Good day, and thank you for standing by. Welcome to the Remitly's Q3 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.

Thank you. Good afternoon and thank you for joining us for Remitly's third 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 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 for our third quarter earnings call. We are very pleased with the strong results we have delivered this year for our customers and shareholders. As you can see on Slide 4, our strategic focus remains the same with a portfolio of high return investments to capture an even larger share of a very large market. We have been able to consistently deliver increasing operating leverage, while simultaneously investing in our four key growth priorities, new customer acquisition, geographic expansion, frictionless remittances, and complementary products. These investments have allowed us to deliver increasing scale, geographic revenue diversification, a more reliable and frictionless product and continued automation and cost savings. In addition, these four priorities have differentiated return timing, which will allow us to deliver profitable long-term growth as we build the most trusted financial services brand for immigrants and their families. While we have doubled our market share over the past two years, we are still only slightly more than 2% of the more than $1.6 trillion global remittance market. Our prior investments have resulted in increasing market share in the U.S. and Canada. And yet, we are by no means near our market share potential, and we expect to continue to drive significant growth for many years to come in the U.S. and Canada. We grew revenue over 30% in the U.S. and over 40% in Canada during the third quarter and acquired a record number of new customers in each of these markets, which bodes well for future growth. Outside the U.S. and Canada we have an even larger opportunity to drive market share as well as revenue growth of over 90% in the third quarter, and an increasing share of new customers coming from outside the U.S. and…

Thank you, Matt. I'm pleased with our strong results in the third quarter and our consistent execution this year as we focus on delivering strong revenue growth and improving profitability while at the same time taking advantage of opportunities to acquire even more customers that robust unit economics. And we'll start with a review of our third quarter financial highlights and then provide additional details on our updated 2023 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 the common stock in connection with our Pledge 1% commitment, acquisition and integration and restructuring costs and foreign exchange gain or loss. Reconciliations to GAAP results are included in the earnings release. With that, let's turn to our third quarter results beginning on Slide 11 with our high level financial performance. We delivered another quarter of greater than 40% active customer revenue growth and increased year-over-year adjusted EBITDA profitability. Quarterly active customers grew by 42% year over year to 5.4 million. Sales volume grew 36% year-over-year to approximately $10.2 billion, all resulting in revenue growth of 43% year-over year to do $42 million. Our GAAP net loss was 36 million in the quarter and included 37 million of stock compensation expense $4.6 million related to a donation of common stock for our pledge, 1% commitment and $2.9 million of acquisition, integration and restructuring costs. Acquisition and integration restructuring costs include $1.5 million related to the integration of rewire and $1.4 million of restructuring, which includes costs related to simplifying and scaling certain processes and teams, such as customer support to more efficiently serve our customers. The strong growth in revenue combined with significantly lower transaction expense as a percentage of revenue led to adjusted EBITDA of $10.5…

Thank you. [Operator Instructions] Our first question comes from Andrew Schmidt with Citi. You may proceed.

Hey, Matt, Hemanth. Thanks for taking my questions here and good to see the revenue momentum. I want to start off on the marketing side of things. And I think it makes sense investing more, given that the LTV has stepped up and you can maintain attractive unit economics, but maybe a couple of questions on that front. First, maybe you could just talk about CAC trends you're seeing in performance marketing. And then second, as you shift to more top of funnel marketing and things like that, can you just talk about your confidence in the efficiency of those initiatives and ability to scale those over time? Those areas would be helpful. Thanks a lot, guys.

Thanks, Andrew. Good to see and appreciate the question. On the marketing front, we are excited about the integrated brand campaigns. And I'd say that it's a continuation and an expansion of a playbook that we've already started to roll out and have proven to be successful. And an example of that would be like an integrated marketing campaign that we did in the Miami area, where we're seeing the dividends from. That's because it drives long-term awareness with strategically important audiences. And what we see is it actually makes our efficient performance marketing even more efficient. And so. I feel good about our ability to measure those results and feel good about the ability to expand some campaigns that we've already been doing, two additional geographies. And the other benefit of that, given our scale and size, is it continues that flywheel effect of referrals and word of mouth to where we're excited about the investments that we're making in Q4, mainly because then as we go into 2024, it gives us confidence in our ability to continue to deliver high growth rates that we have delivered in the past. And given the payback period and LTV-to-CAC ratios, we feel confident about delivering as we head into 2024.

Got it. Thanks, Matt. You actually preempted my second question, which is about 2024 visibility. Maybe you could dig a little bit more into that. I mean, I think you guys have pretty good visibility given the customers you've added thus far. Maybe talk a little bit about just the variables as you kind of think about just the sustaining high rates of growth into 2024. Anything on that front would be helpful. Thanks a lot, guys.

Yeah. I'll start with the kind of predictability and confidence, and then I'll turn it over to Hemanth to talk a little bit more about how those squares into our 2024 thinking from a financial standpoint. But I think there we're in a unique spot, mainly because of the resilience of our business in terms of -- you think about our customers, the non-discretionary nature of the spend, the shift that is happening to digital. And because of that, there's a lot of predictability and a lot of resilience in our business. And I think that, that is something that as we head into 2024, we're making the right investments in Q4 to give us confidence that we can continue to accomplish our audacious vision. But that's founded in the resilience and the tenacity and the customer base that we serve.

Yeah, I think that's great, Matt. I think Matt covered a bunch of that stuff. I think when I think about it from overall growth rates and so on, I think we would expect to see something pretty consistent with what we've been able to execute in this quarter. When we dig a little bit deeper and look at customer behavior, whether it's the new cohorts or the existing cohorts, there's a lot of consistency in that behavior that continues to give us the confidence in terms of what we're seeing, in terms of what it could translate into in terms of growth rates for next year. So that's, I think, key and we have a lot of visibility on it. So we're pretty confident that what we're seeing now in terms of cohort behavior will be consistent. The other thing I want to add here is that Q4 is a seasonally high quarter, which is another reason why it makes a lot of sense for us to continue to invest in marketing. While still within our guardrails, we do think that it makes sense to expand our CAC while remaining well within our LTV CAC guardrails and make sure that we can benefit from the seasonal high quarter and see the benefits of that in 2024.

Make sense. Thank you both very much.

Thank you. One moment for questions. Our next question comes from Ramsey El-Assal with Barclays. You may proceed.

Hey, guys. This is Allison on for Ramsey. Thank you for taking our question. So just wondering if you could dive a bit deeper into the opportunity for rest of world versus U.S. and Canada, really helpful disclosures on the start of the call. It seems like you've been making some in some really nice growth, but curious where you see the opportunity as those are promising? And what you think is really a sustainable level of growth for that rest of world segment going forward? Thanks so much.

Yeah, thanks, Allison. Good to see and thanks for filling in for Ramsey. Yeah, we're excited, as we mentioned, 90% rest of world growth year-on-year for the quarter. I think it's indicative of just how large the opportunity is across the globe, combined with our very intentional corridor expansion playbook. And so what's great is that we're getting strong dividends from investments we made quarters or years ago in terms of markets and geographies that we launched in. And we really haven't even started to see the returns of some of the newer markets that we launched like UAE, but we would expect those to start showing returns in the quarters and years to come, just like the countries I mentioned that we launched a couple of years ago. And it's also great that we have not yet launched every country around the globe. So there's room for continued growth. And what we like about the portfolio approach is that the rest of world growth, as I mentioned, is growing 90% year-on-year with a lot of runway to continue to grow. But it's important to keep in mind and why I mentioned it in the call that our North America businesses, U.S., and Canada, are also growing at a very nice and healthy rate. And there's big opportunities to continue to grow there, given that we're only 2% of the $1.6 trillion every year.

Great. And you mentioned UAE. Just any progress out of there, anything about how the Rewire acquisition is integrating into Remitly? And should we expect any other sort of similar types of Rewire acquisitions as a possibility going forward just in terms of that geographic corridor extension?

Yeah. A few parts to your question. On the Rewire acquisition, very pleased with that acquisition and the assets that we acquired, the amazing team, and I think it's going to help us continue to both add complementary new products as well as expand in regions that they are currently operating. Historically, we found that organic growth and internal builds have been the best opportunities, but we continuously review all opportunities as they become available. We have a high bar for any M&A transactions, and we'll remain disciplined in deploying capital on that front. So that answers that part of the question, Allison. And then lastly, with the UAE, it's a very large market, excited about the product that we have live there and launched. And as I mentioned, just the nature of how our business works, you acquire cohorts of customers, those cohorts increase over time and then given the repeat nature of our business that starts to build a sizable business over time. And so I'd expect that to happen in the UAE as it happened in other corridors, but it takes a few quarters for that to actually ramp up, and we're on track for that.

Great. Thanks so much, guys.

Thank you. One moment for questions. Our next question comes from Robert Napoli with William Blair. You may proceed.

Thank you, good afternoon, Matt and thank you for taking the question. So now, when you talk about expanding the CAC in the fourth quarter, Hemanth, how are you thinking about that? How do you manage that? In what way are you looking to do that and maintaining your ROIs?

Yeah, thanks Robert for the question. So we -- I think as we've said before, we have a lot of focus on our unit economics and really focused on LTV and CAC -- and as we said in the last quarter as well that the ratios we look at that are pretty attractive and strong. When we look at Q4, in particular, and CAC would sequentially we expect to increase. Some of that is going to be on our performance marketing side related directly to it. And some of it is going to relate to our upper funnel and brand investments, which will take a little bit of a longer-term payback on it, but we have high conviction that these brand investments, which is really backing up sort of promise that we have to deliver for our customers, and the trust we're building with them will continue to help us drive leverage in marketing in the medium to long term. So it's going to be a mix of both upper funnel and brand investments, but also a lot of sort of growth marketing, again, well within what we want to keep as our broader guardrails, but still sequentially, we would expect CAC to be going up.

Yeah, the only thing I'd add there, Bob, is I think that as we think about the marketing investments that we're making in Q4 and in general, we have a lot of control over the amount that we choose to grow versus the amount that we choose to drive to the bottom line. And when you look at even with a slightly expanded CAC, when you look at the LTV to CAC ratio, if you look at the payback, we don't share metrics like IRR or NPV. But even with the increased cost of capital in the market, these returns are high, and they're fast. And so we're making them very intentionally within our own control because we're excited about what that will bring in 2024 and beyond.

Great. And then I guess, just a follow-up on during the quarter, you announced a partnership with Mastercard Send, and you've talked a lot about direct integrations, maybe two separate questions related in a way. What does the Mastercard Send relationship bring to you? And how is the progress been on direct integrations and what effect has that had on your business?

Yeah, thanks, Bob. So on the Mastercard Send and Visa Direct partnership, it enables us to send funds to Visa and MasterCard linked debit card. So deposits into the bank account of the customer's recipient that has a bank account linked to those debit cards. And it also gives us some other just scale and cost improvements both of those partnerships. So really grateful for the partnerships with both Mastercard and Visa. And when you think about direct integrations, which, as I mentioned, is up 100% compared to two years ago, what that does is it creates a more reliable product at a lower unit cost. And you see that in our expanding margins, you see that in the 230-basis point improvement in our customer support costs. And so it's a win-win-win from that standpoint. And that falls into the third bucket of investments that we talked about making in terms of a frictionless remittance experience, and we're really proud of the progress there. But as I mentioned in the overview, we're just getting started in our ability to continue to drive down friction and to reduce overall costs for our customers.

Thank you.

Thank you. One moment for questions. Our next question comes from Will Nance with Goldman Sachs. You may proceed.

Hey, guys. Good evening. Appreciate taking the question. I wanted to also pile on the marketing costs. Maybe a lot of the comments have been focused on the direct investments you guys are making in both Q3 and Q4. I mean I guess just assuming these are successful, you guys sound pretty confident that these will bear fruit, should we be thinking about these investments that you're making, all-equals being kind of reoccurring costs in the future? And it looks like the marketing costs stepped up roughly $8 million non-GAAP sequentially. Is that roughly in line with the incremental investments you've made? It sounds like maybe that's a partial quarter, a little bit higher in the fourth quarter. But is that sort of the right range as we think about kind of incrementally stepping up, things like brand marketing on a go-forward basis in addition to the kind of normal performance-based market that we have seen in the past? Thanks.

Yeah. Let me try to give you an answer, Will, thanks for the question. In terms of sort of the run rate question, and then turn it back to Matt to maybe give a broader response to your question there. I mean, first off, I think I don't think run rate necessarily is the way to think about this -- about investments we're making on the brand marketing side. First off, the way we look at brand marketing and upper funnel investments, they really tend to spread across the entire customer base versus just the new customer acquisitions, which is a lot of what our performance marketing is directed towards. So we do expect to get leverage on it as we get bigger and bigger in terms of our base of customers, which includes both. Obviously, the active customers include both the new customers as well as cohorts of existing customers. So we do think that overall, we will have some deleverage in terms of CAC in Q4. But as we look forward to 2024, maybe talk about guidance next year, we'll be able to share more in terms of how these efficiencies we've been doing over the last several years in terms of marketing, how that pans out. But we have high conviction that these investments would deliver returns in 2021 and beyond. Anything to go add, Matt?

Yeah. The only thing I'd add Will, is I think that with marketing investments specifically, I think you know that we have a lot of discipline around our unit economics. And the way we look at it is within the LTV to CAC ratios and within the payback periods that we've defined, we're willing to spend to get the right amount of customers to be able to drive both 2024 and long-term growth. And I think that's a continuation even as we talk about upper funnel or brand investments, we've been doing that. We're doing a bit more in Q4 for the reasons we've talked about. But you can see very clearly the return on that in a short time frame. And we're excited about that because we've got a bold and audacious vision that we're working to accomplish. And Q4 is a time for us to set up 2024 for success. And so we're excited about the investments we're making in order to do that.

That makes sense. I mean just to put a finer point on it. You said you wouldn't characterize it as run rate. So does that mean we should expect these costs to come down, all else equal then? Or are you saying like we don't make incremental investments on top of this and we kind of scale over these costs over time as the customer base gets bigger?

Yeah. I think -- well, I think the way I mean, a lot of this is a question of timelines. And what we're talking about here as we look forward into sort of 2024 and the mid, long term, we do expect to continue to be able to drive leverage in our marketing spend. We think the word-of-mouth effect that Matt talked about as well and these brand investments will ultimately help us also drive down performance marketing costs and continue to get leverage on it. It's a question of time horizons. But we look forward to 2024. In particular, we've got a high conviction that these investments we're making in the fourth quarter of this year will deliver results for us next year.

Understood, okay. I appreciate taking the questions.

Thank you. One moment for questions. Our next question comes from Alex Markgraff with KeyBanc. You may proceed.

Hi, thanks for taking my questions. Maybe just not to overplay it, but just one more on the kind of marketing piece of the side of things and unit economics. You all talked a lot about guardrails, but I think it's kind of helpful context. I'm just curious, as you sit today and making some of these investments, kind of, if you think about the higher end of those guardrails, just any sort of context to help us think about where you sit today versus what maybe you're comfortable with at the top end or the far side of that guardrail.

Yeah. Maybe let me try to give you some color on context, Alex. Thanks for the question. I think we've said -- as we've said before and including last quarter that an LTV CAC ratio of 6% is a pretty attractive unit economics place to be in. And we think we've got some room here to be able to make further investments, particularly as we've been talking about in terms of marketing and still have really robust and attractive unit economics. When we look at this internally, we also look at this from an incremental payback and cash perspective as well as look at sort of the NPV of these investments. And we feel pretty comfortable by looking at and triangulating it on multiple places that the returns we expect to generate from this in the horizon we're looking at makes a lot of sense.

And I would say, Alex, the only thing I'd add on that front is I feel very good about both the average and incremental CAC on the marketing investments that we're making right now. And I think what you see in the guide is we raised adjusted EBITDA guidance -- had we decided not to invest as much in some of the marketing investments in Q4, which we can always choose to dial up or dial down, then what you would see is dialing up or down our confidence when we eventually guide to 2024 growth. But because of the fact that we are able to raise guidance be, we're in control of how much we're spending and growing and see that the marginal and average payback are very good right now. I think that we're threading that needle to invest the right amount for the long term in Q4. And by long term, I mean we'll get that -- the return from those investments in 2024. And we're being very intentional about dialing those levers up and down to kind of balance growth and profitability, not only in Q4 but also in 2024 as we think about next year.

That's great. Thank you. So that I think probably makes the next question a bit easier. But just in terms of the implied EBITDA margin in the fourth quarter, I mean, I think it's pretty clear, a lot of that is kind of marketing investment related. Just curious, Hemanth, anything on the transaction expense line to consider for the fourth quarter?

Yeah. Look, I think broadly, I think the transaction expense line, we've been really pleased with the progress we've made both in sort of driving down reducing pay in and payout costs, which are basically related to economics with our partners, both on the pay in side and the disbursement side and as well as I think we've talked about the advances in terms of fraud management while keeping the friction with our customers low. And so we would expect that the trajectory on that will be consistent as we look forward to this quarter or subsequent quarters into next year. I think what's important to point out is Q4 is seasonally high. And I think as we look at that with a record number of customers, we generally add in a quarter like this, there could be kits where we might see some increased fraud levels, which we plan for, but we are actively monitoring. But that's the only, I would say, call out, particularly with regard to Q4, but the trends are very favorable in terms of driving continued margin improvement.

Great, thank you, both.

Thank you. [Operator Instructions] One moment for questions. Our next question comes from David Scharf with JMP Securities. You may proceed.

Yeah, good afternoon. Thanks for squeezing me in here. I apologize if these have been asked and have been jumping bouncing between three or four different calls. I am already assuming there have been about six questions about the fourth quarter marketing plan, so I'll pass on that. But Matt, I'm not sure if you covered this already, but is there any incremental commentary just on not just the competitive environment, but in particular where are the newer customers lately have been coming from? And specifically, as we kind of referenced the stepped-up investment in digital from Western Union, for example, we have less visibility in the MoneyGram now into private. But is the profile of your new ads changing at all? Meaning, are they first-time digital remitters and you have a chance to kind of maintain the loyalty. Do you get a sense that there are folks that have used Western Union or other providers and the stickiness is still in question?

Yeah. Thanks, David. Great questions, and good to see you. I think that the headline on the competitive landscape is there have been no material changes in the last quarter. I think that the structural changes in the industry, meaning shift to digital. And I'd say that is coming from a wide range of customers, whether that's a scaled legacy player, whether that's subscale legacy players who have difficulty building out a viable, trusted, reliable digital solution or whether that's other digital players that are maybe subscale and not able to provide the reliable service we do. We're seeing a shift from a wide range of competitors when you think about our new customer acquisition. And we think that we're uniquely positioned given our scale, given our operational excellence, and given our digital-first approach, and you see that in our overall quarterly active user growth and the resilience of our existing customers coming back again and again as well as new customers that are increasingly choosing us because of things like word of mouth and others that are recommending their service to the front.

Got it. And maybe just as a follow-up. On the marketing side, when you make a comment or provide an observation that you believe the LTV to CAC ratio is trending upward. Can you provide a little more meat around the bones in terms of -- where is that incremental lifetime value coming from? Is it based on a sense that your average principal percent is increasing? Are you seeing something innate that tells you the average velocity or number of cents per year is increasing? What actually takes up in LTV?

Yeah. Great question, David. Let me try to answer that for you. I think first off, when you look at LTV, just as a reminder, it's really sort of our cumulative transaction profit we would expect to get from our customers and cohorts. And there's two components of that, that has given us confidence that we are a considering improving our LTV. One is our interest transaction intensity. I think being also digital first in that scale, we're seeing increasing digital transactions and the intent of those transactions is increasing, and that's across our active customer base. So that intensity increased, coupled with a transaction margin, which has continued to improve for the reasons we have described previously around scale for pay in and payout costs and some of the work that's been done on the fraud side, gives us high conviction and just analytics around LTV on a good trajectory. So those are the key components there.

Got it. Very helpful. Thanks so much.

Thank you. One moment for questions. Our next question comes from Tien-Tsin Huang with JPMorgan. You may proceed.

Hi, thanks so much. Good afternoon, everybody. I know you've covered a lot already. I just wanted to ask Matt on visibility, if you don't mind, and if it's changed here in the last 90 days is a lot of going on with the political world and pricing, competitive actions, regulation. Just curious if you feel like the visibility has changed in your mind?

And Tien-Tsin, when you talk about visibility, you're talking about forward-looking kind of yes, what do you mean?

Yeah, exactly visibility into the financial outlook in the short run as well as just the behavior on the consumer side, if anything surprised you? I know you've covered a lot of that already, but I just wanted to check on changes in visibility. Thank you.

Thanks, Tien-Tsin. I think that one of the things that is unique about remittances and specifically Remitly and how we both manage the business and who our customers are, the non-discretionary nature of them sending money is a bit more predictability and resilience. We've seen that over the last decade of running the business. We've seen that in World Bank studies in the past. There's a predictability, especially when you look at the business from a cohort view and a resilience, especially when you understand why funds are sent home, whether that's emergency medical expenses, natural disasters. Sometimes when there's tragedy, there's actually a greater need for remittances. And we've seen that over quite a few cycles. So I would come back to our customers and gratitude for them and that being the case that we have more predictability and visibility to our business. But that's one of the reasons as we start thinking about and talking about '24, we're excited about what's to come.

Thank you. One moment for our next question. Our next question comes from Daniel Krebs with Wolfe Research. You may proceed. Daniel Krebs, your line is now open. And, I would now like to turn the call back over to Matt Oppenheimer for any closing remarks.

Thanks, operator, and thanks, everyone, for the thoughtful questions. As we always do at Remitly, I'd like to end the call by highlighting one of our amazing customers, whose name is Alexis and Alexis sends money from Australia to her family in the Philippines. And Alexis was one of the many new customers we added this year and reflects the increasing diversity of our corridor portfolio. And Alexis shared this app is awesome, try it, it is fast and easy. I love it. We thank Alexis for her loyalty to Remitly and appreciate her recommendation for others to try our service. Thanks, everybody, for joining us, and we appreciate your support. We're excited about the opportunities ahead of us as we end the year. And we look forward to sharing more of our progress in 2024.

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