Kronos Bio Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2024

There are 9 speakers on the call.

Operator

Before we begin, please note that all the information presented on today's call is unaudited. And during the course of this call, management may make forward looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and uncertainties that could cause actual results to differ materially from those described in these forward looking statements. Forward looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. Please refer to today's press release and our filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

Operator

Please also note that on today's call, management will refer to certain non GAAP financial measures. While we believe these non GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as substitute for the financial information presented in accordance with GAAP. Please refer to today's press release or the investor presentation for a reconciliation of these non GAAP financial measures to their most comparable GAAP measures.

Speaker 1

Excellent. Thank you very much. All right, let's get started. First, let's go over the fiscal 2023 financials, fiscal year 2023 financials. Revenue of 150,700,000 dollars Our average paid members were $732,000 and we had $1,000,000 Our operating cash flow was our free cash flow was 600,000.

Speaker 1

The difference between operating cash flow and free cash flow is we take out the customer funds which can vary throughout the month. So the timing can a little bit. Our GAAP net loss was $41,700,000 Our non GAAP net loss and our adjusted EBITDA was $13,200,000 Now let's talk about Q4. We had 35,200,000 paid members were $719,000 and we had $3,100,000 in net interchange. Cash used in operations was $500,000 Free cash flow was negative $3,600,000 dollars Net loss was $7,500,000 Non GAAP net income was $3,100,000 and adjusted EBITDA was 5,900,000 dollars Obviously, these numbers are an improvement over Q3.

Speaker 1

As we discussed last quarter, I mentioned that we're going to be implementing some cost cutting measures. We did implement those and we saw a pretty positive turnaround in terms of our financial metrics. Our operating cash flow improved by $4,900,000 which is a 90.2% increase quarter over quarter. Our free cash flow improved by 3 point $5,000,000 which is a 49.3 percent increase quarter over quarter. Our net loss improved by $9,500,000 which is a 55.9 percent increase quarter over quarter.

Speaker 1

And our non GAAP net income improved by $98,800,000 which is 146.3 3% increase quarter over quarter. Our adjusted EBITDA improved by 9,400,000 which is a 268.6 percent increase quarter over quarter. So it's a pretty from 3rd quarter to 4th quarter. So you can see the drastic impact in those cost cutting expenditures that we did. As such, we're going to be initiating a full year free cash flow guidance to provide a more clear picture on the cash impact from these recent cost reductions.

Speaker 1

That's something that the investor community requested of us and we're going to be providing that. So our fiscal year 2023 operating cash flow was 1,600,000 dollars and our free cash flow for 2023 was $600,000 In 2024, we're projecting free cash flow between $10,000,000 $12,000,000 which is obviously substantially higher than we did in 2023. We always show paid members for the 1st month of the quarter. So in Q1 in January, we saw paid members of 690,000. We've highlighted January's usually best off on users.

Speaker 1

We've highlighted previous January's in pink and as you can see, they're a little bit down and this January is the same. I want to give a very exciting update on the expense by card. As I mentioned earlier, the ExpenseVyCard grew 63% to $11,100,000 year over year. We've also added a new benefit to the card. Our accounting partners who onboard their clients to the Expensify card now receive 50 basis points in revenue share for their clients.

Speaker 1

We've seen a lot of enthusiasm for the Expensify card in the accounting channel and now we have a little bit larger incentive for them to really spread the good word of the ExpenseFi card to their customers. We also, and this is the most exciting part, we've been talking about this for a while. I get questions on it every single quarter. We have established our new card program, which earns more interchange per transaction. All existing customers are expected to be transitioned by the end of the year 2024 and all new Bitcoin spiked card customers are being put on this new card program.

Speaker 1

That's very exciting because it's the an improvement in the accounting treatment. So previously, interchange was a contra expense in cost of revenue and not revenue, which is confusing for everyone. This is now more straightforward. It's been put on the balance sheet in the manner that you would expect and interchange going forward under the new program will be categories as revenue instead of a contra expense in cost revenue. And on top of that, we're also earning about 20% more in interchange fees.

Speaker 1

So if our same customers, we didn't grow at all and we didn't have any increase in spend, that same transactions that we had in 2023 under the new program, that would be 20% higher. And with that, I will hand it over to David to give us a update.

Speaker 2

Thank you. Okay. So, as Ryan explained, 2023 or 2023 was a pretty good year. In fact, I would say, it was a great year for the things that are under our control. Pretty much everything under our control is either stable or improved, but there was one glaring exception.

Speaker 2

So this chart, this complicated waterfall chart, let me walk you through it. And so what we can see here is kind of a breakdown of the major reasons that we gained and lost paid users over the course of the past couple of years. In 2022, we added 42,000 paid seats from new customers. And in 2023, we added about 43,000 paid seats, so about the same between 2022 2023. Likewise, in the 2 years, in 2022, we lost about 62,000 paid seats to churn, basically customers leaving the platform, going out of business, whatever that might be.

Speaker 2

And we lost about 62,000 in 2023 as well. So new customer acquisition for seats and also churn seats were basically the same year on year, but there was a big difference when it comes to customer expansion. You can see in 2022, our existing customers added about 85,000 paid seats. And that's been a huge tailwind in our business model is that we've grown basically when our customers have grown. 2023, it's kind of a brutal year for our customers.

Speaker 2

As you can see, the same customers lost 42,000 seats. So basically, in 2022, they added 42,000 they added 85,000 seats. In 23, they lost 42,000 seats. The net of that is over the past couple of years, we added about 4,000 active seats. But you can see it was kind of a roller coaster ride to get there.

Speaker 2

So our business, the actual fundamentals of business itself, new customer acquisition, customer churn and so forth, actually quite stable. It's just the expansion and contraction of our existing customers themselves to that hired a bunch of people, laid off a bunch of people, wherever it might be. That's what accounts for the huge swing basically in the paid seats themselves. So the year itself was actually, we think, pretty good. It was a difficult year for our customers and that reflected through basically our results.

Speaker 2

And so if you think about how the year itself is spent, it was really kind of a year of planting and 2024 is a year of harvesting, if you will. And one of the things we really plan to invest in is basically expanding our SEO keywords themselves. If you can think of it in terms of, the top 100 SEO, top 100 search results for each keyword, we really expanded kind of the broad breadth of the number of keywords that we're going after because you want to get in the top 10, you got to start in the top 100. And so you can see that we've had really, really sizable gains in the number of keywords that actually we rank for it all. Now if you dig into the keywords that were in actually the first page, that's where we do even better.

Speaker 2

It's like a really strong growth in actually the keywords in the first page. And so our SEO investment, which we've been strong in the past, so it's a big sort of machine to improve, but it's been improving pretty quick and really happy with that. And so the results there is we've seen actually our SEO traffic itself really just increased as well. Again, we've always been strong from an SEO perspective. And so it's a sort of a big freighter to churn, but it's been really improved.

Speaker 2

And so that's been great. And so in 2023, we think we've really improved our SEO game and that's I think positioned us really well for continued growth in 2024. Now, if you talk about some of the functionality that we launched last year as well, one of my favorites has got global reimbursement. So as you recall, we have customers all over the world, especially some of our large multinational companies with entities in multiple jurisdictions. So one of the most common features we've had from our large enterprise customers is global reimbursement capability.

Speaker 2

So this is something that we launched last year, but really have traction overall. You can see it's been growing exponentially ever since launch. Even in the past couple of months, we've seen a 35% increase in the number of enterprise customers taking up global reimbursement. So this has been a great sort of a feature that our customers have asked for a long time and we're really happy to have delivered. Also excited to talk about access by chat.

Speaker 2

I know I've been talking about this forever. So we're really, really happy with the traction we've had in the past couple of years here. I'm also excited to talk about, Expensify Chat. I know I've been talking about this forever. So we're really, really happy with the traction we've had in the past couple of years here.

Speaker 2

And we can see that basically chat has been around for a while, and it's been growing very quickly, especially in this past couple of months here, where we've seen that actually 7,000 distinct companies have started using chat internally. And so that's just within the past year, it increased over 2 50% increased number of customers. They're choosing to use Expensify Chat inside their company. And that's actually a huge test because recall this is right now, it's actually a different app. It's a different website.

Speaker 2

You have to go to new Expensify to get it. And so this is showing existing customers are going to a new app, new website to use this new functionality. Now recall, right now, chat is a free feature. And so we're tracking the seats to make sure that we can charge short in the future. But right now, it's actually just a free add on to existing customers.

Speaker 2

We're really happy that customers are finding value in it, so much so that they're going through different app to experience it. And so we think that all this leads into a great future for Nu Expensify. With that in mind, you might recall that New Expensify has been it's a completely open source community that is contributing towards it. And that open source community has grown staggeringly over the past year. Within the past year, we've gotten over 100% more contributors to the open source repo itself.

Speaker 2

And so that's great. And so we're actually having really strong growth in the community itself, which is building it's basically been this huge force multiplier to our engineering team, be able to pull on to not just random contributors around the world, but true expert contributors from different agencies and so forth. We've gone on for being basically a small user of this reactive technology to probably the largest reactive contributor outside of Facebook Meta. And so it's actually been a really important year for us because this is a super powerful technology of the future, and we've established ourselves as leading name in it. So with that in mind, I'd like to talk a little bit about the new Expensify itself.

Speaker 2

And so, new Expensify, it's a new technology to solve some old problems. Now our strategy hasn't really changed. It's really about just doubling down and improving on the strategy that we've always had. And to kind of reiterate that strategy, step 1, we're going to capture a huge untapped market. And so we think 99% of the global opportunity is really in the VSB SMB and no one's going after that right now.

Speaker 2

We think that we can build a platform that can tap this untapped market and basically grow uncontested. We think the only way that can happen though is with the bottom up viral strategy where the customers themselves promote Expensify just by the mere virtue of using it. And then we can monetize that primarily through high margin subscriptions. It's going to break in to dig into this a little bit more to kind of talk about them. Step 1, when you talk about the VSP, it really is a huge industry.

Speaker 2

We're talking over 1,000,000,000 potential employees around the world in companies under 2 50 employees. It is a huge market. It is so much bigger than the current market and it's almost entirely untapped. Just digging into the U. S.

Speaker 2

Alone, like 99.9% of all U. S. Businesses are small businesses. Again, this is not just a global phenomenon. It's a local phenomenon in United States.

Speaker 2

It's a huge, huge opportunity. And it's not like no one's known about it. There's no one who's actually taken a business model that can actually credibly go out and get it. And so that business model works through viral lead generation. And it's not a new business model.

Speaker 2

Others have done it as well. So I would say, first is chat functionality is inherently viral. You can't talk to yourself. To use the product itself, you have to go talk to someone else. WhatsApp got to a 1000000000 users with 73 employees.

Speaker 2

We think the chats and incredibly viral use case and that's basically what the internet was primarily built on. Likewise, payments, same thing. You can't pay yourself. You got to pay someone else. Payments are incredibly valuable, incredibly viral.

Speaker 2

Venmo got to 100 of millions of users because of this viral dynamic overall. And third, we'd say document management is inherently a viral function itself. Dropbox sort of introduced the entire consumer organization of IT. The Reciprocal Reward Program is a masterclass in how to go viral. And so in case all these document management and all these, the 3 major use cases are chat, payment, that really is expense management.

Speaker 2

Expense management already exists in the intersection of those 3. So it's not that Expensify is pushing into each one of these. Expensify has always done all of these because the very act of submitting expense report to someone and you're talking with your admin about the expenses, that is a chat application. Likewise, it's obviously a payment application because you're getting paid for your expense reports. But it's also a document sharing application.

Speaker 2

I mean, the most obvious documents are receipts, which we have millions and millions of. But also, there's a bunch of other supporting documentation that goes into it as well. And so, chat payments and documents, that's really what expense management is. And we think that actually we exist in sort of the overlap of these 3 incredibly viral use cases. And so when we think about building on top of that for new Expensive Buy, it's really just doubling down on what these core strengths are and pushing a little bit into each of these different areas.

Speaker 2

Now we're not going to dislodge these players anytime soon, but we think we can take a bite out of the market. More importantly, we can take the bite that's right next to ours. Wherever we see the intersection of sort of chats, payments and documents, we think there's a real opportunity to grow from there and no better place in the world for that is the accounting community because that's what they do all day, every day. In a particular accounting firm, sure, many of them are processing expense reports, but the bulk of the accounting firm is actually doing tax and compliance. And that's just basically a ton of talking, a ton of Excel spreadsheets, a kind of just interaction around between organizations, not just within their own.

Speaker 2

And so, we actually think the accounting community is a prime opportunity for this key intersection and we think new Expensify can be targeted directly to them. So if we talk about basically what new Expensify is. Now, we've been again, we've been talking about it for a long time. At its core, it's fundamentally a chat system. As you can see, it feels very much like WhatsApp, Slack, whatever it might be.

Speaker 2

You got your chats in the left. You got your chat, your who are you gonna talk to? Your major conversation. You can do threads. You can react.

Speaker 2

And basically, it works a lot like any of the chat systems. But it's got a few tricks under the hood. One is it's a universal chat system. You can just basically mention not just people in your workspace, you can mention any email address or phone number and we'll pull them directly into that chat room. And so think of like Slack, except without all that garbage about dealing with different workspaces and things like this.

Speaker 2

More it's like Discord, but without all the the weird, you know, gamer stuff around it. We're it's it's basically it's a more business oriented, super flexible, global or a global chat solution, designs where you can anyone that has an email address or a phone number, you could talk to them. And likewise, they don't even have to use the app. If you choose to chat talk to someone with the Xfinity app via email or text email them or text. Them.

Speaker 2

And if they respond via email or text, we'll show that tool. So it's a tool that you can choose to adopt as an individual, and you can use with a 100% of people who have email addresses and phone numbers, and we will communicate with them however is convenient for them. So, it's a very powerful chat foundation, but it's also, of course, a payments tool. Now, it's still basically the same chat experience. You can still talk to people and things like this.

Speaker 2

But a major part of talking to people is actually to share documents with them, share receipts with them, share payments requests and so forth. And then when you do that, they can look in to basically pay the payments. They can pull up a traditional sort of expense management, sort of money page, we call it, where you can search by legal reports and expense and things like this. So it has all the same sort of same power that we've built up over the past 15 years doing expense management on a global basis, but presented the chat centric context where you every single data object can be talked about. So it's not just about paying people, it is not just about talking to people after the expense is done.

Speaker 2

It's also trying to capture some of the conversation that led up that expense overall. And so it's a yes, it's a chat tool. Yes, it's a payment tool, but it's also a document management tool. Because again, this isn't new. Expense management has always been about document management.

Speaker 2

And so, now we're basically bringing that more to the forefront, especially when you start thinking about accounting firms, which are doing a lot of document heavy task based functionality. If you're closing the books on a monthly basis, it means every month, you're spinning up a whole bunch of conversations about each, basically, category in your ledger, different sort of tasks they need to close out and so forth. Now historically, you would use email, Excel, maybe some sort of an issue tracking system, whatever it is. In our case, you can do all of that on platform. You can take everything from the payments to the reconciliation and all of the discussions in between on the same platform.

Speaker 2

You just basically upload the files themselves and then we will store them permanently and securely inside of our cloud architecture. And so again, it's a universal system, but that means it also becomes a universal document sharing system. If you need to chat with or share a document with anyone in the world via email or text, now we become a tool to do that. So these are not new use cases. As you can see, chat, payment, document management, these are not distinct experiences.

Speaker 2

It's not like you to go open to the chat experience or whatever. Every one of these is all 3. When you're sharing documents or chatting and doing payments, you're infusing all 3 of these use cases throughout the entire product and at all times. And so the reason we keep talking about chat is because we think that chat allows me to sort of allows us to add a moat out of every feature. Again, expense management isn't new.

Speaker 2

This has been around since the dawn of time. But we think that actually building a collaborative real time experience around it isn't. And we can bring new life into these use cases. And the process of doing so expand into this huge market that's been largely untapped. Now, we talk about this idea of real time expense processing.

Speaker 2

What makes it real time is that people are in the product already, so they're in a position to act in real time. And as much as we might like, basically, a user to prioritize expense reports, if they're not if it's not on their phone, if it's not actually in front of their face, they're just going to ignore it for as long as possible. Great thing about getting people into a real time chat experience, however, is that when they receive a payment request, they immediately turn around and just approve it because it's just right there. We make it so easy to do so we can cut days out of the reimbursement process, merely because we cut days of waiting for the user to actually do something. We can take an action that took 72 hours to make it into 7 seconds.

Speaker 2

It's a completely different experience because chat changes the behavior of the user to be into the project at all times. And then that's in a position to act in a very different than any other tool. So you can't just it's not a matter of just making the money move fast, you get to make the user move fast. That's a whole different experience. 2nd, when we do bill pay and invoicing, again, functionality that we've our experience is about trying to capture more of the conversation around the billing invoice itself because every time you invoice a client or pay a bill from a client, there's a conversation around there.

Speaker 2

The preceding that engagement was basically some conversation around an MSA and SOW. There's some terms as a contract, whatever it might be. Currently, that conversation happens in, I don't know, email, Slack, or via phone or something like this. Now we can capture all of those contract conversations in a chat tool itself and we can be the long term storage repository of the final terms of the deal. So when you're reviewing the invoice, the invoice terms are actually right there in product.

Speaker 2

So you can see when it started supposed to start and end, how much it's going to cost. And so, when you're actually approving a bill, you can assess whether or not that bill is actually in line with the stated purpose of the agreement itself. It's a completely different experience paying the bill when we're able to talk to everyone involved in real time and that's just another feature of adding sort of infusing chat throughout the existing old experiences. And next, when we talk about travel management. Now, we've been talking about travel for a long time, you do travel booking and so forth.

Speaker 2

But we think that there's a great opportunity for, I think the term is leisure. I don't know why it's called that. I do know it's called that. So business plus leisure and just a fantastic term. We can't we got to love the Internet.

Speaker 2

But anyway, I think that a great thing about leisure is that when you're traveling for work, you're going cool places and you're, so the idea of bookending and staying a couple extra days and so forth, it's incredibly common, but it's not necessarily by the traditional tools. Additionally, when you travel places, you're traveling with other people and you don't work all the time. You have off hours. When you go to a conference, you know, people are on call or on duty when they go, you know, wild out at night. And so as a result, we try to recognize the real world social dynamic of people who are doing business travel.

Speaker 2

And there's a lot of, normally, you would basically spin up a WhatsApp group or something like this to sort after hours, you go someplace else. Instead, we just build that social group for you automatically. When you travel, when multiple people travel to the same city, we're just going to throw them to a chat room together. So they can actually start coordinating their dinners and their active sort of actual work activities right here in product. And so again, travel management is nothing new, but a social sort of leisure based travel management is new.

Speaker 2

And I think that's something that's highly defensible because it requires integrated seamless chat functionality that really has no one else has. And then finally, we've talked about universal chat. And then basically, everything we talked about here is designed to sort of cross IT boundaries seamlessly. Like, you don't need an account. You don't need a password or any of this.

Speaker 2

It's basically just built in automatically. So anyone with an email address or phone number, you can collaborate with, they can join. It doesn't require an app. You just open up in the mobile app or just respond to the email, whatever it might be. So we're going, we're working very hard to eliminate the barrier to adoption such that no matter who you integrate with and who you collaborate with, they can engage with you directly through the product in whatever terms are most sort of parallel to them.

Speaker 2

And so all of this foundation, we think, creates a highly sort of defensible number of values for the high margin subscription. Because fundamentally, in the end, pretty much any technology can be reproduced, but it's very hard to reproduce chat functionality because that is actually held to the highest standard of any sort of usability or reliability and performance sort of standards. And so this is a completely different level of technology development. That's why we've been spending so long on it. And this is why we're years ahead of what we think the competition could do.

Speaker 2

So the kind of a radar of this overall, the 3 major sort of components of what we think is a long term growth is first, we start with this BSB SMB market because it's huge and untapped and no one else is going after it. There is really no organized competition there. It's, you know, our competition is email and Excel, and it's not fighting back. And so we think that it's a huge opportunity that's largely uncontested. Second, we think the only way to go out and get it, in fact, the only way anyone else has ever gotten it was through viral and word-of-mouth.

Speaker 2

And we're the only ones even trying that. If you look at any of our competition, all of them have the exact same business model, pretty much the exact same product being sold the exact same way. And it's all basically struggling. So, we think that the way that you can capture this, it has to be with a different angle. The way others have captured this huge untapped opportunity has been through a viral word-of-mouth manner.

Speaker 2

Now, and we're going to do that for expansion management because we think that we're the sort of the nexus of the 3 most important and most viral use cases in the Internet. And so we think that we can play that again. And then finally, we think that subscriptions are the way that you can make profit in the sea of sort of like red competitors because it's not a new idea to want to do everything, but actually doing everything is quite hard. Now we've been working on building this foundation for a very, very long time. We think in the end, the most defensible way to operate in this market is with the best unit economics.

Speaker 2

It's basically to have the lowest cost acquisition into the largest market with the highest margins. Not exactly the most genius stuff, but saying it is actually quite hard or saying it's easy, but doing it's quite hard. And so we've been focused entirely on unit economics and sort of profitable long term growth for a very long time. And so we think that we have a very strong advantage of the competition, which is just now starting to think about this. Finally, I'd be remiss not to say something about AI, because that just seems to be the thing that everyone's picked up on.

Speaker 2

But it's not a coincidence that Expensify has been pushing a chat focus for a very long time because we've known that this is going to come. I mean, everyone's known it's going to come, but knowing it's going to come is different than actually doing something about it. We built our entire platform around chat because chat is the language of AI. The sort of gender. There's a bunch of buttons.

Speaker 2

There's a bunch of searching and things like this. And that's still gonna be there in a way, but you can interact with AIs more natively, actually through chat, through talking and things like this. And so our platform is about trying to build a single foundation where all kinds of information and people can collaborate on the same level of the eyes themselves. And so if you have a super intelligent AI hanging out with you, you don't want to basically just press a bunch of buttons to talk to them. That's not actually how they talk.

Speaker 2

They talk in a language that we talk as well. And so chat is the language of AI and Expensify is building a foundation such that the AIs can collaborate on an equal footing with humans themselves. So we've been talking about all this stuff for such a long time. And I know that, you know, it's it's it's been a lot of work to get to this point, but we're extremely happy to actually start showing it rather than just talking about it. And so here on the screen at a QR code, one more trick of, Expensify chat is that it's got public rooms.

Speaker 2

If you scan that code, you're gonna be, you know, on web and mobile, whatever it might be. You'd be dropped directly into a room where you, again, don't need to sign up, don't even need to type an email address. You can just observe and read a bunch more information. There you're going to get direct access to me, the rest of the product team, the executive team to talk in real time about the product itself. Now, again, this isn't about financials.

Speaker 2

This conversation is about the roadmap itself. So it's basically stick to the topic. But if you have any questions about basically how the product works, why we're doing certain things, how it's differentiated from competition and so forth, that's where we'd love to talk with you. And so just scan that code, you'll drop directly into a room. You're going to see the whole chat experience.

Speaker 2

You can start requesting real money from your friends. Can start splitting bills. You can start experiencing everything we're talking about right now. It works on all platforms, works with email, phone number, works with everything. We think it'd be great if you create an account, but, you know, we'll talk to you there.

Speaker 2

So I can't wait to talk to you soon. It's going to be a great time. With that, I guess, let's open it up to questions. Vicky?

Operator

Great. Let's get started with Citi. George, do we have you on the line?

Speaker 3

Hi. Yeah. This is George on for Steve Enders. Thanks for taking the questions. Maybe just to start with on the paid user number.

Speaker 3

It was kind of flat quarter over quarter. Really appreciate the color on net ads versus churn versus contraction. Does that quarter on quarter stabilization give you guys any sense that maybe we're nearing a bottom kind of excluding seasonal factors? Or is there just still too poor visibility? Just kind of appreciate update on, you know, how you guys are feeling about that metric.

Speaker 1

Yeah. It's it's tough to say, if we're at the bottom right now. Obviously, it's David went as David showed, we have a lot of positive indicators for the future. January, I think I mentioned January is usually pretty soft month in terms of users. So that's not completely unexpected.

Speaker 1

But we're, you know, working real hard to improve all, you know, inbound traffic, inbound leads, and we have some exciting green shoots data that we shared with you. But I think it's probably jury is still out on whether there's a bottom or not. Obviously, we hope so, but we'll know soon.

Speaker 3

Great. Okay. And then one one quick follow-up. I appreciate the FCF guidance and obviously a big improvement in cash flow generation this quarter. Do you is there more cost cutting on the horizon that's required in order to hit that FCF target?

Speaker 3

Or do you guys believe you have things in place?

Speaker 1

It's a good question. So we implemented the changes midway through the quarter. So there's no at this point in time, there is no additional cuts needed. We've made all the cuts. Not all of them took effect in time to be experienced in Q4.

Speaker 1

So we do believe that we'll see, you know, a greater impact of the cuts in Q1 and, future quarters. But, you know, as of today, everything's in momentum. We don't need to do anything else.

Speaker 3

Great. Thanks for taking the questions.

Speaker 1

Thank you.

Operator

Alright. Next, we have JPMorgan.

Speaker 4

Hello, everyone. Thank you for letting me ask a question. And hi, David. Great to meet you. So I was wondering if you could comment on the long awaited migration to the new Expensify.

Speaker 4

Is the statement in the press release about the global launch in 2024, does that imply that you expect the migration to be fully completed this year?

Speaker 2

Great question. So, it's a rolling launch. I mean, as you can see, it's already out. Customers are using it. It's being used for different use cases.

Speaker 2

We are migrating people over in batches and so forth. We intend to keep the old website around for as long as people need it. And so we don't know how long exactly that's going to be, because it's basically, we're pulling everyone over with, you know, a honey, not vinegar.

Speaker 5

Is that

Speaker 2

the right phrase? And so we want to make sure that we're taking the time to do it right. We're not in a hurry to basically push people over. We're basically making sure that they come over time. So I can't predict that.

Speaker 2

And I would like to say yes, but I just I don't know for certain because fundamentally that's going to be up to customers.

Speaker 4

Okay, perfect. And, Ryan, a quick question about the interchange. I remember last quarter you were suggesting that this transition may take up to a year because new customers will be on the new card, but old customers will switch whenever their contract comes up. So when do you expect to see the most impact from this transition throughout the year? And what was the initial impact on revenue perhaps in the Q4?

Speaker 4

Because I can see that you've probably restated historic numbers as well. So the 11,000,000 versus historic numbers. And what was the impact that you booked in the Q4?

Speaker 1

So the impact in the Q4 is essentially nothing. You'll see that in Q1 and going forward in terms of the speed of that transition. If, similar to what David said, it's going to be kind of at the speed of customers. Now they will be forced, you know, eventually to to switch over. But I would if I had to guess, I would think that it's going to be a initially a relatively large swath of customers, and then kind of a long tail and we're going to have to kind of nudge some people.

Speaker 1

But we do have some carrots to get over. We have not yet announced. We have some function, new card functionality coming out that, I'm not going to announce here, but we will announce shortly. That is only available on the new card program. So they have a very actual real benefit to switch over as they can they'll be able to do exciting, helpful things with the new card that they couldn't do with the old card.

Speaker 1

But, look for maybe an announcement on that in the coming weeks. But we do think that we have really good reasons for them to switch over. Another point is also we're starting to see more coming up on the expiration date of our initial customers. So the, all the new cards will also be under the new program. So, we're going to hit a point where our initial Expense by card customers, their cards are expiring, so they will automatically be migrated over when they get their new cards.

Speaker 4

Thank you for that color. Appreciate it.

Speaker 1

No problem. Great questions.

Operator

Great. Now we have JMP Securities.

Speaker 6

Hi, this is Aaron from JMP. Thanks for the questions. Hi, Aaron. Hello. First off, you called out that you're expecting a 20% uplift on card take rate by becoming your own program manager.

Speaker 6

Can you talk a little bit about the challenges associated with replacing your prior program manager and whether it's something any company can pull off or if there's something you need to expensify that's letting you know?

Speaker 2

That's a good question.

Speaker 1

It's not easy. We did it. We have it took us a while as you all know, but it I knew our COO is actually formerly from Marketo. So we may we might have a little bit of an advantage there on

Speaker 2

Well, maybe also because it requires taking over a lot of technology as well that we do in house. And so not everyone has the same level of sort of in house technology expertise to handle like the real time authorizations and so forth. And so I think that we have an advantage over our companies because we've already built so much of the card product. We've already taken, basically already taken that in house. And so therefore, migrating to becoming our own program managers are relatively low lift for us, whereas for others, it would be all legal lift that we went through.

Speaker 2

And also on top of that, taking on like, millisecond latency, sort of like high uptime transactional processing. And like, so I think it's actually, you know, it's not impossible. Clearly, we did it, but you can see it took us a lot of time and we worked really hard in it. So I think it's gonna take everyone else at least as long as us.

Speaker 1

Yeah. We have more of a build versus buy culture here. So I think if a company had more of a buy culture, they probably would not It's struggling. Really struggle to do that.

Speaker 6

That's helpful. And then in May 2022, the Board authorized a $50,000,000 share repurchase plan. I I think you still have about $41,000,000 approved under that authorization. So just trying to get an understanding of how you're thinking, I mean, valuations are less than one times next year's revenue, you have the guide for $10,000,000 to $12,000,000 in $24,000,000 free cash flow, about $25,000,000 in net cash. Do you anticipate prioritizing share repurchases in 20 4?

Speaker 6

And is there a certain level of net cash you want to maintain to run the business that we should think about?

Speaker 2

Yes. Great question.

Speaker 1

Ken, it's a great question. I think in the near term, so you might have saw we eliminated most of our debt. We still do have a little bit in our revolving facility. So a mind sync would be focused more on reducing that. But I think you're absolutely right that at these share prices and generating the cash flow that we expect to that, it's a pretty good move on our part, but no firm commitments or anything to announce at this point in time.

Speaker 1

Yes.

Speaker 6

Understood. Thank you,

Operator

guys. Alright. Now we have Piper Sandler.

Speaker 5

Great. Thanks for taking the questions. It looks like there continues to be pressure on the subscription revenue side of the business. I was wondering if there's any other color you could provide there maybe on how much of the drag you would attribute to business closures and downsizing and maybe any actions you're taking to mitigate it?

Speaker 1

One

Speaker 2

second. Yes. Well, I think I would say, just kind of reiterating what I mentioned earlier, I mean, fundamentally, acquisitions and churn is stable. And I would say those are the most important metrics basically for us to control. Because I think those really signify the health of Expensify as a business in terms of our economics of acquisition and retention.

Speaker 2

But I would say and the challenge is, yes, our 2022 was good for our customers and that they were actually expanding as businesses and adding seats, hiring and things like this. 2023 was bad for customers and that they were reducing seats, they were lowering. They weren't necessarily leaving Expensify, they just needed less Expensify because they had fewer employees and less activity. And so I'd say, like we can't control the macro environments, but we can, sort of shield ourselves from it as much as possible and take advantage of it when it's good. And fundamentally, I think the takeaway here is that the business itself is healthy, but we are basically subject to the macro effects of customer expansion contraction.

Speaker 2

I don't know if that really answers the question.

Speaker 1

It does,

Speaker 5

Yeah. No, that makes sense. I guess a quick follow-up. In your conversations with customers, I guess, has that helped you at all with getting on the site in terms of a potential trough? I know it's just been a couple of quarters of increasing contraction.

Speaker 1

Sir, could you say that one more time?

Speaker 5

Yes. Just your conversation with customers, is that helping you at all in getting line of sight in terms of a potential trough in the contraction?

Speaker 1

Oh, I see. Have customers basically have customers indicated that they're gonna continue downsizing?

Speaker 2

Oh, oh, oh, interesting. I don't think we have insight into that.

Speaker 1

We have we have a lot of customers, so it's, you know, tens of thousands. So it's tough to have, like, a statement that we feel super confident on because there's so many of them. It's not the reduction in seat contraction isn't from, you know, our 10 largest customers. It's from, you know, a lot of customers you've never heard, right, small businesses and Tens

Speaker 2

of thousands of businesses. Yeah.

Speaker 1

It's not we are really popular with with tech and obviously tech's been laying people off. But we don't have any, you know, definitive statement on from customers on how they're going because there's no customer group that can speak on behalf of everybody.

Speaker 2

Yeah. I wish I knew. I wish I knew, but I don't know.

Operator

Perfect. Okay. Let's move in and see if BMO's here. Do we have Daniel or Kyle? We can circle back.

Operator

Let's go to Lake Street Capital.

Speaker 7

Hey, guys. If we went to that previous slide that we were at before, just on the customer contraction, I mean, is there any data you can point to that maybe you're seeing a signs of improvement in that metric?

Speaker 1

I mean, I know

Speaker 7

you obviously are going to churn users in January because it's historically softer, but I guess is there any data you can point to maybe that you can give help us understand if you're seeing any sort of improvement with customer spend, I guess?

Speaker 1

Nothing to announce other than, you know, obviously what we've presented here. We, you know, we have January data and obviously we have our historical data. We, I think the takeaway from this slide is that, our customers have been having a difficult time as reflected kind of in our financials, but we also don't think that this is a permanent situation. We think the economy is going to improve. And obviously, as the economic pressures decrease, we expect to see recovery in our customer base.

Speaker 7

All right. Thanks guys. And then just last one for me. So with these cost cuts implemented midwifes through the quarter, I mean, so Q1, are you expecting to sequentially decline in OpEx? And then I guess, how should we expect OpEx throughout the remainder of 2024?

Speaker 1

So, yes, so we initiated full year guidance, but given that the we saw a big recovery in, OpEx in Q4 and those changes didn't take place until halfway through the quarter, we expect to feel the full benefit of those cost cuttings in Q1. So, yes, we do expect that to improve quarter over quarter.

Speaker 7

K. Thanks, guys.

Operator

Great. Let's check-in with FT Partners. Okay. Let's circle back to BMO, see if we can get you unmuted. Daniel, are you there?

Speaker 8

Yes. Can you hear me?

Speaker 2

Yes.

Speaker 8

Awesome. All right. Great. Appreciate it. Thanks for taking the question.

Speaker 8

So I joined late, so I apologize that this is a topic that was already discussed at length. But last couple of quarters you talked about sort of building the top of the funnel and some of the investments you're making there to kind of accelerate the customer acquisition trajectory. Can you just spend a moment on sort of what you have been doing there and anything that we should be on the lookout for as you're thinking about the game plan for 2024?

Speaker 2

Sure. I think that I mean, so one of the advantages of having a visit that kicks off a lot of cash is that you can take big swings on things. And so I think that throughout 2023, we're trying a lot of different things. And I think what ultimately stuck the best was our investment in SEO. And that's why I think we're really, you know, we've been really, really pleased with the results there.

Speaker 2

We're also making, you know, additional investments that have longer term, returns and so forth. Fundamentally, I don't have any sort of crystal ball as to exactly how this is going to play out in the future, more than what we've already suggested for our cash flow guidance. And so I'd say fundamentally, we feel very confident in the investments that we're making, but it's just a lot of experimentation. So I know it's kind of like a wishy washy answer, but in general, there's just there's no one thing. It's not like we're basically putting all of our eggs in one basket.

Speaker 2

We're trying a whole range of things. Some work, some don't. And I think that in particular, the SEO has been really good.

Speaker 8

Okay. Got you. And then on the user churn, I understand some of that is certainly driven and completely outside of your control. But maybe, again, sort of your latest thoughts about thinking what you can do to the extent that you can to limit churn, if there's any additional leverage that you're thinking about?

Speaker 1

Okay. Yes. So, we have been making some investments in reducing churn. David spoke about global reimbursement. This is really more of a more enterprise mid market focused feature, companies that have, you know, multiple, subsidiaries in different countries.

Speaker 1

We also have some announcements that were, product announcements that we have coming up that we think will be beneficial to helping churn as well. Again, nothing to announce for Q4, but we have been developing quite rapidly. We David spoke about the success of our outsourced contributor program. It took us a little bit to kind of get, cooking, but now it's a well oiled machine and the rate of development has dramatically increased and we're going to be deploying products quite quickly here in 2024 and we think that is going to be beneficial.

Speaker 2

Yes. I think the contributor program has been a real secret weapon in that we've been able to effectively double

Speaker 1

or

Speaker 2

triple the engineering, vastly increase the engineering team and that just accelerates this development overall. And so I'd say, yeah, I think that we're really, really happy that we've been making these major investments into the foundation of the platform. And now I think we're to a point where we can begin really rapidly rolling out functionality that our customers are asking for. I mean, global reimbursement was 1, but I think there's a long, long list of requests.

Speaker 1

And we just released budgets too.

Speaker 2

Oh, and budgeting and insights. And so that we just, you know, we didn't bore the slides with basically a list of every single release. But yes, I'd say there's a whole bunch of features that basically are directly kind of fan service to the customers.

Speaker 8

Okay, got you. And then maybe just one last one for me. Appreciate the free cash flow guidance. It's great to see that. I guess, philosophically, how should we approach your thinking about the guidance?

Speaker 8

Like does it assume kind of like a stable macro? Does it like what are the fundamental pillars that underpin the guidance so we can think about your progression against that this year? Thank you.

Speaker 1

So, it does not rely on macro environment improving. It's a, there's some conservatism baked into that, but given kind of the revenue has been soft in recent quarters, I think that conservatism is warranted, but it doesn't it that is it's not a wishful guidance. Like we really hope this happens. We feel good. We do feel good about this number, and we don't need some change in the world for that to happen.

Speaker 1

We feel pretty good about it hitting those targets.

Speaker 2

Yeah. It doesn't require a bunch of things to go right for that to more work. That's basically it's like if everything stays as we plan, then it should be fine.

Speaker 8

Great. All right. Thank you very much.

Speaker 1

Thank you.

Speaker 2

All

Operator

right. To the end of the Q and A.

Speaker 1

All right. Thank you all for joining. And as David mentioned, we have opened up a public room in our new product. We're not gonna be talking about financials there for obvious reasons. But if you want to join and talk to us about the product road map, we would love to talk to you.

Speaker 1

We think this is really exciting. It's also a great opportunity for retail investors to get access to our executive team or our product management team on a level that is, you know, not traditionally seen in public companies. So we think it's, kind of novel and exciting, and we're we're looking forward to talking to you all there. So thank you all for your time, and we'll see you next quarter.

Speaker 2

Thanks, everyone.

Powered by Quartr
Earnings Conference Call
Kronos Bio Q4 2023
00:00 / 00:00