Q4 2021 Riskified Ltd Earnings Call
Okay.
Yes.
Good day, and thank you for Sandy by welcome to the risk of <unk> fourth quarter 2021 earnings call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone please.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, Chris Maloney Investor Relations for risk of <unk>. Please go ahead.
Good morning, and thank you for joining us today, Rick Goodbye. This hosting this call to discuss its fourth quarter and full year 2021 financial results for the period ended December 31 2021.
Participating on today's call are <unk>, <unk>, co founder and CEO and <unk> Chief Financial Officer.
Earlier this morning, risking five issued a press release announcing its fourth quarter and year end results. A copy of this press release has been furnished with the Securities Exchange Commission on form 6K, before we begin I want to remind you that matters discussed on today's call will include forward looking statements related to our operating performance financial goals and business outlook, which are based on management's current bill.
<unk> 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 opinions 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 and described today. In addition, we are subject to a number of risks that may significantly impact our business and financial results for a more detailed description of our risk factors. We encourage you to read risk abide.
Periodic and other SEC filings, where 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 web site 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 high 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 measures 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 passport financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and.
Decision, making 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 SEC all of which is posted on our website at IR Dot <unk> Dot Com I will now turn the call over to Ido gull risk Besides <unk>.
Founder and CEO .
Thanks, Chris and hi, everyone.
Before we get into the results I'd like to thank the risk of my team for an amazing year everything I can report on today is a testament to the hard work of our team and their ingenuity and we are tremendously grateful for all their contributions.
Now, let's move on to the main financial highlights for the fourth quarter and full year.
In the fourth quarter, we reviewed 27 8 billion GMP for our merchants.
Up 23% year over year.
<unk> revenue of $69 8 million up 22% year over year.
Full year Gms was $89 1 billion up 40% year over year and revenues were $229, one up 35% year over year.
These results reflect the impact of continued organic growth within our customer base.
And with the addition of new customers as well as new segments from existing customers. Overall, we were pleased with our results.
Continuous improvements and our machine learning platform drove meaningful financial benefits, both for risk and our emergence we achieved gross margin of 53% for the quarter and 54% for the year.
Over the last three years, we were able to consistently improve the charge back to billings ratio for each cohort demonstrating the strength of our AI and our scalable financial model.
Adjusted EBITDA was negative $7 million for the quarter and negative $19 5 million for the year, reflecting the global investments we've made to capture the larger international market opportunity and accelerated product development cycle.
Our North Star has always been to create outside value for our customers and we believe that we have been successful in monetizing.
One of the most important metrics that we track to validate our progress here is our annual dollar retention rate.
In 2021, our annual dollar retention was 99%.
For each of the last three years, it's been 98% or higher.
For approximately 90% of customer accounts, representing nearly 95% of revenue we were able to increase year over year approval rates reduced charge off rates for both.
This highlights the win win nature of our platform.
This focus on generating outsized value to our customers has allowed us to penetrate existing customers more and more over time in 2021 alone six of our 20 largest customers chose to submit additional segments of their ecommerce volume to us our customers represent a very significant upsell opportunity there.
Over $300 billion in gmg available for upsell from our existing clients. This 300 billion represents over three <unk>. Our 2021 figures. These upsell opportunities are a strategic priority for us and we have a strong track record of capturing additional wallet share over time so far.
We have increased our billings from our mature cohorts by 200% and we believe we can replicate this trend with our more recent cohorts as well.
Over the course of 2021, including Q4, we added several prominent online retailers to our platform across a wide variety of industries.
We expect many of these clients will expand the share of transactions. We review as we continued to demonstrate value and.
Our emerging verticals, we added customers, including finance one of the world's leading blockchain ecosystem in crypto currency infrastructure providers. Additionally, we added a global remittance and payments company with more than $5 billion in annual revenue.
Established verticals, we added customers, including Saks off fifth the premier luxury off price destination, one of the world's five largest omnichannel retailer and one of the world's five largest travel retailers.
We are able to land and expand with the world's largest online retailer by holistically solving complex technological problems for them.
And this means we were able to deliver multiple new use cases and product improvements throughout 2021 in Q4, specifically.
Most notably.
We recently expanded chargeback guarantees to ultra support ACTH Q4 represented the first quarter, when we began to process meaningful ath volume.
As part of the initiative to support HD H, we are now able to guarantee a broader range of payment types.
On credit cards, and Paypal. This expanded functionality allows merchants accepting <unk> payments to realize more profitable revenue, while also delivering instant settlement time for their customers.
We continue to evolve our partner driven sales efforts with a growing number of partners embedding, our chargeback guarantee offering directly into their respective products.
Some of the many examples include payment gateways enterprise focused e-commerce platforms, and one click checkout products.
This is an exciting new chip sales channel that should help us reach our target customers even faster.
We expanded several new products to make them more relevant for our largest customers most.
Most notably we expanded our policy protect offering to support INR and refund claims.
Policy protect is used to block abusive customers and is now screening billions of dollars worth of <unk> annually.
We expanded our ability to the few charge backs on our merchants behalf, even when those charge backs are not guaranteed by risk.
Multiple customers started using risk to fight the fight disputed payments on their behalf even for reasons other than payment fraud.
Drawing upon all of these accomplishments in 2021, we are even more excited about the long term potential and opportunity ahead of us.
By our estimate 89 billion and <unk> were reviewed in 2021 still represents only 2% of total global E Commerce expenditure.
The remaining 98% of this rapidly growing market almost exclusively uses non guaranteed alternative predominantly risks scoring product in conjunction with manual human review.
Given the size of this opportunity we are expanding our presence into most major international markets and we continue to invest in additional products that solve similar problems for our customers using risk World class machine learning capabilities.
We believe that our chargeback guarantee inherently provides much more value as compared to risk scoring product managed by internal team augmented with manual human review.
Merchants no longer need to deploy time resources and budget to solving a major pain point that is not their core competency as a result, we believe that internally managed processes will become obsolete over time.
To our knowledge no other company guarantees e-commerce volume on a comparable scale anywhere in the world.
By using risk.
Our merchants benefit from higher guaranteed approval rates lower predictable fees and a fast frictionless checkout process that delivers superior consumer experiences.
Moreover, this value proposition is directly proportional to the size of our merchant network, meaning that our performance guarantees only to become more compelling as we grow.
I've never been more excited about the road ahead as we enter 2022 with an incredible product and an amazing team.
We're able to deliver for our customers is tremendously compelling and there is a huge untapped market opportunity ready for us to capture as we scale our efforts globally.
Now I'd like to turn it over to Augie to discuss our Q4 and year end results as well as to share more perspective about our growth expectations for 2022.
Thank you everyone for joining today's call.
<unk> already mentioned, our G&A for the fourth quarter was 27 8 billion, reflecting a 23% year over year increase.
Revenue for the fourth quarter was $69 8 million or 22% year over year.
The growth in GB in revenue was driven primarily by the continued expansion of our platform from both new and existing margin as well as the organic e-commerce slowing flower model.
Despite slower global year over year commerce growth due to the easing of COVID-19 restrictions and supply chain issue.
Statements benefited from an increase in ticket from travel recovery and this highlights the importance of our portfolio.
The impact.
With line with our expectation.
For the full year G&A was $89 1 billion up 40% and revenue of $629 1 million up 35% year over year.
We continue to diversify across the globe as we expanded our portfolio with year over year.
Every region.
I'd like to mention two regions in particular that can foster global expansion.
He is our accelerated growth in EMEA, which was primarily driven by the sharp recovery in the travel industry.
<unk> billings growth in APAC nearly doubled year over year in 2021, as a result of our <unk>.
<unk> penetration in this market.
During 2021, we saw continued diversification across industry.
Question on luxury goods continued to grow and remains our largest contributor to meeting however, they're beating concentration with you.
Accelerating penetration at our industry and the addition of new one.
I think it's some travel and recovered nicely and more than doubled compared to prior year.
Payments money transfer in crypto is a new emerging industry.
One why are we added a number of margin, including a global money movement from these.
Payments company with more than $5 billion in annual revenue and bank one of the worlds largest leading blockchain and.
The current infrastructure providers.
Our take rate for the full year until Q4 was 26 basis points compared to 27 basis points in the prior year.
The main reason for the change with more favorable terms granted for higher volumes and a long term contract offset by new margin components with a higher take rate.
Part of our land and expand strategy.
Important to know that they continue to take rate as an outcome.
A driver of our business.
Now, let me discuss gross profit margin.
As we mentioned in the gross.
Gross profit margin is a metric that is spot on.
Our lives on an annual basis as individual quarters can experience.
Changes in the industry mix of our billings and revenue seasonality factors, the ramping of new merchants and the borrowing risk profiles of the transaction to close.
Our gross profit margin for the fourth quarter was 53% down from 58% in Q4 2020.
Up from 46% in the previous quarter.
The decrease year over year with statements primarily for our expansion into new England States and region.
The biggest some travel industry as a percentage of total billings.
As well as the Onboarding of new medicine.
Some of the increase attributable to both new and work with the industry. So I'm not sure any decrease overtime.
Our machine learning models that are more data Nicole cladding.
We've provided some supplemental cohort information that's part of the base relates to illustrate this dynamic.
The improvement compared to Q3, it was mainly driven by this is the manager this quarter, which follows the same normalized historical claim.
We mentioned in our prior call.
Carries higher rates driven by higher risk level and traveled during peak season on the.
Q4 tends to carry a lower risk profile, mainly due to the holiday shopping season, including high volume E Commerce events, such as Black Friday, and cyber Monday, which mostly attract legitimate online shopping activity.
Our gross profit margin for 2021, 64%, which was generally consistent with 55% from 2012.
non-GAAP operating expenses for the fourth quarter were $43 9 million up 78% year over year.
Is it all medicine, we're investing in research and development as we continue to expand our platform and new features and functionality in support of our growing merchant base across new geography and industry.
And build new value added product Karl mentioned.
Sales and marketing as with 70 invested in our go to market activities and capability.
Function of our sales team to meet increased global demand as part of our robust graphic expression.
General and administrative costs, which reflected the first full quarter of public company expenses, including $71 million on D&O insurance for the fourth quarter regulatory and compliance costs and other associated expenses.
For the full year total non-GAAP operating expenses were $143 71 up 68% year over year.
These significant investments coupled with incremental costs of building public company infrastructure jobs created and adjusted EBITDA.
EBITDA for the fourth quarter was negative $7 million compared to positive $8 5 million in Q4 2020.
Adjusted EBITDA for the full year was negative $19 5 million compared to quality.
$5 million in 2020.
In terms of our liquidity position remains very strong.
We ended the fourth quarter was $510.3 million of cash and cash equivalents restricted cash and short term deposits.
Do not carry any debt.
Our gross capital expenditures were $14 3 million for the period higher than our normal run rate as we can.
In Forest City, New York assisting validate.
Excluding this one time investment cap expense was $1 3 million, which is consistent with our expenditures in the last three years and reflective of our asset light model.
And now turning to guidance for 2022.
So a good start to the year, but expect to continue to see some short term inflows from slower e-commerce activity.
And as has already been discussed we're also working through the sale and which has now largely been implemented across the European Union.
Is it all mentioned we remain excited about the long term growth prospects of this business and as such we do plan to make incremental investments in our platform geographic expansion and new products. This year.
For the full year 2022, we anticipate revenue between $254 million and $257 million and negative adjusted EBITDA between $6 million to $9 million and $66 million and for modeling purposes, we expect share count.
<unk> hundred 66 million weighted average shares outstanding.
We expect our Q2 revenue growth rates to be lower than Q1, and then our growth rate to accelerate in the back half of the year.
For the full year, we expect gross margins to be at or above 51%.
We anticipate adjusted gross margins to fluctuate on a quarterly basis consistent with our normalized recall that historical trend.
It is our experience in Q1, and Q4 expenses have adjusted gross margins higher than the full year number with Q2 and Q3 typically coming in below that annual number.
Compared to pre pandemic levels, our full year gross margin represents a one percentage point improvement.
Compared to 2021 gross margin is expected to be three percentage points lower.
But they'll be driven by two factors one is an industry mix shifts from an increase in lower market interest rates such as ticket some travel which is recovering through 2022, while our higher margin industries are decreasing as a result of the reopening.
The second factor relates to one time investments and infrastructure optimization as we expect to benefit from beginning in 2023.
And that concludes our prepared remarks.
Look forward to continuing to report our progress to you in the coming quarters.
Operator, we're ready to take the first question. Please.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
First question comes from Josh Beck with Keybanc. Your line is open.
Thank you for taking the question.
Encouraging to see the nice seasonal bump there that we'd like to see in Q4.
I really wanted to ask about the pipeline you obviously talked about really good activity in the APAC region. You also talked about really momentum across emerging or new verticals like payments and crypto. So it really seems pretty broad based.
But help us under understand where the most activity is taking place with respect to new customer conversations probably can't quantify it but maybe help us compare this to prior period or something like that just to give us a sense of.
Of the magnitude that would be great.
Hey, Josh Thanks for the question.
So I think youre right, we've never seen such a big breadth and scope of new opportunities.
Like you mentioned, it's really a combination as we're expanding globally into these new geographies. Our sales force they are able to generate new opportunities.
Again because of these new geographies.
<unk> have demand.
We're expanding our product.
To support different payment methods like HCA or like new categories, like crypto or remittance, we're seeing an increase of pipeline activity there.
And even when we think about some of the product expansion opportunities. The general course of merchants, we already have within risk if I. So I think thats, all kind of combining to create a very good and healthy demand environment for us.
Okay.
Excellent.
With respect to the outlook, we've obviously seen.
Various reports from different e-commerce companies and there is certainly are macro factors out there the reopening affects supply chain inflation. The list goes on so I am just curious as you went through to build out your 2020 to forecast how did you try to.
Embed some of these these macro factors.
Sure. So obviously, we had kind of 30 plus percent growth. This year, we shared historically a framework of 25% to 30% growth in the guidance for this year is below that.
So really what makes up our revenue is both a combination of new clients and the organic growth of our existing base. So when we think about our guide for 2022, new revenue within our framework of growth and really the delta between our guide and the previously shared framework.
As a result of muted e-commerce volume and the impact of PSD, two alright, and either e-commerce volume that could be related to inflationary pressure related to supply chain issues related to reopening shifting away from volume alright. So we pulled that into the music E Commerce volume in the second.
Packed.
<unk> right that European directive that impacting us because of the liability shift.
Yes.
Between both of these we believe that one third of the Delta between our guide and kind of the framework growth is related to the softer E com <unk> com environment and two thirds is related to PSD too right.
So thats kind of how we built our guidance.
Very helpful. Thank you.
Thank you. Our next question comes from Ramsey El.
Lasalle with Barclays. Your line is open.
Hey, good morning team, it's Damien on for Ramsey.
For taking the questions.
I guess.
I wanted to drill in a little bit more on the on the EBIT guidance came in a little bit.
Below our model.
I heard you were talking about the gross profit expectations for 2022, maybe you could just talk a little bit more about what's driving those I know you talked about going into new industries, and new geographies, but should we expect that that 51% becomes more of a normalized rate going forward or are we going to see the benefits of those.
In the out years, and then how that plays into your adjusted EBITDA guidance for the full year.
Hi, gentlemen, and thank you for the question so.
If I think about that.
Our gross margin and where we are planning to be next year.
We provided a guidance of <unk> 51 and above.
The way I think about the decrease from last year is really around two main factors and the first factor is driven by the different mix of our merchants.
The expectations for the mix of our merchants for next year.
As we've seen this year I think you can travel is continuing to recover it continued to grow while some of the.
B.
Lower chargeback merchants around the different industries.
We have experienced more muted ecommerce growth. So the total weight of the portfolio has decreased for them. So in a way I just really see them as there is a mixed.
As an industry mix and not as a performance mix, we actually provided supplemental material I think it's going to be available shortly on our website. If its not already there, but you can see there that we've improved our performance.
Every single cohort over a period of time and when I think about long term.
I'm confident that when we reach this type of maturity when we have diversified portfolio across a variety of.
Industry will be able to move to.
And to increase across the board.
Alright, thats good to hear.
And then broadly maybe this is for both of you I am curious I wanted to pick up on the.
The commentary in the press release about the new partner channels.
I'm just curious I know, it's probably early days and you just got into it but curious what kind of partners do you think could be interesting and.
And how that could contribute to growth going forward.
Sure. So long term, we really view ourselves as just part of the infrastructure of Commerce. We think we're the best around the world looking at a transaction and understanding if this fraudulent or not and we think that just part of the stack wider offerings, whether it's one click checkout, whether it's standard payment gateways, whether it's enterprise folk.
<unk> e-commerce platforms. So we really think this is a great distribution channel for us when we think about expanding outside of our.
Strategic key accounts.
And it is definitely an avenue that we're really excited to continue to grow.
Alright, thank you.
Thank you and our next question comes from Terry Tillman with <unk> Securities. Your line is open.
Yes, thanks for taking my questions as well and good morning, everyone.
Good afternoon or whatever.
I want to build on the prior question in terms of partner driven selling it seems like it is a nice incremental opportunity, but what I'm curious about is this a more notable shift in your go to market activities and maybe an update on direct sales.
Channel and how Thats going I'm, just trying to understand how evolutionary as opposed to direct selling with Europe , Youre hunters and farmers and then I had a follow up thank you.
Okay.
No when we think about our key accounts, our strategic accounts on a global basis. We continue to believe that direct enterprise sales is the best way to onboard them, it's kind of a consultative process.
They have unique needs and we think that's best served by our direct sales force, but really as we're thinking about adding additional revenue streams and making sure that we're able to support tiers.
Tears below that let's call it even in mid market and below we definitely think this is kind of a new avenue for us to make sure we're attacking abroad as possible the market.
Brian as well.
Okay, and maybe a follow up question for argue I think in your prepared remarks, you were talking about just the dynamics of mix shift of your different customer cohorts and their <unk> and 'twenty two as being impactful to gross margins, but I think you also did share something about a onetime innovation investment. So if you could double click on that a little bit more.
And will that reverse itself.
The reason why gross margins could actually lift into 'twenty three thank you.
Thank you for the question. So the other part of the gross margin as I mentioned, it's a 1% decrease just due to some work we're doing around hosting infrastructure and the way, we optimize using our servers.
This creates a temporary overlap, but we can we expect to.
So rollout of base and you'll benefit from this work in 2023.
Thank you. Our next question comes from Bob Napoli with William Blair. Your line is open.
Thank you and good morning.
Yeah. Thank you Ido in AG.
Long term you had targeted 20% plus EBITDA margins can you give how confident are you that the unit economics that you're driving today.
We'll be able to deliver that type of EBITDA over the long term and how can you help.
Investors see that get visibility around that target and how you are progressing towards that target.
Hey, Bob Thanks for the question.
We're incredibly confident we feel we have full visibility into our spend the expected output up that spend and very rigorous in how we invest and what we expect to see from those investments when we think back to some of the earlier cohorts geographies, we think there.
Credibly hospitable and we're certain that they can lead to kind of 20% EBITDA margins longer term as we shared we're balancing that with the opportunity and the growth that we see ahead of us.
Having said that we're obviously mindful of kind of spend and burn and we do anticipate that this would be the largest investment year in terms of EBITDA loss that we would have and then we would kind of transition into some of those longer term targets that we mentioned.
Thank you, yes, I mean, just some color around dose cohorts in midair not sure. How you maybe think about that for the future might be really helpful.
Two to investors I think there is a new metric you gave out at the beginning of this call.
This is obviously a massive market opportunity.
Growing market 300 billion of upsell potential GMB upsell that would be three times, what you delivered this year and I know a lot of your clients.
And and expand.
Any.
Color on how you attack that 300 billion how much of that is.
Do you feel is truly available.
To tell you.
Sure. So when we mentioned that $300 billion, that's the white space or wallet share opportunity ahead of us. So that's the volume of our integrated existing clients that were not processing today right. So we mentioned that we added one of the top five travel companies one of the top five omnichannel reach.
Pillars, one of the top five remittance companies.
So they all actually started on significant multi million dollar deals, but there's still significant opportunity ahead, and when I think about some of the more mature cohorts, we've been able to expand billings by over 200% and we think this combination of proving value showing building a trusted relationship showing the ROI.
In a partnership with risk of five historically, that's led to significant wallet share increases and we anticipate these cohorts to behave in a similar way.
<unk> 300 billion is just to kind of help frame the immediate integrated opportunity, we have with our existing clients.
Thanks, if I could just sneak one last one in do you. How confident are you in getting back to that 25% to 30% revenue growth in the back actually lap PSD too I mean is that really lapping PSD two primarily I know theres, some macro and some supply chain here and there, but with the opportunities and how confident are you.
And getting back to that.
Both in the back half of 'twenty, two and then in 2023.
I'm very confident and I think the numbers are clear right I think when you look at the numbers its easy to understand and we've been communicating them for awhile.
Again PSD too.
I see no additional impact in 2023.
And we see a close to zero chance of this happening in other geographies.
Really when you think about the value of PSD too in our world It's minimal.
Already today consumers are not impacted by fraud right. If a consumer receives a charge back what they call their being their refunded. The money. When you think about merchants, who bear the liability in fact merchants today can turn on strong customer authentication really secure unmask they choose not to because it's a tariff.
<unk> experience, it's about friction it causes a conversion impact drop off so in fact, what merchants do proactively as they use a frictionless experience like risk if I'm alright.
Alright, thats much better than three D secure and when you think about the entire card issuing banks. They obviously hates something like <unk> because suddenly they are liable.
So really we think there is no value there is no consumer impact and when you think of even passing a law like this in the U S. It's probably like a congressional level. So we feel very very confident that it's not happening we see no indication that it's happening elsewhere in the world.
So we view this as a onetime reset right and Thats kind of been charge of two thirds of the delta between our framework between our guidance and that kind of 25% to 30% growth that you mentioned with respect to the muted E Commerce volumes, which is another third of the Delta.
I mean, I think most people would agree that this is a tough comp for the next few quarters.
Everyone anticipates cycling out and returning to normalized ecommerce growth.
So really just that is leading us to have full conviction that we will return to our framework growth.
Just thinking about the behavior throughout this year, we started Q1 stronger than anticipated. We think that there is going to be a sequential or year over year growth rate decline as we head into Q2.
Or are we start ramping up in the back half of the year.
Thank you I appreciate your answers.
Thank you. Our next question comes from will Nance with Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking my questions I wanted to follow up on Bob's question on the $300 billion opportunity I. Appreciate you guys, giving that disclosure I think it's super helpful.
So if I look at that if I understand the disclosure correctly. It seems like youre roughly 25% penetrated with your merchant base I was wondering if you could help us understand what that penetration looks like for some of your older cohorts. I think you mentioned you were able to increase the older cohorts by 200%.
Could you give us a sense for what that implies for penetration on your older cohorts just to give us a sense for where we could be aware of that 25% could go longer term.
Yes, when we look at some of our more mature cohorts.
<unk> significantly more increase on absolute basis than 25%.
Other way to think about it is that a year like this we incrementally added more <unk> to that kind of white space opportunity than ever before right. So on an overall basis. It looks about the penetration is lower.
But we definitely see 50 plus percent penetration in some of the earlier cohorts I think we share that in the mature ones billing.
Billings have increased by 200%, so I think thats a great proxy there.
So I think that the overall scope of it.
Got it that's helpful. And then I just wanted to follow up on the assumptions around travel it sounds like it sounded like travel on the margin reduces the gross margin profile, but I would assume that with the riskier volume comes higher take rates in general. So just could you help us understand what's baked into the guidance in terms of the recovery of travel spending over the course of 2022.
And just maybe help us frame, how that might impact optically some of the metrics in terms of take rate and gross margin.
Yes, definitely so when I think about travel there's two main factors impacting it one is just the increase of the overall population.
But the other factor as well as just the changing of the risks and the population that <unk>.
Both call it as well.
I can say that's well over time, we're confident this will continue to improve our performance in that industry as well.
The fact that.
Rapidly changing is also has created some of the.
Some of the kind of done.
The higher overall.
The charge backs in that specific industry.
Got it I appreciate you taking my questions.
Thank you. Our next question comes from Timothy Chiodo with Credit Suisse. Your line is open.
Great. Good morning, Thanks for taking the question. My main question is around the AC H B.
Follow up on the guidance for the ECH offering that you mentioned started to ramp more meaningfully in this most recent quarter. Maybe you could just talk about the types of merchants that are using ACTH payments, what they are using them for what verticals. They are in and some additional context on just how big and meaningful that is either within your existing base or.
New customers that are processing payments.
Hey, Dan Thanks for the question so.
Just to start it is still early days for us with <unk>, but we think there's very there's definitely a longer term strategic opportunities. So when you think about the overall payment volume going through <unk>. It could be obviously remittance companies and Thats, our direct focus day, one, but obviously more and more e-commerce .
<unk> are trying to use HCA for larger ticket items, we see ACTH and different forms of bill pay and B to B transaction in the banking world. So we think longer term.
<unk> strategic and interesting opportunity.
We're starting to ramp significant volumes, but it's still kind of a smaller part of our overall subset alright. So we think it has great growth potential and we're very happy with the start.
Okay excellent. Thank you and then the follow up on the guidance. So it's pretty clear from your comments that the expectation embedded in the guidance is that gross profit will grow at a slightly lower rate than revenue during 2022 for the factors that you outlined.
And I apologize if I missed it I was trying to keep up did you make any comments on the GMB growth in other words should the GMB growth this year be faster or slower than the guided revenue growth.
Yes, we didnt, specifically mentioned JMP.
Way, we build our analysis internally, it's a bottom up.
But when I think about it can be definitely around the same type of growth.
Kind of assumptions around the very stable take rate as well.
Excellent. Okay. That's really helpful. Thank you for that clarification.
Okay.
Thank you our next question comes from.
Kim Jin Wang with Jpmorgan Your line is open.
Hey, good morning, Thanks for taking the question this is actually Reggie valid and for patient care.
Any questions.
I guess more big picture trying to understand is it is there any seasonality.
To I guess deal signings I, good at certain times of year, where where conversations are.
Our ratio or are you more likely to sign.
Customers. That's part one part two and that would be could you talk a little bit about I guess your bookings for 2021.
How they may be compared to 2020 in 2018 in terms of the business that you signed last year, just trying to get a sense of.
The sales channel and how how that kind of ramping and I have a follow up thank you.
I would say with regards to seasonality, we see that Q1 through three are definitely equal in the sense that merchants are open and committed to kind of integrate and bringing on new solutions. Historically Q4 because of the holiday season. There is usually a code freeze so we see that.
Probably more oriented towards growth within existing clients and adding segments from existing clients that already have an integration right because of that holiday dynamic.
Thing.
<unk>.
I think the second part was more around the new revenue growth.
In 2021, and how that relates to 2020.
I think it's within kind of the framework that we previously shared across all of those years.
What does that mean I'm sorry, what did you previously shared here.
We started a 15% growth framework for kind of new business and to 15%.
Some kind of organic same thing in both of these kind of previous years it was within that framework.
Understood.
Perfect.
If I can dig into the comment.
The $300 billion in kind of total volume and with your partners like what would explain that gap is it geography is it.
The remaining transactions are viewed as lower risk by the customer.
Why what's the Delta there and kind of how do you attack that those different.
Pockets.
Sure. So if I understood its more like why don't we have that $300 billion with us today and really when you think about the process of integrating <unk> into some of these large strategic complex merchants.
They have a lot of internal system teams tools doing what we do.
And the way we affect changes usually we start on the sub segment right, whether it's the geography, a specific use case and then as we build a trusted relationship improve the value of our technology over time, we're able to expand the relationship and capture more wallet share.
Pricing, we take is risk adjusted right. So even though we may start with a higher risk segment theres preferential pricing for giving us a wider swath of transactions, even if they have a lower risk profile and really the ROI for the merchant is kind of pretty much guaranteed alright. So that's why we've seen expansion within our cohorts over time and we feel.
Confident that we will continue to see that with the recent cohorts as well.
Got it makes sense.
I definitely appreciate the.
The pricing dynamic as you as you pick up more.
More payment volume.
<unk>.
Well, Greg that's all after you guys. Thank you for taking the questions.
Thanks.
Our next question comes from Brent <unk> with Piper Sandler Your line is open.
Thank you for taking my question here I'm going to start with AG and I'll finish with the Idaho.
Think about modeling revenue from a quarterly seasonality perspective, if I go back. It does look like Q3, historically is kind of down from Q2 is there anything different this year, where we should think about a different type of seasonality or is that the right way, we should think about.
Seasonal trends Q3 being slower than Q2, and the bulk of the increase in the second half would come in Q4.
Okay sorry.
And Brian Thank you for the question.
Historically, we've seen Q4, having a bigger proportion of the total revenue for the year and we continue to expect this so kind of to follow last year's trends. When I think this year about the rest of the quarters. There's just a lot of different dynamics impacting them.
Related to as we mentioned earlier too.
Fallout of 52 and e-commerce .
The difference is in <unk>, so I definitely think that theyre going to be much more kind of.
Less pronounced.
Less difference and away from each other.
Okay.
Specific for this year.
Okay.
Helpful color there and then my second question for you is just really thinking through what sounds like a very strong net new customer add quarter top five.
A top five retailer top fiber amendments.
The impact to gross margins is there a as you think about onboarding. Some of these larger new customers as you think about initial volumes and a long runway to grab additional penetration is there a short term kind of drag or investment that needs to be made here on the gross margins temporarily.
Is that the right way to think about onboarding, new customers or not.
Yes, I mean, as we go into new geographies in brand new categories. There can be a drag on margins, but that's already reflected in the guide that we shared at <unk> 51 or above right. So some of the things that are offsetting that drag is continued improvement in some of the other cohorts right and obviously, that's who we are.
Gained more experience with the new cohorts they improve as well.
So really that tenants or 10 for this year, we anticipate that to be kind of a pretty much a wash and really the main factor impacting that kind of 2% sequential decrease is more around the mix shift that's a one off event related to <unk>.
Scope change.
Helpful Helpful color there in Idaho, just as we think about.
The big opportunity ahead of you here $300 billion, just with existing customers.
It feels like there is a disconnect here right you have some really strong new customer momentum and obviously growth thats declining because of PSD tuned some headwinds, but I guess my question for you as you think about.
The new wins that you've talked about pretty high profile, new wins, what's resonating and why now obviously, it's hard outside looking in you are seeing growth DSL, but it clearly seems like something is is resonating more now than it was before so help us understand what is resonating as you talked to customers.
These large top five customers that are coming onboard with what's resonating today that that more so than let's say a year ago.
I think the number one thing thats resonating as the wrong right, we're guaranteeing higher performance for a lower cost structure.
When we started the company in 2013, obviously this was a brand new paradigm.
So it was challenging to get the initial first few enterprise clients, but now as we're able to have more and more of these brand names right and build our trusted relationship and deepen our engagement with them, we think it's becoming much easier and much more per valent, we think that just from the competitive environment, that's becoming more clear.
Right.
Emergent is faced with two decisions do I manage this process internally with the scoring solution an internal team a manual review and update this on a continuous basis and then you have a host of solutions that you can choose.
Or do I want to offload this to a chargeback guaranteed vendor and that's pretty much risk in the enterprise space and.
And we think that kind of wallet share of our mindshare in that area is really helping us. Okay. So it's a combination of more and more merchants being open to the idea of chargeback guarantee and again, we believe because of the Rois clearly superior and this model that over time more and more merchants will move in that direction together.
Cementing kind of being the front runners in the space.
Helpful color, that's all I had thank you.
Thank you and we have a follow up from Terry Tillman with <unk> Securities. Your line is open.
Yes, Thanks I figured.
Not way out of this other 10 minutes for the call. So I did have two follow ups and thanks for taking them.
One question, just kind of related to the new business success.
I'm curious, whether it's qualitative or quantitative you can say anything about win rates.
In the business as opposed to somebody going with risk, scoring or just a no decision or status quo. What are you seeing in terms of win rates and then I wanted to ask another question about partner driven selling.
Yes, we definitely feel that we're the preferred choice within chargeback guaranty and we're continuing to generate momentum there and we feel very pleased with our performance and some names that we were able to add we think that's great.
Okay, and then on partner driven selling I mean, it does sound interesting. It seems like it's an incremental way to go to market, but is there anything more you can share with what kind of resources. These third parties, whether it's payment gateways or one click technology providers or e-commerce platforms, what kind of skin in the game is there from them are they.
Are they building do they have quota just I would love to learn more about what's what's the motivation for them to sell in and is there any concept of billings contribution from this newer channel in 'twenty, two or not much. Thank you.
Yes, I think the value for demonstrating the best and customer experience right. So if I'm offering and one click checkout.
It's a competitive advantage for me to be able to offer a service like risk of Phi.
To my merchants right and I think it's just a similar story with the e-commerce platforms and gateways. If this is a superior way to manage ecommerce risks that creates better performance than it's better for them to offer it to their merchants.
And there's obviously some product adaptations in ways to integrate and data and modeling on our end that we need to do in order to support this which is why we've taken our time to really introduce this channel we wanted to make sure that we have it down right.
And it is kind of a unique proposition no one else does it right now.
And to your second question, there is nothing meaningful baked into the guidance because again, when we think about our guidance we want to have.
Much more experience and a higher degree of conviction in like you mentioned this is kind of an earlier growth opportunity for us.
Sure.
So it is not reflected.
Okay. Thank you good luck.
Okay.
Thank you and we have another follow up from Bob Napoli with William Blair. Your line is open.
Thank you. Thank you very much.
On the competitive environment.
What are you seeing is there been any significant change in the competitive environment.
How do you view, it and who are you typically seeing.
In your RFP, so has that changed at all.
Yeah.
I think if anything we've seen that we've become the dominant and clear favorite and chargeback guarantee if there have been other companies that offer. This historically they've moved away from the model because it's more challenging to execute and where the front runners there. So really what we're seeing on a competitive set is that the decision at the merchant level is do I want to continue to manage.
<unk> build this process internally and then it could be any one of a dozen solutions right. If the decision is and we think thats, where the ROI is.
More and more merchants are heading in that way to do a chargeback guarantee solution, it's clearer than before that risk. If I just start solution and that has us very excited.
Thank you and then on international.
It seems to me like.
The authorization rates around the globe are very different in different markets and so the need for your services could be greater in different areas.
The World what are your.
What percentage of your business is international how do you view the international markets are the returns.
There is similar as the demand is the white space larger.
Sorry, a lot of questions around international.
Yeah.
Yes. Thank you for the question so when I think about.
Where we are today the USC.
Gil.
The biggest market for us today in terms of our presence.
But in terms of growth in the international market is growing much faster. So it will see APAC, we see EMEA.
And is there a very very strong growth region for us.
Thanks.
This dynamic kind of causes Randy Dave reduction of the.
Yes.
As a percentage of the overall <unk>.
In 2021, I expect this trend to continue.
If I could just sneak one in on crypto.
Relationship with finance, but Theres a lot of.
A lot going on how are you how is your product being used in the <unk>.
This space is that a very large opportunity and are the economics, there similar or better than your core product.
The main usage for us is when someone converts.
Using your credit card or different forms of payment and purchases the digital asset.
So thats, where we kind of look at the transactions to verify if it's legitimate or not.
It's still in.
A minor part of our overall revenues and we just see it us.
A possible bet on future growth in this category in the industry, we're excited to be part of.
The infrastructure of it.
But that's where it stands today.
Thank you.
Thank you and Thats all the questions we have for today.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Goodbye.
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