Earnings Call Transcript - RELY Q4 2023

Operator, Operator

Good day, and welcome to the Remitly Fourth Quarter 2023 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 speaker today, Stephen Shulstein, Vice President, Investor Relations. Please go ahead.

Stephen Shulstein, Vice President, Investor Relations

Thank you. Good afternoon and thank you for joining us for Remitly's fourth-quarter 2023 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'll be making forward-looking statements within the meaning of 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 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 these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release and the appendix to our earnings presentation, which are available on the IR section of our website. Now, I will turn the call over to Matt to begin.

Matt Oppenheimer, Co-Founder and CEO

Thank you, Stephen, and thank you all for joining us for our fourth-quarter earnings call. As we look back on Remitly's performance in 2023, we have much to be proud of as we delivered on our commitments to our customers and shareholders. At the beginning of last year, we laid out our commitment to deliver strong growth with robust unit economics, increase the return on our investments, and deliver a fast, reliable, and seamless experience for our customers. These results reflect the progress we have made on our strategic initiatives and our commitment to our customers to deliver peace of mind as they send money across borders. Our revenue increased 39% in the fourth quarter and 44% for the full year. On a fourth-quarter annualized basis, our scale has reached over $1 billion of revenue. We also delivered $8 million of adjusted EBITDA in the fourth quarter and $44 million of adjusted EBITDA for the full year, well ahead of the goals we set for ourselves at the onset of the year. We benefited from strong execution across the business, increasing scale, the nondiscretionary nature of our service, and the resilience of our customers. We've expanded on our vision as you can see on Slide 5. Our vision is to transform lives with trusted financial services that transcend borders. This vision encapsulates a broad view of who our customers are today and who we can serve in the future. It also speaks to the unmet customer needs that we believe we are uniquely positioned to solve by delivering peace of mind to customers around the world with cross-border financial needs. Our four strategic focus areas are designed to help us deliver against this audacious vision with customer-centricity at the heart of our strategy. We believe our total addressable market is approximately $1.8 trillion, which represents the total consumer cross-border payments market. We currently have 2% of this total market with nearly $40 billion of send volume in 2023. According to the UN, this market includes approximately 1 billion people around the globe who send or receive cross-border payments, including immigrants, their families, and others with cross-border financial needs. We remain focused on investing where we have clear advantages as a digital-first cross-border financial services company. In addition, we believe investments in our technology platform will allow us to efficiently serve more of this market over time. We are confident our strategy will allow us to drive robust growth within this very large market opportunity for many years to come. First, we aim to delight our customers with a fast, reliable, and seamless cross-border payment experience, which results in providing our millions of customers with a delightful experience. This is a key driver of improving retention, engagement, and maintaining strong unit economics. Delivering a delightful cross-border payment experience in a trusted and reliable way to a highly diverse and global customer base is incredibly complex. Our technology investments and increasing scale have resulted in significant progress across various aspects of improving the customer experience, which, as a result, has increased customer engagement on our mobile app and website and enabled market share gains. In the fourth quarter, quarterly active customers increased 41% year-over-year to 5.9 million. The significant year-over-year increase in quarterly active users can be attributed to multiple factors, increased activity due to the holiday season from a growing base of active customers who were acquired in prior periods, as well as the acquisition of a record number of new customers during this period. Customer behavior trends remain strong, and we see transaction intensity, which we define as transactions per quarterly active customer, continued to increase as the year-over-year mix of digital receive transactions increased by more than 500 basis points in the fourth quarter. As we continue to deliver value for customers, we believe we can serve these digital receive customers in a way that maximizes retention and engagement while also reducing unit costs across our pay-in and disbursement networks. In the fourth quarter, we also acquired a record number of new customers across all our send geographies, including the U.S., Canada, and the rest of the world. We talked last quarter about the complexity inherent in the cross-border payments experience and how our value proposition of providing a fast, reliable, and seamless customer experience is a key differentiator. Our investments in reducing complexity and eliminating all unnecessary friction in various elements of the customer remittance experience enable us to provide value to our customers, which, in turn, results in improved retention, increased transaction intensity, lower customer support costs, and strong word-of-mouth referrals. In the fourth quarter, we were able to disperse more than 90% of transactions in less than 1 hour, even as we onboarded a record number of new customers where the risks of delays are higher. Our direct integrations also allow us to disperse funds rapidly, 24 hours a day, seven days a week. This outcome is critically important to our customers who are often sending money for immediate needs, so a reliable and fast service is of paramount importance. Now, let's turn to how our highly localized and targeted marketing strategy enables us to acquire new customers at very strong unit economics. We are focused on customer lifetime value, which again we define as revenue less transaction expense over a period of five years.

Hemanth Munipalli, Chief Financial Officer

Thank you, Matt. I'm pleased with our strong results in the fourth quarter as results came in ahead of our expectations consistent with our strong execution throughout 2023. I will start with a review of our fourth-quarter financial highlights and then provide additional details on our 2024 outlook. 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, acquisition, integration, restructuring, and related costs, and foreign exchange gain or loss. Reconciliations to GAAP results are included in the earnings release and the appendix to our earnings presentation. With that, let's turn to our fourth-quarter results beginning with our high-level financial performance. Quarterly active customers grew by 41% year-over-year to 5.9 million. Send volume grew 38% year-over-year to approximately $11.1 billion, all resulting in revenue growth of 39% year-over-year to $265 million in Q4. Our GAAP net loss was $35 million in the quarter and included $36 million of stock compensation expense. We're pleased with both the year-over-year and sequential growth in quarterly active customers, which benefited from both in-period and prior marketing investments and additional customer activity due to strong seasonal demand. The record number of new customers we acquired in the quarter will drive growth in 2024 and beyond. Customer behavior in the fourth quarter remained very strong as we continue to deliver a fast, reliable and seamless experience and our customers remain resilient in supporting their family and friends back home. We also began to see the benefit from our recent agreements with large payment processors flow through in the fourth quarter.

Operator, Operator

Thank you. At this time, we'll conduct the question-and-answer session. Our first question comes from Tien-Tsin Huang with JP Morgan. Your line is open.

Tien-Tsin Huang, Analyst

Hey, good afternoon. Great results here. I did want to hone in on the comment that you're planning to add more users in '24 than you did in '23. I'm curious if you can be a little bit more specific on that. I mean, it looks like you're adding closer to 500,000 per quarter trend line at this stage. If you look at the fourth quarter, is that a good starting point? I'm just curious if there's any thoughts on seasonality or maybe different types of customers that might come on at different points in time. Any additional color would be great. Thanks.

Matt Oppenheimer, Co-Founder and CEO

Yeah. Thanks, Tien-Tsin for the question. I'm really excited about the opportunities we have in 2024. In terms of customer growth this year, you have to recognize that we've added record customers in 2023 as well, thanks to the resilience of the customers and our marketing machinery. And we look at '24, we think that sort of pattern will continue where based on our marketing investments, which we think are highly predictable and durable in terms of return profile, we would be expecting to add more new customers in '24 than we did in 2023.

Hemanth Munipalli, Chief Financial Officer

Thanks, Tien-Tsin, great questions. I would view the increase in digital disbursement as a positive in the sense that we have a great digital disbursement network that oftentimes carries a lower variable cost for us, which is helpful. And we're excited about leading the way when it comes to digital disbursement in several markets.

Operator, Operator

One moment for our next question. Our next question comes from Ramsey El-Assal with Barclays. Your line is open.

Allison Gelman, Analyst

Hi. This is Allison on for Ramsey. Thank you, guys, so much for taking our question. So just in the context of marketing spend, maybe could you just provide some color on the latest regarding your pricing strategy? Are you doing any promo pricing at all? Are you still marketing strategically by corridors you've done in the past? Just are there any changes to the marketing strategy beyond what you've outlined so far and anything that you want a highlight on the holiday send environment in terms of marketing spend, what it looked like this quarter versus a year prior?

Matt Oppenheimer, Co-Founder and CEO

Yeah. Thanks, Allison. Great question. I think that our marketing strategy has been something that remains consistent, as it has over the last decade of building the business. We tend to be analytical, data-driven marketers, but we also have a structural benefit as our customer base grows and our product continues to deliver, in that there's word-of-mouth and continued trust within the communities that we serve that helps continue to grow our product. So I wouldn't say there are any large changes to our marketing strategies, continuing to execute it in a measured, data-driven way.

Hemanth Munipalli, Chief Financial Officer

Yeah. Just adding a little bit to what Matt said too. Q4 for us is a seasonally high quarter in terms of acquiring new customers. We want to make sure that we're leaning into marketing, which we're able to do. As we look forward, we do think it makes sense for us to continue to invest in marketing with the right sort of guardrails and thresholds on LTV and CAC, but we see it as a high-return sort of investment. We have factored in an increase in marketing expenditures and investments in 2024 versus 2023 on a broad basis. And that's reflected in our guidance. We've factored that in, and it obviously impacts our revenue growth for this year.

Andrew Schmidt, Analyst

Hey, Matt, Hemanth, Stephen. Thanks for taking my questions. Good quarter here. I want to dig in on just sort of your core corridors U.S. to India, U.S. to Mexico, U.S. to Philippines, obviously seeing good rest of world growth beyond that, I think that's an important part of the story. But in the corridor of where you started, maybe talk a little bit about the growth trends you're seeing, and then what can help sustain that growth as you reach higher levels of penetration? Thanks a lot, guys.

Matt Oppenheimer, Co-Founder and CEO

Thank you, Andrew. It's great to hear from you, and I appreciate your question. Regarding the overall situation, you mentioned the three receive markets: India, Philippines, and Mexico. The key takeaway is that there are still substantial growth opportunities, and we are continuing to experience growth in those three markets. Although we may have a slightly higher share in markets we've been established in for a longer time, we are still witnessing healthy growth in those areas and see plenty of opportunities for further expansion.

Hemanth Munipalli, Chief Financial Officer

When we look at the digital trend that we're seeing in the business, the increasing shift to digital is another tailwind as we look at even the core corridors we've been in...

Andrew Schmidt, Analyst

Got it. Very helpful. Thank you, Matt, Hemanth. And then, maybe to follow up just on sales and marketing. If you just discuss, maybe put a finer point on what's embedded in the outlook for 2024 for marketing spend and then maybe talk about the philosophy about flexing that up and flexing it down.

Hemanth Munipalli, Chief Financial Officer

So first off, I think just wanted to make sure that it's recognized that marketing is a lever that we can actually dial up and down. We think that it makes sense to do that within the return thresholds that we've set for ourselves. So we've factored in an increase in marketing expenditures in 2024 versus 2023 on a broad basis, and that's reflected in our guidance.

Matt Oppenheimer, Co-Founder and CEO

Yeah. The only thing I'd add there, Andrew, is I think that we have the ability to dial up or back the amount that we spend on the marketing front because we do view it as really targeted towards new customer acquisition, building that trust at the top of the funnel with a customer base that's historically hard to build trust with.

Will Nance, Analyst

Hey, guys. Appreciate you taking the question today. Matt, competition remains a big focus in the market, particularly in the digital remittance space. And I think investors' perception of the levels of churn in the digital remittance space are relatively high. And I think you guys have highlighted several times today the retention that you guys have in terms of revenue less transaction expense from prior cohorts. So maybe if you could just talk a little bit about the stickiness of your customer base, what you think keeps them coming back to Remitly over time in a world where there are lots of options.

Matt Oppenheimer, Co-Founder and CEO

Great question. The first thing we see is that trust is what keeps our customers coming back. It’s critical for customers who might be hesitant to provide sensitive information when sending their hard-earned money across borders. And having a fair and transparent price allows us to build that trust. Once you've built that trust and delivered a great product, as we continue to do, you see customer retention rates that reflect that. On average, after the first full year of acquiring new customers, they contribute around 95% of revenue less transaction expense for each subsequent year.

Hemanth Munipalli, Chief Financial Officer

We're seeing longer-term scale benefits from our marketing investments, which are driving record customer acquisition. As our unit economics remain strong, we've continued to increase our investment in marketing to capture even more customer lifetime value.

Darrin Peller, Analyst

Hey, guys. Matt, I heard you talking earlier a bit about going deeper with the customer base, and I think we saw a website suggesting a new app. I think it was Remitly Circle, appearing to offer just a different range of money management services alongside money transfer. Any more on timing or what that actual reach could be and maybe geographies or what the plans are around that would be great.

Matt Oppenheimer, Co-Founder and CEO

Thanks, Darrin. I'm glad you noticed Circle. I would view it as one of a few important areas that we think we can solve broader customer pain points around cross-border financial services. We'll talk more about them publicly as they get to the point of scale that makes sense.

Hemanth Munipalli, Chief Financial Officer

We've been focused on driving sustainable long-term returns. Our adjusted EBITDA is increasing from year-to-year, and we're planning to continue on that trajectory.

Matt Oppenheimer, Co-Founder and CEO

Great. Thank you all for the thoughtful questions. As a reminder, one of the unique aspects of this business is our incredible customers and their resilience. I'll end by highlighting another one of our customers, Alexandra, who uses our platform to send money from Spain to her family in Colombia. Alexandra commented, 'Amazing. It worked as described, it was reliable and quick. I am very happy I tried it.' We thank Alexandra for her loyalty to Remitly and her recognition of the reliability and speed of our service. Thank you for joining us. We are excited about the opportunities ahead and look forward to sharing more of our progress in 2024.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.