Q2 2022 Riskified Ltd Earnings Call
Good day and thank you for standing by. Good day and thank you for standing by.
Welcome to the risk-ified second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Thank you.
Khatmandel, Head of Investor Relations.
Good morning, and thank you for joining us today. My name is Chet Mandel, Riskified's Head of Investor Relations. Riskified is hosting this call to discuss its second quarter earnings results for the period ended June 30, 2022. Participating on today's call are Edo Gal, Riskified's Co-Founder and CEO , and Adi Ocheva, Riskified's Chief Financial Officer.
Earlier this morning, Riska5 issued a press release announcing its financial results for the second quarter of 2022. A copy of this press release has been furnished with the SEC on Form 6K.
Before we begin, I want to remind you that matters discussed on today's call will include the forward-looking statements relating to our operating performance, financial goals, and business outlooks, which are based on management's current beliefs and assumptions and are not guaranteed of future performance.
You should not put undue reliance on any forward-looking statement.
Please note that these forward-looking statements reflect our opinion 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 after the time of this call.
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-ified Periodics and other SEC filings, or you can review 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-advice performance.
The presentation of this financial information is not intended to be considered an isolation or a substitute for or a superior to.
The 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 greater transparency for cat's eyes.
with respect to key metrics used by management in its financial and operational decision-making.
You can find the reconciliation of these non-GAAP measures to the nearest comparable GAAP measures in the earnings press release issued and furnished with the FCC on Form 6K today and in our prior filings with the FCC, all of which is posted on our website.
I will now turn the call over to Ido Gao, the 365 co-founder and CEO .
Thanks, Chet, and hello, everyone. Since the year started, I have been and remain very confident in our go-to-market strategy, the traction with our pipeline of new and existing science, our strong financial position, and our ability to optimize our expense base through careful cost-saving measures, as we will further discuss on this talk.
We believe that the impact of the decisions that we have made to support the growth of the business is clearly seen in our results. We continued our positive momentum from the first quarter with another strong quarter, which achieved quarterly revenue of $60 million, up 8% year over year.
In the face of the current macroeconomic landscape, I am pleased that we were able to continue to increase the amount of gross merchandise volume that we reviewed, with $25 billion during the quarter, up 18% year-over-year.
Overall, for the first six months of the year, our business continues to perform well and we generated exceptional outcomes for our merchants while continuing to grow, capture market share and scale our platform.
Conversations with our merchants have continued to shift from how do we rapidly grow and fulfill unprecedented amounts of orders at any cost to how can we drive uplifted revenues in a sustainable and profitable manner.
The good news for RiskEvise is that in times like these we have the ability to help merchants solve this problem through increasing conversion rates while simultaneously decreasing their fraud related expenses. We believe that the ROI that we can offer today is even more compelling and is a much stronger value proposition than non-guaranteed decisions which can't address these same problems. We believe that SAS makes the moment of jobs faster within the clients. In truth, data proves that claiming it expensively is immens 1943.
Proof of the continuing success that we are having with our merchants was seeing our revenue growth during the quarter, which was primarily driven by new merchants' revenue added in the past 12 months and upsells within portions of our existing customer base.
With the addition of these new merchants, we continued to see our top merchant concentration decrease as a percentage of total to reflect a more balanced portfolio. In addition, we continued to be well-diversified across verticals and geographies. In fact, our top 10 new merchants in the quarter were spread across five different industry areas and three separate geographies.
We expect this broad-based and diversified positioning to allow us to continue being resilient across varying macroeconomic environments and throughout different consumer buying patterns.
Overall, I'm very encouraged by our first half performance and our ability to execute on the goals that we set for ourselves at the beginning of the year. A top priority for the second half and beyond is to continue to improve efficiency and reduce our overall expense base to recognize additional operating leverage.
In order to accomplish this and to help Accelerator pass the profitability, we recently re-evaluated a number of areas in our expense base which we will further discuss on this call.
As part of this process, we came away with a clear plan to lower our hiring pace, a deeper understanding of where to prioritize our investment dollars, and how to limit incremental spend while finding opportunities to reduce our overall cost structure.
We do not anticipate that this expense reevaluation will impact our long-term growth trajectory.
I am really excited about the progress that we are making in accelerating our paths of profitability and how we will expand on what this means for our financial outcome.
But before that, I want to reiterate a few key points on our ability to deliver long-term value for our merchants and shareholders.
First, I continue to believe that the overall addressable market is large and growth despite a recent general slowdown in some areas of the global economy. In this large universe, we are a clear market leader in fraud solutions.
We believe that we have a superior data advantage to enable the best outcomes and operational improvements for our merchants, which is recognized throughout our relationships with many of the world's largest and highest quality merchants.
Second, the stickiness of these relationships is seen through an incredible over 99% customer attention.
These relationships are deeply integrated and can be challenging to uproot. Combine this with the fact that we are on track to review approximately $100 billion in GMC on an annualized basis in 2022, we have created what we believe to be unrivaled positioning for ourselves in this industry.
Third, I am excited to partner with Uiska5D President of World Wide Field Operations, Ravi Kumaraswamy, on our go-to-market strategy. I believe that Ravi, a proven technology leader with more than 20 years of experience, will build upon our existing momentum and spearhead the go-forward sales strategy by focusing on identifying new opportunities to further accelerate our growth.
Fourth, through our very strong balance sheets and financial positions, we believe that we have the financial flexibility to pursue profitable growth. And finally, I believe that we have a tremendous asset in the fact that we have operated the company in a profitable manner in prior periods, and we know the levers to pull and processes to prioritize in order to get back to it.
I'll now turn it over to Adri. We'll cover the financial results in more detail.
Thank you, Rito, and thank you, everyone, for joining today's call. As I mentioned, our GNV for the second quarter was $25 billion, reflecting an 18% year-over-year increase.
We also achieved record second quarter revenue of $60 million, up 8% year-over-year.
The growth in GMV and revenue during the quarter was primarily driven by the continued expansion of our platform across new merchants and ourselves and further penetration across industries and geographies.
We continue to benefit from having broad diversification across industries.
During the second quarter, we enjoyed ongoing growth across our emerging categories and continue to benefit from sustained growth across other categories like fashion and luxury goods and electronics.
As expected, tickets and travel continues to rebound to be at or above pre-pandemic levels and was the most meaningful area of growth during the second quarter.
Alongside the positive traction we are seeing in the business, some of our more mature merchants declined year over year due to softening global e-commerce activity and other macroeconomic factors such as the easing of coverage restrictions, PSC2, rising interest rates, and supply chain issues. gray
From a geographic standpoint, while we saw ongoing toughness in the U.S., particularly in the stay-at-home category, we saw a significant increase in the number of people who were
We continue to have momentum outside of the U.S.
with those trends in EMEA following the recovery of tickets and travel, and through the addition of new merchants.
And once again, in APEX, which is an important and growing market for us.
Continue with gross profit margins.
As we 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 the changes in the industry mix of our billing, seasonality factors, the ramping of new merchants, the varying risk profiles, transactions approved, and other business priorities.
Our non-GAAP gross profit margin of 52 was consistent with the first quarter of 2022 and we remain on track to meet our annual non-GAAP gross profit margin targets of 51% for 2022. Our non-GAAP gross profit margin of 52 is consistent with the first quarter of 2022
Total non-GAAP operating expenses for the second quarter were $44.6 million, up 39% year-over-year, but it's important to note that they were essentially flat on a sequential basis. The total non-GAAP operating expenses were $44.6 million, up 39% year-over-year, but
During the second quarter, we initiated a plan to efficiently and thoughtfully reduce our operating expenses.
The investments that we made in 2021 through 2022 were instrumental to help our growing merchant base manage a broader range of high-value use cases and enhance our ability to support our new geography.
We are already recognizing some of the benefits of this investment and we believe it will generate high ROI.
Going forward, in order to match the additional level of investment to the opportunities in the current macro environment, we undertook a widespread evaluation of our overall expense base and identified key areas of cost optimization.
As a result of this process, we successfully identified areas of public improvement, which in total should generate savings of at least $10 million in 2022.
We believe that these cost savings are not one-time in nature and will continue to benefit the company on a run rate basis.
The biggest driver of this savings was modifying our hiring plan for 2022.
For the remainder of 2022, we expect a slow hiring to only the most strategic and high-impact areas of the company.
We now expect only a modest increase in total headcount versus the beginning of 2022.
and will benefit from lower costs associated with this minimal headcount probe.
Some other areas included optimizing tools and systems through negotiation of long-term contracts and usage.
Evaluating non-essential marketing plans.
and identifying processes to increase the productivity of our current internal team.
We believe that we'll be able to reduce plants in these areas while keeping our long-term plans for growth in fact.
Our just-to-do-with-our-love for the second quarter was negative 13.6 million and negative 27.1 million for the first half of 2022.
We successfully decreased our adjusted EV dialogue from our previous guidance and are excited and confident about our more aggressive trajectory to profitability.
In addition, free Tesla was negative 13.3 million for the second quarter and negative 23.3 million for the first six months of the year.
Our free cash outflows remain closely aligned with our adjusted EBITDA results.
Moving to the balance sheet, we maintain a very strong liquidity position, which we anticipate to be more than sufficient to support the investments we are contemplating as we aim to move towards profitability.
We ended the second quarter with approximately 488 million of cash and deposits on the balance sheet. Enemy carry zero.
And now turning to our updated guidance outlook for 2022.
For the full year of 2022, we are revising upward our guidance ranges that we introduced in late February and that will reaffirm last quarter.
For the full year 2022, we now anticipate revenue to be between $255 million and $258 million, up from our previous guidance of $254 million to $257 million.
The updated revenue guidance assumes currency rates against the USD remain stable to current levels and will monitor other macroeconomic factors such as supply chain issues, inflation, and the broader e-commerce environment.
In terms of quarterly phasing, we expect our third quarter revenues to maintain strength in tickets and travel, and the fourth quarter to reflect seasonal softness due to broader e-commerce and retail uncertainty that may persist during the holiday shopping season.
The improved revenue guidance and OPEX improvements we discussed earlier are expected to generate savings of at least $10 million this year, and are leading us to meaningfully improve our adjusted visa guidance to be between negative $54 million and negative $57 million from negative $66 million and negative $69 million in our prior guidance.
For modeling of 2022 annual EPS, we expected a weighted average share count of approximately 863 million.
Overall, we are pleased with our second quarter and first-half results and we remain excited about our continuous prospects for long-term growth.
We are encouraged by our ongoing success with new merchants, reopening trends in the tickets and travel industry, and the contributions from our global go-to-market investments.
Thank you all for the time.
This concludes our prepared remarks.
We look forward to continuing to report our progress to you in the coming quarters.
Operator, we're away from the first question.
Thank you.
As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. One moment. You have been muted.
Our first question comes from Terry Tillman of Truer's Securities. Please proceed.
Hi, good morning. Can you hear me okay?
We can hear you great.
Hey, I'm Augie. This is a live live performance here in 2Q and then also the higher outlook.
Nice job on that. And I have two questions. First question, just maybe building on some of the comments on tickets and travel. Could you kind of double click though in 2Q? Because you do have some large customers there, but was it broad based across kind of the whole universe of your T&T customers? And was it more existing customers just really having their business perk up? Or did you have some newer ones that were coming online also that affected the tickets and travel? And then the second part on tickets and travel is...
Yeah, I think you said kind of friends in 3q should GMV be up somewhat in 3q on tickets and travel and then I had a follow up.
Thank you for the question. Since the second half of last year, we have been seeing strong performance in tickets and travel clients with many returning at pre or above pandemic level, more or less. Additionally, as you just mentioned, we have been adding merchants in this area and expanding with existing merchants. That's across a number of logos. Regarding Q3 overall, we're optimistic. Thank you for the question.
But also caution key observing this trend into the later quarters because of the years just to see how the momentum kind of goes on.
Okay, and then just the second question, it's nice to see this faster pace to profitability, but what I'm curious about is, I mean, should this trend line continue and anything you can share on maybe when we see a break even point? And the second part of this is, Ravi's on board, congrats on that, we've heard great things about him. Is he going to be able to have the wherewithal to be able to add to the sales force still? Thank you.
Hey, Terry, so I'll take that. So yeah, we're definitely very happy and excited about that reevaluation that resulted in an accelerated path to profitability. We really found great areas, basically, to do more with less headcount, just optimizing systems, processes, and costs, so becoming a bit leaner while keeping the long-term trajectory intact. We definitely think that the savings are ongoing in nature, and we'll continue to look for ways to find more optimizations.
As we progress throughout the year and get closer to guiding for 23, we can talk about how that would impact those numbers. With Ravi, we're incredibly excited to have him on board. It's been an amazing initial 90 days. I can tell you that the thing that excited me most when I met him is both his experience at Ariba, I'd say at Ariba leading to go to market functions there and the success he's had over there. And most recently, he was CEO of a company called Proud Face and he was really able to drive.
So I think we're really aligned on kind of the, or we had a great opportunity these first 90 days to align and to go forward with the market strategy. And I think we both feel that with this updated plan, he definitely has the tools he needs to go out and achieve success in the market.
Okay, thank you.
Thank you. One moment for our next question.
Thank you. Our next question comes from Tansin Wang of JP Morgan. Please proceed with your question.
Thanks so much. Healthy results here. I was curious if you're changing your risk appetite at all, given some signals of potentially a weaker consumer and
and what that might mean for your financials if that's the case. I'm asking because we've heard this earning season a shift towards credit, for example, and you know, some credit tightening with some of the different players. So I'm just curious how you're seeing that and how your risk performance has been even through the most recent weeks.
We feel great with the results for the quarter on the chart backs. They've been trending better than anticipated in guided sport and we continue to anticipate to see improvements on a cohort basis as we progress.
Okay, great. That's great to hear. I know that obviously the gross margin and whatnot was great. So on the on the storing of the hiring with the expense re-evaluation as you just went through, I'm curious what are you narrowing your focus in certain areas? What areas are maybe being deferred? What are you, you know, what's non-negotiable on your side from a from the investing standpoint?
Well, that's a great question. I think really what we did to give a few examples to make it a bit more concrete, right? Let's say there's a new geography we're going after. So instead of having 15 people initially, we'll have 10, right? So we're really keeping the same opportunities both on the go to market side and on the product side. But we're finding the areas where we can achieve the same financial outcomes, which we believe a smaller number of headcount. So that's really the change.
Very clear. Thank you.
Thank you one moment.
And our next question comes from Ramsey of Barclays. Please proceed with your question.
Hi, thanks so much for taking my question this morning. I wanted to follow up with a question on on travel on tickets and travel and I'm just trying to get a sense relative to 2019 of what tickets and travel is, is a percentage of volume. What I'm really trying to get is how much room there is to run from this point on in terms of the recovery of that that segment vertical.
Yes, sure, around the thank you for the question. So I think what we mentioned in the past, we were around 2% but it's just when COVID hit, but that was also partly driven of the shrinking of the industry. A lot has happened since then and as I just mentioned earlier, on one hand we've seen the recovery and just on that base we see most of them are merchants and of course there's a variability between different ones, but most of them are pre-pandemic levels, some are still below.
but overall as a cohort, as a group, we think that they are somewhere at or above. And separately, the other part is we've been adding new logos and new merchants, and I think this is like a very important driver to continue to expand in this category. And if you see of our performance in EMEA and our growth there, it's really substantial and meaningful, and a lot of it is driven by some of the recovery and the growth of the importance in this category.
Okay, thank you. And a follow-up from me is I just wanted to ask about the sales pipeline. I guess you just mentioned in your response now that you're adding new logos in that category. I was just curious, just A, for an update on the sales pipeline, but B, is the macro environment having an impact on decisioning? I know the e-commerce backdrop is tough. I'm trying to think whether that...
It causes merchants to pause a little bit or if it's the opposite where they think now is the time that I need to implement This because you know I need the to boost my sales and drive savings etc. Maybe just a couple comments would be helpful
We feel very excited and happy with the performance of the go-to-market teams in the first half and really good about the pipeline entering the second half. I think that the current macro environment is helping our messaging resonate more and more with merchants because remember, we're guaranteeing cost savings while driving incremental sales. So we do see that resonating a bit better in this environment.
That makes a ton of sense. Thanks so much.
That makes a ton of sense. Thanks so much. Thank you. 1 moment.
And our next question comes from Will Nance of Goldman Sachs. Please proceed.
Hey guys, good morning. I appreciate you taking the question. I appreciate all of the detail on the expense review this quarter. I wanted to just ask, I think you made the comment something along the lines of this isn't a one-time reduction, but something that should benefit you guys going forward, and it doesn't change the long-term growth trajectory. Just wondering if it changes your thought process then around terminal margins and where the business can get to over time.
We don't think there's been any change in the terminal margin or long term opportunity from a growth perspective.
Got it, appreciate that. And then a follow-up question, I just wanted to ask about distribution strategy after the recent FIS partnership with a competitor. Just wondering how you guys are thinking about the ability to distribute products or partner with payment processors to kind of extend the reach of the business beyond direct sales?
That's a great question. So, let me, two main parts, right? Number one, we see the most success with enterprise clients because we're consistently the most accurate solution and these complex enterprise organizations can choose best of breed solutions even though they tend to run multiple gateways and acquirers, right? So, we really think the direct relationship and integration we have with them.
provides us with that ability to outperform others in the market. Now, when we think about kind of how do we attack the lower tier, it's definitely something that these various partnerships could be helpful with. And I know that Rob, yes, he's kind of ironing out the overall there's a market strategy and plan. It's definitely something that's on his agenda. All right, so that would be number one. Number two, I think it's a great validation of the chargeback guarantee model in the market, which we continue to benefit from.
Got it, makes sense. Appreciate you taking the questions and nice results this morning.
One moment.
As a reminder, to ask a question, you will need to press star 1 1 on your telephone. Please stand by while we compile the Q and a roster.
And our next question comes from Dylan Wright of Credit Suisse.
Hey, guys. It's Dylan on Pertone. Thanks for taking the question. Can you please give us an update on the discretionary versus non-discretionary mix of GMB or billings in a quarter and as a quick follow-up to that in a different way. What percentage of billings was related to tickets and travel and Q2 and how does that compare versus last year? I believe last quarter it was 20 percent of billings versus last year.
and Q2 and how does that compare versus last year? I believe last quarter it was 20% of buildings versus 6% in Q1 2021. Anything there would be great. Thanks.
Any further questions? So to answer the second part first, if I think about the market share, as I said, we've been expanding both through existing customers but also adding new. So I believe we saw this growth also sequentially from Q1 to Q2. I don't have the exact numbers on top of my head, but it's a very nice and meaningful growth overall compared to last year. And on the second question,
Can you repeat the first part?
Yeah, yeah. Just trying to get a sense of the discretionary versus non-discretionary mix of GMV or billings.
Yeah, of course. We're very diversified and if I look at all the trends that are impacting our portfolio of merchants, I'll probably not call out this one as a major one. I'll think more about the growth of services type of the business versus some of the other kind of stay-at-home category. This is a trend that is much more prevalent and is a good driver. And that we've seen some of the kind of the stay-at-home merchants and some of their reports as well as the public companies, they've shown like a...
Thank you one moment.
Our next question comes from Brett Bracelon.
Please proceed.
Good morning. Thanks for taking the call. I have a question here. I wanted to double click into the ticketing and travel section. Obviously, I understand the strength there, but what's driving new logo momentum? Perhaps, could you talk a little bit about expectations for ticketing and travel in Q3? Are you seeing any sort of macro headwinds impact that segment, and obviously there's a little more macro risk in Q3 here. Thanks.
So actually over the past year we've seen a lot of traction and movement in the ticket and travel space as we've helped them.
streamline and automate their operations in a very scalable way. And now that volumes are picking up, we're really seeing that and enjoying that. So I think it's more around the value proposition of streamlining and automating the process. And I'll let Augie take the second part.
Yeah, it's still healthy and it's expected to remain strong.
So we're hoping to continue to enjoy the momentum.
Is there some sort of critical mass within to getting travel that's driving additional new local momentum? Is there any sort of data advantage that's playing to your hand here in that vertical? Any color on over the last year you're getting the momentum, I get that you can streamline and automate, but within that space is there becoming a data moat for you at all?
That's a great point and definitely as we're seeing more and more success we're able to improve performance for everyone within our network, especially within that tickets and travel domain. We mentioned that we're on a run rate to do 100 billion plus of guaranteed GMV. That puts us as probably the largest guaranteed vendor but also one of the largest vendors in that space. So yes, it's a competitive mode like you mentioned.
And then, Aggie, as you just think about some of the cost improvement you now have put in place in the model, how are you thinking about that path to break even and beyond? Maybe you could help us kind of bridge how you're thinking about kind of getting there. Thanks.
If I think of some of the areas that we've looked into, which is kind of starting with some of the modifying of the current prime, but also looking efficiency across a number of processes and tools that we use, I think it's a very meaningful and a very exciting step and a step forward, which accelerates our path to profitability. And we're all very much focused as a team, as a company, to kind of think through the execution.
So I'll say this is a great first step. There's always areas we'll continue to sharpen our pencils as we continue to progress.
Great to hear. Thank you.
Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press star 11 on your telephone. That's star 11.
Once again, to ask a question, please press star 1 1 on your telephone.
And I'm sure we have a question from the line of Robert Napoli.
with William Blair. Robert Napoli, your line is now open.
Good morning, everyone. Thank you. Nice to see the trends and results. I think, Ido, you're...
target growth rate has been 25 to 30 percent with a combination of 10 to 15 percent e-commerce growth, 15 percent growth in new logos. Does that still – what is your – there's a lot of discussion and disagreement around the e-commerce growth rate over the long term. But just any thoughts on your long-term growth rate, that growth rate that you had out there previously as we move into 2023 and beyond?
Hey, Bob. Good morning. Good question. We are really happy with the performance in the first half. In the second quarter, similar to the first quarter, most of the game was driven by net new logos and outsells to our existing clients. When you think about the organic growth in combination with the regulatory impact, it was negative. Really, the results were seeing a result of that strong growth.
and we've guided you and anticipate better numbers in the back half of the year.
And on e-commerce birth rates.
Yeah, we think there's still going to be.
more challenge than standard year this year.
Okay, and then I just found the path to profitability just wanted to follow up on that. I mean, can you put a timing general on when you would expect to get to like EBITDA positive? Is that something that you think is achievable by 2024? You can put a timing general on when you would expect to get to like EBITDA positive.
I think we have run the business on a profitable basis before and we know the different levers to pull in order to get there. We are really happy with the reevaluation and the immediate steps we have taken and the accelerated path. We want to continue to sharpen on pencils on addition areas to create those things.
We want to be thoughtful as we think about, you know, 2023 over the next few quarters. And once we do that, we'll be happy to share more updates and a better gut.
Thank you very much.
Thank you, and I'm showing no further questions. So with that, I'll hand the call back over to Ido for closing remarks.
Thank you everyone. Talk soon in a few months.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.
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