Expensify, Inc. — Q1 2023 Form 10-Q
Business and period: Expensify provides cloud-based expense-management software and an expense card. This unaudited filing covers the three months ended March 31, 2023, compared with Q1 2022. The company reported an average of 747,000 paid members across 47,800 companies, versus 706,000 paid members a year earlier.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $40.1 million | $40.4 million |
| Gross margin | $24.3 million; 61% | $26.2 million; 64% |
| Operating expenses | $27.0 million | $31.1 million |
| Operating loss | $2.7 million | $4.8 million |
| Net loss | $5.9 million; $0.07 per share | $7.4 million; $0.09 per share |
| Adjusted EBITDA (non-GAAP) | $8.7 million; 22% margin | $11.0 million; 27% margin |
| Operating cash flow | $7.6 million | $11.2 million |
Revenue was nearly flat, down 1%. U.S. revenue was $36.6 million and revenue from other locations was $3.5 million. Cash flow from investing was negative $0.9 million, mainly reflecting software development costs; financing cash flow was positive $0.1 million. Cash, cash equivalents and restricted cash totaled $154.6 million at quarter-end, including $111.2 million of balance-sheet cash and cash equivalents.
At March 31, current assets were $194.1 million and current liabilities were $61.9 million. Total debt was approximately $67.1 million: $44.3 million under the term loan, $15.0 million drawn on the revolving facility, and $7.8 million under the mortgage. The revolver had $10.0 million of remaining capacity. Term-loan and revolver rates were 10.25% and 9.00%, respectively; the mortgage rate was fixed at 5.00% through August 2024.
Material changes and management commentary
- Gross margin fell to 61% from 64%, as net cost of revenue rose 12%. Management cited platform-support outsourcing, higher payment-processing costs and increased support and implementation activity. Higher card-related vendor consideration partly offset these costs.
- Research and development expense increased 46% to $5.4 million, primarily due to project initiatives and new product features. General and administrative expense fell 11% to $12.4 million, largely because Q1 2022 included one-time public-company compliance work. Sales and marketing expense declined 31% to $9.2 million, mainly due to lower advertising and event spending.
- Cashback rewards were $1.2 million, compared with $0.5 million a year earlier. Effective March 2023, Expensify removed the $25,000 monthly spend threshold for 1% cashback and offered at least 1% cashback on all purchases.
- Stock-based compensation expense included in operating results was $10.0 million, down from $14.7 million. Adjusted EBITDA and non-GAAP net income exclude stock-based compensation and are supplemental measures, not substitutes for GAAP results.
Outlook, risks and unusual items
- Management said existing cash resources should fund continued operations and its growth strategy for the next 12 months and the foreseeable future. The filing provides no specific revenue or earnings guidance.
- The company was not in compliance with certain debt covenants at quarter-end, including restrictions concerning share repurchases and where certain accounts were maintained. CIBC granted a waiver. Management expected compliance or waivers for any non-compliance by June 30, 2023. The company also disclosed customary financial covenants and the risk that a breach could make borrowings immediately due.
- Interest and other expense rose 57% to $1.4 million, primarily because of higher CIBC reference rates. Management identifies borrowing costs, liquidity, customer/member growth, competition, cybersecurity, foreign exchange, inflation and geopolitical uncertainty among relevant risks.
- After quarter-end, the company amended its San Francisco office lease to extend it by 11 years; expected minimum payments for the extended term are approximately $6.9 million. A separate operating lease had not commenced at March 31 and had approximately $2.6 million of future minimum payments.
- The company reported no legal contingency expected to have a material adverse effect and no material changes to the risk factors in its 2022 annual report. Management concluded disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Review covenant compliance, the scope and duration of the CIBC waiver, and future borrowing costs and repayment requirements.
- Assess whether paid-member growth can translate into revenue growth while cashback incentives and card usage increase.
- Track gross margin and operating cash flow, which declined year over year, alongside the company’s investment in product development and support.
- Consider the scale and duration of unrecognized stock-based compensation and its potential effect on future reported results and dilution.
- Review the financial impact of the extended office lease and confirm liquidity assumptions against operating needs and debt obligations.