Robinhood Markets, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited results compared with Q1 2022. Robinhood operates a U.S.-focused brokerage, crypto, and cash-services platform. It reports one operating segment.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total net revenue | $441 million | $299 million | +47% |
| Transaction-based revenue | $207 million | $218 million | -5% |
| Net interest revenue | $208 million | $55 million | +278% |
| Operating expenses | $950 million | $690 million | +38% |
| Net loss | $511 million | $392 million | Loss increased |
| Loss per share, diluted | $0.57 | $0.45 | Loss per share increased |
| Adjusted EBITDA (non-GAAP) | $115 million | $(143) million | Improved $258 million |
- Revenue mix: Options revenue was $133 million (+5%); crypto revenue $38 million (-30%); equities revenue $27 million (-25%); other transaction revenue $9 million. Other revenue was $26 million, unchanged.
- Drivers: Net interest revenue rose mainly with higher short-term rates and larger interest-earning balances. Trading activity and transaction revenue weakened across crypto and equities, partly offset by options.
- Cash flow: Operating cash flow was $828 million, investing cash outflow $481 million, and financing cash outflow $11 million. Operating cash flow included substantial noncash share-based compensation and changes in customer-related balances.
- Liquidity and balance sheet: At March 31, cash and cash equivalents were $5.46 billion; segregated cash was $4.21 billion. Total assets were $27.79 billion, total liabilities $20.74 billion, and stockholders’ equity $7.05 billion. Cash, segregated cash, and restricted cash totaled $9.69 billion.
- Investments and debt: Robinhood held $485 million of held-to-maturity investments at amortized cost, including $290 million maturing within one year; fair value was $484 million. No borrowings were outstanding under revolving credit facilities. Committed revolving lines totaled $2.81 billion.
- Regulatory capital: Broker-dealer subsidiaries were in compliance. Excess net capital was $2.488 billion at RHS and $209 million at RHF.
- Customer and engagement metrics: Net cumulative funded accounts were 23.1 million (+1% year over year); monthly active users were 11.8 million (-26%); assets under custody were $78.4 billion (-16%); quarterly net deposits were $4.4 billion versus $5.7 billion; ARPU was $77 (+45%). AUC increased from $62.2 billion at the start of the quarter, reflecting $4.4 billion in net deposits and $11.8 billion in net market gains.
Material changes versus Q1 2022
- Net interest revenue’s share of total revenue rose to 47% from 18%, while transaction-based revenue fell to 47% from 72%.
- General and administrative expense rose to $647 million from $268 million, principally because of a $485 million share-based compensation charge from cancelling 35.5 million unvested 2021 Founders Market-Based RSUs. The awards were cancelled without replacement awards or other benefits.
- Total share-based compensation was $598 million versus $220 million. Excluding the cancellation charge, Robinhood reported $113 million of share-based compensation in its Adjusted EBITDA reconciliation.
- Technology and development expense fell 26%, and operations expense fell 54%, reflecting lower headcount, customer-support costs, and cloud infrastructure spending.
- MAU, AUC, and transaction-based revenue declined despite growth in funded accounts and higher net interest revenue.
Outlook, risks, contingencies, and unusual items
- Management said the Founders Award Cancellation is expected to lower operating expenses by up to $50 million per quarter beginning in Q2 2023. The filing does not provide formal numerical revenue or earnings guidance. It notes a previously stated expectation to get “much closer” to positive GAAP net income in the second half of 2023.
- Management believes primary liquidity sources are adequate for current needs over the next 12 months. Material cash requirements totaled $1.227 billion: $322 million for the remainder of 2023, $557 million in 2024–2025, $280 million in 2026–2027, and $68 million thereafter. These include operating leases and purchase commitments, primarily for cloud and data services and insurance.
- A hypothetical 100-basis-point increase or decrease in interest rates was estimated to have an approximately 11% positively correlated impact on total net revenue, based on the March 31 position. Robinhood said a 100-basis-point increase across the yield curve would not significantly affect the value of its investment portfolio; losses on held-to-maturity securities would be realized if sold before maturity.
- Aggregate accruals for contingencies were $88 million at March 31, up from $85 million at year-end. The company says some potential losses cannot be reasonably estimated. Proceedings include matters involving best execution and payment for order flow, outages, early-2021 trading restrictions, IPO disclosures, account security, crypto operations, and regulatory compliance. Potential additional multi-state settlements could total up to approximately $10 million.
- Regulatory and business risks include possible changes to payment-for-order-flow and market-structure rules, crypto regulation and custody requirements, interest-rate sensitivity, trading-volume volatility, cybersecurity and operational failures, and litigation. The filing identifies multiple continuing SEC, FINRA, state, and other inquiries.
- Robinhood reported immaterial exposure to banks affected by the March 2023 banking events and said it had taken steps to limit disruption from loss of uninsured deposits. In March, it also amended a secured revolving credit facility to $2.175 billion, with possible commitments up to $3.2625 billion subject to conditions.
- The termination of the planned Ziglu acquisition in February 2023 resulted in a $12 million impairment charge and legal and other expenses, and delayed European expansion plans. Robinhood stated a goal to offer U.K. brokerage services by year-end 2023.
- Disclosure controls and procedures were assessed as effective at quarter-end; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether the sharp increase in net interest revenue can persist if rates decline or interest-earning customer balances change.
- Whether customer engagement and transaction activity stabilize, particularly MAU, crypto and equity trading, and assets under custody.
- The expected expense trajectory after the one-time $485 million founders-award cancellation charge, and progress toward the stated second-half 2023 GAAP profitability objective.
- Cash-flow quality and liquidity needs, including the effects of customer-balance movements, regulatory collateral requirements, and the $1.227 billion of disclosed commitments.
- Developments in significant legal and regulatory matters, including PFOF and best-execution rules, crypto investigations, and the Massachusetts proceedings.
- Potential dilution from outstanding equity awards and warrants; the filing reports 116.3 million anti-dilutive potential shares and 14.3 million outstanding warrants at quarter-end.