Expensify, Inc. Q1 FY2024 earnings

Expensify's first quarter of fiscal 2024 split cleanly in two directions. Reported revenue keeps contracting, yet aggressive cost cuts are pushing the profitability measures the other way. Revenue for the quarter ended March 31, 2024 was $33.5 million, down 16% from $40.1 million in the prior-year quarter. Gross profit fell to $19.0 million from $24.3 million, and gross margin declined to 56.5% from 60.7%. Management tied the top-line drop to lower billable activity across the user base, including pay-per-use activity that carries a higher average fee per member, plus more contra revenue from cashback rewards as Expensify Card spend grew.

The bottom line improved anyway. Loss from operations narrowed to $1.8 million from $2.7 million. Net loss narrowed to $3.8 million from $5.9 million, and diluted loss per share was $0.04 against $0.07 a year earlier. Operating margin was negative 5.3%, an improvement from negative 6.7%. Savings came mostly from sales and marketing, which fell 63% to $3.4 million from $9.2 million, reflecting the cost cuts taken midway through the quarter ended December 31, 2023. General and administrative expense dropped 8% to $11.4 million, while research and development rose 9% to $5.9 million as more employee time went to new products. Stock-based compensation totaled $7.5 million, down from $10.0 million. On a non-GAAP basis, net income was $3.7 million and adjusted EBITDA was $7.1 million.

Cash generation moderated year over year but recovered sharply from the December quarter. Operating cash flow was $3.5 million, down 54.6% from $7.6 million in the prior-year quarter. That was an improvement of $4.0 million, or 739%, quarter over quarter. The MD&A blames a reduction in funds held for customers and lower revenue. Free cash flow, which Expensify defines as operating cash flow excluding changes in settlement assets and settlement liabilities and reduced by purchases of property and equipment and software development costs, was $5.2 million, an improvement of $8.8 million from the prior quarter. Capital expenditures were $0.00 million, compared with $0.03 million a year earlier. Deferred revenue, current portion only, rose to $1.2 million from $0.6 million.

The card and travel bets carry the growth story. Interchange from the Expensify Card reached $3.5 million, up 57% year over year, and rose 13% month over month in March alone. Expensify launched an updated card program with a new issuing bank, Bancorp, under which interchange is recognized as revenue. The cardholder transition is expected to be complete by December 31, 2024. Expensify Travel began onboarding its waitlist, including Escalon Services, and invoicing went live on New Expensify.

Paid members tell a harder story. The average was 688,000 in the quarter, down 8% from a year earlier, as some existing customers shed internal employees. That seat pressure is the near-term risk to subscription revenue, and management frames it as a headwind to ride out with strong margins.

Guidance covers the full fiscal year ending December 31, 2024: free cash flow of $11.0 million to $13.0 million. Expensify does not reconcile that forward estimate because it says it cannot do so without unreasonable effort. One item worth watching is the debt covenant. The company was not in compliance with all debt covenants as of March 31, 2024, specifically the covenant restricting the amount of common stock repurchases, and it obtained a waiver from CIBC. It expects to be in compliance, or to have waivers, by the end of the quarter ending June 30, 2024. Expensify also estimated stock-based compensation of $7.9 million to $9.9 million for the quarter ending June 30, 2024, which keeps dilution in view.