Q3 2024 Expensify Inc Earnings Call
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Speaker Change: And with that I'll hand, it over to <unk> to get us started.
Speaker Change: Thank you for that intra Nicky I am pretty excited to work all of you to our third quarter financial performance and highlights, notably we've made some pretty key strides towards.
Nicky: Stabilizing the business improving the core fundamentals and also laying down a stronger foundation for our future growth.
So let's dive into the details.
Nicky: First off revenue in Q3 total revenue came in at $35 4 million. This is a six 3% increase quarter over quarter and we also beat the street consensus forecast. So they are pretty excited about that pretty proud of that now admittedly. This was a 3% decrease year over year.
Nicky: That reflects the lingering challenges in the business.
Buck on near term momentum.
Nicky: It makes us more optimistic about the upcoming quarters and the <unk> expenses by platform is also expected to continue to pick up and contribute towards that revenue correct.
In Q3 average paid members came in flat quarter over quarter at 684000 and that represents a 5% decrease compared to the same period last year.
Thank you.
Nicky: Interchange from the expense defy cart.
Nicky: $4 6 million and that puts a whopping, 48% increase compared to the same period last year and that is a pretty key highlight this quarter and I will get into some more detailed on that.
Nicky: In a few slides.
Nicky: Let's talk a little bit about cash performance a standout highlight for Q3 was our free cash flow performance, which came in at $6 7 million now operating cash flow, which includes the timing of customer funds came in at $3 7 million.
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Nicky: Net loss was $2 2 million in Q3 with non-GAAP net income of $5 4 million.
Nicky: Last but perhaps the most exciting is our adjusted EBITDA, which came in at $9 7 million.
Nicky: The continued improvement in profitability and free cash flow is driven by two things a higher interchange take rate as we start moving more and more of our spend towards our new comp program and also our continued focus on our core cost efficiency, which continue.
Nicky: To show effect in terms of profitability.
Nicky: Let's talk a little bit more about free cash flow and get into our free cash flow guidance of it now given our very strong performance in terms of our adjusted EBITDA and free cash flow last quarter, we increased our free cash flow guidance for the year from 11% to 13 million to 15 to 16.
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Nicky: Million.
Nicky: This quarter, we are going to do that again, we're going to increase it again.
Nicky: And we are giving you a free cash flow guidance for the year $19 million to $20 million. So again free cash flow performance profitability improvements have been a key highlight this quarter and we are very proud of the fact that our continued efforts to stabilize the business is showing results.
Now as promised let's talk a little bit more about those expenses like part updates.
Nicky: This is one of our very exciting growth drivers expensive by card interchange revenue from expensive by card increased 40% year over year.
Nicky: The launch of the new expense defy card program, it's been very well received and the migration effort. If I may Batesville has exceeded even our expectations.
Nicky: 94% of our existing card spend has already been migrated to the new program.
Nicky: Which is pretty incredible given it's been less than a year since its launch and the new program is all new customers on the card are bringing directly onboard it to the new program now the new program allows us 20% more interchange. So it has a higher take rate and this is expected to further boost.
[inaudible]
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Nicky: So our revenue growth in the coming quarters.
Nicky: So let's break down the details of the interchange this quarter and a little bit more detail.
Nicky: The existing old program generated a net interchange points 9 million.
Nicky: Our new program generated interchange of $3 7 million and so taken together total interchange came in at $4 6 million.
We are pretty committed to getting that 94% spend number that's been migrated to the new program up to 100% before the end of year, we have a lot of irons in the fire and they're all going pretty well so we feel.
that imply at the end of the month, if there is an Indian expo in Papua New Guinea, there is a fortune of ten, or Lyons. What a very challenging place!
Pretty confident that we can hit that 100% number now last but not the least as we do every quarter. We give you a look ahead on paid active use. This October speed active use of came in at 693000, which is a 1% improvement versus the Q3 number and we're pretty excited about that.
Nicky: We're hopeful that the trend continues and we see a much better Q4 in terms of paid members.
Nicky: And subscription revenue.
With that I hand things over to David to talk a little bit about business highlights.
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Thanks for that so at this point is what I typically go through the roadmap and talk about basically the new developments with AD sense, but I would say for the Q3 quarterly highlights right now I'd like to talk about what we've learned on the road. So as mentioned last quarter, we put a lot of work into taking the product out to market and we've been asked a couple of conferences and got a lot of real world feedback from customers and the feedback has been great.
Nicky: I think in the process, we sort of there are some really key things with a value of new expenses and why it's going to create so much value from this market because kind of the 80 20 advantage. So if you really think about it what we've found is that expense management. Historically, there has only ever been able to automate about 80% of the workflow and that's basically as much of the workflow you can automate.
Nicky: The information that's on the transaction itself.
Nicky: They're also credit card transaction or after receipts.
Nicky: But at some point.
Nicky: 20% and 20% is where all of the actual pain of expense management is and that's the information that isn't on the transaction itself is information you have to go and actually ask a human about net asking a human is the park everyone despises, because thats, where you actually have to go manager employees Orange or employee does it get valued by our accounting team and no one likes that part and that hurts because of information require.
byebye yeah ok yeah
Nicky: The code the expense, but only a human knows and so the first part of new expenses I was trying to automate the.
Nicky: The process of gathering that 20% by streamlining the conversation around it and that's why we have this let me call. It chat centric design for new expense apart.
Nicky: Historically, you'd think about if you need to get this information you do it by E mailing someone and then Youre operating at email speed and email suite is super slow like I don't know about your inbox, but if you email me I'm only going to see it for days, maybe weeks and so anything that you are asking me that E mail is going to be days or weeks behind you with text me or chat me I'll see it respond differently.
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Nicky: So a new sense of our design is about trying to get expense management happened chat speed and that's why basically bring the chat process into the product so that people engage with the product quicker and get faster answer. So the humans. So step one I know it's been provided it's just about making that last 20%. The most painful 20% of expense management happy to chat speed. So you can actually close the books.
Nicky: Faster.
Nicky: But the second part of that is enabling us for the next generation of AI.
Nicky: As talked about everywhere and a lot of it is all made up but this is a really key example, where AI works incredibly well because most of that 20% of the discussion is about information, which already exists in chat somewhere and so for example, imagine like your own accountants and Youll see a purchase of some club in Vegas for example, you can.
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Nicky: Look at this like is this obvious fraud and breach of contract unemployment asset and then say well actually know is for us at the conference.
And Vegas and that took a client is winter. So it's actually very clear expense now normally you have to wait around by E. Mailing them wondering if they are strong for days or weeks until that person response and the response itself.
Nicky: Not only take a couple of seconds for the first thing to do but you have to wait days or weeks for a couple of seconds to expense with a centralized new design in the chat centric design trying to bring the organizational chat onto the <unk> platform that puts us into a position for our AI to see the conversation that happens both before and after the expense and the odds are at some place in that.
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Nicky: That conversation they mentioned that they were going through a conference in Vegas, taking out a particular clients two particular club the either said it before or they probably sort of after and so in the future. When first AI design, that's going to be searching not just the conversations that sense to you, but certainly all the conversations that you had leading up to and after.
Nicky: The expense itself to see if we can answer the question on automatically into the coating automatically. So X franchise golar is not immune to streamline that last 20%, but truly to automate that last 20%. Some are aiming for the world's first our industry's first 100% automation expense management, we're not there yet so you can start to see how our challenger's design starts to get US there. So maybe to summarize I would say.
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Q3 was a fantastic quarter, it's really show that the business has remained stable and in particular I would say newest specify is being powered on the foundation of it looks like classic and the Classic Foundation is strong it's profitable and it provided an incredible resource for building new Accenture why on top of it.
Nicky: You can see we've increased our free cash flow guidance once again and again, we keep finding more and more efficiencies in the organization and that's been really really powerful for us.
Nicky: <unk> card itself almost fully deployed I think you mentioned much faster than we really expected and we feel very confident that we're on track for full deployment by the end of the year in 2024.
Nicky: New supply is in market, it's a real product it is generating revenue and we're going to be the first in the market, we think to get to.
Nicky: Well, we think it can be the new bar, 100% automation assist management by bringing the chat centric flowed into the product itself and then finally, a countrywide travel is actually it's in market as well as making revenue and we're getting great reception.
Again, it's been a fantastic quarter built on a few different fantastic quarters coming up to this and so we have a strong foundation things are really good and we're very very proud of this quarter. So with that I think we'll turn it over to questions.
Nicky: Fantastic.
Speaker Change: I believe Aaron Nir here from JMP, we had started with your question.
Speaker Change: Okay.
Speaker Change: Yeah. That's great. Thank you guys. So much I guess the first question just off of your last comment there Dave.
Speaker Change: For expenses by travel.
Speaker Change: Any idea on what the revenue contribution is today and how do you how big of a piece of the business do you think that can become over time.
Speaker Change: It can become quite because travel and expense any of the entire category and so I think that we're seeing that it's just becoming sort of table Stakes for expense management in general and so every one of our customers I think has basically a travel requirement and so I think it has the potential for actually offering quite a lot of lift now we're still getting started with it we're rolling it out we've got great early traction, but I don't think we ever.
Speaker Change: Anything we're kind of ready to share at this point.
Okay. That's helpful and then switching to capital allocation. So the company bought back 646000 shares from from David two to 34 share on August 28, and that will be only stock. The company bought back in <unk> can you help us think about how you plan to manage the buyback going forward between repurchasing shares in private transactions like that one.
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Speaker Change: Versus buying shares in the public market, where theres not a super liquid.
Speaker Change: I'd be curious for your thoughts on this but my quick thoughts are I think that we're very.
Speaker Change: Opportunistic I mean, we've built up quite a cash reserves that we can use and deploy very quickly and so I don't think we know exactly the best way to deploy it in the future, but as we've shown we're pretty flexible and I think we are investigating opportunities, but I knew it would be curious what you think of that yeah. I agree we're pretty bullish on the company.
Speaker Change: <unk>.
Speaker Change: A lot of what my business or financial highlights focused on with really just getting the core fundamentals to a really strong place and now that we are in a place where we feel like the business is kicking off cash and doing it reliably.
And we are optimistic in terms of growth I think in the future quarters, we should be a little more bullish in terms of doing buybacks, but we don't have anything concrete to share just yet.
Speaker Change: Okay. Thank you guys.
Speaker Change: Perfect Stephen I believe you're here with Citi.
Stephen: Hey, great. Thanks for taking the taking the questions here.
Speaker Change: I guess I wanted to ask on the sub user side and good to see that see that ticking up and stabilize and I guess.
Speaker Change: I'm curious if you have an idea of maybe what.
Speaker Change: <unk> for the tick up like it is.
Speaker Change: Is there something that you feel like you've done that's helping drive the number in the right direction or does it feel like the macro is getting better just kind of how would you kind of articulate maybe what's going on there.
Speaker Change: Yeah I can take this so.
Speaker Change: We're like I was saying, we are pretty optimistic going into the future quarters as new expense if I.
Sort of ramps up more and more and we start to spend more and more of our traffic. There that conversion is going to perform much better in new customer growth is going to do better but.
Speaker Change: And I think we've talked about this in the past quarters.
Speaker Change: Really big driver for paid member growth in general over the years has always been existing customers increasing their usage of an expensive.
Speaker Change: And so we really they were really only two years that that particular metric was stressed that was assumed 2020 peak COVID-19 and then 2023 and largely when customers are still using the product, but they're not expanding it and.
Speaker Change: And we've looked at the correlation between that and churn track to try to see if maybe an early indicator, but it isn't large heat seems driven by macro. So we all know that in the last year and even some parts of this year have been.
And a lot of news about layoffs companies arent.
Speaker Change: Expanding overall, so that kind of makes sense that that metric is trust and.
Speaker Change: And we can talk about this more next quarter. So that we have a full years worth of data while we've seen some.
Speaker Change: Of that existing customer usage expansion sort of rebounding. So I think that's definitely giving us some tailwind.
Speaker Change: Okay, Alright that makes that makes sense.
Speaker Change: And then maybe on the go to market side and.
Speaker Change: I know there's been some I guess evolution of what that looks like this year or so.
Speaker Change: How are you kind of thing and the most recent changes resonating and Harry kind of viewing.
Speaker Change: The efficacy of some of those some of those investments.
Speaker Change: You mean on the new platforms, specifically, yes, just in terms of the go to market and they're trying to capture new users and customers and all that.
Speaker Change: Yeah. So we've only had the most amount of success with.
Speaker Change: Organic channels like SCO.
Speaker Change: At Mt.
Speaker Change: And just the strength of our brands do we see a vast majority of our new sign ups and even just visitors coming directly to us and Thats kind of continues and it's a really good leading indicator always that we are never starved for leads so we continue to keep on doubling down on improving <unk>.
Speaker Change: <unk> like improving sales efficiency, but also the product's ability to convert better and better with our new platform. We still we're still in early days Mobily, you're doing is sending all of our smaller leads to a new platform in order to really dial in conversion. So that we can keep what's working improve what's new and then.
Speaker Change: <unk> start to redirect all of our new leads to the new platform and that effort is probably going to take us. The next few quarters and we have you know more substantial.
Speaker Change: Substantial numbers of specific numbers for you down the line, but overall I think I'll go to market and Thats part of why we're able business was able to kick off.
Speaker Change: Cash so effectively it's because we are doing really well inorganic channels kind of word of mouth and continuing to focus on conversion. So.
Speaker Change: That's sort of still the focus of our go to market efforts did that answer yes.
Speaker Change: And maybe I could add to that a little bit I would say I think that I agree with everything you just said and I would say a big part of the go to market strategy.
Speaker Change: Strategy is building a product that just inspires leads and customers more and just to give kind of like one anecdotal example, so we got a sweet world every year and we go with basically the same pitch same product and things like this and it's always been a very very good complex for us because net suite is a major partner of ours will do very well in that channel and so we went to the same.
Conference with a same sized booth, but this year, we were pitching new expensive pie rather than defense My classic and that produced about 61% more leads out of that conference. They get everything with the same except for the platform and so I think we see that the major strategy for long term growth is really just to launch a platform that inspires and capture.
The imagination of customers better, which translates into more viral regeneration through word of mouth and higher conversion and so I think these are very cost effective ways to increase the conversion of our existing organic leads structure and then double down on those organically.
Speaker Change: Okay, Great that's helpful.
Speaker Change: And a great example, there so.
I appreciate that and appreciate you taking my questions here.
Eric: Fabulous Eric.
Speaker Change: Eric from Lake Street Capital I believe you are going to join us.
Eric: Yes.
Speaker Change: Question regarding the interchange from travel traction.
Speaker Change: Obviously, a nice shift here Q2 to Q3.
Speaker Change: Are you seeing any green shoots and interchange from the travel offering that you guys have and if not when should we see that.
Speaker Change: I don't think they are breaking it out in that degree of detail and if I'm being honest do you mean like.
Speaker Change: The travel as a product.
Speaker Change: It doesn't always.
As a customer that is using travel as a product isn't always you've seen our callers. So there's.
Speaker Change: Im not sure what the connection between those two from an interchange perspective.
Speaker Change: Yes, it was.
Speaker Change: To the extent they are using their car to book travel.
Speaker Change: Yes, I think that it's probably not meaningful because that's a pretty.
Speaker Change: Subset of what we would look at both in terms of card spend travel and travel total spend on card, yes, maybe I would say one of the advantages that we have no marketplace is our card agnosticism that we support all third party card fees and so I think its great and I think things do work best when he used it since my card in.
And with.
Speaker Change: Makes sense I travel, but there is no requirement to and so certainly I think a lot of our supply travel customers. Just continues in the existing corporate card program and Thats fine we make money otherwise.
Speaker Change: Okay and then second question is regarding the increase in the free cash flow I joined the call late but were there other than weather.
Speaker Change: Cost efforts taken.
Speaker Change: To the point, where you had maybe a reduction in force or are these more on the cost of good side, where you're continuing to squeeze cost out of the business.
Speaker Change: Yes, its the latter we didn't have any workforce decrease or anything like that we are continuing to operationally to get more efficient and that is the second driver. So there was the higher interchange take rate, but also operational efficiencies.
Speaker Change: Taken together.
Speaker Change: Gave us a higher free cash flow margin got.
Speaker Change: Got it.
Speaker Change: For taking my questions.
Speaker Change: Fantastic that was everyone we have on the call life.
Speaker Change: Great well, it's been a real pleasure. Thank you so much for joining us for this call. We're very excited about this quarter's results and we can't wait to talk to you next quarter.
Speaker Change: Thanks, everyone.