Expensify Inc (EXFY) 2021 Q4 法說會逐字稿

Hi, everyone. We're very excited to have you here for the next quarterly earnings call for Expensify. We have a lot of exciting stuff to share, and so let's just hop right into it. Okay. So let's get started with -- you're going to read some very exciting legalease (inaudible).

That's right. Before we begin, please note that all 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 results to differ materially from those described in these forward-looking statements.

Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made available 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.

And with that, I'll turn it back to you, David.

Thank you for that fascinating introduction. So we are coming to you live from the San Francisco lounge. And so we have the whole dream team here to discuss any questions you might have. We're going to go through all of this, and then each analyst is going to have one question, one follow-up. And so let's get started.

So as a reminder, Expensify's major plan for long-term success hinges on basically 3 major pillars. One is that we have a huge untapped market opportunity. The second is that we have a unique bottom-up adoption model. And third, that we're going after this huge, huge billion user opportunity. So (inaudible) review each of those in turn.

And to start, the market is huge and largely untapped. And if you just sum up basically all of the customers of all the competition, we're talking about 1% of the actual companies in the world.

And so the way that we view it is the opportunity is largely untapped. And so the differentiation for Expensify is that we are going after the whole market using a radical business model. Now one thing we're going to talk about a little bit more is that we're doing a lot right now to sort of expand growth in a few different ways.

Now you know from the roadshow and a bunch of other videos and so forth that we have a bottom-up adoption model and things like this. New things that we're adding to that, basically, we've dramatically expanded our advertising. If you're in any of the top-20 cities in America, you've probably seen our ads everywhere.

We've also launched a new Free Plan, which basically is allowing any of you to adopt the Expensify card and do reimbursements for free. The free-est Free Plan on the market, if you will.

And so those are the kind of the 2 most visible things, if you will, regard to this beachhead or the VSBs. But what you might not know is that we're doing a tremendous amount of work inside to go after sort of the greenfield opportunity. One is that we've expanded our account management organization. And this is basically pairing our top partners and customers with a dedicated point of contact, so every customer can, of course, always reach out to our concierge service and get fast, effective 24/7 support. But you want that personal touch. And you want to establish and launch a relationship. Now we're expanding our ability to provide that on a per-customer basis.

Second is that we've, for the first time, added outbound call. We've never really done this in the history of the business. This is an entirely new capability for us because one advantage that we have is we have individual users in over 1 million businesses around the world. And so as a result, we have basically our inside guy that's championing Expensify internally. And so we can use this as a tremendous sort of owned asset, if you will, to call into businesses around the world and grow the business.

Third, we're really reinvesting in our channel program. As you know, we've been in an extensive partnership with the approved accounting channel and basically the CPAs around the world. Towards this, we've actually launched an entirely new card focused exclusively on CPAs. These are a card for CPAs and their clients. So there's a lot going on inside the business, some of which is visible from the outside, some of which isn't.

Now as a reminder, our major differentiation, yes, our product is great and card's awesome and all of that. But the major difference between Expensify and everyone else is our business model is completely different than everyone. What we have what we call a bottom-up adoption model where individual employees will adopt the product internally without asking permission, without asking for advice and actually just using Expensify to promote Expensify inside the product, turning their expense report into a highly targeted marketing message directly to the decision maker. This is a radical departure from everything else in the industry, and it's uniquely Expensify.

And likewise, as we mentioned, this opportunity is huge, and it's much bigger than business. We're going after the full market, not just at the enterprise scale but also having a consumer-grade design that can actually solve all of the financial burdens of individuals doing bachelor parties, going to Burning Man, whatever it might be. There's a complicated series of financial transactions that happen inside, outside, between businesses and in a sort of quasi-business side hustle zone.

And we're aiming for all of it. We have a global reach, not just support for currencies but support for receipt types across the entire world. We have not just our own native card but also native travel. You can talk to concierge and book travel, book hotels, flights, whatever it might be. And all of this comes for free. We are the only company in the market that can make all of these claims.

So -- and maybe to finalize, we think that there's a true billion-user opportunity here. We think that if Instagram can link 1 billion people through photos, we can link 1 billion people through money. But this doesn't happen with a normal product. This doesn't happen with a series of point solutions that are targeted towards the back office. We think the only way to approach this is by building a platform that consolidates all of these payments opportunities and these payments flows into a single seamless experience. And so that's what we're focusing all of our energy on. Expensify is all in on this 1 billion user opportunity, and to invest in Expensify is to be a believer that, that opportunity is real.

So with that, let's talk about where we're going right now.

All right. All the good stuff. So let's talk about how Q4 performed. As you can see on screen, it was our best quarter in terms of paid member growth since the start of the pandemic, something we're very excited about.

All right. So last quarter, we said that we were predicting revenue to come in between $38.2 million and $39.2 million. Where we actually came in at was $40.4 million, so that is above expectations.

In terms of paid members, we were expecting somewhere between 673,000 and 691,000. We came in at 711,000. So we actually -- we gave this guidance kind of late in the quarter, so we didn't sandbag these numbers. We actually just had an incredible end of the quarter, which pushed up the numbers beyond what we were expecting. So that's great for us.

As you know, we have a very reliable subscription -- annual subscription business and then a kind of a variable pay per use. Those are customers that sign up without an annual subscription or just existing customers exceeding their annual subscription, so the overage, and we had a huge influx of that overage that we were anticipating, which is why we have these above-expectation numbers.

Some other numbers to point out for Q4. We had 57% year-on-year revenue growth. We increased our paid members in Q4 by 44,000, a very exciting number for us. Our annualized revenue, or ARR, for Q4 is $161.6 million. On a GAAP basis, we had a $21.9 million loss, but on a non-GAAP basis, so if you take out stock-based comp and the IPO bonuses, which I'm going to touch on in a second, we had a $4.4 million non-GAAP net income and a $7.3 million adjusted EBITDA.

I talk a little bit about the IPO bonus again. So we talked about it last quarter. You might recall that I said that we had to actually cruise over multiple quarters. So part of it is in Q3. A part of it is in Q4. So we'll explain the impact on Q4. The good news is we don't need to worry about this. We're not IPO-ing again. So we won't be talking about the IPO bonus going forward. This is the last quarter where we've got to deal with that.

All right. So here's how we calculate the non-GAAP net income because we got a lot of questions about that last time. So we had a GAAP of $21.9 million net loss. You add back in $12.1 million in stock-based comp, $14.2 million in the IPO-related bonus. That gets you to the $4.4 million non-GAAP net income.

Jumping over to adjusted EBITDA, a negative $6.9 million in adjusted EBITDA. Add in that bonus again, you get $7.3 million in adjusted EBITDA.

All right. So let's talk about -- that was Q4. Let's just look at some of the highlights for fiscal year '21. We did $142.8 million in revenue. That's a 62% year-on-year revenue growth over '20. Our interchange grew 185% versus the prior period. And we continue to increase the efficiency of our employees. We are now doing $1.1 million in annualized revenue per employee, which is higher than what we had in the roadshow over previous quarters.

Talk about the numbers keep getting more exciting. On the fiscal year '21, we had a net loss of $13.6 million, but when you look at our adjusted EBITDA, which excludes stock-based comp and the IPO bonus, we actually had $58 million in adjusted EBITDA, which is a 41% EBITDA margin, something that we are very proud of. And on a Rule of 40 basis, that's 103% so something definitely worth celebrating.

All right. Now let's talk about guidance for Q1. You'll see that we have our previous guidance range, and we are expecting -- we are giving you an increase in ranges here. So in Q1, we are expecting revenue to come in between $39.6 million and $38.6 million. And for paid members, we are expecting between 684,000 and 702,000.

All right. Now I want to talk about long-term guidance. To-date, you know that we have only been giving quarterly guidance. We'd like to actually issue long-term guidance now. We're finding that revenue is growing sustainably at between 2% and 3% month-on-month. And we are seeing that paper use that I mentioned. We're seeing some volatility there kind of driven by macro events of the pandemic, trends and business travel due to the war. But -- so that is making our pay-per-use numbers more volatile than they have been in the past.

So what we would like to do is we're going to start issuing a long-term guidance, and that's going to be 25% to 35% long-term growth guidance. That's the growth level that we believe we can sustain over a multiyear period, and we are going to cease the quarterly guidance because that has become more of an exercise in management trying to predict global macro events and has become increasingly tough with how the world is looking nowadays. So we would like to spend this time that we have with you all talking about our long-term growth and how we're going to drive that long-term growth verse debating whether there's going to be a new strain or there's going to be more kind of national events.

So that is actually all the material I had. Now we're going to jump over to Anu, who's going to kick off our Q&A.

First, we have Sterling from JPMorgan.

You would think by now, we would get the unmute button corrected.

Can you just maybe -- you touched on it in the last part of your comments, but talk a little bit about the seasonality in the paid user given the expectation that this quarter is going to finish with fewer average paid members than what you did in the fourth quarter.

Yes. So you'll see it is actually an increase from the guidance we gave in Q4. We did have an influx of oversubscriptions pile in at the end of -- literally, the last 2 weeks of the year, which drove our -- those numbers up higher. So from our perspective, we are seeing -- our guidance is increasing, but we did see that influx at the end of Q4, and that was unexpected. We are not expecting that in Q1. So I would go off of the guidance that we're providing here.

And maybe also to chime in on that, I would say, normally, we don't see the last 2 weeks of December, which is a holiday period, this being like a major growth opportunity. But Q4 was kind of special in the sense that it was the first clean quarter we've had for a very long time. I think the Q4 is a reflection of how the business model performs when the world is normal, and everything is in the up and up, and no major land wars in Europe and people looking towards the end of the pandemic. And so I think that Q4 gives a good glimpse of kind of what kind of future we expect and how things behave when the world is normal. And -- but as we've seen that the abnormality of the macro trends throws a lot of volatility into that pay-per-use, and then it’s natural to compromise on some of this complexity for forecasting.

All right. So then the second part is, at the time of the IPO, we had talked about pandemic and the way we built our models around business travel really recuperating more towards prepandemic levels probably in the back half of '22. Is there any change in your viewpoint in terms of -- I know you wanted to get away from the quarterly gyrations of forecasting macro. But based on what you've seen so far, we still have to build our models. Do you think there's still anything different with Omicron, war, et cetera, that would prevent that pickup from getting there by the second half?

So we think Q4 is actually a great example of how the business, like David said, functions normally. In Q1, we saw a surge in Omicron in January was actually the peak of the pandemic, and now it's coming back down. So I do think that, again, the pandemic isn't forever. There's been these kind of hard-to-predict flare-ups that we saw in Q1. But Q4, I think, is a great example of -- everything was trending downwards. Everything's opened up, and then we kind of saw a regression maybe a little bit in Q1. But obviously, we don't think that is going to be permanent going forward.

Yes, I think we're getting back on track.

Next, we have Tanika from Bank of America. I believe we haven't spoken to you before, so...

Yes, welcome.

Koji's actually in Hawaii right now, so I'm on for him. So we've been seeing your signage outside of [SF]. We were in Seattle for an Analyst Day. We're seeing good success there with investing outside of the metropolitan like around the U.S. I just wanted to understand how are you guys thinking about investing for growth? Has the investment profile changed since the IPO? And yes, just trying to get at the spending environment. So we'd be taking rate expenses up and how to think about it going forward.

Great question. So I think that maybe is kind of touching on what we've discussed before. In general, so the answer to basically any question you have, more or less, is that whatever we've been doing is working, and we're going to keep doing. And so we make small changes over time. And so we don't make big shifts in general. And so I would say, in general, we don't feel that our overall business model or strategy needs any kind of changes. We think that it's already designed for a full market approach. And so it works incredibly well outside of metropolitan areas. It works internationally, it works basically everywhere people are.

And so the basis of my answer is, no, not much has really changed in how we are fundamentally planning on growing in the long run. That said, we do obviously tweak the formula a bit. And that's like a touch again of what I mentioned earlier. We have increased advertising, especially in metro areas, but also there's like podcasts, there's digital. There's a wide variety of things that go into this. And so you can see us basically anywhere people are -- or anywhere people are looking, that's where we are as well.

We're expanding our top management. Now again, this is not new. We have always provided hands-on account management for customers. We're just making that more widely available. We're adding -- outbound is new, basically calling people into more sort of proactive interactions. So that's a new approach, and that does reach outside of those metro areas a bit more.

We've done basically some direct mail as well, for example, contacting CPAs around the nation, which are basically in every state; more channel partner and growing through the accounting firms, which is again not necessarily limited bias towards metro areas just because population centers are, but again, it's everywhere. And the Free Plan is really about just making a more approachable on-ramp for customers of all sizes.

And so none of these, I would say, is a dramatic change. None of them is specifically targeted outside of selecting new markets. Our model has already been targeting a global marketplace. Do you have thoughts on that?

Yes. Any follow-ups, Tanika?

Yes. Just a quick follow-up. Is there any update on the visibility on the [Marketo] contract? Will it get you into revenue (inaudible) the GAAP, so any timeline or visibility on that would be helpful.

Yes, good question. So we've made actually a tremendous amount of operational progress on that, and we're still on track to get it all done so we can kind of clean up our financial statements this year. So the ETA is still 2022. We are still not so close to it that I can give you a better time line, but maybe next earnings release we can tell you a little bit in more in detail.

Next up, we have Tyler from Citi.

So I guess I just wanted to better understand the comments on what you saw at the end of Q4 and then in terms of the influx of paid members. And then, I guess, specifically, what is driving the dropoff into Q1. So was this budget flush? Was this just kind of in response to promotional activities? And then are those members going away in Q1? Or is this just kind of a typical seasonality that you see Q4 to Q1 just because it's a softer travel time?

Yes. So that's a great question. So this is not a churn off of customers or anything like that. It is a decrease or any kind of the volatility of the pay-per-use members. So again, we saw an unprecedented level of customers exceeding their subscriptions in the back half of December, which is traditionally kind of a quiet time for us. And we don't predict that level of pay-per-use surge in Q1, especially in light of what we've seen with Omicron in Q1. So that's -- we've adjusted our guidance appropriately.

But also by definition, because it's pay-per-use and it's overage and customers use it when they feel the need, it's much harder to predict. So when we say we don't anticipate it, there's nothing that tells us that we're going to keep seeing that sort of pay-per-use surge, but we might, we might not. Like it literally is a total unknown.

Yes, the core revenue growth is very reliably, very sustainably growing at a solid 2% to 3% rate. It's the -- exceeding -- the customer is exceeding their subscriptions, which is difficult to predict, especially in light of kind of what's going on in the world now.

Right. But the customers exceeding the subscription, that wouldn't -- that's kind of more revenue volatility versus average paid member volatility, right?

The pay-per-use numbers are in the total paid numbers. So it moves them both.

I see. Okay. And then just as we think about maybe some of the new product initiatives. So obviously, you -- this Free Plan was announced recently I guess, first, is that having any cannibalization on the paid users? And then secondly, any just early updates on the invoicing and bill pay?

So I'd say -- so first off, no, it's designed not to cannibalize. Basically, the Free Plan, the paywall was calibrated to basically ensure that people who are currently paying keep paying. And so no, it's -- this is adding a new group of customers, especially cardholders that are generating interchange, but they're actually just not paying any subscriptions. And so no, it's not cannibalizing. It's purely additive.

As for the second part of that and sort of attraction with invoice and bill processing, I don't know that we've split any that out quite yet, but we're very, very pleased with the growth of both of those. I think that very much -- it's a platform play in perfecting the art of cross-selling these different use cases into our existing customer base. And so I think once it becomes more material, like over 10%, I think is what we typically say, then we'll probably break it out.

But at this point, it's still under that threshold.

One maybe tip that we can give you as we've seen in Q4, we've had over 3,000 customers -- new customers sign up for the Free Plan, which is a really exciting traction for how little it's been out, and obviously, we're going to continue talking about the Free Plan and the progress of that next quarter as well. It's very encouraging and something that we're all excited about here.

Yes.

Cool. Next up, we have Brent from Piper.

A couple questions, if I could. I guess, David, for you, we'll start things off here. I was actually my first return to travel trip actually this week at (inaudible) in Vegas, and there were a lot of people there. Quite a few people more than I anticipated. I guess as we just think about your business, as we think about paid members, maybe just walk through expectations around this return to travel. If we do see it coming back earlier in the year, would you also see that trend (inaudible) towards SMB. Is it a little bit different of an expectation versus maybe some of these bigger conferences where they're larger enterprise-orientated companies that showed up at the Shoptalk this week.

Yes, those are all great questions. And so I think that you're absolutely right in the sense that there are these indicators, are leading indicators that things are coming back to normal, like just last night, we went out to a team dinner with about, I don't know, there's like maybe 15, 20 people there, and I was sitting there and talking to the person that sat next to me, this is the most people I've had to dinner with in 2 years. And I'm looking around, the bars packed.

Everything is -- and like this feels so weirdly normal, and that's just like a tiny tidbit of like that was a business dinner. It goes to get put down on our Expensify card, that generates revenue, and it's an active thing. Or even if we think about Q4, like I remember I booked Disney Cruise for me and my 7-year-old daughter before we knew anything about Omicron. And so I remember, Q4 was like a brief window of hope and joy. And then basically, as we got closer and closer to December, everyone was like, oh, my gosh, should we even going on this trip. And as we're pulling into port, other ships are basically shutting down and being turned away. And so it's like Q4 was a weird time. But it's a reminder of like, we can get back to normalcy. And I think that we're seeing that again now. Like this -- these indicators are just positive indicators are like buds in spring, like it's coming back.

Now when you ask about conferences specifically, I know that we have a robust conference season this year, much more than previous years. And so I think we've -- just speaking for ourselves and our own sort of like marketing, we're much more active in the conference circuit than we have been in the past. I think we're seeing conferences in the past were basically like partially virtual and things like this. And now they're actually, no, it's actually fully in-person. Vaccine and mass mandates are going away that increases sort of this more participation. So these are all sort of anecdotal. Again, like I'm not Fauci. I can't tell you what the pandemic's going to do. But I do think that if -- from our perspective, we see far more signs for hope and optimism in the upcoming quarters than there is pessimism.

Helpful color. I guess then for Ryan, obviously, historically, this has been a very profitable business and just wanted to pick your brain here. As you think about the coming year ahead, walk me through your view around where could free cash flow kind of be. What are the intentions there? What could EBITDA be going forward? Just trying to think through the path back to generating a meaningful amount of free cash flow and EBITDA going forward. Just trying to think through that equation here as on a full year basis.

Yes. So -- when the pandemic started, we had pulled back on a lot of our spend. And as we see kind of the economy waking back up, we have ramped up our spend accordingly. And we feel that for 2022, we're probably going to be spending more than we spent in '21. So I do think that we're going to be very profitable in '22. But maybe if I had directionally give you an indication, I'd say probably less than what we were in '21 just because our spend will be ramped up for the entire year instead of kind of incrementally as the year goes on.

Next up, we have Pat from JMP.

All right. Great. Congratulations, you guys. So I guess I got a follow-up where Brent just left off. You gave us sort of long-term revenue guidance. How should we think about the bottom line and the gross margins over the long term?

It's a good question.

I think we did that during the roadshow. I don't think anything's really changed the operational targets.

The long-term targets that we've discussed in the past, I think we're about in the same range. Now it might vary a little bit, but fundamentally, not much has changed in the business. We have increased our sales and marketing spend. So I think we'll see those margins go down. But in general, the overall economics of the business are still very strong, very profitable.

Okay. And you want to just for the benefit of people who don't know on this call, do you want to just tell us what they are?

Which margins?

Well, start with your long term, the bottom line...

The top of my head, I believe it's 30%, I believe, is what we've indicated in the past.

Great.

Obviously, we're above that right now, but we think in the long term, it's going to probably trend more towards 30%.

Okay. And Dave, for you, what do you -- smaller business doesn't have a lot of options. What do you view as the biggest competitive threat? And what's the plan to counter it?

Good question. I don't think anything's really changed. I mean, I think that if you look at the competitive environment, we have more clones of the same kinds of competitors. Whether there's like 1 or 10 of the same business, it's basically just the same thing. And the sum of all of them is still just like the same sort of like the same kind of concept.

And so I'd say, by and large, we don't think that the competitive environment has like meaningfully changed. We have more names perhaps. There's maybe more market confusion. And so that can drive -- the benefit of advertising is to cut through some of that noise, if you will. But fundamentally, we don't think the business model's changed. We don't think the opportunity has changed. We don't think the strategy needs to change. Fundamentally, it's about getting to the customer first. And we think that a viral word-of-mouth model is still unquestionably the best and most scalable and cost-effective way to get to the broader market. If there's more players in sort of the shallow end of the pool, that doesn't really affect anything in the event.

Next up, we have Mark from Loop Capital.

Can you hear me okay?

Yes.

Okay. Great. Going back to the margins, with respect to the 25% to 35% long-term margin -- not margin, excuse me, revenue guidance that was given, how should we think about long term? Is it 2 years, 5 years? And then why not just provide annual guidance for that after?

So when we say long term, we actually mean a multiyear period. So the company -- before the pandemic, we had basically 10 years very predictable up-and-to-the-right growth. And the last 2 years have been very weird. But in general, we feel very confident in our ability to deliver these ranges over multiple years. So you say 2 to 5. I think that sounds great.

Okay. Great. And then -- moving on here. In the current environment, pricing increases -- or price increases are on pretty much everyone's mind these days. What are your thoughts on the potential for a price increase in the coming year?

So I'd say we have no immediate plans for a price increase. We have surveyed customers, and we know that compared to the basket of functionality that we replaced, so if you were to purchase each point solution, Expensify is actually an incredibly attractive price point for what it would take to replace it all. But currently, we think that we're at a great price. We think it provides an extreme amount of value, and we want to continue just penetrating more and more businesses throughout the world. So I think that, that is a lever we can pull, but it's not when we intend to pull in the short term.

Great. Well, it's been a real pleasure. Thank you so much, and [sounds sweet].

Thank you, everyone.

Thank you, everyone.