Expensify, Inc.

Well, hello, everyone. Welcome to the Q2 2022 earnings call for Expensify. We're very excited to be here broadcasting live from the bank of Expensify here in Portland. And so on this call, we have me. I'm David, the founder and CEO of Expensify. We have Ryan, our CFO. We have Trent from Technical Accounting. Also on the line is Anu, who is our chief operating officer. And so let's get started. Let's, in theory, you could start. There we go, cool. And so I believe that Anu is gonna kick us off with a fascinating tale of legalese. So Anu, are you here and can you go through the spiel?

Yes, can do. 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 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 the reconciliation of these non-GAAP financial measures to their most comparable GAAP measures. And that's it. Back to you, David.

Great. That was fascinating. Thank you so much. All right. So let's get started. As always, we always start with just a review of what makes Expensify special. And so as you might recall, for anyone who's new to the call, there are basically three pillars of our success. The first is that we have enormous untapped markets. And so the and many more. And then third, we actually have the ambition of building a platform that can link a billion people by their transactions. And so that means if we think that Instagram can link a billion people with photos, we think that we can link a billion people with money. The market is huge, and when we typically think about it, normally we think about just the enterprise subset of the market, the very tip of the iceberg, if you will. But the bulk of the market is actually really in the SMB. And so our business model is really focused on acquiring this vast, untapped SMB market, which has a huge revenue base, and it's basically the best and most profitable part of the market. And finally, you know, we sort of have three or five different pillars of how we go after this market. So first on the outside, generating leads is basically we have our same advertising like others, but we also have a free plan that's basically making a very low barrier to entry for any new business, trying to capture businesses at the very earliest stage. So when they're the side hustle or just an idea, to get them onboarded into a free plan of Expensify, give them reimbursements, corporate cards, and things like this. And that puts us in the pole position as the business grows. So as their needs change, we're the first in line for those needs. We pair that with a very substantial real-time sales capacity. So basically every free plan and every new customer that comes on is assigned basically someone in real time to talk to them in person. Likewise, our top customers receive account managers to help them out basically and maximize retention over time. And of course, all of this drives incredibly high margin of subscription revenue. And so this is basically our multi-pronged strategy for capturing this huge, huge market. As far as that acquisition model, as a reminder, it's unlike anyone else in the market. Basically, everyone else in the market has what we call our classic enterprise sales model, the top-down model, where you have some sort of commissioned quota-carrying salesperson write the CFO or something like this, convince the buyer to buy, and then only after all of that does the employee actually learn anything. So it's a traditional model. It scales nicely. It only scales in the enterprise portion of the market, which, as we said, is the smallest, least interesting part of the model. We have a model that goes after the whole market using a completely different strategy where individual employees learn about Expensify from a friend or from our consumer-driven advertising in the outside world. They pull us into the organization and then just start using us internally. We turn every one of their expense reports into a highly targeted marketing message directly to the decision maker. We call this our bottom-up adoption model. We are the only ones to do anything like it in the market, and it's overwhelmingly driving the success of our business. It's a very unique and differentiated way to acquire customers, and that's how we're able to grow in this huge part of the market that everyone else is struggling. When it comes to the actual product itself, again, there's a lot of different players out here. We're the only ones that can make five important claims. First, we can support true enterprise customers. We have that enterprise scale. We can go to the very top of the market. But also we have a real consumer grade design. We can go to the bottom of the market with the same platform. We can support the side hustle sort of brand new solopreneur all the way up to the Fortune 500 enterprise, you know, IPO requirements and things like this. We have a global reach so we can support the multi-entity necessities of a public or a large multinational company. We have not just native corporate card, but also native travel. You could just talk to our concierge chat service and book flights, hotels, trains, whatever you need. And then finally, of course, it's also free. Everything in this list, whether it comes to card, travel, all this functionality can start with a free first plan and then grow as your needs. We're the only ones that can make these claims. And as we're going to talk about in a bit, the market's shifting and we're more free than free or we're the freest option out there even more now than ever. So we talk about this idea of a billion-member opportunity, which is easy to roll your eyes at. But the way that we see it is everyone on the planet that's spending money has a consistent set of problems. And so we've built a platform that tries to unite all of these use cases onto a single common platform. It's not just expense management. That's what we're the best known for. We have everything from an expense management solution, payroll solution, corporate cards, bill processing, invoice processing, travel booking, and also a consumer wallet and chat functionality, all on a common platform. And the way that we see it is there's a continuous spectrum between unstructured chat on one side all the way to highly structured expense management. And every form of payment is just somewhere on the spectrum. And so we want to own every part along the spectrum because that's how we can extract three different types of value. First, many of these use cases are highly viral. If you're talking to people or anything else, every payment involves talking to someone else. Payments and chat are the same thing. And any sort of a chat-based conversation has to involve someone else, and that creates a viral lift opportunity. We grow because our users talk to other users, especially users in other companies, and thus we're growing basically in the viral lift of our word-of-mouth basis. Second is to generate tremendous transactional revenue cards and things like this. There's all these opportunities to shave a little bit off in order to sort of pad our bottom line. And then finally, of course, the bulk of our revenue is our subscription revenue. We have incredibly high margin recurring, mostly in an annual commit revenue. And this provides a tremendous amount of built in revenue growth from our kind of poor revenue. or Revenue Expansion Model, if you will, with the transaction revenue on top and all this free viral lead gen. So by offering a platform that spans the full range of functionality, we can sort of triple dip the value that we get out of everyone. Now, pretty much every call, we get some variation upon the question of like, but really, like what's actually different between you guys? And so I think I just wanted to take a second here to talk about that our products and our business is just completely different than everyone else in the market in a few different ways. Now, to start, The market's crazy right now. I don't know if you've noticed, but things are nuts out there, whether it's because, obviously, there's the war in Ukraine, which has taken a tremendous amount of oil off the market, which is making energy prices skyrocket. There's the Ukraine blockade, so the food prices are going up. There's a COVID lockdown throughout Asia, which is causing all products. Things are just nuts right now. And no one really benefits in the grand scheme of things from a difficult market. But we do better than most because we're built for a difficult market, and it plays to our unique strengths. So one is, amongst small businesses, default rates are soaring, or so we hear from others. When we talk to, you know, we see all these other card vendors out there, and they've worked very hard to acquire all these customers, and these customers are actually struggling. They acquire, lend basically these cards, and then have dropped tens of thousands of risky customers. I mean, I think the most notable example is Brex. Brex had to drop, I think, something like 50,000 customers because they just weren't making money off of them. And they were too much of a default risk. Now, they've actually started sending those customers over to us because we have a different business model. We can we can support those customers and we can support them with a wider variety of use cases to us. They're actually quite valuable. But then they've actually retreated into the enterprise space, which, again, is no surprise. They've enterprise sales model. And so shocking. It really only works in enterprise. I think Brex is the bellwether for all of these new card businesses. Basically, all of them came in with a card. Realize this market is quite difficult to get to work at scale. And I think it's retreating to the enterprise. And so I think we see this again and again. And so whereas they're really struggling because default rates, most of our lending goes to existing customers. They're like long term and highly credit worth. We've not seen default rates spike. And so this has been a great thing for us. Second is that whereas the interest rates are going up, the interchange that they get is actually not. And so they were unprofitable companies in the first place and their core cost is actually going up. We're different. We have incredibly stable costs and because of our margin, our incredibly high margin subscription revenue. So our revenue and our margins are very, very safe because we've been built for a software first model, if you will. And this drives basically much more capacity for revenue, protected revenue growth. Third is, you know, when the markets are crazy, transactional revenue can change very quickly because spending habits can move very quickly. And so their business models were entirely based on the idea of stability and spending habits, and they're getting super spiky. on our hand. We have auto-renewing annual subscriptions. And they're just paid monthly automatically on a billing card. And so we don't have collections problems and things like this. So again, just a very, very different type of business model. And if you're wondering, how is it that we can survive so well in this market, it's because we just have a different business model that's built for a market like this. It's built for the complex and dynamic needs of an SMB marketplace. And it wasn't just built to survive in just the summer months. When winter has come, we do great. Likewise, I would say it's not just about looking at the past or the present. We think that we're the best position for the future as well. Over the past couple of years, as you know, we've been investing tremendously in product where everyone else was just basically dumping cash into customer acquisition to get these thousands of customers which are worthless to them and then to ditch them. We've actually just been pocketing our profits and then investing in a substantially improved product platform across the board. We think that we were the best before, and we think what we're about to bring online is by far better than anything else in the market. And so we think that we're investing in the future of this market and establishing a firmer position than ever. We've always been a subscription-first business, and so they've basically been focusing on transaction-only models. We've actually, in the past couple of years, have really doubled down our subscription model. As you know, we've adjusted pricing. In the past couple of years, we've actually thickened our margins. Whereas they are going to have to frantically try to create some kind of subscription product based upon a software model, which isn't very good. We've already basically done the hard work to ensure that our margins are strong before we go into difficult conditions, whereas they're going to have to do all this basically under the gun. And then finally, we've been focused on SMB from the very start. They're discovering, just like many waves of competitors before them, that the enterprise sales model doesn't work very well out of the enterprise. And so we have had an SMB-focused business model from day one. It still works great. And so again, these are just a variety of ways that we're just completely different from the competition out there. And that's why we keep growing and thriving. Even everyone else is basically fleeing away. We've invested a tremendous amount in our own employees. And so you talk to the other companies, and I've talked to other founders and things like this. They're like, yeah, we can hire like 500 people this month or something like this. And I think the key thing is, it's like, man, I can't imagine hiring that many people because that means you have a problem that can only be solved with people. People are the most expensive and difficult way to solve a problem. We prefer to solve problems, either solve them so we don't have to solve them again, solve them through automation, or solve them through outsourcing. And so as a result, we have this very core team that we've retained incredibly well. And it's been recognized. We've won a zillion awards recently for basically like For the LT program, our LT share program for how it retains employees and invests in them, we're recognizing one of the best workplaces and things like this. And this shows up in our employee retention, like in a typical Silicon Valley startup, if you will. The retention is just a couple of years, meaning that if you're working there, if you look to your left, you look to your right, one of those people just joined and the other one's looking for a job. And so there's no institutional knowledge, basically, in these companies. We have such a core, strong foundation of people. Our average person's been here over about five years, and our executives have been here over 10 years. And so we have a tremendous amount of stability inside of our company, and that enables us to provide a stability to our customers as well. Finally here, the accounting channel has always been a big deal for us. And I think that we've talked about it a number of times, and we've talked about how we're doubling down the accounting channel with account managers, with a CPA card, and things like this. But one of the tools that we found the most effective in the long run is just to meet up in person. And we meet up in person as we go to conferences, but we think the best way to meet up in person is by hosting our own conference. We've done this a couple of times in the past. We're very excited that we're hosting our third expense con next May. and ExpenseCon is a conference unlike any other. This is not, you know, something in Vegas or whatever. The first one we did was in Maui. The second was in Bora Bora. So, you know, it sets a pretty high bar to beat. But we think we've beaten it in Italy. We're basically in Borgia, Estancia, I can't remember how to pronounce Borgia, Estancia. Yeah, well, clearly I'm not Italian. And it's just an incredible spot to be. And the key to ExpenseCon is it's about bringing the best thought leaders in the industry together so they can generally collaborate and talk together. And so the nice thing about the conference is it always pays for itself, or at least it has in the past. But basically, every time we engage with our thought leaders, because they are revenue generators for us, we say, hey, we would love you to come to this conference. In order to do that, you have to get your customers up to a certain point. This is as a consequence, we've been able to pay for the past ExpensaCons before the event even hosts because everyone's ticket to get there required them to increase the revenue. It's been a very powerful technique. Second, it's a way to really cement what we call market consensus. Market consensus is ensuring that wherever you look, you see Expensify's flag at the top. And that's because when people look to the top accounting firms to set the agenda of the industry, and if we have them working with us and we sit down and we talk with their top people, they understand our philosophy and our view of the marketplace. We understand their deep needs. This basically ensures that everyone in the accounting industry is a champion for Expensify. This has been a really powerful thing. And then third, this has been a key way, different inflection points in the accounting industry to really hold out a new vision for how the future is going to be and then get the top leaders and thought leaders and journalists and press in the industry to buy into that vision and start promoting that vision. And so before we come on, expense management is a highly manual process. With Expense Account 1, we introduced this concept of real-time expense reports, the idea that you should just scan a receipt and then everything else happens automatically. And so now we take that for granted. But that was something that we had to do and create this concept overall. Second, for Expense Account 2, we introduced this concept of pre-accounting. Now, this is something that's been around for a while, but it's never been discussed in the accounting industry. Accountants didn't even view expense management as part of their job. And so now we've worked with the accounting thought leaders to make it clear that, no, no, no. All of the work that happens to formalize the accounting information before it gets to accountant, that's part of the accounting industry itself. It's called pre-accounting. And so now that's actually a formal concept that is taught in the actual accounting industry to firm up our place in the industry and to ensure that we are a place in the industry. So into account three, it's going to be even better. So we'll talk more about that in the upcoming months as we lead up to it. But we're very, very excited for what's coming up because it's been fantastic for in the past and we're extremely confident it's going to be fantastic for in the future as well. and with that, let me turn over to Ryan.