Q4 2024 Riskified Ltd Earnings Call
A. D. Rel riches, Nikolaj Vidovitch A. M. Doshvan, Nicola Plinkevold
Certain statements made on the call today will be forward looking statements relate to our operating performance financial goals outlook as to revenues gross profit margin adjusted EBITDA profitability adjusted EBITDA margins expectations after attach rates market opportunity and execution of strategic initiatives, 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 safe Harbor provisions contained in the private Securities Litigation Reform Act like 95.
These forward looking statements reflect our expectations as of the date of this call and except as required by law. We undertake no obligation to revise this information as a result of new developments that may occur after the time of this call.
These forward looking statements involve risks uncertainties and other factors some of which are beyond our control that could cause actual results to differ materially from our expectations.
Should not put undue reliance on any forward looking statements.
Please refer to our annual report on form 20-F for the year ended December 31, 2023, and subsequent reports filed or furnished with the SEC for more information on the specific factors that could cause actual results to differ materially from our expectations.
Additionally, we will discuss certain non-GAAP financial measures and key performance indicators on the call reconciliations to the most direct.
Speaker Change: Comparable GAAP financial measures are available in our earnings release issued earlier today and also furnished with the SEC on form 6K and in the appendix of our Investor Relations presentation, all of which are posted on our Investor Relations website I will now turn the call over to readout.
Readout: Thanks, Chad and Hello, everyone 24 was an important year for risk in terms of executing on our business objectives and positioning our company for long term success.
Speaker Change: I am proud that we grew our <unk> by 15% for the full year and achieved revenue growth of 10%, finishing the year with $327 5 million in revenue and exceeding the high end of our guidance. We also delivered meaningful adjusted EBITDA margin improvement in our first full year of positive adjusted EBITDA as a public company.
Speaker Change: We finished we finished the year on a strong note with our year over year revenue growth accelerated slightly in Q4 24 compared to Q3 2004 <unk>.
Speaker Change: This sequential improvement contributed to our highest ever quarterly revenue and adjusted EBITDA.
Speaker Change: Despite the strong entered the year, our 'twenty for revenue growth and annual dollar retention, our ABR and net dollar retention or MTR rates were not in line with our historical benchmarks and our long term objectives.
Speaker Change: In fact, I believe that the operational successes are 24 position us well for improved performance in these areas in 'twenty five and beyond.
Speaker Change: Allow me to provide some further context.
Speaker Change: Go to market teams had another strong year in executing on our strategy blending many of the world's largest online merchants proving our ROI and then expanding our relationships with these merchants to capture additional volume.
Speaker Change: Closed more new business sequentially throughout each quarter during the year, we derived approximately $45 million in revenue from new merchants added in 'twenty, four and the annual inflation of new merchants onboard into our platform in 'twenty three.
Speaker Change: Overall, we continue to win new logos within our larger verticals in fashion and ticketing and live events, while also penetrating newer verticals like money transfer and payments and food.
Speaker Change: We also saw strong new logo success in the United States and then APAC continued upsell strength contributed to a great year on travel and fashion.
With EMEA and the Americas, having the most success in these verticals.
Speaker Change: And 24, we welcome in several key merchants onto our core chargeback guaranteed product.
Speaker Change: Notable names include meta to day tax fast retailing Armani Ria money transfer Herbalife fever, Airbus hygiene grocery thorough body and Mega brands, all joined the risk if I'd network and contributed to our ongoing efforts to diversify our revenue base across various verticals and reach.
Speaker Change: <unk>.
Speaker Change: We also executed on our goal of expanding our multi product platform to further diversify our revenue base across products and are excited to have added merchants, including Norwegian cruise lines Montclair Hotel planner ahlberg MGN to products outside of our core charge back guarantee product. We believe that these wins have contributed to <unk>.
Speaker Change: <unk> share gains.
Speaker Change: A key focus for 25 is to expand our top of funnel efforts to drive more pipeline simply put we believe that increasing the opportunities that we have in the funnel gives us more opportunities to demonstrate the power of our platform outperform our competition and win new business at high rates just like we did in 24 when our window.
Speaker Change: Right and competitive processes with approximately 70%.
Speaker Change: Having math the revenue opportunities ahead, we believe that there are number of ways for us to expand our funnel.
Speaker Change: We believe the value that our expanded multi product platform unlocks is differentiated from our competition and is opening doors beyond charge backed guarantee second we have deeper penetration in select sub verticals like fashion and ticketing and live events, but relatively low penetration rates and significant white space within Manny.
Speaker Change: Our newer and emerging verticals.
Speaker Change: Our experience has shown that once we are able to onboard a significant number of merchants in a vertical and then generate strong performance for those merchants, we reach an inflection point, where future wins become easier faster and more streamlined.
Speaker Change: By following this proven playbook and our newer and emerging categories. We believe that we can ultimately earn these categories as well.
Speaker Change: Third landing key Tentpole accounts outside of the Americas, and EMEA helps us unlock more opportunities for continued geographic expansion.
Speaker Change: And fourth we continue to scale, our network and data advantage and enhance our brand presence globally, which helps us promote the increasing capabilities of the platform and the financial strength of Frisket battery.
Speaker Change: As we have frequently discussed we have established deep rooted relationships with many of the top e-commerce brands around the world and 24, our annual dollar retention rate was down from historical levels of 98% and above this was in part driven by the one off merchant churn event in the home category that we discussed during.
Speaker Change: Our last earnings call, along with a broader uptick in competitive pressure.
Speaker Change: To combat this dynamic we have operationalized, a thoughtful and thorough merchant retention strategy, which is designed to help us return our ADR back towards its historical levels.
Speaker Change: A key pillar of the strategy has been to aim to shift many of our merchants to multiyear contracts in order to increase our committed revenue base. We have already had success in executing on this plan and have over 70% of our 25 book of business committed.
Speaker Change: On revenue, we increased our weighted average contract term sign for our larger accounts by 30% locking in renewals for nearly two years on average.
Speaker Change: Outside of the previously mentioned churn event, we successfully renewed 100% of our top 20 contracts up for renewal in 'twenty four.
Speaker Change: With half of those contracts signed for multi year deals with the average ending the year of 27.
Speaker Change: In addition, we are also executing on the other core components of our retention strategy.
Speaker Change: We are focused on getting our differentiated multi product platform into the hands of more of our existing merchants Jenna.
Speaker Change: Generating continuous absolutely outperformance for our existing merchants.
Speaker Change: Partnering with key merchants to develop a spoke features.
Speaker Change: And expanding our executive sponsorship and merchant community programs to all aid in driving customer satisfaction and retention.
Speaker Change: We are also expecting improved net dollar retention in 'twenty five we believe that the prospect of stabilization in some of our more recently challenged verticals such as fashion ongoing execution of our aforementioned merchant retention initiatives and continued penetration of the upsell white space for new logo.
Speaker Change: <unk> should help us work towards returning our MBR to recent levels of over 100% in 'twenty five.
Speaker Change: Shifting focus to our product platform and is playing a critical role in supporting growth and retention by enabling us to address a wider range of emerging use cases beyond charge back guarantee the expanded platform is gaining traction with new product revenue up approximately 90% year over year in 'twenty.
Speaker Change: For our new products bookings, representing approximately 10% of the total bookings one in 'twenty four.
Speaker Change: Im encouraged by this trajectory and we are currently anticipating aggregate revenue in the high single digit to low double digit millions from policy protect accounts secure and dispute resolved in 25 based on our 24 revenue exit rate and pipeline expectations for 'twenty five.
Speaker Change: Overall, while we are seeing traction across all products I am most excited about the market opportunity for our policy protect product the return and claim landscape is evolving quickly, causing significant challenges for merchants with the market comprising over $100 billion in losses for retailers.
Speaker Change: That's why we are further investing in the accuracy scalability and efficiency of integration in order to get this product in the hands of many more of our merchants.
Speaker Change: And we recently partnered with a priss retail a top provider of returning the claim authorization solutions. This innovative collaboration aims to address the growing challenges of Omnichannel fraud and policy abuse by integrating comprehensive data on consumer shopping patterns throughout the entire customer journey.
Speaker Change: Both in physical stores and online.
Speaker Change: This comprehensive offering seamlessly integrates online and offline channel data, providing a unique unified view of customer interactions, which we believe further strengthens our policy protect offering.
Speaker Change: We believe that our ability to provide policy abuse decision across all key e-commerce interactions is unmatched.
Speaker Change: Wanted to take the time to provide a few real life. Examples of how merchants are utilizing the product, which I think demonstrates the power of policy protect for one merchant in the fashion space.
Policy protect has given them insights on who to provide instant refund to upon return initiation instead of after warehouse inspection.
Speaker Change: Another merchant is utilizing policy protect identity engine to customize every return experience applying friction via handling fees or rewarding to repeat up users and auto improving returns to good customers, reducing manual review work.
Speaker Change: Another merchant is seeing the benefit of our identity clustering technology, which detects similar consumer behavior patterns across our merchant network. We are also leveraging our recently released decision studio tool, which is part of policy protect as a reminder, this tool gives merchants powerful self serve.
Speaker Change: This capabilities for the creation simulation and management of customer facing policy decisions by using risk effects decision studio. This merchant has reduced their previous policy review process from 200 static rules to just 20 dynamic rules. This has.
Allowed the merchant to prevent bad actors from buying extra amount of limited run items for the purpose of reselling them on the secondary market.
Speaker Change: These complex and unique use cases are just some examples of our policy protect product is designed to improve customer experiences reduced manual review work and helps them bad risk if I'd into our merchants' daily workflows.
Speaker Change: At our core we are an innovative growth company with some of the best R&D and product talent in the industry. We are focused on investing in our merchant centric product roadmap for 25 and beyond to help us generate additional opportunities for revenue growth, while guaranteeing continued strong performance for our merchants.
Speaker Change: To aid in this we have developed numerous AI capabilities, which collectively are expected to improve the performance and accuracy of our platforms over time to name a few we have further enhanced our autonomous training capabilities, which enables us to provide completely customized model and future.
Speaker Change: <unk> on an individual merchant basis, which generally leads to better performance results in a faster time to production or.
Speaker Change: Our performance segmentation system automatically analyzes our entire order population and sorts similar transactions into different segments based on features such as payment type.
Speaker Change: Or margin profile from here, we assign certain customized risk thresholds for each segment in order to eliminate charge backs and without impacting approval rates. The entire process is intended to optimize approval and charge back rigs to enable high performance for our merchants. We believe that this automation will.
Speaker Change: Will allow us to continue to scale the business with high leverage and we'd also deepened our modular machine learning infrastructure to easily add additional capabilities into the risk. If I decision. Later some of these features such as early detection models are address application engine and skew risk network I'll talk.
Speaker Change: Back into the model to further deepen the AI learning across the entire platform.
Our expanded product platform delivers the most comprehensive data captured per transaction, we've ever had starting from the moment the consumer accesses a merchant's website opens an account through the cart checkout experience potential refund net return process and finally, the eventual dispute for.
Speaker Change: Chargeback, the multiple customer touch points that we collect and Tac throughout the entire customer journey all feedback into the platform.
Speaker Change: <unk> integrated cross platform data sharing creates a synergy that enhances our performance across each product and further strengthens our identity mapping capabilities.
Speaker Change: Adding to our capabilities I am excited to announce adaptive checkout.
Speaker Change: New advanced configuration of our chargeback guaranteed fraud and risk engine, we have enhanced our AI decisioning engine tell intelligently adapt the checkout process to the risk level of each transaction, ensuring more legitimate transactions are approved while reducing fraud.
Speaker Change: This configuration works by blocking fraudulent attempts before bank authorization, even occurs preventing fraud from entering the payment stream and now we are employing selective smart friction to certain transactions such as automatically asking for our CVD. If there are concerns on an account takeover or sending a onetime password.
Speaker Change: Proctor, good, but risking looking orders in order to help legitimate customers proceed through checkout. These.
Speaker Change: These enhancements combined with sharing enriched data with card issuers to boost off rates to help us optimize the end to end conversion trial, creating a dynamic and safe checkout process more details on adaptive checkout will be shared in our launch press release scheduled to be issued later to date.
Speaker Change: By focusing on continuously advancing the capabilities of our product platform and through strong execution by our go to market organization. We believe that we are well positioned to capture more market share in a large and growing ecommerce end market the law.
Speaker Change: Largest part of the e-commerce landscape being traditional CMP transactions continues to grow off of large baseline, which further expands our addressable market and as alternative payment methods, such as Apple pay Google pay and various buy now pay later types grow off a small base. We are also finding.
Speaker Change: Ways to be relevant to this subsegment that volume.
Speaker Change: In order to capture more of this market opportunity, we are doubling down on our platform development and expansion efforts.
Speaker Change: Throughout our company's evolution, we have always aim to invest in the development of our technology and products in a responsible way while remaining focused on managing our expenses to drive towards profitability in 'twenty four we decreased our non-GAAP operating expenses by 4% for the year on top of the 6% decline.
Speaker Change: We achieved in 'twenty three.
Speaker Change: Given our strong new business generation in 'twenty for a robust new pipeline new business pipeline for 'twenty, five and increased demand for our multi product platform. We believe that now is the right time to focus our investments into further developing our product platform and 25, we plan on increasing development.
Speaker Change: Did research capacity by almost 20%.
Speaker Change: We plan on doing this while keeping total expenses flat versus 24.
Speaker Change: To accomplish this we recently initiated a plan to restructure risk if I its workforce by relocating certain positions to lower cost regions and reducing head count in areas that we viewed as less critical to our product development and growth strategy. In addition, we are identifying further opportunities.
Speaker Change: To incorporate AI tools into our business to help automate certain employee tasks and reduce manual work processes. This will and this will in turn allow our employees to focus on higher return work and increase their output.
Speaker Change: We believe that with increased employee capacity and efficiency, we can limit future hiring to the most critical growth needed.
Speaker Change: As a result of these initiatives, we expect to be able to increase development capacity advanced platform innovation to outperform the competition and improve product accuracy and customer service to deepen our merchant relationships. These actions should help us position us to maintain market leadership accelerate our revenue.
Speaker Change: And achieve our long term financial goals.
Speaker Change: As this project ramps up in the second half of 'twenty five we believe that we will see a meaningful step down in expenses in the second half of the year with the overall exit rate being lower heading into 'twenty six versus 25.
Speaker Change: Iga will touch on the overall positive impact our expense outlook shortly.
Speaker Change: As we previously discussed we are aiming to achieve adjusted EBITDA margins between 15 and 28% by the end of 2006, we are still eight quarters away from this timeframe and we believe in our ability to manage the business to continue driving improvements in order to achieve these goals.
Speaker Change: Optimizing the operational levers available to us over the last two years, we've achieved approximately 2000 basis points and total adjusted EBITDA margin expansion and we remain confident that we can hit our target by 26.
Speaker Change: While tightly managing our bottom line, we have also executed on our capital allocation priorities during.
Speaker Change: During 'twenty four we repurchased over $140 million of our stock and generated nearly $40 million in positive free cash flow. This is a testament to our commitment to driving shareholder value and our powerful business model.
Speaker Change: As discussed on previous calls our meaningful free cash flow generation and our strong cash reserves with no debt empower us to utilize our capital strategically.
Speaker Change: Our M&A strategy remains unchanged. We believe that we are the leader in this space and are continuously looking for opportunities for potential consolidation to drive scale and synergies.
Speaker Change: In conclusion.
Speaker Change: I feel great about our leading identity engine and our differentiated positioning in the market.
Speaker Change: I believe that we are redefining the e-commerce fraud, and risk intelligence landscape through our leading tech and our robust pipeline for 'twenty five supports the market demand for our product platform now overtime.
Doug: Thank you Doug.
Speaker Change: Jim and everyone for joining today's call.
Speaker Change: We achieved fourth quarter revenue of $93 5 million and full year revenue of $327 5 million up 11% and 10% year over year, respectively.
Speaker Change: Our fourth quarter G&A of $39 5 billion represents the highest quarter of volume previewed in our history.
Speaker Change: This was driven by continued new and upsell growth and strong black Friday through cyber Monday holiday activity, which grew approximately 10% on a same store basis as compared to last year's season.
Speaker Change: For the full year 2024 hour JV grew by 15% to $141 2 billion.
Speaker Change: During the fourth quarter, we saw growth across all verticals other than our home category due to the previously mentioned churn events.
Speaker Change: Growth was primarily driven by new business and upsell activity in our tickets and travel vertical and the new business activity in both of our fluids and money transfer payments category.
Speaker Change: Similar to the first nine months of the year during the fourth quarter revenue growth in our fashion and luxury for any comp was primarily driven by new business and upsell activity.
Speaker Change: This growth was partially offset by continued same store sales pressure, primarily within our <unk> question and sneakers some practical.
Overall, our fashion and luxury category grow by low single digits in the fourth quarter and for the full year and represented approximately one third of our portfolio for the year.
Speaker Change: More recently, we have seen some early indications of stabilization of activity in our high end fashion segments relative to prior quarters, although still tracking at year over year declines.
Speaker Change: For the full year approximately $45 million of increasing revenue was attributable to new merchants on boarded in 2023, and 2024, primarily within our tickets on travel category, which grew by 17% year over year.
Speaker Change: In addition, we saw 40% year over year in our <unk> category and 66% growth in our money transfer and payments category as we continue to penetrate these newer areas.
Speaker Change: This call was partially offset by a net decrease of $15 million, primarily due to higher attrition than in previous years and continued organic decline net of Upsells, which contributed to our net dollar retention rate of 96% our ticket travel category with the largest contributor to our year over year revenue.
Speaker Change: And it is now our largest category.
Any color achieved just over $111 million revenue, which represented approximately one third of our overall portfolio in 2024.
Speaker Change: While our conifer to call declined year over year, we expect to exit 2025 with growth in this vertical.
Speaker Change: Finally, we also sell.
Speaker Change: Billings growth across all geographies year over year, the United States, which is our largest region grew by 9% and EMEA grew by 4% our.
Speaker Change: Our Americas and APAC regions grew approximately 5% and 33% respectively, primarily due to momentum in new and upsell activity, including sometimes pall accounts.
Speaker Change: We believe that our continued growth in regions outside of the United States is driving continued market share gains.
Speaker Change: Moving to the discussion of our gross profit margins operating expenses and adjusted EBITDA.
Speaker Change: Otherwise noted I will be referencing non-GAAP financial measures with respect to these metrics.
Speaker Change: We have provided a reconciliation of GAAP to non-GAAP financial measures in our earnings release moving on to gross margin.
Speaker Change: Gross profit margin for the full year was 53% up from 52% in 2023.
Speaker Change: Continued to benefit from improvements in our overall core machine learning models and the positive impact of new product training offset by the impact of ramping a significant margin.
Speaker Change: As it relates to 2025 for the full year, we're targeting a gross profit margin between 2% and 53, 5%.
Speaker Change: As a reminder, I encourage you to continue analyzing our gross margin on an annual basis, given individual quarters can vary due to various factors, including the ramping of new merchants and the risk profile of transactions approach.
Speaker Change: For modeling purposes.
Speaker Change: Our first quarter and third quarters are expected to be below the range, our second to be at the bottom end of the range and the fourth quarter is expected to be higher than the range.
Speaker Change: Moving to our operating expenses.
Speaker Change: We continue to remind us the business in a focused and disciplined manner.
Speaker Change: Total operating expenses were $38 2 million for the fourth quarter.
Speaker Change: For the full year 2024 total operating expenses are comprised of $56 4 million a decline of 4% from 2023, driven by continued efficiency across each area of the business.
Speaker Change: Evidenced by E of our ear declines in each of our R&D sales and marketing and G&A expenses.
Speaker Change: Our operating expenses as a percentage of revenue declined from 55% in 2023% to 48% in 2024, reflecting increased leverage in the business model.
Speaker Change: And then Don noted part of our efforts to drive faster and more meaningful progress towards our margin targets include increasing our reliance on artificial intelligence tools and also impulse decision to restructure our head count in areas critical to our product development and growth strategy and by relocating certain positions to lower.
Speaker Change: Cost region.
Speaker Change: We ended 2024 with 600 latest free global employees, a decline of 7% from the prior year.
Speaker Change: Following the completion of this global headcount initiative, we expect to end 2025, we had a similar level of employee with meaningfully increased R&D capacity.
Speaker Change: As a result of this initiative, which will largely be implemented in the second half of 2025, we expect to see quarterly operating expenses of approximately $38 million in the second half of the year.
Speaker Change: We should exit 2025 with this amount is a good approximation for our quarterly expenses in 2026.
Speaker Change: We achieved positive adjusted EBITDA of $11 2 million in the fourth quarter, the highest quarterly amount in our history and our adjusted EBITDA for the year was positive $17 2 million, representing a year over year increase of over 300%.
Speaker Change: I'm excited that we achieve positive adjusted EBITDA in each quarter in 2024 and expanded our margin by 800 basis points in 2024.
Speaker Change: Moving to the balance sheet.
Speaker Change: We ended the year with approximately $376 million of cash and deposits and we carry zero debt.
Speaker Change: In addition, we continue to maintain a healthy cash flow model and in the fourth quarter, we achieved quarterly free cash flow of $10 6 million, which allows us to achieve record free cash flow generation of $39 million for the year. During 2024, we repurchased approximately 27 million shares for a total price.
Speaker Change: $141 million, which contributed to a meaningful reduction in shares outstanding.
Speaker Change: We continue to believe that our strong balance sheet and liquidity position are valuable assets.
Speaker Change: We intend to remain thoughtful and how we utilize our capital to drive shareholder value.
Speaker Change: As a result of our continued strong buyback of CBD and our commitment to managing dilution with discipline. We continue to expect our share count to decline year over year.
Speaker Change: <unk>.
Speaker Change: Allow me to spend some time, highlighting our commitment to managing our share based compensation expense and share issuances.
Speaker Change: First in 2024 share based compensation expense as a percentage of revenue decreased by approximately 300 basis points from 2023 level.
Speaker Change: This was on top of a decline of 500 basis points from the prior year.
Speaker Change: And the expense associated with certain awards granted in 2021 continues to decrease we anticipate a further decline in our share based compensation expense in 2025.
Speaker Change: Second looking ahead to 2026, we expect share based compensation.
Speaker Change: And as a percent of revenue to continue declining due to the aforementioned awards coupled with the gradual rollout of expense associated with large trends, mainly in 2021 and 2022.
Speaker Change: <unk> 45 throughout 2026.
Speaker Change: And third we continue to focus on controlling our equity and warrant.
Speaker Change: We granted over 30% fewer awards in 2024 than we did in 2023.
Speaker Change: In 2020 for equity awards granted represented approximately 4% of our diluted share count, which was down from 6% in 2023, 9% in 2022.
Speaker Change: We will continue to target approximately 4% to 5% in 2025 as we continue to manage our compensation policy in a disciplined manner.
Speaker Change: Now turning to our outlook as.
Speaker Change: As we look forward to 2025, we currently anticipate revenue of between $333 million and $346 million or $339 5 million to the midpoint.
Speaker Change: Consistent with past years, we anticipate that our growth will be trailing primarily by new business activity and at the midpoint of our guidance. We're forecasting any growth net dollar retention rate from 2024.
Speaker Change: The behavior of the microenvironment, our success in executing on our retention strategy and the level of upsell activity relative to new logo wins.
Speaker Change: Our net dollar retention rate and ultimately determine where we fall within our revenue range.
Speaker Change: In addition, we feel confident about the new business activity level, which is supported by a robust pipeline of new business activity.
Speaker Change: Historically, the timing of when your margins go lives during the year can be difficult to predict and may have an impact on our calendar year revenue.
Speaker Change: As always we will continue to monitor the performance and health of our merchant and consumer spending and the broader e-commerce landscape and the impact on our himself.
Speaker Change: For modeling purposes. We currently expect revenue in the first three quarters of 2025 to be similar on an absolute dollar basis and for the fourth quarter to be above this level.
Speaker Change: We currently expect all of the quarters in 2025 to reflect a similar percentage of the total revenue say in.
Speaker Change: In 2024.
Speaker Change: Now, let me discuss our adjusted EBITDA outlook.
Speaker Change: We currently expect adjusted EBITDA to be between 18 million and $26 million or approximately $22 million. So let me point.
Speaker Change: The midpoint of our adjusted EBITDA guidance represents additional margin expansion from the prior year demonstrating leverage in the business model and our commitment to managing the business in disciplined manner.
Speaker Change: Overall, I'm encouraged by our market position and I'm confident that we can continue to execute on the elements within our operational control.
Speaker Change: Heading into 2025, we have set ourselves up to be a more productive company.
Speaker Change: And I remain excited by the continued prospects for long term growth and our ability to deliver value to our shareholders.
Speaker Change: Operator, we're ready to take the first question. Please.
Speaker Change: Thank you as a reminder to ask a question. Please press star one wondering your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Our first question comes from the line of Terry Tillman with <unk> Securities. Your line is now open yes.
Yes, good morning.
Terry Tillman: And Chad Thanks for taking my questions. The first question Theres a lot.
Terry Tillman: I'll turn this call. So I appreciate it and also hearing about specific customers I think that's very helpful.
Terry Tillman: What I wanted to ask about is one of the first things that you talked about.
Speaker Change: Opening remarks with top of the funnel, it's a real focus you win a lot of the deals high win rate you get expansion sales. What are you all doing and we heard about R&D investment what are you all doing to actually more maximize top of the funnel whether its more sales reps or just maybe you could share more about some of the drivers that are going to help with top of the funnel activity and then I had a follow up.
Terry Tillman: Sure.
Terry Tillman: Thanks for that question.
Terry Tillman: I'll highlight three number one as we expand the platform capabilities through this increased R&D spend we're actually seeing that's really beneficial to increasing top of funnel, so, whereas where he might interact with the merger and then they might say.
Terry Tillman: The chargeback guaranteed sounds really interesting, but I have three other priorities before that now as we're able to kind of package and show the value of our.
Terry Tillman: Our policy product a dispute resolved we are seeing an increase in that top of funnel opportunity. So we think it's helpful. There. That's number one number two would be around just the geographical expansion. We continue to see more pipeline and opportunities from that go to market investments that started two years ago.
Terry Tillman: And again, these being greater longer term enterprise cycles.
Terry Tillman: Continue to see that ramp up and number three is we're trying to be more thoughtful in how we approach.
Terry Tillman: The more mid tier areas of foreign market and that could be around channel distribution, which is something we're looking into and investing more this year than prior years.
Speaker Change: Okay got it. Thank you for that and just a follow up question relates to it sounds like this is an important push around multiyear renewals I'm, just curious and I don't know if you addressed this what's the exposure into 25 on any.
Speaker Change: Larger than average renewals and then the confidence level on this kind of cohort of renewals in 25 actually taking multiyear versus.
Speaker Change: You are at a time or no I don't want to do that thank you.
Speaker Change: No I think the confidence level is high we have over we had a 30% increase in the amount of renewals coming into the year has raised over 70% of our book of business has already been renewed over the past few months as part of this initiative.
Speaker Change: And as we think about we mentioned kind of aside from that churn event 20 out of 20 renewals happening throughout the year.
Speaker Change: I think maybe one thing to call out there that would be interesting also on the discount discounting front I think we're doing a good job. It's only been 10% of renewals have actually had a discount. So I think we're doing a great job of kind of both leveraging the product platform outperformance of <unk>.
Speaker Change: And to make sure that they are in a mutual win Windsor renewals that we feel good about the strategy and the improvements we can see in 'twenty five.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ryan Tomasello with <unk>. Your line is now open.
Ryan Tomasello: Hi, Brian Thanks for taking the questions.
Ryan Tomasello: Nice to see the traction on the non chargeback products I guess on that topic I was hoping you could provide some context around the success youre seeing with Standalone non charged back deals like policy protect and.
Ryan Tomasello: Any way to quantify the momentum there and then also.
Ryan Tomasello: Based on all these strategic initiatives that you outlined entering 2025, how many of those might play into driving more standalone non chargeback wins.
Ryan Tomasello: Sure happy to take that so yes, we're definitely happy I mean, we're talking about going from about $4 $5 million in revenue from these products in 2004 to potentially low double digit millions are really very meaningful expansion and growth.
Ryan Tomasello: We are seeing at initial deal signings, while there is a handful of deals coming in just on these new products, we're probably seeing a bit more flat foreign sales and more cross sales to our existing base at this point, but I think as we get more comfortable with DIY and groups some of the integration and usage capable.
Ryan Tomasello: <unk>, we can continue to see either standalone as our initial platform sales.
Ryan Tomasello: Let me dive into the strategy that we discussed.
Ryan Tomasello: Okay.
Ryan Tomasello: Got it and then just for.
Ryan Tomasello: Reconfirming some of the figures you gave last quarter on the home category churn I believe you mentioned you were expecting $5 million in the fourth quarter, and then an $18 million impact in 2025 are those numbers still the right ballpark that we should be thinking about here just as we're kind of looking at the underlying growth in the business excluding.
Ryan Tomasello: That outsized churn.
Ryan Tomasello: Okay.
Ryan Tomasello: Yes, that's a good approximation out these numbers.
Ryan Tomasello: Okay. Thanks.
Speaker Change: Thank you. Our next question comes from the line of Chris Kennedy with William Blair. Your line is now open.
Speaker Change: Hello, Thanks for all the information and thanks for taking the question can you just talk about NR alright. Thank you said, 96% historically your company has had an <unk> of over 110% and.
Speaker Change: And just talk about the dynamics there clearly you had the customer D conversion, but.
Speaker Change: Can you give a little bit more color on NR.
Speaker Change: Yes of course, and thank you for the question so.
Speaker Change: Can we just kind of flat reported outwards being four numbers and our net dollar retention rate hits kind of decrease.
Speaker Change: From historical numbers and some of the dynamics that I see in 'twenty four versus historical numbers again number one I would say that as we continue to see decline in our same cohort sales.
Speaker Change: Historically that has been like a very positive number.
Speaker Change: High single double digit even kind of like very strong growth.
It was 17.
Speaker Change: <unk>.
Speaker Change: Experiencing over the last.
Speaker Change: Yeah.
Speaker Change: Couple of years.
Speaker Change: The second factor is more around the Upsells, what we've messaged before in 2024, specifically with us.
Speaker Change: Spotless more new logo generation and you're getting checked our ADR just more in terms of the split of new business smaller states towards upsell category.
Speaker Change: And lastly, the churn event that you kind of mentioned in 'twenty.
Any forward had like a partial impact.
Speaker Change: Going forward as they think about 25 I'm more optimistic.
Speaker Change: I'm hopeful that we are going to be above 100%.
Speaker Change: There's a number of areas, that's where it kind of investing.
Speaker Change: And hopefully this will kind of reflecting the numbers, but all in all I would say like.
Speaker Change: We are expecting just to kind of like a better estimate than the prior upsell and with kind of focus on existing merchants and helps us penetrate them better.
Speaker Change: Overall again better endear.
Great. Thank you for that and then can you just give a quick update and you mentioned it on your prepared remark remarks, but.
Speaker Change: Can you give a little bit more color on alternative payment methods kind of what role you play within that.
Speaker Change: Within that area. Thanks for taking the question.
Speaker Change: Sure.
Speaker Change: I'll take that so as we think about like we mentioned on the prepared remarks, as we think about the majority of the volume that continues to be CMP and thats, probably growing based on recent analysis.
Speaker Change: High single digit areas right now it would be kind of the core chargeback guarantees and then as we think about alternative payment methods and that could be anything from buying out later to Google pay Apple pay to potentially Paypal areas.
Speaker Change: So those are all.
Speaker Change: Merchants have a request for us to review this volume because they have a lot of <unk>.
Speaker Change: Inefficiencies and loss they have brought in those areas and they continue to believe that we're great at identifying fraud in those areas, sometimes it's under an uncovered model and sometimes it's under our coverage model and there are a lot of nuances between the different wallet and where they are protected and where theyre not.
Speaker Change: But from our perspective, we got most merchants continue submitting this volume to us and a variety of business.
Speaker Change: Models.
Speaker Change: Got it and any percentage of mix of GMB.
Speaker Change: Alternative payments are for you. Thanks.
Speaker Change: I would assume that it's similar to the global mix of these number of students.
Speaker Change: Womens.
Speaker Change: Got it.
Speaker Change: Thanks for taking the questions.
Speaker Change: Thank you. Our next question comes from the line of will Nance with Goldman Sachs. Your line is now open.
Will Nance: Hey, guys I appreciate you taking the question.
Great to hear about the renewal activity and kind of locking up the base and I'm curious as you guys went through the review of pricing strategies and took into account the competitive dynamics.
Will Nance: Any major learnings from that process or kind of updated perspective on the competitive landscape or the pricing environment within the fraud prevention space.
Will Nance: Do you think risk is positioned and then anything kind of changed in your thinking around how you should be positioning the product in the market.
Will Nance: Thanks for that question.
Will Nance: We don't I mean look when we talk to our merchants and we try to understand why we have these high win rates and kind of all competitive cycles and I think we mentioned about 74% for the year increasing throughout the year.
Will Nance: Two things stand out number one is the accuracy of the platform and that can be proven either in you know kind of an online test pilot that can be proven through just testimonials and talking to other merchants, but that tends to be number one and one that I mentioned the other dimension is the strategic product roadmap right to win.
Will Nance: Can you explain about dynamic check out in the end to end conversion impact when we talk about policy the different use cases, the value that it can generate dispute resolved accounts secure the value adds between all these different products, so that really resonates with merchants as well. So I think those are the two components that merchants are clearly.
Will Nance: Telling us this is why we chose Uruguay, we want to continue working with you.
Will Nance: So we think about more how do we take this and price.
And bundle it in a way that's easy for the merchant to use and also good for our financials.
Will Nance: Don't want to get just for competitive reasons I don't want to break out the different price points for each one of these products. We continue to build that policy has a very high and meaningful ROI.
But just looking at the new product revenue growth I think we've found a good kind of mix between what functionality is.
Will Nance: More stickiness related and a core part of the product and what is generating enough outsized value that can be priced separately.
Will Nance: Generate revenue meaningful revenue growth as well.
Speaker Change: Got it I appreciate all the color there and then.
Speaker Change: Logo wins were interesting this quarter I thought are the logo callouts in the prepared remarks.
Speaker Change: You guys have talked about kind of having tent pole merchants I think you mentioned.
Speaker Change: That you are seeing some of that right now just curious what you think I guess, which of the verticals that you guys are operating in either like that you're already in or prospectively in through current conversations are you kind of most excited about do you feel like you have line of sight to the next sort of tickets and travel like opportunity, which.
Speaker Change: Pretty quickly became our largest vertical.
Speaker Change: Yeah no.
It's amazing to see the growth are unlikely we highlighted historically right. It's always a combination of having these eventful accounts building building customized features in a localized network look.
Speaker Change: I think over the past year, maybe even slightly more we've really focused on expanding into non discretionary. So when I see some of the success that we've had in groceries food delivery and remittance I'm very encouraged.
Speaker Change: I think it's still.
Speaker Change: A bit premature to say, which one of these is kind of the next ticketing, but we're continuing to focus on kind of continued success in the core verticals, but also expanding into some of the newer ones.
Speaker Change: Got it understood I appreciate you taking the questions.
Speaker Change: Thank you. Our next question comes from the line of Clarke Jeffries with Piper Sandler Your line is now open.
Clarke Jeffries: Hello. Thank you for taking the question first question is around adaptive checkout I just wanted to clarify is that a.
Clarke Jeffries: Opt in product or a.
Clarke Jeffries: Sort of a new level of functionality that will be dispersed through the customer base.
Clarke Jeffries: And then one follow up related to the <unk>.
Clarke Jeffries: Profitability trend during the year I was wondering if you could maybe frame what the exit rate of the business will be in second half from an EBITDA margin perspective.
Clarke Jeffries: Given the seasonality of the business I'm sure, we can sort of imputed, but I'd love to sort of understand compared to the midpoint of the guide what's the sort of run rate.
Clarke Jeffries: Three larger perspective after second half thank you.
Clarke Jeffries: Sure sure. So I'll start so as dynamic checkout is the functionality of the chargeback guaranteed product.
Clarke Jeffries: That would be available to all existing clients and new clients and it really takes the conversion funnel and optimize it end to end through smart triage screening through smart decisioning throughout the funnel and really increases conversion by several.
Clarke Jeffries: Several hundreds of few hundred basis points.
Clarke Jeffries: And just to kind of a follow up on your second question when I think about for the back half of the year there.
Clarke Jeffries: Got it.
Clarke Jeffries: A couple of factors that help us accelerate in Q4, so the first three quarters of kind of asset.
Clarke Jeffries: In the prepared remarks.
Clarke Jeffries: Are going to be impacted by the large churn event that we've had and it's impacting the growth and also the adjusted EBITDA, but.
Clarke Jeffries: But Q4 is expected to be acceleration in.
Clarke Jeffries: In terms of.
Clarke Jeffries: Some of the numbers that we see a major contributor into the annual adjusted EBITDA.
Clarke Jeffries: Yes, and I think maybe just a bit on the Q4 dynamics.
Clarke Jeffries: You mentioned kind of the exit run rate.
Clarke Jeffries: Something related to <unk>.
Clarke Jeffries: Our revenue recognition because of the guarantee accounting that we have.
Clarke Jeffries: There can sometimes be a slight difference between billings and revenue.
Clarke Jeffries: We usually don't disclose it because it's non material, but specifically for Q4 'twenty five.
Speaker Change: There is a pretty big Delta is the biggest in the past two years that I can remember of over three 5%.
Clarke Jeffries: So net of that.
Clarke Jeffries: Our revenue growth.
Clarke Jeffries: Midpoint of the guide would have been double digits.
Clarke Jeffries: And I think Thats, a good exit rate to think about a starting point for 2006.
Clarke Jeffries: Perfect day and to clarify you're saying it's a.
Clarke Jeffries: It's a detriment to revenue compared to where billings will come.
Clarke Jeffries: Correct.
Clarke Jeffries: Yes, correct revenues that more than three five points lower than billings.
Clarke Jeffries: Okay perfect. Thank you very much.
Reggie Smith: Thank you. Our next question comes from the line of Reggie Smith with Jpmorgan. Your line is now open.
Reggie Smith: Good morning, Thanks for taking the question.
Reggie Smith: So I recognize you guys are very diverse merchant base, but I was curious if there were any callouts.
Reggie Smith: Quarter to date, our recent trends.
Reggie Smith: From a macro perspective business and how you're thinking about.
Reggie Smith: The impact of tariffs.
Reggie Smith: On sales and volume.
Reggie Smith: Symbols.
Reggie Smith: Yes, just thinking some of the pharmacy when planning for a very happy with where we ended the year very strong.
Reggie Smith: The performance of activity around tickets and a.
Reggie Smith: Famous and foods and these are kind of like our newer categories really strong growth.
Also what we've seen over the first month.
Reggie Smith: Month of the year. It may be somewhat February January started very strong again.
Reggie Smith: Same categories the main drivers.
Reggie Smith: <unk>.
Reggie Smith: <unk> has been.
Reggie Smith: But it's still while it's still declining just on St copper basis.
Reggie Smith: It's actually kind of being fully habit, so that's convenient encouraging and all in all.
Reggie Smith: Very happy with how we ended the year like good sign at the beginning of the year February has been a little bit.
Reggie Smith: But again too early to say and we're all hopeful that these categories will continue to grow as well.
Reggie Smith: The euro as well.
Reggie Smith: Got it and if I could sneak one more in.
Reggie Smith: I guess someone asked about Apple pay and Google pay earlier, and I guess suggested in theory it.
Reggie Smith: There may be some fraud in somebody's alternative payment methods I, just want to understand with Apple pay and Google pay when you add biomed ships does that eliminate.
Speaker Change: All of the fraud or are you seeing.
Speaker Change: Merchant <unk> saw it there and then the second piece of your question.
Speaker Change: The absolute Paypal stripe up question when he's got it accelerated checkout.
Speaker Change: Vaulted payments revenues I'm curious how.
Speaker Change: That fits within your business as well.
Speaker Change: Thank you.
Speaker Change: Sure I'll take that so I think just the simplest way to think about it is the apple pay could be stored funding instruments in some accounts and there are numerous account takeovers and that has like a clear Friday mode that we are seeing increased.
Speaker Change: So one easy way to think about digital wallet fraud is someone's taking over in Canada has historic financial instrument leveraging that accounts and we are definitely in our emergence we're seeing broad and charge offs in that area and another one is where you can just uploaded stolen financial instrument.
Speaker Change: To the the wallet, whether it's apple pay or Google pay and then it's not an issue to pacify your metrics of the funding sources still a stolen credit cards. So those could be two simple examples trying to show work for or can happen.
Speaker Change: And again, we want to go into the nuances of that like the merchant receives liability protection only in certain areas not if it's a returning to open.
Speaker Change: Action, so again some nuances there.
Speaker Change: But I will say, we anticipate that a portion of this market we would receive an uncovered model.
Speaker Change: And a portion of it we would receive and recovered model similar to what we're seeing today.
Speaker Change: I think the use cases around <unk> or different non guaranteed actors highjack. These some of that is similar to your second question around organization.
Speaker Change: And maybe like a bit wider if youre talking about you I'm glad I checked our providers.
Speaker Change: For us.
Speaker Change: Of course.
Speaker Change: The addressable market or potential opportunity.
Speaker Change: Got it if I could sneak one more in Nielsen Consol.
Speaker Change: Consolidation toward the end.
Speaker Change: Our prepared remarks, and I wasn't sure. If you were talking about acquisitions or some other type of consolidations like within your.
Speaker Change: The operations.
Speaker Change: So does that slip out.
Speaker Change: We think we have the opportunity to expand our product platform themselves more services, we really have an incredibly deep integration and strong relationships with some of the best brand names in E Commerce.
Speaker Change: But it looks to us and trust us.
Speaker Change: Well, that's all additional service to them.
Speaker Change: That's certainly something we're thinking about how do we develop more in house.
Speaker Change: The board and organically and as we think about the quarter risk market that we operate in.
Speaker Change: We definitely see ourselves as the leader of the most scale. Modern later in this market with kind of a handful of smaller competitors in it as well and we believe theres going to be opportunity to consolidate that part of the market.
Speaker Change: Yeah.
Speaker Change: Perfect. Thank you guys.
Speaker Change: Thank you. Our next question comes from the line of Clark right with D. A Davidson your line is now open.
Speaker Change: Clark Your line is open please check your mute button.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Timothy Chiodo with UBS. Your line is now open.
Speaker Change: Great. Thank you I wanted to talk a little bit about the recent acquisition made by both the card networks broadly in the fraud detection and prevention space.
Speaker Change: Could you describe would you say that risk if I is often working alongside.
Speaker Change: Those types of products, if a merchant is buying those value added services or maybe their merchant acquirers deploying those value added services from the card networks and I guess, maybe a good way to summarize it is are you working.
Speaker Change: Alongside in addition to those offerings or instead of those offerings in many cases.
Speaker Change: Thanks for that question.
Speaker Change: So speaking more broadly.
Speaker Change: The acquisitions by the card networks over the past few years have not been directly in our space. So in essence, it would be alongside so when you think about potential visa acquisition like feature space.
Speaker Change: Machine learning risk modeling for card issuer.
Speaker Change: Potential for banks, when you think about.
Speaker Change: Verify or cost or anything like that data sources that would potentially be used by them as a core.
Speaker Change: Enterprise E Commerce merchant is using none of those acquisitions have been in that space and we do not view I think the reason acquisitions as competitive they would either be in a different part of the payments value chain or Stan.
Speaker Change: Or there would be a smaller data service provider.
Speaker Change: And again, we would not view us competitively.
Speaker Change: Okay, great. Thank you.
Speaker Change: Good clarification in terms of PS.
Speaker Change: PSC to and in the U K and Europe more broadly.
Speaker Change: Could you just talk a little bit to the extent there are differences in terms of volumes that are more or less addressable related to apple pay versus Paypal I understand there might be a difference in.
Speaker Change: In the U K for those two so my understanding is that Apple pay automatically qualify as meeting its two of the three something you or something you have something you do and I'm unclear around Paypal in that region and I was hoping you could talk a little bit about that in terms of what that means in terms of the address ability of those volumes.
Speaker Change: Well I think for us I mean since PSD two Europe has mostly been.
Speaker Change: Non guaranteed model, where we would lean more on either the newer products or the non guaranteed operating because of the PSD two impact.
Speaker Change: And I think Thats, how we view really the market as a whole.
Speaker Change: Okay, great. Thank you, but is there any mechanical difference, though there across those two.
Speaker Change: More from a broader industry question.
Speaker Change: Even if they are both addressable.
Speaker Change: Specifically in the U K I don't know if theres a difference.
Speaker Change: The configuration of the Paypal or applebee.
Speaker Change: Okay.
Alright, Thank you for taking the questions I appreciate it.
Speaker Change: Thank you I would now like to turn the call back over to <unk> CEO for closing remarks.
Speaker Change: Alright. Thank you everyone for joining we look forward to updating you on our progress this year zero in the next call.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].