Expensify, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 earnings filing; Q4 operating data is included where disclosed. Expensify provides cloud-based expense-management software and related card, bill-pay, invoicing and travel features. Its Class A shares began trading on Nasdaq in November 2021.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $142.8 million | $88.1 million |
| Gross profit / margin | $89.1 million / 62% | $55.7 million / 63% |
| Operating income (loss) | $(10.3) million | $5.7 million |
| Net income (loss) | $(13.6) million | $(1.7) million |
| Adjusted EBITDA / margin | $9.5 million / 7% | $26.8 million / 30% |
| Operating cash flow | $5.5 million | $7.6 million |
- Revenue and users: Revenue rose 62%. Average paid members in Q4 2021 were 711,000, versus 645,000 in Q4 2020. Management attributed revenue growth principally to the May 2020 price increase and making annual contracts non-cancelable.
- Costs and profitability: Gross margin eased to 62% from 63%. Operating expenses increased 99% to $99.4 million, including higher marketing spend, compensation and the substantial employee cash bonus described below. Adjusted EBITDA fell to $9.5 million from $26.8 million. Adjusted EBITDA and non-GAAP net income are company-defined measures, not substitutes for GAAP results.
- Cash flow and liquidity: Investing activities used $7.6 million, primarily for software development and property and equipment. Financing activities provided $80.6 million, principally from the IPO. Year-end cash and cash equivalents were $98.4 million, compared with $34.4 million a year earlier; cash, cash equivalents and restricted cash totaled $125.3 million. Management said available cash was expected to fund operations and planned growth for at least 12 months.
- Debt: Outstanding indebtedness was approximately $67.8 million at year-end. The company had a $44.9 million term loan, $15.0 million drawn on a $25.0 million revolving facility, and an approximately $8.0 million building mortgage. The term loan is secured by substantially all assets and bears interest at 5.5% at year-end; debt and lease obligations have scheduled payments and covenant restrictions.
Material changes and unusual items
- Annual gross logo retention decreased to 83% from 86%, and net seat retention decreased to 93% from 96%. The company attributed pressure in part to pandemic-related customer closures, reduced business travel and lower expense activity.
- Paid members fell during the initial pandemic shock, then recovered to 711,000 in Q4 2021. Management said platform activity remained in recovery and expressed the view that reopening and resumed travel could support further use.
- Expensify recorded and paid $48.4 million in 2021 discretionary cash bonuses intended to approximate the cost of employees exercising 45% of their stock options. These costs contributed materially to the GAAP loss and were excluded from the company’s non-GAAP net income calculation. The company also reported $14.6 million of stock-based compensation.
- The November IPO raised approximately $57.5 million net for Expensify; most shares sold in the offering were sold by existing stockholders, and proceeds from those shares went to the selling holders.
Outlook, risks and contingencies
- Outlook: The filing provides no quantified revenue or earnings guidance. Management expects continued investment in product development and anticipates increases in research and development, sales and marketing, and public-company costs. It sees growth opportunities in the Expensify Card, adjacent features and international expansion, but adoption and returns are uncertain.
- Debt covenant: At December 31, 2021, Expensify was out of compliance with a covenant restricting certain subsidiary investments; it obtained a lender waiver and expected to be compliant by the quarter ended March 31, 2022. A future breach without a waiver could permit acceleration of debt.
- Controls: Management concluded disclosure controls and procedures were not effective at year-end because of an ongoing material weakness involving accounting expertise, staffing and review controls. Management performed additional procedures and said the financial statements fairly present the results. The auditor issued an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
- Other risks: Key exposures include dependence on SMB and business-expense activity, pandemic and economic uncertainty, intense competition, cybersecurity and service reliability, privacy and payments regulation, foreign exchange, and reliance on a single card-program vendor. The filing said the Ukraine conflict had not had a material impact on the business as of the report.
- Legal matters: The company reported no current litigation that it believed would have a material adverse effect. A patent suit settled in June 2021 with no payment. The company also disclosed FEC complaints related to a 2020 CEO email; it had requested dismissal and had not received a decision as of the filing.
- Governance: The Voting Trust held approximately 82.6% of voting power at year-end through the high-vote LT10 and LT50 shares, limiting public stockholders’ influence. Expensify does not expect to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether paid-member growth and retention improve, and whether revenue growth continues beyond the effects of the 2020 pricing and contract changes.
- How much the $48.4 million bonus affected 2021 operating costs and cash generation, and how reported GAAP results compare with company-defined non-GAAP measures.
- The composition and availability of year-end cash, including restricted customer-related balances, alongside debt maturities, interest expense and ongoing covenant compliance.
- Progress and effectiveness of remediation for the material weakness in internal control over financial reporting.
- Expensify Card adoption, transaction economics and dependence on its card-program vendor, as well as any developments in disclosed regulatory or legal matters.