Riskified .(RSKD)2025-03-06 21:08Currency and Financial Risks - The company is exposed to fluctuations in currency exchange rates, particularly with a portion of revenue denominated in Euros, which could negatively affect revenues if foreign currencies weaken against the U.S. dollar[116]. - The company may require additional capital in the future, and its ability to obtain financing will depend on various factors, including operating performance and capital market conditions[117]. - The company’s financial position could be negatively impacted if it issues significant credits or refunds to merchants due to performance malfunctions in its platform[127]. - Changes in tax laws and regulations could adversely affect the company's operations and financial condition, potentially leading to increased costs and liabilities[199]. - The company is subject to routine tax audits, which may result in additional tax, interest, or penalties being imposed[200]. - The application of indirect taxes to online transactions is complex and evolving, with potential liabilities exceeding current estimates[201]. - The company may face substantial tax liabilities if required to collect sales or other taxes in jurisdictions where it has not historically done so[201]. Technology and Operational Risks - The company relies on third-party Public Cloud Providers for its cloud-based SaaS products, and any disruption in their operations could adversely affect the company's business and financial condition[119]. - The company faces risks related to interruptions or performance problems with its technology and infrastructure, which could undermine merchant confidence and negatively impact revenues[127]. - The company’s proprietary machine learning models depend on data from merchants and third parties, and any loss of access to this data could adversely affect its ability to evaluate transactions and detect fraud[128]. - The company faces risks related to the accuracy and availability of third-party data used for training machine learning models, which could adversely affect product offerings and merchant relationships[131]. - The company relies on third-party data sources for fraud detection may lead to inaccuracies, affecting its ability to make informed decisions[130]. - The company may incur significant costs for using alternative equipment or services in response to disruptions affecting its Public Cloud Providers[120]. Intellectual Property and Compliance Risks - The company has not registered any copyrights and primarily relies on trade secret protection, which may limit remedies for unauthorized use of its software[122]. - The company’s ability to protect its intellectual property rights is uncertain, particularly in foreign jurisdictions, which may expose it to unauthorized use of its technology[121]. - There is a risk of being sued for alleged infringement of intellectual property rights, which could lead to substantial damages or redesigning of products[179]. - The company does not currently have a patent portfolio, which may hinder its ability to defend against patent infringement claims[179]. - Compliance with evolving privacy laws and regulations may result in significant liabilities and operational costs, impacting revenues and financial condition[132]. Regulatory and Legal Risks - The California Consumer Privacy Act (CCPA) imposes civil penalties for violations, and failure to comply could lead to legal actions against the company[137]. - The General Data Protection Regulation (GDPR) imposes strict obligations on data processing, with potential fines for non-compliance that could significantly impact financial condition[140]. - The company anticipates increased operational costs due to compliance with the Digital Markets Act (DMA) and Digital Services Act (DSA) which require modifications to practices and policies[148]. - The evolving regulatory landscape in the European Economic Area and the UK may lead to increased operational costs and risks associated with data transfers and processing[139]. - The company is subject to complex and rapidly changing U.S. state laws regarding privacy and data security, which could lead to costly compliance efforts[136]. - The introduction of new regulations in China, such as the Regulations on Network Data Security Management, expands obligations for data processors and may require significant adjustments to operations[157]. - The regulatory framework for artificial intelligence (AI) and machine learning (ML) is rapidly evolving, with significant new laws enacted in California, Colorado, and Utah, impacting compliance and operational costs[161]. - The EU AI Act, effective from August 2024, will impose obligations including transparency and risk assessments, with fines for non-compliance reaching up to 7% of worldwide annual turnover[161]. - China has implemented strict regulations governing generative AI and algorithmic technologies, requiring service providers to file algorithms and complete security assessments[161]. Market and Competitive Risks - The market for AI and ML technologies remains unproven, and the company faces challenges in developing and commercializing these technologies effectively[165]. - The company relies on third-party AI technologies, and any changes in availability or pricing could adversely affect its solutions and customer appeal[166]. - The use of open-source software poses risks, including potential litigation and requirements to disclose proprietary code, which could impact revenue generation[171]. - Maintaining and enhancing the company's brand is critical for growth, requiring substantial investments in marketing and product quality[173]. - The company may pursue acquisitions or strategic investments to expand capabilities, but such efforts could face integration challenges and divert management attention[176]. - The company faces challenges in identifying desirable acquisition targets and may incur significant costs if regulatory approvals are not obtained for acquisitions[177]. Governance and Shareholder Risks - The dual class share structure concentrates voting power with management, limiting shareholder influence over important transactions[213]. - The company's Class A ordinary shares have experienced significant price volatility, influenced by various market factors and operational performance[210]. - Future issuances of Class A ordinary shares or convertible securities may result in substantial dilution to existing stockholders[226]. - The dual class share structure allows existing shareholders to significantly influence shareholder approval matters, even with less than a majority of shares[232]. - The company believes it was not classified as a Passive Foreign Investment Company (PFIC) for the year ending December 31, 2024, but this status is subject to annual determination and could change[246]. - Rights and responsibilities of shareholders are governed by Israeli law, differing from U.S. corporations[261]. - Shareholders must act in good faith and refrain from abusing their power within the company[261]. - Controlling shareholders have a duty of fairness toward the company, though the substance of this duty is not defined[262]. Economic and Geopolitical Risks - The ongoing military conflict in Israel has led to a deterioration of certain economic indicators, including a downgrade in Israel's credit rating by agencies such as Moody's, S&P Global, and Fitch[253]. - The company’s commercial insurance does not cover losses from war and terrorism, which could materially affect its business if damages occur[255]. - The ongoing war has resulted in several hundred thousand Israeli military reservists being drafted, potentially disrupting the company's operations due to employee absences[254]. - The company faces risks related to geopolitical instability in Israel, which may adversely affect its revenues and financial condition[249]. - The global perception of Israel may lead to increased sanctions and negative measures against Israeli companies, potentially impacting business operations[257]. - Enforcement of U.S. judgments against the company and its non-U.S. officers may be difficult in Israel[259]. - Israeli courts may refuse to hear claims based on alleged violations of U.S. securities laws[259]. Internal Control and Reporting Risks - The company must maintain effective internal controls over financial reporting to avoid material weaknesses that could affect investor confidence[188]. - Any failure to comply with financial reporting regulations could result in investigations by the SEC and negatively impact the trading price of the company's shares[191]. - The company continues to incur increased costs due to operating as a public entity, particularly after no longer qualifying as an "emerging growth company," leading to significant legal and accounting expenses[236]. - The company is subject to various compliance costs and challenges due to regulations imposed on public companies, which may evolve over time[237].