Remitly Global (RELY) 10-Q2022 Q3 Quarterly report

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and the plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. These forward-looking statements include, but are not limited to, statements concerning the following:

•    our expectations regarding our revenue, expenses, and other operating results;

•    our ability to acquire new customers and successfully retain existing customers;

•    our ability to develop new products and services and bring them to market in a timely manner;

•    our ability to achieve or sustain our profitability;

•    our ability to maintain and expand our strategic relationships with third parties;

•    our business plan and our ability to effectively manage our growth;

•    our market opportunity, including our total addressable market;

•    anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;

•    our ability to attract and retain qualified employees;

•    the COVID-19 pandemic, and its impact on our employees, customers, strategic partners, vendors, results of operations, liquidity, and financial condition;

•    uncertainties regarding the impact of general economic and market conditions, including as a result of currency fluctuations, inflation, or regional and global conflicts or related government sanctions;

•    our ability to maintain the security and availability of our solutions;

•    our ability to maintain our money transmission licenses and other regulatory approvals;

•    our ability to maintain and expand internationally; and

•    our expectations regarding anticipated technology needs and developments and our ability to address those needs and developments with our solutions.

You should not place undue reliance on our forward-looking statements and you should not rely on forward-looking statements as predictions of future events. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this report. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” in this Quarterly Report on Form 10-Q. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

Unless the context otherwise requires, the terms “Remitly Global,” “Remitly,” “the Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to Remitly Global, Inc. and our consolidated subsidiaries, taken as a whole.

Item 1. Financial Statements (Unaudited)

REMITLY GLOBAL, INC.

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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.

In September 2021, the Company completed its initial public offering (the “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 the Company’s existing stockholders. In addition, the Company 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.

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, 2021.

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 and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or for any other future annual or interim period.

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.

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 in 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 including the estimated fair value per share of common stock, the carrying value of operating lease right-of-use assets, the recoverability of deferred tax assets, and capitalization of software development costs. 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.

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, Philippines and Mexico. 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 and nine months ended September 30, 2022 and 2021.

For the three and nine months ended September 30, 2022 and 2021, no individual customer represented 10% or more of the Company’s total revenue or customer funds receivable.

The Company evaluates acquisitions to determine if they meet the definition of a business. If the acquisition does meet the definition of a business, it is accounted for as a business combination. For a business combination, assets acquired and liabilities assumed are generally recorded at their fair value at the date of acquisition. Any excess of the fair value of consideration transferred for the business, over the fair values of the identifiable assets acquired and liabilities assumed is recognized as goodwill.

Acquisitions that do not meet the criteria to be accounted for as a business combination are accounted for as an asset acquisition. In an asset acquisition, the cost of the acquisition, including transaction costs, is allocated to the acquired assets and assumed liabilities based upon their relative fair values as of the acquisition date, and no goodwill is recognized.

Intangible assets with finite lives primarily consist of licenses acquired through business combinations or asset acquisitions. Intangible assets acquired through business combination are recorded at their respective estimated fair values upon acquisition close. Other intangible assets acquired through asset acquisition are recorded at their respective cost. The Company determines the estimated useful lives for acquired intangible assets based on the expected future cash flows associated with the respective asset. The Company's intangible assets with finite lives are amortized using an economic benefit method, over their estimated useful lives, unless amortizing on a straight-line basis would not be significantly different. The Company evaluates the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.

The Company’s significant accounting policies are discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to these policies during the three months ended September 30, 2022, except as noted below.

There are new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable. We do not believe any of these accounting pronouncements have had, or will have, a material impact on our consolidated financial statements or disclosures.

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, 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 in the Condensed Consolidated Statements of Operations. The Company does not have any capitalized contract acquisition costs.

The deferred revenue balances from contracts with customers were as follows:

During the three months ended September 30, 2022 and 2021, payments made to customers resulted in reductions to revenue of $6.7 million and $4.3 million, respectively, and charges to sales and marketing expense of $5.2 million and $2.6 million, respectively.

During the nine months ended September 30, 2022 and 2021, payments made to customers resulted in reductions to revenue of $17.5 million and $13.4 million, respectively, and charges to sales and marketing expense of $13.8 million and $8.4 million, respectively.

Property and equipment, net consisted of the following:

Depreciation and amortization expense related to property and equipment was $1.9 million and $1.3 million for the three months ended September 30, 2022 and 2021, respectively

Depreciation and amortization expense related to property and equipment was $4.9 million and $3.9 million for the nine months ended September 30, 2022 and 2021, respectively.

There has been no impairment of previously capitalized costs during the three and nine months ended September 30, 2022 and 2021.

The Company capitalized $1.2 million and $0.5 million for internal-use software costs for three month periods ended September 30, 2022 and 2021, respectively. The Company capitalized $0.5 million of stock-based compensation costs to internal-use software during the three month period ended September 30, 2022. The Company capitalized inconsequential amounts of stock-based compensation costs to internal-use software during the three months ended September 30, 2021. The Company recorded amortization expense of $1.1 million and $0.6 million for the three months ended September 30, 2022 and 2021, respectively.

Other than as described above, there were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2021.

Since 2013, the Company had access to a variable rate credit facility. In November 2020, Remitly Global, Inc. and Remitly, Inc., a wholly owned subsidiary of Remitly Global, Inc., as borrower, further modified its then-existing credit agreement (the “2020 Credit Agreement”). Following such modification, the 2020 Credit Agreement provided Remitly, Inc. with access up to $150.0 million in revolving credit facility borrowings (including a $30.0 million letter of credit sub-facility) with a maturity date of November 16, 2023. As noted above, in September 2021, the New Revolving Credit Facility was used to refinance the 2020 Credit Agreement. As a result of the refinancing, the 2020 Credit Agreement was terminated and all amounts outstanding, including any accrued interest, were repaid in full.

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.

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 September 30, 2022, 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 September 30, 2022 and September 30, 2021, no dividends have been declared or paid by the Company.

In July 2021, the Company’s board of directors approved the reservation of up to 1,819,609 shares of common stock (which was approximately 1.0% of the fully diluted capitalization as of June 30, 2021) that the Company may issue to or for the benefit of a 501(c)(3) nonprofit foundation or a similar charitable organization pursuant to the Company’s Pledge 1% commitment in equal installments over ten years. On September 10, 2021, the Company executed the stock donation agreement, pursuant to which it would issue the first installment of the Pledge 1% commitment to Remitly Philanthropy Fund, a donor advised fund that will be administered on its behalf by Rockefeller Philanthropy Advisors, Inc., on the day after consummation of the IPO.

In connection with a previous Credit Agreement, the Company issued stock warrants to purchase shares of common stock with terms of ten years, exercisable at any time, and exercise prices ranging from $0.054 to $0.64 per share, subject to standard anti-dilution adjustments. The warrants were recorded as additional paid-in capital and capitalized as debt issuance costs on the Condensed Consolidated Balance Sheets. On September 24, 2021, the holders of these stock warrants provided a notice of exercise and on September 30, 2021, warrants to purchase 256,250 shares of common stock were exercised in a cashless exercise, pursuant to the terms of the original warrant agreement, resulting in the issuance of 254,014 shares. There were no warrants outstanding as of September 30, 2022 and December 31, 2021.    

In 2011, the Company adopted the Equity Incentive Plan (the “2011 Plan”), as amended, which provided for the issuance of up to 43,899,677 incentive stock options, nonqualified stock options, restricted common stock, RSUs and stock appreciation rights to employees, directors, officers, and consultants of the Company.

In September 2021, the Company adopted the Remitly Global, Inc. 2021 Equity Incentive Plan (the “2021 Plan”, and together with the 2011 Plan, the “Plan”) as a successor to the 2011 Plan. The 2021 Plan authorizes the issuance of incentive stock options, nonqualified stock options, restricted common stock, stock appreciation rights, RSUs, and performance and stock bonus awards. Pursuant to the 2021 Plan, incentive stock options may be granted only to Company employees. The Company may grant all other types of awards to its employees, directors, and consultants. The 2021 Plan is administered by the Company’s board of directors, which determines the terms of the grants, including exercise price, number of equity awards granted, and vesting schedule. The 2021 Plan provided for the initial issuance of up to 25,000,000 shares of common stock, plus any reserved shares not issued or subject to outstanding grants under the 2011 Plan, which was 552,736 on the effective date of the 2021 Plan, for a total of 25,552,736 shares initially reserved for issuance under the 2021 Plan. Beginning in January 2022, the number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1 of each year through 2031 by the number of shares equal to 5% of the aggregate number of outstanding shares of all classes of common stock as of the immediately preceding December 31, or a lesser number as may be determined by the Company’s talent and compensation committee, or by the Company’s board of directors acting in place of the talent and compensation committee. In January 2022, there was an increase in the shares reserved for issuance under the 2021 Plan, in accordance with the automatic increase provision.

As of September 30, 2022, 14,733,269 equity incentive awards remain available for issuance under the 2021 Plan and 4,762,721 shares of common stock remain available for issuance under the ESPP.

Stock options granted under the Plan generally vest over a period from two years to four years from the vesting commencement date on a monthly basis with or without a one-year cliff or, for nonemployees, ratably on a monthly basis over a shorter period, depending upon anticipated duration of services. Other vesting terms are determined by the Company’s board of directors. All options granted under the Plan are exercisable for up to ten years from the grant date, subject to vesting. In the event of termination of service, options will generally remain exercisable, to the extent vested, for three months following the termination of service.

The following is a summary of the Company’s stock option activity during the nine months ended September 30, 2022:

The fair value of each employee stock option granted during the three and nine months ended September 30, 2022 and 2021 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Prior to the completion of the IPO, the Company’s board of directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved. The factors considered included, but were not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares. After the completion of the IPO, the fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the NASDAQ.

The weighted-average grant date fair value of options granted during the three months ended September 30, 2022 and 2021 was $6.78 and $15.31, respectively. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2022 and 2021 was $6.78 and $5.22, respectively.

The aggregate grant-date fair value of options vested for the three months ended September 30, 2022 and 2021 was $2.5 million and $2.1 million, respectively. The aggregate grant-date fair value of options vested for the nine months ended September 30, 2022 and 2021 was $9.6 million and $5.4 million, respectively.

Prior to the IPO, the Company granted performance-based RSUs (“PRSUs”) to employees and directors that contained both service-based and performance-based vesting conditions. The service-based vesting condition for these awards is typically satisfied over four years with a cliff-vesting period of one year and continued vesting quarterly thereafter. The performance-based vesting condition is satisfied on the earlier of (i) the effective date of a registration statement of the Company filed under the Securities Act for the sale of the Company’s common stock or (ii) immediately prior to the closing of a change in control of the Company. Both events were not deemed probable until consummated, and therefore, stock-based compensation expense related to these PRSUs remained unrecognized prior to the effectiveness of the IPO. Upon the effectiveness of the IPO the performance-based vesting condition was satisfied, and therefore, the Company recognized cumulative stock-based compensation expense of $1.1 million, using the accelerated attribution method for the portion of the awards for which the service-based vesting condition has been fully or partially satisfied. The remaining grant-date fair value of these PRSUs is being recognized over the remaining requisite service period.

Beginning in August 2021, the Company began granting RSUs to employees and directors with service-based vesting conditions. The service-based vesting condition for these awards is typically satisfied over four years with a cliff vesting period of one year and continued vesting quarterly thereafter. The grant-date fair value of these RSUs will be recognized over the requisite service period.

Restricted stock unit activity, including PRSUs, during the nine months ended September 30, 2022 was as follows:

In addition, during the three months ended March 31, 2022, as a result of the expiration of the lock-up agreement related to its IPO, the Company issued 124,026 shares of common stock subject to RSUs that were vested as of December 31, 2021, but not yet settled.

The weighted-average grant date fair value of RSUs, including PRSUs, granted during the nine months ended September 30, 2022 and 2021 was $10.66 and $23.16, respectively. The aggregate grant-date fair value of RSUs, including PRSUs, vested for the nine months ended September 30, 2022 and 2021 was $24.2 million and $0.1 million, respectively.

The ESPP provides for offering periods during which eligible employees can participate in the ESPP and be granted the right to purchase shares. Except for the first offering period, which commenced on September 22, 2021, offering periods shall commence on each subsequent March 1 and September 1, with each offering period consisting of four six-month purchase periods, for a total of a 24-month offering period. No offering periods may last longer than 27 months. Except for the first offering period, the grant date for accounting purposes is generally the first date of each offering period and expense is recognized over the requisite service period, which is considered to be the 24-month offering period. For the first offering period, the grant date for awards under the ESPP was met in October 2021, upon mutual agreement of terms and conditions between the Company and participants of the ESPP.

The offering period that commenced on September 22, 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 US 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 will be recognized over the new offering period, which is deemed to be the requisite service period. In addition, a subsequent 24-month offering commenced on September 1, 2022.

Eligible employees can contribute up to 15% of their eligible compensation, subject to limitation as provided for in the ESPP, and purchase the common stock at a purchase price per share equal to 85% of the lesser of the fair market value of the common stock on (i) the offering date, which is defined as the first business day of the offering period, or (ii) the purchase date, which is the final business day of the purchase period.

The fair value of the ESPP offerings was 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 during 2022, as well as updated valuation information as of the modification date, for any offerings for which a modification occurred, requiring incremental expense to be measured at the modification date:

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. For the inputs to the original grant date fair value for that offering in October 2021, please see Note 10. “Stock-Based Compensation” t within the footnotes to the audited annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Stock-based compensation expense for stock options, RSUs, PRSUs, and the ESPP, included in the Condensed Consolidated Statements of Operations, net of amounts capitalized to internal-use software, as described in Note 4, was as follows:

As of September 30, 2022, the total unamortized compensation cost related to all non-vested equity awards, including options, RSUs, and PRSUs was $240.6 million, which will be amortized over a weighted-average remaining requisite service period of approximately 2.9 years. As of September 30, 2022, the total unrecognized compensation expense related to the ESPP was $5.1 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 and nine months ended September 30, 2022 and 2021, since the Company currently maintains a full valuation allowance against its net deferred tax assets in the jurisdictions where material stock compensation expense charges are incurred, and stock option exercises occurred.

The Company entered into promissory note agreements in October 2018 which were fully repaid in August 2021. The promissory note agreements were entered into with two executive employees in conjunction with their early exercise of stock options to purchase 1,800,000 shares of the Company’s common stock. The principal amount of the notes was $3.1 million, and interest accrued at 2.83% on the outstanding principal amount annually. The notes were secured by the shares that were exercised. Based on the nonrecourse nature of these agreements, the agreements were accounted for as grants of options to purchase common stock. The fair value of the stock options, determined using the Black-Scholes option pricing model was being recognized over the requisite service period. The associated shares are legally outstanding and included in shares of common stock outstanding in the Condensed Consolidated Financial Statements, but were historically excluded from the Company’s net loss per common share calculations, as these shares of common stock were considered unvested until the underlying promissory notes were repaid.

On August 23, 2021, the promissory notes were paid in full, including all accrued interest. After repayment of the loan, these shares are now considered outstanding for purposes of the Company’s net loss per common share calculations to the extent the shares are vested.

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 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 September 30, 2022, tax years 2011 through 2021 remain open for examination by taxing authorities.

The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all domestic employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. The Company makes discretionary matching contributions that are funded in the following year. The Company matches 50% of the first 3% of compensation that a participant contributes to the 401(k) plan, up to a maximum of $1,000 per plan year. The Company contributed $0.3 million and $0.2 million to the 401(k) plan during each of the nine months ended September 30, 2022 and 2021, respectively, which represents the current period contribution for the prior plan year. The Company may also make discretionary profit-sharing contributions. No profit-sharing contributions were made during the three and nine months ended September 30, 2022 and 2021.

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 September 30, 2022 and December 31, 2021.

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 September 30, 2022 and December 31, 2021.

The table below summarizes the Company’s reserve for transaction losses for the three and nine months ended September 30, 2022 and 2021:

Accrued expenses and other current liabilities consisted of the following:

The Company determines operating segments based on how its chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. The Company’s CODM is its Chief Executive Officer, who reviews the Company’s operating results on a consolidated basis. The Company operates as one segment. Based on the information provided to and reviewed by the Company’s CODM, the Company believes that the nature, amount, timing, and uncertainty of its revenue and how it is affected by economic factors are most appropriately depicted through the Company’s primary geographical locations. Revenues recorded by the Company are substantially all from the Company’s single performance obligation which are earned from similar services for which the nature of associated fees and the related revenue recognition models are substantially the same.

The following table presents the Company’s revenue disaggregated by primary geographical location:

Remitly is a leading digital financial services provider for immigrants and their families in over 170 countries around the world.

Our differentiated approach to addressing the complexity of cross-border remittances and financial services is composed of four core elements:

The combination of our differentiated approach and our relentless focus on meeting the financial services needs of our immigrant communities has resulted in significant customer growth, high customer engagement, rapid send volume and transaction growth, and attractive customer economics built on top of an expansive global network.

For our remittance business, which represents the vast majority of our revenue today, we generate revenue from transaction fees charged to customers who are sending remittances and foreign exchange spreads applied to the customer’s principal.

Transaction fees vary based on the corridor, the currency in which funds are delivered to the recipient, the funding method a customer chooses (e.g., ACH, credit card, debit card, etc.), and the amount of the customer’s principal.

Foreign exchange spreads represent the difference between the foreign exchange rate offered to customers and the foreign exchange rate on the Company’s currency purchases. They are an output of proprietary and dynamic models that are designed to provide fair and competitive rates to our customers, while generating a spread for the Company based on our ability to buy foreign currency at generally advantageous rates.

Revenue from transaction fees and foreign exchange spreads is reduced by customer promotions. For example, we may, from time to time, waive transaction fees for first-time customers, or provide customers with better foreign exchange rates on their first transaction. These incentives are accounted for as reductions to revenue, up to the point where net historical cumulative revenue, at the customer level, is reduced to zero. We consider these incentives to be an investment in our long-term relationship with customers.

In September 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 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.

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. The key business metrics that we use to measure the performance of our business are defined as follows:

As active customers are measured on a quarterly basis, the data for the full-year periods for active customers is not meaningful, and therefore is only presented on a quarterly basis herein.

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 3.8 million, or 49% growth, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. This increase was primarily due to an increase in new customers, driven by investments in our mobile platform and marketing spend, our focus on customer experience, expansion of our global disbursement network, and the continued diversification across both send and receive countries. While we continue to see strong results in our largest existing receive countries, our successful diversification of our corridor portfolio across both send and receive countries has contributed to new customer growth. In addition, while not a primary driver of results, we believe the strength in the US dollar contributed to new customer acquisition in certain markets during the period.

We measure send volume to assess the scale of remittances sent using our platform. Our customers mostly send from the United States, Canada, United Kingdom, other countries in Europe, and Australia. The recipients are located in over 160 countries and territories across the globe; the largest receive countries by send volume include India, Mexico, and the Philippines.

Send volume increased approximately 44% to $7.5 billion for the three months ended September 30, 2022, compared to $5.2 billion for the three months ended September 30, 2021. This increase was primarily due to the growth of quarterly active customers, which increased 49% over the same period.

Send volume increased $6.1 billion, or 42%, to $20.6 billion for the nine months ended September 30, 2022, compared to $14.5 billion for the nine months ended September 30, 2021, driven by the increase in quarterly active customers.

Our send volume is primarily driven by existing customers who regularly use our remittance product to send money home. We believe that our mobile-first products and superior customer experience encourage high retention and repeat usage, which are important drivers of our performance.

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

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

Efficiently acquiring customers is critical to our growth and maintaining attractive customer economics, which is impacted by online marketing competition, our ability to effectively target the right demographic, and competitor pricing.

We have a history of successfully monitoring customer acquisitions costs and will continue to be strategic and disciplined toward customer acquisition. For example, for performance marketing, we set rigorous customer acquisition targets that we continuously monitor to ensure a high return on investment over the long term, and we can increase or decrease this investment as desired. Customer acquisition costs refer to direct marketing expenses deployed to acquire new customers and primarily includes digital advertising costs. As we look ahead to the fourth quarter we expect customer acquisition costs to increase sequentially but decline year over year as we remain focused on driving efficiencies across the marketing funnel.

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

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

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

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

Global macroeconomic and geopolitical factors, including inflation, currency fluctuations, immigration, trade and regulatory policies, the conflict in Ukraine, unemployment, and the rate of digital remittance adoption impact demand for our services and the options that we can offer. These factors evolve over time and periods of significant currency appreciation or depreciation, whether in send or receive currencies, changes to global migration patterns, and changes to digital adoption trends may shift the timing and volume of transactions, or the number of customers using our service. In addition, foreign currency movements do impact our business in numerous ways. For example, as the US dollar strengthens, we see customers in certain markets taking advantage of the ability to get more local currency to their families and friends. We also believe the strength of the US dollar and the strength in other developed market currencies versus emerging market currencies make it easier to acquire new customers in certain markets. Conversely, expansion of our international business can impact our consolidated results when other currencies weaken against the US dollar.

The COVID-19 pandemic has had, and continues to have, a significant impact on the U.S. economy and the markets in which we operate. As a result of the COVID-19 pandemic, our business, and the digital financial services industry in general, saw accelerated growth, as digital remittances increasingly became the choice of senders and receivers; however, we also experienced disruptions. In response to the COVID-19 pandemic, government authorities and businesses globally implemented varying levels of travel restrictions, border closures, quarantines, shelter-in-place and lockdown orders, mask and social distancing requirements, and business limitations and shutdowns, which contributed to a variety of changes to consumer behavior as well as to government and business practices. As a result, we observed that consumer behavior evolved rapidly to favor forms of commerce that do not require in-person interactions, with acceleration in the shift to digital and contactless forms of payment. During 2020 and 2021, this led to rapid customer, transaction, and revenue growth for our business. We have experienced a stabilization in growth in 2022. It remains unclear to what extent these conditions will impact our customers’ behavior in the future.

In some cases, pandemic-related measures also negatively impacted Remitly, including disruptions to workforce stability during 2020 and 2021. However, certain operating expenses during those years grew more slowly than usual due to reduced business travel and the virtualization or cancellation of events. These operating expenses have begun to return to normal growth levels as pandemic restrictions are lifted.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, particularly if new variants of the virus emerge. While we expect the trend toward increased use of digital payments to continue, its velocity may abate as conditions change. In addition, the impact from new variants and other factors arising from the COVID-19 pandemic could adversely effect the use of our services by our customers, the ability of our employees to perform work, and our business generally, which could have a material adverse impact on our operating and financial results.

We will continue to actively monitor the situation and may take further actions that may alter our business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, or business partners.

Throughout the COVID-19 pandemic, the Company has remained focused on serving its customers and communities, as well as the well-being of its employees.

The Company’s revenue is generated on transaction fees charged to customers and foreign exchange spreads between the foreign exchange rate offered to customers and the foreign exchange rate on the Company’s currency purchases. Revenue is recognized when control of these services is transferred to the Company’s customers, which is the time the funds have been delivered to the intended recipient in an amount that reflects the consideration the Company expects to be entitled to in exchange for services provided.

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

Customer support and operations expenses consist primarily of personnel-related expenses associated with the Company’s customer support and operations organization, including salaries, benefits, and stock-based compensation expense, as well as third-party costs for customer support services, and travel and related office expenses. This includes our customer service teams which directly support our customers, consisting of online support and call centers, and other costs incurred to support our customers, including related telephony costs to support these teams, customer protection and risk teams, investments in tools to effectively service our customers, and increased customer self-service capabilities. Customer support and operations expenses also include professional services fees.

Marketing expenses consist primarily of advertising costs used to attract new customers, including branding-related expenses. Marketing expenses also include personnel-related expenses associated with the Company’s marketing organization staff, including salaries, benefits and stock-based compensation expense, promotions, software subscription services dedicated for use by the Company’s marketing functions, and outside services contracted for marketing purposes.

Technology and development expenses consist primarily of personnel-related expenses for employees involved in the research, design, development and maintenance of both new and existing products and services, including salaries, benefits and stock-based compensation expense. Technology and development expenses also include professional services fees and costs for software subscription services, predominantly for use by the Company’s technology and development teams. Technology and development expenses also include product and engineering teams used to support the development of both internal infrastructure and internal-use software, to the extent such costs do not qualify for capitalization.

We believe delivering new functionality is critical to attract new customers and expand our relationship with existing customers. We expect to continue to make investments to expand our solutions in order to enhance our customers’ experience and satisfaction, and to attract new customers. We expect our technology and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period as we expand our technology and development team to develop new solutions and enhancements to existing solutions. In fiscal year 2022, as we invest in our platform to expand our offerings, improve the user experience, and drive geographic expansion, we expect technology and development expense to increase as a percentage of revenue.

General and administrative expenses consist primarily of personnel-related expenses for the Company’s finance, legal, corporate development, human resources, facilities, and administrative personnel, including salaries, benefits and stock-based compensation expense. General and administrative expenses also include professional services fees, software subscriptions, facilities, indirect taxes, and other corporate expenses, including acquisition and integration expenses. Such expenses primarily include external legal, accounting, valuation, and due diligence costs, as well as advisory and other professional services fees necessary to integrate acquired businesses.

We have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. We have also invested in additional headcount to support both public company costs and to support our growth initiatives.

Depreciation and amortization 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 expense consists primarily of the interest expense on our borrowings.

Other income (expense), net primarily consists of foreign exchange gains and losses.

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the United States. We maintain a full valuation allowance for U.S. deferred tax assets, which includes net operating loss carryforwards. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that the assets will not be realized based on our history of losses.

Revenue increased $48.0 million, or 40%, to $169.3 million for the three months ended September 30, 2022. This increase was primarily driven by growth in send volume, which increased $2.3 billion, or 44%, to $7.5 billion for the three months ended September 30, 2022, compared to $5.2 billion for the three months ended September 30, 2021, reflecting an increase in active customers compared to the third quarter in 2021 and continued strength in the retention of existing customers.

While not a primary driver of results, foreign currency movements, particularly the recent strength in the US dollar, impacted our business in the three months ended September 30, 2022. For example, we saw customers taking advantage of the ability to get more local currency to their families and friends. The strong US dollar was also a benefit to new customer acquisition and retention in certain markets. Conversely, the increase in our revenue growth globally was negatively impacted by foreign currency translation related to our international revenue, as our international business continues to grow and currencies such as the British pound and Euro weakened against the US dollar.

Revenue increased $139.2 million, or 43%, to $462.5 million for the nine months ended September 30, 2022, compared to $323.4 million for the nine months ended September 30, 2021. This increase in revenue was driven primarily by the growth in send volume, which increased $6.1 billion, or 42%, to $20.6 billion for the nine months ended September 30, 2022, compared to $14.5 billion for the nine months ended September 30, 2021. Send volume growth reflects an increase in active customers.

Transaction expenses increased $22.3 million, or 47%, to $69.9 million for the three months ended September 30, 2022, compared to $47.6 million for the three months ended September 30, 2021. The increase was primarily due to a $13.1 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 $7.8 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a $1.4 million increase in other transaction expenses, primarily related to software and tools that support our compliance and risk operations.

As a percentage of revenue, transaction expenses increased to 41% for the three months ended September 30, 2022, from 39% for the three months ended September 30, 2021, due to an increase in fraud and other losses as a percentage of revenue.

Transaction expenses increased $51.8 million, or 38%, to $187.0 million for the nine months ended September 30, 2022, compared to $135.2 million, for the nine months ended September 30, 2021. The increase was primarily due to a $36.1 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 $12.1 million increase in fraud and other losses largely driven by growth in new customers and send volume, and a $3.6 million increase in other transaction expenses, primarily related to software and tools that support our compliance and risk operations.

As a percentage of revenue, customer support and operations expenses increased to 11% for the three months ended September 30, 2022, from 10% for the three months ended September 30, 2021 due to an increase in staffing to support growth in new customer acquisition.

Customer support and operations expenses increased $16.4 million, or 51%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily driven by a $6.4 million increase in internal personnel costs at our sites in the Philippines, Nicaragua, and Ireland that support customer operations, a $6.2 million increase in third-party customer support costs, a $2.8 million increase in software and telephony costs as we supported more active customers, and a $1.0 million increase in other operating expenses.

As a percentage of revenue, customer support and operations expenses increased to 11% for the nine months ended September 30, 2022, from 10% for the nine months ended September 30, 2021, due to an increase in staffing to support growth in new customer acquisition.