Remitly Global, Inc. Q3 FY2022 Earnings Call

Good day, and thank you for standing by. Welcome to the Remitly's Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Stephen Shulstein, Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us for Remitly's third quarter 2022 earnings call. Joining me on the call today are Matt Oppenheimer, Co-Founder and Chief Executive Officer of Remitly; and Hemanth Munipalli, our Chief Financial Officer. Our results and additional management commentary are available in our earnings release and presentation slides, which can be found at ir.remitly.com. Please note that this call will be simultaneously webcast on the Investor Relations website. Before we start, I would like to remind you that we will be making forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Remitly's future financial results and management's expectations and plans. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to vary materially from those presented here. You should not place undue reliance on any forward-looking statements. Please refer to our earnings release and SEC filings for more information regarding the risk factors that may affect our results. Any forward-looking statements made in this conference call, including responses to your questions are based on current expectations as of today, and Remitly assumes no obligation to update them or revise them, whether as a result of new developments or otherwise, except as required by law. The following presentation contains non-GAAP financial measures. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings release, which is also available in the IR section of our website. Now, I will turn the call over to Matt to begin.

Thank you, Stephen, and thank you all for joining us to discuss our strong third quarter results and progress on our strategic priorities as we continue our track record of consistent execution. Our focus on our customers and the resilience of remittances through economic cycles has positioned us well to deliver sustainable long-term results for all of our stakeholders. We are committed to delivering outsized revenue growth and returns for many years to come while at the same time, ensuring Remitly is positioned to benefit from increasing scale across our expense base. We are very proud of the progress we've made since our IPO. On Slide 4, you can see that we have made great strides across many dimensions of our business. We now serve 3.8 million quarterly active users, adding more than 1.2 million since our IPO. Our geographic footprint is now over 170 countries, up from 135. We provide service to approximately 4,200 corridors, an increase of 2,400 corridors in the past year alone. Our third quarter annualized send volume now stands at $30 billion. This growth has resulted in significant scale as we look to become the largest remittance provider with complementary products for immigrants and their families. We have delivered a track record of consistent execution versus expectations. And finally, we have done all of this while maintaining our unique customer-centric culture with an authentic focus on ESG priorities across our business. Now, let's turn to a brief overview of our third quarter results. Our track record of solid execution continued in the third quarter as shown on Slide 5. Our active customer base increased by 49% year-over-year to more than 3.8 million. Revenue increased 40% year-over-year to $169 million, above our expectations. This is exceptionally strong growth at our scale. This growth was driven by increases in active customers as we continue to take share from legacy providers, subscale digital providers and the informal remittance market as more transactions shift digital. Repeat transactions from loyal customers also contributed to growth. Given that Remitly has only 2% of the global remittance market, combined with a very strong product offering that drives repeat usage, these new and repeat customers will drive revenue growth for many quarters to come. Our revenue continues to be highly visible and predictable due to high customer loyalty and the nondiscretionary nature of remittance transactions. As a result of this strong top line performance and our outlook for the fourth quarter, we are once again increasing our revenue outlook for 2022. Our adjusted EBITDA performance in the third quarter was also above expectations. We delivered strong efficiencies in our marketing investments and robust active customer growth. Given that the fourth quarter provides the greatest seasonal opportunity to acquire even more new customers at strong unit economics, we are maintaining our 2022 adjusted EBITDA outlook. Consistent with what we saw last quarter, our customers remain resilient in the face of a volatile macro environment, as you can see on Slide 6. Remittances tend to perform well across economic cycles and digital adoption remains a long-term tailwind for Remitly. The reasons that remittances performed well over economic cycles is due to their non-discretionary function and the determination of our customers to send money back home on a regular basis, no matter the obstacles they face. We saw this clearly during COVID. For example, when many of our customers who work in jobs such as hospitality that were impacted by shutdowns, were able to quickly pivot to finding other sources of income, such as food delivery. The diversity of our customers across various occupations from blue collar to white collar and now in more than 25 send countries lowers the risks of potential changes in specific areas of local economies. We consistently monitor the underlying transaction and send volume trends, and we have continued to see resilience in our customer base and loyalty to Remitly. We do not see reductions in transactions per customer or average transactions that are not driven by shifts in customer disbursement preferences. We believe our customers prioritize sending money back home to family and friends over other more discretionary spending. While our send volume per active customer was down year-over-year, this was primarily due to the increasing mix of new customers versus existing customers in the third quarter and foreign currency translation headwinds. Excluding new customers in both periods and on a constant currency basis, send volume per active customer was up slightly in the third quarter year-over-year. We also surveyed our customers last month and found that nine in 10 customers expect to send the same amount of money or more in 2023 versus 2022. Similarly, most customers say they expect to send money abroad at the same frequency or more often than they did in the past year. This is similar to findings in our second quarter survey and gives us confidence that our customers continue to prioritize remittances. While not a primary driver of results, foreign currency movements, particularly the recent strength in the U.S. dollar, do impact our business in numerous ways. First, in certain markets, especially those with larger transaction sizes, we see customers taking advantage of the ability to get more local currency to their families and friends. Second, we believe the strength of the U.S. dollar and the strength in other developed market currencies versus emerging market currencies make it easier to acquire new customers in certain markets. Finally, year-over-year growth in our revenue metrics were negatively impacted by foreign currency translation as our international business continued to grow and currencies such as the British pound and euro weakened against the U.S. dollar. Turning to some key trends in our three largest receive markets: Mexico, Philippines, and India. In Mexico, our largest receive market by revenue, we are seeing consistent customer behavior as the vast majority of customers are sending money back home to family for basic household needs. The customers that send to Mexico tend to be less affluent and we continue to see strong employment trends for lower wage occupations, especially in the U.S. In fact, the Mexican Central Bank reported that remittances to Mexico reached a record high in July as Mexican families received $5.3 billion from abroad, an annual increase of 17%. The strong trend continued in August with remittances to Mexico up 8%. Our growth in Mexico was significantly higher than these industry members as we continue to take market share. Customers in the Philippines continue to shift their disbursement preferences to mobile wallets and other digital receive methods, which we are encouraging and leading with our digital-first approach. We support customers if and when they are ready to make the shift to digital receive with our highly localized marketing and product experience. Finally, in India, as the rupee depreciated materially against the U.S. dollar and other currencies, we saw very strong year-over-year growth in both send volume to India and new customers in the quarter. While these three large receive countries remain very important to our business, it's important to keep in mind that we continue to diversify our corridor portfolio across both send and receive countries. We saw this diversification play out in the third quarter as more than 50% of new customers acquired in the third quarter were sending to countries outside of Mexico, Philippines, and India. Given our high retention rate, adding new customers tends to be the leading indicator of revenue growth for the quarters and years to come, and as a result, we expect our revenue to become even more diversified across corridors. In the third quarter, we made progress across our investment priorities, as you can see on Slide 7. We are very focused on new customer acquisition at strong unit economics, geographic expansion, remittance product enhancements, and complementary new products. With these priorities, we are laying the foundation for sustainable outsized growth and returns for many years to come. Consistent with the second quarter, we were able to drive significant customer acquisition efficiencies in the third quarter, as you can see on Slide 8. We continue to manage customer acquisition costs via elasticity testing and a focus on lower-cost channels, all while maintaining strong new customer acquisition growth. As a result, customer acquisition costs improved 18% sequentially from the second quarter and 19% year-over-year from the third quarter of last year. Our increasing brand awareness in both the U.S. and international markets, along with the rapid scaling of active customers, is driving efficiency and resulting in word-of-mouth network effects. We have seen a moderate softening in the competitiveness of the advertising environment in the third quarter, both sequentially and year-over-year, and we were able to take advantage to drive even further efficiency. As we look ahead to the fourth quarter, we would expect customer acquisition costs to increase sequentially but decline year-over-year as we remain focused on driving efficiencies across the marketing funnel. The fourth quarter is typically the most seasonally expensive media quarter while also providing the best opportunity for us to acquire new customers as the holiday season drives additional spending behavior across remittance corridors. Our geographic expansion is accelerating, as you can see on Slide 9. At the end of the third quarter, we serve customers in more than 170 countries and territories worldwide. We now serve nearly 4,200 corridors and we added approximately 1,000 corridors in the third quarter alone, another record quarterly geographic expansion for us. We also saw an opportunity to further expand into complementary geographies in the Middle East and Europe with the pending acquisition of Rewire. It is important to note that it is both the number of corridors we serve and the quality of the disbursement network that drive new customer growth and repeat sending behavior. As a result of the quality of our network and the foundational investments we have made, in general, every new send country we add results in more than 150 new corridors, allowing us to continue to scale rapidly. Our disbursement options within our global network continue to grow and remain an important driver of customer loyalty. Our growing network of banks, mobile wallets, and tax pickup locations allows our customers to choose what works best for them. As digital payout options continue to grow in adoption, we are pleased to be able to add more than 170 million mobile wallets in the third quarter. This expansion includes our launch of Paytm in India, one of the largest mobile wallet providers in that market. We also expanded our relationship with Visa by making Visa Direct available to Remitly customers in Canada. This provides another convenient disbursement option for our customers. We continue to believe the quality of our network and our focus on customer preference and disbursement options remains a compelling differentiator. The focus on improving the customer experience and delivering peace of mind drives our investments in our Remitly platform, as you can see on Slide 10. We made significant progress in the quarter on reducing customer friction as we enhanced a number of key features to drive peace of mind. These investments drive retention, product differentiation, and will ultimately lower customer service costs as customers will contact us less frequently. Some key examples in the third quarter that helped drive customer peace of mind included reducing customer pain points by expanding rapid refunds to Visa and MasterCard in the U.S. and enhancements to the customer experience in the send funnel by allowing global customers to import their recipient contact or scan their card to add it as a payment method in their profile. Our global uptime was 99.96% in the third quarter, reflecting our commitment to our customers as downtimes are among the worst-case scenarios for our customers, ranging from losing trust when new customers are shopping around to devastating for existing customers, especially during a family emergency. We continue to have high customer ratings in both the iOS App Store and Google Play Store. And as we continue to scale, we believe we will be able to make investments in our platform that other competitors will simply be unable to make. This drives an increasing preference for Remitly's service and delivers peace of mind to our customers. We talked last quarter about narrowing our focus to complementary products that deepen relationships with remittance customers, as you can see on Slide 11. We believe our product strategy will result in a deeper and stickier relationship with our customers over time, which will drive even more business to our remittance platform and increased retention of existing customers. We continue to iterate and test demand for additional products that solve critical problems for our immigrant customers and their families and are pleased with the progress so far. Our pending acquisition of Rewire and their account-based remittance platform will help us execute and accelerate this product strategy. In addition, the critical investments we are making across our platform will ensure we can serve our customers across multiple products with the same peace of mind that we deliver with our remittance product. The portfolio of four strategic investment areas positions us to drive sustainable growth in the near, medium, and long term, as seen on Slide 12. The overlapping return profiles and our strong balance sheet give us the confidence that we can deliver on our promises to customers, shareholders, and employees. Before I turn the call over to Hemanth, I'd like to return to our vision on Slide 13. Our vision is to transform the lives of immigrants and their families by providing the most trusted financial services on the planet. This is what drives us and energizes us and will remain our North Star. Our focus on the long term and our customers also drives our commitment to ESG. As part of this commitment, we will publish more about our ESG strategy soon and we plan to provide additional reporting across the ESG metrics in 2023. In addition, as part of our commitment to ESG, we made our second annual contribution to Pledge 1% of approximately 182,000 shares during the third quarter. It is our strong belief that our ESG programs and initiatives ultimately improve our product, our ability to serve customers, and our employees' experience with us. This is what drives a long-term sustainable business that delivers returns for all stakeholders. With that, I'll turn the call to Hemanth, who will provide more details on our financial results and outlook.

Thank you, Matt. I'm pleased with our strong third quarter results, our continued track record of execution, and the resilience of our customers. This has allowed us to raise our revenue outlook for 2022 once again. Over the past quarter, I've also had the opportunity to dive deeper across Remitly's significant growth opportunities and our investments and I'm excited and confident about the return potential. With that, let's turn to the details of our third quarter results. I'll begin by reviewing the drivers of our third quarter financial performance and then we'll provide more detail on our outlook for 2022. As a reminder, I will discuss non-GAAP operating expenses and adjusted EBITDA in my remarks. These metrics exclude items such as stock-based compensation, the donation of common stock in connection with our Pledge 1% commitment, and transaction costs related to acquisitions. Reconciliations to GAAP results are included in the earnings release. Beginning on Slide 15 with our high-level top-line performance, active customers grew by 49% year-over-year to more than 3.8 million. Send volume grew 44% year-over-year to approximately $7.5 billion, all resulting in revenue growth of 40% year-over-year to $169 million, which was above our expectations. As you can see on Slide 16, a number of factors drove the strong 49% active customer growth, including setting another record number for new customer acquisitions in the quarter and high retention of existing customers, who, in many cases, continued to transact with us over many years. Our differentiated product, highly effective marketing, and increasing global scale all contributed to the outsized active customer growth we saw in the quarter. We also believe in the strength in the U.S. dollar helped drive incremental new customers to Remitly in certain markets. We saw particular strength in new customer acquisition in the USA to Mexico and USA to India corridors, where we delivered record new customers that surpassed the previous new customer records set at the beginning of the pandemic. This was driven by marketing efficiencies as we scale, including improved referrals and word-of-mouth, upper funnel investments, localized promotions, and product and landing page optimization. We also saw a strong growth in some of our newer and smaller corridors, including to Africa, where we benefited from our sub-Saharan Africa awareness campaign and additional scale. Turning to Slide 17. Robust growth in active customers and high retention drove the 40% year-over-year revenue growth that we delivered in the quarter as we continue our multiyear track record of healthy double-digit revenue growth. Revenue growth in the quarter was impacted by approximately 300 basis points unfavorably due to foreign currency translation as we saw the British pound and euro decline against the U.S. dollar. Turning to transaction expense on Slide 18. Transaction expense was $70 million, up 41% of revenue compared with 39% of revenue in the third quarter of last year. We saw higher-than-expected fraud loss rates in the third quarter as we onboarded a record number of new customers who generally have a higher risk profile. However, the fraud losses were well within our guardrails for new customers and we continue to invest in improving our fraud and risk systems while at the same time, improving our customer experience. We continue to see leverage on send and destination fees in the third quarter as we globally scale and were able to drive better terms with our payment and disbursement partners. On a year-to-date basis, transaction expense as a percent of revenue has improved by 140 basis points. Over the long term, we expect to continue to benefit from increasing scale and improved precision on our fraud losses, although we expect some variability in transaction expense from quarter-to-quarter. Now, I'll turn to our non-GAAP operating expenses on Slide 19, which reflect the investments we're making to allow us to scale our remittance business and execute on our long-term strategy of delivering complementary new products to immigrants and their families. Overall, we saw a moderation in year-over-year OpEx growth rates in the third quarter as compared with the second quarter, including in both technology and development and G&A expenses. As Matt discussed earlier, we also continue to drive efficiencies in customer acquisition costs. Our marketing expense, of which the vast majority is targeted at new customer acquisition, was $40 million in the quarter and reflected a 100 basis point year-over-year improvement as a percent of revenue. This leverage was driven by marketing efficiencies and customer acquisition while at the same time delivering a record number of new customers to Remitly. Our efficiencies came from elasticity testing, improved overall brand awareness, and a moderately less competitive advertising market. We plan to continue to invest in high-return marketing with a highly disciplined focus on driving efficiency gains. Customer support and operations expense was $18 million in the third quarter and was up 70 basis points year-over-year on a percentage of revenue basis. The primary driver of this increase was due to higher-than-expected number of new customers added in the quarter. New cohorts of customers, on average, contact us at a significantly higher rate than older cohorts. It is our goal to drive this contact rate down over time as we make technology investments in our product, payment, and disbursement networks to deliver peace of mind for our customers. As we scale, we expect new customers to be a smaller proportion of active customers. We also expect our peace of mind product enhancements to drive contact rates lower. Both of these factors should help drive leverage and customer support costs over the medium term. Technology and development expense was $22 million in the third quarter and was essentially flat year-over-year as a percentage of revenue. Our investments allow us to deliver peace of mind, drive retention and loyalty, and enable the development of complementary new products. This ultimately deepens our relationships with our customers and provides additional revenue opportunities. As we mentioned on our last call, we expect technology and development expense to increase as a percentage of revenue in 2022 compared with 2021 as we prioritize product improvements, new product development, and corridor additions. G&A expense was $22 million in the third quarter. Our year-over-year growth rate in G&A expense has moderated as we begin to anniversary the ramp in public company expenses. We expect the year-over-year growth rate in G&A expense to continue to moderate in the fourth quarter. Turning to Slide 20. Adjusted EBITDA, which excludes stock-based compensation expense, the donation of common stock in connection with Pledge 1%, and transaction costs, was negative approximately $4 million in the third quarter of 2022. Our adjusted EBITDA performance was better than we expected, primarily due to higher-than-expected revenue and lower customer acquisition costs. Third quarter GAAP net loss was $33 million compared to a $13 million net loss in the third quarter of 2021. The increase in net loss was primarily due to $21 million of incremental stock-based compensation expense. Turning to our balance sheet. Working capital at the end of the quarter was approximately $450 million and reflects cash on our balance sheet of $376 million. Our strong balance sheet is a key differentiator from many other competitors, especially subscale ones, and allows us to execute our strategic priorities to drive long-term profitable growth. Moving to our 2022 outlook on Slide 21, we expect revenue to be between $635 million and $640 million. This is a $10 million increase to the midpoint from our prior outlook and implies a year-over-year growth rate of 38% to 40%. We're increasing our outlook to reflect the strong performance we delivered in the third quarter with both existing customers and new customers. Our strong new customer growth during the first three quarters of the year will be a tailwind for growth in the fourth quarter of 2023 and beyond. We're maintaining our adjusted EBITDA outlook for 2022 at negative $35 million to negative $30 million. Due to seasonally strong new customer acquisition in the fourth quarter, we expect the fourth quarter to have lower adjusted EBITDA than the third quarter. While acquiring these new customers in the quarter impacts short-term profitability, we fully expect these customers will continue to drive Remitly's strong growth going forward. As I have also now completed my first 90 days, I'm even more confident that we have an attractive investment return profile that I look forward to discussing when we provide guidance for 2023 early next year. We're executing strongly with financial discipline and continue to build an attractive return profile with the momentum of our strong revenue growth, predictable and resilient customer behavior, global scale, operating leverage opportunities and a healthy balance sheet. With that, Matt and I will open up the call for your questions.

Thank you. Our first question comes from the line of Tien-Tsin Huang with JP Morgan. Your line is open. Please go ahead.

Thanks so much. Good results here. Good afternoon. Just really big increase in customers added sequentially here from a notional standpoint. So I just wanted to make sure I heard this correctly or maybe if you can explain, how much of it is a function of the growth in the corridors which stepped up again two quarters in a row versus attracting users from existing corridors in the marketing efforts there? And I think I heard you mention that there were some users being opportunistic with FX, which makes sense as well. So just kind of understand some of that and is there any risk of pull forward as well, given what you've studied?

Thank you for the question. I'm very pleased with the overall growth in our customer base, which is happening globally. We are seeing particularly strong performance in markets such as the USA, Philippines, Mexico, and India. Additionally, we observed an increase in demand and new customer activity linked to the foreign exchange impact. Overall, growth was evident across the board. Notably, 50% of our new customer activity came from markets outside of India, the Philippines, and Mexico. Regarding your question about potential pull-forward in demand, we believe there may be a slight effect, but it's not significant enough to impact us at this time. We are noticing consistent customer behavior, so we do not anticipate a major effect from this pull-forward. Matt, do you have anything else to add?

I think the only thing I would add is that we had a record quarter for new customer additions, and we achieved this with an 18% reduction in customer acquisition costs from Q2 and a 19% decrease from Q3 2021. This success not only strengthens our growth forecasts for this quarter but also boosts our confidence going into 2023 regarding both growth and profitability, as we are acquiring many new customers with strong returns that positively impact our transaction margin. This provides us with flexibility moving forward. I'm really excited, and part of the sustainability we see can be attributed to a less competitive advertising landscape. I believe we've improved our testing of elasticity and have a fantastic marketing team in place. Our Chief Marketing Officer has been in her role for less than a year, and the creative work and speed of execution are impressive, revealing significant opportunities ahead for the coming quarters.

Thank you for that insight. The customer acquisition cost is indeed crucial, especially as investors have raised questions about Western Union and their strategy to enhance digital customer acquisition. Are you noticing any impacts from that? Additionally, regarding your marketing approach in the fourth quarter, is it more of an opportunistic move on your part, or is there a genuine need to increase marketing efforts in light of what Western Union is attempting to do, which seems to echo your model? Thank you.

Yeah. Thanks, Tien-Tsin. I think as we look into Q4, as we mentioned in the remarks, it is a unique time where a lot of customers send money back home and so there is a demand capture from being able to capture a lot of new customers in Q4, that again will give us a lot of optionality, both in terms of revenue growth and being able to flow that down to the bottom line. And so we want to be able to capture that. It doesn't mean more of an investment in Q4, but it's less driven by the competitive dynamics and more driven by the fact that, we're continuing to add record number of new customers at improving unit economics. And so we think it's prudent to continue to test that elasticity, but banking now a lot of these new customers that we can serve in 2023 gives us a lot of optionality in the business.

Makes sense. Thanks, Matt.

Thank you. Our next question comes from the line of Andrew Schmidt with Citi. Your line is open.

Thank you, Matt, Hemanth, and Stephen, for addressing my question and for the insightful commentary. I would like to start by asking about the sources of your market share gains. While you mentioned traditional sources in your remarks, I'm curious if there have been any changes in the proportion of where your successes are originating. Additionally, it seems like part of your marketing efficiency comes from optimizing your customer acquisition channels, particularly referrals. Could you provide some insights into how the mix of customer acquisition channels is evolving over time? Thank you.

Andrew, it's great to connect with you. Let me address the second question first, and then Matt and I can discuss the share gain. Regarding efficiency in marketing, much of it comes from optimization. The marketing team has been performing very well, focusing on upper funnel strategies, elasticity testing, and local initiatives. This team has only been in place for about six to nine months under new leadership, and they have done an outstanding job. There’s a lot of effort in marketing that is enhancing optimization and efficiency. Additionally, we are noticing improvements in customer acquisition cost efficiency. We mentioned referrals, and while it’s challenging to measure and attribute those directly, we believe that as we scale, referrals are becoming increasingly valuable for our marketing spend. However, it’s tough to pinpoint exact numbers related to this. Another aspect we've observed is that the market has been less competitive, which has provided some advantages for us. We'll need to monitor how this evolves, especially since Q4 typically sees higher marketing expenditures from our competitors, but we’re currently satisfied with our efforts to optimize marketing spending, which has been progressing well.

I think you're right. Additionally, it's important to recognize that we're gaining market share in a highly fragmented environment. Currently, we hold just 2% of the $1.6 trillion market. There are positive word-of-mouth effects that provide us with operational advantages and facilitate organic growth as customers choose to use Remitly. We track metrics like brand awareness, which indicate potential for continued efficient growth. Our acquisitions are broad-based, targeting both traditional and smaller players in the market. These companies often struggle to provide consistent reliability for their customers, something we excel at. This is evident in our fast, seamless transactions that simplify the inherent complexities of international payments. We are improving in these areas as we scale and enhance our investment in reducing customer friction.

Thank you, Matt and Hemanth. I'd like to follow up on the implied outlook for the fourth quarter. It appears there is a slight deceleration in revenue growth on a quarter-over-quarter basis, even though the fourth quarter is typically stronger seasonally. Can you clarify if there are environmental factors causing this, if it's due to a cautious approach regarding potential pull-forward, or if it's simply your usual outlook method reflecting some level of caution? I'm interested in your thoughts on this situation.

Yeah. I'd say, Andrew to that. I'd say we are broadly assuming pretty consistent drivers of sort of the macro elements in our Q4 outlook. So we're not baking in anything different, fundamentally from Q3. To your question on deceleration on the revenue line, again, just wanted to reinforce that being seasonally strong with a high customer growth expectation that we have there, that doesn't directly translate into revenue to that effect in that quarter, right. So this is what we expect to get in subsequent quarters. So Q4 doesn't have any sort of deceleration built in from the perspective of sort of any decreased expectation on new customer activity.

Perfect. Very helpful. Thank you very much.

Thank you. Our next question comes from the line of Ramsey El-Assal with Barclays. Your line is open.

Hi. Thanks for taking my question this evening. Forgive me if you covered this, I was missed the first part of the call. I wanted to ask about your corridor expansion, which has been really impressive trend. How should we think about the kind of longer-term path there? Is it fruitful to just kind of add more corridors indefinitely, or is it the type of thing where you have a target in mind when you reach a certain point, a certain scale in terms of the number of corridors as you'll then say, we've got what we need out of this, we can move on?

Thank you for joining us during this busy earnings season. Last quarter, we added 1,000 corridors and since our IPO, we've grown from 1,800 to 4,200 corridors. Regarding corridor expansion, we're very intentional about our approach. Many companies tend to expand quickly, but we prefer a methodical strategy for adding new countries and corridors. The corridors we launched a year or two ago are driving our current growth, similar to those we are launching now that will contribute to growth in the future. Looking at where remittances flow, we see potential in the Asia-Pacific region. We've recently launched Japan and New Zealand as new corridors and are in the process of acquiring Rewire, an Israeli remittance company with a presence in Europe, which will assist us in reaching our first Middle East origination country. On the receiving side, we primarily see opportunities in Asia, Africa, and Latin America, where our customers send money. We can enhance the quality of our network while also adding more countries. Since we currently send to over 150 receiving countries, every new sending country creates 150 new corridors as customers can send money from that country to 150 others. This creates operational leverage and increases efficiency. While there will eventually be a limit to our expansion, we are quite a distance from that point and have a clear path for continued sustainable growth through our strategic approach to corridor expansion.

Great. Thank you for that. And one follow-up from me. Could you give us an update on the Remitly for developers, sort of how is uptake trending, how is the pipeline developing that type of thing?

I'm really glad you asked about that. First, I want to clarify that B2B refers to business-to-business. We offer a variety of product offerings to businesses. You mentioned Remitly for developers, which is our partnership with companies like Meta for disbursement funding through our network. Interestingly, many businesses initially think they just want access to our disbursement network, but they soon realize that remittances and international payments involve much more complexity than just that network. This includes factors like foreign exchange and flow funds, which are part of the RFT product, along with our U.S. pricing, risk product, exception management, and payment disbursement, all localized across 4,000 corridors, which is crucial in remittances. Building this platform is challenging, but it contributes to the defensibility of our remittance services, as businesses understand remittances and international payments more deeply. As a result, we are now offering an embedded B2B product aimed at organizations like banks and credit unions, making international payments simple and reliable for their end customers. This product leverages the strong end-to-end platform we've created to facilitate growth. I'm excited about the B2B space overall, and it's important to grasp the strategic context and the insights we're gaining from businesses. This not only validates the complexity inherent in remittances but also highlights the value our platform can potentially add to other businesses.

Fantastic. Thanks so much.

Thanks, Ramsey.

Thank you. Our next question comes from the line of Robert Napoli with William Blair. Your line is open.

Thank you for the question and congratulations on a great quarter with impressive growth in new customers and corridors. Could you provide some insights into Rewire and your diversification initiatives? Specifically, how do you see M&A playing a role in entering new countries or corridors?

Thanks, Bob. It’s great to hear from you, and it's a timely question since I just returned from Tel Aviv, where I met with the team at Rewire. The acquisition is still pending regulatory approval, so it hasn’t been finalized yet. However, we are excited about the two strategic reasons behind this deal. First, it will help us expand into Israel, where we currently don’t have remittance operations, and support the growth of our European business, given their presence which is geographically complementary. Second, they have a strong history in research and development and a team that has created innovative products, such as a remittance solution linked to store value, along with a proven track record of innovation in that area. We are really looking forward to this acquisition once we receive the necessary regulatory approvals. Additionally, in terms of mergers and acquisitions, we are always exploring ways to grow efficiently, whether organically or inorganically. However, today we are particularly excited to discuss the Rewire acquisition.

Thank you. And then just a follow-up on retention, I mean I'm really kind of surprised to hear less competition in the market, but have you seen any change in your customer retention, like the waterfall? How confident are you in so those unit economics, as it relates to retention and margins, et cetera?

Thank you for the question. We monitor this area closely. Regarding retention, we have previously shared that our revenue retention is at 90%. We believe we are still in that range and have not observed any significant shifts in new customer behavior or cohorts that would suggest a change. This reflects our current situation on retention within unit economics. Additionally, this quarter has been interesting for us. We are very pleased with the rise in new customers, which positively affects our financial performance. We noted potential impacts on transaction costs due to elevated fraud levels and customer service expenses, as new customers tend to reach out to us more frequently. However, when you exclude these factors, the core fundamentals of the business show consistent and stable unit economics. We see an appealing profile with ongoing opportunities for improvement. In Q3, the substantial increase in new customer additions, along with reduced marketing costs and greater efficiencies, had a positive effect on our financial results, but the fundamental unit economics remain stable.

Thank you. Appreciate it.

Thank you. Our next question comes from the line of Will Nance with Goldman Sachs. Your line is open.

Hey, guys. Thanks for taking the question. At first, I wanted to ask about why we weren't flowing the revenue bead into the fourth quarter guidance, I think you guys have addressed that quite well. So I mean instead of that, I'll ask this, I mean you guys sounded really optimistic about what you're seeing from a customer acquisition standpoint. If we fast forward three months from now and the investments that you're planning on making in the fourth quarter to continue to accelerate customer acquisition pay off, and theoretically that leads to a much better than expected new customer additions in the fourth quarter as well. I mean could you just spend a little bit of time on some of just the geography of where that flows through in the P&L? You've touched on higher fraud costs, obviously higher marketing, hopefully higher revenue in future quarters, but when we think about things like higher fraud costs running through, promotional first transactions free, things like that, just what are some things to look out for, so investors can kind of be prepped for what to expect in a very strong organic growth quarter?

Yeah. I mean, I think you've really touched on the key elements that hit a little bit elevated during the period that we're driving a lot of new customers. We do see increased customer contacts in that period of time. It's actually pretty significantly higher but then starts dropping down maturely as well. So, those are some of the key elements that you can think of from a unit economics perspective. Our marketing efficiencies, we believe we have made some significant improvements over the last couple of quarters. We do see line of sight for continued improvements. But having said that, there's a lot that's happening in the market as well, touched above, when we think about marketing spend. At the bottom line on marketing too, I want to just reinforce that we've continued to maintain a high ROI expectation on marketing. So when you look at our LTV and CAC ratios, we monitor that all the time they are well within the range of what we want this to be, from a payback perspective.

Got it.

Yes, I believe that addresses the main part of your question, Will. From a strategic perspective, as I mentioned earlier, we experienced a record number of new customers added in the third quarter, and we are optimistic about continuing that trend in the fourth quarter. Additionally, due to the payback dynamics, strong repeat behavior, and high retention rates we are observing, this ultimately contributes to transaction profit. This situation provides us with flexibility for 2023. We have a sustainable business that allows us to decide how to further invest in our vision for both the short and long term while keeping profitability in mind. Therefore, we are being efficient in our customer acquisition for the fourth quarter while also making investments that will give us that flexibility as we move into 2023.

Yeah. That all makes a ton of sense. And I appreciate all the color that you guys gave on kind of one year out from the IPO in the slides. Super. Interesting. You mentioned the top three corridors and the percentage of new customers coming from outside of those corridors, I was just wondering if you could kind of update us on the size of that from a revenue or send volume perspective today? How much are some of the top three corridors contributing today and where was that kind of a year ago?

Yeah. Those are obviously stats that we don't share. I would say we continue to have a significant amount of revenues from our top X number of corridors, if you will, that's obviously North America originated. But we're seeing increasing mix towards international as well. So more to come on that and we will be at a point where we can talk more about it. But I think I would say that growth from new customer activity is broad geographically. But the revenue concentration continues to be moving towards the North America business.

Understood. Appreciate taking all my questions and nice results today.

Thanks.

Thank you. Our last question comes from the line of Alex Markgraff with KeyBanc. Your line is open.

Hi, team. Thanks for taking the question. Maybe a couple here, just kind of on the same note around the impact of new customers as it relates to transaction margin this quarter versus last. So I'm curious if you could characterize how much of the sequential decline is related to new customers? If I recall from last quarter, there is some commentary around more stable transaction margins, I assume that was kind of excluding the impact of any new customers. So maybe just any sort of commentary there, if you were to strip out the impact of the record net adds, does that commentary around stable margins hold?

Yeah. That's a great question. We've been looking at that pretty closely as well. I would say that if you strip the effect of new customers out, we are broadly stable at the levels that we have been historically. And the other thing to just mention in terms of sort of transaction, fraud loss impacts in Q3, we also had unpredictiable sort of one-time localized effects, which are well within our overall guardrails, but these are things we see from time to time, so that was probably more of the effect the overall new customer impact. When you strip those out, we're pretty much in line with a stable trend on transaction margins, and in line with what we've seen historically.

Okay. That's really helpful. And then just lastly around CAC. I'm curious, when I think about some of the localized marketing efforts, is there any sort of FX tailwind that you all are realizing with that more localized marketing spend?

We are experiencing some translation impacts due to foreign exchange on our overall expenditures. Given the nature of our business and the significant concentration of our revenue coming from the U.S., the international mix has a limited overall effect. However, it does affect us from a translation standpoint and operationally in certain areas.

Okay. Super helpful. Thanks, guys.

Thank you. Thank you, Alex.

Thank you. And this does conclude today's question and answer session. And I would like to turn the conference back over to CEO, Matt Oppenheimer, for any further remarks.

Thanks so much. And thanks everybody for the really thoughtful questions. As we always do at Remitly, I'd like to end the call by highlighting another one of our amazing customers, and this customer's name is April. April joined Remitly in June of 2022 and sent money from the U.S. to family in Kenya. And April shared, 'I would highly recommend Remitly for sending money. It's fast and reliable. I send money to Kenya once or twice a month, and my people have received it safely.' April is one of our now millions of customers that we want to thank for using Remitly, and specifically April for recommending Remitly to others. We're super excited about the rest of the year and beyond and look forward to sharing our progress as we continue to execute our vision of transforming lives of immigrants and their families through financial services on the planet.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect. Goodbye.