# Expensify, Inc. (EXFY) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Expensify, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1476840/000147684022000016/exfy-20211231.htm
Accession: 0001476840-22-000016
Filing date: 2022-03-31
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EXFY/
All MD&A years: /company/EXFY/mda/
Next year: /company/EXFY/mda/fy2022/ (FY 2022)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this Annual Report on Form 10-K. A discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019 has been reported previously in our final prospectus dated November 9, 2021, filed with the SEC on November 12, 2021 pursuant to Rule 424(b) of the Securities Act, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

OVERVIEW

Expensify is a cloud-based expense management software platform that helps the smallest to the largest businesses simplify the way they manage money. Every day, people from all walks of life in organizations around the world use Expensify to scan and reimburse receipts from flights, hotels, coffee shops, office supplies and ride shares. Since our founding in 2008, we have added over 10 million members to our community and processed and automated over 1.1 billion expense transactions on our platform, freeing people to spend less time managing expenses and more time doing the things they love. For the year ended December 31, 2021, an average of 711,000 paid members across 53,000 companies and over 200 countries and territories used Expensify to make money easy.

Initial Public Offering

In November 2021, we closed our initial public offering (the "IPO") of 11,190,392 shares of our Class A common stock at $0.0001 par value per share (the Class A common stock), in which we sold 2,608,696 shares of Class A common stock, and the selling stockholders sold 8,581,696 shares of Class A common stock at an IPO price of $27.00 per share. This total sale of 11,190,392 shares of Class A common stock in our IPO includes the full exercise of the underwriters’ option to purchase an additional 1,459,616 shares of Class A common stock from certain selling stockholders at an IPO price of $27.00 per share. We did not receive any proceeds from the sale of shares of Class A Common Stock in the offering by the selling stockholders. We received aggregate net proceeds of approximately $57.5 million after deducting underwriting discounts and commissions of approximately $4.9 million and offering costs of approximately $8.0 million.

Immediately prior to the effectiveness of our IPO registration statement, we filed an amendment to our Amended and Restated Certificate of Incorporation to create three classes of authorized common stock: Class A, LT10, and LT50 common stock. All shares of common stock then outstanding were reclassified as Class A common stock except for shares under our exchange offer, which provided employees and other service providers the opportunity to exchange, on a one-for-one basis, their Class A common stock into LT10 or LT50 shares. Under our exchange offer, 13,556,800 shares of Class A common stock were exchanged for 7,332,640 shares of LT10 common stock and 6,224,160 shares of LT50 common stock. Upon closing of the IPO, all convertible preferred stock then outstanding, was converted into 42,031,390 shares of common stock on a ten-for-one basis and reclassified into Class A common stock. In addition, 430,080 shares of common stock warrants were converted to an equivalent number of shares of Class A common stock warrants.

Immediately prior to the closing of our IPO, we filed our Amended and Restated Certificate of Incorporation authorizing a total of 1,000,000,000 shares of Class A common stock which entitles holders to one vote per share, 25,000,000 shares of LT10 common stock, which entitles holders to 10 votes per share, and 25,000,000 shares of LT50 common stock, which entitles holders to 50 votes per

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share. In addition, the Amended and Restated Certificate of Incorporation authorized a total of 10,000,000 shares of undesignated preferred stock.

OUR BUSINESS MODEL

Our employee-centric product strategy, viral and bottom-up business model, word-of-mouth adoption and unique company culture come together to drive value for our members and a competitive advantage for us. We believe that if we remain hyper-focused on our end-user members, and build great products, our members will continue to drive adoption.

We primarily generate revenue from annual subscriptions to our cloud-based platform, driven by the number of paid members active on a monthly basis. Individuals or companies pay for subscriptions on behalf of themselves, their employees and contractors, who we collectively refer to as members. We define a customer as any member who pays for themselves and zero or more other members, grouped into one or more "expense policies." This might be an individual, an entire company, or a department of a larger company. The definition of customer inherently excludes sole proprietors on Track or Submit plans.

We monetize transactions from the Expensify Card by receiving a percentage of the interchange for all spend on the card. As we expand our platform, we intend to increase the number of integrations and to more actively promote the Expensify Card with complementary use cases beyond expense management to both new and existing customers to drive increased adoption.

Key Factors Affecting Our Performance

Our performance depends on many factors, including the following:

INVESTING IN PRODUCT-LED GROWTH

We are focused on continuing to grow the number of paid members on our platform. Relative to other software companies, we invest more in product development and less in sales. This investment in product allows us to develop easy-to-use but powerful features that encourage adoption of our platform. Our ability to grow our paid members depends on our viral, “bottom-up” adoption cycle that starts with an individual employee. After downloading our free app to submit expenses and realizing the benefits of Expensify, our enthusiastic members champion our platform internally, spread it via word-of-mouth or invites to other employees and often convince decision makers to adopt Expensify company-wide. In order to continue to grow, we believe we must continue prioritizing investments in our platform to delight our members and drive viral expansion.

CONTINUING TO CONVERT FREE MEMBERS

Our success depends on converting users who try the free aspects of the Expensify platform into paid members. While our viral model means that employees or contractors often introduce Expensify into small and medium businesses (“SMBs”), companies subscribe and pay for the majority of our paid members.

INVESTING TO MAINTAIN MARKET CONSENSUS

Our viral and word-of-mouth adoption model is effective in part because we have established ourselves as a recognized leader in expense management for SMBs. We deploy large scale brand advertising to promote our platform superiority and create market consensus that Expensify is the category leader for expense management software. We believe this enables us to focus on creating great viral features for our members rather than relying on low-margin, unscalable activities of traditional sales and marketing to drive customer acquisition.

RETAINING EXISTING CUSTOMERS

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Expense management touches many functions across a company. To provide a seamless experience for our customers, we integrate with accounting, ERP and travel software used by SMBs and their employees every day. We also have frictionless integrations with many of the technology providers that generate the most receipts for our members, such as Uber and Lyft. Expensify delivers an expense management platform that we believe customers like, and that embeds us within organizations. Because of these two factors, we have historically enjoyed high customer retention rates that often outperform enterprise retention rates. We believe an additional factor that drives our retention rates is that SMBs generally re-evaluate their technology solutions less frequently, and as such, there is rarely a conscious choice to choose to continue using Expensify for another year.

Gross logo retention and net seat retention are important indicators of customer satisfaction and usage of our platform. We calculate our gross logo retention rate as of the end of a period by using (a) the number of distinct companies who have ever had 5 or more paid members paying for a subscription during the period ending one year prior as the denominator and (b) the number of those same companies that are still paying for at least 1 subscription during the more recent period as the numerator. In 2020 and 2021, our annual gross logo retention was 86% and 83%, respectively. We calculate our net seat retention rate as of the end of a period by using (a) the number of paid member seats from companies who have ever had 5 or more paid members paying for a subscription during the period ending one year prior as the denominator and (b) the number of paid member seats at those same companies during the more recent period as the numerator. In 2020 and 2021, our net seat retention was 96% and 93%, respectively. The COVID-19 pandemic impacted our retention as our customers ceased (or paused) operations, and scaled back usage of our platform as their business travel and other expenses declined. Our growth will depend on our ability to continue to retain existing customers.

INTRODUCING FEATURES TO EXPAND OUR RELATIONSHIP WITH EXISTING CUSTOMERS

We fully launched the Expensify Card in 2020 and, despite pullback in corporate expenses with the COVID-19 pandemic, customers began adopting the card. Going forward, we intend to more actively promote the Expensify Card to both new and existing customers to drive increased adoption. Outside of the Expensify Card, we have invested, and will continue to invest, in developing features complementary and adjacent to expense management. At most companies, not every employee generates expenses that would be submitted via an expense report on a monthly basis. As we add additional features that are used by all employers, we have the potential to monetize the segment of our customers’ employees that are not submitting expense reports.

IMPACT OF COVID-19

As a result of the COVID-19 pandemic, we temporarily closed our offices, asked our employees to work remotely and implemented travel restrictions, all of which represent a disruption in how we operate our business. The operations of our customers, the majority of which are SMBs, were likewise disrupted. The outsized impact of the pandemic on SMBs was evident in 2020 as an abnormal percentage of our customers stopped adding new members to our platform, ceased (or paused) operations and/or scaled back or terminated subscriptions to the Expensify platform.

Business travel, traditionally a significant driver of expenses on our platform, has been severely curtailed during the pandemic with complex regional effects as lockdowns were put in place and altered rapidly. As a result of the pull-back in travel related expenses and other expenses that were not generated in a work from home environment, many of our customers that remained on our platform had fewer employees incurring expenses on a monthly basis in 2020. After a steady increase in paid members over multiple years, the average number of paid members on our platform declined 15% from 742,000 in the quarter ended March 31, 2020 to 633,000 in the quarter ended September 30, 2020 and we have rebounded to 711,000 paid members in the quarter ended December 31, 2021. Our activity is still recovering from May 2020 as the United States and certain other parts of the world continue to rebound from COVID-19. The amount of expenses incurred by the paid members remaining on our platform has also declined as a result of the factors stated above. While activity decreased and

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remains at lower levels than pre-pandemic, our revenue only declined until the quarter ended June 30, 2020. This initial adverse impact on revenue was mitigated by the prevalence of our annual contracts and minimum user requirements in those contracts as well as a price change that became effective in May 2020. We introduced the Expensify Card in 2020, immediately before the pandemic. Given the decline in the volume of expenses and potential customers’ reluctance to adopt a new card in this unusual environment, growth from monetizing the transactions from the Expensify Card has taken longer than anticipated, but the rate of adoption is increasing despite the COVID headwinds.

While the full lasting impact of the COVID-19 pandemic on the global economy and SMBs in particular remains uncertain, we believe that use of our platform will increase as economies reopen and business travel resumes, which we have started to see.

While uncertainty remains on many fronts, we are confident that the pandemic has also had a positive impact on the way we operate our business. We have fully embraced the distributed workforce and reimagined how we use our existing office space. As demand for expense management slowed during the pandemic, we invested in building our platform outside of our core expense management features, which will result in a more diversified range of use cases that is better insulated against similar shocks in the future.

See the section titled “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business.

Key Business Metrics and Non-GAAP Financial Measures

We review the following key metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Accordingly, we believe that these key business metrics and non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. These key business metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled metrics or measures presented by other companies.

KEY BUSINESS METRICS

Paid Members

We believe that our ability to increase the number of paid members on our platform will drive our success as a business. Companies pay for subscriptions on behalf of employees and contractors who use the platform, whom we refer to as paid members. We define paid members as the average number of users (employees, contractors, volunteers, team members, etc.) who are billed on Collect or Control plans during any particular quarter. For SMBs or sole proprietors with only one employee, the business owner may also be the only paid member.

The number of paid members on our platform grew each quarter through March 31, 2020, when the COVID-19 pandemic severely impacted the operations of our customers and SMBs broadly, and greatly reduced business travel, which has traditionally been a significant driver of expenses on our platform. While the full lasting impact of the COVID-19 pandemic on the global economy and SMBs in particular remains uncertain, there have been signs of recovery as the economy has slowly reopened. This is evident by the number of paid members on our platform growing each quarter from March 31, 2021 through December 31, 2021 as COVID-19 restrictions began to ease. See the section titled “Impact of COVID-19” above for additional information.

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The following table sets forth the average number of paid members for the quarters ended March 31, 2020 through December 31, 2021.

[[GREPCENT_TABLE]]
[["Quarter ended","Paid members (in thousands)"],["March 31, 2020","742"],["June 30, 2020","630"],["September 30, 2020","633"],["December 31, 2020","645"],["March 31, 2021","631"],["June 30, 2021","639"],["September 30, 2021","667"],["December 31, 2021","711"]]
[[/GREPCENT_TABLE]]

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net income from operations excluding provision for income taxes, interest and other expenses, net, depreciation and amortization and stock-based compensation. We define adjusted EBITDA margin as adjusted EBITDA divided by total revenue for the same period. We are focused on profitable growth and we consider adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that are not indicative of the core operating performance of our business.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands, except percentages)"],["Adjusted EBITDA","$","9,536","","","$","26,755"],["Adjusted EBITDA margin","7","%","","30","%"]]
[[/GREPCENT_TABLE]]

Non-GAAP Net Income and Non-GAAP Net Income Margin

We define non-GAAP net income as net income from operations in accordance with US GAAP excluding stock-based compensation and IPO-related bonus costs, which we consider to be the discretionary cash bonuses paid to our employees during 2021. Refer to the subsection titled "Liquidity and Capital Resources”, for further detail over the discretionary cash bonuses paid to employees in 2021. We define non-GAAP net income margin as non-GAAP net income divided by total revenue for the same period. We are focused on profitable growth and we consider non-GAAP net income to be an important measure because it helps illustrate underlying trends in our business that could otherwise be masked by the effect of stock-based compensation and the one-time IPO-related discretionary cash

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bonus costs. Both expenses are not considered indicative of the core operating performance of our business.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands, except percentages)"],["Non-GAAP net income","$","49,432","","","$","16,127"],["Non-GAAP net income margin","35","%","","18","%"]]
[[/GREPCENT_TABLE]]

Limitations and Reconciliations of Non-GAAP Financial Measures

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under GAAP. For example, other companies in our industry may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance. All of these limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures and to not rely on any single financial measure to evaluate our business.

The following tables reconcile the most directly comparable GAAP financial measure to each of these non-GAAP financial measures.

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Adjusted EBITDA and Adjusted EBITDA Margin

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands, except percentages)"],["Net (loss) income","$","(13,558)","","","$","(1,710)"],["Net (loss) income margin","(9)","%","","(2)","%"],["Add:"],["(Benefit) provision for income taxes","(174)","","","4,662"],["Interest and other expenses, net","3,497","","","2,718"],["Depreciation and amortization","5,197","","","3,248"],["Stock-based compensation","14,574","","","17,837"],["Adjusted EBITDA","$","9,536","","","$","26,755"],["Adjusted EBITDA margin","7","%","","30","%"]]
[[/GREPCENT_TABLE]]

Non-GAAP net income and non-GAAP net income margin

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands, except percentages)"],["Net (loss) income","$","(13,558)","","","$","(1,710)"],["Net (loss) income margin","(9)","%","","(2)","%"],["Add:"],["Stock-based compensation","14,574","","","17,837"],["IPO-related bonus expense","48,416","","","\u2014"],["Non-GAAP net income","$","49,432","","","$","16,127"],["Non-GAAP net income margin","35","%","","18","%"]]
[[/GREPCENT_TABLE]]

COMPONENTS OF RESULTS OF OPERATIONS

Revenue

We generate revenue from subscription fees based on the usage of our expense reporting cloud-based platform under arrangements paid monthly in arrears that are either month-to-month that can be terminated by either party without penalty at any time or annual arrangements based on a minimum number of monthly members. In May 2020, we updated our terms of service whereby annual contracts became non-cancelable. We charge our customers subscription fees for access to our platform based on the number of monthly active members and level of service. The contractual price is based on either negotiated fees or rates published on our website. We generate most of our revenue from customers who have a credit card or debit card on file with us that is automatically charged each month. Virtually all of our customers have a standard terms of service contract, with the few exceptions on bespoke service contracts.

Our contracts with our customers include two performance obligations: access to the hosted software service, inclusive of all features available within the platform and related customer support. We account for the platform access and the support as a combined performance obligation because they have the same pattern of transfer over the same period and are therefore delivered concurrently. We satisfy our performance obligation over time each month as we provide platform access and support services to customers and as such recognize revenue over time. We recognize revenue net of applicable taxes imposed on the related transaction.

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Beginning in August 2021, we offer a cashback rewards program to all customers based on volume of Expensify card transactions and SaaS subscription tier. Cashback rewards are earned on a monthly basis and paid out the following month. We consider our cashback payments to customers as consideration payable to a customer under the scope of ASC 606 and it is therefore recorded as contra revenue within Revenue on the consolidated statements of income. We also record a cashback rewards liability that represents the consideration payable to customers for earned cashback rewards. The cashback rewards liability is impacted over time by customers meeting eligibility requirements in conjunction with the SaaS subscription tier of the customer and the timing of payments to customers.

Cost of revenue, net

Cost of revenue, net primarily consists of expenses related to hosting the company’s service, including the costs of data center capacity, credit card processing fees, third-party software license fees, outsourcing costs to support customer service and outsourcing costs to support and process the SmartScan technology, net of consideration from a vendor. Additional costs include amortization expense on capitalized software development costs and personnel-related expenses, including stock-based compensation and employee costs attributable to supporting our customers and maintenance of our platform.

The consideration from a vendor is related to the Expensify Card. We use a third-party vendor to issue Expensify Cards and process the related transactions. When purchases are made with the Expensify Card, a fee is charged by the card network to the merchant (also known as “Interchange”). The vendor is contractually entitled to the Interchange through its relationships with the card network and card issuing bank. The vendor keeps a portion of the Interchange for their services, and our agreement with the vendor results in us receiving the remainder of the Interchange minus the amount retained by the vendor (our remainder portion, the "Expensify Interchange Amount"). The vendor also charges us fees (the "Vendor Fees") for the services it provides to us. Due to the nature of the vendor agreement, we do not record the Expensify Interchange Amount as revenue. Instead, the net of the Expensify Interchange Amount and Vendor Fees are paid to us, and we record it as "consideration from a vendor", a contra-expense in Cost of revenue, net. The following summarizes these various amounts for the periods presented:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands)"],["Expensify Interchange Amount","$","3,128","","","$","1,096"],["Vendor Fees","225","","","90"],["Consideration from a Vendor","$","2,903","","","$","1,006"]]
[[/GREPCENT_TABLE]]

As described in the subsection titled "Liquidity and Capital Resources”, discretionary cash bonuses, which we also refer to as "IPO-related bonus expense" as described in the subsection titled "Non-GAAP Financial Measures," were paid to employees in 2021 and had a significant impact to Cost of revenue, net expenses during the annual period ended December 31, 2021.

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation, incurred related to the planning and preliminary project stage and post-implementation stage of new products or enhancing existing products or services. We capitalize certain software development costs that are attributable to developing or adding significant functionality to our internal-use software during the application development stage of the projects. All research and development expenses, excluding capitalized software development costs, are expensed as incurred.

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We believe delivering new functionality is critical to attract new customers and expand our relationships with existing customers. We expect to continue to make investments in and expand our product and service offerings to enhance our customers’ experience and satisfaction and to attract new customers. We expect research and development expenses will increase as we expand our research and development team to develop new products and product enhancements.

As described in the subsection titled "Liquidity and Capital Resources”, discretionary cash bonuses, which we also refer to as "IPO-related bonus expense" as described in the subsection titled "Non-GAAP Financial Measures," were paid to employees in 2021 and had a significant impact to Research and development expenses during the annual period ended December 31, 2021.

Sales and Marketing

Sales and marketing expenses primarily consist of personnel-related expenses, including stock-based compensation, advertising expenses, branding and public relations expenses and referral fees for strategic partners and other benefits that we provide to our referral and affiliate partners. We expect sales and marketing expenses will increase as we expand our sales efforts to pursue our market opportunity.

As described in the subsection titled "Liquidity and Capital Resources”, discretionary cash bonuses, which we also refer to as "IPO-related bonus expense" as described in the subsection titled "Non-GAAP Financial Measures," were paid to employees in 2021 and had a significant impact to Sales and marketing expenses during the annual period ended December 31, 2021.

General and Administrative

General and administrative expenses primarily consist of personnel-related expenses, including stock-based compensation, for executive management and any employee time allocated to administrative functions, including finance and accounting, legal and human resources. In addition to personnel-related expenses, general and administrative expenses consist of rent, utilities, depreciation on property and equipment, amortization of finance lease right-of-use assets and external professional services, including accounting, audit, tax, finance, legal and compliance, human resources and information technology. We expect that general and administrative expenses will continue to increase as we scale our business and as we incur costs associated with being a publicly traded company, including legal, audit, business insurance and consulting fees.

As described in the subsection titled "Liquidity and Capital Resources", discretionary cash bonuses, which we also refer to as "IPO-related bonus expense" as described in the subsection titled "Non-GAAP Financial Measures," were paid to employees in 2021 and had a significant impact to General and administrative expenses during the annual period ended December 31, 2021.

Interest and Other Expenses, Net

Interest and other expenses, net, consist primarily of interest paid under our credit facilities with Canadian Imperial Bank of Commerce (CIBC). It also includes realized gains and losses on foreign currency transactions and foreign currency remeasurement.

Benefit (Provision) for Income Taxes

Income taxes primarily consist of income taxes in the United States, United Kingdom, Australia, Netherlands and Canada, as well as states in the United States in which we do business.

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Results of Operations

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.

The following table sets forth our results of operations for the periods presented:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands, except share and per share data)"],["Revenue","$","142,835","","","$","88,072"],["Cost of revenue, net(1)","53,693","","","32,414"],["Gross margin","89,142","","","55,658"],["Operating expenses:"],["Research and development(1)","10,988","","","6,728"],["General and administrative(1)","60,742","","","33,372"],["Sales and marketing(1)","27,664","","","9,888"],["Total operating expenses","99,394","","","49,988"],["(Loss) income from operations","(10,252)","","","5,670"],["Interest and other expenses, net","(3,480)","","","(2,718)"],["(Loss) income before income taxes","(13,732)","","","2,952"],["Benefit (provision) for income taxes","174","","","(4,662)"],["Net loss","$","(13,558)","","","$","(1,710)"],["Less: income allocated to participating securities","\u2014","","","\u2014"],["Net loss attributable to common stockholders","$","(13,558)","","","$","(1,710)"],["Net loss per share attributable to Class A, LT10 and LT50 common stockholders:"],["Basic and diluted","$","(0.36)","","","$","(0.06)"],["Weighted-average shares of common stock used to compute net loss per share attributable to Class A, LT10 and LT50 common stockholders:"],["Basic and diluted","38,039,222","","","27,424,480"]]
[[/GREPCENT_TABLE]]

(1)Includes stock-based compensation expense as follows:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands)"],["Cost of revenue, net","$","4,115","","","$","2,272"],["Research and development","1,617","","","2,469"],["General and administrative","7,356","","","12,648"],["Sales and marketing","1,486","","","448"],["Total stock-based compensation expense","$","14,574","","","$","17,837"]]
[[/GREPCENT_TABLE]]

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Comparison of the Years Ended December 31, 2021 and 2020

Revenue

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["","(in thousands, except percentages)"],["Revenue","$","142,835","","","$","88,072","","","$","54,763","","","62","%"]]
[[/GREPCENT_TABLE]]

Revenue increased $54.8 million, or 62%, in 2021 compared to 2020, primarily due to (i) an update to the Company's terms of service, which resulted in annual contracts becoming noncancellable and (ii) a pricing change, which led to a significant increase in the average paid member price during the year ended December 31, 2021 compared to the same period in 2020, each of which occurred in May 2020.

Cost of Revenue, Net and Gross Margin

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["","(in thousands, except percentages)"],["Cost of revenue, net","$","53,693","","","$","32,414","","","$","21,279","","","66","%"],["Gross margin","89,142","","","55,658","","","$","33,484","","","60","%"],["Gross margin %","62","%","","63","%"]]
[[/GREPCENT_TABLE]]

Cost of revenue, net increased $21.3 million, or 66%, in 2021 compared to 2020, primarily due to an increase in employee compensation related to discretionary cash bonuses and stock-based compensation allocated to Cost of revenue, net. Employees directly engaged in supporting our customers and providing maintenance of our platform received $13.7 million in bonuses during the year ended December 31, 2021. For further detail over the cash bonuses, refer to the subsection titled "Liquidity and Capital Resources.”

In addition to cash bonuses, Cost of revenue, net increased due to a higher volume of payment processing fees directly related to an increase in reimbursement activity, increased efforts in support and implementation services, and increased outsourcing activities related to maintaining the platform. Consideration from a vendor reduced Cost of revenue, net by $2.9 million and $1.0 million for the years ended December 31, 2021 and 2020, respectively. The increase in consideration from a vendor was driven by the increased adoption and spend captured from members using the Expensify Card.

Gross margin decreased slightly to 62% in 2021 compared to 63% in the same period in 2020. Although revenue increased by 62% for the same period, Cost of revenue, net increased at a higher rate due to the factors described in the preceding paragraph.

Research and Development

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["","(in thousands, except percentages)"],["Research and development","$","10,988","","","$","6,728","","","$","4,260","","","63","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses increased by $4.3 million, or 63%, in 2021 compared to 2020, primarily due to an increase in employee compensation related to discretionary cash bonuses. Employees directly engaged in the planning and preliminary project stage and post-implementation stage of new products and features received $8.5 million in bonuses during the year ended December 31, 2021. For further detail over the cash bonuses, refer to the subsection titled "Liquidity and Capital Resources.” Increases to Research and development expenses were partially offset by increased

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employee time spent in the application development stage of projects for our new products and features, which we consider to be capitalizable.

Sales and Marketing

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["","(in thousands, except percentages)"],["Sales and marketing","$","27,664","","","$","9,888","","","$","17,776","","","180","%"]]
[[/GREPCENT_TABLE]]

Sales and marketing expenses increased $17.8 million, or 180%, in 2021 compared to 2020, primarily due to an increase in advertising spend to gain further brand awareness in addition to an aggressive reduction of our advertising and other sales and marketing expenses during the year ended December 31, 2020 in direct result of the COVID-19 pandemic. Furthermore, sales and marketing expenses increased due to employee compensation related to discretionary cash bonuses in 2021. Employees directly engaged in sales and marketing activities received $5.0 million in bonuses during the year ended December 31, 2021. For further detail over the cash bonuses, refer to the subsection titled "Liquidity and Capital Resources.”

General and Administrative

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["","(in thousands, except percentages)"],["General and administrative","$","60,742","","","$","33,372","","","$","27,370","","","82","%"]]
[[/GREPCENT_TABLE]]

General and administrative expenses increased $27.4 million, or 82%, in 2021 compared to 2020, primarily due to increased compensation to our executive employees and discretionary cash bonuses of $21.2 million paid to employees directly engaged in general and administrative activities. For further detail over the cash bonuses, refer to the subsection titled "Liquidity and Capital Resources.”

Interest and Other Expenses, Net

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["","(in thousands, except percentages)"],["Interest and other expenses, net","$","(3,480)","","","$","(2,718)","","","$","(762)","","","28","%"]]
[[/GREPCENT_TABLE]]

Interest and other expenses, net increased $0.76 million, or 28% in 2021 compared to 2020. The increase was driven by the U.S. dollar getting stronger in 2021 resulting in higher foreign transaction exchange losses.

Benefit (Provision) for Income Taxes

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["","(in thousands, except percentages)"],["Benefit (provision) for income taxes","$","174","","","$","(4,662)","","","$","4,836","","","(104)","%"]]
[[/GREPCENT_TABLE]]

We recorded a benefit for income taxes of $0.2 million in 2021 compared to a $4.7 million provision for income taxes in 2020. We follow the asset and liability method of accounting for income taxes, whereby we recognize deferred income taxes for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a

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tax benefit will not be realized. During the year ended December 31, 2021, we recorded a valuation allowance of $2.4 million. No valuation allowance was recorded during the year ended December 31, 2020. The provision for income taxes reflects taxable income earned and taxed in U.S. federal and state and non-U.S. jurisdictions.

During the years ended December 31, 2021 and 2020, our effective income tax rate was 1.3% and 157.9%, respectively. The effective income tax rate differs from the statutory rate in 2021 primarily due to the limitation imposed by Internal Revenue Code Section 162(m), the inclusion of a valuation allowance, and the impact of stock-based compensation, which resulted in a $15.5 million, $2.4 million, and $(8.5) million permanent item, respectively. The effective income tax rate differs from the statutory rate in 2020 primarily due to the impact of stock-based compensation related to secondary market transactions, which resulted in a $15.3 million permanent item.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through our cash flow from operations, sales of our equity securities and borrowings under our credit facilities. In November 2021, upon completion of our IPO, we received aggregate net proceeds of approximately $57.5 million after deducting underwriting discounts and commissions of approximately $4.9 million and offering costs of approximately $8.0 million. As of December 31, 2021, we had $98.4 million in cash and cash equivalents. As of December 31, 2021, we had $67.8 million in outstanding indebtedness.

Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support growth in our business and our need to respond to business opportunities, challenges or unforeseen circumstances. We believe that our existing cash resources will be sufficient to finance our continued operations, growth strategy and the additional expenses we expect to incur for at least the next 12 months.

CASH BONUSES

In June 2021 for the Company's named executive officers and in July 2021 for all other employees, we determined that we would pay a cash bonus to each of our employees in a value that approximates the cost of each employee exercising 45% of their total stock options, limited by the total stock options outstanding and held by each existing employee as of June 15, 2021, including the tax withholding applicable to each employee. We included both vested and unvested stock options outstanding and held by each existing employee as of June 15, 2021 by each employee in determining the cash bonus paid. No employee was obligated to use the cash bonus to exercise their outstanding stock options.

During the year ended December 31, 2021, we recorded bonus expenses related to the employee stock option exercise cash bonus of $48.4 million. All bonuses were fully paid to employees during the year ended December 31, 2021. Of the total bonus expenses related to the employee stock option exercise cash bonus during the year ended December 31, 2021, the bonus expense for our named executive officers was $7.9 million.

The cash bonus is included in the following components of expenses on the accompanying consolidated statements of income (in thousands):

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021"],["Cost of revenue, net","$","13,708"],["Research and development","8,550"],["General and administrative","21,174"],["Sales and marketing","4,984"],["Total","$","48,416"]]
[[/GREPCENT_TABLE]]

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The following table presents the cash bonus in components of expenses (unaudited) for each of the quarters during the year ended December 31, 2021. These cash bonuses were only applicable during the year ended December 31, 2021. This unaudited breakout for each quarter has been prepared on the same basis as the annual consolidated financial statements included in this Annual Report on Form 10-K. The cash bonus is included in the following components of expenses (in thousands):

[[GREPCENT_TABLE]]
[["","Three months ended"],["","March 31, 2021","","June 30, 2021","","September 30, 2021","","December 31, 2021"],["Cost of revenue, net","$","\u2014","","","$","\u2014","","","$","8,962","","","$","4,746"],["Research and development","\u2014","","","3,599","","","3,871","","","1,080"],["General and administrative","\u2014","","","4,340","","","10,368","","6,466"],["Sales and marketing","\u2014","","","\u2014","","","3,085","","1,899"],["Total","$","\u2014","","","$","7,939","","","$","26,286","","","$","14,191"]]
[[/GREPCENT_TABLE]]

Employee cash bonuses capitalized as internally developed software costs were $1.5 million for the year ended December 31, 2021.

CASH FLOWS

The following table summarizes our cash flows for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020"],["","(in thousands)"],["Net cash provided by operating activities","$","5,486","","","$","7,585"],["Net cash used by investing activities","(7,614)","","","(4,295)"],["Net cash provided by financing activities","80,565","","","8,787"],["Net increase in cash, cash equivalents and restricted cash","$","78,437","","","$","12,077"]]
[[/GREPCENT_TABLE]]

CASH PROVIDED BY OPERATING ACTIVITIES

During the year ended December 31, 2021, cash provided by operating activities was $5.5 million, which was primarily driven by non-cash charges including depreciation and amortization and stock-based compensation. In addition, there were increases in settlement liabilities which represent increased expense reimbursement activity and increases in accrued expenses and other liabilities. The timing of the settlement of certain operating liabilities and receipt of certain operating assets can affect the amounts reported as net cash provided by operating activities on the consolidated statements of cash flows. The main offsets to net cash provided by operating activities were an increased net loss due to cash bonuses paid to employees during 2021 and the timing of receipt of certain operating assets such as accounts receivable and prepaid expenses.

Net cash provided by operating activities decreased for the year ended December 31, 2021 compared to the same period in 2020 primarily due to an increased net loss as a result of cash bonuses paid to employees during 2021 and the timing of the settlement of certain operating liabilities and receipt of certain operating assets.

CASH USED IN INVESTING ACTIVITIES

During the year ended December 31, 2021, cash used in investing activities was $7.6 million, primarily consisting of software development costs and the purchase of property and equipment related to the build-out of our offices in Portland and San Francisco.

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Net cash used in investing activities increased for the year ended December 31, 2021 compared to the same period in 2020, primarily due to increased software development costs. Software development costs increased due to continued investment in our platform and cash bonuses paid to developers in 2021 that were capitalized.

CASH PROVIDED BY FINANCING ACTIVITIES

During the year ended December 31, 2021, cash provided by financing activities was $80.6 million, primarily consisting of proceeds from our initial public offering, net of underwriters' discounts and commissions. Additional proceeds from our amended and restated loan and security agreement with CIBC and exercises of stock options were partially offset by principal payments to fully payoff our remaining balances on our amortizing and non-amortizing term loans with CIBC.

Net cash provided by financing activities increased for the year ended December 31, 2021 compared to the same period in 2020, primarily due to the proceeds received from our initial public offering and amended and restated loan and security agreement with CIBC. These increases were partially offset by the borrowings under our line of credit during the year ended December 31, 2020.

CREDIT FACILITIES

Amortizing Term Mortgage

Under the amortizing term mortgage agreement with CIBC for our commercial building in Portland, Oregon, the Company borrowed $8.3 million in August 2019, which requires interest and principal payments be made each month over a 30-year period. Interest accrues at a fixed rate of 5% per year until August 2024, at which point the interest rate changes to the Wall Street Journal Prime Rate minus 0.25% for the remaining term of the mortgage. The borrowings are secured by the building. As of December 31, 2021 and December 31, 2020, the outstanding balance of the amortizing term mortgage was $8.0 million and $8.1 million, respectively.

Loan and Security Agreement

Our loan and security agreement with CIBC, as amended and restated in September 2021 (2021 amended term loan), includes a $75.0 million term loan, consisting of a $45.0 million initial term loan with an option at a later date to enter into an additional $30.0 million delayed term loan, and a $25.0 million revolving line of credit. Approximately $24.0 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 and restatement in September 2021 as well as the commitment fees and any other debt issuance costs associated with the amended agreement. The remaining proceeds from the initial term loan went towards our normal business operations.

The loan and security agreement was originally entered into in May 2018. The initial term loan of $45.0 million entered into by the Company in September 2021 is payable over a 60 month period with principal and accrued interest payments due each quarter thereafter, which commences with the first payment due on September 30, 2021. Quarterly principal payments are fixed and escalate throughout the term. The amounts borrowed are payable with interest at the bank’s reference rate plus 2.25% (5.5% as of December 31, 2021) and continuing on a quarterly basis through the end of the term loan. The borrowings are secured by substantially all our assets. As of December 31, 2021, the outstanding balance of the 2021 amended term loan and revolving line of credit was $44.9 million and $15.0 million, respectively. The term loan and revolving line of credit mature in September 2026 and September 2024, respectively.

See Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information.

Certain Covenants

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We are subject to customary covenants under our loan and security agreement, which unless waived by CIBC, restrict our and our subsidiaries' ability to, among other things incur additional indebtedness, create or incur liens, permit a change of control or merge or consolidate with other companies, sell or transfer assets, pay dividends or make distributions, make acquisitions, investments or loans, or payments and prepayments of subordinated indebtedness, subject to certain exceptions. We must also maintain certain financial covenants: for the first year, a total annual recurring revenue leverage ratio not to exceed 0.8 to 1.0, tested on the last day of each fiscal quarter, and maintaining liquidity at times not less than $10.0 million, in each case as defined in the loan and security agreement; and thereafter, a total EBITDA net leverage ratio, tested each quarter, of not less than 5.00 to 1.00 from September 30, 2022 through and including June 30, 2023, not less than 4.00 to 1.00 from September 30, 2023 through and including June 30, 2024, and not less than 3.00 to 1.00 from September 30, 2024 and thereafter, and a fixed charge coverage ratio of not less than 1.10 to 1.100, tested on the last day of each calendar quarter.

If we fail to perform our obligations under these and other covenants, CIBC’s credit commitments could be terminated and any outstanding borrowings, together with accrued interest, under the credit or loan agreements could be declared immediately due and payable.

As of December 31, 2021, we were not in compliance with all of our debt covenants. Specifically, we were not in compliance with the covenant in our loan and security agreement with CIBC restricting investments in certain subsidiaries over a threshold of free cash flow (as defined by the debt agreement), however we obtained a waiver from CIBC. As of the date of this Annual Report on Form 10-K, we do not believe non-compliance with this covenant had a material impact on us or our operations. We expect to be in compliance with all debt covenants by the end of the fiscal quarter ended March 31, 2022.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2021:

[[GREPCENT_TABLE]]
[["","Payments due by period"],["","(in thousands)"],["","Less than 1 year","","1-3 years","","More than 3 years","","Total"],["Principal payments on debt","$","15,588","","","$","2,707","","","$","49,546","","","$","67,841"],["Interest payments on debt","2,850","","","8,343","","","7,358","","","18,551"],["Finance lease commitments","816","","","476","","","\u2014","","","1,292"],["Operating lease commitments","795","","","333","","","\u2014","","","1,128"],["Total","$","20,049","","","$","11,859","","","$","56,904","","","$","88,812"]]
[[/GREPCENT_TABLE]]

Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms whereby we agree to indemnify customers, issuing banks, card networks, vendors, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of income, consolidated statements of convertible preferred stock and stockholder's deficit, or consolidated statements of cash flows.

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Off-Balance Sheet Arrangements

During the periods presented, we did not have, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Estimates

Our consolidated financial statements included elsewhere herein have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For our accounting policies, see Note 2 to our consolidated financial statements contained elsewhere herein for a description of our significant accounting policies.

EMPLOYEE AND EMPLOYEE-RELATED EXPENSES

Allocating our employee and employee-related expenses, which consist of contractor costs, employee salary and wages, stock-based compensation and travel and other employee-related costs, to their appropriate financial statement line items on the consolidated statements of income, requires us to make estimates and judgments as a result of our generalist model and organizational structure. We base our estimates for allocating employee and employee related expenses on our internal time tracking tools. Management reviews the estimates each reporting period to evaluate the estimate of the allocated amounts to each expense financial statement line item in the consolidated financial statements.

REVENUE RECOGNITION

The Company generates revenue from subscription fees paid by its customers to access and use the Company’s hosted software services, as well as standard customer support. The Company adopted Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) as of January 1, 2019, utilizing the full retrospective method of transition.

Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company’s contracts are either month-to-month arrangements billed monthly in arrears based on a specified number of members or annual arrangements billed monthly in arrears based on a minimum number of monthly members. Month-to-month contracts can be terminated by either party at any time without penalty. Annual subscription customers who wish to terminate their contracts before the end of the term are required to pay the remaining obligation in full plus any fees or penalties set forth in the agreement. In May 2020, the Company updated its terms of service, which resulted in annual contracts becoming noncancelable and a pricing change, which led to an increase in the per member price for paid members.

The Company charges its customers subscription fees for access to its platform based on the number of monthly members and level of service. The contractual price per member is based on either negotiated fees or rates published on the Company’s website. The Company’s contracts with customers include two performance obligations: access to the hosted software service (SaaS), inclusive of all features available within the platform and related customer support. The SaaS and the support are accounted for as a combined performance obligation because they have the same pattern of transfer over the same period and, therefore, are delivered concurrently. The Company satisfies its

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performance obligation over time each month as it provides the SaaS and support services to customers and as such generally recognizes revenue monthly based on the number of monthly members and contractual rate per member.

Certain annual contracts provide the customer the option to increase the minimum number of members and extend the contract term on a prospective basis or to purchase members beyond the minimum contracted number of members at a higher rate for a particular month. These options are accounted for when the customer exercises the option as they do not represent a material right and are accounted for as a contract modification.

Revenue is recognized net of applicable taxes imposed on the related transaction. The Company charges the customer on a monthly basis, in arrears, with typical payment terms being 30 days. A contract asset is the right to consideration for transferred goods or services and arises when the amount of revenue recognized exceeds amounts billed to a customer. As a result of a price increase in 2020 that was applicable to certain annual contracts and is being billed incrementally by the Company over a twelve month period, the Company recorded revenue for such contracts on a straight line basis over the twelve month period affected by the price increase. This resulted in contract assets that consist of unbilled receivables for revenue recognized in excess of billings. The contract asset will decrease as the price increase is applied to the amounts billed to customers, over the twelve month period. The Company recorded an immaterial amount and $1.2 million of contract assets for unbilled receivables within Other current assets on the Company’s consolidated balance sheet as of December 31, 2021 and 2020, respectively. Since the Company's performance obligation is satisfied monthly, at any reporting period, the Company has no unsatisfied, or partially unsatisfied, performance obligations.

COMMON STOCK VALUATIONS

Prior to the IPO, given the absence of a public trading market for our common stock, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised its reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of fair value of our common stock underlying the stock options and RSUs, including:

•independent third-party valuations of our common stock;

•the expected price range of our common stock upon IPO determined by bankers;

•the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

•our financial condition, results of operations and capital resources;

•the likelihood and timing of achieving a liquidity event, such as an initial public offering or sale of the company, given prevailing market conditions;

•the lack of marketability of our common stock;

•our estimates of future financial performance;

•valuations of comparable companies;

•the hiring or loss of key personnel;

•the status of our development, product introduction and sales efforts;

•industry information, such as market growth and volume and macro-economic events; and

•additional objective and subjective factors relating to our business.

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To determine the fair value of our common stock, we first determined our enterprise value and then allocated that enterprise value to our common stock and common stock equivalents. Our enterprise value was estimated using two generally accepted approaches: the income approach and the market approach.

The income approach estimates enterprise value based on the estimated present value of future cash flows the business is expected to generate over its remaining life. The estimated present value is calculated using a discount rate reflective of the risks associated with an investment in a similar company in a similar industry or having a similar history of revenue growth. The market approach measures the value of a business through an analysis of recent sales or offerings of comparable investments or assets, and in our case, focused on comparing us to a group of our peer companies. In applying this method, valuation multiples are derived from historical operating data of the peer company group. We then apply multiples to our operating data to arrive at a range of indicated values of the company.

For each valuation, we prepared a financial forecast to be used in the computation of the value of invested capital for both the income approach and market approach. The financial forecast considered our past results and expected future financial performance. The risk associated with achieving this forecast was assessed in selecting the appropriate discount rate. There is inherent uncertainty in these estimates as the assumptions used are highly subjective and subject to changes as a result of new operating data and economic and other conditions that impact our business.

As an additional indicator of fair value, we provided weighting to arm’s-length transactions involving issuances of our securities near the respective valuation dates.

Following our initial public offering, it has not been necessary to estimate the fair value of our common stock, as our shares are traded in the public market.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation under the fair value recognition and measurement provisions of GAAP. Those provisions require all stock-based awards granted to employees, including stock options and restricted stock units, to be measured based on fair value at the date of grant, with the resulting expense generally recognized in the consolidated statements of income over the period during which the employee is required to perform service in exchange for the award.

The Company utilizes the Black-Scholes option pricing model to determine the estimated fair value of stock options.

The Black-Scholes option pricing model requires management to make a number of assumptions, including the fair value and expected volatility of the Company’s underlying common stock, expected life of the award, risk-free interest rate and expected dividend yield. The fair value of common stock is determined by the Board of Directors based on a number of factors, including independent third-party valuations of our common stock, which consider estimates of our future performance and valuations of comparable companies. The Company also considers prices at which others have purchased our stock, and the likelihood and timing of achieving a liquidity event. When awards are granted or revalued between the dates of valuation reports, the Company considers the change in common stock fair value and the amount of time that lapsed between the two reports to determine whether to use the latest common stock valuation or an interpolation between two valuation dates for purposes of valuing stock-based awards. Subsequent to the completion of the IPO, the fair value of the Company’s underlying common stock is determined by the closing price, on the date of grant, of its Class A common stock, which is traded on the Nasdaq Global Select Market.

All RSUs granted to employees before the effectiveness of the IPO Registration Statement were measured based on the fair value of the underlying common stock on the grant date, which was consistent with the factors described within the Black-Scholes option pricing model. All RSUs granted

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to employees after the effectiveness of the IPO Registration Statement are measured based on the fair value of the underlying common stock on the grant date, which is determined by the closing price, on the date of the grant, of its Class A common stock, which is traded on the Nasdaq Global Select Market.

Refer to Note 9 for further detail over stock-based compensation and the stock incentive plans of the Company.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.