Good afternoon, everyone. Welcome to the Citizens JMP Technology Conference. My name's Aaron Kimson. I cover software here at Citizens. Really excited to have Expensify Founder and CEO David Barrett with us here today. Dave, how you doing?
Doing great, thanks.
Yeah. Thanks for doing this. Let's start with a question that's top of all software investors' minds right now. I guess, what do you see as the primary moats for Expensify's business in an AI world?
Yeah, I mean, I think that's probably the conversation on every single room here is basically, is AI going to decimate all of our businesses? Is it going to grow all of our businesses? Somewhere in between. I think everyone's kind of grappling with that. We put a lot of effort in AI, just like everyone else, and it, you know, I think it's a challenge because everyone says what sounds like basically the same thing. It's like, "We're the ultimate AI of blah," whatever. It was the Uber of X for a long time, now it's the AI of X, if you will. I'd say, you know, I'm gonna come up here and say that I think our AI is better than anyone else's, and, you know, I'm sure everyone else says the same.
Here's kind of, you know, at least my spiel for why that's the case. I think fundamentally anything that you can do yourself, your personal AI is gonna automate. Even if it would take you 1,000 years, eventually it'll do it. Basically any software that boils down to you upload your data into a system, it does some work, and then it gives you your data back, that's all gone. That's just gonna evaporate. Those businesses will not survive. Anything that's trying to sell you back your time, that's not enough anymore. I think that the businesses which are just about time savings are gone.
I think a lot of businesses are not about time savings, and I think that, you know, you gotta make my clever alliteration here of three Cs, which I think actually can talk about the moats that specifically apply to our business, but I think more generally apply to a lot of businesses. I think one is if it's collaboration. If it's a tool that's actually not just used by you, but it's used by others in your team, then it's not your personal decision whether or not to abandon or churn, whatever it might be. You need to get the buy-in of your whole team. So I'm not gonna say that's an indefensible moat. There's no way to not saying you can't bridge it.
One of the things, one of the protections that businesses like ours have is that we have buy-in across the entire team. Any sort of collaborative tool has a network effect, and that provides a degree of protection, I would say. I think second really comes down to if you're dealing with a sort of certified profession, let's say. If you're dealing with a lawyer, an accountant, they by law need to be humans, and they control the rules. I'm guessing those jobs are never gonna be automated away. The AI will always serve the people who have the ability to ensure that they're in charge. I think an accountant, for example, you have to be a certified CPA to do tax for accounting and so forth.
These jobs are gonna be safe for a long time. The tools that serve these people, I think, are going to still have a lot of longevity. I think third really comes down to if you're a gatekeeper to a compliance-heavy network, you can't do that yourself. Even with 1,000 years, you can't vibe code your way to manifest a physical corporate card. It's just not gonna happen. You can't access a lot of the, the situations and a lot of the networks that we can. I think it's a combination of we serve a certified professional, which by law has to be human. We do it with a collaborative platform, and collaboration is only gonna happen more because I'd say the jobs which are being wiped out aren't the highly collaborative jobs. It's the highly uncollaborative jobs.
Those are the jobs that are gonna go. Anyone who's there working with other people and increasingly working with agents needs a platform to do that work. I think that the opportunity for collaborative platforms is only going to increase because it's gonna be human to human collaboration is more important than ever, and of course, human agent collaboration, and let's not forget agent to agent collaboration is on the way as well. You know, that's, you know, starting to show that agents working in teams actually work better than agents in isolation, and they gotta be somewhere. Someone's gonna come out with a platform that allows you to customize your agents and allow them to interact with your accounting flows and so forth. I think it's gonna be us.
If it's not us, it's going to be someone that looks a lot like us. It's going to be some kind of a chat-centric collaborative framework that's deeply tied into corporate cards and accounting. That's a pretty small list of players that it could possibly be. We're still betting, I would say, on, I think AI is way more of an opportunity than a threat, and I say this because we've been talking about this for years. If you go back and read our S-1, we're talking about the risks and opportunities of AI and how it's going to create a hyper-concentration of wealth into a smaller group of players, and we want very badly to be one of those players. That's why we started this exercise 5 years ago to rewrite our entire software stack around leaning into collaboration, compliance-based networks, and certified professions.
There's a reason for that. It's not a coincidence. This was all highly planned. Now, it's a scary time for everyone. Scary for us, scary for absolutely everyone here. I think fear doesn't need to be panic. I think that you need to just turn it into preparation. We started preparing for this AI renaissance a long time ago, and yes, it is a brutal, savage world out there right now. Not everyone is gonna be as annihilated. Some of us were ready for this, and I feel like we view this as a huge opportunity. Honestly, yes, it is scary like a roller coaster, but it's exciting too.
Awesome.
That's the pitch.
One of the themes you reported on Thursday night, right? I think the stock's down about 20% since then. You have $63.1 million in unrestricted cash, I think, at the end of Q4. Your market cap now is in the high nineties. The market's not pricing a lot into the stock.
Yeah.
-as it is today, right?
Uh-huh.
One of the themes you talked about on the call when you reported was flipping from a building mindset back to a growth mindset.
Yeah.
What do you mean by that, and what product areas and new distribution methods should investors expect there?
Sure, that makes sense. Like we have in Expensify, we have essentially two main products. We have Expensify Classic, which is sort of a traditional Concur-style expense management system. It's like, you know, Concur, Ramp, Brex, you know, whatever. Kind of the old school, sort of like traditional mentality, where it's basically you connect to a website, you do some stuff, it gives you your data back. I think that business model is actually a really challenging one because I don't think it has the same moats that we're talking about. We saw this a long time ago, we decided to reintroduce, you know, lean into these major competitive moats in terms of collaboration and so forth, and built New Expensify. That has taken a long time. I'm not gonna lie.
It has not been fun trying to do this whole thing, especially while defending market share and so forth. The good news is it's basically done. New Expensify, we're migrating our customers over to it. We think that it's able to support about 90% of our customers right now. We've moved the majority of our customers basically onto this platform. They can still go back and forth. We're not forcing anyone onto it, but they choose to stay by and large because it's a better platform. It provides them better collaborative tools with themselves and with our AI agent Concierge, which we put an extraordinary amount of effort into. What was the question?
You tell such a good story.
I got kinda lost.
switching from building to growth.
Thank you so much. Yeah, that's exactly what I was getting to. We've been working on this for a long time, but I would say we're getting to the end of that building phase because it works. It works. It's in the hands of customers. They like it. They're buying it. It's very exciting talking to accountants. It's very exciting going back to conferences and so forth. For a long time, we didn't really have a strong go-to-market play because it just, "Hi, we could be, you know, the same software that we've been for the past 15 years." I mean, that's not a very compelling pitch. Now we're something radically new. There is nothing like us in the market, and people are seeing that.
I think that we're going back into the conferences with more aggression, back into we're beefing up our sales motion. We're adding social and outbound marketing. We're doing a wide variety of things. You can do it any time, but now we feel is the right time to do it. I think this is a year where it's really less about trying to, you know, just build something and then hope in the future someone's gonna adopt it. This is the year where we really get people adopting it, and it's already happening.
Got it. Let's talk about the go-to-market a little more. I mean, you've always had a unique go-to-market motion, right? I think you had 117 employees at the end of the year.
Sure.
I wanna say $135 or so in revenue, so you're over $1 million per employee in revenue. You tried a BDR program maybe in 2022, 2023.
Mm-hmm
... and then you kinda wound that down. What are the learnings from that and how you'll think about it?
Well, yeah.
... as you build out the go-to-market now?
I guess I would say customer acquisition is tough. Like I always talk to new entrepreneurs, and I would say building product's hard. It's also the easiest thing you'll ever do. Getting anyone to care at all is super difficult. I think that we have tried absolutely everything under the sun. We've done Super Bowl ads. You may have seen this little movie called F1. We've done all this sort of viral stuff. We've done one time we're one of the biggest outdoor advertisers in America. We try absolutely everything, and I think the dirty secret is that none of it specifically works. None of it measurably works. It's very hard to get positive ROI, especially when you're going up against competitors who have no intention of ever generating a profit during their entire corporate existence.
If everyone you're buying your marketing from is willing to lose money on that same ad, it's very hard to turn a positive ROI. I think that we've seen it works. It will generate some degree of growth. Also, I should emphasize, we have the strongest brand by far in the market. Now, you might be surprised to hear that, but like do brand studies, the unaided recall of expense management for Expensify is like, I don't know, something like 10x more than anyone else in the market. As a result, we have huge awareness of the product. Now we need to convert that into leads. That's I'm not gonna say that that's easy, and it's not gonna come from one particular thing. It's going to come from a wide variety of things.
We did BDRs. That worked to a degree. We still do some outbound calling in different ways. Whenever you kind of label a marketing sort of campaign, that implies that it's just this one thing, this one pillar to your campaign. I think it's going to be a full court press across a whole wide range of things. We're dialing up across the board. We're doing more outbound. We're doing more viral programs and more sort of product-led growth. Really, it's a combination of a wide variety of things. I would say if I was gonna be the most excited about anything, that is, when you think of the people who sign up for Expensify, and what makes Expensify unusual, most of the people who sign up for Expensify are not business owners.
They're actually just individuals either trying to use it themselves or using it inside their company. Most of the companies that adopt Expensify didn't adopt because the business owner spontaneously decided to buy. It's because some employee started using it, submitting expense reports, that we turned their expense report into a viral marketing message directly to the business owner. That's how we got where we are, and so word of mouth has always been our strongest suit. This year we're really doubling down on that product-led growth component. For the past five years, we've really been focused on just migrating our historical customers, taking care of the leads that do come to us directly, and there's a lot more that we can do there. I'm not gonna claim otherwise.
We think we can really reactivate what brought us onto the scene this year by doubling down on sort of the bottom-up adoption model that is really unique to our product. No one else has anything quite like that.
Awesome. Let's talk more about the F1 movie since you brought that up.
Sure.
I re-watched it on the flight out here.
Great.
It's a great movie, yeah.
It's amazing.
I love Brad Pitt, so I'm a sucker for those. The movie did good numbers at the box office domestically...
Right
... and particularly internationally, where you guys are expanding as well. You wore those everywhere throughout the film. At the same time, investors look at it and say, "You probably spent $10 million-$15 million on this." My estimate, I think, was about $11 million. The market cap now is sub $100 million, and the top line's still anemic 8 months after the release. Is it too early to have a verdict on that, or do you think the ROI will take longer to show up?
Oh, no, I think the verdict is already clear, and it's positive. I think it comes down to, again, marketing is what they say it takes seven touches to get a customer, that's one. For hundreds of millions of people. It takes more than one. Like F1. People don't say like, "I love F1, I'm gonna adopt Expensify." Like, that's not what it's ever intended to be. It's basically it's like, "I love F1, now I'm even aware that there is something called Expensify. That's interesting." The next time they see the next touch, our outbound call and whatever it might be, it lowers the barrier to adoption. We never went into it with the expectation this would suddenly drive people to, you know, walk out of the movie theater and start submitting expenses. That's not what it's intended to do.
It was intended to create that broad awareness, and it was wildly successful at that. I would say it's way more successful from a general just, like, name recognition perspective than we honestly imagined, and also in the best demographics, which is really important as well.
Okay. Understood. Given the lower barriers to entry for creating an expense management application in an AI world, might it make sense for Expensify to be part of a larger organization? I know you have a lot of partners in the accounting channel. Could one of those be a good home for Expensify, where you have the distribution motion and you can invest in the business that way?
Well, I guess I kinda I don't agree with the framing of that question. I don't think it's easier than ever to build an expense management. I mean, I guess in the, in the abstract because all technology is easy, that's true, but software has been easy for a long time. It's like AI didn't change the fact that software was not the hard part of the business. As I mentioned earlier, like, you know, the hard part of the business is getting a business model, customer acquisition, unit economics and all that, and AI doesn't fundamentally change that. I would say the challenge of expense management is compliance, it is relationship building. It's a wide variety of things that AI doesn't really do for you.
Yes, I guess, and of course, AI makes technology even easier, but it makes the kinda the easy thing easier. It doesn't make the hard things easier, in my mind. I guess I would say, first off, I think actually expense management is still a very... It's a complex nexus of where individuals bring their most complicated, denormalized, chaotic data, and we try to normalize it and then put it into highly compliance-oriented processes and systems. That whole world is still actually quite difficult, and vibe coding doesn't really change much of that at all. I'm sorry, I forgot the question again.
Yeah, the second half of the question, does it make sense for the business to be part of a larger organization?
I guess I would say no, otherwise we would've done that. I think that I'm not gonna rule it out. Obviously, you know, I'm a very rational actor in that sense that, like, my whole net worth is tied up in this. I have a very strong desire to make that every share as valuable as possible, and I'm taking the path that I think is gonna do that for me and for all the shareholders. I think that we wouldn't, you know, we're not turning down any opportunity. We're not zealots in any way. There's a reason that we set out on this journey, and we were preparing for this moment in time in this market, and yes, it kinda sucks, don't get me wrong, but I mean, that's the story of how you get great opportunity.
There's no straightforward path where you just, it's just an easy walk in the park and then suddenly you disrupt things. That's just not how it works. At least not maybe for you guys. Not for me. I think that we knew it was gonna be a hard road, and so we set out to have the resources and time to really take a big swing at what we think is a generational opportunity. I don't know if AI is as big as electricity. It might be as big as the internet, and both of those are pretty big. I think it's big enough to really try to capture this moment in the best way you can, and that doesn't happen just by burying your head in the sand, just assuming it's just gonna be fine.
Got it. Let's talk about the seat-based model a little bit. Block laid off about 40% of its employees last week.
Yeah.
There's been a lot of investor discussion about the potential for further mass white-collar job losses. How do you envision potentially large tech layoffs affecting your business in the short term, where seats from certain customers may be reduced, right? Block is a customer. Then the long term-
Yeah
...where you can potentially monetize human-to-agent interactions and agent-to-agent interactions.
Sure. I mean, I think that that's part of the big part of the discussion is there a future for the seat-based business model? I think the death of the seat-based business model has been, like, a little exaggerated, personally. I think that we're past the healthy skepticism and into the sheer panic mode of things, but that's just me. At the same time, we've always been diversifying our business model away from purely seats, in terms of obviously we have, you know, strong growth in our travel product, we have growth in our corporate card product, and there's a wide variety of other ways that we can monetize in the future, like you mentioned, AI agents and so forth.
I think when it comes to seats, it's one way to view it is I think when agents replace humans, but they still need to collaborate with other humans. I think just having agent seats isn't unreasonable as well. I think that, you know, there's going to be all kinds of ways to integrate with the new agents that come out and data credit models and so forth. There are a whole bunch of different ways that we're going to continue expanding and diversifying our revenue. At the same time, I don't personally think that we're gonna see a sudden collapse in employees. I think that, you know, there aren't a lot of Jack Dorsey out there that are gonna slash 40% of the company or even have the ability to.
I do think that there's kind of the world is split into like there's a pre-AI group of customers, and then there's the post-AI. The pre-AI were built with a lot of, a lot of fat. They're built with a lot of headcount, middle managers, and there's a lot of things. The pre-AI customers, I think, will see a steady erosion. I don't think today or Block or anything has changed in the past 48 hours that's gonna cause a sudden shift in the trajectory of that. I do think we're gonna see sort of seat erosion of those traditional customers. On the other hand, new customers don't have that. They didn't ever do that over hiring. New customers are not laying people off, they're still growing. They're just growing in a more responsible fashion.
I think we're kind of caught in a tricky world because we have this very large base of traditional customers, and we have a smaller but growing base of new customers. One's shrinking, and one's growing, and how does it exactly work out? I mean, who can say? I think that over time, our exposure to those historical customers lowers, and so time kind of works in our favor. I do believe we're gonna get back to an industry where there is a baseline amount of just... Historically, Expensify grew through this idea of revenue expansion. Every cohort of customers we'd acquire would basically just grow. That has not been playing out for the past few years, but I do believe that we're gonna get back to that once we get on the other side of this disruption, personally.
I think that the seat model is not gonna go away. At the same point, no business can survive on seats alone. We're not surviving on seats alone. I think that we're open to all these different options. We already have a diversification underway and certainly more coming.
Okay, one more from me, and then I'll open it up to the audience. You phrased it as traditional versus new customers. One thing I've been thinking about is enterprise versus SMB-
Mm.
The relative effects of e-agentic AI on each, right? Do you think it's fair to say, I mean, you have enterprise customers, but your bread and butter is SMB and VSB.
Mm-hmm.
Do you think those businesses are inherently leaner and will be less...
Yeah.
affected from a headcount perspective?
I'm actually really glad you asked about that because we tend to think when we hear B2B software, we always think large enterprise. Large enterprise is such a small fraction of the global opportunity. Like, we started this whole exercise towards New Expensify with the simple premise that if you were to add up all of the customers of us and all the competition, it would add up to a couple hundred thousand companies in the world use anything like any of us. There are hundreds of millions of businesses in the world, and every single one of them has an expense problem. Way before you have revenue, you have expenses. Before you have an accountant or an accounting system, you've done something to track your expenses. It's what differentiates a hobby from a business, is when you start tracking how much it costs.
We thought something is wrong with the historical model, and that there is an opportunity maybe on the order of 100 times larger if someone can crack the code on customer acquisition. It's not going to be the 0.1% enterprise world that everyone has convinced themselves is the only world out there. Yes, I think that enterprise is a tricky world because there's over-hiring, there's erosion and things like this. I don't think that same is true for your average SMB or smaller. Like a sole proprietor, hard to have seat erosion from that customer. I'd say at some point, I think that we're seeing, especially in the wave of AI has made it easier than ever to start businesses, and that's happening. Ever since COVID, small business has exploded. Sole proprietorships has exploded.
Entrepreneurialism is stronger than it's ever been. They're not starting Fortune 500 companies. They're starting very small businesses. Our focus from the start and what it's been is we think there's a huge opportunity in the growing SMB market, not just to capture historical customers, but to capture the new SMBs which are coming online. We think those are actually much less vulnerable to seat erosion because they've always run much leaner operations. We think there's much more, again, to be gained through AI partnerships with SMBs than lost to enterprise seat erosion.
Yeah. It's kinda counterintuitive, right? The higher churn in the SMB, but when you go through a big change in technology like this, maybe it could actually end up being advantageous.
That's that, yeah.
All right. Anyone in the audience have questions?
Here in the front.
David, when you're winning new business-
Mm-hmm.
What's the reason they're choosing Expensify?
That's a good question. When winning new business, what's the reason? I'd say, I think it's a number of things. I think, and I think a lot of it's just pretty boring. For example, our mobile app is really, really powerful. It is by far the most powerful mobile app in the industry in terms of you can manage your corporate cards, you can issue new corporate cards, you can search all your data, you can do AI analysis. Basically, anything you can do on the website, you can do it on a mobile app, and we're the only ones who can say anything like that. The world's just moving increasingly mobile.
I know everyone talks about AI, talks about a whole bunch of these big trends, but there's a lot of really important boring trends happening as well, and that is people are on the phone more, people are traveling more, and people just, they work from home more. We've really designed New Expensify to operate on like bad networks. It doesn't have to have a really great LAN, enterprise network. It works really well in a coffee shop. Those small things really add up. I'd say, one, it just works really well for the day in the life of just someone who's on the road. In this rewrite, we've made things just way more powerful.
For example, we have our core search experience is this universal search engine that can basically, using a query language, it can access any object in the entire system. If you're doing more intensive analysis, the New Expensify is by far the best platform to do it. You don't have to. Like, for example, and this is maybe to the accountants out there, you can do a native flux analysis inside of Expensify. Normally, if you wanted to say, "Oh, how much has my spend changed from this month to last month? This month to, you know, this quarter to last quarter? This quarter versus." You'd have to download something like nine or 12 months of data into an Excel spreadsheet, pivot tables, all this junk. With Expensify, it's just in product.
There's just more that you can do to bring more of the, kind of those accounting flows, the reconciliation flows, and just the nuts and bolts of the product itself is brought in product. I think customers see that, especially our accounting providers. They really see that.
Anyone else in the audience? Go ahead, Scott.
David, you clearly love product and development. I mean, this has been an amazing success building this company. Why the throwing larger dollars at sales and marketing? Why not just accept? I mean, you're talking about rational actors competitively. Why not just go the? This is extremism.
Sure.
Just cut all sales and marketing out and focus on all the things that you're talking about from a product side that $1 million there.
I mean, yes. Expensify has always been... Well, not always, but look, we're a profitable company. We grow, we kick off a lot of cash. We're putting money in the bank. Things are pretty wild. Like right now, we're trading for less than our book value. We're trading for less than cash on hand. It's a pretty wild time right now. I would say, we could double down and make more cash. I don't know that that's in the best interest of shareholders. I think that producing cash by itself is not enough. At some point, you gotta grow, and this is the time that we've been preparing for to grow. We could, you're right, we could just cut more and then kind of like watch things shrink.
It wasn't more around cutting it was more around rerouting the dollars that you have. That bit of product development, why is it? I mean, you're in control.
Mm-hmm.
Why doesn't David just focus on product development and let sales just naturally sort of occur with a better product?
Well, I do spend most of my time on AI and product. I'd say I don't know. I mean, a CEO's job is across the board. We have to do everything. Maybe I don't quite understand the question. I would say, I think that we are trying to be very responsible for how we deploy cash. I think that there's a time for stockpiling it, and I think there's a time for spending it. I think when we get into a world right now where we have a product which is actually really, really great, we have a we have a lead source which is good and growing, and we just need to really focus on growth. There's no simple answer for how to do that.
I think it's investing in a wide variety of things across the board. The most important thing is not staying still, burying our head, and saying, "What we did yesterday is what's going to work for the future." I think we've created a structure that allows us to be pretty adaptive such that we can go out and try to get that growth. We're not trying to get back to $2. We're trying to get back to $20. You can't do that without growth.