Earnings Call Transcript - EXFY Q3 2025

Ryan Schaffer, CFO

Welcome to the Expensify Q3 2025 Earnings. I'm CFO, Ryan Schaffer. And with me, I have our Founder and CEO, David Barrett. And now I'm going to hand it over to Niki for the legal lease.

Niki Wallroth, Legal Counsel

Please note that all the information presented on today's call is unaudited. 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 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.

Ryan Schaffer, CFO

Thanks, Niki. Now let's dive into the Q3 financials. Revenue was $35.1 million. Average paid members were 642,000 and total interchange was $5.4 million. Our operating cash flow was $4.2 million. Our free cash flow was $1.2 million. Net loss was $2.3 million. Our non-GAAP net income was $4.3 million, and our adjusted EBITDA was $6.5 million. Q3 free cash flow was a little less than in prior quarters. That's mostly due to seasonal timing of some annual payments. We also reiterate our fiscal year 2025 free cash flow guidance of $19 million to $23 million. As always, here's our Q4 flash numbers for our paid members in October, up from the Q3 average, which we always like to see, 653,000. And now to jump to some business highlights for Q3. We had some great marquee customer wins. We are now the Official Travel and Expense partner of the Brooklyn Nets, who is a long-time customer of our expense product, and they have adopted Expensify Travel that shows just the power of the platform and the fact that customers are really excited about this. So we're very happy to have the Brooklyn Nets as a new Expensify Travel customer. On the topic of travel, bookings continue to climb, growing 36% from Q2 and 95% since Q1. So Expensify Travel continues to be a bright spot in the business and something both us internally and our customers are very excited about. We also repurchased $1.5 million in shares of our Class A common stock, and that totaled approximately $3 million. And now I will hand it over to David for a product update.

David Barrett, CEO

It has been an incredibly exciting quarter for our product. To start, migration is key for us, as it directly influences our ability to transition existing customers to New Expensify. This is crucial for our recovery and growth. We have made significant progress on this front. Currently, we are aiming for what we call 90% feature parity, meaning we want to provide nearly all the functionality of Classic on New Expensify, and we are very close to achieving that. Classic will remain available for existing customers as long as they need it, but the main focus is that New Expensify is mostly complete in terms of functionality. We have also successfully migrated almost all customer data to New Expensify, allowing customers the flexibility to switch between New and Classic as they wish, which is a major accomplishment. At this point, New Expensify is essentially finished regarding features. We are now carefully encouraging customers to transition, meaning we will prompt them to log into New Expensify during their next sign-in, while still giving them the option to revert to Classic. We have already prompted all our Collect customers to make the switch. For clarification, we have two plans: Collect and Control. Our Collect customers tend to be smaller and simpler, and we have migrated nearly all of them to New Expensify, with the vast majority opting to stay on the new platform. This speaks volumes about the strengths of New Expensify. Additionally, we are now signing up all new customers on New Expensify, initiating every sales conversation with it. We may still switch back to Classic if specific, niche features or integrations are needed, but the starting point for all new conversations is New Expensify. This approach has proven very effective, especially during conferences and with our new leads. We've also seen exciting developments on the Concierge front. We've emphasized AI's importance for a while, as the design of New Expensify incorporates modern AI seamlessly. While we recognize AI's incredible potential, we also understand its limitations. Some focus solely on AI as a standalone solution, whereas we see it as a valuable feature for certain functionalities, complemented by human support for complex issues. Our unique hybrid system allows us to switch between AI and human agents effortlessly, providing customers with a remarkable chat support experience. The AI is designed to handle straightforward questions effectively, while human agents are brought in for more complicated or sensitive topics, ensuring a seamless experience for the customer. Our AI is contextual and integrated directly into the product, allowing users to engage with it naturally, whether they’re using Concierge or working within an expense report. We are also moving towards developing general intelligence, which means we are designing a single AI capable of performing multiple functions. This general intelligence allows users to interact with the same AI across different contexts without needing to select from multiple agents. This flexibility extends to chat, email, and SMS interactions, resulting in a more intuitive user experience. This significant advancement for Concierge AI is just the beginning; we have laid a strong foundation, and we anticipate introducing even more powerful features in the coming quarters. To summarize, we have successfully expanded our offerings to existing customers with travel and card services. Our free cash flow has been effectively utilized, and despite all the challenges, we have maintained a strong focus on an AI-first design. Chat is our preferred user interface for AI, and our goal is to integrate this approach throughout our product. The New Expensify migration is progressing well, with excellent feedback from customers. Ultimately, our vision is for every function available through the user interface to also be accessible via AI. We are dedicated to creating a truly AI-first product that emphasizes conversational interactions with the AI. There will be plenty more to discuss in the upcoming quarters, but for now, let's open the floor to any questions.

Niki Wallroth, Legal Counsel

Perfect. Let's get started with Citi. I believe George, you're on the line.

George Michael Kurosawa, Analyst

I'm here on behalf of Steve Enders. I want to mention the significance of chat as the user interface for AI. It's fascinating to observe how others are beginning to catch up to your progress in integrating natural language-driven user interfaces into their software applications. With the advantage you've gained from being early in this space, what have been some key insights or features you've integrated into your platform that you notice others may be getting wrong, or where you believe you hold a distinct advantage?

David Barrett, CEO

That's a great question. I think it really comes back to this idea of being built in versus built onto the product. The design is that you can go into any context, and inside that context, you can talk with AI about that particular thing. That is kind of a nuanced point. But imagine, for example, you're texting with an AI in a general context and you want to change yesterday's expense. You want to categorize it or highlight that actually that was an accident. Referencing that outside of the context is quite hard. You have to remember the merchant, the date, the amount, or some key indication of how to do it. It's a really impractical thing that's going to drive you back to the UI. If you're talking to your assistant, you would just say, 'Hey, that thing that I did yesterday', and give a relative reference, and it would be able to figure it out based upon the contextual clues of the conversation. Our UI is about infusing the AI throughout the entire product such that you can use it in whatever context you're already in. You don't have to leave your context to use the AI. It's already there. This makes for a very different UI design. You can see it's a very chat-centric design. In many ways, it looks like a kind of ChatGPT interface. I think that it's hard to argue your business is an AI-first product if it looks like Concur. It has to look a lot more like ChatGPT to credibly say this is an AI-based thing. What makes an AI intelligent isn't just that it has a bunch of AI branding and algorithms. You need to be able to talk to it. You have to be able to ask questions, whatever you want. You have to explain why it did what it did, and it has to learn from mistakes. Automation is very powerful, but it's not intelligent in an AI sense. Intelligence is about getting to a place where you can ask questions, get answers and make changes all through natural language. Our design is really optimized for that.

Ryan Schaffer, CFO

I also think it's important that you're unlocking a new use case. Making charts with AI is not interesting, but that's a very common use case. People have been making charts for a long time and it doesn't require AI. That's not a good use of AI. The fact that we're able to do new things, new functionality, and offer new value to the user because we're using AI is what sets us apart versus replacing code with AI that the customer doesn't care about.

George Michael Kurosawa, Analyst

Super interesting. I appreciate the detailed answer there. Maybe something more tactical. The government shutdowns in the news, it seems like maybe there might be some impact on travel. I can appreciate that probably if there is any impact to you guys, it would basically be a timing risk. Just any thoughts there from shutdowns in the past or just general scenario analysis you guys may have thought through there?

Ryan Schaffer, CFO

I think it depends on how it impacts travelers. If you find yourself stuck somewhere, you're likely to end up spending more on extra hotel nights. In terms of whether people will use Expensify Travel less due to worries about being stuck, I think that's a realistic concern. It really hinges on whether people will alter their travel plans or just take the chance.

David Barrett, CEO

Yes, I don't think uncertainty is good for anyone's business.

Niki Wallroth, Legal Counsel

Great. Let's see. JMP, I believe Aaron, you're on the line.

Aaron Kimson, Analyst

I want to dig in on migrations from Expensify Classic to New Expensify, including what percentage of revenue today is on New Expensify after migrating your Collect customers and the time frame over which you expect to get your Control customers that I think are a substantial majority of your revenue on New Expensify.

Ryan Schaffer, CFO

That's a good question. I don't think we know the exact percentage, but it's less than 50% of revenue. We're not yet over the 50% mark in terms of revenue, but our major focus right now is on transitioning people over.

David Barrett, CEO

Yes, as I mentioned earlier, we aim to have New Expensify match Classic in terms of functionality by the end of the year, and I believe we are on track to meet that goal. The main question is how quickly we can transition everyone. We control the timeline, and it wouldn't be wise to move faster than people are comfortable with. We are progressing at the quickest pace they can handle. We hope to see significant advancements, if not completion or close to it, by the end of the year, but we can't predict the exact timeline yet because there are uncertainties we have yet to address.

Ryan Schaffer, CFO

Yes. We're listening to customer feedback as we make quick iterations. New users love Expensify, but those switching from Classic after several years have different reactions. Their feedback isn’t negative, but it differs from what we hear from new customers. We’ve been a bit slow in migrating users and focusing on feedback from user sessions to implement small changes quickly. It’s a process that gets faster over time. Existing customers provide distinct feedback compared to new ones, and we’re working through that.

David Barrett, CEO

Actually, it's a great point. The bottom of the slide that talks about the major goal we had was to make sure every new customer conversation started on New Expensify. That has been the priority. That's done. Now the priority is getting existing customers over.

Aaron Kimson, Analyst

That makes sense. And then the follow-up here, are you seeing any incremental monetization from the customers that have migrated to New Expensify? Or is that more TBD? The more relevant piece of this question at this time is what type of internal cost savings do you anticipate from the Concierge agent once you get everyone migrated over to New Expensify?

Ryan Schaffer, CFO

That's a great question. The support cost should definitely be lower once we transition everyone since New Expensify manages everything more effectively than Classic. There are some complaints regarding Classic that we have addressed with New Expensify. Generally, it is expected to be less of a support burden. Maintaining two platforms simultaneously is costly and presents a challenging situation. We are very eager to resolve that. Regarding increased monetization, it’s much simpler to issue new cards, manage everything, and incorporate travel features. There’s a lot of travel functionality available only on New Expensify. Using Expensify Travel with New Expensify offers a better experience compared to Classic. I believe that transitioning everyone will be beneficial for the business. That’s why it’s a significant focus for us right now.

Niki Wallroth, Legal Counsel

All right. We were double booked with some of our other analysts, so we will talk to them offline. That's everybody for now.

Ryan Schaffer, CFO

Great. All right. Thank you all, and we'll see you next quarter.

David Barrett, CEO

Thanks, everyone.