Robinhood Markets, Inc.

and deepen our relationships with our customers over time. It's also a new avenue for us to drive account and asset growth and increase our total share of wallet. Next, let's turn to our advanced customers. In Q1, we extended market hours, so customers now have more flexibility to trade when they want, and customers have now traded over $9 billion in volume during these additional hours. Extending trading hours we view as the first step towards 24-7 stock trading, and we are making progress towards making this a reality. In Q2, we also rolled out fully paid securities lending to give customers another source of passive income on their stocks, which is especially important in the current environment. We're encouraged to see the early progress, with over $3 billion of equity value already enrolled and available to lend. We've also been making a ton of improvements to our options product, We believe our options offering is the lowest cost and best user experience offering out there. Most of our competitors say they're zero commissions, but they in fact charge a 65 cent commission for every contract traded, which is $65 for a 100 contract trade. We charge $0 per contract. Recently, we've added options in cash accounts, which has been a top requested feature by our options customers. We've also been doing a ton of in-person research with this group. And we recognize they care a lot about advanced charting on the platform. So we're making our charting and technical indicators much better, and there's plenty more to come. Keep the feedback coming. Our team has been working tirelessly to make Robinhood by far the best place to trade. Now, let's turn to our crypto efforts. Our vision with crypto is to be the most trusted platform for customers to invest in crypto, as well as the most trusted on-ramp to the decentralized web. That is why, after first introducing crypto investing in 2018, we've been relentlessly focused on three things, providing the best value, the best user experience, and being the safest. So let me tell you what we are delivering for customers in crypto by highlighting two areas that we've been working on this year, adding more coins, and giving customers more control over their crypto. Starting with coins, customers tell us that they want us to introduce more coins onto the platform. Some other crypto providers have come under scrutiny for listing unregistered securities on their platforms. This can be dangerous and misleading for customers because they may expect these cryptos to be more decentralized than they really are. We employ a rigorous listing framework, which in the short term may feel like we aren't moving fast enough. but we think this approach will pay off in the long term. Frankly, one of the benefits of being heavily regulated in a US-based company is that it has helped us learn how to build with customer safety in mind. So far, in a deliberate and considered manner, we have introduced a number of new coins this year, and customers have been pleased with the offerings to date. Turning to our efforts to give customers more control over their crypto, In April, we launched our crypto wallet so customers can move their crypto in and out of Robinhood in a simple, safe, and seamless way. We've heard feedback that customers want faster withdrawals and larger daily limits. So we raised our withdrawal limits from $3,000 to $5,000 per day and are working on improving this even more. Later this year, we'll be rolling out our non-custodial wallets. This will be a separate standalone app where customers can trade and swap crypto with no network fees and maintain full custody of their crypto throughout, all with the simplicity and great user experience they've come to expect from Robinhood. We're seeing good interest as our non-custodial waitlist continues to grow, and our early internal version of the product looks awesome. We think customers are going to love it. Okay, let's now move to our product development efforts related to Robinhood money, which includes our new cash card. We hear from customers that they want to start saving and investing, but the current environment is hard with inflation and high gas prices. We want to help them by giving them a good way to build saving and investing habits, even in the current environment. And to that end, in March, we launched the new Robinhood Cash Card. Customers are using the card to make day-to-day purchases and round up their spare change into stocks, ETFs, and crypto. And of course, not only are we not charging any monthly fees for this, but we're actually matching a portion of their roundups to help them build their portfolios. So it's a fantastic value for customers. And we've been pleased with the week-over-week growth and the cohort retention we've been seeing. Since launch, we've been making steady improvements to the user experience as well. And last week, we started rolling out cashback offers that select merchants, including on gas, doing our part to help customers with these high gas prices. We believe we have a huge opportunity to become the primary place where customers deposit their paychecks, which drive their spending and investing. And while it's still early, we're excited about our potential to grow this offering with both existing and new customers and drive additional customer loyalty as well as revenue diversification over time. Now, before passing it over to Jason, I wanted to reiterate how extremely proud I am of all the progress we've made over the past quarter with the new products we've shipped and the work we've done to improve the experience for our customers. And when I look ahead, I feel even better positioned to execute on our roadmap and serve our customers. With that, let me turn it over to Jason.

Thanks, Vlad. It's good to speak with everyone today. In the second quarter, we remained focused on serving our customers, growing our business, and driving long-term shareholder value. While the environment was volatile, net funded accounts were steady and net deposits were strong. And the combined strength of our team, platform, and balance sheet positioned us to continue delivering on our 2022 product roadmap. I'm also pleased that we've increased our productivity and efficiency, driving improvements to adjusted EBITDA from Q1. We've made great progress so far this year, and I'm energized by the opportunities to drive value for our customers and shareholders going forward. Before we review our Q2 results, I'd like to share some context for the August workforce reduction that we announced yesterday. Since we spoke last quarter, we've continued to aggressively execute on our product roadmap and serve our customers while working hard to get to a leaner operating model, including by slowing our hiring, and significantly lowering third-party spend. But the macro environment has continued to soften. Inflation's at a 40-year high, and our customers are experiencing bear markets and equities in crypto. It's clear we needed to do more to manage our costs. And so yesterday, we announced a 23% reduction from current levels to a headcount of approximately 2,600. At this new level, we believe we are appropriately staffed to be cost-efficient, while continuing to deliver great service and innovation for our customers. To be clear, even with this reduction, we believe we are well positioned to continue delivering on our roadmap. With that context in mind, let's review the second quarter, starting with our business results. Net funded accounts were 22.9 million in Q2, up 100,000 from the prior quarter, and notably steady given the current environment. Looking at monthly active users, they were 14 million in Q2. While this is down 1.9 million from Q1, we are encouraged by our continued industry-leading engagement through a volatile quarter. Turning to assets under custody, they were 64 billion in Q2, down 31% from last quarter. While funded accounts continue to grow and customers continue to make net deposits through the volatile environment, assets under custody declined along with decreases in market valuations, especially for high-growth stocks and cryptocurrencies. Looking at July, it's encouraging to see that customer assets increased back over $70 billion as markets rebounded. Looking more closely at net deposits, they were $5.2 billion in Q2, which translates to a 22% annualized growth rate relative to Q1 assets under custody. So while assets were lower in Q2, if we think about our long-term potential for asset growth, we believe the combination of strong net deposits and long-term rising markets can drive meaningful asset growth over time. Now let's turn to our Q2 financial results, which reflect good progress on increasing profitability. Adjusted EBITDA improved 63 million sequentially to negative 80 million in Q2, This improvement was driven by revenue growth and expense discipline that drove operating leverage. Looking ahead, we continue to push towards a positive adjusted EBITDA run rate by the end of the year. This goal is an important step along the way to delivering higher levels of profitability over time. We feel that our progress over the past quarter has better positioned us to reach our goal by year end, which will take continued improvements in both revenue and cost. So let's start with revenues. Total net revenues were $318 million in Q2. This was a 6% increase from Q1, primarily driven by higher net interest and other revenues, partially offset by lower transaction revenues. Q2 total revenue translates to ARPU of $56, up from $53 last quarter. Now moving to transaction-based revenues, they were $202 million in Q2, down 7% sequentially. The decrease was primarily driven by lower trading volumes consistent with the macro environment. And turning to net interest revenues, as we've discussed in the past, we believe that over the long term, interest income will drive a larger portion of our revenue. That is why we're encouraged that Q2 net interest revenues reached a new high of $74 million. and drove nearly a quarter of total Q2 revenues. The 35% increase from Q1 was primarily due to the March and June Fed rate hikes, partially offset by lower margin balances. I'd also note that interest-earning assets, which are comprised of customer cash, corporate cash, and margin balances, were $16 billion at the end of Q2. This includes customer cash sweep balances earning 1% which totaled over $2 billion in Q2. As we look ahead, interest rates are widely expected to continue rising, which would drive meaningful additional revenue from our interest-earning assets. One way to see that benefit is to look at our recent experience from the June and July Fed rate hikes that totaled 150 basis points. On average, we estimate that we are realizing about $40 million of annualized run rate revenue per 25 basis points of rate hike given our current balances and customer rates. Of course, the precise benefit of rate hikes will depend on how the benefit of rate hikes will depend on how balances and customer rates vary over time. Moving on to other revenues, they were $42 million in Q2, up 62% from Q1, primarily due to the seasonal increase in proxy-related revenues. Together, net interest and other revenue made up 36% of total revenue in Q2, up from 27% in Q1. Continuing to broaden our product offering can help us further diversify our revenues going forward. Let's now look at our Q2 expenses, starting with operating expenses prior to share-based compensation. They were $446 million in Q2, which includes $17 million of severance related to our April workforce reduction. This was an improvement of $24 million, or 5% from Q1, reflecting our work to be more cost efficient, including with third parties. Given this progress on our ongoing expenses and our August workforce reduction, we're lowering our full year expense outlook. Our updated outlook for 2022 operating expenses prior to share-based compensation is a range of $1.7 billion to $1.76 billion which would be a year-over-year decline of 7 to 10% in operating costs. This updated outlook includes the cost of an estimated $45 to $60 million of severance and restructuring expenses related to our August workforce reduction. Turning to share-based compensation expense, which, as a reminder, reflects the number of shares and our share price at the time the awards were granted. It was $164 million in Q2, down by $56 million, or 25%, from Q1. The decrease was primarily driven by a $24 million reversal of previously recognized share-based compensation related to our April workforce reduction and our reduced pace of hiring this year. I'd also highlight that 50% of our Q2 expense was driven by pre-IPO market-based awards for our two founders, that will vest only as our share price reaches levels from $50 to $300, but are recognized on a GAAP basis as expenses over time. These awards won't increase our share count until our share price appreciates considerably, which would be a great outcome for shareholders. As for our 2022 outlook for share-based compensation, we are lowering our expense outlook for the year. We now anticipate 2022 share-based compensation expense to be in the range of $760 million to $840 million, down between 47% to 52% from prior year levels. This updated outlook includes the benefit of an estimated $40 million to $50 million reversal of previously recognized share-based compensation related to our August workforce reduction. I also want to highlight that given our reduced pace of hiring and workforce reductions, we are now on a significantly lower trajectory of diluted share count growth than we have seen over the past year. While we believe that it's important to align the interest of employees with shareholders, this will be an area we will be managing closely. Now let's turn to capital management. In the current environment, it's even more important to have a strong balance sheet and cash position. That is why we like our position with no debt and $6 billion of corporate cash on hand. That provides strength, flexibility, and financial runway to continue serving our customers, executing on our product roadmap, and evaluating potential acquisitions. As I mentioned last quarter, we have roughly $2.5 billion of excess cash above our risk scenarios. In closing, we continue to make good progress in Q2, and we're very optimistic about the opportunities ahead of us to deliver value for customers and shareholders. With that, Chris, let's move to Q&A.

Thank you, Jason. Leading into this quarter's Q&A session, we'll start by answering the top questions from Say Technologies, ranked by number of votes. We will pass over any questions that were already covered on the call. and group together questions that share a common theme. After that, we'll turn to live questions from our analysts. As a reminder, we skipped over some of the top questions because Vlad and Jason already covered them in their remarks. So with that, I'll kick it off with a couple of our top questions that are on a similar theme from SAVE Technologies. These are both, I think, for Jason. So Massey R. asks, having billions of dollars of cash, are you planning on buying back shares since the stock is at a low price? And then Seth G. asks, any future plans for Robinhood to offer a dividend on their stock?