Expensify, Inc. (EXFY) Q3 2021 Earnings Report, Transcript and Summary

[Call Starts Abruptly] And during the course of this call, management may make forward-looking statements within the meaning of the federal securities law. 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 non-GAAP net income, adjusted EBITDA and adjusted EBITDA excluding the IPO-related bonus, which are 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 non-GAAP net income, adjusted EBITDA and adjusted EBITDA excluding the IPO-related bonus to their most comparable GAAP measures. That was very high stress. But with that, let me turn the discussion over to David.

Thank you for that fascinating introduction. So maybe a quick introduction, so we get started. So, I am David Barrett, the Founder and CEO of Expensify. We have new our COO; Ryan is our Chief Financial Officer; and of course, senior technical accountant. We have the whole dream team here to answer any questions you can conceivably have. But to get started, let’s review why we’re here. So, technology, we love it. There we go. So, at a very high level, as a reminder, many of you know this, of course, but there’s a lot of people on the phone here who haven’t really heard this field. So, I want to give a kind of a quick overview. At a very high level, we do expense reports that don’t suck. I know it’s a bold vision, but we’re making the world a better place, one expanse report at a time. Now, if you’re considering of investing in Expensify. There’s sort of like three main things you need to know. Now, we can on forever and truly forever about it. The advantages of the product and all that kind of stuff, but there’s kind of three main things you need to know. The first is that we feel that there is an absolutely enormous untapped opportunity and that we’re going after not just the sort of tip of the industry, like the snowy North of the enterprise, we’re going after the entire market. And so, our view is that the market is absolutely enormous because every single business on the planet has some kind of expense management problem. But yes, if you were to add up all of the customers of all those kind of traditional players, it adds up to maybe a couple of hundred thousand companies in the world. That’s out of hundreds of millions of businesses in the world, however. So, the way that we see it is virtually no one is using anything. The real competition for Expensify isn’t Concur or something like this. It’s basically a manila envelope; it’s e-mail and Excel. And so basically, most of the world is doing nothing at all. And we’re going after a global opportunity, not just the small enterprise corner of the market. We’re going after the Fortune 100 million businesses out there. Now, the question, of course, is as a mature industry, how has everyone missed this huge opportunity? That’s because we think that it cannot be achieved through traditional sales models. And Expensify’s primary differentiation as a company is that everything is all in on a completely different acquisition model than everyone else in the industry. We call it our bottom-up adoption model, whereas basically everyone else out there is employing some variation upon the same basic strategy. You all know where we love it or at least know it, and that’s basically a salesperson calls into a company like knocking on the CFO’s door. And then that goes to an SCR, BDR, maybe it goes to a commissioned quota-carrying salesperson, goes to integration specialists and account managers and sort of things like this. It’s a very scalable model, but it’s also a very high cost of sale model. The traditional sales model has only reached a tiny, tiny corner of this opportunity because there’s only a small subset of the market, which can be acquired through that high cost of sale model. Our design is completely different. Everything starts with the individual employee downloading the app for free and then learning about it from a friend, they say through genuine word of mouth. And then they sign up their own company without permission and then they just start submitting essential works to their boss. So basically, every single employee is a different door to the company. Whereas everyone else out there is all knocking on the same CFO’s door, we have 100 doors in every company because every employee can onboard their company and then grow sort of virally bottom up. This means that we can reach companies that were never in the traditional markets. We’re reaching companies that basically were never searching for expense management. They were never thinking about this as a problem until some individual employee raised their hand and put it on to the agenda of the company. As a consequence of all of that, we think that we’re building a platform that can reach 1 billion users. Now, we’re not there yet. I don’t know when we’re going to get there yet, but we do think it’s possible. If it’s possible to link 1 billion people through photography, we think it’s possible to link 1 billion people through the financial conversations that basically connect us already. These are not creating new conversations. It’s basically bringing currently offline conversations online into a common platform. And it works. This is a tweet that we just got a couple of days ago from someone that we’ve never met, just talking about how the Expensify bottom-up process automatically close those customers at incredibly high volume at incredibly low marginal cost. And so, the difference of Expensify for everyone else in the market is, yes, maybe we’ve got the best smart card, yes, we’ve got the best expense reporting and all that kind of stuff. But most importantly is that we acquire customers in a completely different way than everyone else out there and that allows us to reach the whole market and the whole market is huge. We’re gunning for it to be a huge, huge player for a much larger market than anyone else even realizes exist. So that’s the quick spiel. Now, let’s talk a bit Q3.

Great. Well, thank you, David. And I just wanted to say it’s great to see everyone on the call. Thank you for dialing in. And so, let’s get started. Q3: So, we actually -- we had these numbers in the S-1, right? We had our Q3 flash. So, in terms of revenue, we disclosed we are looking at $36.6 million to $37.6 million. And we actually came in at the top end of that range, right, $37.4 million. So, we’re very excited about that. And in terms of paid members, we had 660,000 paid members to 670,000 paid members. And again, we came in at the top range of that at 667,000 paid members. So very excited about how Q3 went. In fact, Q3 was the best quarter for paid member growth that we’ve seen since the start of COVID-19. So, since March 2020, Q3 was the best we’ve seen in terms of paid members growing. That puts us at a 73% year-on-year growth rate for revenue. The Expensify Card is doing fantastic, over 207% year-on-year interchange growth, and that brings us to $150 million in annualized revenue. One thing that I did want to spend some time on was this IPO bonus that we did. It was -- this was in the S-1, but it’s causing the numbers still a little different. So, I want to make sure we’re all on the same page here in terms of Expensify’s profitability and how it looks going forward. So, as disclosed in the S-1, we had a $26.3 million IPO bonus to employees in Q3, and the purpose of that was for the employees to exercise their shares such that they can convert them into our LTE shares. And for those that don’t know, Expensify has an LTE share structure that means long-term shares. These are shares that are not liquid that require a long time in order to convert to common, and the purpose of that is to align employees with a shareholder value. So all of our employees are very heavily incentivized to produce long-term growth and not get distracted by the short-termism by going public and things. So, we think that this bonus is actually probably the best money we’ll ever invest in the Company, but we’ll let the results speak for themselves. So, our GAAP net income was -- we had a negative $6.3 million net loss. But when you add back in that IPO bonus, you look at a non-GAAP net income of $19.9 million. And similar with EBITDA, adjusted EBITDA of negative $6.5 million when you add in that IPO bonus, you get a $19.8 million adjusted EBITDA, excluding that IPO bonus loss. And the reason we think this is important to highlight is because one of the big pillars of Expensify story is that not only do we grow fast, but we do it profitably, right? It’s efficient, responsible growth. And when we have this kind of IPO bonus that can make the numbers not maybe being true with the story we’re telling, so we wanted to make sure that everyone understands that this is an IPO-related bonus. We’re not going to IPO again. So, this is not really reflective -- but the IPO bonus won’t be coming again. So, we think that the EBITDA and the net income, when you account for the IPO bonus is much more reflective on the fundamentals of the business. Now, when we look at Rule of 40, when you’re taking out the IPO bonus, on a Rule of 40 basis, we’re looking at 126%, which is obviously extremely, extremely high, right? That reflects our very high growth and also our profitability. And the reason we do this bonus is because we have a very talent dense and very talented employee base, right? We’re bringing in over $1 million in ARR per employee. And if you stack that up against our peers in the public tech markets, we are at the top, top, top of that range. So, we have a great team. We have invested in retaining them, and we think that is a great investment. Pass it back over to David.

Great. All right. So, as you know -- or you might know, we have a big vision, and that vision involves a lot of development over a long period of time. So now, Expensify is not just an expense reporting app, it’s very much a payments superapp. We’re designed for every variation of listed expenses, it should give to someone in the pay return. Now traditionally, all these different products up here be seen as completely different industries, like completely different SKUs, if you will. For Expensify, they are all just different ways of using the same common platform. We’ve built a universal payment engine that can adapt for a wide variety of digital use cases. And so, if you look kind of across the top here and I highlight a few different colors. So first, the item is in blue. These are functionality that in the Expensify app is already live and you can use. And so, we’re obviously still going to improve all of these, but the real features that are in market today. So, you can use our Concierge Travel feature to book travel through chat. Of course, you can send an invoice to anyone else using Expensify and collect online. Likewise, whoever you send an invoice to, they receive our bill payment experience where they can basically process bills and export in the ledger system and pay them online. Of course, we have a world-leading smart card, The Expensify Card with a million different branches. And of course, we also have our expense management platform, which scales everything from sole proprietors up to large enterprise. And so, these are all features that we’ve built on this common platform. They use the same experience across all of them. What we’re working on right now, I would say, are the kind of the green bullets here. And these are all items that already exist in beta or in internal use, so going from right to left here. So, we actually build our own payroll solution using the exact same technology they currently have. In our world, a paycheck is just an expense report submitted twice a month automatically for you and then with some tax chunk on top of it. We use our own payroll internally. We haven’t launched it yet extern and so we’re still working on it, but I just want you to know. Likewise, we have consumer wallet functionality built into the same app where you can send a money request to someone else and they can pay you, not just inside of the company, but with your roommates, your families with your church group and things like this. Expensify’s design is much more like a LinkedIn or a Facebook than it would be like a Salesforce or Concur. And then basically, our design is not just to be limited to the isolated silo inside of an individual company but the connectivity between all companies. And so, Expensify’s designed to be used not just for submitting a expense report to your company but for connecting companies through invoicing and bill processing, which lets us sort of leap virally between basically the accounting -- the accounts payables department and accounts receivables from us. And then we use wallet functionality from a consumer perspective to link companies basically through their consumer flows. Because if you work in a company that uses Expensify, odds are your friends working companies that could be using Expensify, especially because every company in the world should be using Expensify. And then, of course, on top of that, that is all going through our chat-first design, because our view is that every payment is a conversation between two or more people trying to resolve some underlying financial tension. So, chat is infused throughout our entire product. That means that you never have to leave the products to resolve some sort of conversation. If I send you an invoice, you can just chat back to me with that invoice. If I have a paycheck, you can talk to your finance team through your paycheck and things like this. Chat is just a part of the experience because chat is a pivotal part of the payments experience itself. Now, all of this basically -- I know you have off to the left some social functionality plan, off to the right more accounting functionality plan. But I just want to give a quick update of here’s where we are in terms of from a product growth perspective from a road map perspective. And all of this adds multiple layers of value. Of course, we build this functionality because it lets us grow virally. And that’s the key to our growth is basically zero marginal cost growth throughout all the different industries. Of course, it creates alternatives as transactional income as well. And so basically, everything from travel invoicing, bill processing, all of this basically creates high-value transactions revenue. And then likewise, of course, is the subscription revenue that comes from the top end of functionality. So, this is our product road map. This isn’t new, but I just want to remind you that it’s all there. And so, when we think about what’s happened just in Q3 most recently, the first thing we did is we lost what we call our Free Plan. Now, The Expensify Card has been out for a while now. But we built The Expensify Card primarily to service our existing customers. When we started, of course, we had this very mature expense management business. So, we built the card primarily to cross sell to existing expense management customers. What we just launched in Q3 is this new Free Plan, which allows new companies to adopt Expensify without having to adopt expense management. This means that you can actually adopt The Expensify Card as a card-first design. This is a brand new thing. We just launched it, and we’re going to break out results maybe in the future, but not yet, because it’s still too early here. And so this is one of the things that gives us confidence kind of going forward is that we’ve launched this new Free Plan, which allows us to be adoptive in a new way by a whole new class of customers we haven’t seen in the past. Likewise, we launched a new cash back built into The Expensify Card. This is to drive faster adoption of The Expensify Card because when you adopt a corporate card program, it’s not like all your employees immediately switch over on day one. So, this is just one of the many tools that we use in order to drive faster adoption and this is a new thing that we just launched in Q3. So, with that back to guidance.

So, let’s talk about what we’re looking at for Q4. In Q4, we are expecting revenues to come in between $38.2 million and $39.2 million. And we are expecting paid members to come in at -- sorry, can you move that on the screen? I can’t actually see it. I want to make sure -- I want to say the right thing. Yes, perfect. 600 -- and that’s what I thought but I wanted to make sure -- 673,000 and 691,000. Great. So, people always ask -- the question we get very often is what does growth look like going forward? What’s going to be a driver of growth? So, the way we’ve been describing it is we have a number of layers, and it all kind of comes together into a very tasty growth layer cake. So, at the beginning, you have -- at the bottom of that foundation, you have seat expansion. So, everyone’s familiar with net dollar expansion. Seat expansion is basically when your existing customers grow, which is a really unique and exciting dynamic that Expensify has. Generally, most companies -- the most mostly ever get paid by their customers are at the beginning. And then over time, they pay them less and less and less, and eventually they churn. Expensify is the exact opposite. The lowest we ever -- the lowest customer ever pays us is generally in those first couple of months. And over time, they pay us more and more. So, a large driver of growth is the expansion of our existing customers. The next layer up that you’d add on would be new customer acquisition. So, we grow virally through word of mouth and every quarter, every month, we’re adding a ton of new customers. Again, the quarter that they start won’t be the highest they pay us, but we are adding buckets of new seats from tens of thousands of customers all the time. And what we’ve added now in Q3, which is new because we stopped advertising during the pandemic. But in Q3, we started our nationwide advertising back up. We’re in 9 major markets right now, and in Q4, Q1, Q2 going forward, we’re just going to keep scaling those advertising. So, that’s what we have currently. And this is what we’re building. So, you add on that great foundation that we just discussed and you add on the interchange growth from The Expensify Card, the lift that we’re starting to see from bill pay and invoicing. David mentioned our payroll product, we’re excited to get that in the hands of users. And then also, when you look at kind of the suite of functionality that we offer, it would be very expensive to replace each of those with a point solution. So, Expensify is actually very inexpensive for the functionality offer. So, I’m not saying next year, I’m not saying in two years, but sometime down the line, we think we can do some interesting things with price as well. So, that is all the slides we have, and we wanted to leave some time for Q&A. So, I’m going to throw it back over to [indiscernible] to get us kicked off for Q&A.

So, our first question is from Sterling Auty with J.P. Morgan.

Yes. Hi, guys. It’s good to see you. So, a couple of things. Maybe just to get started, was there actually a supplement that maybe you put on the website? Just want to make sure, so help us out with a little bit of a GAAP to non-GAAP reconciliation, because I think there’s a couple of moving parts that I think all of us are going to want to try to drive into our model, so that we get a true non-GAAP line item by line item. So, was there a supplement on your website? I didn’t see it when I checked.

Yes. So, we’ll be putting all that up on the website right after the call.

All right. Fantastic. All right. Looking -- we’re starting to see the different variants of COVID like Omicron start to hit different regions differently. What are your thoughts? And what have you kind of factored into especially the paid member additions here for the fourth quarter for -- or any potential impacts from what’s noted?

Yes. Great question, Sterling. So, what is important in when we’re talking about how is the impact of COVID on our customer base. You have to look at what is the economy actually doing? So, in a situation where we have a variant spreading, but businesses are still staying open and businesses are still growing, we’re not going to see much of an impact there, right? Where we saw a very big impact was when everything shut down, no one is traveling. So, in a post-vaccine world where COVID is a very real thing -- I just got my booster last week, but COVID is a very real thing. But people are still traveling because they have more confidence that if they were to contract that they’re not going to die because they’ve been vaccinated. We see less of an impact there. So, I think that the vaccines have been a huge boon to our business basically, because it’s given businesses and consumers that confidence they need to order to kind of go back to living their normal life. So obviously, we’re all very concerned about Omicron. But in terms of the impact it’s having on people traveling and their day-to-day lives, I think that’s still -- yet to be seen, but we are very confident that it’s not going to be anything like what we saw before.

That makes sense. I wish I had gotten my booster. I was supposed to get it next week. Unfortunately, I contracted COVID…

I’m so sorry.

But one follow-up would be, can you talk to us -- you’ve got the different pricing levels and attach rates with the card. One of the questions I get a lot from investors is just maybe talk to us about what you’re seeing in the trends of attach for The Expensify Card as you went through the quarter and what are thinking in terms of what’s embedded in your guidance?

Yes. So, we did not -- we didn’t break out basically attach rates in our guidance. But directionally, we’re seeing that new customers adopting the card, which is at a quick rate which we’re really excited about. And we’ve added this Free Plan, which we’re seeing a lot of pickup from there also. So previously, as David mentioned, you had to be a paying customer to adopt the card. Now, that’s not the case anymore. So, someone can come in and get a card for free without having a subscription and they also get a suite of functionality that comes along with that. So, that’s just another kind of boon to the growth of the card. So, we plan to be breaking out more card stats in the future. But for now, just the 200% year-on-year growth is always broken out. And one thing to point out, Sterling, which I’m sure you know, that revenue guidance did not include interchange in there. That was purely subscription revenue.

The next question is from Tyler Radke with Citi.

Thanks for taking my question, and good to see you as well. And I like the physical layer cake as well as the virtual layer cake that you have. So, my question was just on the paid members. So, it sounded like you saw a lot of positive things in the quarter in terms of paid member growth starting to return back to the historical levels. You got about two weeks before you close up Q4. So presumably, your visibility is pretty good on where you’re going to end up. I guess, why wouldn’t we see kind of that -- the same number of net adds that you saw in Q3, especially heading into Q4, where we’re not dealing with summer vacations and some of the seasonality dynamics that might otherwise impact the Q3?

So obviously, we put our guidance -- and I still think we’re going to see really good paid member growth in Q4. So, I don’t think that we’re seeing a slowdown really there. It’s -- everything is looking good in the business. We’re very encouraged with what we’re seeing. So, the range is what it is, but we feel very good about that range and our ability to perform there.

Okay, makes sense. And then, just with some of the changes, headlines announced here in the -- I think, in the September quarter. I guess, first on the cash back incentives, the higher cash back incentives. Just how are you thinking about that from a kind of payment economic perspective? Does this kind of lower your margins in the near term with the potential to just increase that card volume over time? And then, secondly, with this free tier, how are you just thinking about that impact on kind of near-term paid member growth just as potentially users could go to free tier before they become paid?

Yes. So, great question. So, I’ll take them last in, first out. So, your question about free members. So, we think that the card can be a really good kind of tip of the spear. And we think that if we have these free members putting all their spend on the card, even if it’s -- they pick -- they choose to do that before they would sign up for a subscription, we think that that actually on the like a net basis is actually going to be better for the business than if they had done it the opposite way. So, we’re excited about kind of the opportunity, that Free Plan affords our users. And also, the way it’s designed is the Free Plan is great for a business getting started. But once -- at a certain point, we expect that the free members to upgrade to our paid subscription plan. So, it kind -- in the customer life cycle, we still expect them to be card members and subscription members, but we think that now what we’ve done is they will start off as card members and then upgrade to subscription.

If I jump in really quick. I completely agree with what Ryan said, but I think the way to view the Free Plan is now we’re starting the customer journey earlier than we would have normally because historically speaking, Expensify like expense management is something that you think of it at a particular time in your company life, and that’s basically when you become a lower trust environment. If you think of a brand-new company, it’s basically just a couple of people with very high trust to each other, and there’s no approvals needed. There’s no sort of like questioning for like the receipts and things like this. And so now, the Free Plan is really targeting a new group of customers that haven’t historically seen a need for expense management. And so, we’re starting basically a little bit further earlier in the life cycle. And then, to Ryan’s point, the paywalls, essentially, once you experience kind of these trust issues inside of the company, so hiring more people, you’ve got duplications and things like this. Then you need things like approvals and you need sort of -- you start to value some of the more sophisticated expense management. And so, we don’t view this as something that could -- you didn’t suggest this, but I just want to make clear. This isn’t something that could really cannibalize existing revenue because our existing customers have Expensify for more sophisticated functionality. This is supporting a new class of less sophisticated customers.

And then I think we want to touch on the...

Do you want to take that?

So, the short answer is, once we’ve introduced cash back, it is going to degrade card margins to some degree. But the nuanced answer there is the way we’ve designed those tiers for cash back, we have the 1% tier, which is achievable by enough companies, not all of them, but let’s just say about 75% of companies that adopt the card. So, it’s achievable. It gives you this -- the good feeling of having earned a reward for your spend. And it makes you convert all of your company spend on to the card. And then the 2% is designed to be a bit more aspirational and targets larger companies who have way more than that $250,000 in spend. And it’s incentivizing them to adopt the card across the company because the dynamic we’ve noticed is a company will roll out the card, but won’t give it to every employee. And there’s really no reason for them to give it to every employee either because they’re not trying to pick any kind of tier to earn a reward because they earn a reward across the board on other platforms and other products, which is why we’ve designed it in this manner. So, we get a little bit of what we want and the companies get a little bit of what they want. So, yes, it’s going to take down margins, but it’s not going to take it down all the way. And then, we’re also working on -- and we told you this as part of the road show. We’re working on becoming our old program manager, which gives us a little more margin room to play with. So, we win some, we lose some, and that’s kind of where we are hoping to make some of our margin back.

Yes. And I think that’s a very important point. And it’s not that it’s basically a flat cash back for all spends. It’s basically cash back, if your program exceeds a certain target. And so, if you don’t -- if you’re a dollar beneath that target, there’s no cash back. And then if your dollar beneath the second target, you only get the first target. And so, it’s basically -- it is achievable and people do get it. But we know in the process that drives so much more spend on the platform, and so it absolutely is value-added.

Got it. So, gross dollar accretive, even though if it’s slightly margin percentage dilutive?

Yes, exactly.

Our next question is from Koji Ikeda with Bank of America. I hope I said your name right.

Yes. You’re good. Thank you so much. Hey guys. Hey David. Hey Ryan. Congrats on becoming a public company. And thanks for taking my questions. I guess, I got a couple. First one for you Ryan. Just thinking about the guidance methodology. With the IPO launching in November, the flash range coming in right about $36.6 million, $37.6 million that you showed in slides, you came and ride it below the top end. And thinking about Q4, we’re essentially done with December. And we have that range of $38.2 million and $39.2 million. So I guess, how should we be thinking about the guidance methodology for Q4? And more importantly, too, is as we go forward into future quarterly results, how you are thinking about establishing that guidance methodology with the revenue?

Great question, Koji. So, we are, I would say, pretty conservative. We’re both from the Midwest. So, our intention is not to try to provide some sort of inflated guidance in order to get maybe some short-term boost. We’ve always provided in our forecast and our guidance what we believe is an achievable and realistic range. So, you won’t ever see us putting out some big number, and then we hope we get there, right? We’re always going to be very grounded in reality and kind of what we’re seeing, and that’s what we’re going to communicate to the market. So, when we look at, I guess, to more thoroughly answer your question, how are we figuring out our guidance? We’re looking at actual, we’re looking at how things are trending and then work just very simply, just forward projecting based on a number of different scenarios and how the remainder of the quarter could go, and then that’s how we design our guidance. So, it’s very rooted in reality. And it’s not wishful thinking. It’s very achievable.

Yes. I feel like the Midwestern sensibility of like just -- we’re building a business, we’re focused on the long term. I think that there’s a lot of attitudes for how you can use an earnings call and the kind of value out of it. One is that you can sort of try to inflate things and get credit for things you haven’t done yet to drive short-term share movement. But that’s not really our job. That’s not what we feel our job is. We’re working to produce very long-term value. And so, all of -- everything we do is really focused on sustainable, achievable growth and is achievable forecast. And so, I agree entirely with Ryan. This is very much about trying to give a realistic presentation of the next quarter, and that’s, I think, our -- the intent that we’re going to do going forward.

Got it. So, just a follow-up there, just to be clear. So, when you say achievable, do you mean you’re going to set out a range and it’s always going to try and maybe fall midpoint to the high end of that range or slightly above? I’m just trying to understand how to think about that achievable?

Yes. I don’t think, Koji, we’re going to get into that granularity on what percentile on the guidance that we’re going to get to. I mean, the range is there because we’re saying we’re going to be in this range, right, so.

Fair enough. Fair enough. Yes.

I know that’s not exactly the answer you wanted, but I think we’re going to stick to that range.

Got you. Thanks, Ryan. Okay. And then just last one for me. The conversations with your payment processor, I know you’re kind of in discussions with them. I mean, how is that progressing? And maybe when could we be thinking about a potential contract change or that interchange revenue could be incorporated in GAAP?

Yes. It’s going really well. It’s progressing at a pretty good clip. I don’t think I’m comfortable giving you an ETA just yet. But, we think that in 2022, we have it all implemented, which is as close as I’m able to get to right now. Maybe in the next earnings call, we’ll have a little more granular ETA to share.

Yes. We feel confident it’s going to happen. And as soon as we have a better date, obviously, we’re going to tell you well in advance because the impact of that is that we would move the interchange from a contract expense and cost of revenue up into revenue, and that’s going to change some things. So, we want to make sure that you have significant advance notice. So, we will absolutely keep you in the loop there and let you know.

The next question is from Brent Bracelin with Piper Sandler.

A couple of questions, if I could here. Maybe we’ll start with you, David here on the free card strategy. So, think about like Q3, you’re just in the early stages of launching it. As I think about kind of the strategy here, it seems like you can go a couple of different directions. One, you do have a very large installed base of free users. On the other hand, there’s an even larger opportunity to go and acquire new users. So, as you think about the 2022 plans, is the intent to target current free users, the nonpaid users and really try to monetize that installed base, or do you really see the free card as an opportunity to kind of accelerate your footprint with new non-Expensify kind of customers today? Just trying to think through strategy for kind of next year?

Sure. I would say, the Free Plan is overwhelming about new customer acquisition. I mean obviously, these new customers can come through. We dial up, as Ryan mentioned, a tremendous amount of marketing. And the Free Plan is the key message of the marketing. And so, there’s a degree of course, of new customers seeing an ad who never heard us before, signing up, all wording into the Free Plan and then starting their kind of upgrade journey, if you will. But also, I would say, the major markets that we’re advertising in are also the markets that we’re already strong in. And there’s a tremendous amount of word-of-mouth kind of multiplier effect that happens when you just see the brand around. Because word-of-mouth base requires two conditions, one, that you have a product which is relevant to all of your customers’ friends. So, that’s why we have such a wide diversity of use cases, including consumer cases because we want everyone to talk about us to their friends because there’s something about the product, which is relevant to friends. And then secondarily, it has to be something that you’re going to get a good reaction from your friends. Like, no one refers bad movements, like you just look bad on you, sort of thing. And so part of having such a compelling sort of marketing campaign, all this functionality, and the Free Plan and cash back and all of this is to get an exciting message out, not just to people who’ve never heard us before, but to remind the people who do know about us and give us something to talk about. So, when they’re walking on the street with a friend and they see a billboard, whatever it is, they see a bus drive by, and then they have some reason to turn to their friends like, "Oh, yes, actually I have Expensify. I use that". So, it’s not just about -- we don’t like break out basically new ads from people who’ve never seen us before versus word-of-mouth kind of growth. I would say, the way to think about our advertising is trying to drive this idea of market consensus where basically once we’re in the market and everyone agrees that we’re the best in the market, then you just capture the lion’s share of new customers automatically. And so, yes, some will just see the ad converts like a very straightforward acquisition. But our view is a bit broader. It’s about creating a conversation around us, creating an overwhelming sense that we’re the best in the market such that when inevitably, the topic of expense management or payroll or invoicing or bill processing or consumer bill splitting, whatever this might be, if any of those comes up, we want to be top of mind. So, we’re the one that they tell the friend about.

Totally makes sense. Very clear there. And then, I guess, Ryan, building on that follow-up here on just the advertising spend, as you think about rolling this up, is this kind of going to be a bit of a trickle in Q4 and then a big ramp in ‘22? How should we -- or is a big ramp in Q4? Like, walk us through the good news is as being a profitable company, you’ve got a lot of room to invest, but just trying to think through how that’s going to roll through the P&L would be helpful.

Yes. So without giving explicit guidance on marketing spend, I’ll tell you kind of directionally how it’s working. So, we really started ramping this up in Q3. We doubled down on that in Q4. I’d say in terms of -- if you’re looking for like when is the startup function or when is it kind of skyrockets, I’d say it’s going to accelerate more quickly probably starting in Q1 just because it takes time to kind of get the machine check-in. We cut it off during the pandemic. So, we’re starting that back up. So, we expect Q4 to be greater than Q3 and really start to kind of get hum in 2022.

The next question is from Pat Walravens with JMP Securities.

Congratulations. First one -- I have two questions. So, the first one is just for that -- I mean, the room here is so beautiful. It almost looks like it’s a virtual background. So, David, what is the Expensify lounge. Why do you have it? I’ll just put both questions out front. So, what’s the Expensify lounge? Why do you have these kinds of allowance? And then my question number two is pretty fundamental. Even though it’s mostly greenfield for you guys, there are a zillion of these vendors in the card space or the expense base. So, can you just sort of remind investors what your competitive differentiation is?

Sure. Maybe I’ll take both of those in order. And so first off, I forgot to mention, yes, we are broadcasting live from the San Francisco Expensify lounge. And as you can see, basically, in this beautiful office on the 16th floor at 88 Kearny downtown in the financial district of San Francisco. Now, there’s a whole story that goes with this. And more time than I can play in this particular moment. But I would say our view is that the workplace is an incredible important part of the future. I mean, COVID notwithstanding, people want to come back to an office. Now -- but they don’t want to come back to any office. They want to come back to a place where -- it’s a place that -- it’s no longer a requirement to be in office anymore. The modern office has to compete with your home, your home office, café, whatever that is. And so, we’ve created a place for not just our own employees. But basically, once COVID is -- once the mass restrictions is going to allow us to happen, where essentially any Expensify customer will be able to come in and work out of our lounges around the world. Basically, think of it like high-end co-working lounge, meets airport lounge, something like this. And then we’re going to open this up to all existing customers. So, we can work beside them and really get to know them, they can get to know us. And of course, we can have a great time. So, we make a mean old-fashioned, great cappuccino, and so we have a great time here. So, it’s like there’s going to be more coming out about that in the future. And I cannot wait to talk more about that once sort of COVID is more in the rearview mirror. And then, of course, I’d love to have [indiscernible] here. Secondarily, talking about differentiation. So, yes, there’s a million players out there, because this problem again is universal. Expense management is synonymous with business, like every business has expenses, but only some have revenue. And way before you have an accountant or an accounting system, you’ve done something to keep track of your expenses. And so, of course, it’s a huge market. And of course, there’s a lot of people who see these problems. The differentiation really comes down to, again, as I said before, our ability to acquire customers. It’s easy, like when I talk to new entrepreneurs, I would say that very few companies fail because they couldn’t build what they are set out to build. They feel because just no one cares. Like a building product is hard, but it’s also the easiest thing in the business. Getting anyone to realize what the products you’ve built and to buy it, that is freaking impossible. And so, I’d say, yes, we see a million players out there that successfully build a product because that’s the easiest part of starting a company. But if you go across those millions of players, inevitably, they’re very, very small because they struggle with the same exact problem that is how do we get anyone to care? And if -- whether there’s 1 or 10 or 1,000 identical competitors, in our mind, it’s just based like one block. It’s basically one company with 30 different names with the same business model and the same products and same everything. And so, yes, we swim in the same pool with them, if you will, in a sense that, I guess, ostensibly we compete. But the way that we view it is it’s a very, very large swimming pool. And the shallow end is super noisy. There is a whole bunch of players. They are all fighting against each other over the same, very limited set of customers because those are the customers their business model will reach. We’re just on the opposite end of the pool. We’re like we’re over here in the deep end, like chilling on our float over here. And it’s great. And I think what’s nice about this because -- was going at that. And so, I think it’s great because we can go to their side. Like, we can go up to the enterprise, we can fight over those very lean margins. We’ll do your RFP sales process. We will sell the customer in whatever manner they want to be sold. And so, we get all of their markets but they get none of ours because we’re able to acquire customers that don’t want to go through an RFP process. They just want to onboard themselves. They just want a self-service model where they want a free product and things like this. And so, again, the product differentiation, we can go into why our card is better and sort of our smart limits and things like this. But from an investor perspective, the reason you would pick Expensify for your investor dollar over someone else is because you believe that we have a strategy which will capture more of the markets faster and better unit economics in the long run. And so, I think that’s what -- again, and the numbers speak for themselves. So, I think our differentiation is our business model far more than our products. Though I guess I would say, our product is built in lockstep with that model to support and propagate that model. The most important feature we have is the one that signs up the next customer because that’s what makes the next customer easier to get than the last one.

And then, our last question is from Yun Kim with Loop Capital.

So first, congrats on your first earnings call as a public company. Although it feels like someone empty knowing that we already know the numbers, but it’s not as exciting as some of the other public earnings conference calls this season. But on your prepared remarks, David, you mentioned that as the economy gets better and the T&E activity increases, you are seeing the expand part of your business accelerate. Obviously, that should lead to more paying members within your existing customers, but can we also expect ARPU to perhaps get a boost as well when that business activity accelerates?

Yes. Great question, Yun. So yes, so, as we see customers grow quickly, they -- in general, they will exceed their subscriptions. And just as a reminder for everyone, we give a significant discount for customers that sign up for an annual subscription. But if you exceed that, the overage is at a higher rate. So, when we see customers grow very quickly. We do see more of them paying that higher rate, which pulls up ARPU. And over time, we would expect that they will increase their subscription size, thereby decreasing their amount they’re paying per customer. But when we see it, our customers grow very quickly in short amount of time, that does pull up ARPU. You’re right there, Yun.

Great. And then, if you can just talk about your international business and what kind of trends you’re seeing there? When I was doing some work for S-1 for the initiation, I saw you guys had a pretty good traction amongst a lot of these high-profile international cities, which is kind of surprising, given that most of your revenue is still based in the U.S. So, could you just talk about your overall traction that you have in the -- your business outside of the U.S.?

Sure, yes. So, we do about 9% of our revenue overseas, and that is not through some sort of intentional effort of ours. Our word-of-mouth viral business model, we just kind of spread. So, we have 10 million users, and they talk to their friends and some of their friends were overseas. And then we started to get customers in London in Melbourne and Sydney, and those people also have friends and they talk. So, throughout -- over the last couple of years, even though we haven’t tried, we actually have a significant amount of our revenue in Australia, Canada, the UK, New Zealand. So, I think that we’ll continue to see that. I mean, Netherlands is a growing one for us. So yes, we are growing overseas, but it’s not from -- we don’t have a sales force in the UK. Now, we have employees there. That’s generally to provide a time zone coverage for customer support and things like that. But there’s not a -- there’s no one at Expensify who is focused on growing revenue in the UK. It is just growing on its own based on our business model. Similar to how our employees in Portland aren’t focused on growing revenue in Portland. They just try to grow revenue in the business in general. So, we’re very excited about the opportunity that presents itself in the international markets, and we think that we’re going to continue to do really well there.

Do you plan on spending incremental marketing dollars to expand that international presence?

Great question. Yes. Yes, we do. We haven’t yet, but that is on the road map.

Okay. All right. It sounds great. Congratulations. Thank you.

Thank you. Great questions.

And that was the last question. So, I’ll hand it back to David to wrap up.

Great. Well, again, we’ve been very excited to be here. Very excited to come to you live from the San Francisco Expensify lounge. It’s exciting to be a public company. And I think this has been quite a journey. As we said, we want to do this IPO once. We’re not basically the idea of serial entrepreneurs that are trying to just build something and then ditch it and do something else. We’re here for the long haul. Our long-term stock plan, as Ryan mentioned, means that every one of our employees is really focused on long-term, sustainable, efficient growth. And so, we intend to have these calls for a very long time. And I hope that we can have delicious cake. So with that, I think that’s it. So, it’s been fun. Thank you.

Thank you.

Thank you, everyone.