Welcome, welcome, welcome to the Q4 2023 earnings for Expensify. I'm David Barrett, CEO. We have Ryan Schaffer, our Chief Financial Officer. Let me turn it over to Nikki for legal Es.

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 a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures.

Excellent. Thank you very much. All right. Let's get started. First, let's go over the fiscal 2023 financial fiscal year 2023 financials. We had revenue of $150.7 million. Our average paid members were $732,000 and we had a net interchange of $11.1 million. Our operating cash flow was $1.6 million. Our free cash flow was $600,000. The difference between operating cash flow and free cash flow is -- we take out the customer funds, which can vary throughout the month, so the timing can throw that off a little bit. Our GAAP net loss was $41.7 million. Our non-GAAP net loss was $500,000, and our adjusted EBITDA was $13.2 million. Now let's talk about Q4. We had $35.2 million in revenue. Our average paid members were $719,000 and we had $3.1 million in net interchange. Cash used in operations was $500,000. Free cash flow was negative $3.6 million, net loss was $7.5 million. Non-GAAP net income was $3.1 million and adjusted EBITDA was $5.9 million. Obviously, these numbers are an improvement over Q3. As we discussed last quarter, I mentioned that we're going to be implementing some cost-cutting measures. We did implement those, and we saw a pretty positive turnaround in terms of our financial metrics. Our operating cash flow improved by $4.9 million, which is a 90.2% increase quarter-over-quarter. Our free cash flow improved by $3.5 million, which is a 49.3% increase quarter-over-quarter. Our net loss improved by $9.5 million, which is a 55.9% increase quarter-over-quarter, and our non-GAAP net income improved by $9.8 million which is 146.3% increase quarter-over-quarter. Our adjusted EBITDA improved by $9.4 million, which is a 268.6% increase quarter-over-quarter. So it's a pretty stark difference from the third quarter to fourth quarter. So you can see the drastic impact in those cost-cutting expenditures that we…

Okay. So as Ryan explained, 2023 was a pretty good year. In fact, I would say it was a great year for the things that are under our control, pretty much everything under our control is either stable or improved, but there was one glaring exception. So this chart -- this complicated waterfall chart, let me walk you through it. And so what we can see here is kind of a breakdown of the major reasons that we gained and lost paid users over the course of the past couple of years. In 2022, we added 42,000 paid seats from new customers. And in 2023, we added about 43,000. So about the same between 2022 and 2023. Likewise, in the two years, in '22, we lost about 62,000 paid seats to churn, basically customers leaving the platform, going out of business, whatever it might be. And we lost about 62,000 in 2023 as well. So new customer acquisition for seats and also churn seats were basically the same year-on-year, but there was a big difference when it comes to customer expansion. You can see in 2022, our existing customers added about 85,000 paid seats. And that's been a huge tailwind in our business model is that we've grown basically when our customers have grown. 2023 is kind of a brutal year for our customers. As you can see, these same customers lost 42,000 seats. So basically, in '22, they added 42,000 -- or they added 85,000 seats in '23, they lost 42,000 seats. The net of that is over the past couple of years, we added about 4,000 active seats. But you can see as kind of a rollercoaster ride to get there. So our business, the actual fundamentals of the business itself, do customer acquisition, customer churn and so…

With that, I guess, let's open it up to questions. Vicki.

Great. Let's get started with Citi. George, (ph) do we have you on the line?

Yeah. This is George on for Steve Enders. Thanks for taking the questions. Maybe just to start with on the paid user number. It was kind of flat quarter-over-quarter. Really appreciate the color on net adds versus churn versus contraction. Does that quarter-on-quarter stabilization give you guys any sense that maybe we're nearing a bottom kind of excluding seasonal factors or is there just still two poor visibility? Just kind of appreciate you update on how you guys are feeling about that metric.

Yeah. It's tough to say if we're at the bottom right now. Obviously, David went, as David showed, we have a lot of positive indicators for the future. January, I think I mentioned January is usually a pretty soft month in terms of users. So that's not completely unexpected. But we're working real hard to improve all inbound traffic inbound leads, and we have some exciting green shoots data that we shared with you. But I think it's probably jury still loud what furthers the bottom or not. Obviously, we hope so, but is cross. We'll now see.

Great. Okay. And then one quick follow-up. I appreciate the FCF guidance and obviously, a big improvement in cash flow generation this quarter. Do you -- is there more cost cutting on the horizon that's required in order to hit that FCF target or do you guys believe you have things in place?

It's a good question. So we implemented the changes midway through the quarter. So there's no -- at this point in time, there is no additional cuts needed. We've made all the cuts. Not all of them took effect in time to be experienced in Q4. So we do believe that we'll see a greater impact of the cuts in Q1 and future quarters. But as of today, everything is the momentum, we don't need to do anything else.

Okay. Thanks for taking the questions.

Thank you.

All right. Next, we have JP Morgan.

Hello, everyone. Thank you for letting me ask a question, and hi, David. Nice to meet you. So I was wondering, if you could comment on the long-awaited migration to the new Expensify. Is the statement in the press release about the global launch in 2024. Does that imply that you expect the migration to be fully completed this year?

Great question. So -- it's a rolling launch. I mean, as you can see, it's already out. Customers are using it. It's being used for different use cases. We are migrating people over in batches and so forth. We intend to keep the old website around for as long as people need it and we don't know how long exactly that's going to be because it's basically -- we're pulling everyone over with a honey that sinter -- is that the right phrase. And so we want to make sure that we're taking the time to do it right. We're not in a hurry to basically push people over. We're basically making sure that they come over time. So I can't predict that. I would like to say yes, but I just -- I don't know for certain because fundamentally, that's going to be up to customers.

Okay. Perfect. And Ryan, a quick question about the interchange I remember last quarter, you were suggesting that the transition may take up to a year because new customers will be on the new card, but all customers will switch whenever their contract comes up. So when do you expect to see the most impact from this transition throughout the year? And what was the initial impact on revenue perhaps in the fourth quarter? Because I can see that you've probably restated historic numbers as well for the EUR11 million versus historic numbers? And what was the impact that you booked in the fourth quarter?

So the impact in the fourth quarter is essentially nothing. You'll see that in Q1 and going forward in terms of the speed of that transition, it's -- similar to what David said, it's going to be kind of at the speed of customers. Now they will be forced eventually to switch over. But I would -- if I had to guess, I would think that it's going to be initially a relatively large smart customers and then kind of a long tail, and we're going to have to kind of nudge some people, but we do have some carats to get over. We have not yet announced. We have some function -- new card functionality coming out that I'm not going to announce here, but we will announce early that is only available on the new card program. So they have a very actual real benefit to switch over as they can -- they'll be able to do exciting helpful things with the new card that they couldn't do with the old card. But look for maybe an announcement on that in the coming weeks. But we do think that we have really good reasons for them to switch over. Another point is also we're starting to see more coming up on the expiration date of our initial customers. So the -- all the new cards will also be under the new program. So we're going to hit a point where our initial expense by card customers their cards are expiring, so they will automatically be migrated over when they get their new cards.

Thank you for that color. Appreciate it.

No problem. Great, questions.

Great. Now we have JMP Securities.

Hi. This is Aaron from JMP. [indiscernible] questions. First off, you call that you're expecting a 20% uplift on card take rates becoming your own program [indiscernible] Can you talk a little bit about the challenges associated with replacing your prior program manager and whether it's something any company can pull off or if there's something you need to Expensify as well.

That's a good question. It's a good question. It's not easy. We did it. We have and it took us a while as you all know, but it's -- I knew our COO is actually formally from Marketo. So we might have a little bit of an advantage there on... Well, maybe also because it requires taking over a lot of technology as well that we do in-house. And so not everyone has the same level of sort of in-house technology expertise to handle like the real-time authorizations and so forth. And so I think that we have an advantage of our companies because we've already built so much of the card product. We've already taken basically already taken that in-house. And so therefore, migrating to becoming our own program manager is a relatively low lift for us was for others. It would be all legal lift that we went through and also on top of that, taking on like milli second latency sort of like high uptime transactional processing. And like -- so I think it's actually -- it's not impossible clearly we did it, but you can see it took us a lot of time and we worked really hard on it. So I think going to take anyone else -- at least as long as us. Yes.

We have more of a build versus buy culture here. So I think if a company had more of a by culture that would not really struggled to do that.

That's helpful. And then in May 2022, the Board authorized a $50 million share repurchase plan. I think you still have about $41 million approved under that authorization. So just trying to get an understanding of how you're thinking, I mean, valuations are less than 1 times next year's revenue. You have the guidance for $10 million to $12 million in '24 free cash flow, about $25 million in net cash. Do you anticipate prioritizing share repurchases in '24? And is there a certain level of net cash you want to maintain around the business and how to think about it...?

It's a great question. I think in the near term, so you might have thought we eliminated most of our debt. We still do have a little bit in our revolving facility. So I might think would be focus more on reducing that. But I think you're absolutely right that at the share prices and generating the cash flow that we expect to, that it's pretty good move on our part, but no firm fitments or anything to announce at this point in time.

Understood. Thank you, guys.

All right. Now we have Piper Sandler.

Okay. Thanks for taking the question. It looks like there continues to be pressure on the subscription revenue side of the business. I was wondering if there's any other color you could provide there may be on how much of this drag you would attribute to business closures and downsizing and maybe any items you're taking to mitigate it? [Multiple Speakers]

Yeah. Well, I think I would say just kind of reiterating what I mentioned earlier, and fundamentally, acquisitions and churn is stable. And I would say those are the most important metrics basically for us to control because I think those really signify the health of Expensify as a business in terms of our economics of acquisition and retention. But I would say, and the challenge is, yes, our 2022 was good for our customers and that they were actually expanding as businesses and adding seats hiring and things on like this. 2023 was bad for customers. And that they were reducing seats, they were lowering. They weren't necessarily leaving Expensify. They just needed less expensify because they had fewer employees and less activity. And so I'd say, like we can't control the macro environment, but we can sort of shield ourselves from it as much as possible and take advantage of it when it's good. And fundamentally, I think -- the takeaway here is that the business itself is healthy, but we are basically subject to the macro effects of customer expansion contraction. I don't know if that really answers the question.

Yes. That makes sense. And I guess a quick follow-up in your conversation with customers, I guess, has that helped you at all with getting on to sites in terms of a potential trough. I know there's been a couple of quarters of increasing contraction.

Sorry, could you say one more time?

Yeah. I just say your conversations with customers, is that helping you at all and getting line of sight in terms of a potential trough in the contraction.

I see. [Indiscernible] customers basically have customers indicated that they're going to continue downsizing?

Interesting. I don't think we have insight into that.

We have a lot of customers. So it's tens of thousands. So it's tough to have like a statement that we feel super confident because there's so many of them. It's not -- the reduction in seat on traction isn't from our 10 largest customers. It's from a lot of customers you've never heard, right? Small businesses...

Tens of thousands of houses...

Yes. It's not -- we are really popular with tech. And obviously, tech has been laying people off. But -- we don't have any definitive statement from customers on how they're going because there's no customer group that could speak on behalf of everybody.

Yeah. I wish I knew. I wish I knew it, but I don't know.

Perfect. Okay. Let's move in and see if [indiscernible] We can circle back. Let's go to Lake Street Capital.

Hey, guys. We went to that previous slide that we had before, just on the customer contraction. I mean, is there any data you can point to that maybe you're seeing signs of improvement in that metric? And I know you obviously are going to turn users in January because it's historically softer, but I guess is there any data that you can point to maybe that you can give help us understand if you're seeing any sort of improvement with customer spend, I guess?

Nothing to announce other than obviously what we've presented here, we have January data. And obviously, we have our historical data. We -- I think the takeaway from this slide is that our customers have been having a difficult time that's reflected kind of in our financials. But we also don't think that this is a permanent situation. We think the economy is going to improve. And obviously, as the economic pressures decrease, we expect to see recovery in our customer base.

All right. Thank, guys. And then just last one for me. So with these cost cuts implemented midway through the quarter, I mean, so Q1, are you expecting to sequentially decline in OpEx? And then I guess, how do we -- how should we expect OpEx throughout the remainder of 2024?

So we initiated full year guidance, but given that the -- we saw a big recovery in OpEx in Q4, and those changes didn't take place until halfway through the quarter. We expect to feel the full benefit of those cost cuttings in Q1. So yes, we do expect that to improve quarter-over-quarter.

Okay. Thanks, guys.

Great. Let's check in with FT Partners. Okay. Let's circle back to BMO, -- see if we can get you unmuted. Daniel, you there?

Yeah. Can you hear me?

Yes

Awesome. All right. Great. Appreciate it. Thanks for taking the question. So I joined late, so I apologize if this is a topic that was already discussed at length. But the last couple of quarters, you talked about sort of building the top of the funnel and some of the investments you're making there to kind of accelerate the customer acquisition trajectory. Can you just spend a moment on sort of what you have been doing there? And anything that we should be on the lookout for is sort of thinking about the gate plan for '24?

Sure. I think that -- I mean, -- so what are the advantages of having a business that kicks off a lot of cash is that you can take big swings on things. And so I think that throughout 2023, we're trying a lot of different things. And I think what ultimately stuck the best was our investment in SEO, and that's why I think we really -- we've been really, really pleased with the results there. We're also making additional investments that have longer-term returns and so forth. Fundamentally, I don't have any sort of crystal ball as to exactly how this is going to play out in the future, more than what we've already suggested for our cash flow guidance. And so I'd say, fundamentally, we feel really confident in investments that we're making, but it's just a lot of experimentation. Because I know it kind of like a wish you watch the answer, but in general, there's no one thing. It's not like we're basically putting all of our eggs in one basket. We're trying a whole range of things. Some work, some don't. And I think that, in particular, the SEO has been really good.

Okay. Got you. And then -- on the user churn, I understand some of that is certainly macro-driven and completely outside of your control. But maybe, again, sort of your latest thoughts about thinking what you can do to the extent that you can to limit churn if there's any additional leverage that you're thinking about?

Yes. So we have been making some investments in pre-using churn. David spoke about global reimbursement. This is really more of a more enterprise, mid-market focused feature, companies that have multiple subsidiaries in different countries. We also have some announcements that were product announcements that we have coming up that we think will be beneficial to helping churn as well. Again, something we announced for Q4, but we have been developing quite rapidly. David spoke about the success of our outsourced contributor program. That took us a little bit to kind of get digging, but now it's a well-oiled machine, and the rate of development has dramatically increased, and we're going to be deploying products quite quickly here in 2024, and we think that is going to be beneficial.

Yeah. I think the contributor program has been a real secret weapon in that we've been able to, I mean, effectively double or triple the engineering the vast increase the engineering team -- and that just accelerates just development overall. And so I'd say, yes, I think that we are really, really happy that we've been making these major investments into the foundation of the platform. And now I think we're to a point where we can begin really rapidly rolling out functionality that our customers are asking for. I mean global reimbursement was one, but I think there's a long, long list of requests.

And we just released budgets to you.

In budgeting and insights. So we didn't bore the slides with basically a list of every single release. But yes, I'd say there's a whole bunch of features that basically are directly kind of pan service to the customers.

Okay. And then maybe just one last one for me. Appreciate the free cash flow guidance, it's -- great to see that. I guess philosophically, how should we approach your thinking about the guidance? Like -- does it assume kind of like a stable macro? Does it -- like what are the fundamental pillars that underpin the guidance so we can think about your progression against that this year. Thank you.

So it does not rely on macro environment improving. It's a -- there's some conservatism baked into that. But given kind of the revenue has been soft in recent quarters, I think that conservatism is warranted. But it doesn't -- that is not all wishful guidance. Like we really hope this happens. We do feel good about this number, and we don't need some change in the world. I tout to happen, we feel pretty good about it any of those targets.

Yeah. It doesn't require a bunch of things to go right for that work. That basically is like if everything stays as we plan, then it should be fine.

All right. Thanks very much.

Thank you.

All right. To the end of the Q&A.

All right. Thank you all for joining. And as David mentioned, we have opened up a public room in our new product. And we're not going to talk about financials there for obvious reasons. But if you want to join and talk to us about the product road map, we would love to talk to you. We think this is really exciting. It's also a great opportunity for retail investors to get access to our executive team, a product management team on a level that is not traditionally seen in public companies. So we think it's kind of novel and exciting and we're looking forward to talking to you all there. So thank you all for your time, and we'll see you next quarter.

Thanks everyone.

Good bye.