Earnings Call: Q2 2021

Sep 9, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Riskified Second Quarter 2021 Earnings Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Mironi, Investor Relations. Please go ahead. Thank you, and good morning and thank you for joining us today. Riskified is hosting this call to discuss its 2nd quarter earnings results for the period ended June 30, 2021. Participating on today's call are Adele Gal, Co Founder and CEO and Agi Doceva, Chief Financial Officer. Earlier this morning, Riskified issued a press release announcing its financial results for the Q2 of 2021. A copy of this press release has been furnished With the Securities and Exchange Commission on Form 6 ks. While this call will reflect the items discussed within those documents, for more complete information about our business and financial performance, We also encourage you to read our final initial public offering prospectus dated July 28, 2021, as filed with the Securities and Exchange Commission on July 30, 2021. And before we begin, I wanted 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 Menblith's current beliefs and assumptions. Please note that these forward looking statements reflect our opinions as of the date of this call, 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, that may significantly impact our business and financial results. For a more detailed description of our risk factors, once again, please review our final IPO perspective, 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 Riskify's performance. 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 6 ks today and on our prior filings with the SEC, all of which is posted on our website at ir.riskified.com. I will now turn the call over to Adal Gahl, Riskify is the Co Founder and CEO. Thank you, Chris, and thank you all for joining us for our first earnings call as a public company. We're happy with the positive market reception to our IPO and very excited for the journey ahead. We are also pleased with our results for the 2nd quarter, which included revenue growth of 47% year over year and a 55% year over year increase in gross merchandise volume to $21,500,000,000 We believe these results validate the degree to which the ROI we deliver Strongly resonates with many of the world's largest online merchants. In addition to these financial results, there are several achievements from the quarter that I would like Thank you, everyone. Thank you, everyone. Thank you, everyone. Thank you, everyone. Thank you, everyone. Thank you, everyone. Thank you, everyone. Thank you, everyone. Thank you, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. These additions to our merchant network represent a broad range of e commerce verticals that are well positioned for continued organic growth in the future. Notably, several of these merchants also operate in online payment categories that Riskified has not previously served, including cryptocurrency brokerage as just one example. 2nd, while we do not plan to report on individual customer contracts On a regular basis, there was a significant end quarter renewal that deserves an exception, owing to the size of the merchant and the depth of our relationship. Over the summer, we renewed an important partnership with Wayfair, one of the world's largest destination for the home. Although we will not be disclosing the terms of the renewal, We are humbled and excited to continue working with Wayfair to solve complex problems related to online shopping, checkout and payments. 3rd, the Riskified platform continued to improve its performance capabilities in response to the exacting customized needs of our large global merchants. During the quarter, our algorithms learned from more than 150,000,000 new e commerce transactions conducted on our platform. Simultaneously, we customized our platform implementations for several large merchants to address their unique pain points through the use of more than one Riskify product. We believe this ability to customize our platform at tremendous scale It's yet another reason why many of the world's largest e commerce companies trust us to review and guarantee the entirety of their online order volumes. Aghi will go into further detail on our strong financial performance shortly. But since this is our first earnings call as a public company, I'd like to provide a brief overview of our business, the tailwinds driving our growth and a few strategic initiatives as background. Our CTO and Co Founder Asaf and I started Riskify in early 2013 to solve online payment fraud. At the time, we didn't fully appreciate how big e commerce would become or how many industries it would impact, But we understood one of the key problems at the very heart of e commerce. Selling anything online involves unique risks that all connect back to fraud. The Internet has always been overrun with people concealing their identities for financial gain and most modern payment products Place the cost of fraud squarely on the seller. These two realities create a very challenging situation for online merchants. This seller liability poses a fundamental question with each and every order in online merchant receipts. Which customers should they accept? Which customers should they decline? It's an incredibly complex question to answer. And left to solve this problem on their own, We believe too many merchants experience large amounts of missed sales, unnecessary expenses and inferior results overall. From the very beginning, we believe that we could build a ubiquitous machine learning solution that would outperform anything an individual merchant could build on their own. The end result was Riskified, a new paradigm in fraud management. Today, our platform aggregates data from more than a 1,000,000,000 historical full lifecycle e commerce transactions, creating network effects that we believe drive superior performance and compelling ROI for our merchants. As our algorithms continuously get smarter, it enables our merchants to realize ROI that goes beyond just Preventing fraud. As a result, our highly satisfied customers include many of the world's largest online merchants, including Wayfair, Wish, Macy's and StockX. We believe so strongly in the superior accuracy of our platform that we guarantee performance levels that are precisely customized to each merchant's business. More specifically, we provide guaranteed minimum approval rates for our merchants' online order volumes, while also contractually agreeing to bear the cost of any fraudulent sales approved by Riskify. This allows our merchants to maximize the conversion of incoming orders into successful sales without worrying about who's a good customer and who's a fraudster. In return, we charge our merchants a percentage based fee on the value of every transaction that we approve. And we do this all seamlessly in the background of each online session, so legitimate consumers can experience a fast, Frictionless shopping experience. In the end, we believe that this approach results in higher merchant revenues, Based on an internal analysis of our 10 largest merchants providing sufficient data, the average merchant working with Riskify Experienced an amazing 8% increase in revenue after integrating with our platform. Those same merchants experienced a 39% Average decrease in fraud related operating costs and chargeback expenses, net of our fees during that same period. All of this drives a powerful flywheel effect. Our risk management platform gets stronger from each transaction we process And each merchant we add to our network. Each transaction we review enhances our datasets and our ability to identify similar Characteristics between transactions on our network. As we grow, this sophisticated transaction matching enables us to deliver strong return on our investment for our for our merchant and drives robust product innovation that enhances the consumer shopping experience. We then leverage This improved ROI for our merchants and our enhanced product suite to attract more merchants, which drives more transactions to our platform and fuels further organic growth. As our business has grown over time, our merchant network and the portfolio of potential chargebacks it contains Have become increasingly diversified across a broad range of consumers, industries and geographies. Today, We serve large scale merchants in representative categories such as sporting goods, furniture and homewares, travel, apparel, Accessories, consumer electronics and jewelry to name just a few. Our merchants range from direct to consumer brands, online only retailers, Omnichannel retailers, online marketplaces and other e commerce service providers that bear the liability for payment fraud. And each year, we review transactions on their behalf that represent consumers located in more than 180 countries, providing truly global coverage for merchants looking to grow into new overseas markets. As we improved our ability to manage payment risk, We discovered other similar risks facing our merchants. For example, we realized account takeovers were a popular fraud factor. Bank declines were a huge source of missed sales opportunities and policy abuse was a common occurrence with a sizable financial impact. As a result, we launched several new products, which are now important parts of our overall platform. Our plan is to continue to enhance our platform By developing new products, features and functionalities to further strengthen our market leading technology and serve the most complex and evolving needs We hope to share more details on these products in the future. Now I'd like to touch quickly on the structural tailwinds Benefiting our business. We believe that our business benefits from several macro trends that are driving continued demand for our products. 1st, Our opportunities increase as more sales are transacted online. According to eMarketer, global e commerce sales grew 28% year on year saw approximately $4,300,000,000,000 in 2020 and are expected to grow to approximately $6,400,000,000,000 by 2024. Furthermore, the prevalence of omni channel sales strategies like buy online, pick up in store is expanding the range of large scale merchants we can serve, while also complicating their fraud decision process. 2nd, fraud is continuously on the rise. Merchants face an increasingly sophisticated range of fraudulent threats every year, including stolen payment credentials, Compromised consumer accounts and illegitimate refund claims. Fraudsters can easily impersonate legitimate consumers, resulting in enormous financial losses and damaged brand reputations. And consumers can falsely claim that their orders never arrived or that the product they purchased was damaged on delivery. As a result, Juniper Research estimates that merchant losses Due to online e commerce fraud will exceed $25,000,000,000 in 2024, up from $17,000,000,000 in 2020. Lastly, the policies implemented by payment networks and banks are introducing meaningful friction points That have the potential to block large volumes of e commerce revenue. Online merchants depend on these partners to conduct their business, Yet these partners and their policies can be extremely punitive for merchants. As just one example, Edgar Dunn and Company estimates that $720,000,000,000 will be lost due to payment declines by 2022 And approximately 72% of these payment failures will happen to good consumers. Simply put, The e commerce landscape is rife with bad actors and multiple counterpouties that even the most sophisticated merchant With the most dedicated internal fraud prevention team may struggle to manage effectively in the long run, particularly as consumers Expect fast and simple shopping experiences. Merchants are forced to decide with limited information which consumers to accept and which to deny, And they need to make those decisions in the blink of an eye. I should also mention that there is one notable headwind that is impacting our business, at least for the time being. The online payments industry in Europe is currently adapting to a new payment regulation called PSD2. As a result of PSD2 and existing card network rules, online merchants will no longer be liable for fraud For some portion of their European e commerce volume, the market is still adjusting to this new regulatory framework, But we believe the associated GMV those online merchants submit to us will decline and as a result Impact our near term revenue potential to an extent. The magnitude of the liability shift is difficult to quantify with certainty And several important dynamics have yet to play out, which means that the impact on our European e commerce volumes remain uncertain. But the important takeaway here is that all of this will result in a one time reset to a portion of our growth and not a reduction to our overall market potential. All that said, when I step back and I look at the global market ahead of us, I see a tremendous opportunity for long term growth. Enterprise class merchants continue to generate the lion's share of direct to consumer GMV online And they increasingly look to 3rd party vendors such as Riskified to manage non core elements of their business. At the same time, our platform also serves many other parties impacted by online fraud, including some of the world's largest online marketplaces. We believe the value we create far exceeds the cost of an in house solution, enabling us to drive meaningful ROI. These compelling economics, Both for our merchants and for Riskified allow us to say confidently that we will continue investing aggressively to capture market share in this exciting new industry. That's why we've recently opened offices in China as well as the UK and Australia, And there will be others to come in the near future. Before I turn it over to Agi, I want to thank all of our team members For their hard work and dedication over the last 8 years. In addition to growing our business, we have also managed to make a meaningful impact on our communities, both in Israel and in the U. S. In the last 3 years alone, we have worked with 52 nonprofits on 136 projects committing over 4,000 volunteer hours along the way. We also donated shares in the company that were valued at $7,600,000 at the time of our IPO and close to $13,000,000 as of September 3rd, which will be allocated to nonprofits across Israel. We hope to continue our dedication to service as we grow our corporate social responsibility initiatives And the future. I'm very proud of what we've achieved to date, and I look forward to what's to come. With that, I'd now like to turn it over to Agi to discuss our Q2 financial results and outlook. Thank you, Itau, and everyone for joining today's call. As this is Riskified's first earnings call, I would like to begin with an overview of our financial model, so that everyone understands the fundamentals behind our business. Then I'll discuss our Q2 financial results in detail. And finally, I'll provide our guidance. Fundamentally, our business model aligns our interest with our merchant interest. We win when they win. We generate revenue by granting merchants access to our e commerce risk management platform and reviewing, approving and guaranteeing e commerce transaction for legitimacy. We charge our merchants a percentage of every dollar of GMP that we approve, so our incentive is to approve as many orders as we safely can on the merchant's behalf. We believe that this merchant centric approach coupled with our rigorous decisioning process maximizes our financial results and those of our merchants. If an approved transaction that we guaranteed results in an eligible chargeback, we will reimburse the merchant for the amount of the lost sale. In this situation, we record a chargeback guarantee expense in cost of revenue and typically provide the payment to the merchant in the form of credit on future invoices. Since we charge our merchants A percentage of every dollar of GMV that we approve, we define our take rate as a percentage of billings divided by GMV. As a result, Our take rate is driven by 2 main factors. Number 1, risk adjusted pay. The fee we charge our merchants, which is established at contract exception is a risk adjusted price, which is expressed as a percentage of the GMV we approve. Our risk adjusted price is a function of the type of merchants, the risk level of the end market, the percentage of GMV we review from the merchants and the guaranteed approval rate we agreed to provide and number 2, approval rate, which is the percentage of GMV that we approve. So for example, when our merchants ask us to review transactions from end markets that carry higher risk, we may charge higher fees Or when we upsell and review additional volume from an existing merchant, it will usually be coupled with a lower risk adjusted fee. Periodic changes in the overall take rate can be attributed to shifts in merchants or industry mix in our portfolio of merchants due to the different risk profiles and individual merchant take rates. Therefore, unlike traditional payment companies, Our take rate changes are not primarily driven by volume fewer discounts, but rather by overall business trends. Our take rate was approximately 26 basis points in Q2 of 2021, which represented a decrease of 3 basis points from 29 in Q2 of 2020 largely due to an increase of our GMV from a few merchants upsells in our portfolio for a lower risk adjusted price. As a result of the strong value add that we provide to our merchants, we have experienced strong merchant revenue retention. The compelling ROI we deliver has also resulted in merchants increasing the use of our platform over time, an important indicator of our ability To grow our relationships with our merchants and to increase their use of our e commerce risk management platform, it's net dollar retention rate, which has been well over 100% over the past few years. Now I'll turn to our 2nd quarter results. We ended the quarter with GMV growth of 55% year over year to $21,500,000,000 and revenue growth of 47% year over year to $55,700,000 The strong year over year growth in revenue and GMV is primarily driven by the expansion of our platform from new and existing merchants who continue to experience tailwinds in overall e commerce volumes as Edao noted earlier. Accordingly, Our cost of revenues, which primarily consist of chargeback expenses, increased by 27% year over year to 22,400,000 Due to the previously described growth, the changes in revenue and cost of revenue that I noted earlier drove 65% year over year increase in gross profit to 33,300,000 Before discussing gross profit margin, I want to remind everyone that this is a metric that is best analyzed on an annual basis As individual quarters can experience variability due to seasonality, the industry mix shift of our revenues and changes in the risk profile of transactions approved. Gross profit margin for the Q2 was 60%, reflecting 7 percentage points year over year improvement from 53% in the Q2 of 2020. This improvement is primarily driven by a lower risk profile of the transactions approved in the period and ongoing improvements in our models and algorithms. Although we are very pleased with this margin performance in Q2, we don't expect to maintain the same level of gross Profit margin in the back half, as this is primarily the result of a merchant mix and seasonality. More specifically, And as is customary, we tend to experience higher chargebacks when we first enter a new industry. These levels trend lower Over time, as our platform learns from more industry specific performance data, in addition, we expect a pickup in higher risk profile travel industry related volume due to summer and holiday related seasonality. For the remainder of the P and L, I will refer to non GAAP metrics. You can find the reconciliation of non GAAP to GAAP numbers in the accompanying press release issued this morning. Total non GAAP operating expenses In Q2 of 2021, we're $31,900,000 or 57 percent of revenue, driven by planned investments in Research and Development, Sales and Marketing and General and Administrative call as we continue to expand our platform and build new products as well as go to market activities towards geographic expansion and market coverage. We do expect non GAAP Operating expenses as a percentage of revenue to go up in Q3 and Q4 to reflect ongoing investments as well as the incremental cost of operating as a public company. Adjusted EBITDA in the 2nd quarter was positive $1,600,000 representing a margin of 3%. As mentioned above, we expect to accelerate investments in the near term and therefore produce negative adjusted EBITDA for the remainder of the year and for the full fiscal year. Our balance sheet remains strong with $149,700,000 of cash and cash equivalents, restricted cash and short term deposits. We do not carry any debt on our balance sheet. Following the end of the Q2, on August 2, 2021, We completed our initial public offering on the New York Stock Exchange, raising net proceeds of approximately 386,700,000 The capital we have raised gives us a strong foundation to continue to invest in our technology and future growth opportunities and to enable our merchants to create trusted relationships with our consumers. And now turning to guidance, Let me remind you that PSD2, which is European Union countries have begun to adopt, will be a headwind on revenue relative to earlier quarters for the remaining of the fiscal year. Since the PSC2 regulation started in the beginning of 2021 with gradual adoption by country By the end of the year, we expect that Q4 will carry the most significant impact. For the full year of 2021, We anticipate revenue between $224,400,000 225,400,000 and negative adjusted EBITDA between $26,300,000 $25,300,000 Our general practice will be to provide annual ranges for guidance, which we believe is consistent with the long term approach we take to managing our business. However, given the unique timing of this first public earnings release occurring so late in the quarter, we're comfortable to provide a revenue outlook for Q3 of between $50,700,000 $51,200,000 For modeling of earnings per share, We expect to have approximately 109,000,000 and 161,000,000 weighted average shares outstanding for our 3rd and 4th quarter respectively. We're very pleased with our strong results through the 1st 2 quarters of the year and we expect to continue to benefit from strong underlying growth in globalecommerce Fueled by the expansion of omni channel purchase options and a higher e commerce penetration rate, we intend to leverage our proprietary technology, Aggregated data advantages and scaled merchant network to drive even higher return on investment for our merchants and create frictionless shopping experience for consumers. In particular, we're excited to continue our growth with aggressive global expansion into several major geographies in the coming years. We look forward to reporting on our progress in achieving this vision along the way. With that, I'll turn it over to the operator for your questions. Thank you. Our first question comes from the line of Josh Beck with KeyBanc. Your line is now open. Congratulations on the 1st public quarter And the IPO team really, really good to see. I just wanted to start high level just with the product roadmap. You had Talk certainly about some areas that you'd like to get into. Maybe just give us a little bit, I know you can't be too specific, but just maybe a little bit more of a flavor for where you'd like to see the product expanded on over time. Sure thing. Hey, Josh. Our product roadmap right now consists of AccountSecure, which helps verify accounts at creation and login, Policy Protect, which kind of saves merchants from abuse and their different policies like returns, and DECO, which helps optimize payment And also PSD2 to help with that regulation. Really, our focus is to help generate ROI throughout the purchase funnel. We view that as either helping merchants increase sales, decrease their operating costs or create a better frictionless, really seamless environment for their end customers. All right. So that's really what we have in mind. And taking a step back, I'm really kind of happy with Traction and the value that these products are creating together with the synergistic qualities that they have working with each other. They're all kind of live with a multitude of enterprise clients and it's really helping create this type of platform approach for us. Excellent and really good to hear about the Wayfair renewal. So thank you for the context there. I'm curious, I know you can't get too specific about some of these larger new merchants that you've onboarded, but maybe just what have been some of the Early learnings as you started to obviously work more closely with them and actually onboard them to the system. I think we've been pleasantly surprised how applicable the solution is, not just for Credit card e commerce transactions, but also alternative forms of payment, whether it's ACH, whether it's digital tokens or wallets. So that's been kind of our assumption, but it's been reinforced throughout this quarter. And I think that we've Always had the thesis that even the world's largest merchants would be happy to partner with a Riskified on non core elements of their business. And we feel that the wafer is a great example, but also kind of other things that we can't discuss right now. Okay, excellent. Let me squeeze one more financial question on. Just related to the guidance, obviously, you have really strong momentum, As you mentioned, within the quarter and certainly good visibility into Q3, maybe just with respect to Q4, What are some of the key assumptions? Obviously, you mentioned PSD2 is likely to be more of a Effect during that quarter, just what are some of the big moving parts that we should be thinking about as we go into the Q4 of the year? Yes. So I will take this one. So when we think about Q4, we already know that Some of the most of the European countries have already started to adopt PSD2, and this is definitely something that we're watching, and we expect that most of the Any impact on our emergence will happen in Q4. Having said that, this is something that we've already kind of included The risk in our financials based on the expectations, based on what we see. And in addition to that, we're Very excited about the continued strength and growth coming from our existing customers. And I can also say that we've seen generally that the COVID has a positive impact like a tailwind to the e commerce growth. And that's also something that when we think about kind of the fluctuations between travel and just the continued growth in e commerce, We're very well positioned as like a portfolio that kind of is very balanced seeing the impact of e commerce, but also kind of netted potentially by some of Our next question comes from the line of Timothy Ciotto with Credit Suisse. Your line is now open. Great. Thank you. Good morning, everyone. I want to dig in a little bit to the longer term growth outlook. So I think this would be something that would be extremely helpful to investors. When we think about that, Let's call it 25% to 30% medium to longer term growth outlook, getting past the near term impacts from PSD2 and whatnot. How does the management team think about this algorithm in terms of the components? When we think about one portion is the underlying end market growth, so e commerce growth, very strong. Then you have this other driver of wallet share gains with your existing customers. And then of course you have new customer wins. So if you were to kind of put some rough numbers around those to add up to roughly 30% or so, how should we think about those? Clearly, the e commerce underlying is sort of in the Mid teens maybe higher, but those other two components sort of bridge us to the 25% to 30%? Thanks a lot. Yes. Hey, Tim. So definitely when we think as a management team on kind of the really long Term persistent growth opportunities that we have, it's like you mentioned, the underlying growth of the e commerce market that we're part of, Together with expanding the wallet share with our existing clients, and we have a very kind of considerable expansion opportunity there, Together with kind of gaining new clients, it's still kind of a massive opportunity. I will say that we also think about kind of expanding into additional categories. I mentioned ACH and digital tokens earlier. We're also thinking about geographical expansion. We're also thinking about some of the new products That are kind of very nascent in their revenue opportunity. So I think those are all kind of the different factors into that very long term persistent growth outlook. When we think about the exact percentage points, I don't think it's something that we're sharing at this point. But I would say overall, The way that customers tend, especially the larger ones, which are more significant for us, they tend to start with a smaller section And expand usage over time as they kind of become more comfortable with the platform as we improve our ROI and expand with them. So because of that dynamic, we tend to see more of the revenue growth from existing clients and expansion within the existing cohort. But the net new business is what's helpful in kind of the future growth opportunities. Okay, great. My quick follow-up is and actually maybe it's not so quick of a follow-up, but It's a question around PSD2 offsets. So clearly, there's some portion of volume that will cease being sent over In this quarter, in Q4, etcetera, with PSD2, that's more the intra European volume. Of course, the cross border piece is still very much in scope for you guys. Can you talk about the applicability of the new products? In other words, if the core chargeback guarantee product is impacted by PSD2 in Europe, To what extent could the other new products still be sold into those same customers that you clearly already have good relationships with? Right. So the PSD2 directive, which creates the payment security in the EU, right, it forces customers into strong customer authentication. A byproduct of that is that we see more customer drop off. Second thing we see, is a shift in liability from the merchant to the card issuer, Right. And like you mentioned, because of that liability shift, there might be a one time reset to a portion of the European volume. And the second question is, does our PSD2 optimized product, right? That helps offset some of that revenue impact over time. But the remainder of the platform, the AccountSecure, the Deco product, the Policy Protect are still as relevant as ever, correct? Yes, exactly. That's what I was getting at. So a couple of different products that could be still be sold into those same customers is kind of what I was Getting it. Okay. Well, thank you everyone for taking the questions. Thank you. Our next question comes from the line of Ramsey El Assal with Barclays. Your line is now open. Hi, guys, and thank you for taking my question this morning. I wanted to ask about kind of following up on the assumptions underpinning Your expectations in 2021 and whether they've changed between a couple of months ago in the pre IPO period and today. I'm actually Asking specifically about delta variation impact, whether the Wayfair renewal was contemplated in guidance and whether you've had to adjust your expectations Recovery, those three sort of items. Has your view changed? Has it caused your projections to change effectively? Thank you, Randy. I'll take this one. So we're constantly monitoring macro trends such as Call it involvement on travel and just the general growth in e commerce. And when we think about the different factors that are impacting it, We don't see any huge impact based on where we thought we'll be. Maybe there's just some shift in some subcategories. Is that Specifically, for example, if I think about travel, we do see like domestic travel or domestic accommodation growing much faster and kind of recovering where international travel is not recovering as fast. So there's kind of Travel is not recovering as fast. So there's kind of specific variations to some of our assumptions, but overall, We're kind of very strong about our position of where we were just a month ago. Okay. So not a lot of change in the view. Okay. And then Secondly, I wanted to ask about gross margin came in a little better than our model. And if you could just comment on the performance of charge backs in the quarter. And also maybe more broadly, should we expect not having a lot of historical context at this point, how volatile can that performance be quarter to quarter? Yes, sure. So when we think about gross margin as a percentage and just gross In general, we do manage this more on an annual basis. And as we kind of explained, there's going to be variability in different quarters Because of seasonality, because of different industry merchant mix, different ramp up of new clients. But on an annual basis, We're very kind of close of where we thought we're going to be. And I think this is kind of like the best way to look at the way we're managing this internally. Okay. All right. Thank you very much. Appreciate it. Thank you. Our next question comes from the line of Tien Tsin Huang with JPMorgan. Your line is now open. Thank you so much and congrats again on the IPO in the Q1 here. It looks really clean. I wanted to follow-up on Ramzi's question just With EBITDA coming in better, gross margin coming in a little bit better and the outlook was better than what we had forecasted for EBITDA, how much of that Is gross margin performance versus perhaps slower investment ramp? I know that there was a lot of plans to invest And people, etcetera. So just curious if there's been any change on the cost side? Thanks. Sure, Sung Ji. Thank you for the question. So I think that a lot of it is coming from gross margin outperformance. And Regarding our investments, we are on track and we're continuing to kind of to speed up and to ramp up. I would say that the majority of these investments I expect to kind of happen over Q3 and Q4, and this is reflected in some of our guidance. Okay, great. So that is high quality then. Great. This is terrific to hear. I know maybe for you, Ado or Agi, just on the we get a lot of questions on buy now, pay later. There's been a lot of activity there, a couple of acquisitions. And I've had some people ask Riskified and how buy and pay later might play a role in your flow. Do you participate? And if so, how? Yes, that's a great question. So taking a step back, like I mentioned, we don't just focus on credit card transactions. We already work with ACH, with PayPal volume, with digital wallets. And from that perspective, the technology And work with buy now, pay later just as well. When we think about the buy now, pay later vendors themselves, their service is To provide an end to end payment processing that also includes the risk component and the chargeback liability. And they face the same problems that our enterprise e commerce merchants face, right, namely that they make mistakes, they accept bad transactions and they have Loss is a result of that. They turn away good customers because they do not want to receive those loss and they have to invest very large amount of resources to upkeep These teams and tools and processes and systems, so we definitely kind of feel that our platform Just dedicated to solving this one unique problem, is very applicable and is directly within our strike zone to help them. I will say that one just kind of nuance to help understand, I'm just talking about fraud related loss, right, not any type of underwriting related to credit, Which I think is more of their specialty, and obviously they're better than us at that portion. Perfect. Thanks for going through that guys. Thanks. Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Your line is now open. Hi, Yigal and Aghi. Congratulations on the IPO as well for me and the quarterly results. I had a couple of questions. One thing I wanted to kind of take a look at is you have a growing merchant base on the platform and there are various kind of Cycles in terms of whether they're early onboarding, they're starting to move into broader swaps of their GMV to fully kind of ramped. What I'm curious about is it's kind of like a visibility question I'm asking, how much of your merchant base is like really fully ramped? You've got the most attached you can get on GMV reviews as opposed to it's ramping or it's really early stages. That's the first question. Yes. So I would say definitely at the earlier cohorts, right, and I'm talking about 2016, 2017 cohorts, you can see that the wallet share has been steadily increasing. And I think we shared some of the Cohort expansion numbers or the net dollar expansion numbers that are great reflection of that. When we think about the most recent cohort this year, the previous 2 years, There's definitely a lot of expansion opportunity there left. We've added some of the world's largest e commerce merchants that are underpenetrated today. So we definitely think there's kind of massive opportunity. We don't have for various kinds of also technical and sometimes legal issues, we can't share the Jack, white space, but on our internal models, it's very significant. Okay. And maybe just a follow-up question is, Omni channel, I mean, people have been talking about it for quite some time, but I think the brick and mortar companies or brands are still trying to work through that and it's a journey. What I'm curious about is what's the cadence in terms of some of these large brands that are really trying to embark on omni channel, OPUS or curbside and Just really get their house in order there. Do you all tend to follow those initiatives? Do you tend to be in parallel? And does it open up more opportunities or GMV? Thank you. It does. When I think about some of the categories like groceries that from a traditional retail have done much more omni channel in the past 18 months, that's definitely opened up more opportunities for us. The reason being these kind of more complex undertakings like buy online, curbside pickup, Fraud tends to gravitate to those areas because they're newer, and there's less data and it's easier to perform fraud there, Which means that it's also kind of a better opportunity for us to service these merchants once they start getting into these worlds. So we'd only feel that Various omnichannel flows are a good driver for the business. Congrats. Good luck in the second half. Thanks. Thank you. Our last question comes from the line of Brent Bracelin with Piper Sandler. Your line is now open. Good morning and thank you for taking my questions here. I guess I wanted to focus a little more on Q3 activity given The range for Q2 numbers here were known, published an update in S1 ahead of the IPO. Edo, could you provide a little more Color on how the platform is addressing the digital wallet and online payment use cases. I mean, how much interest activity are you seeing now from that use case in Q3 could broader adoption, provide a lift to revenue. Just trying to understand the mechanics on how it works and how it may impact the model. Thanks. All right. So I will say, and I'm putting Q3 aside for a second, we onboarded some new categories Around kind of payment platforms and digital wallets this in the second quarter. They're still under penetrated or there Still a lot of wallet share and white space opportunity there. It tends to take a longer term for us to ramp to fully Realize the opportunity within these accounts. So I wouldn't imagine that it would be a significant portion in Q3 at least. Over time, could that be an incremental lift, drive a higher attach rate to GMV? Could it be a material lift or it's Just too new at this point to really tell. Yes. I think on the very long term, it could definitely be part of that persistent long term growth. It's Spending the TAM, it's making sure that we're applicable to more geographies, verticals, categories, Which is kind of that long term vision that we have, so definitely. Perfect. And then on the international Expansion, I think you specifically referenced Australia, China. How has the merchant receptivity to Riskified been there? Walk through any sort of color you can provide on appetite to partner and outsource in those 2 new regions. We're very happy with the expansion both in Australia and we also have planned in Shanghai and in Japan. Our London offices have been very successful so far. We're ramping on Mexico and Brazil. And really, I think the common thread is that the problem of fraud is global, Okay. And the platform is able to provide a great service in all these different geographies. So again, To date, even before we had the local representatives in those countries, we were able to support our global partners when they were selling globally. But now that definitely helps us both with the go to market, but also in a way to service the clients. So very happy with the reception so far. Great. And then last one here for you, Aggie. PSD2 volume kind of headwind risk It was well known kind of going into the second half of this year. I'd be curious how you're seeing those headwinds play out so far? Any sort of change relative to what you're thinking going into the second half? Any thoughts there on Kind of what's happening in real time would be helpful. Thanks. Yes, sure. So I mean, we kind of that countries are going to gradually adopt and start ramping up. And we do see most of the countries kind of going in as planned. So in that respect, everything is not unexpected of where we are right now. Countries both countries and merchants are adopting PSV2. In terms of projection, I think regulation is just difficult to predict. And I believe that long term business will provide a growth opportunity for us Once we're kind of past the cycle and we create this reset and we'll be able to really help all these clients that we have today to kind of subtract more GMV and to Really help them with solving their newly kind of horizon friction points as well. Helpful color. Thank you so much for the call and taking my questions. Thank you. Ladies and gentlemen, there are no further questions. This concludes today's conference call. We thank you for your participation. You may now disconnect.