Expensify, Inc. (EXFY) Earnings Call Transcript & Summary

Hello, everybody. Welcome to Day 1 of the Citi Global TMT Conference. I'm Steve Enders, part of the software team here. With us for the first session, we have Expensify. Anu, I want to thank you so much for being here.

Thank you. You guys started earlier.

Yes, a little bit early here.

Maybe just to get started, for those who might be new to the story, can you just talk a little bit about Expensify, introduce the company and tell us about your background in time there?

Certainly. So Expensify is an expense management platform. Let's restart. Expensify is an expense management platform. We have corporate cards, travel and, of course, the core product is expense. And we primarily sell to businesses, but we have a range of customers, everyone from individuals looking to just manage their own finances to sole proprietors to small companies all the way to really large Fortune 50 sized companies. It was actually started on this -- I want to say now may not sound as revolutionary but at the time was, that delivering a good product experience to employees is about as important, if not more, than delivering good product experience to the administrators of expense policies. No one really cared about the employees or the experience, but we did. So we were the first to have a mobile app that had OCR capabilities that allowed employees on travel on the go, the scanner receipt, never have to think about it again and built-in automation that factored in their policy settings and helped them do their expenses without spending their Friday evenings wrestling with paper receipts in Excel. Fast forward to the AI era, we're kind of doing the same thing, where we built in an agentic layer on the app. We have brought chat into the app, which is front and center. And the point of doing that is really to bring the conversations that happen around expenses to one place, contextualize it and help admins mine it for intelligence so they can improve their policies and cut down on the time that it takes them to close their books.

That's a great intro for Expensify. Maybe just talk about -- I think there's been a lot of changes with the Expensify for the past few years. But yes, maybe just kind of walk us through kind of the journey of being a public company and kind of where things are today and level set there a little bit?

Yes. And you'd asked about my background with the company as well. So it's a good segue. So I started at the company maybe to the day 10 years ago. And I built our operations team from scratch. I built the card product. So I've done a lot in terms of ops, product development. Now I'm primarily working on the sales and marketing side, leading those things. . And when we went public, we were one of the few companies that only -- we didn't raise much primary, we didn't go public because we needed capital per se, we wanted to create liquidity for our investors and our employees primarily. We were also one of the few companies that was cash positive, remains cash positive. And this -- the changes that being public brought -- brings about, generally speaking, is more compliance, more processes. But we, as a company, always operated very process driven. We are not really people heavy. We are process heavy, I'd like to say, in a good way. So it didn't really change all that much in terms of how we operate it. Of course, there's a lot more in terms of storytelling and ups and downs with performance that you need to smooth out, for lack of a better word, for investors and the Street, and we are doing that, and we've gotten a lot of experience doing that because it's been 4 years since we went public. It's been a roller coaster, but only good times to come.

Sure. No, that's great, too. It's good to hear. I want to touch on the sales and marketing a little bit. But I guess before we get into it, let's just talk about some of the newer kind of products that you've been introducing. I think over the past year, there's been -- it seems like a lot more, I guess, forward innovation that's come out. So can you just walk us through maybe what you've been releasing, what you've been working on and how you're thinking about the opportunity for travel and the new Expensify platform in cards and just what all that looks like?

Yes, for sure. So the reason we set out on building NewDot, which is basically our new and improved version of expense management chat and travel product, is because we kind of saw the need for a more mobile-focused, more real-time enabled, more conversational interface. And that was something that we could do much better if we started over with a new product than if we tried to take it on top of the existing product, which was really built for the last generation of Internet SaaS applications, I'd say. So what is the point of adopting NewDot versus staying on the legacy application? You have a very tightly integrated web and mobile product that performs much better no matter what your bandwidth, allows you to do things off-line and catches back up when it comes online. So a much better app experience itself. Then there's better functionality, which is a much more powerful search, a lot of admin features around managing data at scale that large companies and mid-market companies have long been asking for integrated travel. So there's upgrades, but also just the basic functions of the app itself are that much better. So there's many reasons to adopt it. And then, of course, there's an agentic layer built on top of all of it, which like I was talking about earlier, is constantly listening in a good way. Concierge, which is supercharged with agentic AI now, is also always listening to your conversation in order to intervene and help smooth the way where it makes sense. That's a much more real-time enabled application in every sense of the word. And all of the unstructured data in the structured data's context, because unstructured data is the conversation, the structured data is the expense data, the combination of both of it using AI leads to a lot of insights for companies that helps them improve their policies, processes, identify who is most compliant, who is not compliant and how to make their entire expense process smoother. So that's really the vision for the product.

Okay. I guess when you roll out this new -- the new chat forward solution. I understand that there's the agentic capabilities in there as well, which seems pretty interesting and pretty incredible to look at. But when you think about the business or what that enables for customers, how do you kind of envision what that looks like? Or what's maybe been the feedback from customers so far?

Yes. We are always -- and this is something we -- our goal has always been to clear our customers' path to greatness, we like to say. And it sounds a little bit big, but truly, that's the goal. Nobody really wants to spend their time doing expenses. Everybody has really got other more exciting things to do. We'll have more exciting things to do if they have the time. So that's really the goal of the product is to cut down on the amount of time an employee spends doing their expenses, booking travel, cut down on the amount of time accountants, controllers spend closing their books. We don't -- accountants don't -- accountants, finance teams don't really want to nag their employees to be compliant, to submit on time. Employees don't want to be nagged. We want to make a product that does not require these kinds of annoying behaviors out of any party in the company. So that's really -- that continues to be the vision. There's just more and more tech these days that can help you, a SaaS product, accomplish that goal, and we are leaning more and more into that.

Okay. That's great to hear. Maybe shifting gears a little bit. I do want to touch on the go-to-market side of it since we have you here. But I guess, it seems like there's been maybe a bit of an evolution in terms of the go-to market the past few years. Maybe you can just kind of talk about what you have done, what you've tried. Talk about the F1 movie as well and put that in there. But yes, maybe we can start there, and we'll dig in.

We have both a really good and a really challenging problem. The good part of it is, we've invested a lot in brand marketing, and F1 is like the crowning glory of that. Why brand marketing? Because it is kind of a wide suite, right? Like you communicate that you exist, your value proposition is people get curious, they find -- look for who you are. They may not be at the stage where they're making a buying decision today, but you keep on reiterating your presence and your leadership in the market, and when they are, they'll think of you. So that's -- strategy has generally worked. How do we know it's worked? We have probably the most robust inbound pipeline. We've invested in outbound before. I know we've talked about a period of time that we used SDRs to do a lot of outbound. But the ROI from any kind of outbound, paid ads, none of it has really touched the volume of inbound that brand marketing has naturally pushed towards us. So we know that brand marketing works so we keep leaning back into it. But the challenging part of the problem is this, like I was saying in the very beginning, there's a diverse range of customers. And each customer, given their size and their particular problem, has a very different expectation of what the app should do for them. And you have, I think, some studies said that you have like not even 10 seconds of a window when someone comes and looks at your app and is trying to assess if it will do what they needed to do for them. So our challenging problem is really making the onboarding experience so fine-tuned that we can qualify the customer and then surface the exact onboarding content they need. So even if they don't finish onboarding, which almost nobody does in one session, that we've convinced them that the product is for them so they return. And so that's really been the focus of all of our go-to-market efforts. We've become much more than before, data-driven, product testing-driven, and keep trying to fine tune it. And there's really no -- when I started doing go-to-market as my area of focus, honestly, if you'd asked me, I would have rattled off a few things, the silver bullets that I think are such low-hanging fruit, like we're going to just do those things and it's going to dramatically shift. But I've learned that it's really a slog. You do 100 things, and you do the 100 things really well and it tips. So that's our discipline now.

Okay. I guess maybe where are we in that fine-tuning? What have you found is working? And how do you think about what that means moving forward for some of the inbound? How do you drive that conversion?

Yes. honestly, a lot of it is much, much, much better today versus even like 3 years ago in the sense that we have a very strong degree of clarity on who the customer is and what problem they're trying to solve. We've become very good at servicing them the right content. We are seeing a lot of that stickiness as a result. They keep coming back. Where the challenge really lies is a large amount of revenue is driven by a slightly larger customer, right? Like you have a huge number of small businesses. And those are really important because that's your word-of-mouth engine, that's where you get your revenue growth from. And then you have those small business, the upper end of the small business, middle market customer where you get -- like once you onboard one of them, you immediately get a revenue bump, and they're stickier because they're not changing processes all the time. Now the market is kind of stiff in terms of competition in that segment. And everyone is competing on price, and it's really a race to the bottom. And although that has changed a bit, most of our competitors used to be completely free 3 years ago, but they are not so much anymore. We hear rumblings about some of them being, in fact, almost expensive when they bundle travel card and expenses together, which is all great windows of opportunity for us. But that's the challenge in that segment of the market. And you need supremacy in both really to win because one is your word of mouth engine, it's a growth engine. The other is an immediate revenue boost. Long term, maybe you can do it with just small businesses, but that's the short-term stickiness in revenue growth that I think the market is seeing.

Okay. And given those kind of dynamics and what you're seeing out there competitively, does that maybe change how you think about which areas to target? Or does it change how you think about where you put the dollars and the strategy and put that to work to target that?

Now, more than ever, I think it reinforces what has always been our strategy, which is focus on not just the mid-market and enterprise customers, definitely deliver a product that mid-market and enterprise customers can use to their satisfaction, but a lot of our acquisition efforts were always focused sort of downstream, if you will. And now more than ever, I think that strategy is reinforced because here is a hugely untapped market. No one is really going after them. But it's difficult to acquire scale. It's difficult to acquire using just a sales strategy with people because the unit economics are not there. And those customers don't want to be sold to like that. So really the trick is in figuring out and continuing to polish, like I said, the hundred things that are going to make that self-onboarding, support-based onboarding, lower ticket, lower touch onboarding more efficient. And we stay focused on that. We've always really prioritized that, but now more than ever, I think the strategy is reinforced.

Got it. I guess with that kind of frame of view, I think we hear a lot from other companies utilizing AI and agentic capabilities to help us support, helps me with onboarding. Just maybe how are you leveraging agentic AI within the product and also internally as an organization?

Yes, we'll start with go-to-market because we're just talking about it. We use it extensively and the way in which we use it is really exactly as I was previously describing. A customer comes in, they tell us a little bit about their size, their use case. Then they explore the product, which is really what they want to do. They don't want to talk to anybody even if we're willing to spend that kind of resources in getting a lower ticket customer onboarded, which we have tried in the past, but they don't really want to talk, they want to explore on their own. So what we've done is -- we send every one of the signals that we get from a new lead exploring the product to the agentic layer. And then we have smart messaging capabilities built into it. Because if you sort of looked at the QBO integration and then you went off to do something else, if you got an e-mail or a chat about, okay, here's how you set that up. Here are the perks. It kind of brings you back to something that piqued your interest. It's as simple as that. So that's just one example. We also used AI extensively. Some of these leads are a little bit on the bigger end of the small business spectrum. They talk to a sales agent. And it is important information that we could mine to know how to sell better to that segment. Maybe it's industry-specific, maybe it's size-specific. And before, a lot of this was a sales manager to a salesperson, but nothing really existed to aggregate those kinds of intel to then make training across the board better, to make sales scripts across the board better. So we're doing a lot of that as well. So that's the go-to-market side. Again, on the product side, of course, we're doing a lot of testing, which is really how we're doing product marketing better. And then across our operations team, support teams, Concierge is now powered by a much better agentic AI algorithms. We have an agentic AI learning or help documentation and will give you the perfect answer in less than 5 seconds, and that's 24/7, and that's huge in terms of support. A lot of the tasks that used to be somewhat onerous on the ops team has been more or less automated except for the ones that require some sort of human judgment. So it just frees up people to do more and also gives us the ability to maintain our leanness in terms of human resources.

Sure. I do want to go into the product side a little bit more. But I guess, what kind of efficiencies like ROI have you seen internally from doing that? And to your point, I think Expensify has a pretty unique maybe people model is the way to put it. So just how do you kind of think about what that means for further head count or how much more powerful and productive you can make the current employee base?

Yes. The reason we were able to always be so lean is because we always started all problems as how can we solve it with tech before we thought about how can we solve it with people. So we always leaned more into what can we automate, we should automate that and not have people doing it. And now that question of what can we automate is just that much more powerful to answer yes to because there's just more resources given how good AI is and how much better it keeps getting. So you've seen the cash flow forecasts that we have consistently revised up. So we've been able to sort of maintain our -- any human cost at a SaaS company is the biggest expense. So we've been able to use the fact that it's not just saving money, but it also is much more efficient. So we've been using that efficiency, which is really a double-edged sword to also make our financials that much more performant.

Okay. That makes sense. Let's talk a little bit about the product side. With everything you've kind of come out with, New Expensify I think looks really interesting, just I think you touched on a little bit around how you're actually baking in agentic capabilities into that experience. But how do you kind of see that evolving further from here? What else can generative AI do for Expensify to help make the product that much more powerful?

We -- I think from a product perspective, you see, we've only just scratched the surface. Now a lot of users come in and they scan their receipt. And what we're seeing is there is already a lot of conversation now happening on new product within the context of an expense. And often what we see is somebody will ask, "Oh, I took this trip. Can I expense business class?" or "I don't have the receipt, is that okay?" What we want to be able to do is teach the policy, and by that, I mean the expense policy of a company to the agentic AI layer and have Concierge answer them. So it frees up admins from having to repeatedly answer the same questions over and over again because this agent works for them basically. It also surfaces for them aberrations in terms of expense behavior that it thinks they need to maybe take another look at, powering for search into natural language model because right now, the way we all use powerful search capabilities is a bunch of different filters and tools. And some people will use it like that for a very long time, which is fine. We have a beautiful UX for them. But we are going to make it also possible for you to ask it like you'd ask another human and then it will mine the data for you and give you insight. So a lot of that sort of improvement is still in the pipeline, not yet live. So we're excited for that.

Okay. That's interesting. I guess when you think about the, I guess, go-forward Expensify and the product side, just I guess what else could the platform look like? What new products could you potentially roll out? And if you think about agentic in particular, like are there other avenues of monetization that you could start to lean into moving forward?

For sure. The first one we did was cards, right, like the first transactional revenue pipeline. Then we've now launched travel. They're both -- I mean, the card has really propped up the financials in a very healthy way for a few quarters. So it's already the proof is in the pudding. We have invoicing and bill pay, but we've got to think a little more in terms of is that initially, the thought was that it's just going to be a word-of-mouth engine because when you invoice , when you pay bills, you're always introducing different companies to Expensify. So that's, in and of itself, the way it pays. But maybe there is room there to like look at transactional revenue opportunities as well. We've always talked about wanting to do payroll, which is probably not this year, but maybe late next year, and that brings with it its own revenue stream. Ultimately, the idea is really to be like an Amazon Prime. Like you want to have one subscription, you don't want to think about 50 different things in your bill. Instead, you pay a price, and that price is a rich value proposition to the company, but also a rich value proposition to you because you've pulled all of your back-office financial operations into one product. And especially for the smaller end of the spectrum, ideally, it's just chat-based like you have this agent in your pocket that can really help you do everything and you never need to interact with the UX if you don't want to. That's really the goal.

Okay. I do want to touch on travel. It seems like the initial release, the initial launch of that has been pretty encouraging and seeing pretty good demand there. Can you just talk about what you've seen so far from that product release?

Yes, it's been -- I mean the month-over-month growth is incredible. There's a huge waitlist. And the -- we could go a lot faster. But typically with products like card and travel, you also have to be really careful about frauds and doing things right is sort of so much more important than just doing it really fast. So we are just taking it slow in terms of releasing the dam, I guess. But it's great that there is a huge pent-up demand, that there is a huge waitlist that we know how to onboard those customers on to travel better and better every day so we can do it economically. So all very encouraging signs.

Okay. So I guess as you think about that future kind of rollout, what does maybe the pace of that look like? There are certain kind of like checkpoints you need to see before you feel comfortable kind of releasing it out to more of the way it lashes. How do you think about that?

It's -- we basically created an entire team that is focused on cross-selling travel. So it's -- we're certainly not -- we were pacing it before, but it's all cylinders -- firing, I forgot the expression, us firing on all cylinders now. And I think by the end of the year, we should be able to have soaked up all the demand. And then the question is really like how do we sell it all together immediately because what happens generally, someone adopts core expense, they take 6 months, they may consider the card, then they take another -- we want to be able to sell it as a package and communicate the value and power of the product immediately. So that's maybe something we need to think more about.

Okay. I do want to touch on cross-sell and what that maybe looks like because you do have a pretty big portfolio of solutions at this point. So is there -- how do you think about building out a dedicated team for that? How do you think about how you can lean into that motion in particular to sell card and sell travel and all that moving?

A lot of moving parts. So I can't tell you exactly which way we'll end up going, but it's also kind of tactical. What we are doing right now is leaning hard into our account managers. They are the eyes and ears of the company in terms of existing customers. They know what their customers are doing. They know their pain points. So they'd be the right person to pitch them these solutions that could improve their experience with Expensify. So that's kind of where we're starting. A lot of them are -- and we are running things like contests to sort of get like the creative juices flowing in terms of how we could be doing it better because those are learnings that we could incorporate. Down the line, if the demand keeps growing, which is such a great problem, we might use some of our sales people to do the actual selling. So the account managers might create the demand for it and then hand off to sales to sell. And then when it is sold, it will go back to account managers to maintain. We might explore that, whichever works better for conversion. We don't have a perspective on one being better than the other per se.

Okay. I do want to touch on just maybe the macro and kind of what you're seeing out there in the last few minutes here. Just what have you maybe seen from customers? Like how are they thinking about their own spend? How are you seeing kind of the general demand and adoption of kind of new software at this point?

Yes. I think the biggest shift in our growth drivers, if you will, and we've talked about this a few times, has been the amount of expansion and usage among existing customers. So if you take 2018, 2019, so pre-COVID, almost all of the growth really came from that expansion and new customers were always sort of compared to that a drop in the bucket. And churn has been very -- for us, churn has been very steady, maybe spiked a little bit during COVID. And then 2021, when we had the price change, still sort of like percolating, but it's smoothed out. By smoothed out, I mean, it's sort of consistent for the business over the years. But now we're seeing a shift in terms of that expansion among existing customers is not as rich as it used to be. And I think there are several reasons, some of it we thought was macro with like a lot of companies letting a lot of their employees go. Some of it might be here to stay because with AI, more and more companies are becoming leaner. So maybe it's not going to be the biggest driver anymore, and that's a shift in macro technically. New customer growth has been healthy then, has been healthy. Briefly during COVID again, it wasn't, it was a little stalled out, but it's healthy again. So I think I'm not sure what point of view to really have and maybe jury is out and whether SaaS is dead, et cetera. But we are not seeing that to be true based on just incoming leads, still very healthy. And ultimately, I think there's always 2 types of customers, right, the ones that want to use the product and the UX, and they'd like to do everything themselves even when you have tool tips and navigational help and videos, and they just ignore all of it, like I watch a lot of users, that's actually interesting. For a new customer, maybe that video might -- they just want to explore on their own, do things on their own. And there are others that seek out support, seek out AI, seek out ways to do things without having to interact with the product. And I think what we want to do is build a product that serves the bulk because we want them all. And that's really -- has been the strategy, continues to be the strategy. The tactics change, but it's really still the same.

Okay. Maybe in the last 1.5 minutes here or last couple of minutes here, we can talk about just the longer-term vision for Expensify. And let's say, we're in 5 years from now, 2030 Citi Conference, what would we be talking about then? What would be success for Expensify? How do you kind of target the company strategically to get there?

Well, sure. We would have migrated and unified the products. We hope to have a large piece of the small business market off of Excel, off of paper receipts onto our product, using a lot of the agentic capabilities to make their lives simpler because the easier use cases can do that the best. We hope to maintain, if not improve, our unit economics, keep ourselves lean, really lean into intelligent automation that makes the company efficient but delivers the best user experience to our customers. And ultimately, we want to have a super app. We want our customers to use our product and no other because it solves all their needs as it relates to finance and back-office capabilities. And then I guess we take over the world.

Yes, just a little close up there. You need to make that happen. So awesome. Well, I think we're about out of time. Anu, I want to thank you so much for joining us today and being the first session of the day here. So thank you so much.

Yes. Good luck.

All right. Thank you. Thanks, everybody.