NOTE stock wins target raise at Roth

After a quarter he describes as “fair”, Roth MKM analyst Richard K. Baldry remains bullish on FiscalNote Holdings (FiscalNote Holdings Stock Quote, Chart, News, Analysts, Financials NYSE:NOTE).

On March 12, NOTE reported its q4 and fiscal 2023 results. In the fourth quarter, the company posed Adjusted EBITDA of $3.0-million on revenue of $34.3-million, a topline that was up 9% over the same period a year prior.

“Over the past 12-18 months we have been focused on driving Adjusted EBITDA profitability and rationalizing our cost structure,” CEO Tim Hwang said. “Now, as we pivot our focus to accelerating growth, we are transforming and simplifying our organization by aligning our sales teams, streamlining our product portfolio and optimizing our capital structure. Most importantly, we are driving new levels of innovation, combining AI and human intelligence to provide the data, intelligence, analysis, and workflows that our customers need to navigate and take action within the large and complex global political and regulatory environment. With an enhanced balance sheet and a simplified product portfolio, we are well positioned to drive ongoing profitability in 2024 and accelerate growth in 2025 and beyond.”

Baldry said the results were overshadowed by a material development.

“FiscalNote’s 4Q23 results were fair, with revenues in-line with our forecast and AEBITDA moderately above to set a record at $3.0M. More importantly, NOTE announced the divestiture of its Board.org segment for $95M in cash (and potentially $8M more in an earnout) which will allow it to lower its net debt roughly 50% with only roughly 10% lower revenues once eliminated. We view this as materially de-risking NOTE financially, the analyst said.

In a research update to clients March 13, the analyst reiterated his “Buy” rating on NOTE, but raised his price target on the stock from $2.50 to $3.00.

Baldry thinks NOTE will post EBITDA of $7.0-million on revenue of $124.0-million in fiscal 2024.

“The Board.org divestiture leaves our 2024 forecasts down, with revenues of $124.0M expected to drive AEBITDA of $7.0M (guidance is $123-127M for revenue and $7-9M for AEBITDA) versus our unguided $147.3M/$10.9M forecasts prior, respectively. We view the “trimmer” stance of operations as a fair trade off for the much lower (50% cut) net debt position of the company. As an ancillary business acquired in 2021 for only $14.3M, the upside value created for NOTE shareholders by the $95M (and up to $103M with earnouts) deal is impressive, we believe, and worthy of a higher targeted equity valuation given the lower financial risks we perceive. As such, we are increasing our price target to $3.00 ($2.50 prior) by applying a peer-centric 4.5x revenue multiple to our year-end 4Q24 revenue forecast,” the analyst explained.