Coinbase Global, Inc.

Good afternoon. My name is Paula, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coinbase fourth quarter and full year 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to queue up to ask a question during this time, simply press star 1 on your telephone keypad. If at any point you would like to remove yourself from the queue, please press star one again. Anil Gupta, Vice President, Investor Relations. You may begin your conference.

Good afternoon and welcome to the Coinbase fourth quarter and full year 22 earnings call. Joining me on today's call are Brian Armstrong, co-founder and CEO, Emily Choi, President and COO, Alicia Haas, CFO, And because regulatory questions may be top of mind, Paul Graywall, Chief Legal Officer, is also joining today. I hope you've all had the opportunity to read our shareholder letter, which was published on our Investor Relations website earlier today. Before we get started, I'd like to remind you that during today's call, we may make forward-looking statements. Actual results may vary materially from today's statements. Information concerning risks, uncertainties, and other factors that could cause these results to differ is included in our SEC filings. Our discussion today will include references to certain non-GAAP financial measures, reconciliations to the most directly comparable GAAP financial measures that are provided in our shareholder letter and on our investor relations website. Non-GAAP financial measures should be considered in addition to, not as a substitute for, GAAP measures. We are once again using safe technologies to enable our shareholders to post questions, and in addition to that, we will be taking some live questions from our research analysts. So with that, I'll turn it over to Brian and Alicia for opening comments.

Thanks, Anil. So I want to touch on three themes in my opening comments. The first one is going to be about how we're reducing our OpEx to operate more efficiently and better generate EBITDA in the future. The second theme is going to be about the current regulatory environment. And the third theme is going to be about where we are in this crypto cycle. So let's start with our reductions in OpEx. When Coinbase went public, our goal was to operate at roughly break even across crypto cycles. But the market has changed, and so we're evolving along with that. We're now evolving the business with a goal to generate adjusted EBITDA in all market conditions. In January, we further reduced headcount by 20%. This follows the headcount reduction of 18% we did last year in June. We've also worked hard to reduce the amount of dilution we're taking from stock-based compensation and adjusted our compensation policy across a number of dimensions. Our total dilution since going public in April of 2021 has been about 5%. These changes will ensure that we continue to manage dilution going forward. Now, parting ways with colleagues and changes to compensation are never easy, but I think this is helping us be a more efficient company as a result, and it positions us to better weather this downturn with a very healthy balance sheet and continue investing in the future so we can be the global leader in the crypto space. I was also really glad to see that our subscription services revenue grew 53% year over year to $792 million in 2022. This was amidst a major downturn in crypto, of course, from 2021 to 2022. And I think this really shows that our strategy of becoming an all-weather crypto company is paying off with more predictable revenue streams. So next, I want to talk about the regulatory environment that we're currently in. In the wake of FTX and other crypto company failures, we've seen increased regulatory scrutiny, of course. But let me be very clear. I believe this is a good thing for the space and that it will ultimately benefit Coinbase. It's really easy to look at the headlines and assume that increased regulatory activity is bad for crypto, but I really don't agree with that. There's many legitimate companies in the crypto space like Coinbase, and those of us which prioritize trust and compliance from the beginning, I believe will be beneficiaries. This really goes back to the founding of Coinbase more than 10 years ago. And when I started the company, I really decided that this was going to be a compliance focused company. We were going to do things the right way, even if it was more difficult. And I knew that there were going to be companies that would come in and try to, you know, cut corners. They might even grow really quickly because it's easier to move fast when you don't have to follow the rules, but they would inevitably come crashing down because you know, regulators don't always act quickly, but they do eventually act. We decided to do things the hard way, playing the longterm game and built a very different company over the last 10 years. In many cases, we actually practically put in place appropriate controls before they were even required. anticipating that this greater regulatory clarity would be coming. So I think we're really well positioned in this type of environment and how things are changing. And we need more clarity in the United States around regulation, and we probably need new legislation at some point, but I'll talk about that a little bit later. So third, let's talk about where we are in this crypto cycle. Now, I think it's important to always look at the fundamental indicators that we have and try to separate out the signal from the noise and the negative headlines. The narrative in crypto, it tends to flip every few years. It's either irrational exuberance or despair. Neither one is true at any given time, but we're in one of those despair phases right now. And you know, that also means there's an opportunity for builders who are focused in this space like Coinbase. So if you take where we are now or in 2022 and compare that to just two years ago, you kind of have to look over at least a prior cycle. You can't just look at what happened in the last year or the last quarter. So the Bitcoin price in January of 2023, is up 80% compared to the average price in 2020. The number of software developers working in crypto has doubled since 2020. And that's a great predictor, I think, of where the future is going. The number of major brands who've started integrating Web3 and NFT technology is totally different. Starbucks, Adidas, Nike, Coca-Cola, and social media platforms like Instagram, Twitter, and Reddit. These are all integrating crypto services into their products and Customers who use those things are going to need a wallet, a crypto wallet. That's where Coinbase comes in. We've even come a long way on the regulatory side. Outside the U.S., just about every major financial hub is vying to be the leader in Web3. We've seen comprehensive crypto legislation get passed in the EU with Nika. Even the U.K., Hong Kong, Japan, Brazil are all making very positive steps toward comprehensive crypto legislation. And I think we'll even get that in the U.S. eventually. So in short, we remain incredibly bullish on this technology and this industry. We're operating more efficiently at this new size. We believe that we will be in a net beneficiary of increased regulatory clarity. And of course, ultimately, we've got to keep driving the utility of crypto, improving our products, driving more and more use cases so that a billion or more people can benefit from this technology and we can increase economic freedom in the world. So with that, let me turn it over to Alicia to talk about our financial results.