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

Another interesting kind of layer to your story is that you started in 3 central corridors and now you're expanding to many, many more corridors. What inning are we in, in terms of corridor expansion? And then I've got a couple of more questions on corridor.

Yes. So we have 4,500 or so corridors, I think, now, and some of our competitors have maybe upwards of 20,000, 25,000. So just to give you a sense of magnitude. I think there's plenty of runway for us to grow in a number of corridors. Although I don't know if it's particularly right to think of them as corridor, grow a bit more in terms of the addressable market that we're going after. To give you an example, the UAE, which is a market we just launched last quarter, was that gives us access to Middle East and some of the other end markets there as well. That may be a fewer number of corridors, but the TAM that we will be addressing there is pretty significant. So in many ways, I do think we're in the early part of the innings here on growth opportunities internationally. But having said that, I don't think it directly correlates necessarily to a number of corridors. There's a degree of correlation is around prioritizing the right markets for us to enter. And we think we're really going after some of the larger addressable markets, and UAE is an example of one.

I want to get to UAE in just a second, but on the quarters and how -- aside from potentially opening up a new top line new volume opportunities when you're expanding, are there any other benefits to the model that the corridor expansion has? Is there a mix of -- beneficial mix of pricing as you enter late, less contested corridors? Or what are the knock-on benefits are there to a broader corridor expansion?

Yes. I think there's a couple. I mean, there's certainly a diversification. The opportunity -- well, Middle East sort of in an FX management business, if you think about it from a financial terms and kind of the margin that we generate of being able to manage that. I think we get a lot of diversification and benefits to being much more global and having diversification on pricing opportunities and others as we expand. That's one piece of it. I think it's really around the active customer growth. At the end of the day, I think one of the knock-on effects of this is that if we add active customers in UAE, they tend to tell their friends and family members, and they come through referrals. And by the way, the send destinations for those friends and family members may not be the UAE and they could be elsewhere. And so there is an indirect knock-on effect of that potentially adding other active customers outside of necessarily those particular send markets. So there's multiple dominant effects, I think we can see from kind of the growth into the larger markets. And again, I just pointed out UAE because I think it has complexity to it, no question, but also can open up the doors for more.

Drill down a little bit on, in the UAE, and in the Middle East. That's something -- that's a region that you guys have called out a couple of times. I know you did. I think it was a Rewire acquisition, you had some applicability there. Talk about that opportunity and how you go about to kind of execute on it.

Yes. No, really excited about Rewire. I think we closed on the deal in January of this year, and the investment thesis behind Rewire was wanted to give us a bit of geographic coverage in Europe, and obviously, the Israel market, which although small, has some important sort of learnings from there that we can take on to other markets, and particularly the Middle East could be an opportunity there. But also the product and technology capabilities that the team from there brings, there are some interesting things there that we can use to accelerate some of our newer product offerings that we'll talk about at the right time. But -- and so there's a piece around product and technology as well that relates back to the Rewire investment thesis, if you will.

Okay. Maybe touch on the product strategy. I think there's a -- not a perception, but an eventual expectation that you have these customers, they're loyal customers, there might be incremental ways to sort of monetize them. I know you guys have export some different opportunities and products to do that. What's the -- how do we think through what the product road map is for Remitly?

Yes. So I mean, just context a little bit, I think when you go back, let's say, a year or so, we had talked about diversified financial products and services. And it was a little bit more broader in how we talk about our product strategy at that time. We launched Passbook and which we've now since ended because it was kind of falling in this diversified product space and didn't particularly address the remittance core customer needs. So we sunset Passbook. So as we look forward in terms of our product road map, we're really looking to bring products that solve the pain points around the remittance ecosystem particularly. And so really focused on our core remittance customers and come up with products solutions that address them.

Okay. I should have asked you this earlier when you brought up LTV to CAC, but you guys have brought -- been driving down your customer acquisition costs over time. How do you do that? What are the drivers there to bring down your execution costs?

I mean, first of all, kudos to the team. I think we've got a phenomenal marketing organization that really has come together now for more than a year, I'd say, like really focused on driving down CAC. Some of the drivers there is: one, a lot of channel optimization, where we continuing to focus on which channels we want to invest in and which give us the higher returns versus the ones that are not. The thing that we've been talking about a lot now in the last 3, 4 quarters and understanding for better is we've gotten to be pretty big in terms of scale both North America as well as the rest of the world. And that's creating these higher brand awareness, higher word-of-mouth effects. And to a degree, there's also the referrals I talked about, which is obviously a paid channel still, but still a low-cost paid channel. Those are helping us drive down customer acquisition and given these word-of-mouth effects, which have become a pretty decent size of that. The other thing is international growth. We've now been growing 90%, 100% year-over-year. Look at our Q4 numbers as well as Q1, and we've been able to bring down our marketing spend and get that to be much more efficient in the rest of the world as well. So that's been a factor to bring down the global average customer acquisition costs. And the primary driver, again, there being just the scale we're getting and how we're localizing marketing outside of the U.S.

And on a somewhat related topic, maybe not terribly related, but somewhat related, profitability. What are the -- that sort of path to sustainable profitability? I think everyone always wonders about the long-term margin profile of the business at normalization, whenever that might occur. Talk about sort of what are the key drivers there? Is it just a question of kind of holding your costs in check and then basically the scale of the model will trigger the operating leverage that gets you to profit? Are there levers that you think about working places where you can maybe pull some levers in order to get there in a certain time frame? How should we think about profitability?

Yes. Yes. I mean I'll begin with saying that we're really focused on long-term value creation as kind of the overarching theme. And to that, basically, it means we're continuing to grow our top line revenues at really healthy, double digits. You've seen we've grown at 50% in Q1. And so we want to maintain a very healthy trajectory on growth. So it's like an anchoring thing. And as then you kind of work down the P&L, I think we've talked about marketing investments. They have a high return for us with the investments you want to continue to make and sort of benefit from the high returns we get from marketing spend. So we're driving efficiencies in marketing. But at the same time, we're getting high returns so we invest in marketing. We're driving margin improvement to the points you made around fraud and some of the other transaction expense components. So as you kind of work your way down the P&L, what we've changed a little bit since I'd say, the last 6 months, it really dialed up the focus around efficiencies and driving higher returns on expenses across the P&L. In many of these areas, we haven't really looked at that closely. And we -- and so we now have the benefit and given our scale of our business, that we can do both, like grow as well as start delivering sustainable adjusted EBITDA profitability to begin with, which we've now done for 2 quarters in a row and guided to like $5 million to $15 million for the rest of the year. But also like focus beyond that as we think a little bit more longer terms on more sustainable margin growth, what would that be? And I know those are the questions that we were being asked and -- which I'll get to here in a minute. But also focusing on operating income and ultimately looking at cash flow, et cetera. So metrics will talk about more, we're really being very financially disciplined around how we're building out a profile that can deliver both growth and profitability, cash flow for the business. So that's the formula. We have enough levers in the business given our size that we can do both, in my view. And that's the thesis there. It's kind of how we think about it, like the financial profiles should be pretty differentiating for us.

Can you lean into technology in order to create more efficiency in the business? I mean there's been some talk about things like generative AI. Are there ways that you can kind of automate more, lean a little bit more on the technology side? Are those levers that you can kind of see and identify?

Yes, we've been -- we certainly have been investing in technology to help us scale better. Like when you look at functions outside of like -- think of support functions, finance is probably a great example or accounting operations and so on, where investing in technology can drive more automation. And there's the technology that most people are aware of, there's obviously the newer talk on the street around generative AI and ChatGPT, et cetera. And we certainly are looking at multiple areas in our business that we can apply those technologies to. Customer service is a good example. We've already started to see some scale benefits that we're getting in customer service. I think as you look at it as a percent of revenue, it's been around 10% historically, it's starting to like come down, and we do think that's going to get to a better place. And it's going to be a combination of operational efficiencies and technology. And it's also we think that's a space where some of the newer technologies and AI/ML, et cetera, can drive more efficiencies there in customer service. At the same time, really offering up a great experience for customers, right? And I think this is the piece that we want to stay focused on is the experience for the customers, the problems we're solving for them. At the same time, getting efficient. And I agree with you, Ramsey, like clearly as there, and we've got a great CTO organization that's looking at some of the ways which we can apply this technology to.

On a completely separate topic, how do you guys look at the competitive landscape? And the reason I say that is because a public company investors tend to look at all the publicly listed companies and think that that's the competitive pie. And I'm sure, to some degree, that's the case. But I also think with remittance, there's probably a lot of fragmentation when you look at World Bank statistics, someone like a Western Union is still a relatively small portion of the global flows. Who or what are you competing against? Is it a finite set of customers? Or is there a broader kind of more, a more fragmented market that you're sort of taking share from as it were?

Yes. I mean I think there's a lot to that question. I think there's certainly kind of a traditional competitive space that we operate within, and there's the players who have been in the place -- in the space for decades. And there are some of the newer entrants. Those names, we certainly compete with them. I think we're doing well. We're gaining share -- to share from them. And -- but we're also looking at much broader depending on kind of the offerings we put out there, we'll probably get exposed to a broader competitor segment. But really, at the end of the day, I think being digital first and getting scale is probably our largest competitive advantage in the scheme of things. There are going to be smaller scale digital players in a specific send destination or a particular application, but getting to scale is hard. And what differentiates us is we have now the scale, and we continue to build on it. So it gives us a lot of advantage. And I think as we think about some of these newer product offerings, that will further sort of give us advantages to being in a better place from a competitive perspective. So yes, so I mean, I know it's kind of a vague general answer, but we do look at competition. I mean we understand what they're doing. We're obviously obsessing about that. I think it's mostly normal course industry behavior that we're seeing, whether it's in this industry or frankly any industry. And so it's largely that.

Interesting. And then I also wanted to ask you with a look into your crystal ball, how do you see the sort of send and receive methods evolving over time? You guys -- a lot of your business, most of your business, the majority of your business is digital origination and a cash out on the other side. I think you might have mentioned that there was a little more account-to-account transfer. Do you see the world -- how long is the tail for cash out on the other side? How do you see that evolving? And I mean this game take a long to be here 10 years, but...

Yes, yes. I think there will be some sort of a collapse of the sort of what is it -- somewhat can be felt as a transactional model to a much deeper relationship between these, what we call today as the senders and the receivers. But if you take a longer-term horizon on this, I think bringing those 2 sort of somewhat discrete universes into like one ecosystem in a much more frictionless experience and kind of the product offers and capabilities that will need to get developed to make that happen, I think it's probably a bit of the future. I think we're starting to see bits of that in different places, but not particularly in a cross-border setting, right? And I think -- so not to have a crystal ball here, I don't know where this is going to go, but taking out friction as much as possible between folks who are living in one country and people who are living in another country as much as possible and bringing them together, whether it's account based or whatever the structures could look like, we'll just create a much better ecosystem for everyone. And you can think of multiple financial offerings and services around that, that makes it pretty compelling.

Fantastic. Great conversation. Unfortunately, we're out of time. I really appreciate you joining us. Thanks so much.

Yes. Same here. Great. Thanks, Ramsey.