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

All right. We are going to get started with the next session. We are very pleased here to have both Sebastian Gunningham and Vikas Mehta from Remitly here, CEO and CFO, respectively. Thanks for joining us. Always a pleasure to have Remitly at the conference.

Thank you.

Congrats on your conference.

Thank you. It's not over yet.

Very impressive.

All right. Sebastian, thanks for being here. You've been in the seat for a little over 6 months. You came into a business that was already compounding at a very high rate. What have you learned in the first 6 months? And what have you changed? And where do you think you can have the most impact from here?

Yes. Well, first, I'd say that when you join a business and you start to peel the onion, 1 or 2 things can happen. The more you peel the worse, the less you like or the more you peel the more you like. And I'd say that I had the luxury of joining a very solid company being put together over many years. The moats are real around the network, the infrastructure, the compliance, customers love the product. So there was a lot of boxes that checked right and I think the company is really a fantastic company. I'd say that my focus since joining has been number one is diversifying the revenue stream. We have a very good core business, but we've built this amazing network with hundreds of licenses around the world. We can distribute to almost 5 billion bank accounts -- users and bank accounts, about 1 billion wallet users. We have about 500,000 cash pickup points around the world. So diversifying the revenue on the shoulders of that network means we are focusing on higher-value senders. We're focusing on Remitly business. You saw an announcement this morning. We're now in the platform business also, which means we're using this fantastic infrastructure that we've built to offer it to companies who want to pay people cross-border. Etsy has millions of sellers. We're now plugged into the Etsy ecosystem. We have a pipeline of other companies that are interested. And finally, we've launched a cards business where we offer our customers a whole bunch of benefits in their cross-border lives with the card. So I say objective number one has been to start a very aggressive diversification revenue. So far, so good. We're seeing some really good signs. Number two is, I think I've AI the company, and this AI journey has many, many angles to it. I'm AI the cost side. We've seen a lot of product launches since I joined the speed at which we're launching features. We launched -- you can now e-mail money. You can send money across the world almost as easily as sending an e-mail. We call it send with Link. We've launched a bunch of features for business. So on the revenue side, AI has allowed us to reinvent the software factory, generating many more features, many more features improve the product and improved product generates revenue. And hopefully, we'll see growth into the future. On the cost side, like every other company, seeing a lot of efficiencies, what 5 people could do, now 2 people could do -- can do and on down the line. So you're seeing that in our bottom line, in our expansion, in our margin expansion. And then finally, so number one, as I said, number one is diversification. Number two is the acceleration of AI across the whole company. And number three is continuing to expand this moat that we've built with this distribution network around the world. We're launching new corridors, new send countries, new licenses. We just got UAE. I was in Japan a month ago, we got that license. We got -- so we continue to expand around the world as we move money cross-border. So super fantastic first 6 months. I like the business. I think the market is big. We've earned the right to win. And so we're going to keep at the speed.

Great. And a lot to cover there. I'll try to keep it high level for one more before diving in. So you continue to gain share at 20% plus growth. While some of the legacy cash-oriented players in the industry, clearly seeing lower levels of growth, struggling with share. How would you frame where we are in this offline to digital conversion cycle in the remittance space? And how much runway is left in that shift before it's simply a market growth story rather than a share shift story?

Yes. Well, if we met 3 years ago, we'd already see the data points clearly that the shift from cash to digital is happening. Here we are today, let's say, the world is 50-50. It's not hard to predict that if we were sitting here 3 years from now, that trend is going to continue. Different countries are moving at different speeds. Remember, for us, the cash, we do not deal with cash in the send countries. We only deal with banked customers, but we send the receiving market receives in cash. So when you ask the impact to us is that transition. So in the send countries, a lot of customers are transitioning to digital, and we get the benefit of that, a little bit some tailwinds from these tax benefits. But I think just generally, customers are just finding it easier to deal with cash and the economics are better. And on the receiving side, it's all over the map. I mean there are some countries that are going all digital. Brazil is a very digital market for us. Mexico is probably 50-50, and it varies across the world. So we're on the right side of that trend. And by being on the right side means you've got all your energy in producing great digital experiences. You've got all your unit economics figured out for digital-only experiences. You've got all your compliance, you've got all your regulatory, you've got all your licenses. So we were born digital, and we're as digital as ever now, and I think we're going to continue to benefit from that trend.

Great. Maybe just before we go any further, I'll get kind of the obligatory macro question out of the way. What are you seeing in terms of activity levels in your customer base? And specifically, Vikas, I think you flagged some softer higher value spend volumes in June tied to some of the recent actions by the Indian government. Maybe just unpack what's happening there and what the range of outcomes could be.

Yes. First of all, as you saw, our first half annual results have been outstanding. And as a part of that, our high-value standard story is the one that actually helped us drive strong growth as one of the factors. And what we saw in the second quarter was that with the Indian government using different programs to manage their foreign exchange volatility, they came up with schemes where -- which created funds being moved in a different way than the usual cross-border remittance or payments. And that scheme ended early. It was supposed to end, end of September, but has ended end of August, which means that going forward, we'll not see impact from that, but it will have similar to what we saw in Q2, a little bit of a headwind in the Q3 time frame. But that's, call it, the detailed part of it. If you zoom out from what we can control, we have made big headways with regards to high-value sender. The first thing is, as you have seen us talk about, we have continued to raise the limits of what people can send. We started with $25,000, $50,000. Now more recently in the last quarter, we talked about transactions, which are north of $300,000. Beyond that, we talked about one customer who sent more than $1 million, and this was a U.S.- India transaction as well. So we are seeing great use cases from additional aspects, we are putting more concierge type services for these high-value senders, so that experience for them is a VIP experience. Outside of that, every aspect of that transaction, we are refining it and making sure that these can go through quickly. We are giving an additional feature we had it was a wire transfer facility that has just eased things for the centers as well. So overall, very excited about what we have for the high-value sender. It's a key growth accelerator for us in the coming years. As we've said, we're just scratching the surface. We have not really targeted marketing in a big way in those use cases. And as we do that, we'll continue to drive strong momentum in that space.

Yes. All very clear. And just on the point in India, like the guidance assumes 3 months of headwinds, and it sounds like it's going to be 2.

Correct.

Okay. Got it. All right. Sebastian, just coming back to the topic of AI, you framed AI around 3 benefits, kind of speed, trust and cost. I think cost has been the most visible so far. You've seen pretty significant out performance on the OpEx side. How would you frame the opportunity for AI to accelerate momentum and either revenue growth or profitability from here?

Yes. I think that we're all -- this is a journey that we're all on. I'm sure you guys are on it also. And I'd say that the initial killer app is in the software factory, which is this amazing productivity that you can gain in building products and engineering. I think all companies are at different stage. But I will tell you internally, I don't think the week goes by without a wow moment with our engineering teams or with our product building team. So that -- and it looks like the models are going to continue to get better and better. So I anticipate we have many more wow moments ahead. So that's obviously a big tailwind in productivity and cost. The revenue side, we all have to prove the revenue piece of this. I think that -- I think every CEO right now is trying to say, okay, I got the tailwinds of cost. What do I see on the revenue side? For us, as I see it right now, the speed at which we're launching these features, you see it in the -- especially features that customers love. I mean there's no benefit in launch features that customers don't have. But in the adoption of the features that we're launching, those generate more engagement, they generate more revenue. And so we -- our growth -- I don't -- I can't attribute a specific piece of our growth to AI, but I'm seeing it every day. And I assume that over the next few years, we're going to get very good at measuring the cost of AI and the growth impact of AI. But for us, it seems quite impactful for the business right now. We launched an entire card business in less than 60 days. And we have 10 million customers, if you picture that 10 million customers with a card that they can use to spend, that they can use for liquidity, that they can use for loyalty, that they can use for store money. That's 2 or 3x the size of Remitly right there just with cards, and we were able to do that very fast. That's the kind of impact that AI can have. And we have -- on that card business alone, we've got a very long list of great features that are going to be coming to market every week.

Yes. Makes sense. Related question, the cost is one that we get a lot post print. You raised the full year EBITDA guide to roughly 20% margins -- 21% margins, up more than 400 basis points year-over-year. You're already tracking well ahead of the pace implied by the long-term targets laid out at Investor Day. So how are you thinking about the margin framework from here given the momentum that we've seen over the last year?

I'd say that the way we look at the business is more broader than that. We think about the growth, the profitability and the investment. And we don't look at a quarterly view. We look at annual and medium term and long term. And as we think about that, we did see a lot of benefit from a margin perspective, especially as we were very disciplined on some of the projects. And even all the projects that Sebastian mentioned, whether it was rolling out the card or doing partnerships on Remitly business or expanding those, we have been very disciplined through that. AI was also a factor, which has continued to help us. As we look forward, we'll continue to maintain that balanced growth equation or balanced equation with growth, profitability and investment. As you know, second half of the year is a very important time to set the foundation for next year. So clearly, marketing is an area where we'll be very, very focused and we'll be looking at making the right programs and campaigns that set us up well for the next year. In addition to that, as you know, we saw some really positive transaction loss numbers in the first half. And while we are very excited and optimistic, the transaction loss is an area which is volatile. And as we know, keeping that 11 basis point average that we have given as a guide would be the right thing. So all in all, I feel that the story is really great for us where we have been able to drive growth along with expanded margins while we invest into the new businesses. Now while being disciplined, we also know that there's no shortage of growth opportunities and we want to invest, and we will invest.

Makes sense. All right. Let's talk about the core send business, which is still the vast majority of the revenues. When you look at the core business specifically, stripping out the growth accelerators, what are the biggest drivers of durable growth from here? And how do you think about the balance between corridor expansion and share gains within the existing corridors?

Yes. I think -- first of all, you've got to be priced right. This is a customer that likes a good service at a good price. And so I'd say that the first focus to make sure we're very efficient in the service we provide and how we price. And by the service, I mean, the speed, the cost and the broadness of the network that we offer. So that are the core businesses. And that won't change. We'll be focused on that forever. The second piece that's driving the growth is we have a very good app. The stickiness of -- I don't like the word stickiness, but customers come back to us a lot, whatever you want to call it, the long-term value or the stickiness of the customer or the repeatability. Our numbers are very, very strong. And we know when we get a customer, we can keep it. We can keep -- we built the trust, we've built the network, we built the support. And so that's another key component of the core business. And that's -- you see it in our market share numbers. We're very personalized. We've got all these different, we treat the Mexican corridor, we treat the China corridor, we treat the Japanese corridor, all very uniquely for the needs of that customer. And then the final one, which is a more obvious answer is you just have to keep expanding the markets we serve. We have 5,000 corridors. We think we're halfway through the potential 10,000 corridors in the year in the world. We deal with hundreds of currencies, but we're launching -- we launched Brazil as a send country. We launched Japan as a send country. We continue to expand the places in the world where you can send money. So those are the 3 things that keep fueling the core business. So far, it looks really healthy. We continue to gain share. We continue to do our customer growth. We crossed 10 million active customers last quarter. That growth seems to be solid. Customers are finding us. They're staying with us, and they're using us to send more money.

Great. It sounds like a lot of momentum. Maybe going over to the Remitly Global card. You launched this a few weeks ago. It looks like a pretty significant step with the debit card, wallet, stablecoin balances, lines of credit, direct deposit, all into one product, like a really significant of the core product, which you just went through. Could you walk through what this product does for the customer, what types of demand that you're responding to with that product? And then importantly, how do you expect it to augment the growth profile of the core send business?

Yes. Well, it's early days. The signals right now are great. The -- as you said, I like the way you put it, it's going to be the best card on the planet for our customer who lives cross-border. And we're very focused on the needs of that customer, how the card can help them, whether it be, as you say, with liquidity, short-term liquidity loans with better rates when they're sending money, better speed, they can use it to spend, they can use it as a USDC card. So we have -- and as I said, we have a long list of things to do it to inject into the card. Early days in the rollout, it's only U.S. We have all the countries in the world to get to. We're super excited about it. I think it's a construct our customers understand. People know that you can accumulate value with cards, know how to use them. We believe we can start to build deposits into those cards, which we're already seeing. So there's just a lot of wins. And the way -- to the end of your question, this keeps the customer more engaged. The unit economics of the card are as good or better as the unit economics of the remittance business. So you can picture all kinds of scenarios where the card helps the remittance business, the remittance business helps the card. And we think that flywheel can be very beneficial to us. So only upside from here. So far, so good. I've been using the card for a month. It's fantastic. And I think most customers will get to -- we have a free version. We've got a membership. We have a lot of ideas here. But by the way, you should get a card. It's good. It's good. I'll send you a note and have you start using the remitting card, it's very good.