Remitly Global, Inc. (RELY) Earnings Call Transcript & Summary

Thanks, everyone, for joining us this afternoon. With us today for this panel, we've got Matt Oppenheimer, Co-Founder and CEO; and Susanna Morgan, CFO from Remitly, Matt and Susanna, welcome. Thanks so much for joining us today. Maybe to get started, you guys are a relatively recent public company. I think investors generally understand the remittance industry. Can you maybe just start with a high-level overview of Remitly? Where you guys fit in kind of your mission and a little bit more about the company just at a high level?

Yes. Yes, absolutely. So our mission and vision is all around transforming the lives of immigrants and their families by providing the most trusted -- we'll come back to that team trust probably a lot during the conversation, financial services on the planet. And we're excited about both our competitive positioning, the market momentum as the world increasingly shifts towards digital providers and the scale and size and growth rate, if you look at Q1, we just announced, but $136 million in revenue, up 49% year-on-year. We raised our guidance this year to $610 million to $620 million. And I think that's indicative of the strength of our business, the resilience of our customers and the opportunity out there, given that $1.6 trillion in remittances are sent every year, and we're just scratching the surface when it comes to broader financial services for our customers.

Great. Maybe kind of like a tactical timely question. How should investors think about the impact of the macro environment on your business? Inflation, supply chain, kind of the ebbing and flowing of COVID waves, the geopolitical situation in Europe. You kind of mentioned that the momentum in your business is really continuing. So how should investors kind of contextualize the macro impact on the business?

Yes. Yes, absolutely. So certainly on our mind, it's on a lot of folks' minds right now. And the thing that I really appreciate about being CEO of this business is the criticality of remittances. And so when you look at previous recessions, remittances have been much more resilient than other industries. And the reason that's the case is, first, there's a diversification, right? So our customers are very diverse. If you think like an Indian-American, might work in tech, Filipino-American might be -- work in hospitals as a nurse, Mexican-American might work as a construction worker just a few examples. And obviously, within each of those demographics, there's a wide range of professions. But one, there's diversification. But two, the thread amongst all of our customers is the fact that they have a commitment to send money back on to their family. And it comes very high on their prioritization of use-of-funds, so they might pay for their own rent, their own groceries. And then they're going to pay for their mom's rent, their mom's groceries. And that criticality we've seen in previous economic hard times, even though our customers can be disproportionately impacted they find a way and they prioritize sending money back to their families. And that's certainly what we've seen with recent inflation, our retention and customer usages remain strong. we watch it like a hawk, but I'm really glad as CEO that I run this business, not only because it matters, it makes such positive impact. But I think with that, there's a lot of resiliency when it comes to economic recession or hard times.

Great. What about like the long-lasting impact of COVID? So we've kind of seen -- and it's a little more visible, I think, if some of your competitors have a mix of brick-and-mortar and digital, there's a huge kind of acceleration in the digital side. But what do you think that does to sort of the remittance business in general, long term? Do you see sort of just a step-up in continuation of digital trends? What are the sort of impacts on migrant workers? Or do you think it's kind of go back to business as normal? What are your thoughts there?

Yes. Well, given -- I think that there was an inflection point that happened, and first, just to put the kind of market in context overall, it's fragmented. It's mostly off-line. People still go and originate a remittance via physical cash location. So why is that the case? That is the case because it is trusted. It may be expensive and maybe less convenient but folks trust that local location often times in their community. That being said, there's been a shift, and there's been a shift towards large-scale digital first remittance providers as well as some of the legacy providers that have that scale and size. And I think that, that was obviously an inflection point during COVID, where it became more attractive to send the money via a digital provider. And I think that what has happened since COVID, obviously, there was extraordinary growth through COVID, but I think what's happened since is going back to that trust component, there's now this inflection point where more and more remittances are sent digitally our customers mix out with their friends and say, hey, have you tried Remitly? Do you trust it to give my personal information name, address, tax ID or social, 250 of my hard-earned dollars out of maybe $30,000 that I make every year that I'm sending very regularly? Those are the kind of questions our customers ask. And I think now that more and more people are using digital, there's a bit of an inflection point that's continuing after COVID, where people are trusting digital services more and more. And I think that bodes well for the industry and it bodes well for our customers in terms of what kind of remittances and financial services they can expect in the countries that they move to.

And so Matt, you've talked about trust a couple of times. Could you maybe talk a little bit about your approach to acquiring customers? I think you can imagine yourself in the position of a migrant worker and there's a bunch of choices on the App Store, Remitly and others. Can you talk a little bit about your approach? How you kind of target locally? The way you sort of think about that and sort of creating an experience and a brand perception that sort of speaks to that for your customers?

Yes. Absolutely. I think on the experience and brand side, that's the LTV side of the unit economic equation. But we have 90-plus percent of our revenue that comes from our existing customer base. And the reason that's the case is because whether it's our risk systems and the machine learning that goes into that, whether it's our disbursement network, whether it's the front-end user experience, as we get more scale and size and as a digital-first player with more agility, that just keeps getting better. And so the business results in that 90-plus percent of our revenue coming from our existing base and that continues to get stronger. But I love that you asked the question around customer acquisition and trust because as -- I'd say most financial services coming down to trust, but especially the element of our customer base and how important trust is. And how difficult it is to build trust. How many horrendous experience customers have had with other remittance providers, getting that trust out of the equations, right? And so I think we do that via a wide range of acquisition channels, whether that's digital and a wide range of digital channels within that, whether that is off-line channels like we're the remittance sponsor of L.A. Football Club, where we can geolocate L.A. and see what the return on that investment is. Whether that is TV ads, whether folks are watching their local cricket match, they want to see or advertising on the Filipino channel, TFC, which you can subscribe to on Comcast or whether it's our own paid referral system, we've built channels, we've then de-averaged and built the rigor around the customer acquisition costs we're willing to pay that matches the lifetime value of that specific channel in that specific country so that we can scale in a really high ROI way. And I think that's been critical to our success because, unfortunately, in financial services, it's not a scenario where you can just kind of, "If you build it, they will come." You have to find scalable ways to build trust. But with that, it's also on the flip side, a long-term relationship. It's very sticky that as long as we continue to deliver on promises, we have that strong repeat LTV side of the equation that we continue to see.

Great. That makes a lot of sense. Maybe switching gears, kind of another like high-level question. I think at the beginning, Matt, you mentioned the TAM of this space is like something like $1.5 trillion and I believe that's serviceable addressable in the market being developed-to-developing remittance close is a bit of a fraction of that. Can you unpack that a little bit? How much of the volume across the whole global TAM do you see is addressable? How much is informal? Do you think Remitly has all the tools to kind of address all of that opportunity? Or is there more to kind of build out as you go after the channel that, say, was historically bank-to-bank?

Yes, absolutely. So if you break out the $1.6 trillion of which we're less than 1%, about half of that is in formal channels. And informal channels, some of that is bad behavior that we or others want to serve. But a lot of that is like my co-founder, whose family is from Argentina and before we started the business, he didn't send money home all that regularly. But when he did, it was easier just to take money back below the legal thresholds to his family because he didn't want to deal with like the legacy inconvenient process of doing it. So we believe that as it gets more digitized and easier that more of that informal will shift to formal. That's about half. The other half is what you kind of look at when you look at the World Bank. And that we divide up into to develop-to-developed and developed-to-developing. We focus on developed-to-developing. That's about $589 billion of that, we're about 3% of the SAM, and when I say developed-to-developing, we send from 22 markets in North America, Europe and then a few select APAC markets like Australia, Singapore, et cetera. And then we send to over 130 received markets in Asia, Africa and Latin America. And what is happening there is, one, there's a specific customer segment that needs fast funds, meaning the risk systems I mentioned. And they need funds in a wide range of disbursement options where it might be cash pickup at hundreds of thousands of cash pickup locations that we've built. It might be door-to-door delivery, which is popular in some markets, just a couple. It might be bank deposit, which we can send to billions of bank accounts. It might be hundreds of millions of mobile wallets that we can send to. And that is our bread and butter, and we have so much room. We sent $20 billion last year and just in formal remittance markets to developing countries there, as I mentioned, $589 billion sent. And so a huge amount of opportunity to continue to grow in those markets. But there's no reason over time we can't also expand into develop-to-developed. I just believe focus is key, and there's no shortage of opportunity in the market we're in and also really long-term growth opportunities for us given the menu of options and areas that we can continue to expand to over time.

Okay. Makes a lot of sense. Maybe a little bit of a different topic. I think there's a perception among investors that yields in the remittance space are sort of destined to be kind of compressed to perpetuity. But I think you showed it quite recently and over the last many quarters that we've looked at, your yields have been remarkably steady. Can you maybe talk about the drivers here? What's kind of in your control versus out of your control? To what extent is this from corridor diversification or perhaps pricing actions? What kind of are the drivers there, yes?

Yes, absolutely. Susanna, do you want to take this one?

Sure, sure. Yes. So we've been really pleased to see that overall pricing trends have been favorable and the take rates have been really stable. So they've been above 2% for the last 8 quarters. We feel really good about our pricing. We do have controllable levers. We determine both the fees and the FX spread. But I think it's important to step back and realize that take rates are driven primarily by transaction size. They're also influenced by receive method, digital cash pickup, et cetera. So one example, our India corridors tend to have higher transaction rates. They're primarily digital receive, and they have a lower average take rate that doesn't mean that they're less profitable or worse for us by any stretch of the imagination. And on pricing in general, I think it's important to understand that customers choose Remitly for a variety of reasons. Price is one of money, and I think trust is more important followed by user experience, just because peace of mind in terms of understanding that money will get there when we said it would get there in an easy way, is really important. So overall, the goal of our pricing strategy is to optimize for long-term cumulative revenue, net of transaction expense, we're seeing some scale benefits there as well. And we don't strive to be the cheapest we really strive for a fair and transparent price.

So maybe other than pricing then, how should investors think about the drivers of ARPU? Is it related to increased engagement, marketing efforts? Do you see kind of more products down the road that kind of drives us? I think there may be a perception that, okay, I've got Remitly, I'm now sending money back home, and I'm done. Is that sort of what you see? Or do you see sort of a pickup in activity over time as investors -- or sorry, as vendors kind of get more comfortable and used to your platform?

Sussana, if you want?

Yes, yes. Yes. So ARPU, our average revenue per active customer in Q1 increased 5% to $45. And just generally, the right way to think about it is we have very loyal customers. We've talked about revenue retention over 90%. And so those customers do tend to keep coming back and in some cases, transact more frequently. ARPU increases in general have primarily been driven by a larger book of returning customers who are transacting more frequently along with an increase in revenue per transaction as well. Over the longer term, we do know that immigrants have needs that aren't being met by traditional financial services providers and our platform is purpose-built to meet those needs. So our road map builds on this, and we're focused on a portfolio of growth opportunities, including new customers, new corridors and new products across financial services as well, which we would expect to pay off in the medium to long term and to continue to drive those ARPU increases over time as well.

Maybe kind of sticking on the topic of growth. We got a nice update on your corridor expansion on the last quarter. But I think you're maybe a little bit more than halfway to the -- I think your previously stated target of around 4,500. Can you maybe talk about like the near-term road map here? What is sort of the growth path look like? Do you target corridors and a corridor that you want to expand to? And how do you think about identifying new markets to enter? Is it, do you look for sort of inefficiencies in the market? Is it customer demand? You identify a group that perhaps is being underserved? How do you think about that?

Yes, yes. I think that the first way that we think about it is that we have this portfolio, and it is kind of a linear, if you think about it like a time line of corridors, we've been in for a long time that we can continue to grow in given our relatively small market share. Corridors that we just launched a year or 2 and then corridors that we just launched a month or a quarter ago, and then finally, corridors that we are laying the foundation to launch now. So if you look at the ones we're launching now, these are ones that just like a year or 2 ago when we launched corridors that we've been in for a year or 2 here, they're laying the foundation to drive more material long term growth revenue, which is what we love. And there's a huge glove that we can continue to expand to. So what we've done since the IPO, this was also surprising to a couple of investors in a positive sense, that we've already grown our network and our geography significantly since our IPO. We added 700 corridors in 2021 and then approximately 200 corridors this quarter. We now have 2,300 corridors that we serve. In April, we launched 5 new origination corridors. So we sent from 22 origination corridors going from 17 to 22, and we now send to over 130 receive markets. And you can kind of look at where we send money from and to, and you can kind of see that we've got good presence in a lot of large markets, but we're also -- we don't have a presence yet in the Middle East. We only send in APAC from Australia and Singapore. So there's opportunities for continued sustainable growth. And I think that focus and discipline around what we call our corridor expansion playbook has been critical for the last 10 years. It also informs how we think about the business at a very corridor-specific level, which is how customers think about the business. And I think it's foundational to continue to set us up for long-term success.

Great. And maybe to follow up there. Can we talk a little bit about kind of technically what happens when you launch a new corridor? What do you have to do in terms of the regulation in-country marketing? And sort of what does the customer look like? I imagine there's some sort of J-curve where first, you're marketing quite a bit and then over time, word-of-mouth referrals or whatever it is. But yes, can you speak to that a little bit?

Yes. Yes, absolutely. I think that the first principle is that it gets each incremental send or receive market gets easier because there's patterns. So when I say that, I mean, we've delayed the regulatory foundation for any new divides up on send versus receive markets. For send markets, you need a money transmission license. We have a whole team and expertise built out to do that we plan in advance. Once we launch, there might be nuances on how to do the KYC, the know your customer, there might be nuances on payment acceptance in terms of how we collect payments depending on the local payment methods. I mean nuance on the language that is spoken in that specific market. But as you can imagine, the KYC, the payment acceptance, the language, for the 22nd market that we launch is much lower effort than for the second market that we launched. And that's why we were able to launch 5 new markets just in April. On the receive side, it's even faster where we do, and it's a real area of expertise for us where we've done 100-plus integrations in Asia, Africa and Latin America to be able to disperse funds in a high-quality fashion, lower cost and just much more reliable. And so we'll go in the market. What's important there is, in addition to expanding to be on the 130-plus markets that we send money to going deeper and deeper and deeper into that market to improve the reliability and the trust is critical. And so we think as much about quality as we think about quantity. So when we do that, we're doing a standard commercial agreement, we're doing in API. And unlike when we were tiny and having to really try to convince partners to work with us, given our scale size, growth rate, digital first approach. We have a long list of partners that really want to work with us because they see us as a winner in the space, which gives us more leverage and faster movement to be able to continue to build out that network. And also, we may talk about it later, but that's where the idea for Remitly for Developers was born is recognizing how difficult it is to build up that network and how other businesses could benefit from having access to.

Great. And I do want to come and talk to about Remitly Developers -- Remitly for Developers soon. Maybe one last question on the customer acquisition side. On the last earnings call, you talked about some increased competition from other major platforms, new data privacy requirements. It doesn't seem like it's slowing you down, you still raised guidance for the full year. But can you maybe talk about technically what's kind of happening there and what's the company doing to sort of combat that headwind?

Yes. Susanna, do you want to take that?

Yes. Yes, I'll take that one. So yes, we did talk a little bit about -- I think it's similar to trends that others in the industry have observed. So there's been some changes in privacy with IDFA and the like. And some increase in digital media costs coming off of COVID when a lot of advertisers pulled out of the market. And so we have seen a slight increase in CAC. CAC in and of itself isn't really meaningful. We focus on LTV to CAC, which we've shared historically has been over 6x and payback as well. And we've seen improving LTVs as we've improved our transaction margins over time. So in Q1, we saw a 400 basis point increase year-over-year in transaction margins. And we're seeing really strong unit economics because of the high repeat nature of our customers coming back and continuing to transact. In terms of what we're doing about it in actions we're taking -- we'll continue to invest in new customer acquisition, but we are finding more ways to be more efficient. So focusing on referrals as one example, especially as we build up our brand awareness and customer base focusing on owned channels like search engine optimization as well and then driving brand awareness with more upper funnel marketing as well. So I think between these actions and the increases in LTV that we're seeing, we feel really good about our unit economics.

Great. So maybe now kind of pivoting over to Remitly for Developers and some of the other kind of longer-term products. So for Remitly for Developers, you've got the partnership with Coinbase for sends into Mexico. Could you perhaps talk about that partnership a little bit? And then kind of alongside that, what is the partnership pipeline look like? Should we see -- expect to see more digital wallet crypto-type assets looking to leverage your capabilities? Or is it perhaps more broad or more narrow? Anything you could share there would be helpful.

Yes. Yes, absolutely, man. Thanks. So I'll start with the Coinbase. Actually, I'll start with the broader strategic rationale of RFD, and then I'll circle back to Coinbase. So as I mentioned, that network that we built, but also the overall infrastructure of Remitly and how hard it is to send money internationally is something that other businesses have come to us and said, we'd love access you, given how high quality it is and given how much of a specialty and skill set that is to do. And so that's how Remitly for Developers was born. We view it as a big TAM expander. And so we have talked about and launched 2 partnerships, both happened to be crypto companies. One is Novi, the other is Coinbase. And in the Coinbase example, it helps Coinbase wallet holders in Mexico be able to get funds out of their wallet in Mexico. And in the example of like cash pickup, et cetera, that's needed to do local commerce in Mexico, even if you have a Coinbase wallet. And it's early days, just as it is with a lot of other, I think, crypto companies in this space. But if you look at the broad -- and we're very glad that we're partnering with crypto companies because of the potential, because of the amount that we can learn and because of the amount of value that we can add. If you look at the broader RFD space though, to your point then, around like how are you thinking about the space broadly, it is a wide range, far beyond crypto and far beyond what I'd even say like P2P payments. It is much broader. And we haven't announced any of those other partnerships yet, so I can't talk about them in detail, but what I would say when I look at the pipeline, I think the thesis of that being a TAM expander and more clearly a TAM expander, the RFPs that we're winning because of the value of our network and how well we built it for ourselves. I took pride in that where it's encouraging now to see the market react when we're competing with other products and winning because of the fact that people -- the companies see the value of the network that we built and how we can help them disperse funds in emerging markets across a wide range of avenues in a way that is really, really seamless and really well known. Still more to come there.

Great. Maybe a similar question on Passbook. You've talked a lot about kind of -- there are many more ways in which you can kind of serve your customer base. Should we be thinking about that as a Passbook a wider rollout? Are there kind of more products in the pipeline? Where do you see that kind of going in the next 12, 18, 24 months?

Yes. Yes, I think strategically, when you think about the vectors for expansion, there's both B2B and the platform we've built there. And then there's B2C, meaning the platform that we can build off of the trust that we've built with consumers and the inherent understanding that immigrants specifically are underserved across a wide range of financial services. So we've talked the most about Passbook, and that is foundational, like to get that core DDA, the core bank account both investing in the core features that are required as well as some differentiator features. And with that foundation, we're also testing multiple other financial services products, we're not announcing those yet. We want to make sure they've gotten a bit further. But we're excited about both the -- our ability and the unique assets that we have to solve financial services pain points for immigrants, the foundational component that we have with Passbook and the clear pain points we're hearing from our customers that often move to a new country and have a wide range of financial services that are just not built for their specific needs or their family's needs.

Could you maybe -- and again, perhaps I'm fishing too much for more details on the upcoming products, but perhaps a different way to ask would be, what are some of those pain points, obviously, not having perhaps the same credentials as a U.S. citizen it's harder to get a bank account. What other products are difficult to obtain as a migrant living in the country?

Yes. I think there's a wide range, whether it is, like you said, just getting that bank account set up and not having the local SSN or whatever the local tax idea is and doing that in a fully compliant but seamless way. I think there are language barriers significantly for customers. I think that there are credit challenges that customers have given they might not have a credit history, having been in that country for as long. I think that there's cash just like smoothing given -- it really depends on the specific customer base. Indian-American might have very different pain points than a Mexican-American. But what I'm confident is that there are pain points that need to be solved, and I think we're in a good position to potentially solve those. But we're doing that in a pretty disciplined way. And we're doing that, I think, in a pretty humble way where we said not to expect revenue materially from products in this space this year. But we're doing it in a disciplined, I think, effective way given that there's clear pain points that we can solve for our customers.

Okay. Very helpful. Maybe a question for Susanna. Just on the topic of disciplined investing. Can you talk about the key near-term investment areas? How are you thinking about allocating spend between marketing, R&D? And where are you kind of digging in deeper over the say the next 12 months?

Yes. So in terms of the investment areas, there's 4 areas: marketing that's driving acquisition of new customers almost all of that $40 million in Q1 was spent on new customers. We talked a little bit about the unit economics, and we'll continue investing as long as see those attractive unit economics, but we're monitoring that really closely right now. If we can also dial marketing up and down very easily given that most of it is digital. So if you were to choose to become profitable. We could do that easily given that adjusted EBITDA was negative 12% in Q1 and marketing was 40%, so we could get to profitability quickly by reducing marketing spend. We don't think that's the right thing to do for the business though. The other areas outside of marketing, which is the biggest is investments in the global network, providing scale and additional options for customers and expansion into new corridors as well and then product technology, which just allows us to continue to differentiate from our competitors with a super easy-to-use app and others. And then finally, new products and services, which Matt talked about as well. So we're excited about those areas. We believe they'll have multiyear returns. And yes, we're continuing to invest while being very disciplined.

Great. And maybe like following up there, just kind of a high level, how do you think about like the long-term financial profile Remitly. It feels like in this space, there are sort of some companies that have been around for a very, very long time. They look very, very different from Remitly and then there's some new entrants that we've got less history with and are growing extremely rapidly. So I realize perhaps an impossible question to answer, but I figured I'd ask it anyway?

Yes. For us, the guidance we've provided on the long-term financial model is 20% plus revenue growth and 20% plus adjusted EBITDA margins. And there is a trade-off there, right? If we were to dial back marketing spending, as I mentioned, we could become profitable sooner, but that we would sacrifice some revenue growth in the short term. And -- so we do -- just in terms of scale of the business, we've seen leverage on the transaction margin side. And over time, we will see leverage in a few areas and marketing kind of comes down naturally as a percentage of revenue, just as repeat customers become a bigger portion of the base. Customer support, the contact rate is higher for new customers. So that comes down naturally as repeat customers become a prior portion as well. And then G&A, we have made significant investments in the last year that are necessary to be a public company, but we would expect those to scale over time as well. So we do feel that we're balancing that growth with a focus on disciplined investments that deliver long-term value.

Great. That's very helpful. We've got like 30 seconds left. Maybe one last question. It seems like I kind of said this before, your growth hasn't really slowed down perhaps with the exception of just some naturally tough comps. What are you seeing in terms of competitive environment? Are things changing? Has intensity picked up on the digital side? It seems like it's not really impacting your business. But are there anything you're perhaps noticing that might be relevant?

Yes. I think continued macro trends is the 30-second answer. And what I mean by that is, the world is shipping digital as a digital-first player with scale. There's really only a handful of companies all sub-5% market share right now, but I think we'll continue to grow and consolidate in the market because with digital first, we have the ability to build and maintain that trust and peace of mind that I talked about. And then with scale, we have more data and analytics to feed into our machine learning and risk systems. We have the ability to target and improve our unit economics. We have the ability to invest more on our infrastructure. And so we feel really good about our competitive positioning. There's a lot of noise with subscale players. I think some of the legacy players have gotten to some scale digitally. So we certainly pay attention to them. But I think it's -- we're excited about the macro shift of digital and then scale being an advantage and where we sit in that overall ecosystem.

Okay. Well, unfortunately, we're out of time. But thank you so much for the conversation. Thanks so much for joining us, Matt and Susanna. I really appreciate it.

Yes. Thanks, Ben.

Thanks, Ben.