Remitly Global, Inc. (RELY) Earnings Call Transcript & Summary

CEO, Sebastian Gunningham; and the CFO, Vikas Mehta. Today's discussion is based on topics that are top of mind with investors. We're going to start with Sebastian and talk about some of the key initiatives, then we'll move to the numbers. Then we'll talk about the core remittance business and finish with some of the growth accelerators. For those of you on the call, you can e-mail me or submit questions through the portal. We have about 45 minutes and a lot to get through. So why don't we get started and thanks again for joining us.

So Sebastian, this question was asked on the earnings call, and I think it's worth asking again. But what are you most excited about as you head into the second half of 2026 and enter 2027?

Well, Chris, first, thank you for hosting this. Yes, we had an excellent quarter, and we -- the company is sitting on many said in this challenges. And it's hard to pick one big idea. And I think at this point, is if you think about our customer, our customer cares about sharp pricing. It cares about moving money fast across the vast network, and it cares about a great service. And so the company over the last few months has been hydrating on all of these 3 and the 3 sum up to gaining market share, better trust, more activities. So we think we're in -- we're focused on the right things. We have a lot of initiatives to keep sharpening our prices across the world, across the 5,000 cargoes. We continue to expand our network. We're getting new licenses. The money is moving faster. And our service in many ways, whether it be through the help of AI or all kinds of things that we're doing in our customer centers and the features that we're giving customers continues to improve. And the reason -- and strategy, you want to focus on what's changing, but you also want to spend a lot of time on what's not changing. There will not be a customer in the next 100 years to want to pay more money for moving for transferring money across the world. There will not be a customer who will tell you, please move my money slower, and there will not be a customer that says, "Give me a worse service." So those things, we were very clear what's not going to change in our business. And as we get better and better than that, we continue to gain market share, and we continue to gain momentum. And I think I could answer this question a year from now, probably in exactly the same way as long as we continue to get that.

Now diversifying the business has been a key initiative since the IPO. And clearly, it's an area that you're focused on. Just talk about Remitly's tech stack and its global network that supports and enables your ability to diversify.

Well, diversifying the revenue stream is very important. And this is a top priority for the company. It's a top priority for me as the CEO. And -- we've built a fantastic infrastructure to move money across the world. And our initial focus, what we call these core centers, which at least $200 to $300 and that happened at large scale. And we've got 10 million customers who do that. But the network that we've built is so good that we certainly found high amount centers starting to use it in high amount centers are a different profile, they're sending money to themselves, or sending money to investments around the world. And so that is diversification, number one, which is not we're building a business around that high value set. Diversification, number two, happened when we decided to see the lots of businesses start to use this infrastructure. Businesses can go from small businesses to medium businesses to the very, very large businesses and move trillions a day. And so we found that small businesses, people that use freelancers and there's thousands of use cases and it's really incredible to watch that are using the Remitly infrastructure, so the diversification stream #2 is a small business is the small business revenue stream. And the third diversification has been a receiver world. So we send money, 10 million people, send $100 billion a year to 30 million or 40 million people around the world. And we've never really done anything with the 40 million people that are receiving the money, but a combination of the crypto rails and stable coins and us being able to issue cards has introduced us to the possibility that we could make a business out of the receivers. Early days, we've got some great ideas. We've launched the app in 170 countries. We're generating some revenue already. So stay tuned on the receiver side. And then across all these revenue streams, we've launched our Remitly Global card, and that's a fantastic car for people that live across border, as we call it. So people that do live in one country but have all their family relationships or a travel across borders. And this card is very focused on serving that community when you travel with a card, when you need to borrow money short term, to liquidity issues, where you have loyalty points, where you want to use it, card-to-card sends, there's just a lot of features in this card which we think applies to all our customers. So to answer your question, very important focus of the company, we do have one big revenue stream, which is the core senders. We've got 3 or 4 in the works are all showing very good traction, all growing fast. We have some other ideas, but our mission is to make sure that we keep diversifying the revenue of the business to make us a much more durable and high-growth business.

And Cris, we have a very quantifiable way to measure that, and we have put a goal of as you know, 5%, approximately, for this year and then over 10% of the revenue mix by 2028. So definitely a great traction as Sebastian shared and very clear goals for us to diversify. I'll just add one last point on that, which is -- this is not only a diversification through different customer types or through different product features, is also a revenue stream diversification. So this is now where we can get into membership revenue, get into interchange, get into float-related interest income. So there's a diversification of income source as well.

We'll dive into each of these growth drivers going forward a little bit later in the discussion. Now your results have clearly outpaced most or all of your peers. Have you seen anything change in the behavior of your competitors and talk about your opportunities to gain additional market share.

No. The -- well, we -- I, honestly, haven't spent much time looking at the competitors. I think, as I said, I think we keep focusing on the core drivers of what makes us gain market share. And if you look around the world, we have tailwinds and headwinds and the company adjust very, very fast those. We had the 1% tax on the cash remittances. So that was a bit of a tailwind in the U.S. We have new licenses. Then you've got the puts and takes of immigration trends all over the world, generally favorable to the business. And so I'd say that not so like -- we -- if you look at what I spent the last hour during this morning is I look at every corridor, I look at the metrics, I look how our sharp up pricing is. I look how good the defects, how many calls and so Basically, if you just keep iterating on what we do well, I think naturally, market shares begin to move. We live in a world where you and I are one click away from an alternative and pretty much everything in our life -- and so it's not different for moving money. So you just got to be the best.

All right. Now Sebastian, you joined earlier this year, you have a history and a passion of using technology to become more efficient? Just talk about some of the tangible opportunities that you see to leverage AI and technology at Remitly.

The AI has said that it has 3 buckets that we can affect. Obviously, the first one is the cost bucket. I think there's not a CEO in the world who's not getting some benefits from AI as cost. And that space -- that's -- I see it every day. I mean, I don't think a week goes by without some kind of well moment as you're watching a team build something. You start to push and ask questions and something in the back of the room, [indiscernible] says, "I can do this half the price with half the people and triple the speed using AI." And this is -- as you march down pretty much all the functions of the company I anticipate that over the next 2 or 3 years, and this really is a tailwind, I think, for every business in the world, but we're very AI forward. The second bucket is the customer feature and service bucket. AI allows you to do things faster, better, but be careful. Not all these chat bots are great. And -- but behind the scenes, you can help people on the phone, you can help people in chat. So there's a general impact of AI of just making the customer experience better and better and faster. And then the third bucket, the most unknown bucket is how does it affect your top back. So there's no doubt that AI is affecting the bottom line. There's no doubt that generally, we have been able to provide a much better service -- and then the unknown yet is how much is it going to affect the top line. And my basic answer to that is if you can build products faster, products generate revenue, if you can build product faster as you generate products faster and then you generate more revenue. We are seeing that. We launched the global card. We launched [indiscernible] 60 days with a very small team throughout all my past and all the great companies I've been at. That would have taken 3, 4, 5x the time that it took us. And that's purely an impact of AI. So we are living proof that you can launch a product faster, you can start to generate revenue faster. So -- and these are early days. I'm sure you're seeing it in your company, everybody who's on the call is living some version of this. I am somewhat obsessed with what AI can do to make us better. I think that -- I think the company probably feels it. And I think we're going to get a lot of benefits. And I still think it's early days I mean it was December that you had the first anthracite the first jump in the August release for building products for engineers. Every 3 or 4 months since then, we've had -- Fabile was the latest. Now you're getting another view with Codecs and you've got the open source models coming in. I predicted by December this year, we'll probably have 2 or 3 more had moments. So this is a journey we're all on. And I think that we're very, very plugged into how to use this and learning to be efficient as a result.

Thank you for that. In addition to technology, I think you've made some structural changes to Remitly. Can you just talk a little bit about those and what the potential outcomes are?

The new wave -- firstly, I think that the new and driven by AI, AI is going to drive smaller teams with collapsing skill sets. So when you had a designer, you have a software engineer, you had a product manager, those over time are going to collapse into one skill. So, a, the teams get smaller, the skills collapse. So naturally, the hierarchical structures of the past are going to have to evolve. And I've made a huge jump forward, flattened the organization and pushing teams to be smaller. There are some trade-offs, of course, you have to have better coordination. It's a little bit of a messier process, but you move a lot faster. Decisions are made faster. The information can flow through all these different tools much faster. So I'm evolving the organization to many small teams moving very fast in a much flatter structure, which I think is going to have an impact on our results and the products that we can deliver over the next few years.

Let's move to the pivot to the numbers. Vikas, can you just remind us of some of the dynamics that we should remember as we look into the back half of this year? The low fraud costs or the difficult comparison in the December quarter?

Yes. I'd say, first of all, you had an excellent start to the year. The first half has been excellent. Really strong traction in multiple areas as well as maintaining cost discipline. One of the things that we did, as Sebastian joined, was to take a stock of different initiatives and see where we wanted to invest. We have now firmed up on those initiatives, we'll be unlocking those investments over the second half. As we look at some of the categories like transaction loss, as you said, we have seen a lot of fantastic benefits from AI as well as the team has done a great job. Fraud prevention is a top priority. At the same time, we know that it's -- when we are innovating and we open up surface area, whether it is new geographies or new payment types. -- threat vectors to open up. And so we want to be cautiously optimistic over there. So we continue to maintain the stance we did, which is a 9 to 13 bps of an average where over the next 2 quarters, it will be around 11 bps. But outside of that, we feel really optimistic. And finally, I'd say that Second half of the year is always a setup for the next year and how well we do. So we'll be investing in marketing for growth. We feel that right now, it's the time to gain more market share. And our skip-the-line campaign has been very successful in the first half and will be continuing to double down on that effort as well. So overall, very, very optimistic about the second half. The setup is really good. We had 10 million plus quarterly active users, which creates a nice [indiscernible] revenue growth as well as cost discipline helps us have strong EBITDA margins and, finally, investing for future growth.

And about investments, managing investments and margin expansion, you have that rule of 40 framework, which is defined by revenue growth plus EBITDA margin. And historically, you've talked about EBITDA margin contribution margins of about 30%. It's been much higher than that level over the last couple of quarters. Just talk about those different dynamics and maybe the flexibility of giving you more opportunity to invest and are we at a new level in terms of margins contribution.

Rule of 40 framework has been very helpful for us in our capital allocation and capital allocation simple, drive durable growth, drive profitable growth. and finally, invest to build the future. And if you look at all the 3, we are hyper focused on each of them. First one, our growth rates have been excellent, and we continue to diversify that growth as well. Secondly, the EBITDA margins with the cost discipline with and just a very disciplined framework where we only invest when we see long-term profitability is -- has been a differentiator. And finally, our investment framework is something that we keep sharpening every quarter. And now with Sebastian at the helm, there's a very focused process around goal setting and initiatives with you. So overall, we feel great about the Rule of 40 framework and the goals that we set. At Investor Day, we have been marching along quite well. And overall, we feel really, really positive in terms of our key initiatives.

And Sebastian, just along that same line, you mentioned more products is a focus for you. Can you just remind us of kind of how long does it generally take before you get comfortable to make that decision, either to reinvest in the business or to potentially pivot into something new?

Yes, it's a good question. There's a bit of a not and a science to this. Obviously, you want to -- especially -- let me take the Remitly Global card as an example. So we've been testing pieces of that card, the membership, the lending in the short-term liquidity, but we've added a pseudo bank account for everybody. We've added the ability to know -- we can be very efficient on prices if you're sending card to card, no foreign transaction fees. You can deposit your salary there. So we've made -- we've expanded the value of the card, and now it's in the market getting traction. And for a business like us, we've said in the next few years, these businesses have to be have to be 10% or are going to be 10% of the total. So let's say, in 2 years or 3 years were $3 billion, 10% to $100 million, and we've got some of these in the works. I would unscientificlly say we expect if any of these businesses get to $100 million in revenue, I think they are $1 billion opportunities for emitting, which means we've crossed that chasm, -- we've gone from the $1 million, $2 million, $5 million growth rates, the high growth rates we're seeing now. When we get to something like $100 million, then you say you've got to double down, this is a $1 billion business. or some of these products may have a fast start and then it plateaued, it depends how the market deals about it and at which point you're going to have the discipline to build them also and move and allocate to the next product. So it's a good question, we should keep asking it. But I'd say unscientificy, I'm looking to for these products. They are all in markets that are new could be billion opportunities for somebody. We have tremendous products in the market. We are a great candidate to make the involved, whether it be the business center, the high-value center, the receivers and the card, we think they are all 1 billion revenue opportunities. The question is, will they be and how do we decide to double down on them. So far, so good. So all the products are going really well. We're very excited. But we've got a big revenue base. And so competing against the core business is the total order.

Speaking of, let's pivot to the core remittance business. This is probably 95% of your revenue this year. Now there's multiple growth levers in this business we think about market share gains, expanding into new geographies, intra-regional transfers. Just talk about the different levels of investment in the time to ramp for each of these levers.

Yes, the -- a couple of -- there's a couple of core pieces that drive the growth. First of all, we have 5,000 corridors around the world. We call a corridor when you move, you can move, say, pound to some currency in Africa, that's a corridor. And even with 5,000 card does, which is a tremendous coverage of all the best in the world, we're only 50%. We're only 50% of the way and covering the whole world. So number one is we have a team that's very focused on continuing to expand the places and the ability to move money anywhere in the world at a speed and cost that you can expect from Remitly. The second piece, obviously, we do drive customer acquisitions. We've got a very good engine to drive new customers. We've got a marketing machinery that's been proven around the world. We continue to perfect that. AI gives us some tailwinds to keep personalizing by communities. The Chinese community is different than the Indian community, it's different than the Nicaragua community. And we approach all those communities around the world very, very specifically. We've got lots of programs to keep driving that growth. So I'd say that the expanding the network and expanding the precision of our marketing to continue to get new customers and repetition from existing customers are probably the 2 most significant drivers that we have to grow in the core business. And then, of course, you can never forget that you've got to be priced right. And so that's -- scale matters in this business. We are a scaled business at this point. We're getting all the benefits of the unit economics and the cost benefits. And that allows us to be very, very price competitive, which is also a key part of winning in this market.

Now immigration patterns is a big topic. Can you just talk about how these trends either have or have not impacted your business?

It's different all over the world. I mean you obviously -- if you look at the actual legal immigration partners in the U.S. are fairly stable over time. I think there's about 1 million green cards get given every year. And that hasn't changed that much. You have other countries where it's different. I was in Japan a couple of weeks ago. Japan is importing a lot of labor. As you know, the -- they have a population decrease. And so the Japan to Filipino corridor or Japan to China corridor is very active these days. So we've got that integration where. So I think at all times around the world as these puts and takes. For our business, it has not affected us yet, as you see in the numbers. And I think that you and I can agree that over the next 10, 15 years, immigration trends are just going to continue to go up. I mean the world is still moving around and a lot of the west is importing labor. And I think that's going to continue in some combo fashion. So we have not -- despite the noise and the ups and downs, depending on the administration, especially in the U.S., we have not seen any impact on -- remember, we only work with a banked customer. So you cannot open a Remitly account unless you have a bank. So that obviously -- that piece of the immigration has proven to be quite stable over time.

At your Investor Day, you've talked about how Remitly has maybe 10% to 15% market share within your most established markets. Just talk about the key drivers of growth within your most established regions.

Well, that's -- I'll let Vikas answer but I'll react to your number. That's -- it's actually a good or a bad number. When you say 10% means that we have 90% to go. When you mean 10% you say that's a pretty successful market -- piece of market share. So I'd put both hats on. I think that we've proven to really understand this customer and some of these markets, the bigger markets that you can -- U.S. to Mexico, you to Philippines, U.S. to India, Great Britain to India. But by the same token, we're 10%. So we've got a long way to go, a lot of opportunity, a lot of customers who have not used Remitly yet. So we view it as a very big opportunity, yes. But I'll let Vikas talk about some more specifics.