Riskified Ltd. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone Q4 filing. The company is an Israel-incorporated provider of machine-learning-based ecommerce fraud and risk services, primarily through its Chargeback Guarantee product. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Key financial and operating metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $297.6 million | $261.2 million |
| Gross profit / gross margin | $152.5 million / 51% | $135.1 million / 52% |
| Operating loss | $(76.8) million | $(109.3) million |
| Net loss | $(59.0) million | $(104.7) million |
| Adjusted EBITDA, non-GAAP | $(8.5) million | $(37.1) million |
| Cash from operating activities | $7.3 million | $(26.3) million |
| Free cash flow, non-GAAP | $5.9 million | $(34.3) million |
| Gross merchandise volume (GMV) | $123.1 billion | $105.6 billion |
| Chargebacks-to-billings ratio (CTB) | 41% | 39% |
| Net dollar retention | 105% | Not stated in the supplied text |
At year-end, cash, cash equivalents, short-term deposits and short-term investments totaled $474.8 million; total current assets were $532.3 million and current liabilities were $69.8 million. The company reported no debt outstanding. Shareholders’ equity was $491.7 million. The company repurchased 3.04 million Class A shares for approximately $13.1 million during 2023 under its $75 million authorization.
Changes versus the prior comparable period
- Revenue increased 14%, while GMV grew 17%. Management attributed the revenue increase mainly to new merchants, particularly in tickets and travel, fashion, and food, with upsells partly offset by declines and attrition.
- Gross margin declined one percentage point, to 51%, as CTB rose to 41% from 39%. Net chargeback expenses increased $18.6 million, reflecting merchant and industry mix and an isolated merchant fraud event in Q3 2023.
- Net loss narrowed by $45.7 million. Operating expenses declined 6%, mainly due to lower general and administrative expenses; research and development and sales and marketing were broadly flat.
- Operating cash flow improved by $33.5 million to positive $7.3 million. Management cited improved results, working-capital timing and higher interest received.
- Interest income, net, rose to $22.8 million from $10.2 million, primarily due to higher global interest rates.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no clear numerical revenue or earnings guidance. Management expects 2024 cost-reduction efforts to lower operating expenses and operating expenses as a percentage of revenue, with possible quarterly fluctuations. Elsewhere, it expects non-GAAP operating expenses may increase modestly over the next several years as it invests in products, partnerships, infrastructure and sales.
- Cost actions: In February 2024, the company announced a workforce reduction affecting approximately 6% of employees, with about $2.0 million of primarily severance and benefits costs expected in Q1 2024.
- Fraud and guarantee exposure: A significant Q3 2023 fraud event at one merchant was not blocked effectively and adversely affected quarterly gross profit. At year-end, outstanding indemnification guarantees totaled $57.2 billion; this is the maximum potential covered transaction amount, not the recorded liability. Recorded guarantee obligations were $12.7 million and net chargeback provisions were $12.1 million. Chargeback expense for FY2023 was $121.8 million.
- Principal business risks: Merchant concentration (the top three merchants represented 28% of revenue and the top five 38%); continuing losses; model accuracy and fraud-pattern changes; macroeconomic weakness and merchant financial health; competition; alternative payment methods and shifts in chargeback liability; privacy, cybersecurity and evolving AI regulation; and currency exposure.
- Other material matters: The company believes it was not a PFIC for U.S. tax purposes in 2023 using an alternative asset valuation, but warns the IRS could disagree. The prior IPO-related securities class action was dismissed with prejudice in June 2023 and the judgment became final. An immaterial prior-period error in sales-commission amortization was corrected. The auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective, while the auditor did not attest to internal control because of the company’s emerging-growth-company status.
- Seasonality: Q4 is typically the strongest quarter; it represented about 28% of FY2023 revenue and 32% of gross profit. Quarterly gross margin and CTB can fluctuate, and management says they are best evaluated annually.
Important facts for investors to verify
- Whether lower 2024 operating expenses translate into improved operating results and sustained positive free cash flow.
- Whether CTB and gross margin improve after the Q3 fraud event, and whether new merchant and industry mix creates further chargeback volatility.
- Revenue dependence on major merchants and the 105% net dollar retention rate, including its underlying billing trends.
- How much of the $474.8 million liquidity balance is available for operations after buybacks, lease commitments and other obligations; the filing lists $36.1 million of future minimum lease payments.
- Developments in the Israeli security situation, the workforce reduction, share repurchases and the company’s annual PFIC assessment.