Q1 2022 Robinhood Markets Inc Earnings Call

April 28, 2022

Thank you for standing by and welcome to Robin Hoods first quarter 2022 earnings 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 telephone please be.

Advised that todays call may be recorded should you require any further assistance. Please press star zero I would now like to hand, the call over to your host for today Urban Shah head of Investor Relations and capital markets. Please go ahead.

Thanks, Latif welcome everyone and thank you for joining us for Robin Hoods first quarter 2022 earnings conference call with US today, our CEO and co founder of <unk> and CFO , Jason warning before getting started I want to remind you that today's presentation will contain forward looking statements about our financial outlook and 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 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-K filed February 24, 2022 and in our other SEC filings we.

We remind you that from time to time, we intend to use the overview page of our Investor Relations website, and our blog under the Hood at <unk>.

Tens of disclosing material information to the public and investors should routinely monitor those sites as information posted there could be deemed to be material information all.

All information on the call is as of today April 28, 2022, and vendor takes 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.

And with that let me turn it over to flat.

Thanks, Sarah and thanks to everyone for joining.

So this quarter was the story of two competing forces are accelerating product development juxtaposed against a difficult macroeconomic climate on the last call I laid out an ambitious roadmap that will expand the ecosystem of financial products Robinhood offers to our customers. We made tremendous progress on it this quarter.

And we built a strong foundation for our future growth at the same time, we face a challenging macro environment. One most of our customers have never experienced in their lifetimes.

While we were pleased to see strong net deposits and our lowest level of churn in years. We also saw decreased trading volumes monthly.

Monthly active users and assets under custody and our financial results reflect this.

Our company has been in a period of hyper growth and we hired and scale to keep pace with the business, but we're at a place where it's important to stay focused on efficiency and optimize our business for the long term.

So I've challenged the team to dig deeper on cost discipline and.

And get us to adjusted EBITDA profitability by the end of the year.

We're moving back towards a leaner operating model starting with the reduction in force that we announced earlier this week, but make no mistake robinhood is still playing offense and charging ahead, we are continuing to execute on our 2022 roadmap and we've got several new products in flight that we believe will add value to customers while generating significant.

Difficult revenues.

I know theres, a lot to unpack here and will walk through all of this over the course of the call.

So let's start with the product updates.

In short our product engine is humming and I'm Super excited about that.

Since we last spoke we introduced the robinhood cash card, we extended our trading hours, we began the rollout of our fully paid securities lending product.

We began the rollout of instant debit card funding and withdrawals, we completed the rollout of our crypto wallets, we added four new crypto currencies to our crypto selection.

And we entered into an agreement to acquire Zig Loo, which will help accelerate our international expansion.

There's a lot here for us to be proud of and we're still just getting started.

Now, let me get into the details on what we've delivered starting with the Robin Hood cash card. It's one of the few debit cards to offer rewards similar to what you would expect from a credit card. We're also giving customers who direct deposit access to their money two days early and we're letting them automatically invest a portion of their paycheck.

We view the cash card is a simple way to bring in new customers that are interested in investing but have less disposable income and as the product scales. We will start to see additional revenues from interchange, which we expect to be roughly 130 basis points of transaction volume. We also expect to see more customers direct depositing their pay.

Checks directly into robinhood and using Robin Hood for anything they would use their bank for except with lower fees and a much better user experience.

We're still in the early stages here rolling out slowly to ensure we understand user behavior and points of friction.

We're happy with what we're seeing so far bright spots around adoption of direct deposit and repeat card usage and we will expand access to all of our customers by mid year.

Yes.

With the coming anticipated rate hikes, we will also be bringing back high yield on uninvested brokerage cash for our customers stay tuned for more on that.

Now, let's talk about crypto as.

As you can tell we've been making major investments here, we believe that crypto is more than just an asset class by allowing anyone with a smartphone and an internet connection to create and utilize powerful financial tools. The technology behind crypto has the potential to become the operating system that powers the future of financial services. However.

Crypto is complicated and the fees on other platforms are so high that a lot of the products are mainly serving wealthy early adopters in the coming months Youll see more from us on our plans to contribute to this ecosystem.

Now here are a few updates on the progress in crypto. We've already made first we're so excited to have completed the rollout of crypto wallets to all of our customers. The wallet is an important primitive that enables our customers to engage with the broader crypto ecosystem, just like with crypto trading customers using our wallets can expect.

Low fees and a simple user experience second we recently announced our planned integration with Lightning network, which will power near instantaneous bitcoin transfers globally with transaction fees of less than a penny hugely beneficial to our customers.

While we don't have specific updates on timing, yet we will share more in the coming months as we build out the integration eventually once we're fully integrated we expect this technology will accelerate our ability to serve bitcoin remittances on a global scale at virtually no cost and will be an important component of our international expansion.

Third we added four new points compound polygon Sheba, IMU and Solana, we feel good about the listing framework, we're using to evaluate new coins and expect to add more over time behind the scenes. We've also been refining our core crypto infrastructure to effortlessly custody and support new coins tokens and change.

This is part of a process that began last year and we will soon be able to add new coins with relatively minimal effort.

Lastly.

We recently entered into an agreement to acquire Zig Lou for $170 million, primarily in cash Zig Lou is a UK based crypto platform that lets customers transact in 11 different crypto currencies earned yield on bitcoin in pound Sterling <unk> boost products and move and spend money even abroad without fees.

Over the past few months I've had the pleasure of getting to know Marc and the Zig Lou team they share our love for building great products. They bring years of financial services and crypto expertise and they have local knowledge that will be incredibly helpful. As we expand our operations in the UK and beyond they are also demonstrated a real commitment to regulatory <unk>.

Clients being one of the first UK companies to obtain a crypto asset registration from the FCA together, we believe we'll be well positioned to move even faster on our international expansion plans. Once we close which is expected to be later this year.

Yes.

Last but not least.

We've been laser focused on serving our more advanced customers are large and critical customer segment. These customers while relatively small in number of drive a significant portion of our revenue.

They love the simplicity of the interface and the ability to trade with no commissions, particularly in options, where we also have no contract fees.

But they want more flexibility to dive deeper and get more information through advanced charting in screening tools as well as improvements to the core trading flows providing all of this while making the simplicity of the platform continue to stay that way as the type of design challenge that we excel at solving.

We've recently introduced two important features for advanced customers extended trading hours, which we launched earlier this quarter was one of their top requests and earlier. This week, we rolled out fully paid securities lending to a small set of customers. This will give advanced customers a great way to enhance the yield on their portfolios and we look forward to sharing it more broadly.

In the next few weeks.

There is so much more that we're doing for our advanced customers in the coming months and we are confident this work will not only benefit all of our customers, but also increase our topline revenue.

Now at the top of the call I mentioned the challenges presented by the macro environment.

For most of our history Robinhood is operating in a period of low interest rates low inflation and rising markets.

Our customers are now experiencing all three of these trends going in the opposite direction, perhaps for the first time in their lives as a result, some are engaging with us less regularly and reducing their trading activities, we've been watching customer behavior and let me tell you what we're seeing.

So overall, our customers are continuing to engage with us, but the total numbers have come down a bit with <unk> falling to $15 $9 million in March.

When we look a level deeper our larger customers are still remaining active but we are seeing more pronounced declines from those that have lower balances.

With the uncertainty in the market our customers became more cautious with their portfolios trading less frequently and then smaller amounts across all asset classes, although crypto activity in particular came down pretty significantly.

But we've seen some encouraging signs net deposit levels are continuing to rise and churn has reached its lowest point in years.

So how are we responding to the environment. We're in we're going to remain focused on building for the long term. We're in a great position, we have nearly 23 million customers a strong team great technology and strong product momentum together with our focus on operational efficiency. The future ahead of us remains bright.

And with that.

Let me turn it over to Jason.

Thanks, Brad before we get to the numbers I'd like to talk about how we're thinking about getting back to positive adjusted EBITDA.

As you just heard from flat he has challenged us to achieve a positive run rate by year end.

So how do we get there.

It is critical that we execute on our 2022 roadmap and be more lean.

From where we stand today, we see top line upside from delivering better service to our advanced customers.

Rolling out fully paid securities lending generating stronger net interest revenue and monetizing instant withdrawals.

We also think over a longer time horizon there'll be even more benefits coming from interchange on the Robin Hood cash card investments, we're making in crypto and several other new initiatives that we have in the works well.

We're also focused on costs. We recently went through a period of get big fast as we hire to keep up with the pace of our business. We grew our head count from about 700 at the end of 2019 to nearly 3900 in just two years, we needed to grow that fast, but it resulted in inefficiencies in the organization.

Duplicate roles and sometimes just more head count than is needed, particularly as we deliver on optimizing our workflows.

So earlier this week, we announced a reduction in force affecting 9% of our team.

But as we look at our aggressive product plans for the year. We believe we can accomplish our goal with an even leaner team than we were previously planning.

So in addition to a reduction in force we have significantly cut our plans for hiring this year.

Last quarter I guided 2022 operating expenses, excluding share based compensation to grow between 15 and 20%.

We now expect these costs to increase between 2% and 5% versus 2021, we're aiming to keep head count roughly flat versus the end of last year. We're also looking at all of our other costs and believe we have opportunity there as well we.

We have a lot to reach a lot to do to reach this goal on profitability, but I've got confidence in the team.

Now, let's talk about corporate cash specifically, how much is needed to run the business and how much is true excess.

Currently holding about $6 billion in cash on our balance sheet. During most days, we use only a small fraction of this for working capital. We also hold some liquidity for high stress scenarios, such as last year's mean stock and does rallies.

<unk> credit facilities. We currently have about $2 5 billion of excess liquidity beyond our stress scenarios.

We also have line of sight to free up an additional billion by optimizing the way we move our money.

And why do we have this excess cash we think it's prudent to have a strong balance sheet. While we are growing our business and it also gives us flexibility to grow inorganically when it makes sense to do so.

I'd also like to talk about the effects of rate hikes by the fed.

With this first rate change, we captured an annual run rate effect of about $40 million. Looking ahead, we think the incremental effect from each of the next several rate hikes will be in the range of $30 million to $35 million and will be determined by the size of our margin book value, our banking partners path to us and how much we pass them.

Along to customers.

Now, let's move to the numbers for the first quarter of 2022 as a reminder, Q1 is lapping a very strong quarter in the prior year, owing to the mean stock rally last year.

Cumulative net funded accounts reached $22 8 million up 27% year over year during the quarter. We had 500000, new accounts 100000, resurrection and 500000 churned accounts.

<unk> continues to improve and has reached one of the lowest rates we've seen in the past several years.

We had $15 9 million monthly active users down 10% year over year, and 8% sequentially and this market, we're seeing customers with lower balances engaging less which is driving the significant majority of our sequential decline in EMEA use.

Assets under custody were $93 1 billion up 15% year over year and net deposits were $5 7 billion in the quarter.

Total revenues were $299 million for the quarter down 43% year over year and down 18% versus Q4.

Revenues came in softer than our expectations, we anticipated some some incremental improvement to the trading environment from what we had seen during the first several weeks of the quarter, but trading volumes remained soft across all asset categories.

Transaction based revenues were $218 million for the quarter down 48% year over year and 17% sequentially. This was driven by declines in the number of customers trading as well as the average notional size of their trades a pattern that we saw across all asset classes.

Equities revenue was $36 million down 73% year over year, and 31% sequentially customers, placing trades were down 46% year over year.

While notional volumes per trader were down 24%.

Options revenue was $127 million down, 36% year over year, and 22% sequentially customers.

Customers, placing trades were down 44% year over year and options contracts per trade or were down 33%.

And crypto revenue was $54 million down 39% year over year, but up 13% sequentially.

Customers, placing trades were down 61% year over year in notional volumes per trader decreased by 22%.

These declines significantly offset the recent increase in venue rebate rates.

Moving to assets under custody.

<unk> was $68 5 billion up 5% year over year options was $1 1 billion down 45% year over year crypto increased to $19 7 billion up 70% year over year and customer cash increased to $9 2 billion up 21% year over year offset by $5 4 billion of it.

Receivables from users.

And for net interest revenues, they were $55 million for the quarter down 11% year over year and 13% sequentially primary.

Components include securities lending and margin interest.

Securities lending was $24 million down 31% year over year, and 17% sequentially as we saw lower demand for hard to borrow securities.

Margin interest was $35 million up 25% year over year, but down 10% sequentially.

Over the course of the quarter, we saw our margin users actively managing their borrowing as a result, our margin book declined to $5 3 billion.

Roughly flat with the prior year.

As of March 23rd we increased our margin rates to 3% up 50 basis points and we anticipate floating this rate along with fed rate changes moving forward.

And offsetting interest revenue was interest expense, which was $6 million.

Moving to other revenues they were $26 million this quarter, a 35% decrease versus the prior year and 26% declined sequentially. The year over year decline was driven by an 87% reduction in our <unk> out fees as we experienced elevated churn last year.

Before closing out I'd like to note that starting this quarter, we will begin providing monthly metrics for our top kpis. These.

These disclosures will include information about user growth engagement and trading including trading volumes in darts by asset class. We will post these metrics to the Investor Relations website at investors Dot Robinhood dotcom mid month. After the end of each of the first two months of the calendar quarter.

The metrics for the last month of each quarter will be shared at earnings.

With this change we will no longer be providing revenue guidance given the volatility of our revenue, particularly transaction based revenues from trading activity. We believe providing monthly disclosures of our top kpis is preferable to forward looking guidance.

So far in April we're seeing trading volumes in line with what we were seeing throughout most of Q1.

With that or let's move to Q&A.

Thanks, Jason leading into this quarter's Q&A session will start we will start by answering the top questions from say ranked by number of votes will pass that for any questions that were already addressed and will group together questions that share a common theme after that we'll turn it over to live questions from the analyst community.

And with that our first question is from Andrew K echoed a couple of times, but she has vendor b and <unk> this year.

The question is what are management's plans to grow and regain market cap.

Sure I'll field that one thank you Andrew So first let me say that we all know this is a challenging time in the markets.

Our focus during this time is on building a great company for the long term you've heard us talk about several large areas of investment throughout.

Throughout the beginning of this call and.

We're going to continue to invest in new product areas, our product momentum and velocity across both our core business and these new developments is going to continue to accelerate you also heard we're going to be focused on operational discipline and getting to positive adjusted EBITDA by the end of the year.

I think.

Throughout the course of this year deepening the relationships with our customers, especially the most engaged customers that use robinhood a lot will lead to greater monetization over time and will allow us to.

Get to positive adjusted EBITDA by the end of the year, but.

Have to completely reiterate that we're going to continue to invest in new products and over time, we believe that building a great company for the long term will lead increases in market cap and smoothen out variations in market activity over time.

Thanks, Brad Our next question comes from Sunny P, who asks when his hood going to pay a dividend Jason.

This is Jason it's too early for us to be paying out dividends. We think it is better right now to be investing in the business we've.

We've got a lot of opportunity ahead of us as we've been talking about today, and we think thats the best use for our capital right now, but I appreciate the question.

Great next up from Daniel L. What will Robin Hood due to combat declining monthly active users.

Sure I'll.

I'll take that one.

So we have seen recent declines, but I think it's important to look at the broader context robinhood has grown very quickly over the last few years for instance, if you look at monthly active users over the past two years, we've we've nearly doubled MAA used from $8 6 million to right around $15 nine.

So looking ahead, we're going to continue to innovate and roll out new products.

We see our customers engage with us in new ways. A good example is the recently rolled out a cash card, which we're rolling out to our customers I think it's a great way to have customers using us for more than just investing direct depositing their paychecks into robinhood and using us.

For anything that they would use their local bank for except with lower cost and a much better customer experience.

As we continue to add these new products while also.

Adding more products to investing in crypto.

We're confident in our ability to not only retain our existing customers, but significantly grow new ones over time.

Great next step in Kevin <unk>, what is the number one focus this year.

Yes, I'll field that one the number one focus for us as.

Focusing on our customers building products that our customers love and of course, we will balance that with focusing on operating lean and making smart decisions with our capital as we said last quarter, you look to our roadmap and theres lots of ambitious things that we know customers could benefit from so.

There is more of that that we have to do.

For retirement, and long term investing securities lending, which allows customers to get additional yield on their portfolios, which started rolling out earlier this week and of course crypto. So what we saw this quarter is demonstrating a lot of momentum and execution.

Thats.

Really really exciting and we're excited to continue that moving forward.

Okay next up we've got a couple of questions on retirement accounts from Bryan B and sharing L.

Basically we will retirement accounts be available soon.

Yes, so retirement accounts have been a focus for us this year and we've been making great progress I think that when customers see what we have in store there'll be really excited it'll bring the same design and user experience that customers have come to expect from from Robin Hood.

Customers from Robinhood products and it will be it'll be a great product and we're excited to roll. It out later this year.

Excellent.

S. What are the next top three big changes Robin it is bringing to customers this year.

Sure Hey, I've been up so I mentioned I've mentioned, a lot about our product velocity accelerating.

And we've made.

Lots of improvements to our customer experience and feature set across the board three three.

Three themes to mention.

One the active investor experience.

We're really.

Excited to better serve our active investors the people that are most engaged into our platform.

And we've seen the experience is getting better and better with new products and also a lot of small improvements to the day to day process of trading and setting up an account on Robin Hood. So it's been a huge area of focus valuable for these customers, but also valuable to the top line of the company. So thats one.

Number two the cash card.

We.

I've talked a little bit about this.

Are excited to see customers engaging with us in different ways. This is one of the only debit cards on the market that gives customers rewards for spending similar to what they would get from.

From a credit card and our experience around direct deposits is also incredibly high quality, where we not only give customers the ability to get paid two days early but we also make it easy to invest your paycheck and direct deposit into into securities as well as crypto.

And then the third area is crypto no surprise that we have been investing a lot here, we've increased our selection and we've also improved cost for customers as well.

And I'll throw a bonus number four you've heard me talk about retirement I think that this is a very very important need for our customers to get help.

Investing for the long term with the same low cost and user experience customers have grown to.

To love and expect from Robin Hood, So we're very excited.

Deliver that for our customers and we think we think you'll really like it.

Awesome. Thanks, a lot I think maybe we have temperatures one last question and then we'll shift to the analyst community.

So the last one from Eduardo V is when as Robin Hood going global.

We're excited to have announced the acquisition of <unk>.

We expect to have.

The acquisition closed later this year and we think it's a great accelerant, we intend to build from that base and.

And rollout.

Awesome product to our customers.

In the U K first and then Europe and the rest of the world.

Awesome.

Thanks to everyone you posted questions on se and with that I will ask the operator to open up the line. Thank you.

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

Our first question comes from.

Devin Ryan of JMP Securities. Your line is open.

Hey, good afternoon, Vlad and Jason how are you.

Great Hi, Devin good to hear from you first of all thanks for the monthly disclosure I think that'll be very helpful. Moving forward.

I guess first question here I appreciate expectations around getting through breakeven.

By year end.

I think what a lot of folks are trying to kind of figure out here is you've launched a lot of new products.

And.

Hopefully youll see traction around them, but can you help us maybe think about just the revenue contribution from some of the larger initiatives and how you expect those might scale given that they want in the prior quarter's results and then the second part of that question is if you succeed in getting to kind of profitability.

How do you expect to manage from there should we think about.

Just kind of maintaining around that level that breakeven or.

Should inflect through and then to the extent.

<unk> revenues continue to expand there is a lot more operating leverage from there.

Thanks, Devin this is Jason I'll take it and glad can contribute if he has some additional thoughts.

The biggest contributors from where we are today and where we need to get by the end of the year to kind of achieve this goal.

Adjusted EBITDA breakeven or better.

We had <unk> of about $53 for this quarter, we need to get to kind of mid eighties bye.

By the end of the year.

To be able to get to that goal. The biggest contributors you heard <unk> talk about the improvements that we're just making the platform primarily listening to some of our more active customers. We think that's going to serve them incredibly well, it's going to have a halo effect to all of the customers that we have on the platform. We just started out started rolling.

Out fully paid securities lending, we talked a bit last quarter about the revenue opportunity there its about 1% to two times, what we have for margin securities lending.

Depending on the attach rate of our customers the rising interest rates by the fed we're going to be able to capture meaningful NIM as that continues to progress.

And then instant withdrawals as another contributor.

All in.

We think that we can get there it's an aggressive goal.

Take I think a lot of focus on operating costs.

We've got the commitment of the whole team to get there.

In terms of how are we going to manage it.

Going forward, what I will tell you is that.

We're going to continue to invest aggressively for long term growth.

But I think as we continue to rollout products that add monetization.

The platform Youre going to see that the the investments that we're making a relatively less relative to the overall profitability of the company as we gained momentum.

But.

It's not a one year thing for maintaining operational discipline, we want to be a lean company, we want that to be part of our DNA and I would expect that to continue beyond this year, yes, and I would just add devin that.

It's very much part of Robin hoods, DNA to operate lean and efficient and over the past year. We've made a lot of improvements to our technology and infrastructure. So what we expect is we want to make sure. We demonstrate that the business model works very very well during slow economic times.

And so when when volatility does come.

Come back to equities markets and a crypto, we should see upside from that but we also want to make sure that in hard economic times our business.

<unk> resilient and strong and I think the the DNA of efficiency and the fact that we've improved our infrastructure tremendously is going to help with that.

Okay, Great I appreciate that and then I'll just ask one quick follow up here you gave the interest rate sensitivity on I think a couple of hikes here.

Are you not providing it.

In a maybe more normalized rate environment because of kind of maybe the earlier comments around reinstating kind of high yield opportunities.

Cash or how should we should we continue to roll those types of revenues forward, if we normalize to 200 basis points or higher on.

The short end of the curve.

I appreciate I appreciate that question, what I would say there is that there's some variability in the interest earning accounts that we have if you look at the margin balances for example, this quarter came down.

Meaningfully during the quarter as our customers manage their borrowing levels.

It also depends on how much we're able to realize from the banking partners and depending on the on the balances involved we're able to realize more or less and then to the point that you just raised we do intend to pass some back to customers as well.

Okay, Great I'll leave it there thanks, so much thank.

Thanks, Kevin Thank you.

Thank you. Our next question comes from Ken Worthington of JP Morgan Your question. Please hi.

Hi, good afternoon, Thanks for taking my question.

Do you have a number of initiatives underway I think it'd be helpful to get a sense of the opportunity for these future initiatives by seeing how some of your past initiatives have gone I thought of a couple of maybe theres. Some others, but I think you guys had rolled out incoming eight cats, how much engagement are you seeing there and if you could.

Yeah.

Is the money coming from.

I think you've offered direct deposits for some time, how many clients are sort of utilizing those.

During the IPO you guys told us about gold accounts and the number of members there.

If you could just update us on how that initiative continues to grow.

Debit cards are new but <unk> had a waiting list I think for some time, how many clients on that waiting list and how many are using the card in the early days of usage.

Thanks, Ken.

Kind of ticking through some of these so far.

For a cats in.

We've seen that be one of the channels where customers are in flowing deposits into.

Into robinhood it simply.

A portion of the channel I guess is what I would say last quarter, we had $5 7 billion in net deposits come in a portion of that from a cat, saying, we do have thousands of customers using it I would tell you that that particular functionality is.

We're going to be really helpful. As we rollout.

New account types like retirement in the future as well as for customers that are just joining with us and.

The feedback has been good but we kind of view that as just a foundational functionality that we just needed to have on the on the platform direct deposits. While we've had the functionality hasn't been something that we've been really pushing until more recently, we wanted to have.

A great offering around the cash card.

So that when customers do direct deposit their paycheck.

They are able to spend as well as invest and.

It's really early but.

Early signal onto cash card is that we're seeing a nice adoption of the direct deposit.

In terms of gold.

Overall attach rates about five 5% that subscription product today, largely appeals to more advanced customers and we have a small team working on the gold subscription product.

Add value propositions that are going to appeal to a larger <unk>.

Swath of our customers and Thats something that we will update you on later this year.

And then debit cards, we've just started rolling out the new Robinhood cash card. So rolling it out slowly we had hundreds of thousands on the on the on the wait list of customers and.

The prior.

Cash card that we have the debit card reached about 6 million customers on it and so we feel really good about the value proposition of this card as we continue to roll it out that it will appeal to our customers.

I'll just throw in there one that you didnt ask about extended trading hours. So during our rollout we were seeing some lift in trading behavior versus the control group, but I would say that it's still pretty early we have determined that its not just the novelty of the of the new feature but we've been really pleased with the customer response.

As you probably know it's been one of the most asked about features for advanced users and it's a huge step along the way into.

Our goal of allowing $24 seven training.

And equities markets.

Awesome I knew I missed at least something so thank you for that and thanks for your question.

Thanks, Thanks for your question Ken.

Thank you. Our next question comes from Rich Repetto of Piper Sandler. Please go ahead.

Hey, good evening Blatt and Jason.

Hey, Rich I guess.

How're you doing.

So I guess my question.

You talked a lot about focusing on advanced users.

Traditionally if you look at the E brokerage industry from what we understand about that.

It was sort of an 80 20 rule where.

20% of the accounts generated 80% of trades and generally the revenue.

I guess my question is how are you defining.

<unk>.

It may be different by asset, whether it's crypto auction, but any sort of feel for how you define it we get some sort of feeling of how many advanced use and does that 80 20 rule.

Ring.

Two the way Youre looking at advanced uses to your overall customer base.

Thanks, Rich, it's Jason I'll take this one so we do have a power law where.

Smaller portion of the customers do contribute more of the the revenue. This is one of the reasons why we're rolling out new products that we're excited about like the the Robin at cash card. For example that is going to help customers, particularly those that don't feel like they're able to really set aside extra money to start investing with roundups in the roundup matches that.

Robin Hood provides is giving them an opportunity to <unk>.

<unk> contribute but.

The.

<unk>.

In terms of like how how many we havent, we havent said that it is.

Hundreds of thousands of customers. So it's a big it's a big portion of our customer base.

But I guess have you do.

Do you have some internal definition of what an advanced user is.

Our cutoff.

We do have ways to look at it internally, but it's not something that we've shared outside the company.

Yes, a lot of it is based on engagement with different products. So we have some advanced customers that are trading options. We have ones that are utilizing our competitive margin rates and we also have customers that.

Love Robin Hood for our low crypto fees and a great user experience.

Our our trading trading crypto quite a bit on our platform.

And the way the reason, we're saying that we believe improvements to the experience for advanced customers will help everyone is whenever there is an issue. Since these customers are more engaged they're more likely to run into them than than a typical customer so by making the experience really really good for them as well.

As adding new features.

We think the experience for the typical customer will be pristine and more flawless. So we think theres high leverage here.

And.

There's a lot more to do for our more advanced customers.

Yeah.

Okay, and just one quick follow up.

Jason when you said, 2% to 5% on the expense growth now.

Now I believe that in the beginning sort of way to go.

<unk> would be used to build out the expenses.

Sort of back out.

What that expenses would be in.

On an EBITDA basis and then.

The goal for revenues and all the new program.

Yes, the primary thing that you.

The primary thing that you back out on operating expenses would be share based compensation.

We have a relatively small restructuring related charge as well.

The reduction in force that we just announced but that's that's the right way to think about it about 2% to 5%.

Year over year increase in Opex.

Got it. Thank you very much guys. Appreciate it thanks rich thank.

Thank you.

Thank you. Our next question comes from will Nance of Goldman Sachs. Your question. Please.

Hey, guys. Good evening, Thanks for taking my questions first of all I want to say thank you for all the new disclosures Echo the earlier comments I think the month. These will be very helpful going forward and looking forward to following that.

I also wanted to ask a question on some of the trends in net cumulative deposits and net new assets.

The slowdown in trading activity in the last three months I've actually been quite strong in terms of new flows and it seems like you're growing the asset base is something like a 15% to 20% annualized.

Maybe could you talk about strategies in place to continue to deepen the wallet share with customers from just an overall AUM perspective.

And then as you think about monetization going forward be it through <unk>.

<unk> cash monetization.

Steve from third parties or investment advisory relationships and it seems like.

Tying revenue AUM levels solid long term opportunity for the company, how do you kind of size that opportunity.

Yes, I mean, we've certainly.

We've certainly seen a correlation between assets under custody and revenue on the platform.

And we think that wallet share.

Assets under custody.

Are correlated with deepening our relationships with customers and kind of the long term health of the business and some of the things that we're doing there.

On the new cash card side, you've heard us talk about direct deposits and getting customers to deposit their paychecks and robinhood and we see them depositing those and using our cash card for their day to day spending and also using the paycheck auto invest feature.

Automatically and seamlessly invest a portion of their paychecks directly into stocks in crypto.

Retirement accounts, obviously, a big one.

Tax advantaged accounts are really valuable to customers.

And we think Thats, a great long term opportunity and also a building block for other passive products down the road.

And on the crypto side.

We also see a correlation between.

New asset additions and assets under custody over the long term. So as we continue to expand our selection there and look out over a longer time horizon, we think that that will drive assets under custody pretty significantly as well.

In terms of.

We'll monitor monetizing some of these asset gathering activities, obviously there'll be some trading.

Securities lending should be available interest on Uninvested cash and then over time, we can layer on value added services.

Got it that's super helpful. I appreciate all the color and just maybe if I can follow up with one quick technical question on the interest rate modeling as Youre thinking about the margin loan repricing as interest rates rise could you talk about how much of the margin balances would actually be subject to that interest rate rise.

I know a decent or some amount of the margin balances our interest free and of the Robinhood Gold program. So I just wanted to get a sense for how significant that is.

Yes, so so the first if you're a gold member.

You get your $1st of margin borrowing for free.

And so what I would do well is just look at average borrowing.

Per customer, which is disclosed and you can kind of get a pretty good sizing there of how much is <unk>.

Interest, earning above the 1000.

Got it Super helpful. Thanks for taking all my questions.

Yes.

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

Hi, everyone. This is <unk> filling in for Craig I had a question on your digital wallet. So what's the timetable for launching it to the entire client base not just from the wait list and then also can you help us quantify the magnitude of the impact that you expect the digital wallet to have our molla share account growth in trading activity.

Hi.

So yes, we're very excited about.

About the rollout of our wallet.

Think that.

This is an important primitive for customers, who are engaging with with crypto.

We think it's a long term driver of new customers onto our crypto platform less so revenue because <unk>.

Very few customers actually utilize deposit and withdrawal functionality.

Like to see that it's there, especially early adopters because.

Crypto is all about having control of your own assets and so being a legitimate crypto platform for our customers involves giving giving customers that control.

And we think that over time, we're going to we're going to add more things more ways for our customers to engage in the broader ecosystem. So wallets enable that but at this point on a standalone basis, we actually don't view wallet says as a revenue driver.

Yes, I would say so.

You asked about the timetable for full rollout it is actually fully rolled out not just the wait list, but it's now general availability.

As well and.

Probably remiss not to mention that.

Customers get an amazing deal on the coins that we offer no commission.

Absolutely fantastic deal there and so.

Having robinhood offer that kind of pricing to our customers and if they want to be able to come to robinhood buy and then interact with a broader ecosystem through the wallet functionality, we're super happy to provide that.

Got it thanks.

Thank you. Our next question comes from Steven <unk> of Wolfe Research. Please go ahead.

Hey, good afternoon. This is Michael I'm not going to stop this on Stephen.

My question is one of your largest competitors announce rather substantial hiring efforts and other public peers are continuing to invest in talent at a rapid pace to support growth. How confident are you in your ability to win market share over the long term after rationalizing your head count, particularly given the war for talent in the industry and jewelry.

<unk> growing the business over the long term.

Yes, I can I can feel that one so it's no surprise, we grew very fast.

In terms of head count. So we were 700 full time employees at the end of 2019 grew to 3900 at the end of Q1.

And.

At the time, we thought that this was right to keep up with the pace of the business, but it also led to some inefficiency.

Some redundant roles.

And in <unk>.

We've shown that we've been able to execute rather quickly on the product roadmap.

In the past couple of quarters, and we actually think that.

Despite right sizing our head count and.

And reducing kind of the planned hiring progression, we're still going to hire in key roles and we're still going to accelerate our pace of innovation and achieve our goals. So.

I think I think that while it was while it was hard this was a necessary step for the long term health of the business I would also just add in that Robin Hood at its core is a tech company and so overtime I would expect revenue per employee to be an advantage for this company. So.

We're going to seek to be nimble lean and just drive for innovation.

Great.

As my follow up could you provide some detail around the drivers of the sequential movement in the crypto rebate given that renegotiation you disclosed and some of the mixed dynamics and could you give some color as well around the go forward impact you're expecting with the new coins.

With the rollout of those coins are you seeing any early indications that these launches are driving increased interest in your platform from those from prospective customers understanding it's only been a few weeks. Thank you.

Yeah, you bet, so Michael last quarter, we talked a little bit about.

Slightly more than doubling the rebate rate.

That we were getting from our venues.

In that context, we had added an additional venue so more competition, which we think is great for customers.

We also just rationalized our share of the profitability between ourselves and.

And the venues and felt really good about the increase that we got there.

In terms of new coins are customers are thrilled that we added more coins response has been good I'm not going to <unk>.

Share specifically, how thats doing we will provide our monthly metrics about the mid month.

Next week. So just next month, so just a couple of weeks away and we'll be able to see kind of the progress that we're doing there but.

The overall sentiment has been very very strong and customers are happy that we've added more selection there.

Thanks.

Thank you. Our next question comes from Trevor Young of Barclays. Your line is open.

Great. Thanks blood just dovetailing on that last question could you talk a little bit about the listing framework that you alluded to in selecting the four new coins that were recently added and know that this framework is in place should we expect the cadence of new coins to kind of accelerate from here and then lastly on this point should the eight or nine coins.

Real time data, but arent tradable, yet on the platform be viewed as a roadmap for new coins going forward. Thank you.

Sure. Yes, so we do have a comprehensive evaluation framework for new coins and we're comfortable with our listing protocol. So the framework looks at things like the technology behind the coin the security.

The security of the protocol obviously.

Legal considerations around the coin.

And.

And liquidity, making sure that customers can get into and out of positions flexibly and of course customer demand based both on kind of our internal research and external we do expect that we'll be continuing to add more coins over time I think you heard us say that we've also been.

Under the hood, improving our infrastructure to make it easier to safely add new points.

In terms of.

The timelines and how many I won't be able to share that with you guys at this time.

But I will say that to your question on should we expect.

Coins that we have market data too.

To be listed by the platform I think we've said that there is no connection so certainly.

Yes, you Shouldnt you Shouldnt expect that coin listed.

Or just market data and price tracking.

We will have any likely any higher likelihood of eventually being listed on the platform relative to an arbitrary coin.

That's really helpful. Thanks, and just a quick follow up for Jason just any color on marketing spend and strategy in this current environment to either attract new users to reengage dormant users and relatedly any details on how youre thinking about <unk> in light of the higher ARPA goal later in the year.

Yes, so thanks for the question on that.

Pretty lean on marketing this past quarter I would expect some increase to marketing throughout the end of the year.

To support awareness of our new products General brand awareness.

So we will increase our spending a bit there on marketing and think that's the right thing to do we are.

Very mindful of our cash.

<unk> done.

<unk> got a lot of experiments over the past.

To understand diminishing return by channel and the quality of customers that we get and so we've taken that learning and we've been mindful of that in this particular market environment, where the interest in investing is generally cooled off from prior periods.

And I'd also just add that one of the things. We're proud of is despite our low marketing spend this past quarter Robin and still remain number one for self directed brokerage is when you look at weekly downloads. So.

That's something that makes us feel very confident and we like our position we love the product roadmap and we look forward to creating more ways for our customers to engage with us and get more value from the offering probably just add to that.

Most of our customers come to us either organically or through referrals from their friends and and.

More of that we improve the.

The platform and add more products that our customers love I think the more that will spin that flywheel of referrals.

Great. Thank you to both of you for that.

Thank you. Our next question comes from Josh Beck of Keybank. Your line is open.

Thank you team for taking the question I wanted to.

Go back to I believe it was jason's comment about <unk> and kind of the the waterfall between say the low <unk> in the mid eighties, certainly it sounds like whats happening with SEC lending.

It's happening with the rates are big contributors of that gap I'm just curious if there is other components.

Whether it's perhaps the cash card or activity or if there's other.

Factors there that we should be thinking about just in terms of bridging that gap.

Yes, so improvements that we've been talking about for advanced traders that will give halo effect is just the user experience on the platform.

That's a big piece of it.

Fully paid securities lending.

Increases in NIM as the fed increases their rates.

Instant withdrawals so those are the big ones.

The interchange.

Revenue that we get on the cash card I think thats more of a longer term opportunity for us so.

Other areas are the bigger ones bridging where we are today to where we need to get to.

Okay.

Helpful and then one of the other comments.

But I picked up on was certainly.

Trying to garner more direct deposits within the cash card, obviously, winning those those inflows are I think really important too.

Having that holistic financial relationships. So just curious tactically what youre thinking about in terms of.

Being able to gain some of those direct deposit flows.

Yes, well I'll tell you we've had some experience with this because even prior to the cash card, we had cash management, which we rolled out as an added feature to the investment account.

And when we talk to customers, we heard a couple of things one was that.

Really like their spending and investing to be sort of in their own lane, so separating out into a different balance was something that was very important as we rolled out the cash card. The other thing is just they need to have a reason to direct deposit into robinhood and I think.

Having no fees with the cash card and having just a great customer experience is table Stakes. We wanted to go beyond that and add a really compelling debit card rewards as well as.

Yes.

To date early pay for the paycheck and the ability to seamlessly invest the paycheck into not just stocks, but also crypto so.

I think as.

As the equities and crypto offerings continue to mature and progress over time and as we continue to add new products. This will this should spin the direct deposit flywheel as well and there'll be more compelling reasons for customers to to deposit their paychecks onto the platform.

Very helpful. Thanks, a lot thanks, Jason.

Yes, Josh.

And ladies and gentlemen that does conclude today's conference call. Thank you for participating you may now disconnect.

Thank you everyone. Thank you.

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Today's call May be recorded should you require any further assistance. Please press star zero I would now like to hand, the call over to your host for today Urban Shah head of Investor Relations and capital markets. Please go ahead.

Thanks, Latif welcome everyone and thank you for joining us for Robin Hood's first quarter 2022 earnings conference call with US today, our CEO and co founder flat tenants and CFO , Jason warning before getting started I want to remind you that today's presentation will contain forward looking statements about our financial outlook and our strategic and operational plans actual.

Our 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.

Related slide presentation on our Investor Relations website, our Form 10-K filed February 24th 2022 and in our other SEC filings.

We remind you that from time to time, we intend to use the overview page of our Investor Relations website, and our blog under the Hood.

Means of disclosing material information to the public and investors should routinely monitor those types of information posted there could be deemed to be material information.

And with that let me turn it over to flat.

Thanks, <unk> and thanks to everyone for joining.

And we built a strong foundation for our future growth at the same time, we face a challenging macro environment.

One most of our customers have never experienced in their lifetimes.

While we were pleased to see strong net deposits and our lowest level of churn in years. We also saw decreased trading volumes month.

Monthly active users and assets under custody and our financial results reflect this.

So I've challenged the team to dig deeper on cost discipline and.

And get us to adjusted EBITDA profitability by the end of the year.

Difficult revenues.

I know theres, a lot to unpack here and will walk through all of this over the course of the call.

So let's start with the product updates.

In short our product engine is humming and I'm Super excited about that.

Since we last spoke we introduced the Robin Hood cash card, we extended our trading hours, we began the rollout of our fully paid securities lending product.

We began the rollout of instant debit card funding and withdrawals, we completed the rollout of our crypto wallets, we added four new crypto currencies to our crypto selection.

And we entered into an agreement to acquire <unk>, which will help accelerate our international expansion.

There's a lot here for us to be proud of and we're still just getting started.

Now, let me get into the details on what we've delivered starting with the Robinhood cash card. It's one of the few debit cards to offer rewards similar to what you would expect from a credit card. We're also giving customers who direct deposit access to their money two days early and we're letting them automatically invest a portion of their paycheck.

Checks directly into robinhood and using Robin Hood for anything they would use their bank for except with lower fees and a much better user experience.

We're still in the early stages here rolling out slowly to ensure we understand user behavior and points of friction.

We're happy with what we're seeing so far bright spots around adoption of direct deposit and repeat card usage and we will expand access to all of our customers by mid year.

Yes.

With the coming anticipated rate hikes, we will also be bringing back high yield on uninvested brokerage cash for our customers stay tuned for more on that.

Now, let's talk about crypto.

As you can tell we've been making major investments here, we believe that crypto was more than just an asset class by allowing anyone with a smartphone and an internet connection to create and utilize powerful financial tools. The technology behind crypto has the potential to become the operating system that powers the future of financial services. However.

Low fees and a simple user experience.

We recently announced our planned integration with Lightning network, which will power near instantaneous bitcoin transfers globally with transaction fees of less than a penny hugely beneficial to our customers.

Third we added four new points compound polygon Sheba, IMU and Solana.

We feel good about the listing framework, we are using to evaluate new coins and expect to add more over time behind the scenes. We've also been refining our core crypto infrastructure to effortlessly custody and support new coins tokens and change. This is part of a process that began last year and we will soon be able to add new coins with relatively minimal effort.

Lastly.

We recently entered into an agreement to acquire Zig <unk> for $170 million, primarily in cash Zig Lou is a UK based crypto platform that lets customers transact in 11 different crypto currencies earn yield on bitcoin in pound Sterling <unk> boost products and move and spend money even abroad without fees.

Over the past few months I've had the pleasure of getting to know Marc and the <unk> team they share our love for building great products. They bring years of financial services and crypto expertise and they have local knowledge that will be incredibly helpful. As we expand our operations in the U K and beyond <unk> also demonstrated a real commitment to regulatory.

Last but not least.

They love the simplicity of the interface and the ability to trade with no commissions, particularly in options, where we also have no contract fees.

We've recently introduced two important features for advanced customers extended trading hours, which we launched earlier this quarter was one of their top request and earlier. This week, we rolled out fully paid securities lending to a small set of customers. This will give advanced customers a great way to enhance the yield on their portfolios and we look forward to sharing it more broadly.

And the next few weeks.

No.

At the top of the call I mentioned the challenges presented by the macro environment.

For most of our history Robinhood has operated in a period of low interest rates low inflation and rising markets. Our customers are now experiencing all three of these trends going in the opposite direction, perhaps for the first time in their lives as a result, some are engaging with us less regularly and reducing their trading activities, we have been what.

<unk> customer behavior, and let me tell you what we're seeing.

So overall, our customers are continuing to engage with us, but the total numbers have come down a bit with <unk> falling to $15 9 million in March when we look a level deeper our larger customers are still remaining active but we are seeing more pronounced declines from those that have lower balances.

We've seen some encouraging signs net deposit levels are continuing to rise and churn has reached its lowest point in years.

And with that let me turn it over to Jason.

Thanks, Brad before we get to the numbers I would like to talk about how we're thinking about getting back to positive adjusted EBITDA.

As you just heard from flat he has challenged us to achieve a positive run rate by year end.

So how do we get there it.

It is critical that we execute on our 2022 roadmap and be more lean.

From where we stand today, we see top line upside from delivering better service to our advanced customers.

Rolling out fully paid securities lending generating stronger net interest revenue and monetizing instant withdrawals.

We also think over a longer time horizon there'll be even more benefits coming from interchange on the robinhood cash card investments, we're making in crypto and several other new initiatives that we have in the works.

Do you book, it rolls and sometimes just more head count than is needed, particularly as we deliver on optimizing our workflows.

So earlier this week, we announced a reduction in force affecting 9% of our team.

But as we look at our aggressive product plans for the year. We believe we can accomplish our goals with an even leaner team than we were previously planning.

So in addition to a reduction in force we have significantly cut our plans for hiring this year.

Last quarter I guided 2022 operating expenses, excluding share based compensation to grow between 15% and 20%.

We have a lot to reach a lot to do to reach this goal on profitability, but I've got confidence in the team.

Now, let's talk about corporate cash specifically, how much is needed to run the business and how much is true excess.

<unk> credit facilities. We currently have about $2 5 billion of excess liquidity beyond our stress scenarios.

We also have line of sight to free up an additional billion by optimizing the way we move our money.

I'd also like to talk about the effects of rate hikes by the fed.

Along to customers.

Now, let's move to the numbers for the first quarter of 2022 as a reminder, Q1 is lapping a very strong quarter in the prior year, owing to the mean stock rally last year.

Cumulative net funded accounts reached $22 8 million up 27% year over year during.

During the quarter, we had 500000, new accounts 100000, resurrection and 500000 churned accounts.

Churn continues to improve and has reached one of the lowest rates we've seen in the past several years.

We had $15 9 million monthly active users down 10% year over year, and 8% sequentially and this market, we're seeing customers with lower balances engaging less which is driving a significant majority of our sequential decline in <unk>.

Assets under custody were $93 1 billion up 15% year over year and net deposits were $5 7 billion in the quarter.

Total revenues were $299 million for the quarter down 43% year over year and down 18% versus Q4 revenues came in softer than our expectations. We anticipated some some incremental improvement to the trading environment from what we had seen during the first several weeks of the quarter, but trading.

Volumes remained soft across all asset categories.

Equities revenue was $36 million down 73% year over year, and 31% sequentially customers, placing trades were down 46% year over year, while notional volumes per trader were down 24%.

Options revenue was $127 million down, 36% year over year, and 22% sequentially customer.

Customers, placing trades were down 44% year over year and options contracts per trade or were down 33%.

And crypto revenue was $54 million down 39% year over year, but up 13% sequentially.

Customers, placing trades were down 61% year over year in notional volumes per trader decreased by 22%.

These declines significantly offset the recent increase in venue rebate rates.

Moving to assets under custody equities was $68 5 billion up 5% year over year options was $1 1 billion down 45% year over year crypto increased to $19 7 billion up 70% year over year and customer cash increased to $9 2 billion up 21% year over year.

Year.

Offset by $5 4 billion of receivables from users.

And for net interest revenues, they were $55 million for the quarter down 11% year over year and 13% sequentially primary.

Components include securities lending and margin interest.

Securities lending was $24 million down 31% year over year, and 17% sequentially as we saw lower demand for hard to borrow securities.

Margin interest was $35 million up 25% year over year, but down 10% sequentially.

Over the course of the quarter, we saw a margin users actively managing their borrowing as a result, our margin book declined to $5 3 billion, putting it roughly flat with the prior year.

As of March 23rd we increased our margin rates to 3% up 50 basis points and we anticipate floating this rate along with fed rate changes moving forward.

And offsetting interest revenue was interest expense, which was $6 million.

Moving to other revenues they were $26 million this quarter at 35% decrease versus the prior year and 26% declined sequentially. The year over year decline was driven by an 87% reduction in our <unk> out fees as we experienced elevated churn last year.

Before closing I'd like to note that starting this quarter, we will begin providing monthly metrics for our top kpis. These.

These disclosures will include information about user growth engagement and trading including trading volumes in darts by asset class. We will post these metrics to the Investor Relations website at investors that Robin Hood Dot com mid month. After the end of each of the first two months of the calendar quarter.

The metrics for the last month of each quarter, we will be sure to earnings.

So far in April we're seeing trading volumes in line with what we were seeing throughout most of Q1.

With that or let's move to Q&A.

And with that our first question is from Andrew K Echo a couple of times, but she has been derby and absorbed this year.

The question is what are management's plans to grow and regain market cap.

Sure I'll field that one thank you Andrew So first let me say that we all know this is a challenging time in the markets.

Our focus during this time is on building a great company for the long term you've heard us talk about several large areas of investment throughout.

Throughout the beginning of this call and.

I think.

Get to positive adjusted EBITDA by the end of the year, but.

Thanks, a lot. Our next question comes from Sunny P, who asks when his hood going to pay a dividend Jason.

Thanks, Tony This is Jason it's too early for us to be paying out dividends. We think it is better right now to be investing in the business.

We've got a lot of opportunity ahead of us as we've been talking about today, and we think thats the best use for our capital right now, but I appreciate the question.

Great next up from Daniel L. What will robinhood due to combat declining monthly active users.

Sure.

I'll take that one so we have seen recent declines, but I think it's important to look at the broader context robinhood has grown very quickly over the last few years for instance, if you look at monthly active users over the past two years, we've we've nearly doubled MAA used from $8 6 million too.

Right around $15 9 million. So looking ahead, we're going to continue to innovate and roll out new products and we see our customers engage with us in new ways. A. Good example is the recently rolled out cash card, which we're rolling out to our customers I think it's a great way.

They too have customers using us for more than just investing direct depositing their paychecks into robinhood and using us for anything that they would use their local bank for except with lower cost and a much better customer experience.

As we continue to add these new products while also.

Adding more products to investing in crypto.

We're confident in our ability to not only retain our existing customers, but significantly grow new ones over time.

Great next step in Kevin <unk>, what is the number one focus this year.

Yes, I'll field that one the number one focus for us is.

Theres more of that that we have to do.

Think thats.

Really really exciting and we're excited to continue that moving forward.

Okay Nick.

We've got a couple of questions on retirement accounts from Ryan D Serine L.

Basically we will retirement accounts be available soon.

Yes, so retirement accounts have been a focus for us this year.

And we've been making great progress I think that when customers see what we have in store there'll be really excited it'll bring the same design and user experience that customers have come to expect from from Robin Hood customers from robinhood products and it will be it'll be a great product.

We're excited to roll it out later this year.

Excellent for <unk> S. What are the next top three big changes Robin it is bringing to customers this year.

Sure Hey, I've been up so I've mentioned I've mentioned, a lot about our product velocity accelerating.

And we've made.

Lots of improvements to our customer experience and feature set across the board three three.

Three themes to mention.

One the active investor experience.

We're really.

Excited to better serve our active investors the people that are most engaged into our platform.

And we've seen the experience getting better and better with new products and also a lot of small improvements to the day to day process of train setting up an account on Robin Hood. So it's been a huge area of focus valuable for these customers, but also valuable to the top line of the company. So thats one.

Number two the cash card.

I've talked a little bit about this.

Excited to see customers engaging with us in different ways. This is one of the only debit cards on the market that gives customers rewards for spending similar to what they would get.

And then the third area is crypto no surprise that we have been investing a lot here, we've increased our selection and we've also improved cost for customers as well.

And I'll throw a bonus number four you've heard me talk about retirement I think that this is a very very important need for our customers to get help investing for the long term with the same low cost and user experience customers have grown to love and expect from Robin Hood. So we're very excited.

Deliver that for our customers and we think we think you'll really like it.

Awesome. Thanks, a lot I think maybe you have temperatures one last question and then we'll shift to the analyst community.

So the last one from Eduardo V is when as Robin Hood going global.

Well, we're excited to have announced the acquisition of <unk>.

We expect to have.

The acquisition closed later this year and we think it's a great accelerant, we intend to build from that base and.

And rollout an awesome product to our customers.

In the U K first and then Europe and the rest of the world.

Awesome.

Thanks to everyone, who posted questions on se and with that I will ask the operator to open up the line. Thank.

Thank you.

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

Yeah.

Our first question comes from Devon.

Devin Ryan of JMP Securities. Your line is open.

Hey, good afternoon, Vlad and Jason how are you.

Great Hi, Devin good to hear from you first of all thanks for the monthly disclosure I think that'll be very helpful. Moving forward.

I guess first question here I appreciate expectations around getting through breakeven.

By year end.

I think what a lot of folks are trying to kind of figure out here is you've launched a lot of new products.

And.

Hopefully you see traction around them, but can you help us maybe think about just the revenue contribution from some of the larger initiatives and how you expect those might scale given that they werent in the prior quarter's results and then the second part of that question is yes.

If you succeed in getting to kind of profitability.

How do you expect to manage from there should we think about.

Just kind of maintaining around that level that breakeven or.

Should inflect through and then.

Revenues continue to expand there is a lot more operating leverage from there.

Thanks, Devin this is Jason I'll take it and glad can contribute if he has some additional thoughts.

The biggest contributors from where we are today and where we need to get.

At the end of the year to kind of achieve this goal.

Adjusted EBITDA breakeven or better.

We had <unk> of about $53 for this quarter, we need to get to kind of mid eighties.

By the end of the year.

To be able to get to that goal. The biggest contributors you heard <unk> talk about the improvements that we're just making the platform primarily listening to some of our more active customers. We think it's going to serve them incredibly well, it's going to have a halo effect to all of the customers that we have on the platform. We just started out started rolling.

Out fully paid securities lending, we talked a bit last quarter about the revenue opportunity there its about one to two times, what we have for margin securities lending.

Depending on the attach rate of our customers the rising interest rates by the fed we're going to be able to capture meaningful NIM as that continues to progress.

And then instant withdrawals as another contributor.

All in.

We think that we can get there it's an aggressive goal.

Take I think a lot of focus on operating costs.

We've got the commitment of the whole team to get there.

In terms of how are we going to manage it.

Going forward, what I will tell you is that.

We're going to continue to invest aggressively for long term growth, but I think as we continue to rollout products that add monetization to the platform youre going to see that the the investments that we're making a relatively less relative to the overall profitability of the company as we gain momentum.

But it.

It's very much part of robinhood DNA to operate lean and efficient and over the past year. We've made a lot of improvements to our technology and infrastructure. So what we expect is we want to make sure. We demonstrate that the business model works very very well during slow economic times.

And so when when volatility does come.

Come back to equities markets into crypto, we should see upside from that but we also want to make sure that in hard economic times our business.

<unk> resilient and strong and I think the the DNA of efficiency and the fact that we've improved our infrastructure tremendously is going to help with that.

Okay, Great I appreciate that and then I'll just ask one quick follow up here you gave the interest rate sensitivity on I think a couple of hikes here.

Are you not providing it.

In a maybe more normalized rate environment because of kind of maybe the earlier comments around reinstating kind of high yield opportunities.

Cash or how should we should we continue to roll those types of revenues forward, if we normalize to 200 basis points or higher on this.

The short end of the curve.

Yes, I appreciate I appreciate that question, what I would say there is that there is some variability in the interest earning accounts that we have if you look at the margin balances for example, this quarter came down.

Meaningfully during the quarter as our customers manage their borrowing levels.

Depends on how much we're able to realize from the banking partners and depending on the on the balances evolve we're able to realize more or less and then to the point that you just raised we do intend to pass some back to customers as well.

Okay, Great I'll leave it there thanks so much.

Thanks, Kevin Thank you.

Thank you. Our next question comes from Ken Worthington of JP Morgan Your question. Please hi.

Hi, good afternoon, Thanks for taking my question.

Do you have a number of initiatives underway I think it would be helpful to get a sense of the opportunity for these future initiatives by seeing how some of your past initiatives have gone I thought of a couple maybe there are some others, but I think you guys had rolled out incoming eight cats, how much engagement are you seeing there and if you could.

Where is the money coming from.

I think you've offered direct deposits for some time, how many clients are sort of utilizing those.

I know during the IPO you guys told us about gold accounts and the number of members there.

If you could just update us on how that initiative continues to grow and I know debit cards are new but you've had a waiting list I think for some time, how many clients on that waiting list and how many are using the card in the early days of usage.

Thanks, Ken.

So just kind of ticking through some of these so for a cat CN.

We've seen that be one of the channels where customers are in flowing deposits into <unk>.

Into robinhood, it's simply.

A portion of the channel I guess is what I would say last quarter, we had $5 7 billion in net deposits come in a portion of that from a cat scan. We do have thousands of customers using it I would tell you that that particular functionality.

There's going to be really helpful. As we rollout.

New account types like retirement in the future as well as for customers that are just joining with us and.

A great offering around the cash card.

So that when customers do direct deposit their paycheck.

They're able to spend as well as invest and.

It's really early but the early signal onto cash card is that we're seeing a nice adoption of the direct deposit.

In terms of gold.

Overall attach rates about five 5% that subscription product today, largely appeals to more advanced customers and we have a small team working on the gold subscription product.

To add value propositions that are going to appeal to a larger <unk>.

Swath of our customers and Thats something that we will update you on later this year.

And then debit cards, we've just started rolling out the new Robinhood cash card.

So rolling it out slowly we had hundreds of thousands on the on the on the wait list of customers and.

The prior.

Cash card that we have is debit card reached about 6 million customers on it and so we feel really good about the value proposition of this card as we continue to roll it out that it will appeal to our customers.

I'll just throw in there one that you didnt ask about extended trading hours. So during our rollout we are seeing some lift in trading behavior versus the control group, but I would say that it's still pretty early we have to determine that it's not just the novelty of the of the new feature but we've been really pleased with the customer response.

As you probably know it's been one of the most asked about features for advanced users and it's a huge step along the way into.

Our goal of allowing $24 seven training.

And equities markets.

Awesome I knew I missed at least something so thank you for that and thanks for your questions. Thanks.

Thanks for your question Ken.

Thank you. Our next question comes from Rich Repetto of Piper Sandler. Please go ahead.

Hey, good evening, Brad and Jason.

Hey, Rich I guess.

How're you doing.

So I guess my question.

You talked a lot about focusing on advanced users.

And traditionally you can look at the E brokerage industry from what we understand about it that it was sort of an 80 20 rule where 'twenty.

20% of the accounts generated 80% of trades and generally the revenue.

I guess my question is how are you defining the uses.

It may be different by asset what its crypto option, but any sort of feel for how you define it as we get some sort of feeling of how many advanced use and does that 80 20 rule does it.

<unk>.

Home to the way you are looking at advanced uses to your overall customer base.

Thanks, Rich, it's Jason I'll take this one so we do have a power law where.

A smaller portion of the customers do contribute more of the revenue. This is one of the reasons why we're rolling out new products that we're excited about like the the Robin at cash card. For example that is going to help customers, particularly those that don't feel like they are able to really set aside extra money to start investing.

Roundups in the Roundup matches that Robin Hood provides is giving them an opportunity to.

To contribute but.

The.

In terms of like how how many we havent, we havent said, but it is.

Hundreds of thousands of customers. So it's a big it's a big portion of our customer base.

Yeah.

But I guess have you do you have some internal definition of what an advanced user is our.

Our cutoff.

We do have ways to look at it internally, but it's not something that we've shared outside the company.

Love Robin Hood for our low crypto fees and a great user experience.

Our our trading trading crypto quite a bit on our platform.

Adding new features we think the experience for the typical customer will be pristine and more flawless. So we think theres high leverage here.

<unk>.

There's a lot more to do for our more advanced customers.

Okay, and just one quick follow up Jason.

Jason when you said, 2% to 5% on the expense growth now I believe that you said at the beginning so the way to.

Bill this out would be used to build out the expenses sort of back out.

What that expenses would be in <unk> and.

On an EBITDA basis and then.

Our goal for revenues and all the new.

Yes, the primary thing that you.

The primary thing that you back out on operating expenses would be share based compensation.

We have a relatively small restructuring related charge as well.

The reduction in force that we just announced but that's the that's the right way to think about it about 2% to 5%.

Year over year increase in Opex.

Got it thanks very much guys appreciate it thanks rich thank.

Thank you.

Thank you. Our next question comes from will Nance of Goldman Sachs. Your question. Please.

I also wanted to ask a question on some of the trends in net cumulative deposit in net new assets.

The slowdown in trading activity in the last three months I've actually been quite strong in terms of new flows and it seems like youre growing the asset base at something like that 15% to 20% annualized clip. So maybe could you talk about strategies in place to continue to deepen the wallet share with customers from just an overall AUM perspective.

And then as you think about monetization going forward be it through increased cash monetization.

Asset based fees from third parties or investment advisory relationships and it seems like.

Buying revenues AUM levels as the solid long term opportunity for the company, how do you kind of size that opportunity.

Yes, I mean, we've certainly.

We are certainly seeing a correlation between assets under custody and revenue on the platform.

And we think that wallet share.

Assets under custody.

Are correlated with deepening our relationships with customers and kind of the long term health of the business and some of the things that we're doing there.

On the new cash card side, you've heard us talk about direct deposits and getting customers to deposit their paychecks into robinhood and we see them depositing those and using our cash card for their day to day spending and all.

Also using the paycheck auto invest feature to automatically and seamlessly invest a portion of their paychecks directly into stocks in crypto.

Retirement accounts, obviously, a big one.

Tax advantaged accounts are really valuable to customers.

And we think that Thats.

Great long term opportunity and also a building block for other passive products down the road.

And on the crypto side we.

We also see a correlation between.

In terms of.

We'll monitor monetizing some of these asset gathering activities, obviously there'll be some trading.

Securities lending should be available interest on Uninvested cash and then over time, we can layer on value added services.

Some amount of the margin balances our interest free and of the Robinhood Gold program. So I just wanted to get a sense for how significant that is.

Yes, so so first if you're a gold member.

You get your first thousand dollars of margin borrowing for free.

And so what I would do well is just look at average borrowing.

Per customer, which is disclosed and you can kind of get a pretty good sizing there of how much is.

Interest, earning above the 1000.

Got it Super helpful. Thanks for taking all my questions.

Yes.

Yeah.

Thank you. Our next question comes from Craig <unk> Bank of America. Please go ahead.

Hi, everyone. This is filling in for Craig I had a question on your digital wallet. So what's the timetable for launching it to the entire client base not just from the wait list and then also can you help us quantify the magnitude of the impact that you expect the digital wallet to have a wallet share account growth in trading activity.

Hi.

Yes, we're very excited about.

About the rollout of our wallet.

That.

This is an important primitive for customers, who are engaging with with crypto.

We think it's a long term driver of new customers onto our crypto platform less so revenue because.

Very few customers actually utilize deposit and withdrawal functionality.

Like to see that it's there, especially early adopters because.

Crypto is all about having control of your own assets and so being a legitimate crypto platform for our customers involves giving giving customers that control.

And we think that over time, we're going to.

We're going to add more things more ways for our customers to engage in the broader ecosystem. So wallets enable that but at this point on a standalone basis, we actually don't view wallet says as a revenue driver.

Yes, I would say so.

Asked about the timetable for full rollout it is actually fully rolled out not just the wait list, but it is now general availability.

As well and.

Probably remiss not to mention that.

Customers get an amazing deal on the coins that we offer no commission.

Absolutely fantastic deal there and so.

Having robinhood offer that kind of pricing to our customers and if they want to be able to come to Robin Hood buy and then interact with a broader ecosystem through the wallet functionality, we're super happy to provide that.

Got it thanks.

Thank you. Our next question comes from Steven <unk> of Wolfe Research. Please go ahead.

Hey, Good afternoon. This is Michael and I'm going to start this on Stephen.

Patient and growing the business over the long term.

Yes, I can I can feel that one so it's no surprise, we grew very fast.

In terms of head count. So we were 700 full time employees at the end of 2019 grew to 3900 at the end of Q1.

And.

At the time, we thought that this was right to keep up with the pace of the business, but it also led to some inefficiency.

Some redundant roles.

And in.

We've shown that we've been able to execute rather quickly on the product roadmap in.

In the past couple of quarters, and we actually think that the.

Despite right sizing our head count and.

And reducing kind of the planned hiring progression, we're still going to hire in key roles and we're still going to accelerate our pace of innovation and achieve our goals. So.

So.

We're going to seek to be nimble lean and just drive for innovation.

Great and as my follow up could you provide some detail around the drivers of the sequential movement in the crypto rebate given that renegotiation you disclosed and some of the mixed dynamics and could you give some color as well around the go forward impact you're expecting with the new coins.

Yeah, you bet, so Michael last quarter, we talked a little bit about.

Slightly more than doubling the rebate rate that.

We were getting from our venues.

In that context, we had added an additional venue so more competition, which we think is great for customers. We also just rationalized our share of the profitability between ourselves.

And the venues and felt really good about the increase that we got there.

In terms of new coins are customers are thrilled that we added more coins response has been good I'm not going to.

Share specifically, how thats doing we will provide our our monthly metrics about mid month.

Next week. So just next month, so just a couple of weeks away and we'll be able to see kind of the progress that we're doing there but.

The overall sentiment has been very very strong and customers are happy that we've added more selection there.

Thanks.

Okay.

Thank you. Our next question comes from Trevor Young of Barclays. Your line is open.

Have real time data, but arent tradable, yet on the platform be viewed as a roadmap for new coins going forward. Thank you.

<unk>.

Sure. Yes, so we do have a comprehensive evaluation framework for new coins and we're comfortable with our listing protocol.

The framework looks at things like the technology behind the coin the security.

The security of the protocol obviously.

Legal considerations around the coin.

And.

And liquidity, making sure that customers can get into and out of positions flexibly and of course customer demand based both on kind of our internal research and external we do expect that we will be continuing to add more coins over time I think you heard us say that we've also been.

Under the hood, improving our infrastructure to make it easier to safely add new points.

In terms of.

The timelines and how many I won't be able to share that with you guys at this time.

I will say that to your question on should we expect coin.

Coins that we have market data.

You too.

Could be listed by the platform I think we've said that there is no connection so certainly.

Yes, you shouldn't you shouldn't expect that a coin listed for.

Or just market data and price tracking.

We will have any likely any higher likelihood of eventually being listed on the platform relative to an arbitrary coin.

Yes, so thanks for the question on that.

Pretty lean on marketing this past quarter I would expect some increase to marketing throughout the end of the year.

To support awareness of our new products General brand awareness.

So we will increase our spending a bit there on marketing and think that's the right thing to do we are.

Very mindful of our cash.

And that.

Is that a lot of experiments over the past.

Yes, and I'd also just add that one of the things. We're proud of is despite our low marketing spend this past quarter Robin. It's still remain number one for self directed brokerage is when you look at weekly downloads. So.

Most of our customers come to us either organically or through referrals from their friends.

And the more that we improve the platform and add more products that our customers love I think the more that will spin that flywheel of referrals.

Great. Thank you to both of you for that.

Thank you. Our next question comes from Josh Beck of Keybank. Your line is open.

Thank you team for taking the question I wanted to.

Go back to I believe it was jason's comment about <unk> and kind of.

The waterfall between say the low fifty's in the mid eighties, certainly it sounds like whats happening with SEC lending.

What's happening with the rates are big contributors of that gap I'm just curious if there's other components.

Whether it's perhaps the cash card or activity or if there is other.

Factors there that we should be thinking about just in terms of bridging that gap.

Yes, so improvements that we've been talking about for advanced traders that will give halo effect is just the user experience on the platform.

That's a big piece of it.

Fully paid securities lending.

Increases in NIM as the fed increases their rates.

Instant withdrawals so those are the big ones.

The interchange.

Revenue that we get on the cash card I think thats more of a longer term opportunity for us so.

Areas are that are the bigger ones bridging where we are today to where we need to get to.

Okay very helpful. And then one of the other comments that I.

Picked up on was certainly.

Trying to garner more direct deposits within the cash card, obviously, winning those those inflows are I think really important too.

Having that holistic.

<unk> relationship. So just curious tactically what youre thinking about in terms of.

Being able to gain some of those direct deposit flows.

Yes, well I would tell you we've had some experience with this because even prior to the cash card, we had cash management, which we rolled out as an added feature to the investment account.

And when we talk to customers, we heard a couple of things.

One was that.

They really like their spending and investing to be sort of in their own lane. So separating out into a different balance was was something that was very important as we rolled out the cash card. The other thing is just they need to have a reason to direct deposit into robinhood and.

<unk>.

Having no fees, what the cash card and having just a great customer experience is table Stakes. We wanted to go beyond that and add a really compelling debit card rewards as well as.

Two day early pay for the paycheck and the ability to seamlessly invest the patriarch into not just stocks, but also crypto so.

I think as as the equities in crypto offerings continue to mature and progress over time and as we continue to add new products. This will this should spin the direct deposit flywheel as well and there'll be more compelling reasons for customers to to deposit their paychecks onto.

The platform.

Very helpful. Thanks, a lot thanks, Jason.

Yes, Josh.

And ladies and gentlemen that does conclude today's conference call. Thank you for participating you may now disconnect.

Thank you everyone. Thank you.

Q1 2022 Robinhood Markets Inc Earnings Call

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