Expensify, Inc.

Hello, and welcome to the Q2 2023 Expense By Earnings Call. We're excited to have everyone here today and excited to share with you all the information that we have. First, on the call today, we have myself, Ryan Schaefer, the Chief Financial Officer of Expense By, and we also have our Chief Operations Officer, Anu Murlidharan, on the call. But before we get started, let's hear some disclaimers.

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 the forward-looking statements. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. Please refer to today's press release and our filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management will refer to certain non-GAAP financial measures While we believe these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release or the investor presentation for reconciliation of these non-GAAP financial measures to their most comparable GAAP measures.

Great. With that, Anu, can you take us away?

All right. Okay, let's go to one more slide. Perfect.

So, hopefully we need no introduction, but just so we start off on the right foot. Expensify is a payment super app. If you are an individual, you can use it to track your personal expenses. You can send and receive payments from your friends and family. You can submit payment requests to your boss. If you are a business, you can manage your company spent, you can pay your employees, your vendors, your contractors, and you can keep your accounting ledger up to date super easily using our product. So we aim to be the one-stop shop for all expenses, no matter who you are. Next slide. I want to talk to you a little bit about our long-term growth strategy.

Next slide. So

A lot has been said about what differentiates us all the way from the time we went public. But this is one of the key stepping stones or a key foundation of our business. So I want to go over it one more time. Our unique differentiator is our customer acquisition model. As an employee, many employees have a very real pain point when it comes to their business expenses. They need to stay on top of it. They need to track it. They need to get paid back on time. And really no... software application out there is built for the employee first. Expensify is. As a result, employees end up downloading our app for free without having to ask their bosses for permission and end up automating their own workflow, which is to keep track of their expenses and to submit it in a timely fashion to their managers for approval and reimbursement. And again, it bears mention that the company needn't have adopted the product at all for the employee to do this. Because it solves a very real pain point for the employee, they end up talking about us to their colleagues, to their friends, really anyone that has the same pain point, really anyone that has to track expenses for business purposes. Often we find that in a company, there are several employees that are using Expensify and are submitting to the same manager or different managers, but the company has not yet adopted Expensify. This is our bread and butter. This is how we differentiate ourselves from really every other product out there. Now, the act of submitting your expenses to your manager at a company that has not adopted Expensify is simply sending them an email with your receipts as an attachment. And what we do when this manager receives these expenses is make it very easy for them to adopt the product with a click of a button and pay us. And this is our primary growth driver and is a model that none of our competitors can very easily copy. So that's our business model, and that is our unique differentiating strategy. Now, I want to talk to you a little bit about just the core pillars that build up to our growth strategy. So next slide. Now, there are lots of puts and takes here, so I will go over them one by one. The very first at the bottom of the pyramid, if you will, or this first step is the simplest really, which is acquiring new businesses in order to manage their spend on Expensify. So every time we acquire a new business, we get all their employees and that contributes to growth. The second is existing businesses that as they grow, maybe they grow in terms of their employee headcount, maybe they grow in terms of their usage of Expensify. And what I mean by that is sometimes a company is using us internally for their employees, but then end up expanding their use of Expensify for other use cases, like, say, paying out their candidates. So, you know, you're interviewing candidates, you have certain expenses that you need to reimburse them after their onsite interview. So you would use Expensify for that. So expansion of existing companies using Expensify into different use cases, all of which contributes to a growth in activity. And that growth in activity is a pretty big, you know, paid member growth driver for us. The third is expanding or rather adopting other features on Expensify that also generate cash for us. And the Expensify card is a big one. So when the company adopts the Expensify card, we end up earning interchange at every one of those transactions. And that is a source of cash for us. for the business and a source of growth as a result. And it's not just about the interchange revenue, but it also creates stickiness. It locks in that subscription revenue. So it's a product, it's a feature that really helps us retain and be a better value add to our customers as a result. Fourth, using viral capabilities. What I mean by this is the bottom-up growth funnel, which is our unique differentiating strategy, really works if we have various use cases that an individual user will come to Expensify for. The more the individual user is served by Expensify without their company adopting the product, the more we remain top of mind. And as a result, it ends up cultivating this huge free user pipeline for us. And when that free user set, if you will, is thinking about adopting a business product, we are top of mind for them. So viral loops are a huge source of growth. And some of the viral products or features, if you will, are invoicing, bill pay, peer-to-peer payments, and so forth. And last but not the least is global expansion. So I touched on this a little bit before, but companies that adopt Expensify and grow as a company in terms of their headcount and size end up increasing their activity on Expensify in a directly correlated fashion. And that is a pretty valuable growth driver for us. But as you can imagine, as companies get bigger, they have international entities. They have local bank accounts in those entities, and they need to be able to stick with a product that grows with them. And so we launched this feature, Global Payments, which allows us to withdraw in five different currencies and pay out in 200 plus countries and currencies, which enables us to turn on these global payment capabilities for mid to large businesses which have multi-entities. The ability to support a use case like that allows us to tap into a larger customer base and keep that customer base even as they become bigger. And that is the last but not the least source of revenue and growth for us. So those are the five steps, if you will, that build up our growth strategy. Next slide. I want to go into Q2 updates, business updates for you. And then once I'm done with that, Ryan will follow up with the financial updates. Next slide. So we've talked a lot about the accounting channel. Now, I want to remind you of why this channel is important to us. This is a highly strategic channel for us. And it is highly strategic because every accountant is like a megaphone. They bring on businesses as clients and they establish good financial processes for their clients. And what we want is to be top of mind to these accountants and deliver a product that they consider competitive because by selling one accountant, we sell everything. hundreds of businesses, if not thousands of businesses over time. And it takes very little acquisition cost on our perspective. So this is a very strategic and if played correctly, a low cost channel for us. Now, we've talked, I think, about the fact that we're doing Expense Account 3, which is a very luxurious but also thought leader conference that is targeting this channel. We did that in May. And what I want to do today is focus a little bit on the results we saw coming out of that conference. Now, the point of the conference is, A, branding, like we want to stay top of mind to these accountants, but also B, to hear from them on what they consider best practices in their industry so that we can keep our product as close as possible to what they consider the gold standard. Coming out of the conference in May, we became the preferred partner, preferred tool for California Society of CPAs and the Texas Society of CPAs. Now, these are really state CPA associations, which set the thought leadership or the gold standard for the industry to all other accountants who in turn onboard companies and set the gold standard for them. So signing these agreements, CPA societies is really like signing the megaphone of megaphones. So we're very happy about that. We also received a lot of great feedback about the types of features that we need in order to make our product much more competitive in this channel. So some of those, and we're working on all of them, they're all in development and should be coming out pretty soon. Some of them are admin issued virtually expensive by cards and what this is is the ability for a company to assign a card to a specific vendor so that they can automate limits and put better controls behind subscription spend. Two is firm branded Expensify cards. This is basically co-branded cards to our top revenue generating partners. And we want to do this because we want these firms to recommend the card over and above any other corporate card or expense product. And they're much more likely to do that if it is branded Expensify. co-branded so that it looks like something that they are selling and are more invested in. And last but not the least, we are doing a 50 basis points revenue share with all these accounting firms because we want them to recommend the card, we want them to recommend Expensify, and we want to lock in all of the activity, all of the subscription, and all of the card spent as a result at a very low acquisition cost. So we're giving these 50 basis points as sort of an affiliate revenue, if you will, to these funds. So these are all the things that we learned and coming out of this conference have been implementing in order to sort of supercharge our growth in this channel. Next slide. I want to talk a little bit about just general growth and awareness. And this slide is focused on general awareness because ultimately what we need to solve for our top priority is to increase the number of qualified leads that we get through our sales pipeline. And then we need to use our onboarding specialists to convert them cost effectively because all of these new businesses that we onboard are going to help us grow our paid members ultimately. So we're investing pretty heavily in SEO and SEM related optimizations. We are testing new paid members. advertising channels as well. And we are going to all the relevant conferences in our space. We're using Expensify Chat as the communication platform of choice in these conferences so that we can acquire leads at scale. And once we acquire all of these qualified leads, we have our onboarding specialists that step in in order to convert them into paid users. And, you know, this team of onboarding specialists we've been investing in pretty heavily for almost a year now and they're really sort of stepping into their, into their game, and the conversion rates from qualified leads to paid subscriptions is better than ever. We're still working on our outbound sales pipeline. And a lot of these efforts, as a lot of our SEO, SEM and onboarding specialist efforts are maturing, as a lot of them mature, we will be able to keep giving more and more love to our outbound sales effort in order to sort of make it much more cost effective and scale better as well. So those are all the things we're doing on the sales front. So how are we increasing new business? Next slide. I want to talk a little bit about how we're driving more loyalty, because as I said before, a big driver for growth is existing companies, both increasing their usage and also increasing profitability. or rather cross-selling our card to them are two different ways that we make a lot of money and we grow a lot of our revenue. So what we're doing is giving every company that has 10 plus actors and really 10 plus employee companies on Expensify represent the lion's share of our revenue. We're giving all of them a dedicated account manager. And the point of giving them a dedicated account manager is so we can always keep a pulse on revenue the company set up. A lot of companies adopt us when they're small and they end up growing, but they never really go back and modify their setup or review their setup. And as a result, you know, as a company scales, their processes need to scale and no one's looking out for them. So the point of the account managers would be to keep a health check on these businesses on a quarterly basis, to be the first line of defense for them. Like if concierge isn't satisfactorily addressing their concerns, to step in and give them white glove support and basically always keep the customer top of mind. So we anticipate their needs and give them the best in class support and service. Last but not the least, I touched on this a little bit. We are working very aggressively on global expansion. We launched global reimbursements, global payments, which allows companies to scale with us, which is pretty significant because a lot of our enterprise-sized companies were companies that we acquired when they were small to medium in size. And what we never want to happen is have these companies, the best of them grow to be enterprise. And if we lose them because we don't have the capabilities, we basically just let our best customers walk out the door, which is not what we want. So global payments is directly targeting these companies. So we grow with them and we never lose them. So I think with that, I want to hand it over to Brian.

It covers the business updates so far in Q2.

Great. Thanks, Anu.

Now let's cover the Q2 financials. Our revenue in Q2 was $38.9 million. Our average paid members were $742,000. That is a decrease from prior period. And however, our gross interchange was 2.7 million. We've seen our gross interchange increase by 56% year over year. So we're very excited about that. Next slide. Our operating cash flow was negative 0.4 million. Our free cash flow, which is basically operating cash flow, but we remove the timing of customer funds. We handle a lot of customer money. It's always going in and out. So operating cash flow doesn't always tell the full story. Free cash flow removes all the noise that handling customer funds introduces. So free cash flow is $1.1 million. Our gap net loss was $11.3 million. Our non-gap net loss was $1 million, with adjusted EBITDA of a positive $2.2 million. So we did see a decrease in some of our... profitability metrics there. We did see some downward pressure on our margin due to some heavy investments we made in Q2, but I'll discuss that shortly. Next slide, please. As you know, we don't give guidance given the current economic conditions, but we do let you know how the current quarter is going. In July, we saw paid members of 719,000. Next slide, please.

So when we talk about Q2, I'm sure a lot of people are saying, okay, so what happened this quarter?

So to summarize Q2, we continue to have free positive cashflow, And we are reducing our debt. As you saw in the earnings release, we reduced our debt by a little over $8 million this quarter. We're making heavy investments in engineering and also sales and marketing, and that's putting downward pressure on our margins in Q2. But I want to be very clear, this does not represent a new higher cost of running the business. These are Temporary investments we're making in the short term, and we do expect those margins to improve. So it's not like our margins are suddenly way worse. You know, we've been a profitable company for a cash flow positive company for a long time, and we intend to remain so. But this quarter, obviously, we're seeing that pressure from these heavy investments we've been making. To use a sports analogy, I think that we're in a bit of a rebuilding phase right now. We're starting to transition from our old platform to our new platform. We're making tons of investments in, like I said, engineering and also our sales and marketing to set us up for success in the future. But right now, obviously, things are a little bit tougher. So we do think that we're in a bit of a rebuilding phase. I think that's a question I'd gotten in the past. And I do think that that is an accurate description of where we're at right now. However, early reception of our new Expensify platform has been very positive. So we are going to continue to push forward on our ambitious and aggressive product roadmap. When we talk about that early reception, David alluded to this in his founder's letter, but we have been using our new Expensify platform for conferences as the main communication or social hub for these conferences. And That's kind of been a trial by fire, and the reception actually has been really great. So it's been very encouraging to see the positive reception we're getting when people are seeing the new product that we've been building.

Next slide.

All right, and now we are going to take your Q&A. Thank you all very much, and looking forward to hearing your questions.

...materially from those described in the forward-looking statements. Forward-looking statements in the earnings release that we issued today along with the comments on this call are made only as of today and will not be updated as actual events unfold. Please refer to today's press release and our filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management will refer to certain non-GAAP financial measures While we believe these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release or the investor presentation for reconciliation of these non-GAAP financial measures to their most comparable GAAP measures.

Great. With that, Anu, can you take us away?

All right. Okay. Let's go to one more slide. Perfect. So hopefully we need no introduction, but just so we start off on the right foot, Expensify is a payment super app. If you are an individual, you can use it to track your personal expenses. You can send and receive payments from your friends and family. You can submit payment requests to your boss. If you are a business, you can manage your company spent, you can pay your employees, your vendors, your contractors, and you can keep your accounting ledger up to date super easily using our product, so we aim to be the one stop shop for all expenses, no matter who you are. Next slide. I want to talk to you a little bit about our long term growth strategy. Next slide so. A lot has been said about what differentiates us all the way from the time we went public. But this is one of the key stepping stones or a key foundation of our business. So I want to go over it one more time. Our unique differentiator is our customer acquisition model. As an employee, many employees have a very real pain point when it comes to their business expenses. They need to stay on top of it. They need to track it. They need to get paid back on time. And really no software application out there is built for the employee first. Expensify is. As a result, employees end up downloading our app for free without having to ask their bosses for permission and end up automating their own workflow, which is to keep track of their expenses and to submit it in a timely fashion to their managers for approval and reimbursement. And again, it bears mention that the company needn't have adopted the product at all for the employee to do this. Because it solves a very real pain point for the employee, they end up talking about us to their colleagues, to their friends, really anyone that has the same pain point, really anyone that has to track expenses for business purposes. Often we find that in a company, there are several employees that are using Expensify and are submitting to the same manager or different managers, but the company has not yet adopted Expensify. This is our bread and butter. This is how we differentiate ourselves from really every other product out there. Now, the act of submitting your expenses to your manager at a company that has not adopted Expensify is simply sending them an email with your receipts as an attachment. And what we do when this manager receives these expenses is make it very easy for them to adopt the product with a click of a button and pay us. And this is our primary growth driver and is a model that none of our competitors can very easily copy. So that's our business model, and that is our unique differentiating strategy. Now, I wanna talk to you a little bit about just the core pillars that build up to our growth strategy. So next slide. Now, there are lots of puts and takes here, so I will go over them one by one. The very first at the bottom of the pyramid, if you will, or this first step is the simplest really, which is acquiring new businesses in order to manage their spend on Expensify. So every time we acquire a new business, we get all their employees and that contributes to growth. The second is existing businesses that as they grow, maybe they grow in terms of their employee headcount, maybe they grow in terms of their usage of Expensify. And what I mean by that is sometimes the companies using us internally for their employees, but then end up expanding their use of Expensify for other use cases, like, say, paying out their candidates. So, you know, you're interviewing candidates, you have certain expenses that you need to reimburse them after their on-site interview. So you would use Expensify for that. So expansion of existing companies using Expensify into different use cases, all of which contributes to a growth in activity. And that growth in activity is a pretty big, you know, paid member growth driver for us. The third is expanding or rather adopting other features on Expensify that also generate cash for us. And the Expensify card is a big one. So when you adopt, when the company adopts the Expensify card, they end up, we end up earning interchange on every one of those transactions. And that is a source of cash. for the business and a source of growth as a result. And it's not just about the interchange revenue, but it also creates stickiness, it locks in that subscription revenue. So it's a product, it's a feature that really helps us retain and be a better value add to our customers as a result. Fourth, using viral capabilities. What I mean by this is the bottom-up growth funnel, which is our unique differentiating strategy, really works if we have various use cases that an individual user will come to Expensify for. The more the individual user is served by Expensify without their company adopting the product, the more we remain top of mind. And as a result, it ends up cultivating this huge free user pipeline for us. And when that free user set, if you will, is thinking about adopting a business product, we are top of mind for them. So viral loops are a huge source of growth. And some of the viral products or features, if you will, are invoicing, bill pay, peer to peer payments and so forth. And last but not the least is global expansion. So I touched on this a little bit before, but companies that adopt Expensify and grow as a company in terms of their headcount and size end up increasing their activity on Expensify in a directly correlated fashion. And that is a pretty valuable growth driver for us. But as you can imagine, as companies get bigger, they have international entities. They have local bank accounts in those entities and they need to be able to stick with a product that grows with them. And so we launched this feature, global payments, which allows us to withdraw in five different currencies and pay out in 200 plus countries and currencies, which enables us to turn on these global payment capabilities for mid to large businesses which have multi entities. So The ability to support a use case like that allows us to tap into a larger customer base and keep that customer base even as they become bigger. And that is the last but not the least source of revenue and growth for us. So those are the five steps, if you will, that build up our growth strategy. Next slide. I want to go into Q2 updates, business updates for you. And then once I'm done with that, Ryan will follow up with the financial updates. Next slide. So we've talked a lot about the accounting channel. Now, I want to remind you of why this channel is important to us. This is a highly strategic channel for us. And it is highly strategic because every accountant is like a mega firm. They bring on businesses as clients and they establish good financial processes for their clients. And what we want is to be top of mind to these accountants and deliver a product that they consider competitive because by selling one accountant, we sell hundreds of businesses if not thousands of businesses over time and it takes very little acquisition cost on our perspective so this is a very strategic and if played correctly a low cost Channel for us Now, we've talked, I think, about the fact that we're doing Expense Account 3, which is a very luxurious but also thought leader conference that is targeting this channel. We did that in May. And what I want to do today is focus a little bit on the results we saw coming out of that conference. Now, the point of the conference is, A, branding, like we wanna stay top of mind to these accountants, but also B, to hear from them on what they consider best practices in their industry so that we can keep our product as close as possible to what they consider the gold standard. Coming out of the conference in May, we became the preferred partner, preferred tool for California Society of CPAs and the Texas Society of CPAs. Now, these are really state CPA associations which set the top leadership or the gold standard for the industry to all other accountants who in turn onboard companies and set the gold standard for them. So signing these CPA societies is really like signing the megaphone of megaphones. So we're very happy about that. We also received a lot of great feedback about the types of features that we need in order to make our product much more competitive in this channel. So some of those and we're working on all of them, they're all in development and should be coming out pretty soon. Some of them are admin issued virtually expensive cards. And what this is, is the ability for a company to assign a card to a specific vendor so that they can automate limits and put better controls behind subscription spend. Two is firm branded Expensify cards. This is basically co-branded cards to our top revenue generating partners. And we want to do this because we want these firms to recommend the card over and above any other corporate card or expense product. And they're much more likely to do that if it is branded to co-branded so that it looks like something that they are selling and are more invested in. And last but not the least, we are doing a 50 basis points revenue share with all these accounting firms because we want them to recommend the card, we want them to recommend Expensify, and we want to lock in all of the activity, all of the subscription, and all of the card spent as a result at a very low acquisition cost. So we're giving these 50 basis points as sort of an affiliate revenue, if you will, to these firms. So these are all the things that we learned and coming out of this conference have been implementing in order to sort of supercharge our growth in this channel. Next slide. I want to talk a little bit about just general growth and awareness. And this slide is focused on general awareness because ultimately what we need to solve for our top priority is to increase the number of qualified leads that we get through our sales pipeline. And then we need to use our onboarding specialists to convert them cost effectively, because all of these new businesses that we onboard are going to help us grow our paid members ultimately. So we're investing pretty heavily in SEO and SEM related optimizations. We are testing new paid advertising channels as well. And we are going to all the relevant conferences in our space. We're using Expensify Chat as the communication platform of choice in these conferences so that we can acquire leads at scale. And once we acquire all of these qualified leads, we have our onboarding specialists that step in in order to convert them into paid users. And this team of onboarding specialists we've been investing in pretty heavily for almost a year now, and they're really sort of stepping into their game. And the conversion rates from qualified leads to paid subscriptions is better than ever. We're still working on our outbound sales pipeline. And a lot of these efforts, as a lot of our SEO, SEM and onboarding specialist efforts are maturing, as a lot of them mature, we will be able to keep giving more and more love to our outbound sales effort in order to sort of make it much more cost effective and scale better as well. So those are all the things we're doing on the sales front. So how are we increasing new business? Next slide. I want to talk a little bit about how we are driving more loyalty, because as I said before, a big driver for growth is existing companies, both increasing their usage and also increasing or rather cross-selling our card to them are two different ways that we make a lot of money and we grow a lot of our revenue. So what we're doing is giving every company that has 10 plus actors and really 10 plus employee companies on Expensify represent the lion's share of our revenue. We're giving all of them a dedicated account manager. And the point of giving them a dedicated account manager is so we can always keep a pulse on the company set up. A lot of companies adopt us when they're small and they end up growing, but they never really go back and modify their setup or review their setup. And as a result, you know, as a company scales, their processes need to scale and no one's looking out for them. So the point of the account managers would be to keep a health check on these businesses on a quarterly basis to be the first line of defense for them like if concierge isn't satisfactorily addressing their concerns to step in and give them white glove support and basically always keep the customer top of mind so we anticipate their needs and give them the best in class support and service And last but not the least, I touched on this a little bit. We are working very aggressively on global expansion. We launched global reimbursements, global payments, which allows companies to scale with us, which is pretty significant because a lot of our enterprise-sized companies were companies that we acquired when they were small to medium in size and what we never want to happen is have these companies the best of them grow to be enterprise and if we lose them because we don't have the capabilities we basically just let our best customers walk out the door which is not what we want so global payments is directly targeting these companies so we grow with them and we never lose them so I think with that, I want to hand it over to Ryan. It covers the business updates so far in Q2.

Great. Thanks, Anu. Now let's cover the Q2 financials. Our revenue in Q2 was $38.9 million. Our average paid members were $742,000. That is a decrease from prior period. And however, our gross interchange was 2.7 million. We've seen our gross interchange increase by 56% year over year. So we're very excited about that. Next slide. Our operating cash flow was negative 0.4 million. Our free cash flow, which is basically operating cash flow, but we removed the timing of customer funds. We handle a lot of customer money. It's always going in and out. So operating cash flow doesn't always tell the full story. Free cash flow removes all the noise that handling customer funds introduces. So free cash flow is $1.1 million. Our gap net loss was 11.3 million. Our non-gap net loss was 1 million with adjusted EBITDA of a positive 2.2 million. So we did see a decrease in some of our profitability metrics there. We did see some downward pressure on our margin due to some heavy investments we made in Q2, but I'll discuss that shortly. Next slide, please. As you know, we don't give guidance given the current economic conditions, but we do let you know how the current quarter is going. In July, we saw paid members of 719,000. Next slide, please. So when we talk about Q2, I'm sure a lot of people are saying, okay, so what happened this quarter? So to summarize Q2, we continue to have free positive cash flow, or free cash flow that is positive. And we are reducing our debt. As you saw in the earnings release, we reduced our debt by a little over $8 million this quarter. We're making heavy investments in engineering and also sales and marketing, and that's putting downward pressure on our margins in Q2. But I want to be very clear, this does not represent a new higher cost of running the business. These are temporary investments we're making in the short term, and we do expect those margins to improve. So it's not like our margins are suddenly way worse. You know, we've been a profitable company for a cash flow positive company for a long time, and we intend to remain so. But this quarter, obviously, we're seeing that pressure from these heavy investments we've been making. To use a sports analogy, I think that we're in a bit of a rebuilding phase right now. We're starting to transition from our old platform to our new platform. We're making tons of investments in, like I said, engineering and also our sales and marketing to set us up for success in the future. But right now, obviously, things are a little bit tougher. So we do think that we're in a bit of a rebuilding phase. I think that's a question I'd gotten in the past. And I do think that that is an accurate description of where we're at right now. However, early reception of our new Expensify platform has been very positive, so we are going to continue to push forward on our ambitious and aggressive product roadmap. When we talk about that early reception, David alluded to this in his founder's letter, but we have been using our new Expensify platform for conferences as the main communication or social hub for these conferences. That's kind of been a trial by fire, and the reception actually has been really great. So it's been very encouraging to see the positive reception we're getting when people are seeing the new product that we've been building. Next slide. All right, and now we are going to take your Q&A. Thank you all very much, and looking forward to hearing your questions.

All right, so a little bit of a change. of scenery here. There is a hurricane rolling through Hawaii.

So I'm going to have to sub in for Ryan. Everybody just strap on because who knows what's about to happen. I'm going to try to answer all your questions and David's going to support me.

Great. Let's get started. We have Bank of America on the line. Natalie, I believe you're here.

Yes, I am. Awesome. Thanks. So I wanted to ask about your investments in sales and marketing. So how do you think about the balance between investing in your SDRs versus your outsource sales channel? And along with that, what do you hope to gain from that outsource sales motion? And how do you think about that capacity going forward with at this point in the demand cycle?

Do you mean the balance between investing in out in out? Sorry, you said SDRs versus what was the other one?

The outsourced sales channel that you guys had mentioned.

Oh, the onboarding specialists. So SDRs and the onboarding specialists kind of go hand in hand because what SDRs are trying to do is increase the number of leads we get into the pipeline and onboarding specialists are trying to close them. So, you know, this is kind of the same trajectory we followed with onboarding specialists where we had, I forget the exact numbers, but twice the number that we needed. And then we kept working through, you know, looking at conversion rates month over month, building out a leaderboard, kind of tracking results on a per agent basis, but also across the programs. And then as we found our stride, we were able to identify low performers, and we were also able to identify just what the program needs in terms of headcount, and we kept optimizing it. So now the onboarding specialist program more than pays for itself in terms of business closed. We are still in the early stages of that same trajectory with our SDRs. I want to say last month, we actually went through an exercise where we looked at the total headcount and we cut quite significantly. But until we did that, we didn't really have a framework and a model to be able to do that because the program was still too new and sort of coming into its own. Ultimately, what we want to do is... grow these programs. And that would be a great problem to have really, because what we want to do is increase the number of leads coming into the pipeline to a point that we need more of them. But right now we're in the process of just sort of ironing out the framework, making sure we're staffed for capacity, but not overstaffed and making everything just a little bit more cost effective. And then we know how to sort of grow it from there.

Does that answer your question? Yeah, it does. Thank you.

Perfect, up next we have George from Citi.

Hi, thanks for taking the questions I'm on for Steve. I guess first of all, best wishes to Ryan and the whole state of Hawaii. Hope everyone's gonna be safe there. My first question maybe for David is kind of a product philosophical question on text as sort of the core medium that you run the business through, kind of develop the platform around. Obviously, there's been a lot of innovation in the AI space, but arguably the biggest has been in the ability to analyze tech specifically. So maybe what new opportunities does that kind of unlock for the company?

Great. Thank you for that. So this will start my one-hour TED Talk. So I think that this isn't some sort of new thing. We started a very, very long time ago with this recognition that payments and chat are the same thing. And if you look at sort of what makes disruptive technology cycles over time, the technologies that are disruptive are those that allow you to get closer to the customer, to lower your cost of acquisition, to increase your market size. And so we think that when you look at the different kinds of technologies out there, you know, it's a blockchain or VR or whatever it is, I don't think those really have this disruptive potential because they don't actually achieve a bigger market opportunity at a lower cost of sales. But when you look at things like what's the next inevitable platform that's coming on the pipeline, it's probably going to be some sort of in-ear EPS where you have an agent-based experience sort of intermediating the Internet. And so that experience is going to be voice recognition, and it's going to be chat-based. It's not going to be a bunch of buttons and sort of heavy GUI and things like this. So I think it's inevitable that the industry transitions towards more of an agent-based approach, and it's going to be based on voice and chat. And this is something we've recognized for a very, very long time. That's why we invested so heavily in our concierge AI from the very start, recognizing that the future is about basically picking a high capacity agent that can do a wide variety of things for you. Now, there's a bunch of things out there like that, Siri, Google Assistant, and so forth. Those are highly individualized consumer tools. So don't work in the context of sort of business collaboration. So we're trying to build basically the next assistant that can span not just the individual consumer cases, but also help you in your most professional and difficult sort of collaboration environments. This is a long-term vision, obviously. But it's a long-term vision that doesn't happen by accident. If you are investing your entire product around a heavy GUI-based interface, you're not positioning yourself for the next generation of technology. We've been pushing everything towards simple text-based communications with our customers, and all of our workflows are sort of rebuilt for this coming, you know, agent-based revolution. And so we think the large language models and the chat GBTs and things like this were inevitable. Can't say that we predicted it'd happen like right now, but we knew it was going to happen eventually. And so I think that we've tried to recognize the opportunity as it's come, but we've already incorporated chat GBT and sort of in small use cases throughout the product. And so those are growing more and more. So, yeah, we think that all this sort of large language model functionality is coming. We've been seeing this coming for a very long time. We've been trying to build the entire product suite around this kind of technology and the next technologies to come.

Awesome. Thanks for the call. That's a super interesting, super helpful. And then on, on competition, I think you kind of alluded to this in your, in your letter, you know, a few of your competitors with new product announcements and some discounting programs, you know, in your more high frequency sort of KPIs around go to market, you know, obviously a lot of this stuff is, is brand new, but have you noticed anything show up in the, in the numbers?

maybe I'd kind of defer to Anuf for some of this, but I'd say, I mean, the numbers are complicated. There's like a lot of customers. You can kind of, you know, see whatever you want to, if you look close enough, but I would say in the broad strokes of things, I don't think that much has really changed fundamentally. It's still a difficult economic environment. Bankruptcies are, Through the roof, we see, we talk to customers all the time, they're just going under. And so it's still just a difficult environment overall. Obviously, there's competitive environments or dynamics out there which sort of complicate things further. When you have people just dumping products at a loss into your marketplace, it complicates things and distorts things. But that's also not really new either. I would say, I don't think we've really gotten back to the pre-pandemic normal. Now, when exactly that happens, we don't really know, but I would say it's still a very complicated environment. I don't know if Anu, you had anything else to add on that?

Yeah, I mean, I think the, the Neo card providers come up a lot. And, you know, I think the marketing and the growth in that industry both have done a very good job of making it look like they are our direct competitors on one to one on every customer. But that's just not the reality. Because if you take a wide swath of small businesses in America, they would never qualify for a corporate card, because they just don't have the credit worthiness, they don't have the kind of cash balances they would need in order to have a line of credit that is going to keep their entire business spend flowing smoothly. So we still see a wide range of companies that don't want a corporate card or wouldn't qualify for a corporate card using reimbursables. So their business is sort of a subset of our business. And although they offer their product for free when you adopt a cart, if you take the number of businesses that are never going to qualify, they still need a software product that scales from being a small company to a medium to big company in terms of functionality and range of features. So we don't necessarily go head to head with them on every sale. So the fact that they're cheaper doesn't apply in every situation. So. I don't know if that's where your question was going in terms of ramp and Brex and then introducing a subscription fee. I mean, it helps now even on the card side, like they're a little more expensive than they used to be, which we welcome because it's at least an even playing field. And we all get to actually run a real business as opposed to just lose money. So that's good, but it's also not relevant in every sale.

That makes perfect sense. Thanks for taking the questions.

Of course.

Great, next we have Aaron from JMP.

Hi, thanks for taking my questions. How do you think about factors that are within your control versus outside of your control to get this business back to grow? And with that, how much of a priority is getting the business back to growth over the medium term, say one to two years relative to just heads down investing in the long-term roadmap?

I'm not sure exactly, you know, and you can take a crack in this one as well. That's a hard question. I don't think that there is a conscious effort to deprioritize short term versus long term. I think there's a path forward and there's kind of only one path. I think it's a bumpy path given sort of some of the dynamics we just talked about. But I think fundamentally, my view is there is a huge, huge opportunity out there. We're the only ones kind of trying to get it. Now, it's not like you sacrifice the short term to go after the long term in my mind. But I do think that to get back to that sort of sustainable growth, we have to execute on a wide variety of things. Yes, there is a product opportunity that has to be mastered. But also, I think as Anu is mentioning, we've been really getting cracking good code on the sort of paid acquisition side for marketing. We're optimizing the SDRs. We're basically working with our outsource sales teams. And so it's really a full-court press. And I would say one nice thing about having sort of a profitable business underneath us is that we can invest in a wide range of these opportunities simultaneously. And so we don't have to make a lot of kind of the tricky trade-off decisions, like should we invest in product or should we invest in marketing? It's like, well, we can just do both. And so I would say I think we're, to the maximum degree, we're trying to invest in all of these different sort of aspects simultaneously. Now, I think it's a challenge to kind of just manage all of this at the same time. There's a lot going on internally. But I would say fundamentally, I don't think we view it as a tradeoff between short or at least I don't view it as a tradeoff between short and long term. I view it like we have a path in front of us. That path solves for both of those. And we need to push forward as fast as possible. Anu?

Yeah, I agree. So I think Ryan referred to it as we're in the rebuilding phase. And so a lot of what we are working on with Expensify 2.0, new Expensify, like a chat forward expense management app is kind of forward looking, right? Like it's trying to expand the target audience, if you will. Like right now we go after a set of customers. We're trying to expand that dramatically, right? by sort of innovating on our product and that's the medium to long-term roadmap but short term the product that we have perfectly caters to the target audience that we're going after like we don't have a product problem at all but what we do have what we what is kind of out of our control to uh to answer your question really directly is we can't control the macroeconomic environment we can't control the fact that most companies are struggling for funding they're not growing and so it's taking away one of our primary growth drivers which i talked about which is companies just naturally growing once they've adopted Expensify and as a result naturally increasing their usage like that tailwind is sort of suffering right now and we're trying to make up for that loss of tailwind by with more aggressive paid marketing opportunities with more aggressive um outbound calling so on and so forth so that's the short-term sort of growth push and the product that we have is more than sufficient for us to sort of keep making inroads in that sort of channel And long term, we're trying to expand our target audience dramatically. And that's where a lot of our product and engineering resources are going right now. And, you know, we don't have a crystal ball, but hopefully all of it sort of pays off within proportion of each other. And then we can come out of this when the economy sort of comes back as well, like sort of like a phoenix is the is the hope.

That's very helpful. Thank you. And then just a quick housekeeping follow-up. Usually in the financial outlook section of the press release, there's a sentence reaffirming the long-term 25% to 35% revenue growth guidance. I don't see it today and just want to ask if you guys are reaffirming or withdrawing the long-term guidance.

Yeah, so I'm not going to be able to do it as much justice as Ryan would have. But I'll say this for a few quarters now. And, you know, since the day we went public, really, we have not been in sort of normal or stable economic conditions. And for a few quarters now, we keep reaffirming that long term guidance and we keep getting questions all around. And they're fair. What when will this long term guidance actually be true? since we haven't been close to the long-term guidance in terms of growth so we actually took all of your feedback and removed it because we just don't know what we don't know we haven't been in stable conditions since 2020 with this or that or the other like first there was a pandemic then there was concerns of a global recession then there was a global recession there still is like I'm fuzzy on the details but it's very chaotic so we've removed it and then Once we sort of hit stability again, we will be able to reaffirm it, but we don't want to keep giving you outdated long-term guidance, if you will. So that's the reason we took it away. Thank you very much.

Great. Next, we have Loop. Do we have anybody on the line?

Yeah, hi. This is Ankit Sanghvi on behalf of Mark Shepard. Yep. So my question is regarding your one of your recent sales initiative at the company is focusing on subscription users instead of paper users. So could you provide an update on how that initiative is progressing?

Yeah, so just to clarify, we always focused on subscription users like since the, I think in 2018 we launched annual subscriptions, and the point of that was always to give ourselves a more stable ARR revenue stream. because pay-per-use users can always just walk out the door the next month. Like it doesn't create a stable business model. So we've always been focused on that. Now, during the pandemic, that pay-per-use number was the lowest it had ever been since the launch of annual subs. And then coming out of the pandemic, it sort of shot up a little bit above the healthy range that we've seen in the past. So we've been working pretty aggressively to remind... And see, the thing with this is, although they pay us a higher... per seat fee, which is good for revenue. It's not good for retention if it gets to an unhealthy degree, because at some point the customer is going to pay attention to their bill and then they're going to think that Expensify is too expensive, which is not the brand or not the perception we're shooting for. So we got a little more proactive and more obvious, if you will, about the savings opportunities so that people are sort of paying attention to their subscription size and correcting it as needed. And that sort of brought down that pay-per-use number. So we consider 30% to be sort of in the healthy range. It used to be during the pandemic sort of in the 20 to 25% range, and then it shot up all the way to 35 and now it's back down to 30 and I think it'll sort of hover in this in this ballpark, we're not doing anything dramatically different to try to drive it down further.

Okay. And if I can fit one more about, you don't give margin guidance, but should we expect a similar margin in the second half, like higher marketing expense, similar margin?

So, Yeah, I think Ryan had sort of touched on this in his presentation that we, you know, we've always prided ourselves on being a cash positive company like we're a real business that makes money, and we will always be very disciplined about keeping those fundamentals. Now, you know, we've experimented with various sort of initiatives from marketing perspective. Like last year, we did a lot of out of home advertising. This year, we're doing a lot of paid digital marketing. We did Expensicon, which was our conference on which we spent a lot of, we spent significant amount of marketing dollars in Q2, went towards that. And then we've also been investing in the sales channel with SDRs and onboarding specialists. We are entering a period of trying to cost optimize all of this. So without giving specific margin guidance, I think you should see all of these optimizations start to show up in our results. And we are hopeful that we can start to tighten up our margins a little bit more going into the second half of the year.

Thank you.

Next, we have Daniel Jester, I believe you're on the line here. Daniel, can you hear me?

Yeah, you've got Dan here. Thanks for taking my question. So I want to ask about, so you've touched on the growth situation a few different ways, and I just want to make sure I understand all the points. So as you think about the quarter, you had, it sounds like a deceleration in the pace of new clients being added to the platform. You also have less overages because you're trying to right size customers into the right subscription profile so that they don't have those extra fees. But you didn't touch on retention. and what you're seeing there. So first of all, I just want to make sure I understand those factors. And if you could spend a moment on what you're seeing in retention, that would be very helpful too.

Yeah, David, I'll kick it off. And then if you have anything to add, please feel free to interrupt me. So of course, the three drivers are new customer acquisition, existing customer expansion, and then retention. So the number one driver of paid member growth has always been the second, existing customer user expansion. And I haven't looked at the numbers precisely, but in the ballpark, new customer acquisition and retention has not changed dramatically. So it's sort of trending similarly and has for a few quarters now, maybe even a year. But the piece that is different is existing customer user expansion. And of course, this is just informed guesses, but the macroeconomic environment is not very... conducive towards company expansions. Companies are not necessarily growing their headcount. So that seems to make sense that their usage on Expensify isn't growing as much as it does under normal market conditions. And then, of course, we've been both we've been trying to get paper use down, but also in an environment where companies are not spending as much paper use is just naturally going to be down because they don't need overages. as they're not spending all that much. So the subscription size is actually sufficient for them. So those two things are the significant drivers of downward pressure. So existing customers not expanding as much and then paper use not growing or not being as high.

That's helpful. Thank you. I would say just to kind of reiterate what Anu said, I think that that's the big challenge is that, you know, our growth has historically been driven by expansion of existing customers. And that has just been sort of a challenging environment because of these macro effects. I don't think there's been anything else like significantly that's changed since that.

Gotcha. Okay. And then on the new platform platform, you know, you've been talking about this for several years, so it's great that it's now live and being used. Can you help us think about the trajectory for which you have your current customer base transition to the new platform? And ultimately, like, what kind of friction or not does that transition typically entail, do you think? Thank you very much.

Yeah, great questions. And so I'd say Yeah, step one, the first 90% of the work is to build it. And then the second 90% is to get everyone to use it kind of thing. And so I'd say that the challenge here is we have a lot of technology. It's really good. It works in sort of these isolated use cases around chat. I think we've mentioned how it's been really, really great rolling it out to this conference circuit because the primary challenge Like what differentiates kind of our chat platform from others is that it requires such a low barrier to adoption. It doesn't require an account, doesn't require IT permission, doesn't require a password. You just basically click a, you scan a QR code and you start using it, for example. And this is a testament to kind of our massive kind of like social network style backend architecture that's built on these giant servers and blockchain and all this kind of stuff. So the technology is getting really proven. It's built on this by this huge open source army of like 1500 developers. It's the same code base across all these different platforms. It's a really powerful new technology. And so we've been working on it for a long time. And but it's really proving itself out in these early use cases. Now the challenge, of course, is how do you get existing customers from our classic platform onto the new platform? And that's a very active topic of discussion, as you can imagine. And I think that's basically through some form of deep linking and hybridization. So basically, as we identify use cases that will work for subsets of customers, we promote those use cases to existing customers to say, hey, you could use the new platform for smart scanning for your requirements, whatever it might be. And then we can link them over there, we can push them over there, and so forth. This is going to be a slow process. It's going to take time to actually get all of our customers who are already comfortable and like our existing classic products to understand the benefits of sort of this newer product and to kind of rewrite some of the older workflows into it. This is kind of, you know, an evasive answer, but because I'd say we don't exactly know. A lot of this comes down to, we view this as a collaborative engagement with our customers, and we don't exactly know what their feedback is, but we know that we are getting it, that we're responding to it, and we're gradually pulling people over. So it's not going to be an overnight sort of nice switch. It's not like there's a, some sort of like a risk that customers are going to, you know, reject it or something like this. We're building it in collaboration with our customers. And I think it was mentioned if something like ExpenseCon is where we can test us out. And so it's not just us working in an ivory tower. We're working with the top accounting partners in the world to build these tools out for their needs. And then we're verifying it with them as we go. So I would say, again, that's not a very specific answer. It's kind of the best I got that it's something that we're going to roll out over time.

Okay, thank you very much. And maybe if I can squeeze one more in about the co-branding of the card. Can you just talk about how that would actually work from a logistics perspective and maybe talk about your relationship with your own card provider and, you know, does it allow for that type of opportunity? Thanks.

Yeah, so this is actually, it's very off the shelf. So we basically include the branding of the firm itself on the same card base that we have today. And it doesn't really, we don't really, I mean, I don't know how different. in-depth of an answer you want. I couldn't nerd out all day long, but it basically doesn't require us to order a fresh batch of cards or anything. So it doesn't increase our cost. It's a customizable field that we're able to send via API. So, which is great. Like when we started looking into it, we weren't sure. So we were thinking about how much would we need to put minimums on the firms in order to have this, because we'd have to order a bunch of stock and what would that cost? But actually it's way simpler than that. So we'd be able to get this off the shelf and going pretty quickly. And it just is a very light branding for the firm, but it still makes it their own, which just cultivates that much more loyalty. So it's worth doing. And we're not doing it for every firm. We're doing it for our largest firms. We want to test it out first. And then if it has legs, we might extend it a little bit more down market to other firms. All TBD.

Great. Thank you very much.

Of course.

Perfect. Well, that rounds out our live Q&A. Thank you to everyone who joined. If you have any follow-up questions, please feel free to email them to investors at Expensify.com. And with that, we'll see you next quarter. Bye, everyone. Thank you.

Thanks.

Bye-bye.