Expensify (NASDAQ:EXFY) Q3 2021 Earnings Call

0:01 and others, 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.

0:50 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, for reconciliation of non-GAAP net income, adjusted EBITDA, and adjusted EBITDA excluding the IPO-related bonus to their most comparable GAAP measures. Very high stress, but with that, let me turn the discussion over to David.

1:38 Thank you for that fascinating introduction. So, maybe a quick introduction before we get started. So, I am David Barrett, the founder and CEO of Incify. We have Anu, our COO, Ryan, our chief financial officer, and of course, Francis, our senior technical accountant. We have the whole Dream Team here to answer any question you conceivably have. But to get started, let's review why we're here. So, yeah, yeah. Technology. We love it. Here we go. So, at a very high level, you know, as a reminder, many of you know this, of course, but there's a lot of people on the film here who haven't really heard the spiel, so I'm going to give 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 expense report at a time. Now, if you're considering investing in Inc. There's sort of like three main things you need to know. Now, we can go on Schaffer, and Daniel Vidal.

2:49 But yeah, if you were to add up all of the customers of all the traditional players, it adds up to maybe a couple 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 expensive items, Concur or something like this, is basically a manila envelope. It's email 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. Thank you very much. is employing some variations on the same basic strategy.

3:51 You know, they all know it or 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, you know, it goes to an SDR, BDR. Maybe it goes to a commissioned quota-carrying salesperson. It goes to, you know, an integration specialist, an account manager, some sort of thing like this. It's a very scalable model, but it's also a very high-cost-to-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-to-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 through genuine word of mouth. And then they sign up their own company without permission, and then it just starts submitting essential parts 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.

4:46 We have 100 doors in every company because every employee can onboard their company and then grow sort of virally by the month. This means that we can reach companies that were never in the traditional market. 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 onto the agenda of the company. and the consequence of all of that, we think that we're building a platform that can reach a 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 a billion people through photography, we think it's possible to link a 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.

5:33 This is a tweet that we just got, you know, a couple days ago from someone that we've never met, just talking about how the Expensify bottle up production process automatically closes 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, you know, we've got the best spark card. Yes, we've got the best dispensing reporting and all that kind of cool 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 being a huge, huge player for a much larger market than anyone else even realizes exists. So, that's a quick steal. Now let's talk about 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 let's get started.

6:24 So we actually, we had these numbers in the F1, right? We had our Q3 flash. So in terms of revenue, we disclosed, we were 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. We're very excited about that. 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 660,000 paid members. So I'm 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 73% year-on-year growth rate for revenue. The expense by card is doing fantastic, over 207% year-on-year interchange growth, and that brings us to $150 million in annualized revenue.

7:21 One thing that I did want to spend some time on was this IPO bonus that we did. This was in the S1, but it's costing the numbers a little different, so I want to make sure we're all on the same page here in terms of, you know, incentivized profitability and how it looks going forward. So as disclosed in the S1, 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 LT shares. And for those that don't know, Inc. has an LT share structure, 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 that going public can bring.

8:14 So we think that this bonus is actually probably the best money we'll ever invest in the company. We'll let the results speak for themselves. So our gap 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-gap net income of 19.9 million. And similar with 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 cost. The reason we think this is important to highlight is because One of the big pillars of Expense by 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 ring true with the story we're telling.

9:04 We wanted to make sure that everyone understands that this is an IPO-related bonus. We're not going to IPO again. So it's not really reflective. Yeah. No. Please, not again. But the... 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 40, when you're taking out the IPO bonus, on a Rule 40 basis, we're looking at 126%, which is obviously extremely, extremely high, right? That reflects our very high growth and also our profitability. The reason we do this bonus is because we have a very talent-dense and very talented employee base. We're bringing in over 1 million in ARR per employee.

9:52 If you stack that up against our peers in the public tech markets, we are at the top, top, top of that range. We have a great team. We've invested in retaining them, and we think that it's a great investment. Pass it back over to David. that you give to someone and you pay in return. Now, traditionally, all these different products up here have been seen as completely different industries, like completely different SKUs, if you will. For Sensify, they're 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 different use cases. And so if you look kind of across the top here, I'll highlight a few different colors. So first, the items in blue, these are functionality that in the Sensify app is already live and you can use. And so we're obviously still going to improve all of these, But these are real features that are in market today.

10:52 So you can use our Concierge Travel feature to book travel through chat. Of course, you can send an invoice to anyone else using a Sensify and collect online. Likewise, whoever you send an invoice to, they receive our bill payment experience, where they can basically process bills and export them to the ledger system and pay them online. Of course, we have a world-leading smart card, the Sensify card, with a million different batches. 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 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 built our own payroll solution using the exact same technology we currently have.

11:39 In our world, a paycheck is just an expense report submitted twice a month automatically for you, and then there's some tax time on top of it. We use our own payroll internally. We haven't launched it yet externally, 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. A customized design is much more like a LinkedIn or a Facebook than it would be like a Salesforce or Concur. And basically, our design is not just to be limited to the isolated silo inside of an individual company. The connectivity between all companies. And so Expensify is designed to be used not just for submitting essential reports 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 table departments and accounts receivable departments.

12:36 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 work in 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, it is all linked 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 product to resolve some sort of conversation. If I send you an invoice, you're going to chat back to me with an invoice. If I have a paycheck, then 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 payment experience itself. Now, all of this basically, I know you have off to the left some social functionality plans, off to the right more accounting functionality plans, 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 roadmap perspective.

13:33 and all of this adds multi-layers of value. Of course, we build a functionality because it lets us grow virally. And that's the key to our growth. It's basically zero marginal cost growth throughout all these different industries. Of course, it creates all sorts of transactional income as well. And so basically everything from travel, invoicing, bill processing, all of this basically creates high-value transactions of revenue. And then likewise, of course, is the subscription revenue that comes from the top-end functionality. So this is our product roadmap. This isn't new. 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 Inc. card's been out for a while now, but we built the Inc. card primarily to service our existing customers. When we started, of course, we had this very mature expense management business.

14:19 So we built a card primarily to cross-sell to existing expense management customers. What we just launched in Q3 is a 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 in a card-first design. This is a brand new thing. We just launched it, and we're going to break out the 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 growing forward is that we've launched this new free plan, which allows us to be adopted in a new way by a whole new class of customers that we haven't seen in the past. Likewise, we launched a new cashback built into the AccumSpy card. This is to drive faster adoption of the AccumSpy card because when you adopt the corporate card program, it's not like all your employees immediately switch over on day one.

15:05 So this is 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. Great. We're going to start with part guidance. All right, so let's see. 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. I want to make sure I don't – I want to say the right thing. Yeah. Perfect. $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?

15:56 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 KC growth layer change. So at the beginning, you have at the bottom, that foundation, you have seed expansion. So everyone's familiar with net dollar expansion. Seed expansion is basically when your existing customers grow. which is a really unique and exciting dynamic that Expensify has. Generally, most companies, the most they ever get paid by their customers are at the beginning, and then over time they pay them less and less and less, and then should they churn. Expensify is the exact opposite. The lowest a customer ever pays us is generally in those first couple months, and over time they pay us more and more. So a large driver of growth is the expansion of our existing customers.

16:44 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, you know, buckets of new seats from, you know, 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 backup. We're in nine major markets right now, any Q4, Q1, Q2 going forward. We're just going to keep scaling those advertisements. 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. You add on the interchange growth from the expense by card, the lift that we're starting to see from bill paying invoicing. David mentioned our payroll product.

17:32 We're starting 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, expensive 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 Anu to get us ticked off for Q&A. So, our first question is from Sterling Audie with JP Morgan. Yeah, thanks. Hi, guys. It's good to see you. So a couple things, maybe just to get started. Was there actually a supplement that maybe you put on the website?

18:19 Just want to make sure to help us out with a little bit of the gap, the non-gap 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 can get this true non-gap line item by line item. So was there a supplement on your website? I didn't see it when I checked. Yeah, so we'll be putting all that up on the website right after the call. All right, fantastic. All right, looking, you know, we're starting to see the different variants of COVID, like Omicron started 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 any potential impacts, you know, for emotional COVID?

19:05 Great questions, John. What is important when we're talking about how does the impact of COVID on our customer base? You have to look at what is the economy actually doing? 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. What we saw a very big impact was when everything shut down, no one's traveling. In a post-vaccine world, Schaffer. Schaffer, Daniel Vidal, That makes sense. I wish I had gotten my booster.

20:21 I was supposed to get it next week. Unfortunately, I contracted COVID. I'm so sorry. Thank you. One follow-up would be, can you talk to us, you've got the different pricing levels and cash rates with the card. One of the questions I get a lot from investors is just, can you talk to us about what you're seeing in the trends of attach for the Expensify card as you went through the quarter and and what are you thinking in terms of what's embedded in your guidance? Yeah, so we did not – we didn't break out basically a cash break in our guidance, but directionally we're seeing that new customers adopting the card, which is, you know, at a quick rate, which we're really excited about.

21:09 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 a 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 speed 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, Banto. Revenue guidance did not include interchange in it. That was purely prescription revenue. Makes sense. Thank you, guys. Appreciate it. No problem. Thank you. Cool. The next question is from Tyler Vosky with Citi.

21:56 Good to see you, Tyler. Hey, 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. All right. My question was just on the paid members. It sounded like you saw a lot of positive things in the quarter in terms of paid member growth starting to return back to 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 and so forth. So, you know, the same number of net ads that you saw in Q3, especially heading into Q4 where, you know, we're not dealing with summer vacations and, you know, some of the seasonality dynamics that might otherwise impact the Q3.

22:49 So, obviously, we put our guidance. 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. Everything's looking good here in business. We're very encouraged. That's what we're seeing. So the range is what it is, but we feel very good about that range and our ability to, you know, perform there. Okay. Okay. Makes sense. And then just with some of the changes, you know, headlines announced here in the, I think in the September quarter, I guess first on the cashback incentives, the higher cashback incentives. How are you thinking about that from a payment economic perspective?

23:38 Does this 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, you know, potentially, you know, users could go to the free tier before they become paid? Yeah. So, great question. So, I'll take them last in for a second. So, the 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 they choose to do that before they sign up for a subscription, we think that that actually, on a net basis, is actually going to be better for the business than if they had done it the opposite way.

24:40 So we're excited about kind of the opportunity that free plans 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's kind of 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. I'm going to jump in there really quick. I completely agree with what I just said but I think The way to view the pre-plan is now we're starting the customer journey earlier than we would have normally. Because historically speaking, expense management is something that you think of at a particular time in your company life. And that's basically when you become a lower trust environment.

25:30 If you think of a brand new company, it's basically just a couple of people with very high trust for 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 pre-plan is really targeting a new group of customers that haven't historically We'll see you next time. 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 incentivized for more sophisticated functionality.

26:18 This is supporting a new class of less sophisticated customers. Got it. Thank you. And then I think we want to touch on the... Do you want to take that? The short answer is once we've introduced cashback, it is going to degrade and others. So, we have the 1% here, 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 the good feeling of having earned a reward for your spend and it makes you convert all of your company's spend onto 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 and so on.

27:33 And then we're also working on, and we told you this as part of the roadshow, we're working on becoming our own program manager, which gives us a little more margin room to play with. We win some, we lose some, and that's kind of where we're hoping to meet some of our margins. Yeah, and I think that's a very important point. It's not that it's basically a flat cashback for all spend. It's basically cashback if your program exceeds a certain target. And so if you're a dollar beneath that target, there's no cashback.

28:19 And if you're a dollar beneath the second target, you only get the first target. And so basically it is achievable, and people do get it. But we know in the process it drives so much more spend on the platform, and so it absolutely is value-added. Got it. So gross dollar accretive, even though it's slightly margin-percentage positive. Got it. Thank you. Okay. Appreciate it. Awesome. Our next question is from Koji Ikeda with Bank of America. I hope I said your name right. 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, you know, just thinking about the guidance methodology. You know, with the IPO launching in November, you know, the flash range coming in at about 36.6, 37.6 that you showed in slides.

29:14 and thinking about Q4, you know, we're essentially done with December and we have that range of 38.2 to 39.2. So I guess, you know, how should we be thinking about the guidance methodology for Q4? And more importantly, too, is as we go forward into future quarterly results, you know, how you are thinking about establishing that guidance methodology with the revenue? Great question, Christian. 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 boosts. 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, you know, we hope we get there, right?

30:08 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 a more early answer question, you know, how are we figuring out our guidance? We're looking at actuals. We're looking at how things are trending. And then we're just very simply just forward projecting based on a number of different scenarios and how the remainder of the quarter 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. Yeah, I feel like the Midwestern sensibility of like this, 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 some of the values 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 movements.

30:59 But that's not really our job, or that's not what we feel our job is. We're working to produce very long-term And so all of this, everything we do is really focused on sustainable, achievable growth, achievable forecasts. And so I agree entirely with Ryan. This is very much about trying to give a realistic perception of the next quarter. And that's, I think, the intent that we're going to do going forward. Got it. So just to follow up there, just to be clear, so when you say, you know, achievable, do you mean you're going to set out a range and it's always going to try it? may fall midpoint to the high end of that range or slightly above. I'm just trying to understand how to think about that achievable problem. Yeah, I don't think, Terry, we're going to get into that granularity on what percentile of the guidance we're going to get to.

31:50 The range is there to the same word. We're going to be in this range, right? Fair enough, fair enough. That's not exactly the answer you wanted, but I think we're going to stick to that range. Gotcha. Thanks, Ryan. Okay, and then just last one from me. You know, the conversations with your payment processor, I know you've kind of been in discussions with them. How is that progressing, and maybe when could we be thinking about a potential contract change or that interchange relative to be incorporated in the gap? Great question. Yeah, it's going really well. It's progressing at a pretty good clip. I don't think I'm comfortable giving you an ETH just yet, but We think that in 2022, we'll have it all implemented, which is as close as I'm able to get to right now.

32:38 Maybe in the next earnings call, we'll have a little bit more granular ETA to share. Yeah, we're both 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 spent in cost of revenue up into revenue, and that's going to, you know, that's going to change some things. So we want to make sure that you have... Significant, you know, advance notice. So we will absolutely keep you on the loop there and let you know. Got it. Thanks, guys. Appreciate your time. Thank you. Awesome. The next question is from Brent Braceland with Piper Sandler. Hey. How you doing? Good evening. A couple questions if I could here. Maybe we'll start with you, David, here on a three-card strategy. Let's just think about like, you know, Q3, you just in the early stages of launching it.

33:31 As I think about kind of the strategy here, it seems like you can go a couple 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 Grant, free users, the non-paid 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.

34:17 I mean, obviously, new customers can come through. We dial up, as Brian mentioned, a tremendous amount of marketing. And the free plan is a key message of the marketing. And so there's a degree, of course, of new customers seeing an ad who've never heard of us before, signing up, onboarding onto 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 one word of mouth kind of multiplier effect that happens when you just see the brand around. Because word of mouth basically requires two conditions. One, that you have a product which is relevant to all 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 their friends.

35:07 And then secondarily, it has to be something that you're going to get a good reaction from your friends. Like no one refers to bad movies. Like they just look bad on you sort of thing. And so part of having such a compelling sort of marketing campaign and 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 along 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, yeah, actually, I used 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 capture the lion's share of new customers automatically. and so yes, some will just see the ad convert and it's like a very straightforward acquisition but our view is a bit broader.

36:10 It's about creating a conversation around us, creating an overwhelming sense that we're the best in the market so 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 their 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? Or is it a big ramp in Q4? Like walk us through the good news is being a profitable company, you got a lot of room to do that.

36:55 But just trying to think through how that's going to roll through the P&L would be helpful. Thanks. Yeah. So without giving explicit guidance on marketing, 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 does the stair stop function or when does it kind of skyrocket, I'd say it's going to accelerate more quickly, probably starting in Q1, just because, you know, it takes time to, you know, kind of get the machine chugging. We cut it off during the pandemic, so we're starting to back up. So we expect Q4 to be, you know, Gray with Inc. Q3, and really start to kind of get hung in 2022. Okay. Very helpful. Thanks, guys. I appreciate the call.

37:40 Great. Thank you. Awesome. The next question is from Pat Walraisins with JMP Securities. Hey, how are you doing? Congratulations. First one. I have two questions. So the first one is just for that, I mean, you The room you're in is so beautiful, it almost looks like it's a virtual background. So, Dave, 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 lounges? And then my question number two is pretty fundamental. Even though it's mostly Greenfield for you guys, there are a gazillion of these vendors in either the card space or the expense space. So, can you just sort of remind investors what your competitive differentiation is?

38:27 Thank you for joining us. Schaffer. It's a place that is no longer a requirement to be in the office anymore. The modern office has to compete with your home, your home office, cafe, whatever that is. And so we've created this place for not just our own employees, but basically once COVID is, once the mask restrictions kind of allow this to happen, where essentially any expense by customer will be able to come in and work out of our lounges around the world.

39:29 Things 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 just have a great time. So, you know, 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, let's have another drink with you here. Secondarily, talking about differentiation, 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.

40:18 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 set out to build. They fail because just no one cares. Like a building product is hard, but it's also the easiest thing in a business. Getting anyone to realize what the product you 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 number 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 so on.

41:26 and the shallow end is super noisy. There is a whole bunch of players. They're 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 way over here in the deep end, like, you know, chilling on our floaty over here. And it's great. And I think what's nice about this is because – I don't know where I was going with that. And so I think it's great because we can go to their side. Like, we can go up 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 individually. that don't want to go to an RFP process. They just want to onboard themselves. They just want a self-service model, or they want a free product and things like this. And so, again, the point of differentiation, we can go into why our card is better and sort of our smart limits and things like this.

42:20 But from an investor perspective, the reason you would pick Inc. for your investor dollar over someone else is because you believe that we have a strategy which will capture more of the market faster and better unit economics in the long run. And so I think that's why, 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. Awesome. Thank you. Cool. And then our last question is from Yoon Kim with YouCapital. You're great.

43:07 Yeah. Yep. I'm pressing the button. All right. Thank you. So first, congrats on your first earnings call as a public company, although it feels like someone empty, knowing that we all 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 remark, David, you mentioned that as the economy gets better and the T&E activity increases, you know, you are seeing the expand part of your business accelerate. Obviously, that should lead to more paying members within your existing customers, but can you also expect ARPU to perhaps get a boost as well when that business activity accelerates?

43:52 Yeah, great question, Hugh. So, yes, so as we see customers grow quickly, 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. Now, over time, we expect that they will – and so on. And then, if you can just talk about your international business and what kind of trends you're seeing there.

44:43 When I was doing some work on the S-1 priority initiation, I saw you guys had a pretty good traction among 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., can you just talk about your overall attraction that you have in your business outside of the U.S.? Sure, yeah. 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 We're overseas. And then we started to get customers in London and Melbourne and Sydney.

45:28 And those people also have friends and they talk. So, 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 this. I mean, Netherlands is a growing one for us. Yes, we are growing overseas, but it's not from – we don't have a sales force in the U.K. 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 Expense 5 who's focused on growing revenue in the U.K. It is just growing on its own based on our business models, similar to how our employees in Portland aren't focused on growing revenue in Portland.

46:16 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 roadmap. Okay. All right. Good. Congratulations. Thank you. Thank you. Great questions. 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 Sensify Lounge. Excited to be a part of the company. I think this has been quite a journey. As we said, we're going to do this live here once.

47:03 We're not basically the idea of serial entrepreneurs who 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 a delicious cake at every single time. So with that, I think that's it. So it's been fun. Thank you. Thank you, everyone.