Expensify, Inc. quarterly report, Q2 FY2023

Expensify, Inc. — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023. Expensify provides cloud-based expense-management software and an associated corporate charge card. Management reported an average of 742,000 paid members across 45,300 companies during Q2.

Financial performance

MetricQ2 2023Q2 2022Six months 2023Six months 2022
Revenue$38.9 million$43.2 million$79.0 million$83.5 million
Gross margin$22.0 million; 56%$27.3 million; 63%$46.3 million; 59%$53.5 million; 64%
Operating loss$9.6 million$4.0 million$12.3 million$8.8 million
Net loss$11.3 million$8.0 million$17.2 million$15.4 million
Net loss per share$0.14$0.10$0.21$0.19
Adjusted EBITDA (non-GAAP)$2.2 million; 6% margin$11.7 million; 27% margin$10.9 million; 14% margin$22.3 million; 27% margin

Cash flow: For the first six months, operating activities provided $7.2 million, versus $27.2 million in 2022. Investing activities used $2.5 million, primarily for software development and property and equipment. Financing activities used $11.0 million, including $8.3 million of term-loan principal payments and $3.0 million of share repurchases.

Liquidity and debt: At June 30, cash and cash equivalents were $97.8 million; cash, cash equivalents and restricted cash totaled $141.4 million. The latter includes restricted balances and is not all unrestricted liquidity. Outstanding indebtedness was approximately $59.0 million, including $15.0 million drawn on a $25.0 million revolving facility. The term loan bears interest at 10.50% and the revolver at 9.25% as of June 30. Management said existing cash resources should fund operations and its growth strategy for the next 12 months and foreseeable future.

Material changes and management commentary

  • Q2 revenue fell 10% year over year; first-half revenue fell 5%. Management attributed the decline mainly to lower billable activity, including reduced higher-fee pay-per-use activity, and increased cashback rewards recorded as contra-revenue.
  • Average paid members declined to 742,000 from 754,000 a year earlier. Cashback rewards were $1.8 million in Q2 versus $0.7 million in Q2 2022; the company removed its $25,000 monthly spend threshold for 1% cashback in March 2023.
  • Q2 gross margin declined to 56% from 63%, as lower revenue and increased platform-support outsourcing weighed on results. Card-related vendor consideration reduced cost of revenue by $2.4 million in Q2, compared with $1.5 million a year earlier.
  • Q2 R&D expense rose 42%, primarily from employee and external contributor work on projects and new features. Sales and marketing expense rose 20%, reflecting sales/demo outsourcing and marketing events. General and administrative expense fell 24%, largely because 2022 included one-time public-company compliance work.
  • Stock-based compensation was $10.3 million in Q2 and $20.3 million for the first half. Non-GAAP measures exclude stock-based compensation and, for adjusted EBITDA, other specified items; they do not replace GAAP results.

Outlook, risks and contingencies

  • The filing provides no numerical revenue or earnings guidance. Management expects R&D and sales and marketing expenses to increase as it invests in products and sales efforts; it also anticipates ongoing public-company costs.
  • At June 30, the company was not in compliance with specified debt covenants concerning stock repurchases (including RSU net share settlements) and maintaining certain accounts with CIBC. It obtained a waiver and expected compliance or waivers by the quarter ending September 30, 2023. A covenant failure could permit termination of credit commitments or acceleration of borrowings.
  • Key stated risks include member retention and conversion, competition and product execution, inflation and higher borrowing costs, liquidity and debt compliance, foreign-exchange exposure, economic and geopolitical conditions, and security or service interruptions. Management reported no material changes to the risk factors in its 2022 Form 10-K.
  • The company reported no legal contingency matters expected to have a material adverse effect and no litigation it believed would have a material adverse effect. It noted that intellectual-property claims may arise and that litigation can be costly.

Important facts for investors to verify

  • Whether paid-member levels and billable activity stabilize, and whether revenue declines continue.
  • Whether cashback rewards and card adoption improve customer economics after their impact on reported revenue and margins.
  • Progress on restoring compliance with CIBC covenants, the terms of any waivers, and debt-service costs at floating interest rates.
  • Cash generation excluding timing changes in funds held for customers, and the availability of unrestricted cash relative to debt and operating needs.
  • The ongoing effect of stock-based compensation, share repurchases and equity-plan dilution on per-share results.