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March 29, 2022, 5:26 p.m. EDT

10-K: REMITLY GLOBAL, INC.

(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K and our audited consolidated financial statements and the related notes. You should read the sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Remitly is a leading digital financial services provider for immigrants and their families in over 150 countries around the world. The combination of our differentiated approach and our relentless focus on meeting the financial services needs of our immigrant communities has resulted in significant customer growth, high customer engagement, rapid send volume and transaction growth, and attractive customer economics built on top of an expansive global network.

Our Revenue Model

For our remittance business, which represents the vast majority of our revenue today, we generate revenue from transaction fees charged to customers and foreign exchange spreads applied to the customer's principal.

Transaction fees vary based on the corridor, the currency in which funds are delivered to the recipient, the funding method a customer chooses (e.g., ACH, credit card, debit card, etc.), and the amount of the customer's principal.

Foreign exchange spreads represent the difference between the foreign exchange rate offered to customers and the foreign exchange rate on the Company's currency purchases. They are an output of proprietary and dynamic models that are designed to provide fair and competitive rates to our customers, while generating a spread for the Company based on our ability to buy foreign currency at generally advantageous rates.

Revenue from transaction fees and foreign exchange spreads is reduced by customer promotions. For example, we may, from time to time, waive transaction fees for first-time customers, or provide customers with better foreign exchange rates on their first transaction. These incentives are accounted for as reductions to revenue, up to the point where net historical cumulative revenue, at the customer level, is reduced to zero. We consider these incentives as an investment in our long-term relationship with customers.

The trusted relationships we foster with our customers and the repeat nature of their sending behavior has resulted in strong revenue retention rates. This provides a highly predictable reoccurring revenue stream.

Initial Public Offering and Private Placement

In September 2021, the Company completed its IPO, in which the Company issued and sold 7,000,000 shares of its common stock at $43.00 per share. Concurrently, 5,162,777 shares were sold by certain of our existing stockholders. In addition, the Company issued 581,395 shares of common stock to an existing stockholder in a private placement at the same offering price as the IPO. The Company received net proceeds of $305.2 million for the IPO and private placement, after deducting underwriting discounts and other fees of $20.8 million. In connection with the IPO, 127,410,631 shares of outstanding redeemable convertible preferred stock automatically converted into an equivalent number of shares of common stock on a one-to-one basis.

Components of Results of Operations

Revenue

The Company's revenue is generated on transaction fees charged to customers and foreign exchange spreads between the foreign exchange rate offered to customers and the foreign exchange rate on the Company's currency purchases. Revenue is recognized when control of these services is transferred to the Company's customers, which is the time the funds have been delivered to the intended recipient in an amount that reflects the consideration the Company expects to be entitled to in exchange for services provided.

Costs and expenses

Transaction Expenses

Transaction expenses include fees paid to disbursement partners for paying funds to the recipient, provisions for transaction losses, fees paid to payment processors for funding transactions, bad debt expense, chargebacks, fraud prevention and compliance tools.

Reserve for Transaction Losses

The Company is exposed to transaction losses including chargebacks, unauthorized credit card use, fraud associated with customer transactions and other non-fraud related losses. The Company establishes reserves for such losses based on historical trends and any specific risks identified in

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processing customer transactions. This reserve is included in accrued expenses and other current liabilities on the consolidated balance sheets. The provision for transaction losses is included as a component of transaction expenses on the consolidated statements of operations.

Customer Support and Operations

Customer support and operations expenses consist primarily of personnel-related expenses associated with the Company's customer support and operations organization, including salaries, benefits, and stock-based compensation expense, as well as third-party costs for customer support services, and travel and related office expenses. This includes our customer service teams which directly support our customers, consisting of online support and call centers, and other costs incurred to support our customers, including related telephony costs to support these teams, customer protection and risk teams, investments in tools to effectively service our customers, and increased customer self-service capabilities. Customer support and operations expenses also include corporate communication costs and professional services fees.

Marketing

Marketing expenses consist primarily of advertising costs used to attract new customers, including branding-related expenses. Marketing expenses also include personnel-related expenses associated with the Company's marketing organization staff, including salaries, benefits and stock-based compensation expense, promotions, software subscription services dedicated for use by the Company's marketing functions, and outside services contracted for marketing purposes.

Technology and Development

Technology and development expenses consist primarily of personnel-related expenses for employees involved in the research, design, development and maintenance of both new and existing products and services, including salaries, benefits and stock-based compensation expense. Technology and development expenses also include professional services fees and costs for software subscription services, predominantly for use by the Company's technology and development teams.

We believe delivering new functionality is critical to attract new customers and expand our relationship with existing customers. We expect to continue to make investments to expand our solutions in order to enhance our customers' experience and satisfaction, and to attract new customers. We expect our technology and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period as we expand our technology and development team to develop new solutions and enhancements to existing solutions. In fiscal year 2022, as we invest in our platform including expanding our offerings, improving the user experience and driving geographic expansion, we expect technology and development expense to increase as a percentage of revenue.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses for the Company's finance, legal, human resources, facilities, and administrative personnel, including salaries, benefits and stock-based compensation expense. General and administrative expenses also include professional services fees, software subscriptions, facilities, indirect taxes, and other corporate expenses.

As a result of the closing of our IPO, we have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. We expect general and administrative expenses to increase as a result of these costs to operate as a public company and invest in the long-term growth of the Company.

Depreciation and Amortization

Depreciation and amortization expense includes depreciation on property and equipment and leasehold improvements, as well as the amortization of internal-use software costs and amortization of intangible assets.

Interest Income

Interest income consists primarily of interest income earned on our cash and cash equivalents.

Interest Expense

Interest expense consists primarily of the interest expense on our borrowings.

Other Income (Expense), Net

Other income (expense), net primarily consists of foreign exchange gains and losses.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the United States. We maintain a full valuation allowance for U.S. deferred tax assets, which includes net operating loss carryforwards. We expect to

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maintain this full valuation allowance for the foreseeable future as it is more likely than not that the assets will not be realized based on our history of losses.







        Results of Operations
        Comparison of the years ended December 31, 2021 and 2020
        Revenue
                                         Year Ended December 31,                   Change
        (dollars in thousands)             2021               2020          Amount        Percent
        Revenue                    $     458,605           $ 256,956      $ 201,649          78  %
        


Revenue increased $201.6 million, or 78%, to $458.6 million for the year ended December 31, 2021, compared to $257.0 million for the year ended December 31, 2020. This increase was driven primarily by the growth in send volume for the same time period, which increased $8.4 billion, or 70%, to over $20.4 billion for the year ended December 31, 2021, compared to $12.1 billion for the year ended December 31, 2020, along with an increase in active customers and average revenue per active customer.







        Transaction Expenses
                                          Year Ended December 31,                Change
        (dollars in thousands)             2021              2020          Amount       Percent
        Transaction expenses          $    191,606       $ 110,414       $ 81,192          74  %
        Percentage of total revenue             42  %           43  %
        


Transaction expenses increased $81.2 million, or 74%, to $191.6 million for the year ended December 31, 2021, compared to $110.4 million, for the year ended December 31, 2020. The increase was primarily due to a $66.4 million increase in direct costs associated with processing a higher volume of our customers' remittance transactions and the disbursement of our customers' funds to their recipients, a $10.6 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a $4.2 million increase in other transaction expenses, primarily software and tools that support our compliance and risk operations.

As a percentage of revenue, transaction expenses decreased to 42% for the year ended December 31, 2021, from 43% for the year ended December 31, 2020, primarily as a result of lower fraud and other losses, relative to the increase in revenue.







        Customer Support and Operations Expenses
                                                  Year Ended December 31,                  Change
        (dollars in thousands)                   2021                  2020          Amount       Percent
        Customer support and operations     $    45,525             $ 25,428       $ 20,097          79  %
        Percentage of total revenue                  10   %               10  %
        


Customer support and operations expenses increased $20.1 million, or 79%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increased costs as a result of supporting more active users. The increase was primarily driven by a $9.4 million increase in third-party customer support costs, a $5.8 million increase in internal personnel costs at our sites in the Philippines, Nicaragua, and Ireland that support customer operations, a $3.2 million increase in software and telephony costs as we supported more active customers, and a $1.7 million increase in other operating expenses including customer set up fees and other costs.

As a percentage of revenue, customer support and operations expenses remained flat at 10% for the year ended December 31, 2021 as compared to the year ended December 31, 2020.







        Marketing Expenses
                                                 Year Ended December 31,                Change
               (dollars in thousands)              2021             2020          Amount       Percent
               Marketing                     $    120,906        $ 73,804       $ 47,102          64  %
               Percentage of total revenue             26   %          29  %
        


Marketing expenses increased $47.1 million, or 64%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, due primarily to an increase of $40.1 million in direct marketing expense, including online and offline marketing spend and promotion costs to acquire new customers. Personnel-related costs increased by $3.8 million driven by a 34% increase in marketing headcount compared to the same period in 2020, as well as a $1.5 million increase in stock-based compensation expense. The increase in marketing expenses was also driven by a $0.7 million

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increase in other indirect marketing costs, a $0.4 million increase in other expenses including professional fees, a $0.3 million increase in software, and a $0.3 million increase in other employee-related costs.

As a percent of revenue, marketing expenses decreased to 26% for the year ended December 31, 2021, from 29% for the year ended December 31, 2020, as our existing customer base became a larger portion of revenue while our marketing spend was mostly dedicated to acquiring new customers.







        Technology and Development Expenses
                                                 Year Ended December 31,                  Change
             (dollars in thousands)             2021                  2020          Amount       Percent
             Technology and development    $    64,093             $ 40,777       $ 23,316          57  %
             Percentage of total revenue            14   %               16  %
        


Technology and development expenses increased $23.3 million, or 57%, for the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase was driven by a $13.4 million increase in personnel related expenses resulting from a 30% increase in headcount compared to the same period in 2020, as well as a $4.8 million increase in stock-based compensation expense. The increase in technology and development expense was also driven by a $3.7 million increase in software costs for employee tools and cloud services due to growth in headcount and volume of transactions, as well as a $0.6 million increase in other employee-related expenses, a $0.4 million increase in professional fees and a $0.4 million increase in facility costs.

As a percentage of revenue, technology and development expenses decreased to 14% for the year ended December 31, 2021, from 16% for the year ended December 31, 2020, as we leveraged our technology platform and infrastructure over a larger revenue and customer base.







        General and Administrative Expenses
                                            Year Ended December 31,                  Change
        (dollars in thousands)             2021                  2020          Amount       Percent
        General and administrative    $    70,941             $ 31,656       $ 39,285         124  %
        Percentage of total revenue            15   %               12  %
        


General and administrative expenses increased $39.3 million, or 124%, for the year ended December 31, 2021, compared to the year ended December 31, 2020. Personnel-related expenses increased by $10.0 million, primarily driven by a 56% increase in general and administrative headcount compared to the same period in 2020, as well as a $5.4 million increase in stock-based compensation expense. The increase in our general and administrative headcount over the last year is primarily due to the investments we have made in our human resources, legal, and finance teams to prepare to become a public company. The increase in general and administrative expense was also due to a $7.9 million increase in professional, regulatory, and corporate fees to support the Company in preparing for its IPO, as well as ongoing public company costs, a $6.9 million donation of common stock in September 2021, a $4.9 million increase to other taxes, a $1.9 million increase to other employee-related expenses, a $1.2 million increase in software expense, a $0.8 million increase in facilities expense, and $0.3 million of other costs.

As a percentage of revenue, general and administrative expenses increased to 15% for the year ended December 31, 2021, from 12% for the year ended December 31, 2020, due primarily to the September 2021 donation of common stock in connection with our Pledge 1% and costs related to operating as a public company.







        Depreciation and Amortization
                                                   Year Ended December 31,                   Change
            (dollars in thousands)                2021                    2020        Amount       Percent
        


Depreciation and amortization increased $1.2 million, or 30%, for the year ended December 31, 2021, compared to the year ended December 31, 2020. This increase is mostly due to an increase in depreciation for internally developed software, computers, and leasehold improvements.







        Interest Income
                                                 Year Ended December 31,                   Change
              (dollars in thousands)                 2021                 2020       Amount      Percent
              Interest income            $         140                   $ 273      $ (133)        (49) %
        


Interest income decreased by an immaterial amount for the year ended December 31, 2021, compared to the year ended December 31, 2020 due to lower yields on interest-bearing accounts.







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        Interest Expense
                                                Year Ended December 31,                  Change
               (dollars in thousands)              2021                2020        Amount      Percent
        


Interest expense decreased by an immaterial amount for the year ended December 31, 2021, as compared to the year ended December 31, 2020.







        Other Income (Expense), Net
                                                 Year Ended December 31,                   Change
             (dollars in thousands)                 2021                2020        Amount       Percent
        


Other income (expense), net, increased $4.4 million from other (expense), net, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to foreign exchange remeasurements on transactions associated with high-volume balance sheet balances, and volatility in related currencies including the Mexican peso, Philippine peso, and Colombian peso.







        Provision for Income Taxes
                                                 Year Ended December 31,                  Change
              (dollars in thousands)                2021                2020        Amount      Percent
        


The provision for income taxes decreased by an immaterial amount for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

Comparison of the years ended December 31, 2020 and 2019







        Revenue
                                         Year Ended December 31,                   Change
        (dollars in thousands)             2020               2019          Amount        Percent
        Revenue                    $     256,956           $ 126,567      $ 130,389         103  %
        


Revenue increased $130.4 million, or 103%, to $257.0 million for the year ended December 31, 2020, compared to 2019. This increase was primarily driven by growth in active customers, which doubled compared to 2019.







        Transaction Expenses
                                          Year Ended December 31,                Change
        (dollars in thousands)              2020             2019          Amount       Percent
        Transaction expenses          $    110,414        $ 55,858       $ 54,556          98  %
        Percentage of total revenue             43   %          44  %
        


Transaction expenses increased $54.6 million, or 98%, for 2020, compared to 2019. The increase was driven by a $37.3 million increase in direct costs associated with processing a higher volume of our customers' remittance transactions and the disbursement of our customers' funds to their recipients, a $12.0 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a $5.3 million increase in software and tools that support our compliance and risk operations.

As a percentage of revenue, transaction expenses decreased to 43% for 2020, from 44% for 2019, which was driven primarily by scale benefits as we grew send volume.







        Customer Support and Operations Expenses
                                                  Year Ended December 31,                  Change
        (dollars in thousands)                   2020                  2019         Amount       Percent
        Customer support and operations     $    25,428             $ 17,445       $ 7,983          46  %
        Percentage of total revenue                  10   %               14  %
        


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Customer support and operations expenses increased $8.0 million, or 46%, for 2020, compared to 2019. This increase was primarily driven by a $5.5 million increase in third-party customer support costs, a $1.7 million increase in internal personnel costs at our sites in the Philippines and Nicaragua that support customer operations, and approximately $1.0 million increase in software and telephony costs, partially offset by $0.2 million lower travel and office expenses. Although customer support and operations expense growth is typically tied to new customer and active customer growth, these costs grew slower than active customers for 2020, as we experienced absenteeism and delays in hiring due to the COVID-19 pandemic. We also invested in tools to increase customer self-service capabilities, which helped to reduce customer contact rates and drove operational efficiencies.

As a percentage of revenue, customer support and operations expenses decreased to 10% for 2020, from 14% for 2019, which was driven primarily by operational efficiencies coupled with the impact of the COVID-19 pandemic on our ability to service customer demand.







        Marketing Expenses
                                                 Year Ended December 31,                  Change
             (dollars in thousands)             2020                  2019          Amount       Percent
             Marketing                     $    73,804             $ 43,542       $ 30,262          70  %
             Percentage of total revenue            29   %               34  %
        


Marketing expenses increased $30.3 million, or 70%, for 2020, compared to 2019, due primarily to an increase of $28.1 million in direct marketing expenses, including online and offline marketing spend and promotion costs to acquire new customers. Personnel-related costs, including stock-based compensation expense, increased by $2.1 million, driven by a 41% year-over-year increase in marketing headcount, partially offset by a $0.2 million decrease in compensation expense in 2020, as compared to 2019, due to compensation expenses incurred for our 2019 tender offer. The remaining increase was driven by a $0.3 million increase in other marketing operating expense, primarily indirect marketing.

As a percentage of revenue, marketing expenses decreased to 29% for 2020, from 34% for 2019, as our existing customer base became a larger portion of revenue while our marketing spend was mostly dedicated to acquiring new customers.







        Technology and Development Expenses
                                                  Year Ended December 31,                  Change
              (dollars in thousands)             2020                  2019         Amount       Percent
              Technology and development    $    40,777             $ 32,008       $ 8,769          27  %
              Percentage of total revenue            16   %               25  %
        


Technology and development expenses increased $8.8 million, or 27%, for 2020, compared to 2019. This increase was driven by a $7.3 million increase in personnel-related expenses, including stock-based compensation expense, resulting from a 27% year-over-year increase in technology and development headcount, partially offset by a $2.0 million decrease in compensation expense in 2020, as compared to 2019, due to compensation expenses incurred for our 2019 tender offer. The increase in technology and development expenses was also driven by $3.5 million in software costs for employee tools and cloud services due to growth in both headcount and the volume of transactions.

As a percentage of revenue, technology and development expenses decreased to 16% for 2020, from 25% for 2019, as we leveraged our technology platform and infrastructure over a larger revenue and customer base.







        General and Administrative Expenses
        . . .
        


Mar 29, 2022

COMTEX_404955547/2041/2022-03-29T17:26:17

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