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

Good afternoon, everyone. Thank you for joining us. My name is Andrew Schmidt, I'm Citi's payments processors, and IT services research team with a focus on fintech software. It's my pleasure today to host for Remitly, with us from Remitly with Hemanth Munipalli, who is the CFO of Remitly. Yes, thank you so much for joining me.

Thanks, Andrew. Great to be here.

Thank you. And I think as we like to start the session, maybe just a level set in terms of where Remitly fits into the cross-border sort of money transfer space and maybe a little bit about -- there's a lot of players in this space, but what differentiates Remitly from another provider?

Yes. So I mean, I think if you think about Remitly's been in the business now for a little over a decade, probably. And I think a digital-first player that has scale in the business. So when you think about the Western unions and others that have been probably longer in this space, but we've been not -- we've been decade-plus, like I said, but really a digital player that's been building scale, adding a lot of new customers on a very regular clip. Q3, we had some great results in the quarter of Q2 as well. So we're continuing to show great momentum in adding new customers. So I think that's some of the differentiating elements of just building trust with our customers, delivering against the promise of cross-border remittances actually working and happening. And so I think that's some of the differentiating elements -- we're a big network as well across the globe.

How about -- so digital-first orientation is one differentiating factor. How about also sort of like use of data and analytics and things like that to do to make the process, whether it's pricing or customer acquisition cost, is that a differentiator as well?

I think so. I think we've been -- when you think about marketing, we've been actually doing really well in terms of driving marketing efficiencies. You've seen our customer acquisition costs continue to come down. It is through optimization of channels, but it comes through having great data grade analytics, understanding the customers in -- and the same applies across the board when you think about it in the P&L customer service, really understanding the customers there. So analytics, data -- key elements. For sure.

Got it. And then I was talking to Stephen before. It's hard to believe you've only been on the job for 4 months. It feels like, wow, just given the market. But maybe just talk about just where you're spending your time, sort of where top areas for you just coming into the business?

Yes. I mean, I think fintech, first of all, a fascinating place, and I think Remitly is pretty well positioned in this space. So I've been spending a lot of time learning about obviously, industry but the business and the metrics of the business. That's a big focus. The second thing is around investments. And I think it's something that every CFO needs to look at looking at where are we spending our money. What does it what are the returns we expect to get, and what time frame we expect to get that and get those returns? Opportunities within the P&L of the business, one where we can drive leverage. We talked a little bit about that in our Q3 earnings. We're starting to see a moderation in our growth rate on things like G&A, but when it takes more broadly. So that's another area that I spend a lot of time on. And I'd also say we're a new public company. We've been just first your university came up, I think it was in September. So a lot of things in the new public company process, et cetera, which you spending some time on that as well [indiscernible].

Yes. Okay. Super helpful. And then everyone's favorite topic at this conference is over the last 6 months with macro for us, unfortunately. So I have to ask the question. Maybe you could talk about just how you think about the sensitivity of the model macro. Obviously, in a day, rigs do have linkage employment growth and things like that, but there are offsets like digital secular growth as things like that. So maybe just talk through the high level of how you think about the sensitivity of macro at the Mile.

Yes. Well, I think, I mean, we're in a nondiscretionary spend category, right? So when you think about remittances, we're focused on immigrants and their families, and these remittances are being made despite the challenging macro environment because it's a spend that's important. It goes against actual nondiscretionary spending for families and various countries only. To a degree, it's -- to a high degree, it's resilient and some of the macro we're saying. There's also currency impacts when you think about macro, and surely, there's a little bit of benefit you've seen with the dollar being as strong as it was in Q2 and Q3. But I would say not a significant impact. So yes, so currency and then test translation impacts as well. But broadly, a resilient business with customer behavior that's kind of held through it.

And I think one thing that's helpful is to kind of draw distinctions in terms of customer base because I think we think of remittances that can be a difference between one company's customers and another. For example, emitters customers, by definition, are back in some sort right? So does that create just having that customer demographic for the customer, by definition, being banked, -- does that create a little bit more resilience from an economic standpoint in terms of their like demographics of their economic status. [indiscernible]. So by definition, so when you join rightly, right, you have to look at a debit card. So you have banking services and some place shape reform, right, whether it's a prepaid card or whether it's a bank card you're not handing over it. It's not cash or not coming in. You're having cash. So on average, there might be a given demographic, their service versus others -- so in terms of how does that customer profile fit in terms of resiliencies versus like maybe more cash as a [indiscernible]?

Yes. I think there is -- I think there would be a degree of resiliency than I would agree with the thesis just saying. I also think that with the type of experiences that we're providing to our customers that even if someone is using the unbanked using cash for that matter to go to a physical location. Once they sign up with Manitou, the experience is pretty straightforward ban the promise and then we start getting the Pin behavior. So we're also seeing sort of that transition opportunity.

So just digging into kind of cohort economics a little bit. So the retended rate for customers is pretty good and 90% plus out in the first full year. For the less than like 10% of customers that don't stay, what's the primary reason that the trite, and what's the opportunity to kind of sort of decrease that attrition rate over time?

Yes. I mean, we talk about 90-plus percent revenue reduction. So our customer retention is also pretty high. But just the numbers we put out there. The remaining 10%, largely, those are things that we continue to focus on. In some cases, customers just don't have the need to send that in, and it falls away, so they there'll be some percentage associated. There are times which we don't particularly like move in to work on it, where AMD experience wasn't what they were desiring. We're making -- continue to make investments to ensure that that experience is always what they expect to get and improve on it. So there is a bit of a bad that happens. But amongst the factors you've seen, those are probably the ones that bring standard and to nothing that jumps out as being a concern.

Maybe if we flip to our customer acquisition, and that's been a real bright spot as I was looking at Propane and I was anticipating that growth is slow, but actually growth has stepped up significantly. Maybe you talk about customer acquisition channels and the customers kind of journey, you like to define Remitly and start using it.

Yes. There's -- I mean, there's certainly the marketing sort of paid channels of growth marketing were pretty targeted. We're again focused on migrants in their family. So we're pretty targeted about where we spend our drug market, and that's continuing to be optimized. We're doing that. I think the other piece that we've started to talk about a little bit more. We mentioned this in our Q3 earnings as well as what we call is a word-of-mouth effect. So we're starting to see given the scale of the business and the size of it, and we're seeing 2 surveys that a lot of customers are coming to us speakers. They heard it from their friend, their relative and they join us because obviously, a marketing kilo effect that's in there as well, but that's helping us drive improvements in CAC and getting better. And the journey is once they sign up, which is a relatively seamless experience, and they make their first transaction, which we monitor pretty closely what we call active rates, M1 active rates, and they come back. So you kind of see that we behavior with these cohorts that sign up and which is -- which again, we talk about revenue retention, 90%, but it's a driver of the.

Got it. And I think you've done some branding exercises and things like that more top-funnel -- have those helped also to -- from what you've seen to kind of drive more, I guess, productivity and things like that, just -- because I know those are a little bit new productivity.

Yes. So we think so. I mean we're -- we have a high bar against any investments we're making in marketing for sure across the board. And when it comes to brand marketing and our pound, we do invest in it, some obviously measurable on less, but we hold the high borrowings. We're seeing that some customer product editions coming through at.

Right. And I think one of the big things in the last quarter was just the customer at cost is pretty significant. So maybe you can just kind of break down what the efficiency was and what factors are more environmental and what factors are sustainable.

Yes. I mean, I mentioned a few of these, 2 of the ones I would say are kind of controllable or on their continued to work within channel optimization. And we've seen relative lease inside function changes, step changes in that that we think is sustainable. The word-of-mouth effects, which are also a driver of this. So that's the other factor. The market in Q3, the advertising market you think was also favorable in terms of the pricing there, but not a significant factor, but on saw that as we look forward into Q4, we would expect some picking up in that space, even it's a seasonally high quarter for Revitas.

So just is it possible to kind of break down, is the vast majority of the tax benefit? Is that more sort of a self-driven versus environmental? Is that the right way to think about it? That's the right way to think about malpractice. And other -- as we think about tax stability and ability to sort of continue reinoCAC, is it more elasticity testing? Is it a continued sort of ramping referrals? Like what are the one levers you have to kind of continue to refine that CAC...

It's really all of the above. I mean, we've got a really great marketing team. It's global. We have a lot of marketing analytics, and capabilities go under that. And it is through optimizing across the channels. It is through all that you're talking about, we will be using the referral channel, which is a great channel for us. The word-of-mouth effects are -- again, there'll be marketing involved, but that's the driver as well. So there are lots of levers that we have to continue to drive efficiency, but I'd say, importantly, maintain a high bar for marketing investments and getting good returns for it.

That's helpful. And then if we could think about just sort of customer acquisition cadence, obviously, you've done a very, very good job in terms of outperforming most people's expectations in terms of customer acquisition acquisitions, probably also in U.S. constrict as well. But a lot of it is really little execution. What's the right way to think about your -- just, I guess, on an ongoing basis, how to think about just the growth sort of new customers over time and your ability towards that just given what -- a lot of it is cap input. So you do have some visibility towards customer acquisition growth. We will talk a little bit about that.

Yes, I see that this answers. I think when we look at the new customers we've been adding on the cohorts, they have a pattern of behavior that is pretty similar to the cohorts that we've had historically. Obviously, early days yet, but we don't see any substantial differences in that. So we were pretty good understanding of the revenue impacts that these customers would advise in the coming quarters and years. So that's, I think, maybe a bit of the question that you're asking. Yes. So is there anything else you're looking for?

Just in terms of just customer -- like customer adds with the visibility on that in terms of core economics, that's I think it ties into revenue disability. But just if you think about over next quarter or next year, is it like what's the visibility in terms of adding in customers versus customers -- just thinking about the visibility of customer growth itself just that level.

Yes. I think we have a reasonable line of sight in terms of what the growth trajectory could look like. There is -- we look at this by corridors and sand destination countries, and we have a decent sense of what the growth rates there would be. We're also expanding globally quite a bit. We've added a lot of corridors last quarter prior quarter thousands because every time we add a market end destination, a send country, we get 100 on average, 150-some destinations. So every cent, so you have 10, you get 1,500. So as we look at adding all of those corridors, that will also pick up new customer activity, obviously, will take time, but we do have visibility on what that ramp could be.

I think -- yes, that's a good point. I mean I think one thing that people miss is that it's not like you're sitting here in ad hoc saying let's add this quarter, let's attack -- it seems like we you talk about the internal planning process. Is it sort of a multiyear approach when you think about layering in like those end markets as it pertains to growth -- because I think the growth algorithm is a little bit more meat people. So maybe you can talk about that in terms of the planning process over order expansion specifically.

Yes, it is -- I mean, it is multiyear, but there's a couple of things in there to think the marginal cost, if you will, for us to add quarters has continued to come down because we've been making investments in. Having said that, there are obviously regulatory compliance requirements and going to market, getting the marketing, and generating -- so they do take multiple years. In terms of prioritization, we're prioritizing our capital across 3 million, and 4 million. The biggest ones, are not sort of sizable think about marketing and driving growth in marketing and strong unit economics geographic expansions, what you're talking about here on is the second. And we now prioritize dollars in asset, but it's a well-thought-out, high return, special there. And that's huge that we're still even despite adding all these corridors, we're still relatively small impact on some of the league, we have a huge opportunity there -- the third area will be the enhancements we're making in the product towards the software side, and the fourth one is to complementary new products, which you probably talk about. Absolutely. It's where we want to deepen our organization for our consumers.

Okay. That's helpful. I think -- yes. And we'll get to the value-add front. I think that's an important distinction. But when you think about for a quarter expansion, and you talked about this before. Maybe could you kind of remind us some of the larger opportunities are still like TAP and whether there's any sort of gating factors to getting into those new markets.

Yes. I mean, we've -- I think we've talked about Middle East is probably a pretty big opportunity for us. It's certainly in those markets. We've just recently talked about adding in Japan and New Zealand which will be launching your charges. There are those -- maybe I think fire is probably a pretty decent-sized large opportunity that we have. It's across the board. It's a global opportunity for us, and we're just being mindful about how much investment we're making in getting return.

Got it. And I think we can -- I think it's important to talk about kind of the value add sort of the society. I think that's important. Maybe just talk about just the philosophy for add-on products and services. So potential solutions that could be helpful for both made San Damasio. And I think it's still a little bit early. How do we think about the adoption of those things.

Yes, I think this response is going to be a little bit more high-level because we haven't talked a lot about our share product strategy and timelines of when we have been in the market. But I'd say that the big focus for us is to -- let me step back. So we have a strong core business. So a big focus for us is to have natural product services around the -- so we've -- you talked about this in Q2 that really narrowing our focus on one. So anything that we want to do here is to solve immigrant and their families, problems, and opportunities around medians. So a lot of that will be -- think of a lot of different things to solve in aspects, which we're not ready yet to go through, but store value, cross-border, cross cuts. There are so many contacts that can play into. But again, similarly focused making sure that we're solving this migrant their families, and it is on the rewire acquisition, depending, of course. The Rewire acquisition, pending to your point is -- there's a couple of things for us. One, there's a bit of the geographic benefit we get from the ones were market with where as well as some complementary markets in Europe. But a lot of it is helping us accelerate on the product offerings. Rewire has some interesting product and engineering tainted So maybe touching on another question, it will be a more high-level path to profitability. So of course, a question on everyone's mind section on this market.

But you mentioned, some of your big focuses were on sort of investments or term rules, obviously, the grid system that we're taking a closer look at, that is good. So maybe you can just talk to us about I guess -- well, first of all, I'll ask a follow-up question on but just how do you think about sort of the long-term profitability of the model at the highest level in terms of the gross margin scale of stock.

Yes, I think the business really has the ability to deliver sustainable profits for the -- so it's a question of where we're in the journey as we've seen this year, we've been actually pretty close to it in where negative, but we're not parting range. And I think the levers in the business when you look at the margin profile. We've talked about having pretty consistent related economics, stronger economics, but also our transaction margin profile has been relatively stable. And with opportunities to scale in the right, whether it's paying in payout costs, put it in our product capabilities, have the mid-long-term opportunity. Sure. Then you go down the P&L, customer service, which we think is another huge opportunity for us again that long term by bringing more technology into that space I think you've said this in the core to like we've seen a lot of the new customers contact us a lot more than the current customer. So being able to solve that can drive the efficiency and scale of the customer. So if you kind of walk down the P&L. G&A certainly has efficiency opportunities. So I guess you do a math where with the business that's growing, strong unit economics, opportunity levers across the P&L gives you an ad for the EBITDA profile to be pretty interesting and attractive. And yes, I don't think there's ever been a need for it, but one ask in what about the exact answer is that I think we guide next year, we'll share more, but the goal is to make sure that we're on a sustainable path. So it's important to be on that kind of sustainable path for a long-term sort of market, absolute dollars.

Yes. I think that last comment that you had was the next election in terms of communication around patron -- it sounds like we should expect the time and evolution is talking more about this Okay. Sounds good. And then another one that comes up in every day. Sure. Sorry, I hit on all the regular questions, but competition. So maybe talk about what you're seeing? Obviously, competition we just decided -- competition is very core specific. So I totally understand that. But just whether it's in specific corridors or overall, like how is competitive target Vale? Is there -- do you see pricing pressure in various parts of the business.

Yes, I think I mean we've seen -- the short answer, I mean some pretty stable take rates across the more global. There's always pockets of places where there will be some pricing impact, which our day-to-day sort of things. But we have a pretty global business that has a lot of mixed impact to paradise. On your broader question on just competitive, I think we're seeing, obviously, with the growth rates we're demonstrating with the customer adds, and we can deliver. We do think we are taking share from many of the legacy players and probably subscale -- so while we continue to monitor competitive impact like we are in flier a pretty strong place because of the relationship that we have with customers and the trust we're building with them. It can enact word of not effects as well as what we're seeing and how they got capital, gives these data points that there's an ecosystem there that you build around tonation with the customers. And by adding more of that, you can grow on take share from others. So -- but yes, the competition is always something on to your point, what do you think, but there could be things that...

Sure. And this ties back to an original question I had, but you survey customers quite often -- so why do they choose Remitly versus another, and when they don't those for Midland, why are they not choosing -- what's -- what are the primary decisions?

Yes. I mean, it's a really good question. It's an interesting to make just being new to the company, what are the things I was looking for it sounds like why -- and it actually -- it's because of the promise and delivery interaction is a big part of it. You experience, it is simple that working day in there, and we have a good way to the great customer -- so that is a big future the simplicity of that with the affiliate banana big governments of that at the auctions that can provide to customers on account to get benefits. And then just talking about ARPU for a moment. Obviously, in the longer term, like in the value-added solutions and things like that, whether it's more value to that to more customers. I think those are drivers longer term. But absent that, what's the right way to think about ARPU? Is it in terms of ups and downs? Obviously, there's a pricing element there of Remitly. So what are the primary factors to sort of drive ARPU up and now over time? And is there ARPU expansion opportunity just with usage engagement and things like that on a stand-alone basis? Or is it more flattish? I'll probably break it down into a couple of -- I think with the core remittance business. You've got to like a piece out the new customer additions, which has an impact on speculations on ARPU or take rates and those kinds of things. But we've seen broadly stability. But when you start adding, we see why we're deepening the relationship with customers matter because when you start adding financial products around the core remittance business, we do think where we going to hold a high mark against for strong unit economics and those would be accretive in some way. But that's, again, can be seen on what those would be, and we will be...

I think you alluded this earlier, but just recent cohort. Obviously, you guys are very big drives still a bit early, added past number of -- but just over the last -- or lower going forward for these cohorts? Or is behavior pretty much consistent [indiscernible]?

We're pretty consistent Yes, we haven't seen any anomalies from historical patterns.

And you feel you -- it's difficult -- this part is difficult to tell. But as we talked about earlier, typically, when you see dollar strength, there can be some sort of activity sort of pull forward sometimes or like provides a catalyst for people who send money. Is that -- that's not the only factor. The other factors for why people are sending money. But do you think that has been a significant factor over, let's call it, the last couple of quarters? Or has it been more about fundamental performance? Is there a way to break that down?

It's hard. It is hard to break. I do think that it's fundamental performance more than those factors. But we have an element of the dollar strengthening has impacted. Again, it's certain corridors. I think it's important to note that not every corridor is equally FX or price sensitive. And so in India, I think we've talked about in the past being likely more FX sensitive than the other quarters. So you'll see some of that effect because of this. But they're not as significant as one would think. It's the core default.

Okay. That's helpful. And when we think about sort of value-added services as we think about passbook, that you've had for a little bit. So could you just talk about any learnings from that, that you might be able to sort of put into your product strategy going forward? Obviously, it's been in market for a while. But are there ways to improve that product, ways to integrate it with the core service, or just anything around what's going on in just learnings from that?

Yes. A lot of the learnings. I mean, by the way, I think we have seen some increased engagement with Passbook, although it is a relatively small part of the business. I think we've been taking learnings from a store value perspective and how that can evolve as we think about this sort of cross-border opportunities that we have. So as the products evolve, I think there are certainly learnings from the Passbook investment that we can win forward.

Got it. And maybe just a question just going back to the corridors. You've been sort of in U.S. to Mexico, to the Philippines, and media for some time now -- as you get to newer markets, are the unit economics similar to what you're seeing in sort of -- or the better or worse, frankly, how do they compare to sort of your existing markets? And obviously, some of this is maturity as well. Earlier markets is going to be a productivity ramp. But in general, what are you seeing in terms of economics for new markets versus existing markets?

Yes. I think it is -- the business is relatively small when it comes to outside of the U.S. market. So it's a hard comparison to make at this point as those markets mature, I think we'll be in a better place to provide a sort of assessment on that.

Got it. So just I'll leave you with sort of just a larger question. Just as you think about kind of the longer-term vision for the platform, what do you envision?

I think -- I mean, really, it's around -- we're continuing to build a lot of scale and product engineering. We have a CTO organization. We have a CMO organization, a global organization. So when you think about this as a platform with a lot of capabilities that have great customer experience but other capabilities, I do think that there's a lot we can do with that. Now the very specific pieces of it, what are the exact product offerings that would make sense. We'll need to get figured out, but we're focused on our customers, who are immigrants with their families, and building great experiences and trust to those customers. And I think making sure we have that lens, I think, will give us clarity about the right investments to continue to make and deliver against our vision.

Very focused and methodical over time.

Yes, we have been.

Any closing remarks or anything you want to add?

No, thank you. It's an exciting conference to be here to meet with a lot of fabless investors, and thank you for inviting me on the plan.

Great. Thank you so much for the conversation. Thank you, everyone, for joining.