Riskified Ltd.

Good day, and thank you for standing by. Welcome to the Riskified Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker of the day, Chris Mimone, Investor Relations. Please go ahead.

Good morning and thank you for joining us today. Riskified is hosting this call to discuss its third quarter earnings results for the period ended September 30th, 2021. Participating on today's call are Ido Gao, co-founder and CEO, and Auggie Doceva, chief financial officer. Earlier this morning, Riskified issued a press release announcing its financial results for the third quarter of 2021. A copy of this press release has been furnished with the SEC on form 6K. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions and are not guarantees of future performance. You should not put undue reliance on any forward-looking statements. Please note that these forward-looking statements reflect our opinions as of the date of this call, and except as required by applicable law, we undertake no obligation to revise this information as a result of new developments that may occur. forward-looking statements are subject to various risks, uncertainties, and other factors, some of which are beyond our control that could cause our actual results to differ materially from those expected and described today. In addition, we are subject to a number of risks that may significantly impact our business and financial results. For a more detailed description of our risk factors, we encourage you to read Riskified's periodic and other SEC filings, where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements. A replay of this conference call will be available on our website under the investor relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures when talking about risk-advised performance. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for finance and operational decision-making to and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial operational decision-making. You can find the reconciliation of those non-GAAP measures to the nearest comparable GAAP measures in the earnings press release issued and furnished on Form 6K today, and on our prior filings with the Securities and Exchange Commission, all of which is posted on our website at ir.riskified.com. I will now turn the call over to Adele Gow, Riskified's co-founder and CEO.

Hey, everyone. Thanks for joining our second public earnings call. I just want to start the call by addressing some recurring questions we've been receiving and then dive into some Q3 accomplishments we're very proud of. So the main two themes I want to discuss are, number one, what we consider to be the normalized growth algorithm for Riskified. This is something that's come up a few times, and I want to break it down into a very simple and understandable way. And here I'll also mention two transitory impacts on that growth algorithm. Number two, I want to share where we see our biggest opportunities, both on the go-to-market side and on the product side. Not just where we see the opportunity, but also how we plan to go after that opportunity and how you should expect that to be reflected on our P&L. Okay, so starting with the growth algorithm, the simple way to think about it is that we are positively levered to e-commerce growth, and we typically grow as our merchants grow. Now, that growth shifts around depending on our merchant mix, but industry reports generally project e-commerce growth of 10% to 15%. When we think about new business, and that could be net new logos, expansion, and cross-sell, we believe this can add up to an additional 15% on an annual basis. Because of the timing of when we close large new deals, which can be highly variable, that additional 15% of new business can fluctuate in either direction depending on when in the year deals go live. And finally, our take rates and merchant composition can also impact our growth. And that's it. That's a simplified way to think of Riskified's growth outcome. And we mentioned medium to long term. So what does that actually mean? From our perspective, this is the algorithm for a multi-year time horizon. We have a very large TAM, best-in-class core product, growing product portfolio that is gaining traction with clients, and increasingly global go-to-market. Now, in the short term, there are two transitory headwinds impacting our growth, and I'd like to discuss them. The first is PSD2. This is a payment security regulation in the EU that is resetting some of our GMV in that region. So far, we are experiencing a drop in volumes in line with our predictive models, and the impact of these reduced volumes is built into our overall guidance. The second transitory headwind relates to more muted e-commerce trends and global supply chain issues. Following the reopening of the economy and return to more traditional spending patterns, We see more modest e-commerce growth combined with fairly ubiquitous supply chain issues affecting online merchants. We anticipate that PSD2 and the more muted e-commerce growth trends will affect our short-term growth, most prevalently through the first half of next year, after which we expect to start scaling towards our longer-term growth algorithm. The second main topic I want to discuss is go-to-market and product opportunities. Let's start with go-to-market. When you think about the GMV we processed this quarter, $20.9 billion, we're very proud of it. It's a great scaled number. Having said that, it's still tiny relative to the opportunity we have in front of us, and that opportunity is broadly the e-commerce market on a global basis. When I think about our revenue distribution, approximately 70% comes from merchants domiciled in the U.S. There is significant market opportunity for us to expand outside the U.S., and we plan on accelerating our global go-to-market hiring to make sure we cover the entire market. We have a unique opportunity over the next few years as the world's largest e-commerce companies migrate away from legacy solutions to new modern platforms like Riskified. Most of the growth in our current investment spend is going towards expanding our direct enterprise sales force globally. While it can take some time to ramp a team and onboard meaningful clients in new geographies, we believe this is ultimately a very efficient model. Because there is a natural limit to the number of accounts per region, after an initial ramp, hiring does not need to continue to increase while the full GMV opportunity is unlocked. So what remains are very large deal sizes, low churn rates, and strong baseline growth, making for a very efficient model. For example, in 2017, we spent approximately 8 million in sales and marketing, which we attribute to the onboarding of our 2018 client cohort. That cohort generated 40 million in billings over the last four fiscal quarters. And while not all cohorts are created equal, we do believe this illustrates the potential in our model. Moving on to the product side, we have an amazing and growing portfolio of brands on our platform. They all face similar challenges, and using our data and machine learning capabilities, we are attempting to solve complex problems for them. The value of using Riskified manifests as a reduction in cost, an increase in approval rates, and a better end consumer experience. We believe that the more value we can provide across each of these dimensions, the better the long-term outcome for Riskified becomes. When we make internal R&D investment decisions, we mainly look at the potential ROI a product can generate for our merchants. Assuming we can drive meaningful and measurable ROI in the form of additional revenue or potential cost savings, we're confident that Riskified can participate in that value creation through a basis point per transaction pricing or some other billing model. So the focus is on creating value. Since we tackle complex problems, service the world's largest brands, and build deep, best-in-class solutions, our products can sometimes have multi-year development horizons. But we only undertake them if we believe that the potential value generation is outsized relative to the investment. So to recap, we talked about our growth algorithms. 10 to 15% baseline from existing e-commerce customers plus up to another 15% from new and expansion. Go-to-market, significant global expansion of direct sales in a long-term efficient model, and product investment in long-term initiatives that generates monetizable value. Turning back to Q3, some meaningful accomplishments we are proud of that I want to highlight. Number one, Earlier this year, we executed a master agreement with the LVMH group, making it easier for individual LVMH brands to join our platform. An initial significant one this quarter was Louis Vuitton. Number two, we successfully deployed our Policy Protect product on an existing chargeback guarantee merchant with more than $10 billion in annual e-commerce volumes. When you think about the implications of merchants trusting us to decide how to manage their policies, such as returns and refunds, we think the opportunity is large and largely untapped. Our challenge now is to communicate to the world and enterprise e-commerce CFOs the incremental value and cost savings we can provide them through new products such as these. Number three, there are more than 25 different countries in which we processed more than 100 million of GMV in the last 12 months. And this is based on the location of the end consumer. and that's relative to 20 in the previous quarter. So this shows the capability and value of our product globally and is a very positive sign as we ramp up our go-to-market teams globally. I'll now turn it over to Agi to share more details on our financial performance.