Riskified Ltd. Q3 FY2024 earnings call

• Revenue growth in Q3 and first 9 months of 2024 was driven by go-to-market strategy execution. - Achieved 100% renewal rate across top 20 contracts up for renewal in Q3. - Has a powerful AI platform powered by advanced machine learning intelligence models with vast data sets. - Recently released enhanced suite of tools for Policy Protect aimed at preventing new fraud behaviors. - Improved adjusted EBITDA outlook for the third consecutive quarter and working towards further margin expansion. - Generating meaningful free cash flow with strong cash reserves and no debt.

In the third quarter, GMV was $34.7 billion, reflecting a 17% year-over-year increase. Revenue was $78.8 million, up 10% year-over-year. Fashion & Luxury vertical grew by low-single-digits in the third quarter. Tickets & Travel vertical grew over 20% in the third quarter. General vertical (including Food and General Retail) grew 15% in the third quarter, with Food sub-vertical growing and General Retail sub-vertical weak. Home category declined by 2% year-over-year. Payments and Money Transfer category grew over 70% driven by new business activity. Revenue growth was seen across all geographies: US grew 14% year-over-year, EMEA grew 9% year-over-year, other Americas grew 9%, and APAC grew 25%.

• Anticipates revenue between $322 million and $327 million for full year 2024 (midpoint $324.5 million), driven by new business activity outperformance and improved outlook for Tickets & Travel vertical in Q4, offset by softness in Fashion & Luxury vertical and competitive pressures. - Adjusted EBITDA outlook is between $14 million and $20 million for full year 2024 (midpoint $17 million), representing additional margin expansion from prior year.

• Competitive pressure, including a large merchant in the Home category leaving the Riskified network at the end of October, which will have an impact on future periods. - Uneven macro backdrop which could affect business performance.

Q: Just wanted to start out on the churn call out in the Home category. First, if there's any way to size the impact of that on a revenue or GMV basis and if that's impacting the 4Q guidance at all? And then just broadly, any color you can provide on maybe what drove that merchant's decision to move off the platform? If they're moving to a competitor? And I think you also called out, Eido, taking this as an opportunity to review your pricing and bundling strategy. So just maybe elaborate on what you mean by that? If this is perhaps indicative of pricing pressure or changes you might need to make to your pricing strategy?

A: Ryan, thanks for the question. So I'll start with giving you more context and then I'll hand it over to Agi to do some of the sizing. So look, for context, in the 6 years that we've been involved with this merchant, they've experimented with a lot of different set-ups for managing risk and fraud. I think they used about 4 different vendors, including an in-house model. And right now, they're moving the volume in-house under a different model. This is something they've actually tried before, it was not successful and that's when they ramped up usage of Riskified. I think it's important to mention that most recently, this merchant had the highest approval rate and the lowest chargeback rate, at least in the 6 years that we've been working with them. So we definitely don't think it's a product issue and we're going to stay close to this merchant to see if there's an opportunity to collaborate again. Some other items that might have influenced this decision is kind of the merchant's current financial profile and also some personnel and leadership changes, especially in the areas and teams that we were working with. So that's just a bit more context on this specific merchant. When we think about how are we going to adapt to this moving forward, just being a public call, I don't want to go into all the tactical details of what we're going to be doing. But I think theoretically, we do want to lean into our product platform a bit more and make sure that it's easier to integrate, go-live and price for our largest clients because we have seen great adoption and stickiness once we've been successful there. Another thing we're looking at the task force that the leadership team is focused on is how do we build better incentives for kind of earlier and longer term renewals and leveraging the relationships that we've built over time in order to execute that. And that's definitely a core focus for us moving forward.

Q: This is Owen on for Ramsey. I appreciate you taking our question this morning. You called out weakness in kind of Luxury and Home Goods but you also have some good wins in newer categories such as Remittances, seeing good growth with kind of grocers come to the platform as well. Just interested in your kind of capacity to grow wallet share on your kind of land and expand strategy within those sort of faster-growing new logo verticals. Any kind of context there would be helpful?

A: Yes. So I would say, broadly, we're really happy with how the new business has been tracking. And if you remember, I think we mentioned a few quarters ago that we're making a conscious effort to diversify from kind of the discretionary areas to have a more kind of resilient and diversified business in some of these categories. Groceries, food and remittance that we focused on, we're definitely starting to see the success there. And in areas where we have had this initial success historically, like live events and like Luxury Fashion, we've been able to build a very kind of unique and differentiated network. So kind of leveraging the early successes to capture more. I think the dynamics around increasing wallet share within our existing clients and also adding newer clients are very similar right now with grocery and remittance to some of the other categories.

Q: Just a follow-up on the last question. Any way to think about the growth profile in 2025 given the customer loss and some of the emerging categories?

A: Cris, sure. So let me start off. The things that are working well are the new merchant wins and additions, right? I think we mentioned that already 9 months into the year, we've already increased the amount of new logos worth over $1 million, diversification of the client base. So seeing a lot of good success there. On the -- net of this kind of one-off churn event, seen a slightly more competitive environment overall and probably just a bit more related to an uneven kind of macro landscape. And I think that on the macro side, I don't think there's any kind of difference or anticipation into '25 on our end. Obviously, hoping for improvements but nothing baked into the model. So I think that's how we're thinking about the build for next year right now.

Q: Just curious, the first one, any indication so far about the strength of the holiday season? Just any commentary you can provide on what maybe merchants are seeing or what they expect to see in terms of consumer strength? And then maybe how that impacts your thoughts around growth into the end of the year versus continued new logo activity being strong?

A: Yes, Terry, thank you for the question. So just looking at what we see on our end broadly for Q4 but also some of the industry reports that have been reporting for the holiday season. All in all, we expect a healthy season, a healthy holiday season. And I wouldn't call it like extraordinarily strong or -- but overall positive. And I don't have enough view to understand how the sales season is kind of being aligned in terms of timing. Sometimes there's pre-sales that kind of last longer and maybe the few days that it is just the actual holiday are softer. I don't have a view of this yet but all in all, we do expect a healthy holiday season.

Q: I guess, I wanted to follow-up on the client loss. And I wanted to confirm that it was an expiring contract and not just kind of a cancellation mid-contract. I was curious, when you heard about that loss? And I guess, I'm asking because I was somewhat surprised at how quickly they were able to migrate off. And maybe any color you could add around that would be great.

A: Sure. So it was an end of a contract. It was not mid-contract. We knew about it during this quarter which is during Q4. And the last piece around the reduced submission, so like we mentioned, this is a client that's already tested a lot of different models over the years and had 4 to 5 different vendors integrated. So I think because of that, it was relatively easier for them to adopt this newer strategy.