Expensify, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Expensify provides cloud-based expense-management software and the Expensify Card. Unless noted otherwise, financial amounts below are in millions of dollars.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $42.5 | $37.4 | $126.0 | $102.5 |
| Gross margin | $25.9 / 61% | $19.3 / 51% | $79.5 / 63% | $68.7 / 67% |
| Operating income (loss) | $(5.7) | $(8.9) | $(14.5) | $10.2 |
| Net income (loss) | $(8.2) | $(6.3) | $(23.6) | $8.3 |
| Adjusted EBITDA and margin | $9.0 / 21% | $(6.5) / (17)% | $31.3 / 25% | $16.4 / 16% |
- Growth and usage: Q3 revenue rose 13% year over year; nine-month revenue rose 23%. Average paid members were 761,000 in Q3, up from 667,000 a year earlier. Management attributed growth to more paid members and reimbursement activity as travel and office attendance recovered, and higher average fees per member as pay-per-use members increased.
- Profitability and expenses: Q3 gross margin improved to 61%, while nine-month gross margin declined to 63% from 67%. Nine-month operating expenses increased 61% to $94.0 million, including sales and marketing expense up 161% to $38.0 million. Stock-based compensation was $41.8 million for the nine months, versus $2.5 million a year earlier; it materially contributed to GAAP losses. Prior-year comparisons also include IPO-related bonuses, including $34.2 million for the first nine months of 2021.
- Cash flow: Nine-month operating cash flow was $26.2 million, down from $34.6 million. Investing used $1.4 million and financing used $2.1 million; cash, cash equivalents and restricted cash increased $22.8 million to $148.1 million. Balance-sheet cash and cash equivalents alone were $106.2 million.
- Liquidity and debt: Current assets were $188.8 million and current liabilities were $63.2 million at September 30. Outstanding indebtedness was $67.4 million: $44.5 million term loan, $15.0 million revolving credit and $7.9 million mortgage. The revolver had $10.0 million of undrawn capacity. Term-loan interest was 8.50% and revolver interest 7.25% at quarter-end; management cited rising benchmark rates as a driver of higher interest expense.
- Other financial items: Nine-month interest and other expense was $5.2 million, versus $2.6 million, reflecting higher interest costs and foreign-exchange losses. The company recorded a $3.9 million tax provision and a $3.3 million valuation allowance during the nine-month period.
Material changes, outlook and risks
- Revenue growth reflected recovery in business travel and return-to-office activity, alongside an increase in paid members and pay-per-use mix. Expensify reported more card transaction-related vendor consideration, which reduces cost of revenue.
- Management expects continued investment in product development and sales and marketing; it expects research and development and sales and marketing expenses to increase. General and administrative costs are also expected to rise with business scale and public-company requirements. The filing provides no specific revenue, earnings or margin guidance.
- Management said existing cash resources should fund operations and its growth strategy for at least the next 12 months and for the foreseeable future. This is subject to business, economic and financing risks.
- The company was out of compliance with two debt covenants concerning transfers to Expensify Payments LLC and repurchases of common stock, including RSU net share settlements. CIBC granted a waiver; management expected compliance by December 31, 2022 and said the breach had no material impact. The filing also warns that covenant failures could allow termination of credit commitments or acceleration of borrowings.
- Disclosure controls and procedures were deemed ineffective at September 30 because of an existing material weakness in internal financial reporting controls, relating to accounting expertise, staffing and control design and review. Management performed additional analyses and reconciliations and stated the financial statements fairly present results; remediation was ongoing.
- The $50.0 million share repurchase program remained authorized, but no shares were repurchased during the quarter or nine-month period. Management identified interest rates, inflation, foreign exchange, competition, member retention, platform security and litigation among relevant risks. No legal contingency was reported as material, and no material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether the company restored compliance with all debt covenants by December 31, 2022, and the ongoing terms of any waiver.
- How recurring stock-based compensation, including the remaining $218.2 million of unrecognized RSU compensation cost, affects GAAP profitability, dilution and future reported margins.
- Whether operating cash flow and revenue growth can support increased marketing and product investment while interest costs remain elevated.
- Progress in remediating the material weakness and establishing effective disclosure and internal financial controls.
- Whether paid-member growth, card adoption and reimbursement activity continue, and how these affect margins and revenue quality.