrontierView Convertible Note and concurrently with the Closing, in exchange for $
During the three and nine months ended September 30, 2022, the Company recorded $
During the year ended December 31, 2021, the Company issued notes to certain sellers in conjunction with the 2021 Acquisitions (the “2021 Seller Notes”):
Fireside21
On April 30, 2021, the Company issued the Fireside sellers: (i) $
The Fireside Promissory Notes (i) provided for interest at the applicable federal rate (“AFR”) (
The Fireside Convertible Notes (i) provided for interest at the AFR (
Pursuant to the terms of the Fireside Promissory Notes and concurrently with the Closing, the Company was required to repay the full outstanding balance of the Fireside Promissory Notes of $
Pursuant to the terms of the Fireside Convertible Notes and concurrently with the Closing, in exchange for $
The Company incurred total interest expense related to the Fireside Promissory Notes and the Fireside Convertible Notes, of $
29
Timebase
On May 7, 2021, the Company issued the Timebase sellers AUD
The Timebase Convertible Notes (i) provided for PIK interest of
Pursuant to the terms of the Timebase Convertible Notes and concurrently with the Closing, in exchange for $
The Company incurred total interest expense related to the Timebase Convertible Notes of $
Board.org
On June 3, 2021 the Company issued the Board.org sellers $
The Board.org Convertible Notes (i) provided for interest at the AFR (
Pursuant to the terms of the Board.org Convertible Notes and concurrently with the Closing, in exchange for $
The Company incurred total interest expense related to the Board.org Convertible Notes of $
Total Debt
The Company was in compliance with all debt covenants as of September 30, 2022.
The following table summarizes the total estimated fair value of the Company's debt as of September 30, 2022 and December 31, 2021, respectively. These fair values are deemed Level 3 liabilities within the fair value measurement framework.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
New Senior Term Loan |
|
$ |
|
|
$ |
- |
|
|
Convertible notes |
|
|
|
|
|
|
||
Aicel Convertible Note |
|
|
|
|
|
- |
|
|
First out term loan |
|
|
- |
|
|
|
|
|
Last out term loan |
|
|
- |
|
|
|
|
|
Senior secured subordinated promissory note |
|
|
- |
|
|
|
|
|
8090 FV Subordinated Promissory Note |
|
|
- |
|
|
|
|
|
Convertible notes - related parties |
|
|
- |
|
|
|
|
|
2021 seller convertible notes |
|
|
- |
|
|
|
|
|
Total |
|
$ |
|
|
$ |
|
30
9. Stockholders’ Equity
Authorized Capital Stock
The Company’s charter authorizes the issuance of
Class A Common Stock
Subsequent to the Closing of the Business Combination, the Company's Class A common stock and public warrants began trading on the New York Stock Exchange (“NYSE”) under the symbols “NOTE” and “NOTE WS,” respectively. Pursuant to the Company’s charter, the Company is authorized to issue
Prior to the Business Combination, Old FiscalNote had outstanding shares of Series A, Series B, Series C, Series C-1, Series D, Series D-1, Series E, Series F, and Series G convertible preferred stock (collectively, “Old FiscalNote Preferred Stock”). The Preferred Stock was recognized as temporary equity and recorded at its redemption value. Accordingly, for periods prior to the closing of the Transactions, Old FiscalNote recognized changes in its redemption value of its Preferred Stock of $
Upon the Closing of the Business Combination, each share of Old FiscalNote’s Preferred Stock was converted into common stock and, immediately thereafter, each share of common stock that was issued and outstanding immediately prior to the effective time of the Business Combination was cancelled and converted into New FiscalNote Class A common stock with the application of the Exchange Ratio as discussed in Note 2 - Business Combination with DSAC.
Additionally, the Company has outstanding warrants to purchase shares of New FiscalNote Class A common stock that became exercisable upon the Closing of the Business Combination. Refer to Note 11 - Warrant Liabilities.
Class B Common Stock
Pursuant to the Company’s charter, the Company is authorized to issue
In connection with the Closing of the Business Combination, the Co-Founders, or entities controlled by the Co-Founders, received Class B shares of New FiscalNote common stock as consideration (see further details in Note 2).
As of September 30, 2022,
Preferred Stock
Pursuant to the Company’s charter, the Company is authorized to issue
Dividends
The Company's Class A and Class B common stock are entitled to dividends if and when any dividend is declared by the Company's board of directors, subject to the rights of all classes of stock outstanding having priority rights to dividends. The Company has not paid any cash dividends on common stock to date. The Company may retain future earnings, if any, for the further development and expansion of the Company's business and have no current plans to pay cash dividends for the foreseeable future. Any future determination to pay dividends will be made at the discretion of the Company's board of directors and will depend on, among other things, the Company's financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as the Company's board of directors may deem relevant.
10. Earnout Shares and RSUs
The shareholders and other equity holders of Old FiscalNote as described below are entitled to receive up to
31
share of New FiscalNote Class A common stock is greater than or equal to $
Pursuant to the terms of the Business Combination Agreement, the holders of Old FiscalNote common stock, Old FiscalNote warrants, vested Old FiscalNote options and vested Old FiscalNote RSUs outstanding immediately prior to the Closing Date will be entitled to receive their proportionate allocation of Earnout Shares subject to achievement of the Triggering Event. Holders of unvested Old FiscalNote options and unvested Old FiscalNote RSUs outstanding immediately prior to the Closing Date will be entitled to receive their proportionate allocation of Earnout Shares in the form of Earnout RSUs subject to achievement of the Triggering Event. To the extent the equity award issued upon New FiscalNote's assumption of such any Old FiscalNote Option or Old FiscalNote RSU (each a “Converted Award”) is outstanding and has vested as of the occurrence of a Triggering Event, the holder thereof will receive a proportionate allocation of Earnout Shares in lieu of Earnout RSUs.
If a Converted Award is forfeited after the Closing Date but prior to the Triggering Event, no Earnout RSUs will be issued for such Converted Award. The right to receive Earnout RSUs that have been forfeited shall be reallocated pro-rata to the remaining holders of vested Converted Awards in the form of Earnout Shares and unvested Converted Awards in the form of Earnout RSUs in the manner described above. Reallocated Earnout RSUs are subject to the remaining vesting schedule and conditions of the Converted Award held by such equity holder. The forfeiture and subsequent reallocation of the Earnout RSUs are accounted for as the forfeiture of the original award and the grant of a new award.
A portion of the Earnout Shares that may be issued to Old FiscalNote common stockholders, Old FiscalNote vested option holders and Old FiscalNote warrant holders and all of the Earnout RSUs were determined to represent additional compensation for accounting purposes pursuant to ASC 718, “Compensation-Stock Compensation”. The Company recognizes stock-compensation expense based on the fair value of the Earnout Awards over the requisite service period for each tranche. Upon Closing, the Company recognized $
The fair value of the total Earnout Awards at the closing of the Transaction on July 29, 2022 was estimated based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a daily basis over the Earnout Period using the most reliable information available.
Valuation date share price |
|
$ |
|
|
Risk-free interest rate |
|
|
% |
|
Expected volatility |
|
|
% |
|
Expected dividends |
|
|
% |
|
Expected term (years) |
|
|
|
Risk free interest rate
The risk free interest rate for periods within the expected term of the awards is based on the U.S. Treasury yield curve in effect at the time of the grant.
Expected dividend yield
The Company has never declared or paid any cash dividends and does not expect to pay any cash dividends in the foreseeable future.
Expected term
For Earnout Awards, the expected term is determined to be
Expected volatility
As Old FiscalNote was privately held from inception through the Closing, there was no specific historical or implied volatility information available. Accordingly, the Company estimates the expected volatility on the historical stock volatility of a group of similar companies that are publicly traded over a period equivalent to the expected term of the Earnout Awards. A point estimate of expected annual equity volatility of
As of September 30, 2022, there was $
32
11. Warrant Liabilities
Upon the Closing of the Business Combination, the Company assumed
During the three months ended September 30, 2022,
Public Warrants
Each public warrant entitles the registered holder to acquire
Redemption of warrants for cash
The Company may call the public warrants for redemption for cash:
If and when the warrants become redeemable by the Company for cash, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of warrants for shares of Class A common stock
The Company may redeem the outstanding warrants for shares of Class A common stock:
Private Placement Warrants
The private placement warrants are not redeemable by the Company so long as they are held by the sponsor of DSAC or its permitted transferees, except in certain limited circumstances. The DSAC Sponsor, or its permitted transferees, has the option to exercise the private placement warrants on a cashless basis and the DSAC Sponsor and its permitted transferees has certain registration rights related to the private placement warrants (including the shares of Class A common stock issuable upon exercise of the private placement warrants). Except as described in this section, the private placement warrants have terms and provisions that are identical to those of the public warrants. If the private placement warrants are held by holders other than the DSAC Sponsor or its permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by the holders on the same basis as the public warrants.
Old FiscalNote Warrants
In connection with the Closing, certain holders of Old FiscalNote warrant holders exercised their warrants and received
33
liability with a fair value of $
12. Stock-Based Compensation
2022 Long-Term Incentive Plan
In connection with the Business Combination, the Company's board of directors adopted, and its stockholders approved, the 2022 Long-Term Incentive Plan (the “2022 Plan”) under which
In connection with the Business Combination, the Company’s board of directors adopted, and its stockholders approved, the 2022 Employee Stock Purchase Plan (the “ESPP”). There are
2013 Equity Incentive Plan
Prior to the Closing of the Business Combination, the Company maintained the 2013 Equity Incentive Plan (the “2013 Plan”) that allowed for granting of incentive and non-qualified stock options to employees, directors, and consultants.
In connection with the Business Combination, each option granted under the 2013 Plan that was outstanding immediately prior to the Business Combination, whether vested or unvested, was assumed and converted into an option to purchase a number of shares of Class A common stock (rounded down to the nearest whole share) equal to the product of (i) the number of shares of Old FiscalNote common stock subject to such Old FiscalNote option immediately prior to the Business Combination and (ii) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (A) the exercise price per share of such Old FiscalNote option immediately prior to the consummation of the Business Combination by (B) the Exchange Ratio. Stock option activity prior to the Business Combination was retroactively adjusted to reflect this conversion.
Awards outstanding under the 2013 Plan were assumed by New FiscalNote upon the Closing and continue to be governed by the terms and conditions of the 2013 Plan and applicable award agreement. Shares of the Company's common stock subject to awards granted under the 2013 Plan that expire unexercised or are cancelled, terminated, or forfeited in any manner without issuance of shares thereunder following the effective date of the 2022 Plan (as defined below), will not become available for issuance under the 2022 Plan.
In connection with the completion of the Business Combination and the adoption of the 2022 Plan,
In determining related stock-based compensation expense for any award under the 2013 Equity Plan, the Company made an accounting policy election to account for forfeitures of awards as they occur and therefore stock-based compensation expense presented below has not been adjusted for any estimated forfeitures.
In February and July 2021, the shareholders of the Company approved amendments to the Company’s amended and restated Certificate of Incorporation to increase the number of authorized shares of common stock reserved for use under the 2013 Equity Incentive Plan from
The Company has historically issued stock options with exercise prices equal to the fair value of the underlying stock price. Prior to the completion of the Business Combination and listing of the Company’s common stock on the public stock exchange, the fair value of Old FiscalNote common stock that underlies the stock options was determined based on then-current valuation estimates at the time of grant. Because such grants occurred prior to the public trading of the Company’s common stock, the fair value of Old FiscalNote common stock was determined with assistance of periodic valuation analyses from an independent third-party valuation firm.
34
Performance Stock Options and Stock Units under the 2013 Plan
In 2021 and 2022, the Company granted various executives
The following table summarizes activities related to stock options and performance stock units during the period presented:
Stock Options awards |
|
Number of |
|
|
Weighted-average |
|
|
Weighted-average |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Cancelled and forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and exercisable as of September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest as of September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the weighted-average assumptions used to estimate the fair value of stock options granted during the period presented:
|
|
Nine Months Ended |
|
|
|
|
September 30, 2022 |
|
|
Expected volatility |
|
|
% |
|
Expected life (years) |
|
|
|
|
Expected dividend yield |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Fair value of options |
|
$ |
|
At September 30, 2022, there was $
As of September 30, 2022, there were
Restricted Stock Units |
|
Number of |
|
|
Weighted-average |
|
|
Weighted-average |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Cancelled and forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested as of September 30, 2022 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Vested and expected to vest as of September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2022, there was $
13. Transaction Costs, net
The Company incurred the following transaction costs related to businesses acquired and the consummation of the Business Combination during the periods presented:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Transaction costs related to acquired businesses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-capitalizable Business Combination costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in contingent consideration liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Contingent compensation expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total transaction costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
14. Earnings (Loss) Per Share
35
The Company has two classes of common stock authorized: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to
Earnings (loss) per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period on a basic and diluted basis. The Company’s net loss used in computing basic and diluted earnings per share is adjusted for the deemed dividends resulting from the accretion of Old FiscalNote's preferred shares to redemption value and beneficial conversion features, as applicable. The Company’s net loss used in computing diluted earnings per share is further adjusted for the marked-to-market fair value gain recognized for private warrants. The Old FiscalNote preferred shares were outstanding during the three and nine months ended September 30, 2021 and from January 1, 2022 to July 29, 2022, respectively. At the closing of the Business Combination, all of Old FiscalNote’s preferred shares were exchanged for Class A common stock of New FiscalNote. Diluted earnings (loss) per share considers the impact of potentially dilutive securities.
The components of basic and diluted earnings (loss) per shares are as follows
(in thousands, except per share data) |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Numerator: |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Deemed dividend - change in redemption value of preferred stock of Old FiscalNote |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deemed dividend - in conjunction with convertible debt modification |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Deemed dividend - preferred stock issuance |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Net loss used to compute basic loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Marked-to-market fair value gain for private warrants |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
Net loss used to compute diluted loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common stock outstanding, basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of private warrants |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Weighted average common stock outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per shares, basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per shares, diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive securities excluded from diluted loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive Earnout Awards |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Anti-dilutive liability-classified public warrants |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Anti-dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive contingently issuable shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive other liability - classified warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive Aicel Convertible Notes |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Anti-dilutive convertible preferred stock |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Anti-dilutive convertible senior debt |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Anti-dilutive equity-classified warrants |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total anti-dilutive securities excluded from diluted loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average common shares and thus the net loss per share calculations and potentially dilutive security amounts for all periods prior to the Business Combination have been retrospectively adjusted to the equivalent number of shares outstanding immediately after the Business Combination to effect the reverse recapitalization. Historically reported weighted average shares outstanding have been multiplied by the Exchange Ratio (see Note 2).
15. Benefit from Income Taxes
Effective Tax Rate
The Company computes its quarterly and year-to-date provisions for income taxes by applying the estimated effective tax rates to the quarterly and year-to-date pre-tax income or losses and adjusting the provisions for discrete tax items recorded in the periods. For the three months ended September 30, 2022 the Company reported a tax benefit of $
For the three months ended September 30, 2021, the Company reported a tax benefit of $
36
pretax loss of $
Unrecognized Tax Benefits and Other Considerations
The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the tax audits cannot be predicted with certainty, if any issues arising in the Company's tax audits progress in a manner inconsistent with management's expectations, the Company could adjust its provision for income taxes in the future. For both the three and nine months ended September 30, 2022, the Company reported an uncertain tax position totaling $
|
|
Three Months Ended September 30, |
|
|||||||
|
|
2022 |
|
|
|
2021 |
|
|||
Beginning balances at June 30, 2022 and 2021 |
|
$ |
|
|
|
$ |
( |
) |
||
Gross increases - tax positions in prior periods |
|
|
- |
|
|
|
|
- |
|
|
Gross decreases - tax positions in prior periods |
|
|
|
|
|
|
|
|||
Gross increases - tax positions in current periods |
|
|
- |
|
|
|
|
- |
|
|
Settlements |
|
|
- |
|
|
|
|
- |
|
|
Lapses in statutes of limitations |
|
|
- |
|
|
- |
|
|
- |
|
Ending balances at September 30, 2022 and 2021 |
|
$ |
|
|
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|||
|
|
Nine Months Ended September 30, |
|
|||||||
|
|
2022 |
|
|
|
2021 |
|
|||
Beginning balances at December 31, 2021 and 2020 |
|
$ |
|
|
|
$ |
|
|||
Gross increases - tax positions in prior periods |
|
|
- |
|
|
|
|
- |
|
|
Gross decreases - tax positions in prior periods |
|
|
- |
|
|
|
|
( |
) |
|
Gross increases - tax positions in current periods |
|
|
- |
|
|
|
|
- |
|
|
Settlements |
|
|
- |
|
|
|
|
- |
|
|
Lapses in statutes of limitations |
|
|
( |
) |
|
|
|
- |
|
|
Ending balances at September 30, 2022 and 2021 |
|
$ |
|
|
|
$ |
|
Net Operating Losses
At December 31, 2021, the Company had gross U.S. net operating loss carryforwards available to reduce future taxable income in the amount of $
16. Fair Value Measurements and Disclosures
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments.
The following table presents the Company’s financial assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2022 by level within the fair value hierarchy:
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Public warrants |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Private placement warrants |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Contingent liabilities from acquisitions |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Liability classified warrants |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
The following table presents the Company’s financial assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2021 by level within the fair value hierarchy:
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent liabilities from acquisitions |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Liability classified warrants |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Embedded redemption features on Convertible Notes |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Embedded redemption features on Promissory Note |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Embedded redemption features on 8090 FV Note |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
37
The following table summarizes changes in fair value of the Company’s level 3 liabilities during the periods presented:
|
|
Contingent |
|
|
Liability Classified Warrants |
|
|
Embedded Redemption |
|
|
Embedded Redemption |
|
|
Embedded Redemption |
|
|||||
Balance at December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
||||
Derivative liabilities at issuance date |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Contingent considerations and compensation at acquisition date |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Settlement |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Change in fair value included in the determination of net loss(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
||||
Balance at September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Liability classified warrants at issuance date |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Private placement warrants at the Closing of the Business Combination |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contingent consideration at acquisition date |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Contingent compensation recognized |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Change in fair value included in the determination of net loss(a) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Earned contingent consideration settled |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash contingent compensation earned and subsequently settled |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Unearned contingent compensation reversal |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Extinguishment and/or settlement upon conversion |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Public Warrants
The fair value of the public warrants is estimated based on the quoted market price of such warrants on the valuation date. The public warrants were initially recognized as a liability in connection with the Business Combination on July 29, 2022 at a fair value of $
Private Placement Warrants
The private placement warrants were initially recognized as a liability in connection with the Business Combination on July 29, 2022 at a fair value of $
|
|
September 30, 2022 |
|
|
July 29, 2022 |
|
||
Valuation date share price |
|
$ |
|
|
$ |
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Expected dividends |
|
|
% |
|
|
% |
||
Expected term (years) |
|
|
|
|
|
|
||
Fair value (in dollars) |
|
$ |
|
|
$ |
|
Contingent Liabilities from acquisitions
The contingent liabilities from acquisitions are classified as Level 3 in the fair value hierarchy. At September 30, 2022 the contingent consideration and compensation relates to the acquisition of Curate. The Company estimated the fair value of the Equilibrium, Predata, Curate, Forge, and FrontierView contingent consideration and compensation using a Monte Carlo simulation. These fair value measurements are based on significant inputs not observable in the market and thus represents Level 3 measurements as defined in ASC 820. Significant changes in the key assumptions and inputs could result in a significant change in the fair value measurement of the contingent consideration.
The following inputs and assumptions were used to value contingent liabilities from acquisitions as of September 30, 2022:
|
|
Curate |
|
|
Risk premium |
|
|
% |
|
Risk free rate |
|
|
% |
|
Revenue volatility |
|
|
% |
|
Expected life (years) |
|
|
|
38
The following inputs and assumptions were used to value contingent liabilities from acquisitions as of December 31, 2021:
|
|
Equilibrium |
|
|
Predata |
|
|
Curate |
|
|
Forge |
|
|
FrontierView |
|
|||||
Risk premium |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|||||
Risk free rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|||||
Revenue volatility |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|||||
Expected life (years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Comerica Warrants and Eastward Warrants were recorded in other current liabilities at December 31, 2021 and were classified as Level 3 in the fair value hierarchy. In connection with the Closing, the holders of the Comerica Warrants and the Eastward Warrants exercised their warrants and at September 30, 2022 there are
The fair value of the Comerica Warrants was calculated using the Black-Scholes calculation with the following inputs.
|
|
December 31, 2021 |
|
|
Series B preferred stock fair value |
|
$ |
|
|
Time to maturity (years) |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Volatility |
|
|
% |
|
Exercise price |
|
$ |
|
The fair value of the Eastward Warrants was calculated using the Black-Scholes calculation with the following inputs:
|
|
December 31, 2021 |
|
|
Common stock fair value |
|
$ |
|
|
Time to maturity (years) |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Volatility |
|
|
% |
|
Exercise price |
|
$ |
|
The Last Out Lender Warrants are classified as Level 3 in the fair value hierarchy. The fair value of the Last Out Lender Warrants (see Note 8) is calculated using the Black-Scholes calculation with the following inputs:
|
|
September 30, 2022 |
|
|
Common stock fair value |
|
$ |
|
|
Time to maturity (years) |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Volatility |
|
|
% |
|
Exercise price |
|
$ |
|
The Company used a probability-weighted expected return method (“PWERM”) for estimating the fair value of the embedded redemption features. Key assumptions used to estimate the fair value of the embedded redemption features included selected discount rates, enterprise value, and probability and timing of possible exit scenarios. Based on the terms and provisions of the Convertible Notes, the New GPO Note, the 8090 FV Note, and the FrontierView Convertible Notes, the Company utilized a PWERM to estimate the fair value of the embedded derivative features requiring bifurcation as of the respective issuance dates and on December 31, 2021. The respective amounts of the embedded redemption liabilities were reflected on a combined basis with the notes in the consolidated balance sheet as of December 31, 2021.
The fair value of the respective notes with the derivative features was compared to the fair value of a note excluding the derivative features, which was calculated based on the present value of the future cash flows (a “with and without” methodology). The difference between the two values represents the fair value of the bifurcated derivative features as of each respective valuation date.
The key inputs to the valuation models that were utilized to estimate the fair value of the derivative liabilities included:
Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company’s long-lived assets, including property and equipment, intangible assets and goodwill are measured at fair value on a non-recurring basis when an impairment has occurred. Excluding the impairment of an operating lease asset related to certain unoccupied office space as disclosed in Note 5, no other impairment events were identified during the nine months ended September 30, 2022 and 2021.
39
Excluding a total of $
Changes to fair value are recognized as income or expense in the condensed consolidated statements of operations and comprehensive loss.
17. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows.
On May 13, 2022, Old FiscalNote received a letter from GPO FN Noteholder LLC (the “Disputing Lender”) disputing such lender’s pro forma beneficial ownership set forth Amendment No. 4 to the Company’s Registration Statement on Form S-4 dated May 9, 2022. The terms governing Old FiscalNote’s indebtedness with the Disputing Lender provided that, in connection with the Business Combination, and following a $
40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provide information that FiscalNote’s management believes is relevant to an assessment and understanding of FiscalNote’s condensed consolidated results of operations and financial condition. The discussion should be read together with the unaudited interim condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q. Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “FiscalNote,” “we,” “us,” or “our” refer to the business of Old FiscalNote, which became the business of New FiscalNote and its subsidiaries following the Closing.
Certain monetary amounts, percentages and other figures included below have been subject to rounding adjustments as amounts are presented in thousands. Percentage amounts included below have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts may vary from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements included elsewhere herein. Certain other amounts that appear below may not sum due to rounding.
Overview
FiscalNote is a technology and data company delivering critical legal data and insights in a rapidly evolving economic, political and regulatory world. By combining AI, machine learning and other technologies with analytics, workflow tools, and expert research, FiscalNote seeks to reinvent the way that organizations minimize risks and capitalize on opportunities associated with rapidly changing legal and policy environments. Through a number of our products, FiscalNote ingests unstructured legislative and regulatory data, and employs AI and data science to deliver structured, relevant and actionable information that facilitates key operational and strategic decisions by global enterprises, midsized and smaller businesses, government institutions, trade groups and nonprofits. FiscalNote delivers that intelligence through its suite of public policy and issues management products, coupled with expert research and analysis of markets and geopolitical events, as well as powerful tools to manage workflows, advocacy campaigns and constituent relationships.
Business Combination
On July 29, 2022 (the “Closing Date”), we consummated the transactions contemplated by the Agreement and Plan of Business Combination, dated November 7, 2021, as amended on May 9, 2022 (the “Merger Agreement”), by and among FiscalNote Holdings, Inc., a Delaware corporation (“Old FiscalNote”), Duddell Street Acquisition Corp., a Cayman Islands exempted company (“DSAC”), and Grassroots Merger Sub, Inc., a Delaware corporation and a wholly owned direct subsidiary of DSAC (“Merger Sub” and, together with DSAC, the “DSAC Parties”). Pursuant to these transactions, Merger Sub merged with and into Old FiscalNote, with Old FiscalNote becoming a wholly owned subsidiary of DSAC (the “Business Combination” and, collectively with the other transactions described in the Business Combination Agreement, the “Transactions”). On the Closing Date, and in connection with the closing of the Transactions (the “Closing”), DSAC domesticated and continued as a Delaware corporation under the name of “FiscalNote Holdings, Inc.” (“New FiscalNote”).
We accounted for the Business Combination as a reverse recapitalization whereby Old FiscalNote was determined as the accounting acquirer and DSAC as the accounting acquiree. While DSAC was the legal acquirer in the Business Combination, because Old FiscalNote was determined as the accounting acquirer, the historical financial statements of Old FiscalNote became the historical financial statements of the combined company, upon the consummation of the Business Combination. Accordingly, New FiscalNote, as the parent company of the combined business, is the successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC.
The Business Combination had a significant impact on our reported financial position and results as a result of the reverse recapitalization. The most significant change in our reported financial position and results was an increase in net cash of $65.6 million from gross cash proceeds of $325.0 million, including $114.0 million from the backstop agreement with the sponsor of DSAC, $61.0 million from DSAC’s trust account from its initial public offering, and $150.0 million from the New Senior Term Loan. Such gross proceeds were offset by $45.2 million transaction costs, which principally consisted of advisory, legal and other professional fees, and were recorded in Additional Paid-in Capital, net of proceeds from the DSAC trust and $3.5 million of debt issuance costs paid out of the proceeds of the New Senior Term Loan on the Closing Date, of which $2.8 was capitalized and $0.7 million included in the loss on debt extinguishment. Cumulative debt repayments, inclusive of accrued but unpaid interest, of $210.7 million were paid in conjunction with the close, which consisted of a $75.3 million repayment of the First out term loan, $61.7 million repayment of the Last out term loan, a $50.0 million payment used to retire the non-converting portion of the Senior Secured Subordinated Promissory Note, a $16.3 million repayment of the 8090 FV Subordinated Promissory Note, and $7.4 million repayment of the 2021 Seller Notes.
In connection with the Business Combination, we recognized a $34.9 million warrant liability on our condensed consolidated balance sheets for the fair value of the public warrants and private placement warrants that were previously issued by DSAC and assumed by New FiscalNote in the Business Combination, along with the additional private placement warrants that were issued upon the closing of the Business Combination. We adjust the liability-classified warrants to fair value at each reporting period. The warrant liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our unaudited condensed consolidated statement of operations. As a result of the recurring fair value measurement, our future financial statements and results of
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operations may fluctuate quarterly, based on factors that are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on the warrants each reporting period and that the amount of such gains or losses could be material.
In connection with the Business Combination, we recognized (a) $28.9 million of incremental stock-based compensation charges that consisted of $5.0 million related to certain awards that vested as a result of the Business Combination, $6.2 million related to awards issued to our CEO, COO, and CFO pursuant to their respective employment agreements, and $17.7 million related to the Earnout Awards that may be issued to shareholders and equity award holders that for accounting purposes are treated as compensation awards (See Note 14 of our condensed consolidated financial statements), (b) $45.3 million of loss on debt extinguishment as a result of repayment of certain of our outstanding debt, as well as the conversion of our convertible debt as part of the Business Combination, and (c) $32.1 million interest charge related to the derecognition of the beneficial conversion feature associated with our converted debt.
As a consequence of the Business Combination, we became an SEC-registered and NYSE-listed company, which may require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. Upon Closing, we began to incur additional public company expenses for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources.
Impact of the COVID-19 Pandemic
The outbreak of the novel coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization on March 11, 2020, led to adverse impacts on the U.S. and global economies, disruptions of financial markets, and created uncertainty regarding potential impacts to the Company’s operations, vendors, and customer demand. The COVID-19 pandemic has impacted, and could further impact, the Company’s operations and the operations of the Company’s suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. The ultimate extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our long-term revenue growth and profitability, is uncertain and depends on factors, including the duration of the pandemic and any resurgences or new variants (such as the recent surge of the Delta and Omicron variants), the severity of the disease, responsive actions taken by public health officials or by us, the development, distribution and public acceptance of treatments and vaccines, the impacts on our customers and our sales cycles, our ability to generate new business leads, the impacts on our customers, employee and industry events, and the effects on our vendors, all of which are uncertain and currently cannot be predicted with any degree of certainty. Due to our primarily subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods. If the COVID-19 pandemic has a substantial impact on our employees’, business partners’ or customers’ productivity, our results of operations and overall financial performance may be harmed. In addition, the global macroeconomic effects of the COVID-19 pandemic and related impacts on our customers’ business operations and their demand for our products and services may persist for an indefinite period, even after the COVID-19 pandemic has subsided.
Factors Impacting the Comparability of Our Operating Results
During the year ended December 31, 2021, we completed the following nine acquisitions:
In addition, we acquired FactSquared on December 31, 2020 for $4.3 million consisting of cash and stock. Unless noted otherwise, we refer to the acquisition of FactSquared and the acquisitions in calendar year 2021 as the “2021 Acquisitions.”
On July 29, 2022 we completed the acquisition of Aicel Technologies for $8.7 million, consisting of stock. On September 30, 2022 we completed the asset acquisition of DT-Global for approximately $0.6 million. We refer to these two acquisitions as the “2022 Acquisitions”, respectively. The 2022 Acquisitions did not have a material impact on our condensed consolidated statement of operations for the three and nine months ended September 30, 2022. The 2021 Acquisitions and Aicel contributed approximately $8.5 million and $4.4 million of subscription revenue, net of a deferred revenue adjustment of approximately $0.1 million and $1.2 million, during the three months ended September 30, 2022 and 2021, respectively, and $22.4 million and $7.3 million, net of a deferred revenue adjustment of approximately $1.9 million and $1.5 million, during the nine months ended September 30, 2022 and 2021, respectively. The 2021 Acquisitions and Aicel contributed Advisory, advertising and other revenue of approximately $0.7 million during the three months ended September 30, 2022 and 2021, and $4.0 million and $1.5 million during the nine months ended September 30, 2022 and 2021, respectively.
The consideration transferred in exchange for the 2021 Acquisitions and Aicel included a combination of cash, stock, seller notes, and contingent payments that may be settled in cash, stock, or a combination of both cash and stock. We account for contingent payments in accordance with ASC 805 which requires us to determine whether the contingent payment is considered a component of the fair value of
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the consideration paid to the seller (e.g., “purchase price”) or as post-combination compensation expense, generally due to employee conditions associated with the contingent payments. In either case, the use of contingent payments may introduce future non-cash earnings volatility due to the requirement to fair value certain contingent payments each balance sheet date until the contingent payment has either been earned, or the earnout period expires. During the nine months ended September 30, 2022, we recognized non-cash gains associated with our contingent payments totaling $2.2 million, primarily related to a reversal of previously recognized contingent liabilities that expired unearned during the period. During the year ended December 31, 2021, we incurred non-cash fair value charges associated with our contingent payments totaling $2.2 million. We believe that the use of contingent payments benefits both the Company and the sellers from whom we acquire companies by enabling all parties to participate in the upside of the acquired companies achieving their contingent payment requirements. We will continue to evaluate the aggregate amount, mix and structure of consideration we offer to acquire companies as we execute on our corporate development strategy in the future, in order to achieve the best possible return for the Company.
As a result of our acquisitions in 2021 and 2022, respectively, we have, and will continue to incur, significant non-cash amortization expense related to the amortization of purchased intangibles, which have reduced our operating income by approximately $1.7 million and $1.3 million during the three months ended September 30, 2022 and 2021, and $5.0 million and $2.6 million during the nine months ended September 30, 2022 and 2021, respectively.
From time to time, management reviews the Company’s existing products and services based on their financial (e.g., revenue, margin) profile and strategic factors. In connection with such a review in 2020 and 2021 management decided to cease selling certain non-core subscription products representing subscription revenue of approximately $0.3 million and $0.5 million during the three months ended September 30, 2022 and 2021, and $0.9 million and $1.8 million during the nine months ended September 30, 2022 and 2021, respectively.
We continue to invest for future growth. We are focused on several key growth levers, including cross-selling and upselling opportunities at existing clients, expanding our client base with a focus on enterprise and government customers, expansion into adjacent markets and deepening our offerings for regulated industries or sectors, and continuing to execute on our acquisition strategy. Several of these growth drivers require investment in and refinement of our go-to-market approach and, as a result, we may continue to incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses specific to subscription revenue.
We plan to invest a significant portion of the net proceeds from the Business Combination in building innovative products, acquiring complementary businesses, attracting new customers and expanding our leadership role in the legal and regulatory information market. We drive growth both organically and through acquisitions. We regularly evaluate acquisitions and investment opportunities in complementary businesses to supplement our existing platform, enable us to enter new markets and ensure that we are well positioned to provide critical insights to the regulated sectors of the future. Past acquisitions have enabled us to deliver innovative solutions in new categories, such as global risk analysis and environmental, social and governance (“ESG”) automation software, analytics and integration, and new data sets to enhance the functionality of our existing products. Strategic acquisitions will remain a core component of our strategy in the future.
Seasonality
Our cash flows from operations are primarily generated from payments from subscription customers with a standard term of 12 months. When a customer enters into a new subscription agreement, or submits a notice to renew their subscription, we typically invoice for the full amount of the subscription period, record the balance to deferred revenues and ratably recognize the deferral throughout the subscription period. As a result, we experience cash flow seasonality throughout the year, with a heavier weighting of operating cash inflows occurring during the first and fourth quarters of the year, when most subscription invoices are sent, as compared to the second and third quarters of the year. Accordingly, the subscription revenue we earn in the second half of the calendar year is usually greater than the first half of the calendar year, with the fourth quarter normally our largest quarter of revenue recognition during the calendar year.
Key Performance Indicators
In addition to our GAAP results further described and discussed below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we monitor the following key performance indicators to evaluate growth trends, prepare financial projections, make strategic decisions, and measure the effectiveness of our sales and marketing efforts. Our management team assesses our performance based on these key performance indicators because it believes they reflect the underlying trends and indicators of our business and serve as meaningful indicators of our continuous operational performance.
Annual Recurring Revenue (“ARR”)
Approximately 90% of our revenues are subscription based, which leads to high revenue predictability. Our ability to retain existing subscription customers is a key performance indicator that helps explain the evolution of our historical results and is a leading indicator of our revenues and cash flows for subsequent periods. We use ARR as a measure of our revenue trend and an indicator of our future revenue opportunity from existing recurring subscription customer contracts. We calculate ARR on an account level by annualizing the contracted subscription revenue, and our total ARR as of the end of a period is the aggregate thereof. ARR is not adjusted for the impact of any known or projected future customer cancellations, upgrades or downgrades, or price increases or decreases. The amount of actual revenue that we recognize over any 12-month period is likely to differ from ARR at the beginning of that period, sometimes significantly. This may occur due to timing of the revenue bookings during the period, cancellations, upgrades, or downgrades and pending renewals. ARR should be viewed independently of revenue as it is an operating metric and is not intended to be a replacement or forecast of revenue. Our calculation of ARR may differ from similarly titled metrics presented by other companies.
Our ARR at September 30, 2022 and December 31, 2021, was $108 million and $97 million, respectively. Our ARR at September 30, 2022 and 2021, excluding the 2021 Acquisitions and 2022 Acquisitions, was $69 million and $63 million, respectively. ARR of the 2021
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Acquisitions, and 2022 Acquisitions, was approximately $39 million and $32 million as of September 30, 2022 and 2021, respectively, including pre-acquisition ARR performance of the 2021 Acquisition companies and 2022 Acquisitions on the basis reported to FiscalNote in connection with such company’s acquisition.
Run-Rate Revenue
Management also monitors Run-Rate Revenue, which we define as ARR plus non-subscription revenue earned during the last twelve months. We believe Run-Rate Revenue is an indicator of our total revenue growth, incorporating the non-subscription revenue that we believe is a meaningful contribution to our business as a whole. Although our non-subscription business is non-recurring, we regularly sell different advisory services to repeat customers. The amount of actual subscription and non-subscription revenue that we recognize over any 12-month period is likely to differ from Run-Rate Revenue at the beginning of that period, sometimes significantly. Our Run-Rate Revenue at September 30, 2022 and December 31, 2021, including our 2021 Acquisitions and 2022 Acquisitions, was approximately $121 million and $109 million, respectively. Our Run-Rate Revenue at September 30, 2022 and 2021, excluding the 2021 Acquisitions and 2022 Acquisitions, was approximately $76 million and $68 million, respectively. Run-Rate Revenue of the 2021 Acquisitions was approximately $45 and $38 million as of September 30, 2022 and 2021, respectively, including pre-acquisition Run-Rate Revenue performance of the 2021 Acquisition companies and 2022 Acquisitions on the basis reported to FiscalNote in connection with such company’s acquisition.
Net Revenue Retention (“NRR”)
Our NRR, which we use to measure our success in retaining and growing recurring revenue from our existing customers, compares our recognized recurring revenue from a set of customers across comparable periods. We calculate our NRR for a given period as ARR at the end of the period minus ARR contracted from new clients for which there is no historical revenue booked during the period, divided by the beginning ARR for the period. For our federal government clients, we consider subdivisions of the same executive branch department or independent agency (for example, divisions of a single federal department or agency) to be a single customer for purposes of calculating our account-level ARR and NRR. For our commercial clients, we consider subdivisions of the same legal entity as separate customers. Customers from acquisitions are not included in NRR until they have been part of our condensed consolidated results for 12 months. Our calculation of NRR for any fiscal period includes the positive recurring revenue impacts of selling additional licenses and services to existing customers and the negative recognized recurring revenue impacts of contraction and attrition among this set of customers. Our NRR may fluctuate as a result of a number of factors, including the growing level of our revenue base, the level of penetration within our customer base, expansion of products and features, and our ability to retain our customers. Our calculation of NRR may differ from similarly titled metrics presented by other companies. NRR was 99% for the three months ended September 30, 2022 and 2021, respectively.
Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. Where applicable, we provide reconciliations of these non-GAAP measures to the corresponding most closely related GAAP measure. Investors are encouraged to review the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure. While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures.
Adjusted Revenue
Adjusted revenue represents revenue adjusted to include amounts that would have been recognized if deferred revenue was not adjusted to fair value in connection with the 2021 Acquisitions. Adjusted revenue is presented because we use this measure to evaluate performance of our business against prior periods and believe it is a useful indicator of the underlying performance of our business. Adjusted revenue is not a recognized term under U.S. GAAP. Adjusted revenue does not represent revenues, as that term is defined under GAAP, and should not be considered as an alternative to revenues as an indicator of our operating performance. Adjusted revenue as presented herein is not necessarily comparable to similarly titled measures presented by other companies.
Adjusted Gross Profit and Adjusted Gross Profit Margin
We define Adjusted Gross Profit as Adjusted Revenue minus cost of revenues, before amortization of intangible assets that are included in costs of revenues. We define Adjusted Gross Profit Margin as Adjusted Gross Profit divided by Adjusted Revenues.
We use Adjusted Gross Profit and Adjusted Gross Profit Margin to understand and evaluate our core operating performance and trends. We believe these metrics are useful measures to us and to our investors to assist in evaluating our core operating performance because it provides consistency and direct comparability with our past financial performance and between fiscal periods, as the metrics eliminate the non-cash effects of amortization of intangible assets and deferred revenue, which are non-cash impacts that may fluctuate for reasons unrelated to overall operating performance.
Adjusted Gross Profit and Adjusted Gross Profit Margin have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP and should not be considered as replacements for gross profit and gross profit margin, as determined by GAAP, or as measures of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes. Adjusted Gross Profit and Adjusted Gross Profit Margin as presented herein is not necessarily comparable to similarly titled measures presented by other companies.
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EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA reflects further adjustments to EBITDA to exclude certain non-cash items and other items that management believes are not indicative of ongoing operations. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by Adjusted Revenue.
We disclose EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin in this Quarterly Report on Form 10-Q because these non-GAAP measures are key measures used by management to evaluate our business, measure our operating performance and make strategic decisions. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are useful for investors and others in understanding and evaluating our operating results in the same manner as management. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for net loss, net loss before income taxes, or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business would have material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate non-GAAP financial measures, which reduces their comparability. Because of these limitations, you should consider EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP.
Key Components of Results of Operations
Revenues
We derive our revenues from subscription revenue arrangements and advisory, advertising and other revenues. Subscription revenues account for approximately 90% of our total revenues for the nine months ended September 30, 2022 and 2021. No single customer accounted for more than 5% of revenues during the three and nine months ended September 30, 2022 and 2021, and our 10 largest customers represented less than 10% of our total revenues for the for the same periods. In calculating the aforementioned revenue concentration, (i) for our federal government clients, we consider subdivisions of the same executive branch department or independent agency (for example, divisions of a single federal department or agency) to be separate customers; and (ii) for our commercial clients, we consider subdivisions of the same legal entity as separate customers.
Subscription Revenue
Subscription revenues consist of revenue earned from subscription-based arrangements that provide customers the right to use the Company’s software and products in a cloud-based infrastructure. Subscription revenues are driven primarily by the number of active licenses, the types of products and the price of the subscriptions. The Company also earns subscription-based revenues by licensing to customers its digital content, including transcripts, news and analysis, images, video and podcast data.
Our subscription arrangements generally have contractual terms of 12 months or more and are non-refundable regardless of the actual use of the service. Subscription revenues are recognized ratably over the non-cancellable contract terms beginning on the commencement date of each contract, which is the date our service is first made available to customers.
Advisory, Advertising, and Other Revenue
Advisory revenue is typically earned under contracts for specific deliverables and are non-recurring in nature, although we regularly sell different advisory services to repeat customers. One-time advisory revenues are invoiced according to the terms of the contract, usually delivered to the customer over a short period of time, during which revenues are recognized.
Advertising revenue is primarily generated by delivering advertising in our own publications (Roll Call and CQ) in both print and digital formats. Revenue for print advertising is recognized upon publication of the advertisement. Revenue for digital advertising is recognized over the period of the advertisement or, if the contract contains impression guarantees, based on delivered impressions.
Book revenue is recognized when the product is shipped to the customer, which is when control of the product transfers to the customer. Shipping and handling costs are treated as a fulfillment activity and are expensed as incurred.
Events revenue is deferred and only recognized when the event has taken place and is included in other revenues.
Cost of Revenues
Cost of revenues primarily consists of expenses related to hosting our service, the costs of data center capacity, amortization of developed technology and capitalized software development costs, certain fees paid to various third parties for the use of their technology, services, or data, costs of compensation, including bonuses, stock compensation, benefits and other expenses for employees associated with providing professional services and other direct costs of production. Also included in cost of revenues are our costs related to the preparation of contracted advisory deliverables, as well as costs to develop, publish, print and deliver our publications underlying our books revenue.
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Research and Development
Research and development expenses include the costs of compensation, including bonuses, stock compensation, benefits and other expenses for employees associated with the creation and testing of the products we offer, related software subscriptions, consulting and contractor fees and allocated overhead.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses for our sales and marketing staff, including commissions, related software subscriptions, consulting fees, marketing programs and allocated overhead. Marketing programs consist of advertising, events, corporate communications, brand building and product marketing activities.
Editorial
Editorial expenses consist of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses for the editorial team involved in acquiring, creating, and distributing content and allocated overhead.
General and Administrative
General and administrative expenses are primarily related to our executive offices, finance and accounting, human resources, legal, internal operations and other corporate functions. These expenses consist of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses, along with professional fees, depreciation and other allocated overhead.
Amortization of intangibles
Amortization expense relates to our finite-lived intangible assets, including developed technology, customer relationship, databases and tradenames. These assets are amortized over periods of between three and twenty years. Definite-lived intangible assets are tested for impairment when indicators are present, and, if impaired, are written down to fair value. No impairment of intangible assets has been identified during any financial period included in our accompanying audited condensed consolidated financial statements.
Transaction costs, net
Transaction costs consist of acquisition related costs (including due diligence, accounting, legal, and other professional fees, incurred from acquisition activity), fair value adjustments to contingent consideration due to sellers, and non-capitalizable costs.
Interest expense, net
Interest expense, net consists of expense related to interest on our borrowings, the amortization and write off of debt issuance costs and original discount, and interest related to certain derivative instruments.
Fair value of warrant and derivative liabilities
The fair value of warrant and derivative liabilities are accounted for in accordance with ASC 815 and ASC 480. The warrant and derivative liabilities are marked to market each reporting period in accordance with ASC 820 with all gains and losses being recorded within the condensed consolidated statement of operations and comprehensive loss.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the condensed consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the condensed consolidated statements of operations and comprehensive loss in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are expected to be realized based on the weighting of positive and negative evidence.
Results of Operations
The period-to-period comparisons of our results of operations have been prepared using the historical periods included in our condensed consolidated financial statements. We have derived this data from annual condensed consolidated financial statements and the following discussion should be read in conjunction with those condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
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Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021
The following table presents our results of operations for the periods indicated:
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Subscription |
|
$ |
26,075 |
|
|
$ |
20,139 |
|
|
$ |
5,936 |
|
|
|
29.5 |
% |
|
$ |
73,186 |
|
|
$ |
53,098 |
|
|
$ |
20,088 |
|
|
|
37.8 |
% |
Advisory, advertising, and other |
|
|
2,996 |
|
|
|
1,635 |
|
|
|
1,361 |
|
|
|
83.2 |
% |
|
|
9,130 |
|
|
|
5,352 |
|
|
|
3,778 |
|
|
|
70.6 |
% |
Total revenues |
|
|
29,071 |
|
|
|
21,774 |
|
|
|
7,297 |
|
|
|
33.5 |
% |
|
|
82,316 |
|
|
|
58,450 |
|
|
|
23,866 |
|
|
|
40.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating expenses: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cost of revenues |
|
|
8,699 |
|
|
|
5,412 |
|
|
|
3,287 |
|
|
|
60.7 |
% |
|
|
23,581 |
|
|
|
14,664 |
|
|
|
8,917 |
|
|
|
60.8 |
% |
Research and development |
|
|
5,629 |
|
|
|
6,433 |
|
|
|
(804 |
) |
|
|
(12.5 |
)% |
|
|
15,438 |
|
|
|
17,671 |
|
|
|
(2,233 |
) |
|
|
(12.6 |
)% |
Sales and marketing |
|
|
11,830 |
|
|
|
7,454 |
|
|
|
4,376 |
|
|
|
58.7 |
% |
|
|
31,722 |
|
|
|
21,258 |
|
|
|
10,464 |
|
|
|
49.2 |
% |
Editorial |
|
|
4,218 |
|
|
|
3,786 |
|
|
|
432 |
|
|
|
11.4 |
% |
|
|
11,240 |
|
|
|
10,967 |
|
|
|
273 |
|
|
|
2.5 |
% |
General and administrative |
|
|
38,945 |
|
|
|
9,337 |
|
|
|
29,608 |
|
|
|
317.1 |
% |
|
|
59,535 |
|
|
|
22,199 |
|
|
|
37,336 |
|
|
|
168.2 |
% |
Amortization of intangible assets |
|
|
2,601 |
|
|
|
2,512 |
|
|
|
89 |
|
|
|
3.5 |
% |
|
|
7,818 |
|
|
|
6,651 |
|
|
|
1,167 |
|
|
|
17.5 |
% |
Loss on sublease |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
NM% |
|
|
|
- |
|
|
|
1,362 |
|
|
|
(1,362 |
) |
|
|
(100.0 |
)% |
|
Transaction costs, net |
|
|
1,275 |
|
|
|
2,127 |
|
|
|
(852 |
) |
|
|
(40.1 |
)% |
|
|
1,257 |
|
|
|
2,985 |
|
|
|
(1,728 |
) |
|
|
(57.9 |
)% |
Total operating expenses |
|
|
73,197 |
|
|
|
37,061 |
|
|
|
36,136 |
|
|
|
97.5 |
% |
|
|
150,591 |
|
|
|
97,757 |
|
|
|
52,834 |
|
|
|
54.0 |
% |
Operating loss |
|
|
(44,126 |
) |
|
|
(15,287 |
) |
|
|
(28,839 |
) |
|
|
188.7 |
% |
|
|
(68,275 |
) |
|
|
(39,307 |
) |
|
|
(28,968 |
) |
|
|
73.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest expense, net |
|
|
42,894 |
|
|
|
16,261 |
|
|
|
26,633 |
|
|
|
163.8 |
% |
|
|
89,672 |
|
|
|
46,102 |
|
|
|
43,570 |
|
|
|
94.5 |
% |
Change in fair value of warrant and derivative liabilities |
|
|
(21,910 |
) |
|
|
(2,839 |
) |
|
|
(19,071 |
) |
|
|
671.8 |
% |
|
|
(18,524 |
) |
|
|
9,406 |
|
|
|
(27,930 |
) |
|
|
(296.9 |
)% |
Gain on PPP loan upon extinguishment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
NM% |
|
|
|
(7,667 |
) |
|
|
- |
|
|
|
(7,667 |
) |
|
NM% |
|
||
Loss on debt extinguishment, net |
|
|
45,250 |
|
|
|
- |
|
|
|
45,250 |
|
|
NM% |
|
|
|
45,250 |
|
|
|
- |
|
|
|
45,250 |
|
|
NM% |
|
||
Other expense, net |
|
|
928 |
|
|
|
241 |
|
|
|
687 |
|
|
|
285.1 |
% |
|
|
1,543 |
|
|
|
384 |
|
|
|
1,159 |
|
|
|
301.8 |
% |
Net loss before income taxes |
|
|
(111,288 |
) |
|
|
(28,950 |
) |
|
|
(82,338 |
) |
|
|
284.4 |
% |
|
|
(178,549 |
) |
|
|
(95,199 |
) |
|
|
(83,350 |
) |
|
|
87.6 |
% |
Benefit from income taxes |
|
|
(2,286 |
) |
|
|
(992 |
) |
|
|
(1,294 |
) |
|
|
130.4 |
% |
|
|
(2,836 |
) |
|
|
(6,737 |
) |
|
|
3,901 |
|
|
|
(57.9 |
)% |
Net loss |
|
$ |
(109,002 |
) |
|
$ |
(27,958 |
) |
|
$ |
(81,044 |
) |
|
|
289.9 |
% |
|
$ |
(175,713 |
) |
|
$ |
(88,462 |
) |
|
$ |
(87,251 |
) |
|
|
98.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
(1) Amounts include stock-based compensation expenses, as follows: |
|
|||||||||||||||||||||||||||||||
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cost of revenues |
|
$ |
13 |
|
|
$ |
4 |
|
|
$ |
9 |
|
|
|
225 |
% |
|
$ |
36 |
|
|
$ |
9 |
|
|
$ |
27 |
|
|
|
300 |
% |
Research and development |
|
|
504 |
|
|
|
55 |
|
|
|
449 |
|
|
|
816 |
% |
|
|
609 |
|
|
|
216 |
|
|
|
393 |
|
|
|
182 |
% |
Sales and marketing |
|
|
721 |
|
|
|
27 |
|
|
|
694 |
|
|
NM% |
|
|
|
828 |
|
|
|
97 |
|
|
|
731 |
|
|
|
754 |
% |
|
Editorial |
|
|
513 |
|
|
|
24 |
|
|
|
489 |
|
|
NM% |
|
|
|
560 |
|
|
|
67 |
|
|
|
493 |
|
|
|
736 |
% |
|
General and administrative |
|
|
28,292 |
|
|
|
77 |
|
|
|
28,215 |
|
|
NM% |
|
|
|
28,835 |
|
|
|
158 |
|
|
|
28,677 |
|
|
NM% |
|
Revenue:
Subscription Revenue
Subscription revenue of $26.1 million for the three months ended September 30, 2022 increased $5.9 million, or 29%, from $20.1 million for the three months ended September 30, 2021. Subscription revenue of $73.2 million for the nine months ended September 30, 2022 increased $20.1 million, or 38%, from $53.1 million for the nine months ended September 30, 2021.
The comparability of our revenues between periods was impacted by the 2021 Acquisitions and Aicel described under “Factors Impacting the Comparability of Our Results of Operations” above. The table below presents the primary items that impacted the comparability of our subscription revenues between periods.
|
|
Change for the Three Months Ended |
|
|
Change for the Nine Months Ended |
|
||||||||||
|
|
September 30, 2022 vs September 30, 2021 |
|
|
September 30, 2022 vs September 30, 2021 |
|
||||||||||
(In thousands) |
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
||||
Revenue change driver: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Increase from 2021 Acquisitions |
|
$ |
2,975 |
|
|
|
54 |
% |
|
$ |
15,084 |
|
|
|
171 |
% |
Impact of 2021 Acquisitions deferred revenues adjustment |
|
|
1,036 |
|
|
|
(89 |
)% |
|
|
(322 |
) |
|
|
21 |
% |
Increase from 2022 Acquisitions |
|
|
270 |
|
|
|
100 |
% |
|
|
270 |
|
|
|
100 |
% |
Decrease from discontinued products |
|
|
(276 |
) |
|
|
(51 |
)% |
|
|
(913 |
) |
|
|
(51 |
)% |
Increase from organic business |
|
|
1,931 |
|
|
|
13 |
% |
|
|
5,969 |
|
|
|
14 |
% |
Revenues, net (total change) |
|
$ |
5,936 |
|
|
|
29 |
% |
|
$ |
20,088 |
|
|
|
38 |
% |
Our organic growth during the period is primarily due to the increase in new revenue bookings made in 2021 evidenced by the growth in our organic ARR, from which we subsequently derived additional revenues as well as our continued focus on increasing our NRR. Revenue for the nine months ended September 30, 2022 reflects a full nine months of revenue from the 2021 Acquisitions, whereas revenue
47
for the nine months ended September 30, 2021 only reflects revenue contributions from certain of the 2021 Acquisitions commencing from the date of such acquisition through the remainder of the period. As of September 30, 2021, we had acquired Oxford Analytica on February 12, 2021, Fireside on April 30, 2021, Timebase on May 7, 2021, Board.org on June 3, 2021, Equilibrium on June 25, 2021, Predata on June 30, 2021, Curate on August 27, 2021, and Forge.ai on September 9, 2021. The remaining 2021 Acquisition, FrontierView was acquired in the fourth quarter of 2021.
Advisory, Advertising, and Other Revenue
Advisory, advertising, and other revenue was $3.0 million for the three months ended September 30, 2022, as compared to $1.6 million for the three months ended September 30, 2021. The increase of $1.4 million, or 83%, was primarily due to $1.1 million increase in other one-time revenue and $0.3 million increase in events revenue.
Advisory, advertising, and other revenue was $9.1 million for the nine months ended September 30, 2022, as compared to $5.4 million for the nine months ended September 30, 2021. The increase of $3.7 million, or 71%, was primarily due to $2.5 million of incremental revenue from our 2021 Acquisitions, as well as an increase of other one-time revenue of $1.2 million.
Revenue by Geography
The below tables present our revenues split by geographic region for the periods presented:
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
North America |
|
$ |
25,139 |
|
|
$ |
19,385 |
|
|
$ |
5,754 |
|
|
|
29.7 |
% |
Europe |
|
|
2,284 |
|
|
|
2,042 |
|
|
|
242 |
|
|
|
11.9 |
% |
Australia |
|
|
293 |
|
|
|
308 |
|
|
|
(15 |
) |
|
|
(4.9 |
)% |
Asia |
|
|
1,355 |
|
|
|
39 |
|
|
|
1,316 |
|
|
NM% |
|
|
Total revenues |
|
$ |
29,071 |
|
|
|
21,774 |
|
|
$ |
7,297 |
|
|
|
33.5 |
% |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
North America |
|
$ |
72,443 |
|
|
$ |
52,433 |
|
|
$ |
20,010 |
|
|
|
38 |
% |
Europe |
|
|
7,286 |
|
|
|
5,307 |
|
|
|
1,979 |
|
|
|
37 |
% |
Australia |
|
|
827 |
|
|
|
403 |
|
|
|
424 |
|
|
|
105 |
% |
Asia |
|
|
1,760 |
|
|
|
307 |
|
|
|
1,453 |
|
|
|
473 |
% |
Total revenues |
|
$ |
82,316 |
|
|
|
58,450 |
|
|
$ |
23,866 |
|
|
|
41 |
% |
Revenues by geography are determined based on the region of the FiscalNote contracting entity, which may be different than the region of the customer. North America revenues increased primarily due to our acquisitions of FactSquared, Fireside, Board.org, Predata, Curate, Forge, and FrontierView. Revenues outside of North America increased primarily due to our acquisitions of Oxford Analytica (included in Europe) and Timebase (included in Australia).
Cost of revenues
Cost of revenues was $8.7 million for the three months ended September 30, 2022, as compared to $5.4 million for the three months ended September 30, 2021. The increase of $3.3 million, or 61%, was primarily attributable to $1.0 million of increased costs (excluding amortization expense) from our 2021 Acquisitions and Aicel, an increase in amortization expense of approximately $0.2 million related to capitalized software development costs and developed technology from our 2021 Acquisitions and Aicel, $1.0 million of increased costs related to the growth in our business, and $1.1 million of an increase in amortization expense related to our capitalized software development costs.
Cost of revenues was $23.6 million for the nine months ended September 30, 2022, as compared to $14.7 million for the nine months ended September 30, 2021. The increase of $8.9 million, or 61%, was primarily attributable to $5.2 million of increased costs (excluding amortization expense) from our 2021 Acquisitions and Aicel, an increase in amortization expense of approximately $1.0 million related to capitalized software development costs and developed technology from our 2021 Acquisitions and Aicel, $1.0 million of increased costs related to the growth in our business, and $1.6 million of an increase in amortization expense related to our capitalized software development costs.
Research and development
Research and development expense was $5.6 million for the three months ended September 30, 2022 as compared to $6.4 million for the three months ended September 30, 2021. The decrease of $0.8 million, or 12%, was primarily attributable to a decrease of $1.5 million primarily related to compensation and benefits, offset by $0.4 million incremental share-based compensation triggered by the Business Combination and $0.3 million of research and development costs incurred by our 2021 Acquisitions and Aicel.
Research and development expense was $15.4 million for the nine months ended September 30, 2022 as compared to $17.7 million for the nine months ended September 30, 2021. The decrease of $2.2 million, or 13%, was primarily attributable to a decrease of $4.7 million
48
primarily related to compensation and benefits, offset by $0.5 million incremental share-based compensation triggered by the Business Combination, and $2.1 million of research and development costs incurred by our 2021 Acquisitions.
Sales and marketing
Sales and marketing expense was $11.8 million for the three months ended September 30, 2022 as compared to $7.5 million for the three months ended September 30, 2021. The increase of $4.3 million, or 59%, was primarily attributable to an increase of $3.1 million in sales and marketing costs incurred by our 2021 Acquisitions and Aicel, an increase of $0.6 million in salary costs as we increased our sales team headcount in the second and third quarter of 2022, as well as $0.7 million of incremental share-based compensation triggered by the Business Combination.
Sales and marketing expense was $31.7 million for the nine months ended September 30, 2022 as compared to $21.3 million for the nine months ended September 30, 2021. The increase of $10.4 million, or 49% was primarily attributable to an increase of $9.7 million in sales and marketing costs incurred by our 2021 Acquisitions and Aicel, as well as $0.7 million incremental share-based compensation triggered by the Business Combination.
Editorial expense
Editorial expense was $4.2 million for the three months ended September 30, 2022 as compared to $3.8 million for the three months ended September 30, 2021. Editorial expense was $11.2 million for the nine months ended September 30, 2022 as compared to $11.0 million for the nine months ended September 30, 2021. Editorial expense remained relatively flat during the first three quarters in 2022 as compared to the same periods in 2021 as a result of our continued focus on monitoring costs.
General and administrative
General and administrative expense was $38.9 million for the three months ended September 30, 2022 as compared to $9.3 million for the three months ended September 30, 2021. The increase of $29.6 million, or 317%, was primarily attributable to $17.7 million of non-cash stock based compensation expense associated with the earnout shares issued to employees who held equity ownership in old FiscalNote through ownership of common stock, vested options, or unvested options on the closing date of the Business Combination (see Note 10 in our unaudited condensed consolidated financial statements), $6.2 million of non-cash stock based compensation associated with the issuance of stock options and RSUs to our CEO, COO, and CFO pursuant to their employment agreements with New FiscalNote, $5.0 million of non-cash stock-based compensation associated with certain stock options whereby their vesting was triggered by the closing of the Business Combination, and $1.0 million increase in general and administrative expenses primarily related to incremental salary, benefits and bonus expense we incurred as we increased our headcount in preparation of becoming a public company.
General and administrative expense was $59.5 million for the nine months ended September 30, 2022 as compared to $22.2 million for the nine months ended September 30, 2021. The increase of $37.3 million, or 168%, was primarily attributable to $17.7 million of non-cash stock based compensation expense associated with the earnout shares issued to employees who held equity ownership in old FiscalNote through ownership of common stock, vested options, or unvested options on the closing date of the Business Combination (see Note 10 in our unaudited condensed consolidated financial statements), $6.2 million of non-cash stock based compensation associated with the issuance of stock options and RSUs to our CEO, COO, and CFO pursuant to their employment agreements with New FiscalNote, $5.0 million of non-cash stock-based compensation associated with certain stock options whereby their vesting was triggered by the closing of the Business Combination, and $3.5 million of general and administrative costs incurred by our 2021 Acquisitions and Aicel. The remaining increase in general and administrative expenses is primarily related to $4.7 million of incremental salary, benefits and bonus expense we incurred as we increased our headcount in preparation of becoming a public company, and $0.4 million of non-cash lease asset impairment charges.
Amortization of intangibles
Amortization of intangibles was $2.6 million for the three months ended September 30, 2022 as compared to $2.5 million for the three months ended September 30, 2021. The increase of $0.1 million, or 4%, is primarily due to the increase in amortizable intangible assets from the 2021 Acquisitions and Aicel.
Amortization of intangibles was $7.8 million for the nine months ended September 30, 2022 as compared to $6.7 million for the nine months ended September 30, 2021. The increase of $1.1 million, or 18%, is due to the increase in amortizable intangible assets from the 2021 Acquisitions and Aicel totaling $1.6 million offset by a $0.4 million reduction in amortization expense related to intangible assets from our VoterVoice and Shungham acquisitions becoming fully amortized in 2021.
Transaction costs, net
Transaction costs were $1.3 million for the three months ended September 30, 2022, as compared to transaction costs of $2.1 million for the three months ended September 30, 2021. The decrease of $0.9 million , or 40%, is primarily due to $2.0 million decrease in contingent compensation and earnout liabilities related to our acquisitions of Equilibrium, Forge, and FrontierView and the reversing of previously recognized earnout liabilities related to our Predata acquisitions, $0.1 million increase in transaction costs related to acquired businesses, offset by $1.3 million increase in non-capitalized costs related to the Business Combination.
Transaction costs were $1.3 million for the nine months ended September 30, 2022, as compared to transaction costs of $3.0 million for the nine months ended September 30, 2021. The decrease of $1.7 million, or 58%, is primarily due to $3.0 million decrease in contingent compensation and earnout liabilities related to our acquisitions of Equilibrium, Forge, and FrontierView and the reversing of previously
49
recognized earnout liabilities related to our Predata acquisitions, offset by $1.4 million increase in non-capitalized costs related to the Business Combination.
Interest expense, net
Interest expense was $42.9 million for the three months ended September 30, 2022 as compared to $16.3 million for the three months ended September 30, 2021. Interest expense was $89.7 million for the nine months ended September 30, 2022 as compared to $46.1 million for the nine months ended September 30, 2021. The increase in interest expense during the three and nine months ended September 30, 2022 was primarily due to a $32.1 million charge to interest expense we recorded related to the derecognition of beneficial conversion features embedded within the convertible notes that went into equity as part of the Company's public listing as well as incremental interest expense incurred related to the $18 million related party convertible note issued in the fourth quarter of 2021, and $20 million increase in our Senior Term Loan in the first quarter of 2022 that was not incurred during the three and nine months ended September 30, 2021 based on the issuance dates.
On July 29, 2022 we entered into a $150.0 million senior term loan that accrues PIK interest at 1%, compounded monthly, and has cash only interest payments of the greater of (a) 9% and (b) the Prime Rate plus 5%. Immediately prior to the consummation of the Business Combination, all of our convertible debt, excluding four convertible notes with a principal balance of $8.1 million, converted into common stock of Old FiscalNote, which were entitled to be exchanged for shares of Class A common shares of New FiscalNote at the Exchange Ratio. As a result of this conversion, we recognized a one-time interest charge of $32.1 million related to the derecognition of the beneficial conversion feature associated with the aforementioned convertible notes.
Change in fair value of warrant and derivative liabilities
Change in fair value of warrant liabilities was a $21.9 million gain for the three months ended September 30, 2022 as compared to a $2.8 million gain for the three months ended September 30, 2021. The increase of $19.1 million primarily represents a $21.9 million gain that was recorded as a result of the fair value adjustment of the warrant liabilities that were assumed in connection with the Business Combination, offset by $3.1 million loss resulting from the final fair value adjustment of the embedded derivative liabilities that were settled upon conversion of the associated convertible notes as part of the Business Combination.
Change in fair value of warrant liabilities was a $18.5 million gain for the nine months ended September 30, 2022 as compared to a $9.4 million loss for the nine months ended September 30, 2021. The increase of $27.9 million, or 297%, primarily represents a $21.9 million gain that was recorded as a result of the fair value adjustment of the warrant liabilities that were assumed in connection with the Business Combination, and a $6.0 million gain resulting from the fair value adjustment of the derivative liabilities that were settled upon conversion of the associated convertible notes as part of the Business Combination.
Loss on debt extinguishment, net
Change in loss on debt extinguishment, net for the three and nine months ended September 30, 2022 represents a $45.3 million loss that was recorded as a result of repayment of certain of our outstanding debt, as well as the conversion of our convertible debt as part of the Business Combination.
Income tax benefit
Income tax benefit was $2.3 million for the three months ended September 30, 2022 as compared to an income tax benefit of $1.0 million for the three months ended September 30, 2021. The increase of $1.3 million in income tax benefit was primarily driven by related impacts on the Company’s valuation allowance.
Income tax benefit was $2.8 million for the nine months ended September 30, 2022 as compared to $6.7 million for the nine months ended September 30, 2021. The decrease of $3.9 million in income tax benefit was primarily driven by related impacts on the Company’s valuation allowance and return to provision adjustments.
Certain Non-GAAP Measures
We present certain non-GAAP financial measures including Adjusted Revenues, Adjusted Gross Profit, Adjusted Gross Profit Margin and Adjusted EBITDA. Our management team assesses our performance based on these non-GAAP measures because it believes they reflect the underlying trends and indicators of our business and serve as meaningful indicators of our continuous operational performance. We believe these measures are useful for investors for the same reasons. Investors should be aware that these measures are not a substitute for GAAP financial measures or disclosures. Where applicable, we provide reconciliations of these non-GAAP measures to the corresponding most closely related GAAP measure.
50
Adjusted Revenues
The following table presents our calculation of Adjusted Revenues for the periods presented, and a reconciliation of this measure to our GAAP revenues for the same periods:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Subscription revenue |
|
$ |
26,075 |
|
|
$ |
20,139 |
|
|
$ |
73,186 |
|
|
$ |
53,098 |
|
Deferred revenue adjustment |
|
|
123 |
|
|
|
1,161 |
|
|
|
1,853 |
|
|
|
1,533 |
|
Adjusted subscription revenue |
|
|
26,198 |
|
|
|
21,300 |
|
|
|
75,039 |
|
|
|
54,631 |
|
Advisory, advertising, and other revenue |
|
|
2,996 |
|
|
|
1,635 |
|
|
|
9,130 |
|
|
|
5,352 |
|
Adjusted Revenues |
|
$ |
29,194 |
|
|
$ |
22,935 |
|
|
$ |
84,169 |
|
|
$ |
59,983 |
|
Adjusted Gross Profit and Adjusted Gross Profit Margin
The following table presents our calculation of Adjusted Gross Profit and Adjusted Gross Profit Margin for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Adjusted Revenues |
|
$ |
29,194 |
|
|
$ |
22,935 |
|
|
$ |
84,169 |
|
|
$ |
59,983 |
|
Costs of revenue |
|
|
(8,699 |
) |
|
|
(5,412 |
) |
|
|
(23,581 |
) |
|
|
(14,664 |
) |
Amortization of intangible assets |
|
|
2,832 |
|
|
|
1,569 |
|
|
|
6,664 |
|
|
|
4,077 |
|
Adjusted Gross Profit |
|
$ |
23,327 |
|
|
$ |
19,092 |
|
|
$ |
67,252 |
|
|
$ |
49,396 |
|
Adjusted Gross Profit Margin |
|
|
80 |
% |
|
|
83 |
% |
|
|
80 |
% |
|
|
82 |
% |
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
The following table presents our calculation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss |
|
$ |
(109,002 |
) |
|
$ |
(27,958 |
) |
|
$ |
(175,713 |
) |
|
$ |
(88,462 |
) |
Benefit from income taxes |
|
|
(2,286 |
) |
|
|
(992 |
) |
|
|
(2,836 |
) |
|
|
(6,737 |
) |
Depreciation and amortization |
|
|
5,743 |
|
|
|
4,378 |
|
|
|
15,374 |
|
|
|
11,598 |
|
Interest expense, net |
|
|
42,894 |
|
|
|
16,261 |
|
|
|
89,672 |
|
|
|
46,102 |
|
EBITDA |
|
|
(62,651 |
) |
|
|
(8,311 |
) |
|
|
(73,503 |
) |
|
|
(37,499 |
) |
Deferred revenue adjustment (a) |
|
|
123 |
|
|
|
1,161 |
|
|
|
1,853 |
|
|
|
1,533 |
|
Stock-based compensation |
|
|
30,043 |
|
|
|
187 |
|
|
|
30,868 |
|
|
|
547 |
|
Change in fair value of warrant and derivative liabilities (b) |
|
|
(21,910 |
) |
|
|
(2,839 |
) |
|
|
(18,524 |
) |
|
|
9,406 |
|
Loss on debt extinguishment, net |
|
|
45,250 |
|
|
|
- |
|
|
|
45,250 |
|
|
|
- |
|
Other non-cash (gains) charges (c) |
|
|
(948 |
) |
|
|
1,045 |
|
|
|
(9,286 |
) |
|
|
2,407 |
|
Acquisition related costs (d) |
|
|
431 |
|
|
|
561 |
|
|
|
1,003 |
|
|
|
1,051 |
|
Other infrequent costs (e) |
|
|
435 |
|
|
|
1,049 |
|
|
|
858 |
|
|
|
2,736 |
|
Costs incurred related to the transaction (f) |
|
|
1,791 |
|
|
|
521 |
|
|
|
2,250 |
|
|
|
889 |
|
Adjusted EBITDA |
|
$ |
(7,436 |
) |
|
$ |
(6,626 |
) |
|
$ |
(19,231 |
) |
|
$ |
(18,930 |
) |
Adjusted EBITDA Margin |
|
|
(25.5 |
)% |
|
|
(28.9 |
)% |
|
|
(22.8 |
)% |
|
|
(31.6 |
)% |
Liquidity and Capital Resources
On July 29, 2022 the Company consummated the Business Combination with DSAC as well as the closing of the New Senior Term Loan whereby the Company received $65.6 million of net cash proceeds. At September 30, 2022, the Company’s cash and cash equivalents was $78.0 million.
The Company had a negative working capital balance of $38.2 million (excluding cash) at September 30, 2022 and had an accumulated deficit of $658.2 million and $481.4 million as of September 30, 2022 and December 31, 2021, respectively, and has incurred net losses of $175.7 million and $88.5 million for the nine months ended September 30, 2022 and 2021, respectively. Management expects that significant
51
on-going operating and capital expenditures will be necessary to continue to implement the Company’s business plan of entering new markets, future acquisitions, and infrastructure and product development. Historically the Company’s cash flows from operations have not been sufficient to fund its current operating model.
Our capital requirements depend on many factors, including sales volume, the timing and extent of spending to support R&D efforts, investments in information technology systems, the expansion of sales and marketing activities, and execution on our acquisition strategy. We believe our cash on hand, proceeds from our expected product sales, and available borrowings under our New Senior Term Loan for certain acquisition activity, will be sufficient to meet our short-term and long-term operating expenses and capital expenditures for at least the next twelve months.
However, our ability to fund our operating expenses and capital expenditure requirements will depend in part on general economic, financial, competitive, legislative, regulatory and other conditions that may be beyond our control. Depending on these and other market conditions, we may seek additional financing. Volatility in the credit markets may have an adverse effect on our ability to obtain debt financing. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, or may require us to agree to unfavorable terms, and our existing stockholders may experience significant dilution.
Financing Activities
Our historical financing activities included borrowings under senior secured credit facilities, senior secured promissory notes, convertible debt, and preferred share issuances. Our principal debt outstanding immediately after the closing of the Business Combination and at September 30, 2022 consisted of the following (excluding any debt discounts, as applicable):
(In thousands) |
|
July 29, 2022 |
|
|
September 30, 2022 |
|
||
New Senior Term Loan |
|
$ |
150,000 |
|
|
$ |
150,263 |
|
Convertible Notes |
|
|
10,517 |
|
|
|
10,788 |
|
Aicel Convertible Note |
|
|
1,031 |
|
|
|
1,030 |
|
PPP Loan |
|
|
295 |
|
|
|
277 |
|
Total Principal Outstanding |
|
$ |
161,843 |
|
|
$ |
162,358 |
|
New Senior Term Loan
In connection with the Closing, FiscalNote entered into a $150.0 million new senior term loan facility (the “New Senior Term Loan”) with Runway Growth Finance Corp., ORIX Growth Capital, LLC, Clover Orochi LLC, and ACM ASOF VIII SaaS FinCo LLC (together the “New Senior Lenders”). The New Senior Term Loan includes an uncommitted incremental loan facility totaling $100.0 million available upon notice if the Company meets certain financial growth criteria and other customary requirements (the “New Incremental Term Facility”) (collectively the “New Senior Credit Facility”). The annual interest of the New Senior Term Loan consists of two components: a cash interest component of (a) the greater of (i) Prime Rate plus 5.0% per annum and (ii) 9.0% payable monthly in cash, and (b) interest payable in kind component of 1.00% per annum, payable in kind monthly. The New Senior Credit Facility will mature on July 29, 2027. Beginning on August 15, 2025, 50% of the outstanding principal amount of the Senior Term Loan must be repaid in even amounts on a monthly basis over the remaining 24 months, with the final balance due on July 15, 2027. Borrowings under our New Senior Credit Facility are collateralized by substantially all of the Company’s assets. During the three and nine months ended September 30, 2022 we made cash interest payments totaling $2.1 million related to the New Senior Term Loan. See Note 8 “Debt” to the condensed consolidated financial statements included elsewhere herein.
Convertible Notes
Four convertible noteholders with an aggregate principal amount (including accrued paid in kind interest) of $10.5 million as of the Closing Date elected not to convert their notes into shares of capital stock of the Company in conjunction with Closing. The convertible notes are unsecured, earn payable in kind interest of 15% per annum, payable in kind monthly, and mature in 2025.
Aicel Convertible Note
On July 29, 2022, we acquired Aicel Technologies and assumed its $1.0 million convertible note. The Aicel Convertible Note is subordinate to our New Senior Credit Facility, payable in kind interest of 1%, payable in kind monthly, and matures in 2027. The Aicel Convertible Note is subordinate to our New Senior Credit Facility.
PPP Loan
The PPP Loan requires monthly principal and interest payments of approximately $9 until maturity in 2027.
52
Cash Flow Summary
The following tables summarizes our cash flows for the periods presented:
|
|
Nine Months Ended September 30, |
|
|||||
(In thousands) |
|
2022 |
|
|
2021 |
|
||
Net loss |
|
$ |
(175,713 |
) |
|
$ |
(88,462 |
) |
|
|
|
|
|
|
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(57,499 |
) |
|
$ |
(24,179 |
) |
Investing activities |
|
$ |
(7,734 |
) |
|
$ |
(30,309 |
) |
Financing activities |
|
$ |
111,515 |
|
|
$ |
45,992 |
|
Operating activities
Cash used in operating activities consists of net loss adjusted for certain non-cash items including depreciation and amortization, stock based compensation, changes in fair value of warrant liabilities, non-cash interest expense, and loss on debt extinguishment, as well as the effect of changes in working capital and other activities.
Cash used in operating activities in the nine months ended September 30, 2022 was $57.5 million, an increase of $33.3 million compared to the nine months ended September 30, 2021. Cash used in operating activities was driven by a net loss of $175.7 million, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $128.9 million, including non-cash interest expense of $50.5 million, loss on debt extinguishment of $45.3 million, stock-based compensation expense of $30.9 million, a gain due to the change in fair value of warrant liabilities of $21.9 million, and amortization and depreciation of $17.3 million, and the effect of changes in operating assets and liabilities that resulted in cash outflows of $10.4 million.
The increase in cash used in operating activities of $33.3 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily due to a $25.3 million increase in cash paid for interest mainly attributable to the payment of paid in kind interest as part of the debt prepayment paid by the Company as part of the Closing. Also contributing to the increase in net cash used in operating activities was an unfavorable change in operating assets and liabilities of $10.4 million. Cash used by operating activities can be impacted by factors such as new acquisitions, timing of cash receipts from customers, vendor payment terms, and timing of payments to vendors.
Investing activities
Net cash used in investing activities in the nine months ended September 30, 2022 was $7.7 million compared to $30.3 million in the nine months ended September 30, 2021. Net cash used in investing activities in the nine months ended September 30, 2022 primarily consisted cash paid of $8.1 million of software development costs and $0.7 million of capital expenditures, offset by $1.1 million cash acquired from the acquisition of Aicel, net of cash paid for the assets acquisition of DT-Global. Net cash used in investing activities in the nine months ended September 30, 2021 was $30.3 million, primarily consisted of $26.4 million of cash paid for the acquisitions of Oxford Analytica, Fireside, Timebase, Board.org, Equilibrium, and Predata, and $3.9 million of capital expenditures.
Financing activities
Net cash provided by financing activities in the nine months ended September 30, 2022 was $111.5 million, compared to $46.0 million for the nine months ended September 30, 2021. Net cash provided by financing activities during the nine months ended September 30, 2022 primarily consisted of $325.0 million in gross proceeds from the Business Combination (inclusive of (a) the net receipts from $150.0 million proceeds from the issuance of our New Senior Term Loan, (b) $61.0 million from DSAC’s trust, and (c) $114.0 million from the backstop agreement with the sponsor of DSAC), and $4.5 million cash proceeds from the exercise of public warrants, $0.4 million from the exercise of stock options, offset by a total of $48.7 million in transaction costs related to the Business Combination and New Senior Term Loan, $189.0 million in principal repayments of First Out Term Loan, Last Out Term Loan, Fireside Promissory Notes, 8090 FV Subordinated Promissory Note, and the New GPO Note. Net cash provided by financing activities during the nine months ended September 30, 2021 was $46.0 million, primarily consisted of $33.1 million of net cash received from the issuance of convertible notes in 2021, $12.5 million from the issuance of shares of Series G preferred stock in 2021, and $0.4 million of proceeds from the exercise of stock options.
Commitments and Contingencies
Our principal commitments consist of obligations under leases for office space. For more information regarding our lease obligations, see Note 5 “Leases” to the condensed consolidated financial statements included elsewhere herein. For more information regarding our debt service obligations, see Note 8 “Debt” to the condensed consolidated financial statements included elsewhere herein.
Off-Balance Sheet Arrangements
During the periods presented, we did not engage in any off-balance sheet financing activities or other arrangements that have or are reasonably likely to have a current or future material effect on our financial condition or results of operations.
Recently Issued Accounting Pronouncements
For information regarding new accounting pronouncements, and the impact of these pronouncements on our condensed consolidated financial statements, if any, refer to Note 1 to our condensed consolidated financial statements as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021.
53
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Critical Accounting Policies
We believe that of our significant accounting policies, which are described in Note 1 “Summary of Business and Significant Accounting Policies” to our condensed consolidated financial statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.
Revenue Recognition
Subscription revenues are recurring in nature and include subscription fees from customers accessing our company’s cloud-based infrastructure, digital content, transcripts, news and analysis, images, video and podcast data. Advisory, advertising and other revenue includes revenues derived from non-recurring activities where we deliver specific deliverables for clients as well as where we provide advertising in our own publications (Roll Call and CQ) in both print and digital formats, the sale of various publications, and sponsorship revenue for events organized by the Company. Our company’s subscription arrangements are generally non-cancelable and do not contain refund-type provisions. Our company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised goods or services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services.
Our company’s contracts with customers may include promises to transfer multiple services. For these contracts, our company accounts for individual promises separately if they are distinct performance obligations. Determining whether services are considered distinct performance obligations may require significant judgment. Judgment is also required to determine the standalone selling price (“SSP”) for each distinct performance obligation. In instances where SSP is not directly observable, such as when our company does not sell the services separately, our company determines the SSP using available information, including market conditions and other observable inputs.
Costs Capitalized to Obtain Revenue Contracts
Costs capitalized related to new revenue contracts are amortized on a straight-line basis over four years, which, although longer than the typical initial contract period, reflects the average period of benefit, including expected contract renewals. Significant judgment is required in arriving at this average period of benefit. Therefore, we evaluate both qualitative and quantitative factors, including the estimated life cycles of our offerings and our customer attrition.
Business Combinations
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.
Critical estimates in valuing certain of the intangible assets and goodwill we have acquired are:
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Useful Lives of Intangible Assets
Amortization of acquired intangible assets is dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.
Warrant Liabilities
The Company evaluates its financial instruments, including its outstanding warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company has outstanding public and private warrants, both of which do not meet the criteria for equity classification and are accounted for as liabilities. Accordingly, the Company recognizes the warrants as liabilities
54
at fair value and adjusts the warrants to fair value at each reporting period. The warrant liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s unaudited condensed consolidated statement of operations.
The fair value of the public warrants is estimated based on the quoted market price of such warrants. The fair value of the private warrants is estimated using a binomial option pricing model.
Deferred Taxes and Valuation Allowance
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.
Incremental Borrowing Rate Used to Calculate Lease Balances
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate as the discount rate to measure the operating lease assets and liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease and includes considerations of both the market, our current capital structure and exiting debt borrowings. We perform an incremental borrowing rate analysis on a quarterly basis, or upon execution of any individually material agreement, to ensure that the rates being applied to newly acquired leases are still accurate.
55
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
We are exposed to market risks in the ordinary course of our business. These risks primarily consist of inflation risk and fluctuations in interest rates and foreign currency exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes.
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British Pound Sterling and Australian Dollar. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States as well as the European Union, United Kingdom, Australia, South Korea, Hong Kong and India. Our results of operations and cash flows in the future may be adversely affected due to an expansion of non-U.S. dollar denominated contracts, growth of our international entities and changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our cash denominated in foreign currency. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage the risk relating to fluctuations in currency rates.
Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenues, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into USD. Total revenue during the three months ended September 30, 2022, was negatively impacted by approximately 2.2% compared to the three months ended June 30, 2022.
Interest Rate Risk
We are subject to market risk associated with changing interest rates within our variable rate New Senior Term Loan. Our exposure to changes in interest rates is associated with the Prime Rate.
As of September 30, 2022, we had outstanding borrowings on our New Senior Term Loan of $150.3 million that bears interest at a floating rate based on the Prime Rate plus an applicable margin. At September 30, 2022 the interest on our New Senior Term Loan was 11.25%. Assuming no change in the outstanding borrowings on our New Senior Term Loan, we estimate that a one percentage point increase in the Prime Rate would increase our annual cash interest expense by approximately $1.5 million.
Inflation Risk
Although we do not believe inflation has had a material impact on our financial condition, results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on our business.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Disclosure Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of the disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, due to the material weakness described below and in Part II, Item 1A. of this report, our disclosure controls and procedures were not effective as of September 30, 2022. Notwithstanding the material weaknesses, our management has concluded that the financial statements included elsewhere in this report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.
Material Weaknesses
In connection with the audits and reviews of our consolidated financial statements, we identified material weaknesses in our internal control over financial reporting. The material weaknesses related to the accounting for the Business Combination transaction, accounting for tax provision, abandonment of software development costs, EPS calculations, fair valuation of convertible notes and fair valuation of seller notes issued in business combinations, accounting for convertible promissory notes - embedded derivatives, accounting for related party transactions, the implementation of new revenue accounting standard ASC 606, and accounting for contract costs, as well as internal controls over administrative access to our accounting and finance systems and system change management.
Remediation
We initiated and implemented several remediation measures including, but not limited to hiring additional accounting leadership and staff with requisite background and knowledge, engaging third parties to assist us in complying with the accounting and financial reporting
56
requirements related to significant and complex transactions, and assist us with formalizing our business processes, accounting policies and internal control documentation, strengthening supervisory reviews by our management, and evaluating the effectiveness of our internal controls in accordance with the framework established by Internal Control – Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission. We believe the measures described above should remediate the material weaknesses identified and strengthen our internal control over financial reporting. The remediation initiatives outlined above are estimated to take place over the next 12 to 18 months. While we continue the challenging and costly process to implement our plan to remediate the material weaknesses, we cannot predict the success of such plan or the outcome of our assessment of this plan until the remediation initiatives have been completed and have been operating effectively for a sufficient period of time. We can give no assurance that these measures will remediate the deficiencies in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations for the period ended September 30, 2022.
Changes in Internal Control over Financial Reporting
Other than the material weaknesses identified and material weakness remediation activities described above, there were no changes in our internal control over financial reporting, as identified in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
57
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal or regulatory proceedings, including intellectual property claims, commercial contract matters or employment-related disputes. Such cases may raise complex factual and legal issues, may subject us to material risks and uncertainties, could require significant management time and corporate resources to defend, could result in significant media coverage and negative publicity, and could be harmful to our reputation and our brand. We are not currently a party to any litigation or regulatory proceeding that we expect to have a material adverse effect on our business, results of operations, financial conditions or cash flows.
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Current Report on Form 8-K filed with the SEC on August 2, 2022. However, we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
We did not have any unregistered sales of equity securities during the three months ended September 30, 2022.
Use of Proceeds
Not applicable
Purchase of Equity Securities
We did not repurchase shares of our common stock during the three months ended September 30, 2022.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
58
Exhibit Number |
|
Description |
Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
2.1 |
|
Agreement and Plan of Merger, dated as of November 7, 2021, by and among Duddell Street Acquisition Corp. (renamed “FiscalNote Holdings, Inc.”), Grassroots Merger Sub, Inc. and FiscalNote Holdings, Inc. (renamed “FiscalNote Intermediate Holdco, Inc.”). |
Annex A to the Proxy Statement/Prospectus filed on July 5, 2022 (File No.333-261483). |
2.2 |
|
First Amendment to Agreement and Plan of Merger, dated as of May 9, 2022, by and among Duddell Street Acquisition Corp. (renamed “FiscalNote Holdings, Inc.”), Grassroots Merger Sub, Inc. and FiscalNote Holdings, Inc. (renamed “FiscalNote Intermediate Holdco, Inc.”). |
Annex A-2 to the Proxy Statement/Prospectus filed on July 5, 2022 (File No.333-261483). |
3.1 |
|
Certificate of Incorporation of FiscalNote Holdings, Inc. (f/k/a/ Duddell Street Acquisition Corp.). |
Exhibit 3.1 to the Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
3.2 |
|
Bylaws of FiscalNote Holdings, Inc. (f/k/a/ Duddell Street Acquisition Corp.). |
Exhibit 3.2 to the Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
10.1 |
|
Amended and Restated Registration Rights Agreement, dated as of July 29, 2022, by and among FiscalNote Holdings, Inc. (f/k/a/ Duddell Street Acquisition Corp.), Duddell Street Holdings Limited and the other Holders signatory thereto. |
Exhibit 10.5 to Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
10.2 |
|
Form of Indemnification Agreements. |
Exhibit 10.6 to the Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
10.3 |
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Amendment and Restatement Agreement, dated as of July 29, 2022, by and among FiscalNote, Inc., the other borrowers party thereto, the guarantors party thereto, Runway Growth Finance Corp., as administrative agent and collateral agent, and the lenders party thereto. |
Exhibit 10.7 to the Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
10.4 |
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Amended and Restated Security Agreement, dated as of October 19, 2020, by and among the persons listed on the signature pages thereto as "Grantors" and those additional entities that thereafter become parties thereto by executing the form of Joinder attached thereto as Annex 1, and Runway Growth Credit Fund Inc. as administrative agent and collateral agent for the lenders. |
Exhibit 10.8 to the Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
10.5 |
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FiscalNote Holdings, Inc. 2022 Long-Term Incentive Plan. |
Exhibit 10.9 to the Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
10.6 |
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FiscalNote Holdings, Inc. 2022 Employee Stock Purchase Plan. |
Exhibit 10.10 to the Current Report on Form 8-K filed on August 2, 2022 (File No. 001-396972) |
31.1 |
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Certification of Chief Executive Officer Pursuant to Rule 13a-14(a). |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a). |
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32 |
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Section 1350 Certifications. |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
Submitted electronically with this report. |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
Submitted electronically with this report. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
Submitted electronically with this report. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
Submitted electronically with this report. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
Submitted electronically with this report. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
Submitted electronically with this report. |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
Submitted electronically with this report. |
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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FISCALNOTE HOLDINGS, INC. |
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Date: November 14, 2022 |
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By: |
/s/ Jon Slabaugh |
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Name: Jon Slabaugh |
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Title: Chief Financial Officer |
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Date: November 14, 2022 |
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By: |
/s/ Timothy Hwang |
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Name: Timothy Hwang |
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Title: Chief Executive Officer |
60