Robinhood Markets, Inc.

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 will be a Q&A answer session. To ask questions during the call, please be sure to press star 1-1 on your telephone. You will then hear an automated message advising you that your hand is raised. Due to 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, Haley. Welcome, everyone, and thank you for joining us for Robinhood's third quarter 2022 earnings call. With us today are CEO and co-founder Vlad Tenev and CFO Jason Warnock. 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, and we have no duty to provide updates unless legally required. Potential risk factors that could cause differences, including 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 3, 2022, and in other SEC filings. Today's discussion will also include non-GAAP financial measures. Reconciliation through the GAAP results we consider most comparable can be found in the earnings presentation on our investor relations website at investors.robinhood.com. With that, let me turn it over to Vlad.

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'm 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 costs, increase revenues, and demonstrate diversification of our business model. We feel our cost structure is in a good place, so we're now fully focused on delivering great products and service for our customers and growing our business. I'll 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 they 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 of 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 present 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 balance limits, none of the time commitments that CDs have, and 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're 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, we'll raise the interest rate for gold customers even higher. This is just another one of the investments we're planning for the coming years to 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 roll over an existing IRA or taking their first steps in long-term investing, we're excited to share this product with you and we know you'll 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 are 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 fees. 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 cent per contract fee for each options 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 $600 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 than our other customers. So we listened to their feedback and doubled down on building products designed for them, starting with hyper-extended trading hours and 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 in 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's always more to do and 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 wait list of more than 1 million people since May, We're excited that we rolled out the beta of the Robinhood wallet, our self-custody Web3 wallet, to the first 10,000 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'd like us to add more blockchains to increase the breadth of coins available for them to swap and trade. We're encouraged to see this enthusiastic early response, and we'll keep enhancing the wallet. And we're planning to roll the Robinhood 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 roll out more coins over the past quarter in a deliberate and considered manner. One of these was our first stable coin, USDC from Circle. As part of this rollout, we're creating a new free educational program called Learn and Earn that gives our customers the ability to earn crypto simply by learning about it. We're excited to roll this out and give our customers even more reasons to engage with our awesome 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 500,000 customers today. We're focused on continuing to improve the experience. So more customers use the cash card as a top card in their wallet. Looking ahead, 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 is 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 $50,000. We realized that some customers want to be able to withdraw their money instantly as well, rather than wait up to five business days for traditional ACH 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 1.5% price point, while always maintaining the ability to use free ACH 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 in Robinhood as well. We've gone from an environment of easy money to one of focus and constraint 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 significantly trimming our headcount and expenses, we've 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.