REMITLY-GLOBAL Earningcall Transcript Of Q2 of 2024
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 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 on 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 Chief Executive Officer Thank you, Stephen, and thank you all for joining us to discuss Remitly's long-term strategic priorities, strong second-quarter results, and our increased outlook for 2024. We continue our journey to transform lives with trusted financial services that transcend borders. We are doing this by reinventing international payments for our customers in a way that has not been done before, making the cross-border payment experience as seamless as any domestic payment transaction.At the same time, we are solving for a myriad of additional problems faced by those sending money across borders. We are excited about the array of opportunities to invest efficiently to drive high growth, increase market share, and deliver sustainable cash flow over the long term. In order to deliver on these opportunities, we remain focused on our strategic priorities as you can see on Slide 4. These priorities allow us to execute our near-term goals while setting us up to drive even more long-term returns in a large and growing addressable market where we only have approximately 2.5% share. We are positioned well today and expect to benefit from the ongoing rapid shift in customer preference to more digital options. Our strong second quarter results and improved outlook validate that our strategy is both the right one and delivering the outcomes we are looking for. These results also demonstrate the resilience of our customer base and the differentiated experience we are building for our customers to send money across borders seamlessly and delightfully. Now, let's get into some of the details of our second quarter results on Slide 5. We delivered $306 million in revenue, a 31% increase year over year and ahead of our expectations. We saw robust growth in quarterly active customers and strong customer engagement. We delivered $25 million in adjusted EBITDA, benefiting from strong top-line growth and scale efficiencies across our operating expense base. Based on our performance this quarter and our expectations for continued strong execution, we are raising our 2024 revenue and adjusted EBITDA outlook. We now serve approximately 6.9 million quarterly active customers as you can see on Slide 6, which is up 36%, or 1.8 million, from the second quarter of last year. We saw strength in both our record new customer acquisition and engagement of existing customers. The majority of our customers send regularly with predictable and durable sending patterns. This is a direct result of the quality of our product combined with the necessity of remittances for our customers and their families to support basic living needs. This predictable behavior is also elevated by specific holidays that happen throughout the year, Mother's Day, Christmas Eve, and New Year's, just to name a few. And these sending occasions vary by corridor globally. This results in predictable seasonal patterns with Q4 being the strongest quarter seasonally and Q2 being the second strongest quarter in terms of customer activity impact. As expected, there were more sending occasions such as Mother's Day in the second quarter of this year as compared with the first quarter. Additionally, in some corridors, we saw some modest benefits from a stronger U.S. dollar, which helped to drive some additional activity on our platform. With fewer key holidays, the upcoming third quarter is typically seasonally weaker from a customer activity perspective. As a result, we expect the sequential change in quarterly active customers in the third quarter to be lower than the sequential change we saw in the second quarter and then increase as we move from the third to the fourth quarter. Ultimately, improvements to our product and platform were the foundation that drove our customer growth and improving cost structure. As you can see on Slide 7, we are making significant progress on delivering a customer experience that is fast and reliable while driving efficiencies that allow us to invest even more into the customer experience, driving a flywheel of growth and efficiency. Our transactions continue to get faster with more than 90% dispersed in less than an hour and customer support contacts continue to decline with more than 95% of transactions proceeding without a customer support contact. Improvements in both these metrics on a year-over-year and sequential basis are directly attributable to our product investments. These customers have also recognized the progress we have made across these dimensions with our Trustpilot score continuing to increase throughout the second quarter and was recently the highest among major competitors. Investments have also delivered significant reductions in customer support costs as a percentage of revenue in a customer-centric way. We delivered 260 basis points of leverage and customer support in the second quarter compared with the second quarter of last year and spent less on an absolute dollar basis year over year, even though we grew active customers by 36% and onboarded a record number of new customers. We were especially pleased that our customer support contact rate in the second quarter was the lowest it has ever been, even while onboarding record number of new customers during a seasonally strong quarter. Driving some of this improvement was our launch of an AI-powered virtual assistant experience to help customers solve even more problems without the need to contact a live customer support associate. We are seeing strong initial results in both customer satisfaction and decreasing customer support contact rates as I mentioned previously. The virtual assistant is currently focusing on transfer-related customer problems, for example, if a transfer is delayed or a customer needs to amend or cancel a transfer. The virtual assistant also answers how do I type questions, leveraging generative AI and our existing help center content. If customers need help with something that the virtual assistant does not support, it seamlessly passes the complete context of the customer issue to an associate. We have found that the virtual assistant can resolve issues within two to four minutes, four times faster than we're interacting with associates. Customers also love this experience. This is resulting in savings across our support organization, and we expect our savings to continue to grow as we expand coverage to more languages and enable more use cases for self-service resolution. Looking ahead, we intend to add more use cases and expect the AI-powered virtual assistant to handle a majority of support contacts in chat, a key driver of an improved customer experience and efficiency in our customer support expenses. This would enable our highly trained customer associates to focus even more on delighting our customers when they contact us. Continuing with investments and the returns we are generating, the investment in our technology platform allowed us to provide a better experience for cruise ship workers, also known as seafarers that we launched this quarter. With an estimated 1.89 million seafarers worldwide, including a significant number from the Philippines and India, seafarers play a crucial role in the global economy, often spending months away from their families to ensure a smooth operation of international trade and travel. I personally met several seafarers in Q2 and their journeys are inspiring and remarkable. The remittances they send home are a lifeline for their families and their loved ones. Seafarers typically have faced high fees, difficult KYC processes, and inconvenient non-digital options when sending money home. During the quarter, we launched our Remitly for seafarers product with an all-new in-app onboarding experience specifically designed with the unique needs of seafarers in mind. We improve the way in which seafarers can find us and complete onboarding. Seafarers can simply take a photo of their ship ID and passport, upload it to our app, and start sending money home. As a result, we have seen significant increase in seafarers as new customers. Our nimble technology platform will allow us to rapidly localize and target more types of customers that are sending money across borders.Our technology investments have also driven additional progress in tailoring our product to attract additional customer types, including higher dollar senders to our platform. Our strategy includes adding relevant payment options that provide great customer experiences and an attractive value proposition regardless of the size of the transaction. We are focused on providing these alternatives and localized payment methods because they are becoming more ubiquitous and preferred by customers and they are typically lower cost, which allows us to drive our growth and cost-efficiency flywheel. An example of this is our launch of Interac as a pay-in method in Canada for all corridors in the quarter. Interac is Canada's predominant electronic P2P money transfer solution and is a widely adopted payment method. Compared to traditional bank payments, Interac provides much faster speed at a lower cost than card payments. As we look ahead, options for our customers to fund transactions rapidly with their bank accounts including faster payments in the U.S. will make our product more attractive, diversify our transaction mix, and lower our costs. We have been able to increasingly target new types of customers, such as those sending higher transaction amounts as a result of our technology platform investments. As a result, we have been able to apply a more risk-based approach to sending limits. In the past, we have had broad sending limits that were not tailored specifically to the individual customer risk profile, which added friction to customers who were looking to send larger amounts. Now, we are able to make dynamic risk decisions and reduce friction significantly for this customer base. As a result, we have seen strong customer behavior trends at higher sending amounts, especially in our U.S. to India corridor, which was weighted toward higher dollar senders. Now, let's turn to our marketing efforts on Slide 8. On the new customer acquisition front, we benefited from long-term trust driving word of mouth and product improvements that reduce friction for our customers. This allows us to execute marketing investments at even stronger unit economics. We use our deep knowledge and large data sets to invest at a deaveraged and target CAC that aligns with customer lifetime value. This approach allows us to be intentional about how much we're willing to invest to acquire new customers. In addition to the trusted product and efficient marketing, we also have a competitive advantage in our ability to continually leverage large data sets to optimize price in an analytical and targeted manner to drive both near-term and long-term customer lifetime value. All of this occurs on an ongoing basis and is not in response to any specific competitive pricing changes in the quarter. As a result, we delivered another record number of new customers in the second quarter. Year-over-year growth in new customer acquisition was the strongest we have seen in the past four quarters. Our new customers are also increasingly sending to markets outside our top three receive markets of India, Mexico, and the Philippines, with the majority of newly acquired customers in the second quarter sending outside of these markets. While our mix of markets has continued to diversify, we also acquired a record number of customers in the quarter that sent to our top receive markets such as India, Mexico, and the Philippines. This diversification brings a host of benefits, including less volatility and exposure to specific FX or macro events in local economies. Marketing also delivered an increasing mix of customers from unpaid channels such as search engine optimization as we continue to optimize across all marketing channels. We are increasingly testing the elasticity of investments across areas such as performance marketing and promotions for new customers with the goal of driving even more efficient marketing spend. Our data-driven analytics allows us to deeply understand the incremental and marginal costs of our marketing investments. We saw some initial success with this elasticity testing in the second quarter in reducing certain areas of spending with limited impact on new customer acquisition. We will continue to monitor the effectiveness of all our marketing channels and make adjustments to continually improve our unit economics. Overall, our marketing investments continue to deliver very strong returns and our global payback remains very attractive at less than 12 months. In summary, we are excited about our progress so far this year in delivering strong growth across multiple time horizons, all while delivering significant operating leverage in the business and improving return on our investments. In a complex industry, our strong product, customer experience, and therefore trusted brand is the foundation for this growth. As we look forward, I am confident in our 2024 outlook and beyond as we execute on our vision to transform lives with trusted financial services that transcend borders. Before I turn the call over to Hemanth, I'd like to make an announcement about a change to our executive leadership team. Hemanth Munipalli, our CFO for the past two years, has informed us that he would like to leave the company based on a need to spend more time with his family in India in true professional manner and with care for Remitly. He generously supported our search for a potential CFO replacement so that Remitly can seamlessly move forward along its strategic path. Hemanth has been a key driver of our success, and I would like to thank him for his many contributions. Since Hemanth joined Remitly, he has helped to lead significant customer growth with the number of quarterly active users more than doubling since he joined. In his role, he not only supported this growth, but he also enabled us to achieve these milestones with better controls, efficiency, and effectiveness. Most importantly, he built a strong finance team that I have confidence will continue to support Remitly's efficient growth. Hemanth I'm grateful for your leadership, partnership and for all that you've taught me during our work together. I am also grateful that Hemanth has agreed to serve in an advisory capacity until September 30. Replacing Hemanth as CFO effective August 19th will be Vikas Mehta. Vikas has over 25 years of global experience across software, fintech, and e-commerce, driving hypergrowth, business transformation, and operational excellence. He has worked for some of the most renowned Fortune 500 companies and has expertise in strategy, investor relations, and financial management. He is also a Remitly customer and has a passion for our customer base. We believe that Vikas' experience will be instrumental as we continue to drive growth and high returns for our shareholders. With that and with thanks, I'll turn the call over to Hemanth. Hemanth Munipalli -- Chief Financial Officer Thank you, Matt. The strong results we delivered in the quarter are a testament to our customers' resilience and the consistent execution by our global teams. Our customer activity and growth remain highly durable and predictable, and we are pleased with our top-line results with improving operating efficiencies. I'll begin by reviewing some of the high-level drivers of our financial performance and finish with more details on our improved outlook for 2024. With that, let's turn to our second quarter results. 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, acquisition, integration, restructuring and other costs, and foreign exchange gain or loss. Reconciliations to GAAP results are included in the earnings release. Let's begin on Slide 10 with our high-level financial performance in the second quarter. Our revenue and active customer growth were both above our expectations as we delivered solid execution and benefited from the seasonally consistent customer behavior in the second quarter that we described on our last call along with record new customer acquisition. Our adjusted EBITDA profitability also improved as we benefited from scale and a deliberate focus on driving efficiencies through all parts of the business. Quarterly active customers grew by 36% year over year to $6.9 million. Send volume grew 38% year over year to approximately $13.2 billion, resulting in revenue growth of 31% year over year to $306 million. Our GAAP net loss of $12.1 million narrowed in the second quarter, an improvement of 36% year over year as we benefited from leverage across the P&L. Our net loss included $37 million of stock compensation expense, and we did not have restructuring charges in the quarter. Strong revenue growth combined with efficiency across operating expenses led to adjusted EBITDA of $25.1 million in the quarter and above our expectations. As you can see on Slide 11, our focus remains on four key areas to drive sustainable long-term returns, continuing to deliver strong revenue growth, reducing transaction expenses through scale efficiencies and technological advancements, acquiring new customers with efficient marketing, and driving operational efficiencies. By focusing on executing across these four areas, we're improving the long-term cash flow generation of our business. This is the ultimate measure of value we deliver to our shareholders. Now, let's turn to Slide 12 to review some of the key drivers of our second-quarter performance. Revenue was up 31% year over year in the second quarter on a reported and constant currency basis. Our better-than-expected second-quarter revenue growth was driven by high retention of existing customers and strong seasonal sending patterns in line with the expectations we outlined on our last call. We also achieved benefits from investments in improving customer engagement through product enhancements, our growing global expansion, and record new customers we acquired in the quarter. Turning to our transaction expenses, which includes costs related to our pay-in partners, disbursement partners, and fraud losses. Transaction expense as a percentage of revenue increased 90 basis points year over year in the second quarter. This was primarily due to higher-than-expected fraud losses that we experienced in the latter part of the quarter, partially offset by efficiencies from increasing volumes. Excluding fraud losses, transaction expense as a percentage of revenue improved by approximately 50 basis points. As we have noted before, fraud losses can be temporarily volatile. However, total fraud losses were within our historical tolerance range, and we quickly reacted to this unwanted activity with optimization of risk controls and improvements to our machine learning models, bringing down fraud losses while maintaining a great customer experience. As a result of our rapid response, we expect fraud levels to be at a more normalized level in the back half of the year as we continue to balance the customer experience and manage fraud losses within our thresholds. Our longer-term trend of improving transaction expense, and overall variable cost structure provides us with a significant competitive advantage in delivering value to customers and building a sustainable business model. We are proud of our continued progress and operating more efficiently. In the second quarter, customer support and operations expense as a percentage of revenue was down 260 basis points on a year-over-year basis as we have continued to make significant progress on lowering expenses and improving our customers' experience. In fact, on an absolute dollar basis, customer support expenses declined year over year even as we grew quarterly active customers by 36%. This performance reflects improving customer satisfaction and realizing the benefits from technology investments made to improve both our product and customer support experience. By increasing the automation of various manual tasks such as risk reviews and targeted elimination of various issues that cause customers to contact us, our product and customer service teams have consistently delivered efficiencies. Also, as Matt mentioned, we've made significant improvements in the self-help experience with the rollout of our AI-based virtual assistant for our customers and are seeing strong progress across both customer satisfaction and efficiency metrics. G&A expense as a percentage of revenue decreased 80 basis points year over year and was essentially flat sequentially on an absolute dollar basis. Overall, our focus remains on continued discipline across both head count and non-head count expenses, and over the medium and long term, we expect to see continued moderation in G&A expense as a percentage of revenue. Our marketing investments delivered a record number of new customers in the quarter at highly attractive unit economics. We fully expect these customers to deliver a long stream of revenue less transaction expense for many years to come. Our marketing expense was $73 million in the second quarter as we achieved additional marketing efficiencies through elasticity testing and the benefits of word of mouth while bringing a record number of new customers. This reflects our deep data-driven insights into marketing efficiently across both lower and upper funnels. We expect to continue to acquire new customers at highly attractive returns to ensure strong revenue growth for many years to come.Technology and development expenses were $47 million in the second quarter. These investments are enabling operational efficiencies across our P&L by reducing our transaction expenses over time and driving down customer support contacts. These investments are also critical to ensuring our platform can deliver new features and complementary new products to our customers, in addition to maintaining high levels of security, compliance and enabling higher productivity of our engineering teams. Turning to our stock compensation expense. In the second quarter, the growth rate of our stock compensation expense slowed significantly to 6%. This is a significant improvement from prior quarter's growth rates and reflects our focus on moderating our head count growth rates. On a full-year basis, we continue to expect stock compensation expenses to grow slower than revenue. We're also highly focused on managing the number of shares issued to help moderate dilution over the long term. An example of this is providing more cash compensation to new hires. This results in additional compensation being reflected in adjusted EBITDA and lowering share dilution impacts. Now, let's turn to our updated 2024 outlook on Slide 13. We now expect revenue to be between $1.23 billion and $1.25 billion for the year, which is $5 million higher at the low end of our prior outlook. This increase reflects the outperformance in the second quarter and our expectations for continued strong execution in driving both existing and new customer activity in the back half of the year. Assuming various mix factors such as customer preferences for pay-in and disbursement options, corridor mix, and transaction sizes remain largely consistent to the second quarter. We expect a similar relationship between revenue and send volume for the balance of the year as compared with the second quarter. As we look ahead to the third quarter, we expect revenue growth in Q3 to be approximately 32% as we have now lapped some difficult comps in the first half of the year. While we have significant visibility into near-term results, revenue growth rates in any given quarter can be impacted by volatility in foreign exchange rates, new customer acquisition timing, and seasonal customer activity. While we expect to remain in a GAAP net loss position, we expect adjusted EBITDA to be between $90 million and $100 million for the year, which is a $5 million increase at the midpoint from our prior outlook. The increase in our adjusted EBITDA outlook is driven both by our strong performance in the second quarter as well as additional growth and operational efficiencies we expect to deliver in the back half of the year. As we look ahead to the third and fourth quarters, we would expect adjusted EBITDA dollars to be roughly balanced between these quarters. This improved outlook also gives us the opportunity to acquire additional customers at strong unit economics, especially during seasonally strong periods of customer activities such as in Q4. Overall, we're pleased with our solid execution thus far this year and are excited about the opportunities ahead to deliver on our commitments to customers and shareholders. Before we move to Q&A, I would like to thank Matt and the entire Remitly team for the opportunity to have been part of significant growth over the last few years. It has been a fast-paced, impactful journey and I'm very proud of the progress we've made in driving transformative change across all facets of the finance function at Remitly. I have personally grown partnering with Matt, who's an amazing leader and CEO. Grateful for being part of a very strong executive leadership team and to every single Remitlians who do their very best to delight our customers. I look forward to spending more time with my family in India. I'm excited for and highly confident about Remitly's journey toward its bold and exciting vision of transforming lives with trusted financial services that transcend borders. I remain a loyal customer and a strong advocate for Remitly's continued successes. It has been a pleasure to work with all of you in the investment community. Matt Oppenheimer -- Co-Founder and Chief Executive Officer Thanks so much, Hemanth. And with that, we'll turn the call over to the operator to begin Q&A. Operator Questions & Answers: |
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