Welcome, welcome, welcome to the Q4 2023 earnings for Expensify. I'm David Barrett, CEO. We have Ryan Schaffer, our Chief Financial Officer. Let me turn it over to Nikki for legal 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 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 a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures.

Excellent. Thank you very much. All right. Let's get started. First, let's go over the fiscal year 2023 financials. We had revenue of $150.7 million. Our average paid members were 732,000 and we had a net interchange of $11.1 million. Our operating cash flow was $1.6 million. Our free cash flow was $600,000. The difference between operating cash flow and free cash flow is that we take out the customer funds, which can vary throughout the month, so the timing can throw that off a little bit. Our GAAP net loss was $41.7 million. Our non-GAAP net loss was $500,000, and our adjusted EBITDA was $13.2 million. Now let's talk about Q4. We had $35.2 million in revenue. Our average paid members were 719,000 and we had $3.1 million in net interchange. Cash used in operations was $500,000. Free cash flow was negative $3.6 million, and net loss was $7.5 million. Non-GAAP net income was $3.1 million and adjusted EBITDA was $5.9 million. Obviously, these numbers are an improvement over Q3. As we discussed last quarter, I mentioned that we're going to be implementing some cost-cutting measures. We did implement those, and we saw a pretty positive turnaround in terms of our financial metrics. Our operating cash flow improved by $4.9 million, which is a 90.2% increase quarter-over-quarter. Our free cash flow improved by $3.5 million, which is a 49.3% increase quarter-over-quarter. Our net loss improved by $9.5 million, which is a 55.9% increase quarter-over-quarter, and our non-GAAP net income improved by $9.8 million which is a 146.3% increase quarter-over-quarter. Our adjusted EBITDA improved by $9.4 million, which is a 268.6% increase quarter-over-quarter. So it's a pretty stark difference from the third quarter to fourth quarter. So you can see the drastic impact in those cost-cutting expenditures that we did. As such, we're going to be initiating a full year free cash flow guidance to provide a more clear picture on the cash impact from these recent cost reductions. That's something that the investor community requested of us, and we're going to be providing that. So our fiscal year 2023 operating cash flow was $1.6 million, and our free cash flow for 2023 was $0.6 million. In 2024, we're projecting free cash flow between $10 million and $12 million, which is obviously substantially higher than we did in 2023. We always show paid members for the first month of the quarter. So in Q1, in January, we saw payers of 690,000. We've highlighted January as usually a bit soft on users. We've highlighted previous Januarys in PINK. And as you can see, they're usually a little bit down and this January is the same. I want to give a very exciting update on the Expensify card. As I mentioned earlier, the card grew 63% to $11.1 million year-over-year. We've also added a new benefit to the card: our accounting partners who onboard their clients to the Expensify card now receive 50 basis points of revenue share for the clients. We've seen a lot of enthusiasm for the Expensify card in the accounting channel. And now we have a little bit larger incentive for them to really spread the good word of the Expensify card to the customers. We also, and this is the most exciting part, we've established our new card program, which earns more interchange per transaction. All existing customers are expected to be transitioned by the end of 2024, and all new card customers are being put on this new card program. That's very exciting because it's an improvement in accounting treatment. So previously, interchange was a contra expense in cost of revenue and not revenue, which is confusing for everyone. This is now more straightforward. It's been put on the balance sheet in the manner that you would expect. And interchange going forward under the new program will be categorized as revenue instead of a contra expense in cost of revenue. And on top of that, we're also earning about 20% more interchange fees. So if our same customers—we didn't grow at all, and we didn't have any increase in spend—the same transactions that we had in 2023 under the new program will be 20% higher. And with that, I will hand it over to David.

Okay. As Ryan mentioned, 2023 was quite good. In fact, I would say it was an excellent year for everything we can control; almost everything we manage is either stable or has improved, with one significant exception. Let me explain this complicated chart showing the main reasons we gained and lost paid users over the past couple of years. In 2022, we added 42,000 paid seats from new customers, and in 2023, we added around 43,000, so the numbers were similar. Additionally, over the two years, we lost about 62,000 paid seats due to churn, which includes customers leaving the platform or going out of business. In 2023, we experienced the same loss of approximately 62,000 seats. Therefore, new customer acquisition and churn for seats were roughly the same year-on-year, but we saw a significant difference in customer expansion. In 2022, existing customers added around 85,000 paid seats, which significantly supported our business model, growing alongside our customers. However, 2023 was tough for them, leading to a loss of 42,000 seats. So, in '22, they added 85,000, and in '23, they lost 42,000. The net result is that we've added approximately 4,000 active seats over the past couple of years, but it has been a rollercoaster journey. The fundamentals of our business—customer acquisition, churn, and the like—are quite stable. The significant fluctuations in paid seats stem principally from the expansion and contraction of our existing customers as they hire or lay off employees. Overall, we believe the year was fairly good, but our customers faced challenges, which is reflected in our results. Looking back, we see 2023 as a year of planting seeds, with 2024 expected to be one of harvesting those efforts. One area we plan to invest in is expanding our search engine optimization (SEO) efforts. Our goal is to enhance our visibility in search results, particularly by increasing the number of keywords we target. If you want to rank in the top 10, you need to start in the top 100, and we've made significant progress in the number of keywords we rank for. Particularly, we've seen strong growth in keywords that appear on the first page of search results. Our SEO investment, which we’ve focused on previously, is poised for quick improvements, and we are optimistic about our positioning for continued growth in 2024. Additionally, we launched new functionality last year that has gained traction, such as global reimbursement, which caters to our multinational customers with operations in various regions. This feature has seen exponential growth since its launch, with a 35% increase in the number of enterprise customers utilizing it in recent months. We're thrilled to deliver a feature that our customers have long requested. I’m also excited to discuss Expensify Chat, which has gained significant traction recently. In the past year, we have seen 7,000 distinct companies start using chat internally, marking a over 250% increase in customers using Expensify Chat in their organizations. This reflects well on the demand for our chat capabilities, and even though it is currently a free feature, it shows that customers find value in it. We envision a promising future for the new Expensify. Our open-source community has also seen remarkable growth, with contributor numbers doubling over the past year. We've established ourselves as a leading force in this technology, transitioning from being a minor player to possibly the largest contributor outside of Facebook Beta. This is a pivotal year for us as this technology is crucial for our future. Our strategy remains unchanged, focusing on tapping into a vast untapped market, especially among very small and small businesses, which we believe represents 99% of the global opportunity. We are determined to build a platform that captures this market and expand effectively with a bottom-up viral strategy where customers self-promote Expensify simply by using it. This will allow us to monetize primarily through high-margin subscriptions. The very small business (VSB) sector consists of over a billion potential employees in companies with fewer than 250 employees, representing a massive and largely untapped market. In the U.S., nearly 99.9% of businesses are small, amplifying the opportunity. While others have recognized this, no one has implemented a viable business model to address it. Our viral lead generation model isn't new; it’s been successfully employed before. Chat functionality is inherently viral, as effective use requires interactions with others. Payment systems are also highly valuable and capable of driving viral growth. Expense management intersects these three areas. Expensify has always operated effectively in all these domains as it facilitates communication regarding expenses and includes payment and document-sharing functionalities. Moving forward with the new Expensify, we aim to build on these core strengths while expanding into related areas. While we may not dislodge competitors overnight, we believe we can capture a share of the market, particularly where chat, payments, and documents intersect. The accounting community is ideal for this strategy because of their ongoing processes, which involve significant communication and numerous spreadsheets. With our platform, everything from payments to reconciliation and discussions can occur seamlessly in one place.

Let me talk about travel management. We've been talking about travel for a long time; we just travel bookings and so forth. We think that there's a great opportunity for what I think is called leisure travel, which I know is an interesting term. But there’s a lot of social dynamics of people who are doing business travel. When you travel places, you're often traveling with other people, and you don't work all the time. We try to recognize the real-world social dynamics of people who are doing business travel. As a result, we build that social group for you automatically. When you travel and multiple people travel to the same city, we're just going to throw them into a chat room together. This seamless integration allows them to coordinate their dinners and activities together, right here in our product. Travel management isn't new, but a leisure-based travel management is new, and we think it's defensible.

With that, I guess, let's open it up to questions. Vicki.

Great. Let's get started with Citi. George, are you on the line?

Yeah. This is George on for Steve Enders. Thanks for taking the questions. Maybe just to start with on the paid user number. It was kind of flat quarter-over-quarter. I appreciate the color on net adds versus churn versus contraction. Does that quarter-on-quarter stabilization give you guys any sense that maybe we're nearing a bottom, kind of excluding seasonal factors, or is there still too poor visibility? Just appreciate your update on how you guys are feeling about that metric.

Yeah. It's tough to say if we're at the bottom right now. Obviously, as David showed, we have a lot of positive indicators for the future. January is usually a pretty soft month in terms of users, so that's not completely unexpected. But we're working real hard to improve all inbound traffic and inbound leads, and we have some exciting green shoots data that we shared with you. But I think it's probably still too early to determine if we're further from the bottom or not. Obviously, we hope so, but it's hard to say.

Great. Okay. And then one quick follow-up. I appreciate the FCF guidance and obviously the big improvement in cash flow generation this quarter. Is there more cost-cutting on the horizon needed to hit that FCF target, or do you guys believe you have things in place?

It's a good question. So we implemented the changes midway through the quarter. At this point in time, there are no additional cuts needed. We've made all the cuts. Not all of them took effect in time to be experienced in Q4. But we do believe that we will see a greater impact from the cuts in Q1 and future quarters. But as of today, everything is on track; we don’t need to do anything else.

Okay. Thanks for taking the questions.

Thank you.

Hello, everyone. Thank you for letting me ask a question, and hi, David. Nice to meet you. I was wondering if you could comment on the long-awaited migration to the new Expensify. Is the statement in the press release about the global launch in 2024 implying that you expect the migration to be fully completed this year?

Great question. So it's a rolling launch. As you can see, it's already out. Customers are using it; it's being used for different use cases. We are migrating people over in batches. We intend to keep the old website around for as long as people need it, and we don't know exactly how long that's going to be because we're pulling everyone over with a honey that’s centered approach. We want to make sure that we're taking the time to do it right. So I can't predict that. I would like to say yes, but I just don't know for certain because fundamentally, that's going to be up to customers.

Okay. Perfect. And Ryan, a quick question about the interchange. I remember last quarter, you were suggesting that the transition may take up to a year because new customers will be on the new card, but all customers will switch whenever their contract comes up. When do you expect to see the most impact from this transition throughout the year? What was the impact on revenue, perhaps in the fourth quarter? Because I can see that you've probably restated historic numbers as well for the EUR 11 million versus historic numbers, and what was the impact that you booked in the fourth quarter?

So the impact in the fourth quarter is essentially nothing. You'll see that in Q1 and going forward in terms of the speed of that transition. It's going to be at the speed of customers. Now they will eventually be forced to switch over. If I had to guess, I would think that it's going to be relatively large for smart customers initially, then kind of a long tail. We’re going to have to nudge some people, but we do have some carrots to get over that we have not yet announced. We have some new card functionality coming out that I'm not going to announce here, but we will announce early. That is only available on the new card program, so they’ll have real benefits to switch over as they can do exciting helpful things with the new card that they couldn't do with the old card. Look for maybe an announcement on that in the coming weeks. We do think that we have really good reasons for them to switch over. Another point is that we’re starting to see more cards coming up for expiration from our initial customers. All the new cards will also be under the new program. So we're going to hit a point where our initial Expensify card customers, their cards are expiring, so they will automatically be migrated over when they get their new cards.

Thank you for that color. I appreciate it.

No problem. Great questions.

Hi. This is Aaron from JMP. I have a few questions. First off, you mentioned that you're expecting a 20% uplift on card take rates becoming your own program. Can you talk a little bit about the challenges associated with replacing your prior program manager and whether it's something any company can pull off or if there’s something unique to Expensify?

That's a good question. It's not easy. We did it, and it took us a while as you all know. Our COO is actually formally from Marketo, so we might have a little bit of an advantage there. It requires taking over a lot of technology as well that we do in-house, so not everyone has the same level of in-house technology expertise to handle the real-time authorizations and so forth. I think we have an advantage because we've already built much of the card product, so migrating to being our own program manager is a relatively low lift for us. It would be a big lift for others. It's not impossible; clearly, we did it, but it took us a lot of time and we worked hard on it. I think it would take anyone else at least as long as us.

We have more of a build versus buy culture here. I think if a company had more of a buy culture, that would probably struggle to do that.

That's helpful. In May 2022, the Board authorized a $50 million share repurchase plan. I think you still have about $41 million approved under that authorization. Just trying to get an understanding of how you're thinking about share repurchases in '24. Is there a certain level of net cash you want to maintain around the business? How do you feel about valuations being less than 1 times next year's revenue?

It's a great question. I think in the near term, we have eliminated most of our debt. We still do have a little bit in our revolving facility. So my instinct is we would focus more on reducing that. But you’re absolutely right that given the share prices and cash flow we expect to generate, repurchasing shares is a pretty good move on our part, but no firm commitments or anything to announce at this point in time.

Okay. Thanks, guys. It looks like there continues to be pressure on the subscription revenue side of the business. I was wondering if there's any other color you could provide there on how much of this drag you would attribute to business closures and downsizing, and may be any items you're taking to mitigate it?

I think I would reiterate that customer acquisitions and churn are stable. Those are the most important metrics for us. I think they signify the health of Expensify as a business in terms of our economics of acquisition and retention. The challenge is that 2022 was good for our customers in that they expanded and added seats; hiring and things like that. 2023 was bad for customers. They were reducing seats and lowering activity. They weren't necessarily leaving Expensify; they just needed less Expensify because they had fewer employees. The takeaway is that our business itself is healthy, but we are subject to the macro effects of customer expansion and contraction.

Yes, that makes sense. Quick follow-up: in your conversations with customers, has that helped you at all with getting more insight into a potential trough? I know there's a couple of quarters of increasing contraction.

We have tens of thousands of customers. It’s tough to summarize or have a definitive statement. The reduction in seat traction isn't from our 10 largest customers; it’s from many customers you’ve never heard of. We are really popular with tech companies, and obviously, tech has been laying people off. We don’t have any definitive statement from customers on how things are going because no customer group could speak on behalf of everybody. I wish I knew more about what to expect going forward.

Got it. Let’s check in with Lake Street Capital. Is there any data you can point to that maybe you're seeing signs of improvement in that metric? Is there any data that helps us understand if you're seeing any sort of improvement with customer spend?

Nothing to announce other than what we already presented here. We have historical data, but our customers have been having a difficult time. That’s reflected in our finances. We don’t think this is a permanent situation; the economy is going to improve. As economic pressures decrease, we expect to see recovery in our customer base.

Thanks, guys. With these cost cuts implemented midway through the quarter, are you expecting a sequential decline in OpEx in Q1, and how should we expect OpEx throughout the remainder of 2024?

We initiated full-year guidance, but given that we saw a big recovery in OpEx in Q4, those changes didn't take place until halfway through the quarter. We expect to feel the full benefit of those cost-cutting measures in Q1, so yes, we do expect that to improve quarter-over-quarter.

Thanks, guys.

I appreciate it. So I joined late, so I apologize if this was a topic already discussed. The last couple of quarters, you talked about sort of building the top of the funnel and some of the investments you're making there to kind of accelerate the customer acquisition trajectory. Can you just spend a moment on what you have been doing there? And anything that we should be on the lookout for is sort of thinking about the game plan for 2024?

For 2023, we're trying a lot of different things. Ultimately, our investment in SEO has really paid off and we’re pleased with the results. We are also making additional investments for longer-term returns. I don’t have a crystal ball about how this is going to play out in the future, just as suggested for our cash flow guidance. We feel really confident in our investments but it’s all about experimentation. There’s no one thing; we’re trying a range of things.

Got you. On the user churn, I understand some of that is certainly macro-driven and outside your control. Maybe, your latest thoughts about what you can do to limit churn?

We have been making some investments in preempting churn. David spoke about global reimbursement, which is more enterprise and mid-market focused. We have some announcements coming that we think will be beneficial for limiting churn as well. Our contributor program has been a real secret weapon allowing us to effectively double or triple our engineering capacity, which accelerates our overall development. We’re to a point where we can roll out features rapidly that our customers have requested, like global reimbursement and budgeting.

Yeah. I think the contributor program has been key in allowing us to dramatically increase our product development capabilities. There is a long, long list of requests from customers, and we are happy to fulfill them.

Thanks for your time. Appreciate the free cash flow guidance. Great to see that. I guess philosophically, how should we approach your thinking about guidance? Does it assume a stable macro environment? What are the fundamental factors underpinning the guidance?

It does not rely on the macro environment improving. There’s some conservatism baked into it given the revenue has been soft in recent quarters. I think that conservatism is warranted, but it doesn’t need a radical change in the world to hit these targets. We feel pretty good about the numbers we're presenting.

Yeah, it doesn't require a bunch of things to go right for that to work. That's basically if everything stays as we plan, then it should be fine.

Thank you all for joining. As David mentioned, we have opened up a public room in our new product, and we're not going to talk about financials there for obvious reasons. We'd love for you to join and talk to us about the product roadmap—we think this is exciting. It provides retail investors access to our executive and product management teams at a level you don’t traditionally see in public companies. Thank you all for your time, and we’ll see you next quarter.

Thanks, everyone.

Goodbye.