FiscalNote (NOTE) Q2 2025: Adjusted EBITDA Margin Jumps to 12% as PolicyNote Adoption Accelerates
FiscalNote’s disciplined cost controls and PolicyNote traction drove a step-change in profitability, even as legacy product retention and federal sector instability weighed on top-line growth. Management’s reaffirmed guidance and improved sales metrics signal confidence in a return to ARR growth by year-end, with multi-year contracts and platform migration setting up a stronger 2026. Investors should watch for retention and expansion metrics as the PolicyNote transition matures.
Summary
- Margin Expansion Outpaces Revenue Recovery: Cost discipline and divestitures lifted adjusted EBITDA margins, offsetting legacy product drag.
- Product-Led Growth Anchored by PolicyNote: Rapid feature innovation and user engagement are driving customer migration and multi-year commitments.
- 2025 Inflection Point for ARR Trajectory: Management expects ARR growth to resume in H2, with further acceleration tied to retention gains in 2026.
Performance Analysis
FiscalNote’s Q2 2025 results highlight a business in transition, where operational streamlining and cost discipline are delivering profitability gains ahead of revenue stabilization. The company reported $23.3 million in revenue, with 92% coming from subscription revenue, underscoring the recurring nature of its business model. Revenue was down year-over-year, largely due to the strategic divestiture of several non-core assets, including ASIL, Oxford Analytica, and Dragonfly, as well as ongoing churn in legacy products.
Adjusted EBITDA margin rose to 12%, up sharply from 4% last year, reflecting a leaner cost structure and improved operating leverage. Notably, operating expenses dropped 17% year-over-year, and gross margin improved to 79% (86% on an adjusted basis), aided by the exit of lower-margin businesses. Annual recurring revenue (ARR) declined to $85.9 million, down $7.7 million year-over-year on a pro forma basis, as legacy retention issues and public sector volatility persisted. However, the company saw a 400 basis point improvement in corporate win rates and a significant increase in average contract value, especially for new global data packages.
- Subscription Revenue Stability: Subscription revenue remained a high share of total revenue at 92%, insulating the business from transactional volatility.
- Cost Structure Reset: Operating expense reductions and divestitures delivered immediate margin expansion, even as top-line recovery lags.
- Pipeline and Win Rate Momentum: Corporate new logo pipeline was up 45% quarter-over-quarter, and win rates improved, signaling early commercial traction for PolicyNote.
While ARR and net revenue retention (NRR) remain below target, management points to improved customer engagement and multi-year deal flow as leading indicators of a coming inflection in retention and expansion metrics.
Executive Commentary
"We delivered adjusted EBITDA of $2.8 million in Q2, exceeding guidance. This represents an adjusted EBITDA margin of 12%, an increase compared to 4% on a pro forma basis in the same period last year. This improvement reflects the ongoing benefits of our cost discipline, sharper prioritization of core growth initiatives, and improving operating leverage."
Josh Resnick, CEO and President
"Upon closing, we will replace our current senior credit facility with a new $75 million senior secured term loan with the maturity extended to 2029. This new loan is supported exclusively by funds managed by MGG Investment Group. In aggregate, this transaction serves as an important step for FiscalNote and for our ongoing efforts to stabilize and strengthen our capital structure while we accelerate execution of the product-led growth strategy."
John Slavaw, CFO and Chief Investment Officer
Strategic Positioning
1. PolicyNote Platform Migration
PolicyNote, the company’s AI-powered policy intelligence platform, is now outpacing legacy product usage, with daily active users exceeding those on the FiscalNote legacy platform. Engagement metrics—such as search frequency and AI assistant utilization—are rising, and average usage increases 30% within a customer’s first quarter. Management expects this to drive gross retention and NRR improvements in 2026 as more customers migrate.
2. Multi-Year Commitments and Customer Confidence
The rate of new private sector customers signing multi-year contracts more than doubled year-over-year for the second consecutive quarter. This shift reduces renewal risk and provides forward visibility, which management believes will directly improve gross retention and revenue stability in future periods.
3. Product Innovation and Differentiation
Rapid feature deployment continues, with over 10 major PolicyNote updates in Q2 alone, including AI-driven legislative drafting, bill outlooks, and enhanced onboarding. The introduction of global data packages and advanced AI features is resonating with enterprise customers, supporting higher average contract values and cross-sell opportunities.
4. Cost Discipline and Portfolio Simplification
Divestitures of non-core assets and sunsetted products have streamlined operations, leading to a more focused business with expanding margins. The company’s operating model now emphasizes efficiency, with ongoing reductions in R&D and sales and marketing expenses, and a clear path to positive free cash flow.
5. Capital Structure and Liquidity Enhancement
The refinancing of senior debt and restructuring of subordinated debt extend maturities to 2029, providing FiscalNote with financial flexibility and a longer runway to execute its product-led growth strategy. Cash and equivalents rose to $39.2 million, bolstered by divestiture proceeds and disciplined capex management.
Key Considerations
FiscalNote’s Q2 performance reflects a business at a strategic crossroads, balancing near-term profitability with the long-term imperative to reignite growth. Investors should weigh the following:
Key Considerations:
- PolicyNote Adoption Curve: Sustained user engagement and feature velocity are critical to achieving the anticipated retention and expansion benefits.
- Retention and Expansion Levers: Migration success, coupled with multi-year deals and global data packages, will determine the slope of ARR recovery.
- Federal Sector Instability: Continued volatility in U.S. federal contracts introduces both risk and opportunity, with management monitoring for shifts in demand and funding.
- Cost Structure Sustainability: Ongoing margin gains hinge on maintaining discipline as revenue growth resumes and the product mix evolves.
- Capital Structure Extended Runway: The new term loan and debt restructuring reduce near-term liquidity concerns, but require execution on growth to avoid future refinancing risk.
Risks
Risks remain concentrated in legacy product retention, as ongoing churn could offset new logo and expansion gains if PolicyNote migration lags or customer adoption stalls. Federal sector instability, competitive responses to AI-driven features, and the need to deliver on product innovation timelines all present execution challenges. Debt refinancing has extended runway, but higher cash interest expense adds pressure to deliver free cash flow as planned.
Forward Outlook
For Q3 2025, FiscalNote guided to:
- Revenue of $22 to $23 million
- Adjusted EBITDA of approximately $2 million
For full-year 2025, management reaffirmed guidance:
- Revenue in the range of $94 to $100 million
- Adjusted EBITDA of $10 to $12 million
Management cited strong pipeline metrics, improved win rates, and increasing multi-year deal flow as evidence that ARR growth is set to resume in the second half, with further acceleration expected as PolicyNote retention benefits materialize in 2026. The company expects to deprecate at least one major legacy platform by year-end, further simplifying operations.
- ARR growth expected to resume in H2 2025
- Gross retention and NRR improvements targeted for 2026 as migration completes
Takeaways
FiscalNote’s Q2 marks a turning point in profitability, but the sustainability of growth hinges on PolicyNote’s ability to drive retention and expansion. The capital structure reset provides time, but execution risk remains high as legacy headwinds persist.
- Profitability Inflection: Margin and EBITDA gains reflect decisive cost action, but must be matched by top-line recovery for valuation to rerate.
- Product-Led Growth Validation: PolicyNote engagement and multi-year contracts are promising signals, but retention metrics will be the ultimate test.
- Execution Watch: Investors should monitor ARR, NRR, and customer migration pace as the clearest indicators of a successful platform transition.
Conclusion
FiscalNote’s disciplined execution and PolicyNote momentum have delivered a clear profitability boost, but the business remains in a delicate transition. Sustained improvement in retention and expansion will be essential to unlock the revenue growth implied by management’s outlook. Investors should focus on engagement, migration, and federal sector stability as leading indicators in the coming quarters.
Industry Read-Through
FiscalNote’s Q2 underscores a broader SaaS industry trend: platform migration and product-led growth strategies can deliver margin gains and customer stickiness, but require patience as legacy churn and sector volatility play out. The rapid deployment of AI-driven features and focus on multi-year contracts may become standard playbooks for information services and policy intelligence peers. Federal sector instability and the need for tailored enterprise features are likely to drive continued investment in workflow integration and data differentiation across the sector. Competitors should note the importance of balancing cost discipline with innovation velocity to maintain market relevance during periods of transition.