Q1 2022 Riskified Ltd Earnings Call
Good day, and thank you for standing by welcome to the risk Aside first quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone please.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker today, Chris Maloney Investor Relations. Please go ahead.
Good morning, and thank you for joining us today risk appetite is hosting this call to discuss its first quarter earnings results for the period ended March 31 2022.
Spending on today's call are golf co founder and CEO and Augie Teva Chief Financial Officer.
Earlier this morning, let's get bought issued a press release announcing its financial results for the first quarter of 2022, a copy of this press release has been furnished with the Securities and 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 beliefs and assumptions and are not guarantees of future performance you.
You should not put undue reliance on any forward looking statements.
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 by its 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 website under the Investor Relations section.
I'd also like to remind you that during the call. We will discuss some non-GAAP measures when talking about risk of highest performance.
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 past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational 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 <unk> Com I will now turn the call over to you know golf Mystified as co founder and CEO .
Thanks, Chris and Hi, everyone. Overall, I'm pleased with our strong first quarter results during the quarter. We review $22 7 billion of GMB broad merchant up 20% year over year, and we achieved revenues of $58 8 million up 15% year over year. These results reflect continued.
Within our existing customer base. The addition of new customers and improving growth in both the G M B and billings from our ticketing and travel merchants, we continued to execute on our successful land and expand strategy that drives GMP gains and long term gross margin expansion as customer engagements grow and mature.
Several large existing customers expanded their contractual relationships with us by submitting additional order populations through the platform in Q1.
With the vast majority of merchants globally still relying on in house solutions that we considered to be slow inaccurate expensive and inflexible. We believe the market remains ripe for disruption.
We are already seeing positive returns and momentum from our previous investments and remain focused on opportunities that we expect to deliver higher ROI for risk applied.
These focused efforts include pursuing market share gains new industries, and new geographies and continuing to expand our product suite to help merchants navigate adjacent e-commerce friction points.
Before sharing some notable accomplishments for the quarter I'd like to comment on the E Commerce environment, which on balance we think remains very attractive for us.
We believe our well diversified client base positions us to benefit from the resurgence of travel live events and other in person activities, our existing merchants and those rebounding categories continued to drive strong GMB gains and revenue growth for us.
At the same time, we are seeing an acceleration in pandemic driven demand in other categories relative to 2021 levels. This was particularly evident in U S stay at home categories. We believe that this may force merchants in these categories to pursue operational improvements for profitable growth operational improvements which were.
Put on the backburner last year.
This dynamic makes our solution, which is designed to enhance revenue guaranteed cost savings and promote frictionless checkout experiences even more compelling. We believe this dynamic will help drive additional customers onto our platform in the near term now a few significant accomplishments from the quarter.
First while we continue to be well diversified across multiple industries, we did experience record merchant activity across the airline travel event ticket and similar products within our ticketing travel category.
As a result of total G. M V from ticketing travel grew 291% year over year.
Second we added several large new merchants in the back half of last year, whose volumes have meaningfully ramped since that time, including the first quarter of 2022.
Third we added several new merchants and established verticals, including luxury fashion fast fashion and diversified Omnichannel retailing.
Particular significance, we signed one of the world's largest online fashion retailers that is revolutionizing the fashion industry with a presence in over 150 countries. We believe this further expands the already large upsell opportunity that resides within our existing customer base.
Before I wrap up I'd like to share a real world customer story. So you can better understand how we retain our merchants. So successfully while also deepening our relationships over time I think this will demonstrate how closely the scenario ties back to our core land and expand and product platform strategy.
Revolve is the next generation fashion retailer for millennial and generation Z consumers revolve began working with risk of five in 2019 using deco to recover failed payment transaction overtime. Our relationship has expanded to the point that revolve now leverages multiple risk if byproduct to address several.
High value use cases.
After integrating Deco revolve then decided to use our chargeback guaranteed product for a portion of their online orders over time, the strength of our chargeback guaranteed product allows us to guarantee a larger percentage of their e-commerce volume and as of Q1. The vast majority of their card not present orders are submitted to us.
<unk> Trust and risk with IP extends to account secure which revolve has been piloting to identify suspicious account activity since January .
In combination with our core chargeback guarantee Jakob and accounts secure help revolve optimized, but the right amount of risk throughout their entire conversion.
Driving more profitable revenue with lower operating cost and a world class checkout experience.
Of course. This is just one example, but it's illustrative of the deep trusting relationships, we form with our merchants over time, the combination of multi product integrations and outsized ROI has helped us retain merchants at a phenomenal rate are extremely high retention diversified sector exposure new client additions and.
Existing client expansion position us very well to deliver on our long term growth objectives and path to profitability.
I'll now turn it over Doggy, who will cover the financial results in more detail.
Thank you and thank you everyone for joining today's call.
If you don't mind since our G&A for the first quarter was $22 7 billion, reflecting a 20% E are over a year increase.
We achieved record first quarter revenue of $58 8 million up 15% year over year.
The drop in Gms and revenue during the quarter was driven primarily by the continued expansion of our platform across new and existing merchants and penetration across industry and geography.
Despite the tough year over year growth comparison for all of our all ecommerce volume, we continued to benefit from strong diversification across industry.
Fashion and luxury goods continued to grow and remains our largest contributor to billings.
Tickets on travel has rebounded significantly more than tripling compared to the prior year.
We continue to further the marquee fights with expansion into new industry.
In fact, while still early days.
Our newly created money transfer and creates a category I think more than $1 million compared to a negligible amount in Q1 'twenty one.
From a geographic standpoint.
During the first quarter, we nearly doubled our billings in EMEA with 92% year over year growth, primarily driven by the recovery of the travel industry.
Our beatings in APAC tripled year over year as a result of our continued investment in penetration in this market.
Overall, we're very pleased with our performance in EMEA and APAC.
Alongside the positive traction were seeing in the business. Some of our merchants were impacted by the global year over year ecommerce slowed down just to the easing of COVID-19 restrictions well the supply chain issues and now Theyre macroeconomic factors.
As a result, we can.
You need to see softness in some of our more mature emerging particularly in the U S stays home category.
We believe that some of these near term factors may continue to create unusual year over year comparisons for our business, but we believe that this will be transitory in nature is the e-commerce environment reverts back to sleep and Danny normalized long term growth rate.
And as we previously mentioned while it appears its implementation continues to create some headwinds.
He paid people start tapering off in the back half of the year as we begin to lap the growth impacts from that new regulation.
Continuing with gross profit margin.
As we've mentioned in the past gross profit margin is a metric that is best analyzed on an annual basis as individual quarters can fluctuate mainly due to changes in the industry mix of our billings and revenues seasonality factors the ramping of new merchant the risk profile of transactions approved and other business priority.
Our gross profit margin for the first quarter of 2022 with 52% versus 53% in the prior quarter of Q4 'twenty. One. This change is mainly related to typical e-commerce seasonality.
As we mentioned in the past 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, cyber Monday, which mostly attract legitimate online shopping activity.
We remain on track to meet our annual gross profit margin target.
Total non-GAAP operating expenses for the first quarter were $44 1 million up 52% year over year.
As we described in our previous earnings release in 2022.
Executing on our cross functionally investment plan to meet the increasing demand of our merchants.
Key areas, including investments to help our margins manage a broader range of disputed transactions.
Loading fraudulent refunds requests abusive coupon usage and multiple charged like pipes.
We're also fortifying our ability to support new geographies like APAC as well as new industry to serve our growing merchant base.
We consider this year is the peak of investments and as always we'll look for trolls Rois and crawl before we decide to incrementally invest.
Our investments coupled with the incremental cost of building public company infrastructure, just higher losses in adjusted EBITDA during the quarter.
Adjusted EBITDA loss for the first quarter of 2022 was $13 4 million.
We continue to maintain a healthy cash flow model with free cash flow of negative 90 million, which remains closely aligns with our adjusted EBITDA results.
Moving to the balance sheet, we maintain a very strong liquidity position sufficient to support all of the investments we're contemplating as we move towards profitability.
We ended the first quarter with more than 500 million of cash and deposits on the balance sheet can we carry euro debt.
And now turning to guidance for 2022.
Our outlook for the full year, we are reaffirming our initial guidance ranges Cherokee in late February .
We're pleased to be off to a good start to the year and remain encouraged by reason Paul is if he gets some travel industry, our geographic expansion and the long term growth opportunities in front of us.
At the same time, we're closely monitoring high variety and important macro drivers such as e-commerce supply chain and the broader global economic environment at large.
To read the rate for the full year of 'twenty 'twenty. Two we continue to anticipate revenue between 254 million and 257 million and adjusted EBITDA losses between 69 million to $66 million for modeling purposes, we expect the weighted average share count of approximately.
$666 million.
We expect our Q2 year over year revenue growth rate to be lower than Q1, reflecting the year over year growth impact of the above mentioned headwinds and for our growth rate to accelerate in the back half of the year.
That concludes our prepared remarks, we 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 of housing.
Standby, while we compile the Q&A roster.
Our first question comes from Josh Beck with Keybanc. Your line is open.
Yes. Thank you for taking the question I wanted to go probably at a macro level to start obviously reopening is.
Really created a lots of.
Various trends across across the economy, So I'm just kind of curious.
With respect to the business outside of ticketing travel Whats you are thinking about from a same store sales perspective, I think the last third party forecasts that we had.
Probably a little bit stale at this point so I'm just curious on what you're embedding in kind of what youre seeing across verticals.
Okay.
Hey, Josh Thanks for the question.
We're definitely seeing stay at home beneficiaries are in Vogue.
And we're down and we're seeing some movement onwards, there, whether it's home furnishings and our personal fitness really very consistent with what's been out there.
The strength of the ticketing and travel and newsprint oriented helped made me make up for some of that softness on so on the whole it's been kind of a wash and really the growth that we've seen throughout the quarter that 15% is really attributable to new business, that's been ramping over the past two quarters.
Okay very helpful and then maybe to follow up.
On an aggregate point around profitability as you mentioned fairly low level of nominal cash burn in the quarter.
How are you contemplating.
The path to profitability what levers are you are you pulling and how should we think about that.
Sure. So let me take a step back here and when you think about risk of <unk> in 2019 in 2020, we were basically other than your own profitability slightly profitable and then.
2021 weekend.
Have basically zero churn, we have an amazing cohort.
E Commerce companies in the World.
We have a great data and machine learning platform and let's see what other.
Problems without the all share we can help solve for them and that's really how we spun off our product platform strategy and we started to invest and build enterprise level significant products.
Four of them that would be account secure cost protect deco and dispute resolved.
So we did that in 2021, and we also decided hey, we have this amazing global opportunity ahead of us So let's expand our global go to market reached as well. So we're really seeing the impact of those investments.
As we previously shared that's going to peak in 2022.
And we're actually going to see in the back half of 2022 spend as a percent of revenue is going to start trending down and we're going to see meaningful improvements in 2023 and really when you think about those investments.
We're incredibly happy with Emory when did you give out APAC growing over three.
Think about EMEA doubling.
We shared some initial proof points contraction of some of these products. We think is positioning us very very well into the future.
We also think we have the right team to pursue those opportunities now we don't see.
Incremental spend on top of that which is why we think we'll be able to show very significant leverage and remember the earlier cohorts that we have.
Very profitable and just talking about the cash balance.
It's so much more than enough and we need to go towards profitability and a reasonable very funny.
Very helpful. Thank you Don.
Our next question comes from Tien Tsin Huang with Jpmorgan. Your line is open.
Hey, Thank you good morning, I liked your comments around what clients are thinking in this current environment. So wanted to ask just the sales versus cost savings.
Focus for prospective clients what resonates more.
Now and I totally understand the need to drive more sales and the clients also wanted to save on costs and you know with chargeback guaranteed to take up more costs, but you didn't guaranteed cost savings or China.
Balance you know where we are in that.
If you recall at pendulum between sales and cost savings if you follow my logic there.
No yeah. That's a great question I would say relative to last year, we're definitely seeing more interest around the cost savings aspect of things.
And some of the numbers that we previously shared for the top 10 clients over 40% reduction in cost strides when youre growing a 100, 200%.
That can sometimes take a backseat, we think that what we see is that in today's environment, we're able to drive cost down in such a meaningful way, while maintaining higher approval rates and that experience.
It's definitely gaining more traction relative to last.
No that makes sense that makes sense. So my quick follow up.
Josh asked a little bit on this but just on the EBITDA.
Piece of it be upside there was it was bigger than the dollar revenue upside in our models. So with few reaffirming EBITDA for the year. It looks like it implies some elevated losses from from first quarter or is there some step up in.
It investments away from revenue shifts just trying to better understand sort of the.
The cadence on EBITDA here.
<unk>.
I think Jamie Thank you for the question.
We're happy with our performance in the first quarter thing that some of the adjusted EBITDA.
It's timing.
So some of the savings there, we expect to kind of like due to the timing issue to be incurred in Q2, having said that <unk> is going to be a better adjusted EBITDA.
Firstly, it's H one and.
And thats related to kind of our path to profitability and where we see about getting our back on our investments and accelerating some.
Some of the top line ultimately.
Resulting in better adjusted EBITDA in the back half of the year.
Got it. Thank you. Thank you.
Our next question comes from Bob Napoli with William Blair. Your line is open.
Got it thank you and good morning so.
PSD too it's not for the implementation of P. S D to what of what would've.
Any thoughts on what your revenue growth would have been in the first quarter and I guess, maybe just in line with that it was kind of part of the same question your confidence in getting back to 20%.
Or better top line revenue growth as you get to <unk> and look at 2023.
Hey, Bob So I would say that in the first half of the year, our internal modeling again this is internal projections.
Is that it would be mid to high single digit impact on growth from PSD too and in the back half of the year.
Probably mid to low mid to low single digit impact from DSD to.
When you take that together.
I think that's fairly in line with our previous growth algorithms and within the range of 30 months.
And were.
We're extremely confident its just something that we're cycling out and.
We're anticipating minimal to no impact in 2023, arguing about one maybe two percentage points of growth.
Great. Thank you and then on new business development.
And what is the pipeline look like and how has the pipeline.
Blind increase what's the implementation cycle. So I mean, how much are you adding year over year any color on new business anything you can quantify.
On the new business side on a R. R added would be really helpful.
So I think we're very happy with the sales team and they've been performing extremely well I would say that quantify it again the entire growth that we're seeing in Q1 as a result of new business. Okay that was onboard and has the annualized.
Q1 of 2021, when we think about our pipeline and we continue to see both the global expansion of the product expansion. The changes in the market environment, where people are looking to optimize possible lengthy sales if any of those.
They're all great contributors.
And then just lastly, the stability of unit economics of pricing.
The competitive environment pricing unit economics.
Stability there that allows you to drive towards your long term EBITDA margin targets.
And I think a value in the product right, it's really a risk adjusted price.
So we work hard with our merchants to make sure that there is kind of a positive ROI at a one both on the cost savings side also on the incremental sales within that we see that it will be again more data a larger more experienced and vertical categories and geographies, we're able to drive uplift to our margins and kind of on track for a long.
Term targets.
Thank you.
Our next question comes from Terry Tillman Truest Securities. Your line is open.
Yeah, Hey, you're doing Augie, good morning, or good afternoon.
My first question.
Is really about becoming a platform company obviously the strength in the leadership you haven't charged by guarantee its well known you talked about revolve earlier. So it was great to hear about kind of.
The expansion side, so whether it's account secured policy protect Deco can you talk a little bit about where you have had the expansion what kind of like billings uplift or what kind of take rate increase what do you see when that occurs and then the second part of that first question is how much of these go to market investments are focused on this.
<unk> sales opportunity as opposed to the new G OS or the new verticals and then a follow up for August . Thank you.
Hey, Darren Thanks for the question.
So the vast majority of the go to market is focused on the global expansion more so than the cross selling opportunities of new products. The new products are still more nations in the stage now they are going live with a handful of merchant and so as we built up their capabilities and we think that'll drive more meaningful revenue.
And beyond.
From a revenue perspective, theyre more auxiliary chargeback earn G.
As we anticipated.
Okay got it and then maybe argue for you I know this is a hard question because quarter to quarter. There can be just dynamics to play out, but I'm wanting to hone in on gross margin.
And Theres also puts and takes with ticketing and travel that that has a different growth.
Profile and then these new industries, but really part of your old value prop, though is the more clients you have the decisioning engine get smarter and so theres going to be.
Success for both you and your customers is there anything that should get in the way of gross margins you know on an annualized basis expanding over the next couple of years as we get into 'twenty, three and beyond what would be the gating factor to gross margins are expanding thank you.
Okay sure and thank you for the question. So what do you think about historically speaking we've been able to improve therapy on a corporate level over time and we believe this type of improvement will help.
Drive long term margin expansion.
Alright cohorts mature.
Portfolio of merchants that we have this is the type of moments that I expect to see and to meet there when I think about our gross profit margin is primarily driven by the portfolio and the mix of merchants that we have any single quarter.
And specifically for this quarter that were quite as much as what we have today is very different.
Why do we had a year ago, it's driven by a number of factors like transaction risk level industry makes genomic business priority.
A lot of different factors, having said that we.
We do look on our gross margin on an annual basis and we encourage you to the same.
We believe that our quarterly performance puts us in a very strong position to meet the annual targets that.
As we provided previously and.
And we look forward to update you as we continue to progress.
Thank you.
Our next question comes from Matt <unk> with Credit Suisse. Your line is open.
Thank you for taking my question and good morning, I wanted to talk about the strong growth in the travel and events vertical the 291% that you quoted.
If you could provide some context around but clearly there was a large component of either wallet share gains with existing customers and or meaningful additions of new merchants, maybe you could provide a little bit of color. There and then on a more quantified basis, if youre able to tell us what the percentage of <unk> in the year ago quarter was.
Meaning what was travel and events during Q1 2021 as a portion of your <unk>.
Thank you for the question so I'll take the second part of it.
I think as you travel.
I think we as we currently trade.
Sure.
Prior year, I'll say that very much.
Sure.
Around 6%.
On our billings and probably now is a little bit higher than 'twenty.
So without being very very uncertain. These numbers this is kind of like.
The right Tracy if you think about.
The increase in tickets and travel.
And if we want to talk specifically what makes it up as a net new additions or is it just existing clients for wallet share expansion on the majority of men would suddenly be from existing clients, who are rebounding, but we also did have kind of produce significant clients not we're looking to have a more bear.
Variable cost structure throughout the pandemic can easily scale without any manual intervention. So we're definitely seeing some of that.
Okay.
Okay.
Thank you that was really helpful. Both of those a brief follow up that's more of an E. Commerce macro type of question you mentioned in your prepared remarks, the supply chain issues, which has been a common discussion point around ecommerce is there anything that youre seeing from discussions with them with your clients or from the data that you have that would.
Just that things there are the same better or worse heading into the current quarter.
So internally, we don't see it getting worse, what's kind of starting this trend any persisting in the quarter.
<unk> said that there are different reports from Republic, Brian merchants.
We expect overall.
This to persist throughout 2022.
It's no different from what we reported in the past.
Okay. Thank you very much for taking the questions.
Our next question comes from will Nance with Goldman Sachs. Your line is open.
Hey, guys. Good morning, I wanted to ask a question on distribution and clearly you guys have differentiated technology and our leader in the charter track Guaranty space do you see opportunities down the line for more of a partnership approach through either through referrals or white labeling. So that you could leverage the distribution network of others and potentially scale.
A business a little faster.
Hey, Ross Thanks for the question.
It's definitely a focus for us and part of our go to market expansion aside from the geographical expansion spending the partner platform and I think you got it exactly right that's either through referrals or it doesn't have to be necessarily wide levels, but for more of an integrated solution that can onboard multiple merchants in a seamless way.
I think we've previously shared we've had some success there as we're continuing to build out those capabilities. There are some unique product nuances that were making working through to make sure they're exactly right, but to your earlier, we do believe we have a differentiator in the best charge about guaranteed platform and we're thinking through how best to distribute and partners. It's definitely an important part.
Yeah.
Got it makes sense and then I just wanted to follow up on the point that you made around opex trending down as a percentage of revenue in the back half of the year.
And I think there was another comment made about making progress towards the towards profitability. In 2023, how are you thinking about the rate of Opex growth as we exit the year could we be talking about 2023 for like a flattish opex type of year.
I would say that we're incredibly happy and confident in the team we have in our ability to execute both on the global expansion brand plans and on the product opportunities that so again without going into anything about guidance for 2023, we think we'll be able to drive significant improvements.
Got it alright, I appreciate you taking all my questions.
Our next question comes from Brent <unk> with Piper Sandler Your line is open.
Hello. This is Clarke Jeffries on for Brent bracelet, and thank you for taking the question you were really encouraging to hear about the merchants ramping volumes Q1and seeing 20% GNP growth even in a challenging market I was wondering if you could comment on how the volume expansions or the submission of additional order populations.
We're progressing so far in Q2, and how much visibility do you have it to those expansions in the back half how should we be considering that as a driver to growth for the full year, specifically the cohorts signed in the last year.
Yeah. So we're definitely on track so far within Q2 and it's.
The way, we look at it as part of new that expansion.
Both adding some of those new larger clients in Q1, but also staying kind of persistent improvements within our existing cohorts in more and more segments, Inc submitted to us over time.
Got it.
Algae on guidance you know how the current trends come into your assumptions in your case guidance two months ago.
Maybe said another way embedded in the guidance is there sort of an embedded assumption of an improvement in the same store sales or the consumer sentiment, where do you feel like right now the assumptions.
Our fuel aligned with where the macro ecommerce environment.
And Brian and thank you for the question. So we're really happy to be offered great start of the year and obviously the Q1 performance reflects that.
I mean that our positive execution continues to proceed well be happy to update our full year guidance on our next quarter.
But given that it's still early and we just reported one quarter of results.
Coupled with some of the kind of the economic uncertainty on the macro environment.
We're just spending fast with our original range.
And it's really nothing worth waiting for that.
Alright, Thank you very much.
Our next question is a follow up from Bob Napoli with William Blair. Your line is open.
Thank you and just on the strategic front.
Your strong balance sheet.
Yes.
The number of.
Different private companies in the fraud and space globally are there are you.
Looking at any potential tuck ins for tech technology or geographic expansion.
Should we continue to expect.
Solely organic.
Hey, Bob.
We think we have the best technology and platforms. So we don't think there is a lot of incremental addition, or court artifact earn fewer risk modeling.
But to your point, maybe there are accelerating products.
That are kind of interesting opportunities right now with the.
Now we have.
And not only at the board level, we are discussing those opportunities.
Yes.
Okay. Thank.
Thank you that's all I have.
Thank you.
Showing no further questions at this time. This does conclude today's conference call. Thank you for your participation you may now disconnect.
Goodbye.
And in Illinois.
Okay.
[music].
Yes.
Sure.
[music].