Earnings Call
Robinhood Markets, Inc. (HOOD)
Earnings Call Transcript - HOOD Q2 2022
Operator, Operator
Good day, and thank you for standing by. Welcome to the Robinhood Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Koegel, Head of Investor Relations. Please go ahead.
Chris Koegel, Head of Investor Relations
Thank you, Victor. Welcome, everyone, and thank you for joining us for Robinhood's Second Quarter 2022 Earnings Call. With us today are CEO and Co-Founder, Vlad Tenev; and CFO, Jason Warnick. Before getting started, I want to remind you that today's presentation will contain forward-looking statements about our financial outlook and our strategic and operational plans. Actual results could differ materially from our expectations, and we have no duty to provide updates unless legally required. Potential risk factors that could cause differences, including regulatory developments that we continue to monitor, are described in our press release issued yesterday, the related slide presentation on our Investor Relations website, our Form 10-Q filed this afternoon and in our other SEC filings. Today's discussion will also include non-GAAP financial measures. Reconciliations to the GAAP results we consider most comparable can be found in the earnings presentation on our Investor Relations website at investors.robinhood.com. With that, let me turn it over to Vlad.
Vlad Tenev, CEO
Thank you, Chris, for that great introduction, and thanks to everyone for joining. Last week was the one-year anniversary of our IPO, and in the 12 months since we've had to navigate two challenges: one is adapting to the public markets, and two is dealing with an abrupt reversal of the macro environment. For our customers, many of whom are younger, it seems like they may be facing a recession for the first time in their adult lives if the last two quarters of negative GDP growth are any indication. Customers are seeing this high inflation alongside high interest rates, bear markets in stocks, and a crypto winter. All of this adds up to less money to spend and therefore, less to save and invest. You can also see this reflected in the drop in assets under custody that we reported. Despite strong net deposits of over $5 billion in Q2, our assets under custody dropped. This shows that customers have been affected by devaluation across cryptocurrencies and growth stocks in particular. While we can't control the macro environment, we've been hard at work building products to help our customers navigate it. Products like the Cash Card, Stock Lending, and high yield on their uninvested cash. I would say 2022 is by far our most prolific year yet of delivering products to customers, and we've got much more in the works. For Robinhood, in the seven or so years since we first launched in the US, we've consistently adapted to changes, improved, and become more robust and resilient as a company. If we are heading into our first recession in the company's history, we recognize it would be a challenging time, but strong companies use these times as opportunities, and we look forward to navigating through this environment and coming out even stronger. To that end, we made the tough decision to further reduce our staff, which we announced the details of yesterday. These are hard decisions, but we believe they better position our business for the long term. Alongside the reduction in force, we organized the company into a general manager structure for each of our core business units. We've been thinking about this change for some time, and I'm confident that it will speed up decision-making and increase accountability, ultimately helping us deliver even faster for our customers. This is just one part of our leaner operating model, and Jason will share more color on this in his remarks. Now onto the quarter. Despite the weakening environment, we were able to increase our revenues and lower our expenses in Q2 compared to Q1. This was a company-wide effort, and I am proud of the team for the hard work and dedication it took to get here. It certainly wasn't easy. We believe we're making swift progress toward our goal of being adjusted EBITDA positive by the end of the year. Let's move on and talk a little about our product roadmap. Remember, our goal is to deliver low-cost, simple products and a safe customer experience that give everyday people control over their finances and access to the same tools that wealthy people have enjoyed for generations. We've organized our efforts into three product areas: brokerage, crypto, and money. So, I'd like to review each of those with you. Let's start with brokerage. To put things in perspective, Robinhood is the most downloaded brokerage app in the US. We achieved this leadership position by aggressively innovating, which in turn fueled our account and asset growth. To continue driving growth, we have focused our brokerage product development this year on two key areas: one, introducing retirement accounts; and second, improving our customer experience, particularly for advanced customers. So, starting with retirement accounts, I can't tell you how excited we are about this product. We believe we've come up with a way to offer retirement that is uniquely Robinhood, and we know our customers will love it as much as we do. We're piloting them now, with plans to launch later this year. Additionally, retirement accounts will be the first time our customers will be able to have multiple brokerage accounts with us. We think this creates a big opportunity for us to broaden our support for and deepen our relationships with our customers over time. It's also a new avenue for us to drive account and asset growth and increase our total share of wallet. Next, let's turn to our advanced customers. In Q1, we extended market hours, so customers now have more flexibility to trade when they want, and customers have traded over $9 billion in volume during these additional hours. Extending trading hours is seen as the first step towards 24/7 stock trading, and we are making progress towards making this a reality. In Q2, we also rolled out fully paid securities lending to give customers another source of passive income on their stocks, which is especially important in the current environment. We're encouraged to see early progress with over $3 billion of equity value already enrolled and available to lend. We've also been making significant improvements to our options product. We believe our options offering is the lowest cost and best user experience offering out there. Most of our competitors claim they are zero commissions, but they, in fact, charge a $0.65 commission for every contract traded, which is $65 for a $100 contract trade, while we charge $0 per contract. Recently, we added options in cash accounts, which has been a top requested feature by our active customers. We've also been conducting extensive in-person research with this group, and we recognize they care a lot about advanced charting on the platform. As a result, we are enhancing our charting and technical indicators, and there is much more to come. We encourage the feedback to keep coming. Our team has been working tirelessly to ensure Robinhood remains the best place to trade. Now, let's turn to our crypto efforts. Our vision with crypto is to be the most trusted platform for customers to invest in crypto, as well as the most trusted on-ramp to the decentralized web. That is why, after first introducing crypto investing in 2018, we've been relentlessly focused on three things: providing the best value, the best user experience, and being the safest. So let me tell you what we are delivering for customers in crypto by highlighting two areas that we've been working on this year: adding more coins and giving customers more control over their crypto. Starting with coins, customers tell us that they want us to introduce more coins onto the platform. Some other crypto providers have come under scrutiny for listing unregistered securities on their platforms. This can be dangerous and misleading for customers because they may expect these cryptos to be more decentralized than they are. We employ a rigorous listing framework, which in the short term may seem slow, but we believe this approach will pay off in the long run. Frankly, one of the benefits of being heavily regulated as a US-based company is that it has helped us learn how to build with customer safety in mind. So far, in a deliberate and considered manner, we have introduced a number of new coins this year, and customers have been pleased with the offerings to date. Turning to our efforts to give customers more control over their crypto: In April, we launched our crypto wallet, allowing customers to move their crypto in and out of Robinhood easily, safely, and seamlessly. We've heard feedback that customers want faster withdrawals and larger daily limits, so we raised our withdrawal limits from $3,000 to $5,000 per day and are working on improving this even more. Later this year, we will roll out our non-custodial wallets. This will be a separate stand-alone app where customers can trade and swap crypto with no network fees and maintain full custody of their crypto, all with the simplicity and great user experience they have come to expect from Robinhood. We're seeing good interest as our non-custodial waitlist continues to grow, and our early internal version of the product looks fantastic. We think customers are going to love it. Okay, let's now move to our product development efforts related to Robinhood Money, which includes our new cash card. We hear from customers that they want to start saving and investing, but the current environment is tough due to inflation and high gas prices. We want to help them by providing a good way to build saving and investing habits even in this challenging environment. To that end, in March, we launched the new Robinhood Cash Card. Customers are using the card for day-to-day purchases and rounding up their spare change into stocks, ETFs, and crypto. Of course, not only are we not charging any monthly fees for this, but we're actually matching a portion of their roundups to help them build their portfolios. It's a fantastic value for customers. We are pleased with the week-over-week growth and the cohort retention we've been observing. Since launch, we've been making steady improvements to the user experience as well. Last week, we started rolling out cash back offers at select merchants, including on gas, doing our part to help customers with these high gas prices. We believe we have a huge opportunity to become the primary place where customers deposit their paychecks, driving their spending and investing. While it's still early, we're excited about our potential to grow this offering with both existing and new customers and drive additional customer loyalty as well as revenue diversification over time. Now, before passing it over to Jason, I wanted to reiterate how extremely proud I am of all the progress we've made over the past quarter, with the new products we've launched and the work we've done to improve our customers' experience. When I look ahead, I feel even better positioned to execute our roadmap and serve our customers. With that, let me turn it over to Jason.
Jason Warnick, CFO
Thanks, Vlad. It's good to speak with everyone today. In the second quarter, we remained focused on serving our customers, growing our business, and driving long-term shareholder value. While the environment was volatile, net funded accounts were steady, and net deposits were strong. The combined strength of our team, platform, and balance sheet positioned us to continue delivering on our 2022 product roadmap. I'm also pleased that we've increased our productivity and efficiency, improving adjusted EBITDA from Q1. We've made great progress so far this year, and I'm energized by the opportunities to drive value for our customers and shareholders going forward. Before we review our Q2 results, I'd like to share some context for the August workforce reduction that we announced yesterday. Since we spoke last quarter, we've continued to aggressively execute our product roadmap and serve our customers while working hard to adopt a leaner operating model, including by slowing our hiring and significantly lowering third-party spending, but the macro environment has continued to soften. Inflation is at a four-year high, and our customers are experiencing bear markets in equities and crypto. It's clear we needed to do more to manage our costs, and so yesterday, we announced a 23% reduction from current levels to a headcount of approximately 2,600. At this new level, we believe we are appropriately staffed to be cost-efficient while continuing to deliver great service and innovation for our customers. To be clear, even with this reduction, we believe we are well-positioned to continue delivering on our roadmap. With that context in mind, let's review the second quarter, starting with our business results. Net funded accounts were $22.9 million in Q2, up $100,000 from the prior quarter and notably steady given the current environment. Looking at monthly active users, they were $14 million in Q2. While this is down $1.9 million from Q1, we are encouraged by our continued industry-leading engagement through a volatile quarter. Turning to assets under custody, they were $64 billion in Q2, down 31% from last quarter. While funded accounts continue to grow and customers continue to make net deposits through the volatile environment, assets under custody declined along with decreases in market valuations, especially for high-growth stocks and cryptocurrencies. Looking at July, it's encouraging to see that customer assets increased back over $70 billion as markets rebounded. Looking more closely at net deposits, they were $5.2 billion in Q2, which translates to a 22% annualized growth rate relative to Q1 assets under custody. While assets were lower in Q2, if we consider our long-term potential for asset growth, we believe the combination of strong net deposits and long-term rising markets can drive meaningful asset growth over time. Now let's turn to our Q2 financial results, which reflect good progress on increasing profitability. Adjusted EBITDA improved $63 million sequentially to negative $80 million in Q2. This improvement was driven by revenue growth and expense discipline that enhanced operating leverage. Looking ahead, we continue to push towards a positive adjusted EBITDA run rate by year-end. This goal is an important step towards delivering higher levels of profitability over time. We feel that our progress over the past quarter has better positioned us to reach our goal by year-end, which will require continued improvements in both revenue and costs. So let's start with revenues. Total net revenues were $318 million in Q2. This was a 6% increase from Q1, primarily driven by higher net interest and other revenues, partially offset by lower transaction revenues. Q2 total revenue translates to ARPU of $56, up from $53 last quarter. Now moving to transaction-based revenues, they were $202 million in Q2, down 7% sequentially. The decrease was primarily driven by lower trading volumes consistent with the macro environment. Regarding net interest revenues, as we've discussed in the past, we believe that over the long term, interest income will drive a larger portion of our revenue. This is why we're encouraged that Q2 net interest revenues reached a new high of $74 million and contributed nearly a quarter of total Q2 revenues. The 35% increase from Q1 was primarily due to the March and June Fed rate hikes, partially offset by lower margin balances. I'd also note that interest-earning assets, which include customer cash, corporate cash, and margin balances, were $16 billion at the end of Q2. This includes customer cash sweep balances earning 1%, totaling over $2 billion in Q2. As we look ahead, interest rates are widely expected to continue rising, which would drive meaningful additional revenue from our interest-earning assets. One way to see that benefit is to look at our recent experience from the June and July Fed rate hikes that totaled 150 basis points. On average, we estimate that we are realizing about $40 million of annualized run rate revenue per 25 basis points of rate hike given our current balances and customer rates. Of course, the precise benefit of rate hikes will depend on how balances and customer rates vary over time. Moving on to other revenues, they were $42 million in Q2, up 62% from Q1, primarily due to the seasonal increase in proxy-related revenues. Together, net interest and other revenue made up 36% of total revenue in Q2, up from 27% in Q1. Continuing to broaden our product offering can help us further diversify our revenues going forward. Let's now look at our Q2 expenses, starting with operating expenses prior to share-based compensation. They were $446 million in Q2, which includes $17 million of severance related to our April workforce reduction. This was an improvement of $24 million, or 5%, from Q1, reflecting our work to be more cost-efficient, including with third parties. Given this progress on our ongoing expenses and our August workforce reduction, we're lowering our full-year expense outlook. Our updated outlook for 2022 operating expenses, prior to share-based compensation, is a range of $1.7 billion to $1.76 billion, which would be a year-over-year decline of 7% to 10% in operating costs. This updated outlook includes the cost of an estimated $45 million to $60 million of severance and restructuring expenses related to our August workforce reduction. Turning to share-based compensation expense, which, as a reminder, reflects the number of shares and our share price at the time the awards were granted, it was $164 million in Q2, down by $56 million or 25% from Q1. The decrease was primarily driven by a $24 million reversal of previously recognized share-based compensation related to our April workforce reduction and a reduced pace of hiring this year. I would also highlight that 50% of our Q2 expense was driven by pre-IPO market-based awards for our two founders, which will vest only as our share price reaches levels from $50 to $300, but are recognized on a GAAP basis as expenses over time. These awards won't increase our share count until our share price appreciates considerably, which would be a great outcome for shareholders. As for our 2022 outlook for share-based compensation, we are lowering our expense outlook for the year. We now anticipate 2022 share-based compensation expense to be in the range of $760 million to $840 million, down between 47% to 52% from prior year levels. This updated outlook includes the benefit of an estimated $40 million to $50 million reversal of previously recognized share-based compensation related to our August workforce reduction. I also want to highlight that, given our reduced pace of hiring and workforce reductions, we are now on a significantly lower trajectory of diluted share count growth than we have seen over the past year. While we believe that aligning employees' interests with shareholders is important, this will be an area we will be managing closely. Now, let's turn to capital management. In the current environment, it's even more important to have a strong balance sheet and cash position. That is why we appreciate our position with no debt and $6 billion of corporate cash on hand that provides strength, flexibility, and financial runway to continue serving our customers, executing on our product roadmap, and evaluating potential acquisitions. As I mentioned last quarter, we have roughly $2.5 billion of excess cash above our risk scenarios. In closing, we continue to make good progress in Q2 and remain very optimistic about the opportunities ahead of us to deliver value for customers and shareholders. With that, Chris, let's move to Q&A.
Chris Koegel, Head of Investor Relations
Thank you, Jason. As a reminder, we skipped over some of the top questions because Vlad and Jason already covered them in their remarks. So with that, I'll kick it off with a couple of our top questions that are on a similar theme from Say Technologies. These are both, I think, for Jason. The first question asks, 'Having billions of dollars in cash, are you planning on buying back shares since the stock is at a low price?' And then the second question asks, 'Any future plans for Robinhood to offer a dividend on their stock?'
Jason Warnick, CFO
Thanks for each of those questions. We think the best use of our cash right now is to fund the business, both our organic initiatives to drive growth as well as potentially to pursue acquisitions. I think a better time for us to consider returning cash to shareholders is when we achieve some goals further down the line around generating positive adjusted EBITDA and kicking off positive cash flow. But I appreciate the question.
Chris Koegel, Head of Investor Relations
All right. Thanks, Jason. Next question is from [indiscernible], who asks, following up if Robinhood can give out its gold services if a retail owner owns enough stock in Robinhood, and also, any update on adding more advanced chart trading features onto the app and website. Vlad, do you want to take that one?
Vlad Tenev, CEO
Yes, I'll take it. Thanks, [indiscernible] for the question. It's good seeing you with top-loaded questions quarter after quarter. So regarding the gold service for shareholders, we don't have plans to offer that right now and bundle gold with shareholder status. However, I want to touch on rewards to shareholders and Robinhood gold briefly. You might have seen that Say Technologies, which we're all using for this Q&A, launched a product called Otway recently. This will allow us to work with our corporate partners to identify shareholders and offer them perks and rewards. Tesla is the first partner with us. We believe this is something that more companies should be doing, and we're happy to offer that technology to make it easier for them. Now on the gold side, we think there's tremendous value in gold. We have a dedicated team working hard to provide even more value, and we want gold to be so valuable that it's a no-brainer for all of our customers.
Chris Koegel, Head of Investor Relations
All right. Thank you, Vlad. So the next question is on the M&A front. Any word on being acquired by FTX or Charles Schwab?
Vlad Tenev, CEO
Sure. I'll take this one. So, in one word, no. I think we're in a great position as a stand-alone company. I love us as a stand-alone company. We've got a strong balance sheet, an awesome team, and we're delivering on our product roadmap at a pace we haven't seen before. I'd actually flip it to say that we see opportunities, especially in this market environment, to leverage our balance sheet of approximately $6 billion to acquire companies that can help us accelerate our roadmap. So we continue to be on the lookout there. We remain very excited about the opportunity we see ahead of us.
Chris Koegel, Head of Investor Relations
All right. Thanks, Vlad. And thanks, Paul, for your question. The next question is from Mr. John P., who asks -- also on the M&A front. Can you provide us with an update on the Ziglu acquisition and the strategic plan for international expansion for this year?
Vlad Tenev, CEO
Sure. As we mentioned in the last call, we entered into an agreement to acquire Ziglu. These agreements normally take a while to close, so we're going through that process right now. We're still on track to close by the end of the year, and I'm very excited to bring Mark and the team on board and accelerate our entry into the UK and the rest of Europe.
Chris Koegel, Head of Investor Relations
All right. Next question is from MJS, who states that the five-year historical charts don't seem good enough. Can we do more MAX like others?
Vlad Tenev, CEO
Yes. Thank you for that feedback. I always appreciate hearing feedback about the tools. We hear customers loud and clear that they want better charting, more flexibility, more advanced charting, and more data. We've been making lots of improvements to our offerings, and our charting will continue to get better over time. So just stay tuned. We've got some good stuff in the works for you.
Chris Koegel, Head of Investor Relations
Okay. Thanks, Vlad. The next question is from Andrew, who asks why not allow us to start trading when the pre-market session opens at 4:00 a.m. Eastern?
Vlad Tenev, CEO
Yes, I'll fill that as well. Thanks, Andrew, for the question. Earlier this year, we announced our goal of making equity markets accessible 24/7. We think that it's silly that, with all the technology we have today, US equity markets are still tied to East Coast, United States working hours. As the first step of that process, we extended our already extended trading hours to 4:00 a.m. Pacific to 5:00 p.m. Pacific. So that's 7:00 a.m. to 8:00 p.m. Eastern. Our goal is to make this 24/7, and along the way, we might see opportunities depending on customer interest to make incremental progress and add more hours, which we will certainly pursue and consider. So adding 4:00 a.m. to 7:00 a.m. Eastern is something we're actively thinking about.
Chris Koegel, Head of Investor Relations
Great. And let's take one more top question. The last one is from Anthony B., who asks if Robinhood would be able to provide a service that lets people get loans against their assets.
Vlad Tenev, CEO
Yes, I'll address this one as well. Thank you, Anthony. We already provide a form of this in our margin offering, allowing customers to get a loan against their assets within Robinhood. Previously, this was only available to Robinhood Gold customers, but we're now making it available to all customers under different rates. This will allow anyone with over $2,000 in securities to borrow against them, whether to buy more securities or even withdraw to their bank account or spend through the Robinhood spending account and Cash Card. It's a very useful service. A lot of customers don't realize they can actually withdraw against their margin loan and obtain liquidity without selling securities. So we'll look to communicate that better and explore different ways to help customers generate liquidity in the current environment going forward.
Chris Koegel, Head of Investor Relations
All right. Thanks, Vlad. That's all for top questions for today. Thank you for your questions. We greatly appreciate all the thoughtful engagement from our shareholders and customers. It's time to open up the line. We ask each analyst to limit their questions to one question and one follow-up. So with that, I'll ask Victor to open up the line for questions.
Operator, Operator
[Operator Instructions] Our first question is from the line of Devin Ryan from JMP Securities. Your line is open.
Devin Ryan, Analyst
Great. Good afternoon, everyone.
Vlad Tenev, CEO
Hi, Devin.
Jason Warnick, CFO
Hi, Devin. Good afternoon.
Devin Ryan, Analyst
Hi. First question: I want to discuss marketing spend a bit here. It was only $24 million in the quarter, down 75% year-over-year. It's a bit surprising given all the new products that you're launching, including cash management. I'm trying to understand whether it makes sense to lean in more on marketing, particularly with all the new products launching or do you see other ways to engage with new and existing investors amidst a competitive market to increase your visibility?
Vlad Tenev, CEO
Yes, I'll field that. Historically, Robinhood has been very much driven by word-of-mouth growth, and much of the marketing expense we incurred through 2021 was due to our referral program. We also did a bit of brand marketing, but the performance and referral programs largely fueled 2021. As the environment changed through 2022, we've focused on products and improving our service quality. However, we see an opportunity to enhance brand marketing to clarify customers what Robinhood stands for and our mission. So yes, I expect to see a bit more on the brand side. Regarding performance, as Jason can add, we're focused on efficiency, believing organic and referral-based marketing to be the best approach, which we anticipate will improve as the macro environment changes along with our product improvements.
Jason Warnick, CFO
Regarding modeling this, we would expect marketing expenses to increase in the back half of the year. It's incorporated into the guidance we've provided.
Devin Ryan, Analyst
Yes. Okay. All right. Thanks, guys. My follow-up: Funded accounts were slightly up while MAUs were down 12%. Most others, the incumbent brokers don't report MAUs, but I assume engagement has decreased at several firms due to uncertainty in the macro backdrop. Do you feel we are nearing a bottom for engagement in MAUs? If you have data or historical benchmarks to reference? Of the $14 million, is 20% driving 80% of the trading activity in revenue, or what does that split look like?
Jason Warnick, CFO
Yes, Devin, we do follow a Power law here, meaning more active customers drive more of the revenue versus less active ones. This has been true for some time. Predicting the bottom is difficult. The first half of the year has been one of the worst we've experienced in about 50 years. Hard to know exactly when it will bottom and turn around. I think we saw some optimism in July more broadly in the market, which encouraged our customers’ rebound in assets under custody. Our focus is on continuing to enhance the user experience. Personally, I think this is a cycle, and we are in a cycle. Other cycles will come. I'm optimistic that this will be great for retail investors to continue investing in the stock market and participating in wealth building.
Devin Ryan, Analyst
Okay. Thanks very much.
Jason Warnick, CFO
Thanks, Devin.
Operator, Operator
[Operator Instructions] Our next question comes from the line of Richard Repetto from Piper Sandler.
Richard Repetto, Analyst
Good afternoon, Vlad and Jason. My first question is about regulation. SEC Chair, Gensler came out in June, addressing retail equity market structure. He stopped short of any specific bands, but it certainly sounded like he was proposing changes that could hinder wholesalers and potentially payment for order flow. Any incremental comments from you regarding this and your thoughts on the current market structure?
Vlad Tenev, CEO
Yes, sure, Rich. First, we're paying close attention to what the commission and Chair Gensler are saying. I don't know if you heard former SEC Chair, Jay Clayton's comments about this, but we agree with the sentiment that payment for order flow and the current structure is providing a great all-in cost of execution for retail investors—unmatched in history. We're concerned. We're obviously watching as things unfold. Currently, payment for order flow accounts for about 9% of our total revenues. While it is significant, we feel comfortable that we're delivering great execution quality for customers. Over time, we expect our revenues to continue diversifying as we roll out more products.
Richard Repetto, Analyst
That’s helpful, Vlad, thank you. My follow-up pertains to M&A. I'm trying to understand given your share control and voting power, is there any scenario in which you'd envision a potential partner that is not an acquisition but might accelerate product development?
Vlad Tenev, CEO
Rich, as I've mentioned, I believe Robinhood is incredibly well-positioned to execute our plans as an independent company. We've got $6 billion in cash, and we’ve made great strides toward increased revenues while reducing costs. In these environments, great companies in our position can leverage opportunities for acquisitions and M&A. We see an opportunity to use our financial strength to accelerate our own roadmap, and that's how we've approached it strategically.
Richard Repetto, Analyst
Understood. Companies that survived the Internet bubble burst stayed focused and thrived. Thanks for the answer.
Vlad Tenev, CEO
Thanks, Rich.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is open.
Michael Cyprys, Analyst
Great. Thanks. Good afternoon. I wanted to touch on the net new deposits, which continue to hold up quite strong despite the challenging environment. I was hoping you could provide some color around that, particularly focusing on the profile of customers driving the net deposits versus the installed base. How much of the M&A is related to recurring preset contributions? And how much is going into the cash management program?
Jason Warnick, CFO
Yes. So I'll start, and Vlad, feel free to add. We're really pleased to have increased the interest rate we’re offering in the cash sweep program--that's now at 1%, with about $2 billion of customer cash there. We're offering a strong value proposition. Regarding net deposits, they were $5.2 billion for the quarter, reflecting a 22% annualized growth rate relative to beginning period assets under custody. This demonstrates our customer engagement in this tough environment. As for the customer cohorts, we haven't provided specific details regarding deposits. Still, involvement with existing customers has contributed significantly, and we're positive about new investors joining the platform and their growth potential.
Vlad Tenev, CEO
Additionally, I would say some items on the near-term roadmap, such as retirement accounts and enhancements for advanced customers, are expected to drive meaningful increases in net deposits over time.
Michael Cyprys, Analyst
Great. Lastly, regarding the $6 billion cash position you mentioned, how much do you need to run the business versus how much is excess available for acquisitions, which you indicated interest in? I noticed you mentioned about $2.5 billion of excess above risk scenarios, but that includes your $3 billion lines of credit, suggesting there might be no excess cash in a risk scenario. Could you elaborate?
Jason Warnick, CFO
In our risk scenarios, we have $2.5 billion of excess cash. Our corporate cash utilization is minimal on a typical day. We've experienced prior periods of high volatility, which caused the risk scenarios we're modeling today. These outline that we have excess cash available beyond those risk scenarios.
Michael Cyprys, Analyst
Great. Thank you.
Jason Warnick, CFO
Thanks, Michael.
Operator, Operator
One moment for the next question. Our next question comes from the line of Steven Chubak from Wolfe Research. Your line is open.
Steven Chubak, Analyst
Hey. Good afternoon, Vlad. Good afternoon, Jason.
Vlad Tenev, CEO
Hi, Steven.
Steven Chubak, Analyst
I wanted to ask about stock-based compensation. Jason, you mentioned your focus on rein in future dilution. Could you help quantify the incremental dilution associated with share-based compensation not yet recognized? Given your strong cash position, any plans to offset that future dilution through buybacks?
Jason Warnick, CFO
We don't have plans right now for a share buyback program. As I stated earlier, that will be more appropriate once we achieve profitability. In terms of unrecognized share-based compensation, we just filed our 10-Q this afternoon, where the number is disclosed. I don't have it on hand, but the unrecognized amount is in there. About half of our share-based compensation comes from pre-IPO market-based awards, which vest at higher stock prices than currently. So we anticipate a decline in these costs over time.
Steven Chubak, Analyst
Thanks for the insights. For my follow-up, regarding NII sensitivity, you mentioned a $40 million benefit per rate hike. Given the volume of hikes seen so far, the NII expansion in Q2—though healthy—was a bit lighter than anticipated. Could you provide some details about sensitivity across different buckets like margin balances and corporate cash that underpin that $40 million per hike guidance?
Jason Warnick, CFO
We're pleased with the pass-through we've seen from our banking partners on rates and expect good results going forward. Margin balances have increased as we have separated them from Gold, allowing non-Gold customers to participate at higher rates. Our go-forward guidance indicates a meaningful portion of these rates will be returned to shareholders while still providing significant value for customers.
Steven Chubak, Analyst
That's great. Thank you for the answers.
Jason Warnick, CFO
You bet. Thank you.
Operator, Operator
One moment for the next question. The next question will come from the line of Will Nance from Goldman Sachs. Your line is open.
Will Nance, Analyst
Hey, guys. Good afternoon. Thanks for taking my question. I wanted to ask about the expense base and follow-up on the earlier question on stock-based compensation. Given the moving pieces in the expense base, specifically regarding restructuring charges in the back half, Jason, could you talk about the exit run rate for OpEx and SBC? Is the 50% level that impacts ongoing dilution expected to persist for the foreseeable future?
Jason Warnick, CFO
I can provide some helpful insights, but we haven't offered guidance on exit run rates. Share-based compensation for market-based awards given to the founders is recognized on an accelerated basis, meaning we will recognize more in earlier periods and less later on. As we meet share prices triggers, this will accelerate the related tranches impacted. We've made excellent progress on OpEx and third-party spending, with various improvements across the company reflecting favorable incremental guidance released.
Will Nance, Analyst
Got it. I appreciate that. Just one more nuanced question regarding transaction revenues. It appears the implied take rate on cryptocurrency trading has increased sequentially versus Q1. Given the renegotiations at the beginning of the year, can you provide clarity on what drove the higher spread this quarter?
Jason Warnick, CFO
Yes, we managed to negotiate a higher rate compared to before, which was disclosed in our app and website. We've increased from low 20s to now, at 35 basis points.
Will Nance, Analyst
Got it. Super helpful. Thanks for taking my questions.
Jason Warnick, CFO
You bet, Will. Thanks.
Operator, Operator
One moment for our next question. Our next question will come from the line of Josh Beck from KeyBanc Capital. Your line is open.
Josh Beck, Analyst
Yes, thank you for taking the question. When considering ARPU and its midterm potential, particularly with current macro stability, what key drivers should we focus on in building scenarios regarding this metric over time?
Jason Warnick, CFO
I'll take that, and then Vlad can add. Our focus is on enhancing user experience. As Vlad mentioned, we're working on brokerage experience improvements and continuously introducing new coins in a measured manner. We're also looking forward to fully paid securities lending, which recently rolled out and has gained traction with a $3 billion enrollment. The Cash Card will also see improvements as a new product. Additionally, rising interest rates will yield positive impacts, as the latter half of the year shows the benefits from hikes previously enacted. We're committed to enhancing user experience and expect its reflection in our financials.
Josh Beck, Analyst
Thanks. And I had a follow-up regarding market conditions being challenging for everyone. You raised significant capital and hold strong scale. In assessing the competitive environment, have you seen any notable customer acquisition changes amongst lower-scaled peers with limited funding?
Jason Warnick, CFO
Primarily, customer acquisition is lower during periods of market enthusiasm. We’ve found customer acquisition easier during high periods of intent, but things have slowed now. We've pulled back on our marketing since chasing growth in this environment hasn't had the same ROI as it did earlier. Overall, it remains competitive, but our emphasis is on improving customer experience.
Vlad Tenev, CEO
I would add that historically we've focused more on new customer acquisition than existing customers. This year, we've put valuable focus on our existing customers, enhancing their experience with us. This approach will be rewarding, and while the mix may shift over time, we expect to reaccelerate new customer acquisition in the long run.
Josh Beck, Analyst
Very helpful. Thank you, Vlad and Jason.
Jason Warnick, CFO
Thank you.
Operator, Operator
Our next question comes from the line of Benjamin Budish from Barclays. Your line is open.
Benjamin Budish, Analyst
Hi, guys. Thanks for taking the question. Maybe first on fully paid securities lending. You mentioned about $3 billion in eligible balances. Given the revenue share with customers opting in and the target of one to two times the size of your margin-based lending revenues, how large do you think that needs to be to hit that goal?
Jason Warnick, CFO
It's still early to provide a specific number on that, but we haven't disclosed our revenue split yet. We’re working on educating customers about the program to encourage enrollment and utilizing it to increase their passive income.
Benjamin Budish, Analyst
Okay. Thanks for that. For Vlad, I’d like to ask about your view on M&A. You indicated that you see yourselves more as an acquirer rather than an acquiree. What are your priorities? Would that focus more on opportunities like Ziglu for international expansion or perhaps product expansion?
Vlad Tenev, CEO
Yes, as you mentioned, international expansion with Ziglu is something we’ll explore. Additionally, we seek opportunities that can enhance our product offerings and provide valuable services to customers at favorable valuations that can be found in current environments.
Benjamin Budish, Analyst
Understood. Thanks for taking my question.
Vlad Tenev, CEO
Thank you.
Operator, Operator
Our final question will come from Ken Worthington from JPMorgan. Your line is open.
Ken Worthington, Analyst
Good afternoon. Thanks for taking my question. Vlad, in the S-1, the mission statement was the democratization of finance for all. As we review the numbers, we see that your clients have significantly underperformed since the mean bubble burst in both up and down markets, even accounting for crypto and growth. Can Robinhood do better for its customers and drive better performance results for them? How do you approach this, and what tools do they need? How long will it take? While products like the Cash Card and wallet and retirement accounts are interesting and likely to see significant demand, they don’t seem to address the key issue of underperformance. Can you achieve better performance for your customers profitably for Robinhood and your shareholders?
Vlad Tenev, CEO
I believe it's essential to have a long-term view. Performance during a bear market can be skewed, but ultimately, we hope to empower investors, especially among those starting younger and newer in their financial journeys. Our mission is vital, and bear markets offer opportunities that investors can use to set themselves up for long-term success. We're committed to providing the best tools to facilitate a positive outcome for our customers while ensuring these valuable services remain accessible, especially to those who are not affluent.
Ken Worthington, Analyst
Okay, thank you. As a follow-up, how many gold accounts, cash cards, or non-custodial wallets are on the waitlist? What do those numbers look like as of the end of the second quarter?
Jason Warnick, CFO
We have about a 6% attach rate on Gold. For the Cash Card, it’s still early; we haven’t specified user numbers yet. We are focusing on improving the user experience. Recently, we released merchant incentives that provide cash back for using their card at places like gas stations, which benefits our customers. Furthermore, we’re working to promote our offerings to ensure customers understand the value proposition.
Vlad Tenev, CEO
Regarding the non-custodial wallet, that waitlist number is indeed public on the website, and it recently exceeded 1 million.
Jason Warnick, CFO
Thank you for your questions, Ken, and thanks to everyone participating today.
Vlad Tenev, CEO
Thank you all.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.