Expensify, Inc. (NASDAQ:EXFY) Q1 2024 Earnings Call Transcript

Expensify, Inc. (NASDAQ:EXFY) Q1 2024 Earnings Call Transcript May 11, 2024

Expensify, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Ryan Schaffer: Hello, everyone. Welcome to the Q1 2024 Expensify Earnings. I’m Expensify CFO, Ryan Schaffer. I’m joined by Expensify CEO and Founder, David Barrett. Later, we have our COO, Anuradha Muralidharan, joining for the Q&A. But first, let’s get started with the disclaimer. Nikki, take it away.

Unidentified Company Representative: 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. 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 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.

Ryan Schaffer: All right. Now let’s talk about the Q1 2024 financials. Our revenue was $33.5 million. Our average paid members were $688,000. Our net interchange was $3.5 million. Our operating cash flow was $3.5 million. Our free cash flow was $5.2 million, which is a significant increase quarter-over-quarter. Our GAAP net loss was $3.8 million and our non-GAAP net income was $3.7 million. The difference between our net loss and our non-GAAP net income and stock-based compensation. And our adjusted EBITDA was $7.1 million. 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. 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 million to $13 million for fiscal year 2024.

And like I mentioned earlier, our free cash flow was $5.2 million. That’s a 242% increase from the previous quarter, something we’re very proud of and 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 $3.5 million. We actually have seen 13% in just the last month alone. 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 contract expense and cost of revenue. It will be moving to revenue and that we expect that transition to be finished by end of the year.

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Q&A Session

Additionally, we will get 20% more interchange on those same transactions. 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.

David Barrett: Thanks, sir. All right. So, the catch up, Q1 was a great quarter. We basically dialed in all of the cost optimizations for Q4. We continue to improve the core trends. And overall, we’re just investing in the things that are working. I 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 number of first page SEO keywords. So this is something we continue to invest in. So I think that is a word-of-mouth business, people are searching for Expensify a wide variety of names. And so if we can capture either branded keywords, but also just the wide range of long-tail unbranded words as well.

It’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 we can support them well. Additionally, as Ron 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. The start, as we always do, a reminder of the strategy. We believe that there is an enormous opportunity out there, something like 100x larger than the traditional market.

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. 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 way. As a reminder of kind of how this market is shaped. There’s like 1 billion 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 the viral model. There are chat systems, document management systems, payment systems that have captured hundreds 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. Expensify management has the unique benefit of being at the intersection between the three most viral use cases on the Internet. It’s basically chat meets payments means 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. To give you 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 the story.

I just want to talk about how we’ll start with Alice, a construction worker that’s basically going to Home Depot to scan a receipt to submit to Bob her boss, who turns around and it sends an invoice for that work to Cathy, who splits that invoice with basically her flatmates, one of which is David, who works with 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 extensive flow. There’s nothing else like in the Internet. And so this is a really powerful case and so on kind of break down how each of these works one by one. To start, we start with, let’s say, Alice is a construction worker, the unique aspect of Expensify as an employee, you can download or not even download.

You can just go to our website and start using Expensify without an account, does enter your phone number to say you’re going 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 in-line training, explaining basically how it works. And then also our concierge system as they’re 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 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. And so the idea of scanning receipts and then to submitting it to your boss, again, not waiting for your boss to ask — so to ask you 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 hundreds of million businesses around the world, which have an expense management problem, but it’s not when they’re trying to solve. They’re not up searching for it. They’re not taking calls on it. They’re not clicking ads for or whatever it might be.

But employees actually do experience that problem. And 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 has pulled in, and again, maybe the employees submitted it to their boss via text message or whatever it is. We have a bidirectional system where even if the systems — send you a text message, you can respond and text and basically the communication goes back to the user in his 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 to receive, 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 to — for the product automatically. So likewise, when you go to pay a receipt for an employee, for example, the simple act that we see that you’re trying to pay with the business bank account indicates to us that you are a business. Again, you could pay Venmo [indiscernible] 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, sending corporate cards and things like this. So I mentioned how you can send invoices. Now invoices there’s two major flavors, B2B and B2C. 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 leader 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 we’re sending out to Cathy, who is being — or 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. It all works the same sort of going back and forth. Lifewell as you noticed that — when the Company went to go set up payments using their business bank account is the same basic flow as when Cathy goes instead of her payment 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 a very simple experience of the end user. Next, we say, okay, maybe Cathy got this deck expense for her house. And then she turns around and invites create a chat group for everyone in the house to basically split this expense. And so we can talk about, hey, we got this invoice. And it’s basically a WhatsApp style group, except better than WhatsApp. It actually works with both e-mail addresses and phone numbers. And you also don’t need for — to wait for the other side to download into ramp. Using Expensify as a personal decision. If you choose to use Expensify to manage your group communications, you can invite someone by e-mail, 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 e-mail, fund or whatever it might be, and they don’t need to create an account. They don’t need to download anything. They can just use the website to sort of pay the slip build. So like a Venmo except it doesn’t require any app installation, and it works whether both e-mail and sort of fund number. Similarly, we can say maybe one of those actually people that billable with already work similar, already worked with a company that’s basically using corporate travel. And so you know this particular case, David is basically using the mobile app to book full travel on the client base so that its 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. I think one of the greatest features Expensify travel personally is we call soft approvals. Now this — we’ll dial in, 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 travels approved the travel has been booked, and then they can have 24 hours to sort of cancel the booking before it goes into effect or it can require hard 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. Now we kind of had two major flows in the product. One is 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. 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 our keyword and then pull it into this very flexible system where you can export to CSC and later analysis features and so forth. So there was a lot that I just threw out you to kind of review what we saw here. We saw Alice basically first sanders seat for herself that ask them to permission, then turn around and submitted that receipt to Bob for reimbursement.

In the process of reimbursing the receipt, Bob configured expense management for his entire company and then use that same universal payments account, they send an invoice to Cathy. Cathy 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 account. Then Cathy, after paying the invoice turned around to split it with basically her flatmates using a WhatsApp style sort of group chat platform. One of those members already had the app installed already using it inside of a company and then used — David used or the same app, the turnaround 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. It’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 unpatitioned database that has gigantic service. Talking like 384 CPU servers. No one has technology like this. 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 and desktop and so forth. This means that there’s no application you need to install. And likewise, when you’re deploying this you organization, you don’t need to retrain your company based on different platforms. So it works the same everywhere. As I mentioned, this is designed to work seamlessly with e-mail and SMS. It doesn’t require an account. You don’t need to create a password. Anyone who has e-mail and SMS can receive messages from Expensify collaborate. That’s what it means that Expensify is a personal decision to use. My decision is Expensify is independent of yours. If you have an e-mail 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 one person to adopt. You can adapt Expensify by yourself and get value out of it, whether or not your friends or company does. And then finally, it’s a universal payments engine. In order to make this work, we actually move money in a bunch of different ways. If we’re moving like domestically over ACH or credit 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 have all that complexity, and so you don’t need to worry about it. This creates a consistent sort of single app experience across all these different payment networks.