Welcome to the Q2 2024 Expensify Earnings. I'm Expensify CFO, Ryan Schaffer, and with me I have our Founder and CEO, David Barrett. But 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 the most comparable GAAP measures. With that out of the way, let's talk about the financials. In Q2, our revenue was $33.3 million. Our average paid members were 684,000. So, these numbers have basically leveled off. They're effectively flat quarter-over-quarter. They're both within 1% of Q1, and also our interchange was $4 million, which is a 14% quarter-over-quarter increase and a 48% year-over-year increase. Our operating cash flow was $9.3 million. Again, operating cash flow includes timing of customer funds, which can vary depending on when the quarter ends. Our free cash flow, which excludes the timing of customer funds, was $5.7 million, which is a 10% quarter-over-quarter increase, something we're very happy about. We've talked a lot about our cost-cutting measures and we're pleased with the results that we're seeing. Our net loss was $2.8 million, but our non-GAAP net income was $5.6 million and our adjusted EBITDA was $10.2 million, something we're very happy about. All right. Now, my favorite topic, the Expensify Card. Quarterly interchange from the card grew 48% year-over-year to $4 million. And now my favorite subject is the program manager issue. So, as you know, we've been transitioning our members from our old card program to our new card program. The new card program has two benefits. One, we earn 20% more interchange on every transaction. And also under the new program, our interchange will be considered revenue instead of contra expense in cost of revenue. So, it cleans up the financial story. It makes the financials easier to understand. So, our net interchange was $3.5 million. Our interchange in revenue is $5 million for a total interchange of $4 million. So, the way to kind of read this is $3.5 million on the old program, $0.5 million on the new program, total $4 million. We're also increasing our free cash flow guidance. Previously, our guidance was $10 million to $12 million for the year. Last quarter, we increased that to $11 million to $13 million. And now we're increasing our annual guidance to $15 million to $16 million, which is a big jump and I think a testament to the effectiveness of the discipline that we put into reducing our costs. Again, our free cash flow is $5.7 million, which is a 10% increase from Q1. As you know, we don't give paid member guidance, but we do show you the actuals from how the current quarter is going. So in July, our paid members were up to 689,000. If you look at the pink bars, they show this current July and then every July in the past. And normally, July is a bit of a soft month. You'll see that we generally see a month-over-month decrease, but this month we're actually up. So that's good news. So, we're excited about that. All right. Now let's talk about some business highlights. Our SEO keywords have increased 122% year-over-year. This is important because it's top of funnel. Basically in order to be on the first page, you have to work your way there. So the progress across our long tail keywords has been increasing quarter-over-quarter. So, we're encouraged by the progress we're seeing there, and this is the more actual results. These are the keywords that are on the first page, which get almost all the clicks. So, we've seen a 57% increase quarter-over-quarter in our first-page SEO keywords. So, our content marketing strategy is working well and quickly, so that's something to be encouraged by. Also, we continue to see a brisk improvement in our number of global reimbursement customers. Global reimbursement is important because we're a global company, and our customers want to reimburse their employees no matter what country they're in. And these are generally larger customers being in many or further in the U.S., global reimbursement is important for large enterprise customers. But it's also important because it allows us to expand globally in countries that we normally struggled or we have historically struggled to grow in. So, this kind of unlocks a more global opportunity. Additionally, you might have seen that we announced our partnership with Apple for their upcoming 2025 film, F1, which is expected to be a very successful blockbuster. We are the title team sponsor in that film. So as you can see in this Instagram post on the right, you see Mr. Brad Pitt with Expensify across his chest. So, our name is on the car. It's on all the jerseys. It has a very big placement within the film, something we're very excited by. The movie is still filming. It doesn't come out until next year, and we've already gotten such great coverage on both TV and online that we've reached over 600 million impressions. Additionally, due to the fact that we have such amazing placement all across the movie and how much buzz this movie is generating, our earned media coverage is estimated to be over $100 million at this point. For those of you not familiar with the term, earned media, what that means is, what would be the financial equivalent to get all the placement that we have gotten effectively for free due to all the buzz. So if you think about how much does it cost to have one of the biggest stars in the world have our name on their chest for months and months and be filmed by the paparazzi and covered on the news across the world. Also, all the placements that we're getting during F1 races and all the YouTube videos and everything that people are creating. They also released a trailer, which has been seen over 10 million times on YouTube alone, also across social media. So the coverage that this has generated thus far is estimated to be $100 million in equivalent value.

I'm very excited about the F1 movie. We've been working on creating a roadmap for a mixed consumer business application, and the timing feels perfect for us. Last quarter, we discussed several functionalities we planned to build, and I'm pleased to say we've accomplished much of what we set out to do. Firstly, I'd like to briefly remind everyone of our overall strategy. Many of you may have seen this before, but for those who are new, I believe there are three key elements to Expensify's success. We aim to capture the 99% of the untapped market; only a fraction of the 300 million businesses globally use any solution today. We're targeting this vast, global opportunity through a viral, bottom-up word-of-mouth lead generation strategy, which is essential as we cannot reach all 300 million businesses through traditional sales efforts alone. Many companies have achieved over 1 billion users using a viral strategy, and we are leveraging the inherently viral dynamics of expense management. We monetize this strategy through high-margin monthly subscriptions, which has been effective for us. We're focusing on the vast VSB/SMB market, especially since a significant portion of it consists of businesses with under 250 employees, and many under 10 employees. While we continue to grow our enterprise customers, we see a much larger opportunity to expand the market size itself by tapping into the viral elements within various expense management use cases. Expensify combines chat, payment, and document-sharing functionalities, all of which are among the most viral applications online. By identifying the overlap between these three use cases, we believe we can enter a massive scaling opportunity. For instance, when an individual consumer submits an expense to someone else, that process inherently promotes our product to their circle. We're developing a super app that integrates all these functionalities into one package, enhancing the viral effect. We've been at this for a while now, and we're nearing the launch phase with real users. We're preparing to transition from our classic messaging to our new offerings and are about to release a new homepage that has undergone extensive A/B testing, which, while not the most thrilling, is highly visible. One exciting development is our hybrid app, designed to upgrade existing users without requiring them to download a new app or lose SEO and review history. This new app is fundamentally different, with a new technology stack, but the hybrid approach allows users to switch between old and new experiences, a challenging task that we've worked diligently on. Additionally, we've launched a comprehensive travel management system within New Expensify, integrating travel management with expense management, which has always gone hand in hand. This new feature is powerful and competitive, combining our unique approach with real-time chat functionality. This means approvals can happen much faster, moving at chat speed as opposed to traditional email delays. We're also allowing users to enter billing information in New Expensify, opening up opportunities for revenue generation starting in Q3, along with travel bookings. Our historic strength in accounting connections is being carried forward into New Expensify, enabling users to connect with multiple accounting systems directly. One of our standout features is our search platform, which allows for detailed, universal search capabilities across varied data types in a way competitors cannot match. The super app design will help us offer a powerful search experience. As we refine our core functionalities, we will also be enhancing onboarding flows, including welcome videos and tailored tasks to improve user experience. We're transitioning from R&D to go-to-market, which is very exciting. Overall, this has been a fantastic quarter. Q1 was strong, and Q2 has shown even more improvement, providing a solid foundation for our stable core business and growing cash flow. We're making significant engineering progress with New Expensify and preparing for rollouts to both existing and new customers while expanding into new travel markets. Looking ahead to Q3, we expect New Expensify to create new revenue streams alongside travel bookings, and we'll focus on migrating our existing spending onto the New Expensify Card program, which will also enhance revenue with increased interchange earnings. Exciting times are ahead, and our Product Managers, along with myself, are available to share more details.

Perfect. Okay. Let's start with JPMorgan.

Hi, Dave. Hi, Ryan, I was wondering if you could comment a bit more on the dynamics that you've seen in July related to the slight uptick in the customer numbers. As you mentioned in the past, it would typically be a slow month. What drove the improvement?

Yes, that's a great question. It's good to see you again. Regarding what contributed to the improvement, I believe it's not due to a single factor. We've discussed over the past several quarters how we've implemented many small changes, and it truly is the combination of numerous efforts rather than just one specific element like travel. While I can't guarantee we won't see a decline in users moving forward, we are optimistic about the stabilization we've observed in July.

Yes. I mean we did go to new conferences as well. And so we've been constantly messaging users and just giving pan service to the people who use us. So, I think that all adds up.

Yes. We've received a lot of attention from the Apple movie as well. There's a lot happening in Expensify.

Would you mind providing a bit more detail on this initiative? So, when do you think we will see the expense related to the sponsorship hit the P&L?

So, it's recognized when the movie comes out. So the...

So 2Q of next year?

Yes. That's when they come out in June of next year. Yes.

Okay. Perfect. And would you be able to quantify it, at least ballpark?

I'm unable to do that, unfortunately.

Okay. And it sounds like there has been quite a lot of investment done to ensure that, as David said, the two apps are working together, the release of new travel product and you talked about moving out of the R&D mode. When do you think we'll see more pronounced optimization of the R&D expense?

Interesting. Are you talking about how are we optimizing the R&D expense itself?

Well, your comment, David, about the fact that you're coming out of the R&D mode, does that imply that R&D may...

That's a great question. I didn't mean to imply anything specific about R&D expenses. I meant that we are optimizing the sales process, which involves a different kind of R&D. It's essentially R&D focused on streamlining onboarding rather than enabling payments. It's just different in that way. I'm not sure if that's...

Yes. Most people probably understand this, but for people that don't, when you launch a product and you keep working on it, that's no longer considered R&D, it's considered a cost of revenue. So, the same people who are fixing things or building things on the day before, and then they have to fix on the day after that. It's no longer an R&D expense, but internally, we still would consider that person building a new product.

And then if I may squeeze one more question, please. The comment about revenue coming in 3Q for New Expensify, would you be able to quantify your estimate on that? And maybe a more broader question, what sort of metrics are you looking at to get you some comfort in order to provide the longer-term guidance, the revenue and EBITDA?

I think it's too early to provide a revenue figure for New Expensify, less than $1 million. It's not a significant amount, but it's definitely more than zero. What was the second part of the question?

The long-term guide that you stopped providing?

Yes. I believe that as the business becomes more predictable, we have started to offer some guidance on free cash flow. Our objective is to provide more guidance in general. However, we need to see a bit more stabilization or a longer period of stability in the business before we feel comfortable doing that. It's definitely something we are focused on.

Any specific metric if any?

How do we measure the success of New Expensify? Essentially, we are measuring two flows for acquiring business. There's a bottom-up approach where the employee downloads the app first, brings it into the business, and then converts, which generally doesn't involve any sales efforts. The employee essentially acts as the salesperson in this scenario. Then there's a top-down approach, which follows the traditional SaaS model, where someone at the top speaks to a salesperson. We are tracking the conversion rates for both of these flows and also focusing on our two payment plans, which are Collect and Control. There are two segments we are looking at: smaller businesses and larger businesses. Do you agree that those are the four key elements?

Yes. I mean, there's a lot of different ways. It all kind of adds together, like different creeks flowing to the same river. But maybe we can follow up more in different calls.

Of course. Sounds great. Thank you very much for all the answers. I'll jump back into the queue.

Perfect. Next up, we have Citi.

Hey, thanks. This is George on for Steve. Thanks for taking the questions, David and Nick. I wanted to ask about, Nick, your favorite topic, the New Expensify Card program. Really exciting that it's rolling out. I did want to get some clarity. The 34% of spend migrating, that's a really helpful disclosure. I did notice that you also disclosed kind of $0.5 million out of $4 million from the new program, which seems like less than a third. Maybe there's some complications with timing, but I guess I would have intuitively expected to be higher, giving your collecting more interchange. Can you help square the circle there?

Absolutely. This is Ryan speaking, and Nick is our Head of Investor Relations. Great question, and I anticipated it. The 34% represents the portion of our spend that has transitioned by the end of Q2. However, to reach exactly 30% of total revenue, we would have needed to start the quarter at that point, but it was closer to 10% at the beginning. This transition occurred over the three-month period. By the end of the quarter, we had transitioned 34% of spend, with most of it happening in the last 25 days of that period. We implemented some banner notices and push notifications in the app, which were very effective in encouraging people to switch. Does that make sense? It was primarily a matter of timing.

Yes, that makes perfect sense. I figured it was just a timing thing. And then in terms of that spend that's migrated over, I know kind of baseline, we would expect a 20% uplift. But I'm wondering, part of the appeal here is that there's more features on the new card program. Do you notice any kind of change in terms of, like, transaction volumes from people who have migrated over?

Not sure. Maybe a bit early for that.

Most of the people have migrated over in the last like 60 days. So it's tough, I think, to draw some sort of trend there. But...

That's something to look at.

Okay. That makes sense. And then just one last one for me on the decision to kind of come back into the conference circuit. Maybe you could talk about maybe the history of why you left that channel in the first place. Obviously, you have a lot more products, New Expensify, a lot of exciting stuff to talk about. So just maybe the decision to come back there and any kind of implications from an OpEx standpoint?

We never stopped attending conferences, but we did stop going to corporate travel conferences. Back around 2016 or 2017, we were participating in travel conferences because we had partnerships with companies like Egencia, which was acquired by Amex. We aimed to be the expense partner for various travel booking tools, and while that did generate some business, it wasn't overwhelmingly successful. So, we ceased our participation in those conferences. Now that we have our own booking tools, we are re-engaging in the travel space after an eight-year break. However, I don't anticipate this will significantly alter anything. There aren't many travel conferences compared to accounting conferences, so I don't think it will create noticeable changes.

Probably not.

Okay. Thanks for taking the question.

Thank you.

Perfect. We've got JMP up next.

Hey, thanks for the questions, guys. Few from me. So the first one, how much of the initial demand you're seeing for travel is greenfield versus replacing another vendor? And who are you bumping into there when it is competitive?

First of all, it's great to hear from you, Aaron. I hope you're enjoying New York. That's a great question. We're actually experiencing both scenarios. Greenfield sales are definitely easier; potential customers see our offering and get excited about how to start. However, sales tend to be slower when it comes to replacing an existing tool, though we're noticing a lot of enthusiasm even from those who currently use another travel tool. Additionally, we're attracting new leads following our travel announcement. In the past, it was quite common to have multiple point solutions, but over the last decade, technology has evolved, and having a platform doesn’t mean the product is inferior anymore. Back in 2010, multiple products usually indicated poor quality, but that perception has changed. Now, platform solutions are gaining popularity. Since we announced our travel and expense offering, we’ve seen a surge in leads from customers looking for both services. It’s not just about cross-selling; it’s also been beneficial for drawing new attention to Expensify. We have strong brand recognition, but previously, not having a travel option was a significant disadvantage. Now that we offer travel, companies are showing interest.

Awesome. That's really helpful. And New York is wonderful, but like, Ryan, there's no place like Ohio. Second question. Can you clarify for us on the public call, you have a stock repurchase plan authorized. You're generating cash. Have over $30 million in net cash on the balance sheet. Valuation still near an all-time low. How does the covenant with your lender that restricts share repurchases work? What's the waiver you've received from the lender? And is buying back shares right now something that you can do with that covenant and something that you're considering?

Great question. For those who may not be familiar with our disclosures, we have a covenant with our lender that limits the number of shares we can buy back. Currently, this limit is quite low due to a 12-month analysis of our free cash flow. Last Q3, we had significant expenditures, which impacted this metric. However, we anticipate that after the upcoming Q3, this covenant will become less restrictive, allowing us to repurchase more shares.

It's a capability.

Great. Next up, we have BMO. Do we have Daniel or Kyle on the line? All right. Let's hop over to FT Partners.

Hey, there, guys. Thanks for taking the question here. I just want to ask on the cards. I think in the press release, it was said that you're planning on getting 100% by the end of the year. So, is the plan then to whatever cards haven't been converted to basically forcefully shut them off and ship out new cards? And kind of what's the strategy to get to that 100% conversion rate?

Great question. The number we mentioned was from the end of Q2, which is about 45 days old. Since then, we've made significant progress. It seems likely we’ll reach a very high percentage, but a portion will remain inactive. We haven't yet made a decision about shutting off the cards. We don't want to do that, but we are considering it as we push to reach our goals.

Don't tell anybody.

Yes, don't tell them. But we're going to just try to move everyone with smiles and carrots and spare the stick.

Yes. I mean, ultimately, these cards do eventually expire and so they'll be forced to migrate over one way or another. We're just trying to accelerate sort of the inevitable timeframe.

Got it. That makes sense. And then, I was just wondering if there's any update on payroll. I think that was a discussion a few quarters ago, looking at specific licenses. And so, I just wanted to see if there's any updates there.

Sure. We still utilize payroll internally and have most of the necessary licensing in place. Currently, our main focus is on the core business. We have the technology and accounting set up, but there’s significant work needed upfront to ensure competitiveness in the market. We have no interest in launching a product that can’t compete effectively. As Ryan mentioned earlier, it's one thing to technically have a product in place, and that's just part of the work. The real challenge lies in making it excellent and competitive. We are currently addressing that next phase of development, although we don’t have a specific timeline for when a truly competitive product will launch. When we do launch it, it will be high quality.

And we're also waiting on two MTLs.

Yes, there are a couple of regulatory ones, and they're big ones.

Right. So, I think last we talked it was New York and maybe one other still outstanding. So that makes sense. Okay. That's all from me. Thanks, guys.

Thank you.

Great. That wraps the Q&A section.

Thank you all very much. As David mentioned, we are currently in the Expensify chatroom. If you want to discuss further, I know in the past we have had many retail traders come in and talk to us, but you don't have to be a retailer to join the conversation. Anyone can participate, so we also welcome our institutional friends. We are really engaging with all of our customers and shareholders there. Thank you again, and we look forward to seeing you next quarter.

Thanks, everyone.