Remitly Global, Inc. quarterly report, Q3 FY2022

Remitly Global, Inc. — Q3 2022 Form 10-Q

Reporting period: Three and nine months ended September 30, 2022. Remitly is a digital financial services provider focused on international remittances, operating in more than 170 countries. Financial amounts below are in U.S. dollars.

Financial performance and liquidity

Metric	Q3 2022	Q3 2021	Nine months 2022	Nine months 2021
Revenue	$169.3 million	$121.2 million	$462.5 million	$323.4 million
Operating loss	$35.6 million	$12.7 million	$98.2 million	$23.2 million
Net loss	$33.1 million	$13.0 million	$94.6 million	$22.2 million
Adjusted EBITDA, non-GAAP	$(3.7) million	$0.3 million	$(21.1) million	$(3.4) million

Q3 revenue grew 40% year over year; nine-month revenue grew 43%. The Q3 operating loss was approximately 21% of revenue, compared with approximately 10% a year earlier. Transaction expenses were 41% of Q3 revenue versus 39% a year earlier; nine-month transaction expenses improved to 40% of revenue from 42%. The filing does not present a separate GAAP gross profit or gross margin.

Q3 active customers increased 49% to 3.818 million, and send volume rose 44% to $7.521 billion. Nine-month send volume increased 42% to $20.579 billion. Management attributed growth primarily to customer growth and retention, with U.S. dollar strength also benefiting acquisition and customer activity in certain markets.

For the nine months, operating cash flow was negative $27.8 million, investing cash flow was negative $5.0 million, and financing cash flow was positive $8.2 million. Cash, cash equivalents and restricted cash totaled $376.5 million at September 30, 2022, down from $403.3 million at year-end 2021. Management cited customer-transaction timing and growth-related working-capital movements as operating cash flow factors.

Total assets were $690.3 million and total liabilities were $223.8 million at September 30, 2022. The company had no revolver borrowings, $19.2 million of issued but undrawn letters of credit, and $230.8 million of unused capacity under its $250 million revolving facility. It reported compliance with the facility’s financial covenants. The company said cash and available facility capacity should cover working-capital needs for at least the next 12 months.

Material changes versus the prior comparable period

Revenue and customer activity expanded, but losses widened as spending on growth, technology and personnel increased.
Q3 technology and development expense doubled year over year to $36.2 million; nine-month expense rose 113% to $95.8 million. Marketing expense increased 43% in Q3 and 55% year to date.
Stock-based compensation expense rose to $25.7 million in Q3 and $67.9 million for the nine months, compared with $4.7 million and $9.0 million, respectively, in 2021.
Transaction-loss provisions were $13.0 million in Q3 and $31.2 million for the nine months, versus $5.5 million and $20.1 million in the comparable periods. The ending reserve was $2.8 million, compared with $1.5 million a year earlier.
Customer funds receivable increased to $114.0 million from $67.2 million at December 31, 2021, while customer liabilities rose to $104.9 million from $70.5 million. Trade settlement liabilities increased to $48.1 million from $18.9 million.

Outlook, risks and unusual items

The filing provides no numerical revenue or profitability guidance. Management expected customer acquisition costs to increase sequentially in Q4 but decline year over year, and noted that holiday seasonality generally brings higher customer activity, marketing costs, transaction losses and working-capital needs.
Management expects continued technology and development investment and associated expense growth; these investments may weigh on short-term profitability. It also cited ongoing public-company costs and growth-related hiring.
Remitly agreed to acquire Rewire for approximately $80 million of aggregate consideration, subject to customary purchase-price adjustments and regulatory and other closing conditions. Consideration is to include cash and company stock; some equity consideration may be recognized as share-based compensation. The transaction was pending at the filing date.
Foreign currency movements can affect transaction exposures and reported results. A hypothetical 10% U.S. dollar move was estimated to change the fair value of relevant customer-transaction assets and liabilities by approximately $14.5 million; the company did not use derivatives to hedge this exposure.
Other risks include fraud and transaction losses, dependence on payment and disbursement partners, regulatory and licensing requirements, macroeconomic and geopolitical changes, and the uncertain effects of COVID-19. Management reported a $3.8 million accrued indirect-tax liability, unchanged from year-end, and no material litigation loss that it considered reasonably possible.
The company disclosed an out-of-period $4.4 million stock-compensation adjustment recorded in Q2 2022, related to graded-vesting awards. Management said the error was not material to historical financial statements individually or in aggregate and did not materially affect expected full-year 2022 results.
Disclosure controls and procedures were deemed ineffective because of material weaknesses in IT general controls, journal-entry segregation of duties, and controls over stock-based compensation timing. Remediation actions were underway, but the weaknesses had not yet been considered remediated. Management said additional procedures supported the fair presentation of the included financial statements.

Important facts for investors to verify

Whether Rewire closes on the disclosed terms, when it closes, and the final cash, stock and compensation-expense impacts.
Whether revenue growth converts into improved operating performance, particularly as stock-based compensation and technology, marketing and personnel costs remain elevated.
Whether higher fraud and transaction-loss provisions persist, and how transaction economics and partner costs develop.
How customer-funds timing, prefunding and settlement balances affect operating cash flow and the availability of corporate liquidity.
Progress in remediating the disclosed internal-control weaknesses, including whether enhanced controls operate effectively over a sufficient period.
Exposure to currency movements, regulatory or indirect-tax outcomes, and dependence on third-party payment and disbursement partners.