Good day, and thank you for standing by. Welcome to the Remitly Q2 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the Speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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 of Investor Relations. Please go ahead.

Thank you. Good afternoon and thank you for joining us for Remitly's Second 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 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 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 metrics, please see our earnings release and the appendix to our earnings presentation, which are available on the IR section of our website. And now I will turn the call over to Matt to begin.

Thank you, Stephen, and thank you all for joining us to discuss our exceptional second quarter results and our increased outlook for 2023. I'm grateful to our amazing customers and our global teams who are the drivers of our consistent performance quarter-after-quarter. Our second quarter results demonstrate the resilience of our loyal customers who consistently prioritize sending remittances to their families and friends to help support everyday living expenses, and we appreciate that they continue to choose Remitly to do so. Our consistent execution over many quarters has allowed us to make significant investments that we expect to drive growth this year and for many years to come. As you can see on Slide 4, our investments across our strategic priorities have delivered clear wins for our customers and shareholders, we now have the opportunity to deliver additional growth and long-term returns as we deploy capital to fund additional investments. Our new customer acquisition investments have delivered superior active customer growth for many quarters, with quarterly active customers nearly doubling since we went public in the third quarter of 2021. Our Unit Economics remain incredibly strong and are currently higher than the six times LTV to CAC that we shared at our IPO. Our focus on delivering our promises -- on our promises to customers is paying off as we see the benefits of word of mouth acquisition across regions. Our multiyear geographic expansion strategy has delivered new markets that have contributed substantially to our growth rates and scale benefits. Our investments in our disbursement network and our product have led to improvements in speed, reliability and overall user experience, leading to strong customer reviews, declining customer contact rates, higher retention and engagement, and a lower cost structure. Finally, we believe our remittance customers have unmet needs and combined with…

Thank you, Matt. I'm pleased with the exceptional financial performance we delivered in the second quarter. Our teams had strong execution in the quarter, and we benefited from continued strong active user growth, expanding transaction margin, and operating leverage. I will start with a review of second quarter financial highlights and then discuss our revised 2023 outlook. I'll 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, transaction and integration costs related to acquisitions, and foreign exchange gain or loss. Reconciliations to GAAP results are included in the earnings release. With that, let's turn to our second quarter results. Beginning on Slide 14 with our high level financial performance. We were pleased to deliver another quarter of high active customer and revenue growth and increased adjusted EBITDA profitability. Quarterly active customers grew by 47% year-over-year to 5 million. Send volume grew 38% year-over-year to approximately $9.6 billion, all resulting in revenue growth of 49% year-over-year to $234 million. Our GAAP net loss was $19 million in the quarter and included $35 million of stock compensation expense. The strong growth in revenue, combined with significantly lower transaction expense as a percentage of revenue and operating expense efficiency, led to an exceptionally strong adjusted EBITDA of $20 million in the quarter. Now let's turn to Slide 15 for some of the key factors that drove our performance. Let's begin with revenue, which was up 49% year-over-year in the second quarter on a reported basis, and 51% on a constant currency basis. Our strong revenue growth was primarily driven by the 47% increase in quarterly active customers, which includes a record number of new customers acquired in the quarter and high retention…

[Operator Instructions]. And our first question will come from Andrew Schmidt of Citi Global Markets. Your line is open.

Hey guys, thanks for taking my questions and congrats on the great results here.

Thanks, Andrew. Yes, good to see you.

So, I'd like to dig into just the commentary and the unit economics pretty constructive talking about above the 6X in terms of LTV to CAC you were talking about during the IPO, clearly benefit on the CAC side, benefit just on the platform side and also obviously pay-in and payout, as you mentioned. But as we think forward, just in terms of continuing to improve the unit economics, what are the biggest levers, in your opinion, or biggest opportunities and maybe this ties into your comments and investments, Matt, but we'd love to hear your perspective on continuing to drive that metric? Thanks a lot.

Yes, great question, Andrew. Thanks for taking that up. I think when we think about unit economics, I'll just kind of step back a little bit here, really focused on having strong unit economics. And these are investments that we've been making now for many years, where we've seen as we've continued to get scale, we're getting benefits in terms of transaction expense improvement. So our transaction margin has been going up and some of the drivers there, which we've talked about a little bit, which is our fraud losses have continued to come down as we continue to manage or improve the frictionalized experience for our customers. But we've also seen our pay-in and payout costs improve. And really a lot of that is the scale we've been getting. So when you think a little bit more longer term, the effect of having scale and the data that we're gathering around customers so we can get better and better in terms of customer experiences there also helps us get better economics with our partners, with the distribution side of the equation. And so that's a part that drives our LTV map. And the same thing applies in terms of our marketing efficiencies as well as we look. We've been much more global now compared to where we were a couple of years ago. And we've seen that we've been able to apply our marketing capabilities across the globe and being able to localize at scale and get word of mouth globally as well. And so word of mouth effects globally as well. So those are structural improvements that continue to give us efficiencies around CAC in the long-term. So what we want to do now at the juncture we're in is to take some of the capabilities we've built up and the improvements we've seen in LTV and CAC and reinvest some of that so we can continue to be on the path of long growth in terms of -- continue to be on the path of active user growth for years to come.

Got it. Very helpful. And then just as a follow-up, maybe I could drill down on the CAC piece. Clearly, it sounds like you're anticipating some marketing investments in the back half given the returns that you're seeing. But as the advertising environment normalizes, what's the right way to think about just your ability to continue to grow CAC? Can you continue to keep that flat or decrease that over time, given the internal initiatives? Just would love to hear just any comments on how to think about the CAC piece as the marketing environment normalizes? Thanks a lot guys.

Yes, when we think CAC, I think it's also we need to think about LTV at the same time. I think what we're saying here is that we do expect a degree of normalization in the advertising market. We haven't seen that in the last several quarters, so we've kind of benefited from that a little bit. But some of the core and structural improvements we've made in terms of our marketing efficiencies, we expect to sustain. And what we're really saying is that we want to take some of the learnings there and plow that back in more globally so we can focus on growth across the globe. And ultimately, we're solving for LTV to CAC ratio. So it's not just CAC efficiency. We think we'll continue to sustain that, but we also want to make sure that we're continuing to focus on the LTV side of it, and the more we can do in terms of providing value to our customers that'll create flywheel effects for us. So that's the other benefit that we're looking to achieve here.

Yes, and the only thing I'll add, Andrew strategically is because I love a good question on unit economics, and then I'll talk about the CAC element is I mean, it's foundational to the P&L growth and performance both in the top and bottom line that we talked about today. But we have a very, very, I think disciplined investment approach. And as we said today, we're pleased that our unit economics are stronger than what they were at the IPO above that 6X LTV to CAC ratio that we shared. And I think on the LTV side, the foundational input into that is a resilient customer base, a product that we offer that is nondiscretionary through various economic cycles, and then a differentiated product where customers come back and use us again and again. And then you add on top of that, given that LTV is calculated with cumulative transaction profit leverage that we're getting on the variable cost side with scale, and we're really pleased with the results and continued kind of predictability, on the LTV side and then on the CAC side, because the returns are so favorable whether you measure it from LTV to CAC standpoint, an IRR standpoint, we're in this business to continue to really transform and change this industry. We're 2% of the $1.6 trillion that's sent every year in remittances, and we're going to continue to invest in growth, but do it in a disciplined and measured manner as we've done in the past and expect to be able to continue to do. But the punchline there is a lot of that's under our control in terms of being able to invest more, grow faster, invest less, drive more to the bottom line. And we think the right thing for our shareholders and customers is to take that continued, disciplined approach to growth on both top and bottom line.

Very clear. Thank you, Matt. Thank you, Hemanth. Congrats again, guys.

Thanks, Andrew.

One moment for our next question. And our next question will come from Tien-Tsin Huang of JPMorgan. Your line is open.

Hey, great. Good afternoon. Great, incredible results on the growth side. I want to ask I know I've asked it before, Matt. Just with Western Union making some of these promotional price changes and things like that, have you seen any change in sort of competitiveness up there? Obviously, it's not showing up in your results with 49% very steady growth quarter-on-quarter. But are you seeing anything on the ground month-to-month, that kind of thing, with respect to price? Thanks.

Yes, thanks Tien-Tsin. Great to hear from you. And the headline answer there is we haven't seen any short-term price changes or fluctuations that have had an impact on our business. Some of the legacy players I know have. I think that what I go back to is why customers use our product, and it's around trust, it's around peace of mind, and having a transparent and fair price is part of that. But it's a lot more than that as well. It's making sure the money gets there reliably and quickly. It's making sure that customers can both that we can collect funds in the way that customers want to send funds to us and disperse funds in a wide range that we mentioned during the earnings call and in the deck that we shared. And we're getting better at that every day in terms of just the differentiated products. So no short term price movements that have impacted us. As you said, you kind of see that in our results for the quarter as well and continue to invest in our differentiated product to make sure that that remains the same in the future.

Great. And I value your comments a lot, Matt. That's why I want to ask it. Even though the results speak for themselves, just Slide 9 quickly. The rest of world up 120%, I mean Canada is obviously doing great as well but I'm curious any standouts to underline here amongst the rest of the world up 120%? Thanks. That's all I have.

Yes, I love that question. The reason I love that question is because I think that the way I answer it can give you insights into how we think about geographic expansion. A lot of that geographic expansion are countries that we launched years ago that are building momentum. We're adding new cohorts of customers at very healthy rates. Those new cohorts of customers come back again and again and you start to layer on these new cohorts of customers and that starts to build a large business, as we talked about today on the international front where you're not seeing contributions yet. But why we launched them now and you'll see contributions in the quarters and years to come are markets like the UAE that we just recently launched but haven't had time to mature and scale yet. But the reason we launched them, just like the reason that we launched various European countries, Australia, countries like that years ago is because those are seeds we're planting to be able to pay dividends and continued growth in the quarters and years to come.

Thank you guys.

And one moment for our next question. And our next question will come from Robert Napoli of William Blair. Your line is open.

Thank you and good afternoon, Matt and Hemanth. Really impressive performance. Congratulations on that. So I guess just on, I mean with the growth that you have and the improvement in LTV to CAC, relatively impressive is that your take rate has actually gone up year-over-year. Any thoughts on, as you said, you only have 2% of the market and does pricing even at this rate even have an effect? With your improvement in unit economics, you could get more aggressive on pricing, but does that really even enter into the equation today?

Yes. Thanks Bob. And good to hear from you. I think that the way that we think about, again, the business is oftentimes on muted economic basis and so what we're optimizing for is cumulative profit per customer. And so we're pricing and building the product in a way that establishes a really valuable long-term relationship with our customers. So no immediate material changes on the pricing front, especially looking at a short-term window. We're looking at longer-term and saying what's going to be best for our customers and business in that window.

Thank you. And then the investment -- very clear on the investment you're making in the back half of the year. Makes sense. How should we think about that as we go into next year? Obviously, you're driving some much higher profitability than what was expected, you are investing that? But as we think about next year, do those types of investments recur or what areas would you look to increase that investment?

Yes, Robert, this is Hemanth. I think I would just look at next year and beyond. There is -- some of these investments have different payback period curves to them. So obviously their marketing investments are one that we get a lot of shorter-term payback on, that we understand the returns on that really well, and some of that will flow into next year. And we have a lot of visibility in terms of timing around that. Given a detailed understanding of LTV and CAC economics. Some of the other investments will -- geographic expansion investments will generally take a little bit longer for the returns to be seen. We're already seeing the benefits of investments we made a couple of years ago as we've seen the rest of the world. Now growth rates to be over 100% on a year-over-year basis now for the last two, three quarters. And then platform investments generally will take a little bit longer as well. And I think when we think about investments, we want to make sure there is a balanced portfolio of these investments. We continue to maintain a high return threshold on them, but they'll have different payback associated with it, and some of them will be 2024, some will be 2025 and beyond. So that's how I would think about the horizon of getting returns on those investments.

Thank you. Great results. Good to see.

One moment for our next question. And our next question will come from Ramsey El-Assal of Barclays. Your line is open.

Hi, there. Thanks so much for taking my question. I wanted to ask you about the recent World Bank report on remittance as it was released, and I'm just curious whether that projection factors into your own outlook, whether it correlates historically to your performance at all, whether it's a relevant sort of indicator. The projections were a little bit softer than I thought they would be, but it may not have a correlation. And I do know they often revise those up at the end of the year regardless. But just curious about your view on that?

Yes, thanks. Ramsey. Yes, good question. And we certainly read those forecasts as well. I think that they haven't been very correlated to our performance, I think for two reasons. One, because of the fact that the shift to digital and digital money transmitters, I think is far outpaces kind of overall remittance growth, remittance industry growth. And obviously that's a big part of the structural advantage of what we bring. And then the second is, as you said, they're estimates, so they are further revised. Like if I go back to when COVID hit, they had an estimate, and then they came back and revised that there are assumptions that go into those that I appreciate and respect that they do, because it's good to have estimate out there, but it is just an estimate. But for us, yes, historically, the digital growth, I think, is the bigger part of the story. And we're really pleased to be leading as a digital first player at scale and helping a lot of customers send money back in a fundamentally easier and more affordable way.

Great. So the secular tailwind for digital overpowers whatever sort of seeing -- whatever the World Bank is necessarily seeing from the entire market which makes a kind of sense. A follow-up from me is just, I wonder if you could give us your updated thoughts on FX volatility, both in general in terms of update us on the degree to which FX volatility might have an impact on your flows. And then just very tactically in the quarter there have been some currencies moving around. Have you seen any impact manifest itself in the near-term?

Yes, it's a good question. I think we obviously monitor FX quite a bit, particularly in terms of customer behavior impacts. And what we've seen is that generally speaking, on higher dollars. And there's a little bit more sensitivity to FX rates, and we see that in certain corridors at certain times. But as we've sort of built out an increasingly diverse portfolio of our corridors, and particularly with the international focus, the effects that we're seeing there on a global basis are quite muted. We serve a pretty large segment of customers, varying from some of the smaller dollar cent customers who have a required need to send money to their friends and family on a pretty repeatable basis, to those who send it less occasionally and with higher dollars. So we see that given just the breadth of our customer segments and the geographic diversification, the impact on FX volatility is largely muted for our business at this point.

Got it. Thanks so much.

One moment for our next question. And our next question comes from Will Nance of Goldman Sachs. Your line is open.

Hey guys, appreciate you taking the question. I know there's been a lot of questions asked around the incremental investment, but I figured I would pile on. Is there any way you can kind of dimensionalize what you're thinking about in terms of magnitude for the investments in the back half of the year that you called out?

Yes, Will, I think I mean our guidance really reflects that. I mean we certainly have factored in the trends we've been seeing in the business, the strength in the transaction margin, and the discipline we're putting in terms of our headcount and non-headcount investments. And so if you look at our guidance, you'll see that sort of factors and a degree of investments. Again, these are going to be very targeted around our strategic priority areas that Matt talked about. So we're going to be pretty disciplined in these investments, but we think they will generate really long-term returns for us both 2024 and beyond.

Got it. Okay. And maybe just a question on transaction margins. I know there's been a lot of improvement in sort of the underlying fraud cost in the transaction expense. And I know you helped kind of dimensionalize some of the efficiency gains and some of the moving pieces there, but maybe can you just talk about how sustainable the level of fraud costs are? How likely is it, do you think that we might see a rebound on that in the near-term? Just trying to think about things that could kind of go in the other direction after so many things have gone in your favor over the last year or so?

Yes, again, there's a couple of pieces that make up the transaction expense or the pay in and pay out costs, as well as fraud as you point out. And particularly when it comes to fraud, we certainly have seen some sustained improvements just given our -- the sophistication in our algorithms around fraud, and we expect to sustain that. But we continue to be watchful. I mean, fraud is a space that it's a key capability for us, but at the same time, it's also a space where there are certainly bad actors out there. So we continue to be watchful. And there could be some variability in terms of how we see fraud losses flow through in any given quarter. But the structural improvements we're making in terms of managing fraud losses, while at the same time making sure our customer experience is frictionless are sustainable. And in the long-term, with increasing scale and data, we should continue to see improvements in that space. The other one, obviously, is in the pay in and payout side, which particularly can benefit quite significantly from scale. We talked about the importance of getting scale the last few quarters and we're starting to see some of that flow through now in the P&L. And while we do think there's potential for that to continue to improve in the long-term.

Got it. Understood. Appreciate you taking the questions. Very nice results today.

One moment for our next question. And our next question will come from Zachary Gunn of FT Partners. Your line is open.

Hey there, guys. Thanks for taking my question. I just wanted to ask really quick, you've added something like 1,600 corridors year-over-year. So I was just wondering if you could help us maybe unpack how much of that customer growth is coming from those newly added corridors versus maybe the ones that have been on the platform for a while? Thanks.

Yes, I can take that. And I think that -- yes, we're really proud of the fact that we're now in 4,800 corridors. And we're getting faster and better at adding new corridors in terms of where the growth is coming from. It's a portfolio, including corridors we've been in for a very long time, corridors we launched five or 10 years ago. We've been around for 12 years now, and the more recent corridors that we launched probably aren't contributing materially yet. But again, as I talked about the UAE and some of the other markets earlier, the reason we're launching those corridors is not to deliver returns necessarily in the quarter, but to plant those seeds, just like we planted seeds years ago for growth in the quarters and years to come. So some of the newer corridors, probably less material from a P&L standpoint, but excited about what they'll be in the future.

Great. Thanks.

And one moment for our next question. Our next question will come from Daniel Krebs of Wolfe Research. Your line is open.

Hi, this is Daniel on for Darren. Thanks for taking the question. I wanted to ask about the EBITDA cadence from here. Realized shorter-term continuing to invest for growth, but if I remember back to the IPO process, looking for 20% EBITDA margins, longer-term. How should investors think about the bridge to get there over the coming years? Thanks.

Yes, good question, Daniel. I think, yes, we did reference that at the time of the IPO, but I think to just contextualize this a little bit. I think we are -- we believe we're still in the early stages of gaining share in a very large market. We're about 2% of a 1.6 trillion remittance market. So at this point, what we're really focused on is making sure our unit economics are strong as we add new customers and corridors to our portfolio and continue to focus on some of the fundamentals of the business. Improving transaction margin and having high discipline around investments in all areas of the business, and that will ultimately result, we think in a pretty healthy EBITDA margin in the long-term. But at this time, just given the evolving mix of our business as we particularly grow much more globally. We're yet to put out a specific target around EBITDA. We're also focused on not just EBITDA, but also our operating income. And we've been making progress in terms of reducing our net income losses as well. So early days yet, just given that we're relatively small in a large market and our mix is continuing to evolve.

Understood. Thanks guys.

I would now like to turn the conference back to Matt Oppenheimer, CEO, for closing remarks.

Thanks so much and thank you everyone for the thoughtful questions. As we always do at Remitly, I'd like to end the call by highlighting another one of our amazing customers. That's why we're here, that's why we do what we do. That's why we had the amazing performance that we went through today. And this customer's name is Anna. Anna sends money from the U.S. to her family in Uganda and Anna joined Remitly last year and was one of the many customers who came to us via word of mouth, via recommendation from one of her friends. And Anna shared I was recommended to this app by my friend who loves it. It is fast and easy to use. So we want to thank Anna for her loyalty to Remitly and appreciate her friend as well, who recommended Remitly to her. Thanks everybody, for joining us. We appreciate your support. We are excited about the opportunities ahead, and we look forward to sharing our progress as we continue to execute on our vision, which is to transform the lives of immigrants and their families by providing the most trusted financial services on the planet. Thanks everybody.

This concludes today's conference call. Thank you for participating. You may now disconnect.