Riskified Ltd (RSKD) 2025 Q1 法說會逐字稿

Good day and thank you for standing by and welcome to Riskified first quarter 2025 earnings call.

(Operator Instructions)

Please be advised today's call is being recorded. I would now like to hand the conference over to your speaker today, Chett Mandel, Head of Investor Relations. Please go ahead.

Good morning and thank you for joining us today. My name is Chett Mandel and Riskified Head of Investor Relations. We're hosting today's call to discuss risk appetite, financial results for the first quarter of 2025, participating on today's call, Eido Gal, Riskified Co-Founder and Chief Executive Officer; and Aglika Dotcheva, Riskified Chief Financial Officer.

We released our results for the first quarter of 2025 earlier today. Our earnings materials, including a replay of today's webcast will be available on our Investor Relations website at ir.riskified.com.

Certain statements made on the call today will be forward-looking statements related to our operating performance, business and financial goals, outlook as for revenues, gross profit margin, adjusted EBITDA, profitability, adjusted EBITDA margins, and expectations as the positive cash flows, which reflect management's best judgment based on currently available information and are not guaranteed 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 of 1995. 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 and that could cause actual results to differ materially from our expectations. You 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, 2024, and subsequent reports we file or furnished with the SEC for more information on the specific factors that could cause actual results to differ materially from our expectations.

Traditionally, who will discuss certain non-GAAP financial measures in key performance indicators on the call, reconciliations to the most direct in our earnings earlier today and also furnished with the SEC on Form 6-K and in the appendix of our investor relations presentation, all of which are posted on our investor relations website.

I'll now turn the call over to Eido.

Thanks, Chett. And hello, everyone. Overall, I am pleased with our strong start to the year despite the recent market uncertainty. We continue to generate positive adjusted EBITDA in our revenue growth of 8% in the first quarter, was driven by execution on our global go-to-market strategy of landing new customers to drive further vertical depth and geographic diversification while continuing to upsell our existing merchants.

As we discussed on our last call, our key focus areas for '25 and beyond are expanding in [copper] funnel efforts to generate more pipeline, converting that pipeline into new business at high rates in retaining and growing with those merchants once onboarded.

So far in '25, we have executed very well on each front. Our pipeline has grown substantially both year-over-year and sequentially in our retention and renewal strategy has continued to yield strong results. We achieved 100% renewal rate across our top 20 contracts, up for renewal during the first quarter with nearly half extended us multiyear agreements, averaging a term with an ending dates in '27.

We also ended the quarter with more committed revenue for '25 and beyond as compared with the prior period. These achievements are a reflection of the value and performance we continued to deliver to our merchants. As it relates to the pipeline, expansion has primarily been driven by unlocking additional opportunities to demonstrate the sophistication and differentiated performance of our platform.

Our expanded product portfolio powered by our proprietary AI decisioning engine is designed to intelligently solve a wider, more complex range of use cases for merchant beyond chargeback including omnichannel return and refund abuse prevention and chargeback management.

Our multi-product platform has enabled us to engage with a broader set of senior functional leaders across our merchant network, expanding our strategic reach in allowing us to more clearly demonstrate the full value we bring to the table. With new product revenue growth of approximately 190% year over year, we have seen the platform continued to gain traction.

In addition, we believe that our expanding revenue pipeline can also be attributed to growing recognition among large enterprise merchants have the breadth and effectiveness of our innovative AI product suite.

As fraud patterns grow more complex and evolve faster than in prior years, we believe that we are well positioned to help merchants addressed for our challenges that can often exceed their in-house capabilities.

Riskified's advanced AI technology and data network was built from day one to stay ahead of fraudsters. We are strategically investing in our machine learning capabilities through the expansion of our R&D teams in order to continue generating strong performance for our merchants to support them in their most critical time of need.

Before I turn it over to Agli, I want to take a moment to address the broader macro environment and the progress that we have made on diversifying our business. For global backdrop, particularly around tariffs and international trade remains fluid and uncertain.

Despite recent volatility, our internal data suggests that overall, the consumer has remained resilient with April trends relatively stable to March. Over the past several years, we've continuously grown our top line while intentionally diversifying across both verticals and geographies.

We believe this diversification enhances the resilience and durability of our business model, allowing us to better navigate periods of economic uncertainty. Notably, one of our top new logo wins this quarter came from our remittance merchant within the money transfer and payments category in areas emerging growth than maybe relatively less exposed to broader macroeconomic pressures.

While it is still early days, we have begun to see evidence that the network effect within this category is starting to develop, just like we witness in the tickets in live events, sub vertical recently, and the fashion and luxury goods vertical before that.

We believe that we have additional opportunities in our pipeline to continue expanding our market share and to further build out our powerful flywheel in the money transfer and payments area.

Furthermore, 8 of our top 10 new logos, one during the first quarter, headquartered outside of the United States as we continue to expand our geographic footprint for fuel international growth.

In conclusion, our team remains focused on advancing our product roadmap and on executing across the business to capture the large opportunity in front of us.

We remain confident that our scaled network, powerful AI platform, increasingly diversified business and strong balance sheet will allow us to keep advancing our strategic growth drivers to generate additional adjusted EBITDA margin expansion for our shareholders.

Thank you for your continued support, and I will now turn it over to Agli.

Thank you, Eido, team, and everyone for joining today's call. Our GMV for the first quarter was $34.2 billion, reflecting a 7% increase year over year. We achieved first quarter revenue of $82.4 million, up 8% year over year.

Our GMV and revenue growth during this quarter was primarily driven by continued margin and upsell activity. Our two largest category take it from travel, fashion, and luxury, each grow in the mid-teen range year over year, driven primarily by strong new business, lean, and upsell activity.

Consistent with recent years, the growth in our fashion and luxury category was partially offset by continued same-store sales pressure, particularly within our high-end fashion and sneakers, [shop vertical].

Looking ahead, we currently expect year-over-year growth in both category to moderate slightly over the course of the year, reflecting a continuation of the same-store sales price are observed in the first quarter.

However, we remain confident that both of these categories will deliver full year growth, supported by a strong pipeline of new business opportunity that we believe will more than offset from going same-store softness.

Building and positive momentum in our money transfer and payments category in 2024, we achieved approximately 90% year-over-year growth in the first quarter. This growth was driven by new merchant activity, which continued to be a key area of expansion.

As anticipated, we saw year-over-year declines in our home category, which contracted by 74% and drove a 5% year-over-year decline in the United States.

However, the impact was partially offset by continued strength in overall new business activity, and we continue to view of the US as a key long-term growth driver for rectified. Outside of United States, growth accelerated across all regions compared to the fourth quarter.

During the first quarter, [APAC] grows approximately 70% and Latin America, which represents Canada and Latin America, grew approximately 13%. Both primarily gets momentum in new and upsell activity and have delivered approximately 15% growth with the strongest performance concentrated in our largest vertical, supported by both new business and have some momentum.

We believe that our continued growth in regions outside of the United States reflects continued progress in capturing market share, unless otherwise noted, I will be referencing non-GAAP financial measures with respect to the discussion of our gross profit margin, operating expenses, and adjusted EBITDA matrix. We have provided a reconciliation of GAAP to non-GAAP financial measures in our earnings release.

Moving onto gross margin, our non-GAAP gross profit margin for the first quarter of 2025 was approximately 50%. Fee over year decline in gross margin was primarily driven by the impact of ramping a significant new merchants in your categories, such as money transfer and payments and geographies such as other America.

The impacts of these factors was partially offset by improvements in our car machine learning models and continuous growth in new product revenue. We continue to target a non-GAAP gross profit margin between 52% to 53.5% for the full year.

For modeling purposes, we currently expect our second quarter non-GAAP gross profit margin, so below the range that this quarter to be at the bottom of the range and the fourth quarter to be higher than the range.

As a reminder, I encourage you to continue analyzing our gross margin on an annual basis, given individual quarters can vary of various factors, including the ramping of new margins and the risk profile of transactions approved.

Moving to expenses, we continue to manage the business in a focused and disciplined manner. Total non-GAAP operating expenses were $39.8 million for the first quarter. Our non-GAAP operating expenses as a percentage of revenue declined year over year from 53% to 48%, reflecting ongoing deleveraging the business model.

We expect slightly higher second quarter expenses as compared to the first quarter and expect our expenses in the second half of the year to be lower than the first half of the year by approximately $2 million. We achieved positive adjusted EBITDA of $1.3 million in the first quarter. The sixth consecutive quarter of positive adjusted EBITDA.

Moving to the balance sheet, we ended the first quarter of approximately $357 million of cash deposits and investments. We carry zero debt.

In addition, we continued to maintain a healthy cash flow model and in the first quarter, we achieved quarterly free cash flow of $26 million. We continue to expect approximately $30 million of positive free cash flow in 2025, with the majority of the cash flow generation expected to occur in the second half of the year.

In the first quarter, we repurchased 4.1 million shares for a total price of approximately $20.7 million, which helped drive a decrease of approximately 2.2 million shares from the fourth quarter of 2024 net of issuances. Reflecting our strong buyback activity and our commitment to managing dilution prudently, we continue to expect our share count decline on a year-over-year basis.

We believe that our strong balance sheet and liquidity position, strategic assets that provide flexibility in navigating a range of operating environments. We remain disciplined and thoughtful in how we deploy capital to create long-term shareholder value.

Now turning to our outlook, I'm encouraged by our strong start to the year. The opportunities surrounding the pipeline, an increased level of anticipated new business activity.

That being said, given the uncertainty around potential impact of tariffs on our margins and overall funding activity, we believe it is appropriate to maintain our revenue and adjusted EBITDA guidance that we said on our previous call, which we believe reflects a balanced view of risk and opportunities.

We continue to anticipate revenue of between $333 million and $346 million or $339.5 million to the midpoint. Our adjusted EBITDA guidance remains between $18 million and $26 million or approximately $22 million to the midpoint.

Overall, I'm encouraged with the start to 2025. I believe that our leading market positioning and ability to execute on the elements within our operational control positions us well to grow and deliver value to shareholders.

Operator, we're ready to take the first question, please. Thank you.

(Operator Instructions)

Terry Tillman, Truist Securities.

Good morning, team. And this is Connor Passarella, on for Terry. I appreciate you taking the questions.

I wanted to ask maybe one more high level to start here. Just as you talked about the execution on the product roadmap, increasing pipeline build of, and some better revenue visibility costs from the multi-year contracts.

I guess, how do you think about these factors and the impact on the confidence that you have for growth picking up into next year and beyond?

Non-energy go. I mean, look, we're really happy with strong start of the year, especially how it remains to the pipeline growth in -- when we think about your unpacking some of the reasons for that growth, we think number one, it is because of the platform in the wider value proposition that we have and the more touch points we have within organizations that can relate to that increasing values.

And I think we've always create competitive win rate. This is just helping us to have more at-bats on a second thing that we see is that our global go-to-market motion that we started a few years ago is starting to payoff.

We're seeing more opportunities, diversified, and more revenue coming from outside the US on and probably the last thing that drove margins [chart] these quarters we've had -- they've seen an increase in sophisticated fraud, and that's obviously something that we're better equipped to handle and then some of their legacy billing systems and interviews. So I think that's all created a very positive outlook on the pipeline side.

Okay. Great. That's a that's really helpful. And maybe just to follow up off some of the puts and takes around the gross margins are continuously adding new logos to the platform, some bigger ones. But I'll take some time to kind of wrap and maybe there's some headwinds associated with that.

Just kind of curious on maybe what's a time line looks like yet to be a steady state on some of the transaction approvals and have the margins kind of shift to be more in line with the basis. You know they end with the models, kind of adjust -- I'll just kind of curious thinking on anything you can share there?

I mean, I would continue to encourage people to look at it on an annual basis. And I think we kind of reiterated the annual expectations that we said on previous calls on maybe just as we get further into the year, some tweaks between the quarterly spread on.

But like we thought, we anticipated some large client wins in Q1 with in certain categories remains in one zone on, they didn't have an impact on the year-over-year basis. But we do think they're great categories and we continue to see, you know, kind of the improvements and expectations there in the long-term trajectory and the opportunity there, is very good for us.

Ryan Tomasello, KBW.

Morning, everyone. Thanks for taking the questions. Last quarter, I think is part of your focus on top of funnel expansion. You talked about taking a more thoughtful approach to go-to market in the mid-tier and I think you mentioned investing more channel distribution.

So I was hoping you can give us an update on that strategy. Strategy and just generally how you're thinking about the opportunity for risk if I had to move more down market in the coming years. I mean, I feel an interesting opportunity.

I would categorize stream of the pipeline that we've seen year to date, still in kind of our core focus of enterprise on very large as we think about mid-market channel and further downstream, that's probably later in the year on from an acquisition perspective.

So it's still something that we believe that we built the most powerful engine, announced not just powering [raw] decisions. It's also powering all the decisions in managing this due process and healthy secure accounts. And we do think that there's more opportunity to package and distribute better.

Okay. Great. And then on the momentum you're seeing continue to see in money transfer payments category. You talked about this flywheel starting to emerge, realizing it's early, but any way to frame kind of the longer-term potential of that category -- of that vertical to the extent it continues to move into the direction of some of your higher market share categories like tickets and travel?

Just trying to understand, this is obviously are more of niche categories, so just trying to understand how you guys tend to size -- sizes vertical?

I think for us is so important to continue to expand our [sum and say some TAM] and converted into sum, instead the way we do that is by supporting more categories, more payment methods.

And as you think about money transfer, that can be a wide range of use cases, whether as account to count, you know, kind of a peer-to-peer remittance companies. So I think there's a relatively broad range of use cases there.

And you can also be across various forms of payments from, you know, things like, obviously traditional credit card, ACH transactions and the [eventual] digital currencies. So we do think there's a pretty broad opportunity set there.

The way we focus on these categories is and by creating features, specific model, specific capabilities, and that resonates well with our merchants because it just leads to better performance. And we're excited about what happened in store there.

Timothy Chiodo, UBS.

Great. Thank you for taking the question. I want to talk a little bit about the competitive landscape. There's a great slide in the deck which compare some of your approval rates and some of the chargeback rates compared to competitor A and Competitor B, not to get into any competitors all too much.

But there is one that clearly has been more in discussions with metrics, which is Stripe and Stripe radar. And I was just hoping you could do a little bit of a compare and contrast of Stripe radar and what it offers.

Thanks for the question. That is inherently, again, (technical difficulty) more than the capabilities and let me stand on that. The level of data that we receive per transaction and the reason we did an analysis is in most cases three times the level of data than some of these other solutions we're seeing and leveraging that data that enables us to create more features, more feasibilities.

So if you think about the life cycle for transaction, risk is fine now, receive data from when you log into the account, how you're browsing on the website, full checkout information, data tied into the customer support system in case you're calling in and requesting accuracy change.

Anything related to returns and refund requests, if you submitted chargeback for fraud or non-fraud reason codes and that's per transaction. So when you think about that granularity of data and maybe one thing, I should add is we have, you know, immersion specific data points.

So we mentioned developments industry was we're growing into. So a lot of those companies are sending specific data points around, you know, the customer identity that the various ages and we ingest all of that data create custom features and model based on that in our entire environment and designing custom built to support that type of data enrichment and feature engineering and different modeling environments.

When you compare that to a gateways, Louis Schreiber, others, but the amount of data is more limited because obviously, they need a smaller subset to go live with their payment processing. And I think that the theoretical explanation.

The results that we see with our merchant base, clearly demonstrates that I think this is not one of the solutions that we come up against -- foresee competitively in the market. So hopefully, that explains both, any more why we believe that in the actual results that we're seeing.

It really does. Thank you so much. And my second question or follow-up is more about the industry growth. So during the prepared remarks, you mentioned some of the continued same-store sales weakness in certain categories. The overall GMV growth was, I believe, 7% during the quarter.

If you have to look across your core verticals and sort of a blended average risk aside specific industry growth rate, do you think that the growth rates across your categories would have been well below that 7% number indicative of share gains? Or do you think that the industry growth would have been kind of more similar to that 7%? Any directional sense there would be really helpful.

Thank you for your question. If I think about our categories, they don't always align with kind of external e-com growth metric that our share out there. And just to give you an example, when we think about some of the strength that we showed this quarter where [allocate] for travel.

And while we heard a lot of companies and a lot of airlines kind of sharing weaker demand in travel and even some companies have funded guidance, we saw the opposite actually for travel for us was a very strong category with a lot of growth there.

And then, some of any asset there, that's a little bit about maybe some of the financing in Europe or maybe we are able to support and a function of the consumer preference changed after final outside of the US.

But this is just one example, I sort of the other categories that I kind of shared, we have more than 30%, about 30% of our revenue is coming from fashion and luxury goods sales that might be [probably] proportioned for some of the industry that are presented in the provider income state.

And we have shared -- we've seen income, you know, some of these categories like high fashion or sneakers performing or declining at Korea. So that is something we continue to see in Q1.

And having said that, some of the declines were actually lower than what we sell prior year. There is a light at the end of the tunnel there as well. So all in all, I'm happy with our performance. And you know, there's kind of trend and opportunity to continue to diversify more which definitely helps in terms of kind of like overall performance and will continue to watch category,

Just to make sure, so for the luxury and fashion, you were saying negative last year for same store sales. This year, negative as well, but not quite as negative, so some slight improvement relative to last year's negativity. That's what you're saying.

Correct. That's what I would say. Actually, we are expecting a little bit better this quarter, so meaning fashion is a little bit sluggish than our projection, but the trend compared to last year, I expect.

Chris Kennedy, William Blair.

Thanks for taking the question. It's good to see the growth in the new products. Can you just talk a little bit about what your what's resonating in the market between policy, protect policy decisions, et cetera?

I think what we're seeing is the platform resonate and anything different merchants have a specific point in time, a different set of problems but the wider platform is what resonates. And to call out, we've continued the sense that the value in our [allied], we're able to unlock with policy protect is very meaningful and continuing to see that.

So just to share a few paying a testimonial. We had one merger and where we're able to block 10% of refund and return with [West] because they abuse it, right, instead of stealing your car.

And I can just now emerging, but having received my package, please provide me with a refund and they're able to lock that 10% of requests without any incremental increase in [pulse] positive. Another one of our merchants recently shared a very heartening kind of internal business kind of analysis that they did and they've seen that while we've actually decrease the amount of free funds that they need to issue.

Customer satisfaction has actually increased because they're doing in a more accurate way. So I think we're really seeing great testimonials and great traction across them.

Great, thanks for that and then just a follow-up. You've had kind of a long-term target of generating 15% to 20% EBITDA margins kind of by the end of 2026. Is that still kind of in your in your plan? And thanks for taking the questions.

I think we're excited by the start of the year and looking forward to continuing to execute on.

Clark Wright, D.A. Davidson.

Awesome. Thank you. Will love to kind of better understand the limitations of homegrown solutions versus risk value proposition in the way cure of AI and the related benefits, I guess that would provide for bad actors in this space. And then I'll have a follow up afterwards.

So let me give a concrete example from Q1, so specifically with Gen AI. And we've seen an increase in a broad attack vector where people are targeting, as you know, supporter, chat box and doing it with great language and using that to gain access into accounts.

On the separate form and sophisticated product, we've seen is where there are a remote desktop takeovers and leveraging, but computers to place a fraudulent transactions. And when you think about an individual merchants experiencing that type of attack, which is very challenging to identify because it requires various cyber capabilities and network ability.

It can be heartened by the time to finish up to the customer a meaningful amount of money. And if you think about the rectified network and capabilities that we were able to see a specific organized, [bothering] attack, one of our emergencies because of different anomaly detection capabilities. We are out for cybercrime; we were able to identify that.

And then we actually side propagate in a handful of other merchants that we service. And if you think about it, each one of these individual merchants that they were trying to catch this standalone, it would take them a longer time to identify it on a kind of on the onset of the effect.

But also every subsequent merchant and where we are already familiar enables a block that attack vector, it would have been in the first time for them. So it's -- this combination of the network and some of the capabilities that we have.

I mean, when you think about the majority of the company or decide, let's say, there's the size of the data science and analytical team that we have continuously churning out of date, up to some contact vectors that something outside the scope scales and individual merchant.

[Offloads] does have a helpful. Appreciate the clarity around that with the example. My second is just around the mix of growth that you're assuming for 2025, how much of that right now versus the beginning of the year, would you attribute to new logo growth versus what you're seeing expansion within your base?

Thank you for the question. I'll take this one. What do we see right now? I'm looking at the trends from Q1 and for the rest of the year, maybe kind of like some of the new revenues a little bit higher than what we expected and maybe the microbe, I'm just looking at the uncertainty out there and what we're projecting, maybe just down slightly worse than what we expected.

We saw now very similar, and that's why it allows us to kind of reiterate the guide. So I'd expect that new logo maybe just to be higher and dollar retention rate, maybe just slightly lower, but still around hundreds.

Is it still around [100]? So will that imply above [100]?

Above but close to a hundred.

And I'm not showing any further questions at this time. I turn the call back over to Eido for any closing remarks.

Thank you for joining today's call. And we look forward to continuing to update you on our progress throughout the year.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.