FiscalNote Holdings, Inc. (NOTE)

Executive Summary / Key Takeaways

• FiscalNote represents a high-risk, high-reward turnaround story, simultaneously fighting for survival against going concern doubts while betting its future on the PolicyNote AI platform's ability to reignite growth in a policy intelligence market dominated by giants.
• Strategic simplification through divestitures has shrunk the business materially (ARR down 21% year-over-year to $84.8M) but created a focused operation with improving unit economics: corporate win rates are up 500 basis points year-to-date, and multi-year contracts now represent 50% of new logo ARR versus 20% in early 2024.
• The going concern warning is the critical risk factor: despite August 2025 refinancing, management acknowledges "substantial doubt" about continuing as a going concern within one year if covenant compliance fails, creating a binary outcome for equity holders.
• PolicyNote shows promising early traction—surpassing legacy platform daily active users by June 2025 and delivering 35+ major enhancements—but has not yet translated to revenue growth, with organic subscription revenue still declining 6% year-over-year excluding divestiture impacts.
• Valuation at 0.27x sales and $1.75 per share prices in a high probability of bankruptcy, creating asymmetric upside potential if the company successfully navigates covenant compliance and PolicyNote drives the anticipated ARR acceleration in 2026.

Setting the Scene: A Policy Intelligence Specialist at the Crossroads

FiscalNote Holdings, founded in 2013 and headquartered in Washington, D.C., pioneered AI-driven policy and regulatory intelligence solutions for managing political and business risk. The company went public via a SPAC merger in July 2022, a transaction that provided capital but also saddled it with legacy debt and operational complexity. Over the subsequent three years, FiscalNote executed a dramatic strategic simplification, divesting five non-core businesses—including Board.org for $90.9 million in March 2024 and the recent March 2025 sale of Oxford Analytica and Dragonfly for $40 million—to focus exclusively on its core policy intelligence franchise.

This transformation positions FiscalNote as a pure-play policy intelligence provider in a market dominated by entrenched competitors like Thomson Reuters (TRI) and RELX (RELX), which offer broader legal and regulatory platforms but lack FiscalNote's specialized focus on AI-driven policy advocacy. The company's subscription-based model, representing 93% of revenue, provides recurring revenue visibility, while its remaining advisory and advertising services offer complementary revenue streams. However, this strategic focus comes at a cost: the divestitures reduced trailing revenue from over $120 million to a guided $95-96 million for 2025, while the accumulated deficit ballooned to $849.3 million as of September 30, 2025.

The policy intelligence market is experiencing structural tailwinds from increasing regulatory complexity, with inbound demand for FiscalNote's products up over 20% year-over-year in early 2025. Yet the company faces headwinds from federal sector volatility, including a protracted government shutdown estimated to impact 2025 revenue by $2-3 million. This tension between market opportunity and execution challenges defines FiscalNote's current predicament: it must prove its AI-first pivot can outrun both competitive pressure and financial constraints.

Technology, Products, and Strategic Differentiation: PolicyNote as the Turnaround Engine

PolicyNote, launched publicly in January 2025, represents FiscalNote's most significant product milestone and the centerpiece of its turnaround strategy. This AI-first platform consolidates all policy-related data and content into a single user interface, fundamentally shifting the company's value proposition from data provider to AI-powered workflow enabler. The platform's architecture enables rapid feature development: when President Trump announced sweeping tariffs in April 2025, FiscalNote delivered a comprehensive tariff tracker within two weeks, demonstrating agility that larger competitors cannot match.

The platform's early performance metrics support management's optimism. By June 2025, PolicyNote surpassed the legacy platform in daily active users, and migration remains ahead of schedule with completion expected by year-end 2025. User engagement data reveals qualitatively superior behavior: new customers set high-value alerts far sooner after activation than on legacy platforms, and an initial cohort of at-risk customers showed 75% becoming healthy users with over one-third converting to power users. These metrics matter because they indicate PolicyNote is not merely replacing the old platform but creating stickier, more valuable customer relationships that should translate to improved retention and expansion revenue.

FiscalNote's competitive moat rests on three pillars. First, its specialized AI for policy discovery and analysis offers faster, more intuitive user experiences for advocacy workflows compared to Thomson Reuters' and RELX's broader but more cumbersome legal platforms. Second, the company's human-AI hybrid approach combines machine learning with expert analyst insights, delivering actionable intelligence rather than raw data. Third, its focused distribution in government affairs builds deep relationships in a niche where larger players lack specialized expertise. This differentiation enables premium pricing: corporate multiyear contracts now represent 50% of new logo ARR, up from 20% in early 2024, strengthening revenue visibility without aggressive discounting.

However, technological gaps remain. While PolicyNote excels at policy advocacy, it lacks the integrated risk and compliance breadth of Wolters Kluwer's (WTKWY) platforms, limiting appeal to enterprise law firms. The company's smaller scale also constrains R&D investment relative to competitors, creating a race against time to establish PolicyNote's market position before larger players replicate its capabilities.

Financial Performance & Segment Dynamics: Evidence of Turnaround or Signs of Distress?

FiscalNote's financial results present a complex picture of simultaneous improvement and deterioration. On the positive side, the company achieved its fifth consecutive quarter of adjusted EBITDA margins at or above 10%, with Q3 2025 hitting 10% on $2.2 million of adjusted EBITDA—exceeding guidance. This margin expansion reflects disciplined cost management: pro forma operating expenses decreased 8% year-over-year, while research and development, sales and marketing, and editorial expenses all declined 25-36% due to workforce planning actions and business dispositions. Cash used in operations improved by approximately $35 million over the trailing twelve months compared to the prior year, demonstrating operational leverage.

The subscription segment, representing 93% of revenue, shows mixed signals. While ARR declined to $84.8 million from $107.5 million at year-end 2024, the quality of that revenue is improving. Net revenue retention stabilized at 98% in Q3 2025, up 200 basis points from Q2 on a pro forma basis, and corporate win rates improved 400 basis points sequentially in Q3, contributing to a 500 basis point year-to-date improvement. Average contract values are trending meaningfully upward, with multi-year policy data contracts now comprising half of new corporate ARR. These improvements suggest the revenue decline stems primarily from divestitures and federal sector cuts rather than competitive attrition.
The advisory, advertising, and other segment remains a drag, with revenue down 43% year-over-year in Q3 2025 to $1.2 million, reflecting the absence of divested businesses. While this segment provides complementary services, its decline underscores the company's dependence on subscription growth for recovery.

The balance sheet reveals the existential risk. Despite refinancing, FiscalNote maintains negative working capital of $31.3 million (excluding cash) and an accumulated deficit of $849.3 million. Cash stands at $31.8 million, down from $35.3 million at year-start, while debt-to-equity ratio of 2.05x remains elevated. The new $75 million senior term loan maturing in 2029 provides breathing room but imposes four financial covenants: minimum cash balance, minimum ARR, minimum adjusted EBITDA, and capital expenditure limitations. Management's explicit going concern warning—"substantial doubt about its ability to continue as a going concern within one year"—reflects uncertainty about meeting these covenants, making compliance the single most important variable for equity survival.

Outlook, Management Guidance, and Execution Risk

Management's guidance reflects cautious optimism tempered by federal sector uncertainty. Full-year 2025 revenue guidance was narrowed to $95-96 million (from $94-100 million), while adjusted EBITDA guidance was set at approximately $10 million. Q4 2025 guidance calls for $22-23 million in revenue and approximately $2 million in adjusted EBITDA, consistent with recent performance. These figures assume the federal shutdown's $2-3 million impact and expect ARR growth to resume in the second half of 2025, accelerating in 2026.

The guidance's achievability hinges on three execution factors. First, PolicyNote migration must complete by year-end without disrupting customer workflows. Second, the federal sector must stabilize post-shutdown, allowing public sector revenue to recover. Third, commercial momentum must sustain: inbound demand remains strong, but converting pipeline to ARR requires maintaining the 500 basis point win rate improvement and continuing multi-year contract growth.

Management's commentary suggests confidence in the product roadmap, noting that "the pace of innovation has accelerated" with 15 major features since PolicyNote's launch. However, the company faces a timing mismatch: while PolicyNote engagement metrics are "overwhelmingly positive," revenue recognition lags adoption, and covenant compliance is measured in months, not years. This creates execution risk where any delay in ARR recovery or unexpected federal sector deterioration could trigger default.

Risks and Asymmetries: The Binary Outcome

The investment thesis faces four material risks that could break the turnaround story. The going concern risk is paramount: if FiscalNote fails to maintain covenant compliance within the next year, lenders could accelerate the $75 million term loan, rendering the equity worthless. While management has demonstrated ability to refinance and divest assets, the margin for error is razor-thin, and any operational stumble could prove fatal.

Federal sector volatility represents the second major risk. The protracted government shutdown has already impacted revenue by an estimated $2-3 million, and management acknowledges "atypical instability" in the public sector. With federal customers representing a meaningful portion of revenue, further budget cuts or extended shutdowns could derail ARR recovery and covenant compliance.

Execution risk on PolicyNote constitutes the third threat. While early metrics are encouraging, the platform must not only complete migration but also demonstrate sustainable revenue growth. If engagement metrics fail to translate to retention improvements or if larger competitors launch comparable AI features, FiscalNote's differentiation could erode quickly.

Competitive pressure from Thomson Reuters, RELX, and Wolters Kluwer presents a longer-term risk. These players have vastly greater resources (TRI: $59B market cap, 23.85% operating margin; RELX: $73B market cap, 30.86% operating margin) and are embedding AI into their comprehensive platforms. While FiscalNote's specialized focus provides near-term advantage, sustained underperformance could allow competitors to capture its niche.

The asymmetry lies in valuation. At $1.75 per share and 0.27x sales, the market prices FiscalNote as a bankruptcy candidate. If the company navigates covenant compliance and PolicyNote drives even modest ARR acceleration, multiple expansion could be dramatic. Conversely, any covenant breach likely results in near-total equity loss, creating a highly speculative but potentially lucrative risk/reward profile.

Valuation Context: Bankruptcy Pricing Meets Turnaround Potential

Trading at $1.75 per share, FiscalNote's $27.5 million market capitalization and $151.2 million enterprise value reflect extreme distress pricing. The EV/Revenue multiple of 1.47x and Price/Sales ratio of 0.27x stand at fractions of competitor valuations: Thomson Reuters trades at 8.24x revenue, RELX at 20.11x EBITDA, and Wolters Kluwer at 12.57x EBITDA. Even ZoomInfo (ZI), facing its own growth challenges, commands 2.67x sales.

These multiples imply the market assigns high probability to bankruptcy or substantial equity dilution. Yet FiscalNote's 78.6% gross margin suggests underlying business quality, and the 10% adjusted EBITDA margin demonstrates operational leverage potential. The company's $31.8 million cash position provides limited runway, but the reduced interest expense ($9 million annually versus $20 million previously) and disciplined cost management improve survival odds.

For investors, traditional metrics like P/E or P/B are meaningless given losses and negative book value. The relevant valuation framework centers on:

• Revenue multiple compression: 0.27x sales implies either zero growth or imminent failure; any ARR stabilization would warrant re-rating toward 1-2x sales
• Cash burn trajectory: Quarterly free cash flow of -$10.4 million suggests 3-4 quarters of runway without covenant breaches
• Asset value: Divestiture proceeds have demonstrated asset value (Board.org: $90.9M; Oxford Analytica/Dragonfly: $40M), suggesting breakup value could exceed market cap

The valuation asymmetry is stark: downside likely limited to zero in bankruptcy, while upside could be 3-5x if FiscalNote achieves covenant compliance and demonstrates ARR growth. This mirrors typical distressed turnaround profiles where equity represents a call option on management's execution.

Conclusion: A Call Option on PolicyNote's Promise

FiscalNote stands at an inflection point where strategic focus, product innovation, and financial distress intersect. The company's pivot to PolicyNote and divestiture of non-core assets have created a more focused, higher-margin business with improving commercial metrics, yet the going concern warning casts a shadow over all progress. For investors, this creates a binary outcome: successful covenant compliance and ARR acceleration could drive substantial multiple expansion from bankruptcy-level pricing, while any operational stumble risks near-total equity loss.

The central thesis hinges on whether PolicyNote's early engagement metrics translate to sustainable revenue growth before financial covenants become problematic. Management's guidance for ARR acceleration in 2026 provides a roadmap, but the company must first navigate the next 12 months of covenant compliance. With competitors like Thomson Reuters and RELX generating 20-30% operating margins at scale, FiscalNote's 10% EBITDA margin and specialized focus suggest viable niche economics—if it can survive long enough to capture them.

The stock at $1.75 represents a call option on execution. For risk-tolerant investors, the combination of improving commercial momentum, strategic focus, and distressed valuation creates an asymmetric opportunity. For conservative investors, the going concern risk and limited cash runway make FiscalNote uninvestable. The next two quarters will likely determine which narrative prevails.