Remitly Global, Inc. (RELY) FY 2022 MD&A

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. The forward-looking statements in this Form 10-K represent our views as of the date of this Form 10-K. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-K.

Overview

Remitly is a leading digital financial services provider for immigrants and their families in over 170 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 substantially all of our revenue today, we generate revenue from transaction fees charged to customers and foreign exchange spreads applied to the amount the customer is sending.

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.), the disbursement method a customer chooses (e.g., bank deposit, mobile wallet, cash pick-up, etc.), and the amount the customer is sending.

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 to be an investment in our long-term relationship with customers.

Key Business Metrics

We regularly review the following key business metrics to evaluate our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We believe that these key business metrics provide meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of these key business metrics discussed below may differ from other similarly titled metrics used by other companies, analysts, or investors.

Active Customers

Active customers, measured as of the three months ended December 31, 2022, 2021, and 2020 were as follows:

We believe that the number of our active customers is an important indicator of customer engagement and the overall growth of our business.

Active customers increased to approximately 4.2 million, or 48% growth, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021. This increase was primarily due to an increase in new customers, driven by investments in our mobile platform and efficient marketing spend, our focus on customer experience, expansion of our global disbursement network, and the continued diversification across both send and receive countries. While we continue to see strong results in our largest existing receive countries, our successful diversification of our corridor portfolio across both send and receive countries has contributed to new customer growth. In addition, while not a primary driver of results, we believe the strength in our primary send currencies relative to receive market currencies contributed to new customer acquisition in certain markets during the period.

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Send Volume

We measure send volume to assess the scale of remittances sent using our platform. Our customers mostly send from the United States, Canada, and other countries in Europe. Our customers and their recipients are located in over 170 countries and territories across the globe; the largest receive countries by send volume include India, Mexico, and the Philippines.

Send volume increased $8.2 billion, or 40%, to over $28.6 billion for the year ended December 31, 2022, compared to $20.4 billion for the year ended December 31, 2021, driven by the increase in active customers.

Key Factors Affecting Our Performance

Customer Retention and High Customer Engagement

Our send volume is primarily driven by existing customers who regularly use our remittance product to send money home. We believe our mobile-first products and superior customer experience encourage high retention and repeat usage, which are significant though not the only drivers of our performance.

We measure active customers to monitor the growth and performance of our customer base. The majority of our active customers send money for recurring, non-discretionary needs multiple times per month, providing a reoccurring revenue stream with high visibility and predictability.

Attracting New Customers

Our continued ability to attract new customers to our platform is a key driver for our long-term growth. We continue to expand our customer base by launching new send and receive corridors, by continuing to innovate on existing and new products, and by providing the most trusted financial services for immigrants. We plan to continue to acquire new customers through digital marketing channels and word-of-mouth referrals from existing customers and by exploring new customer acquisition channels. Given the nature of our business, new customer acquisition may negatively impact net loss and Adjusted EBITDA in the initial period, while positively impacting net loss and Adjusted EBITDA in subsequent periods.

Customer Acquisition

Efficiently acquiring customers is critical to our growth and maintaining attractive customer economics, which is impacted by online marketing competition, our ability to effectively target the right demographic, and competitor pricing. We have a history of successfully monitoring customer acquisitions costs and will continue to be strategic and disciplined toward customer acquisition. For example, for performance marketing, we set rigorous customer acquisition targets that we continuously monitor to ensure a high return on investment over the long term, and we can increase or decrease this investment as desired. Customer acquisition costs refer to direct marketing expenses deployed to acquire new customers and primarily includes digital advertising costs. As we look ahead, we remain focused on driving efficiencies across the marketing funnel.

Corridor Mix

Our business is global and certain attributes of our business vary by corridor such as send amount, customer funding sources, and transaction frequency. For example, a period of high growth in receive corridors with large average send amounts, such as India, could disproportionately impact send volume while impacting active customers to a lesser extent. While shifts in our corridor mix could impact the trends in our global business, including send volume and customer economics, we have the ability to optimize these corridors over the long term based on their specific dynamics.

Seasonality

Our operating results and metrics are subject to seasonality, which may result in fluctuations in our quarterly revenues and operating results. For example, active customers and send volume generally peak as customers send gifts for regional and global holidays including, most notably, in the fourth quarter around the Christmas holiday. This seasonality typically drives higher fourth quarter customer acquisition, which generally results in higher fourth quarter marketing costs and transaction losses. It also results in higher transactions and transaction expenses, along with higher working capital needs. Other periods of favorable seasonality include Ramadan/Eid, Lunar New Year/Tết and Mother's Day, although the impact is generally lower than the seasonality we see in the fourth quarter. Conversely, we typically observe lower customer acquisition and existing customer activity through most of the first quarter, especially in regions that experience favorable seasonality in the fourth quarter. The number of business days in a quarter and the day of week that the last day of the quarter falls on may also introduce variability in our results, working capital balances, or cash flows period over period.

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Our Technology Platform

We will continue to invest significant resources in our technology platform. These investments will allow us to introduce new and innovative products, add features to current products, enhance the customer and recipient experience, grow our payment and disbursement network, invest in our risk and security infrastructure, and continue to secure data in accordance with evolving best practices and legal requirements. While we expect our expenses related to technology and development to increase, which may impact short-term profitability, we believe these investments will ultimately contribute to our long-term growth.

Management of Risk and Fraud

We manage fraud (e.g., through identity theft) and other illegitimate activity (e.g., money laundering) by utilizing our proprietary risk models which include machine learning processes, early warning systems, bespoke rules, and manual investigation processes. Our models and processes enable us to identify and address complex and evolving risks in these unwanted activities, while maintaining a differentiated customer experience. In addition, we integrate historical fraud loss data and other transaction data into our risk models which helps us identify emerging patterns and quantify fraud and compliance risks across all aspects of our customer interactions. These models and processes allow us to achieve and maintain fraud loss rates within desired guardrails, as well as tailor our risk models to target other illegitimate activity.

Macroeconomic and Geopolitical Changes

Global macroeconomic and geopolitical factors, including inflation, currency fluctuations, immigration, trade and regulatory policies, the conflict in Ukraine, unemployment, potential recession, and the rate of digital remittance adoption impact demand for our services and the options that we can offer. These factors evolve over time and periods of significant currency appreciation or depreciation, whether in send or receive currencies, changes to global migration patterns, and changes to digital adoption trends may shift the timing and volume of transactions, or the number of customers using our service. In addition, foreign currency movements do impact our business in numerous ways. For example, as the U.S. dollar strengthens, we see customers in certain markets taking advantage of the ability to get more local currency to their families and friends. We also believe the strength of the U.S. dollar and the strength in other developed market currencies versus emerging market currencies make it easier to acquire new customers in certain markets. Conversely, expansion of our international business can negatively impact our consolidated results when these currencies weaken against the U.S. dollar. As we grow we are becoming more diversified across geographies and currencies which can help mitigate some localized geopolitical risks and macroeconomic trends. As foreign currency can have a significant impact on our business, we strive to maintain a diversified cash balance portfolio and frequently assess for foreign currency cash concentrations. See Note 2 in the Notes to the Company’s Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a more comprehensive description of current business concentrations.

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 and fees paid to payment processors for funding transactions. Transaction expenses also include credit losses, chargebacks, fraud prevention, fraud management tools and compliance tools. Over the long term we expect to continue to benefit from increasing scale, although we expect some variability in transaction expense from quarter to quarter.

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 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’ within 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 professional services fees.

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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 and legal fees. Technology and development expenses also include professional services fees and costs for software subscription services dedicated for use by the Company’s technology and development teams, as well as other company wide technology tools. Technology and development expenses also include product and engineering teams used to support the development of both internal infrastructure and internal-use software, to the extent such costs do not qualify for capitalization.

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 invest in and expand our technology and development team to develop new solutions and enhancements to existing solutions.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses for the Company’s finance, legal, corporate and business development, human resources, facilities, administrative personnel, and other leadership functions, 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, including acquisition and integration expenses. Such expenses primarily include external legal, accounting, valuation, and due diligence costs, as well as advisory and other professional services fees necessary to integrate acquired businesses.

We have incurred and expect to continue to incur expenses as a direct 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 have also invested in additional headcount to support both public company costs and to support our growth initiatives.

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

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Results of Operations

Comparison of the years ended December 31, 2022 and 2021

Revenue

Revenue increased $195.0 million, or 43%, to $653.6 million for the year ended December 31, 2022, compared to $458.6 million for the year ended December 31, 2021. This increase was primarily driven by growth in send volume, which increased $8.2 billion, or 40%, to over $28.6 billion for the year ended December 31, 2022, compared to $20.4 billion for the year ended December 31, 2021, reflecting a 48% increase in active customers year over year and continued strength in the retention of existing customers.

While not a primary driver of results, foreign currency movements, particularly the recent strength in the U.S. dollar, impacted our business in the year ended December 31, 2022. For example, we saw customers taking advantage of the ability to get more local currency to their families and friends. The strength in our primary send currencies relative to receive market currencies was also a benefit to new customer acquisition and retention in certain markets. We also saw strong revenue growth in international send countries outside of North America as our business continues to scale, contributing to greater diversification of our revenue globally. This increase in global revenue growth was partially offset by foreign currency translation related to our international revenue, and currencies such as the British Pound and Euro weakened against the U.S. dollar. For further information about our revenue by major geography, see Note 3. Revenue in the Notes to the Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

Transaction Expenses

Transaction expenses increased $67.2 million, or 35%, to $258.8 million for the year ended December 31, 2022, compared to $191.6 million, for the year ended December 31, 2021. The increase was primarily due to a $49.4 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 $13.9 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a $3.9 million increase in other transaction expenses, primarily related to software and tools that support our compliance and risk operations.

As a percentage of revenue, transaction expenses decreased to 40% for the year ended December 31, 2022, from 42% for the year ended December 31, 2021, primarily due to better economics with partners as we are able to drive better terms with our payment and disbursement partners as a result of increasing scale.

Customer Support and Operations Expenses

Customer support and operations expenses increased $22.6 million, or 50%, for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase was primarily driven by an $8.7 million increase in internal personnel costs at our sites in the Philippines, Nicaragua, and Ireland that support customer operations, an $8.7 million increase in third party customer support costs, a $3.9 million increase in software and telephony costs as we supported more active customers, and $1.3 million increase in other operating expenses.

As a percentage of revenue, customer support and operations expenses remained flat at 10% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

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Marketing Expenses

Marketing expenses increased $50.1 million, or 41%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, due primarily to an increase of $34.2 million in direct marketing expense, including online and offline marketing spend and promotion costs to acquire new customers. Personnel-related costs increased by $12.4 million, driven by a 29% increase in marketing headcount compared to the same period in 2021, and inclusive of an $8.2 million increase in stock-based compensation expense. The increase in marketing expenses was also driven by a $2.2 million increase in other indirect marketing, a $0.5 million increase in professional fees, $0.5 million increase in software costs, and a $0.4 million increase in employee-related expenses, partially offset by a $0.1 million decrease in other operating expenses.

As a percentage of revenue, marketing expenses remained flat at 26% for the year ended December 31, 2022 and 2021.

Technology and Development Expenses

Technology and development expenses increased $74.6 million, or 116%, for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase was driven by $64.4 million in personnel-related expenses resulting from a 45% increase in headcount compared to the same period in 2021 undertaken as part of our continued investment in our technology platform and included a $39.5 million increase in stock-based compensation expense. The increase in technology and development expense was also driven by a $6.7 million increase in software costs for cloud services to support incremental transaction volume, a $1.4 million increase in employee-related expenses, a $1.4 million increase in professional fees, and a $0.7 million increase in facilities costs.

As a percentage of revenue, technology and development expenses increased to 21% for the year ended December 31, 2022, from 14% for the year ended December 31, 2021, driven by an increase in stock-based compensation expense and headcount due to hiring additional personnel and contractors who are directly engaged in developing our platform and providing technology support and security.

General and Administrative Expenses

General and administrative expenses increased $60.3 million, or 85%, for the year ended December 31, 2022, compared to the year ended December 31, 2021. This increase was primarily driven by a $46.8 million increase in personnel-related costs due to a 61% increase in general and administrative headcount compared to the same period in 2021 and inclusive of a $29.9 million increase in stock-based compensation expense. Contributing to the increase in general and administrative expenses were $3.5 million of legal, accounting, and diligence acquisition and integration expenses, primarily driven by the acquisition of Rewire, $7.6 million in professional fees, $3.8 million in corporate costs, $2.6 million in employee-related costs, $2.6 million in facilities costs, and $1.0 million in software, partially offset by a $4.7 million decrease in charitable contributions, a $2.7 million decrease in indirect taxes, and a $0.2 million decrease in other operating expenses. The increase in headcount and professional, regulatory, and corporate fees has been to support the growth of the business and ongoing public company costs, including incremental D&O insurance required as a public company.

As a percentage of revenue, general and administrative expenses increased to 20% for the year ended December 31, 2022, from 15% for the year ended December 31, 2021, due to an increase in headcount, stock-based compensation, and ongoing public company costs.

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Depreciation and Amortization

Depreciation and amortization increased $1.5 million, or 28%, for the year ended December 31, 2022, compared to the year ended December 31, 2021. This increase is primarily due to an increase in depreciation for internally developed software, computers, and leasehold improvements and the amortization of intangible assets.

Interest Income

Interest income increased by $4.0 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021 due to an increase in yield on interest bearing accounts driven by the increase in the U.S. Federal interest rate.

Interest Expense

Interest expense decreased by an immaterial amount for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

Other income, net

Other income, net, increased $2.1 million for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to unrealized gains on foreign exchange remeasurements related to transactions associated with high-volume balance sheet amounts.

Provision for Income Taxes

The provision for income taxes was flat for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

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Comparison of the years ended December 31, 2021 and 2020

Revenue

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

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

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

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 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.

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Technology and Development Expenses

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

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

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

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

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

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

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.

Non-GAAP Financial Measures

We regularly review the following non-GAAP measure to evaluate our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We believe that this non-GAAP measure provides meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of this non-GAAP measure discussed below may differ from other similarly titled metrics used by other companies, analysts, or investors.

We use Adjusted EBITDA, a non-GAAP financial measure to supplement net loss. Adjusted EBITDA is calculated as net loss adjusted by (i) interest expense, net; (ii) provision for income taxes; (iii) noncash charge of depreciation and amortization; (iv) gains and losses from the remeasurement of foreign currency assets and liabilities into their functional currency; (v) noncash charges associated with our donation of common stock in connection with our Pledge 1% commitment, (vi) noncash stock-based compensation expense, net; and (vii) certain transaction and integration costs associated with acquisitions.

Adjusted EBITDA is a key output measure used by our management to evaluate our operating performance, inform future operating plans, and make strategic long-term decisions, including those relating to operating expenses and the allocation of internal resources.

Adjusted EBITDA has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:

•although depreciation and amortization are noncash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments;

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•Adjusted EBITDA does not reflect the effect of income taxes that may represent a reduction in cash available to us;

•Adjusted EBITDA does not reflect the effect of gains and losses from the remeasurement of foreign currency assets and liabilities into their functional currency;

•Adjusted EBITDA excludes noncash charges associated with the donation of our common stock in connection with our Pledge 1% commitment, which is recorded in general and administrative expense;

•Adjusted EBITDA excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

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•Adjusted EBITDA excludes certain transaction costs, primarily acquisition and integration expenses related to the pending Rewire acquisition. Transaction costs primarily include legal, accounting, valuation and due diligence costs, as well as advisory and other professional services fees necessary to integrate acquired businesses; and

•other companies, including companies in our industry, may calculate Adjusted EBITDA differently from how we calculate this measure or not at all, which reduces its usefulness as a comparative measure.

The following table sets forth a reconciliation of net loss to Adjusted EBITDA, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated:

Adjusted EBITDA declined to $(13.6) million for the year ended December 31, 2022, compared to $(10.5) million for the year ended December 31, 2021. Although we have continued to experience revenue growth, this has been offset by higher customer support costs, continued investments in customer acquisition and our technology platform, and other general and administrative expenses to support growth initiatives and operate as a public company.

As a percentage of revenue, Adjusted EBITDA remained flat at (2)% for the year ended December 31, 2022 and the year ended December 31, 2021.

Adjusted EBITDA improved to $(10.5) million for the year ended December 31, 2021, compared to $(19.9) million for the year ended December 31, 2020, driven by continued acceleration in revenue, as a result of our growing customer base and corresponding increase in send volume, partially offset by higher processing and customer support costs, investments in customer acquisition and our technology platform, and other general and administrative expenses during 2021.

Liquidity and Capital Resources

Sources of Liquidity and Material Future Cash Requirements

As of December 31, 2022 and December 31, 2021, our principal sources of liquidity were cash and cash equivalents of $300.6 million and $403.3 million, respectively, as well as funds available under the New Revolving Credit Facility. We have historically financed our operations and capital expenditures primarily through cash generated from operations including transaction fees and foreign exchange spreads and sales of our redeemable convertible preferred stock. Since September 2021, we have primarily financed our operating growth and capital expenditures through the proceeds from our IPO and concurrent private placement. In addition, in September 2021, we entered into our $250.0 million New Revolving Credit Facility; however, we have not yet borrowed against this credit facility, given the cash we have on hand to fund operations, other than utilizing the letter of credit sub-facility, on an as needed basis. As of December 31, 2022, we have unused borrowing capacity of $227.7 million.

We believe that our cash, cash equivalents, and funds available under the New Revolving Credit Facility will be sufficient to meet our working capital requirements for at least the next twelve months. Our material cash requirements include funds to support current and potential operating activities, capital expenditures, and other commitments, and could include other uses of cash, such as strategic investments. In addition, on January 5, 2023, we acquired 100% of the outstanding equity interests of Rewire (as defined herein) for approximately $77.0 million which includes the fair value of cash and equity issued, or to be issued, to selling shareholders. Approximately $12.0 million of these proceeds were held back at closing for any potential indemnity claims, which will be released after a 15-month holdback period, subject to any deductions, the majority of which will be settled in cash, subject to any deductions. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of expansion into new corridors, and the timing of introductions of new products and enhancements of existing products. Furthermore, certain jurisdictions where we operate require us to hold eligible liquid assets, based on regulatory or legal requirements, equal to the aggregate amount of all customer balances. In addition, as discussed elsewhere in this Annual Report on Form 10-K, we expect that our operating expenses may continue to increase to support the continued growth of our business, including increased investments in our technology to support product improvements, new product development, and geographic expansion, as well as ongoing operating costs as a public company. We also routinely enter into marketing and advertising contracts, as well as software and other service arrangements, that can include minimum purchase quantities, requiring us to utilize cash on hand to fulfill these amounts. Refer to “Contractual Obligations and Commitments” discussed further below.

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In the future, we may also attempt to raise additional capital through the sale of equity securities or through equity-linked securities, and the ownership of our existing stockholders would be diluted. In addition, if we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that are unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.

Cash Flows

The following table shows a summary of our Consolidated Statements of Cash Flows for the periods presented:

Operating Activities

Our main sources of operating cash are transaction fees charged to customers and foreign exchange spreads on transactions. Our primary uses of cash from operating activities have been for advertising expenses used to attract new customers, transaction expenses that include fees paid to payment processors and disbursement partners, personnel-related expenses, technology and other general corporate expenditures. Our changes in operating cash flows are heavily impacted by the timing of customer transactions and in particular, the day of the week that the year end falls on, including holidays and long weekends. For example we generally have higher prefunding amounts if the year closes on a weekend or in advance of a long weekend, such as a holiday, which creates variability in customer transaction related balances period over period and can reduce our cash position at a particular point in time. These balances in our Consolidated Statement of Cash Flows include disbursement prefunding, customer funds receivable, customer liabilities, and book overdrafts and disbursement postfunding liabilities, which are included within the line item ‘Accrued expenses and other liabilities’.

For the year ended December 31, 2022, net cash used in operating activities was $105.1 million, which was primarily driven by the timing of funding customer transactions year over year, due to the current year ending on a Saturday during a holiday funding weekend, compared to the same date in prior year, which ended on a Friday. Contributing to the changes was an overall growth in our business, increasing our volume of customer related balances as compared to the prior period. Specifically, as a result of both growth and timing, we saw an increase in customer funds receivable of $126.9 million, which was the key driver for the unfavorable changes in our operating assets and liabilities of $95.5 million at the end of 2022. Also affecting the net cash used in operating activities was a net loss of $114.0 million, substantially offset by $104.4 million of noncash charges included within net loss for the period.

For the year ended December 31, 2021, net cash used in operating activities was $18.4 million, which primarily consisted of a net loss of $38.8 million, substantially offset by excluding approximately $29.7 million of noncash charges included within net loss for the period, as well as unfavorable changes in our operating assets and liabilities of $9.3 million. The main drivers for the unfavorable change in operating assets and liabilities were an increase in disbursement prefunding of $18.1 million, in line with the growth in our business and related to funding disbursement partners for expected send volume over a long holiday weekend, as well as an increase of $17.3 million in customer funds receivable, partially offset by an increase in accrued expenses and other liabilities of $26.1 million due to the timing of cash payments to vendors.

For the year ended December 31, 2020, net cash used in operating activities was $114.2 million, which primarily consisted of changes in our operating assets and liabilities of $91.0 million, as well as a net loss of $32.6 million, excluding $9.3 million of non-cash charges included within net loss for the period. The main drivers for the change in operating assets and liabilities were an increase in disbursement prefunding of $69.7 million related to funding disbursement partners for expected send volume over a long holiday weekend, an increase in customer funds receivable of $20.0 million due to an increase in volume and growth in our business and decrease of customer liabilities of $29.1 million due to timing of disbursements offset by an increase in accrued expenses and other current liabilities of $25.9 million due to timing of settlement of trade liabilities as well as increase in operating expense accruals in line with the growth of the business.

Investing Activities

Cash used in investing activities consists primarily of purchases of property and equipment, capitalization of internal-use software, and cash paid for acquisitions of businesses.

Net cash used in investing activities was $7.3 million for the year ended December 31, 2022, primarily related to purchases of property and equipment to support the increase in headcount, capitalization of internal-use software costs, and the acquisition of a business.

Net cash used in investing activities was $4.5 million for the year ended December 31, 2021 and $4.4 million for the year ended December 31, 2020, primarily related to purchases of property and equipment to support the increase in headcount, and capitalization of internal-use software costs.

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Financing Activities

Cash provided by financing activities consists primarily of proceeds from the exercise of stock options, offset by repayments of our revolving credit facility borrowings, payment of debt issuance costs, and other long-term debt. Cash provided by financing activities also historically consisted of proceeds from our IPO and concurrent private placement, as well as previous issuances of redeemable convertible preferred stock.

Net cash provided by financing activities for the year ended December 31, 2022 of $11.1 million was primarily driven by proceeds from the exercise of stock options of $11.6 million, partially offset by payment of long-term debt acquired as part of an acquisition of $0.4 million.

Net cash provided by financing activities for the year ended December 31, 2021 of $238.2 million was primarily driven by proceeds from the issuance of common stock upon our IPO and concurrent private placement, net of underwriting discounts and commissions and other offering costs of $305.2 million, as well as proceeds from: the exercise of stock options of $8.3 million, the repayment of a non-recourse promissory note of $3.1 million, and the issuance of Series F redeemable convertible preferred stock, net of issuance costs of $3.0 million. These proceeds were partially offset by repayments of our prior revolving credit facility borrowings of $80.0 million and payments of debt issuance costs on our New Revolving Credit Facility of $1.4 million.

Net cash provided by financing activities for the year ended December 31, 2020 of $122.2 million was primarily driven by proceeds from the issuance of Series F convertible preferred stock of $84.8 million, net of issuance costs, and $35.0 million of proceeds from our revolving credit facility to meet our working capital needs, as well as $2.4 million in proceeds from the exercise of stock options.

Contractual Obligations and Commitments

Our principal commitments consist of standby letters of credits, long-term leases, and other purchase commitments entered into in the normal course of business. In addition, we routinely enter into marketing and advertising contracts, as well as software or other service arrangements, that contractually obligate us to purchase services in the near term, including minimum service quantities, unless we give notice of cancellation based on the applicable terms of the agreements. Most contracts are typically cancelable within a period of less than one year. As of December 31, 2022, we had approximately $8.0 million in total purchase commitments under these arrangements, of which the majority are expected to be paid within the next two years. Changes in our business needs, contractual cancellation provisions, fluctuating interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of these payments. In addition, we have entered into the following commitments during 2022:

•On August 15, 2022, we entered into a definitive agreement to acquire the outstanding equity interests of Rewire and on January 5, 2023, we completed this acquisition. Pursuant to the terms and conditions set forth in the agreement, and after customary adjustments for net debt, working capital, and transaction expenses, the net proceeds due to Rewire’s selling shareholders was approximately $77.0 million which includes the fair value of cash and equity issued, or to be issued, to selling shareholders. Approximately $12.0 million of these proceeds were held back at closing for any potential indemnity claims, which will be released after a 15-month holdback period, subject to any deductions, the majority of which will be settled in cash. The remaining consideration was transferred to Rewire’s selling shareholders through a combination of cash and Remitly equity.

•On May 4, 2022, the Company amended and renewed the lease for its corporate headquarters in Seattle, Washington. In addition, during 2022, the Company amended certain of its existing lease agreements to accommodate additional space needed for its workforce, as a result of the Company’s continued growth, which included entering into a new multi-year lease agreement in Ireland. These leases commenced, or will commence, in various months during 2022 and expire between 2023 and 2025. Total incremental estimated cash payments that will be made over the course of these lease agreements total approximately $10 million. These leases have been recorded in accordance with ASC 842, Leases, on the Company’s Consolidated Balance Sheets as of December 31, 2022.

For further information on our material commitments refer to Note 6. Debt , Note 14. Commitments and Contingencies and Note 16. Leases in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of December 31, 2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources. From time to time we do enter into short-term leases that have lease terms of less than 12 months, and are typically month-to-month in nature. As described in the Notes to the Consolidated Financial Statements, we elected not to record leases on our Consolidated Balance Sheets if the lease term is 12 months or less. For further information on our lease arrangements refer to Note 16. Leases in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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Critical Accounting Policies and Estimates

The Company’s Consolidated Financial Statements and accompanying notes included in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, equity, revenue and expenses, and related disclosures. The Company’s estimates are based on historical experience and on various other factors that it believes are reasonable under the circumstances. Actual results may differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

While our significant accounting policies are described in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we believe that the following critical accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most important to aid in fully understanding and evaluating our reported financial results.

Revenue Recognition

Our primary source of revenue is generated from our remittance business. Our revenue is earned from transaction fees charged to customers who are sending remittances and the foreign exchange spreads earned 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 our customers, which is the time the funds have been delivered to the intended recipient in an amount that reflects the consideration we expect to be entitled to in exchange for services provided. We account for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, which includes the following steps:

(i)identification of the contract with a customer;

(ii)identification of the performance obligations in the contract;

(iii)determination of the transaction price;

(iv)allocation of the transaction price to the performance obligations in the contract; and

(v)recognition of revenue when, or as, we satisfy a performance obligation.

Customers engage us to perform one integrated service — collect the customer’s money and deliver funds to the intended recipient in the currency requested. Payment is generally due from the customer upfront upon initiation of a transaction, when the customer simultaneously agrees to our terms and conditions.

Revenue is derived from each transaction and varies based on the funding method chosen by the customer, the size of the transaction, the currency to be ultimately disbursed, the rate at which the currency was purchased, the disbursement method chosen by the customer, and the countries to which the funds are transferred. Our contract with customers can be terminated by the customer without a termination penalty up until the time the funds have been delivered to the intended recipient. Therefore, our contracts are defined at the transaction level and do not extend beyond the service already provided.

Our service comprises a single performance obligation to complete transactions for our customers. Using compliance and risk assessment tools, we perform a transaction risk assessment on individual transactions to determine whether a transaction should be accepted. When we accept a transaction and process the designated payment method of the customer, we become obligated to our customer to complete the payment transaction, at which time a receivable is recorded, along with a corresponding customer liability. None of our contracts contain a significant financing component.

We recognize transaction revenue on a gross basis as we are the principal for fulfilling payment transactions. As the principal to the transaction, we control the service of completing payments on our payment platform. We bear primary responsibility for the fulfillment of the payment service, are the merchant of record, contract directly with our customers, control the product specifications, and define the value proposition of our services. We are also responsible for providing customer support. Further, we have full discretion over determining the fee charged to our customers, which is independent of the cost we incur in instances where we may utilize payment processors or other financial institutions to perform services on our behalf. These fees paid to payment processors and other financial institutions are recognized as ‘Transaction expenses’ within the Consolidated Statements of Operations. We do not have any deferred contract acquisition costs.

Stock-Based Compensation

We account for stock-based compensation expense by calculating the estimated fair value of each employee and nonemployee award at the grant date or modification date. Stock-based compensation expense is generally recognized on a straight-line basis over the requisite service period, which is typically the vesting period of the respective award. Forfeitures are recognized in the period in which they occur.

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For restricted stock units that are granted under our equity incentive plans, we estimate the fair value of the award based on the fair market value of the Company’s common stock on the date of grant. For stock options granted under our equity incentive plans, and purchase rights issued under our employee stock purchase plan, we use the Black-Scholes option pricing model to estimate the fair value of the award at the grant date. The model utilizes the fair market value of our common stock at the measurement date and also incorporates the following assumptions to determine the fair value of the award:

Expected term. We calculate the expected term based on the average period the options are expected to remain outstanding using the simplified method, generally calculated as the midpoint of the requisite service period and the contractual term of the award.

Expected volatility. We base our estimate of expected volatility on the historical volatility of comparable companies from a representative peer group selected based on industry, financial, and market capitalization data.

Risk-free interest rate. The risk-free interest rate used in the model is based on the implied yield currently available for the U.S. Treasury securities at maturity with an equivalent term.

Expected dividend yield. Our expected dividend yield is zero as we have never declared nor paid any dividends and do not currently expect to do so in the future.

Common Stock Valuation

Prior to the completion of our IPO, the fair values of the shares of common stock underlying our stock-based awards were determined by our board of directors, with input from management, considering numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved. The values of stock-based awards granted were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we used in the valuation model were based on future expectations combined with management judgment.

Application of these approaches and methodologies involved the use of estimates, judgments, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable public companies, and the probability of and timing associated with possible future events, at the time of such historical grants prior to our IPO. After the completion of the IPO, the fair value of our common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the NASDAQ.

For further disclosure of the assumptions used in determining the grant date fair value of stock-based awards, refer to Note 10. Stock-Based Compensation in the Notes to the Company’s Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements

See Note 2., Basis of Presentation and Summary of Significant Accounting Policies, in the Notes to the Company’s Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.