Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Description of Business
Remitly Global, Inc. (the “Company” or “Remitly”) was incorporated in the State of Delaware in October 2018 and is headquartered in Seattle, Washington, with various other global office locations.
Remitly is a leading digital financial services provider for immigrants and their families in over 170 countries, helping customers send money internationally in a quick, reliable, and more cost-effective manner, by leveraging digital channels and supporting cross-border transmissions across the globe.
Unless otherwise expressly stated or the context otherwise requires, the terms “Remitly” and the “Company” within these notes to the Condensed Consolidated Financial Statements refer to Remitly Global, Inc. and its wholly-owned subsidiaries.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP and therefore the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the historical audited annual consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2022.
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company’s consolidated financial position, results of operations, comprehensive loss, and cash flows for the interim periods. The interim results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or for any other future annual or interim period.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of Remitly Global, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the accompanying Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed within the Condensed Consolidated Financial Statements and accompanying notes. These estimates and assumptions include, but are not limited to, revenue recognition including the treatment of sales incentive programs, reserves for transaction losses, stock-based compensation expense, the carrying value of operating lease right-of-use assets, the recoverability of deferred tax assets, capitalization of software development costs, goodwill, and the recoverability of intangible assets. The key assumptions applied for the intangible assets include forecasted revenue and growth rates for a hypothetical market participant, selected discount rates, as well as migration curves for developed technology. The Company bases its estimates on historical experience and on assumptions that management considers reasonable. Actual results could differ from these estimates and assumptions, and these differences could be material to the Condensed Consolidated Financial Statements.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, disbursement prefunding, restricted cash, and customer funds receivable. The Company maintains cash and cash equivalents and restricted cash balances that may exceed the insured limits by the Federal Deposit Insurance Corporation. In addition, the Company funds its international operations using accounts with institutions in the major countries where its subsidiaries operate. The Company also prefunds amounts which are held by its disbursement partners, which are typically located in India, Mexico, and the Philippines. The Company has not experienced any significant losses on its deposits of cash and cash equivalents, disbursement prefunding, restricted cash, or customer funds receivable in the three months ended March 31, 2023 and 2022.
For the three months ended March 31, 2023 and 2022, no individual customer represented 10% or more of the Company’s total revenues. For the three months ended March 31, 2023 and 2022, no individual customer represented 10% or more of the Company’s customer funds receivable.
Advertising Expense
Advertising expenses are charged to operations as incurred and are included as a component of ‘Marketing expenses’ within the Condensed Consolidated Statements of Operations. Advertising expenses are used primarily to attract new customers. Advertising expenses totaled $34.6 million and $34.5 million during the three months ended March 31, 2023 and 2022, respectively.
Goodwill
Goodwill represents the excess of the purchase price over the acquisition date fair value of net assets, including the amount assigned to identifiable intangible assets, acquired in a business combination. The Company evaluates goodwill for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not that the fair value of a reporting unit is greater than its carrying amount. The Company considers factors in performing a qualitative assessment, including, but not limited to, general macroeconomic conditions, industry and market conditions, company financial performance, changes in strategy, and other relevant entity-specific events. If the Company elects to bypass the qualitative assessment or does not pass the qualitative assessment, a quantitative assessment is performed. The quantitative assessment compares the carrying value to the fair value of goodwill, with the difference representing an impairment loss.
Intangible Assets
Intangible assets with finite lives primarily consist of developed technology, customer relationships, and trade names acquired through business combinations or asset acquisitions. Intangible assets acquired through business combination are recorded at their respective estimated acquisition date fair value and amortized over their estimated useful lives. Other intangible assets acquired through asset acquisitions are recorded at their respective cost. Intangible assets are amortized using a method that reflects the pattern in which the economic benefits of the intangible asset are expected to be realized over their estimated useful lives, or straight lined if not materially different.
Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, the Company tests recoverability. The carrying value of a long-lived asset or asset group is not recoverable if the carrying value exceeds the sum of the estimated undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the estimated undiscounted future cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its estimated fair value.
Transaction Costs
Transaction costs related to business combinations are expensed as incurred and are included in ‘General and Administrative Expenses’ within the Condensed Consolidated Statements of Operations. Transaction costs include acquisition and integration costs, as well as other amounts directly attributable to business combinations. These primarily include external legal, accounting, valuation, and due diligence costs, as well as advisory and other professional services fees necessary to integrate acquired businesses.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are discussed in Note 2. Basis of Presentation and Summary of Significant Accounting Policies within the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes to these policies during the three months ended March 31, 2023, except as noted above.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements (“ASU”)
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU 2021-08"). ASU 2021-08 will require companies to apply the definition of a performance obligation under ASU 2014-09, Revenue from contracts with customers (“Topic 606”) to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASU Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 for public entities and December 15, 2023 for all other entities, with early adoption permitted. The Company assessed the impact of the guidance to its Condensed Consolidated Financial Statements for the three months ended March 31, 2023 and concluded that the standard did not have a material impact on its financial statements.
Accounting Pronouncements Not Yet Adopted
There are other new accounting pronouncements issued by the FASB that the Company has adopted or will adopt, as applicable. The Company does not believe any of these accounting pronouncements have had, or will have, a material impact on the Condensed Consolidated Financial Statements or disclosures.
3. Revenue
The Company’s primary source of revenue is generated from its remittance business. Revenue is earned from transaction fees charged to customers 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 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. The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Revenue from Contracts with Customers (Topic 606), which includes the following steps:
(1)identification of the contract with a customer;
(2)identification of the performance obligations in the contract;
(3)determination of the transaction price;
(4)allocation of the transaction price to the performance obligations in the contract; and
(5)recognition of revenue when, or as, the Company satisfies a performance obligation.
Customers engage the Company 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 the Company’s 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. The Company’s 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, the Company’s contracts are defined at the transaction level and do not extend beyond the service already provided.
The Company’s service comprises a single performance obligation to complete transactions for the Company’s customers. Using compliance and risk assessment tools, the Company performs a transaction risk assessment on individual transactions to determine whether a transaction should be accepted. When the Company accepts a transaction and processes the designated payment method of the customer, the Company becomes obligated to its customer to complete the payment transaction, at which time a receivable is recorded, along with a corresponding customer liability. None of the Company’s contracts contain a significant financing component.
The Company recognizes transaction revenue on a gross basis as it is the principal for fulfilling payment transactions. As the principal to the transaction, the Company controls the service of completing payments on its payment platform. The Company bears primary responsibility for the fulfillment of the payment service, is the merchant of record, contracts directly with its customers, controls the product specifications, and defines the value proposition of its services. The Company is also responsible for providing customer support. Further, the Company has full discretion over determining the fee charged to its customers, which is independent of the cost it incurs in instances where it may utilize payment processors or other financial institutions to perform services on its behalf. These fees paid to payment processors and other financial institutions are recognized as transaction expenses within the Condensed Consolidated Statements of Operations. The Company does not have any capitalized contract acquisition costs.
Deferred Revenue
The deferred revenue balances from contracts with customers were as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Deferred revenue, beginning of the period | $ | 1,108 | | | $ | 1,212 | | | | | |
Deferred revenue, end of the period | 833 | | | 1,068 | | | | | |
Change in deferred revenue during the period | (275) | | | (144) | | | | | |
Revenue recognized during the three months ended March 31, 2023 and 2022 from amounts included in deferred revenue at the beginning of the period were $0.6 million and $0.5 million, respectively.
Deferred revenue represents amounts received from customers for which the performance obligations are not yet fulfilled. Deferred revenue is primarily included within ‘Accrued expenses and other current liabilities’ on the Condensed Consolidated Balance Sheets, as the performance obligations are expected to be fulfilled within the next year.
Sales Incentives
During the three months ended March 31, 2023 and 2022, payments made to customers resulted in reductions to revenue of $7.6 million and $4.9 million, respectively, and charges to sales and marketing expense of $4.2 million and $3.7 million, respectively.
Revenue by Geography
The following table presents the Company’s revenue disaggregated by primary geographical location:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
United States | $ | 139,092 | | | $ | 99,357 | | | | | |
Canada | 24,859 | | | 17,279 | | | | | |
Rest of world | 39,914 | | | 19,378 | | | | | |
Total revenue | $ | 203,865 | | | $ | 136,014 | | | | | |
Revenue is attributed to the country in which the sending customer is located.
4. Property and Equipment
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
(in thousands) | 2023 | | 2022 |
Capitalized internal-use software | $ | 15,422 | | | $ | 14,072 | |
Computer and office equipment | 7,098 | | | 6,177 | |
Furniture and fixtures | 2,674 | | | 2,056 | |
Leasehold improvements | 7,879 | | | 7,036 | |
Projects in process | 50 | | | 722 | |
| 33,123 | | | 30,063 | |
Less: Accumulated depreciation and amortization | (20,465) | | | (18,517) | |
Property and equipment, net | $ | 12,658 | | | $ | 11,546 | |
Depreciation and amortization expense related to property and equipment was $1.8 million and $1.5 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Capitalized Internal-Use Software Costs
There has been an inconsequential amount of impairment of previously capitalized costs during the three months ended March 31, 2023. There has been no impairment of previously capitalized costs during the three months ended March 31, 2022.
The Company capitalized $1.6 million and $1.1 million for internal-use software costs for three month periods ended March 31, 2023 and 2022, respectively. The Company capitalized $0.5 million and $0.3 million of stock-based compensation costs to internal-use software for the three months ended March 31, 2023 and 2022, respectively. The Company recorded amortization expense of $0.9 million and $0.7 million for the three months ended March 31, 2023 and 2022, respectively, which is included in depreciation and amortization expense disclosed above.
Capitalized Cloud Computing Arrangements
The Company capitalized $0.9 million and $0.4 million related to the implementation of cloud computing arrangements during the three months ended March 31, 2023 and 2022, respectively and recorded amortization expense of $0.4 million and $0.1 million during the three months ended March 31, 2023 and 2022, respectively.
As of March 31, 2023 and December 31, 2022, capitalized costs, net of accumulated amortization, were approximately $3.0 million and $2.5 million, respectively of which $1.5 million and $1.3 million, respectively was recorded within ‘Prepaid expenses and other current assets’ and $1.5 million and $1.2 million, respectively was recorded within ‘Other noncurrent assets, net’ on the Company's Condensed Consolidated Balance Sheets.
Amortization expense related to cloud computing arrangements for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | |
Technology and development | $ | 327 | | | $ | 110 | | | | |
General and administrative | 24 | | | 9 | | | | |
Total amortization | $ | 351 | | | $ | 119 | | | | |
5. Business Combinations
The Company completed its acquisition of Rewire (O.S.G) Research and Development Ltd. (“Rewire”) on January 5, 2023 by acquiring all outstanding equity interests of Rewire in exchange for cash and equity consideration, described below. The acquisition of Rewire allows the Company to accelerate its opportunity to differentiate the remittance experience with complementary products, by bringing together its remittance businesses in new geographies, along with a strong team that is culturally aligned with the Company.
The acquisition meets the criteria to be accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment.
Consideration Transferred
The estimated acquisition date fair value of consideration transferred for the acquisition totaled $77.9 million, as follows:
| | | | | |
(in thousands) | Amount |
Cash paid to selling shareholders | $ | 56,398 | |
Equity issued to selling shareholders, including replacement of equity awards attributable to pre-combination services | 7,216 | |
Holdback liability to be settled in cash and Company equity | 11,899 | |
Effective settlement of pre-existing net receivable owed to the Company | 2,401 | |
Total consideration transferred | $ | 77,914 | |
The fair value of equity was determined based on the closing price of the Company’s common stock immediately prior to acquisition, and includes 694,918 shares issued in Company common stock, inclusive of 104,080 shares which are subject to service-based vesting conditions over a two year period. Approximately $0.6 million of these proceeds were accounted for as pre-combination expense, and included within the total consideration transferred noted above, with the remaining $0.9 million to be recognized as post-combination share-based compensation expense over the requisite service period. The equity issued excludes 133,309 shares and restricted stock units held back and not legally issued at acquisition date, as further discussed below.
Approximately $11.9 million of the cash and equity proceeds were held back to satisfy any necessary adjustments, including without limitation, indemnification claims related to general representations and warranties, and any net working capital adjustments. The majority of this holdback is expected to be settled in cash, and the remainder in Company common stock and restricted stock units, which approximated 133,309 shares held back and not legally issued at acquisition date. Such amounts will be settled after a 15-month holdback period, net of any amounts necessary to satisfy all unsatisfied or disputed claims for indemnification and net working capital adjustments. As of the acquisition date, this represented approximately $10.4 million in cash and $1.5 million in equity, as discussed above, issuable at the end of the holdback period in Company common stock, subject to the aforementioned adjustments.
Included in consideration transferred is the settlement of a pre-existing net receivable owed to the Company by Rewire, which was effectively settled and became intercompany arrangements as of the closing of the transaction. Excluding the impact of the outstanding net receivable owed to the Company by Rewire, the Company would have paid $2.4 million more for the business at closing, and therefore the GAAP purchase price reflects an increase in that amount. The settlement of pre-existing relationships between the Company and Rewire did not result in any material gain or loss.
Holdback Liability
The holdback of cash and equity proceeds discussed above was recorded at its acquisition date fair value and is classified as a liability within ‘Other noncurrent liabilities’ on the Company’s Condensed Consolidated Balance Sheets. The portion of the holdback to be settled in Company shares continues to be recorded at its fair value through its settlement date, with changes recorded to earnings. The estimated fair value of the portion of the holdback liability that will be settled in equity uses both observable and unobservable inputs, specifically considering the price of the Company’s common stock, as well as the probability of payout at the end of the holdback period, and is considered a Level 3 measurement, as defined in ASC 820, Fair Value Measurement (“ASC 820”).
Fair Value of Assets Acquired and Liabilities Assumed
The identifiable assets acquired and liabilities assumed of Rewire were recorded at their preliminary fair values as of the acquisition date and consolidated with those of the Company. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgments regarding estimates and assumptions. For the preliminary fair values of the assets acquired and liabilities assumed, the Company predominantly applied the cost and income approaches, including market participant assumptions. The following table summarizes the preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:
| | | | | |
(in thousands) | Amount |
Cash, cash equivalents, and restricted cash | $ | 15,465 | |
Disbursement prefunding | 6,016 | |
Customer funds receivable, net | 3,423 | |
Prepaid expenses and other assets, net | 1,084 | |
Intangible Assets | |
Trade name | 1,000 | |
Customer relationships | 8,500 | |
Developed technology | 12,000 | |
Goodwill | 54,989 | |
Customer liabilities | (3,075) | |
Assumed indebtedness | (18,784) | |
Other liabilities, net | (2,704) | |
Total purchase price | $ | 77,914 | |
The Company is in the process of finalizing the valuation of assets acquired and liabilities assumed of Rewire with respect to fair value of net assets acquired, their estimated useful lives, and the tax impacts of the acquisition. These amounts may be adjusted as management continues to gather and evaluate information about circumstances that existed as of the acquisition date and as the resulting fair values of net assets acquired are finalized. Measurement period adjustments will be recognized prospectively and such adjustments could be significant. The measurement period will not exceed 12 months from the date of acquisition.
Intangible Assets, including Goodwill
The acquired identified intangible assets have preliminary estimated useful lives ranging from three to five years.
The fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach used in valuing the identified intangible assets include forecasted revenue and growth rates for a hypothetical market participant, selected discount rates, as well as migration curves for developed technology.
The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributable to the revenue and cost synergies expected to arise from the acquisition through continued geographic expansion and product differentiation, along with the acquired workforce of Rewire. Goodwill is expected to be deductible for income tax purposes. The acquisition did not change the Company’s one operating segment.
Acquired Receivables
The fair value of the financial assets acquired include “Disbursement prefunding” and “Customer funds receivable, net”, with a fair value of $6.0 million and $3.4 million, respectively, as disclosed above. The Company expects to collect substantially all of these receivables.
Transaction Costs
Transaction costs totaled $1.2 million for the three months ended March 31, 2023. Such costs are primarily related to the Company’s aforementioned acquisition of Rewire. There were no transaction costs incurred for the three months ended March 31, 2022.
Other Disclosures
The results of Rewire have been included within the Condensed Consolidated Financial Statements since the date of the acquisition. Rewire’s “Revenue” and “Net Loss” included within the Condensed Consolidated Financial Statements since the acquisition date was $3.2 million and $(8.5) million, respectively.
Pro forma financial information has not been presented, as revenue and expenses related to the acquisition do not have a material impact on the Company’s unaudited Condensed Consolidated Financial Statements. Had Rewire been acquired on January 1, 2022, the Company's revenue and expenses would not have been materially impacted; however, the Company’s net loss would have increased during 2022. Significant pro forma adjustments include transaction costs and amortization of acquired intangibles, as discussed further above.
6. Goodwill and Intangible Assets
Goodwill
The goodwill recorded on the Condensed Consolidated Balance Sheets for the three months ended March 31, 2023 was attributable to the acquisition of Rewire completed within the period, as described further in Note 5. Business Combinations. There were no adjustments to goodwill during the three months ended March 31, 2023.
Intangible Assets
The components of identifiable intangible assets as of March 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Estimated Remaining Useful Life (in years) |
Trade name | $ | 1,000 | | | $ | (84) | | | $ | 916 | | | 2.8 |
Customer relationships | 8,500 | | | (531) | | | 7,969 | | | 3.8 |
Developed technology | 12,000 | | | (600) | | | 11,400 | | | 4.8 |
Total | $ | 21,500 | | | $ | (1,215) | | | $ | 20,285 | | | |
Amortization expense for intangible assets was $1.2 million for the three months ended March 31, 2023.
Identifiable intangible asset balances as of December 31, 2022 were immaterial. Amortization expense for intangible assets for the three months ended March 31, 2022 was immaterial.
Expected future intangible asset amortization as of March 31, 2023 was as follows:
| | | | | |
(in thousands) | Amount |
Remainder of 2023 | $ | 3,644 | |
2024 | 4,858 | |
2025 | 4,858 | |
2026 | 4,525 | |
2027 | 2,400 | |
| |
Total | $ | 20,285 | |
7. Fair Value Measurements
Except for the holdback liability related to the Rewire acquisition discussed in Note 5. Business Combinations, there were no financial assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022.
The carrying values of certain financial instruments, including disbursement prefunding, customer funds receivable, accounts payable, accrued expenses and other current liabilities, customer liabilities, short-term debt, and borrowings approximate their respective fair values due to their relative short maturities. If these financial instruments were measured at fair value in the financial statements, they would be classified as Level 2.
The Company previously invested approximately $80.0 million of its cash and cash equivalents into a Level 2 term deposit during the three months ended March 31, 2022, which had an original maturity of three months or less at the time of purchase. There were no other transfers between Level 1 and Level 2 during the three months ended March 31, 2023 and 2022.
8. Debt
Secured Revolving Credit Facility
New Revolving Credit Facility
On September 13, 2021, Remitly Global, Inc. and Remitly, Inc., a wholly-owned subsidiary of Remitly Global, Inc., as co-borrowers, entered into a credit agreement (the “New Revolving Credit Facility”) with certain lenders and JPMorgan Chase Bank, N.A. acting as administrative agent and collateral agent, that provides for revolving commitments of $250.0 million (including a $60.0 million letter of credit sub-facility) and terminated its then-existing 2020 Credit Agreement. Proceeds under the New Revolving Credit Facility are available for working capital and general corporate purposes.
The New Revolving Credit Facility has a maturity date of September 13, 2026. Borrowings under the New Revolving Credit Facility accrue interest at a floating rate per annum equal to, at the Company’s option, (1) the Alternate Base Rate (defined in the New Revolving Credit Facility as the rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect for such day plus 0.50% and (c) the Adjusted LIBO Rate plus 1.00%, subject to a floor of 1.00% plus 0.50% or (2) the Adjusted LIBO Rate (subject to a floor of 0.00%) plus 1.50%. Such interest is payable (a) with respect to Alternate Base Rate loans, the last day of each March, June, September and December and (b) with respect to Adjusted LIBO Rate loans, at the end of each applicable interest period, but in no event less frequently than every three months. In addition, an unused commitment fee, which accrues at a rate per annum equal to 0.25% of the unused portion of the revolving commitments, is payable on the last day of each March, June, September and December.
The New Revolving Credit Facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict the ability to dispose of assets, merge with other entities, incur indebtedness, grant liens, pay dividends or make other distributions to holders of its capital stock, make investments, enter into restrictive agreements, or engage in transactions with affiliates. As of March 31, 2023 and December 31, 2022, financial covenants in the New Revolving Credit Facility include (1) a requirement to maintain a minimum Adjusted Quick Ratio of 1.50:1.00, which is tested quarterly and (2) a requirement to maintain a minimum Liquidity of $100.0 million, which is tested quarterly. The Company was in compliance with all financial covenants under the New Revolving Credit Facility as of March 31, 2023 and December 31, 2022.
The obligations under the New Revolving Credit Facility are guaranteed by the material domestic subsidiaries of Remitly Global, Inc., subject to customary exceptions, and are secured by substantially all of the assets of the borrowers and guarantors thereunder, subject to customary exceptions. Amounts of borrowings under the New Revolving Credit Facility may fluctuate depending upon transaction volumes and seasonality.
As of March 31, 2023 and December 31, 2022, the Company had no outstanding borrowings under the New Revolving Credit Facility. As of March 31, 2023 and December 31, 2022, the Company had $27.3 million and $22.3 million, respectively, in issued, but undrawn, standby letters of credit. As of March 31, 2023 and December 31, 2022, the Company had unused borrowing capacity of $222.7 million and $227.7 million, respectively, under the New Revolving Credit Facility.
Advance for Future Deposits
As part of the acquisition of Rewire, the Company assumed short-term indebtedness of Rewire that represents an advance for future deposits from Rewire’s amended agreement with one of its financial partners (the “Amendment” and the “Depositor”, respectively). The Amendment has a maturity date of October 2023. The Depositor made an advance payment to Rewire with respect to future deposits (the “Advance for Future Deposits”). The original amount of approximately $2.8 million was transferred as an advance under the Amendment. As of March 31, 2023, the Company had $2.5 million outstanding under the Amendment and was included within ‘Short-term debt’ on the Condensed Consolidated Balance Sheets. The Advance for Future Deposits bears a floating interest rate of 1.4%+ Prime per annum, paid on a monthly basis. The weighted-average effective interest rate as of March 31, 2023 was 5.3%. In the three months ended March 31, 2023, the Company recognized an inconsequential amount of interest expense with respect to the Advance for Future Deposits.
Assumed Short-term Debt of Rewire
As part of the acquisition of Rewire, the Company assumed the amounts due on a revolving credit line that Rewire had entered into in 2021 and the amounts due on a bridge loan that Rewire had entered into in 2022. The total outstanding amounts were repaid during the three months ended March 31, 2023, along with certain other acquired indebtedness, subsequent to the Company’s acquisition of Rewire and was included within the Condensed Consolidated Statements of Cash Flows as a financing activity.
9. Net Loss Per Common Share
The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders for the periods indicated. As the Company reported a net loss, diluted net loss per share was the same as basic net loss per share because the effects of potentially dilutive items were anti-dilutive for all periods presented.
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands, except share and per share data) | | | | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net loss | | | | | $ | (28,314) | | | $ | (23,310) | |
| | | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average shares used in computing net loss per share attributable to common stockholders: | | | | | | | |
Basic and diluted | | | | | 175,113,904 | | | 164,391,753 | |
Net loss per share attributable to common stockholders: | | | | | | | |
Basic and diluted | | | | | $ | (0.16) | | | $ | (0.14) | |
The following potentially dilutive securities were excluded from the computation of diluted net loss per share calculations for the periods presented because the impact of including them would have been antidilutive:
| | | | | | | | | | | |
| As of March 31, |
| 2023 | | 2022 |
Stock options outstanding | 14,074,783 | | | 21,596,404 |
RSUs outstanding | 23,910,861 | | | 5,476,101 | |
ESPP | 1,175,687 | | 1,379,019 |
Shares subject to repurchase | 61,683 | | 363,384 |
Unvested common stock, subject to service-based vesting conditions, issued in connection with acquisition(1) | 104,080 | | | — | |
Equity issuable in connection with acquisition(1) | 133,309 | | — | |
Total | 39,460,403 | | 28,814,908 |
______________
(1) Refer to Note 5. Business Combinations for further discussion of equity issued or to be issued in connection with the Rewire acquisition.
10. Common Stock
As of March 31, 2023, the Company has authorized 725,000,000 shares of common stock with a par value of $0.0001 per share. Each holder of a share of common stock is entitled to one vote for each share held at all meetings of stockholders and is entitled to receive dividends whenever funds are legally available and when declared by the Company’s board of directors. Through March 31, 2023 and March 31, 2022, no dividends have been declared or paid by the Company.
11. Stock-Based Compensation
Shares Available for Issuance
As of March 31, 2023 and December 31, 2022, 17,353,843 and 10,890,112 equity incentive awards remain available for issuance under the 2021 Plan, respectively.
As of March 31, 2023 and December 31, 2022, 6,198,134 and 4,762,721 shares of common stock remain available for issuance under the ESPP.
Stock Options
The following is a summary of the Company’s stock option activity during the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options |
(in thousands, except share and per share data) | Number of Options Outstanding | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value (1) |
Balances as of January 1, 2023 | 15,988,268 | | | $ | 4.11 | | | 6.79 | | $ | 119,467 | |
| | | | | | | |
Exercised | (1,659,193) | | | 2.87 | | | | | 19,007 | |
Forfeited | (254,292) | | | 5.60 | | | | | |
Balances as of March 31, 2023 | 14,074,783 | | | 4.23 | | | 6.56 | | 179,001 | |
Vested and exercisable as of March 31, 2023 | 9,237,232 | | | 2.60 | | | 5.81 | | 132,531 | |
Vested and expected to vest as of March 31, 2023 | 14,091,466 | | | $ | 4.24 | | | 6.57 | | $ | 179,038 | |
_________________
(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock.
No stock options were granted during the three months ended March 31, 2023 and March 31, 2022.
The aggregate grant-date fair value of options vested for the three months ended March 31, 2023 and 2022 was $2.2 million and $2.9 million, respectively. The intrinsic value of options exercised for the three months ended March 31, 2023 and 2022 was $19.0 million and $12.6 million, respectively.
Restricted Stock Units
Restricted stock unit activity during the three months ended March 31, 2023 was as follows:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average Grant-Date Fair Value Per Share |
Unvested at January 1, 2023 | 23,366,355 | | | $ | 11.86 | |
Granted | 3,425,404 | | | 12.41 | |
Vested | (1,930,772) | | | 12.53 | |
Cancelled/forfeited | (950,126) | | | 14.10 | |
Unvested at March 31, 2023 | 23,910,861 | | | $ | 11.79 | |
The weighted-average grant date fair value of RSUs, granted during the three months ended March 31, 2023 and 2022 was $12.41 and $13.06, respectively. The aggregate grant-date fair value of RSUs, vested for the three months ended March 31, 2023 and 2022 was $24.2 million and $0.5 million, respectively.
Employee Stock Purchase Plan (“ESPP”)
The offering period that commenced on September 22, 2021, for which the accounting grant date was met in October 2021, ended on February 28, 2022, due to a decline in the Company’s stock price at the end of the purchase period, triggering a new offering period, as required by the ESPP plan documents. A new 24-month offering period commenced on March 1, 2022. This event was accounted for as a modification under U.S. GAAP in the first quarter of 2022, whereby the fair value of the ESPP offering was measured immediately before and after modification, resulting in incremental stock-based compensation expense of $3.6 million, which is being recognized over the new offering period, which is deemed to be the requisite service period. A new subsequent 24-month offering period commences on March 1 and September 1 of each fiscal year.
The fair value of the ESPP offerings described above were estimated using the Black-Scholes option-pricing model as of the respective offering dates, using the following assumptions. These assumptions represent the grant date fair value inputs for new offerings which commenced during the three months ended March 31, 2023 and 2022, as well as updated valuation information as of the modification date for any offerings for which a modification occurred during the periods presented herein:
| | | | | | | | | | | | | |
| Three Months Ended March 31, | |
| 2023 | | 2022 | | |
Risk-free interest rates | 4.83% to 5.13% | | 0.60% to 1.31% | | |
Expected term (in years) | 0.5 to 2.0 years | | 0.5 to 2.0 years | | |
Volatility | 48.9% to 59.5% | | 61.0% to 73.0% | | |
Dividend rate | — | % | | — | % | | |
As the March 1, 2022 offering was accounted for as a modification to the October 2021 offering, the ESPP was fair valued immediately before and after modification on March 1, 2022 to assess the incremental fair value provided as a result of the modification. The inputs to the incremental fair value are included in the table above.
Stock-Based Compensation Expense
Stock-based compensation expense for stock options, RSUs, and the ESPP, included within the Condensed Consolidated Statements of Operations, net of amounts capitalized to internal-use software, as described in Note 4. Property and Equipment, was as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Customer support and operations | $ | 205 | | | $ | 93 | | | | | |
Marketing | 2,983 | | | 1,032 | | | | | |
Technology and development | 16,631 | | | 4,072 | | | | | |
General and administrative | 9,415 | | | 4,397 | | | | | |
Total | $ | 29,234 | | | $ | 9,594 | | | | | |
As of March 31, 2023, the total unamortized compensation cost related to all non-vested equity awards, including options and RSUs, was $258.7 million, which will be amortized over a weighted-average remaining requisite service period of approximately 2.9 years. As of March 31, 2023, the total unrecognized compensation expense related to the ESPP was $5.8 million, which is expected to be amortized over the next 1.9 years.
The Company did not record a material income tax benefit related to stock-based compensation expense and stock option exercises, during the three months ended March 31, 2023 and 2022, since the Company currently maintains a full valuation allowance against its net deferred tax assets in the jurisdictions where material stock-based compensation expense charges are incurred, and stock option exercises occurred.
12. Related Party Arrangements
There were no new significant related party transactions for the three months ended March 31, 2023.
13. Income Taxes
The Company computes its tax provision for interim periods by applying the estimated annual effective tax rate to year-to-date income from recurring operations and adjusting for discrete items arising in that quarter.
The Company’s effective tax rates on pre-tax income were (1.3)% and (2.3)% for the three months ended March 31, 2023 and 2022, respectively. The difference between the effective tax rate and the U.S. federal statutory rate of 21% in both periods was primarily the result of foreign income taxed at different rates and changes in the U.S. valuation allowance.
The Company maintains a full valuation allowance against the U.S. net deferred tax assets, as it believes that these deferred tax assets do not meet the more likely than not threshold.
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and internationally. As of March 31, 2023, tax years 2012 through 2022 remain open for examination by taxing authorities.
The Company has applied ASC 740, Income Taxes (“ASC 740”), and has determined that it has no uncertain tax positions both during the three months ended March 31, 2023 and 2022. The Company recognizes interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are recorded as a component of income tax expense.
14. Commitments and Contingencies
Guarantees and Indemnification
In the ordinary course of business to facilitate sales of its services, the Company has entered into agreements with, among others, suppliers and partners that include guarantees or indemnity provisions. The Company also enters into indemnification agreements with its officers and directors, and the Company’s certificate of incorporation and bylaws include similar indemnification obligations to its officers and directors. To date, there have been no claims under any indemnification provisions; therefore, no such amounts have been accrued as of March 31, 2023 and December 31, 2022.
Litigation and Loss Contingencies
Litigation
From time to time, the Company may be a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, threatened claims, breach of contract claims, and other matters. The Company accrues estimates for resolution of legal and other contingencies when losses are probable and estimable. Although the results of litigation and claims are inherently unpredictable, the Company believes that there was not at least a reasonable possibility that it had incurred a material loss with respect to such loss contingencies, as of March 31, 2023 and December 31, 2022.
Indirect taxes
The Company is subject to indirect taxation in various states and foreign jurisdictions in which it conducts business. The Company continually evaluates those jurisdictions in which indirect tax obligations exist to determine whether a loss is probable, as defined under U.S. GAAP, and the amount can be estimated. Determination of whether a loss is probable, and an estimate can be made, is a complex undertaking and takes into account the judgment of management, third-party research, and the potential outcome of negotiation and interpretations by regulators and courts, among other information. Such assessments include consideration of management’s evaluation of domestic and international tax laws and regulations, external legal advice, and the extent to which they may apply to the Company’s business and industry. The Company’s assessment of probability includes consideration of recent inquiries, potential or actual self-disclosure, and applicability of tax rules. As a result of this assessment, management accrued an estimated liability of approximately $8.3 million and $6.0 million as of March 31, 2023 and December 31, 2022, respectively, reflecting the amount that the Company believes is probable and estimable. The estimated liability is recorded within ‘Accrued expenses and other current liabilities’ on the Company’s Condensed Consolidated Balance Sheets. Although the Company believes its indirect tax estimates and associated liabilities are reasonable, the final determination of indirect tax audits or settlements could be materially different than the amounts recorded.
Reserve for Transaction Losses
The table below summarizes the Company’s reserve for transaction losses for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Beginning balance | $ | 3,762 | | | $ | 3,134 | | | | | |
Provisions for transaction losses | 10,108 | | | 10,590 | | | | | |
Losses incurred, net of recoveries | (10,801) | | | (9,905) | | | | | |
Ending balance | $ | 3,069 | | | $ | 3,819 | | | | | |
15. Accrued Expenses & Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
(in thousands) | 2023 | | 2022 |
Trade settlement liability(1) | $ | 14,858 | | | $ | 26,266 | |
ESPP employee contributions | 760 | | | 1,926 | |
Accrued transaction expense | 17,015 | | | 15,878 | |
Accrued marketing expense | 11,907 | | | 11,394 | |
Reserve for transaction losses | 3,069 | | | 3,762 | |
Accrued salaries and benefits | 8,840 | | | 4,026 | |
Accrued taxes and taxes payable | 10,901 | | | 8,288 | |
Other accrued expenses | 12,129 | | | 16,212 | |
Total | $ | 79,479 | | | $ | 87,752 | |
_________________
(1) The trade settlement liability amount represents the total of book overdrafts and disbursement postfunding liabilities owed to the Company’s disbursement partners. Refer to Note 2. Basis of Presentation and Summary of Significant Accounting Policies within the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion.