Q4 2021 Robinhood Markets Inc Earnings Call

January 27, 2022

Thank you for standing by and welcome to Robinhood, its fourth quarter and full year 2021 com.

Prince call at this time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your Touchtone telephone. Please be advised that today's conference may be recorded should you require any further assistance. Please press star zero.

I would now like to hand, the conference over to your host Urban Shah. Please go ahead.

Thanks, Latif and welcome to everyone and thank you for joining us for Robin Hood, its fourth quarter and full year 2021 earnings conference call with US today, our CEO and co founder of <unk> and CFO , Jason who weren't before getting started I want to remind you that today's presentation will contain forward looking statements that Robin has your outlook for the first quarter.

And full year of 2022, as well as their strategic and operational plans.

Actual results could differ materially from our expectations, we continue to monitor regulatory developments relating to market structure matters, such as statements from the SEC on payment for order flow and digital engagement practices.

Other potential risk factors that could cause differences are described in our press release issued this afternoon. The related slide presentation on our Investor Relations website. Our Form 10-Q filed October 29, 2021 and in our other SEC filings.

We remind you that from time to time, we intend to use our blog under the Hood on our website at <unk> Dot Robinhood dot com as a means of disclosing material information to the public and investors should routinely monitor our blog as information posted there it could be deemed to be material information.

All information on the call is as of today January 27, 2022, and we undertake no duty to update it for subsequent events, except as required by law.

As we discuss our results all percentage growth comparisons will be to the same period in the prior year unless otherwise noted.

Day's discussion will also include non-GAAP financial measures reconciliations to the GAAP results. We consider most comparable can be found in the earnings presentation on our Investor Relations website at investors that Robin Hood Dot com.

With that let me turn it over to flat.

Thanks, Herb as always and thanks, everyone for joining I'd.

I'd like to start by briefly reflecting on 2021, which has been a momentous year for us. We're really proud to have added over 10 million net funded accounts to Robin Hood in 2021 with over half of them new to investing we finished the year with $1 8 billion in total net revenues up from $959 million in 2020.

The story of the first half of 2021 was one of firming up our foundations and putting ourselves in a strong position to accelerate product development and future growth.

During the year we've.

We've invested heavily in our platform leading to high service reliability and uptime, we've made huge strides in education and customer service, including successfully adding $24 seven live phone support we completed our acquisition of C technologies, which as usual will be on display in this earnings call, we more than doubled our team, including an important area.

As like engineering product customer service and compliance and we're continuing to add senior talent to help us take robinhood to the next level I am, especially excited to welcome Steve Quirk, who joined US This month as Chief brokerage officer, and a member of our senior management team.

I wanted to take a moment to thank our employees. The work we've done in 2021 firming up our foundations, while going through hyper growth involved long nights and weekends and lots of personal sacrifice, we're starting to see the fruits of that work in the third quarter. We started once again accelerating our product engine. This acceleration has continued through Q4.

And into the new year, we're now in a position where much of our resources are going towards new product development and innovating for our customers here some of the meaningful things we delivered for customers in Q4.

We recently introduced first trade recommendations, which helped new customers get started with a diversified ETF portfolio based on their risk profile and investment objectives. We've also introduced a cats in which enables our customers to transfer assets from other brokerages into Robinhood. We launched this a few weeks ago to a small set of <unk>.

Customers and have been gradually expanding its availability with early results looking promising and we expect to complete the customer rollout later this quarter in.

In addition, we've made a number of enhancements to our options product introducing options alerts options watch list as well as a simple way to roll options contracts.

We've made progress on our fully paid securities lending program, while we continue to discuss it with our regulators. We believe we will be able to launch the program during the first half of the year.

We're also close to delivering a feature that our customers have been asking for an even larger window of available trading hours. We call. This feature hyper extended hours and anticipate rolling it out later this quarter.

And we added two new venues for executing equity trades, not only adding competition for customer orders, but improving our ability to handle surges at volume.

We're also continuing to invest in crypto.

We launched our public beta of crypto wallets earlier, this month and plan to release the product to everyone. Later this quarter.

Just in time for the holidays, we introduced crypto gifting, which we believe is the most seamless way for customers to send crypto to their family and friends.

We've rolled out intelligent crypto price alerts on often requested feature.

And similar to equities, we added another venue for crypto, increasing capacity and liquidity for our crypto volume increasing price competition for orders as Jason will touch on in a moment along with this change we've improved the revenue share we received from our venues.

We continue to hear from customers that they want us to lift more coins, we've been proactively engaging with regulators on this they're expressing concerns about crypto currency platforms, adding coins that the regulators believe are unregistered securities and they are watching this space closely that said, we have robust coin listing protocols in place we're comfortable with.

How we've analyzed the coins currently on our platform we have invested in the technology that will allow us to seamlessly add more coins and we intend to add more coins going forward.

Now I'd like to talk about where we're going I've talked a little bit already about how the foundation. We built through most of 2021 has allowed us to invest more in product development in Q4.

While we're proud of what we delivered in Q4, it's nothing compared to what we have planned for 2022 and beyond our work is focused on three things one being the best place to get started investing to helping first time investors grow into long term investors and three continuing to serve our advanced investors with.

The power and simplicity they need.

Over the next several years, we plan to create an ecosystem of financial products and services that will enable people across the world to become investors. We believe the products on our road map will go a long way towards making that a reality.

Here are a few things you can expect in 2022.

First long term investing we're.

We're working to rollout more offerings that make investing routine give people more ways to build well for the future bring them closer to the companies they invest in and as we mentioned last quarter tax advantaged retirement accounts are on the roadmap and the teams are already hard at work to develop this functionality and we'll begin rolling it out to customers mid year.

Second spur.

Spending and saving in the coming months, we'll be introducing a new experience for day to day spending with this new experience. We believe we can serve customers, who aspire to be investors, but aren't quite ready to set aside money to get started we can help them build their portfolios, while serving their daily spending needs all with a delightful and innovative user experience they have come to <unk>.

<unk> from Robin Hood.

<unk> payments.

<unk> already begun to see some initial progress here with crypto gifting, it's really our first peer to peer product we want to build upon this and make it easy for customers to send value to others. We also want to make it easier for customers to deposit and withdraw funds today <unk> is the primary way our customers moved money, but its slow in 2021 customer deposits and with <unk>.

<unk> totaled $136 billion, we want to give customers faster ways to move their money and in the next few months, we'll be introducing instant debit card deposit withdrawals and we'll look for additional rail from there.

Finally.

International we believe serving customers across the globe is a big opportunity for us and the investments we've made in crypto over the past year have put us in a great position to expand in 2022, we've set aggressive goals to start opening our crypto platform up to customers internationally.

This next phase of growth will not only be about adding new customers, but also deepening our relationship with the over 22 million customers. We already have we expect that our growth will continue to come in waves with periods of both outsized and slower growth much of it linked to product launches geographic expansion and of course market fat.

<unk>.

We will remain focused on our customers and delivering innovative products that make it easier for everyone to become an investor.

And with that let me turn it over to Jason to discuss our financial results.

Thanks flat 2021 was a strong year for our key metrics and revenues.

Net funded accounts increased to $22 7 million up 81% year over year.

Monthly active users increased to $17 3 million up 48% from December 2020 to December 2021.

Assets under custody increased to 98 billion up 56%.

Total net revenues grew to $1 8 billion up 89% and adjusted EBITDA was $34 million.

Additionally, we ended the year with over $6 billion of unrestricted cash and cash equivalents, we've never been in a stronger capital position as a company.

Turning to Q4, we added 300000 net funded accounts during the quarter New funded accounts totaled 800000 churned accounts totaled 700000 and resurrected accounts totaled 200000.

For churn, we saw a 19% reduction compared to Q3 and on a percentage basis churn hit its lowest mark in the last year and a half.

Lastly, we had $4 4 billion in net deposits from customers for the quarter up 93% sequentially, but down 32% on a year over year basis.

Now, let's turn to revenue.

It'll net revenues were $363 million in Q4 up 14% year over year and in line sequentially. Our results for Q4 exceeded our previously communicated expectations as we saw stronger than anticipated trading activity.

Transaction based revenues for $264 million for the quarter up 12% year over year and down 1% sequentially.

Equities revenue was 52 million down 35% year over year and up 3% sequentially options revenue was $163 million up 14% year over year and roughly flat to Q3.

And crypto revenue was $48 million up 304% year over year, but down 5% sequentially as.

As <unk> mentioned in late December we updated our pricing agreements with crypto market makers and added another venue to increase capacity and further improve competition for our customers our rebate, which is subject to change from time to time more than doubled with these changes.

As a reminder, this is the first time since launching our crypto business that we've updated the economic split between us and our venues.

Looking at trading activities there are a few callouts for.

For equities trading customers, placing trades were up 21% year over year, which was offset by lower darts down 12%.

And lower notional volumes per trader down 43%.

For options trading customers, placing trades were up 6% year over year in.

And options contracts per trader was up 20%.

Set by lower darts, which were down 1%.

And for crypto customers, placing trades were up 218% year over year.

Crypto darts were up 176% and notional volumes per trader increased 19%.

Moving to assets under custody.

Equities was $72 1 billion up 36% year over year ops.

Options was one 5 billion, which was down 28% is as customers shifted their purchasing activity more towards short dated positions.

<unk> increased to $22 1 billion up 528%.

And for net revenues, they were $63 million for the quarter up 1% year over year and in line sequentially primary.

Components include secure.

Securities lending totaled $29 million was down 19% year over year and down 15% sequentially.

Been increasing the amount of securities loan to Counterparties, however market rate declines of more than offset these gains.

As we look toward adding fully paid securities we anticipate a significant opportunity to increase the monetization of this program.

We believe fully paid securities lending at scale should be one to two times the size of margin securities lending, depending on opt in rates by customers.

Margin interest totaled $39 million in the quarter up 45% year over year.

Our margin book closed out the year at $6 5 billion, a 93% increase versus the prior year.

At the end of the quarter about 1% of our funded accounts maintain the margin balance.

And interest expense was $6 million offset to net interest revenues in Q4.

Yes.

As we anticipate fed rate increases during 2022, we expect that for every 25 basis points of rate increase will generate approximately $40 million of additional annualized net interest revenue base.

Based on balances at year end 2021, while continuing to pass on value to customers.

Moving to other revenues they were $35 million in Q4, and 84% increase versus the prior year and in line with Q3 the.

The year over year increase was primarily driven by growth in our gold subscriptions and increased proxy delivery fees, resulting from growth in assets under custody.

As Vlad mentioned, we are working towards enabling faster money movement for our customers.

This represents a meaningful opportunity for us to earn service fees to the extent customers select this higher level of service.

For context in 2021 customer withdrawals totaled 54 billion.

Now for operating expenses.

We finished the quarter with nearly 3800 employees up 134% year over year.

And up 12% sequentially.

During the quarter, we made sequential progress reducing fraud losses down 28% versus Q3, we've.

We've got more work to do here and this is constantly evolving.

I'm proud of the progress our teams are making.

Lastly, our teams are working diligently to improve our operating leverage and efficiency whenever one area I'm, particularly pleased with is web hosting.

The team is focused on efficiency and delivered a sequential improvement of 19% in Q4 versus Q3 for a savings of $15 million.

Now, let's turn to measures of profitability.

Okay.

Net loss for Q4 was $423 million, which includes $318 million and share based compensation.

This compares to net income of $13 million in the prior year quarter.

Adjusted EBITDA was negative $87 million compared with positive $79 million in the prior year quarter.

As a reminder, adjusted EBITDA, primarily excludes the impact of share based compensation.

Before I get to our outlook I'd like to mention that we have been carefully monitoring the behavior of our customers in this market environment since the start of the year, our customers have been continuing to deposit funds into their accounts on a net basis.

But they have been making fewer trades and in smaller amounts.

In these first few weeks of the new year, we're seeing trading activity below what we saw in Q4 of 2021.

However, in the few days, leading up to our call. We've seen some higher levels of engagement net deposits and trading versus the start of the year.

It's too soon to say, whether what we've seen these last few days will be a sustained trend or not.

And so for Q1, we're anticipating that total net revenues will be less than $340 million.

Which assumes some incremental improvement in trading volumes versus what we've seen so far.

At the top end this implies a year over year revenue decline of 35%.

As a reminder, in Q1 last year, we had outsized revenue due to heightened trading activity, particularly relating to certain mean stocks.

Now for full year 2020 to operating expenses.

We expect total operating expenses, excluding share based compensation to increase between 15% and 20% year over year.

Additionally, we expect share based compensation to decline between 35 and 40% year over year.

During 2022, we expect to meaningfully slow our hiring pace as we grow into the larger workforce, we built over the past two years.

While we exited 2021 with a higher run rate for employee compensation costs. We expect these costs to be partially offset as we again as we began realizing efficiencies across several areas of our business.

Yes.

We expect to realize improvements in such areas as customer service cloud web hosting and fraud losses, as we focus on productivity and benefit from our increasing scale and investments we're making in technology.

Actual results for total operating expenses, excluding share based compensation may differ materially from our outlook due to several factors, including the rate of growth and net new funded accounts, which affects several costs, including variable marketing costs, the degree to which we're successful in preventing fraud or ability.

<unk> to manage web hosting expenses efficiently and our ability to achieve productivity improvements in customer service among other factors.

With that curve, let's move to Q&A.

Leading into this quarter's Q&A session I will start by answering the top questions from say ranked by number of votes. We will pass that for any questions that were already addressed and we will group together questions that share a common theme.

After that we will turn to live questions from the analyst community.

And with that I'll kick it off with their top questions from say.

First question comes from <unk> and Keith W.

When can we expect Robin hood to be profitable what steps are being taken to make this happen.

Thanks for the question our primary measure internally for profitability as adjusted EBITDA, We actually for the full year 2021 had a small positive adjusted EBITDA.

When we look forward.

Possible that will have a positive adjusted EBITDA in 2022, but we've got a much better line of sight for that in 2023, it's obviously going to depend on a few things including.

Overall market conditions.

And how well we execute against the new product roadmap.

Also going to be impacted by how effective we are at managing our costs, which were definitely committed to do.

Okay.

Next we have a few questions on our recent share price activity from OLED b seizure on P and have need and <unk>.

Facing a bit the question is Robin hood share prices dropped significantly since the IPO.

They are being taken to increase shareholder value why should investors continue to believe in the company.

Yes, let's let us know.

Not sugarcoat it we've been disappointed with the stock price over the past few months the way that we're thinking about it is as I wrote in my letter in the S. One we're never going to be sacrificing long term performance of what's right for the company to make a quarter. We're focused on the long term, we have an exciting roadmap.

We have a big opportunity and we've grown a great team. We also have over 22 million customers. So we will benefit from our scale as we rollout new products and new functionality.

For them.

In addition, as Jason mentioned, we expect to grow our costs much more slowly from here on out and you've seen starting in Q3 and accelerating through Q4, we've been able to allocate much more of our resources towards new product development on top of the foundation that we built throughout most of 2021 and two.

<unk> thousand 20 so.

Over 2022, you should see that to continue we've got a lot more products a lot more improvements coming to customers and I've never been more optimistic about the future of robinhood and how we can serve and innovate for our customers.

Great next we have some questions on adding new crypto coins to the platform from Zachary W is repeat the general.

<unk> is does Robin Hood plan to open trading to other crypto currencies and are we going to lets keep it flat.

So we've been hearing from customers loudly, we know they want more crypto currencies on the platform and we've actually been proactively engaging with regulators. So the main concern with adding a large number of coins is that platforms that are adding lots of them could be adding <unk>.

Registered securities. So they are watching this space closely.

We're being deliberate we want to avoid triggering SEC registration requirements for crypto currencies that said, we have robust protocols in place we feel very confident about the coins that we have on the platform.

And we intend to add more coins going forward.

Though we want to do it prudently.

Great.

Next we have another question from <unk>, who asks can Robin had lay out a roadmap of features to come in 2022 on the Robin <unk> Web site.

Thank you John Whelan senior name a little bit we appreciate the engagement with the company and the community.

So I've talked a little bit about a few of our key focus areas, including retirement spending and saving payments and of course crypto and international expansion.

So.

As you may have seen over the past few months.

We have been building our crypto wallets in public so we announced our intent to rollout wallets, we had an alpha we've collected great feedback from our community and customers to make the product better and that's continued through beta so while we won't be putting our full roadmap.

Out in public and we won't be building everything in public.

We do see an opportunity to engage with our community even earlier than we normally would in the future and announced some of the really ambitious things that we're working on early in the cycle. We think it's a great way to get direct feedback from our customers and a great way to make sure the products really really resonate with them. So we're happy with what we've seen.

And you should expect a little bit more of that as we get further along into 2022.

From Santos shy as Robin had planning to extend after hours trading from four am to APM.

Thanks, Don Soc, Yes, I mentioned this a little bit earlier that we are close to actually rolling out what we're calling hyper extended hours for equities trading on the platform customers have been asking for it we hear you and we plan to roll. It out later this quarter. So thank you for the feedback there.

Our next question comes from Ben and is there anything Robin Hood can do to repair that relationship with the retail traders.

Set about the handling of the MIM stock situations that occurred last year can we bring these traders bats the platform.

Yes. Thank you Ben this is something that I've spent a lot of time thinking about and the <unk>.

Robert and the team has been thinking about a lot so.

First let me say that.

The events.

The MIM stock Frenzy January of last year were hard they were hard on on Robinhood. They were hard on our customers, we stand for giving people access to markets and letting them trade what they want to trade.

And.

It was disappointing to customers, we realize that and we've done a lot of investments to make sure that what happened then it doesn't happen again, so we've raised a lot of capital.

Upgraded our infrastructure to handle surges in volume we've added things like 24 seven support so the best way is to just make sure that we communicate these things and take all the steps necessary to avoid similar restrictions surprising customers now.

Now looking forward to customers that have been disappointed we've actually seen over the past year.

A greater number of customers that.

Had left the platform that are interested in coming back and re engaging and one of the things that we noticed was that it wasn't as easy as it should have been for customers to come back to the platform.

And that's something that we've been investing and you see that with <unk>. So prior to us rolling that out there was no way for customers to bring outside assets into robinhood and we've also looked at the user experience of our returning customer and are making lots of improvements in how easy it is to.

We opened your account and start using robinhood again, and we're starting to see results. So the results are looking promising and that's that's an area that we'll continue to make progress.

Okay.

Dante F is asking winter wallets and staking come into Robinhood, yes.

I can feel this one again, so we launched the public beta of our crypto wallets earlier this month and we've been continuing to make refinements to those.

And we're looking to.

Released those later this quarter to everyone.

As for Staking. So we know staking is an area of customer interest and we've actually been investing a lot in the crypto team and the technology to enable things like this.

I should say theres lots of regulatory attention here, we need to make sure that staking products are.

Safe and clear to customers.

And of course, our compliant.

And.

I would say, we're looking at the area and.

And we're going to be investing heavily in crypto in general as we've discussed.

Great. So the next question is coming from Peter D, who asks what was the cause of the price drop and what are you doing a rectify it maybe Jason yeah. Thanks for the question Peter.

It's a number of factors.

And some of it is certainly an asset robinhood and some of it is the general market.

Clearly the fed signaling increasing rates.

Along with inflation, we've seen a rotation away from growth stocks like robinhood, it's affected the industry, but it's absolutely affected.

Our shares as well.

But theres also.

That we need to be doing and.

It's questions around our strategy our speed of execution.

And also I think providing just additional clarity about what we're working on and when you should expect progress from us than we've been.

Trying very hard in this call and in the materials that we're sharing today to give you a really good insight into the road map and also the expected timing and impact.

Our roadmap so.

We are.

We're working on it we're going to stay as Brad mentioned focused on the long term, but.

We are definitely very optimistic about where we can go from here.

Thanks for that GC, and Donald D or both asking about in Ftes questions were.

As Robin Hood have any plans to extend its crypto offerings to include a non fungible token marketplace.

Yeah, we've been watching this space carefully as well we know there's a lot of customer interest in this area and we've grown our crypto team and are investing heavily in crypto.

I mentioned some of the really ambitious things that we've got planned for 2022, including using crypto to expand internationally, obviously, making more progress on wallets rolling them rolling them out and continuing to improve them and I think you should see you should expect to see that and more so I don't want to get too specific.

Civic on any of the.

Any of the other new products you have in crypto, but we're very excited to keep investing in this space and we think it's still early innings.

Next question is going to be from Gennady K pronouncing that right when will robinhood be available in Europe .

So as we mentioned earlier on the call we've set aggressive targets to start opening our crypto platform internationally. This year so.

We arent able to say exactly when.

Or which countries, but I would tell you.

International is especially interesting for crypto, which is built to be global by default and being a global company is core to our vision. We look forward to updating you as soon as possible and making robinhood available all over the world. We think there is a huge opportunity there.

Great I think this will be the last question that we have time for this one comes from Alexander <unk>, who is asking will robinhood add more advanced features into the app, such as allowing people to specify mailing address or a tax centered a preview realized gains and losses, the app and sometimes to bear.

Yes in terms of advanced features.

Look one of the best ways to prioritize features by hearing directly from our customers and.

As I mentioned one of our three areas is making sure that our advanced investors have all the tools and support they need.

And I think there is a lot of opportunity here, Steve Quirk, who joined recently as our Chief brokerage officer is looking very closely at this area and brings a wealth of experience serving advanced investors at places like fingers swim and TD Ameritrade.

Great and I think that's all the time, we have for say questions right now.

Thanks, everyone for those questions with that I'm going to ask the operator to please open up the line.

As a reminder to ask a question from the phone lines, you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from Ross Sandler of Barclays. Your line is open.

Hey, Rob who so.

Question on the <unk>.

Gross all new funded accounts.

Running around 600 Boe per quarter pre term birth.

We're now at around 800 today.

Is this the right level to think about and Ron.

You mentioned in 'twenty, two which new products could potentially unlock.

Receivables of gross adds and then second question just on international housekeeping can you remind us alcohol equal which markets are you fully licensed to operate.

The whole stock brokerage today versus.

Just dealing with the crypto.

I'll start and then I think that will probably jump in thanks, Thanks Ross for the questions.

In terms of.

The expectation for future ads.

What I would say is we think that there is a.

Significant opportunity ahead of us.

Starting first with the U S and investing.

To have.

More customers joining the platform.

We've done some internal research.

It suggests that.

The demographic of 18 to 49 year olds.

Little over half a brokerage account.

In our research. It suggests that currently there is about $10 million.

Or more that are currently don't have an account and are interested in.

Participating in the stock market. There is a long term trend of increasing retail participation and we think that's a great place.

To be able to leverage and participate.

We also have.

<unk> I think is flat mentioned with the roadmap.

To generate interest and new customers.

With with the other products then also.

International is an even bigger opportunity we believe.

Over the long term flat.

Flat I'll turn it to you for kind of areas. We're most excited about.

Yes, absolutely I think of the areas that.

That we talked a little bit about if youre looking at net new funded accounts.

International certainly is a big opportunity with more addressable new accounts over the long run than even in the U S.

With with our work on spending and saving and payments. We also believe that we can access a broader type of investor or people that are not quite ready to invest but.

Could use robinhood to help manage their day to day spending needs and then we could help them become investors over time, and we think that that's an exciting market.

And then there is always just the work in making our core experience better making.

Our core investing products better, making the flows and the user experience, even stronger and getting customers too.

Consequently refer refer their friends to robinhood and greater numbers. So that's net new funded accounts.

And.

As we've also mentioned theres opportunities to increase our <unk> and to monetize our accounts by giving them more functionality over time.

Those include things like retirement, and some of the other areas of focus through the year as well as last question was brokerage licenses.

Brokerage licenses overseas, yes, so we have a license by the FCA to operate brokerage business in the U K.

That's right now the only.

The only international jurisdiction that we have a brokerage license for.

Thank you. Our next question comes from Ken.

Worthington of Jpmorgan. Please go ahead.

Hi, Good afternoon. Thank you for taking my questions I've got two I think for Jason.

The press release, and you highlighted $6 3 billion of cash and cash equivalents.

How much do you want to hold to run the business as it exists today and how much of that cash is truly excess above regulatory operational needs, including what you might need to post at a clearinghouse during peak trading periods.

Yes. Thanks, Thanks, Ken Great question on our.

A typical day.

The vast majority of that is not needed to support our business.

Since last year.

Around the searches that we saw obviously, we raised cash but we also.

Opened up increasing lines of credit as well and so to support the trading.

It's not just the.

Corporate cash that we have that also lines of credit. Additionally, we substantially increase the capital.

At the clearing broker.

And the level of capitalization actually affects the calculation of how much deposits you have to put on.

Put for the clearing the clearinghouse.

In fact, right now we're over 20 times.

The required capital.

For our clearing brokers so.

We're looking.

Very solid.

As I said the vast majority of our corporate cash is not needed on a daily basis.

And there are things that we can do.

From a process perspective.

Particularly around funding.

Buying activity and selling activity over weekends for crypto that will further alleviate the need for the cash so.

We are sitting in a really good spot we've got more that we can do.

And we feel great that we're in a position to make sure we can handle customer trades no matter the environment.

Okay, Great and then I just was hoping you could flesh out your comments on the $40 million I believe of net interest revenue that comes with higher rates per 25 bps, what part of that incremental incremental revenue is anticipated from stock loan versus the impact of higher rates or.

Margin borrowing versus say the float on customer cash balances just does that $40 million come from the majority of one or the other or is it pretty equal across all three how are you sort of allocating or how should we allocate that 40 million across the different.

<unk>.

Interest rate generating buckets.

Yes.

Thanks for the question Ken.

Biggest components around obviously corporate cash, we just talked about having over $6 billion. There that will certainly be affected by a rising interest rate environment.

Free credit balances from customers those balances fluctuate, but it's.

Many billion.

Over $6 billion of customer margin balances as well.

Theres also.

<unk> B.

Some earnings from rising interest rate on the collateral that we receive on the on the Securities lending program, which is also a few billion dollars. So those are the those are the biggest components.

Okay. Thank you very much.

Youre welcome.

Thank you. Our next question comes from Devin Ryan of JMP Securities. Your question. Please.

Hey, great good afternoon, everyone.

I guess first question here on the product roadmap, so the stock's down little bit over 10% in the after hours here some of the feedback I've gotten initially just your first quarter outlook, a little disappointment, but you guys gave.

Pretty ambitious.

Roadmap here and a lot of the products that you talked about arent actually going to be in the first quarter, but are coming later this year. So there should be a pretty good acceleration. So I don't know if we can maybe parse through maybe some of the <unk> implications and maybe just to market <unk> here, but Jason I heard the comment about.

Adjusted EBITDA this year.

Not ruling out that it could be positive and so that would imply that you would actually see potentially some decent revenue growth over the year. So first quarter, notwithstanding which I think maybe a little disappointing to people. It seems like there is a lot of things here that should drive revenues higher so just want to maybe walk through some of those as possible.

Yeah, Devin thanks, Thanks for the question.

What I would say is.

We provided.

Some indication on when to expect some of these products to rollout.

And then there is going to.

The ramp up time for customer adoption as well and so it's going to be.

Back half of the year loaded and into 2023.

And also.

Certainly our revenue for the year is going to depend on the <unk>.

Overall market environment.

For trading.

But we're particularly excited about.

The fully paid stock lending program, which were.

Expecting to be able to rollout kind of.

Mid year.

That can have a meaningful impact one to two times the size of.

Our margin securities.

Business.

We're kind of thinking internally that it's going to take several months for that to ramp so just to give you.

Our sense on that.

Excited also about offering customers the ability to move their money faster.

And we haven't talked about.

The monetization yet for particularly for withdrawals, but we do anticipate to see some.

Up lift in revenue to the extent customers choose to move their money faster.

But.

Definitely for new products I would say, it's back of the year weighted.

And getting more momentum in 2023.

Okay.

Okay, Great just a quick follow up here on some of the international conversation. So if we think about the crypto market outside the U S is there an opportunity to maybe roll out more features and functionality my senses from <unk> comments on that.

The regulatory regime in the U S. It's just a little bit more cautious and so you want to make sure that you are abiding by that but outside the U S. There may be some.

Some looser standards in different areas different jurisdictions. So I'm curious if the international offering will look different outside of the U S where maybe you can add additional features and then you flip those into the U S to the extent.

We have more visibility on U S policy.

Yes, I'd be happy to field that one.

Certainly the environment and regulatory regimes are different depending on where you are offering your products. We have a particular environment in the U S and we have a large U S business.

Crypto and and the core brokerage so regulatory compliance center of everything that we do we have to make sure that.

That we operate prudently and in.

And work with our regulators and overseas and some in some jurisdictions the environment might be different. So yes, there will be opportunities to add products internationally that won't necessarily be available in the U S and I think vice versa is also the case.

Okay terrific.

Thank you. Our next question comes from Craig Siegenthaler of Bank.

<unk> of America. Please go ahead.

And good afternoon, everyone.

I wanted to see if you could provide an update on your fully paid securities lending launch for the first half and I wanted to see what do you think the economic impact will be to your clients and your business and I also see that you are in regulatory discussions. So what is the regulatory process look like for this initiative.

Yes, so we.

We have to work closely with FINRA to make sure that they understand the program and the terms and.

All the deep operational details of the program.

We're meeting with them proactively and making sure that we are.

We have a common understanding of how the product will be introduced.

Arent at the point to share the economic split with customers, but we do see this as an opportunity for customers to get enhanced yield on their on their portfolios in terms of like the impact to the company, it's going to depend on the adoption rate.

It is an attractive opportunity for customers. So there is a good opportunity I think for us to see a nice customer uptake on the program.

And we think it could be one to two times the size of our margin securities lending business at scale.

Great and then just as my follow up.

And I'm, sorry, if I missed it but what are your plans to rollout iras and other retirement products at this point.

Yes. So this is a key area of focus for 2022.

As I mentioned.

On the call earlier.

Taking our first time investors and helping them become long term investors as a big threat that we've been pulling on you've seen that with.

With recurring investments.

Cats in also helps with that.

And retirement and long term automated investing is another area, where very closely looking at so we expect to rollout in 2022.

We've heard lots of customer demand for this they want multiple account types, including Iras and Ross.

I think that coupled with a cats in and the work that we've done in the spring this creates a meaningful opportunity to increase account balances.

Yes, Craig.

We're signaling for for the retirement accounts that we'll start rolling that out in mid year.

Yes.

Thank you.

You bet.

Thank you. Our next question comes from will Nance of Goldman Sachs. Your line is open.

Hey, guys. Good evening, thanks for taking my questions.

I wanted to follow up on some of the commentary you made in the prepared remarks around the changes to the market maker list on crypto and.

I mean, you mentioned pretty.

Pretty big increase in the rebate levels I think you said it more than doubled and it sounded like that happened kind of towards the end of the quarter.

Am I missing something there that if the rebate levels have doubled.

Annabelle increase in rebate levels, and I guess an important.

Equal should we not see the same increase in revenues as we go into the first quarter. Thank you.

Yes, Thanks will for the question.

So the rebate did more than double it was effective at the beginning of this year.

And.

All else being equal you would expect the revenue to fall in line we have seen.

As I mentioned at the beginning of the year slower trading levels.

But for the last several days leading into the call and Thats, what we used to inform the guidance that we gave.

Yeah.

And in terms of us whether it's.

Yes, sorry, you had asked about the sustainability of it we do it we do expect.

From time to time that these.

We will be negotiated.

But I think that we feel really good about the level that we're at now.

Got it that's helpful. I appreciate it and then just like a general more of a high level question on crypto, maybe if we're flat.

To me, it's a bit of an unlevel playing field in the crypto market right now it sounds like some of your fed regulated brokers are basically into new out of the regulators don't want them rolling out anything in the crypto space you guys seem to be completely restricted on adding new clients and then the crypto exchanges some of even more tightly regulated ones like clean base.

We continue to add new coincidental platform. The SEC seems to have a lot on their plate right now in terms of new regulatory guidance. So I guess the question is there any line of sight to these issues absolutely resolving and what is your confidence level that youll actually be able to rollout a new crypto currencies on the platform in 2022.

Yes, I wouldn't say that we've been.

Prevented from adding any coins.

What I'd say is that we've been proactively engaging with with the regulators.

They are concerned that a lot of these platforms that are adding a lot of coins.

Adding unregistered securities and.

There's been a lot of scrutiny in the space as <unk> seen so we're definitely being deliberate we want to avoid triggering SEC registration requirements.

Ron could harm users. So we are happy with the protocols, we have in place and we do intend to add more coins going forward, but we want to make sure we do it prudently.

Got it thanks for taking my question.

Thanks Bill.

Thank you. Our next question comes from Rich Repetto of Piper Sandler Your line is open.

Yes. Good evening, so first I want to congratulate you on the hiring of Steve Clark He's definitely.

Our experienced and talented brokerage executive.

Next.

I guess the question is Jason.

I can see you have gone out of your way to try to give us insight into sort of the.

The contribution of some of these new initiatives.

And I guess another cut at it would be.

If we were looking a year from now and doing this call next year, which do you think which products. So we can get a feel for your.

Belief in the products like which products do you think we will have the <unk>.

Biggest revenue contribution.

And you did talk about margin lending being one to two weeks.

Fully paid lending being one to two weeks.

What type of a ramp up period do you need for that.

To that one to two weeks.

Yes.

We're kind of assuming it's going to take.

Up to about five months to get the program ramped.

It's hard it's hard to.

No exactly how long it will take that may prove to be conservative we may prove to not be conservative enough by a few months, but that's kind of the general way, we are thinking about the timing for that.

And.

Look I think there's I think there's a lot of interesting opportunities that can contribute to revenue in the in the areas that we're talking about.

Certainly international crypto it could be.

One of those areas, we talked about fully paid securities lending.

Our spending product, obviously, depending on <unk>.

Adoption.

It could be also a meaningful way to.

Not just that.

Revenue, but attracting customers.

So I really think that this is.

An opportunity that that has many components and and.

And we're really excited about that one other thing that we actually didn't talk about.

In the in the call you probably heard me in the past talk about robinhood gold in the subscription opportunity.

We've assembled a team.

And we're we're building a plan and are excited relatively soon.

To start adding value into a robinhood gold subscription and I think that that in particular.

If we do that right and can add a lot of.

Positive synergy to the platform and the customer experience.

Got it.

One follow up on the cash question.

A lot has been written about Permian stock volatility glad you talked about how unique of an invented was.

Last year.

So and then Jason you went through.

All of the efficiencies you're doing with the capital as well. So I guess the question is do you really need the same level of capital and what would you do.

Are you going to just maintain it and have it sit in the balance sheet or what would you do if you.

We don't see that low same level.

Pretty unique activity.

The first quarter.

Of last year.

Yes rich.

And as I said, a much better position, including.

Capitalizing the the <unk>.

Broker dealer.

20 X or more off the regulatory required.

Amounts.

We also run.

As you would expect stress scenarios and those include events that.

It looked like.

What we saw a year ago, and so we need to make sure that we're comfortable.

That no matter what the trading environment is that we can support our customers now theres more efficient ways.

To accomplish that then just parking a bunch of cash.

On your balance sheet and like I said, we've we've made some progress with.

Our lines of credit.

And and there is some operational things that we can do to help fund the crypto business more efficiently, particularly.

Over over weekends.

Over time.

I'd like to see us, having a working capital structure.

Our capital structure that is more balanced between debt and equity. So that's something that we'll think about over time.

But we're also a growth company and we've got big ambitions.

And so I think it makes sense that we have.

Enough dry powder to be able to pursue those growth opportunities and so that's kind of how we're thinking about it it is evolving and as we get better.

With our procedures and get access to more lines of credit it will give us even more flexibility.

Great. Thank you.

Thank you.

Thank you. Our next question comes from Stephen Shamrock.

<unk> research your line is open.

Hey, good afternoon.

So wanted to start off with a question on the expense management strategy or philosophy, you guided to a meaningful step up in expense as part of an ambitious investment agenda in the coming year.

I was hoping you could walk through how we should be thinking about the payback period for those investments, you're making and how youre building some expense flexibility into the model if the revenue environment remains more challenging.

Yes, thanks, Steve So the guidance is a meaningful.

Slowdown versus how we've been.

Growing these last couple of years.

Cost basis.

It is assuming.

A deceleration of hiring which is owing to the fact that we've more than doubled each of the last couple of years.

And really find ourselves in a great position.

Across across the board, whether it's engineering and product, which are important for doing new things and in compliance and customer service with 24, 7% and so really across the board we feel really good about the team that we've <unk>.

Symbols.

So much so that we can grow at a much much slower rate.

And then looking across.

Across the business there is this opportunity for us too.

Be more efficient.

And use technology to deliver greater productivity and so.

I mentioned briefly just the progress we're making on web hosting its a meaningful.

Expense line item for us.

Down sequentially about $15 million in there.

There is more opportunity there and we have line of sight on that even in Q1.

And through the rest of the year.

Greater opportunity to be even more efficient serving our customers through customer support.

Big piece of that is just kind of relentlessly identifying reasons why customers have to contact us in the first place and solve those issues at the root give customers an ability to self serve.

Making it to where we can.

We can take the team that we have and focus on the really.

A higher level challenges and questions that our customers have so that the.

The paper cuts if you will that are on the platform today.

Get resolved or are handled directly by customers, which is a.

A much better path for them to get.

A quick resolution so it's really those kinds of.

Efforts that we're making that's going to drive kind of leverage.

In the business.

In terms of kind of the payback time, and how we're thinking about investments.

We're able to for the most part and our engineering team.

Focus incremental investments on kind of the new things.

We as I said, maybe just a lot of progress on staffing the teams and so we feel really really good about incremental investments contributing to the business.

Thanks for that color, Jason just for a quick follow up just on the operating backdrop given the recent sell off in growth equities in crypto, where retail in general, but certainly your clients are more heavily invested you spoke of declining activity levels to start the year I was hoping you could provide some perspective on what youre seeing in terms of margin utilization.

And whether you have experienced any losses on margin accounts.

Yes so.

Definitely when stock prices decline there'll be some level of margin calls and margin maintenance from customers.

Given the collateral that we that we have in our program and the timeliness of those kinds of.

Margin calls, we're not experiencing any any meaningful losses on that at all.

At this time I would like to turn the call back over to urban Shah for closing remarks, Sir.

Sure.

Great. We appreciate the time, everyone. Thank you and we will be talking to you again next quarter.

Thank you I appreciate the questions. Thanks, everyone.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yes.

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Thank you for standing by and welcome to Robin Hood, its fourth quarter and full year 2021 conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your Touchtone telephone please.

We advised that todays conference maybe recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Urban Shah. Please go ahead.

Thanks, Latif and welcome everyone and thank you for joining us for Robin Hood, its fourth quarter and full year 2021 earnings conference call with US today, our CEO and co founder of <unk> and CFO , Jason Werner.

We're getting started I want to remind you that today's presentation will contain forward looking statements that Robin has the outlook for the first quarter and full year of 2022 as well as our strategic and operational plans actual results could differ materially from our expectations. We continue to monitor regulatory developments relating to market structure matters, such as statements from the <unk>.

<unk> on payment for order flow and digital engagement practices.

All information on the call is as of today January 27, 2022, and we undertake no duty to update it for subsequent events, except as required by law.

As we discuss our results all percentage growth comparisons will be to the same period in the prior year unless otherwise noted.

Today's discussion will also include non-GAAP financial measures reconciliations to the GAAP results. We consider most comparable can be found in the earnings presentation on our Investor Relations website at investors that Robin Hood Dot com.

With that let me turn it over to flat.

Thanks, Herb as always and thanks, everyone for joining I'd like to start by briefly reflecting on 2021, which has been a momentous year for us. We're really proud to have added over $10 million net funded accounts to Robin Hood in 2021 with over half of them new to investing we finished the year with $1 8 billion in total.

Net revenues up from $959 million in 2020.

The story of the first half of 2021 was one of firming up our foundations and putting ourselves in a strong position to accelerate product development and future growth during the year, we've invested heavily in our platform leading to high service reliability and uptime, we've made huge strides in education and customer service <unk>.

<unk> successfully adding 24 seven limestone support we completed our acquisition of C technologies, which as usual will be on display in this earnings call, we more than doubled our team including in important areas like engineering product customer service and compliance and we're continuing to add senior talent to help us take robinhood to the next level.

I am, especially excited to welcome Steve <unk>, who joined US This month as Chief brokerage officer, and a member of our senior management team.

I want to take a moment to thank our employees. The work we've done in 2021 firming up our foundations, while going through hyper growth involved long nights and weekends and lots of personal sacrifice, we're starting to see the fruits of that work in the third quarter. We started once again accelerating our product engine. This acceleration has continued through Q4.

And into the new year, we're now in a position where much of our resources are going towards new product development and innovating for our customers Here's some of the meaningful things we've delivered for customers in Q4.

Customers and have been gradually expanding its availability with early results looking promising and we expect to complete the customer rollout later this quarter.

In addition, we've made a number of enhancements to our options product introducing options alerts options watch list as well as a simple way to roll options contracts.

We have made progress on our fully paid securities lending program, while we continue to discuss it with our regulators. We believe we will be able to launch the program during the first half of the year.

And we added two new venues for executing equity trades, not only adding competition for customer orders, but improving our ability to handle surges in volume.

We're also continuing to invest in crypto.

We launched our public beta of crypto wallets earlier, this month and plan to release the product to everyone. Later this quarter.

Just in time for the holidays, we introduced crypto gifting, which we believe is the most seamless way for customers to send crypto to their family and friends.

We've rolled out intelligent crypto price alerts and often requested feature.

How we've analyzed the points currently on our platform. We have invested in the technology that will allow us to seamlessly add more clients and we intend to add more coins going forward.

Now I'd like to talk about where we're going I've talked a little bit already about how the foundation. We built through most of 2021 has allowed us to invest more in product development in Q4.

The power and simplicity they need.

Here are a few things you can expect in 2022.

First long term investing we're.

We're working to rollout more offerings that make investing routine give people more ways to build well for the future bring them closer to the companies they invest in and as we mentioned last quarter tax advantaged retirement accounts are on the roadmap and the teams are already hard at work to develop the functionality and we'll begin rolling it out to customers mid year.

Second spur.

Beck from Robin Hood.

Next payments.

Finally.

<unk>.

We will remain focused on our customers and delivering innovative products that make it easier for everyone to become an investor.

And with that let me turn it over to Jason to discuss our financial results.

Thanks flat 2021 was a strong year for our key metrics and revenues.

Net funded accounts increased to $22 7 million up 81% year over year.

Monthly active users increased to $17 3 million up 48% from December 2020 to December 2021.

Assets under custody increased to $98 million up 56%.

Total net revenues grew to $1 8 billion up 89% and adjusted EBITDA was $34 million.

Additionally, we ended the year with over 6 billion of unrestricted cash cash equivalents.

Never been in a stronger capital position as a company.

Turning to Q4, we added 300000 net funded accounts during the quarter New funded accounts totaled 800000 churned accounts totaled 700000.

And resurrected accounts totaled 200000.

For churn, we saw a 19% reduction compared to Q3 and on a percentage basis churn hit its lowest mark in the last year and a half.

Lastly, we had $4 4 billion in net deposits from customers for the quarter up 93% sequentially, but down 32% on a year over year basis.

Now, let's turn to revenue.

Total net revenues were $363 million in Q4 up 14% year over year and in line sequentially. Our results for Q4 exceeded our previously communicated expectations as we saw stronger than anticipated trading activity.

Transaction based revenues for $264 million for the quarter up 12% year over year and down 1% sequentially.

Equities revenue was $52 million down 35% year over year and up 3% sequentially options revenue was $163 million up 14% year over year and roughly flat to Q3.

And crypto revenue was $48 million up 304% year over year, but down 5% sequentially.

As a reminder, this is the first time since launching our crypto business that we've updated the economic split between us and our venues.

Looking at trading activities there are a few callouts for.

For equities trading customers, placing trades were up 21% year over year, which was offset by lower darts down 12% and.

And lower notional volumes per trader down 43%.

For options trading customers, placing trades were up 6% year over year in.

And options contracts per trader was up 20%.

Set by lower darts, which were down 1%.

And for crypto customers, placing trades were up 218% year over year.

Crypto darts were up 176% and notional volumes per trader increased 19%.

Moving to assets under custody.

Equities was $72 1 billion up 36% year over year ops.

Options was one 5 billion, which is down 28% is as customers shifted their purchasing activity more towards short dated positions.

And crypto increased to $22 1 billion up 528%.

And for net revenues, they were $63 million for the quarter up 1% year over year and in line sequentially primary.

Primary components include.

Securities lending totaled $29 million was down 19% year over year and down 15% sequentially, we've been increasing the amount of securities loan to Counterparties, however market rate declines of more than offset these gains.

As we look toward adding fully paid securities we anticipate a significant opportunity to increase the monetization of this program.

We believe fully paid securities lending at scale should be one to two times the size of margin securities lending, depending on opt in rates by customers.

Margin interest totaled $39 million in the quarter up 45% year over year, our margin book closed out the year at $6 5 billion, a 93% increase versus the prior year.

At the end of the quarter about 1% of our funded accounts maintain the margin balance.

And interest expense was $6 million offset to net interest revenues in Q4.

As we.

<unk> fed rate increases during 2022, we expect that for every 25 basis points of rate increase will generate approximately $40 million of additional annualized net interest revenue base.

Based on balances at year end 2021, while continuing to pass on value to customers.

Moving to other revenues they were $35 million in Q4, and 84% increase versus the prior year and in line with Q3 the.

The year over year increase was primarily driven by growth in our gold subscriptions and increased proxy delivery fees, resulting from growth in assets under custody.

As Vlad mentioned, we're working towards enabling faster money movement for our customers.

This represents a meaningful opportunity for us to earn service fees to the extent customers select this higher level of service.

For context in 2021 customer withdrawals totaled 54 billion.

Now for operating expenses.

We finished the quarter with nearly 3800 employees up 134% year over year and up 12% sequentially.

During the quarter, we made sequential progress reducing fraud losses down 28% versus Q3, we've.

We've got more work to do here and this is constantly evolving but I'm proud of the progress our teams are making.

Lastly, our teams are working diligently to improve our operating leverage and efficiency whenever one area I'm, particularly pleased with is web hosting where the team is focused on efficiency and delivered a sequential improvement of 19% in Q4 versus Q3 for a savings of $15 million.

Now, let's turn to measures of profitability.

Net loss for Q4 was $423 million, which includes $318 million and share based compensation.

This compares to net income of $13 million in the prior year quarter.

Adjusted EBITDA was negative $87 million compared with positive $79 million in the prior year quarter.

As a reminder, adjusted EBITDA, primarily excludes the impact of share based compensation.

Before I get to our outlook I'd like to mention that we've been carefully monitoring the behavior of our customers in this market environment since the start of the year, our customers have been continuing to deposit funds into their accounts on a net basis.

But they've been making fewer trades and in smaller amounts.

In these first few weeks of the new year, we're seeing trading activity below what we saw in Q4 of 2021.

However, in the few days, leading up to our call. We've seen some higher levels of engagement net deposits and trading versus the start of the year.

It's too soon to say, whether what we've seen these last few days will be a sustained trend or not.

And so for Q1, we're anticipating that total net revenues will be less than $340 million.

<unk> assumes some incremental improvement in trading volumes versus what we've seen so far.

At the top end this implies a year over year revenue decline of 35%.

As a reminder, in Q1 last year, we had outsized revenue due to heightened trading activity, particularly relating to certain mean stocks.

Now for full year 2020 to operating expenses.

We expect total operating expenses, excluding share based compensation to increase between 15% and 20% year over year.

Additionally, we expect share based compensation to decline between 35% and 40% year over year.

During 2022, we expect to meaningfully slow our hiring pace as we grow into the larger workforce, we built over the past two years.

Yes.

Actual results for total operating expenses, excluding share based compensation may differ materially from our outlook due to several factors, including the rate of growth and net new funded accounts, which affects several costs, including variable marketing costs. The degree to which we are successful in preventing fraud or ability.

<unk> to manage web hosting expenses efficiently and our ability to achieve productivity improvements in customer service among other factors.

With that curve, let's move to Q&A.

After that we will turn to live questions from the analysts community.

And with that I'll kick it off with their top questions from say.

First question comes from <unk> and Keith W.

When can we expect Robin hood to be profitable what steps are being taken to make this happen.

Thanks for the question our primary measure internally for profitability as adjusted EBITDA, We actually for the full year 2021 had a small positive adjusted EBITDA.

When we look forward.

Possible that will have a positive adjusted EBITDA in 2022, but we've got a much better line of sight for that in 2023, it's obviously going to depend on a few things including.

Overall market conditions.

And how well we execute against the new product roadmap at all.

Also going to be impacted by how effective we are at managing our costs, which were definitely committed to do.

Okay.

Next we have a few questions on our recent share price activity from <unk> b seizure on P and Hamid and <unk>.

Paraphrasing a bit the question is Robin Hood share prices dropped significantly since the IPO what steps are being taken to increase shareholder value why should investors continue to believe in the company.

Yes, let's let's not sugarcoat it we've been disappointed with the stock price over the past few months the way that we're thinking about it is as I wrote in my letter in the S. One we're never going to be sacrificing long term performance or what's right for the company to make a quarter. We're focused on the long term.

We have an exciting roadmap, we have a big opportunity and we've grown a great team. We also have over 22 million customers. So we will benefit from our scale as we rollout new products and new functionality.

For them.

In addition, as Jason mentioned, we expect to grow our costs much more slowly from here on out and you've seen starting in Q3 and accelerating through Q4, we have been able to allocate much more of our resources towards new product development on top of the foundation that we've built throughout most of 2021.

<unk> 2020.

<unk>.

Over 2022, you should see that to continue we've got a lot more products a lot more improvements coming to customers.

I've never been more optimistic about the future of robinhood and how we can serve and innovate for our customers.

Great next we have some questions on adding new crypto coins in the platform from Zachary W is repeat.

The General question is does Robin Hood plan to open trading to other crypto currencies and are we going to lets keep it flat.

So we've been hearing from customers loudly, we know they want more crypto currencies on the platform.

And we've actually been proactively engaging with regulators. So the main concern with adding a large number of coins is that platforms that are adding lots of them could be adding unregistered securities. So they are watching this space closely.

And we intend to add more coins going forward.

So we want to do it prudently.

Great.

Next we have another question from <unk>, who asks can robinhood ladder a roadmap of features to come in 2020 to Robyn <unk> web site.

Thank you John Whelan senior name a little bit we appreciate the engagement with the company in the community.

So I've talked a little bit about a few of our key focus areas, including retirement spending and saving payments and of course crypto and international expansion.

So.

As you may have seen over the past few months, we have been building our crypto wallets in public so we announced our intent to rollout wallets, we had an alpha we've collected great feedback from our community and customers to make the product better and that's continued through beta so.

While we won't be putting our full roadmap out in public and we won't be building everything in public.

And you should expect a little bit more of that as we get further along into 2022.

From San so shy as Robin had planning to extend after hours trading from four am to APM.

Thanks, Don Soc, Yes, I mentioned this a little bit earlier that we are close to actually rolling out what we're calling hyper extended hours for equities trading on the platform.

Customers have been asking for it we hear you and we plan to roll. It out later this quarter. So thank you for for the feedback there.

Our next question comes from Ben and is there anything Robin Hood can do to repair that relationship with the retail traders upset about the handling of the NIM stock situations that occurred last year can we bring these traders bats platform.

Yes. Thank you Ben this is something that I've spent a lot of time thinking about and the.

Robin and the team has been thinking about a lot so.

First let me say that.

The events of <unk>.

And.

It was disappointing to customers, we realize that and we've done a lot of investments to make sure that what happened then it doesn't happen again, so we've raised a lot of capital.

Now looking forward to customers that have been disappointed we've actually seen over the past year.

A greater number of customers that.

We opened your account and start using robinhood again, and we're starting to see results. So the results are looking promising and that's that's an area that we'll continue to make progress in.

Okay.

Dante F is asking what our wallets and staking come into Robinhood, yes.

I can feel this one again, so we launched the public beta of our crypto wallets earlier this month and we've been continuing to make refinements to those and we're looking to release. Those later this quarter to everyone.

As for Staking. So we know speaking as an area of customer interest and we've actually been investing a lot in the crypto team and the technology to enable things like this.

I should say theres lots of regulatory attention here, we need to make sure that staking products are.

Safe and clear to customers.

And of course, our compliant and.

I would say, we're looking at the area and.

And we're going to be investing heavily in crypto in general as we've discussed.

Great. So the next question is coming from Peter D, who asks what was the cause of the price drop and what are you doing to rectify it maybe Jason yeah. Thanks for the question Peter.

It's a number of factors.

And some of it is certainly an asset robinhood and some of it is the general market.

Clearly the fed signaling increasing rates.

Along with inflation, we've seen a rotation away from growth stocks like robinhood, it's affected the industry, but it's absolutely affected.

Our shares as well.

But there's also things that we need to be doing and.

It's questions around our strategy our speed of execution.

And also I think providing just additional clarity about what we're working on and when you should expect progress from us than we've been.

Trying very hard in this call and in the materials that we're sharing today to give you a really good insight into the roadmap and also the expected timing and impact.

Our roadmap so.

Where are we.

We're working on it we're going to stay as Brad mentioned focused on the long term, but.

We are definitely very optimistic about where we can go from here.

Thanks for that GC and Donald D are both asking about ftes questions were.

As Robin Hood have any plans to extend its crypto offerings to include a non fungible token marketplace.

Yeah, we've been watching this space carefully as well we know there's a lot of customer interest in this area and we've grown our crypto team and are investing heavily in crypto.

Mentioned some of the really ambitious things that we've got planned for 2022, including using crypto to expand internationally, obviously, making more progress on wallets rolling them rolling them out and continuing to improve them and I think you should see you should expect to see that and more so I don't want to get too specific.

Civic on any of the.

Any of the other new products you have in crypto, but we're very excited to keep investing in this space and we think it's still early innings.

Next question is going to be from Gennady K, hoping pronouncing that right when will robin who would be available in Europe .

So as we mentioned earlier on the call we've set aggressive targets to start opening our crypto platform internationally. This year so.

We arent able to say exactly when.

Or which countries, but I would tell you.

Yeah in terms of advanced features.

Look one of the best ways to prioritize features by hearing directly from our customers and.

As I mentioned one of our three areas is making sure that our advanced investors have all the tools and support they need.

Great and I think that's all the time, we have for say questions right now.

Thanks, everyone for those questions with that I'm going to ask the operator to please open up the line.

As a reminder to ask a question from the phone lines, you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from Ross Sandler of Barclays. Your line is open.

Hey, Rob.

So question on the gross.

New funded accounts.

Running around 600 per quarter pre term birth.

We're now at around 800 K.

Is this the right level to think about and Ron.

As mentioned in 'twenty, two which new products could potentially unlock.

Faster cadence of gross adds and then second question just on international Little housekeeping can you remind us alcohol equal which markets are you wholly license to operate.

Wholesale brokerage google's today versus.

Just doing with equipment.

I'll start and then I think that will probably jump in thanks, Thanks Ross for the questions.

In terms of.

The expectation for future ads.

What I would say is we think that there is a significant opportunity ahead of us.

<unk> first was the U S and investing.

To have.

More customers join the platform.

We've done some internal research.

It suggests that the.

The demographic of 18 to 49 year olds, a little over half have a brokerage account.

<unk>.

Our research suggests that currently there is about $10 million.

Or more that are currently don't have an account and are interested in.

Participating in the stock market. There is a long term trend of increasing retail participation and we think that's a great place.

To be able to leverage and participate.

Also have.

Opportunity I think is flat mentioned with the roadmap.

To generate interest and new customers.

With with the other products then also.

International is an even bigger opportunity we believe.

Over the long term flat.

Flat I'll turn it to you for kind of areas. We're most excited about.

Yes, absolutely I think of the areas that.

That we talked a little bit about if youre looking at net new funded accounts.

International certainly is a big opportunity with more addressable new accounts over the long run than even in the U S.

<unk>.

With with our work on spending and saving and payments. We also believe that we can access a broader type of investor people that are not quite ready to invest but.

Could use robinhood to help manage their day to day spending needs and then we could help them become investors over time, and we think that that's an exciting market.

And then there is always just the work in making our core experience better making.

Our core investing products better, making the flows and the user experience, even stronger and getting customers too.

Consequently refer.

Further friends to Robin Hood, and greater numbers. So that's net new funded accounts.

And.

As we've also mentioned there is opportunities to increase our pool and to monetize our accounts by giving them more functionality over time.

Those include things like retirement, and some of the other areas of focus through the year as well.

Just last question was brokerage licenses.

Brokerage licenses overseas, yes, so we have a license by the FCA to operate brokerage business in the UK.

That's right now the only.

The only interact international jurisdiction that we have a brokerage license for.

Thank you. Our next question comes from Ken.

Worthington of Jpmorgan. Please go ahead.

Hi, good afternoon. Thank you for taking my questions.

Got to I think for Jason.

The press release, and you highlighted $6 3 billion of cash and cash equivalents.

Yes. Thanks, Thanks, Ken Great question Anna.

Typical day.

The vast majority of that is not needed to support our business.

Since last year.

Round the surges that we saw obviously, we raised cash but we also.

Opened up increasing lines of credit as well and so to support the trading.

It's not just the corporate cash that we have that also lines of credit. Additionally, we substantially increased the capital at.

The clearing broker.

And the level of capitalization actually affects the calculation of how much.

Deposits you have to put on.

Put for the clearing the clearinghouse.

In fact, right now we're over 20 times.

The required capital.

For our clearing brokers so.

We're looking.

Very solid.

As I said the vast majority of our corporate cash is not needed on a daily basis.

And there are things that we can do.

From a process perspective.

Particularly around funding.

Buying activity and selling activity over weekends for crypto that will further alleviate the need for the cash so.

We are sitting in a really good spot we've got more that we can do.

And we feel great that we're in a position to make sure we can handle customer trades no matter the environment.

Margin borrowing versus say the float on customer cash balances does does that $40 million come from the majority of one or the other or is it pretty equal across all three how are you sort of allocating or how should we allocate that 40 million across the different.

Interest rate generating buckets.

Yes. Thanks.

Thanks for the question Ken.

Biggest components are around you, obviously corporate cash we just talked about having over $6 billion. There that will certainly be affected by a rising interest rate environment.

Free credit balances from customers those balances fluctuate, but it's.

Many billion.

<unk>.

Over $6 billion of customer margin balances as well.

Theres also.

<unk> B.

Okay. Thank you very much.

Yeah Youre welcome.

Thank you. Our next question comes from Devin Ryan of JMP Securities. Your question. Please.

Hey, great good afternoon, everyone.

I guess first question here on the product roadmap, so the stock's down little bit over 10% in the after hours here some of the feedback I've gotten initially is just your first quarter outlook, a little disappointment, but you guys gave.

Pretty ambitious.

Adjusted EBITDA this year.

Not ruling out that it could be positive and so that would imply that you would actually see potentially some decent revenue growth over the year. So first quarter, notwithstanding which I think maybe a little disappointing to people. It seems like there is a lot of things here that should drive revenues higher. So just wanted to maybe walk through some of those as possible.

Yeah, Devin thanks, Thanks for the question.

What I would say is.

We provided.

Some indication on when to expect some of these products to rollout.

And then there is going to.

The ramp up time for customer adoption as well and so it's going to be.

Back half of the year loaded and into 2023.

And also.

Certainly our revenue for the year is going to depend on the <unk>.

Overall market environment.

For trading.

But we're particularly excited about.

The fully paid stock lending program, which we're in.

Expecting to be able to rollout kind of.

Mid year.

That can have a meaningful impact one to two times the size of our margin securities business.

We're kind of thinking internally that it's going to take several months for that to ramp so just to give you.

Our sense on that.

Excited also about offering customers the ability to move their money faster.

And we haven't talked about.

Monetization, yet for particularly for withdrawals, but we do anticipate to see some.

Lift in revenue to the extent customers choose to move their money faster.

But.

Definitely for new products I would say, it's back of the year weighted.

And getting more momentum in 2023.

The regulatory regime in the U S.

Little bit more cautious and so just want to make sure that you are abiding by that but outside the U S. There may be some some looser standards in different areas different jurisdictions. So I'm curious if the international offering will look different outside of the U S where maybe you can add additional features and then you flip those into the U S to the extent.

We have more visibility on U S policy.

Yes, I'd be happy to field that one.

Certainly the environment and regulatory regimes are different depending on where you're offering your products. We have a particular environment in the U S and we have a large U S business.

Crypto and <unk> and the core brokerage so regulatory compliance center of everything that we do we have to make sure that.

That we operate prudently.

And work with our regulators.

Overseas in some in some jurisdictions the environment might be different so yes, there will be opportunities to add products internationally that won't necessarily be available in the U S and I think vice versa is also the case.

Okay terrific.

Thank you. Our next question comes from Craig Siegenthaler of Bank of America. Please go ahead.

And good afternoon, everyone.

Yes. So it's we have to work closely with <unk> to make sure that they understand the program and the terms and.

All the deep operational details of the program.

We're meeting with them proactively and making sure that we're.

I have a common understanding of.

How the product will be introduced.

We arent at the point to share the economic split with customers, but we do see this as an opportunity for customers to get enhanced yield on their on their portfolios in terms of like the impact to the company, it's going to depend on the adoption rate.

It is an attractive opportunity for customers. So there is a good opportunity I think for us to see a nice customer uptake on the program.

And we think it could be one to two times the size of our margin securities lending business at scale.

Great and then just as my follow up and I'm, sorry, if I missed it but what are your plans to rollout iras and other retirement products at this point.

Yes. So this is a key area of focus for 2022.

As I mentioned.

On the call earlier.

<unk>, our first time investors and helping them become long term investors as a big threat that we've been pulling on you've seen that with.

With recurring investments.

Cats in also helps with that.

And retirement and long term automated investing is another area, where very closely looking at so we expect to rollout in 2022.

We've heard lots of customer demand for this they want multiple account types, including Iras and Ross and I think that coupled with a cats in and the work that we've done are referring this creates a meaningful opportunity to increase account balances.

Yes, Craig.

We're signaling for for the retirement accounts that we'll start rolling that out in mid year.

Yes.

Thank you.

Yes, you bet.

Thank you. Our next question comes from will Nance of Goldman Sachs. Your line is open.

Hey, guys. Good evening, thanks for taking my questions.

I wanted to follow up on some of the commentary you made in the prepared remarks around the changes to the market maker list on quip.

No.

Mentioned pretty big increase in the rebate levels I think you said it more than doubled and it sounded like that happened kind of towards the end of the quarter I'm just.

Am I missing something there that if the rebate levels have doubled.

<unk> increase in rebate levels, and I guess, an important comment.

All else equal should we not see the same increase in revenues as we go into the first quarter. Thank you.

Yes, Thanks will for the question.

So the rebate did more than double it was effective at the beginning of this year and.

And all else being equal you would expect the revenue to fall in line we have seen.

As I mentioned at the beginning of the year slower trading levels.

But for the last several days leading into the call and Thats, what we used to inform the guidance that we gave.

And in terms of us whether it's.

Sorry, you had asked will about.

Sustainability of it we do it we do expect.

From time to time that these.

We will be negotiated.

But I think that we feel really good about the level that we're at now.

Got it that's helpful. I appreciate it and then just like a general more of a high level question on crypto, maybe if we're flat.

Thanks Neely.

A bit of an unlevel playing field in the crypto market right now it sounds like some of your fed regulated brokers are basically into new out of the regulators don't want them rolling out anything in the crypto space you guys seem to be completely restricted on adding new clients and then the crypto exchanges some of even more tightly regulated ones like coinbase kind of continue to add new <unk>.

For that platform. The SEC seems to have a lot on their plate right now in terms of new regulatory guidance. So I guess the question is there any line of sight to these issues absolutely resolving and what is your confidence level that you'll actually be able to rollout a new crypto currencies on the platform in 2022.

Yes, I wouldn't say that we've been.

Prevented from adding any coins.

What I'd say is that we've been proactively engaging with with the regulators. They are concerned that a lot of these platforms that are adding a lot of coins.

Adding unregistered securities and.

There's been a lot of scrutiny in the space as you have seen so we're definitely being deliberate we want to avoid triggering SEC registration requirements.

And Ron could harm users. So we are happy with the protocols, we have in place and we do intend to add more coins going forward, but we want to make sure we do it prudently.

Got it thanks for taking my question.

Thanks Bill.

Thank you. Our next question comes from Rich Repetto of Piper Sandler Your line is open.

Yes. Good evening, so first I wanted to congratulate you on the hiring of Steve Clark He's definitely.

Our experienced and talented brokerage executive.

Next thank you.

I guess the question is Jason.

I can see you have gone out of your way to try to give us insight into sort of the.

The contribution of some of these new initiatives.

And I guess another cut at it would be.

If we were looking a year from now and doing this call next year, which do you think which products. So we can get a feel for your <unk>.

Belief in the products like which products do you think we will have the biggest revenue contribution.

You did talk about margin lending being one to two weeks.

Fully paid lending being one to two weeks.

What type of a ramp up period do you need for that to get to that one to two weeks.

Yes.

We're kind of assuming it's going to take up.

Up to about five months to get the program ramped.

It's hard it's hard to.

<unk>.

Look I think there's I think there's a lot of interesting opportunities that can contribute to revenue in the in the areas that we're talking about.

Certainly international crypto it could be.

One of those areas, we talked about fully paid securities lending.

Our spending product.

Obviously, depending on adoption.

It could be also a meaningful way to.

Not just yet.

Revenue, but attracting customers.

So I really think that this is.

An opportunity that that has many components and.

And we're really excited about that one other thing that we actually didn't talk about.

In the in the call you probably heard me in the past talk about robinhood gold in the subscription opportunity.

We've assembled a team.

And we're we're building a plan and are excited relatively soon.

To start adding value into a robinhood gold subscription and I think that that in particular.

If we do that right and can add a lot of.

Positive synergy to the platform and the customer experience.

Got it.

One follow up on the cash question.

A lot has been written about the MIM stock volatility glad you talked about how unique of an event that was.

Last year.

So and then Jason you went through.

All the efficiencies you're doing with the capital as well. So I guess the question is do you really need the same level of capital and what would you do.

Are you going to just maintain it and have it sitting on the balance sheet or what would you do if you.

We don't see that low same level.

Pretty unique activity from the first quarter.

Of last year.

Yes rich.

And as I said, a much better position, including.

Capitalizing the.

The broker dealer.

20 X or more off the regulatory required.

Amounts.

We also run.

As you would expect stress scenarios and those include events that.

It looked like.

What we saw a year ago, and so we need to make sure that we're comfortable.

That no matter what the trading environment is that we can support our customers now.

More efficient ways.

To accomplish that then just parking a bunch of cash.

On your balance sheet and like I said, we've we've made some progress with.

Our lines of credit.

And and there is some operational things that we can do to help fund the crypto business more efficiently, particularly.

Over over weekends.

Over time.

I'd like to see us, having a working capital structure.

Our capital structure that is more balanced between debt and equity. So that's something that we'll think about over time.

But we're also a growth company and we've got big ambitions.

And so I think it makes sense that we have.

Enough dry powder to be able to pursue those growth opportunities and so that's kind of how we're thinking about it it is evolving and as we get better.

With our procedures and get access to more lines of credit.

Give us even more flexibility.

Great. Thank you.

Thank you.

Thank you. Our next question comes from Stephen Shamrock Envelope Research your line is open.

Hey, good afternoon.

So wanted to start off with a question on the expense management strategy or philosophy, you guided to a meaningful step up in expense as part of an ambitious investment agenda in the coming year.

I was hoping you could walk through how we should be thinking about the payback period for those investments youre, making and how youre building some expense flexibility into the model if the revenue environment remains more challenging.

Yes, thanks, Steve So the guidance is a meaningful.

Slowdown versus how we've been.

Growing these last couple of years.

Cost basis.

It is assuming.

A deceleration of hiring which is owing to the fact that we've more than doubled each of the last couple of years.

And really find ourselves in a great position.

<unk>.

So much so that we can grow at a much much slower rate.

And then looking across.

Across the business.

This opportunity for us too.

Be more efficient.

And use technology to deliver greater productivity and so.

I mentioned briefly just the progress we're making on web hosting thats a meaningful.

Expense line item for us.

Down sequentially about $15 million.

And there is more opportunity there and we have line of sight on that even in Q1.

And through the rest of the year.

Greater opportunity to be even more efficient serving our customers through customer support.

A big piece of that is just kind of relentlessly identifying reasons why customers have to contact us in the first place and solve those issues at the root give customers an ability to self serve.

Making it to where we can we can take the team that we have and focus on the really.

Higher level challenges and questions that our customers have so that the.

The paper cuts if you will that are on the platform today.

Get resolved are handled directly by customers, which is a.

A much better path for them.

To get a quick resolution so it's really those kinds of.

Efforts that we're making that's going to drive kind of leverage.

In the business.

In terms of kind of the payback time, and how we're thinking about investments.

We're able to for the most part and our engineering team.

Focus incremental investments on kind of the new things.

We as I said, maybe just a lot of progress on staffing the teams and so we feel really really good about incremental investments contributing to the business.

Thanks for that color, Jason just for a quick follow up just on the operating backdrop given the recent sell off in growth equities in crypto.

<unk> retail in general, but certainly your clients are more heavily invested you spoke of declining activity levels to start the year I was hoping you could provide some perspective on what youre seeing in terms of margin utilization and whether you've experienced any losses on margin accounts.

Yes so.

Definitely when stock prices decline there'll be some level of margin calls and margin maintenance from customers.

Given the collateral that we that we have in our program and the timeliness of those kinds of.

Margin calls, we're not experiencing any any meaningful losses on that at all.

At this time I would like to turn the call back over to urban Shah for closing remarks, Sir.

Great. We appreciate the time, everyone. Thank you and we will be talking to you again next quarter. Thank.

Thank you I appreciate the questions. Thanks, everyone.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Robinhood Markets Inc Earnings Call

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