Q3 2021 Riskified Ltd Earnings Call
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Yes.
Good day, and thank you for standing by welcome to the risk of our third quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded I would now like.
Turn the conference over to your Speaker today, Chris Maloney Investor Relations. Please go ahead.
Good morning, and thank you for joining us today risk about assessing this call to discuss its third quarter earnings results for the period ended September 30th two.
'twenty one.
Participating on today's call are Gal co founder and CEO and argued to Teva cheap.
<unk> financial Officer earlier. This morning, rectified issued a press release announcing its financial results for the third quarter of 2021, a copy of this press release has been furnished with the SEC on form 6K.
We begin I want to remind you that matters discussed on today's call will include forward looking statements related to our operating performance spending for bowls and business outlook, which are based on management's current beliefs and assumptions and are not guarantees of future performance you should not put undue reliance on any forward looking statements. Please note that these forward looking statements reflect our.
As of the date of this call and except as required by applicable law. We undertake no obligation to revise this information as a result of new developments that may occur forward looking statements are subject to various risks uncertainties and other factors some of which are beyond our control that could cause our actual results to differ materially from those expected <unk>.
Today. In addition, we are subject to a number of risks that may significantly impact our business and financial results.
A more detailed description of our risk factors, we encourage you to read risk abides periodic and other SEC filings you will see a discussion of factors that could cause the company's actual results to differ materially from these statements. A replay of this conference call will be available on our website under the Investor Relations section.
I would also like to remind you that during the call. We will discuss some non-GAAP measures when talking about risk of highest performance. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measure.
As for financial and operational decision, making and as a means to evaluate period to period comparisons. We believe that these measures provide useful information about operating results enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management and the financial operational decision.
You can find the reconciliation of those non-GAAP measures to the nearest comparable GAAP measures in the earnings press release issued and furnished on form 6K today and in our prior filings with the Securities Exchange Commission.
All of which is posted on our web site at IR Dot risk if I had the dot com I will now turn the call over to adult Gal brisket by co founder and CEO.
Hey, everyone. Thanks for joining our second public earnings call.
Just wanted to start the call by addressing some recurring questions. We've been receiving and then dive into some Q3 accomplishments. We're very proud of so the main two themes I wanted to discuss our number one what we considered to be the normalized growth algorithm for risk. Aside this is something thats come up a few times and I want to break it down into very simple and understand.
<unk>, Okay and here I'll also mention two transitory impacts on that growth algorithm number two I want to share where we see our biggest opportunities both on the go to market side and on the product side, not just where we see the opportunity but also how we plan to go after that opportunity and how you should expect that to be reflected on our P&L.
Yes.
Okay. So starting with the growth algorithm the simple way to think about it is that we are positively levered to ecommerce growth and we typically grow as our merchants grow now.
Now that growth shifts around depending on our merchant mix, but industry reports generally project e-commerce growth of 10% to 15%.
When we think about new business and that could be net new logos expansion and cross sell we believe this can add up to an additional 15% on an annual basis.
Because of the timing of when we close large new deals, which can be highly variable that additional 15% of new business can fluctuate in either direction, depending on when in the year deals go lives and finally, our take rates and merchant composition can also impact our growth and thats. It.
That's a simplified way to think of risk if I'd to growth.
And we mentioned medium to long term so what does that actually mean from our perspective. This is the algorithm for a multi year time horizon.
We have a very large tam best in class core product growing product portfolio that is gaining traction with clients and increasingly global go to market now.
Now in the short term there are two transitory headwinds impacting our growth and I'd like to discuss them. The first is PSD two misses a payment security regulation in the EU that is resetting some of our G. M V in that region.
So far we are experiencing a drop in volumes in line with our predictive models and the impact of these reduced volumes is built into our overall guidance.
The second transitory headwinds relates to more muted e-commerce trends and global supply chain issues. Following the reopening of the economy and return to more traditional spending patterns, we see more modest ecommerce growth combined with fairly ubiquitous supply chain issues affecting online merchants.
We anticipate that PSD too and the more muted e-commerce growth trends will affect our short term growth most prevalently through the first half of next year after which we expect to start scaling towards our longer term growth outlook.
Second main topic I wanted to discuss is go to market and product opportunities.
Let's start with go to market.
When you think about the G. M V. We processed this quarter $29 billion, we're very proud of it it's a great scaled number.
Having said that it's still tiny relative to the opportunity we have in front of us and that opportunity is broadly the e-commerce market on a global basis, when I think about our revenue distribution approximately 70% comes from merchants domiciled in the U S. There is significant market opportunity for us to expand our.
Side, the U S and we plan on accelerating our global go to market hiring to make sure. We cover the entire market. We have a unique opportunity over the next few years as the world's largest e-commerce companies migrate away from legacy solutions to new modern platforms like risk if I may.
Most of the growth in our current investment spend is going towards expanding our direct enterprise sales force globally.
While it can take some time to ramp a team and onboard meaningful clients in new geographies. We believe this is ultimately a very efficient model.
Because there is a natural limit to the number of accounts per region.
After an initial ramp hiring does not need to continue to increase while the full G. N V opportunity is unlocked.
So what remains are very large deal sizes, low churn rates and strong baseline growth, making for a very efficient model.
For example in 2017, we spent approximately $8 million in sales and marketing, which we attribute to the onboarding of our 2018 client cohort.
That cohort generated $40 million in billings over the last four fiscal quarters.
And while not all cohorts are created equal we do believe this illustrates the potential in our model.
Moving onto the product side, we have an amazing and growing portfolio of brands on our platform. They all face similar challenges and using our data and machine learning capabilities. We are attempting to solve complex problems for them.
The value of accusing risk if I'd manifest as a reduction in cost and increase in approval rates and a better end consumer experience.
We believe that the more value we can provide across each of these dimension the better the long term outcome for risk if I'd becomes.
When we make internal R&D investment decisions, we mainly look at the potential ROI, our product can generate for our merchants.
Assuming we can drive meaningful and measurable ROI in the form of additional revenue or potential cost savings.
We're confident that risk if I can participate in that value creation through a basis point per transaction pricing or some other billing model.
So the focus is on creating value.
Since we tackle complex problem.
Problems service, the world's largest brands and build deep best in class solutions, our products can sometimes have multiyear development horizon, but we only undertake them. If we believe that the potential value generation is outsized relative to the investments.
So to recap, we talked about our growth algorithm, 10% to 15% baseline from existing ecommerce customers.
It's up to another 15% from new and expansion go to market significant global expansion of direct sales and a long term efficient model and product investment and long term initiatives that generate monetize at book value.
Turning back to Q3, some meaningful accomplishments we are proud of that I want to highlight number one earlier. This year, we executed a master agreement with ELV MH group, making it easier for individual <unk> to join our platform and initial significant ones. This quarter was Louis Vuitton.
Number two we successfully deployed our policy protect product on an existing chargeback guaranty merchant with more than 10 billion in annual E Commerce volumes.
When you think about the implications of merchants trusting us to decide how to manage their policies such as returns and refunds. We think the opportunity is large and largely untapped. Our challenge now is to communicate to the world and enterprise E Commerce, Cfo's, the incremental value and cost savings we can provide them.
Through new products such as seat.
Number three there are more than 25 different countries in which we processed more than $100 million of G. M V. In the last 12 months and this is based on the location of the end consumer.
And thats relative to 'twenty in the previous quarter. Okay. So this shows the capability and value of our products globally and is a very positive sign as we ramp up our go to market teams globally.
I'll now turn it over to Augie to share more details on our financial performance.
Thank you Joe and good.
Good morning, everyone, sorry, let me begin with.
Fine.
Our G&A for the third quarter was $20 9 billion, reflecting a 28% year over year increase.
Revenue for the third quarter was 52 5 million, reflecting a 26% increase.
<unk> <unk>.
<unk> revenue was driven primarily by the expansion of our platform from new and existing margin as well as organic e-commerce retailer.
Model.
You gave a flavor for some of the moving parts underlying overall growth in the quarter.
General economic growth, we saw during the third quarter was slower compared to prior quarters as opposed to Covid free openings Joel higher volume of in person shopping won't be easy to adoption continued to ramp up as expected.
Encouragingly and on the flip side, we have seen a continuous recovery as the tickets and travel industry offsetting some of those changes.
Our cost of revenues.
Which primarily consists of chargeback expenses increased by 44% year over year to $28 3 million previously these quite well.
The changes in revenue and cost of revenue that I just noted job centers.
<unk> year over year increase in gross profit to 24 points for Ian.
Before discussing gross profit margin I want to remind everyone that this is the math.
Rick that is best analyzed on an annual basis.
Individual quarters can experience liability due to changes in the industry mix of our revenues seasonality factors and the ramping of new merchants and the variety risk profiles of transactions control.
All of these varietals skin called periods to periods swings in our gross profit margin for Q3 gross profit margin was 46%.
53% in the third quarter of 2020.
We've been guilty of directional change in our last earnings call is we need several factors would be at nee and causing a lower gross margin for the quarter.
The main factors contributing to this increase were primarily driven by the shift in our verticals contribution to the overall industry at this point.
Sorry, Q3 naturally carry higher wheat volumes peaked.
Peak travel trends and summer vacations.
This dynamic was of course less pronounced last year gets a coffee and it's much more significant now just oh golly easing of the Covid related restrictions in China, all travel recovery.
Second we have on boarded several new large margin as well as smart commute.
The street to us such as things, which changed our merchant portfolio mix.
Overall risk levels.
Some of the increase attributable to those new merchants and even street should naturally decrease overtime as our machine learning models get more data on the unique from patterns.
For the remainder of the P&L I will refer to non-GAAP metrics you can find a reconciliation of non-GAAP to GAAP numbers in the accompanying press release issued this morning.
Total non-GAAP operating expenses in Q3 of 2021 or $38 3 million, which represented a 61% increase from $23 8 million in Q3 of 2000 and claim.
Our Q3 2021 non-GAAP operating expenses.
Driven by planned investments in several areas.
Research and development.
We continued to expand our platform and new features and functionality in support of our growing merchant base and build new products.
And marketing as we carefully investing in our go to market activities and capability.
Expansion of our sales team to meet the increased global demand as part of a robust geographic expansion.
General and administrative costs, which reflected in the first quarter of public company expenses, including D&O insurance regulatory and compliance costs among others.
As we mentioned in our previous earnings release.
Anticipated increase in non-GAAP operating expenses as a percentage of revenue from 57% during Q3 of 2020% to 73% in Q3 of 2021 reflects our ongoing investments as well as incremental costs of operating as a public company.
Adjusted EBITDA in the third quarter was negative $13 8 million.
I want to mention that our net loss for the quarter of $86 9 million and GAAP net loss per share of <unk> 78.
We're primarily driven by fair value Remeasurement adjustment of $64 4 million recorded upon our IPO. This is a nonrecurring noncash accounting charge that negatively impacted our third quarter GAAP EPS by <unk> 58.
Moving on to the balance sheet, our cash position remains very strong at the beginning of the third quarter. We completed our initial public offering and raised net proceeds of approximately 392 3 million. We ended the third quarter with $534 1 million of cash and cash equivalents restricted cash.
In short term deposits and do not carry any bets.
We expect the proceeds we raised from the offering to enable us to focus on aggressive global go to market expansion continues to develop kind of main products itself extraordinarily difficult pain points for our margin and continued to execute at scale as a public company.
And now turning to guidance, let me remind you that we expect the PUC regulations with European Union countries have begun to adopt who continue to accelerate relative to earlier quarters for the remainder of fiscal year and into the start of next year.
We expect that Q4 will carry a more significant impact in Q3.
In addition, while we are highly optimistic about the long term prospects of ecommerce growth and penetration.
Current circumstances around the reopening and global supply chain challenges, we think it's prudent for me thing more cautious guidance for the fourth quarter.
For the full year 2021, we anticipate revenue between $226 2 million in $2027 2 million and negative adjusted EBITDA between $25 5 million and $24 5 million.
For modeling of earnings per share on a GAAP and non-GAAP basis, we expect to have approximately 163 5 million weighted average shares outstanding for the three months ending December 31st 2021.
To conclude I want to reiterate what he's already mentioned, we have decided as a company that is focused on serving our customers well for the long term. We believe we operate in a large growing market and have unique data and machine learning capabilities. We.
We will recognize that creating best in class solutions that solve complex province takes time and resources.
Well, therefore continue to invest in the growth of the team, our technology and products and our global operation.
Thank you all for your attention.
And now we'll be happy to take any questions now.
Thank you as a reminder to ask a question you press. The Star then the one key on your Touchtone telephone.
Draw your question press the pound key again, if he would like to ask a question press. The Star then the one key on your Touchtone telephone. Our first question comes from Timothy title with Credit Suisse. Your line is open.
Great. Good morning, I. Appreciate you taking the question really helpful. On the growth algorithm I'm sure. Many investors will appreciate that maybe you could just touch on those two components as we head into Q4, and then you made some comments around the first half of 2022, and you realize you're not providing a formal guide today, but to the extent that you could give some context on those components for the <unk>.
First half of next year, meaning what your rough expectations might be more for the new business component that you have a little bit more control over than the E. Commerce end market growth that would be really helpful start.
Sure. So let me try to unpack that.
I think if you look at our guidance, we can kind of walk back into 33% to 34% growth for 2021.
What kind of within that general framework that we just shared.
And like you mentioned, we're not giving official 2022 guidance yet.
But I would say just looking at public and sends US the range is below the framework, we just shared.
So I think Directionally this makes sense right and the most pronounced impact us during the first half of the year and we see ourselves reverting back towards the framework right. Afterwards, right. When we think about PSD too. It is kind of fully burdened within our model when we think about something like the supply chain.
It's a relatively new issue, it's affecting a good chunk of our existing clients and.
And we're not exactly sure how it will play out which is why we're taking a more cautious approach, which is also one of the reasons we didn't raise Q4.
Okay excellent. Thank you, but the new business component, though kind of separate from those issues is it still fair to think about that roughly 15 point contribution to volume.
Yes, that's not something we're providing right now.
Okay, Okay, all right no problem.
As a quick follow up you highlighted in the slides and in the press release around the policy protect.
Announcement that you made with a very large merchant it sounds like maybe you could just add some additional context to that because it seemed like a pretty meaningful win.
So it is we think it's very unique.
Happening in this case whenever and consumer initiate the refund request we're creating.
Checking to see the legitimacy of that request right or you. Just you know receiving your package and you want another pair will you actually ship back your time there.
The order that you in order to get that refund. So we think it's an incredibly complementary product and generate significant cost savings for the merchant.
Excellent. Thank you for taking the questions.
Thank you and our next question comes from Bob Napoli with William Blair. Your line is open.
Alright, Thank you and good morning.
Thank you for the question.
So.
I think you said or AG that you.
You expanded from 20 countries to 25 countries.
During the quarter can you give some color on geographic expansion and how you expect the mix of business.
The success Youre, having geographically and how you're accomplishing that.
What you think the opportunity is.
Over the long term for non U S business.
Yeah, I mean, we think our product is applicable globally, and we love that measurement of the 25 geographies because it shows the value that we create we can create in those regions, which is a good proxy of a leading indicator for us to create those sales teams and regional go to market team.
I would say that the U S continues to be our largest market, but we think theres still tremendous runway for further growth.
We're seeing kind of the most pronounced traction in APAC and Latam with kind of higher growth rates, obviously on a smaller base.
But we still think theres significant opportunity there in there we still think it's a very relevant industry for us we have kind of our PSD two related problem.
Two related products to help solve some of those issues.
And that's really how we're seeing the global opportunity today.
Okay, maybe just to dig in a little bit more on gross margin and the gross margin outlook in <unk>.
Confidence I guess and I think you know you had talked about the consensus being.
The overall broadly below your your.
Uh huh.
<unk>.
Targets.
No.
Should we see <unk> and.
An acceleration in.
Gross margin from the third quarter level, I know, there's seasonality, but where do you expect to see the where you're targeting the gross margin.
Over the.
Longer term.
Bob I'll take this one and thank you for the question. So as we discussed previously the best way to look at our gross margin is on an annual basis and when I think about everything that we have accomplished until today and the portfolio mix of merchants that we've added new merchants is very much aligns with everything Thats way.
Kind of expected and provided as guidance.
And that space for the year.
Think about long term I think it's.
So I need to provide any guidance, but overall I'd expect that this type of factors that are affecting us today will continue to affect us in the future. Our gross margins will depend on the new margins and your industry. So the new geographic.
Right.
That will go into at the same time hanging equivalent and technology will be layered in.
And potentially any new products might also kind of effect some of this in a positive way.
Okay, but the low fifteens $53 54 is where kind of.
You had been and that's where you're comfortable.
On a.
On an annual basis.
Everything that please.
Sure.
For this year I think it's part of our adjusted EBITDA guidance.
Kind of learning it.
It's hard to provide guidance for next year.
As of now but.
I'll be more specific.
When we talk about 2022.
Okay. Thank you appreciate it.
Thank you. Our next question comes from Ramsey El <unk> with Barclays. Your line is open.
Hi, Thanks for taking my question this morning.
Can you comment on the timing or cadence of the PSD two impact kind of seeing what you do now or knowing what you do now when should that impact kind of peak and sort of I don't know what inning are we in in terms of the European wide implementation of the new regulation.
Thank you for the question. So as we expected we said that the regulations being enforced in all European countries with the exception of the UK.
Which was which has been made enforcement until March of next year.
And we saw our client base, increasing adoption very much in line with increased enforcement, but also with our kind of expectation.
Clients are becoming more aware of the pain points, as well, which are inherently basic too, including friction drop off as well.
Vulnerability for us from CBS.
So accordingly, we are continuing to develop our excuse me too offering to deliver increased value for our clients.
In terms of what we see I would say that.
We're probably somewhere mid way in terms of adoption.
And if I think about it as a bell curve, we're just somewhere just right before the peak.
And as with previous years, we do believe that if nothing changes in terms of the way countries are adopting or the merchants are adopting.
<unk> will be already.
First half of next year.
Okay. That's very helpful. One follow up for me I wanted to ask about the Master agreement with ELV MH and leave a tonne should we expect then sort of more of their brands to come online with you in the near term or medium term.
And I guess more generally can you give us an update on your sales pipeline, how would you characterize it sort of now versus versus previously.
Yeah, So I would say.
We're very happy with both the pipeline and the actual kind of go to market performance. So far we've onboard and an increasing number of brands this year.
Some of the largest that we've ever known for the platforms and feel great about that.
We would definitely anticipate on the reasoning for creating this type of master agreement is to create a more.
Easy and frictionless process for the individual brands, who do own their own kind of decision, making process, but to make it easier and more compelling for them to join.
So we do we anticipate.
We would see more from that.
Got it thank you very much.
Thank you. Our next question comes from Josh Beck with Keybanc. Your line is open.
Thank you team for taking the question I wanted to drill down a little bit into some of the supply chain impacts that you're seeing I think what we've maybe seen from some other.
Companies is more air oriented transportation, obviously fashion luxury would fall of that bracket, but less impacted maybe more so freight and heavier items have been more impacted so just would be curious to hear a little bit about some of the different <unk>.
Youre seeing across some of your verticals.
Yes.
Thank you for the questions.
We have a couple of clients within the industry.
Currently has been reporting some pressures from supply chain issues I would say that they're mostly around high fashion sneaker at home furnishings.
It is a new issue and I think it's still too early to understand the full magnitude and how long it will take to resolve.
And Thats why I kind of share that you just put into the caution.
Okay.
That makes a ton of sense.
I'm just curious because obviously it was a impressive example with policy protect.
I'm curious maybe if you look at some of your customers that have really bought into or effectively adopted all of your products and modules, maybe what type of uplift you can get maybe with respect to annual contract value or take rate. So I'm, just kind of trying to think through what could be a bit.
The upper limit in terms of.
Economic relationship that you can establish there.
I think.
No one has the average in this sense, because we have such a wide variety of fees because our pricing is risk dependent so it depends on.
The category in industry, how global you arent selling what are your margin profile is like and how would you do you want to be more aggressive on approvals with the higher charge back right. Because you do have higher margin categories.
As other industries, where is the margin profile is going to necessitate a lower risk profile.
So again, what we really think is greatest.
Very flexible solution in that sense. So we work just as well with low risk categories like pet foods and home goods as we do with higher risk industries like sneakers.
And digital tokens.
Same thing with some of the additional products. When you think about something like policy, some physical goods merchants with which have high return rates.
Roy for that type of services among others.
Other categories, which have a lower number as you know it can really skew.
So I would say some of the baseline figures, where we've seen increase in approval rates up 20% and we shared some of those rois.
Collectively what kind of cost reduction in the 40 plus percent range.
Are the ranges that we can experience, obviously with most customers falling somewhere in the middle.
Very helpful. Thanks Kim.
Thank you. Our next question comes from Tien Tsin Huang with Jpmorgan. Your line is open.
Thank you Ken Good morning. Appreciate all this just wanted to kind of <unk>.
Bob asked about gross margin I, just wanted to be a little bit more specific if you don't mind in the fourth quarter looking back last couple of years gross.
Gross margin is up like five points sequentially is that a good.
Consideration for for seasonality I know, there's a lot going on with PSC to end and the holidays and travel whatnot just curious.
Youre.
Thinking bigger picture here for the fourth quarter.
Yes seasonality in the fourth quarter. It definitely has an impact in the future and I don't think anything to change this year.
Easily fourth quarter, it's kind of like better in terms of gross margin compared to Q3, I'll say, but in general we the biggest factor also.
Additionally, the impact that gross margin is the merchant mix in the portfolio of merchants that we added.
And.
As you know factories as we're getting into payment. This is something that she has impacted Q3, obviously the potential in terms of revenue and especially in terms of penetrating this industry is great.
We were confident.
Overtime, our machine learning models, we'll get more data and kind of perform better.
Around that area as well, but youre very much kind of correct. When you say that Q4 is definitely usually like a better.
Compared to Q3.
Okay, Great and just on the just staying with the gross margin to what you just mentioned there I guess just on charged back to billings.
Yes.
And any surprise there.
Are you happy with the performance and what you saw in the third quarter and the trends so far into the fourth.
Yes.
It's definitely all lines of our expectations I think theres a few factors that we already called out in the prior earnings call.
And where.
We're happy where we are where we ended up.
Very good thank you.
Thank you. Our next question comes from Terry Tillman with <unk> Securities. Your line is open.
Yes. Thanks.
<unk>.
And I do also appreciate the commentary on the growth algorithm earlier at the beginning of the call.
My first question relates to ticketing and travel I know it was a major headwind last year. It had a big impact on kind of net revenue retention and just overall business trends.
Are we still talking headwinds or are we starting to get to a point, where youre anniversarying the worst of that and in fact, it could start to become more of a tailwind could you help us with that on either <unk> <unk> and then I had a couple of follow ups.
Yes.
Alright, Thank you for the question.
We've definitely seen ticket some travel.
We've seen the recovery across number of merchants that both the.
Domestic and international and Thats definitely a positive trend.
Our chair and I will say that in general taken some travel is still not at the pre COVID-19 level in terms of recovery. There is still a long way to go.
And this is something that can be a positive trend for the future as we continue to recover.
Got it and then earlier there was a question. It's a good question about just thinking about your framework commentary and then the transitory dynamics, particularly continuing into the first half of next year you did start talking to about the consensus and so could you flush that anymore in terms of given the framework that you're talking about.
Is that above where the consensus is at about 20% for 2022, and then I had just one more follow up.
Yeah.
Yes, so again without going into guidance youre, saying assuming that.
The framework that we shared the 25% to 30% we see that the street consensus is below that we think direction. We that's the right approach because of the PSD two and supply chain issues, we see that peaking during the first half of the year. Afterwards, we're going to see that progress towards the framework that you kind of just laid out.
Understood. My last question just intriguing in terms of newer industries that could definitely leverage or machine learning platform. So I think last quarter. You did have the payments win and you're talking about payments and some of that may be getting going and how youre kind of risk profile initially.
But I'm curious when you get those kind of lighthouse new accounts in the new industry like payments, maybe we would get a double click into are you seeing a growing pipeline in payments <unk> there any other industries you'd share with us that are intriguing in Newark. Thank you.
I think remittance and crypto have both seen an increase in attention from our perspective.
Growth in the pipeline.
And Youre right it tends to happen once we onboard kind of a few initial marquee names.
It makes it easier for us to develop kind of more customized technology towards that segment and also makes the go to market approach a bit smoother because of our experience in that industry. So yes, we agree.
Thank you. Our next question comes from Brent <unk> with Piper Sandler Your line is open.
Good morning, excuse me good morning.
Excuse me growth overall was what 2026% here this quarter I'd be curious to hear what the U S growth rate was given introduced.
In Q3 year, specifically, even more than half the merchant base is in the U S. And there is no P. S D to kind of headway.
Headwind there any color on U S growth rates for Q3.
Okay.
Yeah.
It's hard to.
What kind of differentiate specifically U S birth rate on phone is there's so many other factors that I'll say that any impact merchants as well, we just talked about supply chain issues about the general slowdown in e-commerce as well and we do see this across the board not just specifically.
And in a single territory.
I would say that overall ecommerce.
Remains strong in terms of growth, even without even with these kind of trends as well, but it's too early to say how this will impact over the next few quarters.
It also depends on how you categorize you asked U S domiciled merchants of international volume, which was also impacted by 52.
So.
It depends on how you isolate that completely isolated I'd say to you then yes the growth rate there was obviously higher.
Got it that's helpful color and then just drilling down a little more of the supply chain could you talk a little bit about the linearity of G M b in the quarter.
But mark do.
If you think about kind of July August September now in October.
The supply chain disruptions that youre seeing ex PSD two headwinds more pronounced in the back ended the quarter and going into October was it.
A headwind throughout every quarter or just trying to get a sense of supply chain disruptions from a linearity perspective.
I think youre right. There was definitely more pronounced on the back end of the quarter or kind of citing both supply chain and PSD too.
Specifically PST due again more in line with our modeling around when the regulation is rolling on and for what geographies.
And I think supply chain and had a similar pattern.
Got it last one went familiars.
Yeah go ahead.
So I was just wanted to remind you that some of our customers in their own.
Report Theyre talking also about the <unk> you can see the holiday season. So this is something that it's important for you to kind of see.
See how it plays out.
Absolutely and then my last question here I am still kind of run through my numbers here, but it does look like chargeback expenses were up sequentially. In Q3, I think revenue was down so maybe could you talk a little bit about what drove that that increase in chargeback expenses was that tied to.
A higher fraud risk burden in the quarter or are those just fixed investments ahead of new products and any sort of additional color on kind of the Q3 increase in chargeback expenses, if I model that correctly.
Sure. So let me just kind of recap as a business we manage our chargeback expenses annually, we think thats the best way to be able on a quarterly basis to drive optimal performance for.
For our merchant and that performance can fluctuate based on the level of fraud coming in.
And Thats a product both the seasonality of Q3 inherently has higher travel risks.
Specifically this quarter had a much higher per valens of travel and ticketing merchants relative to last year due to COVID-19.
And in this quarter, we had a more pronounced impact from new categories like remittance in crypto.
We anticipate we will kind of normalize over time as our machine learning models cutback alright. So again this was higher than the previous quarter, maybe relative to the previous year, but when we look at the business from an annual perspective and set the goals for charge backs.
In that range and we feel okay.
Yes.
Got it. Thank you helpful. Thank you.
Thank you and we have a follow up from Bob Napoli with William Blair. Your line is open.
Alright, Thank you and just to be clear you have a lot of ability to manage.
The.
The charge back or the gross margin, if youre getting higher charge backs and a new category you would tightened the approval rate, which would bring that back down. So you can manage within <unk> you have flexibility generally around managing around the gross margin is that does that occur.
Statement.
That's exactly right. There is a lot of control over that number we said.
On an annual basis.
Just so that we don't feel that we have to make decisions on a quarterly basis that are counter to the long term success of our merchants.
But there is always control.
Thank you and then just on the cross sell.
Yes.
Several of your products whether.
Obviously, you've called out policy protect with PST to optimize Deco account secure what what does.
How is cross sell going and what is the potential when you add something like a policy protect what does it do to the revenue.
For that for a client what can cross sell add and what are.
Are you having.
So we've had good success outside of policy that we mentioned in both the PSD two products and accounts secured throughout this quarter.
We really think that.
Getting enterprise clients onboard generating value that's our core focus right now and we're certainly we'll be able to monetize that in the medium term.
When we think about some of these possible lift we think they are incredibly significant they vary by industry.
<unk>.
Sorry.
Hey, Alicia.
Yes, I think that was the that was the end of the response.
Oh, okay.
Alright, sorry about that and then just if I could sneak.
One last one in just.
What is on the sales force what has been the.
The increase in the sales force what is what do you what do you have today and where are those.
Those employees base.
I think the biggest growth has been in APAC.
Tom.
We have the largest part of the sales force today is in the U S.
We're still seeing a lot of opportunities to expand that.
But just from a percent basis.
APAC and Latam, it's probably where most of the growth is focused on right now.
Yes.
Thank you I appreciate it.
Thank you and I'm showing no further questions at this time I would like to turn the call back to <unk> for closing remarks.
Alright, just to say thank you everyone have a great holiday season, and we will see you in three months.
That does conclude this.
Today's conference call. Thank you for participating you may now disconnect.
Okay.
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