Riskified Ltd. Q1 2023 Earnings Call
Speaker 1: Good morning and thank you for standing by. Welcome to the RISCAPIDE first quarter 2023 earnings call. At this time all participants are in a listen-only mode.
Speaker 1: After the speakers 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.
Speaker 1: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chet Mendel, head of investor relations. Please go ahead.
Speaker 2: Good morning, and thank you for joining us today. My name is Chet Mandel. Riscafides head of investor relations. We are hosting today's call to discuss Riscafides financial results for the first quarter 2023. Participating on today's call, Ari Do Gal, Riscafides co-founder and chief executive officer.
Speaker 2: And Aguido Chava, risk-fired Chief Financial Officer. We released our results for the first quarter of 2023 earlier today. Our earnings materials, including a replay of today's webcast, are available on our Investory Relations website at ir.riskafide.com.
Speaker 2: Certain statements made on the call today will be forward looking statements related to our operating performance, financial goals, and business outlook, which reflect management's best judgment based on currently available information and are not guarantees of future performance. We intend all forward looking statements to be covered by the Faith Harbor Provision.
Speaker 2: and accept as required by applicable law, we undertake no obligation to revise this information as a result of new development that may occur after the time of this call.
Speaker 2: You should not put undue reliance in any forward-looking statement. Please refer to our annual report on Form 20F for the year ended December 31st, 2022, and other SEC filings for more information on the specific factors that could cause actual results to differ materially from our expectations.
Speaker 2: Additionally, non- GAAP financial measures and key performance indicators will be discussed on the call. Reconciliation to the most directly comparable GAAP financial measures are available and our earnings release issued and furnished with the SEC on Form 6K today. And in the appendix of our investor relations presentation, all of which are posted on our investor relations website.
Speaker 2: I will now turn the call over to Edo.
Speaker 3: Thanks, Chet, and hello, everyone. We achieved revenue growth of 17%, non-gap growth profit growth of 19%, and adjusted EBDI improvements of 62% year over year. These first quarter results demonstrate our ability to execute across all areas of the organization.
Speaker 3: We believe that our technology and the demonstrable value that we provide the merchants is resonating within our large addressable market. This continues to drive very strong up to activity in new merchant winds, especially during competitive processes.
Speaker 3: which was the primary driver of growth during the quarter.
Speaker 3: Also contributing to our year over year growth was great levels of tickets and travel activity, which grew nearly 100%. As expected, our new business continues to grow well above our actual revenue growth of 17% despite a generally softer e-commerce environment, which demonstrates that our market share gains have outpaced macro related headwinds during the
Speaker 3: that we start with. Once we are integrated and demonstrate strong performance, we feel confident in our ability to capture additional order volume over time.
Speaker 3: We continue to execute on this land and expand strategy very well during the quarter, which was seen in our strong first quarter of activity. We continue to execute on this land and expand strategy very well during the quarter.
Speaker 3: One of our largest upstilts during the quarter involved winning substantial volume away from a competitor. As a result of our superior performance and accuracy during a head-to-head competition, we were able to take on more segments and geographies for a billion dollar merchant in the tickets and travel vertical.
Speaker 3: A separate large first quarter upsell was from a merchant that we only recently onboarded in the fourth quarter of 2022. This merchant, which processes approximately $1 billion in online order volume annually, quickly saw the clear ROI and value that we were able to provide.
Speaker 3: As a result, we were able to expand our relationship and recognize meaningfully better economics for both Riskified and the merchant early on.
Speaker 3: Also, our G&A expenses were at the lowest level since the third quarter of 2021, which was our first full quarter of operating as a public company. We continue to focus on optimizing costs and streamlining the business to improve efficiency. I am pleased that we were able to meaningfully exceed our bottom-line expectations during the first quarter. Based on our performance in the first quarter and the guidance trajectory for the year, we are working towards achieving profitability on an adjusted EDD basis during Q4 this year.
Speaker 3: Just this quarter alone, we deployed over a dozen models into production. These new models were deployed across our most important verticals and geographies. We also introduced nearly 20 new features to further enhance our ability to understand how fraudsters behave, which we believe ultimately drives optimized performance for our merchants. And with a superior and expertly tagged set of data, Riskafide is one of the largest and most accurate decisioning companies for e-commerce merchants in the world.
Speaker 3: and just part of the reason why I am optimistic about our long-term trajectory and our ability to deliver value to our shareholders. K.urst.
Speaker 3: I will provide more context on our first quarter performance and outlook.
Speaker 3: But before I turn it over, I wanted to take a moment and thank the team for their hard work in achieving a strong first quarter. And to also welcome our first ever CMO, Kui Annance last month.
Speaker 3: Jeff Otto brings two decades of enterprise technology experience. Jeff has held various senior leadership roles, including most recently in Marquetta and Salesforce. In our view, Jeff has the ideal blend of knowledge and expertise to continue to capitalize on risk-afired reputation as the pre-eminent fraud and risk intelligence platform for the largest e-commerce merchants across industries.
Speaker 3: and throughout the globe. On behalf of the executive team and board, we are thrilled to partner with Jeff. Now, Toggy. Thank you, Edo, team, and everyone for joining today's goal. Our G&V for the first quarter was 27.3 billion, reflecting a 20% increase year over year.
Speaker 4: We achieved strong first quarter revenue of 68.9 million, up 17% year over year, an acceleration from our fourth quarter growth of 14%.
Speaker 4: Our increase in G&V and revenue was primarily driven by new merchants and upsells and revenue growth across all geographies.
Speaker 4: Stickers and travel was the most meaningful area of growth having nearly doubled our buildings year over year within this vertical.
Speaker 4: Going forward as we now have fully lapsed COVID-related comparable periods, we expect a more normalized level of growth in this vertical, but still view this as an active area of growth for the year.
Speaker 4: In addition, our food electronics and money transfer categories each grow during the quarter, primarily driven by new merchants and upsell activity.
Speaker 4: We saw year-over-year improvements in the rate of decline in our general retail and home categories during the first quarter. While these categories are still negatively impacting our growth, this is an encouraging trend that we're monitoring closely.
Speaker 4: One of our largest categories, fashion and luxury goods, was flat year over year in the first quarter, that's compared to growth that we saw in this category in 2022.
Speaker 4: Within this category, we have seen a slow down in some of our same corporate merchants, in particular within luxury brands, and our sneaker sub-segment. Having a broad base and diversified portfolio of merchants helps position us as a durable business across all sides of spending environments.
Speaker 4: And as consumer spending continues to shift away from goods towards spending on services and live events, we believe that we remain well positioned to benefit. From a geographic standpoint, the U.S., our largest region, grew by high single digits, and AEMIA and APAC each grew approximately 40% during the quarter.
Speaker 4: Our continuous revenue growth from regions outside of the United States demonstrates the positive returns from our previous investments and market share gains.
Speaker 4: Moving on to growth margins, our non-gab growth profit margin for the first quarter of 2023 was 52%, consistent with the fourth quarter of 2022, and an improvement from 52% in the first quarter of 2022.
Speaker 4: We continue to benefit from improvements in our core machine learning models and other cost of good savings, offset by the impact of ramping of significant new merchants.
Speaker 4: As a reminder, growth profit margin is best analyzed on an annual basis, as margin may fluctuate on a quarterly basis. Moving to expenses.
Speaker 4: Total non-gap operating expenses were $41.6 million for the first quarter of 2023, a 6% decrease year over year.
Speaker 4: Our non-gap operating expenses is a percentage of revenue declined here over year, from 75% to 60%, reflecting leverage in the business model.
Speaker 4: As a result of further optimization and expense reduction in the first quarter of 2023, I'm pleased that our expenses were meaningfully below our first quarter budget rate of 45 million.
Speaker 4: This was primarily driven by further optimization of tools and systems evaluation of non-essential marketing and administrative expand and other seasonality of expenses. We expect to carry through most of the savings throughout the remainder of 2023.
Speaker 4: For modeling purposes, we anticipate our Q2 to Q4 quarterly expenses to be in the range of approximately $43 million per quarter.
Speaker 4: Adjust the bidet for the first quarter with negative 5.2 million, a 62% year-over-year improvement.
Speaker 4: We have meaningfully improved our just to give you that performance on a year-over-year basis for the third consecutive quarter since making the decision to accelerate our timeline to reach profitability.
Speaker 4: In addition, we continue to maintain a healthy cash flow model and we're very excited to cross into pre-cash flow for the Divinity Discord.
Speaker 4: We will continue working towards strengthening our free cash well position.
Speaker 4: Moving to the balance sheet, we maintain a very strong liquidity position. We ended the first quarter with approximately 484 million of cash deposits and a croat interest on the balance sheet. And we carry zero of that.
Speaker 4: This amount represents a sequential, increasing cash, deposits, and a croat interest of $2 million.
Speaker 4: For reference, this is a meaningful improvement from a sequential decrease of 10 million from the same comparable period in the prior year.
Speaker 4: Simply put, we're confident in the business abilities and generate positive cash loads over the long term. And we believe that our balance sheet and strongly fluidity position is an underappreciated asset.
Speaker 4: In this environment, our strong and liquid balance sheet is an advantage and provides us the flexibility to deploy capital strategically should opportunity present themselves. In terms of our outlook, we're updating and improving our 2023 bottom line guidance.
Speaker 4: that we previously shared on our Q4 call. Assuming no further material changes to the macro environment, we continue to anticipate revenue between $297 million and $303 million for the full year of 2023 or $300 million at the midpoint. Moving to adjusted EBDA.
Speaker 4: As a result of our discipline approach to managing the business in the first quarter and expected up-ex-treesctions going forward, we now believe that our full-year Justi Dibidau will be between negative 12 million and negative 17 million and improvements of 41% from our initial range.
Speaker 4: As always, we look to find additional leverage in our expenses.
Speaker 4: We continue to approach our guidance responsibly due to the macroeconomic environment.
Speaker 4: We will continue to monitor the performance and health of our merchants, consumer spending, and the broader e-commerce landscape and the impacts on our results. Overall, we're pleased with our results and our outlook for the year amidst the challenging landscape.
Speaker 4: We remain excited about the positioning of our business, the continuous prospects for long-term growth, and our ability to deliver value to shareholders. dumbwonakker.
Speaker 4: Operator, we're ready to take the first question, please.
Speaker 1: As a reminder to ask a question, please press store 11 on your telephone and wait for your name to be announced. To withdraw your question, please press store 11 again. Please send by what we compiled the Q&A roster.
Speaker 1: The first question comes from Brent Brackelman with Piper Sandler. Their line is open.
Speaker 5: Good morning, thank you. Very encouraging to see this return to positive pickaxe of this quarter. What's your confidence in getting to positive EBIDA, this path to profitability seems like it's improving? What's driving that, thanks?
Speaker 3: Hey, Brian . Nice to know things with that. So look, we were nearly kind of profitable in the previous Q4 and obviously expecting profitability, this Q4 and for the full year of 24. When we think about the overall amount of Xylok, just through the PNL, very happy with the performance around off-ex, you know, year over year decrease, able to completely keep it flat and a sequential basis while driving.
Speaker 3: from a margin perspective. So I think the team has been executing great there as well. And then on the new revenue side, really great levels of new revenue growth and upsell activity. And pipeline is coming along great. The one I'm standing at, and that we have, is kind of just someone turned around the macro. And that's...
Speaker 6: I'm Floating
Speaker 5: Makes sense, helpful color there. And then I guess just taking a step back and I think about the entire riskified operation here. It's driven by data. You have this machine learning factory. How do you envision applying generative AI to the model, if at all? Yeah, that's a great question. Let me just take a step back and maybe...
Speaker 3: Reorient our approach to ML. I mean, the thesis when we started RISGified 10 years ago was that we can leverage machine learning to create the most accurate e-commerce product prevention companies, right? And the type of machine learning that we deploy is supervised machine learning and we create, we engineer custom features that are focused on e-commerce.
Speaker 3: and we have a proprietary data set tagged internally by domain experts, right? And that's the type of platform that we built, our data science analytics, research teams, are some of the largest teams that riskified since we started and have continued to grow. And over the years, and also today, that kind of ML has advanced, whether it's new models, whether it's new infrastructure plays.
Speaker 3: We sign ways to integrate that, whether it helps us to better A, B testing, deploy models better in a faster environment, use some NLP and some of our newer features. So we integrate that into our platform, ultimately resulting in more accurate decisions, driving better growth. Great, thank you so much.
Speaker 2: Hey guys, good morning. I wanted to ask about just kind of a spread between Adjusted Evid Dawn free cashflow this quarter. You know, obviously free cashflow being positive, Adjusted Evid Dawn's still negative. How can you guys help us bridge the gap between those two and maybe the sustainability of that gap as we kind of get towards Adjusted Evid Dawn.
Speaker 4: and thinking through some of the interest rates out there out kind of pretty attributes, some of the difference between the justice that you've done and the pre-catchable primarily to the interest deposits that we're getting.
Speaker 2: Got it, Nick says. And then when you think about the OPX holding that flap for the last several quarters, obviously a lot of built in operating leverage in this business if you can continue to grow the top line and hold the expenses flat. I mean, how long do you kind of foresee OPX remaining at this level before we start to see some kind of upward pressure?
Speaker 3: I think right now we're planning to keep it flat for the foreseeable future.
Speaker 4: Yeah, as you can see from some of our guidance, we decreased our guidance on the off-specific different 45th and 43th. So this is like a very good level that will allow us to execute on our work plan and also say pretty much flat.
Speaker 2: Got it. Great. I appreciate you taking my questions. I hope this morning.
Speaker 1: Please stand by for the next question. The next question comes from Robert Napoli with William Blair. Your line is open. Thank you, and good morning. Good results.
Speaker 5: you came up with your targeting much higher revenue growth. It's been a tricky time with COVID, but what is, if you look at your pipeline and look at your business to get that growth rate back up to 20% plus, what is your confidence and being able to drive?
Speaker 2: you know, much higher revenue growth. And I know it's tricky because you're balancing profitability, you know, as well as growth. But just, you know, any color on getting that growth rate up given the size of the team, and the small portion of the team you have, but getting back growth back up to that 20% plus level.
Speaker 3: or higher. For questions from that question. Look, even this quarter, then the growth from new and upsell was well-abolved that 20% range that you mentioned. But what's happening is that we do have several large merchants from categories that while those categories are improving,
Speaker 3: They're still defining on a year over year basis, right? So you can think about the home category. It's still digesting some of the COVID kind of growth. And because of that, it still has some year over year decline. Now obviously this isn't anything from the mentioned till that category, everyone expects it to continue to grow.
Speaker 3: numbers slightly low. To your point, we still feel we have a massive time ahead of us, so together with that reason we feel confident in the long term ability of the business.
Speaker 7: A lot of small interesting companies around the space and globally in the U.S.
Speaker 7: valuations of private companies, you know, coming down gradually. Do you see opportunities to, I mean, there has to be opportunities to expand your team or, you know, to accelerate growth through acquisitions of, and where, what would you, is that something we should expect to see?
Speaker 7: you know, a tuck-in here or there that could, you could use across your platform. Now, is that something you're getting more aggressive in?
Speaker 3: Yeah, so look, when we think about our merchant base, some of the best e-commerce brands in the world, right? And 99% of them choose to stay with us every single year. We think that's a strategic asset, and we're always thinking of ways to increase the value that we're providing them. Some of that is internally build solutions like the policy product we discussed the previous...
Speaker 7: and the vertical mix, can you give us any color on, I mean the fashion luxury is, I mean, I know we had data going back, but just any color you can give broadly on the vertical mix today at risk of height. Yes, sir. So vertical high level fashion of a slide this quarter, to even,
Speaker 4: Martomdon upsetting and existing.
Speaker 7: But Aggie, fashion and luxury is what, 35% of the business, so just a percentage mix would be helpful.
Speaker 7: And luxury is what, 35% of the business? Just as a percentage mix would be helpful to investors.
Speaker 2: A lot of the discussion is around verticals and retailers and merchants. Maybe you could shift it a little bit just to talk about how it might be different selling into platforms. So aggregators of small businesses selling online, not necessarily these names, but the types of companies like the Shopify, the Wix, the Squarespace, the Go Daddies of the world. Is that an area where Riskified is having success? And how would you or do you work with those types of platforms? I'll take that. Thanks for the question. So maybe just to start, I'll reiterate our standard go to market motion, right? Because we focus on enterprise and while we define that as merchants selling over 100 million annually.
Speaker 3: And in the case of SMBs, they sometimes don't have the ability to test and pilot and understand the nuances of the solution. But what you want to take care of is make sure that the integration is taken care of. And it is a slightly different motion. It's something that we're thinking about. It's not a core focus for the year. Yeah. I think it's important to mention though that when we think about the GMV over 70% the e-commerce.
Speaker 1: The next question comes from Terry Tillman with truest securities. Your line is open. Good morning, Edal. Audien Chett.
Speaker 2: an attractive upsell that you got with an existing ticket and travel customer that had another vendor in there.
Speaker 3: What I'm curious about is how often do you actually see situations whether it's in tickets or travel or some of the other industries where they actually have a couple of vendors that they're using in tandem and this kind of environment is the potential for some sort of vendor consolidation or after they've been trying out a couple of vendors on efficacy, they're going to start making more of a
Speaker 3: kind of a single source decision. And the last part of that rambling question is, in this instance, what was the driver for them to go with you all versus the other vendor? Hey, Terry, thanks for that. So I also kind of reiterate in my previous answer, right? When we start working with an organization, they tend to have an existing team.
Speaker 3: can solidate and simplify the structure to one vendor, predominantly us. So the process might be, hey, there might be a few vendors. We start, we prove the value they can solidate just us. And that's exactly the use case that we mentioned during the call.
Speaker 2: Yep, got it. Maybe a follow-up for Augie is just related to, I think you talked about in your prepared remarks general retail and home goods, at least kind of directionally the decline was less in the quarter.
versus the prior year or the prior quarter. I forgot that with the contacts. But can you give us any more color in terms of, at what right now we're seeing the declines, and at some point could it actually get a tipping point where potentially there could even be some growth because of some of the newer logos you've added. I'm just curious about that. Thank you.
Yeah, sure, Dary. So when I think, when I comment, it's on the declines, what we see is that new NFL is offsetting some of the declines in this category. So all in now, we've seen the category declining less than a year ago, which is a positive trend. I think it's driven both by addition of new NFL, as I said, but also it's just...
But for now, I'm still factoring like a decrease, but improving decrease over time. Okay, thank you. Please stand by for the next question. The next question comes from Reggie Smith with JP Morgan. Your line is open. Hey, good morning. Thanks for taking the question. I think on your last call, you guys referenced reduced visibility into some of your onboarding for the back half of the year.
with approaching June , I was curious to get your updated thoughts on that and how you're feeling about your onboarding pipeline for the back half.
I would say that we're feeling better. Our pipeline has continued to increase. We've closed a great number of deals, so we do feel better about that. Oh, okay. So maybe I misheard you last time. It sounds as though – maybe I'm wrong, correct me – that you had signed some deals already and you weren't sure.
about how quickly they would onboard in the back half. Did I not, was I not reading that or interpreting that correctly? Because I guess what I'm referring to is not so much what you just signed, but it sounded like there was a pipeline that you weren't sure how quickly they would ramp up.
Correct, and we do feel better about the visibility as we get closer to the back of the sphere and the continued movement overall in our new and upsell business. Thank you.
And just so I hope I'm able to clarify just so I that even just for Q1, some of the organic lines that we kind of saw like fashion and was a little bit of a surprise, I did expect some sliding craze there. So all you know, new and an app so I was able to upset that. And this kind of diversification between the different drivers is helping us to maintain our guide.
Got it. Okay. And then I could follow up on the upsell that you announced in the French release in earlier this morning. I'm curious, so what were you doing for them previously? Was it that you were doing guarantee on a small portion of their...
volume and now you've grown that. Is there additional upside potential available? And then maybe if you could talk a little bit about the timeline of how long it took you to go from you know, what you were doing initially to finally up selling to this announcement today. Sure, so we mentioned too during the earnings call and
What happened is we started on a smaller segment, smaller amount of volume. I think it was a few specific geographies. Okay, and then the upsell was, once we proved the value, the accuracy that we can add perform their current solution by a pretty significant amount, we were able to capture more volume. And essentially we're doing all of that kind of billion. Plus,
Yeah, so I guess thinking about that proof period, like how long did that take just timeline? Was it six months, 12 months? Just trying to get a sense of how quickly these relationships can expand.
In this example, this is a merchant that went live in Q4 and upsold in Q1, so it was a very fast time for him. Obviously, but not always that fast. We're working diligently in a short moment. Got it. And then last one that I assume they were using some type of scoring system before, or were they a risk competing product?
guarantee. Thank you. Correct, they were using a vendor that offers predominantly scoring but also sometimes a guarantee solution.
Please stand by for the next question. The next question comes from Josh Beck with KeyBank. Your line is open.
Thank you for taking the question. Kind of a two-parter. It sounds like with the revenue guy it's obviously unchanged, but within it maybe there's a little bit of a lower component of NRR and then perhaps a lower component of NRR.
generally, you know, the consumer patterns were a little bit softer in April , but that's a very broad piece, you know, kind of payments.
card oriented metrics. I don't know within econ if there was anything that really...
stood out as you kind of compared like, you know, the early months of the year to kind of, you know, what you're seeing more and more recently.
As I said, we did see some pockets of softness, specifically about fashion, and I was expecting their slight increase. As was said by Nino and Apsel, overall and also growth in food and electronics.
Fashion is our largest category, so just thinking like I had how to plan, there's a lot of ins and outs. Also, it's quite a volatile macro environment, so it's not always easy to just pick up on a trend and to think through if this is going to persist or not. But all in all, that's why all of these positives and negatives are just...
allowing us to maintain our guide. And when I think about, you know, the reason why April may again, focus of all the ability here and there, nothing to really make up a trend so far. I'll say more of what we've seen in Q1. That's very helpful. And then just, you know, given some of your commentary around, it sounds like
travel and ticket certainly likely to enter more of a normal period here as we wrap up the final few quarters of the year. But just anything we should be mindful of with respect to the seasonality of the year given some of these vertical ebbs and flows, just any color.
Yeah, we're very happy with seeing the growth and further return of our investments. Overall, I'm really happy that UNFSCEL is allowing us to increase our market share, and hopefully where some of this e-commerce trend kind of normalizes and returns, that will be a further boost to overall growth. Thank you. Then new products, just a little more color on maybe which new products you're seeing the most momentum in and the tax rate for those new products, the opportunity for products outside of the chargeback guarantee. Sure. So we still feel that policy is our biggest opportunity.
on our progress in the future quarters.
This concludes today's conference call. Thank you for participating. You may now disconnect.
Goodbye.