Riskified Ltd.

Good day, and thank you for standing by. Welcome to the Riskified's fourth quarter 2023 earnings conference 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To retry your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Chet Mandel, Riskified's Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today. My name is Chet Mandel, Riskified's Head of Investor Relations. We are hosting today's call to discuss Riskified's financial results for the full year and fourth quarter of 2023. Participating on today's call are Ido Gal, Riskified's co-founder and chief executive officer, aggie doceva riskified's chief financial officer we released our results for the full year and fourth quarter of 2023 earlier today our earnings materials including a replay of today's webcast will be available on our investor relations website at ir.riskify.com certain statements made on the call today will be forward-looking statements related to our operating performance business and financial goals outlooks as to revenues gross profit margin adjusted ebitda profitability adjusted EBITDA margins, and expectations as to positive cash flows, 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 and Litigation Reform Act of 1995. These forward-looking statements reflect our expectations as of the date of this call and accept 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. You should not put undue reliance on any forward-looking statement. Please refer to our annual report on Form 20-F for the year ended December 31, 2023, and subsequent reports we file or furnish 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 directly comparable GAAP financial measures are available in our earnings release issued 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 will now turn the call over to Idao.

Thanks, Chet, and hello, everyone. I'm proud to report that Riskified ended the year strong, despite facing macroeconomic and geopolitical headwinds. We entered 2023 looking to increase our new logo base, further penetrate our existing accounts, expand our geographic footprint, and strengthen our platform sales motion while improving our technology and achieving profitability on an adjusted EBITDA basis in the fourth quarter. I am pleased that we were able to accomplish our 2023 goals, but acknowledge our work is not yet done. In particular, I am excited about achieving a gross margin of 58% in the fourth quarter. We believe that the cumulative multi-year impact of focusing on the continuous advancement of our technology stack contributed to an outstanding fourth quarter. This represents our highest gross margin in 10 quarters, all while maintaining very high levels of performance for our merchants. Allow me to provide some further insight into our technology strategy. In 2023, we focused on a three-pronged approach to drive improved performance, while we expanded deeper into new geographies, industries, and payment methods. We strengthened our machine learning factory by leaning further into autonomously training models. This allows us to train, test, and deploy models more quickly, which in turn expands the capacity of our data scientists to develop and enhance additional features to drive powerful performance. And finally, we built out an automated performance management platform designed to optimize approval and chargeback rates per merchant in an automated and constant way. We believe that this automation will allow us to continue to scale the business with high leverage. I am optimistic that some of the leverage seen in Q4 will flow through to 2024 and beyond, but I encourage you to continue analyzing our gross margin on an annual basis, given individual quarters can vary due to many factors, including the ranking of new merchants and the risk profiles of transactions approved. I want to thank the team for their attention in responding so quickly from third quarter fraud event to achieve such fantastic results in Q4. We have further diversified our portfolio across merchants, industries, and geographies to become a more broad-based and resilient company that is able to continue to grow across all macro environments. We continue to have success penetrating the e-commerce landscape through new merchant wins and through upsells within our existing merchant white space, which contributed the total annual GMV growth of 17% and total annual revenue growth of 14% in 2023. I will walk you through the drivers of our top line growth shortly, but overall, I am encouraged by our performance in 2023. In particular, five out of our six verticals contributed positively to our performance during the year. All of our regions achieved at least double digit growth year over year, and we have more enterprise merchants accounts on our platform than ever before. In fact, we had over 50 accounts that contributed one million or more to our top line in 2023. Our GoToMarket team met their annual revenue targets and delivered a strong end to the year, with one-third of the new merchant activity in 2023 coming in the fourth quarter, providing positive momentum heading into 2024. Also, in our first full year of having our fine platform sales strategy, new bookings derived from our Policy Protect, Dispute Resolve, and Account Secure products were up approximately three times. Our fourth quarter was the strongest quarter ever for our PolicyProtect product, as over 50% of the PolicyProtect deals that we won during the year went live during the quarter. And while the revenue from these products still represents only a small percentage of our overall revenue base, we believe that our ability to sell an end-to-end platform has proven to be a very successful differentiator and stickiness tool. We executed and focused on improving our technology stack throughout the year. For example, based on direct feedback from our merchants, we increased the number of use cases we helped solve beyond just blocking fraudulent refunds and serial returners to also solve promo abuse, item limits, and reseller policies for our Policy Protect product. On dispute resolve, we prioritized developing a holistic and automated solution for the fraud and non-fraud chargeback representment process. This product allows us to become a one-stop shop that automates the entire dispute flow to help reduce higher win rates for our merchants. Both products are proving to have a true market need based on recent activity and existing pipeline and serve as key tools in our land and expand strategy. The new product traction we've seen and the enhancements we've made, combined with our market-leading core chargeback guarantee offerings, led to a very strong fourth quarter overall win rate of almost 80%. The proven performance, accuracy, and predictability that our core chargeback guarantee product generates is why merchants are initially drawn to Riskified. Now, our expanded end-to-end platform dedicated to solving multiple high-value e-commerce use cases gives them even more reason to stay. This is evident in our low churn numbers. Our annual dollar retention in 2023 was 98%, which was inclusive of a few unusual churn events as a result of merchant bankruptcies. We are proud of the deep-rooted partnerships that we have built with many of the world's largest e-commerce merchants. Moving lower in the income statement and onto the areas that are more within our operational control. In mid 2022, we made the decision to accelerate our timeline to profitability and have executed on that accelerated timeframe. Our 2023 annual adjusted EBITDA of negative 8.5 million exceeded our guidance by 37%, and we achieved positive free cash flow for the year of 5.9 million. Furthermore, our 2023 annual adjusted EBITDA margin expanded by 1,100 basis points from the prior year. I am pleased that we have achieved positive adjusted EBITDA in the fourth quarter and that we are guiding to positive adjusted EBITDA on an annual basis in 2024 and beyond. We have made a lot of progress in getting to this point, and I believe it is important to communicate how to think about the financial milestones we plan on achieving over the next few years. As a management team, we are building towards adjusted EBITDA margins between 15 and 20% by 2026. In addition, we also plan on achieving positive adjusted EBITDA, inclusive of our share-based compensation expenses by 2026. Allow me to provide some further context. Over the past two years, we have faced a challenging macro environment and volatile consumer spending, which has led to a net dollar retention in the low hundreds, down significantly from higher rates of 115 to over 120 that we've seen historically, even pre-COVID. Overall, this has produced lower growth rates than our historical known and is not where we aspire to be longer term. We remain focused on accelerating our revenue growth, and we believe that there are multiple ways to achieve that. As a leader in e-commerce fraud and risk intelligence, we believe that we can capitalize on the large opportunities in front of us. As always, our goal remains to land and expand our platform with the world's largest e-commerce merchants. and the speed and frequency at which we are able to execute on this strategy is the top area of focus. In addition, potential improvements to our same cohort base would also result in a more positive impact on our net dollar retention rate, which would also allow us to grow revenue faster. However, even at similar revenue growth rates as compared to the last few years, we are confident in our ability to manage the business and how to optimize the operational levers available to us in our gross margin and OpEx line items to continue driving adjusted EBITDA improvements in order to achieve these targets. Overall, I am confident in our ability to efficiently run the business to constantly bring our top line growth down to the bottom line. Before I turn it over to Avi to provide further color on our results and on our 2024 annual guide, it's important to highlight our commitment to managing share-based compensation expense and dilution to meaningfully lower levels than they are currently at. First, in 2023, share-based compensation expense as a percentage of revenue decreased by approximately 500 basis points from 2022. And in 2023, we granted approximately 30% fewer equity awards as compared to 2022. we expect to see share-based compensation as a percentage of revenue continue to decline in 2024. Many of the larger awards that we granted in 2021 through 23 have a four to five year vesting period. And as these awards complete their vesting requirements by the end of 26, we expect to see a meaningful drop-off in our share-based compensation expenses. Second, and perhaps even more important to discuss, is our focus on controlling our equity awards to meaningfully lower levels. In 2023, equity awards granted represented approximately 6% of our weighted average dilutive shares, down from approximately 9% in 22. We anticipate that this number will be approximately 4% to 5% in 24, as we continue to manage the business in a disciplined manner. Assuming valuation levels similar to today, and absent any unanticipated executive or senior hiring and any additional buyback authorization, we expect to target similar levels going forward. Third, since the implementation of our 75 million share repurchase program in November, we have repurchased approximately 7.6 million shares at a total cost of 34 million as of February 29th. We remain committed to repurchasing our shares at what we believe are attractive valuation levels. Looking forward, we are excited and energized by the opportunity in front of us in 24. There is plenty of white space for us to penetrate, and we believe that our product and platform leadership position will allow us to do that. Combined with the global network scale that we have built and the financial and operational discipline of our business model, I have great confidence that we are well positioned to execute on these initiatives for the benefit of our shareholders. Now, over to Aggie.