Send Volume
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Send volume | $ | 6,964 | | | $ | 4,976 | | | $ | 13,058 | | | $ | 9,249 | |
We measure send volume to assess the scale of remittances sent using our platform. Our customers mostly send from the United States, Canada, United Kingdom, other countries in Europe, and Australia. The recipients are located in over 160 countries across the globe; the largest receive countries include Mexico, the Philippines, and India.
Send volume increased approximately 40% to $7.0 billion for the three months ended June 30, 2022, compared to $5.0 billion for the three months ended June 30, 2021. This increase was primarily due to the growth of quarterly active customers, which increased 43% over the same period.
Send volume increased $3.8 billion, or 41%, to $13.1 billion for the six months ended June 30, 2022, compared to $9.2 billion for the six months ended June 30, 2021, driven by the increase in quarterly 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 important 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, 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.
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 countries 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, our strategy is to manage and optimize each of 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 seasonality include Ramadan/Eid, Lunar New Year/Tết and Mother’s Day, which occur throughout the year, although the impact of seasonality is generally lower than 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 also introduces variability in our results, working capital balances, or cash flows period over period.
Our Technology Platform
We 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 regulatory 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 immigration, trade and regulatory policies, the conflict in Ukraine, unemployment, inflation, currency fluctuations, 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.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has had, and continues to have, a significant impact on the U.S. economy and the markets in which we operate. As a result of the COVID-19 pandemic, our business, and the digital financial services industry in general, saw accelerated growth, as digital remittances increasingly became the choice of senders and receivers; however, we also experienced disruptions. In response to the COVID-19 pandemic, government authorities and businesses globally implemented varying levels of travel restrictions, border closures, quarantines, shelter-in-place and lockdown orders, mask and social distancing requirements, and business limitations and shutdowns, which contributed to a variety of changes to consumer behavior as well as to government and business practices. As a result, we observed that consumer behavior evolved rapidly to favor forms of commerce that do not require in-person interactions, with acceleration in the shift to digital and contactless forms of payment. During 2020 and 2021, this led to rapid customer, transaction, and revenue growth for our business. We have experienced a stabilization in growth in 2022. It remains unclear to what extent these conditions will impact our customers’ behavior in the future.
In some cases, pandemic-related measures also negatively impacted Remitly, including disruptions to workforce stability during 2020 and 2021. However, certain operating expenses during those years grew more slowly than usual due to reduced business travel and the virtualization or cancellation of events. These operating expenses will, and have begun to, return to normal growth levels as pandemic restrictions are lifted. We expect that our operating costs will increase during the remainder of 2022 as business travel and other events resume.
The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, particularly if new variants of the virus emerge. While we expect the trend towards increased use of digital payments to continue, its velocity may abate as conditions change. In addition, the impact from new variants and other factors arising from the COVID-19 pandemic could adversely effect the use of our services by our customers, the ability of our employees to perform work, and our business generally, which could have a material adverse impact on our operating and financial results.
We will continue to actively monitor the situation and may take further actions that may alter our business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, or business partners.
Throughout the COVID-19 pandemic, the Company has remained focused on serving its customers and communities, as well as the well-being of its employees.
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 processing customer transactions. This reserve is included in ‘Accrued expenses and other current liabilities’ on the Condensed Consolidated Balance Sheets. The provision for transaction losses is included as a component of ‘Transaction expenses’ within the Condensed 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.
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. 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 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 to expand our offerings, improve the user experience, and drive 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, corporate development, 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.
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 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 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 three and six months ended June 30, 2022 and 2021
Revenue
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Revenue | $ | 157,255 | | | $ | 111,050 | | | $ | 46,205 | | | 42 | % | | $ | 293,269 | | | $ | 202,106 | | | $ | 91,163 | | | 45 | % |
Revenue increased $46.2 million, or 42%, to $157.3 million for the three months ended June 30, 2022. This increase was primarily driven by growth in send volume, which increased $2.0 billion, or 40%, to $7.0 billion for the three months ended June 30, 2022, compared to $5.0 billion for the three months ended June 30, 2021, reflecting an increase in active customers compared to the second quarter in 2021 and continued strength in the retention of existing customers.
Revenue increased $91.2 million, or 45%, to $293.3 million for the six months ended June 30, 2022, compared to $202.1 million for the six months ended June 30, 2021. This increase in revenue was driven primarily by the growth in send volume, which increased $3.8 billion, or 41%, to $13.1 billion for the six months ended June 30, 2022, compared to $9.2 billion for the six months ended June 30, 2021.
Transaction Expenses
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Transaction expenses | $ | 60,826 | | | $ | 46,505 | | | $ | 14,321 | | | 31 | % | | $ | 117,089 | | | $ | 87,615 | | | $ | 29,474 | | | 34 | % |
Percentage of total revenue | 39 | % | | 42 | % | | | | | | 40 | % | | 43 | % | | | | |
Transaction expenses increased $14.3 million, or 31%, to $60.8 million for the three months ended June 30, 2022, compared to $46.5 million, for the three months ended June 30, 2021. The increase was primarily due to an $11.9 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 $1.3 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a $1.1 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 39% for the three months ended June 30, 2022, from 42% for the three months ended June 30, 2021, due to both better economics with partners driven by increasing scale and a reduction in fraud and other losses as a percentage of revenue.
Transaction expenses increased $29.5 million, or 34%, to $117.1 million for the six months ended June 30, 2022, compared to $87.6 million, for the six months ended June 30, 2021. The increase was primarily due to a $23.0 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 $4.3 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a $2.2 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 six months ended June 30, 2022, from 43% for the six months ended June 30, 2021, primarily due to better economics with partners driven by increasing scale.
Customer Support and Operations Expenses
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Customer support and operations | $ | 16,855 | | | $ | 11,799 | | | $ | 5,056 | | | 43 | % | | $ | 30,725 | | | $ | 20,430 | | | $ | 10,295 | | | 50 | % |
Percentage of total revenue | 11 | % | | 11 | % | | | | | | 10 | % | | 10 | % | | | | |
Customer support and operations expenses increased $5.1 million, or 43%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The increase was primarily driven by a $1.9 million increase in internal personnel costs at our sites in the Philippines, Nicaragua, and Ireland that support customer operations, a $1.7 million increase in third-party customer support costs, a $0.9 million increase in software and telephony costs as we supported more active customers, and $0.6 million in other operating expenses.
As a percentage of revenue, customer support and operations expenses remained flat at 11% for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.
Customer support and operations expenses increased $10.3 million, or 50%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was primarily driven by a $4.0 million increase in third-party customer support costs, a $3.9 million increase in
internal personnel costs at our sites in the Philippines, Nicaragua, and Ireland that support customer operations, a $1.7 million increase in software and telephony costs as we supported more active customers, and a $0.7 million increase in other operating expenses.
As a percentage of revenue, customer support and operations expenses remained flat at 10% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.
Marketing Expenses
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Marketing | $ | 43,849 | | | $ | 26,158 | | | $ | 17,691 | | | 68 | % | | $ | 84,470 | | | $ | 52,274 | | | $ | 32,196 | | | 62 | % |
Percentage of total revenue | 28 | % | | 24 | % | | | | | | 29 | % | | 26 | % | | | | |
Marketing expenses increased $17.7 million, or 68%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, due primarily to an increase of $13.3 million in direct marketing expense, including online and offline marketing spend and promotion costs to acquire new customers. Personnel-related costs increased by $1.1 million, driven by a 35% increase in marketing headcount compared to the same period in 2021, as well as a $2.3 million increase in stock-based compensation expense. The increase in marketing expenses was also driven by a $1.0 million increase in other indirect marketing, employee-related costs, and software.
As a percent of revenue, marketing expenses increased to 28% for the three months ended June 30, 2022, from 24% for the three months ended June 30, 2021, due to growth in new customers and higher customer acquisition costs as our marketing spend was mostly dedicated to acquiring new customers.
Marketing expenses increased $32.2 million, or 62%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, due primarily to an increase of $24.9 million in direct marketing expense, including online and offline marketing spend and promotion costs to acquire new customers. Personnel-related costs increased by $2.4 million driven by a 36% increase in marketing headcount compared to the same period in 2021, as well as a $3.1 million increase in stock-based compensation expense. The increase in marketing expenses was also driven by a $1.8 million increase in other indirect marketing, software, employee-related costs, and professional fees.
As a percent of revenue, marketing expenses increased to 29% for the six months ended June 30, 2022, from 26% for the six months ended June 30, 2021, due to growth in new customers and higher customer acquisition costs, as our marketing spend was mostly dedicated to acquiring new customers.
Technology and Development Expenses
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Technology and development | $ | 36,083 | | | $ | 15,198 | | | $ | 20,885 | | | 137 | % | | $ | 59,658 | | | $ | 26,842 | | | $ | 32,816 | | | 122 | % |
Percentage of total revenue | 23 | % | | 14 | % | | | | | | 20 | % | | 13 | % | | | | |
Technology and development expenses increased $20.9 million, or 137% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The increase was driven by a $5.9 million increase in personnel-related expenses resulting from a 42% increase in headcount compared to the same period in 2021 due to our continued investment in our technology platform, as well as a $12.5 million increase in stock-based compensation expense. The increase in technology and development expense was also driven by a $1.6 million increase in software costs for cloud services and employee tools due to growth in headcount and volume of transactions, a $0.5 million increase in employee related expenses, and a $0.4 million increase in facilities costs.
As a percentage of revenue, technology and development expenses increased to 23% for the three months ended June 30, 2022, from 14% for the three months ended June 30, 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.
Technology and development expenses increased $32.8 million, or 122%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was driven by $12.1 million in personnel-related expenses resulting from a 47% increase in headcount compared to the same period in 2021 due to our continued investment in our technology platform,, as well as a $16.0 million increase in stock-based compensation expense. The increase in technology and development expense was also driven by a $2.9 million increase in software costs for employee tools and cloud services due to growth in headcount and volume of transactions, a $0.8 million increase in employee related expenses, a $0.6 million increase in facilities costs, and $0.4 million increase in professional fees.
As a percentage of revenue, technology and development expenses increased to 20% for the six months ended June 30, 2022, from 13% for the six months ended June 30, 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
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
General and administrative | $ | 37,509 | | | $ | 12,008 | | | $ | 25,501 | | | 212 | % | | $ | 60,851 | | | $ | 22,890 | | | $ | 37,961 | | | 166 | % |
Percentage of total revenue | 24 | % | | 11 | % | | | | | | 21 | % | | 11 | % | | | | |
General and administrative expenses increased $25.5 million, or 212%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. This increase was primarily driven by a $5.1 million increase in personnel-related costs due to a 76% increase in general and administrative headcount compared to the same period in the prior year, as well as a $14.9 million increase in stock-based compensation expense. The increase in general and administrative expenses was also due to a $3.7 million increase in professional, regulatory, and corporate fees, a $1.6 million increase to employee-related and facilities costs, and $0.2 million increase to 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.
As a percent of revenue, general and administrative expenses increased to 24% for the three months ended June 30, 2022, from 11% for the three months ended June 30, 2021, due to an increase in headcount, stock-based compensation, and ongoing public company costs.
General and administrative expenses increased $38.0 million, or 166%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. This increase was primarily driven by a $9.1 million increase in personnel-related costs due to a 74% increase in general and administrative headcount compared to the same period in the prior year, to support the growth of the business and ongoing public company costs, as well as a $18.6 million increase in stock-based compensation expense. The increase in general and administrative expense was also due to a $6.5 million increase in professional, regulatory, and corporate fees to support ongoing public company costs, a $3.0 million increase to employee-related and facilities costs, and $0.8 million increase to other operating expenses.
Approximately $6.5 million of the increase in stock-based compensation expense in both the three and six months ended June 30, 2022 relates to a prior period adjustment that was corrected in the current period.
As a percentage of revenue, general and administrative expenses increased to 21% for the six months ended June 30, 2022, from 11% for the six months ended June 30, 2021, due to an increase in headcount, stock-based compensation, and ongoing public company costs.
Depreciation and Amortization
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Depreciation and Amortization | $ | 1,510 | | | $ | 1,326 | | | $ | 184 | | | 14 | % | | $ | 3,027 | | | $ | 2,571 | | | $ | 456 | | | 18 | % |
Percentage of revenue | 1 | % | | 1 | % | | | | | | 1 | % | | 1 | % | | | | |
Depreciation and amortization increased $0.2 million, or 14%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. This increase is mostly due to an increase in depreciation for internally developed software, computers, and leasehold improvements.
Depreciation and amortization increased $0.5 million, or 18%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. This increase is mostly due to an increase in depreciation for internally developed software, computers, and leasehold improvements.
Interest Income
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Interest income | $ | 439 | | | $ | 5 | | | $ | 434 | | | nm | | $ | 475 | | | $ | 10 | | | $ | 465 | | | nm |
nm = not meaningful | | | | | | | | | | | | | | | |
Interest income increased by an immaterial amount for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021.
Interest Expense
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Interest expense | $ | (332) | | | $ | (277) | | | $ | 55 | | | 20 | % | | $ | (645) | | | $ | (536) | | | $ | (109) | | | 20 | % |
Interest expense remained flat for the three and six month periods ended June 30, 2022, as compared to the three and six month periods ended June 30, 2021
Other income, net
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Other income, net | $ | 1,687 | | | $ | 1,222 | | | $ | 465 | | | 38 | % | | $ | 2,356 | | | $ | 2,648 | | | $ | (292) | | | (11) | % |
Other income, net increased $0.5 million for the three-month period ended June 30, 2022, compared to the three-month period ended June 30, 2021.
Other income, net decreased $0.3 million for the six-month period ended June 30, 2022, compared to the six-month period ended June 30, 2021.
Other income in all periods was primarily due to unrealized gains on foreign exchange remeasurements related to transactions associated with high-volume balance sheet amounts.
Provision for Income Taxes
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| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(dollars in thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Provision for income taxes | $ | 662 | | | $ | 454 | | | $ | 208 | | | 46 | % | | $ | 1,190 | | | $ | 824 | | | $ | 366 | | | 44 | % |
The provision for income taxes increased by $0.2 million, or 46%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
The provision for income taxes increased $0.4 million, or 44%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.
The increase in income taxes was primarily due to an increase in taxable income in line with business growth.
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) non-cash charge of depreciation and amortization; iv) other expense (income), net, including gains and losses from the remeasurement of foreign currency assets and liabilities into their functional currency; v) non-cash stock-based compensation expense, net, as well as non-cash charges associated with our donation of common stock in connection with our Pledge 1% commitment.
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; 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:
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| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net loss | $ | (38,245) | | | $ | (1,448) | | | $ | (61,555) | | | $ | (9,218) | |
Add: | | | | | | | |
Interest expense, net | (107) | | | 272 | | | 170 | | | 526 | |
Provision for income taxes | 662 | | | 454 | | | 1,190 | | | 824 | |
Depreciation and amortization expenses | 1,510 | | | 1,326 | | | 3,027 | | | 2,571 | |
Foreign exchange (gain) loss | (1,687) | | | (1,222) | | | (2,356) | | | (2,648) | |
| | | | | | | |
Stock-based compensation expense | 32,541 | | | 2,703 | | | 42,135 | | | 4,225 | |
| | | | | | | |
Adjusted EBITDA | $ | (5,326) | | | $ | 2,085 | | | $ | (17,389) | | | $ | (3,720) | |
Adjusted EBITDA was $(5.3) million for the three months ended June 30, 2022, compared to $2.1 million for the three months ended June 30, 2021. Adjusted EBITDA of $(17.4) million for the six months ended June 30, 2022, declined compared to $(3.7) million for the six months ended June 30, 2021. Although we have continued to experience growth, this has been offset by higher investments in customer acquisition and our technology platform, and other general and administrative expenses to support growth initiatives and operate as a public company.
Liquidity and Capital Resources
Sources of Liquidity and Material Future Cash Requirements
We have financed our operations and capital expenditures primarily through cash generated from operations including transaction fees and foreign exchange spreads, sales of our redeemable convertible preferred stock, proceeds from our IPO and concurrent private placement, and our $250.0 million New Revolving Credit Facility, which we entered into in September 2021, as well as our prior 2020 Credit Agreement. We had unused borrowing capacity of $230.4 million on our New Revolving Credit Facility as of June 30, 2022. As of June 30, 2022 and December 31, 2021, our principal sources of liquidity were cash and cash equivalents of $429.7 million and $403.3 million, respectively, and funds available under the New Revolving Credit Facility and our previous revolving credit facility, respectively.
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. 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 Quarterly Report on Form 10-Q, we expect that our operating expenses may increase during 2022 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.
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.
The following table shows a summary of our cash flows for the periods presented:
| | | | | | | | | | | |
| Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 |
Net cash provided by (used in): | | | |
Operating activities | $ | 26,030 | | | $ | 60,276 | |
Investing activities | (3,180) | | | (2,252) | |
Financing activities | 4,437 | | | (72,646) | |
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Cash Flows
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 quarter end falls on, including holidays and long weekends. For example we generally have higher prefunding amounts if the quarter closes on a weekend or in advance of a long weekend, such as a holiday, which creates variability in customer transaction relates balances period over period. These balances in our condensed 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 six months ended June 30, 2022, net cash provided by operating activities was $26.0 million, which primarily consisted of favorable changes in our operating assets and liabilities of $42.3 million, partially offset by a net loss of $61.6 million, and excluding $45.3 million of noncash charges included within net loss for the period. The main drivers for the favorable change in operating assets and liabilities were an increase in customer funds liability of $60.3 million due to growth in our business and timing of disbursements and an increase in accrued expenses and other liabilities of $50.4 million. due to an increased amount of book overdrafts and disbursement postfunding liabilities driven by the timing of our cash transfers and settlement of customer liabilities. This was partially offset by an increase in disbursement prefunding of $39.9 million, which related to a higher than average balance as of the current period end to fund disbursement partners for expected send volume over a long holiday weekend, combined with an increase of $29.9 million in customer funds receivable due to timing of cash receipts from customers.
For the six months ended June 30, 2021, net cash provided by operating activities was $60.3 million, which primarily consisted of changes in our operating assets and liabilities of $62.7 million offset by net loss of $9.2 million. The main drivers for the change in operating assets and liabilities were a decrease in disbursement prefunding of $50.3 million due to seasonality of the business, an increase in customer liabilities of $17.4 million due to growth in our business and timing of disbursements, offset by an increase in customer receivables of $8.9 million in line with the growth in our business, and timing of cash settlement.
Investing Activities
Cash used in investing activities consists primarily of purchases of property and equipment and capitalization of internal-use software.
Net cash used in investing activities was $3.2 million for the six months ended June 30, 2022 and $2.3 million for the six months ended June 30, 2021, primarily related to purchases of property and equipment to support the increase in headcount, and capitalization of internal use software costs.
Financing Activities
Cash provided by financing activities consists primarily of proceeds from the exercise of stock options, as well as previous issuances of redeemable convertible preferred stock. Cash used in financing activities historically consisted of repayments of our revolving credit facility borrowings.
Net cash provided by financing activities for the six months ended June 30, 2022 of $4.4 million was primarily driven by proceeds from the exercise of stock options of $4.5 million.
Net cash used in financing activities for the six months ended June 30, 2021 of $72.6 million was primarily driven by repayments of our Revolving Credit Facility borrowings of $80.0 million, partially offset by proceeds from exercise of stock options of $4.4 million along with issuance of Series F redeemable convertible preferred stock, net of issuance costs, of $3.0 million.
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. 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.
On May 4, 2022, the Company amended and renewed the lease for its corporate headquarters in Seattle, Washington. In addition, during the first quarter of 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 Condensed Consolidated Balance Sheet as of June 30, 2022.
There were no other material changes outside of the ordinary course of business in the Company’s commitments and contingencies during the six months ended June 30, 2022 from the contractual obligations and contingencies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, other than as noted above. For further discussion of commitments and contingencies, also refer to Note 14. “Commitments and Contingencies” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our condensed consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Estimates
The Company’s condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, 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.
There have been no material changes to the Company’s critical accounting policies and estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recently Issued Accounting Pronouncements
See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies”, in the notes to the Company’s condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
JOBS Act
We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups (the “JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Based on the market value of our common stock held by nonaffiliates as of the last business day of our fiscal second quarter ended June 30, 2022, we will cease to be an emerging growth company as of December 31, 2022.