Q2 2023 Expensify Inc Earnings Call
By earnings call. We're excited to have everyone here today and excited to share with you all the information that we have first or on the call today, we have myself, Brian shaped with the Chief financial officer of expense and we also have our chief operations officer of Newmar that hiring on the call.
Before we get started let here.
Here are some disclaimers.
Before we begin please note that all of the information presented on today's call is unaudited and during the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual.
<unk> to differ materially from those described in the forward looking statements forward looking.
Statements in the earnings release that we issued today along with the comments on this call are made only as of today and will not be updated as actual events unfold.
Please refer to today's press release, and our filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Please also note that on today's call management will refer to certain non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
Please refer to today's press release or the Investor presentation for a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures.
Yeah.
Great with that are new.
Can you I guess the way.
Alright, Okay, let's go to one was like perfect.
So.
Hopefully we need no introduction, but just so we start off on the right foot.
Specifies a payments Super App. If you are an individual you can use it to track your personal expenses you can send and receive payments from your friends and family you can submit payment requests to your boss.
If you are a business you can manage your company spent you can pay your employees your vendors contractors and you can keep your accounting literature up to date Super easily using our product. So we aim to be the one stop shop for all expense since no matter, who you are.
Next slide.
I wanted to talk to you a little bit about our long term growth strategy.
Next slide so.
A lot has been said about what differentiates us all the way from the time, we went public but this is one of the key.
Stepping stone.
A key foundation of our business, so I want to go over it one more time.
Our unique differentiator is our customer acquisition model as an employee.
Many employees have a very real pinpoint when it comes to their business expenses, they need to stay on top of it they need to track it they need to get paid back on time and really no.
Software application out there is built for the employee first expensive like is as a result employees end up downloading our app for free without having to ask their bosses for permission and ended up at a meeting their own workflow, which is to keep track of their expenses and to submit it in a.
Timely fashion to their manages for approval and reimbursement.
And again it bears mention that the company needing to have adopted the product at all for the employees to do this because it solves a very real pain point for the employee they end up talking about us to their colleagues to their friends really anyone that has the same pinpoint geely anyone that has to track expenses for business purposes.
Often we find that in a company. There are several employees that are using expensive eye and are submitting to the same manager of different managers, but the company has not yet adopted expensive five this is our bread and butter. This is how we differentiate ourselves from really every other product out there now.
The active submitting your expenses to your manager at a company that has not adopted expensive fight, it's simply sending them an email with your receipts as an attachment and what we do when the manager receives these expensive just make it very easy for them to adopt the product with a click of a button and payoffs and this is art.
Primary growth driver and is.
Model that none of our competitors can very easily copied.
So that's our business model and that is our unique differentiating strategy now I want to talk to you a little bit about just the core pillars that builds up to our growth strategy. So next slide.
Now there are lots of puts and takes here. So we go over them one by one.
The very first at the bottom of the pyramid. If you will or this first step is the simplest really which is acquiring new businesses in order to manage their spend on expensive. So every time, we acquire new business, we get all of their employees and that contributes to growth.
The second is existing businesses that as big grow maybe they grow in terms of their employee head count maybe the grow in terms of the usage of expense to fall and what I mean by that is sometimes the companies using us internally for their employees, but then end up expanding their use of expensive by four other use case.
It's like they are paying out their candidates. So you know you're interviewing candidates you have certain expenses that you need to reimburse them. After their onsite interview. So you would use expensive eye for that so expansion of existing companies using expensive I into different use cases, all of which contributes to a go.
Growth in activity and that growth in activity is a pretty big.
You know paid member growth driver for us.
It is expanding or rather adopting other feature is an expensive by that also generates cash for us and the expensive by part is a big one so when you adopt the company adopted the expensive by card. They ended up we ended up earning interchange at every one of those transactions and that is a source of cash.
For the business and a source of growth as a result, and it's not just about the interchange revenue, but it also creates stickiness that locks it in that subscription revenue. So it's it's a product. It's a feature that really helps us retain and.
B, a better value add to our customers as a result.
Fourth you think virally capabilities, what do you mean by this is.
The bottom up growth funnel, which is our unique differentiating strategy really what it.
It's me have various use cases that an individual user will come too expensive for the more the individual user is served by expensive Fi without their company adopting the product the more we remain top of mind and as a result.
It ends up cultivating this huge free user pipeline sport us and win that.
Three user set if you will.
If thinking about adopting a business product we are top of mind for them survival loops are a huge source of growth and some of the vital products or features if you will our invoicing bill pay peer to peer payments.
And so forth.
And last but not least is global expansion so.
Touched on this a little bit before but companies that adopt expensive eye and grow as a company in terms of their head count and size.
Ended up increasing their activity on expensive fight.
In a in a directly correlated fashion and that is a pretty valuable growth driver for us, but as you can imagine as companies get bigger they are international entities. They have a local bank accounts in those entities and they need to be able to stick with the product the gross with them and so we launched.
This feature global payments, which allows us to withdraw in five different currencies and pay out in 200, plus countries and currencies, which enabled us to turn on these global payment capabilities for mid to large businesses, which have multi entities. So the ability to support their use case.
That allows us to tap into a larger customer base and keep that customer base, even as we become bigger and that is the last but not least source of revenue and growth for us.
So those are the five steps if you will that builds up our growth strategy.
Next our next slide I wanted to go into our Q2 update business updates for you and then.
Once I'm done with that Ryan will follow up with the financial updates.
Next slide.
So we've talked a lot about the accounting channel now.
Now I wanted to remind you why this channel is important to US. This is a highly strategic channel for us and it is highly strategic because every accountant is like a megaphone they bring on businesses as clients and they establish good financially processes for their clients and what we want.
Is to be top of mind to these accountants and can deliver a product to be considered competitive because by selling one accountant we sell.
Hundreds of businesses, if not thousands of businesses over time and it takes very little acquisition cost in our perspective. This is a very strategic and if played correctly and low cost channel for US now we talked I think about the fact that we're doing expensive country, which is a very luxury.
MS. But also talk leader conference that is targeting this channel we did that in me and what I want to do today is focus a little bit on the results. We saw coming out of that conference now the point of the.
The conference is a branding like we want to stay top of mind to these accountants, but also be to hear from them on what they consider best practices in the industry. So that we can keep our product as close as possible to what they considered the gold standard.
Coming out of the conference in Mi we became the preferred partner preferred tool for California Society of Ppas in the Texas Society of Cpus. No. These are really state C P associations, which sets.
The thought leadership or the gold standard for the industry to all other accountants, who in turn onboard companies and set the gold standard for them. So.
Signing these CPA societies, it's really like signing the megaphone of megaphone. So we're very happy about that.
We also received a lot of great feedback about the types of features that we need in order to make our product much more competitive in this channel. So some of those and we're working on all of them, they're all in development and should be coming out pretty soon.
Some of them are administered virtually expensive like cards and what this is is the ability for a company to assign a card to a specific vendor so that they can automate limits and put better controls behind subscription spend.
<unk> two is spun branded expensive by Carter. This is basically cobranded cards to our top revenue generating partners and we want to do this because we want these firms to recommend the card over and above any other corporate card or expensive product and they're much more likely to do that if it is branded.
Yeah, a cobranded so that it looks like something that would be our selling and are more invested in.
And last but not least we are doing a 50 basis points revenue share with all of these accounting first because we want them to recommend the card we want them to recommend expensive and we want to lock in all of the activity all of the subscription and all of the card spend as a result at a very low acquisition cost. So we're giving this to keep these 50.
At this point as sort.
Sort of our affiliate revenue if you will to be swaps.
So these are all the things that we learn and coming out of this conference have been implementing in order to sort of supercharge our growth in this channel.
Next slide.
I wanted to talk a little bit about just general.
Growth in awareness and.
This slide is focused on general awareness, because ultimately what we need to solve for our top priority is to increase the number of qualified leads that we get through our sales pipeline and then we need to use our onboarding specialists to convert them cost effectively because all of these new businesses that we onboard.
We're going to help us grow our paid members ultimately so were investing pretty heavily in SCO and SCM related optimization, we are testing new paid advertising channels as well.
And we are going to all the relevant conferences in our space using expensive like shocked at the communication platform of choice in these conferences. So that we can acquire leads the skills and once we acquire all of these qualified leads we have our onboarding specialists up stepping in order to convert them into.
Page useless and you know this team of Onboarding specialists, we've been investing in pretty heavily for almost a year now and they really sort of stepping into the into their game and the conversion rates from qualified leads to paid subscriptions is better than ever.
We're still working on our outbound sales pipeline.
And a lot of these efforts as a lot of our C. O S M and Onboarding specialist efforts are maturing as a lot of the mature we would be able to keep giving more and more loved your outbound sales effort in order to sort of make it much more cost effective and scale better as well.
So those are all the things we're doing on the sales front. So how are we increasing new business.
Next slide I want to talk a little bit.
About how we are driving more loyalty because I think I said before the big.
A big driver for growth is existing companies, both increasing their usage and also increasing or other cross selling our cards to them is are two different ways that we make a lot of money and we grow a lot about revenues. So what we're doing is giving every company that has 10 plus act.
And really 10, plus and <unk>.
<unk> companies on expensive I represent the lion's share of our revenue, but giving all of them a dedicated account manager and the point of giving them a dedicated account manager is so we can.
Always keep a pulse on the.
The company set up a lot of companies adopt us when they're small and they ended up growing but they never really go back and modify their setup or view their setup and as a result, you know as a company scales their processes need to scaling once looking out for them. So the point that the account managers would be to keep a health check on.
These businesses on a quarterly basis to be the first line of defense for them like a bonfire isn't satisfactorily addressing their consent to step in and give them white glove support and basically always keep the customer top of mind. So we anticipate their needs and give them the best in class support and.
Service and last but not least I touched on this a little bit we are working very aggressively on global expansion, we launched global reimbursements global payments, which allows companies to scale with us which is pretty significant because a lot of our enterprise sized companies where companies that we acquired when they were.
Small to medium in size and what we never want to happen is have these companies the best of them grow to the enterprise and if we lose them because we don't have the capabilities. We basically just let our best customers walk out the door, which is not what we want so global payments is directly targeting this company. So we grow with.
And we never lose them so.
I think with that I want to hand, it over to Brian .
Covers the business update so far in Q2.
Great. Thanks, Neil.
Let's cover the Q2 financials.
Our revenue in Q2 was $38 9 million or average paid members were 742000 and then there is a decrease from our prior.
Prior period.
However, our gross interchange was $2 7 million, we've seen our gross interchange increase by.
56% year over year. So we're very excited about that.
Next slide our operating cash flow was.
Negative point 4 million, our free cash flow, which is.
Basically operating cash flow, but we removed the timing of customer clinics, we handle a lot of customer money. It's always really announced so operating cash flow can doesn't always tell the full story free cash flow removes all the noise that handling customer funds.
Producing so free cash flow is $1 1 million.
Our GAAP net loss was $11 3 million, our non-GAAP net loss was $1 million with adjusted EBITDA.
Positive $2 2 million. So we did see a decrease in some of our profitability metrics. There. We did see some downward pressure on our margin due to some heavy investments we made in Q2, but I'll discuss that.
Shortly next slide please.
As you know, we don't give guidance given the current economic conditions, but we do let you know how the current quarter is going on in July we saw hey members of 719000.
Next slide please.
Yeah.
So when we talk when we talk about Q2 I'm sure a lot of people are saying, okay. So what happened this quarter.
So to summarize Q2, we continue to have a free positive cash flow.
Our free cash flow that is positive and we are reducing our debt.
As you saw in the earnings release, we reduced our debt by a little over $8 million this quarter, and we're making heavy investments in engineering and sales and marketing and that is putting downward pressure on our margins in Q2, but I want to be very clear. This does not represent a new higher costs of running the business. These are temporary investments, we're making in the short term.
And we do expect those margins to improve so it's not like our margins are suddenly way worse, we've been profitable company for for cash.
Cash flow positive.
Company for a long time, and we intend to remain so but this quarter, obviously, we're seeing that pressure from these.
These have been since we've been making.
To use a sports analogy I think we're in a bit of a rebuilding phase right now.
We're starting to transition from our old platform to a new platform, we're making tons of investments and like I said engineering and also our sales and marketing to set us up for success in the future, but right now.
Obviously things are a little.
Bit tougher so we do think that we're in.
Net of our ability in phase I think that's a question I've gotten in the past and I do think that that is an accurate description of where we're at right now.
However, early reception of our new expense by platform has been very positive.
We are going to continue to push forward on our ambitious and aggressive product roadmap and when we talk about the early reception.
David alluded to this in his founder's letter, but we have been using our new expense my platform for.
For conferences has been the main communication or social hub for these conferences and that's.
That's kind of been a trial by fire in the reception actually it's been really great. So it's been very encouraging to see the positive reception, we're getting when people are seeing the new product that we've been building.
Excellent.
All right and now we are going to take your Q&A. Thank you all very much and looking forward to hearing your questions.
Alright, so a little bit of a change of scenery here there is a hurricane.
Selling through Hawaii, So I'm going to have to sub N for Orion everybody just scrap on because who knows what's about to happen. It could go to try to answer all your questions and David is going to support me.
Great.
Get started with bank of America on the line.
Natalie I believe youre here.
Hi, Yes, I am awesome. Thanks, So I wanted to ask about your investments in sales and marketing. So how do you think about the balance between investing in your S. D ours versus your outsource sales channel and along with that what do you hope to gain from that outsource sales motion and how do you think about that capacity going forward with at this point in the.
The demand cycle.
Do you mean, the balance between investing in out in out sorry.
Sorry, you said <unk>.
D ours versus what was the other one.
Outsource sales channel that you guys had mentioned all of the Onboarding specialists.
So STR suddenly onboarding specialists kind of go hand in hand, because what sdr's. We're trying to do is increase the number of leads we get into the pipeline and Onboarding specialists are trying to close them. So you know.
This is kind of the same trajectory, we followed with Onboarding specialists, where we had.
I forget the exact numbers, but twice the number that we needed and then we kept working through you.
You know looking at conversion rates month over month building out a leader board kind of tracking results on a per agent basis, but also across the program and then as we've found our.
Our stride, we were able to identify low performers and we're also able to identify just what the program needs in terms of head count and we kept optimizing it. So now the onboarding specialists program more than pays for itself in terms of business closed we.
We are still in the early stages of that same trajectory with our STR. So.
In our Lat am I Wanna say last month, we actually went through an exercise where we looked at the total head count and we've got quite significantly, but sofa till we did that we didn't really have a framework and a model to be able to do that because the program was still too new and sort of coming into its own ultimately will.
We want to do is.
Grow these progress ultimate and you that'll be great problem to have really because what we want to do is increase the number of leads coming into the pipeline to a point that we need more of them, but right now we're in the process of just sort of lining up the framework, making sure we're staffed for capacity, but not overstaffed in making everything just a little bit more car.
Effective and then we know how to sort of grow it from there.
Does that answer your question Yeah. It does thank you.
Perfect. Our next we have George from Citi.
Alright, thanks for taking the questions I'm on for Steve I guess first of all best wishes to you Ryan in the whole state of Hawaii hope everyone's going to be safe there.
My first question, maybe for David is kind of a.
Our product philosophical question on taxed as a sort of a core medium that you run the business through kind of develop the platform around <unk>.
Obviously.
There's been a lot of innovation in the AI space, but arguably the biggest has been in the ability to analyze tech specifically.
So maybe what new opportunities is that kind of.
Unlock for for the company.
Great. Thank you for that and so this will start my one hour tedtalk.
So I think that this isn't some sort of new thing like we started a very very long time ago with us recognition that payments and chat or the same thing and if you look at sort of what makes disruptive technology cycles over time, the technologies that are disruptive or those that allow you to get closer to the customer to lower your cost of acquisition to efficient market size.
And so we think that when you look at the different kinds of technologies out there.
<unk> chain of VR or whatever it is I don't think theres really have this disruptive potential because they don't actually achieve a bigger market opportunity at a lower cost of sale, but when you look at things like what's the next inevitable platform is coming on the pipeline is probably going to be some sort of in your EPS, but do you have an agent based experience sort of intermediate in the internet.
And so that experience is going to be voice recognition and it can be choppy is that going to be a bunch of buttons and sort of heavy Gui and things like this so I think it's inevitable that the industry transitions towards more of an agent based approach and it's going to be based on voice and chat and this is something we've recognized for very very long time, that's why we invested so heavily in our concierge AI from the very starts.
Recognizing that the future is about basically picking if my capacity agents that can do a wide variety of things for you know theres a bunch of things out there like that theory, Google assistant and so forth those are highly individualized consumer tools. So don't work in the context of sort of business to collaboration. So we're trying to build basically the next assistant that can span not just the <unk>.
Individual consumer cases, but also help you in your most professional and difficult sort of collaboration March. This is a long term vision, obviously and so but it's a long term vision that doesn't happen by accident. If you are investing your entire product around a heavy Julie based interface youre not positioning yourself for the next generation technology, we've been pushing everything towards simple tap.
Space Communications with our customers and all of our workflows are sort of rebuilt for this coming agent base Revolution, and so we think the large language models in the chat GV CS and things like this where inevitable cancer that we predicted would happen right now, but we it was going to happen eventually and so I think that we've tried to recognize the opportunities will come.
We've already incorporated chat GBT and sort of is small use cases start the product and sort of as a growing more and more so yeah, we think that the.
All of the sort of large language model functionalities coming we've been seeing this coming for a very long time, and we've been trying to build the entire product suite around this kind of technology and the Nektar takedown Cisco.
Awesome. Thanks for the color that's a super interesting Super helpful. And then on competition that you kind of alluded to this in your in your letter you know a few of your competitors with new product announcements some discounting programs.
In your more high frequency sort of Kpis around go to market. Obviously, a lot of this stuff is brand new but have you noticed anything show up in the numbers.
Maybe a kind of deferred to a new for some of this but I would say I mean, the numbers are accomplished.
We have a lot of customers you can kind of see whatever you want to if you look close enough, but I would say in the broad strokes of things.
Think that much has really changed fundamentally it's still difficult.
Economic environment bankruptcies are through the roof, we see.
To customers all the time Theyre, just going under and so it still does a difficult environment. Overall, obviously, there's competitive environments right dynamics out there, which sort of complicate things further when you have people just dumping products at a loss into your marketplace is complicates things in the stores things.
But that's also not really new either I would say I don't think we've really gotten back to the pre pandemic normal now when exactly that happens, we don't really know, but I would say, it's still a very complicated environment I don't know if I knew you had anything else to add on that.
Yeah, I mean I think the.
The neocart providers come up a lot.
And you know I think the marketing and the growth in that industry. Both have done a very good job of making it look like they are our direct competitor Sun.
One to one on every customer that's just not the reality because if you take a wide swap of small businesses in America. It would never qualify for a corporate card because they just don't have the credit worthiness. They don't have the kind of cash balances. They would need in order to have a line of credit that is going to keep their anchor.
<unk> business spend flowing smoothly. So we still see a wide range of companies that don't want a corporate card or wouldn't qualify for a corporate card using green vegetables. So their business is sort of a subset of our business and although the offer their product for free when you adopt a cart if.
You take the number of businesses that are never going to qualify they still need a software product that scales from being a small company to a medium to big company in terms of functionality and range of features so we don't necessarily go head to head with them with every sale to the fact that they're cheaper doesn't apply.
Every situation so.
I don't know if that's where your question was going in terms of.
Ramping braxton them, introducing a subscription fee I mean, it helps now even on the card side like they're a little more expensive than they used to be which means welcome because it's at least an even playing field.
We all get to actually run a real business as opposed to just lose money. So that's good but it's also not relevant in every sale.
That makes perfect sense, thanks for taking the questions of course.
Great next we have Aaron from JMP.
Hi, Thanks for taking my questions.
Do you think about factors that are within your control versus outside of your control to get this business back to growth.
And with that how much of a priority is getting the business back to growth over the medium term say one to two years relative to just heads down investing in the long term road map.
Okay.
I'm not sure exactly.
And if you take a crack at this one as well that's a hard question.
I don't think that there is a conscious efforts too.
<unk> prioritized short term versus long term I think there is a path forward in this kind of only one path I think it's a bumpy path given sort of some of the dynamics. We just talked about but I think fundamentally my view is there is a huge huge opportunity out there. We are the only ones kind of trying to get it now it's not like you sacrifice the short term to go after the long term in my mind.
But I do think that to get back to that sort of sustainable growth, we have to execute on a wide variety of things. Yes. There is a product opportunity that has to be mastered but also I think as a news mentioning we've been really getting cracking. Good code on the sort of paid acquisition side for marketing with optimizing the STR is we're basically working with our.
As for our sales teams and so we're it's really a full court press and I would say one nice thing about having sort of a profitable.
Business underneath us is that we can invest in a wide range of these opportunities simultaneously and so we don't have to make a lot of kind of the tricky trade off decisions like should we invest in product or to reinvest in marketing. It's like what we can do both and so I would say I think we're to the maximum degree we're trying to invest in all of these different sort of asics simultaneously now.
I think it's a it's a challenge to kind of just manage all of this at the same time, there's a lot going on internally.
But I would say fundamentally I don't think we view it as a tradeoff between short or at least I don't get a trade off between short and long term like we have a path in front of us that past solves for both of those and when you sort of push forward as fast as possible.
No.
Yeah, I agree so I think Brian referred to it as we had in the rebuilding phase and so a lot of what we are working on with expensive eye to point, a new expensive file.
<unk> forward expense management App is kind of look at kind of forward looking right like it's trying to expand the target audience. If you will like right now we go after a set of customers. We are trying to expand that dramatically by sort of innovating on our product and that's the medium to long term roadmap, but.
Short term the product that we have perfectly caters to the target audience that we're going after like we don't have a product problem at all but we do have what we what is kind of out of our control to to answer. Your question really directly is we can't control the macroeconomic environment, we can't control the fact that.
Most companies are struggling for funding, they're not growing and so it's taking away one of our primary growth drivers, which I talked about which is companies just naturally growing once they've adopted expense if I and as a result naturally increasing their usage like that tailwind is sort of suffering right now and we're trying.
To make up for that loss of tailwind by with more aggressive paid marketing opportunities with more aggressive outbound, calling so on and so forth. So that's the short term sort of growth push and the product that we have is more than sufficient for us to sort of keep making inroads in.
That sort of channel and long term, we are trying to expand our target audience dramatically and that's where a lot of our product and engineering resources are going right now.
And you know, we don't have a crystal ball, but hopefully all of it sort of pays off.
Within propulsion of each other and then we can come out of this when the economy comes back as well like sort of like a Phoenix is the is the hope.
That's very helpful. Thank you and then just a quick housekeeping follow up on usually in the financial section of the press release, there's a sentence reaffirming both long term, 25% to 35% revenue growth guidance, Yeah, I don't see it today and just wanted to ask if you guys are reaffirming or withdrawn.
Yeah, so I'm not going to be able to do it as my justice as Orion would have but I'll say this for a few quarters now.
Since the day, we went public really we have not been in sort of normal or stable economic conditions and for a few quarters now we keep reaffirming that long term guidance and we keep getting questions all around them their fair what when will this long term guidance actually be true since we <unk>.
<unk> been close to the long term guidance in terms of growth.
So we actually took all of your feedback and removed it because.
We just don't know what we don't know we haven't been in stable condition since 2020, with this or that or the other like first there was a pandemic than there was concerns of a global recession. Then there was a global recession. There still is like fuzzy on the details, but it's very chaotic so we've removed it and then.
Once we sort of hit stability again, we will be able to reaffirm it but we don't want to keep giving you.
Outdated long term guidance. If you will so we that's the reason we took it took it away.
Thank you very much.
Next we have Luke do you have anybody on the line.
Yeah, Hi, this is <unk> on behalf of Mark surplus.
Yes.
So my question is regarding your one off Iot sensors initiative. The company is focusing on the subscription users instead of Paypal users. So could you provide an update on how that initiative is progressing.
Yeah. So just to clarify we've always focused on subscription users like since the.
I think in 2018, we launched annual subscriptions and the point of that was always to give ourselves a more stable E. R. R. <unk> Avenue stream because paper UC says can always just walk out the door. The next months like it doesn't create a stable business model. So we've always been focused on that now.
Coming during the pandemic that paper use number was the lowest it had ever been since the launch of annual subs and then coming out of the pandemic, it's sort of shot up a little bit above the healthy range that we've seen in the past. So we've been working pretty aggressively to remind and see the thing with this is although they pay us a higher.
<unk> per seat.
Fee, which is good for revenue its not good for retention if it gets to an unhealthy degree because at some point the customers going to pay attention to their bill and then theyre going to think the expensive is too expensive, which is not the brand or not the perception. We are shooting for so we got a little more proactive.
And more obvious if you will about the savings opportunities. So that people are sort of paying attention to their subscription size and correcting it as needed and that sort of broke down that pay per use number.
So reconsidered, 30% to be sort of in the healthy range. It used to be during the pandemic sort of in the 20, 20% to 25% range and then it shot up all the way to 35 and now it's back down to 30, and I think it has sort of covered this.
In this ballpark, we're not doing anything dramatically different to try to drive it down further.
Okay, and if I can fit one more about <unk>.
You don't give margin guidance, but should.
Should we expect a similar margin.
The second half's like higher marketing expense some of the margin.
So.
Yeah, Yeah, I think Brian had sort of touched on this in his presentation that we you know we've always prided ourselves on being a cash positive company like we have a real business that makes money and we will always be very disciplined about keeping those fundamentals now you know we've experimented with various.
Sort of initiatives from marketing perspective, like last year, we did a lot of out of home advertising.
This year, we're doing a lot of paid digital marketing, we did expensive gone, which was our conference on which we spent a lot of we spent significant amount of marketing dollars. In Q2 went towards that and then we've also been investing in the sales channel with Str's and Onboarding specialists.
We are entering a period of trying to cost optimize all of this so without giving specific margin guidance. I think you should see all of these optimizations start to show up in our results and we are hopeful that we can start to tighten.
<unk> tightened up our margins a little bit more going into the second half of the year.
Thank you.
Yeah.
Next we have Daniel Jester believer on the line here.
Daniel can you hear me you've got yeah, Yeah, you've got Dan here. Thanks for taking my question.
So I wanted to ask about I can see pressure on the growth situation a few different ways and I just wanted to make sure I understand all the point.
So as you think about the quarter you had it.
Sounds like a deceleration in the pace of new clients being added to the platform.
You also have less overages, because youre trying to right size customers into the right subscription profile. So that they don't have those extra fees.
But you didn't touch on retention and what Youre seeing there. So first of all is going to make sure I understand those factors and if you could spend a moment on what youre seeing on retention that'd be very helpful too.
Yeah.
David I'll kick it off and then if you have anything to add.
Feel free to interrupt me so of course, the three drivers are new customer acquisition existing customer expansion and then retention.
So the number one driver paid member growth has always been the second existing customer user expansion and I haven't looked at the numbers precisely but in the ballpark new customer acquisition and retention has not change.
<unk> dramatically, so it's sort of trending similarly and has four.
A few quarters now maybe even a year, but the piece that is different is existing customer user expansion, because and and of course. This has just informed guesses, but the macroeconomic environment is not very.
Conducive towards company expansions companies are not necessarily growing their head count so that seems to make sense that their usage and expensive eye isn't growing as much as it doesn't enormous market conditions and then of course, we've been what we've been trying to get.
A paper use down but also in an environment where companies are not spending as much paper uses just naturally going to be down because they don't need overages as theyre not spending all that much to be the subscription sizes actually sufficient for them. So those two.
Things are are the significant drivers of downward pressure.
Existing customers not expanding as much and then pay per use not being has oh, not growing or not being as high.
Yeah.
Okay.
Thank you.
Just I can reiterate what you said I think that that's the big challenge is that our growth has historically been driven by expansion of existing customers and that has just been.
Sort of a challenging environment because of these macro effects I don't think there's been anything else like significantly this change since then.
Gotcha, Okay, and then on the new platform are you know you've been talking about this for several years. So it's great that it's now live and being used and you help us think about the trajectory for which you have your current customer base Burbank Trans.
<unk> to the new platform.
And ultimately like what kind of friction or not does that transition typically entail do you think thank you very much.
Yes, great questions and so I would say.
Yes Stefan.
First 90% of the other work as they build it and then the second 90% is to get everyone to use it kind of thing and so I would say that the challenge here is we have a lot of technology. Its really good. It works in sort of these isolated use cases around chat I think we've mentioned how.
It's been really really great rolling it out this conference circuit, because the primary <unk>.
<unk> like with differentiates kind of chat platform from others is that it requires.
Such a low barrier to adoption doesn't require an account does it.
Permission doesn't require a password.
Click a scan a QR code and you start using it for example, and this is a testament to kind of our massive kind of like social network style back end architecture. That's built on these giant servers and Boston all this kind of stuff so any of the technology.
Knowledge is getting really proven it's built on this by the huge open source Army is like 500 developers.
It's the same code base across all of these from platforms. It's a really powerful new technology and so we've been working on it for a long time.
But it's really proving itself out and as early use cases now the challenge of course is how do you get existing customers from our classic platform onto the new platform and Thats, a very active topic of discussion as you can imagine and I think that's basically it through some form of deep linking and hybridization. So basically as we identify use cases that will work for.
For some types of customers, we promote those use cases to existing customers to say hey, you could use the new platform for smart scanning for your requirements whatever it might be.
Like linked them over there we can push them over there and so forth. This is going to be a slow process, it's going to take time to actually get all of our customers who are already comfortable with like our existing classic products to understand the benefits sort of this newer products and to sort of rewrite some of the older Brookfield as into it. This is kind of an evasive answer, but because we don't.
Exactly no a lot of this comes down to we view this as a collaborative engagement with our customers and we don't exactly know what their feedback is but we know that we are getting it they were responding to it in a gradual and pulling people over so it's not going to be an overnight sort of nice switch its not like theres a sensor.
Sort of like a risk that customers are going to.
Rejected or something like this we're building it in collaboration with our customers and I think it was mentioned it's something like expense icon is where we can test us out and so it's not just us working in an Ivory tower, we're working with the top accounting partners in the world to build these tools out for their needs and we're verifying it with them as we go so I would say again that's all.
The specific answer it's kind of the best I got that it's something that we're gonna roll out over time.
Okay. Thank you very much and maybe if I can squeeze one more in about the co branding of the card and you just talked about how that would actually work from a logistics perspective, and maybe talk about your relationship with your own card provider and does it make does it allow for that type of opportunity.
Yes. So this is actually its very off the shelf. So we basically include the branding of the firm itself on the same card base that we have today and it doesn't really.
We don't really I mean, I don't know how to how in depth of an answer you want echoed nerd out all day long, but it basically doesn't require us to older a fresh batch of cards or anything so it doesn't increase our cost. It's a customizable fields that were able to send via API, So which is great like when we started looking into it we were insured.
So we were thinking about how much would we need to put minimums on the firms in order to have this because we'd have to order a bunch of stock and what would that cost, but actually it's way simpler than that so we'd be able to get this.
Off the shelf and going pretty quickly and it just is a very light branding for the firm, but still makes it there one with just cultivate that much more loyalty. So it's worth doing I mean, not doing it for at least one we're doing it for our largest firms we wanted to test it out first and then if it if it has legs, we might extend it a little bit more downside.
Down market to other firms, but all TBD.
Great. Thank you very much worse.
Perfect well that rounds out our live Q&A. Thank you to everyone who joined US. If you have any follow up questions. Please feel free to email them to investors that expense by dot com and with apples to you next quarter.
Hi, everyone. Thank you thanks Bye bye.
Yeah.
The recording has stopped.