This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: in all periods. Reconciliations to GAAP results are included in the earnings release. Beginning on slide 16, active customers grew by 43% year-over-year to more than 3.4 million. Send volume grew 40% year-over-year to approximately $7 billion, all resulting in revenue growth of 42% year-over-year to $157 million, which was above our expectations. As you can see on slide 17, a number of factors drove the 43% active customer growth, including acquiring a record number of new customers in the quarter and a high retention of existing customers who, in many cases, continue to transact with us over many years. We believe strength in the U.S. dollar helped drive some incremental new customers dramatically. We also saw continued growth in our new customer acquisition across corridors, which helps us broaden our portfolio and create more revenue and operating leverage opportunities over time. Our unit economics in new customer acquisition remain highly compelling as we drive marketing efficiencies, resulting in lower CAC as Matt discussed. Our unit economics also benefited from our increasing leverage on transaction costs, which I will detail later. On average, customers continue to send multiple transactions per month, and our pricing, which is influenced by multiple factors such as speed, method of payment, mix of fee, and foreign exchange spread and local competition, continues to deliver value for customers. The consistency in our customer sending behavior once we acquire them as an active customer translates into a predictable revenue stream and minimal revenue turn. Turning to slide 18, strong growth in active customers and high retention drove the 42% year-over-year revenue growth that we delivered in the quarter, as we continue our multi-year track record of healthy double-digit revenue growth at scale. Turning to costs on slide 19, we continue to benefit from increasing scale and improvements in our fraud and risk systems. The benefits of this are most visible on the transaction expense line. Transaction expense was $61 million or 39% of revenue, an improvement of over 300 basis points from 42% of revenue in Q2 of last year. Our teams have worked hard to make this happen through more direct partner integrations, better terms with payment processing partners driven by increasing scale, and advanced risk and fraud management systems, which drive down transaction loss rates while at the same time improving the customer experience. We expect to continue to benefit from increasing scale and improve precision on fraud losses, although we expect some variability in transaction expense from quarter to quarter. Now I'll turn to our non-GAAP operating expenses on slide 20, which reflects the investments we're making to allow us to scale our remittance business and execute on our long-term vision of serving immigrants and their families with the most trusted financial services on the planet. Our largest operating expense is marketing, which represented 41 million in the quarter, or 40% of total operating expenses. The vast majority of marketing expense is related to new customer acquisition efforts. This marketing investment delivered a record number of new customers acquired at an 11% lower cap compared to the first quarter, as our teams identified efficiencies and by raising our investment thresholds. To be clear, we could have grown active customers even more at strong unit economics, but we made the decision to drive even higher returns. We continue to monitor our marketing spend actively in light of our focus to drive higher returns while driving strong customer growth. Customer support and operations expense was $70 million in the second quarter, or 16% of total operating expenses, and was flat year over year on a percentage of revenue basis. As we scale, we expect to continue to benefit from increased automation and efficiencies. Our customer support costs are also influenced by the level of new customer ads in a quarter, as new customers tend to have higher initial support contacts. Over time, as we scale, we expect new customers to be a smaller proportion of active customers, which would help drive leverage in customer support costs. In addition, our remittance product investments in ensuring a frictionless customer experience will also drive leverage in customer support costs over time as our customers will need to contact us less often. We believe our continued investments in technology and development are critical to ensure a trusted customer experience and deepen our relationships with them through complementary products. Technology and development expense was $22 million in the quarter as we've been making investments to enhance our products, continue to build our platform capabilities, and improve security. Our investments also allow us to localize at scale much faster as we add new corridors, payment methods, and disbursement options at a more rapid pace, allowing us to capture more market share. For example, in the second quarter, we were able to add approximately 900 corridors. The most we have added in a quarter, a level of growth that would not have been possible without the scaling, investments, or making in our technology platform. As we mentioned on our last call, we expect technology and development expense to increase as a percentage of revenue in 2022 compared with 2021 as we prioritize product investments, new product development, and corridor additions. G&A expense was $22 million in the second quarter, or 22% of total operating expenses. This includes an investment in our human resources, finance, and legal teams, and additional public company operating costs, which will allow us to effectively scale to support our growth initiatives. We expect the year-over-year growth in G&A expense to moderate as we begin to anniversary public company costs in the fourth quarter of 2022, and we expect to see leverage in G&A later this year. Turning to slide 21, adjusted EBITDA, which excludes stock-based compensation expense, was negative 5.3 million in the second quarter of 2022. Our adjusted EBITDA performance was better than we expected, primarily due to higher than expected revenue and improving returns on our customer acquisition investments. Before turning to bottom line results, I would like to summarize that our growing revenue base, strong unit economics, and high ROI on marketing provides a significant opportunity to accelerate scaling across other expense categories as we head into our first anniversary as a public company. I look forward to sharing additional thoughts and progress as we shape our profitability trajectory. Now, turning to the bottom line, second quarter gap net loss was $38 million, compared to a million-dollar net loss in the second quarter of 2021. The increase in net loss was primarily due to a $30 million of incremental stock-based compensation expense driven by hiring top-tier talent to execute our strategic priorities. Additionally, we recognize the $6 million adjustment related to prior periods. WE EXPECT QUARTERLY STOCK COMPENSATION EXPENSE IN THE REMAINING QUARTERS OF 2022 TO BE RELATIVELY CONSISTENT WITH THE AMOUNT WE RECOGNIZE IN THE SECOND QUARTER, EXCLUDING THE $6 MILLION OF PRIOR PERIOD ADJUSTMENTS WE RECOGNIZED IN THE SECOND QUARTER. TURNING TO OUR BALANCE SHEET, WORKING CAPITAL AT THE END OF THE QUARTER WAS APPROXIMATELY $452 MILLION AND REFECTS CASH ON OUR BALANCE SHEET OF $430 MILLION. WORKING CAPITAL IS AN IMPORTANT LIQUIDITY METRIC FOR US AND A GOOD PROXY FOR OPERATING CASH. in that it removes the impact of customer funds that are included in our balance sheet within cash and cash equivalents and disbursement pre-funding, which has not yet been dispersed at the end of the period. Our balance sheet provides us significant flexibility to execute on our main growth drivers of acquiring new customers at highly attractive unit economics, expanding corridors in new geographies, enabling a world-class remittance experience and building complementary new products for immigrants and their families. Moving to our 2022 outlook, on slide 22, we expect revenue to be between $625 and $630 million. This is a $12.5 million increase at the midpoint from our prior outlook and implies a year-over-year growth rate of 36 to 37%. we're increasing our outlook to reflect the strong performance we delivered in the second quarter. In the near and mid-term, we expect increased transactions from new customers to benefit us through the rest of 2022 and beyond. As a result of our better than expected performance in the second quarter, we're narrowing and raising the midpoint of our 2022 adjusted EBITDA outlook to be between negative 35 million and negative 30 million from our prior outlook of between negative 40 and negative $30 million. Due to the seasonality of new customer acquisition, we expect the fourth quarter to have lower adjusted EBITDA than the third quarter. With that, Matt and I will open up for the call for your questions. Operator.
spk09: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Ramsey Alassal with Barclays. You may proceed with your question.
spk03: Hey, guys. This is Allison on for Ramsey. Hope all is well and welcome. Hey, Mom. Just on the competitive environment, how are you guys thinking about market share? So when you win a customer, where are they coming from? Or really, in other words, what is most common here? That they were previously using brick and mortar? Were they using a different digital platform? Or are they just completely new to remittances? Some color there would be really helpful. Thanks.
spk08: Great. Yeah, happy to, Allison. And thanks for the question. I think that the... If you look at the market share that we're gaining, as I mentioned in the opening remarks, guiding the 36%, 37% compared to an industry growth rate of 4%, we are growing much faster than the market. In terms of where that is coming from, I think it's a mix of a lot of legacy and offline players, given that the majority of remittances based on our data are still sent via legacy players. as well as digital players where we have a superior solution. And the reason I think that we're gaining that much market share strategically or structurally is because the combination of being a digital first player with scale enables us to invest more in our distribution network, invest more in our risk systems, invest more in the customer experience. All of that ultimately brings less friction to customers and more peace of mind, which not only attracts record new customers, as we mentioned, but also maintains that long-term relationship, which we're continuing to see.
spk03: Great. That's really helpful. Thanks.
spk09: Thank you. One moment for questions. Our next question comes from Andrew Schmidt with Citi. You may proceed.
spk07: Hey, Matt. It's Stephan, and welcome, Hemant. Good to have you on. First question on customer acquisition costs. I'm wondering if you just elaborate on the sustainability. It's good to see the step down, but maybe talk about the sustainability of lower levels of CAC. And then over the intermediate to longer term, perhaps you could just elaborate a little more on the strategy you'd create. More organic customer ads versus paid. Any insight on those two would be helpful. More organic customer ads versus paid. Any insight on those two would be helpful. Thanks a lot.
spk08: Yeah. Thanks, Andrew. Yeah. I think that if you look at the reasons why we're seeing the 11% improvement in CACs sequentially, it's due to a variety of factors. I think our team has never been stronger. When you look at our CMO that we promoted internally, Rena Han, if you look at the creative and brand execution tax sequentially, it's due to a variety of factors. I think our team has never been stronger. When you look at our CMO that we promoted internally, Rena Han, if you look at the creative and brand execution and velocity, if you look at the external advertising environment, that's been favorable, I think, for us. um and i think that ultimately we have the ability when we think about cac we we ultimately look at it from a return on investment standpoint and we have a very good handle around you know payback guard rails and how we deploy marketing dollars to make sure that we're doing it efficiently And so I see the ability to continue to certainly have a lot of sustainability around our marketing investments. And because of those variables that I mentioned, we're really excited about not only customer acquisition costs that we're paying, but the unit economics, meaning the lifetime value side of the equation, the payback periods that we're seeing across the globe. So excited about Q2 and excited about the place that we're in overall.
spk07: Very clear. Very helpful. And then, uh, If you don't mind, if I put you on the spot, obviously a big question we get from investors is path and timeline to profitability. And don't expect any big announcements here. You haven't been on for too long. But maybe you could just tell us, you know, just a framework for how you think about just investments and returns in the business and how you sort of think about balancing profitability versus growth. Any color there would be helpful. Thanks. Yeah.
spk04: Yeah, thanks for the welcome. And I think thanks for the question. Certainly on top of mind, I know for investors, I would say that one, we certainly are long term focused in terms of value creation. And there's a couple of things that, you know, we're starting to do anything we talked about a little bit here in terms of increasing our thresholds are on our ROI, which was also effective in in this in the cat improved performance in Q2 as well. So there's some certain things here as we get a little bit more and how we think about investments that will give us, put us in a better place if we look forward in terms of our path to profitability. From my perspective, obviously very early days and getting to understand and learn the business and more to share. We did talk about, we're coming up a year in terms of our being a public company pretty soon. And there's opportunity for us as we get into our strategic and financial planning processes to look at certain areas in the business that we can probably get more efficient or start looking to scale. But again, there's early days yet. Top of mind for us, and we'll add more to come on that topic.
spk07: Very helpful. Thank you very much. Good quarter, guys.
spk09: Thank you. One moment for questions. Our next question comes from David Sharp with J&P Securities. You may proceed.
spk02: Great. Good afternoon, everyone. Thanks for taking my questions. Hey, Matt, I apologize if this is redundant. I wanted to just dig into CAC trends a little bit more. And specifically, I'm looking at my notes from last quarter, and I know there was a specific comment that you guys were experiencing more competition in most of the digital acquisition channels. You know, it was putting a little bit of pressure there. And can you expand on whether or not some of the favorable CAC trends this quarter are purely sort of organic, or is it also a result? Are you seeing some digital competitors actually step back in terms of their demand?
spk08: Yeah. Yeah, thanks, David, and happy to go into more depth on the GAC side, especially as it pertains to Q1. I think that the comments and what we experienced in Q1, I think, was more specific to Q1. I think that if you look at Q2 and the general trend that we're seeing, We are able to both, as we mentioned, bring down customer acquisition costs while adding record number of new customers. If you look, as I mentioned in the opening remarks, we added as many new customers and nearly as many new customers Q2 of 22 than we did the entire year of 2019. And I think the reason for that is a lot of variables that are within our control in terms of, as I mentioned, creative and brand execution, rigorous focus on payback at both the marketing channel and geographic perspective. I think that there's some advertising environments in terms of the digital channels being less competitive, but I think that we know how to leverage that and how to test the elasticity in a way that is very effective. And so that may be why we stand out compared to others in the market. Hard to say there, obviously, but I think we're really proud of our results. We have good handle, again, around the return on the investments that we're making, and marketing is just one of those examples. And the good thing as well about new customer ads is that it also is kind of the leading indicator of revenue growth because you add these cohorts of new customers that then, as I mentioned, it may cost us more in that first year, given that we have approximately a one-year payback period. But when you look at the revenue growth that is in the quarters to come, it's a good bellwether for that. So I'm really pleased with the customer acquisition, both numbers and cost and overall unit economics in Q2.
spk02: Got it. No, it's very helpful. I appreciate the detail. And maybe just as a follow-up, you know, sort of interested in getting a feel for sort of corridor mix and how that might impact, impact a growth, you know, lately as well as maybe over the next few quarters. And specifically, you know, LATAM has been very strong performer for a lot of tradition, even for all the traditional walk-in players. I know Mexico is kind of number three of your big three, but is there any change, general change in the mix of where remittances are going among Philippines, India, and Mexico? And also, just as importantly, as you look at the nature of the customers that you've most recently added, is there anything about their likely geographic sends that then might alter the mix and impact growth?
spk08: Yeah, thanks, David. I think that the punchline would be that there's increasing geographic mix in terms of our customer base, both from a send perspective, meaning North America, Europe, and Asia, as well as a receive perspective, meaning primarily Asia, Africa, and Latin America. And we added 900 new corridors just last quarter, which is a lot of corridors in the context that we now send to well over 3,000 between well over 3,000 corridors. So I think you're seeing that increased mix, which is exciting for a whole host of reasons, but most importantly, kind of sustainable long-term growth because The 900 corridors we launched last quarter, they are not going to materially contribute to revenue this quarter, next quarter. They're going to contribute to revenue in the you know years to come and that's just like a year or two ago when we said the corridors we launched at that point will not contribute to revenue until you know the quarters and years to come and we're we're now benefiting from those really intentional launches and that's i think a unique part of remitley's strategy that's often i think underappreciated is this really methodological process of rolling out new corridors and planting the seeds for future revenue growth. And that's how we've gotten the kind of multi-year, high, double-digit compounding growth rate is that second investment area, which is geographic expansion. So hopefully that provides some context, David. And what I'd say is the punchline is increasing geographic expansion and planting the seeds for multi-year, double-digit revenue growth.
spk02: Got it. Understood. Thanks so much, Matt.
spk09: Thank you. One moment for questions. Our next question comes from Bob Napoli with William Blair. You may proceed.
spk05: Hey, this is Noah Katz on for Bob Napoli. Congrats on a great quarter. Thank you guys for telling us a little bit more about the Passbook initiative, but is there anything you can tell us about the Remitly for Developer initiative? Previously, I think you gave us some sizing on it as a percent of revenue, but any color on that would be great where it stands today.
spk08: Yeah, great to see you, Noah. And we continue to be excited about Remitly for Developers. As you know, we've announced a couple of partnerships there in the crypto space. But if you look at the pipeline of companies that have a need to be able to disperse funds in emerging markets, it's a much broader pipeline than that. And so excited about the types of companies that are interested, the size and scale of a lot of those companies, and excited about our unique value proposition, which includes both our disbursement network and a wide range of disbursement options. as well as a lot of the fraud, risk management, FX, pricing. Once businesses have actually looked at the complexity of remittances, again, a theme folks often underappreciate the complexity, including other businesses, once they get a sense of the complexity of international payments, we're seeing, you know, good uptake there. So no specific new partnerships to announce, but continuing to invest in a disciplined way in that area and seeing a lot of interest from a wide range of types of companies.
spk05: Great. Thanks for answering my question. If I could fit one more in. I know you guys expanded into five new SEND markets last year throughout Europe. It might be too early, but do you guys have any initial observations from these newly entered markets and how they're comparing to your more stable markets that you guys are in?
spk08: Yeah, I think that if you look at the new markets, we're continuing to roll out the same kind of corridor expansion playbook. And so the punchline is they might mirror other markets that we've launched when you look at some of the early active rates and other metrics that we look at to kind of estimate the lifetime value of customers and the behaviors. But given that we're in so many markets now, we can look at those leading indicators and get a pretty good sense of the lifetime value of customers and then the amount we're willing to pay from a customer acquisition cost. And so it ties a bit to David's question earlier in terms of just planting those seeds for future growth, more similarities than differences. And we're also just getting faster at rolling out new markets because the payment acceptance, the compliance experience and identity verification, all of those things, you start to get pattern matching and there's only so many ways to do identity verification or collect payments. So there's still some optimization that needs to be done, but it gets faster with each incremental market. And so that would probably be the only, you know, notable thing in those five new send markets is that we're getting faster given the scale that we have and the pattern matching that we can do amongst different markets.
spk05: Thank you. Congrats again. Thanks, Noah.
spk09: Thank you. One moment for questions. And as a reminder, to ask a question, you will need to press star 1-1. Our next question comes from Mark McGrath with KeyBank.
spk10: You may proceed. Hey, guys. This is Alex McGrath.
spk06: Matt, Stefan, nice to speak with you. Hey, Matt, nice to meet you. Just a couple of quick ones from me. First, thinking about the kind of implied second half based on guidance, can you talk about what's assumed around some of the leverage and transaction expense What should we kind of anticipate the benefit to be realized versus what was seen in the second quarter?
spk04: Yeah, thanks for the question, and thanks for the welcome as well. I'd say when we look at transaction expenses we called out, there is some level of variability around the margin piece. We are making continued improvements on the fraud side of things using technology, et cetera. Current expectation is for the margins to be relatively at the same level for the balance of the year, but continued progress around how we can make improvements. But the expectation that we built in is mostly stable.
spk06: Great. I appreciate the extra detail there. And then, Matt, maybe one for you. Just around your comments about narrowing the focus on complementary products. So I apologize if I missed some detail on that, but would you mind just kind of expanding in terms of how your thinking has perhaps changed versus, you know, this time last year when we were speaking about Passbook?
spk08: Yeah, yeah, absolutely. And I'm happy you picked up on the word complementary, which was used very intentionally. And I think that when you think about the broader products that we can offer our customers, the ones where we believe we can add the most value and that will increase and deepen the relationship, which should show up in the form of engagement and increase active customer rates. Is via complimentary products to remittances and so you know there's a store value aspect with passbook in that obviously but you should expect us to think about that more more broadly in terms of other problems that are adjacent to remittances. to deepen the relationship with the now 3.4 million customers and rapidly growing remittance customers to establish that long-term relationship with them and looking forward to being able to share more in the future as we launch products in that space.
spk09: Understood.
spk10: Thank you.
spk09: Thank you. One moment for questions. Our next question comes from Ramsey LaSalle with Barclays. You may proceed. If your line is on mute, please unmute. I'd now like to turn the call back to Matt Oppenheimer for closing remarks.
spk08: Great. Thanks so much, Operator. And thank you all for the thoughtful questions and for joining today. As we always do at Remitly, I'd like to end the call by highlighting another one of our amazing customers. This customer's name is Bebe. Bebe joined Remitly in May of 2022. one of the many new customers that we just added, and sends money from the UK to family in Pakistan. A family member recommended, and this is what Bibi says, a family member recommended Remitly to me. They shared that it was a reliable way to send money back home from the comfort of your home i liked many things about my experience using remitly the charges were clear to understand i received updates every step of the way and i really appreciated the message directly to me when the money was collected by the recipients i recommend remitly to all of my friends and family so we thank phoebe and her family for using Remitly and recommending Remitly to others. And we are very excited about 2022 and beyond and look forward to sharing our progress as we continue to execute on our very important vision.
spk00: Goodbye.
spk10: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
spk00: Goodbye. The conference will begin shortly.
spk01: To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
Disclaimer