SEC Filing | Expensify, Inc

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exfy-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

___________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 001-41043

___________________________________

Expensify, Inc.

___________________________________

(Exact name of registrant as specified in its charter)


Delaware			27-0239450
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
401 SW 5th Ave Portland Oregon			97204
(Address of Principal Executive Offices)			(Zip Code)

(475) 221-8402

Registrant’s telephone number, including area code

___________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

EXFY

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter

period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	x	Smaller reporting company	☐
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The registrant had outstanding 68,598,512 shares of Class A common stock, par value of $0.0001 per share, 7,336,191 shares of LT10 common stock, par value $0.0001 per share, and 6,732,693 shares of LT50 common stock, par value $0.0001 per share, as of November 8, 2022.

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		Page
	Special Note Regarding Forward-Looking Statements

Part I - Financial Information
Item 1.	Condensed Financial Statements	1
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of O perations	3
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit )	4
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

Part II - Other Information
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures

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Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal,” “objective,” “seeks,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategies, plans, or intentions. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors include, among others:

•the impact on inflation on us and our members;

•our borrowing costs have and may continue to increase as a result of increases in interest rates;

•our expectations regarding our financial performance and future operating performance;

•our ability to attract and retain members, expand usage of our platform, sell subscriptions to our platform and convert individuals and organizations into paying customers;

•the timing and success of new features, integrations, capabilities and enhancements by us, or by competitors to their products, or any other changes in the competitive landscape of our market;

•the amount and timing of operating expenses and capital expenditures that we may incur to maintain and expand our business and operations to remain competitive;

•the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;

•our ability to make required payments under and to comply with the various requirements of our current and future indebtedness;

•our cash flows, the prevailing stock prices, general economic and market conditions and other considerations that could affect the specific timing, price and size of repurchases under our stock repurchase program or our ability to fund any stock repurchases;

•the war in Ukraine and escalating geopolitical tensions as a result of Russia's invasion of Ukraine;

•our ability to effectively manage our exposure to fluctuations in foreign currency exchange rates;

•the increased expenses associated with being a public company;

•the size of our addressable markets, market share and market trends;

•anticipated trends, developments and challenges in our industry, business and the highly competitive markets in which we operate;

•our expectations regarding our income tax liabilities and the adequacy of our reserves;

•our ability to effectively manage our growth and expand our infrastructure and maintain our corporate culture;

•our ability to identify, recruit and retain skilled personnel, including key members of senior management;

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•the safety, affordability and convenience of our platform and our offerings;

•our ability to successfully defend litigation brought against us;

•our ability to successfully identify, manage and integrate any existing and potential acquisitions of businesses, talent, technologies or intellectual property;

•general economic conditions in either domestic or international markets, including geopolitical uncertainty and instability;

•our protections against security breaches, technical difficulties, or interruptions to our platform; and

•our ability to maintain, protect and enhance our intellectual property.

We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations, estimates, forecasts and projections about future events and trends that we believe may affect our business, results of operations, financial condition and prospects. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021, and any subsequent filings, as well as those identified in the Quarterly Report on Form 10-Q for the three months ended June 30, 2022 ("Q2 2022 Form 10-Q") and in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements. Unless otherwise indicated or unless the context requires otherwise, all references in this document to “Expensify,” the “Company,” “we,” “us,” “our” or similar references are to Expensify, Inc. Capitalized terms used and not defined above are defined elsewhere within this Quarterly Report on Form 10-Q.

iii

Part I - Financial Information

Item 1. Condensed Financial Statements



1

Expensify, Inc.

Condensed Consolidated Balance Sheets

(unaudited, in thousands, except share and per share data)



	As of September 30,		As of December 31,
	2022		2021
Assets
Cash and cash equivalents	$	106,212	$	98,398
Accounts receivable, net	16,274		15,713
Settlement assets	39,359		21,880
Prepaid expenses	5,698		7,436
Related party loan receivable	—		14
Other current assets	21,247		14,201
Total current assets	188,790		157,642
Capitalized software, net	6,142		6,359
Property and equipment, net	14,872		15,930
Lease right-of-use assets	1,109		2,202
Deferred tax assets, net	200		370
Other assets	580		710
Total assets	$	211,693	$	183,213
Liabilities and stockholders' equity
Accounts payable	$	2,177	$	3,752
Accrued expenses and other liabilities	7,862		11,046
Borrowings under line of credit	15,000		15,000
Current portion of long-term debt, net of original issuance discount and debt issuance costs	549		549
Lease liabilities, current	1,190		1,549
Settlement liabilities	36,383		21,680
Total current liabilities	63,161		53,576
Lease liabilities, non-current	—		802
Other liabilities	1,145		153
Long-term debt, net of original issuance discount and debt issuance costs	51,572		52,067
Total liabilities	115,878		106,598
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, par value $0.0001; 1,000,000,000 shares of Class A common stock authorized as of September 30, 2022 and December 31, 2021; 68,575,385 and 67,844,060 shares of Class A common stock issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; 24,997,561 and 25,000,000 shares of LT10 common stock authorized as of September 30, 2022 and December 31, 2021, respectively; 7,336,191 and 7,332,640 shares of LT10 common stock issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; 24,999,170 and 25,000,000 shares of LT50 common stock authorized as of September 30, 2022 and December 31, 2021, respectively; 6,732,693 and 6,224,160 shares of LT50 common stock issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; preferred stock, par value $0.0001; 10,000,000 shares of preferred stock authorized as of September 30, 2022 and December 31, 2021; no shares of preferred stock issued and outstanding as of September 30, 2022 and December 31, 2021	7		6
Additional paid-in capital	185,326		142,515
Accumulated deficit	(89,518)		(65,906)
Total stockholders' equity	95,815		76,615
Total liabilities and stockholders' equity	$	211,693	$	183,213


See accompanying notes to condensed consolidated financial statements.
2

Expensify, Inc.

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except share and per share data)



	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenue	$	42,493	$	37,447	$	126,026	$	102,471
Cost of revenue, net	16,554		18,197		46,564		33,768
Gross margin	25,939		19,250		79,462		68,703
Operating expenses:
Research and development	3,416		2,167		10,701		8,138
General and administrative	15,898		18,333		45,335		35,827
Sales and marketing	12,342		7,608		37,958		14,555
Total operating expenses	31,656		28,108		93,994		58,520
(Loss) income from operations	(5,717)		(8,858)		(14,532)		10,183
Interest and other expenses, net	(2,369)		(1,054)		(5,226)		(2,560)
(Loss) income before income taxes	(8,086)		(9,912)		(19,758)		7,623
(Provision) benefit for income taxes	(156)		3,567		(3,854)		706
Net (loss) income	$	(8,242)	$	(6,345)	$	(23,612)	$	8,329

Less: income allocated to participating securities	—		—		—		(5,625)
Net (loss) income attributable to Class A, LT10 and LT50 common stockholders	$	(8,242)	$	(6,345)	$	(23,612)	$	2,704
Net (loss) income per share attributable to Class A, LT10 and LT50 common stockholders:
Basic	$	(0.10)	$	(0.18)	$	(0.29)	$	0.09
Diluted	$	(0.10)	$	(0.18)	$	(0.29)	$	0.07
Weighted-average shares of common stock used to compute net (loss) income per share attributable to Class A, LT10 and LT50 common stockholders:
Basic	80,941,664		34,490,860		80,523,557		31,301,387
Diluted	80,941,664		34,490,860		80,523,557		41,452,880


See accompanying notes to condensed consolidated financial statements.
3

Expensify, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited, in thousands, except share and per share data)



	Convertible preferred stock			Common stock			Additional paid-in capital		Subscriptions receivable		Accumulated deficit		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount
Three months ended September 30, 2022
Balance at June 30, 2022	—	$	—	81,773,016	$	6	$	173,961	$	—	$	(81,276)	$	92,691
Issuance of common stock on exercise of stock options	—	—		99,664	—		181		—		—		181
Vesting of early exercised stock options	—	—		—	—		247		—		—		247
Issuance of restricted stock units	—	—		3,939	—		30		—		—		30
Repurchases of early exercised stock options	—	—		(3,859)	—		(5)		—		—		(5)
Issuance of common stock under Matching Plan	—	—		80,424	—		1,235		—		—		1,235
Issuance of common stock in connection with restricted stock units vesting	—	—		1,020,109	1		—		—		—		1
Shares withheld from common stock issued to pay employee payroll taxes	—	—		(329,024)	—		(4,162)		—		—		(4,162)
Stock-based compensation	—	—		—	—		13,839		—		—		13,839
Net loss	—	—		—	—		—		—		(8,242)		(8,242)
Balance at September 30, 2022	—	$	—	82,644,269	$	7	$	185,326	$	—	$	(89,518)	$	95,815


See accompanying notes to condensed consolidated financial statements.
4

Expensify, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited, in thousands, except share and per share data)



	Convertible preferred stock			Common stock			Additional paid-in capital		Subscriptions receivable		Accumulated deficit		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount
Three months ended September 30, 2021
Balance at June 30, 2021	4,203,139	$	45,105	34,780,520	$	—	$	25,641	$	(1,760)	$	(37,674)	$	(13,793)
Issuance of common stock on exercise of stock options	—	—		1,460,280	—		644		1,247		—		1,891
Vesting of early exercised stock options	—	—		—	—		234		—		—		234
Stock-based compensation	—	—		—	—		897		—		—		897
Net loss	—	—		—	—		—		—		(6,345)		(6,345)
Balance at September 30, 2021	4,203,139	$	45,105	36,240,800	$	—	$	27,416	$	(513)	$	(44,019)	$	(17,116)


See accompanying notes to condensed consolidated financial statements.
5

Expensify, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited, in thousands, except share and per share data)



	Convertible preferred stock			Common stock			Additional paid-in capital		Subscriptions receivable		Accumulated deficit		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount
Nine months ended September 30, 2022
Balance at December 31, 2021	—	$	—	81,400,860	$	6	$	142,515	$	—	$	(65,906)	$	76,615
Issuance of common stock on exercise of stock options	—	—		406,739	—		615		—		—		615
Vesting of early exercised stock options	—	—		—	—		998		—		—		998
Issuance of restricted stock units	—	—		10,568	—		76		—		—		76
Repurchases of early exercised stock options	—	—		(16,929)	—		(25)		—		—		(25)
Issuance of common stock under Matching Plan	—	—		151,946	—		2,433		—		—		2,433
Issuance of common stock in connection with restricted stock units vesting	—	—		1,020,109	1		—		—		—		1
Shares withheld from common stock issued to pay employee payroll taxes	—	—		(329,024)	—		(4,172)		—		—		(4,172)
Stock-based compensation	—	—		—	—		42,886		—		—		42,886
Net loss	—	—		—	—		—		—		(23,612)		(23,612)
Balance at September 30, 2022	—	$	—	82,644,269	$	7	$	185,326	$	—	$	(89,518)	$	95,815


See accompanying notes to condensed consolidated financial statements.
6

Expensify, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited, in thousands, except share and per share data)



	Convertible preferred stock			Common stock			Additional paid-in capital		Subscriptions receivable		Accumulated deficit		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount
Nine months ended September 30, 2021
Balance at December 31, 2020	4,203,139	$	45,105	29,366,940	$	—	$	21,312	$	—	$	(52,348)	$	(31,036)
Issuance of common stock on exercise of stock options	—	—		6,873,860	—		3,375		(513)		—		2,862
Vesting of early exercised stock options	—	—		—	—		234		—		—		234
Stock-based compensation	—	—		—	—		2,495		—		—		2,495
Net income	—	—		—	—		—		—		8,329		8,329
Balance at September 30, 2021	4,203,139	$	45,105	36,240,800	$	—	$	27,416	$	(513)	$	(44,019)	$	(17,116)


See accompanying notes to condensed consolidated financial statements.
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Expensify, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)



	Nine months ended September 30,
	2022		2021
Cash flows from operating activities:
Net (loss) income	$	(23,612)	$	8,329
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	4,072		3,732
Reduction of operating lease right-of-use assets	531		552
Loss on impairment, receivables and sale or disposal of equipment	722		283
Stock-based compensation	41,793		2,495
Amortization of original issuance discount and debt issuance costs	22		23
Deferred tax assets	170		—
Changes in assets and liabilities:
Accounts receivable, net	(1,016)		(3,865)
Settlement assets	(10,096)		(3,344)
Prepaid expenses	1,738		(2,886)
Related party loan receivable	14		(224)
Other current assets	558		1,212
Other assets	11		120
Accounts payable	(1,575)		(330)
Accrued expenses and other liabilities	(2,195)		18,870
Operating lease liabilities	(601)		(614)
Settlement liabilities	14,703		10,699
Other liabilities	990		(472)
Net cash provided by operating activities	26,229		34,580
Cash flows from investing activities:
Purchases of property and equipment	(467)		(2,602)
Software development costs	(906)		(4,397)
Net cash used by investing activities	(1,373)		(6,999)
Cash flows from financing activities:
Principal payments of finance leases	(593)		(579)
Principal payments of term loan	(445)		(25,157)
Proceeds from term loan	—		45,000
Repurchases of early exercised stock options	(25)		—
Proceeds from common stock purchased under Matching Plan	2,433		—
Payments of deferred offering costs	—		(4,796)
Vesting of restricted common stock	—		234
Proceeds from issuance of common stock on exercise of stock options	700		2,862
Payments for employee taxes withheld from stock-based awards	(4,172)		—
Net cash (used) provided by financing activities	(2,102)		17,564
Net increase in cash and cash equivalents and restricted cash	22,754		45,145
Cash and cash equivalents and restricted cash, beginning of period	125,315		46,878
Cash and cash equivalents and restricted cash, end of period	$	148,069	$	92,023
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,721	$	2,182
Cash paid for income taxes	$	879	$	6,910
Noncash investing and financing items:
Accrued deferred offering costs	$	—	$	795
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	106,212	$	68,058
Restricted cash included in other current assets	16,255		5,989
Restricted cash included in other assets	—		47
Restricted cash included in settlement assets	25,602		17,929
Total cash, cash equivalents and restricted cash	$	148,069	$	92,023


See accompanying notes to condensed consolidated financial statements.
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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

NOTE 1 – GENERAL INFORMATION

Description of the Business

Expensify, Inc. ("Expensify") was incorporated in Delaware on April 29, 2009. Expensify offers a comprehensive expense management platform that integrates with a variety of third-party accounting applications, including QuickBooks Desktop, QuickBooks Online, Xero, NetSuite, Intacct, Sage, Microsoft Dynamics, MYOB and others. Expensify's product simplifies the way that employees and vendors manage and submit expense receipts and bills and provides efficiencies to companies for the payment of those bills. Expensify delivers its services over the internet to corporations and individuals under a license arrangement and offers unique pricing options for small and midsized businesses and enterprises on a per-active-member basis.

Expensify also offers an Expensify card ("Expensify Card"), which is primarily distributed to large corporate customers in the United States ("U.S.") that subsequently distribute the card to their employees for business use. The Expensify Card allows customers to have real-time control over their employees' spending and compliance with spending limits in addition to eReceipt reporting on purchases.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Expensify and its wholly-owned subsidiaries (the "Company") and have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim reporting in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Annual Report").

All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are necessary for the fair presentation of the Company's financial position, results of operations, equity, and cash flows for the periods presented.

Results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other future annual or interim period.

Stock Split

On October 27, 2021, the Company effected a ten-for-one stock split of its common stock. All share and per share information has been retroactively adjusted to reflect the stock split for all prior periods presented.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are based on historical experience, forecasted events and various other assumptions that the Company believes to be reasonable under the circumstances. Estimates and judgments are evaluated on an ongoing basis.


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

Significant estimates and assumptions by management affect the Company’s revenues, classification of employee and employee-related expenses, the useful lives and recoverability of long-lived assets, income taxes, capitalization of internal-use software costs, and stock-based compensation.

Updates to Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 2 of the 2021 Annual Report. Since the date of the 2021 Annual Report, there have been no material changes to the Company's significant accounting policies, including the status of recent accounting pronouncements adopted, other than those detailed below.

Restricted Cash

Restricted cash includes amounts deposited with a commercial bank required as collateral for corporate credit cards issued by the respective commercial bank in the U.S. and United Kingdom, cash in transit for funds held for customers to the Company's Payment Processor, Expensify Card collateral for funds held for customers, cash held by Expensify.org for social justice and equity efforts of Expensify.org, cash held on behalf of service providers to be used towards service provider share purchases at the end of the Matching Plan (as defined in Note 5) offering period, and settlement assets for funds held for customers that are deposited into a commercial bank account held by the Company for the benefit of the customers until remitted to the customers' members.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires an impairment model (known as the current expected credit loss or "CECL Model") that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. The CECL Model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. As the Company will no longer qualify as an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as of December 31, 2022, the guidance will be effective for the Company beginning with the annual reporting period ended December 31, 2022 and interim periods presented therein. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

NOTE 2 - REVENUE AND CERTAIN STATEMENTS OF OPERATIONS COMPONENTS

Revenue by geographic region, based on user address, was as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
United States	$	38,955	$	33,553	$	114,862	$	91,466
All other locations	3,538		3,894		11,164		11,005
Total revenue	$	42,493	$	37,447	$	126,026	$	102,471

No individual customer represented more than 10% of the Company’s total revenue during the three and nine months ended September 30, 2022 and 2021.

Cashback Rewards

The Company offers a cashback rewards program to all customers based on volume of Expensify Card transactions and Software as a Service ("SaaS") subscription tier. Cashback rewards are earned on a monthly basis and paid out the following month. The Company considers the cashback payments to customers as consideration payable to a customer and is recorded as contra revenue within Revenue on the condensed consolidated statements of operations. Cashback rewards for the three months ended September 30, 2022 and 2021 was $0.8 million and $0.3 million, respectively. Cashback rewards for the nine months ended September 30, 2022 and 2021 was $2.0 million and $0.3 million, respectively.

Consideration From a Vendor, Net

The Company receives consideration from a vendor for monetizing Expensify Card activities. This consideration, net of credit card processing fees paid to the vendor, is included as a reduction to Cost of revenue, net within the condensed consolidated statements of operations. Consideration from a vendor, net for the three months ended September 30, 2022 and 2021 was $1.7 million and $0.8 million, respectively. Consideration from a vendor, net for the nine months ended September 30, 2022 and 2021 was $4.4 million and $1.9 million, respectively.

NOTE 3 - CERTAIN BALANCE SHEET COMPONENTS

Other Current Assets

Other current assets consisted of the following (in thousands):


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)


	September 30,		December 31,
	2022		2021
Expensify.org restricted cash	$	5,402	$	3,078
Expensify Card posted collateral for funds held for customers	6,622		5,115
Cash in transit for funds held for customers	3,882		388
Contract assets	—		8
Expensify Payments LLC restricted cash	101		55
Income tax receivable	4,797		5,412
Matching plan escrow and other restricted cash	248		—
Other	195		145
Total	$	21,247	$	14,201

Capitalized Software, Net

Capitalized software, net consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Capitalized software development costs	$	12,700	$	10,966
Less: accumulated amortization	(6,558)		(4,607)
Capitalized software, net	$	6,142	$	6,359

Amortization expense related to capitalized software development costs is recorded in Cost of revenue, net on the condensed consolidated statements of operations. Amortization expense was $0.6 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively. Amortization expense was $2.0 million and $1.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Computers and equipment	$	183	$	311
Furniture and fixtures	1,593		1,462
Leasehold improvements	6,948		7,106
Commercial building	6,493		6,493
Land	4,151		4,151
Construction in progress	2,551		2,391
Total property and equipment	21,919		21,914
Less: accumulated depreciation	(7,047)		(5,984)
Total property and equipment, net	$	14,872	$	15,930

Depreciation expense related to property and equipment is recorded in General and administrative on the condensed consolidated statements of operations. Depreciation expense related to property and equipment for the three months ended September 30, 2022 and 2021 was $0.5 million and $0.5 million, respectively. Depreciation expense related to property and equipment for the nine months ended September 30, 2022 and 2021 was $1.5 million and $1.6 million, respectively.


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Accrued expense reports	$	201	$	246
Partner payouts and advertising fees	693		574
Hosting and license fees	37		36
Credit card processing fees	21		56
Professional fees	1,303		1,274
Sales, payroll and other taxes payable	2,139		4,936
Cashback rewards	270		239
Interest payable	1,094		783
Restricted common stock liability for early stock option exercises	1,527		2,443
Matching plan payroll liability	206		—
Other	371		459
Total	$	7,862	$	11,046

NOTE 4 - COMMITMENTS AND CONTINGENCIES

Finance and Operating Lease Arrangements

The Company did not enter into any additional operating lease agreements or finance lease agreements to finance the acquisition of new property and equipment during the nine months ended September 30, 2022 and 2021.

The components of lease cost reflected in the condensed consolidated statements of operations were as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Finance lease cost:
Amortization of ROU assets	$	198	$	198	$	593	$	593
Interest on lease liabilities	5		10		19		33
Total finance lease cost	203		208		612		626
Operating lease cost	173		205		531		615
Total lease cost	$	376	$	413	$	1,143	$	1,241


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Other information related to leases was as follows (in thousands, except as noted within):


	September 30,			December 31,
	2022			2021
Finance lease ROU asset (included within Lease right-of-use assets)	$	658		$	1,251
Operating lease ROU asset (included within Lease right-of-use assets)	$	451		$	951
Weighted-average remaining lease term (in years):
Finance leases	0.83			1.58
Operating leases	0.67			1.40
Weighted-average discount rate:
Finance leases	2.47		%	2.50		%
Operating leases	5.25		%	5.30		%

Supplemental cash flow information related to leases was as follows (in thousands):


	Nine months ended September 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(595)	$	(678)
Operating cash flows from finance leases	(19)		(33)
Financing cash flows from finance leases	(593)		(579)

Maturities of lease liabilities as of September 30, 2022 were as follows (in thousands):


	Finance leases		Operating leases
For the year ending:
Remainder of 2022	$	204	$	196
2023	476		332
2024	—		—
2025	—		—
2026	—		—
Thereafter	—		—
Total future lease payments	680		528
Less: imputed interest	(8)		(10)
Less: lease liabilities, current	(672)		(518)
Lease liabilities, non-current	$	—	$	—

Amortizing Term Mortgage

In August 2019, the Company entered into an $8.3 million amortizing term mortgage agreement with Canadian Imperial Bank of Commerce ("CIBC") for the Company's commercial building located in Portland, Oregon. The agreement requires principal and interest payments be made each month over a 30-year period. Interest accrues at a fixed rate of 5.00% per year until August 2024, at which point the interest rate changes to the Wall Street Journal Prime Rate less 0.25% for the remaining term of the mortgage. The borrowings are secured by the building. The outstanding balance of the amortizing term


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

mortgage was $7.9 million and $8.0 million as of September 30, 2022 and December 31, 2021, respectively.

2021 Amended Term Loan

In September 2021, the Company amended and restated its loan and security agreement with CIBC ("2021 Amended Term Loan") to refinance the existing non-amortizing and amortizing term loans, establish a single term loan of up to $75.0 million, consisting of a $45.0 million initial term loan effective immediately with an option to enter into an additional $30.0 million delayed term loan, and increase the monthly revolving line of credit to $25.0 million. The term loan and revolving line of credit mature in September 2026 and September 2024, respectively. Approximately $23.5 million of the loan proceeds were used to immediately repay the remaining balances under the amortizing and non-amortizing term loans at the time of the amendment, as well as commitment fees and other debt issuance costs associated with the amendment. The remaining proceeds from the initial term loan were utilized to fund the Company's normal business operations.

Under the 2021 Amended Term Loan, the initial term loan of $45.0 million is payable over a 60 month period with principal and accrued interest payments due each quarter, commencing on September 30, 2021. The 2021 Amended Term Loan amortizes in equal quarterly installments of $0.1 million through September 30, 2024, $0.2 million beginning October 1, 2024 and $0.6 million beginning October 1, 2025, with any remaining principal balance due and payable on maturity. The amounts borrowed bear interest at the bank’s reference rate plus 2.25% (8.50% as of September 30, 2022) beginning on September 30, 2021 and continuing on a quarterly basis through maturity of the term loan. The borrowings are secured by substantially all the Company’s assets. As of September 30, 2022 and December 31, 2021, the outstanding balance of the 2021 Amended Term Loan was $44.5 million and $44.9 million, respectively.

Monthly Revolving Line of Credit

The line of credit agreement, as amended with the 2021 Amended Term Loan, provides borrowings up to $25.0 million. Borrowings under the line of credit bear interest at CIBC’s reference rate plus 1.00% (7.25% as of September 30, 2022) and are secured by substantially all of the Company’s assets. As of September 30, 2022 and December 31, 2021, there were $15.0 million of borrowings under the line of credit and $10.0 million of capacity available for additional borrowings.

In connection with the amortizing term mortgage and the 2021 Amended Term Loan, the Company recorded an immaterial amount of debt issuance costs and the 2021 Amended Term Loan was subject to an original issuance discount. These amounts are being amortized to interest expense over the term of the respective agreements using the effective interest method. As of September 30, 2022 and December 31, 2021, unamortized original issuance discount and debt issuance costs remaining were $0.3 million and $0.2 million, respectively.

Future aggregate annual principal payments on long-term debt as of September 30, 2022 is expected to be as follows (in thousands):


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)


For the year ending:
Remainder of 2022	$	148
2023	595
2024	715
2025	1,397
2026	42,355
Thereafter	7,190
Total principal payments	52,400
Less: unamortized original issuance discount and debt issuance costs	(279)
Less: current portion, net of unamortized original issuance discount and debt issuance costs	(549)
Long-term debt, net of unamortized original issuance discount and debt issuance costs	$	51,572

As of September 30, 2022, the Company was not in compliance with all debt covenants, specifically the covenant restricting the amount of transfers to Expensify Payments LLC and the covenant restricting the amount of repurchases of common stock, which includes our RSU net share settlements, each during the period. A waiver was obtained from CIBC. The Company does not believe non-compliance with these covenants had any material impact on the Company or its operations. The Company expects to be in compliance with all debt covenants by the end of the fiscal quarter ended December 31, 2022.

Defined Contribution Plans

The Company sponsors a U.S. 401(k) defined contribution plan for all eligible employees who elect to participate. The Company is permitted to make discretionary profit sharing and 401(k) matching contributions as defined in the plan and as approved by the Board of Directors. Effective January 1, 2018, the Company matches up to 4.50% of each eligible participant’s 401(k) contribution. The Company’s actual contribution may be reduced by certain available forfeitures, if any, during the plan year. No discretionary profit-sharing contributions were made during the three and nine months ended September 30, 2022 and 2021. The Company’s 401(k) matching contributions for the three months ended September 30, 2022 and 2021 were $0.2 million and $0.2 million, respectively. The Company’s 401(k) matching contributions for the nine months ended September 30, 2022 and 2021 were $0.6 million and $0.5 million, respectively.

Legal

From time to time in the normal course of business, the Company may be involved in claims, proceedings and litigation. In the case of any litigation, the Company records a provision for a liability when management believes that it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. The Company reviews such provisions at least quarterly and adjusts such provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

As of September 30, 2022, there were no legal contingency matters, either individually or in aggregate, that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

NOTE 5 - STOCK INCENTIVE PLANS

2009 and 2019 Stock Plans

In 2009, the Board of Directors approved the 2009 Stock Plan ("2009 Stock Plan"). As amended in 2015, the 2009 Stock Plan permitted the Company to grant up to 16,495,150 shares of common stock.


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

In January 2018, the Company increased the number of shares of common stock reserved under the 2009 Stock Plan by 535,130 shares, from 16,495,150 shares to 17,030,280 In April 2019, the Board of Directors approved the adoption of the 2019 Stock Plan ("2019 Stock Plan", and together with the 2009 Stock Plan, "Stock Plans"). The 2019 Stock Plan permitted the Company to grant up to 8,173,970 additional shares, increasing the overall common stock reserved for grant under the Stock Plans to 25,204,250 shares. In September 2021, under the 2019 Stock Plan, the Board of Directors approved the grant of 8,679,380 restricted stock units under the 2019 Stock Plan, which covered of an aggregate of 4,339,690 shares of each of Class A and LT50 common stock effective immediately prior to the effectiveness of the Company's IPO Registration Statement on Form S-1 ("IPO Registration Statement") on November 9, 2021. On November 9, 2021, the Board of Directors amended and restated the 2019 Stock Plan to, among other things, increase the common stock reserved for issuance under the 2019 Stock Plan to an aggregate of 16,856,770 shares of Class A and LT50 common stock.

Following the completion of the initial public offering of the Company’s Class A common stock ("IPO"), the Company did not and does not intend to make any further grants under the Stock Plans. However, the Stock Plans will continue to govern the terms and conditions of the outstanding awards granted under the Stock Plans. Upon the expiration, forfeiture, cancellation, withholding of shares upon exercise or settlement of an award to satisfy the exercise price or tax withholding, or repurchase of any shares of Class A common stock underlying outstanding stock-based awards granted under the 2009 Stock Plan or of Class A or LT50 common stock underlying outstanding stock-based awards granted under the 2019 Stock Plan, an equal number of shares of Class A common stock will become available for grant under the 2021 Incentive Award Plan ("2021 Plan") and the Company's 2021 Stock Purchase and Matching Plan ("Matching Plan" and together with the 2021 Plan, "2021 Incentive Plans").

2021 Incentive Plans

In November 2021, the Board of Directors adopted, and its stockholders approved, the 2021 Incentive Plans, which both became effective immediately before the effectiveness of the IPO Registration Statement and use a combined share reserve. Under the 2021 Incentive Plans, 12,453,532 shares of Class A common stock were initially reserved for issuance pursuant to a variety of stock-based awards, including incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), and other forms of equity and cash compensation under the 2021 Plan and purchase rights and matching awards under the Matching Plan. The number of shares initially reserved for issuance or transfer pursuant to awards under the 2021 Incentive Plans will be increased upon the expiration, forfeiture, cancellation, withholding of shares upon exercise or settlement of an award to satisfy the exercise price or tax withholding, or repurchase of any shares of Class A common stock underlying outstanding stock-based awards granted under the 2009 Stock Plan or of Class A or LT50 common stock underlying outstanding stock-based awards granted under the 2019 Stock Plan. The number of shares of Class A common stock reserved for issuance under the 2021 Incentive Plans as of September 30, 2022 and December 31, 2021 was 17,336,972 shares and 12,453,532 shares, respectively. The number of shares will automatically increase each subsequent January 1 through January 1, 2031, by the lesser of (A) 6% of the aggregate number of shares of all classes of common stock outstanding on the immediately preceding calendar year, or (B) such lesser number of shares as determined by the Company’s board of directors or compensation committee; provided, however, that no more than 87,576,990 shares of Class A common stock may be issued upon the exercise of incentive stock options.

Matching Plan

The Matching Plan operates using consecutive three month offering periods that commenced on March 15, 2022. Employees, consultants and directors ("Service Providers") of the Company can participate in the Matching Plan by electing to contribute compensation through payroll deductions or from fee payments or may be granted discretionary awards under the Matching Plan. On the last day of the


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

offering period the contributions made during the offering period are used to purchase shares of Class A common stock.

The price at which Class A common stock is purchased under the Matching Plan equals the average of the high and low trading price of a share of Class A common stock as of the last trading day of the offering period. At the end of each offering period, the Company may provide a discretionary match up to 1/10 of a share of Class A common stock for each share of Class A common stock purchased by or issued to a service provider under the Matching Plan that is retained through the end of the applicable offering period. No fractional shares will be issued by the Company. The Company will round to the nearest full share for shares purchased by a service provider as well as any matched shares issued to a service provider under the Matching Plan. The match rate applicable to each offering period shall be limited to 1.50% of the shares of any class of capital stock outstanding as of the exercise date applicable to such offering period. The Company estimates the fair value of matched shares provided under the Matching Plan using the Black-Scholes option-pricing model on the date of grant. The Company recognizes stock-based compensation expense related to the matched shares pursuant to its Matching Plan on a straight-line basis over the applicable three month offering period.

Service Providers who participated in the Matching Plan for the offering period ended September 14, 2022 purchased a total of 73,959 Class A common shares, based on a purchase price of $16.70, resulting in gross cash proceeds to the Company of $1.2 million.

For the offering period ended September 14, 2022, the Company elected to match each share of Class A common stock purchased by or issued under the Matching Plan with 1/20 of a share of Class A common stock. During the three and nine months ended September 30, 2022, the Company granted 6,465 and 10,041 shares of Class A common stock under the Matching Plan, respectively.

Restricted Stock Units

On September 24, 2021, under the 2019 Stock Plan, the Company approved the grant of Class A and LT50 common stock RSUs to Service Providers effective November 9, 2021, the date the Company amended its Certificate of Incorporation, to include, among other things, LT50 common stock. RSUs granted to Service Providers on November 9, 2021 that were approved in September 2021 vest upon the satisfaction of both a performance and service condition. The performance condition was satisfied immediately prior to the effectiveness of the IPO Registration Statement. The service condition is satisfied over eight years with 1/8 of the grant vesting on September 15, 2022 and quarterly vesting of 1/32 of the grant every December 15, March 15, June 15 and September 15 (each, a "Specified Quarterly Date") thereafter until fully vested, in each case subject to continued service to the Company. All RSUs granted to Service Providers after the IPO, under the 2021 Plan, have a service condition only, which is satisfied over eight years from the vesting commencement date corresponding to one of the Specified Quarterly Dates nearest the date of grant, with 1/8 of each grant vesting on the first anniversary of the vesting commencement date and 1/32 of each grant vesting in equal quarterly installments thereafter until fully vested, in each case, subject to continued service to the Company.

Pursuant to the Company's Non-Employee Director Compensation Program, which was adopted under the 2021 Incentive Plans, the Company granted 20,163 Class A common stock RSUs for the nine months ended September 30, 2022. A total of 6,945 Class A common RSUs vested during the nine months ended September 30, 2022 related to previously granted RSU awards as the quarterly service conditions were satisfied. There were no RSUs granted under this program during the nine months ended September 30, 2021.


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Expensify, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

During the nine months ended September 30, 2022, RSU activity for Service Providers and non-employee directors was as follows:


	Class A Common Stock	LT50 Common Stock	Weighted average grant date fair value per share
Outstanding at December 31, 2021	4,329,530	4,301,750	$	33.75
RSUs granted	63,223	—	$	18.21
RSUs vested	(519,691)	(507,363)