Q3 2022 Robinhood Markets Inc Earnings Call

Oh, sorry, I'm, sorry, [laughter] Hello, everyone and good day. Thank you for standing by welcome to the Robinhood third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a Q&A answer session.

To ask questions during the call. Please be sure to press Star one one on your telephone you will then hear an automated message advising you that your hint as rates due to the time, everyone will get one question and one follow up please be advised that today's conference call is being recorded I would like to now hand, the conference call over to Chris Cagle, Our Vice President of Investor Relations.

Go ahead.

Thank you Holly welcome everyone and thank you for joining us for Robinhood third quarter 2022 earnings call with US today are CEO and co founder.

Tenants and CFO , Jason work before getting started I want to remind you that today's presentation will contain forward looking statements about our financial outlook.

T J can operational plans actual results could differ materially from our expectations and we have no duty to provide updates unless legally required potential risk factors that could cause differences.

Regulatory developments that we continue to monitor are described in our press release issued today the related slide presentation on our Investor Relations website. Our Form 10-Q filed August 32022, and in other SEC filings. Today's discussion will also include non-GAAP financial measures reconciliation to the GAAP results, we consider most comparable.

It can be found in the earnings presentation on our Investor Relations website at investors Dot Robinhood Dot com with that let me turn it over to Wes.

Thanks for the intro, Chris and thanks to everyone for joining.

Six months ago, we set an ambitious goal for us to return to adjusted EBITDA profitability by the end of the year I am proud to announce that we achieved this milestone a quarter ahead of schedule and I'm incredibly proud of our team.

In Q3, we generated adjusted EBITDA of $47 million in spite of a tough macro backdrop, we were able to simultaneously decrease cost increase revenues and demonstrate the diversification of our business model.

We feel our cost structure is in a good place. So we are now fully focused on delivering great products and service for our customers and growing our business I will tell you more about our plans here, but first let's take a look at how our customers are doing.

Amidst the challenging macro environment customers continue to trust us with billions of dollars of net deposits each quarter as we invest through the cycle for the long term, excluding those deposits our customers' portfolios on average slightly outperformed the NASDAQ and S&P in Q3. These factors drove customer assets under.

Custody up by about 1% to $65 billion, despite equity market values declining again this quarter. This environment highlights the importance of serving our customers financial needs through the cycle and are diversifying our business beyond trading.

So let me tell you more about some of the products, we're working on across brokerage crypto and money starting with brokerage.

Today's high interest rates can be challenging for customers with mortgages student loans and car payments at the same time they <unk>.

And then an opportunity for our customers to earn one of the highest yields available on their uninvested cash at levels not seen in over a decade in September we introduced a fantastic interest rate for our gold members, 3% on cash via our sweep program with no balanced limits, none other time commitments to that.

Cds have an FDIC insurance of up to $1 $5 million six times, what you get from a typical bank account, we're really excited about this product because it helps customers earn on their cash even when they are not investing and so far we like what we see with gold cash sweep balances up by over $1 5 billion since we raised.

Rates.

And following today's fed rate hike will raise the interest rate for gold customers. Even higher. This is just another one of the investments we're planning for the coming years make robinhood gold the best deal in financial services.

We also want to provide great value for customers investing for the long term at robinhood. So we're excited to launch Robinhood retirement, just in time for the new year and the heart of IRA season for our customers looking to open a new retirement account or rollover in existing IRA or taking their first steps in long term investing we're excited to share. This.

<unk> with you and we know Youll love it.

Finally, I want to share some of the great work our brokerage team has been doing for our advanced customers recall, our advanced customers or customers, who trade more actively and use more sophisticated products like options. We're one of the very few platforms that offer options trading with no contract piece and this is incredibly valuable for customers who place.

A lot of options trades in case, you don't know about this most companies charge something like a 65% per contract fee for each option trade and that's in addition to payment for order flow at about the same levels, we generate and while that may not sound like a lot of money not paying those fees saved our customers over six.

$100 million in the past year, we love saving money for our customers like this and think customers of a lot of other firms are paying way too much to trade options.

Now at the start of the year, our advanced customers were on average less satisfied with our service and our other customers. So we listen to their feedback and double down on building products designed for them starting with hyper extended trading hours in stock lending we kept hearing they wanted more trading data tools and analytics in the App. So in August .

We rolled out advanced charts, we built these natively to give advanced customers quick simple customizable and in depth analysis that they want for trading without cluttering. The user interface. Additionally, while churn is at the lowest level in years, a leading driver of advanced customer churn was not being able to trade options and cash accounts. So.

We were pleased to roll out this feature in July and in the past six months, we've seen a flip where advanced customers now have higher satisfaction with the robinhood experience than our other customers of course, there is always more to do.

We're continuing to invest to make robinhood, a fantastic platform for everyone.

Now, let's move to crypto, we want everyone to have safe easy and low cost access to the power of the decentralized web, which we believe is the future operating system of financial services. So after building a waitlist of more than 1 million people. Since may we're excited that we rolled out the beta of the Robin Hood wallet, our self custody web three wallet to the firm.

10000 customers last month, while it's early we're hearing from customers that they love the simple and intuitive mobile experience and they really love the no gas fees. They also tell us that they would like us to add more blockchain to increase the breadth of coins available for them to swap and trade. We're encouraged to see this enthusiastic early.

Response, and we will keep enhancing the wallet and we're planning to roll the Robin Hood wallet out internationally. So we're excited that this will be our first product available to people all over the world.

We also continue to rollout more coins over the past quarter.

In a deliberate and considered manner. One of these was our first stable coin USB C from circle as part of this rollout or creating a new free educational program called learn and earn that gives our customers the ability to earn kryptos simply by learning about it we're excited to roll this out and give our customers even more reasons to engage with our <unk>.

Some educational content.

Now, let's talk about robinhood money, which includes our cash card as well as tools to move money in and out of Robinhood, while it's still early for our cash card, which launched in March we have over 500000 customers today, we're focused on continuing to improve the experience. So more customers use the cash card is a top card in their wallet looking at.

We're excited to be introducing the new card to our $6 million legacy cash management customers. Soon so they can also enjoy the enhanced benefits.

Another robinhood staple that customers have loved for years as our seamless instant deposits.

This is something that we continue to invest in including giving gold customers the ability to make instant deposits of up to $50000.

We realize that some customers want to be able to withdraw their money instantly as well rather than wait up to five business days per traditional ACTH transfers. So last month, we started rolling out instant withdrawals, providing customers with a new option to withdraw cash instantly to participating banks at a competitive one 5% price point.

While always maintaining the ability to use pre ACTH transfers, we think customers will really like the experience and pricing of our new expedited service as well as having expanded choice of money movement options. We're excited to roll this out more broadly and we're going to keep you posted on our progress here.

Stepping back a bit we've seen and managed through a lot of change in the past year.

Change in the economy, geopolitics financial markets and change and Robinhood as well we've gone from an environment of easy money to one of focus and constraints in the outside world and within Robinhood itself and while it's been hard I think this transformation has been incredibly positive for the company. Despite.

Secondly, trimming our head count and expenses, we have seen our fastest product velocity and iteration speed and our service quality for customers is the best I've seen our focus remains on building exceptional products that give ordinary people control over their financial lives and giving open access to tools once reserved for the rich I'm lucky to be working.

With such a talented team.

And I again wanted to congratulate them for driving us to adjusted EBITDA profitability, one quarter ahead of schedule with that let me turn it over to Jason.

Thanks flat, it's good to speak with everyone today in.

In the third quarter, we stayed focused on serving customers growing our business and driving long term shareholder value in spite of the macro environment. Our team continued to deliver on our 2022 roadmap, which helped maintain steady net funded accounts and drive strong net deposits.

And as Vlad mentioned, we generated positive adjusted EBITDA in Q3 by continuing to increase revenues and lower costs I'm pleased by the progress we've made through the first three quarters.

Let's look at the third quarter, starting with business results net funded accounts for $22 9 million up about 60000 from Q2 monthly.

Monthly active users were $12 2 million down $1 8 million from Q2 despite.

The difficult environment, we are encouraged by our continued industry, leading engagement and low churn through another volatile quarter. We've also seen net funded accounts continue to tick up in October and <unk> increased to $12 5 million.

Turning to assets under custody. They were 65 billion up about 1% from last quarter.

<unk> grew a strong net deposits more than offset the impact of lower market valuations.

In October we saw AUC move back up to about $70 billion.

Looking more closely at net deposits they were $2 7 billion in Q3, which translates to a 17% annualized growth rate.

We've continued to see net deposit strength in October with customers contributing over one 5 billion in the month. This is encouraging for long term asset growth as the combination of strong net deposits in rising markets can drive meaningful asset growth over time.

Now, let's look at Q3 financial results adjusted EBITDA was positive $47 million. This improved by $127 million from Q2 at over $190 million from Q1.

It reached a new high of $128 million in Q3 up over 70% from Q2 and driving over 35% of total revenue as the fed continues to increase rates I'd like to highlight a couple of things first interest, earning assets were up to over 17 billion as of the end of last week.

Driven by growth in our cash sweep balances, partially offset by strong customer net buying into the market.

As of the end of last week, our cash suite balances were up to $3 7 billion, including $2 4 billion in gold.

One of the things that's really exciting is the majority of the increases in gold sweet balances are from new deposits with the rest largely coming from upgrades to gold.

Second our fully paid securities lending program, which just launched in May is off to a good start.

Generated about $4 million of revenue in Q3 already reaching 15% of revenues from our margin securities lending.

Looking ahead to Q4, we're encouraged by what looks likely to be another quarter of net interest revenue growth as we consider what we see today for the forward fed curve customer balances and deposit rates as well as a decrease in our margin book and securities lending so far in the quarter, we anticipate Q4.

Net interest revenues will be up by roughly $25 million from Q3, we could certainly come in higher or lower than that level. So we will have to see how Q4 plays out.

Also I'd like to note that we've added customers cash sweep balances to our monthly metrics for Q3 and going forward. This should help give additional insight into how our net interest revenues are trending as we move through each quarter.

Moving onto other revenues they were $25 million down $17 million from Q2, primarily due to the seasonal decrease in proxy related revenues. The largest driver of these revenues are gold subscribers, which finished Q3 at $1 1 million, we're really excited to be investing in our gold program with our high <unk>.

Yield offer of 3% on customer.

<unk> driving strong net deposits, we like this early signal and we're looking forward to finding more ways to add value to the gold program.

Now, let's look at expenses, starting with Opex prior to share based compensation. They were $425 million in Q3, which includes $90 million of restructuring charges. If we look at opex prior to SBC and restructuring they were $335 million, which was an improvement of over 90 million.

Dollars versus Q2.

Progress was primarily driven by reductions in workforce and third party labor and improvements in several other cost categories, including technology infrastructure.

Given our progress we expect Q4 opex prior to SBC to be in the range of $350 million to $370 million, which includes planned increases in marketing.

I would note that this Q4 level is roughly $100 million below where we started the year, reflecting the progress we've made getting to a leaner operating position.

Yes.

Turning to share based compensation it was $110 million, which is net of $53 million reversal from our August workforce reduction.

For Q4, we expect SBC will be in the range of $150 million to $190 million.

As for dilution I'd like to share a couple of updates here.

First we're adding new disclosure to our quarterly earnings presentation for our diluted share count, which is up by a little more than 4% through the first three quarters of this year.

For year end, we expect diluted shares to be in the same zone as Q3.

Second looking to next year, we're planning for our diluted share count to grow by 4% or less assuming no change in our stock price from today's level.

Now to capital management, I want to share an update on our <unk> acquisition.

While the parties are working hard at it there is some regulatory uncertainty as to whether the deal will close what we know at this point is that the deal won't close this quarter.

I would emphasize that we like several pathways to international expansion, including launching a robinhood wallet globally early next year.

So we remain excited about the opportunity to serve customers around the world over time.

In the current environment. It also remains important for us to have a strong balance sheet and cash position. That's why we like our position with no debt over $6 billion of corporate cash and improvements in our cost structure. This combination provides strength and flexibility and financial runway to continue serving our customers execute on our product roadmap.

<unk> and evaluate potential acquisitions as I mentioned last quarter, we have roughly $2 5 billion of excess cash above our risk scenarios.

In closing I'm really pleased with the progress in Q3 and optimistic about the opportunities ahead of us to deliver value for customers and shareholders.

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

Alright, Thank you Jason.

Leading into this quarter is Q&A session, we will start by answering about a dozen questions on top.

No questions from shareholders from say technologies shrank by number of votes will pass over any questions were already answered on the call.

Grouped together questions that share common theme after that I will turn to live questions from analysts so I'll kick it off with one of our top questions from say technologies Im going to pair together two questions. The first is from donor T. Who asks will retirement accounts be offered this year and also another from S asks are there any plans to.

At Roth.

Counts robinhood.

I'll field that one the short answer is yes to both so we're excited to rollout retirement just in time for the tax season. The team has been working hard at it.

I think you'll really like what the product is going to look like in and the value prop for customers and we are polishing it and making sure that it looks great, but we feel good about rolling it out just in time for the tax season.

And will that include Roth areas as well that yes, it will so.

We will have additional context as we get closer, but we think people are really going to like it terrific alright. The next question also on product are there any Brian why asked are there any plans to add bonds to available investments.

Thanks, Brian .

While we don't have near term plans to offer bonds. We do have a lot of solutions for customers that want exposure to fixed income products. So of course, we already offer bond Etfs and as I mentioned in the call. We have a very competitive offering for gold customers wear.

We pay them.

Interest on their uninvested cash so that rate.

It has been 3% since the last fed rate hike and will actually increase even further.

After today's fed rate hike.

In terms of bonds and adding more more instruments.

Robin Hood.

We haven't been hearing a lot of customers requesting goes specifically that said, we understand that with retirement and as we continue to add more tools for long term investors, who are diversifying we might begin to see more feedback about that so we're we're obviously always listening to customers and we're able.

<unk> and excited to add the products that they care about most so we're going to continue to keep an eye on that alright.

Alright, one more product question from Jon asked who asks are there any plans to launch a credit card.

<unk> had.

For credit cards, we don't have any near term plans here, but today, we offer a debit card with rewards and merchant incentives and also two day early pay if you direct deposit your paycheck. So this was introduced with the launch of the Robin Hood cash card earlier. This year. So we are.

Recognized customers may want access to credit, particularly in this environment. So.

Going to be looking at that but no immediate and near term plans for credit cards. Okay. Thanks, Glenn next question's a capital question probably for you. Jason. So orphan asks are you planning to get dividends in the future.

We don't think giving dividends is the best use of our capital right now we're focused on using our cash to drive growth through.

Through product development and international expansion, we also like the flexibility to grow via acquisitions, but over time, we will continue to evaluate whether returning to cash to shareholders is the right move but again right now we're focused on growth as a higher priority.

Alright, Thanks, Jason another question from Brian why who asks when will we see a return of IPO access.

Yes, I'll field. This one so in terms of Ipos that we offer on the robinhood platform, we have some selection criteria.

And the fact of the matter is there's been a really slow year for ipos that would be big enough in terms of market cap to feature to our customer base.

So.

Understanding that this is cyclical.

As soon as the IPO market turns around and we see more.

<unk> ipos that meet those criteria, we're going to be hard at work to bring those to our customers. So that they can participate.

Great. Thanks, Matt.

Tom who asks a couple of questions and a two partner, let's take those separately.

In part one he asks when will Robin Hood go global.

Yeah I'll take that one thank you for the question <unk>. The short answer is next year. So we plan to rollout the Robin Hood wallet internationally, so that'll be available.

Internationally early next year and this will actually be our first product available to customers all over the world.

And as Jason mentioned, there is some regulatory uncertainty, though we continue to work on our <unk> acquisition Alright.

Alright.

Tom will also asks why do you think Robyn might regain its IPO valuation.

Yeah. Thanks <unk>.

So as we think about shareholder value, we recognize that the stock performance as well as the overall market has been hard for for shareholders. This year and we're hard at work, adding value to our business. So let me tell you how we're thinking about this first well.

We're very focused on our cost structure and as you guys have seen we've made a lot of progress here in the last couple of quarters, and it's going to be important for us to manage that as closely as we grow from here second week.

We've got a lot of improvements that we've made to existing products. We've introduced new products and we have really tremendous progress here as well as I mentioned earlier in the call the product velocity improvements in service quality and product quality for our existing products.

There has been some of the best that Ive seen since starting robinhood and I expect that to continue and we're going to be focused and constrained and we're probably not going to be able to get to as many things as if the market was.

It was doing a little bit better, but I think the things that we do get to are going to be tremendous and we're going to continue to have good velocity.

And we think if we keep doing both of these things if we keep improving the product quality of our existing products and rolling out really impactful new products, we're going to deliver a lot of shareholder value over time.

Alright, Thanks, Rod maybe in the next one for Jason So John asks.

Can you talk about how rising interest rates affect the business and where you see the business benefit benefiting from hydrogen.

Sure I can take this one our biggest our two biggest areas that we generate revenues from trading activity on the one hand and interest revenues with interest rates, increasing we've seen trading come down recently.

But we have about $17 billion in assets that generate interest so when rates increase those assets generate more interest revenue for us.

But it's not just us that benefits from rising interest rates customers also benefit as I was talking about today. We've we've increased the rate that gold members can earn on their cash is currently 3% and we're really excited to increase that further now that the fed increased rates further today.

Thanks for the question.

Alright, Thanks, Jason the next one is from Heckman P who asks when will a 24 hour trading be offered at robinhood.

Yes, I'll field that one this is something that I'm very excited about so robinhood has really been about modernizing stock trading and bringing it into the 20 <unk> century from the time, we got started so we were.

The first to introduce the Zero Commission model, we made it seamless to use on mobile and one of the things Thats, particularly archaic right. Now is the fact that stock trading in U S equities, which is such a large and vibrant market is structured around east coast working hours. So our goal is to modernize that.

And deliver a 24 seven round the clock stop trading making investing accessible whenever people want.

We think this is particularly going to be important as we start offering our services internationally.

So Ah Robinson today and this is as of earlier this year people can trade for over half of the day. So starting at seven a M to APM eastern.

We're now beta testing even longer trading hours, which include four am to seven am eastern so extending it by by three hours in the early mornings and so once that's launched customers will be able to trade for 16 hours a day and so youre continuing to see us make progress and the goal is to get to $24 seven trading as soon as possible.

<unk> so.

Plenty of exciting work happening there.

Thanks, Bob.

Next question Markus <unk> asks immediate it's been dunking on Robin Hood through various docs podcasts et cetera.

Do you plan on countering the negative opinions out there and bringing these people back into the fold.

Yes, thank you for that Marcus.

So if you really look back I think a lot of the negative sentiment that youre seeing.

It goes back to the mean stock rally around January of 2021, so nearly two years ago.

And at that point.

We had to make a very difficult decision to take away the buy button on some stocks and we didnt earn too many fans through that to put it mildly.

And it's been hard work to.

Regain trust we've made a lot of progress I think a lot of it starts from improving the quality of the service listening to customers showing that we are a reputable and reliable and solid platform for them.

And we've been measuring this actually we've seen that we've made a lot of strides in our customer net promoter score every time, we improve the service offering we improve customer support, particularly when we added $24 seven live phone support and followed that up with chat.

We see these measures pick up so we've made a lot of progress.

But as they say and trust it takes a while to build and rebuild and we're focused on the long term and we believe that.

The work that we're doing to make our service better and particularly for advanced customers is starting to pay significant dividends for us. So.

I know, it's a long answer, but we believe that in this case as we continue to do the right thing build exceptional products.

The sort of like media and read it in social media recognition is is going to follow that.

Alright, Thank you Glenn.

One more question from from <unk>, who asks.

Robin Hood is always spoken about being a safety first company with well set to launch in 2023, and the addition of new coins can you talk about how revenue will keep its investors say from similar fate of lakes themselves, Yes sure sojourn in thank you it's great.

See you asking good questions earnings call after earnings call.

So stepping back the goal of Robinhood crypto as we've stated is to be the safest most trusted and lowest cost on ramp to the decentralized web. So I think this is a great example of building the trust that we were just talking about.

We're very selective about the coins that we list on the platform we have a rigorous coin listing framework, which we believe is best in class.

We're also not engaged in crypto lending, we custody coins and with the Robinhood wallet that we just introduced the 10000 beta customers, we give customers the option to self custody as well.

And we're also in regular contact with the SEC about the crypto offering.

So you'll see us continue to take a deliberate approach and we hope that customers understand and appreciate that we're moving carefully and sometimes that means moving a little bit slower than a lot of these other crypto companies, but again, we want to be extremely deliberate in.

To help protect customers and their money.

Okay. Thanks, Brad let's do one last question so so caleb.

Where do you see rather than five years.

Yes. This is a great question, so coming back to our mission.

The mission of Robinhood is to democratize finance for all.

And what that means to us is really building exceptional products that give ordinary people control over their financial lives and giving open access to tools that were previously available only to the wealthy.

And so if you look out five years.

What would we like Robin to do the first thing is we'd like robinhood.

B to serve our customers entire portfolios and entire wallet. So we'd like you to find value in direct deposit being your paycheck into robinhood and using robinhood for all of your spending for you to use it first saving of course all of the investing that we offer right now.

But also long term retirement and passive so we want robinhood to be the highest value and best user experience tool for you to manage all of your money. The second thing is we want Robin Hood to be the default choice for your first financial account so.

That entails always being focused on the next generation of customers. We don't want to just be a millennial focused company in and grow with our customers because I think that's the recipe for eventually being irrelevant.

So every every every generation we have to continue to adapt our offerings and be top of mind as our customers think about opening not just their first investing account, but also the first place they deposit their paycheck and the first account they used to spend out of.

And then also.

We're going to be a global company so.

We think crypto as a big part of that and we're excited to continue to invest there we've been making a ton of investments in the past year, despite it being crypto winter.

And we want robinhood to serve the entire world and offer low cost extremely simple and affordable and easy to use services to a much broader market and if you look at it.

<unk> is actually fairly well served here.

Got lots of people around the world that can even benefit from.

Functional financial system, So we think.

There is not just a big opportunity, but a big a big part of our mission is serving those those customers overseas.

So there's going to be a lot of work done to invest and innovate in crypto into expand international as well.

Alright.

For today's questions from say, thank you everyone for your questions. We really appreciate all of the thoughtful engagement from our shareholders and customers and now it's time to open up the line for analysts questions. So I'd ask each analyst to limit their questions to one question and one follow up Okay ill now ask Kelly to please open up the line.

Please stand by while we compile the Q&A roster.

First question comes from Josh Beck from Kay.

Okay.

Your line is now open.

Thank you for taking the question.

I guess I really wanted to kind of dig into.

The expense side of the equation, obviously you've made.

Real strides obviously, you were able to get that EBITDA.

EBITDA target ahead of schedule.

As we look forward into next year, not really expecting guidance, but just qualitatively how should we think about.

The baseline of Q4.

As we kind of move forward.

Yes, thanks, Josh so it's.

It's Jason I'll take that one.

So we've provided guidance in my remarks that in Q4.

We will take our opex, excluding share based compensation in the range of $3 $50 million to $370 million I think Paul we.

I don't have guidance yet.

Busy doing planning for next year.

But qualitatively what I would tell you is that.

We like where we're at in terms of our cost structure.

We think it's much leaner and more scrappy position there how we started 2022.

And you should expect that we will continue to carefully.

Manage our cost base as we grow from here, we'll we'll make the investments that we think are prudent for growth, but we're going to do it with a lean scrappy mindset.

Okay very helpful and then for a follow up maybe just a little bit.

A product question certainly.

The money product.

The cash card updates were encourage you know half a million dollars cut.

Customers already since since the.

Launched earlier in Q1.

How do you think about.

Feeling for where that could go obviously encouraging to see that out.

Out of the gate, but I don't know if Theres survey work that you've done or pace of adoption just curious on how.

That could progress moving forward.

Yes, I'll take that one so as I mentioned earlier, we're really excited about.

Serving our customers' needs.

More broadly than investing so we see the opportunity to actually evolve the cash card to be People's primary spending account, so wed like our customers to direct deposit their paychecks and.

We've started building things to make that process easier like two day early pay and also the ability to auto invest your paycheck and.

It's starting to see good adoption, among our existing customers to the point where.

We have over 6 million customers on legacy cash management, and we feel really good about starting to move those customers over.

And I think at that point.

Cash card, we will we will have exposure to a significant portion of our customer base.

This is.

Earning the right to be someone's.

Paycheck direct deposit institution of choice is going to take time, we know that this is a new product for us, but we're very excited about the team and the strategy ahead for 2023, So I think I think youre going to like what you see out of the cash card.

Yes.

Thank you next question comes from the line of Devin Ryan from JMP Securities. Your line is now open.

Great Good afternoon, everyone.

Hey, Devin.

So first question.

Nice to see cash building again on the balance sheet I think with all the hard work you've done on expenses, Jason I know mentioned interest in M&A, just given the pretty harsh reset we've seen valuations just love to get an update on how youre thinking about the M&A market today.

Opportunities may be emerging and now a number of companies are much further away from getting to profitability and then just remind us on some of the priorities whether that be deals that scale customers are.

New adjacent capabilities.

Sure I'll start and we'll see if Vlad has anything to add so.

We love our strong balance sheet position.

$6 billion in cash I think where we are.

And a really good position to be looking at growth not just through investments in new products organically, but also.

Through through M&A transactions.

A variety of types of companies that we might look at whether it's.

Acquisitions that are focused at kind of rounding out our portfolio of licenses or technology. But then also just with the vision of democratizing finance for all and that being so much more broad than simply trading.

I think theres a number of ways that we could extend the product offerings that Robin Hood offers to customers through through M&A. So.

We've got a.

We've got a solid team, we're paying really close attention to the opportunities are there.

They're out there, but we're going to be diligence in the way that we deploy our capital and I just I would say.

We feel really good about our position we've been very patient and I think that patients says.

Really sort of.

Been very positive in this environment as we're continuing to see.

More and more opportunities out there.

Some cases high quality companies.

Training at prices that are.

Sort of a fraction of what they were earlier this year.

Okay great.

Quick followup here, another kind of product centric, but you talked a little bit about some of the enhancements to the gold offering and good to hear about some of the momentum there the higher interest rate. It seems like you can add tangible value to that offering.

So I guess is the cash that youre seeing coming in to that is that from just existing customers seeing the value or is that actually driving new customer growth there and then.

Bigger picture around gold, where some of the other areas that you may be seeing opportunities, where you could enhance.

Gold value add.

Yes, I'll take I'll take the first part.

For sure so.

We're seeing a really nice uptick in deposits in the gold sweep accounts.

And we're finding that the majority is from new deposits with the rest largely coming from upgrades to gold so.

Really exciting for us, it's encouraging to see the overall balance of our interest earning assets increasing.

And.

And that's even with some offsets with.

Strong net buying into this market by our customers in terms of gold enhancements I'll comment that did glad you can weigh in.

That there is a lot of opportunities across the products that we offer today.

To make gold really appealing Sn.

Essentially we'd like to have <unk> be the best deal in financial services.

And and I think whether you look at the cash card or crypto and other areas of our business.

There is opportunity for us to invest here stepping back goldblatt.

Product a couple of years ago that we added a number of features too we saw a lot of interest by by customers at the time to join gold.

But frankly over the last couple of years, we've had other priorities as we dealt with the Super high growth that our business was experiencing and we're changing that.

We increased the sweep balance rate for gold members to 3%, we're going to take it even higher.

And we're encouraged to find other ways to add to that value proposition.

Only thing I would add is that gold started out as a as a product's intended for active customers, primarily with value props like margin trading and higher instant deposits as well as.

Level, two market data and sort of more advanced data and the competitive interest on Uninvested cash is kind of the first foray into making the product useful to people that arent active investors and I think as you see us continue to diversify our product suite and enter into other.

<unk>.

We're asking our teams to really keep in mind, what what value we can make so that gold customers do get.

Best deal in financial services, and so gold is kind of becoming a little bit more of our of our planning process. As we rollout. These new products I think we see lots of opportunities were.

Customers can get an even better deal or kind of transition their usage of robinhood into more of like an all you can eat model.

And get more simplicity from from how they used their product.

Thank you. Our next question comes from the line of Richard <unk> from Piper Sandler Your line is open.

Yeah good evening.

And Hey, Jason Hey, rich.

And team.

So my question is on the stock based comp I guess, it's mainly for Jason but you significantly outperformed in.

I guess <unk>.

Oh and your target by.

I think almost 20%.

If you look at the midpoint of stock based comp of $135 million. So I'm just trying to understand was the reversal bigger than expected or has there been any change and you do have stock based comp going up a little bit in <unk>, but there has been any change in strategy or culture in regards to stock based comp what sort of drove this.

Outperformance I guess.

Yes, I think.

Theres a few things that go into share based compensation first is just the effect of awards that have been historically granted I made comments last quarter that about half of our share based compensation last quarter was.

From the pre IPO awards that were granted to founders that are significantly out of the money.

Mentioned, the workforce reduction that certainly has an impact.

But also just slower rate of hiring.

When you when we've historically given.

Share based awards to new employees. Those are four year awards historically in and that can be very expensive as you're ramping up your workforce and so slowing that way down.

Has has had a positive effect and then I would say that given what's happened in the stock market. We also look kind of offsetting that we also look to make sure that we continue to.

Retain our top talent and so.

Additional awards, where necessary here on the back part of the year, which.

<unk> bridge, why it's going up on a net basis net of the reversals in Q3.

Got it.

Helpful. And then Vlad I guess I'm trying to tie a lot of things together here.

Revenue looks like let's just assume trading as Adam sort of trough level or.

A level it shouldnt change too much you can you get.

NII come up so you get more revenue come in.

You've brought your expenses down.

Positive adjusted EBITDA and <unk>.

I guess the question is with cash is strong it is.

And.

Do you, what's the new adjusted EBITDA.

The breakeven point.

<unk> early but what's the target going forward do you try to build cash.

So to get back into the investment mode, we want to grow expenses or how are you.

Viewing your adjusted EBITDA targets going forward.

Yes, maybe Jason can take this one Richard and I can add some color if needed yes. It sounds good.

Rich I think we like our our Opex position now and like I said earlier.

Josh is question.

We're going to have a mindset of being lean and scrappy as we grow from here, but that doesn't mean that we're not going to make thoughtful investments in deliberate investments to drive to drive growth. We were in the middle right now of our 2023 planning. So I'm just not in a position to kind of talk about.

Expense guidance for next year, but.

It's not a fun experience to bring down the costs the way that we've done and so as we go forward, we're going to be very mindful to be deliberate in the way that we.

Increased costs going forward, but.

There's a lot of opportunity ahead of US we will make we will make appropriate investments from here, yes, and I would just say that the balanced we aim to strike.

The beginning of the year when we set the adjusted EBITDA positive goal was.

To get our cost structure in a good place.

To demonstrate that we can be a sustainable business in tough economic times and then we actually.

Know that we can do quite well when economic times and monetary policy is a little bit looser.

And I think we're we're proud of the progress there and we wanted to do that while also taking advantage of the environment, where a lot of other companies are pulling back to two.

To accelerate our own momentum so as you've kind of seen we've continued to improve the product offering dramatically we've rolled out new products. This year.

So we're happy about the balance and.

We're going to continue to invest to drive customer growth and revenues and shareholder value in the future.

Yes.

Thank you. Our next question comes from the line of Steven <unk> from Wolfe Research. Your line is now open.

Hi, good afternoon.

Hey, Stephen though Jason Youre going to have to bear with me. This is going to be a mouthful, but I really do you want to spend some time unpacking the NII guidance that you offered up.

Recognizing that the revenue upside from higher rates really shined through this quarter. It just makes the NII guidance, a little bit tough to reconcile feedback from others suggest I'm not alone and I was just hoping to unpack some of the component pieces, recognizing earning assets per your earlier comments are actually trending higher in <unk>.

<unk>.

Even with the more competitive sweep offering still its only a small proportion of less than 25% of your earning assets that have any sort of deposit beta attached and the average fed funds is going to be up north of 125 bps in <unk> just based on the high extent have transpired, thus far so just trying.

On reconcile all those component pieces with the 25 million sequential increase with just feels quite light.

Yes, I appreciate that I appreciate the question.

What I can tell you is that it.

Start with roughly $16 $17 billion of.

Interest earning assets.

Included in there is our margin book and we've seen that come down a bit.

In October two below $4 billion and so.

We're factoring in the variability of that as we think about guidance for the rest of this quarter. Additionally in October securities lending has been pretty soft and so we're being pretty cautious there as well as we think about how the rest of the quarter will play out and then of course with the fed rate.

Increase.

We will enjoy.

<unk> rates on a large portion of our interest earning assets. As you mentioned, we also intend to pass some value back to customers in the gold sweep product so.

Those are kind of the moving parts and we think $25 million incremental first of all we're really pleased that it's growing.

And that overall net interest, earning assets are growing as well.

No that's great and then just for my follow up on the SEC lending piece, you actually saw a really nice uptick in SEC lending revenues, especially in light of what was a very challenging environment.

Based on what we've seen from others and I know there were a few quarters into the fully paid SEC lending program I was hoping you could provide some sort of update on how you are thinking about sizing that future revenue opportunity confidence around your ability to deepen penetration with your existing client base.

Yes, so we continue to be really optimistic about the fully paid securities offering we had $4 million of revenue.

In Q3 from fully paid securities lending.

And that's after just a handful of months of launching that product. We're already at 15% of the revenue that we're generating from margin SEC lending, which has been around for several years. So it's still very early.

Is it a difficult market.

Out there and it's evolving but we have a lot of optimism that this could be a meaningful portion of our securities lending revenue overtime.

Okay. Thanks, and the next person available. Our next question comes from Michael.

Michael Cyprus from Morgan Stanley Go ahead Michael.

Great. Thanks, good afternoon.

Just a question on the adjusted EBITDA margin in the quarter, 13%. Just curious how you think about that going forward from here or is this low teens margin profile sustainable and how do you think about what the right margin profile is for robinhood out longer term.

Yes, it's Jason I'll take that one.

Looking over the long term I don't see any structural reasons why we wouldn't have margins that are kind of in line with what you see at others in the in.

In the industry, it's going to vary depending on the period end.

And as we rollout new products and how that affects our mix of business, but.

We will we will manage our costs, we will build for the future with new products and over the long term, we think will drive pretty attractive margins for shareholders.

And then can you.

A follow up question can you talk a little bit about customer acquisition costs, how how your approach has been evolving and maybe you can help quantify how much it's been costing and how youre thinking about allocating your budget there.

Yes, so we are increasing our spending in marketing in Q4, you might've seen us.

With some TV ads that have recently recently started and we tried to signal that last quarter that we'd begin doing that historically the vast majority of our customers have come to us through referrals and word of mouth.

And and Thats, driven really attractive tax and it.

And returns.

And digital paid ads has also been an area that we focused on for marketing what we found in periods of relative high interest in investing that it really pays to kind of lean in to paid advertising, but in periods like we're in right now lower.

Interest in investing.

Haven't found it to really make economic sense to lean in and spend more for growth and so we've been we've been cautious there and it's something that we're going to watch carefully but.

In the near term what we're doing is really focusing on some brand building advertising and if you haven't seen it check out our advertisements.

We really like them.

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

Alright. Thanks.

Thank you my first one is on the web <unk> digital wallet launch.

Sorry, if I missed it but when are you going to open up to more than the initial 10000 on the waitlist and.

And also I think you characterized the weightlessness 10, as a $1 million plus is it's significantly larger than $1 million.

I think the number is actually public. So if you if you go to.

Robin Hood, three dot com, you should be able to get the real time waitlist figure.

So yes, as I mentioned, we've rolled it out to 10000 were watching the feedback closely.

We're going to be rolling out to more in the coming months and we're getting some really really good feedback from customers. We can tell them that they really like the no gas fees, they like the user interface and the experience and.

They're giving us useful feedback on <unk>.

Multi chain and other things so.

We're not in a hurry, we could roll it out faster if we wanted to but we want to make sure that the product improves and is really really good when it is generally available and we expect that to happen early next year.

Thanks, and then just as my follow up another one on the digital wallet I'm.

I am curious what capabilities, you're going to be offering for <unk>, both in terms of viewing and at Ts and connecting to <unk> marketplaces.

And do you see this as a potential big differentiator for your crypto offering.

We have been hearing from some of our crypto enthusiasts that they want.

At the very least to be able to view their Nf Ts.

In wallet, I think trading and Ftes.

In App is a little bit complicated with the recent Apple guidance. So we're.

Keeping an eye on that but I think it's highly likely that we will add the ability to view and ftes and for people to custody them.

Perfect and our final question comes from the line of Benjamin British.

Your line is now open.

Hi, Thanks for taking my questions I kind of wanted to ask another follow up on the digital wallet I know you guys arent, giving any kind of forward guidance in terms of Opex for next year, but can you maybe talk a little bit about the investment required to take that product internationally.

Yes.

The great thing about the the Robinhood wallet is we've got a very lean team working on it.

Of course, there is theres, the requisite kind of compliance and infrastructure you need but.

It's essentially a software product and so.

The nature of it being non custodial and blockchain based.

It means that it's kind of international by default and the experiences is simple and very straightforward and kind of.

Really targeted towards the value prop of.

Great UX.

And gasless swapping of tokens and so we've kind of built built it with the idea of being international native from the beginning which I think makes it.

Much more straightforward.

Great and maybe I'll kind of follow up just on the same topic in terms of eventually launching a stock trading our options trading or anything else internationally. Do you think there is a lot of that investment is applicable in terms of what you have to do.

To comply with <unk> and AML regulations and the like is there a lot that will translate directly or is that going to be a separate sort of compliance and infrastructure buildout.

Yes, I think for the custody solution and the.

And the brokerage so custodial crypto in brokerage, it's a little bit different but certainly there is.

There is value that we will get from rolling out the non custodial wallet internationally and from creating kind of a.

More simple and focused staff because it's.

It's very likely that in some jurisdictions will be crypto first and others will be brokerage first but.

We're not going to be able to we are unlikely to make all of the robinhood U S features available in every jurisdiction at least on the outset.

And before we before we end the call I just want to finish by saying that we've made the decision to take our gold sweep interest rate to 375%. So we think thats just absolutely tremendous for customers and where we are excited too.

To deliver that to them, yes, I think thats.

<unk> value in this environment, that's a hard to beat.

Okay, well. Thank you everyone for your questions I would like to turn it back now to Vlad for closing remarks.

Hello.

Well. Thank you everyone for joining as always we've appreciated the questions. Congrats to the team again for a strong quarter in delivering adjusted EBITDA profitability a quarter ahead of schedule and we're getting back to work, there's a lot more to do to deliver on democratizing finance for all so thank you.

Thank you all for participating in today's conference. This does conclude our program you may now disconnect from the call.

Yeah.

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