Expensify, Inc.

Hello, welcome to the Expensify Q3 2023 earnings. I'm Expensify CFO, Ryan Schaefer, and with me, I have Expensify COO, Anu Merlidhar.

Over to the 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 those forward-looking statements. Forward-looking statements in the earnings release that we issued today, along with the comments on this poll, 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 measurements to their most comparable GAAP measures. Back to you.

Thank you. All right, so I want to kick this off with a reminder on how our business model works and what our growth strategies are. So first of all, of course, the very simple acquisition of new customers, new companies that adopt Expensify in order to manage expenses and reimburse employees on our platform. Then, and kind of our biggest challenge, growth generator is expansion of users, expansion of company size, maybe deploying it to other subsidiaries, maybe of existing customers on the platform. And throughout the history of Expensify, this usage expansion among existing customers has been one of our primary growth generators. Then there's increasing Expensify card adoption, but more generally, cross-selling of our various back office features to the companies that increases both their usage but also generates all manner of other revenue streams for us of which interchange is one. Fourth is adding new viral loops. And this is really about engaging all of those free users, all the freemium customers on the platform that may not yet have the need for a business expense management software or may not have reached that activation point where they've decided to adopt business expansion business expense software, but are using the product for whatever viral use case there might be, such as maybe paying their friends or family or sending invoices to their few customers or whatnot. Like the point of this growth generator is really that it engages them way before they become ready to purchase a business expense product. And so when they get ready to make a decision, we are top of mind. And last but not the least, of course, tapping into international markets. Most of the English speaking world is fair game for the platform. So long as we have tax capabilities sort of baked in and all of our international markets, UK, Europe, Canada and Australia are pretty big for us. And so leaning into those markets more is also a pretty solid growth generator. Now, I want to remind you, why should you believe in Expensify? What are the three key strategies that contribute to our long-term success? One is the market is enormous. Most of it is very untapped. So it's greenfield, and it's there for the taking. is not any business model can succeed in this sort of market where most of the volume is at the bottom of the market. And what I mean by that is most of the volume in terms of employees work at very small companies between one employee to maybe 50 or even 100. And a top-down sales-driven strategy doesn't really work in that segment of the market because you just don't have that return on investment on each deal. And also, a card-oriented strategy doesn't work quite as well at the very bottom of the market because there's underwriting challenges. So you need a subscription-based model which is able to engage users, end users, even before they are ready to make a decision. And then you need to enable them to sell Expensify into their companies. That bottom-up subscription-based acquisition model is the one that is primed for success. And those are really our three key strategies. And we talk about that all the time. But this time around, I want to show you some real data because I want to show and not tell. So this is the latest available census data on just small business as a market. And I, for the sake of this visual, used small business as any company with between one to 250 employees or zero, one being the business owner, to 250 employees. And you can see here the companies with two to 10 employees and then the companies with 11 to 50 employees. employ the largest chunk of the market. So most of the end users actually work at really small companies. And if you even take up to 100, like that's basically almost 70% of the pie. Why is this important? Because when you have a very small employee base, and that generally seems to be correlated with the annual revenue that these firms make, because of course, when you're smaller, you're making less revenue. And as you grow, you scale up and you, you know, increase headcount. So here, I want to show you single employee firms, what do they make on average, a year per firm, 200k firms with two to 10, 450k, so on and so forth. And I'm then extrapolating to if that's the revenue this firm made, then can we reliably underwrite them for the card? And part of the challenge isn't that they are making less money and so they're a default risk. That's just one part of it. The bigger part of the problem is there's not reliable data sources out there that can help you even identify whether this specific company at this size, is it making positive revenue? Are they paying their bills? It's really challenging to do that. You can use their bank data, but that's, of course, limited in terms of just having the last 90 days of volume. You just can't reliably underwrite them and keep your default risk low. So a card-driven model kind of has to start at the 50-plus employee base segment of the market, but you have an insane amount of employees and employee volume at the lower levels. So you need something different in order to tap into that segment of the market. And that's really a subscription-driven bottom-up acquisition model. Now, this is sort of a peek into what signup volume looks like on Expensify in a way that we've never presented to you before. To the very left, you have the total signups. And this is, I used weekly signup data to get this chart, but it's a very consistent trend. Any week you look, month, year, this has been a very consistent trend on Expensify for a really long time. So the chart to the bar to the very left is the total sign-ups. And then I broke those total sign-ups down by public emails because generally when someone signs up with a public email, they're looking to use Expensify for themselves. They're not looking for a business use case. That is the vast majority of sign-ups. Then I took private emails that couldn't be enriched on Clearbit. And that's, again, as I was talking about in the previous slide, with smaller companies and their underwriting potential. It's difficult to enrich BSBs because there's just not that much reliable public data out there about them. If you bucket the signups into public emails and private emails that couldn't be enriched, you could make the assumption educated guess that all the public emails are likely individuals and all the unenrichable private emails are likely very small businesses. That then leaves 15% of signups that are actually private emails that could be enriched, that are decision makers, that are looking to adopt Expectify for business. What's insane about this is this has always been the trend. All of the growth that we've ever seen has come from that 15% of signups creating a free trial and converting to a paid product. This is actually exciting news because that 76% and 9% We do try to engage them on the existing product with individual use cases, but the existing product isn't perfectly optimized for individual use cases, although they do have them. It's much more optimized as a business expense product for a decision maker to adopt, onboard, and deploy the product to their company. So we have a large majority of inbound interest that we are very ineffectively engaging today. on the existing product. Now, what do we need to do to capitalize on this momentum? And I want to talk about this in this format of how does a user go through this journey as a free customer, as a freemium customer, if you will. So first they discover the product, then they sign up. These two things, we're doing really well. We have a lot of brand cache. We have done a very good job of telling end users, you can adopt the product, your company does not need to approve it. You can use it to scan receipts and organize yourself. And so that's working. And we've done it for 10 plus years now, and it continues to pay off. That's a huge investment that's already returning dividends. But we need to activate them. And what does activate mean? Activation is that moment where a free user has an aha moment, where they use the product to do something, it works, it makes their life easier, and now they're on the hook. That needs to improve. While we do do that, which is why we still see such enormous inbound interest on the existing product, like I said, it's not optimized for it. So discovering the features that create that aha moment is... Just not as intuitive, not as smooth as it could be. And then once they have that aha moment and they create a free trial, we need to convert. And once we convert, we need to actually scale their usage. Both of those also we've traditionally done really well. We continue to do really well. Our free trial to paid adoption conversion metrics are kind of best in class for SAS free trial products, free trial based adoption products. And so we continue to improve that. And we've talked a lot with you about our onboarding specialists and how we are increasing visibility to onboarding specialists when you create a free trial. So we want to keep improving that number the percentage of free trial to paid adoption. And we already have the infrastructure to do that. That's a project that's well underway. And then scaling is a matter of retaining your customers because ultimately you don't decide when they add seats because that's for their business to decide when they hire more employees. But two ways that we could scale better, which we are working on, one is retain those customers. So when the economy picks back up and they start hiring, they automatically start growing on our platform. But two is create use cases for the company that actually makes more of their employees active. And that's the intention behind having a collaboration chat platform that the company can adopt. So they don't need an other app in order to collaborate across the company with their employees. Introducing things like invoicing, bill pay and payroll, which activates more of the company and scales their usage on Expensify and allows us to grow. So for the rest of this presentation, I want to talk a little bit about the activation step. And I want to show you how we do that better with our new product, Expensify 2.0, which we've been teasing for a long time. It's been a long time coming, but we are kind of at the cusp of launching it to real users, and we have a lot of activations we did at conferences this year that are starting to pay off. So I want to talk a little bit more about that, and I want to continue the trend of showing but not telling. So without further ado, I'm going to show you a little video that gives you a sneak peek into the product that is very nearly ready for launch. Right. So I hope that is as exciting to you as it is to us, because the entire point is to engage the end user as soon as they come into the product and to give them so many different use cases that enhance their experience, enhance their lives, make their most painful tasks easier, such that we activate them sooner rather than later. So on this slide, I want to go into this end user flow in a little bit more detail. And this specific flow is actually going to launch maybe as soon as next week. So imagine an employee that isn't trying to adopt Expensify for their company. It's just trying to make their process of maintaining these receipts, submitting to their employer a little bit easier. So they come into Expensify, that screen on the far left is where they would land when they sign up. So on that screen, they can create a new chat, find their manager, and within the chat interface with their manager, so now we're at the third markup, they can click that green button at the bottom, and that takes them to the screen, the fourth screen from the left, and request money. Now they can request money by manually entering the amount, or they can scan a receipt, or it can be a distance-related expense, whatever. All of the same options that exist on our current product will exist here. So for the sake of this example, let's go with the manual version. So the $20 for gas, click Send, and now their manager has this money request from them. How does the manager receive this? So assuming the manager is not an existing customer, which if they are, then they will receive it in both email and in-app notification. But for the sake of this example, let's assume they're not, they see this email. So it's really clear, Alice is requesting $20. Like the call to action is really clear. They come in, the email is designed in a manner that kind of invites them to click on it. So when they click on it, they can sign up into the app and pay this employee immediately. So manager clicks on it, they are dropped into the in-app experience into the direct message with Alice and they hit pay. Now, it's possible that some BSBs are not looking to adopt an expense product for the entire company just yet. All they want to do is pay this employee and that's the end of it. They maybe don't have a business bank account yet. So if that's the case, they can choose to just pay with their personal bank account or debit card and it would be like any other P2P transaction. but if they choose to pay with the business bank account then we know that their business that is at a stage that might be ready to adopt the product so first we'll take them to connect their business bank account of course and complete the action they came here to complete but after that we will take that expense we will create a workspace for this manager And we add the employee and the manager to that workspace. And we put the expense into that workspace as well. So in the screen, you can see we've kind of created the workspace. We've put the manager and the employee in there. And then we've moved the expense over and we leave breadcrumbs on the direct chat between the two of them to let them know what we've done. So right here, behind the scenes, in a very intuitive and smooth fashion, we've upgraded their experience to be a business use case. And then concierge and the assigned onboarding specialist will continue that conversation with them to see how they can onboard the rest of the company, what their needs are. Does this fit where they are today? Because this is not an irreversible action. It just encourages them down a path that we think is best practice. So that's the product. And like I said, we've been talking about it for a long time. The entire point of building it is I want to put in perspective to engage this vast amount of inbound momentum we already have from end users and very small businesses. And we need to find a way to activate their experience sooner rather than later. And we're optimizing the new product to do exactly that. And we believe that, of course, the first iteration of anything is going to have a lot of opportunities for growth. But we believe that as we continue iterating, tweaking, and refining that workflow, we are going to activate the bottom of the market in a much more effective manner than anybody else can. And this isn't about competitors, really. Like, sure, we can do better than competitors. But this is about unseeding inertia. This is about taking the greenfield opportunity. And that's still where our sights are firmly set. I want to do a brief Q3 business update, and then I'll hand over to Ryan. So this quarter, we've remained pretty focused on SEO and paid digital advertising. And the reason we are at the very top of this slide is because, as I said, we have all this inbound momentum. We're trying to capitalize that inbound momentum on Expensify 2.0. But we could always use more inbound momentum. But as we go to the bottom of the market, is not for the taking using a sales driven strategy. And so the more dialed in our organic efforts are, and the more we can bring down that cost per click on our digital efforts, the better we can capitalize on that bottom of the market and use of momentum. And so that's really our number one priority. We've been to several key conferences and events. That's because we continue to grow our presence among the approved accountant community. So the accountants that onboard small businesses, and that's still pretty relevant as you go to the bottom of the market. Because when someone starts a business, they're really focused on how to grow that business and they outsource all of the back office to these accountants. So it remains a pretty key channel. So we've done a bunch of conferences and we've used those conferences to demo beta experiences on Expensify 2.0, which we call activations. in order to get some early feedback on how the product does in terms of engaging the end users, because all of that learning is going to help us launch something which is that much more effective. And last but not the least, a pretty important update. So keeping with the theme of everything I've been talking about in terms of which segment of the market is interesting and what are the unit economics of that segment, we've decided that the ROI is just not there to go after these segments with outbound And, you know, we talked about this a lot, but we didn't want to throw it away without experimenting with this idea. So we tried it out. It works in the middle to top of the market, but the ROI that we're seeing with our digital advertising efforts is so much higher and so much more of a fit in terms of where we want to go that this doesn't seem like a good area to keep putting money into. So we've sunset that. We remain very invested in our onboarding specialists. They're doing a fantastic job of converting free trials. We want to keep increasing that number because that just increases the ROI of all the efforts upstream as well, which is a key focus. And then platform updates. We, like I said in the previous slide, the accounting partners remain very vital to the business, both in terms of middle market but also small businesses. So we continue to invest in them. Whenever they deploy the Expensify card for their clients, we give them 50 basis points. as affiliate revenue. Some of them keep that. Their business model allows them to keep that. Others don't. And those that don't pass it through to their customer. So it still makes its way down channel to either a partner or the end user. And all of that is very good for loyalty and, you know, retention. The net interchange we got from the Expensify card increased 16% quarter-over-quarter, 65% year-over-year. It's our shining beacon of hope. It's growing amidst all the chaos in the market. And so now the effort that we've been invested in, in terms of getting that interchange to revenue, is almost near fruition. Brian will talk more about that in his update. We built a feature called Insights. It's actually kind of a little trick. We always had it. It was buried in the expenses page into one of the views, so nobody used it. But everybody asked. People are always asking for it. So some product manager in our company came up with this genius idea to pull it out and put it in the left-hand nav. And now it's being used by a lot of companies. So easy win right there on our existing platform. And then last but not the least, we launched P2P. We launched it at Money 2020. Now you can actually go on New Expensify 2.0 and you can sign up and you can chat with a friend, but also send and receive money from them in app, which was a pretty big deal. We are using our own MTLs on a About 90% of that, like we still have two states, New York being one of them, a pretty major one to get our MTLs on and we use our bank's license for those. But that's a pretty big one, a pretty big win. Sometimes you work on something for so long that when you finally have it, you almost forget how difficult the journey was, but it's been a long time coming. be very proud of that. So I think that's it for platform updates, product updates, and just a conversation about business strategy. I'll hand it over to Ryan for financials.