Robinhood Markets, Inc.

Thank you for standing by and welcome to Robinhood's 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 1 on your telephone. Please be advised that today's call may be recorded. Should you require any further assistance, please press star 0. I would now like to hand the call over to your host for today, Irvin Shaw. Head of Investor Relations and Capital Markets. Please go ahead.

Thanks, Lateef. Welcome, everyone, and thank you for joining us for Robinhood's first quarter 2022 earnings conference call. With us today are CEO and co-founder Vlad Tenev and CFO Jason Wernick. 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 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, as means 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 information on the call is as of today, April 28, 2022, and we undertake no duty to update it for subsequent events except as required by law. As we discuss our results, all percentage growth comparisons will be to the same period in the prior year unless otherwise noted. Today's discussion will also include non-GAAP financial measures. Reconciliations to the GAAP results we consider most comparable can be found in the earnings presentation on our investor relations website at investors.robinhood.com.

And with that, let me turn it over to Vlad. Thanks, Irv, and thanks to everyone for joining. So this quarter was the story of two competing forces, our 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 macroenvironment. 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 active users, and assets under custody. And our financial results reflect this. Our company has been in a period of hypergrowth, and we hired and scaled 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 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 revenues. I know there's a lot to unpack here, and we'll walk through all of this over the course of the call. So let's start with the product updates. So in short, our product engine is humming, and I'm super excited about that. Just 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 cryptocurrencies to our crypto selection. And we entered into an agreement to acquire Zigloo, 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'd expect from a credit card. We're also giving customers credit. 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 as a simple way to bring in new customers that are interested in investing but have less disposable income. And as the product scales, we'll 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 paychecks directly into Robinhood and using Robinhood 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 will expand access to all of our customers by mid-year. So 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 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, you'll 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 the 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'll 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 coins, Compound, Polygon, Shiba Inu, 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 chains. This is part of a process that began last year and will soon be able to add new coins with relatively minimal effort. Lastly, we recently entered into an agreement to acquire Zigloo for $170 million, primarily in cash. Zigloo is a UK-based crypto platform that lets customers transact in 11 different cryptocurrencies, earn yield on Bitcoin and pound sterling through Zigloo's 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 Mark and the Zigloo 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've also demonstrated a real commitment to regulatory compliance, 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. Last but not least, we've been laser focused on serving our more advanced customers, a large and critical customer segment. These customers, while relatively small in number, 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. The flexibility to dive deeper and get more information through advanced charting and 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 is 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's so much more that we're doing for our advanced customers in the coming months, and we're confident this work will not only benefit all of our customers, but also increase our top line revenue. Now, 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'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 MAUs 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 in smaller amounts across all asset classes, although cryptoactivity 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.