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

Hello, and thank you for joining us for Expensify's Q2 2026 Earnings Call. My name is Niki, and I'm going to start off with the legal disclosure, and then I'll hand things off to Ryan Schaffer, our CFO; and David Barrett, our Founder and CEO. 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 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. And with that, I'll hand it over to Ryan Schaffer, our CFO.

Thanks, Niki, and thanks, everyone, for joining today's call. Let's start with the Q2 financials. Revenue for the quarter was $33.9 million. Average paid members were 640,000. Expensify Card interchange revenue across both Classic and New Expensify was $5.9 million, up 12% year-over-year. While we continue to see some pressure on the top line, our focus remains firmly on the financials of the business and on executing the work required to return to sustainable growth. Even though revenue has declined year-over-year, we've been working hard to meaningfully improve profitability and cash flow. Operating cash flow was $8.4 million and free cash flow was $6.4 million. Our GAAP net loss improved to $3.9 million from $8.8 million a year ago. Non-GAAP net income was $3.4 million compared to a non-GAAP net loss last year, and adjusted EBITDA improved to $6.6 million from a negative adjusted EBITDA a year ago. These results reflect the discipline with which we're managing the business as we focus on improving execution, returning to growth and creating long-term value. Q2 free cash flow of $6.4 million was up 2% from the same period last year and up 162% from the previous quarter. Given that trajectory, we're raising our full year 2026 free cash flow guidance from $6 million to $9 million up to $12 million to $14 million. As always, we'd like to give you an early look at next quarter's paid member trends. For July 2026, we had 634,000 paid members. As you can see from previous years, July tends to run a bit lower as people take vacations and travel less for business. This is the usual summer dip, and we'd expect things to pick back up as we move through Q3. Turning to capital allocation. This was an active quarter for us. We commenced and completed a modified Dutch auction tender offer, repurchasing approximately 6.1 million shares of Class A common stock at $1.20 per share. That tender was actually substantially undersubscribed despite the premium we offered on the stock price. So following its completion, we went into the open market and purchased an additional 712,000 shares at an average price of $1.63 per share. Altogether, that brings our total Q2 repurchase to approximately 6.8 million shares of Class A common stock, which represents roughly a 7% reduction in shares outstanding. We think this reflects real conviction in the value of this business and is a continued commitment to returning capital to shareholders even as we keep investing in growth. With that, I'll hand it over to David for a business and product update.

Thanks, Ryan. Q2 was a quarter where I think the product itself tells the story better than any single number could. We made real progress in AI on product velocity. And as Ryan just covered in capital allocation, let me walk you through what that actually looked like for our customers. I want to start with something a customer told us this quarter because it captures exactly what we're building towards. Laura Redmond of Redmond Accounting, put it this way. "Expense approvals used to sit in my inbox for days, waiting for me to eyeball a $40 lunch receipt. That's not judgment. That's just routing. I set up an agent rule that clears anything in policy on its own. I got back hours a week I didn't even know I was losing." That's the whole thesis in one sentence. Most approval work isn't judgment. It's routing and routing is exactly what we should be automating away. That's what agent rules do. It's what we call Level 3 workflow automation. Tag, categorize, edit, route, hold, approve, reject or pay based on natural language rules that get evaluated with LLM judgment inside of real-time workflow. So instead of writing rigid if this, then that logic, you just tell it what you want in plain English and it handles judgment calls the way Laura's example showed. The next step up from that is custom agents, what we call Level 4. These are prompt-driven agents that collaborate over chat, e-mail and SMS with employees, vendors or clients. They're both reactive, responding to internal or external events as they happen and proactive, taking scheduled actions on their own. So where agent rules handles routing within the workflow, custom agents can actually go and have that conversation on your behalf. And this one is no longer in beta. It's live. The Expensify MCP gives third-party AI assistants a direct connection to Expensify. So tools like ChatGPT, Claude and Cursor can access expense data through natural language right from within those apps. We think this is a meaningful differentiator and it's a good example of us meeting customers inside the tools they are increasingly using. Beyond the AI work, Q2 is one of our strongest shipping quarters yet with more than 30 features and enhancements, and I want to hit a few highlights from each month rather than read the whole list. This slide has the details for anyone who wants them. In April, the headline was really bring your own card. We shipped personal card imports directly into the Expensify wallet and shared card feeds across workspaces, so customers can keep using the corporate cards they already have and still get full expense automation with no card migration required. In May, we focused on giving admins more control without more overhead. Card freeze and unfreeze and CSV company card imports both extend that same bring your own card thesis, making it easier for finance teams to bring existing card programs into Expensify. We also expanded prohibited expense detection, a good example of AI quietly doing enforcement work that used to be manual. And in June, as I just covered, the Expensify MCP went live, alongside real-time Expensify card rules and automatic VAT capture via SmartScan, which starts to open up more of our international opportunity. It's been gratifying to see that work recognized externally, too. We were named Expense Management Platform of the Year at the TravelTech Breakthrough Awards this quarter. Now I want to step back because I think the simplest way to understand Expensify right now is that we're not really one company or 2. Expensify Classic is the gold standard for traditional expense management. It established what's now the traditional design in the category: web and mobile app, credit card import, plus scanning, plus GPS mileage tracking in an end-to-end workflow with export to cloud accounting and next-day reimbursement. That was our focus for the first 12 years, culminating in our IPO. But here is the thing. Less than 1% of global businesses are actually interested in traditional expense management approach. New Expensify is the new standard for AI expense management. A mobile-first, chat-first design that puts humans and AI agents in the same workflow. With a stripped-down, AI-centric experience that works over email and meets users wherever they already are. New Expensify is what lets us go after the other 99%. And each of those two products plays a different role for us financially. Classic is a steady profit engine. It requires minimal engineering and direct investment, but it produces a substantial cash flow. New sign-ups only ever see New Expensify now. So Classic is a large but deliberately shrinking set of customers. That's fine. Classic has given us the platform and the resources to build New Expensify in the first place. We believe New Expensify, on the other hand, is our rapid growth engine into a genuinely untapped market. Essentially, all of our engineering has been devoted to it for years now, and most of our customers and users, including both net new sign-ups and migrated Classic customers, are on it today. It's extremely competitive and growing rapidly on top of and separate from the Classic migration itself. And you can see that growth directly in the numbers. Net new revenue from New Expensify, meaning revenue from customers who signed up on New Expensify and never touched Classic. So this excludes all of the Classic customers who simply migrated over, grew more than 250% year-on-year to over $10 million in ARR. So to summarize the quarter, our Classic to New migration has entered its long tail. Virtually all Classic customers have been nudged towards New Expensify. Most of them choose to stay, and now we have more users on New than on Classic. New Expensify itself grew rapidly, with net new revenue up over 250% year-on-year to more than $10 million in ARR. Our card program continued to scale, with combined Classic and New Expensify card interchange revenue up 12% year-over-year to $5.9 million. We launched a wide range of customer-requested features, more than 30 this quarter, including the MCP server and our new AI agents, which ultimately earned us a Platform of the Year award. And we returned capital to shareholders, repurchasing approximately 6.8 million shares of Class A common stock, representing about 7% reduction in our shares outstanding. Our path forward is the same one we've talked about since the IPO. Keep migrating the remaining Classic customers onto New Expensify, where they get a dramatically better experience, and keep accelerating new customer acquisition into a market that's still almost entirely untapped. What's different today is that now we have increasingly solid evidence the plan is working. With that, thank you all for joining us today, and let's move to Q&A.

Aaron, I believe you're on the line with us.

I'm here. First one for me. The free cash flow guide for the year was initially a little bit lighter for 2026 at $6 million to $9 million on the 4Q call in late February. You reiterated it on the 1Q call in May. Tonight, you took it up $5.5 million at the midpoint. I guess the question is, where are you in terms of the sales and marketing investments as well as AI investments that you initially cited as part of the drag on free cash flow in '26 on the original guide relative to '25 free cash flow?

Great question. So we are deploying our sales and marketing dollars that has started. We have some more coming later this year. Also, we are currently in a, I think, a place a lot of companies are where our AI spend is scaling, but we're also now looking at it and trying to cut it back. Luckily, we have the best spend management software in the world. So we're doing a great job doing that responsibly. So it's scaling but also I'm trying to figure out how we can reduce it without impacting operations. And also, I just want to point out that we had a class action lawsuit settlement in Q1, and we weren't exactly sure how that was going to turn out, and that's all behind us. So that also helps put a -- now that we kind of a that's a known quantity, that helps put a better -- we can see what the numbers are going to look like a little bit better now that that's kind of behind us.

Got it. And then the second question I have, so the $10 million in New Expensify ARR exclusive of prior classic customers that switched over, is really encouraging. I guess what I'm interested in is what's the 250% year-over-year number? And any commentary you can give on the sequential growth of what that might have looked like a quarter ago. I think that's the most important thing for investors right now, just trying to figure out whether New Expensify is bringing in net new customers and revenue at a rate that it's going to continue to accelerate and become a more meaningful part of the business, right? At the $10 million ARR, it's still less than 10% of the total business from those net new customers on New Expensify.

Sure. That makes sense. Maybe I'll be curious, Ryan, for your thoughts on this in a second. But I guess I would say I think that is the real kind of story and challenge of the company right now. On one hand, if this company were exclusively New Expensify, we would all be high-fiving each other as the hottest startup in the space by far. And that we have a product which is super rad, it's very competitive, it's growing really quick. It's already got almost 12,000 customers or already like over $10 million in ARR. This is a great startup. And also we have this Classic product, which has been around forever, which is producing a tremendous amount of cash that we've used to fund and build this startup. And either of those is actually quite valuable, like having a super fast-growing expense management startup combined with a kind of super cash flow positive sort of traditional product. Both of those are actually really, really nice to have. But when you combine them, it looks like a single company that has kind of like nothing going on. So it's a very confusing story that we admit. That's why we're trying to -- and it's a story we've been telling for a long time. We understand why people could be confused. That's why we're trying to break it out a bit here to clarify that, no, actually, there's something really rocking and rolling here. Also, there's something else that's funding it, which is a really great thing. And so the question is, how does those balance out? And it's a great question. I guess if we had better insight, we would be giving better forecasting. And I would say right now our challenge is we've solved the -- what I would say is the hardest part, and that is build an incredibly successful new differentiated product in this market. And I think that this chart really shows the growth of that product, and it's really good. Now what we need to do is we need to complete migrating everyone over to it and addressing basically any sort of anxieties along the way. Recall that New Expensify is it's a new product that's pretty differentiated. It's quite different. And it is targeted to a much larger market than the one that we were historically targeting. And so there are a lot of conversations with existing customers who are like, "Well, how does this really -- how do these changes, like how do they work for me?" And it reminds me a bit like when I get a Tesla for the first time, years ago, and I went in, and I was just shocked like, it doesn't have a key, you don't start the car, you just drive. You don't even turn on the windshield wipers. Just figures -- it's just such a different experience, like it has no buttons. It's a wildly different experience, and that can be a little jarring. And I think that's of some of the experience we're dealing with now is basically it's like, how do we get existing customers onto the new platform such that we can address kind of the churn, which is gradually eroding the traditional customer base. And so the question is, well, which is going to happen first? Will New Expensify's growth just get to a scale that it can overcome Classic's churn? And also, what can we do to reduce and reverse Classic's churn by getting those customers onto New Expensify and then cross-selling our new products and so forth. So there's kind of 2 different business strategies playing out in parallel. Which of those is going to win, which is going to happen first? I mean it's a combination of both. But it's a pretty dynamic system right now. And so it's -- if I had better insight, I would be sharing it. But right now, we're just saying there are these really positive trends on both sides, and it's a little unclear which is going to win out. Anyway, I don't know -- that's kind of my take on the answer. I'd be curious for your thoughts, Ryan.

So Aaron, I believe you asked what's the sequential quarter? I don't have that offhand. I'm just -- I'm looking at the graph. And it looks like we were at a little around 7 end of Q1. So we're just around 12 in end of Q2. So it's growing pretty rapidly, which is why we're highlighting this. The -- to maybe just put a little finer point on what David just said. Basically, we have our large -- we've broken the customer base out into 2 cohorts. We have our large Classic cohort, which is slowly decreasing. And of course, it's decreasing because we're not adding new customers to it, right? It's -- you cannot join the Classic cohort anymore. And then we have the New Expensify cohort, which is small but growing rapidly. So if you were to line up 2 charts, one, which is the Classic slowly declining. And on top of it, you overlaid New Expensify rapidly increasing. Eventually, those 2 lines intersect and then we're just in a growth mode again. So we think that, that is on its way. We don't know exactly what's going to happen. We think it's coming soon. And so we're just sharing the information that we have.

I appreciate that. And I had missed the graphic with the deluge of earnings after the bell. So this really helps. And then I guess the last question I would have is just any color on the percentage of total ARR that comes from New Expensify when you include the migrations from Classic today? Is it a meaningful part of the business?

So over -- I believe it is 56% of users are on New Expensify. So we have crossed more people use New Expensify than Classic now. So that's a pretty major milestone that we hit this quarter.

But also, I would say, virtually all new revenue is coming from New Expensify because you can't buy Classic anymore. It's -- we only sell New. And so I'd say all incremental revenue is being added via New.