Business context and reporting period
Expensify, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2022. The company provides cloud-based expense management software, serving businesses and individuals worldwide, and also offers the Expensify Card. It reported an average of 706,000 paid members across 200 countries and territories.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $40.4 million | $29.7 million |
| Gross margin | $26.2 million; 64% | $22.1 million; 74% |
| Operating income (loss) | ($4.8 million) | $11.5 million |
| Net income (loss) | ($7.4 million) | $8.0 million |
| Operating cash flow | $11.2 million | $9.9 million |
| Adjusted EBITDA / margin | $11.0 million / 27% | $13.4 million / 45% |
At March 31, 2022, cash and cash equivalents were $101.1 million, versus $98.4 million at year-end 2021. Cash, cash equivalents and restricted cash totaled $136.1 million; restricted amounts include funds held for customers and other purposes. Total assets were $198.8 million and stockholders’ equity was $84.5 million. Outstanding debt was approximately $67.7 million: $44.8 million under the term loan, $15.0 million under the revolver and $7.9 million under the building mortgage. The revolver had $10.0 million of unused capacity. The company reported compliance with debt covenants and said existing cash resources should fund operations and growth for at least 12 months.
Material changes versus the prior comparable period
- Revenue increased 36%, principally from more paid members and reimbursement activity as travel and office activity recovered, and higher average fees per member reflecting a greater share of pay-per-use members. Paid members rose from 633,000 to 706,000.
- Gross margin rate fell from 74% to 64%. Cost of revenue increased 85%, including $4.9 million of stock-based compensation, higher payment-processing costs and customer-support activity. Vendor consideration related to Expensify Card activity reduced cost of revenue by $1.1 million, up from $0.5 million.
- Operating expenses rose to $31.1 million from $10.5 million. The increase included $14.7 million of stock-based compensation, largely associated with RSUs granted in 2021, as well as higher advertising, compensation and public-company costs.
- GAAP results shifted from net income to net loss. Adjusted EBITDA and its margin also declined year over year. Non-GAAP net income was $7.3 million, compared with $8.8 million; this measure excludes stock-based compensation and IPO-related bonuses.
- Operating cash flow increased to $11.2 million, with cash generation supported in part by higher settlement liabilities. Investing cash outflow was $0.7 million and financing cash inflow was $0.2 million.
Outlook, commentary, risks and unusual items
The filing gives no specific revenue, earnings or other numerical guidance. Management expects research and development spending to increase as it develops products and features, and sales and marketing spending to increase as it expands sales efforts. It also expects general and administrative costs to rise with business scale and public-company requirements. Management described business activity as recovering from pandemic impacts, while noting uncertainty about the lasting effects on customers, SMBs and business travel.
Stock-based compensation of $14.7 million was a significant unusual driver of reported expenses. The company recorded a $2.4 million valuation allowance during the quarter; the tax provision was $1.6 million despite a pretax loss, and the filing attributes the effective tax-rate difference primarily to the valuation-allowance change. Expensify contributed $0.9 million to its nonprofit subsidiary during the quarter, with $0.3 million of commitments remaining open.
Disclosure controls and procedures were deemed ineffective at a reasonable assurance level because of an identified material weakness in internal control over financial reporting, involving insufficient accounting expertise and staffing and weaknesses in process and report review. Management reported additional review procedures and ongoing remediation, but said remediation was not complete. Other cited risks include pandemic and geopolitical uncertainty, competition, customer retention and member growth, liquidity and debt-covenant compliance, foreign currency exposure, cybersecurity and service interruptions, and litigation. The company reported no legal contingency expected to have a material adverse effect and no material changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether paid-member growth and recovery in reimbursement activity continue, and whether growth translates into improved gross margins.
- How much future GAAP expense and dilution will result from the substantial unrecognized RSU compensation cost ($263.3 million at quarter-end).
- Whether operating cash flow remains strong when settlement-asset and settlement-liability timing effects change.
- Debt repayment, interest-rate exposure and continued compliance with financial covenants.
- Progress and independent evidence of remediation of the material weakness and ineffective disclosure controls.
- Effects of the tax valuation allowance, uncertain tax positions and the evolving adoption of the expected-credit-loss accounting standard.