Hello everyone. Welcome, welcome, welcome to the Q1 2022 earnings call for Expensify. I’m David Barrett, Founder and Chief Executive Officer of Expensify. We have Ryan, our CFO; Anu, our COO. I can’t hear from tactical accounting we are here to answer other questions that you have and so let’s get started. Just a second. Let’s try this again. Here we go. First, we're going to start with some fascinating disclaimers read by our defense here Anu.

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’s 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. With all that, back to you David.

All right, so we are coming to you live from the Bank of Expensify here in Portland, our lovely office up here in the great, great north. So first, we're going to start off just talking about a reminder of why we're all here. Basically, what is the heart to Expensify sort of secret for success? It rests on three major pillars. The first is that we believe the market size is enormous, the opportunity is huge. We think that basically, of all the companies in the world, virtually none of them do anything yet, almost every company in the world is still struggling with expense management. And we think that that all of them are going to switch to some platform, and we're gunning for it. So we think there is a huge opportunity. And we have a business model that can acquire at all. This business model is unique to Expensify. All of our competition has the same classic top-down enterprise sales model. And [indiscernible] only really works in the enterprise, the vast majority of the opportunities outside of that is inaccessible to the traditional business models. And so we think that we have a unique opportunity to capture the overwhelming majority of the market. Third, we think this market is huge. We think that we can link a billion people together on a common platform. If Instagram can link billion people through photos, we think we can do the same through money. So to kind of dig into that a bit more. The market is enormous. And it's not just the enterprise, we think that we can go into the overwhelming opportunity size of the SMB. The SMB is by far the biggest and best part of the market, the highest margin part of the market. And…

Alright. Hello, everyone. I'm excited to talk to you about our Q1 performance. Q1 is kind of interesting in that it was the height of the pandemic. So more people got COVID in Q1, which provides a kind of an interesting condition for a banner business month, but actually, March was our second best month in company history. And I'm going to kind of break down what that means. So first, let's get off and let's talk about the actual results. So our range was $38 million to $36 million – or $38.6 million to $39.6 million in revenue. We came in at $40.4 million. So above expectations. And then the paid members, we were expecting 684,000 to 702,000 we actually came in over that as well, at 706,000. So things are going great. And we're excited about the performance we're seeing in the growth of the business. I mentioned the impact of Omicron. So we got a lot of questions about this last time. So I wanted to just explain how this whole quarter kind of shook out. So in December, we had a great a great end of the year, in January Omicron peaks, like I said, more people infected in January than any other time in the pandemic. What's great about Omicron is that most people got infected, but they got over very quickly. It didn't last as long as kind of the other spikes. And we see that in our numbers. So in March we actually if you were to cut out January and February and just took March from December, it's actually consistent up into the right, however, we did have that Omicron impact at the first half of the quarter, which makes it tough but we had a huge rebound in March. So going…

So first, we have Brent from Piper Sandler.

Thank you for the question here. And great to see the business step back from a paid perspective, post the little Omicron air pocket. I guess, first question is really on just this general return to business travel, that you're clearly seeing in March looks like that return to business travel continued into April and May. Maybe walk us through the lag or the timing of when you start to see a return to travel start to show up either in active paid member users or in kind of TPV volume just trying to understand how we should connect the dots as we see external business traveler pickup and how that impacts your business.

Yes, so more people travelling is obviously great for us not only because they're more active on the platform, but actually, we see more signups in times when people are growing. The reason for that is we solve a very real pain point. And that's when it's an expense report. So people complain more about expense reports when they're travelling. So if we see more people travelling, not only are they more active on our platform, other people who are not using Expensify are complaining about expense management. And because we have such a strong brand in that space, they're more likely to get a recommendation for Expensify when we have more people actively complaining about traffic, or travel, which we didn't have in, obviously, during the COVID periods. Now, you asked about the lag time. So we build in arrears. So basically like a 30 day lag. So if we see a huge uptick, let's say in April, there's a bunch of reports that travelled doubled or something that that'd be wild. But if that were to happen, that would show up the next month in terms of when we would see that.

Helpful color there. And just to be clear on the delta between the reported 706,000 paid members versus the 742,000 in your slide. The delta there is just the average, we should think about when you report the quarterly paid members, the 706 is the average over the full quarter. And then the 742,000 was just a snapshot, is that the right way to think about it?

That’s a great question, Brent. So the paid user, a number that we report every quarter, that is the average of three months. So normally, we don't break out months, and we won't do this going forward. But we felt like this. This is a very important piece of data that we need to show and if the average doesn't tell the whole story, right. We had the height of the pandemic, numbers are down. We had actually the second best month in company history from paid member perspective in March but that isn't showing up in the in the average. And just so the first best month in company history was the month prior to the pandemic. So it’s the second best one, we think that's actually really exciting. But we will not be showing monthly data going forward, it just is usually an average. But this was important for the...

We won't complain, we won't compare, if you choose to disclose more. Okay, my last question kind of follow up, you're on the Free Plan. It sounds like really good momentum this quarter. Can you describe the type of customers that you landed and look like about close to 5,000 net new folks going on to Free Plan? Are these small entrepreneurs, they're just now starting out that that are onboarding or is it a wide range? Just trying to understand what that customer profile looks like for my own TPV assumptions?

Yes, that's a great question. I think if you're going go back to our islands of markets, this is the – it’s only the beachhead. It's basically these are like, again, the sole proprietor side hustle, brand new SMBs, people just entering the market. So we view it like very much top of funnel for us, we were trying to capture everyone at the very earliest point of their journey with a free product, because once we're in, then we stay in forever, so long as we just don't screwed up, basically. Because that's like, if we're already there, and then invoicing solutions, like I can just use the one I already have. And also like I need to start, finally, I have some bills, I should probably start using this bills and things like this. And so we just want to be have pull position for every new financial use case they have, by getting to the earliest point and then we can hold on to them as they go through their journey. If they go up to the snowy tundra to the north, it's like, well, we can follow them the entire way.

Got it. A very helpful colour there. I’ll see the floor, but great to see you there recovering the business. Thanks.

One piece to add to that, the Free Plan metrics so it's definitely concentrated more towards really small customers, so one to five employee companies. But there's actually an immaterial number of slightly larger companies in there as well like the 10 to 20 range. And that's interesting, because sometimes a company comes in, on boards on the Free Plan, uses it in a very low control, simple use case, test it out. We don't know yet how long but like for some period of time, and then decide to upgrade. So there's actually while still an edge case, a healthy pipeline as well. So it sounds like that's exciting. And we look forward to talking more about conversion in the coming quarters.

Okay.

The next question, let's go to c

Hey, guys, can you hear me okay?

Yes, hi Koji.

Great. Thank you so much. Thank you so much. I'm bouncing in a couple of different calls here. So apologies, it sounds like you gave some good information on the subscriber side. So thank you for that. Just wanted to ask you a question on you reported the fourth quarter, essentially, at the end of Q1, on March 30, but you did beat by the subs, by the subs and the revs. And it sounds like you'd beat the revs in the March quarter by a lot. So just curious was that just conservatism? When you were coming out on the fourth quarter call, guided to this quarter or was there something else going on that just kind of surprised you, right at the end of the quarter?

So the guidance that we gave was based on how we saw the quarter coming out. But I mean, March was a really big month, right is the second largest, so that every single week the numbers were going up and up. So we gave the best guidance that we thought at the time, and it came in a little bit above that.

And it’s not going to be conservatism, for the sake of it, like one thing to consider is we know at the point that we did the call, we know what we know about activity, but from an accounting perspective, we haven't yet booked the revenue. So we also want to make sure that we take into consideration that there might be accounting related, a treatment that might differ based on the actual results. So that's where we do a range.

Got it. Got it. And just one follow up from me. Apologies, again, if you mentioned this on the call, Ryan, in your commentary, just any sort of change in the way you're thinking about sales and marketing spend for the rest of the year, especially given that you did set such a record quarter – record month in new sub adds. I mean, are you thinking about sales and marketing, the same as you did kind of a couple months ago or you decided to maybe step on the gas a little bit, and you sort of help there in the way we shouldn't be thinking about your sales spend on marketing side?

So I don't think we're not currently planning on increasing it. We're still measuring the effectiveness in all these markets, because remember, we kind of exploded onto all these in the top 20 largest markets in the U.S. And we mentioned last quarter that we are layering in more of a sales function than we’ve had historically. So I would expect relatively the same amount of S&M, as you were thinking before, but we’re actually going to be probably adding in more sales, but less marketing and experimenting with that.

Got it. Thanks for taking my question, guys. Appreciate it.

Good to see you.

Next we go to Tyler from Citi.

Hey, there.

Hi, Tyler.

Thanks for taking the question. I wanted to see if you could just comment [Technical Difficulty]

I think we just lost Tyler. You’re back. One more time.

Okay. Can you just talk about, clearly really nice improvement throughout the month of March to that [Technical Difficulty] I don’t know why its keeps going out. Can you talk about how that’s trended through April and May has that improvement continued?

Just to make sure. Are you saying – are you asking for insight into how team members are looking in Q2? Is that whatever you’re asking?

Yes. How is the paid member growth throughout Q2 since then in March?

It’s doing great. Obviously, we were not seeing a drop like we saw in Q1. So I think that the growth has remained consistent. Obviously, we’re not going to give guidance here. But it’s going great.

Okay, and I’m curious, like with that drop, how much of [Technical Difficulty] sorry, less. Yes. So with the drop in paid members, how much of an impact did that have on interchange revenue? And would you expect that growth to accelerate now that you have this free program, and obviously we’re kind of through Omicron?

Yes. That’s a really great question. So if you – let’s say we were to layer on the interchange onto this chart, it went down with Omicron. But the quarter-over-quarter increase in interchange was 15%. And that’s despite the Omicron drop. So obviously, they did negatively impact that. But it was still a – there’s a bigger growth in interchange than there was in revenue quarter-over-quarter. Despite that but we do believe it or know that Omicron impacted the growth of interchange. Did that answer your question?

Yes. I guess, like just given that what you’re seeing in the free momentum, which should help the interchange business as well, now that we’re post Omicron like. Should we think about year-over-year growth accelerating kind of going forward of that interchange revenue because this was kind of such an impacted quarter.

I think one month is to – like the one month impact is very pronounced in the quarterly results. But when you look annually at a program like the Card, which is still kind of in its evolutionary stage because we launched it like two years ago. And it really started to take off on the post pandemic. I think it’s a blimp in the annual journey. So I don’t think it should be. It’s not going to be material to the results when you look at it year-over-year.

The way we see people modelling, I think is probably pretty accurate.

Okay, great. Thanks for taking my question.

Maybe let’s talk about this in Q2.

Sounds good.

It’s a weird quarter right? So we can talk about that.

All right, thanks.

No problem. Thank you.

Next, we go to Pat at JMP Securities Do we have Pat? Okay, we’ll circle back to him maybe later. So Mark from Loop Capital. Is there’s a connection issue or something? Let’s try Daniel at BMO.

Hi. Can you hear me?

Yes.

Okay. It won’t let me start my video. So I apologise. I’d love to see you in person. But on the buyback program, right that was announced today as well, it wasn’t mentioned. But I’d love to kind of compare and contrast your commentary about how impressive the market opportunity is and how it’s a race to capture it and sort of the choice to do a buyback program instead of investing that for growth.

Great question. And so I think that if you’re talking about like 1 billion user opportunity, that’s an opportunity that you capture through advertisement. The way that we grow in the long run, like the bulk of here, welcome. The bulk of our between now and the next 1 billion users is not going to be acquired by someone like clicking on an ad or talking to a salesperson, it’s going to come because we’ve cracked a viral code. And so all of our – the primary driver in the long run of long term growth is going to be product and viral. And so I think that it’s tempting to see like, basically, this direct correlation between spending on customer acquisition and growth. But I think that and we have definitely been very aggressive when it comes to spending on advertising, customer acquisition. But you shouldn’t miss attribute our current growth exclusively to our increased advertising. I think the bulk of that growth is a consequence of just a better product, better market conditions and our ability to capture these sort of viral loops, which is a long way to say. I think that there is a point of diminishing returns to advertising. Like, right now we buy every single keyword relevance to expense management. And we’re at every single one, like you can’t 10x the amount of qualified inventory available, even if our money does 10x. And so like we’re in a ridiculous number of cities, like I see our billboards in Portland, like 10x times a day. And so it’s like, okay, I can do 20x or 100x a day. But like at some point is like, okay, it’s pretty saturated. And so I think that, like, we’re already one of the top advertisers – like outdoor advertising in the nation. And so I think that advertising is great. And customer acquisition is wonderful. But we just have a business that kicks off so much cash that at some point, spending on another billboard or another ad isn’t the best use of funds. Now, I think that also is like, it’s just a crazy market conditions. And so this is not an obligation to do anything. But it is an opportunity. And so basically, we’re saying, it’s like, hey, we’re authorised if the condition is warranted. And we think at the moment that this was the right thing to do, then we can act quickly. But it’s not an obligation to do so. Any thoughts – additional thoughts on that?

Yes. Thanks. So we have had a lot of discipline growing sustainably over the last decade, and we’ve managed to grow at a great pace and also add cash in the bank. And the buyback would never – any shares that repurchase would not be at the expense of sales and marketing or growth or anything like that. If you have excess cash, and you’re just collecting interest on it, let’s buyback some shares versus just having sitting on a bigger and bigger pile of cash over time. So that’s kind of the thought process behind the authorization of that. It’s not, instead of growth, it’s what do we do with the cash in excess of all the money we’re spending.

Great. I appreciate the context. And then it hasn’t been asked yet. So I’ll ask it. Any update on the Marqeta contract? Thanks.

Well, actually some pretty good progress. Do you want to?

Yes, I mean, we’re still working through it. It’s sort of more of the same. But we’re making steady progress. We still think we can get it done this year. We are working right now to make sure we’re locked and loaded on the accounting treatment, which is like the primary goal of doing it. So we’re trying to get it all right.

But great progress and we’re more confident than – even more confident this quarter than we were last quarter.

Got you. And maybe I can just sneak one more in then. How’s the penetration of the Card into the non-free base? How was that trending relative to your expectations? Thanks.

That’s a great question. So we have done a great job of getting customers signed up on the Card. So I believe around the time of IPO, we were like at 4.5% or it was 5%, something like that, go back and check the S-1. So it’s something like that. And now we’re looking at more at about a 9% attach rate that’s customers signed up. Now that does mean a 9% fully penetrated across those customers. Our job now is to get all the employees using the Card at all these customers, but we’re actually doing – I am very, very happy with our ability to get customers signed up. And our job now is to just make sure that they fully deployed across the company because that is kind of a habit change.

And I don’t know if you guys saw this. But maybe a month – less than a month ago, we launched monthly settlement which we have some early results, although we’re not talking about exact numbers. The early results have actually been super promising. So it was one of the most requested enhancements to the Card, which we’ve gotten out. So we are very optimistic that it will give us a little bit of a boost to an already high momentum program.

And let me explain a little bit what that means. So the Expensify Card to-date has been a daily settlement program, which is really great for sort of high spend companies. So basically, it's optimized for companies that need to turn over their credit very, very quickly. So if you got like $100,000 limit or something like this, for $10,000 limit, you can do every single day, $10,000. So you can spend a lot of money very quickly. But especially as we go into other companies that are more cash constrained, who actually want to sort of finance the business, they're not turning over that – turning over their credit as quickly. They actually want to extend that over for a longer period of time. So I think we're the only program that supports basically both a monthly and daily settlement option, monthly is really great for high spend companies. Daily is really good for high spend clinics, monthly is really great for sort of cash constrained companies trying to finance their operations, and so we support both end of that. I think that we found that actually the cash constrained spectrum is the more attractive for the accounting community. And that's why we launched it in parallel with our CPA Card because this is something that we found. CPAs are no longer just trying to identify problems, but also solve problems for the clients. And so they say, hey, you are very constrained when it comes to your credit facilities. Now, actually, they can work through us to be extending essentially credit to their clients through the Expensify CPA Card. So I think that it's a new thing. We're very, very excited about it. And when we know our accounting partners are super-duper excited about it.

Great. Thank you very much everyone.

Thank you.

So let's try Mark [ph] from Loop Capital one more time.

Hi, can hear me, okay.

Yes.

Yes. So thanks for taking my question. David, a question for you on the last quarter's call you mentioned that you are adding some outbound capabilities to your go-to-market motion. Basically where you go out and call prospective customers, as I realize it's still early days for that initiative. I was wondering if you just give us an update on how those outbound efforts are going?

Yes. I mean, I'd say it's still early days. I think that basically our philosophy overall is going to expand this sort of inside sales team such that we can turn around calls within 30 seconds. And so basically, when anyone wants to call 24/7 that there's someone there who is able to pick up the phone, talk to them and give them the demo, like within 30 seconds of the request, that's sort of the main focus right now is nailing that down. And then our approach towards outbound is, because the way that you ensure that you can do that is you just have an excess of people sitting around at all times. And then outbound is basically how you fill in the gaps between that. And so we're putting an enormous amount of effort into this with substantially size of that team. And I think we're super excited about that progress, still early days in terms of from a results perspective, but it's definitely something we're excited about and working on.

Okay, great. Thank you. And then question on the hiring front. Many software companies and tech companies out there are having a difficult time hiring good IT talent. I was just wondering if you could just give us an update and discuss how the company's managing through some of the hiring challenges?

That's interesting. That's something we talked about a lot internally, and I think that Expensify is weird in a number of ways. One of which is our approach towards just building a team. I think for a lot of companies hiring is, it's a vanity metric. It's like basketball, people like oh, yeah, we did hire. We had 500 people this quarter or something like that, and they brag about it like this is a sign of success. We do hiring event like golf, as I want to hire the fewest people necessary to solve the problems that we have. But even better than hiring is not one, don't have problems; two, automate away the solution to those problems; and then three, find some outsource provider that can actually solve that problem. And if they're super cost effective and scalable way; and then only fourth, basically if we can't solve the problem in any other way should we be expanding sort of the core team. So our core team is really just kind of the creative collaborative hub of the company. And expansion of the core team does not correlate directly with sort of revenue growth like we can – and we've already shown us, we can double, we can 10x revenue with the current team. And so we hire not to just like keep the business running. We hire in order to pursue more opportunities and so there's kind of like there's not a direct relationship between those two. Hiring is basically necessary to sustain very long-term growth but it does actually have really any impact on the short-term. So that's all just a long preamble to say. We're not hiring the same kinds of people, but a lot of other companies are. Like a lot of companies are like [indiscernible], really hard to find 500 qualified engineers, it's like, yes, I'm sure it is. That's pretty tough. But we're not looking for 500 qualified. We're like – we're pretty much hiring one absolutely amazing person a month, and like, more or less. And for us that's a good rate because we'd like to really invest in our existing team so much to get the maximum value to everyone. And so I think that we hire slowly, but that's what – that's by design. And we've never struggled to hire. In fact, we actually just kind of been increasing our hiring standards across the board because we're finding easier and easier to hire. And so we're – but we're looking to hire at a very controlled rates, and only the absolute best of the best. And I feel like, we do very well at that.

To add to that, we did agree with all of that, but we also did hire two very seasoned individuals into our accounting team, which we're very excited about. And that is, I guess, an example of a strategic hire, like an area that we're beefing up that we are paying closer attention to, and looking forward to getting a lot of those processes, while ironed out.

Expensify is a great place to work. So we don't really have the – maybe the same challenges that other people have.

That's a fair point. We don't have to turn over problems either. So it's not like we're replacing, it's like most companies it's basically like the average is even if like two years or something like that. So it's like, look to your left, like your right, one of those people started in six months ago the other one's going to leave in six months. It’s like – most companies are just frantically treading water. Whereas we just hold on to people kind of forever and so we just don't have to have that steady replacement.

Yes. If you could turn over your – on average your entire employee base every couple of years, that doesn't make it very hard to hire. We retain everyone for basically forever. So we don't struggle with that as much.

Yes.

Great, thank you.

One last question from Pat, who's I think having technical difficulties been hard? His question is what are one or two most important things on David's to-do-list for this year?

Oh, man.

That's a great question.

I taught you're killing me here.

[Indiscernible].

Well, most important thing is a good time. I mean, a lot of it is just the table stakes of being a public company, like we're a new public company. And, like we talked about we're beefing up our accounting, we're going through SOX compliance, and there's just a lot of work to – just make sure that we can continue to earn the position that we had. Like this conversation we're having right now, it's an exciting conversation for us. But it's also kind of a new conversation. We're kind of working out and are beefing up our muscle memory for how to do this. And so I'd say, first is just and it's pretty boring, but just organizational excellence, just like what is all the important stuff we need to do? Write it down; get everyone trained on it, getting everyone doing reliably. And so it's not the sexiest thing, but it's something that I care a lot about. And so I know I'm putting a lot of personal attention to it, that's one. And then second, I would say is finishing reunification. So I'd say like on our product roadmap, we're doing a tremendous amounts of investments into this new vision of what the industry can do? And it's a new thing. It takes a lot of work. And so we have a huge fraction of our team, working on a daily basis to imagine this basically new chat centric, sort of chat first, mobile first way to not just do expense management, but to do all corporate finance on a single platform. And no one's ever done that before, no one even try. Most people don't think it's possible. But we do, and so we put a lot of thought into that. And so I'd say I balanced my time between on one hand just holding the organization's feet to the fire for like an incredible efficiency and just excellence across the board and the exciting things and in the boring things. And then on the other hand, participating in these very robust discussions we have about how are we going to disrupt and revolutionise this industry forever? And that's exciting. And both of those are very important.

Well, I think we're ready to wrap it up.

Great. Well, as always it's a pleasure. So to summarize, in Q1 we remains cash flow positive and profitable despite peak COVID, which is a pretty exciting thing. Revenue is up 36%, Expensify Card is 105%, Free Plans up 183% from last quarter alone. So this is an exciting time for the business. I am so; I mean this is the most obvious thing in the world. Really excited as the COVID looks like maybe it’s behind us kind of ish, and so we'll – the more that's true, the more things are going to be awesome. And because we're built for good times and bad, but obviously, we'd like the good times better. So I think that's it. Thank you so much and I'll see you here next quarter.

Bye. Thank you.