Robinhood Markets 10-Q 2023-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

______________________

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-40691

______________________

Robinhood Markets, Inc.

(Exact name of registrant as specified in its charter)

______________________

Delaware						46-4364776
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

85 Willow Rd

Menlo Park, CA 94025

(Address of principal executive offices, including zip code)

(844) 428-5411

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol			Name of each exchange on which registered
Class A Common Stock $0.0001 par value per share			HOOD			The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ☒

As of May 4, 2023, the numbers of shares of the issuer’s Class A and Class B common stock outstanding were 775,510,054 and 127,445,988.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION												PAGE
ITEM 1.			Unaudited Financial Statements
			Condensed Consolidated Balance Sheets									5
			Condensed Consolidated Statements of Operations									6
			Condensed Consolidated Statements of Comprehensive Loss									7
			Condensed Consolidated Statements of Cash Flows									8
			Condensed Consolidated Statements of Stockholders’ (Deficit) Equity									9
			Notes to Unaudited Condensed Consolidated Financial Statements
			Note 1 - Description of Business and Summary of Significant Accounting Policies									11
			Note 2 - Recent Accounting Pronouncements									13
			Note 3 - Revenues									14
			Note 4 - Allowance for Credit Losses									15
			Note 5 - Investments and Fair Value Measurement									15
			Note 6 - Income Taxes									19
			Note 7 - Securities Borrowing and Lending									19
			Note 8 - Financing Activities and Off-Balance Sheet Risk									21
			Note 9 - Common Stock and Stockholders' (Deficit) Equity									22
			Note 10 - Net Income (Loss) per Share									24
			Note 11 - Related Party Transactions									25
			Note 12 - Leases									25
			Note 13 - Commitments & Contingencies									26
ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations									32
ITEM 3.			Quantitative and Qualitative Disclosures About Market Risk									47
ITEM 4.			Controls and Procedures									48
PART II - OTHER INFORMATION
ITEM 1.			Legal Proceedings									49
ITEM 1A.			Risk Factors									[50](#i

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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, 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 2022 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 months ended March 31, 2022 and 2023 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.

Glossary Terms

• Automated Customer Account Transfer Service (“ACATS”)**: A system that automates and standardizes procedures for the transfer of assets in a customer account from one brokerage firm and/or bank to another.

• Churned Account:** An account is considered “Churned” if it was ever a New Funded Account whose account 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 below) and unauthorized debit card use, and less often, from margin loans.

• Company-initiated Credits:** Company-initiated Credits are amounts that are deposited into a Robinhood Account by the Company with no action taken by the user. Examples of Company-initiated Credits excluded for purposes of identifying Churned Accounts and Resurrected Accounts are price correction credits, related interest adjustments, and fee adjustments.

*•*Daily Average Revenue Trades (“DARTs”): We define DARTs 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.

• Fraudulent Deposit Transactions: Occur when users initiate deposits into their accounts, make trades on our platform using a short-term extension of credit from us, and then repatriate or reverse the deposits, resulting in a loss to us of the credited amount.

• Margin Book: We define Margin Book as our period-end aggregate outstanding margin loan balances receivable (i.e., the period-end total amount we are owed by customers on loans made for the purchase of securities, supported by a pledge of assets in their margin-enabled brokerage accounts).

• New Funded Account: We define a New Funded Account as a Robinhood Account into which the user makes an initial deposit, money transfer or asset transfer, of any amount during the relevant period.

• Notional Trading Volume: 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.

• Options Contracts Traded:** We define Options Contracts Traded as the total number of options contracts bought or sold over a specified period of time. Each contract generally entitles the holder to trade 100 shares of the underlying stock.

• Resurrected Account: 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.

• Robinhood Account**: We define a Robinhood Account as a unique log-in that provides the account user access to any and all of the Robinhood products offered on our platform.

Key Performance Metrics

• Net Cumulative Funded Accounts (“NCFA”)**: We define Net Cumulative Funded Accounts as New Funded Accounts less Churned Accounts plus Resurrected Accounts.

• Monthly Active Users (“MAU”)**: We define MAUs as the number of unique Robinhood Accounts who meet one of the following criteria at any point during a specified calendar month: a) executes a debit card transaction, b) transitions between two different screens on a mobile device while logged into their Robinhood Account or c) loads a page in a web browser while logged into their Robinhood Account. A user need not satisfy these conditions on a recurring monthly basis or have a funded account to be included in MAU. MAU figures in this Quarterly Report reflect MAU for the last month of the relevant 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.

• Assets Under Custody (“AUC”)**: 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. Net Deposits and net market gains (losses) drive the change in AUC in any given period.

• Net Deposits:** 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.

*•*Growth Rate and Annualized Growth Rate with respect to Net Deposits: When used with respect to Net Deposits, "growth rate" and "annualized growth rate" provide information about Net Deposits relative to total AUC. "Growth rate" is calculated as aggregate Net Deposits over a specified 12 month period, divided by AUC for the fiscal quarter that immediately precedes such 12 month period. "Annualized growth rate" is calculated as Net Deposits for a specified quarter multiplied by 4 and divided by AUC for the immediately preceding quarter.

• Average Revenue Per User (“ARPU”)**: 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.

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 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 in the Robinhood app which makes investing approachable for millions. We pioneered commission-free stock trading with no account minimums, which the rest of the industry emulated, and we continue 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 March 31, 2023, as compared to the three months ended March 31, 2022:

• we generated total net revenues of $441 million compared to $299 million, for a year-over-year increase of 47%.

• we incurred a net loss of $511 million, or -$0.57 per share, compared to net loss of $392 million, or -$0.45 per share;

• operating expenses were $950 million compared to $690 million, for a year-over-year increase of 38%;

◦SBC expense totaled $598 million, of which $485 million related to the 2021 Founders Award Cancellation, compared to $220 million, for a year-over-year increase of 172%;

*•*our Adjusted EBITDA (non-GAAP) was positive $115 million compared to negative $143 million, for year-over-year increase of $258 million;

• we had NCFA of 23.1 million compared to 22.8 million, for year-over-year growth of 1%;

• we had MAU of 11.8 million compared to 15.9 million, for a year-over-year decrease of 26%, as our customers continued to navigate the volatile market environment;

• we had AUC of $78.4 billion compared to $93.1 billion, for a year-over-year decrease of 16%, primarily due to decreasing asset values between the periods;

• Net Deposits were $4.4 billion, which translates to an annualized growth rate of 29%, compared to $5.7 billion, which translates to an annualized growth rate of 23%. Over the past twelve months, Net Deposits were $17.1 billion, which translates to a growth rate of 18% relative to AUC at March 31, 2023;

• we had ARPU of $77 compared to $53, for a year-over-year increase of 45%.

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

2021 Founders Award Cancellation

In February 2023, we cancelled the 2021 Market-Based RSUs granted to our founders of 35.5 million unvested shares. We recognized $485 million SBC expense related to the cancellation during the three months ended March 31, 2023. No further expense associated with these awards will be recognized after the cancellation. No other payments, replacement equity awards or benefits were granted in connection with the cancellation. The 2021 Founders Award Cancellation will lower our operating expenses by up to $50 million per quarter starting in the second quarter of 2023.

2023 Banking Events

In March 2023, certain U.S. banks failed and were taken over by the FDIC. As of March 31, 2023, our exposure to impacted U.S. banks is immaterial, and we have taken steps to help ensure that the loss of all or a significant portion of any uninsured amount would not have an adverse effect on our ability to pay our operational expenses or make other payments.

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 March 31,
						2022						2023
NCFA(1) (in millions)						22.8						23.1
MAU (in millions)						15.9						11.8
AUC(2) (in billions)						$	93.1					$	78.4
Net Deposits (in billions)						$	5.7					$	4.4
ARPU (in dollars)						$	53					$	77

---

(1)The following table describes the annual changes within NCFA:

						Three Months Ended March 31,
(in millions)						2022						2023
Beginning NCFA						22.7						23.0
New funded accounts						0.5						0.3
Resurrected accounts						0.1						0.1
Churned accounts						(0.5)						(0.3)
Ending NCFA						22.8						23.1

(2)The following table sets out the components of AUC by type of asset:

						Three Months Ended March 31,
(in billions)						2022						2023
Equities						$	68.5					$	55.3
Cryptocurrencies						19.7						11.5
Options						1.1						0.4
Cash held by users						9.2						14.2
Receivables from users						(5.4)						(3.0)
AUC						$	93.1					$	78.4

The following table describes the changes within AUC:

						Three Months Ended March 31,
(in billions)						2022						2023
Beginning AUC						$	98.0					$	62.2
Net Deposits						5.7						4.4
Net market gains (losses)						(10.6)						11.8
Ending AUC						$	93.1					$	78.4

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) SBC, (v) 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 loss, which is the most directly comparable GAAP measure, to Adjusted EBITDA:

									Three Months Ended March 31,
(in millions)															2022						2023
Net loss															$	(392)					$	(511)
Add:
Interest expenses related to credit facilities															6						6
Provision for income taxes															1						2
Depreciation and amortization															12						20
EBITDA (non-GAAP)															(373)						(483)
2021 Founders Award Cancellation															—						485
SBC excluding 2021 Founders Award Cancellation															220						113
Significant legal and tax settlements and reserves															10						—
Adjusted EBITDA (non-GAAP)															$	(143)					$	115

Results of Operations

The following table summarizes our unaudited condensed consolidated statements of operations data:

(in millions)												Three Months Ended March 31,
															2022						2023
Revenues:
Transaction-based revenues																		$	218					$	207
Net interest revenues																		55						208
Other revenues																		26						26
Total net revenues																		299						441
Operating expenses:(1)
Brokerage and transaction																		31						36
Technology and development																		268						199
Operations																		91						42
Marketing																		32						26
General and administrative																		268						647
Total operating expenses																		690						950
Loss before income taxes																		(391)						(509)
Provision for income taxes																		1						2
Net loss																		$	(392)					$	(511)

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(1)Includes SBC expense as follows:

												Three Months Ended March 31,
(in millions)																		2022						2023
Brokerage and transaction																		$	1					$	2
Technology and development																		82						54
Operations																		4						2
Marketing																		5						1
General and administrative																		128						539
Total SBC expense																		$	220					$	598

Comparison of the Three Months Ended March 31, 2022 and 2023

Revenues

Transaction-Based Revenues

															Three Months Ended March 31,
(in millions, except for percentages)																					2022						2023						% Change
Transaction-based revenues
Options																					$	127					$	133					5		%
Cryptocurrencies																					54						38						(30)		%
Equities																					36						27						(25)		%
Other																					1						9						800		%
Total transaction-based revenues																					$	218					$	207					(5)		%
Transaction-based revenues as a % of total net revenues:
Options																					42%						30%
Cryptocurrencies																					18%						9%
Equities																					12%						6%
Other																					—%						2%
Total transaction-based revenues																					72%						47%

Transaction-based revenues decreased by $11 million primarily driven by the market environment, which had a negative impact on the number of traders across all asset classes, and a decrease in Notional Trading Volumes across cryptocurrencies and equities, partially offset an increase in Options Contracts Traded.

Options Contracts Traded was up 15%, while options DARTs decreased from 0.7 million to 0.6 million and the number of users placing option trades decreased 26%. Additionally, we experienced lower option rebate rates due to reduced market volatility and the mix of ticker symbols traded as different ticker symbols pay different rebate rates.

Crypto DARTs decreased from 0.3 million to 0.2 million. Additionally, the number of users placing cryptocurrency trades decreased 38% and the average Notional Trading Volume traded per trader decreased 25%. The decrease was partially offset by a higher rebate rate from crypto market makers (increase was effective in May 2022).

Equities DARTs decreased from 1.8 million to 1.6 million. The number of users placing equity trades decreased 20% and the average Notional Trading Volume per trader increased 3%. Additionally, we experienced lower equity rebate rates due to reduced spreads in securities pricing.

Net Interest Revenues

															Three Months Ended March 31,
(in millions, except for percentages)																					2022						2023						% Change
Net interest revenues:
Interest on corporate cash and investments																					$	1					$	68					NM
Margin interest																					35						53						51%
Interest on segregated cash and cash equivalents and deposits																					1						45						NM
Securities lending, net																					24						26						8%
Cash sweep																					—						22						NM
Interest expenses related to credit facilities																					(6)						(6)						—%
Total net interest revenues																					$	55					$	208					278%
Net interest revenues as a % of total net revenues:
Margin interest																					12		%				12		%
Securities lending, net																					8		%				6		%
Interest on corporate cash and investments																					—		%				15		%
Interest on segregated cash and cash equivalents and deposits																					—		%				10		%
Cash sweep																					—		%				5		%
Interest expenses related to credit facilities																					(2)		%				(1)		%
Total net interest revenues																					18		%				47		%

Net interest revenues increased by $153 million primarily due to $67 million higher interest revenues earned from corporate cash and investments, $44 million from segregated cash and cash equivalents and deposits, $22 million from cash sweep, and $18 million from margin interest. These increases were primarily driven by the higher short term 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 from margin interest also increased due to the higher interest rate while our Margin Book balance declined year-over-year. Segregated cash and cash equivalents and deposits as well as cash sweep balances increased year-over-year, which also contributed to the higher net interest revenues.

The following table summarizes interest-earning 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 March 31, 2023
March 31, 2023			$	3,117		$	10,405		$	8,881		$	22,403
December 31, 2022			3,089			9,530			5,837			18,456
Average(4)			3,103			9,968			7,359			20,430
Revenue/(expense)			53			113			22			188						$	26		$	(6)		$	208
Annual yield(5)			6.83%			4.53%			1.20%			3.68%												4.07		%
Three Months Ended December 31, 2022
December 31, 2022			$	3,089		$	9,530		$	5,837		$	18,456
September 30, 2022			4,085			9,374			2,969			16,428
Average(4)			3,587			9,452			4,403			17,442
Revenue/(expense)			55			93			12			160						$	13		$	(6)		$	167
Annual yield(5)			6.13%			3.94%			1.09%			3.67%												3.83		%
Three Months Ended March 31, 2022
March 31, 2022			$	5,292		$	10,983		$	2,275		$	18,550
December 31, 2021			6,467			10,600			2,095			19,162
Average(4)			5,879			10,792			2,185			18,856
Revenue/(expense)			35			2			—			37						$	24		$	(6)		$	55
Annual yield(5)			2.38%			0.07%			—%			0.78%												1.17		%

---

(1) Margin Book is the aggregate outstanding margin loan balances receivable.

(2) Includes cash and cash equivalents, cash segregated under federal and other regulations, deposits with clearing organizations and investments.

(3) Cash sweep is an off-balance-sheet amount. Robinhood earns a net interest spread on Cash Sweep balances based on the interest rate offered by the partner 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) Annual yield is calculated by annualizing revenue/expense for the given period then dividing by the applicable average asset balance.

Other Revenues

															Three Months Ended March 31,
(in millions, except for percentages)																					2022						2023						% Change
Other revenues																					$	26					$	26					—		%
Other revenues as a % of total net revenues																					9%						6%

Other revenues remained flat and primarily consisted of revenues generated from Robinhood Gold, our monthly subscription service.

Operating Expenses

															Three Months Ended March 31,
(in millions, except for percentages)																					2022						2023						% Change
Operating expenses:
Brokerage and transaction																					$	31					$	36					16		%
Technology and development																					268						199						(26)		%
Operations																					91						42						(54)		%
Marketing																					32						26						(19)		%
General and administrative																					268						647						141		%
Total operating expenses																					$	690					$	950					38		%
Percent of net revenues:
Brokerage and transaction																					10		%				8		%
Technology and development																					90		%				45		%
Operations																					30		%				10		%
Marketing																					11		%				6		%
General and administrative																					90		%				147		%
Total operating expenses																					231		%				216		%

Brokerage and Transaction

															Three Months Ended March 31,
(in millions)																					2022						2023						% Change
Broker-dealer transaction expenses																					$	9					$	9					—%
Market data expenses																					7						6						(14)%
Employee compensation, benefits, and overhead, excluding SBC																					5						6						20%
SBC																					1						2						100%
Other																					9						13						44%
Total																					$	31					$	36					16%

Brokerage and transaction costs increased by $5 million primarily due to increases in other brokerage and transaction costs of $4 million, mainly driven by expenses associated with certain new products and features launched during the fourth quarter of 2022.

Technology and Development

															Three Months Ended March 31,
(in millions)																					2022						2023						% Change
Employee compensation, benefits, and overhead, excluding SBC																					$	104					$	79					(24)		%
SBC																					82						54						(34)		%
Cloud infrastructure services																					56						32						(43)		%
Software and tools																					21						29						38		%
Other																					5						5						—		%
Total																					$	268					$	199					(26)		%

Technology and development costs decreased by $69 million primarily due to decreases in SBC expense of $28 million and other employee compensation, benefits, and overhead of $25 million, driven by declined average headcount as part of our efforts to improve efficiency and operating costs. Additionally, we experienced decreases in cloud infrastructure services of $24 million primarily due to cost optimization efforts focusing on improvements in utilization of cloud infrastructure. These decreases were offset by an $8 million increase in software and tools primarily driven by amortization of internally developed software and other software services utilized in delivering our products.

Operations

															Three Months Ended March 31,
(in millions)																					2022						2023						% Change
Employee compensation, benefits, and overhead, excluding SBC																					$	43					$	21					(51)%
Provision for credit losses and fraud																					11						11						—%
Customer experience																					30						5						(83)%
SBC																					4						2						(50)%
Other																					3						3						—%
Total																					$	91					$	42					(54)%

Operations costs decreased by $49 million primarily due to decreases in expenses associated with customer experience of $25 million as we consolidated our third-party customer support centers due to overall decreases in user transactions. In addition, other employee compensation, benefits, and overhead decreased $22 million, driven by declined average headcount as part of our efforts to improve efficiency and operating costs.

Marketing

															Three Months Ended March 31,
(in millions)																					2022						2023						% Change
Digital marketing																					$	6					$	7					17		%
Brand marketing																					1						6						500		%
Employee compensation, benefits, and overhead, excluding SBC																					9						5						(44)		%
Marketing incentives																					4						1						(75)		%
SBC																					5						1						(80)		%
Other																					7						6						(14)		%
Total																					$	32					$	26					(19)		%

Marketing costs decreased by $6 million primarily due to decreases in SBC expense and other employee compensation, benefits, and overhead of $4 million each, driven by declined average headcount as part of our efforts to improve efficiency and operating costs. In addition, marketing incentives decreased $3 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. These decreases were partially offset by an increase in brand marketing of $5 million, primarily due to higher expenses spent on brand advertising campaigns.

General and Administrative

															Three Months Ended March 31,
(in millions)																					2022						2023						% Change
SBC related to 2021 Founders Award Cancellation																					$	—					$	485					NM
SBC excluding 2021 Founders Award Cancellation																					128						54						(58)		%
Employee compensation, benefits, and overhead, excluding SBC																					64						54						(16)		%
Legal expenses																					27						32						19		%
Settlements and penalties																					12						8						(33)		%
Other professional fees																					16						7						(56)		%
Other																					21						7						(67)		%
Total																					$	268					$	647					141		%

General and administrative costs increased by $379 million primarily due to the 2021 Founders Award Cancellation of $485 million. The increase was partially offset by a decrease in other SBC of $74 million and other employee compensation, benefits, and overhead of $10 million, driven by declined average headcount as part of our efforts to improve efficiency and operating costs. Additionally, other general and administrative expenses decreased by $14 million, primarily due to lower business insurance expenses.

Provision for Income Taxes

			Three Months Ended March 31,
(in millions)			2022						2023						% Change
Provision for income taxes			$	1					2						100		%

Provision for income taxes increased by $1 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the growth of the business, the

non-deductible the 2021 Founders Award Cancellation, and the change in valuation allowance on our U.S. federal and state deferred tax assets offset by our current taxes payable.

Liquidity and Capital Resources

Sources and Uses of Funds

Our principal sources of liquidity are cash flows generated from operations, and our cash, cash equivalents, and liquid investments. Other sources of future funds may include potential borrowing capacity under our revolving lines of credit and potential issuance of new debt or equity. Our liquidity needs are primarily 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, the potential purchase of most or all of the remaining Robinhood shares purchased by Emergent Fidelity Technologies, 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”), the National Securities Clearing Corporation (“NSCC”), and the Options Clearing Corporation (“OCC”)). Based on our current level of operations, we believe our primary sources of liquidity will be adequate to meet our current liquidity needs for the next 12 months.

Liquid Assets

Our cash and cash equivalents were $6.34 billion and $5.46 billion as of December 31, 2022 and March 31, 2023. Our liquid investment portfolio comprised of available-for-sale securities were $10 million and $1 million as of December 31, 2022 and March 31, 2023. Held-to-maturity investments that are maturing in one year can also be a source of liquidity, which were $290 million as of March 31, 2023. See Note 5 - Investments and Fair Value Measurement, to our unaudited condensed consolidated financial statements in this Quarterly Report for further information.

Revolving Lines of Credit

As of March 31, 2023, we had a total of $2.81 billion in committed revolving lines of credit. See Note 8 - Financing Activities and Off-Balance Sheet Risk, to our unaudited condensed consolidated financial statements in this Quarterly Report for further information.

Commitments

The following table summarizes our short- and long-term material cash requirements as of March 31, 2023:

			Payments Due by Period
(in millions)			Total						Remainder of 2023						2024-2025						2026-2027						Thereafter
Operating lease commitments			$	183					$	24					$	55					$	36					$	68
Purchase commitments(1)			1,044						298						502						244						—
Total			$	1,227					$	322					$	557					$	280					$	68

(1)Purchase commitments are determined based on contracts that are enforceable and legally binding and that specify all significant terms. They are primarily commitments for cloud infrastructure and data services and business insurance.

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.

Cash Flows

The following table summarizes our cash flow activities:

						Three Months Ended March 31,
(in millions)						2022						2023
Cash provided by (used in):
Operating activities						$	437					$	828
Investing activities						(34)						(481)
Financing activities						—						(11)

Cash provided by operating activities increased $391 million. The increase consisted of net loss adjusted for certain non-cash items and the effect of changes in operating assets and liabilities. Cash provided by operating activities resulting from net loss adjusted for certain non-cash items increased by $273 million. This was primarily due to higher net loss offset by higher SBC expense during three months ended March 31, 2023 as a result of the 2021 Founders Award Cancellation. Cash provided by operating activities resulting from changes in operating assets and liabilities increased $118 million. The increase was primarily driven by a decrease in receivables from users, net of $1.36 billion, partially offset by a decrease of $2.28 billion for securities loaned.

Cash used in investing activities increased $447 million compared to the prior period. The change was primarily driven by an increase in cash used in investing activities of $485 million from purchases of held-to-maturity investments, partially offset by an increase of $8 million in cash provided by investing activities related to proceeds from maturities of available-for-sale investments.

Cash used in financing activities increased $11 million compared to the prior period which was primarily driven by payments for debt issuance costs incurred to renew our revolving credit facility in 2023.

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:

						March 31, 2023
(in millions)						Net Capital						Required Net Capital						Net Capital in Excess of Required Net Capital
RHS						$	2,555					$	67					$	2,488
RHF						$	209					$	0.25					$	209

As of March 31, 2023, our broker-dealer subsidiaries were in compliance with their respective regulatory capital requirements.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in our unaudited condensed consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results might differ significantly from these estimates under different assumptions, judgments, or conditions.

There have been no material changes to our critical accounting estimates during the three months ended March 31, 2023, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” in our 2022 Form 10-K.

Recent Accounting Pronouncements

See Item 1 of Part I, “Unaudited Financial Statements — Note 2 - Recent Accounting Pronouncements.”