Remitly Global, Inc. (NASDAQ:RELY) Q1 2024 Earnings Call Transcript

Remitly Global, Inc. (NASDAQ:RELY) Q1 2024 Earnings Call Transcript May 2, 2024

Remitly Global, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Remitly First Quarter 2024 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 Stephen Shulstein, Vice President, Investor Relations. Please go ahead.

Stephen Shulstein: Thank you. Good afternoon and thank you for joining us for Remitly’s first quarter 2024 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, 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’ll be making forward-looking statements within the meaning of Federal Securities laws, including but not limited to statements regarding Remitly’s future financial results and management’s expectations and plans.

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 to our 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 response 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 metric, please see our earnings press release, and the appendix to our earnings presentation, which are available on the IR section of our website.

Now, I will turn the call over to Matt to begin.

Matt Oppenheimer: Thank you, Stephen and thank you all for joining us to discuss our strong first quarter results and our outlook for 2024. We are pleased with our results as our value proposition of delivering trust and peace of mind throughout the cross-border payment security continues to resonate with our new and existing customers. You will see this in our first quarter financial results on Slide 4, our consistent execution continued with a strong start to the year. We are pleased to deliver $269 million of revenue, a 32% increase year-over-year. Our top line results and scale efficiencies across transaction costs and operating expenses resulted in a strong adjusted EBITDA of $19 million, a more than 250% increase year-over-year and ahead of our expectations.

See also 25 Richest Billionaires in Finance and Investments Industry and 20 States with the Highest Student Loan Debt.

Q&A Session

Our digital-first positioning and increasing scale allowed us to deliver the improvements in adjusted EBITDA profitability in the quarter, demonstrating the structural profitability potential of our business, while continuing to make targeted investments to deliver both long-term growth and strong returns. As a result, we are reaffirming our 2024 revenue outlook and raising our 2024 adjusted EBITDA outlook. In the first quarter, our quarterly active customers grew 36% year-over-year, as you can see on Slide 5. We now serve 6.2 million quarterly active customers, up 1.7 million from last year, and we continue to outpace the overall growth in the remittance industry and our digital peers. We also continue to benefit from record new customer acquisition due to our investments in creating a seamless customer experience, efficient performance marketing, and brand awareness across key markets.

Our customers are highly resilient and have a deep sense of responsibility to support their families. And this is key to understanding their predictable and durable behavior. A significant majority of our customers send money home on a regular basis and recurring basis to support daily living necessities. At the same time, we also see strong seasonality as many customers send more actively around key holidays and festivals, including Christmas, Mother’s Day, and Ramadan, just to name a few. This seasonality of customer activity played out in the first quarter as expected as there are fewer large sending activity drivers such as the Christmas holiday season that we see in the fourth quarter or Mother’s Day and Eid al-Fitr in the second quarter of this year.

This seasonality is particularly evident in the first quarter on the back of a very strong Q4 activity. We have observed this pattern for several years and see many of these customers increase their sending activity from Q2 to Q4. As expected, we have also observed an increase in recent customer activity in April, which reflects typical seasonal patterns as we remain confident in the resilient customer behavior trends that result in predictable and durable five-year LTV. The trend of customer preference for digital receive options continued in the first quarter. The year-over-year mix of digital received transactions increased by nearly 500 basis points in the first quarter, which was a similar increase as Q4. As transactions sent to mobile wallets tend to be smaller and more frequent, we continue to optimize our product features and underlying cost structure to serve these customers effectively and profitably.

Having a wide variety of high-quality disbursement options, including 1.2 billion mobile wallets, 4.2 billion bank accounts, 470,000 cash pickup locations, and home delivery in certain markets, to serve different customer needs is a key differentiator and a driver of customer transaction activity. Turning to some additional detail in our marketing efforts on — in Q1 on Slide 6. Our focus for our marketing investments remains on ensuring we optimize the customer acquisition cost we are willing to pay with the lifetime value of a customer in order to drive high long-term returns. We continue to see strength in lifetime value as customer activity remains strong with increasing transactions per active, particularly related to digital transactions and our overall unit costs continue to improve.

We delivered another record number of new customers in the first quarter as our marketing investments across channels drove new customers to our platform at a highly efficient customer acquisition cost. We also benefit from word of mouth as we continue to make product improvements and drive additional customer activity in both new and existing markets. Consistent with seasonal patterns, our customer acquisition costs declined sequentially from the fourth quarter. Our marketing investments, particularly our global 360 integrated campaigns in key markets are resonating with new customers, which is a leading indicator of future revenue growth. Building off our momentum in the fourth quarter, we are pleased to continue our brand awareness efforts in key strategic regions worldwide, including the launch of an integrated brand campaign in the large Los Angeles market in the quarter.

L.A. has a significant customer base that sends to many of our key receive markets, including Mexico and other Latin American countries. These campaigns combine traditional media and digital channels and we are taking the successes we have had in other key markets to L.A. We believe that the disciplined and data-driven ROI-focused approach to our marketing investments is unique, and we continue to monitor for a variety of signals with our brand campaigns such as branded search impressions, alongside other metrics across the customer funnel. Taking this approach, we’ve seen positive results to-date from our marketing campaigns. Finally, on the marketing front, we continue to find more ways to utilize AI, including generative AI across a variety of use cases in marketing.

We’re starting to see the benefits of generative AI in helping us generate long form content at scale. We’re exploring AI for a variety of process improvements that are actively using AI as an effective tool in translating our product and marketing efforts into many different languages, increasing the benefits of localization. Overall, we continue to have high confidence in our recent marketing investments, which are expected to deliver strong returns this year and beyond with a predictable and durable stream of revenue, less transaction expense, which we detailed in our call last quarter. This is consistent with the resilient customer behavior that we see related to cross-border transfers for primarily non-discretionary needs, along with our ongoing focus on program optimization and our ability to continue driving down unit costs as we scale.

Our focus on delivering a fast and seamless customer experience has not changed, as you can see on Slide 7. We often get asked the question of what makes Remitly so special and unique, that results in the high growth rates that we’re delivering. The truth of the matter is that it’s a complex answer because remittances are complex, but it all comes back to the customer and continuing to earn their trust. When we analyze responses to our NPS customer surveys over the last six months, the top two drivers were fast transfers and that the experience was easy. Additionally, a large portion of comments simply say that Remitly was some version of grit, such as excellent, incredible, amazing superb or brilliant. I want to emphasize, while qualities like fast and easy may sound like table stakes, international payments are incredibly complex, and we are uniquely reinventing international payments in a way that’s magical and delightful for customers.

And you can see this reflected in our industry-leading growth rates and customer reviews. Let me highlight a few areas of progress in the first quarter on delivering this great experience for our customers. In order to achieve this long-term trust, we are excessively focused on reducing what we call transaction defects. These are issues related to pay-in, disbursement, and risk that negatively impact the customer experience or delay or delay the ultimate delivery of customer funds, which creates unnecessary friction and erodes trust for our customers. Reducing these defects typically results in lower customer contact rates, less back office work for our customer support teams and ultimately, higher customer satisfaction, trust, word of mouth, and retention.

On the pay-in side, meaning the way that we collect funds from customers, we are focused on reducing payment issues for our customers. This product work matters to our customers because it enables us to deliver faster transactions, more payment options, fewer errors, and at a lower cost to Remitly. We can also uniquely deliver these benefits with our digital-first approach at scale. We continue to and expect to add relevant payment options that provide great customer experiences. Examples of this are bank contact in Belgium, interact in Canada, and the ability to speed up ACH transactions in the U.S., which we expect to launch later this year. To help with speed and to reduce errors, we are leveraging machine learning and dynamic routing across payment processors to drive down errors, which improves the customer experience.

On the disbursement side, we continue to make progress on improving our mix of high-quality direct integrations, which increases transaction speeds, improve the customer experience and lowers costs. These include M-Pesa in Tanzania, ICICI Bank in India, and Yape mobile wallets in Peru. We are also providing more self-service options for customers to resolve disbursement exceptions effectively when they do happen. Finally, we are automating manual actions such as downtime routing and validation APIs that delay transactions and create unnecessary work. Finally, on the risk side, we are also focused on reducing the frequency that transaction defects are introduced to legitimate customers and improving the customer experience around resolving any risk-related issues.

To achieve this, our strategy is to build robust, intelligent, and scalable systems utilizing advanced machine learning capabilities to combat bad actors effectively, ensure regulatory compliance, and streamline required customer verification experiences. As a result of our efforts, more than 90% of transactions in the first quarter were dispersed in less than an hour. And more than 95% of transactions proceeded without a customer support contact. While our primary focus on this work is to continue to build a fast and magical experience to send money internationally, thereby continuing to drive long-term retention, we have been able to deliver a significant improvement in customer support expense with leverage of 260 basis points compared with the first quarter of last year.

While we are pleased with these results so far, our global teams are focused on continually improving the experience for our customers, which is helped by our increasing scale and investments in our technology infrastructure. Our ability to execute our long-term vision of transforming lives with trusted financial services that transcend borders is driven by resilient and predictable customer behavior, our differentiated and continuously improving product, a focus on increasing investment returns and efficiency, and even more growth, enabling us to deliver a more delightful customer experience across all dimensions of the cross-border payments journey for our customers. As we look ahead to the rest of 2024 and beyond, our strategic priorities remain the same, as you can see on Slide 8.

We are just getting started in addressing our large market opportunity, which includes growth opportunities in both new and existing send and receive markets. I am especially excited about the opportunity we have to grow across Sub-Saharan Africa. This region has only been a focus for Remitly for a relatively short period of time and since that focus began, we have been seeing encouraging growth in a large market with a lot of potential for future growth. On a global basis, we are still only about 2% of a very large market and we are seeing strong growth across our portfolio. We believe we can continue to delight customers, grow market share with high-return marketing investments and new markets, deepen customer relationships, and at the same time, drive even more dollars to the bottom-line through operating efficiencies.

With that, I’ll turn the call to Hemant, who will provide more details on our financial results and our improved 2024 outlook.

Hemanth Munipalli: Thank you, Matt. I’m very pleased with the strong results that we delivered in the first quarter and the progress we’re making on continued strong revenue growth and driving efficiencies throughout the organization. I’ll begin by reviewing some high-level drivers of our financial performance. I will then discuss the priorities we’re focusing on to ensure we can deliver sustainable growth and high returns for many years to come, and I’ll finish with our updated outlook for 2024. With that, let’s turn to our first quarter results. As a reminder, I will discuss only non-GAAP operating expenses and adjusted EBITDA in my remarks. These metrics exclude items such as stock-based compensation, the donation of common stock in connection with our Pledge 1% commitment, acquisition, integration, restructuring and other costs, and foreign exchange gain or loss.

Reconciliations to GAAP results are included in the earnings release. Let’s begin on Slide 10 with our high-level financial performance in the quarter. We were pleased to deliver a high active customer and revenue growth in what is typically a seasonally weaker quarter for customer activity. Our adjusted EBITDA profitability also improved substantially as we benefited from scale and a deliberate focus on driving efficiencies through all parts of the business. Quarterly active customers grew by 36% year-over-year to $6.2 million. Send volume grew 34% year-over-year to approximately $11.5 billion, resulting in revenue growth of 32% year-over-year to $269 million, which was in line with our expectations. Our GAAP net loss was $21 million in the quarter and included $34 million of stock compensation expense.

Strong revenue growth, combined with significantly lower transaction expense as a percentage of revenue and efficiency across operating expenses, led to higher-than-expected adjusted EBITDA of $19.3 million in the quarter. Our focus for 2024 and beyond remains on 4 key areas to drive sustainable long-term returns, as you can see on Slide 11. These are to continue to deliver strong revenue growth, reduced transaction expenses, acquire new customers with efficient marketing, and operate more efficiently. By focusing on executing across these four areas, particularly with the additional focus on efficiencies, we believe we can deliver sustainable long-term high returns. Now, let’s turn to some of the key factors that drove our strong performance in the first quarter.

On Slide 12, we detail the drivers of our strong performance. Let’s begin with revenue, which was up 32% year-over-year in the first quarter on both the reported and constant currency basis. We have also anniversaried our acquisition of Rewire, which positively impacted our growth rate by about 2 percentage points in the first quarter of 2023 and full year 2023. Our revenue growth was driven by the high retention of existing customers, consistent first quarter sending patterns, benefits from earlier send market expansion, and record new customers acquired in the quarter. As is typical, sending activity from returning customers contributed to a significant portion of total revenue in the first quarter, which reflects the non-discretionary nature of remittances and the loyalty of our customers.

As Matt mentioned, the first quarter is typically a seasonally less active quarter for existing customer activity as compared sequentially with the fourth quarter. It is also important to note that the first quarter of 2023 was somewhat of an anomaly for quarterly active customer growth as we recognize the addition of all newly acquired Rewire customers in our quarterly active customer count in the first quarter 2023, which we have now fully anniversaried. As we look ahead to the second quarter, we typically see increased customer activity from prior active customers due to more seasonal spending opportunities, and we also expect to continue acquiring even more new customers to Remitly. We expect various factors to impact year-over-year and sequential increase in quarterly active customers.

These are related to the timing of holidays and gift-giving periods such as Easter, Mother’s Day, and Ramadan, the increasingly diverse global customer base, timing sensitivity to foreign exchange rates, particularly at higher transaction values, and quarters ending on weekends versus weekdays. Overall, we continue to observe very consistent customer behavior patterns with high retention that are expected to generate robust LTV as measured by revenue-less transaction expense for years to come. As a result, our LTV to CAC ratios remain attractive for continued investment in marketing to acquire new customers. Turning to our transaction expenses, which include costs related to our pay-in partners, disbursement partners, and fraud losses, transaction expense as a percentage of revenue improved to 90 basis points year-over-year.

This was primarily due to our increasing volumes, which allows for improving terms with our pay-in and payout partners, while at the same time, improving our fraud precision. Approximately 200 basis points of the improvement was related to pay-in and disbursement partner cost reductions. Our continued improvement in transaction expense and overall variable cost structure allows us the optionality to make investments in improving the customer experience and the value we deliver to customers, which results in increased retention, transaction activity, and ultimately increasing lifetime value of our customers. We’re also making solid progress on delivering operational efficiencies, which has been an increased area of focus for us this year. Let’s begin with our progress on customer support expenses.

Customer support and operations expenses as a percentage of revenue was down 260 basis points year-over-year, consistent with the trends we’ve seen over the past few quarters. As Matt mentioned, we’re focused on reducing unnecessary friction for our customers via our transaction defect reduction goals. As an example, we have enabled even more self-help options such as changing disbursement choices without the need to contact customer support. When self-service is not the right option, we’re starting to apply technology like generative AI to make it easier and more efficient for agents to support and delight our customers. We’re also applying AI in our risk systems to improve precision and to provide a more effective customer support experience either via chat, e-mail, or phone.

All of these things reduce the workload rate for our agents and help provide a more efficient and tailored experience to delight our customers. In the first quarter, G&A expense as a percentage of revenue decreased 70 basis points year-over-year as we benefited from continued discipline on hiring, non-headcount expenses and other efficiencies. A portion of the improvement in G&A expenses benefited from some favorable timing and indirect tax reduction, totaling about $2 million that we do not expect to reoccur. We view our marketing and technology and development expenses as key investments that provide returns over both the near, medium and long-term. Our marketing investments have a payback period of less than 12 months and provide a long stream of revenue-less transaction expense from resilient customer activity.

Our technology investments have both near-term returns as you can see in our progress reducing transaction and customer support costs and expected medium to long-term returns as we invest in our platform to further deepen customer relationships. Our marketing expense was $64 million in the first quarter, which was a sequential decline of about $7 million from the fourth quarter and in line with our expectations. This reflects the typical seasonality of declining customer acquisition costs sequentially as the opportunity to acquire new customers is generally lower in the first quarter. Given our data-driven approach, we are also uniquely able to manage LTV to CAC ratios to the return thresholds that we desire, including taking into account the cost of capital on our higher return thresholds.

We will focus on this balance to ensure that we were delivering high long-term returns relative to our cost of capital. Technology and development expenses were $44 million in the first quarter. The primary areas of investment included our remittance platform, driving transaction defects down, deepening customer relationships, and enabling increasing automation across various operational areas such as customer service and back-end transactional processing. We expect moderating growth in our T&D expenses as we scale over the medium term. Before we turn to our updated outlook for 2024, I’d like to discuss our balance sheet and perspectives on cash flow. As you can see on Slide 13, we ended the quarter with $286 million of cash and access to a $325 million credit facility.