Expensify, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Expensify provides cloud-based expense management software and an Expensify Card. Unless noted otherwise, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $36.5 million | $42.5 million | $115.5 million | $126.0 million |
| Gross margin | $18.8 million; 52% | $25.9 million; 61% | $65.1 million; 56% | $79.5 million; 63% |
| Operating loss | $14.9 million | $5.7 million | $27.2 million | $14.5 million |
| Net loss | $17.0 million | $8.2 million | $34.3 million | $23.6 million |
| Net loss per share | $0.21 | $0.10 | $0.42 | $0.29 |
| Adjusted EBITDA (non-GAAP) | $(3.5) million | $9.0 million | $7.3 million | $31.3 million |
| Operating cash flow | Not separately presented for the quarter | $2.1 million | $26.2 million |
At September 30, cash and cash equivalents were $89.1 million; current assets were $179.6 million and current liabilities $73.8 million. Outstanding borrowings were approximately $58.8 million: $36.1 million on the term loan, $15.0 million on the revolving line, and $7.7 million on the mortgage. The revolver had $10.0 million of remaining capacity. Nine-month investing cash use was $4.8 million and financing cash use was $10.4 million. Cash, cash equivalents and restricted cash together totaled $134.6 million; restricted cash is not the same as freely available cash.
Changes versus comparable periods
- Revenue fell 14% in Q3 and 8% for the first nine months year over year. Average paid members were 719,000 in Q3, down from 761,000.
- Management attributed lower revenue primarily to reduced billable activity, including lower-fee annual-member mix relative to pay-per-use activity, and increased cashback rewards recorded as contra-revenue.
- Gross margin declined to 52% in Q3 and 56% year to date, as cost of revenue rose despite increased card-related vendor consideration that offsets costs.
- Research and development expense increased 93% in Q3 and 60% year to date, chiefly due to project and product-feature work. General and administrative expense decreased 10% and 15%, respectively, partly because 2022 included initial public-company compliance work. Sales and marketing expense rose 4% in Q3 and declined 3% year to date.
- Operating cash flow declined to $2.1 million from $26.2 million year to date. The company cited timing of customer reimbursement activity, lower revenue and increased outsourcing and project-design costs.
Outlook, risks and unusual items
- Liquidity outlook: Management said existing cash resources should fund operations and its growth strategy for the next 12 months and the foreseeable future. The filing gives no specific revenue or earnings guidance.
- Debt repayment after quarter-end: On October 12, 2023, the company repaid the remaining $36.0 million term-loan principal plus $0.1 million accrued interest. This occurred after the September 30 balance-sheet date. The company said lower debt should reduce interest expense.
- Covenants: At September 30, the company was out of compliance with specified covenants concerning repurchases/net share settlements, account maintenance and minimum fixed-charge coverage. It obtained a CIBC waiver and expected to be compliant or have waivers for any non-compliance by December 31, 2023.
- Interest-rate exposure: The term loan carried a 10.75% rate and the revolving line a 9.50% rate as of September 30; both rates were based on CIBC’s reference rate. The mortgage carried a fixed 5.00% rate and had a balloon payment due in August 2024.
- Share repurchases: The company repurchased 504,493 shares for $3.0 million during the first nine months, with no Q3 repurchases. Approximately $41.0 million remained under the authorization at September 30, subject to restrictions and company discretion.
- Cashback rewards were $1.8 million in Q3 and $4.8 million year to date, versus $0.8 million and $2.0 million, respectively, in 2022. The company removed a $25,000 monthly spend threshold for 1% cashback beginning March 2023.
- Stock-based compensation was $32.8 million for the first nine months, including $30.6 million expensed and $2.2 million capitalized. Management expects continued product investment; it also said research and development and sales and marketing expenses are expected to increase as the business expands.
- The company reported no legal contingency matters expected to have a material adverse financial effect and no material changes to its stated risk factors. It cited risks including customer/member retention, competition, inflation, higher borrowing costs, liquidity, foreign exchange, cybersecurity and geopolitical uncertainty.
Important facts for investors to verify
- Whether paid-member trends, billable activity and revenue stabilize, and whether the higher cashback program improves card adoption enough to offset its contra-revenue impact.
- Post-quarter cash and debt levels following the October 12 term-loan repayment, including the effect on interest expense and liquidity.
- Compliance with debt covenants or any additional lender waivers, particularly given the stated fixed-charge coverage shortfall and remaining revolving-line maturity in September 2024.
- Whether gross margin and operating cash flow recover as revenue, outsourcing costs and product-development investment evolve.
- The impact of stock-based compensation, share issuances and any future repurchases on dilution and per-share performance.