filings.toolsItem 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
This section presents management’s perspective on our financial condition and results of operations, including performance metrics that management uses to assess company performance. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and should be read in conjunction with our interim unaudited condensed consolidated financial statements and notes elsewhere in this Quarterly Report and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2021 Form 10-K. It is also intended to provide you with information that will assist you in understanding our consolidated financial statements, the changes in key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which might not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”
Data as of and for the three and nine months ended September 30, 2021 and 2022 has been derived from our unaudited condensed consolidated financial statements appearing at the beginning of this Quarterly Report. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period.
We refer to our “users” and our “customers” interchangeably throughout this Quarterly Report to refer to individuals who hold accounts on our platform. The definition of “customer” under Exchange Act Rule 15c3-3 means any person from whom or on whose behalf a broker or dealer has received or acquired or holds funds or securities for the account of that person. However, because we do not earn consideration from users (other than Robinhood Gold Subscribers and debit card users), users are not “customers” as defined in ASC 606, Revenue from Contracts with Customers. Accordingly, our users do not meet the definition of “customer” for purposes of the accounting rules. See “—Revenue Recognition” in Note 1 to our audited consolidated financial statements included in our 2021 Form 10-K.
Overview
Robinhood was founded on the belief that everyone should be welcome to participate in our financial system. We are creating a modern financial services platform for everyone, regardless of their wealth, income, or background.
Our mission is to democratize finance for all. We use mobile phone technology to provide access to the financial system in a way that is simple and convenient for our customers. We believe investing should be familiar and welcoming, with a simple design and an intuitive interface, so that customers are empowered to achieve their goals. We started with a revolutionary, bold brand and design, and the Robinhood app now makes investing approachable for millions. We pioneered commission-free stock trading with no account minimums, which the rest of the industry emulated, and we have continued to build relationships with our customers by introducing new products that further expand access to the financial system. Through these efforts, we believe we have made investing culturally relevant and understandable, and that our platform is enabling our customers to become long-term investors and take greater control of their finances.
Financial Results and Performance
With respect to the three months ended September 30, 2022, as compared to the three months ended September 30, 2021:
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we generated total net revenues of $361 million compared to $365 million, for a year-over-year decrease of 1%;
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we incurred a net loss of $175 million, which included $110 million of share-based compensation expense, compared to $1.32 billion, which included $1.24 billion of share-based compensation expense as a result of our IPO in July 2021, for a year-over-year improvement of $1.14 billion;
*•*our Adjusted EBITDA was positive $47 million compared to negative $84 million, for year-over-year improvement of $131 million;
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we had Net Cumulative Funded Accounts of 22.9 million compared to 22.4 million, for year-over-year growth of 2%;
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we had Monthly Active Users (MAU) of 12.2 million compared to 18.9 million, for a year-over-year decrease of 35%, as our customers navigated the volatile market environment;
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we had Assets Under Custody (AUC) of $64.6 billion compared to $95.4 billion, for a year-over-year decrease of 32%, primarily due to decreasing asset values in the current market environment;
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we had Average Revenues Per User (ARPU) of $63 compared to $65, for a year-over-year decrease of 3%. The decrease was primarily related to lower transaction-based revenue driven by the current market environment, which had a negative impact on the number of traders and notional trading volumes in all asset classes.
For definitions of “Net Cumulative Funded Accounts,” “MAU,” “AUC,” and “ARPU” please see “—Key Performance Metrics” below. Adjusted EBITDA is a non-GAAP financial measure. For more information about Adjusted EBITDA, including the definition and limitations of such measure, and a reconciliation of net income (loss) to Adjusted EBITDA, please see “—Non-GAAP Financial Measures” below.
Recent Developments
Pending Acquisition of Ziglu
On April 16, 2022, we entered into a definitive agreement to acquire all outstanding equity of Ziglu, a U.K.-based electronic money institution and crypto-asset firm that allows customers to buy and sell eligible cryptocurrencies, earn yield via its ‘Boost’ products, pay using a debit card, and move and spend money without fees. See Note 3 to our unaudited consolidated financial statements in this Quarterly Report for further information.
Restructurings
In 2020 and the first half of 2021, we went through a period of hyper growth accelerated by several factors including pandemic lockdowns, low interest rates, and fiscal stimulus. From the beginning of 2020 to the end of 2021, we grew net funded accounts from 5.1 million to 22.7 million and revenue from $278 million in 2019 to $1.8 billion in 2021. To meet customer and market demands, we grew our headcount from 700 at the end of 2019 to nearly 3,900 at the end of the first quarter of 2022. This rapid headcount growth led to some duplicate roles and job functions with more layers and complexity than were optimal. As a result, we have undertaken two restructurings, detailed below, and significantly reduced our hiring plans for 2022.
April 2022 Restructuring. On April 26, 2022, we announced a reduction in force involving approximately 330 employees, representing approximately 9% of our full-time employees at the time.
August 2022 Restructuring. On August 2, 2022 we announced an additional reduction in force involving approximately 780 employees, representing approximately 23% of our full-time employees at the time, the planned closure of two offices, and related matters. These actions were part of a Company reorganization into a GM structure under which GMs have started to assume broad responsibility for our individual businesses. As we continued to execute the August 2022 Restructuring, our lower headcount led us to evaluate our real estate portfolio. On September 30, 2022, we decided to partially or completely close five additional offices as part of the August 2022 Restructuring, four of which were not occupied.
See Note 5 and Note 11 to our unaudited consolidated financial statements in this Quarterly Report for further information relating to these restructurings.
COVID-19 Update
In the fourth quarter of 2021, we elected to become a “Remote First” company and we fully implemented this program in April 2022. Under this approach, a large segment of our employees has no assigned location or regular in-office requirement, some teams need to live within a commutable distance to an office location for regulatory and business reasons, and a small segment of our workforce still needs to come into the office. All employees currently have access to our offices throughout the country. Starting in July 2022, we no longer require proof of vaccination or a negative test for entry into our offices. We continue to monitor developments related to the pandemic, such as the severity and transmission rate of the virus and its variants, and we may adjust our workplace strategy as necessary.
Key Performance Metrics
In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following key performance metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions:
| Three Months Ended September 30, | ||||||||||||||
| 2021 | 2022 | |||||||||||||
| Net Cumulative Funded Accounts(1) (in millions) | 22.4 | 22.9 | ||||||||||||
| Monthly Active Users (MAU)(2) (in millions) | 18.9 | 12.2 | ||||||||||||
| Assets Under Custody (AUC)(3) (in billions) | $ | 95.4 | $ | 64.6 | ||||||||||
| Average Revenues Per User (ARPU)(4) | $ | 65 | $ | 63 |
(1)A Robinhood account is designed to provide a user with access to any and all of the products offered on our platform. We define “Net Cumulative Funded Accounts” as New Funded Accounts less Churned Accounts plus Resurrected Accounts (each as defined below). A “New Funded Account” is a Robinhood account into which the account user makes an initial deposit or money or asset transfer, of any amount, during the relevant period. An account is considered “Churned” if it was ever a New Funded Account and its balance (measured as the fair value of assets in the account less any amount due from the user and excluding certain Company-initiated credits) drops to or below zero for at least 45 consecutive calendar days. Negative balances typically result from Fraudulent Deposit Transactions (as defined in Note 6 to our unaudited condensed consolidated financial statements in this Quarterly Report for further information) and, less often, from margin loans. An account is considered “Resurrected” in a stated period if it was a Churned Account as of the end of the immediately preceding period and its balance (excluding certain Company-initiated credits) rises above zero. Examples of credits excluded for purposes of identifying Churned Accounts and Resurrected Accounts are price correction credits, related interest adjustments, and fee adjustments.
| Three Months Ended September 30, | ||||||||||||||
| (in millions) | 2021 | 2022 | ||||||||||||
| Beginning Net Cumulative Funded Accounts | 22.5 | 22.9 | ||||||||||||
| New funded accounts | 0.7 | 0.3 | ||||||||||||
| Resurrected accounts | 0.1 | 0.1 | ||||||||||||
| Churned accounts | (0.9) | (0.4) | ||||||||||||
| Ending Net Cumulative Funded Accounts | 22.4 | 22.9 |
(2)We define MAU as the number of Monthly Active Users during a specified calendar month. A “Monthly Active User” is a unique user who makes a debit card transaction, or who transitions between two different screens on a mobile device or loads a page in a web browser while logged into their account, at any point during the relevant month. A user need not satisfy these conditions on a recurring monthly basis or have a Funded Account to be included in MAU. Figures in the table reflect MAU for the last month of each period presented. We utilize MAU to measure how many customers interact with our products and services during a given month. MAU does not measure the frequency or duration of the interaction, but we consider it a useful indicator for engagement. Additionally, MAUs are positively correlated with, but are not indicative of, the performance of revenue and other key performance indicators.
(3)We define AUC as the sum of the fair value of all equities, options, cryptocurrency and cash held by users in their accounts, net of receivables from users, as of a stated date or period end on a trade date basis. The following table sets out the components of AUC by type of asset:
| Three Months Ended September 30, | ||||||||||||||
| (in billions) | 2021 | 2022 | ||||||||||||
| Equities | $ | 69.2 | $ | 50.7 | ||||||||||
| Options | 1.4 | 0.4 | ||||||||||||
| Cryptocurrencies | 22.2 | 9.4 | ||||||||||||
| Cash held by users | 8.8 | 8.1 | ||||||||||||
| Receivables from users | (6.2) | (4.0) | ||||||||||||
| Assets Under Custody (AUC) | $ | 95.4 | $ | 64.6 |
Net Deposits and net market gains drive the change in AUC in any given period. We define “Net Deposits” as all cash deposits and asset transfers received from customers, net of reversals, customer cash withdrawals, and other assets transferred out of our platform (assets transferred in or out include debit card transactions, ACATS transfers, and custodial crypto wallet transfers) for a stated period. The following table describes the changes within Assets Under Custody:
| Three Months Ended September 30, | ||||||||||||||
| (in billions) | 2021 | 2022 | ||||||||||||
| Beginning AUC | $ | 102.0 | $ | 64.2 | ||||||||||
| Net Deposits | 2.2 | 2.7 | ||||||||||||
| Net market losses | (8.8) | (2.3) | ||||||||||||
| Ending AUC | $ | 95.4 | $ | 64.6 |
(4)We define ARPU as total revenue for a given period divided by the average of Net Cumulative Funded Accounts on the last day of that period and the last day of the immediately preceding period. Figures presented above represent annualized ARPU for each three-month period presented.
Non-GAAP Financial Measures
Adjusted EBITDA
We collect and analyze operating and financial data to evaluate the health of our business, allocate our resources and assess our performance. In addition to total net revenues, net income (loss), and other results under GAAP, we utilize non-GAAP calculations of adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”). Adjusted EBITDA is defined as net income (loss), excluding (i) interest expenses related to credit facilities, (ii) provision for (benefit from) income taxes, (iii) depreciation and amortization, (iv) share-based compensation, (v) change in fair value of convertible notes and warrant liability, (vi) significant legal and tax settlements and reserves, and (vii) other significant gains, losses, and expenses (such as impairments, restructuring charges, and business acquisition- or disposition-related expenses) that we believe are not indicative of our ongoing results. This non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for or superior to financial information presented in accordance with GAAP, and may be different from similarly titled non-GAAP measures used by other companies.
The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, or because the amount and timing of these items are unpredictable, are not driven by core results of operations, and render comparisons with prior periods and competitors less meaningful. We believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, as well as providing a useful measure for period-to-period comparisons of our business performance. Moreover, Adjusted EBITDA is a key measurement used by our management internally to make operating decisions, including those related to operating expenses, evaluate performance, and perform strategic planning and annual budgeting.
The following table presents a reconciliation of net income (loss), which is the most directly comparable GAAP measure, to Adjusted EBITDA:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Net loss | $ | (1,317) | $ | (175) | $ | (3,264) | $ | (862) | ||||||||||||||||||
| Add: | ||||||||||||||||||||||||||
| Interest expenses related to credit facilities | 6 | 6 | 14 | 18 | ||||||||||||||||||||||
| Provision for (benefit from) income taxes | (50) | 1 | (1) | 3 | ||||||||||||||||||||||
| Depreciation and amortization | 8 | 15 | 17 | 44 | ||||||||||||||||||||||
| EBITDA (non-GAAP) | (1,353) | (153) | (3,234) | (797) | ||||||||||||||||||||||
| Share-based compensation(1) | 1,244 | 110 | 1,254 | 494 | ||||||||||||||||||||||
| Change in fair value of convertible notes and warrant liability | 25 | — | 2,045 | — | ||||||||||||||||||||||
| Restructuring charges(2) | — | 90 | — | 107 | ||||||||||||||||||||||
| Significant legal and tax settlements and reserves | — | — | 55 | 20 | ||||||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | (84) | $ | 47 | $ | 120 | $ | (176) |
(1) In 2022, share-based compensation benefited from restructuring-related net reversals of previously recognized expense as follows (see Note 5 to our unaudited condensed consolidated financial statements in this Quarterly Report for further information):
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$53 million for the three months ended September 30, 2022 in connection with the August 2022 Restructuring;
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$77 million for the nine months ended September 30, 2022 in connection both with the April 2022 Restructuring and August 2022 Restructuring.
(2) In 2022, restructuring charges includes (see Note 5 to our unaudited condensed consolidated financial statements in this Quarterly Report for further information):
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$90 million for the three months ended September 30, 2022, related to the August 2022 Restructuring, consisting of $47 million of impairments and $9 million of accelerated depreciation, in each case relating to office closures, and $34 million of cash charges for employee-related wages, benefits and severance; and
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$107 million for the nine months ended September 30, 2022 related to both the April 2022 Restructuring and August 2022 Restructuring and consisting of $47 million of impairments and $9 million of accelerated depreciation, in each case relating to office closures, and $51 million of cash charges for employee-related wages, benefits and severance.
Results of Operations
The following table summarizes our unaudited condensed consolidated statements of operations data:
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Transaction-based revenues | $ | 267 | $ | 208 | $ | 1,138 | $ | 628 | ||||||||||||||||||
| Net interest revenues | 63 | 128 | 193 | 257 | ||||||||||||||||||||||
| Other revenues | 35 | 25 | 121 | 93 | ||||||||||||||||||||||
| Total net revenues | 365 | 361 | 1,452 | 978 | ||||||||||||||||||||||
| Operating expenses:(1) | ||||||||||||||||||||||||||
| Brokerage and transaction | 44 | 33 | 123 | 94 | ||||||||||||||||||||||
| Technology and development | 679 | 185 | 952 | 695 | ||||||||||||||||||||||
| Operations | 108 | 64 | 276 | 241 | ||||||||||||||||||||||
| Marketing | 87 | 19 | 283 | 77 | ||||||||||||||||||||||
| General and administrative | 790 | 234 | 1,039 | 728 | ||||||||||||||||||||||
| Total operating expenses | 1,708 | 535 | 2,673 | 1,835 | ||||||||||||||||||||||
| Change in fair value of convertible notes and warrant liability | 25 | — | 2,045 | — | ||||||||||||||||||||||
| Other expense (income), net | (1) | — | (1) | 2 | ||||||||||||||||||||||
| Loss before income taxes | (1,367) | (174) | (3,265) | (859) | ||||||||||||||||||||||
| Provision for (benefit from) income taxes | (50) | 1 | (1) | 3 | ||||||||||||||||||||||
| Net loss | $ | (1,317) | $ | (175) | $ | (3,264) | $ | (862) |
(1)Includes share-based compensation expense as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Brokerage and transaction | $ | 6 | $ | 2 | $ | 6 | $ | 4 | ||||||||||||||||||
| Technology and development | 503 | 25 | 505 | 166 | ||||||||||||||||||||||
| Operations | 16 | — | 16 | 5 | ||||||||||||||||||||||
| Marketing | 41 | — | 41 | 3 | ||||||||||||||||||||||
| General and administrative | 678 | 83 | 686 | 316 | ||||||||||||||||||||||
| Total share-based compensation expense | $ | 1,244 | $ | 110 | $ | 1,254 | $ | 494 |
Comparison of the Three and Nine Months Ended September 30, 2021 and 2022
Revenues
Transaction-Based Revenues
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions, except for percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Transaction-based revenues | |||||||||||||||||||||||||||||||||||
| Options | $ | 164 | $ | 124 | (24) | % | $ | 527 | $ | 364 | (31) | % | |||||||||||||||||||||||
| Cryptocurrencies | 51 | 51 | — | % | 372 | 163 | (56) | % | |||||||||||||||||||||||||||
| Equities | 50 | 31 | (38) | % | 235 | 96 | (59) | % | |||||||||||||||||||||||||||
| Other | 2 | 2 | — | % | 4 | 5 | 25 | % | |||||||||||||||||||||||||||
| Total transaction-based revenues | $ | 267 | $ | 208 | (22) | % | $ | 1,138 | $ | 628 | (45) | % | |||||||||||||||||||||||
| Transaction-based revenues as a % of total net revenues: | |||||||||||||||||||||||||||||||||||
| Options | 45% | 34% | 36% | 37% | |||||||||||||||||||||||||||||||
| Cryptocurrencies | 14% | 14% | 26% | 17% | |||||||||||||||||||||||||||||||
| Equities | 14% | 8% | 16% | 10% | |||||||||||||||||||||||||||||||
| Other | 1% | 1% | —% | 1% | |||||||||||||||||||||||||||||||
| Total transaction-based revenues | 74% | 57% | 78% | 65% |
Transaction-based revenues decreased by $59 million and $510 million for the three and nine months ended September 30, 2022, compared to the same periods in the prior year. The decreases were primarily driven by the market environment which had a negative impact on the number of traders and notional trading volumes in all asset classes. We define "notional trading volume" for any specified asset class as the aggregate dollar value (purchase price or sale price as applicable) of trades executed in that asset class over a specified period of time. We define “daily average revenue trades” for any asset class as the total number of revenue generating trades for such asset class executed during a given period divided by the number of trading days for such asset class in that period.
While cryptocurrencies revenue benefited from a higher rebate rate from crypto market makers (initial increase was effective in late December 2021 and a further increase was effective in May 2022), this benefit was offset by lower trading volumes. Our daily average revenue trades for cryptocurrencies decreased for the three and nine months ended September 30, 2022, from 0.5 million to 0.3 million and from 1.5 million to 0.3 million, compared to the same periods in the prior year. Additionally, the number of users placing cryptocurrency trades decreased 58% and 64% while the average notional volume traded per trader was down 35% and 42%.
Our daily average revenue trades for options decreased for the three and nine months ended September 30, 2022, from 0.7 million to 0.5 million and from 0.9 million to 0.6 million, compared to the same periods in the prior year. Additionally, the number of users placing option trades decreased 36% and 42% while the average number of contracts traded per trader went up 32% and 31%.
Our daily average revenue trades for equities decreased for the three and nine months ended September 30, 2022, from 2.2 million to 1.5 million and from 3.4 million to 1.6 million, compared to the same periods in the prior year. Additionally, the number of users placing equity trades decreased 34% and 48% while the average notional volume traded per trader increased 9% and decreased 2%.
Net Interest Revenues
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions, except for percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Net interest revenues: | |||||||||||||||||||||||||||||||||||
| Margin interest | $ | 34 | $ | 48 | 41% | $ | 93 | $ | 122 | 31% | |||||||||||||||||||||||||
| Securities lending, net | 33 | 29 | (12)% | 107 | 76 | (29)% | |||||||||||||||||||||||||||||
| Interest on investments and corporate cash | — | 29 | NM | 1 | 40 | NM | |||||||||||||||||||||||||||||
| Interest on segregated cash and cash equivalents and deposits | 1 | 20 | NM | 3 | 27 | 800% | |||||||||||||||||||||||||||||
| Cash sweep | 1 | 8 | NM | 3 | 10 | 233% | |||||||||||||||||||||||||||||
| Interest expenses related to credit facilities | (6) | (6) | —% | (14) | (18) | 29% | |||||||||||||||||||||||||||||
| Total net interest revenues | $ | 63 | $ | 128 | 103% | $ | 193 | $ | 257 | 33% | |||||||||||||||||||||||||
| Net interest revenues as a % of total net revenues: | |||||||||||||||||||||||||||||||||||
| Margin interest | 10 | % | 13 | % | 6 | % | 12 | % | |||||||||||||||||||||||||||
| Securities lending, net | 9 | % | 8 | % | 7 | % | 8 | % | |||||||||||||||||||||||||||
| Interest on investments and corporate cash | — | % | 8 | % | — | % | 4 | % | |||||||||||||||||||||||||||
| Interest on segregated cash and cash equivalents and deposits | — | % | 6 | % | 1 | % | 3 | % | |||||||||||||||||||||||||||
| Cash sweep | — | % | 2 | % | — | % | 1 | % | |||||||||||||||||||||||||||
| Interest expenses related to credit facilities | (2) | % | (2) | % | (1) | % | (2) | % | |||||||||||||||||||||||||||
| Total net interest revenues | 17 | % | 35 | % | 13 | % | 26 | % |
The following table summarizes interest-earnings assets, the revenue or expense generated by these assets, and their respective annualized yields (computed based on average balance over the quarter):
| (in millions, except for annualized yield) | Margin Book(1) | Cash and deposits(2) | Cash Sweep (off-balance sheet)(3) | Total interest-earning assets | Securities lending, net | Interest expenses related to credit facilities | Net interest revenue | |||||||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||
| September 30, 2022 | $ | 4,085 | $ | 9,374 | $ | 2,969 | $ | 16,428 | ||||||||||||||||||
| June 30, 2022 | 4,142 | 9,717 | 2,408 | 16,267 | ||||||||||||||||||||||
| Average(4) | 4,114 | 9,546 | 2,689 | 16,348 | ||||||||||||||||||||||
| Revenue/expense | 48 | 49 | 8 | 105 | $ | 29 | $ | (6) | $ | 128 | ||||||||||||||||
| Annualized yield(5) | 4.67% | 2.05% | 1.19% | 2.57% | 3.13 | % | ||||||||||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||
| June 30, 2022 | $ | 4,142 | $ | 9,717 | $ | 2,408 | $ | 16,267 | ||||||||||||||||||
| March 31, 2022 | 5,292 | 10,983 | 2,275 | 18,550 | ||||||||||||||||||||||
| Average(4) | 4,717 | 10,350 | 2,342 | 17,409 | ||||||||||||||||||||||
| Revenue/expense | 39 | 16 | 2 | 57 | $ | 23 | $ | (6) | $ | 74 | ||||||||||||||||
| Annualized yield(5) | 3.31% | 0.62% | 0.34% | 1.31% | 1.70 | % | ||||||||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||
| September 30, 2021 | $ | 6,063 | $ | 10,950 | $ | 2,103 | $ | 19,116 | ||||||||||||||||||
| June 30, 2021 | 5,422 | 10,724 | 2,328 | 18,474 | ||||||||||||||||||||||
| Average(4) | 5,743 | 10,837 | 2,216 | 18,795 | ||||||||||||||||||||||
| Revenue/expense | 34 | 1 | 1 | 36 | $ | 33 | $ | (6) | $ | 63 | ||||||||||||||||
| Annualized yield(5) | 2.37 | % | 0.04 | % | 0.18 | % | 0.77 | % | 1.34 | % | ||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||
| September 30, 2022 | $ | 4,085 | $ | 9,374 | $ | 2,969 | $ | 16,428 | ||||||||||||||||||
| December 31, 2021 | 6,467 | 10,600 | 2,095 | 19,162 | ||||||||||||||||||||||
| Average(4) | 5,276 | 9,987 | 2,532 | 17,795 | ||||||||||||||||||||||
| Revenue/expense | 122 | 67 | 10 | 199 | $ | 76 | $ | (18) | $ | 257 | ||||||||||||||||
| Annualized yield(5) | 3.08 | % | 0.89 | % | 0.53 | % | 1.49 | % | 1.93 | % | ||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||
| September 30, 2021 | $ | 6,063 | $ | 10,950 | $ | 2,103 | $ | 19,116 | ||||||||||||||||||
| December 31, 2020 | 3,351 | 6,544 | 1,827 | 11,722 | ||||||||||||||||||||||
| Average(4) | 4,707 | 8,747 | 1,965 | 15,419 | ||||||||||||||||||||||
| Revenue/expense | 93 | 4 | 3 | 100 | $ | 107 | $ | (14) | $ | 193 | ||||||||||||||||
| Annualized yield(5) | 2.63 | % | 0.06 | % | 0.20 | % | 0.86 | % | 1.67 | % |
(1) “Margin Book” is the aggregate outstanding margin loan balances receivable.
(2) Includes cash and cash equivalents, cash and cash equivalents segregated under federal and other regulations, deposits with clearing organizations and investments.
(3) “Cash Sweep” means the total amount of participating users’ uninvested brokerage cash that has been automatically “swept” or moved from their brokerage accounts into deposits for their benefit at a network of program banks. This is an off-balance-sheet amount. Robinhood earns a net interest spread on Cash Sweep balances based on the interest rate offered by the banks less the interest rate given to users as stated in our program terms.
(4) Average balance rows present a simple average of the ending balances as of each of the indicated dates for the relevant period.
(5) Annualized yield is calculated by annualizing the revenue/expense for the given period then dividing by the applicable average asset balance.
Net interest revenues increased by $65 million and increased by $64 million for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, primarily driven by higher interest revenues earned from investments and corporate cash, margin borrowings and segregated cash and securities, partially offset by lower interest revenues earned through securities lending activities.
Increased net interest revenues were driven by the higher interest rate environment due to the rise in the federal funds rate, which is an input to our floating margin rate calculation and impacts the interest rate we receive on investable assets. Net interest revenues earned from investments and corporate cash increased by $29 million and $39 million for the three and nine months ended September 30, 2022, compared to the same periods in the prior year. Interest revenues earned from margin lending increased by $14 million and $29 million for the three and nine months ended September 30, 2022. The first $1,000 in margin borrowed by each Gold user is not charged interest. During the quarter ended September 30, 2022 we made margin borrowing available to qualifying non-Gold users as well. Net interest revenues earned from segregated cash and cash equivalents and deposits also increased by $19 million and $24 million for the three and nine months ended September 30, 2022. These increases were partially offset by the $4 million and $31 million decrease in net interest revenues earned from securities lending transactions for the three and nine months ended September 30, 2022 due to lower demand in hard-to-borrow securities.
Other Revenues
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions, except for percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Other revenues | $ | 35 | $ | 25 | (29) | % | $ | 121 | $ | 93 | (23) | % | |||||||||||||||||||||||
| Other revenues as a % of total net revenues | 10% | 7% | 8% | 10% |
Other revenues decreased by $10 million and $28 million, for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, substantially all driven by the decreases relating to fees charged to users for facilitating the transfer of their account to another broker-dealer and subscription revenues as a result of a decrease in paid subscribers to Robinhood Gold from 1.4 million to 1.1 million.
Operating Expenses
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions, except for percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Brokerage and transaction | $ | 44 | $ | 33 | (25) | % | $ | 123 | $ | 94 | (24) | % | |||||||||||||||||||||||
| Technology and development | 679 | 185 | (73) | % | 952 | 695 | (27) | % | |||||||||||||||||||||||||||
| Operations | 108 | 64 | (41) | % | 276 | 241 | (13) | % | |||||||||||||||||||||||||||
| Marketing | 87 | 19 | (78) | % | 283 | 77 | (73) | % | |||||||||||||||||||||||||||
| General and administrative | 790 | 234 | (70) | % | 1,039 | 728 | (30) | % | |||||||||||||||||||||||||||
| Total operating expenses | $ | 1,708 | $ | 535 | $ | 2,673 | $ | 1,835 | (31) | % | |||||||||||||||||||||||||
| Percent of net revenues: | |||||||||||||||||||||||||||||||||||
| Brokerage and transaction | 12 | % | 9 | % | 8 | % | 10 | % | |||||||||||||||||||||||||||
| Technology and development | 186 | % | 51 | % | 66 | % | 71 | % | |||||||||||||||||||||||||||
| Operations | 30 | % | 18 | % | 19 | % | 25 | % | |||||||||||||||||||||||||||
| Marketing | 24 | % | 5 | % | 19 | % | 8 | % | |||||||||||||||||||||||||||
| General and administrative | 216 | % | 65 | % | 72 | % | 74 | % | |||||||||||||||||||||||||||
| Total operating expenses | 468 | % | 148 | % | 184 | % | 188 | % |
Brokerage and Transaction
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Broker-dealer transaction expenses | $ | 12 | $ | 8 | (33)% | $ | 41 | $ | 22 | (46)% | |||||||||||||||||||||||||
| Market data expenses | 10 | 7 | (30)% | 25 | 21 | (16)% | |||||||||||||||||||||||||||||
| Employee compensation, benefits, and overhead, excluding share-based compensation | 4 | 6 | 50% | 11 | 16 | 45% | |||||||||||||||||||||||||||||
| Cash management transaction expenses | 3 | 3 | —% | 8 | 7 | (13)% | |||||||||||||||||||||||||||||
| Share-based compensation | 6 | 2 | (67)% | 6 | 4 | (33)% | |||||||||||||||||||||||||||||
| Other | 9 | 7 | (22)% | 32 | 24 | (25)% | |||||||||||||||||||||||||||||
| Total | $ | 44 | $ | 33 | (25)% | $ | 123 | $ | 94 | (24)% |
Brokerage and transaction costs decreased by $11 million and $29 million, for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, primarily due to decreases in broker-dealer transaction expenses of $4 million and $19 million, driven by lower trading volume and a reduction of certain of these expenses effective in June 2021. In addition, for the nine months ended September 30, 2022, bank charges included in other brokerage and transaction costs decreased by $9 million as a result of more favorable pricing from our banking counterparties.
Technology and Development
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Employee compensation, benefits, and overhead, excluding share-based compensation | $ | 77 | $ | 91 | 18 | % | $ | 198 | $ | 298 | 51 | % | |||||||||||||||||||||||
| Share-based compensation | 503 | 25 | (95) | % | 505 | 166 | (67) | % | |||||||||||||||||||||||||||
| Cloud infrastructure services | 78 | $ | 36 | (54) | % | 203 | 140 | (31) | % | ||||||||||||||||||||||||||
| Software and tools | 17 | 28 | 65 | % | 40 | 76 | 90 | % | |||||||||||||||||||||||||||
| Other | 4 | 5 | 25 | % | 6 | 15 | 150 | % | |||||||||||||||||||||||||||
| Total | $ | 679 | $ | 185 | (73) | % | $ | 952 | $ | 695 | (27) | % |
Technology and development costs decreased by $494 million and $257 million for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, primarily due to decreases in share-based compensation expense of $478 million and $339 million as higher share-based compensation expenses were recognized as a result of our IPO in July 2021. The April 2022 Restructuring and August 2022 Restructuring resulted in net reductions of $16 million and $22 million in share-based compensation expense in the three months ended June 30, 2022 and September 30, 2022, respectively. Additionally, we experienced decreases in cloud infrastructure services of $42 million and $63 million primarily due to cost optimization efforts focusing on improvements in utilization of cloud infrastructure.
These decreases were offset by increases of employee compensation, benefits, and overhead of $14 million and $100 million as our engineering and data science average headcount increased, compared to the same periods in the prior year, to continue to support our platform and develop new products. These expenses also included $6 million and $12 million in other employee compensation expense for restructuring related separation expenses, recognized in the three months ended June 30, 2022 and September 30, 2022, respectively. Finally, we incurred an increase of $11 million and $36 million in costs for other software services utilized in delivering our products.
Operations
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Employee compensation, benefits, and overhead, excluding share-based compensation | $ | 32 | $ | 38 | 19% | $ | 84 | $ | 123 | 46% | |||||||||||||||||||||||||
| Customer experience | 28 | 13 | (54)% | 69 | 70 | 1% | |||||||||||||||||||||||||||||
| Provision for credit losses and fraud | 30 | 9 | (70)% | 88 | 32 | (64)% | |||||||||||||||||||||||||||||
| Share-based compensation | 16 | — | (100)% | 16 | 5 | (69)% | |||||||||||||||||||||||||||||
| Other | 2 | 4 | 100% | 19 | 11 | (42)% | |||||||||||||||||||||||||||||
| Total | $ | 108 | $ | 64 | (41)% | $ | 276 | $ | 241 | (13)% |
Operations costs decreased by $44 million and $35 million for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, primarily due to decreases in our provision for credit losses and fraud losses of $21 million and $56 million as a result of decreased user transactions and our strengthened process to identify high risk users and prevent Fraudulent Deposit
Transactions. Additionally, we experienced a decrease in costs related to third-party customer support vendors of $15 million for the three months ended September 30, 2022 as we consolidated our third-party customer support centers due to the overall decrease in user transactions.
Furthermore, we experienced an $8 million decrease for the nine months ended September 30, 2022 in other operations expense primarily related to costs associated with account verification as the growth of our user base in recent periods have slowed compared to the accelerated growth we experienced in the first nine months of 2021. For example, our new funded accounts decreased by 57% from 0.7 million for the quarter ended September 30, 2021 to 0.3 million for the quarter ended September 30, 2022. Finally, we experienced a decrease in share-based compensation expense of $16 million and $11 million for the three and nine months ended September 30, 2022 as higher share-based compensation expenses were recognized as a result of our IPO in July 2021.
These decreases were offset by increases in employee compensation, benefits, and overhead of $6 million, primarily due to severance expenses related to August 2022 restructuring and $39 million as our dedicated customer support professionals average headcount increased to continue to strengthen our customer support. These expenses included $3 million and $9 million in other employee compensation expense for restructuring related separation expenses, recognized in the three months ended June 30, 2022 and September 30, 2022, respectively.
Marketing
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Employee compensation, benefits, and overhead, excluding share-based compensation | $ | 11 | $ | 6 | (45) | % | $ | 27 | $ | 25 | (7) | % | |||||||||||||||||||||||
| Digital marketing | 8 | 4 | (50) | % | 41 | 15 | (63) | % | |||||||||||||||||||||||||||
| Creative services | 8 | 4 | (50) | % | 18 | 11 | (39) | % | |||||||||||||||||||||||||||
| Marketing incentives | 7 | 2 | (71) | % | 114 | 9 | (92) | % | |||||||||||||||||||||||||||
| Share-based compensation | 41 | — | (100) | % | 41 | 3 | (93) | % | |||||||||||||||||||||||||||
| Brand marketing | 6 | 1 | (83) | % | 24 | 3 | (88) | % | |||||||||||||||||||||||||||
| Other | 6 | 2 | (67) | % | 18 | 11 | (39) | % | |||||||||||||||||||||||||||
| Total | $ | 87 | $ | 19 | (78) | % | $ | 283 | $ | 77 | (73) | % |
Marketing costs decreased by $68 million and $206 million for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, primarily due to decreases in marketing incentives of $5 million and $105 million, substantially all of which was due to lower costs associated with the Robinhood Referral Program, included in marketing incentives, which was in line with the slow growth in our user base in recent periods.
The expense recognized related to the Robinhood Referral Program is comprised of the fair value of awards earned in the current period, changes in estimate of unclaimed awards earned in the current and prior periods, fair value adjustments of shares held to support the program, and reversals related to awards that expire unclaimed. The fair value adjustments of shares held to support the program were
immaterial for the periods presented. The following table summarizes the Robinhood Referral Program liability activity for the periods indicated:
| September 30, | |||||||||||
| (in millions) | 2021 | 2022 | |||||||||
| Beginning balance, January 1 | $ | 1 | $ | — | |||||||
| Fair value of current period awards | 120 | 12 | |||||||||
| Changes in estimate of unclaimed awards for current and prior periods | — | — | |||||||||
| Reversals related to unclaimed, expired awards | (9) | (4) | |||||||||
| Claimed awards | (111) | (8) | |||||||||
| Ending balance, September 30 | $ | 1 | $ | — |
Additionally, digital marketing decreased by $4 million and $26 million, and brand marketing decreased by $5 million and $21 million for the three and nine months ended September 30, 2022, respectively. During the nine months of 2021, we invested significantly in marketing costs to raise brand awareness, which was reduced as our brand became more well established.
General and Administrative
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Share-based compensation | $ | 678 | $ | 83 | (88) | % | $ | 686 | $ | 316 | (54) | % | |||||||||||||||||||||||
| Employee compensation, benefits, and overhead, excluding share-based compensation | 58 | 62 | 7 | % | 136 | 190 | 40 | % | |||||||||||||||||||||||||||
| Legal expenses | 20 | 17 | (15) | % | 73 | 61 | (16) | % | |||||||||||||||||||||||||||
| Other professional fees | 16 | 10 | (38) | % | 41 | 43 | 5 | % | |||||||||||||||||||||||||||
| Business insurance | 9 | 10 | 11 | % | 14 | 31 | 121 | % | |||||||||||||||||||||||||||
| Settlements and penalties | — | 1 | NM | 63 | 24 | (62) | % | ||||||||||||||||||||||||||||
| Impairment | — | 47 | NM | — | 47 | NM | |||||||||||||||||||||||||||||
| Other | 9 | 4 | (56) | % | 26 | 16 | (38) | % | |||||||||||||||||||||||||||
| Total | $ | 790 | $ | 234 | (70) | % | $ | 1,039 | $ | 728 | (30) | % |
General and administrative costs decreased by $556 million and $311 million for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, primarily due to decreases in share-based compensation of $595 million and $370 million as higher share-based compensation expenses were recognized as a result of our IPO in July 2021, including $79 million related to executive compensation arrangements (see Note 11 to our unaudited condensed consolidated financial statements in this Quarterly Report for further information). The April 2022 Restructuring and August 2022 Restructuring resulted in net reductions of $6 million and $28 million in share-based compensation expense in the three months ended June 30, 2022 and September 30, 2022, respectively. We also experienced a decrease of $39 million in costs associated with legal settlements for the nine months ended September 30, 2022. Refer to Note 15 of our unaudited condensed consolidated financial statements in this Quarterly Report for further information.
These decreases were partially offset by impairments of $47 million related to the August 2022 Restructuring. For the nine months ended September 30, 2022, employee compensation, benefits, and overhead also increased by $54 million, as our general and administrative personnel average headcount increase to continue to support our business. This expense included $7 million and $8 million of restructuring related separation expense recognized in the three months ended June 30, 2022 and
September 30, 2022, respectively. Finally, business insurance increased by $17 million for the nine months ended September 30, 2022, which was primarily attributable to additional costs of being a public company.
Change in Fair Value of Convertible Notes and Warrant Liability
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Change in fair value of convertible notes and warrant liability | $ | 25 | $ | — | NM | $ | 2,045 | $ | — | NM |
Change in fair value of convertible notes and warrant liability was due to the mark-to-market adjustment of the convertible notes and warrants we issued in February 2021. Upon completion of our IPO, the aggregate outstanding principal and accrued interest of the convertible notes converted into Class A common stock and the warrants became equity-classified, which resulted in the warrant liability being reclassified to additional paid-in capital. There will be no additional mark-to-market adjustments related to the convertible notes or warrant liability. See Note 7 to our unaudited condensed consolidated financial statements in this Quarterly Report for further information.
Provision for (Benefit from) Income Taxes
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | |||||||||||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | (50) | 1 | (102) | % | $ | (1) | $ | 3 | (400) | % |
Provision for income taxes increased by $51 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to the recognition of tax benefits from share-based compensation upon IPO recorded in the third quarter of 2021, and from the change in valuation allowance on our remaining U.S. federal and state deferred tax assets and by our current state taxes payable.
Provision for income taxes increased by $4 million, for the nine months ended September 30, 2022, compared to the same periods in the prior year, primarily due to the income tax benefit recognized from the partial release of our valuation allowance resulting from the recognition of net deferred tax liabilities in connection with the Say Technologies acquisition in the third quarter of 2021, and from the change in valuation allowance on our remaining U.S. federal and state deferred tax assets and by our current state taxes payable.
Liquidity and Capital Resources
Source and Uses of Funds
We expect to use our available cash, cash equivalents, and investments, including potential future borrowings under our revolving lines of credit and potential issuance of new debt or equity, to support and invest in our core business, including investing in new ways to serve our customers, potentially seeking strategic acquisitions to leverage existing capabilities and further build our business, and for general capital needs (including capital requirements imposed by regulators and SROs and cash deposit and collateral requirements under the rules of the Depository Trust Company (“DTC”), NSCC, and the Options Clearing Corporation (“OCC”)). Based on our current level of operations, we believe our available cash,
available lines of credit, and cash provided by operations will be adequate to meet our liquidity needs for the next 12 months.
Cash, Cash Equivalents, and Investments
Our cash, cash equivalents, and investments were $6.3 billion and $6.2 billion as of December 31, 2021 and September 30, 2022. Our investment portfolio comprises highly liquid available-for-sale securities, including asset-backed securities, commercial paper, corporate bonds, and government bonds.
Revolving Lines of Credit
As of September 30, 2022, we had a total of $2.91 billion in committed revolving lines of credit. See Note 10 to our unaudited condensed consolidated financial statements in this Quarterly Report for further information.
Lease and Purchase Commitments
The following table summarizes our short- and long-term material cash requirements as of September 30, 2022:
| Payments Due by Period | |||||||||||||||||||||||||||||
| (in millions) | Total | Remainder of 2022 | 2023-2024 | 2025-2026 | Thereafter | ||||||||||||||||||||||||
| Operating lease commitments | $ | 209 | $ | 8 | $ | 64 | $ | 52 | $ | 85 | |||||||||||||||||||
| Non-cancelable purchase commitments(1) | 1,101 | 120 | 524 | 456 | 1 | ||||||||||||||||||||||||
| Total | $ | 1,310 | $ | 128 | $ | 588 | $ | 508 | $ | 86 |
(1)Non-cancelable purchase commitments are determined based on the non-cancelable quantities or termination amounts to which we are contractually obligated. They are primarily commitments for cloud infrastructure and data services, business insurance and tenant improvements.
In addition to lease and purchase commitments, we have two committed financing agreements: one with a contractual term of 30 days and a daily minimum commitment of $25 million and another with a contractual term of 21 days with a daily minimum commitment of $35 million. See "Securities Borrowing and Lending" in Note 1 to our unaudited condensed consolidated financial statements in this Quarterly Report for further information.
Cash Flows
The following table summarizes our cash flow activities:
| Nine Months Ended September 30, | ||||||||||||||
| (in millions) | 2021 | 2022 | ||||||||||||
| Cash provided by (used in): | ||||||||||||||
| Operating activities | $ | (610) | $ | (1,033) | ||||||||||
| Investing activities | (180) | (71) | ||||||||||||
| Financing activities | 5,210 | — |
Cash used in operating activities consisted of net loss adjusted for certain non-cash items including change in fair value of convertible notes and warrant liability, share-based compensation expense, impairment of long-lived assets, depreciation and amortization, and provision for credit losses, as well as the effect of changes in operating assets and liabilities. Net operating assets and liabilities at any specific point in time are subject to many variables, including variability in user activity, the timing of cash receipts and payments, and vendor payment terms.
For the nine months ended September 30, 2022, cash used in operating activities was $1,033 million, primarily due to a net loss of $862 million, adjusted for the add back of non-cash expenses of $621 million, consisting primarily of share-based compensation expense of $494 million, impairment of long-lived assets of $47 million, depreciation and amortization of $44 million, and provision for credit losses of $28 million. Additionally, there was a cash outflow due to changes in operating assets and liabilities of $792 million, primarily due to a decrease of $2.2 billion in securities loaned and a decrease in payables to users of $1.1 billion driven by a decrease in customer cash held on balance sheet, offset by a decrease in receivables from users, net, of $2.6 billion, driven by a decrease in margin borrowing from users.
For the nine months ended September 30, 2021, cash used in operating activities was $610 million, primarily due to a net loss of $3.3 billion, adjusted for the add back of non-cash expenses of $3.4 billion consisting primarily of changes in fair value of convertible notes and warrant liability of $2.0 billion, share-based compensation expense of $1.3 billion, provision for credit losses of $62 million, and depreciation and amortization of $17 million. Additionally, there was a cash inflow due to changes in operating assets and liabilities of $723 million, primarily due to an increase in payables to users of $914 million driven by an increase in customer cash held in line with the growth in our user base and an increase in securities loaned of $1.2 billion, offset by an increase in receivables from users, net of $2.8 billion, driven by an increase in margin receivables due to the growth in our user base and a decrease in our margin interest rate.
For the nine months ended September 30, 2022, cash used in investing activities was $71 million, which primarily consisted of $27 million used for the purchase of investments, $25 million in purchases of property, software, and equipment, and $22 million in capitalization of internally developed software. For the nine months ended September 30, 2021, cash used in investing activities was $180 million, which primarily consisted of $119 million used for business acquisitions, $46 million in purchases of property, software, and equipment and $13 million in capitalization of internally developed software.
For the nine months ended September 30, 2021, cash provided by financing activities was $5.2 billion, which primarily consisted of the proceeds from issuance of convertible notes and warrants of $3.6 billion and $2.1 billion in proceeds from our IPO offset by $412 million in taxes paid for net share settlement of equity awards upon our IPO.
Regulatory Capital Requirements
Our broker-dealer subsidiaries (RHF and RHS) are subject to the SEC Uniform Net Capital Rule, administered by the SEC and FINRA, which requires the maintenance of minimum net capital, as defined. Net capital and the related net capital requirements may fluctuate on a daily basis. RHS and RHF compute net capital under the alternative method as permitted by the SEC Uniform Net Capital Rule.
The table below summarizes the net capital, capital requirements, and excess net capital of RHS and RHF:
| September 30, 2022 | ||||||||||||||||||||
| (in millions) | Net Capital | Required Net Capital | Net Capital in Excess of Required Net Capital | |||||||||||||||||
| RHS | $ | 2,993 | $ | 83 | $ | 2,910 | ||||||||||||||
| RHF | $ | 221 | $ | 0.25 | $ | 221 |
As of September 30, 2022, our broker-dealer subsidiaries were in compliance with their respective regulatory capital requirements.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and the disclosure of contingent assets and liabilities on our unaudited condensed consolidated financial statements. We base our estimates on historical experience and other assumptions we believe to be reasonable under the circumstances, which together form the basis for making judgments about the carrying values of assets and liabilities. We regularly assess these estimates; however, actual amounts could differ from those estimates.
There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our 2021 Form 10-K.
Recent Accounting Pronouncements
See Item 1 of Part I, “Unaudited Financial Statements — Note 2 — Recent Accounting Pronouncements.”
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