Earnings Call Transcript - EXFY Q2 2022

David Barrett, Founder

Well, hello everyone. Welcome to the Q2 2022 Earnings Call for Expensify. We’re very excited to be here, broadcasting live from the Bank of Expensify in Portland. I'm David Barrett, the Founder of Expensify, and joining me are Ryan, our CFO; Trent from Technical Accounting; and Anu, our Chief Operating Officer. Let's get started. Anu, could you please take it from here and share your insights?

Anuradha Muralidharan, Chief Operating Officer

Yes, I can do that. 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 the reconciliation of these non-GAAP financial measures to the most comparable GAAP measures. And that’s it back to you, David.

David Barrett, Founder

Great. That was fascinating. Thank you so much. All right. So let's get started. As always, we always start with just a review of what makes Expensify special. And so as you might recall or for anyone who's new to the call, there are basically three pillars of our success. The first is that we have enormous untapped markets. And so the way that we view it is the management space has been largely untouched. Of these, you add up all of the competition's customers, it adds up to maybe a couple of hundred thousand companies in the world. But there are hundreds of millions of businesses in the world and virtually none of them do anything. And so the way that we view it is the market is almost entirely untapped and is enormous. Second, we have a unique way to acquire customers; it's unlike anyone else in the market that can reach that whole market. And then third, we actually have the ambition of building a platform that can link one billion people by their transactions. And so that means, if we think that if Instagram can link one billion people with photos, we think that we can link one billion people with money. So the market is huge. And when we typically think about it, normally, we think about just the enterprise subset of the market. They’re very sort of like the tip of the iceberg, if you will. But the bulk of the market is actually really in the SMB. Our business model is really focused on acquiring this vast untapped SMB market which has a huge revenue base and is basically the best and most profitable part of the market. And finally, we sort of have three or five different pillars of how we go after this market. So first, on the outside, generating leads is basically we have our same advertising like others but we also have a Free Plan that’s basically making a very low barrier to entry for any new business, trying to capture businesses at the very earliest stage. So when they’re just a side or just an idea to get them onboarded into a Free Plan of Expensify, give them reimbursements, corporate cards and things like this. And that puts us in the pole position as the business grows. So as their needs change, we are the first in line for those needs. We paired that with a substantial real-time sales capacity. So basically, every Free Plan and every new customer that comes on is assigned someone in real-time to talk to them in person. Likewise, our top customers receive account managers to help them maximize retention over time. And of course, all of this drives incredibly high margin subscription revenue. And so this is basically our multipronged strategy for capturing this huge market. As for that acquisition model, as a reminder, it’s unlike anyone else in the market. Basically, everyone else in the market has what we call a classic enterprise sales model, the top-down model where you have some sort of commissions, quota-carrying salesperson, write the deal or something like this, convince the buyer to buy and then only after all of that the employee actually learns anything. So it’s a traditional model. It scales nicely. It only scales the enterprise portion of the market which is, as we said, is the smallest, least interesting part of the market. We have a model that goes after the whole market using a completely different strategy where individual employees learn about Expensify from a friend or from our consumer-driven advertising in the outside world, they pull us into the organization and then just start using us internally. We turn every one of their expense reports into a highly targeted marketing message directly to the decision-maker. We call it our bottom-up adoption model. We are the only ones to do anything like it in the market. And it’s overwhelmingly driving the success of our business. It’s a very unique and differentiated way to acquire customers, and that’s how we’re able to grow in this huge part of the market that everyone else is struggling. When it comes to the actual product itself, again, there are a lot of different players out here. We’re the only ones that can make five important claims. First, we can support true enterprise customers. We have that enterprise scale. We can go to the very top of the market. But also we have a real consumer-grade design. We can go to the bottom of the market. With the same platform, we can support the side hustle, sort of brand-new all the way up to the Fortune 500 enterprise, IPO requirements and things like this. We have a global reach, so we can support the multi-entity necessities of a public or large multinational company. We have not just needed a corporate card but also a travel product. You could just talk to our concierge chat service and book flights, hotels, trains whenever you need. And then finally, of course, it’s also free. Everything in this list, whether it comes to card, travel, all this functionality can start with a free first plan and then grow based on your needs. We’re the only ones that can make these claims. The market is evolving, and we position ourselves as the most flexible option available. We discuss a billion-member opportunity, which may seem far-fetched, but we believe that everyone who spends money faces common challenges. We've developed a platform that aims to consolidate various use cases into one comprehensive solution. While we're recognized for expense management, our offerings extend beyond that; we provide expense management, payroll solutions, corporate cards, bill processing, invoice processing, travel booking, as well as a consumer wallet and chat features, all integrated into a single platform. We envision a continuous spectrum from chat to structured expense management, with every payment method fitting somewhere along this spectrum. Our goal is to dominate each segment because this allows us to derive three types of value. Firstly, many of these use cases are inherently viral. Conversations around payments require interaction with others, making payments and chat closely related. Any chat-based interaction involves another person, creating opportunities for viral growth. We grow because our users communicate with other users, especially those in different companies. This drives our growth largely through the viral effects of word-of-mouth. Additionally, we aim to generate significant transactional revenue. There's always potential to slightly adjust our card transactions to enhance our profitability. Furthermore, most of our revenue comes from subscriptions, which have very high margins and are primarily based on annual commitments. This creates substantial built-in growth from our main revenue sources, with transaction revenue adding to it. By providing a platform that covers a wide range of functionalities, we can reap multiple benefits from the value we derive from all users. Typically, we receive inquiries about what sets us apart from competitors. I want to emphasize that our products and business model are fundamentally different from others in the market in several significant ways. The market is chaotic right now. It’s hard to ignore, with the war in Ukraine significantly reducing oil supply and driving energy prices up. The blockade is causing food prices to rise, and COVID lockdowns in Asia are impacting product availability. Overall, it’s a tough market that doesn’t favor anyone. However, we perform better than many because we are equipped for challenging conditions, which highlights our unique strengths. Among small businesses, we hear that other card vendors have worked tirelessly to gain customers, but these customers are facing challenges. They acquired clients only to lose many of them due to their high risk levels. A prime example is Brex, which had to let go of about 50,000 customers because they weren't profitable and posed too much of a default risk. Now they’ve actually started sending those customers over to us because we have a different business model. We can support those customers and we can support them with a wider variety of use cases. To us, they’re actually quite valuable. But to them, they’ve actually retreated into the enterprise space, which again is no surprise. They have an enterprise sales model. And so shocking, it really only works in the enterprise. I think is the bellwether for all of these businesses. Basically, all of them came in with a card realized this market is quite difficult to get to work at scale, and I think it’s retreating to the enterprise. And so I think we see this again and again. And so whereas they’re really struggling because of default rates, most of our lending goes to existing customers. They’re long-term and highly creditworthy. We have not seen default rates spike. And so this has been a great thing for us. Interest rates are rising, but the interchange revenue for these companies is not increasing. They were already unprofitable, and their core costs are climbing. In contrast, we maintain remarkably stable costs. Our high-margin subscription revenue ensures that both our revenue and margins remain secure because we operate with a software-first model. This approach allows for stronger protected revenue growth. Additionally, during volatile market conditions, transactional revenue can fluctuate rapidly as spending habits shift. These companies rely on the stability of spending patterns, which are currently very erratic. We have auto-renewing annual subscriptions that automatically charge a billing card each month, eliminating collection issues. This represents a very different business model. If you're curious about how we thrive in this market, it's due to having a model designed for such conditions. It caters to the complex and dynamic needs of the SMB marketplace and is not limited to just surviving certain times of the year; we perform well even in winter. Furthermore, we believe our future positioning is strong. Over the last few years, while others have heavily invested in customer acquisition to gain thousands of customers that often turn out to be unprofitable, we have been retaining our profits and investing in a significantly enhanced product platform across the board. We think that we were the best before and we think that we’re about to bring online is by far better than anything else in the market. And so we think that we’re investing in the future of this market and establishing a firmer position than ever. We’ve always been a subscription-first business. And so they’ve basically been focusing on transaction-only models. We’ve actually, in the past couple of years, have really doubled down our subscription model. I mean, as you know, we’ve adjusted pricing in. In the past couple of years, we’ve actually thickened our margins, whereas they are going to have to frantically try to create some kind of subscription product based upon a software model which isn’t very good. We’ve already basically done the hard work to ensure that our margins are strong before we go into difficult conditions, whereas they’re going to have to do all this basically under the gun. And then finally, we’ve been focusing on SMB from the very start. They’re discovering there’s like many waves of competitors before them that the enterprise sales model doesn’t work very well out of the enterprise. So we’ve had an SMB-focused business model from day one. It still works great. And so again, these are just a variety of ways that we’re just completely different than the competition out there. And that’s why we keep growing and thriving, even when everyone else is basically fleeing away. Second, we’ve invested a tremendous amount in our own employees. So you talked to the other companies and I talked to other founders and things like this, like 500 people this month or something like that. I think the key thing is like I can’t imagine hiring that many people because that means you have a problem that can only be solved with people. People are the most expensive to solve a problem. We prefer to solve problems either at solve them, so we don’t have to solve them again, solve them through automation or solve them through outsourcing. As a result, we have retained a very strong core team, and this has recently been recognized with awards for our employee retention program. We are acknowledged as one of the best workplaces, which is reflected in our employee retention rates. In contrast to a typical Silicon Valley startup where retention averages just a couple of years, many of our employees have been with us for over five years, and our executives for over ten years. This stability within our company enables us to provide a consistent experience for our customers. Finally here, the accounting channel has always been a big deal for us. And I think that we’ve talked about it a number of times and we talked about how we’re doubling down the accounting channel with account managers with a CPA card and things like this. But what are the tools that we found the most effective in the long run is just to meet up in person. We from persons we go to conferences, but we think the best way to meet up in person is by hosting our own comments. We did this a couple of times in the past. We’re very excited that we’re hosting our third Expensify next May. ExpensiCon is a conference unlike any other. This is not something in Vegas or whatever. The first one we did was in Maui. The second was in a fantastic location. It sets a pretty high bar to beat. But we think we’ve beaten it in Italy, where basically in Borgo. And it’s just an incredible spot to be. The key to ExpensiCon is it’s about bringing the best thought leaders in the industry together so they can genuinely collaborate and talk together. The nice thing about the conference is it always pays for itself or at least it has in the past. For basically every time we engage with our thought leaders because they are revenue generators for us, we say, hey, we would love you to come to this conference. In order to do that, you have to get your customers up to a certain point. As a consequence, we’ve been able to pay for the past six months before the event even hosts because everyone’s taken to get the required them to increase revenue. It’s been a very powerful technique. Second, it’s a way to really cement what we call market consensus. Market consensus is ensuring that wherever you look, you see Expensify flag at the top. And that’s because when people look to the top accounting firms to set the agenda of the industry, and if we have them working with us and we sit down and talk with their top people, they understand our philosophy and our view of the marketplace, we understand their deep needs. This basically ensures that everyone in the accounting industry is a champion for Expensify. It’s been a really powerful thing. And then third, this has been a key way at different inflection points in the accounting industry to really hold out a new vision for how the future is going to be and then get the top leaders and thought leaders and journalists impressed in the industry to buy into that vision and start promoting that vision. Before we come on, expense management was a highly just manual process. With ExpensiCon 1, we introduced this concept of real-time expansion for us. The idea that you should just scan a receipt and then everything else happens automatically. And so now we take that for granted. But that was something that we had to create this concept overall. Second, for ExpensiCon 2, we introduced a concept of pre-accounting. Now this is something that’s been around for a while, but it’s never been discussed in the accounting industry. Accountants didn’t even view expense management as part of their job. Now we’ve worked with the accounting thought leaders to make it clear that no, no, no, all of the work that happens to formalize the accounting information before it gets to account, that’s part of the accounting industry itself. It’s called pre-accounting. And so now that’s actually a formal concept that is taught in the actual accounting industry to firm our place in the industry and to ensure that we are placed in the industry. So ExpensiCon 3, it’s going to be even better. So we’ll talk more about that in the upcoming months as we lead up to it. But we’re very, very excited for what’s coming up because it’s been fantastic for us in the past, and we’re extremely confident it can be fantastic for the future as well. And with that, let me turn it over to Ryan.

Ryan Schaffer, CFO

Thank you, David. I'm excited to discuss the numbers with everyone. In Q2, we had a strong quarter with 754,000 paid members and revenue of $43.1 million, which annualizes to $172 million. We previously showed this chart, and we've now extended it. We did experience a slight dip in paid members due to Omicron, but we saw a significant rebound at the end of Q1, which continued through Q2. If you look at the graph, excluding that small dip, the trend shows a steady increase. We have fully recovered, and I'm thrilled to say this is the best quarter in our company’s history. Our previous record was Q1 of 2020, before the pandemic, and we have surpassed that with higher pricing and a significantly better company than we were at that time. The Expensify Card continues to grow at a rapid rate, 142% year-on-year growth and then sequential quarter-over-quarter, 40% growth, which is obviously fantastic, and we're very excited about that. And then we want to highlight kind of the strengths of our profitability. So our operating cash flow was $15.9 million. Our GAAP net loss was $8 million. That is primarily driven by stock-based compensation expense. If you take that out, our non-GAAP net income was $6.1 million. Our adjusted EBITDA is $11.7 million, and that's an adjusted EBITDA margin of 27%. We've seen this slide before, but just we reaffirm our guidance, our long-term guidance of 25% to 35% over a multiyear period. We still have a lot of confidence in that, especially given the results we've seen in the last quarter. And just to summarize the call, we had a strong cash flow, and we were profitable. We had the highest quarter for paid member growth, now exceeding pre-COVID numbers. The Expensify Card is up 142% from last year, and we believe we're more recession-proof competitors with plenty of momentum. And with that, we will kick off the Q&A portion.

Anuradha Muralidharan, Chief Operating Officer

First, we have JPMorgan. Do we need to unmute them or something?

David Barrett, Founder

We'll circle back.

Anuradha Muralidharan, Chief Operating Officer

Okay. Citi, perhaps. I can just mute some. Mark, do you want to try to unmute yourself? Okay, there you go. Mark?

Unidentified Analyst, Analyst

Can you hear me?

David Barrett, Founder

Yes.

Unidentified Analyst, Analyst

Ryan, let me just start with you. Given the pretty good solid Q2 results and I think that's two consecutive quarters of good results here. So is the company thinking of reinstating or any plans to reinstate financial guidance?

Ryan Schaffer, CFO

So not at this time. As David mentioned, it’s kind of a wild time, I think, in the economy, right?

David Barrett, Founder

I think I said it was nuts.

Ryan Schaffer, CFO

Yes. We're facing a recession or may already be in one, but a recent job report exceeded expectations. It’s challenging to predict what will happen next. For now, we are maintaining our long-term guidance, but we believe the current trends will persist.

David Barrett, Founder

Yes.

Unidentified Analyst, Analyst

Great. David, I have a question for you. I think in the last quarter's call, or maybe the one before that, you mentioned that the firm is looking to implement some outbound sales practices. We are actually going to reach out to prospective customers. I understand it's still in the early stages, but could you provide an update on your outbound efforts?

David Barrett, Founder

Great question. We have expanded that part of the team and everyone is now onboarded and trained. Currently, our main focus is on providing the best support for our inbound leads. We expect that once we finish training everyone with our inbound leads and also as we handle more leads through the accounting channel, we’ll start utilizing our excess capacity for outbound efforts. We haven’t delved into that much yet; it's more of a future plan, but we have everyone actively engaged with our current leads.

Anuradha Muralidharan, Chief Operating Officer

I believe Dan raised this time next. Dan, do you want to go?

Daniel Jester, Analyst

I do. Can you hear me?

David Barrett, Founder

Yes. Hi, Dan.

Daniel Jester, Analyst

In terms of the growth profile of the business, over the past year or two, you've seen benefits from changes in pricing. I've observed that in the latest quarter, revenue per user has started to stabilize. When considering the long-term growth target of 25% to 35%, will this primarily be fueled by adding new clients, or will pricing and mix continue to provide some uplift?

Ryan Schaffer, CFO

Yes. Great question. So I agree, it's starting to stabilize. So the price change has been finished for a full year now. So since then, any increase in like a per-user revenue, any increase in that has been people not signing up for the annual subscription. They’ve been exceeding their subscriptions and that’s built at a higher rate. And so when we see the growth of our customers, they will generally exceed their subscriptions. We collect a higher rate on those. And then at some point, it stabilizes out where they’re renewing their annual subscriptions with the higher rates. And I think what we saw was a large growth in our existing subscriptions, which was pushing up that price. I believe we've previously discussed that this situation is somewhat cyclical. Customers may exceed their subscription limits and eventually recognize it. Our receipts serve as a reminder that they can lower their costs by opting for an increased annual subscription. Therefore, there will be fluctuations as customers realize what's happening and choose to enroll in the annual plan. To clarify, we prefer having them sign up for the annual subscription instead of just using the pay-as-you-go model.

David Barrett, Founder

To build on that, it's a reflection of the volatility and sentiment of our customer base if they're hesitant to make an annual commitment. Although we charge a higher price, it seems they are willing to do so to avoid making a commitment. This suggests some level of customer or market anxiety about the future, especially considering the ongoing chaos in this marketplace. Our business model can leverage that volatility, but we can still observe that there is significant instability in the market.

Daniel Jester, Analyst

Okay. On the topic of volatility, can you share your thoughts on your competitors facing challenges? You are very profitable with strong cash flow. How do you plan to possibly use your profitability to speed up customer acquisition, or is that not a strategy you’re considering given the current macroeconomic volatility?

Ryan Schaffer, CFO

So we are putting more money into our sales motion, as we've discussed. Now in the past, as I said, we feel like we're kind of saturated on advertising. So we're pulling that back, optimizing running tests on the marketing standpoint. But in terms of excess cash, I think we're looking at commissions and things like that and seeing how we can play with that on the sales side.

David Barrett, Founder

And perhaps also on the conference line, something like ExpensiCon is an example of though it’s designed, obviously, to pay for itself, it’s still a big swing. And so I think that we can use our extra cash to sort of invest more aggressively into the conference space. We go to a ton of conferences, we’re going to more conferences and we’re showing up in much bigger conferences, and we’re doing more in direct engagement, accounting firms and so forth. So it’s a lot kind of behind the scenes that there’s ways to spend money through these sort of quieter channels that we think are very effective.

Ryan Schaffer, CFO

I want to take this opportunity to discuss our marketing spend a bit. We have significantly increased our spending. Last quarter, I mentioned that we were decreasing our advertising spend, but we have actually ramped up our conference spending, which we believe has a solid return. We have been participating in conferences for a long time and have a strong execution strategy for them. In Q3, we ended up attending many more conferences than we anticipated. As a result, we expect our sales and marketing expenses to remain relatively the same in Q3 as they were in Q2, but there has been a shift in where the funds are allocated.

Anuradha Muralidharan, Chief Operating Officer

Koji, you're up next.

Koji Ikeda, Analyst

I wanted to ask you a little bit about a theoretical question here, thinking about the long-term targets of 25% to 35% growth. Just really trying to think what needs to happen in the end markets for you to kind of hit the high end of that 35% growth? Is it a function of just spending more? Or does something need to happen some sort of inflection in the end markets where you hit that 35% target?

Ryan Schaffer, CFO

Great question. There are a few factors to consider. We're developing a new consumer-focused platform that we believe is designed to be highly viral, which we think will enhance word-of-mouth growth. Another aspect is the Expensify Card, which is not generating revenue at the moment but we anticipate it will soon. Additionally, I want to mention the effect of cash back. Currently, we are in a somewhat unusual position with the card since the interchange is not counted as revenue yet, but it will be shortly. We do offer cash back, but it's classified as contra revenue, meaning it reduces our overall revenue.

Koji Ikeda, Analyst

Got it. And then just one follow-up for me. Thinking about the Expensify Card and as the revenue increases on that and the payment volumes increase on that, I do recall you guys used to talk about how if there is threshold met in the type of spend, the ARPU goes down or the subscriber fee goes down, are you beginning to see that? And how should we be thinking about that as we model out ARPU and our subscribers and Expensify Card going forward?

Ryan Schaffer, CFO

As more people adopt the card and use it regularly, we provide them with a discount on the price. This discount is balanced by the increase in interchange fees. We prefer to have someone pay a lower rate while we generate interchange because it benefits us more in that situation. We are already observing this trend going forward, and we anticipate seeing it more, although in comparison to our total member count, it might not be very significant. If we execute our strategy effectively, we should start to see an increase in ARPU, though I wouldn't expect it to be drastic in the near term.

Anuradha Muralidharan, Chief Operating Officer

Yes. To pause here, Koji, I believe you'll begin to notice the impact on ARPU on a quarter-to-quarter basis. If you examine the current implied ARPU and compare it quarter-over-quarter, the numbers will likely remain fairly stable, varying by just a few cents. Therefore, we can anticipate a trend instead of a sudden fluctuation. As we monitor this trend, if we observe a significant and consistent decline, we can discuss it further, but at this moment, I don't think that's occurring yet. Apologies if I mispronounced your name.

Unidentified Analyst, Analyst

Yes, just jumping on for Brent here from Piper Sandler. So just two from us. As we start to think about the potential for belt tightening around budgets for travel and expenses, given the macro situation, can you talk a little bit about what you're seeing from your vantage point? If you are seeing kind of dynamics start to change, where would it be kind of most pronounced, either from a customer size or a vertical perspective? And then I have just one follow-up.

David Barrett, Founder

I mean I would say I think that everything on is crazy with the pandemic. And I don’t know that anything is like really stabilized since then. Like I don’t know if there’s a consistent baseline to compare it to. It’s basically like things start to look good, then Omicron comes. Things are just good, then like the war or like whatever it is.

Ryan Schaffer, CFO

You have to compare it to like 2019...

David Barrett, Founder

Or something like that, yes.

Unidentified Analyst, Analyst

So I mean we’ve seen business travel increase. In general, spend is down from where it was pre-pandemic like it’s absolutely less on just per customer basis. But in terms of verticals, I don’t …

David Barrett, Founder

I don’t know if you have any insight into that?

Ryan Schaffer, CFO

No.

Unidentified Analyst, Analyst

Okay. Sounds good. As you mentioned, the macro situation has added another layer of uncertainty, similar to what we experienced with COVID and Omicron. With that in mind, are you able to provide any directional visibility into trends related to card interchange or perhaps the adoption of paid membership that you’ve seen in July? Or is it still too early to say anything?

Ryan Schaffer, CFO

So...

David Barrett, Founder

This is a lot of guidance…

Ryan Schaffer, CFO

This is somewhat like guidance. I would say that unless there is a significant event like a major flare-up of monkeypox akin to COVID, we anticipate the trends we've observed over the past several months to persist. So, that's probably all we are prepared to share on that front.

Anuradha Muralidharan, Chief Operating Officer

Next?

Unidentified Analyst, Analyst

I just wanted some more color on kind of the gross margin contraction we saw this quarter and kind of what drove your cost of revenue up? And I know you don’t give guidance but how we should think about it going into the back half of the year?

Ryan Schaffer, CFO

Yes. Good question. So a couple of things going in cost of revenue. I mean, several costs are like OCR in all of our receipts. So when we see an increase in that, that can increase cost of revenue. Also, we have an increase in the contractors that we use to support our customers. So that's also in cost of revenue. And then card processing, like the actual ordering of the physical cards, the merchant fees that we pay, stuff like that. So I think that's probably driving that the most.

David Barrett, Founder

Yes. Additionally, we have added more account managers to better serve a wider range of our customers.

Ryan Schaffer, CFO

Yes, that's the answer.

David Barrett, Founder

Yes. I believe we are still determining which customers will receive the new features and which will not. At this stage, we have largely completed the rollout, but I am unsure if we will expand it further. I do not have the current statistics on that.

Ryan Schaffer, CFO

Yes. To provide some additional details, our concierge engine combines human and AI elements, allowing us to operate with great efficiency. We've become quite adept at this approach. Initially, we applied it exclusively to customer support, where a user’s query could be addressed by either the machine or a human assisted by the machine. Currently, we are expanding this into sales, starting with inbound sales, but we plan to also implement it for outbound sales. Recently, we have introduced account managers, which will enhance the level of customer service we offer. This increase in account managers is likely the most significant change.

Anuradha Muralidharan, Chief Operating Officer

Pat, you're up next.

Patrick Walravens, Analyst

David, I'm really interested in your slide about the challenging market and how it showcases your unique strengths, particularly regarding default risk. Could you elaborate on that? You haven't experienced default rates rising like your competitors have. From the perspective of some sectors outside financial services, it seems that small and medium-sized businesses might be facing tougher conditions, and you have a significant number of them. Also, what distinguishes your long-term customers? Is it your focus on venture companies, for example, which others might not have? A few more insights on that would be very helpful.

Ryan Schaffer, CFO

Yes, I can. I'll take a swing and then David can. So a couple of things there. So we have a dramatically different underwriting methodology. So what we'll do is we offer both monthly and daily settlement; monthly is the 30-day card that you're used to, but we also offer daily settlement with significantly higher credit limits. The reason that, that is superior is because we extend 24 hours of credit and then we debit the customer 24 hours later. So the way it works with us is let's say they spend $1,000, the next day, we debit $1,000 from their account. We pay back the network a couple of days later, using the funds they provided us. This means we aren't responsible for any unpaid bills if they encounter financial difficulties. Our repayment process is much simpler because the money keeps circulating. We don't wait for a month and risk them not paying. Our default rates have stayed consistent largely due to our strong discipline as a company. We have maintained smart underwriting practices over time. A company that is focused on growth at all costs might be a little more irresponsible, I guess, with their decisions. And I haven’t seen the deck and I haven’t seen the data but we’ve talked to a lot of investors and a lot of those investors look at these deals. What we’ve been hearing is that they’re seeing default rates like 7%, 8% which is wild and we’re not seeing anything like that at all. So that’s kind of a little bit where that David’s commentary is coming from. I don’t know if I missed anything there?

David Barrett, Founder

No, I think that's accurate. The key factor here is the mix of daily versus monthly settlement. We started with daily settlement, which is the default setup for Expensify, and most customers are very satisfied with it. This allows them to have higher spend limits since they can manage their funds more quickly. Additionally, we experience significantly lower default rates. While we do offer monthly settlement, it is particularly appealing for the accounting industry. The defaults of our system are different from the defaults of their system. They have been encouraging people to use a monthly settlement option that is 30 times higher. In fact, it’s even more since they have introduced a 60-day option for new customers. They have been extending a significant amount of credit, and while I think Ryan has been reasonable, their approach is quite reckless. Their sales strategy seems chaotic. When we talk to people at conferences, they question how their approach makes sense, and the hired sales staff often respond without concern, focusing only on closing deals. This mindset has been evident in countless conversations over several years, indicating they may not be working with high-quality customers. In contrast, we focus on businesses that appreciate our reimbursements and integration with accounting partners. Most of our customers are paying for our services and are not just seeking free credit. They come to us primarily for our software solution and then notice the benefits of our card. This highlights that we are engaging with a completely different customer base.

Ryan Schaffer, CFO

And we have, I guess, an additional point of leverage. If someone doesn't pay the card, we can turn off. We basically lock them out of Expensify, which they run their business on, so then they pay us immediately. Whereas if you're just a credit card and they say, well, you better pay us maybe I won't, they don't have anything like recourse there, right? So we are crucial and fundamental to these businesses. So we're like the first to get paid.

Anuradha Muralidharan, Chief Operating Officer

All right. That's the last one. I think so because I still don’t see Tyler who’s the only one left.

Ryan Schaffer, CFO

We'll catch Tyler later.

David Barrett, Founder

Well, thank you, everyone. I don’t know if we have a side. That’s our side. Well, I hope it’s a pleasure. Thank you so much for tuning in. Just to reiterate, this has been the best quarter ever. We think that the pandemic is officially behind us in every way. And we are exiting a much, much stronger company, so it’s been exciting. And I think we’ve got a lot more excitement coming up. So thank you all.

Ryan Schaffer, CFO

Thank you.