All right, thank you everyone for joining our Wells Fargo Tech Summit here in Los Angeles today. My name is Andrew Bauch. I'm the Senior FinTech and Payments Analyst here at Wells. And today we are happy to be joined by Vikas Mehta, who is the, you know, the incoming CFO of Remitly, a fast-growing disruptor in the remittance space and one that we've turned more positive on in recent months. So Vikas, thanks for joining us today.
Andrew, great to be here. Very excited.
Great. So, you know, you've been at the company for, what, 100 days?
100 days now.
So maybe if you can kind of refresh everybody who's not familiar with you, your background, why Remitly, and what are you most excited about?
Absolutely. Andrew, I'm very, very excited about being part of the Remitly organization, and what makes me excited is, first of all, the orientation on mission that we have and the commitment we have there. The second, I believe, is in terms of the people. It's a very, very culture-first company, and, you know, all the way from the top, culture is really important. We spend a lot of time thinking about our culture and values and honing that, and finally, you know, as I was evaluating Remitly as an opportunity, I looked at just the overall, you know, market size that we have, you know, all the things that you would look at as an analyst from the growth perspective, from the upside, and what made me really excited, you know, is just the potential upside that we have. I come from a software background.
Prior to Remitly, I spent more than 20 years in the software space. I worked at, you know, very notable Fortune 500 software and technology companies. And as I did that, I saw that the things that differentiated software were durability and revenue, high gross margin, as well as being able to deliver strong free cash flow. And as I was evaluating Remitly, I saw that, you know, in terms of the growth, we have a lot of durability in terms of, you know, the power to continue to grow. We have a lot of engines. And that made me feel that, hey, there's a lot of similarity over here. And that also creates a unique opportunity for me to tell that story to the investors, as well as behind the scenes add unique value to drive, you know, the value of the company.
That's great. Maybe for the generalists in the room who aren't as familiar with, you know, the nuances of FinTech remittances and payments, give us a quick elevator pitch of Remitly. Why are you such a disruptor? And how do you differentiate from some of those other legacy solutions in the market today?
Absolutely. So as you think about Remitly, I think the differentiated approach that we took was that we were digital native. And if you even zoom back up a little bit, you know, if you think about different industries that went through transformation, whether that was media and entertainment with Netflix or whether that was, you know, other segments, if you think about financial services and specifically remittances, remittances is where you are making cross-border payments, whether you are making it to your friends, family, or for a particular business reason, I think that industry had not gone through as much transformation. And we entered in this space in the early 2010 when I would say the cloud infrastructure and the, call it, you know, peripherals around that were reasonably well developed.
So we were able to take advantage of the mobile ecosystem of the cloud infrastructure to build a front end and back end that was really powerful. And that's, I would say, what differentiates us in a meaningful way. That's the structural advantage. So we started thinking from that lens, creating a very mobile-first approach to driving transformation, creating a very simplified experience for the customer. This is where, you know, the customer did not have to worry about all the plethora of complexities, whether it was compliance, whether it was paying, payout, and other options. They simply were able to use a few clicks in order to get through their, you know, transaction.
The second big thing was in terms of convenience, where we really wanted to make sure that while it was a simple front end, the back end enabled them to do a lot of things that were important to them. Every customer has a specific requirement, and we wanted to cater to all those different requirements. So creating those paying choices, payout choices. We have five billion, you know, bank accounts as well as mobile wallets. We have 470,000 cash pickup locations. So that creates a lot of convenience for different kinds of customers. That meant a lot to us. Finally, it was all about trust. We wanted to create a service that was durable, where there was high reliability. If you've seen our stats, we have like 99.93% of uptime year to date. Like that requires an investment in the infrastructure. We wanted to do that.
So that was very different from the legacy providers who had looked at the industry from a different angle, which was more physical in nature. The whole setup was different, where the business model, the cost structures were very different. Whereas with our business model, we were able to create scale, create ability to reach, you know, in a very, very big way with, you know, 170 countries from a receive side, 30 plus from a send side. Like that, that scale was enabled through that power of digital. So overall, you know, I believe that our ability to go from that digital native perspective, be data-driven, be able to create that simplicity, convenience, and trust for our customer has been a big differentiator for us.
I don't want to get too sidetracked, but I love the Netflix and Blockbuster analogy. From your perspective, like, why do you think that the remittance space was kind of underinvested and lacked innovation as much as it did over that time period, given how big the TAM is?
Yeah, no, I think it's one of those reasons, as I mentioned earlier, which, you know, attracted me to Remitly. Because if you look at the space, it is essentially played by legacy players, subscale players. And there are not a lot of first-class digital players at scale, right? So we called it out earlier, but we are the only one billion plus, you know, revenue player with 30% growth, which is profitable, which is quite unique and goes back to your question. And, you know, as we think about that, one of the key reasons was the market is very fragmented. So you may see dominance in one corridor. You may see dominance in one geography, but you will not see a global player with this ability to have that presence. And one of the reasons was if you are creating physical infrastructure, there is a limitation, right?
There's a huge cost and barrier to entry. That is something with digital we were able to scale. The second biggest reason was compliance. Every single geography in the United States, every single state has compliance requirements. We always had a compliance-first approach to things. We were best-in-class compliance team. With that, we were able to go into new regions. We created a playbook on how to execute and being able to get to 5,100 corridors over our, you know, lifetime is, you know, I would say a compliance strength for us, which is, if you look at other players, it's not hard to replicate or be able to enter into this market and be able to scale that fast.
If I could just ask you about compliance briefly, you know, throughout the day today, I think there's been a pretty consistent theme of an expectation of deregulation coming in the year ahead and the new administration. I mean, from your perspective in the remittance space, are there regulations in place today that you feel perhaps are overly burdensome, that if reduced or eased could lead to more growth? But how do you kind of see the landscape there?
Yeah, it's a great question. Look, we think about, you know, our job as, you know, being in that region, following the compliance, and enabling our customer to transact, right? So that's most important to us. So it starts with the regulator and compliance approach. And as we think about that, we want to make sure that we are being prudent in our choices and important that we can have the durability of growth. So with regulation, we want to embrace that and we think about it as a long-term choice. So with the new regulation coming in or, you know, with change in administration, we feel confident that, you know, the setup that we have with a very compliance-first approach to things with the best-in-class compliance team will be able to navigate that in a very, very confident way.
And as you have seen in prior administrations, a lot of administrations have changed. We, you know, we serve a market which has 300 million, you know, end customers. It's a large market. And with change in regulations or even disruptive events like, you know, a pandemic, et cetera, we have shown deep resilience in the business model. And one of the factors that plays in is that the remittance market is much more resilient than other, call it, end customer markets. And the reason is that it's a very need-based, you know, send. It's not a discretionary send. And sometimes that ends up becoming, you know, very connected to the paychecks that people have on a bi-monthly basis or recurring send needs. So we feel that, one, we'll be highly compliant, we'll always be close to the regulators, and make sure we are listening very carefully.
And, second, we know that the need is strong and our customers rely on us for an important part of their lives.
Maybe if we can move to some of the recent trends, you know, 39% growth in Q3. I mean, I'm trying to think of other names in my coverage. I don't think there's many that are even kind of coming close to those levels. So maybe you can kind of walk us through some of the highlights of the quarter and, you know, the underlying fuel that's driving that growth.
Yeah. No, look, it has been an extraordinary quarter for us. If we take a few stats, we had a record number of new customers. We had the highest growth in our volume at 42% in the last eight quarters. We had the first net income positive quarter. So for me coming in as the new CFO, that was really something that I'm glad. That came along with record EBITDA, as well as finally, you know, 39% growth paired with 14% EBITDA margin, which got us to beyond the Rule of 50. So again, phenomenal stats over there. You know, a few things that I shared earlier play a role in that foundation, which has helped drive that growth. So from, call it, you know, the underpinnings, if you may, it starts with our vision-oriented approach to doing things.
Our vision is to, you know, transform lives with trusted financial, you know, services that transcend borders. And in every decision that we make, we are hyper-focused. Are we serving the customer with that vision and lens? The second big thing is our values. And customer centricity is our most important value. So we focus on what I said earlier, the simplicity, convenience, and trust for our customers. And finally, in terms of our, you know, values, we deeply care about a data-driven organization and make choices which are, you know, positive from a long-term perspective. As you think about the market share dynamics, as I shared earlier, we are, you know, sub 3% market share, you know, in a $2-trillion-plus market. So the upside for us is massive there.
In addition to that, if you look at, you know, 7 million plus active customers out of 300 million plus active customers. So again, it makes me feel very confident about the future. And finally, I'd give credit to the leadership team and the people in the organization. It's an organization that's really hardworking, persevering, focused on those long-term, you know, vision as well as commitments that we have. So, you know, I get to tell a fantastic story coming in, and I feel proud about it.
You also gave, you know, preliminary guidance on 2025 revenue growth, low to mid-20s. Correct me if I'm wrong.
That's absolutely right.
You know, being at 39% in the third quarter, can you help us understand, like, putting the building blocks together in getting to that guide? You know, what were the puts and takes and, you know, your level of visibility into that?
Love it. So as I joined the organization in August earlier this year, you know, I talked to investors as a part of investor listening tour. And, you know, one of the key observations from investors was with regards to, you know, getting a better guidance and early signal into the future. And as we thought about that, we wanted to make sure that we wanted to give, you know, in our Q3 earnings, some visibility to our investors and stakeholders about what the future looks like for us. You know, the good thing for us, as I shared earlier, is that we have durability in revenue. And with that, we can have, you know, confidence in predicting our future growth. The cohort revenues that we have are pretty sticky and strong. I'll give you a couple of stats there.
If you look at, you know, if a cohort has been on our platform for more than a year, you know, we retain 90% + of the revenue generally, you know, after that one year. So it continues to be very sticky. And even if you think about trailing 12-month revenue, most of that comes from prior period cohorts. So I think that gave us a lot of confidence in being able to come. And even though we had not really completed Q4, which is a crucial quarter, as you know, and that is a quarter that drives a lot of active customers and sets us up for the future, we were able to at least give an early signal and make sure that, you know, the investors could start thinking about, you know, what future looks like.
So again, I feel very confident about sort of the foundation of the business and where we are headed.
Maybe we could just address it briefly. You know, from skeptical investors, there's a concern that, you know, a slowdown in immigration trends, particularly in the U.S., would potentially present a risk to you guys. But I think we've walked through some of the building blocks and how those new cohorts ramp. So in an environment where immigration patterns are not as high as they are today, you still have confidence in the growth you can deliver? And why or why not?
Yeah. No, I think it starts with the fact that, you know, we have a very diversified business. As I shared earlier, seven million active customers out of 300 million. So there's a lot of headroom, and we continue to take market share from existing players. You know, the second thing I'd say is that, you know, for a customer to be on Remitly platform, they have to go through a process where they have to verify their name, their physical address, you know, their social security, as well as tax ID, that know your customer approach gives us a lot of confidence to be able to make sure we are bringing a lot of documentation needs that are important to verify the customer.
In addition to that, one of the most important things is, you know, to be part of the Remitly platform and to transact, you have to connect to your bank account or to your credit card or debit card. And so that goes through the second verification, which is the bank verification. And that is very rigorous, as you know. So that those two processes help us, you know, feel very confident that the customers that are on the platform have the right documentation. The last part, I would say, is what you were referring to, which is the cohort revenue that we have already, you know, that we are sitting on makes us feel very comfortable and confident about the next 12 months, and especially with regards to that FY25 guide.
So given most of our next year's revenue comes from prior cohorts, it doesn't even depend on any, call it, new immigration or new inflow of customer additions. The last point I'll make, which is also critical, which is, you know, over time, we have been able to diversify our growth reasonably. So, you know, it's less than two-thirds of the revenue is United States at this point. Most of our growth is coming from that non-US revenue. That's first. The second, on the receive side, the top three receive, you know, are India, Philippines, and Mexico, not in that rank order. And the non-top make up more than 50% of the revenue. And the revenue growth in that non-top three, you know, is higher than the growth in the top three.
So again, from that, both from a send and receive, I'd say we are reasonably diversified and the growth comes from the rest of the world in a meaningful way. So we feel pretty confident to that FY25 growth and the setup that we have.
Yeah. I guess maybe if you can kind of help us understand again, like when you bring a new customer on, how long does it take until that customer is transacting and sending at a rate that's commensurate with the entire base? One of the things that we saw this most recent quarter was that volume per customer was the strongest it's been in two years, I believe. So maybe if you can help us understand that cohort ramp and what that shape looks like and, you know, how that kind of translates to 2025, because you've also had record customer quarters for, I think, the last two quarters now.
Yeah. You know, we look at the unit economics in a very rigorous way. As I shared earlier, we are a data-driven company. And, you know, a few things that we look at are LTV, CAC as well as payback period. And the North Star metric that we are hyper-focused is long-term revenue less transaction expense dollars. That is something that we even report externally. So if you look at our LTV to CAC, it has consistently been higher than 6X. And our payback has usually been less than 12 months. So those are the metrics that give us a lot of confidence in being able to, you know, target the right markets, being able to add those new customers, and drive that value creation and ultimately the growth.
I guess maybe if I could drill in there, I mean, what do you think it was that drove such the strength in volume per customer this quarter? Is there any reason why that level can't be sustained going forward other than seasonal patterns?
Yeah. So if you dissect our volume growth for Q3, we grew 42%. And within that volume growth, you see two important things. The first one is the average send volume. And average send volume is driven by two things. One is the volume of transactions. And second is the volume that we transact per transaction. And what we saw in Q3 was strength in that frequency, right? The number of transactions per active was really strong. And that gave us a signal that there are a few factors. First of all, we are winning share. Second is we are seeing customers transact more frequently on our platform, which is, you know, the health of the platform and the trust that they put in the customer base. And finally, you know, we talked about it briefly, which is FX tailwind, right?
Customers tend to transact when they go through these, call it, you know, advantageous FX rates. And that was something we saw in the latter part of Q3.
You mentioned, you know, having a very rigorous approach to unit economics. There's, in remittances, it feels like there's always a conversation around where take rates are going. Been consistently pretty stable for you guys. So with several of your peers, like making, you know, pretty public pricing actions, where do you kind of anticipate the overall remittance pricing and unit economic structure to be in, call it, the next two to three, four years?
Yeah. Yeah. Look, I think Q3 was an interesting testament where we had a sequential decline in take rate, gross take rate. But on the other hand, our volume growth was 42%. And our revenue growth was 39%. Not only that, we were able to drive expansion in profitability. And our RLTE dollars grew 42%, right? So one thing we know is that if we are focused on the right metric, you know, the output will always be driving the shareholder interest. And we believe that North Star metric for us is the long-term revenue, less transaction expense or RLTE dollars. So we don't obsess over take rate per se, right? But we obsess whether we are able to drive transaction expense reduction at scale and then be able to take benefit of that, either to optimize on the price, innovate and invest, or pass it into profitability.
As I look at your question of sort of long-term take rates, we don't mull over it a lot. We deeply care about whether, you know, whatever actions we take, are we going to drive RLTE dollars, you know, accretion over time? And with that, are we able to drive, you know, expansion into the underlying metrics like EBITDA and profitability?
Well, then maybe we could talk about the short term, you know, the net take rate that you're implied by the guidance in fourth quarter. Is that exit rate a fair way to think about the entry rate for 2025? And why or why not?
Yeah. Again, I'll go back to sort of the thought process on take rate versus RLTE. And I deeply believe that we want to focus on the RLTE dollars and not even the percentage margin. And that guides us to make the right choices. I'll give you a few examples. You know, the reason why we really like RLTE dollars is because that helps us to gain market share, but at the same time drives economies of scale on transaction expense. And if we can do both together, I think that's really a strong, you know, win for us, which is exactly the Q3 dynamic where we were able to grow 42% both on volume as well as 42% on RLTE. Quarterly, it may change. And that's why the operative word is long-term for us. So quarter-specific, you know, it could be a different dynamic.
But going into 2025, I'd say we'll be hyper-focused on, you know, RLTE. We also believe that, you know, we may have a higher volume growth compared to revenue growth continuing into FY25. So that's something that, you know, I would not feel, you know, concerns us because we are focused on the right metrics.
I mean, the efficiencies you've captured in transaction expense over the last couple of years have been really impressive. I mean, how much more work is there to do on the transaction expense side? And maybe help us provide some examples of what you're working on today and to better frame on how low that could go.
Yeah. Yeah. Look, I think it goes back to our ability to have deeper partnerships, the right partnerships, as well as direct integrations in specific markets, right? So the more we can do that, the more we can drive scale and efficiencies. It's also about once our volume grows beyond a certain point, our ability to work with partners to create efficiencies and share that with customers becomes very high. We, you know, struck a partnership and we called it out in Q3 with Nagad in Bangladesh. That was a good example. We did a few of those partnerships even in the Sub-Saharan Africa space with M-Pesa and others. So those are good examples of direct integrations which quickly, you know, drop down to the bottom line. I'll give you one example.
the end of Q3 last year, we were able to have another, you know, good partnership with a large payment processor. That really helped us drive efficiency in transaction expense. That shows, you know, from Q4, Q1, Q2, Q3 of last year, because it's, as you can imagine, once that sets in, it is in the base after four quarters. It shows up in those four quarters in a meaningful way. That is what gives us confidence that if we are able to drive these partnerships, we'll continue to see step changes in our improvement. Of course, it depends on being able to strike those partnerships at the right time. With the volume growth we are seeing, we feel very confident.
That's great. And maybe if we can kind of turn to marketing briefly, it was a big topic last year when you started to ramp some marketing investments. Maybe if you can kind of talk to us holistically about your marketing investment strategy and, you know, how that's evolved over the last year and, you know, what are the priorities as you get into 2025?
Yeah. Yeah. So I'll address that in two ways. I'll do both marketing as well as revenue because they are so connected, right? So as I think about, you know, the thought process on marketing, I shared a couple of examples that we look at LTV to CAC. We look at payback period with 6X + LTV and with payback period less than 12 months. We feel very confident in our marketing engine. In addition, we realized a few things. The first is that we wanted to focus on marginal ROI, right? Because at some point of time, there's diminishing utility and we want to find the efficient frontier there. The second thing is we want to measure channel ROI.
So which is the engine that is giving us the best benefit, whether it is, you know, the brand marketing, whether it is performance marketing, and even within performance marketing specific channels. So I think that is something that I'd say we have become much more ROI focused than just, just call it, let's drive market share growth, let's drive new customer additions. I think that philosophy has become much more of let's add a lot more market share at the right cost, let's add much more new customer additions at the right cost. As you look at 2025, we'll be following the same approach. Now keep in mind there is seasonality, right? And seasonality plays a very, very key role. If you think about seasonality, you know, Q4 is our big quarter.
This is where there are a lot of events, holidays, and this is where our customers predominantly have a good reason to send their remittances. And so we will always be hyper-focused on the right, you know, marketing activities in this quarter. Q1, on the other hand, is not the biggest quarter. And that's similarly on the revenue side also, as we've shared, you know, Q1 is a softer quarter compared to Q4. And interestingly enough, if you look at Q1 of FY25, it has one more nuance, which is it, you know, laps with a leap year. So there's one less day, which more or less becomes, you know, $3million-$4 million if you think about that.
From a modeling perspective, an important call out both on the marketing as well as the revenue that is $3million-$4 million lower revenue just comparing to the lapping and less than one year compared to the leap year.
No, that's a very helpful call out there. We can open up the floor to Q&A if there's anyone would like to ask a question. I guess as we come up on time here, you know, I've been asking all of the management teams, you know, fast forward this time next year, you and I are sitting up on stage. Maybe give us one big prediction that you have, be it for macro, the economy, Remitly, or anything that you think could be a real game changer in 2025.
Yeah. Look, I think first of all, as I shared earlier, we believe that remittance is very resilient. So we feel very confident about 2025. Different administration or, you know, different changes in macroeconomic indicators, we have seen it all. And that just has made us stronger. So first of all, we believe that we'll be a stronger company. The second thing I'd say is that we are hyper-focused on innovation and technology. And we will continue to invest and be very thoughtful in how we drive profitability along the same time. So if I have to summarize, we will be hyper-focused on driving a balance of growth as well as profitability.
Fantastic. Vikas, thank you so much for joining us. I really appreciate it.
Thank you, Andrew.
All right. We'll talk soon.
That's great. Thank you.