Nikola Corporation

Good day, and thank you for standing by. Welcome to the Robin Hood Second 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 question-and-answer session. To ask a question during the session, you need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Cagle, Head of Investor Relations. Please go ahead.

Thank you, Victor. Welcome, everyone, and thank you for joining us for Robinhood's second quarter 2022 earnings call. With us today are CEO and co-founder Vlad Tenev and CFO Jason Warnick. 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 yesterday, the related slide presentation on our investment relations website, our Form 10-Q filed this afternoon, and in our other SEC filings. 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. With that, let me turn it over to Vlad.

Thank you, Chris, for that great introduction, and thanks to everyone for joining. Last week was the one-year anniversary of our IPO, and in the 12 months since, we've had to navigate two challenges, one of adapting to the public markets, and two, of also dealing with an abrupt reversal of the macro environment. For our customers, many of whom are younger, it looks like they may be facing a recession for the first time in their adult lives if the last two quarters of negative GDP growth are any indication. Customers are seeing this high inflation along with high interest rates, bear markets and stocks, and a crypto winter. And this all adds up to less money to spend and therefore less to save and invest. You can also see this reflected in the drop in assets under custody that we reported. Despite strong net deposits of over $5 billion in Q2, you can see that our assets under custody dropped. And this shows that customers have been hurt by devaluation across cryptocurrencies and growth stocks in particular. And while we can't control the macro environment, we've been hard at work building products to help our customers navigate it. Products like the cash card, stock lending, and high yield on their uninvested cash. I'd have to say 2022 is by far our most prolific year yet of delivering products to customers. And we've got much more in the works. For Robinhood, in the seven or so years since we first launched in the U.S., we've consistently adapted to changes, improved, and become more robust and resilient as a company. If we're headed into our first recession in the company's history, we recognize it would be a challenging time, but strong companies use these times as opportunities, and we look forward to navigating through this environment and coming out even stronger. To that end, we made a tough call to further reduce our staff, which we announced the details of yesterday. These are hard decisions, but we believe they better position our business for the long term. So alongside the reduction in force, we organized the company into a general manager structure for each of our core business units. We've been thinking about this change for some time, and I'm confident that it'll speed up decision-making, increase accountability, And ultimately, it will help us deliver even faster for our customers. This is just one part of our leaner operating model. And Jason will share more color on this in his remarks. Now, on to the quarter. Despite the environment weakening, we were able to both increase our revenues and lower our expenses in Q2 compared to Q1. Now, this was a company-wide effort, and I am proud of the team for the hard work and dedication it took to get here. It certainly wasn't easy. We believe we're making swift progress toward our goal of being adjusted EBITDA positive by the end of the year. So let's move on and talk a little bit about our product roadmap. Remember, our goal is to deliver low-cost, simple products and a safe customer experience that give everyday people control over their finances and access to the same tools that wealthy people have enjoyed for generations. We've organized our efforts into three product areas, brokerage, crypto, and money. So I'd like to review each of those with you. Let's start with brokerage. To put things in perspective, Robinhood is the most downloaded brokerage app in the U.S., We achieved this leadership position by aggressively innovating, which in turn fueled our account and asset growth. To continue driving growth, we have focused our brokerage product development this year on two key areas. One, introducing retirement accounts, and the second, improving our customer experience, particularly for advanced customers. So starting with retirement accounts, I can't tell you how excited we are about this product. We feel like we've come up with a way to offer retirement that is uniquely Robinhood, and we know our customers will love it as much as we do. We're piloting them now with plans to launch later this year. Additionally, retirement accounts will be the first time our customers will be able to have multiple brokerage accounts with us. We think this creates a big opportunity for us to broaden our support for 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 wait list continues to grow, and our early internal version of the product looks awesome. We think customers are gonna 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 wanna 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 gap 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 reductions. 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?

Thanks for each of those questions. We think the best use of our cash right now is to fund the business, both our organic initiatives to drive growth as well as potentially to use for acquisitions. I think a better time to be thinking for us to be thinking about returns of cash to shareholders is is when we reach some goals further down the line around generating positive adjusted EBITDA and kicking off positive cash flow. But I appreciate the question.

All right. Thanks, Jason. Next question is from Sujan P., who asks, following up if Robinhood can give out its gold services, if a retail owner owns enough stock in Robinhood, And also, any update on adding more advanced chart trading features onto the app and website? Vlad, do you want to take that one?

Yeah, I'll take it. Thanks, Faye John, for the question. And it's good seeing you up here with the top voted questions quarter after quarter. So on gold for shareholders, we don't have plans to offer that right now and to bundle gold with shareholder status. but I do want to touch on rewards to shareholders and Robinhood Gold briefly. So on the first, you might have seen that Say, which we're all using for this Q&A, launched a product called Auth with Say recently. So this will actually allow us to work with our corporate partners to identify shareholders and offer them perks and rewards. This is first of its kind offering really allowing public companies to identify their shareholders and we're excited to have Tesla being the first partner with us but we think this is something that that more companies should be doing and we'd like to we're happy to offer the technology to make that easier for them now on the gold side we think there's tremendous value in gold and I We've got a team of people hard at work to provide even more value. And we want gold to be so valuable that it's a no-brainer for all of our customers to be gold customers.

All right. Thank you, Vlad. So the next question is on the M&A front. So any word on being acquired by FTX or Charles Schwab?

Sure. I'll take this one. So in one word, no. I think we're in a great position as a standalone company. I love us as a standalone company. We've got a strong balance sheet. We've got an awesome team. And we're delivering on our product roadmap, as I mentioned, at a pace that we haven't seen before. So actually, I'd flip it on the other side. We actually see opportunities, particularly in this market environment, to leverage the balance sheet that we have that's about $6 billion to to acquire companies that can help us accelerate our roadmap. So we continue to be on the lookout there. And we remain really excited by the opportunity we see ahead of us.

All right. Thanks, Vlad. And thanks, Paul W., for asking that question. The next question is also from Sajan P., who asks, also on the M&A front, can you provide us with an update on the ZGLU acquisition and strategic plan for international expansion for this year?

Sure. And Sejan, I think I also missed the second part of your question before about advanced trading. So advanced charts is something that we've heard from customers about, and we've got some good tools for you in the works. So just stay tuned. We think you'll really love them. On the ZGLU acquisition and strategic plan for international expansion, So as we mentioned in the last call, we had entered into an agreement to acquire Zigloo. Now these agreements take normally a little while to close. So we're going through that process right now. And we're still on track to close by the end of the year. And I'm very excited to bring Mark and the team on board and accelerate our entry into the UK and the rest of Europe. Very, very excited about that. And hopefully it goes smoothly. We believe it will.

All right. Next question is from NJS who asks or states that the five-year historical charts don't seem good enough. And can we do more Macs like others?

Yes. Thank you for that feedback. Always love hearing feedback about the tools. We hear customers loud and clear. that they want better charting, more flexibility, more advanced charting, and more data. So we've been making lots of improvements to our offerings, and charting will continue to get better and better. So just stay tuned. We've got some good stuff in the works for you.

Okay. Thanks, Vlad. The next question is from Andrew L., who asks, why not allow us to start trading when the pre-market session opens at 4 a.m. Eastern?

Yeah, I'll field that as well. Thanks, Andrew, for the question. So earlier this year, we announced our goal of making equity markets accessible 24-7. We think that it's actually silly that with all the technology we have nowadays, U.S. equity markets are still tied to East Coast United States working hours. So as the first step of that process, we extended our already extended trading hours to 4 a.m. Pacific to 5 p.m. Pacific. So that's 7 to 8 Eastern. The goal is to make that 24-7. Along the way, we might see opportunities, depending on customer interest, to make incremental progress and add more hours, which we'll certainly pursue and consider. So adding 4 a.m. to 7 a.m. Eastern, I believe, is certainly something we're thinking about.

Great. And let's take one more top question. So the last one is from Anthony B., who asks, would Robinhood be able to provide a service that lets people get loans against their assets?

Yeah, I'll field this one as well. Thank you, Anthony. So we already do provide a form of this. So in our margin offering, we allow customers to get a loan against their assets already within Robinhood. And we're actually, previously this offering was only available to Robinhood Gold customers, but we're actually making it available to all customers under different rates. So this will allow you, if you have over $2,000 in in securities to borrow against them, you can either use that to buy more securities or even withdraw it to your bank account or spend it through the Robinhood spending account and cash card. So yeah, it's a very useful service. A lot of customers don't know that you can actually withdraw against your margin loan and get some liquidity without selling securities. So we'll definitely look to communicate that a little bit better. And also looking at different ways to help customers generate some more liquidity, especially in this environment going forward.

All right. Thanks, Vlad. And that's it for top questions for today from Say. So thank you, everyone, for your questions. We really appreciate all the thoughtful engagement from our shareholders and customers. So it's time to open up the line, and we'd ask each analyst to limit their questions to one question and one follow-up. So with that, I'll ask Victor, please, to open up the line for questions.

As a reminder, to ask a question, you need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question is on the line of Devin Ryan from JMP Securities. Your line is open.

Great. Good afternoon, everyone. Hey, Devin. Hey, Devin. Good afternoon. First question, just want to talk about marketing spend a bit here. It was only $24 million in the quarter. It's down 75% year over year. A little bit surprising just given all the new products that you're rolling out, including cash management. So just trying to think about whether it makes sense to maybe lean in more on marketing, particularly with all the the new products launching, or do you guys see other ways to maybe get the word out and engage with, um, you know, new and existing, um, uh, investors, uh, just with all these new products and just particularly in a competitive market to get the name out?

Yeah, I'll, I'll, uh, I'll field that. Um, I think historically Robin hood has been very much, uh, driven by word of mouth growth and, even the marketing expense that we accrued through 2021 in large part was as a result of our referral program. We did do a little bit of brand marketing as well, but I think performance and referral program were largely driving 2021. And as the environment has kind of changed through 2022, We've been head down focusing on products and improving the service quality, but we actually do see an opportunity to get the word out and do more brand marketing and make it clear to customers what Robinhood stands for and our mission and our position in the segment, as you point out. So, yeah, I would expect to see a little bit more on the brand side and on the performance, as I'm sure Jason can add, we're very much focused on efficiency, and we think that organic and referral-based marketing is kind of the best way, and we'll see that pick up as the macro environment changes and as we continue to improve our products.

As you think about modeling this, we'd expect marketing expense to increase in the back half of the year, and it's incorporated into the guidance that we provided.

Yep, okay. Okay. All right, thanks, guys. And then just to follow up here, so in funded accounts, we're up slightly, MAUs down, I think, 12%. Most other, you know, the incumbent brokers don't give MAUs, but I'm assuming engagement has been down at a number of firms, just in the uncertain macro backdrop. Does it feel like we're approaching a bottom for engagement in MAUs? I'm not sure if you have any data or kind of historical benchmarks to look at. And then of that $14 million, is 20% driving 80% of the trading activity and revenue, or what does that split look like? I'm assuming, you know, of the 14, there's still kind of a small amount that's driving the majority, but lots more color there, too.

Yeah, Devin, you know, we do follow a power law here. So, you know, the more active customers do drive more of the revenue versus the less active customers, and that's been true for some time. In terms of predicting the bottom, it is hard to predict. The market, the first half of the year, has been about the worst that we've seen in about 50 years. Hard to know exactly when it's going to bottom out and turn around. I think we saw some life in July more broadly in the markets, and that's an encouraging sign. And I commented in my prepared remarks about the effect it had on our customers' rebound in assets under custody. You know, what we are focusing on right now is just continuing to improve the user experience. I do think, you know, personally, you know, this is a cycle and we're in a cycle. Other cycles will come long term. I'm, you know, very optimistic that, you know, it's going to be great for retail investors to continue to invest in the stock market and participate in wealth building over the long term.

Okay. Thanks very much.

Thanks, Devin. Thank you. One more for our next question. Our next question, Richard Rapeto from Piper Sandler. Your line is open.

Good evening, Vlad, or good afternoon, Vlad and Jason. I guess the first question is on regulation, Vlad. SEC Chair Gensler came out again in June and talked about the retail equity market structure. I think he stopped short of saying any specific bans, but it certainly sounded like he was proposing or wanted to propose things that would hinder the wholesalers and maybe payment for order flow. So any incremental comments from you on what you thought of his talk and any other insights in regards to regulation?

Yeah. Yeah, sure, Rich. I mean, I think the first thing to say is we're obviously paying close attention to what's coming out of the commission and what Chair Gensler is saying. I don't know if you heard former SEC Chair Jay Clayton yesterday, who was asked about this as well. And, you know, we agree with the sentiment there that payment for order flow and the current structure that's allowed has provided a great all-in cost of execution for retail investors, one that's in fact unmatched in history. And we've got retail customers are getting a great deal. So, I mean, we're a little bit concerned. Obviously, we're fine with things improving. But, yeah, we think that the barrier to or the the sort of threshold to clear for making changes in this extremely complicated setup has to be quite high given that retail customers are getting great execution quality right now. In terms of what it would do to our business, again, we're paying attention to it. Equities payment for order flow right now comprises about 9% of our total revenues. So we've seen Better diversification, Q2 versus Q1, more of our revenue is driven by net interest income and equities, payment for order flow, even within the transaction segment has been on a downward trend. So certainly 9% is significant, but I think all in all, we feel pretty comfortable that we're giving customers a great deal and Over time, you should see our revenues continue to diversify as we roll out more products.

Got it. That's very helpful, Vlad. Thank you. And my follow-up would be, this is following up from a previous question earlier, but it's on the M&A front, and I know that question asked about specific companies, but I'm just trying to get your broader thoughts. Given the control of the shares, the voting power, would there be any scenario where you could see a partner that, again, may not be an acquisition, but could get you to the immediacy of product development and, you know, and enrich, you know, the progress that you're trying to make, I guess. Do you envision any scenario or is that just not really in the cards at this point?

Rich, I mean, as I mentioned before, if I look at Robinhood right now, I think we're incredibly well positioned to continue to execute on our plans as a standalone independent company. We've got $6 billion in cash. We've made great progress towards both increasing revenues and decreasing costs. And I think in particular in these environments, great companies that are in our position have been able to set themselves up for the future, just taking advantage of opportunities that are out there for acquisitions and M&A. So I think we see an opportunity actually to use our balance sheet and our financial strength to accelerate our own roadmap. And that's how we've been thinking about it and approaching our strategy.

Understood. Just the companies that made it through the internet, When the internet bubble broke, we're the one that stayed focused, so thanks for the answer.

Thanks, Rich. Thank you. One moment for our next question. Our next question comes from Michael Cypress from Morgan Stanley. Your line is open.

Great, thanks. Good afternoon. I wanted to touch upon the net new deposits, which continue to hold up quite strong despite the challenging environment. So I was hoping you could provide some color around that, including maybe touching upon the profile of the customers that are driving the NNA versus the installed base, how much of the NNA relates to recurring preset contributions, and how much of that is going into the cash management program. Thank you.

Yeah, so I'll go ahead and start, and I'm glad you can feel free to add some color. So we feel really good. We increased the interest rate that we're offering to our customers in the cash sweep program. That's now at 1%, and we've got about $2 billion of customer cash there, so offering a really nice value proposition. In terms of the net deposits, $5.2 billion during the quarter. 22% annualized growth rate in terms of net deposits relative to the beginning of period AUC. So really strong indication that our customers, even in this tough environment, are continuing to engage and putting their money to work for the long term. In terms of customer cohorts, we haven't provided the breakout detail between the various cohorts in terms of net deposits. What I tell you is that there's broad participation of where the net deposits are coming from, including from the installed base. You know, the net increase in our funded accounts has been modest these last couple of quarters, so I'd point more to our installed base. But we do like what we're seeing from the new investors that are joining the platform and think we're really well positioned for them to grow with us.

Yeah, and the only thing I would add to that is, you know, some of the things on the near-term roadmap that we've mentioned before, in particular retirement accounts and making improvements for our more advanced customers, we think those will drive meaningful net deposit increases over time as well.

Great. And just a follow-up question regarding the $6 billion cash position that you flagged that you have on the balance sheet. I guess the question here is just how much do you need to run the business in terms of cash versus how much is excess that might be available for MNA that you were mentioning before that you may have some interest in. And I also saw you mentioned about two and a half billion of excess above risk scenarios, but I think that includes your 3 billion lines of credit. So that would suggest no excess in a risk scenario. So just hope you can elaborate around what that risk scenario is and how to think about that.

So in our risk scenarios, We have two and a half billion of excess cash. So that is just that is just excess And on a typical day, we're using very little of our corporate cash to run the business we've just had periods of time in the past where for example the meme stock rally we saw moments where there was extreme volatility and that caused the risk scenarios that we we are modeling today and And that's what I'm referring to, moments like that where we continue to have in excess $2.5 billion above scenarios that resemble what we saw back then.

Great. Thank you.

Thanks, Michael.

Thank you. We're moving for our next question.

Our next question comes from the line of Stephen Chuback from Wolf Research. Your line is open.

Hey, good afternoon, Vlad. Good afternoon, Jason. So I wanted to start off with a question on stock-based comp. Jason, you made some earlier comments just highlighting your internal focus to rein in future dilution. And I was hoping you could help us size the incremental dilution associated with the share-based comp that's not yet been recognized. And given your strong excess liquidity position, I heard the earlier comment on capital management, but any potential plans to offset that future dilution with incremental buybacks?

Yeah, we don't have plans right now to implement a share buyback plan. As I mentioned in my earlier comment to the say question, we think that'll be a more appropriate option as we turn the corner on profitability. You know, in terms of unrecognized share-based compensation, we just filed our 10Q this afternoon. I think that number is in the queue. I don't have it top of mind, but the unrecognized is in there. And then just to reiterate that about half of our share-based compensation is from the pre-IPO market-based awards that were given to the founders. and those vested significantly higher dollar share prices than where we're at today.

Thanks for that. And for my follow-up, just on the NII sensitivity, you spoke of the $40 million benefit per rate hike. Just given the sheer number of hikes we've seen so far, the NII expansion in 2Q certainly healthy. You cited a record, but it was a bit lighter than we had anticipated. I recognize there are a lot of moving pieces impacting the sensitivity. Thought it might be helpful, Jason, if you could just speak to the sensitivity across the different buckets, margin balances, swept cash, corporate cash, that's underpinning some of that $40 million per hike guidance that you offered up.

Yeah, we're actually really pleased with the pass-through that we've seen from our banking partners on these rates so far and pretty optimistic that we'll continue to see good results from there. Margin balances, we have increased. As Vlad mentioned, we've also separated it from gold, offering customers who are not part of gold to participate in the margin program, but at higher rates. And in terms of kind of go-forward guidance, what I would just say is that we'll continue to see a meaningful portion of these rates accrue to shareholders, but balanced by you know, our intention to also offer just great value for customers.

That's great. Thanks so much for taking my questions.

You bet. Thank you.

We're going for our next question. Our next question will come from the line of Will Nance from Goldman Sachs. Your line is open.

Hey, guys. Good afternoon. Thanks for taking the question. I wanted to ask another question on the expense base and follow-up on the earlier question on stock-based comp as well. Given the moving pieces in the expense base, a handful of restructuring charges in the back half, Jason, I'm wondering if you could talk for both kind of like OPEX and the SBC lines. As you look out into 2023, what's the exit run rate? for some of these line items? And I guess particularly on SBC, if you have an exit run rate for us, is that 50 percent level that impacts ongoing dilution still going to be the right number for the foreseeable future?

Yeah, I think there's a couple of things that I can say that will be helpful, but we haven't provided guidance on exit run rates. The stock-based comp for the market-based awards that were given pre-IPO to the founders, that is recognized on an accelerated basis, and so that will decline over time, recognizing more in earlier periods and less in later periods. Also, as we hit those share prices, it will cause an acceleration of the related tranches that are affected by that. So it'll be accelerated and also potentially lumpy as we hit those triggers. Really proud of the team, both on OpEx, primarily on OpEx, both for third-party spend in particular, making great progress, a lot of collaboration across the teams. One area to highlight is the focus that our engineering team has had on improving our efficient use of our web hosting. But we've got lots of examples kind of across the company of just driving improvements, all reflected in the pretty favorable incremental guidance that we gave in our release.

Got it. Appreciate that. And then just a kind of nuanced question on the transaction revenues. I think the implied take rate on the cryptocurrency trading this quarter I think it was obsequentially versus the first quarter of this year. I know you guys obviously renegotiated at the beginning of the year, but anything to call out on what drove the higher spread this quarter?

Yeah, we were able to achieve a higher negotiated rate than what we had previously. It is disclosed on our app and website. We took it from kind of low 20s to now it's 35 basis points.

Got it. Super helpful. Appreciate you taking all my questions.

Yeah, you bet. Thanks, Will. Achieve a higher negotiated rate than what we had previously. It is disclosed on our app and website. We took it from it was kind of low 20s to now it's 35 basis points.

Got it. Super helpful. Appreciate you taking all my questions.

Yeah, you bet. Thanks, Will.

Thank you.

One more for our next question.

Our next question will come from the line of Josh Beck from KeyBank Capital. Your line is open.

Yeah, thank you for taking the question. You know, I was just, you know, kind of curious when we think about ARPU and, you know, where it can go in the midterm? You know, obviously, with the current macro kind of stable, what would be the key drivers that we should be focused on in terms of trying to build out scenarios on kind of where that metric could go over time?

Yeah, I'll go ahead and take it, and then Vlad can jump in. You know, what we're really focused on is improving the user experience. Vlad's mentioned a couple of things around, you know, the brokerage user experience. We're continuing to add new coins for crypto, you know, in a very diligent way. And also looking to new products that we roll out, fully paid securities lending, which we recently rolled out. We're seeing really nice early traction with $3 billion of equities under management. that are already enrolled. The cash card is another area. It's a new product and one that we're really excited about improving the user experience. And then, of course, we're going to see some benefit from the rising interest rate. A couple of the rate hikes that happened in Q2 happened late in the quarter, and you'll begin to see that flow through at a higher rate in Q3. So, you know, I think, you know, we like our focus on user experience and new products and, you know, expect that that's going to begin to show through in our financials over time.

Thanks. And, you know, I had a follow-up. Certainly the market conditions have been challenging for For everyone, obviously you did raise a substantial amount of capital and do have certainly leading scale. So I'm just curious when you think about, you know, the competitive environment and particularly maybe some of the, you know, lower scaled companies, perhaps with less funding, if you have seen any changes maybe on, you know, the customer acquisition or front or anything else notable there.

You know, I'd say that, you know, overall, customer acquisition is slower right now. You know, in periods of more market enthusiasm, you know, we found that customer acquisition comes a little easier, and right now it's a little lower. We've pulled back on marketing. We've found that chasing growth in this environment doesn't have the same ROI as in periods where you have higher intent customers. So, you know, it continues to be competitive. We continue to work on kind of the inputs of customer experience, and we expect that, you know, at some point, hopefully soon, we'll work our way through this cycle.

Yeah, I just add that I think historically Robinhood has been a company that has focused a lot on new customer acquisition, and we probably focused Historically again a little bit less on the customers that we've already had this year. I think has been a really healthy focus on valuable customers that have grown with us and have been using the platform quite a bit and Improving the customer experience for our most advanced customers and the people that we already had we think Has been very very valuable and you'll see that paid dividends for the business but It is cyclical, and as time goes on, I would expect that mix to shift, and we would definitely see opportunities over the long run to re-accelerate new customer acquisition.

Very helpful. Thanks, Jason and Blatt.

Thank you. One more question.

Our next question comes from Benjamin Budish from Barclays. Your line is open.

Hi, guys. Thanks for taking the question. Maybe first on the fully paid securities lending, you mentioned, I think, $3 billion in eligible balances. I'm just wondering, given the revenue share you've got with customers that opt in and the target of one to two times the size of your margin-based securities lending revenues, how big do you think that needs to be to kind of hit that goal?

It's early. I don't know offhand if we have shared the revenue split. I don't believe so, so I'm not going to lean into that particular aspect of your question. It's early. We've got about $50 billion of equities under management today. Three billion of that is enrolled. The teams are hard at work at making sure our customers are aware of the program, aware of the way that they can increase their passive income. by participating in the program. And we like the growth that we're seeing kind of on a weekly basis and look forward to updating you. But it's early and we've got a ways to go before it reaches that potential.

Okay. Fair enough. And then maybe one for Vlad. You mentioned that kind of another M&A question. You mentioned that you see yourselves as more of an acquirer than an acquiree. Could you maybe talk about what your priorities may be? Would it be more things like ZGLU where you're looking at international expansion or product expansion or I don't know, that's the general question, though.

Yeah, I'd say international, as you mentioned with Zigloo, is definitely something we've looked at in the past and will continue to explore. The other area is just opportunities for us to take advantage of our large scale in terms of customers and plug in new products and new services and assets that our customers would find valuable particularly those trading at attractive, good businesses trading at attractive valuations, which you can find in environments like this. Sure, understood. Thanks for taking the questions.

Thank you.

Thank you. One moment for our next question.

And our last question for today will be from Ken Worthington from JP Morgan. Your line is open.

Hi, good afternoon. Thanks for taking the question. Maybe for Vlad, in the S-1, the mission statement was the democratization of finance for all. As we've been running the numbers, we see that your clients have pretty significantly underperformed since the mean bubble burst in both up and down markets and even when accounting for crypto and growth. So two questions around this. Can Robinhood do better for its customers and drive better performance results for them? And if so, how do you get there? What tools do they need and how long it will take? And I would say things like cash card and the wallet and retirement accounts and stock lending are all interesting and probably you'll see big demand, but it doesn't seem like they address the key issue of underperformance. And then as we think about driving better performance for the end customers, can you do it in a way, given your customer asset levels, in a way that's profitable for Robinhood and your shareholders?

Yeah, I think – thanks for the question. It's always hard to have a very short-term view on this. I mean, when you look at performance kind of right in the depths of crypto winter and after – a bear market that's hit technology and innovation particularly hard, I think you'll get a skewed result. But over the long run, we believe in innovation. We believe in technology. We believe that these customers, many of whom are at the beginning of their financial journeys and are starting relatively younger than previous generations have. with investing will end up doing quite well because, you know, the American economy, the engines of innovation, in the short term, you might have bear markets, but over the long run, we think that they'll do quite well. So, you know, we're very, very committed to providing the best tools for our customers to benefit from these markets and make it easier to invest I don't think that a bear market should call our mission into question. I think the mission is incredibly important. And bear markets are opportunities that investors, particularly wealthy ones, have used to set themselves up for long-term success. And I think it's very, very important for us to offer these services to not just the wealthy.

Okay, great. And then just maybe a data question. How much or how many gold accounts, cash cards, non-custodial wallets on the waitlist, where do those numbers sort of stand as of the end of the second quarter?

So, sorry, go ahead and repeat that list again for me, Ken.

Yeah, I'm sorry. And I apologize. I tried to go through the Q. I didn't see anything. Gold accounts, cash cards, and the non-custodial wallet waitlist.

Yeah, we have about a 6% attach rate on gold. Cash card, it's early. We haven't said the number of users at this point. What we're focused on really right now is just improving the user experience. Last week, for example, we rolled out merchant incentives, which gives customers cash back on spending their card at places like gas stations, you know, pizza parlors and so on, which we think is great for customers. So what we're really focused on is improving user experience, improving the value proposition, and then just getting the word out, finding ways within the app and otherwise, there were questions about marketing earlier, to get the word out to customers about the products that we have and the great value proposition that we have for them.

And I think on the non-custodial wallet, that wait list number is actually public on the website, and I believe it recently crossed a million.

Yeah, thanks for your questions, Ken, and thanks to everyone for questions today.

Yeah, thank you, guys.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.