Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Th**e following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q*. Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” and “Coinbase” refer to Coinbase Global, Inc. and its c**onsolidated* subsidiaries. For all narrative provided in this Item 2, two numbers presented consecutively represent figures for the three and nine months ended September 30, 2024 as compared to the corresponding periods in 2023, respectively, unless otherwise noted.

Executive Overview

This executive overview of Management’s Discussion and Analysis of Financial Condition and Results of Operations highlights selected information and does not contain all of the information that is important to readers of this Quarterly Report on Form 10-Q.

During the third quarter of 2024, we continued to make progress against our goals of driving revenue growth, crypto utility, and regulatory clarity. We showed progress in diversifying our revenue and driving crypto utility through products like derivatives, international expansion, custody, and deeper integration of USDC into the cryptoeconomy. For the three and nine months ended September 30, 2024 we generated $1.1 billion and $4.1 billion of Net revenue, respectively, and $75.5 million and $1.3 billion in Net income, respectively. For the remainder of the year, we believe that we are well-positioned to drive revenue growth across all macroeconomic environments, and we remain committed to advancing regulatory clarity.

Key Business Metrics

In addition to the measures presented in our Condensed Consolidated Financial Statements, we use the key business metrics listed below to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions:

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023%20242023%
MTUs (in millions)7.86.7168.07.57
Trading Volume (in billions)$185$76143$723$313131
Net income (loss) (in millions)$75$(2)nm$1,288$(179)820
Adjusted EBITDA(1) (in millions)$449$178152$2,058$654215

nm - not meaningful

(1)See the section titled “Non-GAAP Financial Measure” below for a reconciliation of Net income (loss) to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors.

Monthly Transacting Users

We define a Monthly Transacting User (“MTU”) as a consumer who actively or passively transacts in one or more products on our platform at least once during the rolling 28-day period ending on the date of measurement. Quarterly MTUs are the average of each month’s MTUs in each respective quarter. Revenue-generating transactions include active transactions such as buying or selling crypto assets or passive transactions such as earning a staking reward. MTUs also engage in transactions that are non-revenue generating such as send and receive. MTUs may overstate the number of unique consumers due to differences in product architecture or user behavior.

MTUs increased for the three and nine months ended September 30, 2024 as compared to 2023, primarily due to a 0.6 million and 0.8 million increase in trading users, influenced by overall crypto market sentiment and activity and higher average crypto asset prices. Additionally, for the three months ended comparative period, we saw growth in users purchasing USDC and participating in USDC rewards programs, while for the nine months ended comparative period, the increase in trading users was partially offset by a decrease in staking users as a result of updates we made to our staking service.

Trading Volume

We define Trading Volume as the total United States (“U.S.”) dollar equivalent value of spot matched trades transacted between a buyer and seller through our platform during the period of measurement. Trading Volume represents the product of the quantity of assets transacted and the trade price at the time the transaction was executed. As trading activity directly impacts transaction revenue, we believe this measure is a reflection of liquidity on our order books, trading health, and the underlying growth of the cryptoeconomy.

Generally, Trading Volume on our platform is primarily influenced by overall market dynamics, namely the price of crypto assets, crypto asset volatility, macroeconomic conditions, and by our share of total crypto market spot trading volume. In periods of high crypto asset prices and crypto asset volatility, we have experienced correspondingly high levels of Trading Volume on our platform.

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023%20242023%
Trading Volume (in billions)
Consumer$34$11209$127$46176
Institutional15165132596267123
Total Trading Volume$185$76143$723$313131
Trading Volume by crypto asset
Bitcoin37%38%(3)35%36%(3)
Ethereum1519(21)1422(36)
USDT(1)1515—111010
Other crypto assets(2)332818403225
Total100%100%100%100%
Transaction revenue by crypto asset
Bitcoin35%37%(5)32%37%(14)
Ethereum1618(11)1519(21)
Solana11nmnm6nmnm
Other crypto assets(2)3846(17)47447
Total(3)100%100%100%100%

nm - not meaningful

(1)USDT is a stablecoin issued by Tether Operations Limited.

(2)No crypto assets other than those shown in this table individually represented more than 10% of our Trading Volume or our Transaction revenue, as applicable.

(3)Figures presented above may not sum precisely due to rounding.

For the three and nine months ended September 30, 2024 as compared to 2023, Trading Volume increased reflecting an increase in both the total market and our market share in the U.S., where our business is concentrated:

  • Total market — Crypto Asset Volatility1 increased 78% and 36% and total crypto market capitalization increased 95% and 102%. These two macro inputs have historically been highly correlated with Trading Volume and are typically influenced by overall crypto market sentiment, activity in the crypto market, and changes in average crypto asset prices; and

  • Market share — Trading Volume growth outpaced the 109% and 87% growth in overall U.S. spot market trading volume, as we were able to capture a larger portion of the trading activity due to our competitive position and product strategy.

1 Crypto Asset Volatility represents our internal measure of crypto asset volatility in the market relative to prior periods. The volatility is based on intraday returns of a volume-weighted basket of all assets listed on our trading platform. These returns are used to compute the basket’s intraday volatility which is then scaled to a daily window. These daily volatility values are then averaged over the applicable time period as needed.

Components of Results of Operations

Revenue

We generate revenue from transactions, subscription and services, and other activities. The vast majority of our total revenue is generated in the U.S., which is based on the domicile of the customers.

Net revenue

Transaction revenue

Transaction revenue is generated primarily from transaction fees on consumer and institutional trades that occur on our platform. We also earn other transaction revenue, which primarily consists of sequencer fees from Base users and fees charged for payment-related transactions. Transaction revenue is recognized at the time the transaction is processed.

We provide a trade matching service for users to buy, sell, or convert crypto assets through our platform. This trading activity is the primary source of our transaction revenue and core to the service we offer. Transaction revenue is generated primarily from transaction fees applied to spot trades that are executed by both consumer and institutional customers on our platform. The transaction fee earned is based on the price and quantity of the crypto asset that is bought, sold, or converted. Transaction revenue is directly correlated with Trading Volume, which is driven by both the number of spot trade transactions processed on our platform and the crypto asset price at the time of execution. Institutional customers incur lower fees per transaction than consumer customers and, as a result, the impact of changes in consumer Trading Volume on transaction revenue is more pronounced than the impact of changes in institutional Trading Volume. Within consumer transaction revenue, advanced trading offers customers a wider range of tools and order types with prices varying based on volume, while Simple trading offers a streamlined interface and fixed price quotes. Simple trading fees are generally higher than those on Advanced trading. As a result of all of these factors, changes in mix between types of transactions will affect transaction revenue. In addition, changes in our pricing will affect transaction revenue. See the section titled “—Key Business Metrics—Trading Volume” above for more information on our Trading Volume metric.

Subscription and services revenue

Subscription and services revenue primarily consists of:

  • Stablecoin revenue: We derive stablecoin revenue from our arrangement with the issuer of USDC. We earn a pro rata portion of income earned on USDC reserves based on the amount of USDC held on each respective party’s platform, and from the distribution and usage of USDC after certain expenses. Income derived by us from this arrangement is dependent on various factors, including the balance of USDC on our platform, the total market capitalization of USDC, which is the total amount of USDC in circulation, and the prevailing interest rate environment.

  • Blockchain rewards: We operate a proof-of-stake service that enables customers to stake eligible crypto assets and validate transactions on certain blockchain networks. This allows customers to earn rewards from the networks while maintaining ownership of their assets. Revenue is measured based on the number of tokens received and the fair value of the token at contract inception.

  • Interest and finance fee income: We earn interest on customer custodial funds held at third-party depository institutions, which is influenced by Trading Volume and prevailing interest rates. As consumer Trading Volume increases, customer custodial funds on our platform also tend to increase. Additionally, we earn interest and finance fee income from loans issued to institutional customers through Prime Financing. The amount earned depends on the total loans issued and the contractual rate.

  • Custodial fee revenue: We earn custodial fee revenue based on a percentage of the daily value of crypto assets held under custody within cold storage solutions for our Prime customers. The value of crypto assets held under custody is driven by the quantity, price, and type of crypto asset. Our custodial fee revenue is further dependent on the fee rates we charge to our customers.

  • Other subscription and services revenue primarily comprises revenue from Coinbase One, developer product revenue, including items such as delegation, participation, and infrastructure services, and revenue from other subscription licenses.

Other revenue

Other revenue includes interest income earned on our corporate cash and cash equivalents.

Operating expenses

Operating expenses consist of Transaction expense, Technology and development, Sales and marketing, General and administrative, Gains on crypto assets held for operations, net*,* Crypto asset impairment, net, Restructuring, and Other operating (income) expense, net. Personnel-related expense in all of these categories includes employee cash, stock-based compensation expense, and other employee benefits.

Transaction expense

Transaction expense includes costs directly associated with revenues. For transaction revenues, these expenses include costs to operate our platform, process crypto asset trades, perform wallet services, transaction rebates and incentives earned by customers, and transaction reversal losses. For subscription and services revenues, the primary expenses are the rewards distributed to users for staking their assets and can be impacted by the fees we charge. Fixed-fee costs are expensed over the term of the contract and transaction-level costs are expensed as incurred. Transaction expense also includes gains and losses from remeasurement of the fair value of crypto asset borrowing and collateral-related assets and liabilities, which are by their nature offsetting and net to an immaterial amount.

Our transaction expenses as a percentage of revenue will vary depending on the composition of our revenue. For example, if interest income and stablecoin revenue increase as a percentage of net revenue, transaction expenses as a percentage of net revenue will decrease as there are no transaction expenses directly attributed to these revenues. Conversely, if blockchain rewards increase as a percentage of net revenue, transaction expenses as a percentage of net revenue will increase since the majority of blockchain rewards revenue is distributed to the customer.

Technology and development

Technology and development expenses comprise mainly personnel-related expenses incurred in operating, maintaining, and enhancing our platform and in developing new products and services. These costs also include website hosting and infrastructure expenses, and the amortization of internally developed and acquired developed technology. Certain costs of developing new products and services are capitalized to software and equipment, net included within Other non-current assets in our Condensed Consolidated Balance Sheets.

Sales and marketing

Sales and marketing expenses primarily include personnel-related expenses, marketing program costs, USDC rewards, and costs related to customer acquisition.

General and administrative

General and administrative expenses include personnel-related expenses incurred to support our business, including executive, customer support, compliance, finance, human resources, legal, and other support operations. These expenses also include professional services, policy spend, and software subscriptions for support services.

Gains on crypto assets held for operations, net

Gains on crypto assets held for operations, net, reflect changes in the fair value of crypto assets received as a form of payment and nearly immediately converted to cash or used timely to fulfill corporate expenses. In addition to crypto asset price changes, these gains and losses are influenced by the volume and mix of crypto assets received and used, and the timing of the turnover of these crypto assets.

Crypto asset impairment, net

Crypto asset impairment, net represents gross impairments recorded on crypto assets held, net of subsequent realized gains on the sale and disposal of previously impaired crypto assets held. Beginning in January 2024, we adopted ASU 2023-08, and no longer record crypto asset impairments.

Restructuring

Restructuring expenses comprise separation pay, stock-based compensation, and other personnel costs related to reductions in our headcount.

Other operating (income) expense, net

Other operating (income) expense, net includes fair value gains and losses related to derivatives as well as platform-related incidents. The value of derivatives fluctuates with market conditions.

Interest expense

Interest expense on debt includes coupon interest expense, as well as amortization of debt discounts and debt issuance costs.

Losses (gains) on crypto assets held for investment, net

Losses (gains) on crypto assets held for investment, net generally comprise fair value remeasurement gains and losses from our crypto assets held for investment. These investments are considered long-term holdings, we do not plan on engaging in regular trading of crypto assets, and, as an operating company, our investing activities in crypto are not part of our revenue generating activities, which are based on transactions on our platform and the sales of subscriptions and services.

Other income, net

Other income, net includes the following items:

  • realized and unrealized gains and losses on foreign currency exchange;

  • realized and unrealized fair value gains and losses on strategic equity investments; and

  • net gains on the repurchase of certain of our long-term debt.

Because the majority of these components are generally variable based on changes in market conditions, they can vary widely from period to period. The income and expenses recognized in this line item are not part of our core operating activities.

(Benefit from) provision for income taxes

(Benefit from) provision for income taxes includes income taxes related to foreign jurisdictions and U.S. federal and state income taxes.

Results of Operations

The following table summarizes the historical Condensed Consolidated Statements of Operations data (in thousands) and each component as a percentage of total revenue:

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
$%****(1)$%****(1)$%****(1)$%****(1)
Revenue:
Net revenue$1,128,59794$623,00492$4,096,21695$2,021,90294
Other revenue76,596651,1448196,1755132,6866
Total revenue1,205,193100674,1481004,292,3911002,154,588100
Operating expenses:
Transaction expense171,7811490,57713580,66514295,14614
Technology and development377,44031322,756481,099,561261,001,45446
Sales and marketing164,7701478,17812428,61710226,00710
General and administrative330,38727252,63037937,73822760,37935
Gains on crypto assets held for operations, net(142)———(55,484)(1)——
Crypto asset impairment, net——7,1801——17,0891
Restructuring——(860)———142,5947
Other operating (income) expense, net(8,556)(1)3,512128,2031(10,806)(1)
Total operating expenses1,035,68086753,9731123,019,300702,431,863113
Operating income (loss)169,51314(79,825)(12)1,273,09130(277,275)(13)
Interest expense20,530220,821360,108164,0293
Losses (gains) on crypto assets held for investment, net120,50710——(210,902)(5)——
Other income, net(40,105)(3)(135,307)(20)(21,883)(1)(131,606)(6)
Income (loss) before income taxes68,581634,66151,445,76834(209,698)(10)
(Benefit from) provision for income taxes(6,914)(1)36,9265157,8784(31,132)(1)
Net income (loss)$75,4956$(2,265)—$1,287,89030$(178,566)(8)

(1)Percentage of total revenue. Figures presented above may not sum precisely due to rounding.

Comparison of the three and nine months ended September 30, 2024 and 2023

Revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Transaction revenue$572,504$288,575$283,92998$2,430,147$990,386$1,439,761145
Subscription and services revenue556,093334,429221,664661,666,0691,031,516634,55362
Other revenue76,59651,14425,45250196,175132,68663,48948
Total revenue$1,205,193$674,148$531,04579$4,292,391$2,154,588$2,137,80399

For the three and nine months ended September 30, 2024 we generated 86% and 84%, respectively, of total revenue in the U.S. For the three and nine months ended September 30, 2023 we generated 90% and 89%, respectively, of total revenue in the U.S. No other country accounted for more than 10% of total revenue during the periods presented. International revenue comprised mainly transaction revenue in all periods presented.

Transaction revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Consumer, net(1)$483,261$246,980$236,28196$2,083,245$865,103$1,218,142141
Institutional, net55,29314,07041,223293204,30953,442150,867282
Other transaction revenue(1)33,95027,5256,42523142,59371,84170,75298
Total transaction revenue$572,504$288,575$283,92998$2,430,147$990,386$1,439,761145

(1)Prior period amounts were reclassified to conform to current period presentation. See Note 5. Revenue of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Transaction revenue increased for the three and nine months ended September 30, 2024 as compared to 2023, due to:

  • an increase in consumer transaction revenue of $478.2 million and $1.5 billion due to a 209% and 176% increase in consumer Trading Volume. This increase was offset in part by a decrease of $241.9 million and $283.4 million attributed to a lower average blended fee rate, primarily due to changes in the mix of Trading Volume from Simple to Advanced trading;

  • an increase in institutional transaction revenue of $20.9 million and $71.5 million due to 132% and 123% higher institutional Trading Volume, and an increase of $9.5 million and $49.5 million as a result of a higher average blended spot trading fee rate primarily due to increased usage of our Prime Brokerage product; and

  • an increase in other transaction revenue for the nine months ended September 30, 2024, primarily due to the launch of Base in the third quarter of 2023.

Subscription and services revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Stablecoin revenue$246,856$172,357$74,49943$684,609$522,650$161,95931
Blockchain rewards154,81574,46180,354108490,883235,824255,059108
Interest and finance fee income(1)63,98742,51721,47050200,050137,76262,28845
Custodial fee revenue31,72315,80515,91810198,56949,83948,73098
Other subscription and services revenue(1)58,71229,28929,423100191,95885,441106,517125
Total subscription and services revenue$556,093$334,429$221,66466$1,666,069$1,031,516$634,55362

(1)Prior period amounts were reclassified to conform to current period presentation. See Note 5. Revenue of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Subscription and services revenue increased for the three and nine months ended September 30, 2024 as compared to 2023, due to:

  • an increase in stablecoin revenue of $40.2 million and $116.3 million primarily due to higher on-platform USDC balances. Additionally, for the three months ended comparative period, we saw growth of $54.7 million attributable to an increase in overall USDC market capitalization, while for the nine months ended comparative period, we saw growth of $61.8 million due to higher average interest rates, which rose 50 basis points, despite the Federal Funds Rate decrease in September 2024;

  • an increase of $82.7 million and $256.3 million in blockchain rewards due to higher average prices for Ethereum and Solana, and an increase due to higher native units staked, partially offset by lower reward rates;

  • an increase in interest and finance fee income for the nine months ended comparative period primarily reflecting growth of $30.9 million in finance fees driven by higher average Prime Financing loan receivable balances, and growth of $12.9 million attributable to higher average customer custodial cash balances;

  • an increase in custodial fee revenue primarily due to growth in average crypto assets held under custody of $62.4 billion and $72.6 billion as a result of higher crypto asset prices, mainly Bitcoin, Solana, and Ethereum; and

  • an increase in other subscription and services revenue, largely due to growth of $20.3 million and $57.8 million in Coinbase One revenue, as the number of paid subscribers grew driven by positive market conditions and improvements to our product offerings. In addition, for the nine months ended comparative period, we saw an increase in revenue from developer products driven largely by higher average crypto asset prices.

Other revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Corporate interest and other income$76,596$51,144$25,45250$196,175$132,686$63,48948
Total other revenue$76,596$51,144$25,45250$196,175$132,686$63,48948

Other revenue increased for the three and nine months ended September 30, 2024 as compared to 2023, primarily reflecting an increase of $22.8 million and $40.4 million due to higher average corporate balances. Additionally, for the nine months ended comparative period, we saw higher average earned interest rates on corporate balances, which rose 62 basis points, despite the Federal Funds Rate decrease in September 2024.

Operating expenses

Certain prior period amounts have been reclassified to conform with the current period presentation.

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Transaction expense$171,781$90,577$81,20490$580,665$295,146$285,51997
Technology and development377,440322,75654,684171,099,5611,001,45498,10710
Sales and marketing164,77078,17886,592111428,617226,007202,61090
General and administrative330,387252,63077,75731937,738760,379177,35923
Gains on crypto assets held for operations, net(142)—(142)100(55,484)—(55,484)100
Crypto asset impairment, net—7,180(7,180)(100)—17,089(17,089)(100)
Restructuring—(860)860(100)—142,594(142,594)(100)
Other operating (income) expense, net(8,556)3,512(12,068)(344)28,203(10,806)39,009361
Total operating expenses$1,035,680$753,973$281,70737$3,019,300$2,431,863$587,43724

In order to achieve our goal of positive Adjusted EBITDA for the remainder of 2024, we are committed to being adaptable and responsive to overall macro market conditions and revenue opportunities. We plan to dynamically adjust our expense base, increasing or decreasing it as needed, especially with respect to certain variable expenses. In the fourth quarter of 2024, we expect technology and development and general and administrative expenses to be roughly in line with those of the third quarter. Additionally, we expect sales and marketing expenses to grow, as compared to the third quarter of 2024, primarily due to expected higher USDC rewards expense and brand spend.

Transaction expense

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Blockchain rewards fees$107,576$51,661$55,915108$327,430$164,492$162,93899
Payment processing and account verification29,81817,63112,18769101,39061,00440,38666
Transaction reversal losses11,38810,861527535,79036,621(831)(2)
Miner fees1,8055,687(3,882)(68)51,09325,37825,715101
Other21,1944,73716,45734764,9627,65157,311749
Total transaction expense$171,781$90,577$81,20490$580,665$295,146$285,51997

Transaction expense increased for the three and nine months ended September 30, 2024 as compared to 2023 primarily due to higher blockchain rewards fees, which rose generally in line with blockchain rewards revenue. For the nine months ended comparative period, transaction expense also increased due to:

  • an increase in payment processing fees of $29.6 million, which reflect Trading Volume growth of 131%, offset in part by savings from reduced fees at higher volumes and our cost optimization efforts; and

  • an increase in other largely driven by higher transaction rebates earned by international institutional customers as we work to create liquidity in our international exchange.

There were no material changes to note within transaction reversal losses and miner fees.

Technology and development

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Personnel-related$271,272$240,929$30,34313$790,475$714,518$75,95711
Website hosting and infrastructure60,60040,66819,93249167,097142,78924,30817
Amortization25,56224,857705378,82388,611(9,788)(11)
Other20,00616,3023,7042363,16655,5367,63014
Total technology and development$377,440$322,756$54,68417$1,099,561$1,001,454$98,10710

Technology and development expenses increased for the three and nine months ended September 30, 2024 as compared to 2023, due to:

  • an increase in personnel-related expenses primarily reflecting higher stock-based compensation expense of $28.0 million and $82.0 million as a result of the 2023 annual employee equity awards being granted at a lower stock price as compared to the 2024 annual employee equity awards, offset in part by the roll-off of non-recurring multi-year stock-based compensation awards. Further, personnel-related expenses increased $12.5 million and $28.4 million due to higher average headcount; and

  • an increase in website hosting and infrastructure expenses driven by increased activity on our platform.

There were no material changes to note within amortization or other.

Sales and marketing

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Personnel-related$39,805$38,152$1,6534$113,655$109,756$3,8994
Marketing programs48,21523,10025,115109130,88176,81554,06670
USDC rewards61,61410,73850,876474144,73918,498126,241682
Other15,1366,1888,94814539,34220,93818,40488
Total sales and marketing$164,770$78,178$86,592111$428,617$226,007$202,61090

Sales and marketing expenses increased for the three and nine months ended September 30, 2024 as compared to 2023, due to:

  • an increase in marketing program expenses due to higher digital advertising spend; and

  • an increase in USDC rewards payouts of $27.7 million and $82.1 million due to higher reward rates offered to customers in an effort to enhance customer retention and platform engagement, with the remainder primarily due to higher on-platform USDC balances.

There were no material changes to note within personnel-related or other.

General and administrative

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Personnel-related (excluding customer support)$137,949$134,134$3,8153$408,066$382,851$25,2157
Customer support47,93138,6809,25124133,941102,90431,03730
Professional services45,46739,8005,66714126,465112,86013,60512
Other99,04040,01659,024148269,266161,764107,50266
Total general and administrative$330,387$252,630$77,75731$937,738$760,379$177,35923

General and administrative expenses increased for the three and nine months ended September 30, 2024 as compared to 2023, due to:

  • an increase in personnel-related expenses for the nine months ended comparative period largely driven by increased stock-based compensation expense as a result of the 2023 annual employee equity awards being granted at a lower stock price as compared to the 2024 annual employee equity rewards;

  • an increase in customer support costs as a result of increased capacity needs. Our capacity needs typically increase in periods following higher Trading Volumes; and

  • an increase in other, largely reflecting:

▪an increase of $15.3 million and $41.2 million in policy spend as we increased our crypto advocacy efforts;

▪an increase in legal costs of $9.2 million and $29.8 million due to higher spend; and

▪an increase of $9.0 million and $26.5 million in taxes, licenses, and fees largely due to higher indirect taxes directly associated with the growth in revenue and the application of certain indirect tax rules; offset in part by

▪lower lease costs, as we recognized a one-time lease termination fee of $25.0 million during the nine months ended September 30, 2023 related to the closure of our San Francisco office space.

There were no material changes to note within professional services.

Gains on crypto assets held for operations, net

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Gains on crypto assets held for operations, net$(142)$—$(142)100$(55,484)$—$(55,484)100

Gains on crypto assets held for operations, net during the three and nine months ended September 30, 2024 resulted from net receipts of crypto assets for operations during a period of rising crypto asset prices.

Crypto asset impairment, net

During the three and nine months ended September 30, 2023, crypto asset impairment, net reflected a $7.2 million gain and a $17.1 million expense, driven by gross crypto asset impairments resulting from challenging crypto market conditions during the relevant periods, followed by expense recoveries as we sold previously impaired assets at recovered prices. Beginning January 2024, we adopted ASU 2023-08, and as a result no longer record crypto asset impairments.

Restructuring

Restructuring expense was $142.6 million for the nine months ended September 30, 2023, driven by separation pay, stock-based compensation expense, and other personnel costs related to the workforce reduction in January 2023. Restructuring expense was immaterial for the three months ended September 30, 2023, and there were no restructuring expenses for the three and nine months ended September 30, 2024.

Other operating (income) expense, net

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Platform-related incidents$—$3,778$(3,778)(100)$32,598$9,759$22,839234
(Gains) losses on derivatives, net(3,383)(972)(2,411)248834(26,531)27,365103
Other(5,173)706(5,879)(833)(5,229)5,966(11,195)(188)
Total other operating (income) expense, net$(8,556)$3,512$(12,068)(344)$28,203$(10,806)$39,009361

Changes in Other operating (income) expense, net for the nine months ended September 30, 2024 as compared to 2023, were due to:

  • an increase in costs due to platform-related incidents; and

  • gains on certain derivatives for the nine months ended September 30, 2023 that did not recur in 2024. See Note 12. Derivatives of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

There were no material changes to note for any category of Other operating (income) expense, net for the three months ended September 30, 2024, or within the other category in the table above for the nine months ended September 30, 2024, as compared to 2023.

Interest expense

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Interest expense$20,530$20,821$(291)(1)$60,108$64,029$(3,921)(6)

There were no material changes to note within Interest expense.

Losses (gains) on crypto assets held for investment, net

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Losses (gains) on crypto assets held for investment, net$120,507$—$120,507100$(210,902)$—$(210,902)100

Losses (gains) on crypto assets held for investment, net during the three and nine months ended September 30, 2024 were primarily due to the remeasurement of the fair value of crypto assets held, mainly Bitcoin and Ethereum, during each period presented, where crypto asset prices decreased and increased, respectively.

Other income, net

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Losses (gains) on strategic investments, net$478$(48,488)$48,966(101)$15,141$(38,330)$53,471(140)
(Gains) losses on foreign exchange, net(4,848)382(5,230)nm(3,518)10,916(14,434)(132)
Gain on extinguishment of long-term debt, net—(81,591)81,591(100)—(99,446)99,446(100)
Other(35,735)(5,610)(30,125)537(33,506)(4,746)(28,760)606
Total other income, net$(40,105)$(135,307)$95,202(70)$(21,883)$(131,606)$109,723(83)

nm - not meaningful

Other income, net changed for the three and nine months ended September 30, 2024 as compared to 2023, due to:

  • a decrease in gains on strategic investments, net driven by a gain of $49.9 million resulting from an equity investment transaction with Circle US Holding, Inc. during the third quarter of 2023;

  • a net gain on the repurchase of certain of our 2026 Convertible Notes and certain of our Senior Notes during 2023; and

  • net gains of $20.6 million and $9.2 million within other on certain other financial instruments.

There were no material changes to note within (gains) losses on foreign exchange, net.

(Benefit from) provision for income taxes

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
(Benefit from) provision for income taxes$(6,914)$36,926$(43,840)(119)$157,878$(31,132)$189,010607

For the three months ended September 30, 2024 as compared to 2023, the change in (Benefit from) provision for income taxes was primarily due to tax benefits from stock-based compensation. For the nine months ended September 30, 2024 as compared to 2023, the increase in provision for income taxes was primarily due to higher pretax income, partially offset by tax benefits from stock-based compensation.

Non-GAAP Financial Measure

In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP financial performance measure, is useful information to help investors evaluate our operating performance because it: enables investors to compare this measure and component adjustments to similar information provided by peer companies and our past financial performance; provides additional company-specific adjustments for certain items that may be included in income from operations but that we do not consider to be normal, recurring, operating expenses (or income) necessary to operate our business given our operations, revenue generating activities, business strategy, industry, and regulatory environment; and provides investors with visibility to a measure management uses to evaluate our ongoing operations and for internal planning and forecasting purposes. For example:

  • We believe it is useful to exclude certain non-cash expenses, such as depreciation and amortization and stock-based compensation, from Adjusted EBITDA because the amounts of such expenses can vary significantly from period to period and may not directly correlate to the underlying performance of our business operations.

  • We believe it is useful to exclude certain items that we do not consider to be normal, recurring, cash operating expenses and therefore, not reflective of our ongoing business operations. For example, we exclude: (i) other (income) expense, net, as the income and expenses recognized in this line item are not part of our core operating activities and are considered non-operating activities under GAAP, (ii) gains and losses on crypto assets held for investment (post-adoption of ASU No. 2023-08) because such investments are considered long-term holdings, we do not plan on engaging in regular trading of crypto assets, and, as an operating company, our investing activities in crypto are not part of our revenue generating activities, which are based on transactions on our platform and the sales of subscriptions and services, and (iii) the impact of our restructurings in 2022 and 2023, which are not related to our normal business operations.

  • We believe Adjusted EBITDA is useful to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, interest expense, other (income) expense, net, restructurings, and benefit from or provision for income taxes that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired.

Limitations of Adjusted EBITDA

We believe that Adjusted EBITDA may be helpful to investors for the reasons noted above. However, Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. There are a number of limitations related to Adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent of Adjusted EBITDA. Some of these limitations are that Adjusted EBITDA excludes:

  • (benefit from) provision for income taxes;

  • interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us;

  • depreciation and intangible assets amortization expense and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;

  • stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

  • net gains or losses on our crypto assets held for investment, net, after the adoption of ASU 2023-08;

  • other income, net, which represents foreign exchange gains or losses, gains or losses on strategic investments, net gains on the repurchase of certain of our long-term debt and other non-operating income and expense activity;

  • non-recurring lease charges, which represent a non-recurring fee and write-off related to an early lease termination;

  • impairment on crypto assets still held, net, which represents impairment on crypto assets still held and is a non-cash expense, prior to the adoption of ASU 2023-08; and

  • the impact of restructuring, which is not related to normal operations but impacted our results in 2023.

In addition, other companies, including companies in our industry, may calculate Adjusted EBITDA differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our disclosure of Adjusted EBITDA as a tool for comparison. A reconciliation is provided below for Adjusted EBITDA to Net income (loss), the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measure and the reconciliation of Adjusted EBITDA to Net income (loss), and not to rely on any single financial measure to evaluate our business.

Revised definition of Adjusted EBITDA

During the first quarter of 2024, we revised our definition of Adjusted EBITDA as follows and recast prior periods for comparability:

  • to adjust for other income, net in total, as the entire line item represents non-operating activity, and as a majority of the activity recorded in other income, net had been included in the calculation of Adjusted EBITDA previously in separate rows while this combined presentation is more streamlined and easily reconciled to our Condensed Consolidated Statements of Operations;

  • to revise our definition of Adjusted EBITDA to remove the adjustment for crypto asset borrowing costs on Prime Financing, as even though these costs are akin to interest expense on debt, we believe they represent normal, recurring, operating expenses necessary to expand and grow Prime Financing; and

  • to revise our definition of Adjusted EBITDA to change what is adjusted with respect to gains and losses on crypto assets in connection with the adoption of ASU 2023-08, adjusting post-adoption

only for gains and losses on crypto assets held for investment, as they do not represent normal, recurring, operating expenses (or income) necessary to operate our business.

The following table provides a reconciliation of Net income (loss) to Adjusted EBITDA. The prior period comparative reconciliation has been updated to conform to the current period presentation (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Net income (loss)$75,495$(2,265)$1,287,890$(178,566)
Adjusted to exclude the following:
(Benefit from) provision for income taxes(6,914)36,926157,878(31,132)
Interest expense20,53020,82160,10864,029
Depreciation and amortization30,69531,96794,523110,157
Stock-based compensation248,416218,153690,854616,785
Losses (gains) on crypto assets held for investment, net (post-adoption of ASU 2023-08)120,507—(210,902)—
Other income, net(1)(40,105)(135,307)(21,883)(131,606)
Non-recurring lease charges———31,954
Impairment on crypto assets still held, net (pre-adoption of ASU 2023-08)—8,897—29,481
Restructuring—(860)—142,594
Adjusted EBITDA$448,624$178,332$2,058,468$653,696
Revised definition no longer adjusts for:
Crypto asset borrowing costs$706$3,445
Other impairment expense1,95610,069
Revised definition newly adjusts for:
Additional other income, net(2)(50)(8,662)
Adjusted EBITDA, previous definition$180,944$658,548

(1)See Results of Operations—Comparison of the three and nine months ended September 30, 2024 and 2023—Other income, net for additional details.

(2)Represents the portion of Other income, net that was not previously included as an adjustment to arrive at Adjusted EBITDA.

Liquidity and Capital Resources

There have been no material changes to our liquidity and capital resources from those presented in our Annual Report on Form 10-K for the year ended December 31, 2023, other than those described below.

We continue to believe our existing cash and cash equivalents and USDC will be sufficient in both the short and long term to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements. Our ability to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements, will depend on many factors, including market acceptance of crypto assets and blockchain technology, our growth, our ability to attract and retain customers on our platform, the continuing market acceptance of our products and services, the introduction of new subscription products and services on our platform, expansion of sales and marketing activities, and overall economic conditions. We anticipate satisfying our short-term cash requirements with our existing cash and cash equivalents and USDC and with future cash flows from operations and may satisfy our long-term cash requirements additionally with proceeds from a future equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.

Primary resources and commitments

Cash and cash equivalents, restricted cash and cash equivalents, and USDC

As of September 30, 2024 and December 31, 2023, our cash and cash equivalents, restricted cash and cash equivalents, and USDC balances consisted of the following (in thousands):

September 30,December 31,
20242023
Cash and cash equivalents
Cash equivalents(1)$6,087,747$3,682,917
Cash held at banks1,544,0511,367,643
Cash held at venues92,00888,791
Total cash and cash equivalents$7,723,806$5,139,351
Restricted cash and cash equivalents(2)$31,881$22,992
USDC**(3)**
USDC loaned(4)$122,020$205,645
USDC pledged as collateral(4)241,14529,577
USDC not loaned or pledged508,260340,806
Total USDC$871,425$576,028

(1)Cash equivalents consists of money market funds and government bonds.

(2)Restricted cash and cash equivalents consists of money market funds and amounts held at banks and venues.

(3)USDC is a stablecoin redeemable on a one-to-one basis for U.S. dollars. While not accounted for as cash or cash equivalents, we treat our USDC holdings as a liquidity resource.

(4)USDC loaned represents loaned assets that do not meet the criteria for derecognition in our Condensed Consolidated Balance Sheets. USDC pledged as collateral represents assets pledged as collateral that do not meet derecognition criteria against our crypto asset borrowings in our Condensed Consolidated Balance Sheets. See Note 6. Collateralized Arrangements and Financing of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Debt

On March 18, 2024, we issued $1.3 billion in aggregate principal amount of convertible senior notes that mature on April 1, 2030 (“2030 Convertible Notes”), unless converted, redeemed or repurchased on an earlier date. As of September 30, 2024, we held $4.3 billion in aggregate principal amount of debt. See Note 11. Long-Term Debt of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details, including maturities.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.

Other resources and commitments

Crypto assets

The Company holds crypto assets for investment and operating purposes, as well as borrowed crypto assets and crypto assets held as collateral. Effective January 1, 2024, we adopted ASU 2023-08 using a modified retrospective approach and recognized an associated fair value adjustment of $739.5 million on the crypto assets we held at that time. This adjustment caused the carrying values of the crypto assets we already held at the time to reflect their fair values and as such, this adjustment does not represent additional capital resources generated during the first quarter of 2024.

Crypto assets held for investment, net

We view our crypto asset investments as long-term holdings and we do not plan to engage in regular trading of crypto assets. Our future earnings and cash flows will be impacted when we choose to monetize our crypto assets held for investment, varying based on the future fair value of such crypto assets.

Crypto assets held for operations, net

We primarily receive crypto assets held for operations as payments for transaction revenue, blockchain rewards, custodial fee revenue, and other subscriptions and services revenue. Our intent is to convert crypto assets received as a form of payment to cash nearly immediately or use these crypto assets to fulfill corporate expenses. During times of instability in the crypto assets market, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets held for operations are considered less liquid than our cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.

Crypto assets borrowed and borrowings

We borrow crypto assets from eligible institutional customers. These borrowings generally have open-ended terms or have a term of less than one year. We are required to maintain a collateral to loan ratio per our borrowing agreements. Any significant change in crypto asset prices could impact the value of the crypto assets borrowed or the value of crypto assets pledged as collateral. If crypto asset prices rise, we will post additional collateral to maintain required collateral loan ratios. We were in compliance with all collateral requirements as of September 30, 2024. See Note 6. Collateralized Arrangements and Financing of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional details relating to crypto assets borrowed and borrowings.

Crypto assets held as collateral

Crypto assets held as collateral represent institutional customers’ crypto assets pledged as collateral on Prime Financing loans, to which we have control, contractual rights to sell, pledge, or rehypothecate, and which do not fall under the non-cash collateral provision of ASC 860. As Prime Financing grows, we will continue to evaluate how to best utilize these resources to help fund the growth of this business.

Customer assets and liabilities

Customer assets comprise customer custodial funds and safeguarding customer crypto assets, and the associated liabilities represent our obligation to safeguard and return these assets to the customers. See Note 9. Customer Assets and Liabilities of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details. Our business model does not expose us to liquidity risk if we have excessive redemptions or withdrawals from customers. We do not use customer crypto assets as collateral for any loan, margin, rehypothecation, or other similar activities without their consent to which we or our affiliates are a party. As of September 30, 2024, we have not experienced excessive redemptions or withdrawals, or prolonged suspended redemptions or withdrawals, of crypto assets to date. See Risk Factors—Depositing and withdrawing crypto assets into and from our platform involves risks, which could result in loss of customer assets, customer disputes and other liabilities, which could adversely impact our business included in Part II, Item 1A of this Quarterly Report on Form 10-Q for further information.

Cash requirements and contractual obligations

There have been no material changes in our cash requirements and contractual obligations since those presented in our Annual Report on Form 10-K for the year ended December 31, 2023, other than the issuance of additional long-term debt noted above*.* In addition to these Form 10-K disclosures, see

Notes 10. Other Condensed Consolidated Balance Sheets Details, 11. Long-Term Debt, 16. Income Taxes, and 18. Commitments and Contingencies of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional details relating to our short- and long-term material cash requirements and contractual obligations as of September 30, 2024.

In October 2024, our board of directors authorized a share repurchase program of up to $1.0 billion of the Company’s Class A common stock without expiration (the “Share Repurchase Program”). Repurchases may be made at management’s discretion from time to time on the open market (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act), through privately negotiated transactions, or by other methods in accordance with applicable securities laws and other restrictions. The timing and amount of any repurchases will depend on market conditions and other considerations. The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares of our Class A common stock, and the program may be modified, suspended, or discontinued at any time. We anticipate that repurchases under the Share Repurchase Program will be funded using our existing cash and cash equivalents and USDC and with future cash flows from operations.

Cash flows

The following table summarizes our Condensed Consolidated Statements of Cash Flows (in thousands):

Nine Months Ended September 30,
20242023
Net cash provided by operating activities$1,592,226$928,137
Net cash used in investing activities(232,969)(85,117)
Net cash provided by (used in) financing activities682,663(1,734,128)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents$2,041,920$(891,108)
Effect of exchange rates on cash, cash equivalents, and restricted cash and cash equivalents$19,664$(27,353)
Change in customer custodial cash$(531,760)$(1,594,685)

Operating activities

Our largest source of cash provided by operations are revenues generated from transaction fees and services. Our primary uses of cash from operating activities include payments to employees for compensation, blockchain rewards fees, payments for website hosting and infrastructure services, professional services, and outsourced customer and support costs.

Net cash provided by operating activities increased by $664.1 million for the nine months ended September 30, 2024 as compared to 2023 primarily due to:

  • an increase in cash as a result of the $2.1 billion increase in total revenue; offset in part by

  • a $758.8 million increase in cash used to purchase USDC in order to facilitate growth in Prime Financing as well as to provide liquidity towards normal business operations;

  • a $115.2 million increase in cash used for annual employee performance compensation given our strong financial performance during the prior year;

  • a $93.4 million increase in cash used to pay income taxes;

  • a $91.6 million increase in marketing program expenses due to higher digital advertising spend; and

  • an overall increase in other cash expenses as we continue to grow our business.

Investing activities

Net cash used in investing activities increased by $147.9 million for the nine months ended September 30, 2024 as compared to 2023 due to:

  • an increase of $89.2 million in cash used for the origination of fiat loans, net of repayments, reflecting growth in Prime Financing; and

  • $34.1 million in cash provided for net sales of crypto assets held for investment for the nine months ended September 30, 2024, as compared to $114.2 million in cash provided for net sales of crypto assets held for the nine months ended September 30, 2023.

Financing activities

Net cash provided by financing activities increased by $2.4 billion for the nine months ended September 30, 2024 as compared to 2023 primarily due to:

  • a $1.1 billion increase in cash due to proceeds from the issuance of our 2030 Convertible Notes, net of cash paid for associated capped calls;

  • a $798.9 million increase in customer custodial cash attributable to increased Trading Volume; and

  • a $114.5 million net increase of recognized fiat collateral pledged by institutional customers related to Prime Financing loans.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. In preparing our Condensed Consolidated Financial Statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.

There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in our Annual Report on Form 10-K which was filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2024.

Recent accounting pronouncements

See Note 2. Summary of Significant Accounting Policies of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report.

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