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
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six 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.