Expensify Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 9, 2024

There are 11 speakers on the call.

Operator

Hello, everyone. Welcome to the Q1 2024 Expensify Earnings. I'm Expensify's CFO, Ryan Schafer. I'm joined by Expensify's CEO and Founder, David Barrett. Later, we have our COO, Anu Muralidharne joining for the Q and A.

Operator

But first, let's get started with the disclaimer. Nikki, take it away.

Speaker 1

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 involve risks 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. Please also note that on today's call, management will refer to certain non GAAP financial measures.

Speaker 1

While we believe these non GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be in isolation or as a 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.

Operator

All right. Now let's talk about the Q1 2024 Financials. Our revenue was 33,500,000

Speaker 2

dollars Our average paid members

Operator

were 688,000 Our net interchange was 3,500,000 dollars Our operating cash flow was $3,500,000 Our free cash flow was $5,200,000 which is a significant increase quarter over quarter. Our GAAP net loss was $3,800,000 and our non GAAP net income was $3,700,000 The difference between our net loss and our non GAAP net income is stock based compensation. And our adjusted EBITDA was 7,100,000 dollars I mentioned free cash flow. I want to talk about that a little bit more. So in Q4, we initiated a full year free cash flow guidance.

Operator

We did that to provide the market with our view on how cash flow is going to go for this year, and we're actually increasing that guidance to $11,000,000 to $13,000,000 for fiscal year 2024. And like I mentioned earlier, our free cash flow is 5 point $2,000,000 That's a 2 42 percent increase from the previous quarter, something we're very proud of and is that is the impact of the cost cutting that we have discussed in the past. I also want to talk about the Expensify card. We've seen strong growth, 57% year on year growth to 3,500,000. We actually have seen 13% in just the last month alone.

Operator

So the card is growing at a great clip. Also, everyone's favorite topic is the accounting treatment, change that we're going through. We're changing program managers and the impact of that is our interchange from the card will no longer be a contra expense in cost of revenue. It will be moving to revenue and that we expect that transition to be finished by end of year. Additionally, we will we will get 20% more interchange on those same transactions.

Operator

So, we're very excited about that and that transition is underway. Also, we always leave you with how the current quarter is going. In April, we had 685,000 paid members. And now I hand it over to David Barrett for the business highlights.

Speaker 3

Thanks, sir. All right. So, to catch up, Q1 was a great quarter. We basically dialed in all of the cost optimizations from Q4. We continue to improve the core trends.

Speaker 3

And overall, we're just investing in the things that are working. To give an example of that, SEO is going really well. We've had almost 100% year on year increase in sort of general keywords that are ranking across the Internet. But most importantly, we've had a huge increase in the number of first page SEO keywords. So, this is something we continue to invest in.

Speaker 3

So, I think that is a word-of-mouth business. People are searching for Expensify in a wide variety of names. And so, if we can capture by their branded keywords, but also just the wide range of long tail unbranded keywords as well, that's a huge sustainable lead generation path for a long time. Likewise, global reimbursement continues to grow by leaps and bounds, which is wonderful. We are a global product with customers all over the world, and so this is a way that can support them well.

Speaker 3

Additionally, as Ryan mentioned earlier, card keeps growing up into the right. So it's just growing by leaps and bounds, and so that's great. It's been a really strong growth channel for us as well. So, but most exciting, I would say, is that the product has been developed in an incredible way in this past quarter. And so there's a lot to talk about here.

Speaker 3

To start, as we always do, a reminder of the strategy. We believe that there is an enormous opportunity out there, something like 100 times larger than the traditional markets. And so we think that we're the goal of Expensify is to capture that kind of untapped 99%, which is substantially with the VSP and SMB. The only way to do that is with a viral model that can sort of turn every customer into a lead generator. It's been done before.

Speaker 3

It's basically how we've grown to where we are right now, and that's something we're doubling down on going forward. And of course, it all comes down to monetizing these leads with high margin monthly subscriptions, which is our business model. It's always been that way, and so it continues to be that As a reminder of kind of how this market has shaped, there's like 1,000,000,000 potential paying users in the DSP and SMB globally, and so we were going to go out and get them. Now, it's not impossible to get them, it's just hard. And the way it's been done in the past is with a viral model.

Speaker 3

There are chat systems, document management systems, payment systems that have captured 100 of millions or even billions of users of this scale and they always do it through some sort of viral word-of-mouth model. It is the only method to capture on this scale and it's worked for others. Expense management has the unique benefit of being at the intersection between the 3 most viral use cases on the Internet. It's basically chat meets payments meets document management. And so we're doubling down on the viral sort of inherent viral dynamic of these use cases, in order to make a product which can capture the full range.

Speaker 3

To give an example of how that works, Now we're going to go through some illustrations of how the product is basically going to capture this viral dynamic And to tell this story, I just want to talk about how, you know, we'll start with Alice, construction worker that's basically going to Home Depot to scan a receipt to submit to Bob, her boss, who turns around and then sends an invoice for that work to Kathy, who splits that invoice with basically her flatmates, one of which is David, who works at a company that's using our corporate travel feature. All of this on an end to end basis happens in the same product. This is truly a uniquely expensive flow. There's nothing else like in the Internet. And so this is a really powerful case.

Speaker 3

And so I'm going to kind of break down how each of these works 1 by 1. To start, we start with,

Speaker 2

let's say, Alice is a construction worker.

Speaker 3

The unique aspect of Expensify is that as an employee, you can download or not even download. You can just go to our website and start using Expensify without an account. Just enter your phone number to say you want to start tracking some expenses for yourself. It's an incredibly easy product to get going without waiting for your company to ask permission. We have in line training explaining basically how it works.

Speaker 3

And then also our concierge system is there kind of stepping you through to explain exactly what you should do next at any point in time. When you start to use the product, you can sort of capture receipts. And like we talk about business travel a lot for expense management, but for our users, business travel isn't necessarily flying coast to coast. It's driving to Home Depot to pick up materials for the job site, whatever that might be, scanning receipt and so forth. Home Depot is actually one of our most commonly scanned receipts.

Speaker 3

And so the idea of scanning receipts and then just submitting it to your boss, again, not waiting for your boss to ask you to use Expensify, just recognizing that you have a personal problem getting reimbursed and then pulling your company in whether it wanted to or not. What's powerful about this is when we think about this massive market, most of it is unaddressed, but not unaddressable. It just hasn't been addressed by the traditional business model. So these are 100 of 1,000,000 businesses around the world, which have an expense management problem, but it's not one they're trying to solve. They're not searching for it.

Speaker 3

They're not taking calls on it. They're not clicking ads for it, whatever it might be. But employees actually do experience that problem. So we're giving a tool to the employees to go out and solve their own personal employee problem and in the process pull their company into it. Once the company is pulled in, and again, maybe the employees submitted it to their boss via text message or whatever it is.

Speaker 3

We have a bidirectional system where even if the system sends you a text message, you can respond and text. And basically, the communication goes back to the user in this native platform. We have what we call sort of a top down self-service model. So no matter how you're pulled into the system, maybe an employee submitted receipt, maybe you actually sign up via the website yourself, whatever it might be, everything you need to convert, you don't have to talk to a salesperson. You can just sit down and configure everything for the product automatically.

Speaker 3

So likewise, when you go to pay a receipt for an employee, for example, this is a simple act that we see that you're trying to pay with a business bank account indicates to us that you are a business. Again, you could pay Venmo style with a P2P transaction. But if you choose to pay with a business bank account, then we set you up with basically our universal payments engine, which is not only can reimburse expense reports, but can also do corporate travels and invoices, send corporate cards and things like this. So I mentioned how you can send invoices. Now invoices, there's 2 major flavors, B2B and B2C.

Speaker 3

What's particularly nice about business to consumer invoicing is it's incredibly viral. We can turn every one of your customers into a viral lead gen introduction for Expensify. And so we can take that receipt that was just submitted to the company for reimbursement and we can invoice, use that receipt to generate an invoice that's sent out to the client. In this particular case saying, it's like, we're sending it to Kathy who is being paying for basically having her deck finished for her house or something like this. Again, this is the same exact platform and it's switching back and forth between you can sign up on web, you can have a mobile app, you can use it in desktop and mobile.

Speaker 3

It all works the same sort of going back and forth. Light bulbs, you noticed that when the company went to go set up payments using their business bank account, it's the same basic flow as when Kathy goes to set up her payments for paying the invoice itself. Again, it's a universal payments engine. It doesn't matter how you want to pay. It's on us behind the scenes to figure out the appropriate payment rails and then show very simple experience to the end user.

Speaker 3

Next, we say, okay, maybe Kathy got this deck expense for her house. And then she turns around and invites, creates a chat group for everyone in the house to basically split this expense. And so we can talk about, hey, we got this invoice. It's basically a WhatsApp style group, except better than WhatsApp. It actually works with both email addresses and phone numbers.

Speaker 3

And you also don't need to wait for the other side to download into your app. Using Expensify is a personal decision. If you choose to use Expensify to manage your group communications, you can invite someone by email, invite someone else by text, and then you use the Expensify app, and then we will facilitate the conversation in whatever native platform they want to be. Likewise, when you choose to split a bill with everyone, we'll notify them by email, fund or whatever it might be, and they don't need to create an account. They don't need to download anything.

Speaker 3

They can just use the website to sort of pay the slip bill. So it's like a Venmo, except it doesn't require any app installation and it works both email and sort of phone number. Similarly, you can say maybe one of those actually people that the bill is split with already worked somewhere, already worked with a company that's basically using corporate travel. And so in this particular case, David is basically using the mobile app to book full travel on the client base so that it's full corporate travel, but simplified down for the SMB. Now what's nice about this, and I think there's travel management has been around for a long time.

Speaker 3

I think one of the greatest features of Expense by Travel personally is we call soft approvals. Now this will dial in, but again, whatever you want, depending upon the level of control you want, you can get that. But I would say, you can configure it such that the clients can or the employee can book travel and there's no approval needed, Or you can book travel for soft approval, meaning we'll notify the company that travel's approved, that travel's been booked, and then they can have 24 hours to sort of cancel the booking before it goes into effect or it can require hired approval, meaning that it requires actual specific approval before it actually gets booked itself. And so this is a very flexible tool to bring corporate travel on the mobile basis down to employees. And of course, on the management side for the travel manager or for any sort of financial manager, there's a full search experience such that you can actually pull in all the information necessary to manage complete expenses.

Speaker 3

Now, we kind of had 2 major flows in the product. One's called the inbox, which is really optimized for real time expense management. Whenever you configure your workflow and we know what your workflow is, then we can surface to the user exactly what they should do next. But for many flows, we don't really know what to do next. If you had to do a one off analysis or you need to find a particular receipt, whatever it is, that's where our universal search comes in.

Speaker 3

And so you can basically do a search for a particular keyword and then we'll search across all of the data types in the application. As you can see, it's not just expenses. We'll search chats, tasks, invoices, trips and so forth. So if you need to pull up everything related to Greg or maybe everything related to Vegas or whatever it might be, we'll show you where every data object is that relates to your keyword and then pull it into this very flexible system where you can export to CSV and later analysis features and so forth. So there was a lot that I just threw at you.

Speaker 3

To kind of review what we saw here, we saw Alice basically first scanned a receipt for herself without asking for permission. Receipt In the process of reimbursing that receipt, Bob configured expense management for his entire company and then used that same Universal Payments account to send an invoice to Kathy. Kathy paid that with a credit card. Again, there's no additional setup here. It's basically it's automatically happened as a consequence of setting up the universal payments count.

Speaker 3

Then Kathy, after paying that invoice, turned around and split it with basically her flatmates using a WhatsApp style sort of group chat platform. 1 of those members already had the app installed, already using it inside of a company and then used David used the same app to turn around and book travel. Again, this is a very unique flow that involves a tremendous amount of functionality happening all in the span of a single consumer app. Now building a super app like this is hard. It requires a lot of really advanced technology.

Speaker 3

That's why it's taken us quite a while to do because this is not a bunch of stuff you can do off the shelf. This requires a bunch of bespoke technologies. Just to give a quick review of some of our we use our Bedrock database, which is a blockchain synchronized basically unpartitioned database that has gigantic servers. We're talking like 384 CPU servers. No one has technology like this.

Speaker 3

But what's nice about this is it allows for context switching between these different environments. So that's what having everything stored in the same database at a scale like this is what allows you to use the same application between work and personal and use it between different organizations. Likewise, we use React Native, which is a very powerful technology for creating a consistent experience between iOS and Android, web and mobile, mobile and desktop and so forth. This means that there's no application need to install. And likewise, when you're deploying this at your organization, you don't need to retrain your company based on different platforms.

Speaker 3

It works the same everywhere. As I mentioned, this is designed to work seamlessly with email and SMS. It doesn't require an account. You don't need to create a password. Anyone who has email and SMS can can receive messages from Expensify and collaborate.

Speaker 3

That's what means that Expensify is a personal decision to use. My decision to use Expensify is independent of yours. If you have an email address or SMS, I can communicate with you and you can respond to me. And so this is there's no tyranny of the straggler where everyone in the company is waiting for 1 person to adopt. You can adopt Expensify by yourself and get value out of it, whether or not your friends or company does.

Speaker 3

And then finally, it's a universal payments engine. In order to make this work, we actually move money a bunch of different ways. If we're moving like domestically over ACH over cards or maybe we'll cut checks in certain situations, we'll move over a whole bunch of international sort of payments networks. But to the user, it doesn't it just looks like you set up your accounts. And then we take care of all that complexity, and so you don't need to worry about it.

Speaker 3

This creates a consistent sort of symbol app experience across all these different payment networks. So all of this, again, there's quite a lot here. I'd love to go into a lot more detail. If you go back to our roadmap room where you can see actually using Expensify and chat with the product management team and me about all of this and a whole lot more. And so please scan the QR code, click the link, whatever it might be, and I'd love to keep talking.

Speaker 3

So in conclusion, Q1 is a great quarter where I think we delivered incredibly strong sort of cash flow and cash flow growth. New develop or new expense buyers had incredible development progress. And I think we're moving away from the core engineering and product development to the final stretch, which is polished performance and improving reliability. So that's where we are right now. Everything we demoed there, that's like 95% real.

Speaker 3

And so it's going to be 100% real by the time we talk again. Next time we talk, new Expensify is going to be fully in market and generating paying customers. Expensify travel is going to have paying customers, generating new incremental revenue. And also the new card program that Ryan mentioned is already fully underway. And so we're it's going to take time to convert all our cards over, but that process is going to be started.

Speaker 3

So it's been a great quarter. We've had a bunch of tremendous progress across the board, and I can't wait to talk again next quarter. But for now, let's have some questions.

Operator

Sorry about that. We're having some technical difficulties. We had a cup of coffee spilled on our the laptop that we used to do this. We had to swap out one and we had some technical difficulties, but here we are. Thanks, guys.

Operator

Thanks for staying with us.

Speaker 4

Perfect.

Speaker 5

So first, I believe we have Koji on the

Speaker 2

line.

Speaker 5

Okay, let's go over to Citi. Matt, are you there?

Speaker 6

Yeah. Hey there.

Speaker 4

Back. Let's do it.

Speaker 6

All right. We got one. Sounds like you guys are having a similarly eventful afternoon as I am. So without further ado, I guess the first question I was just curious on going back to the paid members chart where you guys showed the April data point, at least historically April has generally shown a little bit of a jump. I don't know if there's any kind of nuances to this April, but it looks like it sequentially came down a tiny bit.

Speaker 6

And then it might be interrelated, so I'll just ask my sort of follow-up now. But I think last quarter you guys had talked about leveraging certain incentives to get people to more proactively switch from sort of old card to new card. How do you guys deploy those? Can you talk a little bit more about how those are kind of coming into the market and working and maybe that has an interplay to paid members? Thanks.

Operator

Yeah. Great question. And thank you. So the card transition, I think, is going well. We do have some financial incentives that we can deploy.

Operator

We haven't deployed for those yet. But I think the biggest kind of carrot to get people over is we've deployed new functionality that is only available on the new card, specifically the ability to create an unlimited amount of virtual cards, which people use on, like, a per vendor basis. So that's a highly desired feature that we're only putting on the new card and we're seeing customers come over as soon as they hear that. So we do have financial incentives. We haven't used them yet.

Operator

But we do have full confidence that we're going to get everyone transitioned over by end of year and we're very incentivized to get it done quickly. So it's a high priority for us.

Speaker 2

Yeah.

Speaker 6

Okay, got it. So you haven't used the incentives, the financial incentives yet. So okay, that's helpful. Thank you.

Speaker 5

Do you have a second question or are we good on

Speaker 2

No, it

Speaker 4

is a 2 part already.

Speaker 5

Okay, great. Elyse, switch over

Speaker 7

here. Hi. Yes. This is Elyse Kenner from JPMorgan on for Alexei Gogolov. My question was, is your raised free cash flow guidance more of a result of the potential monetization of new Expensify and the new card interchange revenue recognition, plus your new travel feature?

Speaker 7

Or is it all more due to cost optimization?

Operator

When we issued guidance last quarter, we're not very bombastic. We'll give you a very realistic view of how we feel at that point in time. More time has passed. We're closer to the end of fiscal year 2024 than we were last quarter and our views have updated a little bit. And that's why we're updating you all that we're raising the guidance a little bit.

Operator

And it's a combination of the cost cutting, but also the new products we have coming to the market.

Speaker 5

Perfect. Aaron? Aaron Kimson is on the line?

Speaker 2

Hey, thanks so much. This is Aaron Kimson from Citizens JMP. I want to ask first on open source contractors. In 2023, you paid out over $8,000,000 to open source contractors. As you progress with the ambitious product roadmap and the full time heads coming down, maybe 5 heads, but it's almost 4% of your full time heads.

Speaker 2

Is it fair to assume you'll be relying more on the open source community going forward? And how is cost per job trended since you stopped? I think Ryan talked about surge pricing on the 3Q model. How has it come down since then? It's

Operator

a great question. So the open source community is actually an incredible resource. It's so great to look at them Super fast. It's basically there's an unlimited amount of supply and we just have to give them demand. And they they kind of build it for us.

Operator

It's really great. Now we've talked about in the past that we were doing search pricing in order to build the community up. At this point, we've reduced the rates which we're paying out. And in this quarter, we saw more pull requests, so that's a metric, I guess, was more pull requests and less per pull request. So we actually got more done and we paid less on average than we did.

Operator

So those costs are coming down. It's part of the cost cutting initiatives, but we haven't seen any decrease in

Speaker 2

output. Got it. That's great to hear. And then secondly, just a quick one, Your largest shareholder owns about 15% of the outstanding shares. Obviously, he doesn't have meaningful voting power given the share structure.

Speaker 2

Have you had any recent dialogue with the shareholder? And is it something you'd be open to doing?

Speaker 4

I don't I mean, we'll be talking with anyone. Yeah. Yeah.

Operator

We we talk to, you know, anyone that emails us, but and also we have a whole chat room to talk to investors.

Speaker 2

Yeah.

Operator

But I think that we don't probably comment on individual investors. I know that's not really the answer you want, but we know we know Steve well from when we were a private company, but we don't have any active dialogue with him at this point in time.

Speaker 4

Yeah. Anyone who wants to talk to us, just call us.

Speaker 2

You know? Understood. Thank you.

Speaker 5

Great. Zachary Gunn, are you on the line still?

Speaker 2

I am, but I believe Matt asked all my questions, so we're good here. Perfect.

Speaker 4

Synergies. Easy. Love it.

Speaker 5

Okay. Last chance then. Do we have anybody from Loop Capital still?

Speaker 8

I think that's everybody that we have on the line. Cool.

Operator

All right. Thank you all. Tom Cullen is on.

Speaker 4

Okay. Great.

Speaker 9

Yes, I'm on from Eric Martinuzzi from Lake Street. Just a couple of quick things. After reducing expenses last quarter, do you have a timeline on when you could see greater investment back into sales and marketing?

Operator

Good question. I think that, right now we're we've been doing a lot of experimenting over the last couple of years and this year we're focused on investing in what's been working. I do think that maybe towards the end of the year or next year we'll see an uptick in sales and marketing. But right now, we're focused on getting the most out of the dollars we're deploying and doing what's worked versus more moonshot stuff, which is what we're doing

Speaker 4

in the past. Yes, I think it's about doubling down on the winners right now.

Speaker 9

Understood. Appreciate that. Couple of the quick ones. Given the softer, SMB market, have you made any pricing changes?

Operator

We've not made any pricing changes. We are very excited about the new travel product, which brings in a transactional revenue, which is something we're obviously very excited about. There's a booking fee and also a rev share component. So we think that is going to be positive for the business. But in terms of our subscription pricing, no change.

Speaker 9

Okay. And then this is kind of a combination question, but do you still expect all the customers to be shifted over to the credit card program by year end? And related, what was the churn in the quarter? And do you expect that to churn through the year?

Operator

So, yes, we do expect to have the program, everyone on the new card program by the end of the year. That's a huge focus internally for us. And in terms of churn, we did see a little bit of churn, but just kind of the normal amount that a big component of the decrease in users is the decrease in activity in our existing user base, which think is more macro and ultimately temporary. But, I mean, there is some element to churn.

Speaker 4

Yeah.

Operator

But also, we think that travel is one of the best tools we have to combat churn. It's a it's a reason people, cite when they do leave for a competitor. And now that we've announced this, we have a lot of interest. So we're very excited about it.

Speaker 9

Appreciate that. Thanks very much.

Operator

Thank you.

Speaker 5

Aaron, did you have another question? Your hand came back up.

Speaker 2

No, all can. Thank you.

Speaker 8

Okay. That

Speaker 10

is everybody that we've got then.

Operator

Alright. Thank you all. Again, apologies for those technical difficulties. You never know when a cup of coffee is gonna come splashing down on your laptop, but we got through it. So thank you all for your time, and we'll talk to you next quarter.

Operator

Oh, and also check out the chat room. We've posted kind of a summary of everything we discussed here. We've been told that there is kind of an image over some of the slides. All those slides are in the chat room. It's exfy.com/roadmap or use the QR code in the slides.

Operator

Also, all of this information is on our IR website. So thank you all and we'll see you next quarter.

Speaker 4

Great. Thanks everyone.

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Earnings Conference Call
Expensify Q1 2024
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