You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year endedDecember 31, 2020 included in the Final Prospectus. You should read the sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. OverviewRemitly is a leading digital financial services provider for immigrants and their families in over 135 countries around the world. Our differentiated approach to addressing the complexity of cross-border remittances and financial services is comprised of four core elements: •Providing a simple and reliable way of sending money with our mobile-centric suite of products. Today, over 90% of our customers engage withRemitly on their mobile phones, shifting what traditionally required waiting in line to speak with an agent to the palm of their hands. Our mobile app currently has a 4.9 iOSApp Store rating with more than 582,000 reviewers and a 4.8 AndroidSeptember 2021 , the Company completed its IPO, in which the Company issued and sold 7,000,000 shares of its common stock at$43.00 per share. Concurrently, 5,162,777 shares were sold by certain of our existing stockholders. In addition, the Company concurrently issued 581,395 shares of common stock to an existing stockholder in a private placement at the same offering price as the IPO. The Company received net proceeds of$305.2 million for the IPO and private placement, after deducting underwriting discounts and other fees of$20.8 million . In connection with the IPO, 127,410,631 shares of outstanding redeemable convertible preferred stock automatically converted into an equivalent number of shares of common stock on a one-to-one basis. Key Business Metrics We regularly review the following key business metrics to evaluate our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We believe that these key business metrics provide meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of these key business metrics discussed below may differ from other similarly titled metrics used by other companies, analysts, or investors. Active Customers Three Months Ended September 30, 2021 2020 (in thousands) Active customers 2,561 1,692 We believe that the number of our active customers is an important indicator of customer engagement and the overall growth of our business. Active customers increased to approximately 2.6 million, or 51% growth, for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . This increase was primarily due to an increase in new customers driven by investments in marketing spend, our seamless user experience, network 22 --------------------------------------------------------------------------------
expansion, and the continued growth in adoption of digital remittances as a result of the COVID-19 pandemic. As Active customers are measured on a quarterly basis, the data for the nine month periods are not meaningful. Send Volume
Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (in millions) Send volume $ 5,239$ 3,245 $ 14,488 $ 8,429 We measure send volume to assess the scale of remittances sent using our platform. Our customers mostly send fromthe United States ,Canada ,United Kingdom , other countries inEurope , andAustralia . The recipients are located in over 120 countries across the globe; the largest receive countries includeIndia ,the Philippines , andMexico . Send volume increased approximately 61% to$5.2 billion for the three months endedSeptember 30, 2021 , compared to$3.2 billion for the three months endedSeptember 30, 2020 . This increase was primarily due to the growth of active customers, which increased 51% over the same period, as well as more volume transferred per active customer, which resulted in higher average revenue per active customer during the quarter. We calculate average revenue per active customer, by taking revenue for the quarter, divided by quarterly active customers. Send volume increased$6.1 billion , or 72%, to$14.5 billion for the nine months endedSeptember 30, 2021 , compared to$8.4 billion for the nine months endedSeptember 30, 2020 , largely due to higher transaction volumes from new and existing customers, partially offset by lower average send amount per active customer as a result of increasing geographic diversification, and a mix shift toward corridors with lower average send amounts. Key Factors Affecting Our Performance Ability to Retain Our Customers and Maintain 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. During the third quarter of 2021, 2.6 million customers usedRemitly to send money abroad, up 51% from the third quarter of 2020. 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. Ability to Attract New Customers Our long-term growth will depend, in part, on our continued ability to attract new customers to our platform. We intend 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. We will also explore 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. Ability to Maintain Efficient Customer Acquisition Our ability to efficiently acquire customers is critical to our growth and attractive customer economics. Online marketing competition, our ability to effectively target the right demographic, and competitor pricing will impact our customer acquisition strategy. 23 -------------------------------------------------------------------------------- We have a history of successfully monitoring customer acquisitions costs ("CAC") 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. Corridor Mix Our business is global and certain attributes of our business vary by corridor such as send amount, customer funding sources, and transaction frequency. For example, a period of high growth in receive corridors with large average send amounts, such asIndia , 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 includeRamadan /Eid,Lunar New Year /T?t andMother's Day , although the impact 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 may also introduce variability in our results, balance sheet, or cash flows. Ability to Invest in Our Technology Platform and Introduce New Products We will continue to invest significant resources in our technology platform. These investments will allow us to introduce new and innovative products, add features to current products, enhance the customer and recipient experience, grow our payment and disbursement network, invest in our risk and security infrastructure, and continue to secure data in accordance with changing 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. Ability to Manage 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 built on 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. This allows us to achieve and maintain fraud loss rates within desired guardrails. Macroeconomic and Geopolitical Changes Global macroeconomic and geopolitical factors, including immigration, trade and regulatory policies, unemployment, foreign 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 using our service. 24 -------------------------------------------------------------------------------- Impact of the COVID-19 Pandemic The COVID-19 pandemic has caused significant disruption worldwide and many of our customers and employees have been impacted, resulting in increased demand for digital remittances, driving a significant acceleration in our new customer growth. We have also experienced, and may continue to experience, a modest adverse impact on our business practices, including as a result of transitioning part of our workforce to work from home and establishing strict health and safety protocols for our offices. Our customer support and operations teams, both internal and third-party, have been impacted, which has affected our ability to service customer needs due to longer wait times. Certain operating expenses have grown more slowly due to reduced business travel and the virtualization or cancellation of events. While a reduction in some operating expenses may have an immediate positive impact on our operating results, we do not yet have visibility into the full impact this will have on our business longer term. As COVID-19 vaccination rates increase and people begin to return to offices and other workplaces and travel more, the positive impacts of the COVID-19 pandemic on our business may slow or decline. 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. We do not yet know the full extent of potential impacts on our business or operations. 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 on transactions where the payout currency is other than the functional currency. 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, fraud prevention and compliance tools. Reserve for Transaction Losses The Company is exposed to transaction losses including chargebacks, unauthorized credit card use, and fraud associated with customer transactions. The Company establishes reserves for such losses based on historical trends and any specific risks identified in processing customer transactions. This reserve is included in accrued expenses and other current liabilities on the consolidated balance sheets. The provision for transaction losses is included as a component of transaction expenses on the condensed consolidated statements of operations. 25 -------------------------------------------------------------------------------- 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, and investments in tools to effectively service our customers, as well as increased customer self-service capabilities. Customer support and operations expenses also include corporate communication costs and professional services fees. Marketing Marketing expenses consist primarily of advertising costs used to attract new customers. 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 dedicated for use by the Company's technology and development teams. We believe delivering new functionality is critical to attract new customers and expand our relationship with existing customers. We expect to continue to make investments to expand our solutions in order to enhance our customers' experience and satisfaction, and to attract new customers. We expect our technology and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period as we expand our technology and development team to develop new solutions and enhancements to existing solutions. General and Administrative General and administrative expenses consist primarily of personnel-related expenses for the Company's finance, legal, human resources, facilities, and administrative personnel, including salaries, benefits and stock-based compensation expense. General and administrative expenses also include professional services fees, software subscriptions, facilities, and other corporate expenses. As a result of the closing of our IPO, we have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. Excluding the$6.9 million impact of theSeptember 2021 donation of our common stock, as well as any future donations of our common stock pursuant to our Pledge 1% commitment, we expect that our general and administrative expenses will increase as our business grows but will decrease as a percentage of our revenue over time. Depreciation and Amortization Depreciation and amortization expense includes depreciation on property and equipment and leasehold improvements, as well as the amortization of internal-use software costs and amortization of intangible assets. Interest Income Interest income consists primarily of interest income earned on our cash and cash equivalents. 26 -------------------------------------------------------------------------------- Interest Expense Interest expense consists primarily of the interest expense on our borrowings. Other Income (Expense), net Other income (expense), net primarily consists of foreign exchange gains and losses. Provision for Income Taxes Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes inthe United States . We maintain a full valuation allowance forU.S. deferred tax assets, which includes net operating loss carryforwards. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that the assets will not be realized based on our history of losses. Results of Operations Comparison of the three and nine months endedSeptember 30, 2021 and 2020 Revenue Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent Revenue$ 121,244 $ 71,790 $ 49,454 69 %$ 323,350 $ 176,939 $ 146,411 83 % Revenue increased$49.5 million , or 69%, to$121.2 million for the three months endedSeptember 30, 2021 . This increase was primarily driven by growth in send volume, which increased$2.0 billion , or 61%, to$5.2 billion for the three months endedSeptember 30, 2021 , compared to$3.2 billion for the three months endedSeptember 30, 2020 , reflecting both an increase in active customers, as well as increased transaction frequency among our active customers, resulting in an increase in the average revenue per active customer compared to the third quarter in 2020. Revenue increased$146.4 million , or 83%, to$323.4 million for the nine months endedSeptember 30, 2021 , compared to$176.9 million for the nine months endedSeptember 30, 2020 . This increase was driven primarily by the growth in send volume, which increased$6.1 billion , or 72%, to$14.5 billion for the nine months endedSeptember 30, 2021 , compared to$8.4 billion for the nine months endedSeptember 30, 2020 , along with more average revenue per active customer. Transaction Expenses Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent Transaction expenses$ 47,560 $ 28,046 $ 19,514 70 %$ 135,175 $ 74,256 $ 60,919 82 % Percentage of total revenue 39 % 39 % 42 % 42 % Transaction expenses increased$19.5 million , or 70%, to$47.6 million for the three months endedSeptember 30, 2021 , compared to$28.0 million , for the three months endedSeptember 30, 2020 . The increase was primarily due to a$15.7 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$3.0 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a$0.8 million increase in other transaction expenses, primarily software and tools that support our compliance and risk operations. As a percentage of revenue, transaction expenses remained flat at 39% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . 27 -------------------------------------------------------------------------------- Transaction expenses increased$60.9 million , or 82%, to$135.2 million for the nine months endedSeptember 30, 2021 , compared to$74.3 million , for the nine months endedSeptember 30, 2020 . The increase was primarily due to a$49.2 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$9.1 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a$2.6 million increase in other transaction expenses, primarily software and tools that support our compliance and risk operations. As a percentage of revenue, transaction expenses remained flat at 42% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Customer Support and Operations Expenses Three Months Ended September 30, Change Nine Months Ended September 30,
Change
(dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount
Percent
Customer support and operations$ 12,005 $ 7,632 $ 4,373 57 %$ 32,435 $ 17,795 $ 14,640 82 % Percentage of total revenue 10 % 11 % 10 % 10 % Customer support and operations expenses increased$4.4 million , or 57%, for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . The increase was primarily driven by a$1.9 million increase in internal personnel costs at our sites inthe Philippines andNicaragua that support customer operations, a$1.8 million increase in third-party customer support costs, a$0.6 million increase in software and telephony costs as we supported more active customers, and a$0.1 million increase in other operating expenses. As a percentage of revenue, customer support and operations expenses decreased to 10% for the three months endedSeptember 30, 2021 from 11% for the three months endedSeptember 30, 2020 , due to higher revenue and process improvements increasing our efficiency. Customer support and operations expenses increased$14.6 million , or 82%, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . The increase was primarily driven by a$6.5 million increase in third-party customer support costs, a$5.3 million increase in internal personnel costs at our sites inthe Philippines andNicaragua that support customer operations, a$2.1 million increase in software and telephony costs as we supported more active customers, and a$0.7 million increase in other operating expenses including customer set up fees and other costs. As a percentage of revenue, customer support and operations expenses remained flat at 10% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Marketing Expenses Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020
Amount Percent 2021 2020 Amount Percent Marketing$ 30,365 $ 18,816 $ 11,549 61 %$ 82,639 $ 50,923 $ 31,716 62 % Percentage of total revenue 25 % 26 % 26 % 29 % Marketing expenses increased$11.5 million , or 61%, for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 , due primarily to an increase of$9.5 million in direct marketing expense, including online and offline marketing spend and promotion costs to acquire new customers. Personnel-related costs increased by$1.2 million driven by a 29% increase in marketing headcount compared to the same period in 2020, as well as a$0.3 million increase in stock-based compensation expense. The increase in marketing expenses was also driven by a$0.5 million increase in other indirect marketing and employee-related costs. 28 -------------------------------------------------------------------------------- As a percent of revenue, marketing expenses decreased to 25% for the three months endedSeptember 30, 2021 , from 26% for the three months endedSeptember 30, 2020 , as our existing customer base became a larger portion of revenue while our marketing spend was mostly dedicated to acquiring new customers. Marketing expenses increased$31.7 million , or 62%, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , due primarily to an increase of$27.3 million in direct marketing expense, including online and offline marketing spend and promotion costs to acquire new customers. Personnel-related costs increased by$2.8 million driven by a 31% increase in marketing headcount compared to the same period in 2020, as well as a$0.6 million increase in stock-based compensation expense. The increase in marketing expenses was also driven by a$1.0 million increase in software, employee related, professional fees and other indirect marketing costs. As a percent of revenue, marketing expenses decreased to 26% for the nine months endedSeptember 30, 2021 , from 29% for the nine months endedSeptember 30, 2020 , as our existing customer base became a larger portion of revenue while our marketing spend was mostly dedicated to acquiring new customers. Technology and Development Expenses Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent Technology and development$ 18,123 $ 10,380 $ 7,743 75 %$ 44,965 $ 29,439 $ 15,526 53 % Percentage of total revenue 15 % 14 % 14 % 17 % Technology and development expenses increased$7.7 million , or 75% for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . The increase was driven by$4.4 million in personnel-related expenses resulting from a 35% increase in headcount compared to the same period in 2020, as well as a$1.2 million increase in stock-based compensation expense. The increase in technology and development expense was also driven by a$1.4 million increase in software costs for employee tools and cloud services due to growth in headcount and volume of transactions,$0.3 million higher professional fees, and$0.4 million higher employee related expenses. As a percentage of revenue, technology and development expenses increased to 15% for the three months endedSeptember 30, 2021 , from 14% for the three months endedSeptember 30, 2020 , driven by the increase in stock-based compensation expense. Technology and development expenses increased$15.5 million , or 53%, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . The increase was driven by a$9.0 million increase in personnel related expenses resulting from a 25% increase in headcount compared to the same period in 2020, as well as a$2.0 million increase in stock-based compensation expense. The increase in technology and development expense was also driven by a$3.2 million increase in software costs for employee tools and cloud services due to growth in headcount and volume of transactions, as well as$0.8 million higher professional fees and a$0.5 million increase in other costs. As a percentage of revenue, technology and development expenses decreased to 14% for the nine months endedSeptember 30, 2021 , from 17% for the nine months endedSeptember 30, 2020 , as we leveraged our technology platform and infrastructure over a larger revenue and customer base. 29 --------------------------------------------------------------------------------
General and Administrative Expenses
Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent General and administrative$ 24,539 $ 7,667 $ 16,872 220 %$ 47,429 $ 22,008 $ 25,421 116 % Percentage of total revenue 20 % 11 % 15 % 12 % General and administrative expenses increased$16.9 million , or 220%, for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . This increase was primarily driven by a$6.9 million donation of common stock in connection with our Pledge 1% commitment. In addition, personnel-related costs increased by$3.2 million , primarily driven by a 63% increase in the general and administrative headcount compared to the same period in the prior year, as well as a$1.9 million increase in stock-based compensation expense. Included within the stock based compensation expense for the three months endedSeptember 30 , 2021is approximately$1.1 million related to the recognition of expense associated with restricted stock units with performance conditions that were met upon IPO. The increase in general and administrative expenses was also due to a$2.8 million increase in professional, regulatory and corporate fees to support the IPO and ongoing public company costs, a$1.0 million increase in employee-related expenses due to increased recruiting and travel costs, and a$1.1 million increase to other operating expense. As a percent of revenue, general and administrative expenses increased to 20% for the three months endedSeptember 30, 2021 , from 11% for the three months endedSeptember 30, 2020 , due primarily to the donation of common stock and costs related to the IPO. General and administrative expenses increased$25.4 million , or 116%, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . Personnel-related expenses increased by$7.0 million , primarily driven by a 52% increase in the general and administrative headcount compared to the same period in 2020, as well as a$2.5 million increase in stock-based compensation expense. Included within the stock based compensation expense for the nine months endedSeptember 30, 2021 is approximately$1.1 million related to the recognition of expense associated with restricted stock units with performance conditions that were met upon IPO. The increase in our general and administrative headcount over the last year is primarily due to the investments we have made in our human resources, legal, and finance teams to prepare to become a public company. The increase in general and administrative expense was also due to a$6.9 million annual donation of common stock, a$5.5 million increase in professional, regulatory, and corporate fees to support the IPO and ongoing public company costs, a$1.2 million increase to employee-related expenses, a$1.1 million increase to other taxes, a$0.6 million increase in facilities expense and a$0.6 million increase in software expense. As a percentage of revenue, general and administrative expenses increased to 15% for the nine months endedSeptember 30, 2021 , from 12% for the nine months endedSeptember 30, 2020 , due primarily to theSeptember 2021 donation of common stock in connection with our Pledge 1% and costs related to the Company's IPO. Depreciation and Amortization Three Months Ended September Nine Months Ended September 30, Change 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent Depreciation and Amortization$ 1,319 $ 1,002 $ 317 32 %$ 3,890 $ 2,859 $ 1,031 36 % Percentage of revenue 1 % 1 % 1 % 2 %
Depreciation and amortization increased
30 -------------------------------------------------------------------------------- Depreciation and amortization increased$1.0 million , or 36%, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . This increase is mostly due to an increase in depreciation for internally developed software, computers, and leasehold improvements. Interest Income Three Months Ended September Nine Months Ended September 30, Change 30, Change (dollars in thousands) 2021 2020
Amount Percent 2021 2020 Amount Percent Interest income$ 82 $ 7 $ 75 nm$ 92 $ 181 $ (89) (49) % nm = not meaningful Interest income increased by an immaterial amount for the three month period endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . Interest income decreased by an immaterial amount for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . Interest Expense Three Months Ended Nine Months Ended September September 30, Change 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent Interest expense$ (512) $ (247) $ 265 107 %$ (1,048) $ (1,027) $ 21 2 % Interest expense increased$0.3 million for the three month period endedSeptember 30, 2021 , as compared to the three month period endedSeptember 30, 2020 , primarily due to higher interest expense on borrowings under our credit facilities during the period, as well as approximately$0.1 million in debt extinguishment costs, as a result of refinancing our existing revolving line of credit and entering into the New Revolving Credit Facility inSeptember 2021 . Interest expense remained flat for the nine month period endedSeptember 30, 2021 , as compared to the nine month period endedSeptember 30, 2020 . Other Income (Expense), Net Three Months Ended Nine Months Ended September September 30, Change 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent
Other income (expense), net
(264) %$ 3,044 $ (1,737) $ 4,781 (275) % Other income (expense), net, increased$0.6 million from other (expense), net, for the three month period endedSeptember 30, 2021 , compared to the three month period endedSeptember 30, 2020 , primarily due to foreign exchange remeasurements on transactions associated with high-volume balance sheet balances, and volatility in related currencies including the Mexican peso, Philippine peso, and Colombian peso. Other income (expense), net, increased$4.8 million from other (expense), net, for the nine month period endedSeptember 30, 2021 , compared to the nine month period endedSeptember 30, 2020 , primarily due to foreign exchange remeasurements on transactions associated with high-volume balance sheet balances, and volatility in related currencies including the Mexican peso, Philippine peso, and Colombian peso. 31 --------------------------------------------------------------------------------
Provision for Income Taxes Three Months Ended September Nine Months Ended September 30, Change 30, Change (dollars in thousands) 2021 2020 Amount Percent 2021 2020 Amount Percent Provision for income taxes$ 261 $ 195 $ 66 34 %$ 1,085 $ 635 $ 450 71 % The provision for income taxes increased by$0.1 million , or 34%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , due to an increase in taxable income for our international entities. The provision for income taxes increased$0.5 million , or 71%, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , primarily due to an increase in taxable income for our international entities. 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 and v) non-cash stock-based compensation expense, as well as vi) non-cash charges associated with our donation of common stock in connection with our Pledge 1% commitment. Our goal is not to maximize Adjusted EBITDA in any given quarter, but to drive revenue growth with investments that generate long-term value. 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 non-cash 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 non-cash charges associated with the donation of our common stock in connection with our Pledge 1% commitment, which is recorded in general and administrative expense; 32 -------------------------------------------------------------------------------- •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 before taxes to Adjusted EBITDA, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Net loss$ (12,962) $ (2,429) $ (22,180) $ (23,559) Add: Interest expense, net 430 240 956 846 Provision for income taxes 261 195 1,085 635 Depreciation and amortization expenses 1,319 1,002 3,890 2,859 Foreign exchange (gain) loss (396) 241 (3,044) 1,737 Donation of common stock 6,933 - 6,933 - Stock-based compensation expense 4,740 1,329 8,965 3,852 Adjusted EBITDA$ 325 $ 578 $ (3,395)$ (13,630) Adjusted EBITDA of$0.3 million for the three months endedSeptember 30, 2021 , decreased 44% compared to$0.6 million for the three months endedSeptember 30, 2020 . Although we have continued to experience revenue growth, this growth has been partially offset by higher processing and customer support costs, and other general and administrative expenses. Adjusted EBITDA improved to$(3.4) million for the nine months endedSeptember 30, 2021 , compared to$(13.6) million for the nine months endedSeptember 30, 2020 , driven by continued acceleration in revenue and new customer acquisition partially offset by higher processing and customer support costs, investments in customer acquisition and our technology platform, and other general and administrative expenses. Liquidity and Capital Resources 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. We had unused borrowing capacity of$250.0 million and$70.0 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. As ofSeptember 30, 2021 andDecember 31, 2020 , our principal sources of liquidity were cash and cash equivalents of$443.3 million and$186.7 million , respectively, and funds available under the New Revolving Credit Facility and our previous revolving credit facility, respectively. We believe that our cash, cash equivalents, and funds available under the New Revolving Credit Facility will be sufficient to meet our working capital requirements for at least the next twelve months. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked securities, and the ownership of our existing stockholders would be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that are unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. 33 --------------------------------------------------------------------------------
The following table shows a summary of our cash flows for the periods presented:
Nine Months EndedSeptember 30 , (in thousands) 2021
2020
Net cash provided by (used in): Operating activities$ 19,425 $ (71,176) Investing activities (3,288) (3,416) Financing activities 239,665 41,850 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 analytics, and other general corporate expenditures. Net cash used in operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation expense, depreciation and amortization, amortization of operating lease right-of-use assets, and changes in operating assets and liabilities during each period. For the nine months endedSeptember 30, 2021 , net cash provided by operating activities was$19.4 million , which primarily consisted of favorable changes in our operating assets and liabilities of$21.5 million offset by net loss of$22.2 million , excluding approximately$20.1 million of non-cash charges included within net loss for the period. The main drivers for the change in operating assets and liabilities were an increase in customer liabilities of$50.3 million due to growth in our business and timing of disbursements, offset by an increase in customer receivables of$29.1 million in line with the growth in our business, and timing of cash settlement. For the nine months endedSeptember 30, 2020 , net cash used in operating activities was$71.2 million , which primarily consisted of changes in our operating assets and liabilities of$54.4 million , as well as a net loss of$23.6 million , excluding approximately$6.8 million of non-cash charges included within net loss for the period. The main drivers for the change in operating assets and liabilities were a decrease in customer liabilities of$28.9 million , as well as increases in disbursement prefunding of$30.3 million and customer funds receivable of$13.5 million , due to growth in our business and timing of cash settlements and disbursements, respectively. These changes were partially offset by an$21.6 million increase in the balance of accrued expenses and other liabilities due to the timing of the settlement of expenses in the ordinary course of business. 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$3.3 million for the nine months endedSeptember 30, 2021 and$3.4 million for the nine months endedSeptember 30, 2020 , 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 consistent primarily of proceeds from our IPO and concurrent private placement, as well as previous issuances of redeemable convertible preferred stock, and proceeds from the exercise of stock options. Cash used in financing activities consists primarily of repayments of our Revolving Credit Facility borrowings, partially offset by proceeds from the issuance of our redeemable convertible preferred stock, and proceeds from the exercise of stock options. Net cash provided by financing activities for the nine months endedSeptember 30, 2021 of$239.7 million was primarily driven by proceeds from the issuance of common stock upon our IPO and concurrent private placement, net of underwriting discounts and commissions and other offering costs of$307.1 million , which excludes$1.9 34 -------------------------------------------------------------------------------- million of offering costs not yet paid as ofSeptember 30, 2021 . These proceeds were partially offset by repayments of our Revolving Credit Facility borrowings of$80.0 million and payments of debt issuance costs of$1.0 million . Other financing sources in the nine months endedSeptember 30, 2021 included proceeds from the exercise of stock options of$7.5 million , the repayment of a non-recourse promissory note of$3.1 million , and the issuance of Series F redeemable convertible preferred stock, net of issuance costs of$2.9 million . Net cash provided by financing activities for the nine months endedSeptember 30, 2020 of$41.9 million was primarily driven by proceeds from the issuance of Series F convertible preferred stock of$84.5 million , and proceeds from the exercise of stock options of$2.0 million , partially offset by repayments of our Revolving Credit Facility borrowings of$45.0 million . Contractual Obligations and Commitments There were no material changes outside of the ordinary course of business in the Company's commitments and contingencies during the nine months endedSeptember 30, 2021 from the commitments and contingencies disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations", set forth in our Final Prospectus. Also refer to Note 14 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 ofSeptember 30, 2021 , the Company 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 Final Prospectus. Recently Issued Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies, in the notes to the Company's condensed consolidated financial statements included in Part I, Item I 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 Act of 2012 (the "JOBS Act"). 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 consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. 35 -------------------------------------------------------------------------------- We expect to use the extended transition period for any new or revised accounting standards during the period in which we remain an emerging growth company. Item 3: Quantitative and Qualitative Disclosures About Market Risk Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as interest rates, foreign currency exchange rates, and equity investment risk. Management establishes and oversees the implementation of policies governing our investing, and funding, and foreign currency activities in order to mitigate market risks. We monitor risk exposures on an ongoing basis. Credit Risk We have a limited number of pay-in payment processors and therefore we are exposed to credit risk relating to those pay-in payment providers if in the course of a transaction, we were to disburse funds to the recipient but the pay-in payment provider does not deliver our customer's funds to us (for example, due to their illiquidity). We mitigate this credit risk by engaging with reputable pay-in payment providers and entering into written agreements with pay-in providers allowing for legal recourse. We are also exposed to credit risk relating to many of our disbursement partners when we pre-fund or remit funds in advance of having collected funds from our customers through our pay-in payment processors, if our disbursement partners fail to disburse funds according to our instructions (for example, due to their insufficient capital). We mitigate these credit exposures by engaging with reputable disbursement partners and performing a credit review before onboarding each disbursement partner. We also periodically review credit ratings or, if unavailable, other financial documentation, of both our pay-in payment providers and disbursement partners. We have not experienced significant losses during the periods presented. Foreign Currency Exchange Rate Risk Given the nature of our business, we are exposed to foreign exchange rate risk in a number of ways. Our principal exposure to foreign exchange rate risk includes: •Exposure to foreign currency exchange risk on our cross-border payments if exchange rates fluctuate between initiation of the transaction and transaction disbursement to the recipient. We disburse transactions in multiple foreign currencies, including most notably the Indian rupee, the Mexican peso, and the Philippine peso. In the vast majority of cases, the recipient disbursement occurs within a day of sending, which mitigates foreign currency exchange risk. To enable disbursement in the receive currency, we prefund many disbursement partners one to two business days in advance based on expected send volume. Foreign exchange rate risk due to differences between the timing of transaction initiation and payment varies based on the day of the week and the bank holiday schedule; for example, disbursement prefunding is typically largest before long weekends. •While the majority of our revenue and expenses are denominated in theU.S. dollar, certain of our international operations are conducted in foreign currencies, a significant portion of which occur inCanada , theUnited Kingdom , andEurope . Changes in the relative value of theU.S. dollar to other currencies may affect revenue and other operating results as expressed inU.S. dollars. As ofSeptember 30, 2021 andDecember 31, 2020 , a hypothetical uniform 10% strengthening or weakening in the value of theU.S. dollar relative to all other currencies in which our net loss is generated, would have resulted in a decrease or increase to the fair value of our assets and liabilities denominated in currencies other than the subsidiaries' functional currencies of approximately$3.6 million and$9.7 million , respectively, based on our unhedged exposure to foreign currency at that date. There are inherent limitations in this sensitivity analysis, primarily due to the following assumptions: (1) foreign exchange rate movements are linear and instantaneous, (2) exposure is static, and (3) customer transaction behavior due to currency rate changes is static. As a result, the analysis is unable to reflect the potential effects of more complex market changes that could arise, which may positively or negatively affect our results from operations. For example, the impact onDecember 31, 2020 as shown in this sensitivity analysis is higher than normal, when compared to the prior year, and also as compared toSeptember 30, 2021 , as the disbursement prefunding balance onDecember 31, 2020 was$102.0 million due to the need to fund transactions to be paid out over the upcoming long holiday weekend. Both the disbursement prefunding 36 -------------------------------------------------------------------------------- balance and the customer funds liability balance (and resulting net impact to our net currency position) may be highly variable day to day. In addition, changes in foreign exchange rates may impact customer behavior by altering the timing or volume of transactions sent through our platform. For example, an increase in the value of a send currency against a receive currency may accelerate the timing or amount of remittances. To the extent practicable, we minimize our foreign currency exposures by maintaining natural hedges between our current assets and current liabilities in similarly denominated foreign currencies. At this time, we do not enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. We may do so in the future, but it is difficult to predict the impact hedging activities would have on our operating results. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in theSEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, and in consideration of our material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective at the reasonable assurance level. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity withU.S. GAAP. Internal Control Over Financial Reporting In the course of preparing our financial statements, our management has determined that we have material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows: we did not design and maintain effective controls over certain information technology ("IT") general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (1) program change management controls for certain financial systems to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; and (2) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to certain financial systems, programs, and data to appropriate Company personnel. This material weakness contributed to the following material weakness: we did not design and maintain effective controls over segregation of duties of journal entries. More specifically, certain personnel had the ability to prepare and post journal entries without an independent review performed by someone without this ability. These material weaknesses did not result in a misstatement to our unaudited condensed consolidated financial statements as of and for the nine months endedSeptember 30, 2021 or to our annual consolidated financial 37 -------------------------------------------------------------------------------- statements for the period endedDecember 31, 2020 . However, each of the material weaknesses described above, individually and aggregated, could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. As of the date of this Quarterly Report, these remain material weaknesses and we are in the process of remediating these material weaknesses. In order to remediate these material weaknesses, we have taken and plan to take the following actions: (1) developing enhanced risk assessment procedures and monitoring controls related to changes in financial systems; (2) implementing comprehensive access control protocols to implement restrictions on user and privileged access to the affected applications; (3) implementing controls to review and monitor user access; and (4) establishing additional controls over the preparation and review of journal entries. We have concluded that these material weaknesses in our internal control over financial reporting occurred because, prior to the effectiveness of our IPO, we were a private company and did not have the necessary business processes and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company. Changes in Internal Control over Financial Reporting As required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter endedSeptember 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Except for the remediation efforts noted above, there were no changes to our internal control over financial reporting that occurred during the quarter endedSeptember 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 38
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