Expensify, Inc. Q3 FY2023 earnings

Expensify's fiscal 2023 third quarter paired a double-digit revenue decline with a much wider loss. Revenue came in at $36.5 million, down 14.1% from the prior-year quarter, and for the first nine months of the fiscal year revenue was $115.5 million, down 8.4%. Gross profit fell 27.5% to $18.8 million. Gross margin was 51.6%, down from 61.0% a year earlier. Management attributed the revenue drop to lower billable activity across the user base, including pay-per-use activity that carries a higher average fee per member, plus a larger contra revenue hit from cashback payments as more members put spending on the Expensify Card. Card interchange grew to $3.1 million, an increase of 65% over the same period last year.

Costs pulled in opposite directions. Research and development spending climbed 93% as employees and external contributors spent more time on new product initiatives. General and administrative costs fell 10%, helped by the absence of the first-year Sarbanes-Oxley work that weighed on 2022. Sales and marketing rose 4% on more outsourcing for sales and product demos, partly offset by lower advertising spend. The operating loss was $14.9 million, compared with a loss of $5.7 million in the prior-year quarter. Operating margin was -40.8%, against -13.5% a year earlier. Net loss reached $17.0 million, versus $8.2 million, and diluted earnings per share was -$0.21, compared with -$0.10. The non-GAAP picture also weakened: adjusted EBITDA was -$3.5 million and non-GAAP net loss was $6.7 million.

Cash generation reversed hard. Operating cash flow was -$5.1 million for the quarter, compared with -$0.9 million in the prior-year quarter. Year to date, operating cash flow was $2.1 million, down 92.0% from the first nine months of 2022. Free cash flow, which excludes changes in settlement assets and settlement liabilities and subtracts property and equipment purchases and software development costs, was -$7.1 million. Capital expenditures were $0.6 million, up 212.0%. Deferred revenue, reported on a current-portion basis only, was $0.6 million, up 134.4%.

Management's forward plan leans on cost cuts and debt reduction. In October, shortly after the quarter closed, Expensify used $36.0 million of available cash to repay its term loan in full, a move expected to cut interest expense by $0.9 million in the fourth quarter of 2023 and by $3.8 million in fiscal 2024. Additional internal cuts are expected to lower operating costs by approximately $15.0 million in 2024 and, in management's view, support positive cash flow in 2024 and beyond. Stock-based compensation guidance for the fourth quarter of 2023 is $9.8 million to $11.8 million, and the quarterly estimates for fiscal 2024 run from $9.2 million to $11.2 million in the first quarter, $8.9 million to $10.9 million in the second quarter and $8.7 million to $10.7 million in the third quarter.

Paid members averaged 719,000 for the quarter, down 6% from a year earlier, spread across 47,800 companies and more than 200 countries. The shrinking user base remains the core pressure point, since billing follows member activity. Expensify held $89.1 million in cash and cash equivalents as of September 30, 2023 and $58.8 million in outstanding indebtedness. As of September 30, 2023 the company was not in compliance with several debt covenants, including the restriction on common stock repurchases, the requirement to keep deposit, operating and collateral accounts with its lender, and the minimum fixed charge coverage ratio; a waiver was obtained. One accounting change lands in late 2023: Expensify becomes program manager of the card, new cards will book interchange as revenue rather than contra cost of revenue, and the company expects to receive 20% more interchange under the new program. Management also pointed to high interest rates, an unsettled competitive field, and said the long-awaited migration of Expensify Classic to New Expensify should be underway by this time next quarter.