Remitly Global, Inc. ($RELY)

Let's get started. So good afternoon. My name is Aditya Buddhavarapu I cover [indiscernible] here at Bank of America. Very excited to be hosting Remitly at 6 weeks per time and pleased to have CFO, Vikas Mehta. Vikas, thank you for joining and taking the time.

Thank you, Adi.

So look, let's get straight into it. Do you want to maybe start off with giving us sort of intro to the Remitly story, talk about the origin and then how you got here and I guess a few points about the evolution of [indiscernible]

Yes. As I said, thank you for the invitation Aditya and great to be here. Remitly is an exciting story. We will be almost 15-year old. And in that journey, I'd say there have been 2 chapters that are really prominent and we are about to essentially started our third chapter now. And the first chapter was started, we started with U.S. as our focus from a send perspective or first few other countries or as both India and the Philippines really honed our business to that initial foray and then expand it further. In 2021, when we had our IPO, we had 1,400 corridors. And again, very U.S.-centric at that point. Then we started with the second chapter. And the second chapter was about a few things. One was about global expansion. So from 2021 through 2025, we expanded to more than 5,600 corridors right now. We also really got scale economics working for us. This is where we started generating strong positive EBITDA margins and have especially expanded our margins over the last couple of years in very sharp way. And the final thing in that chapter was about insure that the unit economics and the business model were very accretive to us. So with U.S. expansion, strong growth in the chapter one with international expansion, proving the business model, expanding margins in Chapter II [indiscernible] Remitly story continues to and have a very positive and exciting future ahead.

Great. So you care a long way. If you take a step back, volumes have increased tenfold since 2019 year, I think last year, you had about $75 billion of sand volumes. But that still represents only about 4% of your sort of addressable consumer remittance market. So how should we think about the sort of the next 5 to 10 years? What are the [indiscernible] drivers? Maybe you could expand on some of the opportunities you talked about at the CMD last year in December as well and also maybe Sebastian coming on board as a CEO, as maybe coated some of that or some ideas today,

Yes. They put our growth drivers in 2 categories. The first is existing core business, which you pointed out, we have less than 5% market share in that and then the revenue diversification, which I talked about, which essentially we have a 0% market share there. Let me start with the first one. And if you think -- if you dissect the core center market, let's say, and think about the key drivers and catalysts for growth for us. It start first of all with market share gains. To your point, less than 5% market share market is fragmented. We are now a scale player, one of the only few ones who have north of $1 billion in revenue, as you said, reaching $100 billion in volumes still growing north of 30%, 35%. So that is a nice words flywheel for us, which will continue to accrue to help us win share. That, if you think about the core trends of the shift from traditional brick and mortar to digital. That is ongoing. It accelerated during forward. It further accelerated recently with the remittance tax in the U.S. we feel that there is still room ahead on that conversion of traditional to digital, and we'll continue to benefit from that. In addition to that, I'd say the other important aspect is global expansion. There's a lot of room for us to continue to expand. As I said, we have corridors. If you look at others, they talk about 20,000 corridors and so we have a lot of room there. We shared at our Investor Day that out of the top 50 send corridors, we only have about 50% of those so again, from even the sizing of that geographic expansion, I'd say that there's substantial room for us to continue to expand. On the other hand, if you see the diversification story, a lot of these are adjacencies, whether it is high-value centers or met business or receivers. These are markets that came to us, these are customers who were using us for different purposes and came to us and said, can you help us get these features, which would make it easier for us. So we feel the product market fit is very strong. And what we need to do is drive a deeper focused effort on those aspects. So if you feel very excited. If you take Remitly business, for example, that's 10x the TAM of the consumer side, which is $20 trillion. And as I said, we have [indiscernible] share there. So a lot of upside as we think about the next 3, 5, 10 years. And beyond that, moving into send now pay later, moving into products, which can help our customers save as well as spend will be additional areas, again, which are all adjacencies. We have a strong debt of 10 million quarterly active users -- and as they adopt these other use cases, even with this captive user base will be able to continue to grow in a very strong way.

Okay. Great. Clearly, lots of areas that you're focusing on and we will dig into those. Before that, do you also want to maybe talk about what enables all of this growth. So the underlying infrastructure that you built in terms of partnerships, pain, the out methods application for the coming out manual all those elements of the offering that we can underpin that story.

Yes. I think the, I'd say the strategic differentiation that we have is the infrastructure that we have built. And this infrastructure has a lot of different call it, layers, if you may. And it begins with a strong technological foundation. When we started in that 15 years back, the approach we took was a very technology-first approach. And this is where we did not -- we never had a brick-and-mortar presence. We always started with web and then quickly moved to a mobile-first approach and embrace that as our foundation. Even as we look at AI right now, we are, again, leaders in embracing that and making sure that it bolsters our platform similar for stable going. So I'd say technology layer strength is that it's a big differentiation for us. The second highlight I'd give is compliance and regulatory strength. And this is where we -- as a company, we have always thought about compliance as a design component rather than an add-on. So any time we are thinking about a new geography, new licensing. We start with the construct around what's the best compliance angle that we can take here and don't discount that at all. And as we do that, especially when you run a business at scale, it creates consistency. It creates -- from a customer perspective, also, we feel being compliant helps us to create that strong relationship with the customer where they know they are working with a partner who is committed and who is going to do the right thing. So that would be a very important part of that layer. And the third layer I'd talk about is the transaction layer. This is the whole partner ecosystem, if you may. This is how we can get transactions done in less than 20 seconds. This is how we can reduce the transaction effect rate where high 90% of our customers have seen less transactions happening. This takes a long time to build I'd say that both on the partner ecosystem, directly working with government rails like UPI and PIC or building stable coin rates. I think this layer is the biggest differentiation for us and optimizing that at scale creates massive economies of scale as well as a structural advantage for us.

So you spoke about some of those products you're looking at that spend save, but also we just like high-value SME or invest LCs. Can you maybe just give an update on the rollout which 1 is maybe slightly more advanced and which might scale earlier and some may be figure.

I'd say that, to your point, all these different initiatives are at different stages. I'd say that, again, we gave by 4 frameworks. I'll just repeat that a little bit and then share where we are in each of these -- from a customer category perspective, we have core centers, high-value centers. We have a remedy business, and we have receivers. From a use case perspective, we have send, we have spend, save and borrow. So if you think about customer categories, core, of course, is our bread and butter. But beyond that, high-value tenders is the one we have a lot of traction. This is not something new. Our core experience always provided ability for high-value centers, but we were not as focused on that opportunity. Now as Sebastian comes in as the new leader, he's putting these 4 buckets and [indiscernible] leadership and accountability for each of these. So that's where we feel high-value centers is already a decent percentage of the volume. And from a revenue perspective, it's a low single-digit contributor. We believe there's a lot of headroom on that one. And that's something exciting. Remitly business, I would say it's the list and second, something that we just started over the last or 18 months, and we've seen a lot of very good initial signals on that. The team is fantastic. They are working backwards from what the customer is looking for [indiscernible] at a very fast pace. We've talked about 20,000-plus businesses on the platform at this point. The unit economics are fantastic. So that's, I'd say, the second one. And the receivers is very new. It's very nascent, just I'd say months in that versus, call it, tiers in the perm business side. But it's very exciting if you think about every center that is approximately 3 to 4 receivers. So call it, our 10 million quarterly active users, you're talking about 30 million to 40 million receivers. So all of a sudden, that opens up a huge market for us. And a lot of use cases are such, especially if you take freelancers where the receiver is initiating the request for payments. We are already seeing very good early adoption in that space. If you think about the use cases, again, sand is a predominant use case. But outside of that, I'd say we have rolled out parameter Flex, which enabled the Send now, Pay Later. That journey is already underway for the last 18 months. the sale and spend are initiatives we are working on right now. I'd say we have rolled out, but selectively, and you'll continue to see us do more and more on that side.

Okay. Okay. All of those new products and then required investments and product tech, et cetera. So can you talk about how you're looking at balancing your growth ambitions with that sort of profitability as you bought and where should we -- that sort of more traction for a long term.

Yes. It's a great question. I think about that a lot. And this also goes back to just the discipline that we have as a company in thinking about growth, profitability and capital allocation. This is where we don't want to get too swayed on either of the directions, and we want to have the balanced approach there. If you just look at our past as an indicator of how we have operated, we have been north of rule of 40, Rule of 50, clearly, over the past at 24 months. And in doing so, if you just take the last quarter, for example, our revenue growth was 25%. And EBITDA margin was 22%. Again, a great example that we can do both the things at the same time. So while we are investing right now, we are able to generate good margins. And that is even before, call it, the AI advantage is not kicking in. And another important facet in how we are running our growth portfolio is that all these are adjacencies, right? All the things that I said, whether it is all the customer categories, or the use cases, none of them are like springing out of -- beyond the remittance business, if you may. And that's the reason why we are able to have a very, very similar logistic growth plan. So take, for example, Send Now Pay Later, 0 marketing needed for that. The reason is that we are only offering [indiscernible] customers who have good credit history with us. That's one example. If you take prenatally business, the infrastructure is exactly the same -- it's offered in all the same corridors in the same rolled out. Of course, we get to select, let's start with U.S. first prove that and then move beyond. So clearly, there is an infrastructure advantage. If you take receivers, it's similar the receiver relationship is already there, a little weak, but we can build stronger relations there. So a lot of it is adjacencies, and that creates a nice profitability angle to it.

Okay. Good. And as that margin scales up, how do your priorities on capital allocation look like whether that's organic investment into the business any opportunities for M&A, but also returns to shareholders, which is something that you have been doing more recently. So if you could expand on that as well.

We're very prudent capital allocation approach something that we have deliberately thought a lot about and put in place. Our first priority is organic growth. As you highlighted, we have a lot of important initiatives in place, and we want to make sure that we continue to deliver against that. And as we have said before, no shortage of growth opportunities, right? So high ROI opportunities in front of us. We are going to manage them in a high unit economics outcome way. So that is the most important bucket, if you may, from our capital allocation perspective. As you think beyond that, we have put a buyback program in place now for over 3 quarters. And we feel that there is a great opportunity for us to return the money to the shareholders and also take the benefit of, in our opinion, what we believe is the discounted stock compared to the fundamentals and making sure that we can reduce our dilution as well as put money behind buyback and to highlight one data point there. Last quarter, we tripled our buyback compared to the previous quarter. So we will definitely work with our there and make sure that we continue to back our buyback program. And the last point is on M&A. I'd say especially the AI, the technology bar is very high. we can do things very quickly with AI now as you know. And beyond that, we have a fantastic technology team building Remitly business receivers, Send Now, Pay Later and so on and so forth. So organically, we have been able to leverage our technology teams to continue to build strong products and features. So I'd say that very balanced capital allocation plan, starting with organic growth and then buybacks.

Okay. Great. Zooming in on this year specifically, so you started off Q1 with I said 37% volume growth, 25% revenue growth. So all of us are tracking ahead of even your guidance for the full year. So how do you think about the cadence of growth during the year? Do you think about the seasonality?

And maybe you're seeing right now given micro geopolitical insight as well if you step back a little bit, I'd say, the beauty about cross-border payments business is the resilience and we love that business, right? Like we've seen that whether there are macro ups and downs, the business continues to deliver. And that's what you saw with 37% volume growth, that's what you saw through the entire last year. with very, very strong volume growth in the same 35% to 40% range so that's the good part that the business is very predictable. And as we have said, our business works based on cohorts and the customers that bet on us last year and the year before and so on and so forth are the ones that are driving majority of our revenue, right, 8%, 9%. So the ability to predict our business is very good. We talked about record new customer acquisition last quarter. So overall, the business momentum is really strong. So that gives me a lot of confidence in the current quarter in out quarters for rest of the year. So that's one strong fundamental aspect of our business. Outside of that, yes, there are nuances in Q1 and Q2 seasonality in H1 and H2. You talked about a few of those in our Q1 prepared remarks, a few being holiday timing, forward a few things and created comparison call it, differences the last year versus this year. Similarly, just the revenue comps that we had last year, very, very strong revenue growth, same like H1 last year. So it's a little bit of a calm distortion there. But if you tease out all of that, really a strong fundamental position that we have right now. Strong growth as highlighted in volume and revenue, and we feel that deep confidence in how we see our second quarter shaping as well as the full year.

At the beginning, you did talk about how you differentiate yourself and maybe you can go into that a bit more. So cross-border payments more broadly, it's fragmented industry. Who do you comp against across the core sort of consumer market, but also as you move into a uses players in the space? And what is the build out in those segments? Yes. And I guess the different criteria that customers would consider.

Yes, yes. Yes. I'd say that if you go back to even a lot of thoughts we had shared at Investor Day in December, it's a similar thought process I'll share right now, which is, if you think about our competition, I'd put them in a 2 x 2 scale 2x2 framework. On one hand, it's scale cleared who are, I'd call it, sub-billion revenue and north of billion revenue for us. And on the other hand, you will take all players who are brick-and-mortar and players who are digital. If you think about all its subscale players in general, we have a massive structural advantage when it comes to cost. Being able to do $75 million being, call it, top player for our partners when we go and negotiate FX prices or other rates. In general, the cost structure benefits that you get when you are operating at scale, just creates a huge advantage. So I'd say scale versus subscale is a huge advantage for us and there are very few players who are at scale who are growing at the pace we are growing. We can count on one hand fingers. On the other hand, if you look at traditional brick and mortar and digital, again, the business models are completely different, and there is a huge advantage being a digital player. And that's something that we approved and even with our expansion of EBITDA margins. So if you now parse it out to, call it, scale and digital players, I think that's what we think about as the real competition. And within that, we take a viewpoint of 3D trust with the customer. We are hyper focused on making sure that the speed, the pricing, the all ability for our customers to reach out to our customer support just the overall customer experience that we give is differentiated versus anyone else. And I'd say given the market is fragmented, we are not as hyper-focused on our competitor, we feel that there could be multiple winners in this space. What we believe is that if we can provide our customers a differentiated and a delightful experience, then we'll be 1 of the winners. That's what matters to us.

Got it. On your point about scale and how that drives cost advantages. So how do you think about what do you do with that costing, the ability to maybe funnel that back into price or again back into the business. And just more broadly, how do you think about your philosophy on pricing overall?

Yes. I see that again, something that we think the players we want to provide our customers a very holistic experience that is superior. And that holistic experience includes their price -- it includes an experience that is stellar, whether it is the speed of app and the latency or whether it is customer support or whether it is with regards to any issues that they may have and the resolution thereof. So I think that's very, very important. And that also is true with the pain and payout experiences. For any corridor that we support. So we want to give the best experience across each car or to each customer. And in that framework, we feel that price plays an important role, but it's not the only factor that plays a role. And this is where we want to make sure that we have investments in our customer support, our technology and development in our infrastructure set up, creating multiple options for pain and PL. So that's part one. The part two is, as we have shared with regards to just the margin profile, we want to keep our margins relatively flat. If you think about our what we call revenue less transaction expense margin. I think that's -- we don't want we want to be thoughtful both for our customers as well as for our investors, benefits that we get, we want to pass it to both our customers as well as to our investors. And we know that below the gross margins, there is a lot of scale advantage that we can get and as we scale, we can continue to leverage there. So overall, I'd say -- that's the plan that we have been running, that gives us a consistent RLD margin, but massive scale on the bottom line through managing those fixed expenses. And ultimately, we want our customers to have a great experience.

Great. And how do you think about the world stable coins, both in terms of, I guess, one of the things you talked about user experience, price. So what role does that play today? And then maybe going forward?

See that stable coin is very interesting. We believe is an enabler to our business and something that, I'd say, augments really well with the existing infrastructure that we have. If you think about the legs up our infrastructure stool, we have our partner ecosystem for our rails. We have the direct government rails, and we have stable climate. So really being able to leverage the best option at that point of time for that corridor is how we optimize. So that's one way. The second aspect is the customer side, which is what does the customer really want? If they want stable coin, we'll provide stable kind. This is where I had stable coin on my wallet, customers can do the same, and customers can transfer. We know that in some countries, especially where there is high FX volatility Argentina being an interesting example. Sometimes the receivers want stable coin instead of their currency, and this is where we have enabled that. We believe that this is of [indiscernible] use case rather than a primary excuse. We are enabling that. We'll continue to update you how we see the demand coming through. But right now, it's much more of making sure we can give all customers all different kind of options. The last aspect is around the working capital side. We have seen benefits there, but limited liquidity pools as we have shared before, nothing has changed dramatically there. So overall, I'd say it's an enabler for us. It helps us. It's not a disruptor or game changer thus far. But we are very deep in that, and we understand the technology well and we want to make sure that we harness it for customers' benefits. And one has the stable coins, which comes up with something around compliance and so on. And that's about a topic for the industry as well -- so could you maybe again go into how compliance we designed, how it works, how you approach building that relationship, but regulators and then that means from a customer perspective. I think the good news for us that it is within the umbrella of our compliance program, right? So we don't want to take an exception there. And we want to again see what is the art of possible. We want to work with the regulators first -- and we want to make sure that we are compliant through all of that. If you look at, call it, the rules of stable coin in China or India are very different than Brazil are very different than other countries, right? So Argentina, let's say. And we want to look at each country and be hyper compliant and at the same time, understand the regulations and where there is an ability to support that as well. So I'd say nothing changes for us dramatically. We have a very highly compliant infrastructure and everything that you said, the KYC and EML foundations are very strong with stable finance.

Great. In AI, something that's come up multiple times in this discussion, how are you using AI to date also maybe for helping the customer experience. And then you again mentioned that there's more upside potentially from a margin standpoint. So how do we think about that as well?

I'd say early days on AI right now, but from the just a thought leadership perspective. We have a new CEO, Sebastian Ghanian and he is very AI forward in his thinking. He has already spent a lot of time used to run Amazon marketplace and was far more than a decade. He brings a lot of that phenomenal machine learning AI experience. He's been pushing really hard to make sure that we can think about both an AI first approach of thinking from first principles, how to run an AI-led company and also in terms of infusing AI in our existing workflows. So if you look at all of our functions right now, we are deeply thinking about AI and started leveraging AI workflows in a very substantial way. A couple of examples would be customer support. We've talked about where we see massive efficiencies and just ability to support customers across different channels through where is very, very strong. The second example is the tech dev, of course, that's like a use case every company talks about, and we have seen great benefits there. But beyond that, I'd say one of the things that we have done is come up with a new rule type job description, which is the knowledge, development engineer. We believe that this is a role that can manage end-to-end workflows lending AI. So we are substantially investing in rethinking some of the roles and how we can redesign the organization of the future. So overall, deeply committed to the AI story, but as I said, early days, and every day, we learn more and every day, we continue to improve.

Maybe if we take a step back and go to some of those growth drivers you mentioned, you said geographic expansion or corridor expansion is on lean look at what's the approach to entering new markets? How do you look at gaining scale, becoming competitive when you go into Saudi or these markets coming up?

A few things. One is we have a very well-tested playbook. As I said, we were 1,400 corridors in 2021. Right now, we have 5,600 corridors. And the playbook has worked really well for us. We know exactly how to think about the stages of expansion. Now the second part of that, which is even more interesting is that every new corridor is nuanced. If you think about the payments that work in India versus Dubai versus Africa, it's all different type pay in and payout types. And this is where we have to not only take that playbook, but customized for that new geography. So behind the scenes, we have a road map on what that global expansion looks like. I'd say there are companies, there are corridors where we have see that those corridors, right? So think about Japan, Brazil, and we need to really poor gasoline to really drive them much, much faster. So I think that's one category. The second is if you take out think about newer geographies, Middle East is a big one for us. As I shared earlier, we have approximately 50% of the top 50 corridors our top 50 and countries. So if you take Saudi or if you take Marin or others, there is a huge opportunity there. The regulatory construct there may be different. You may have to partner with a local player there. or you may have to have a different licensing approach. So that is the customized aspect of it. And finally, I'd say that our ability to have the same partner ecosystem synergize is very helpful. So think about UAE, for example, more stock the received countries from UAE are India, Pakistan, Bangladesh, Philippines, et cetera, and because of that, we already have received partners in all these countries. So when we unlock it becomes very easy because the payout side is already very well baked and the same would be true that for Saudi or for other countries. So that makes it exciting. At the same time, it's not as huge of a lift. But again, every geography is nuanced.

Okay. Great. I think we're almost at the end of our time. So maybe to close, as we look out over the next year. So -- what are you most excited about in terms of product markets, et cetera, and also, is there anything that keeps you up in terms of maybe some of the risks you think about I think the most exciting thing for us right now is the leadership of Sebastian, we are able to think in a very different way.

I think he's bringing an AI-first approach to running the company. He is driving focus with this 4 by 4 I talked about, there is an accountability leadership, measurement and follow through then in a very precise way. And the last thing I'd say on that is speed of execution. I think just the ability to come out with features and products in a weekly sprint rather than monthly or quarterly gone off the tails where we want to sort of wait for quarters. Now it's on a daily and a weekly basis. So I think that those are 3 that are very exciting and I'm really looking forward to the results next year and the year after on how we can continue to diversify, very important, continue to harness the AI efficiencies and become a company that can show others how it is done. And finally, all of that, that should accrue to the business model as well as the financials. So very excited about that. What keeps me up at night always is are we doing the best we can do with our customer experience. And we are in a business where there are millions of transactions that we do. And how can we get to a place where all of them are de factory, all of them have outstanding experience, how can we make sure that we do that in the most compliant way. So I'd say that's the most important thing for me. Fortunately, we have an awesome team. We have a great foundation and a phenomenal track record. So luckily, I sleep well at night.

Great. Sounds great. Thanks a lot of the cost for joining us and for sharing your insights.

Thank you, Aditya. Thank you.