Expensify, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Expensify provides cloud-based expense management software and Expensify Card services. Average paid members were 754,000 in Q2, up from 639,000 a year earlier.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $43.2 million | $35.3 million | $83.5 million | $65.0 million |
| Gross margin | $27.3 million; 63% | $27.4 million; 78% | $53.5 million; 64% | $49.5 million; 76% |
| Operating income (loss) | ($4.0) million | $7.5 million | ($8.8) million | $19.0 million |
| Net income (loss) | ($8.0) million | $6.6 million | ($15.4) million | $14.7 million |
| Adjusted EBITDA (non-GAAP) | $11.7 million; 27% margin | $9.5 million; 27% margin | $22.3 million; 27% margin | $22.9 million; 35% margin |
| Operating cash flow | Not separately presented for Q2 | $27.2 million | $24.2 million |
Q2 basic and diluted loss per share was $0.10; first-half loss per share was $0.19. Stock-based compensation was $14.0 million in Q2 and $28.4 million for the first half, versus $0.9 million and $1.6 million in the respective 2021 periods.
Liquidity, debt, and cash flow
- At June 30, cash and cash equivalents were $105.5 million; cash, cash equivalents, and restricted cash totaled $152.7 million. Restricted cash and settlement assets relate in part to customer funds and should not be treated as freely available liquidity.
- Total debt was approximately $67.5 million, including $15.0 million drawn on a $25.0 million revolving line, leaving $10.0 million available. Cash and cash equivalents less reported debt were approximately $38.0 million.
- First-half investing cash outflow was $0.7 million and financing cash inflow was $1.0 million. Operating cash flow benefited from higher settlement liabilities associated with reimbursement activity; settlement assets also increased.
- Management said existing cash resources should fund operations and the growth strategy for at least the next 12 months and for the foreseeable future.
Changes and management commentary
- Revenue grew 22% in Q2 and 28% in the first half, attributed to more paid members and reimbursement activity as travel and office activity recovered, and higher average fees per member from a greater mix of pay-per-use members.
- Gross margin fell to 63% in Q2 and 64% for the first half, principally reflecting higher stock-based compensation, payment-processing costs, customer support and platform-related costs. Expensify Card vendor consideration partially offset costs.
- Sales and marketing expense rose 216% in Q2 and 269% for the first half, largely from advertising, product marketing, and stock-based compensation. General and administrative expense also increased, including public-company costs and stock-based compensation.
- Interest and other expense increased, in part because of higher reference rates on borrowings and foreign-currency losses as the U.S. dollar strengthened. The company reported a $3.8 million Q2 and $6.2 million first-half valuation allowance; tax expense was $2.1 million and $3.7 million, respectively.
- Management expects research and development and sales and marketing spending to increase as it develops products and expands sales efforts; general and administrative costs are also expected to rise as the company scales and meets public-company requirements. No specific revenue or earnings guidance was provided.
Risks, contingencies, and unusual items
- The company was out of compliance with a debt covenant limiting donations to Expensify.org but received a CIBC waiver. It expected to be compliant with all covenants by September 30, 2022. A breach of covenants could permit termination of commitments or acceleration of debt.
- A $50 million Class A share repurchase program was authorized in May; no shares had been repurchased through June 30. Repurchases are discretionary and could reduce cash or affect share-price volatility.
- Disclosure controls and procedures were deemed ineffective at a reasonable assurance level because of a previously identified material weakness in financial-reporting controls, involving accounting expertise, staffing, and control design and review. Management reported additional review procedures and ongoing remediation; it stated the financial statements fairly present results in all material respects.
- The company cited uncertainty from COVID-19, geopolitical developments including the war in Ukraine, competition, customer/member retention, execution of product plans, currency exposure, and security or service interruptions. It reported no legal contingency expected to have a material adverse effect and no material off-balance-sheet financing arrangements.
- The company expects to cease qualifying as an emerging growth company after December 31, 2022 and was assessing implementation of the expected-credit-loss accounting standard effective for its 2022 annual reporting period.
Key facts for investors to verify
- Whether Expensify remediates its material weakness and improves disclosure controls, and whether subsequent filings report any changes.
- Whether the covenant waiver and expected September 2022 compliance were resolved, and the effect of debt terms and rising interest rates on liquidity.
- How much of operating cash flow reflects ongoing business performance versus timing and growth in customer settlement balances.
- The magnitude and duration of stock-based compensation, including the remaining unrecognized RSU compensation cost of $242.6 million at June 30, 2022.
- Whether the $50 million repurchase program is used, and how any repurchases affect cash resources and share count.