Remitly Global, Inc. (NASDAQ:RELY) Q3 2023 Earnings Call Transcript November 1, 2023
Operator: Good day, and thank you for standing by. Welcome to the Remitly’s Q3 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the Speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Stephen Shulstein, Vice President of Investor Relations.
Stephen Shulstein: Thank you. Good afternoon and thank you for joining us for Remitly’s third quarter 2023 earnings call. Joining me on the call today are Matt Oppenheimer, Co-Founder and Chief Executive Officer of Remitly; and Hemanth Munipalli, our Chief Financial Officer. Our results and additional management commentary are available in our earnings release and presentation slides, which can be found at ir.remitly.com. Please note that this call will be simultaneously webcast on the Investor Relations website. Before we start, I would like to remind you that we will be making forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Remitly’s future financial results and management’s expectations and plans.
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These statements are neither promises, nor guarantees and involve risks and uncertainties that may cause actual results to vary materially from those presented here. You should not place undue reliance on any forward-looking statements. Please refer earnings release and SEC filings for more information regarding the risk factors that may affect our results. Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations, as of today and Remitly assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following presentation contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP metrics, please see our earnings release and the appendix to our earnings presentation, which are available on the IR section of our website.
And now I will turn the call over to Matt to begin.
Matt Oppenheimer: Thank you, Stephen. And thank you all for joining us for our third quarter earnings call. We are very pleased with the strong results we have delivered this year for our customers and shareholders. As you can see on Slide 4, our strategic focus remains the same with a portfolio of high return investments to capture an even larger share of a very large market. We have been able to consistently deliver increasing operating leverage, while simultaneously investing in our four key growth priorities, new customer acquisition, geographic expansion, frictionless remittances, and complementary products. These investments have allowed us to deliver increasing scale, geographic revenue diversification, a more reliable and frictionless product and continued automation and cost savings.
In addition, these four priorities have differentiated return timing, which will allow us to deliver profitable long-term growth as we build the most trusted financial services brand for immigrants and their families. While we have doubled our market share over the past two years, we are still only slightly more than 2% of the more than $1.6 trillion global remittance market. Our prior investments have resulted in increasing market share in the U.S. and Canada. And yet, we are by no means near our market share potential, and we expect to continue to drive significant growth for many years to come in the U.S. and Canada. We grew revenue over 30% in the U.S. and over 40% in Canada during the third quarter and acquired a record number of new customers in each of these markets, which bodes well for future growth.
Outside the U.S. and Canada we have an even larger opportunity to drive market share as well as revenue growth of over 90% in the third quarter, and an increasing share of new customers coming from outside the U.S. and Canada. We have significant growth opportunities, both in markets that we are currently in, and those we expect to enter over the coming years. With that backdrop, let’s turn to a brief overview of our third quarter results. Our third quarter results were strong as you can see on Slide 5. Our track record of execution through various economic cycles and delivering on promises continued in the third quarter. Our business continues to have momentum with 43% year on year revenue growth and fourth straight quarter of adjusted EBITDA profitability.
We continued to earn the trust of our customers through an experience that delivers peace of mind which leads to improved customer activity and strong unit economics. As a result of our execution and the returns we are seeing from our portfolio of investments, we are pleased to be raising our 2023 annual outlook for revenue once again. We are also raising our 2023 adjusted EBITDA outlook to reflect the strong performance in the third quarter, and our expectation of continued strong performance, and previously discussed target and marketing investments in the fourth quarter. In the third quarter, our quarterly active customers grew 42% year-over-year as you can see on Slide 6. This strong customer growth is driven by the peace of mind, we build into our product through every step of the journey from the moment our customers open the Remitly app until the funds are safely delivered to their loved ones.
We now serve 5.4 million quarterly active customers. Our new customer acquisition this quarter was once again a record high and resulted in us adding 1.6 million quarterly active users in the third quarter compared to the third quarter of last year. We continue to benefit from scale, a multiyear focus on brand building, increasing creative velocity and word of mouth. Customer behavior remains consistently strong even with a volatile macroeconomic environment. And we are pleased with the customer engagement and retention we are seeing across our corridors and customer cohorts. We also believe word of mouth has been a key driver of efficient new customer acquisition, as our recent survey results indicate high levels of trust in the Remitly brand and likelihood to recommend Remitly to family and friends.
Our recent surveys indicate that more than eight in 10 of our customers have told someone else to use Remitly and nine in 10 customers say remitly is a company they can trust. In addition, nine out of 10 customers say Remitly is very reliable and easy to use. This trust in the Remitly brand results from the actions we have taken thus far to deliver a frictionless remittance experience, as we expand the number of customers using our product. I’m going to focus the balance of my remarks today on a more in depth overview of the progress we have made in our new customer acquisition activities and delivering frictionless remittances, and why we believe there’s so much more opportunity to deliver for customers. Turning to Slide 7, and more details on our new customer acquisition strategy.
As we mentioned last quarter, we plan to make incremental targeted brand marketing investments in the back half of 2023. And we began making those investments in the third quarter. In the fourth quarter as we continue to have high competence opportunities to make incremental targeted investments at the top of the funnel, and we plan to execute on these investments as we have discussed. These investments build on the success we have seen from upper funnel investments that we began making last year. We are investing in upper funnel and integrated brand campaigns because we believe standing behind our promise of trust with investments in broader awareness is key to attracting and retaining even more customers for the long-term. An example of these types of investments are our integrated campaigns which combined traditional media and digital channels.
In the third quarter we were live in more than 10 integrated campaigns in target markets across North America, Europe and Australia and are seeing encouraging early results. Looking ahead, the fourth quarter is a key quarter to acquire new customers given increased sending volume over the holidays. Therefore, we expect to take advantage of that opportunity. And as a result, we expect CAC to increase sequentially in the fourth quarter but to remain within our high return LTV to CAC guardrails. We expect these investments will drive high competence revenue and active customer growth in 2024. The other area where I’ll give more detailed update is on investments we are making to deliver frictionless remittances as you can see on Slide 8. As I’ve mentioned in the past, trust is paramount for our customer base, both because our customers are trusting us with their personal information and funds, but also because delivering remittances international in a reliable and trusted way is incredibly hard and complex.
Examples of this complexity include localization across over 170 countries, reducing friction for customers across different payment methods and currencies, fraud and compliance systems that prevent bad actors, while at the same time maintaining a great overall customer experience, sophisticated Treasury FX cash management and delivering funds reliably and speedily to billions of bank accounts mobile wallets and cash pickup locations across the globe. All of this requires scale and a digital first approach and importantly a critical focus on reducing friction across all stages of the remittance journey, something that we are uniquely positioned to deliver and we’re just getting started in our effort to do so. I will provide more details on two key customer engagement points during the remittance journey, which can introduce friction in their experience, and the investments we continue to make from a product perspective to significantly reduce these types of friction.
The first happens when customers fund their transactions and the second is during the disbursement of the funds to recipients. Remitly collect funds from customers in 33 countries or territories, 13 payment types such as ACH, debit cards so forth are ideal and in 106 currencies. We call our fund collection from customers’ payment acceptance, and friction can result from a customer not having their preferred payment method available delays, payment failures such as declined cards, inability to make edits to payment or other technical issues, or a clear and rapid process in case a refund is requested. Therefore, quality and reliability of the payment acceptance process takes continuous monitoring, optimization and expertise in order to provide a fast and frictionless experience.
We are proud of the uniquely frictionless experience we provide, as evidenced by the nine out of 10 customers in our recent customer survey, saying Remitly is very reliable and easy to use. But we also know that we are just getting started in payment acceptance, and we can continue to reinvent the way this is done for our customers with our digital first approach at scale. Our focus on enhancing our payment acceptance and reducing customer friction includes examples, such as providing the ability for our customers to pay with a payment method of their choice, while we offer card payments and all of our markets we have also added localized payments such as bank contact and Belgium, so forth in Germany. And while it’s such as Apple Pay, and Google Pay in the UK, U.S. and Canada.
We have also reduced friction in other parts of the payment acceptance experience by simplifying and providing instant refunds, and providing real time Account Validation when incorrect payment information is provided. We also offer customers the option to retry a failed payment without restarting the entire process, enhancing the overall customer experience and boosting our conversion metrics. In addition, we continue to expand our global money movement network by adding even more trusted real time payment partners. Doing so provides customers with even more payment and disbursement options, reduces customer friction and reduces transaction costs. As an example, we recently announced a new partnership with MasterCard, to integrate MasterCard, CIN and Cross Border Services.
Today, we’re pleased to share that we’ve renewed our long-standing agreement with Visa to bring global money movement capabilities to more Remitly customers and select jurisdictions enabled by Visa Direct. These agreements enhance the value we provide to our customers. And we are grateful for the collaboration with our payment acceptance partners. Another driver of our ability to reduce customer friction has been improving the quality of our disbursement network, which we define as the way customers receive funds, and currently includes 4 billion bank accounts 460,000 cash pickup locations 1.2 billion mobile wallets and even door to door delivery in select markets where it is popular. The breadth of this network is important. But the depth which we define as direct integrations, which eliminates intermediate hops, thus reducing errors and improving visibility of customer funds as they move through a transaction is equally important to customers.
This enhances our ability to deliver instant transactions for our customers, which is a key driver of loyalty and word of mouth. The high-quality network that we have built across more than 4,900 corridors is difficult to replicate, as it requires significant scale in many corridors as well as the right technology investments which we have made over many years. We keep expanding our direct integrations and we have increased the number of received countries that have that have a direct integration partner by approximately 100% from two years ago, as we have been able to expand our network to key partners that matter and are relevant to our customers. As our payment and disbursement networks continue to improve, you can see the results in our strong and improving speed metrics.
In the third quarter, more than 92% of transactions were dispersed in less than one hour, improving nearly 200 basis points from the third quarter of last year. While we are proud of our progress, this still means that 8% of transactions take more than an hour and we are focused on getting as close to 100% of transactions delivered in less than an hour as a possible and extremely important outcome for our customers. In addition, our overall platform availability was 99.98% in the third quarter, reflecting the technology investments we have made. Our 24/7 global customer support service is an important investment we make to protect our customers peace of mind and resolve friction they may encounter. We are capturing significant opportunities in technology solutions to address some of the key pain points for our customers whether through self-serve options that help customers find the information they need rapidly, or the ability to amend the transaction seamlessly while at the same time providing real time information on the status of the transaction.
We’ve also been increasing the ability of human agents to handle more complex issues by upskilling agents and investing in technology, including artificial intelligence. These investments in delivering frictionless remittances have resulted in consistent improvements in our customer contact rates over time. You can also see the early results of these investments on the P&L where customer support as a percentage of revenue has gone down from 10.6% to 8.3%, a 230 basis points year-over-year improvement in the third quarter. Well, we are proud of the progress in reducing customer friction, it is clear that a significant opportunity remains to materially improve the customer experience, which will drive even more loyalty and lower costs. It’s important to keep in mind that our customer support costs, which we view as directly directly attributable to friction, which drives customer contacts are still over 8% of our revenue.
This reflects an investment opportunity to most importantly decreased friction and create a reliable, trusted and differentiated remittance product, which we can do with operational excellence, scale and a digital first approach. As the customer experience continues to improve, we believe we will be able to capture additional flywheel benefits, and active customer growth by building a trusted brand. Evidence of the significant trust in our platform today are the approximately 1.2 million ratings for the Remitly app in the App Store with an average of 4.9 stars, or over 690,000 ratings in the Google Play Store with an average of 4.8 stars. We look forward to building additional customer trust with our investments to reduce friction at all stages of the transaction.
As we look ahead we are anchored on our vision on Slide 9 to transform the lives of immigrants and their families by providing the most trusted financial services on the planet. We are well on our way to delivering on this vision as we bring reliable and trusted service to millions of customers today. Looking back on our performance so far this year, I am extremely pleased that we have delivered on our promises with consistent revenue outperformance and increasing returns on our investments. Our strong results have demonstrated that we have been prudent stewards of capital across economic cycles. We look forward to continuing to build on the trusted relationships with our customers by sharing the Remitly brand story, expanding to new markets, continuously improving the remittance experience and driving complimentary new products over time to deepen our relationships with customers.
Executing on this long-term vision will provide outsized returns for our shareholders and deliver exceptional value to our customers. With that, I’ll turn the call to Hemanth, to provide more detail on our financial results and a revised 2023 financial outlook.
Hemanth Munipalli: Thank you, Matt. I’m pleased with our strong results in the third quarter and our consistent execution this year as we focus on delivering strong revenue growth and improving profitability while at the same time taking advantage of opportunities to acquire even more customers that robust unit economics. And we’ll start with a review of our third quarter financial highlights and then provide additional details on our updated 2023 outlook. I will discuss non-GAAP operating expenses and adjusted EBITDA in my remarks. These metrics exclude items such as stock-based compensation, the donation of the common stock in connection with our Pledge 1% commitment, acquisition and integration and restructuring costs and foreign exchange gain or loss.
Reconciliations to GAAP results are included in the earnings release. With that, let’s turn to our third quarter results beginning on Slide 11 with our high level financial performance. We delivered another quarter of greater than 40% active customer revenue growth and increased year-over-year adjusted EBITDA profitability. Quarterly active customers grew by 42% year over year to 5.4 million. Sales volume grew 36% year-over-year to approximately $10.2 billion, all resulting in revenue growth of 43% year-over year to do $42 million. Our GAAP net loss was 36 million in the quarter and included 37 million of stock compensation expense $4.6 million related to a donation of common stock for our pledge, 1% commitment and $2.9 million of acquisition, integration and restructuring costs.
Acquisition and integration restructuring costs include $1.5 million related to the integration of rewire and $1.4 million of restructuring, which includes costs related to simplifying and scaling certain processes and teams, such as customer support to more efficiently serve our customers. The strong growth in revenue combined with significantly lower transaction expense as a percentage of revenue led to adjusted EBITDA of $10.5 million in the quarter as we described on our last earnings call. As our unit economics remain highly attractive, we plan to make additional marketing investments in the back half of 2023 to acquire even more customers, as we look forward to continued momentum in 2024 and beyond. We partially saw the immediate impact of these investments in our third quarter adjusted EBITDA performance, and fully expect to see the benefits from these investments in 2024.
Now, let’s go to slide 12. For a detailed review of poor performance in the third quarter, let’s begin with revenue which was up 43% year-over-year in the third quarter on a reported basis and 42% on a constant currency basis. Our strong revenue growth was primarily driven by the 42% increase in quarterly active customers, which includes a record number of new customers acquired in the quarter, and high retention of existing customers. Consistent with prior quarters, or existing customers contributed to the vast majority of revenue in the quarter. Large number of new customers we acquired in the quarter and highly efficient acquisition costs will primarily help drive growth in 2024 and beyond. Underlying customer behavior in the third quarter remain very strong, reflecting the non-discretionary nature of remittances, and our focus on providing a frictionless experience.
Our revenue in the quarter was impacted by a variety of mixtures in line with normal movements in the business. As we mentioned last quarter, we continue to see a shift to digital disbursement options in certain markets, which results in smaller transaction sizes and increased transaction intensity. We also continue to see revenue diversification as rest of the world revenue grew over 9% in the third quarter of 2023 compared to the third quarter of 2022. We expect to continue to see midships quarter to quarter as our business evolves to be even more global, driven by various factors including customer preferences around payment and disbursement options, FX movements and geographic expansion. We expect to consistently deliver very strong revenue growth even as you scale.
These investments we’re making in our product marketing and our global network will help us drive robust growth and active customers and sustained high retention. We continue to make product enhancements to reflect customer preferences with the focus to improve customer lifetime value. As our unit costs have been declining, we have the ability to invest in delivering more value for customers to drive long term transaction activity and retention while maintaining strong long-term unit economics at the same time. Transaction expense as a percentage of revenue improved 580 basis points year-over-year, as we continue to benefit from a rapidly increasing scale, up to 580 basis point improvement in transaction expense, approximately 180 basis points were due to improve economics with payment acceptance and disbursement partners as we demonstrate scale, and are increasing value to our partners across our global payment acceptance and disbursement networks.
As we continue to scale we expect additional opportunities to improve our economics with our partners across both payment acceptance and disbursement networks. As Matt mentioned, we recently signed new agreements with large global payment partners. Our ability to enter into these agreements reflects the value of the digital scale that we bring on both the payment acceptance and disbursement side. These agreements also provide us with a meaningful opportunity to benefit from scale on our payment acceptance costs, as a significant majority of our customers fund their transactions with debit and credit cards. These opportunities are ongoing and reflect the additional value and scale we bring to our partners. We also benefited from the continued improvement and fraud loss rates in the third quarter, even as we on boarded a record number of new customers.
This sustained improvement reflects the investments were made in a fraud technology, which allows us to more precisely block bad transactions by preserving a frictionless experience for legitimate customers. Managing fraud loss rate is always a balance between customer experience and optimizing fraud levels. We’re very pleased this quarter that our fraud loss rate continues to improve while at the same time our customer contact rate continues to decline, thus demonstrating that we’re able to deliver less friction for our customers. However, as we’ve noted before, fraud losses are inherently unpredictable, especially as we continue to acquire a significant new customers during the seasonally strong fourth quarter. As a result, we expect some variability in fraud loss rates in any quarter, while continuing to make a sustainable improvements in the long-term.
Third quarter results also reflected our focus on acquiring new customers at strong unit economics. As we mentioned, last quarter, we were able to take advantage of the strong unit economics and made some targeted incremental marketing investment in the quarter, including some upper funnel investments. We’re confident that we will see strong returns from these investments in 2024, as we look to maintain high rates of growth for many years to come. While the marketing expense as a percentage of revenue was essentially flat year-over-year due to our investments, we remain focused on optimizing incremental payback, and LTV to CAC ratio, which remained strong and a quarter. CAC was relatively flat sequentially and was slightly up year-over-year reflecting these additional investments.
We continue to benefit from optimizing localized digital marketing, increased creative velocity, improving brand awareness, word of mouth effects and increasing scale in our business outside of North America. In the third quarter, customer support and operational expenses were down 230 basis points year-over-year as a percentage of revenue as we continue to see leverage on this line item. We expect to continue to drive efficiencies from increasing automation and reducing friction as well as our improvements in fraud precision, which helped drive down contract rates. Technology and development expenses increased 160 basis points year-over-year and reflect to long term return investments, we’re making a remittance platform to reduce friction for customers improve fraud risk and compliance technologies develop complementary new products, and increased automation across customer service and back end transaction processing.
We can see some of the benefits from these investments in the leverage we’re seeing in transaction and customer support expenses. We expected to continue to invest in delivering a superior experience for our customers are excited about the returns we’re currently seeing including strong active customer growth, and improvement in customer support costs, as well as future returns on investments we’ll deliver as our product continues to get better. In the third quarter, G&A expenses as a percentage of revenues flat year-over-year. We continue to focus on more reading overall growth rates in both headcount and non-headcount expenses, while targeting higher productivity. Our GAAP net loss in the quarter was $36 million, compared with $33 million in the third quarter 2022.
Our net loss included $37 million of stock compensation expense in the third quarter, compared with $26 million in the third quarter of last year. We’re actively focused on managing stock-based compensation and have made adjustments to compensation structures in order to maintain appropriate balance between rewarding employees for the value they deliver when managing share dilution. Our focus for 2020 and beyond remains four key areas to drive sustainable long-term returns, as you can see on Slide 13, these are just to continue to deliver strong revenue growth, improved transaction expense, sustain or improve marketing efficiency while delivering new customers at strong unit economics and increased scale efficiencies in other operating expenses.
We are proud of our execution this year as we delivered both higher than expected revenue growth, making targeted investments for the longer term while demonstrating operating leverage and sustainably increasing adjusted EBITDA profitability. We’re in a strong position to be able to make these investments to ensure full future growth while also delivering scale benefits to drop to the bottom line. Delivering on these priorities has allowed us to increase our outlook for both revenue and adjusted EBITDA in 2023 again, as you can see on Slide 14. Specifically, we expect revenue to be between $935 million and $942 million, which reflects a year-over-year growth rate of 43% to 44%, and is a $19 million increase in the midpoint from our prior outlook.
The increase in our revenue outlook is primarily driven by the strong trends we’ve seen in the third quarter our expectations for continued strength and customer activity from the record number of new customers we’ve recently added this year and the resilience for our existing customers. We expect adjusted EBITDA to be between $36 million and $1 million, which is a $2 million increase at the midpoint from our prior outlook. The increase in our adjusted EBITDA outlook is primarily driven by strong performance in the third quarter on our expectations of concern yield strong performance in the fourth quarter offset by the near term impact of our previously discussed incremental marketing investments. Given the seasonality of remittance sent, the fourth quarter provides the best opportunity to acquire new customers and make additional high return marketing investments.
We expect these investments to deliver high long term returns and also drive strong growth in 2024. Finally, we expect to continue prioritizing investments in our technology and development organization, and ensuring that these investments are aligned to our strategic priorities. Our macroeconomic and FX assumptions remain relatively stable to what we’ve seen in the third quarter of 2023. And we expect continued resilience and customer behavior across a diversified portfolio of quarters. Our balance sheet remains a source of strength to ensure we can fund our high return investments. At the end of the quarter, we had $223 million of cash and access to a $250 million working capital facility. Similar to last quarter are reported cash balance as of September 30, was impacted by timing as the quarter ended on a weekend, when we typically have higher prefunding requirements to ensure funds are available to our customers.
Overall, we are — we have been very pleased by the consistent execution of our business model and strategy, which has been able to deliver a consistent greater than 40% revenue growth, improving adjusted EBITDA margins and high returns on all our investments. We remain focused on allocating capital to the highest return on investments to ensure we can deliver the strong financial performance over the long-term. With that method, I will open up a call for your questions. Operator?
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