1210: The Best Trade May Be the One You Don’t Make | Shiv Verma, CFO, Robinhood

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Speaker B: Hello, this is Martino Cadoni, CFO at DeepL and you are listening to the CFO Thought Leader podcast.

Speaker A: This is episode 1210.

Speaker B: Uh, I had an offer to go join JP Morgan as an investment banker in New York. I grew up in California. I went to school out there. So I've been there my whole life and I wanted to try out Wall Street. Um, so I, uh, I, you can look back and say maybe I made the right decision, maybe I had the wrong decision, but instead of staying with them, decided to try the Wall street thing. Um, I learned a ton. Um, you know, I did the two year analyst and went through it and this was 06 to 08 when the markets were falling apart. And so if anyone's watched the Big Short, um, that's what I was doing. So I was doing structured credit and clos. I was the analyst on the team building the models and then in, oh, wait, when the financial crisis hit, I then joined a hedge fund and bought back everything that we originated at par for 5 cents on the dollar. And so got to see a lot very, very early on in my career. Um, it was great foundation. Uh, we still hire a lot of ex bankers on the finance team today. Um, as much as it was long hours and a ton of work, I think you just get a really, really good foundation for, uh, whatever you choose to do.

Speaker A: Hi, it's Jack. On today's show, we speak with Shiv Verma, CFO of Robinhood. Finance leaders are often measured by the investments they help make. But what about the ones they stop? In an environment where speed is rewarded and every new opportunity arrives carrying its own case for urgency, restraint can look like hesitation. Yet the harder judgment may be deciding when the expected return does not justify the risk and having the confidence to say so. The modern CFO is expected to enable growth without becoming its automatic approval mechanism. So where does healthy discipline end and excessive caution begin? Our guest offers a memorable answer, one that turns the language of trading into a lesson about knowing when not to act. Our talk with CFO Shiv Verma begins at.

Speaker C: After this.

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Speaker C: Hello. CFO Shiv Verma is with us. Shiv began his career inside the Oakland A's data driven baseball operation, then moved into credit research and portfolio management before

Speaker A: crossing into operating finance.

Speaker C: Since joining Robinhood in 2018, he's helped steer the company through rapid growth, public market scrutiny and an expanding financial platform. Now as cfo, he's helping weigh product velocity, global expansion, AI investment, and the economics of a far more diversified business. Shiv, welcome.

Speaker B: No, thank you for having me. I really appreciate the kind words to start.

Speaker A: Please.

Speaker C: We're really eager to have you look back for us and, uh, try to figure out how you landed inside, uh, the Oakland Athletics there. The Billy Bean Moneyball operation. How did that happen?

Speaker B: Yeah, it was a great way to start your career. So I grew up in the East Bay, Central Valley, huge Bay Area sports fan and going to A's game since I was four years old with the Bash brothers, Mark McGwire and Jose, uh, Canseco and Dennis Eckersley. And so when I was in college, um, I just reached out to them cold and said, hey, um, I was graduating early, I'd finished my classes and said, I'd love to come work for you and do anything for free. Um, much to my chagrin, they took me up on the offer and I got to meet their baseball ops team and then I ended up working for him and it's one of the coolest experiences I could imagine. So I worked on the baseball ops team. Um, it was Billy Bean, David Force, and Farhan Zahidi for those who know them. Farhan Zahidi, who was my direct manager, then went on to be, uh, the president of the Giants and the GM of the Dodgers and has this great career and David Forrest was, was the GM along with Billy. And that was the whole team. Like we were in the room, you know, talking baseball every day, playing poker with the players, watching batting practice. Um, I really learned things I still use today. Uh, the value of using data. It Sounds simple now, but 20, 25 years ago that was non obvious. Especially in sports, uh, being lean and scrappy. I mean one of our disciplines at Robinhood is being lean and disciplined and I took that away in every way they did. And so I love my time there and uh, I still look buck family on a lot of the memories. I learned.

Speaker C: When you do leave, are you thinking of moving into a traditional banking career or what's on your mind?

Speaker B: Yeah. So, uh, I had an offer to go join JP Morgan as an investment banker in New York. I grew up in California, I went to school out there. So I've been there my whole life and I wanted to try out Wall Street. Um, so uh, you can look back and say maybe I made the right decision, maybe I had the wrong decision, but instead of staying with them, decided to try the Wall street thing. Um, I learned a ton. Um, I did the two year analyst and went through it and this was 06 to 08 when the markets were falling apart. And so if anyone's watched the big short, um, that's what I was doing. So I was doing structured credit and clos. I was the analyst on the team building the models. And then in 08 when the financial crisis hit, I then joined a hedge fund and bought back everything that we originated at par for 5 cents on the dollar. And so got to see a lot very, very early on in my career. Um, it was great foundation, uh, we still hire a lot of ex bankers on the finance team today. Um, as much as it was long hours and a ton of work, I think you just get a really, really good foundation for whatever you choose to do.

Speaker C: Just, just uh, reflecting a little more on those banking years. I mean was there a early investment call that taught you something about judgment or your judgment?

Speaker B: Yeah. So, um, in 08 I joined a hedge fund as I imagine and you know, this was six weeks before Lehman Brothers went under and the entire world felt like was falling apart. And we had this great CEO and CIO who was mentor to me and helped me learn how to invest on the buy side. And one of the main things I took away from him was um, the best trade you ever make is often the trade you don't make. And so it is really, really easy to make an investment and sell yourself into it and get excited about it. Whether you're doing ah, a financial investment or now even at Robinhood we're making investment, it is really hard to ask the right questions and, and know when to say no. And so when we are looking at Things internally today, whether it's funding a new investment, whether it's a marketing campaign, whether it's an M and A deal. I still use that mindset of a lot of times the best thing we do is to not say yes. Um, now that doesn't mean we want to grow and we're saying it a lot of things, but trying to balance that business enablement and controllership. And so growing up in the financial crisis and coming through the credit background, uh, it's very different now being on the equity side and, and being at a hypergrowth company, a technology company and want to invest. But I think it's a nice balance of having started my career on that credit side of the house.

Speaker C: Yeah. And your time from portfolio management, I'm wondering, I always like this point of comparison with operating companies. Is there a belief from your portfolio management years that has failed you in some way inside an operating company?

Speaker B: Yeah, it's a great question. So, um, I was portfolio manager at Pimco and a couple other places. And your whole job there is to look at the company, tear about the financials, invest the management team. But I remember you go to these conferences and you speak with the CFO and the CEO and you say, why aren't you growing faster? Why is EVA dot down? Why are your margins down? Um, being on the other side now for 10 plus years, it is hard. It is really easy to sit in the ivory tower and make proclamations and ask what folks are doing. It is incredibly hard to be in there every single day, to be in the week. So looking at the KPIs, to driving the results, to work with the engineers, I love it. I wouldn't change it for the world, but I think a lot of folks who have only spent their career on the buy side or the sell side and looking at uh, the investment side and not having been in house, they miss a little bit of what does it really take to actually drive change. And we have so many great people, whether it's our engineering or product team or other functions as well, to do that, uh, that I think sometimes it gets lost when you're just looking at the quarterly financials and trying to judge it from outside looking in. Um, but it is a really good lens, especially when we went from being private to being public, knowing how public market investors think, knowing what they're looking for, understanding the criteria. Um, I go to conferences now and I joke with our IR team. Sometimes I go sit on the other side of the table because I'm used to being the portfolio Manager who's asking the manager team the questions. And now we're on this side. And so I think having both of those lenses is actually a pretty unique vantage point and uh, something that aids us when we're building our internal plan.

Speaker C: Was there a particular career chapter that influenced how you evaluate risk, uh, the most? I mean, which chapter might have really shaped how you think about that?

Speaker B: Yeah, um, I think it was the first 10 years. And so, uh, as I mentioned growing up in 06 to 08, in 06 to 07, those were the boom years and structure credit was all the rage. And then quickly seeing how fast it can fall in 08, I think that was a wide eye opener. If I go from 08 to 2011, what I learned then is when opportunity strikes, you need to be ready. So some of the smartest folks that I knew when everything was falling apart, they were looking at it and said this doesn't make any sense. And they really put their capital to work then. And so knowing how to do that. Risk adjusted framework, um, when I went to the second part of the portfolio manager career and you're managing portfolios, it was ingrained into us that everything is risk adjusted return. It is really easy to get a great return by taking outsized risk, but we were always evaluated on what's your risk adjusted returns, whether you're looking at a Sharpe ratio or information ratio. And so that's still how we look at things today. Uh, you want to be making investments and you want to be taking some of those big bets, but you also have to understand the downside. And so I think that's a lot of what we take today. And so it's probably the entirety of the first 10 years, but really my formal years were growing up during the gfc. And so you take a lot of those lessons for when to be careful, but also when to go big when you see certain opportunities arise.

Speaker C: So what is it that uh, why did you leave investing for an operating role? What was it? And ah, would you have done it

Speaker A: sooner now as you look back?

Speaker B: Yeah, great question. Um, I don't know if I would done it sooner. I really enjoyed my first 10 plus years of investment and being on that buy side and learned a ton and made some great relationships. Relationships and people that I still value today. The reason I made the switch was, um, so I grew up in California, I'm a hippie vegetarian. You know, that's, that's my, my entire family and so on the east coast. I love the work, I just, the culture, the Scene it wasn't for me. So always knew, wanted to come back out west and I'd gone. I did two stints in New York and the second time was my wife was doing her residency out there and she was finishing up and ready to come back out west. And um, so I started thinking about what I wanted to do. And so I called um, one of my mentors, uh, from the investment side. And this was 2014, 25th, 2015, 2016. And he said, have you heard this thing called fintech? Fintech wasn't even a word. It was just starting to come about. The first of them were coming and he's like, shiv, I think you'd be really good at this. And you have an investment background, but I know you're itching to try more. You should look into it. And so, uh, I started to look at both investment firms on the west coast, but also uh, some newer fintech companies. And I said, well, if I'm coming back home, I'm going to Silicon Valley. Let's see if we can join the gold rush and try something different. And so I talked to a lot of different companies and I really like the idea of being in a mission driven company. Um, especially having spent so many years on Wall Street. Again, I love the work and intellectual side of it. I just didn't get the fulfillment out of it. And so the first thing I did is I joined a fintech that was mission driven. Um, it's called opportune. It helped people, um, usually with lower socioeconomic wealth to get access to credit. And so really, really great mission driven company in tech space. And realized I love being on the operating side, digging into problems, uh, and being part of that team. And so when I was looking for my, my next opportunity, um, that's where I found the Robinhood. And it was uh, it was right place, right time. Like when I joined robinhood, there were 180 people, couple million customers and just starting to inflect. And uh, and I feel super fortunate to gotten gotten in at that space. But having done something right before I think was really valuable because I saw that, I enjoyed this part of it. And then once I found the right company and right fit, it's like this is where I want to be for hopefully the rest of my career.

Speaker C: So how is leading finance at Robinhood maybe change the way you lead in general? You know what, what's the change in this operating environment as far as leadership goes?

Speaker B: Yeah, it's a great question. Um, so I joined as a team of one. I was hired as the treasurer and to build out that team. And as I mentioned, we were small. And so it's been really organic in building out the team over time. And so, uh, our prior cfo, Jason Warnick, he joined from Amazon. He was there for 20, 20 years and then recently retired. He's one of my favorite people, mentors, friends. I learned a lot of leadership from him and so I still use a lot of those principles today. Um, and so part of it is, you know, you hire great people, you empower them, uh, you don't micromanage, you try to hire people that are smarter than you and that you just hire people that you have both high eq but also high iq. And so for us it's really important that people come in and they want to work hard and we're known to have a hard, high, uh, performance culture, but also people you want to spend 10, 12 hours a day with. And so we look for a mix of that. Um, and you know, to your question for how do you lead? A lot of it is I just do what I think comes natural to me and hopefully the rest comes best. And so, for example, I go really deep in the weeds. Um, I am the best when I'm actually looking at the raw model and understanding it and going that. And that doesn't mean I don't trust the team or I don't micromanage. But also people know if I'm going to look at something like, we can't stay at the 40,000 foot view, we have to go super deep. And so I say, just be your authentic self, um, and let people do great. And then the other thing I've learned over time is, uh, as you build out the team, uh, if opportunity happens, just say yes. And so this is something that I share with some of our younger folks and what Jason had shared with me. But for example, when I was hired, um, to be the treasurer, about six months later, Jason said, hey, could you run ir? I said, I've never done IR before. He said, ah, you're a former investor, you'll figure it out. A, um, few months later, he said, hey, we don't have a finance team. Can you build it out? I've never done finance before. He said, ah, you're a smart guy, you'll figure it out. And if I look back throughout the way, some of the best leadership opportunities I've had or the other opportunities are just do what's needed and just say yes. And so that's what I teach a lot of our younger folks. Today and that they're everyone's looking for more scope or they want to make impact or they want to, they want to be a leader at the company. I said there's two things you can do. Just crush your core responsibilities, whatever that is. Even if it doesn't seem like that big. Own it, crush it, give it 150%. Two, if you see something that's broken or an opportunity happens, just go fix it. Just say yes. And so that's a little bit of what we do. And I think it just naturally happens. Um, but yeah, I give a lot of credit to Jason, I give a lot of credit to the team. We're all still trying to figure it out. And uh, it's amazing to have gone from a team of one to now helping lead a finance team of over 200 people and a company of nearly 3,000 people. Uh, and just seeing how far we've come in the past eight years.

Speaker C: Well, Shiv, uh, we probably will have a few more career related questions for you, but right now we'd love to find out about Robinhood. Understand better. You know, what does a, uh, business offer today? What is this opportunity? Uh, about now.

Speaker B: Yeah, absolutely. So you start with the mission. Um, it's democratized finance for all and that's how we build all of our products. They're really just not posters on the wall. It's what we take and embed them. Um, and if you look at how we started, uh, we started with commission free trading, very simple. There was a pain point in the markets. Most consumers didn't have access to the equity market. There was high minimums, there was high fees and there was a lot of jargon. And so that's how we started mobile, first platform in the cloud. Great design. If you look at where we are today, we've evolved into the financial super app, or that's what we aspire to be. To be honest. We said that five years when we went public and we were still learning what it meant. But what it means for us is serving every single one of your customers needs. And so any financial transaction, any asset you want to custody, you should be able to do that at Robinhood. And so how does the business look today? Um, we have the core brokerage business. That's your equities trading, that's your options trading. Big active trader platform. Um, and we're number one in market share and options and number two on equities and gaining. So really kind of being in that ecosystem. Um, the second part of our business, we have a Big crypto business as well. So anything you want to do on the crypto side, whether it's trading assets, uh, we're really focused on the infrastructure layer. So we have the Robinhood chain that just came out, we have the Robinhood wallet so you can hold it in defi. We think, uh, crypto and the blockchain is here to stay and is going to be a big part of the financial ecosystem. So building that out, we then have what we call our money business, which is banking and credit. So we have banking, you can have checking and savings, you can get the Robinhood credit card. And so if you want to be able to spend, save, do that. And then we have a big kind of passive investment Vegas. So whether, uh, it's your retirement, we have our 30 billion retirement assets, uh, ETFs, uh, kind of creating long term wealth. I have my daughter's accounts on here, I have a young daughter. So you can have custodial accounts, you can have trust accounts. And so building out that whole hub. And then if I look at our last bucket, we call it global financial ecosystem. We're going global. And so today we started in the U.S. we're now in Canada, the UK, Europe, Singapore, and we have a pending acquisition of Indonesia closing. So getting broader there. And then ecosystem means B2B or institutional. And so when we talk to our institutional or B2B customers, they want the same thing traditional retail wants. Low cost, easy to use, great design. And so that's how we're starting to build that out. Uh, we bought a crypto exchange a few years ago called bitstamp that's doing great. Uh, we bought an RA custodian called Trade PMR a few years ago and going great. And so we're starting to build that out. So we've come a long way from just commission free stock trading to really building out this financial ecosystem. Um, and you can start to see that in the financial super app and then it's translating to the financial profile. So uh, for your listeners and viewers, big picture, we're about 5 billion of run rate ARR, about 3 billion of EBITDA. Uh, we have 13 businesses doing over 100 million of ARR. We call them cylinders. And so a big diversified platform across a lot of different business lines. Uh, and the fun part is we're just getting started. Um, and there's a whole lot of things we still have in the hopper.

Speaker C: Uh, you mentioned acquisition was always is part of the strategy. Uh, you used acquisitions to enter, as you explained, the crypto market. But Also the advice arena. Which move has changed the business the most?

Speaker B: Mhm. Yeah, it's a great question. You know, I'll start with our um, capital allocation philosophy. And so, uh, we are a growth company. The beauty of Robinhood. We run lean and discipline and a lot of our investments are just through organic growth. And so first and foremost we go into organic, then we go into M and A. Our criteria for M and A are tech talent, speed to market. So if you look at our acquisitions today, it's good tech. We don't buy things on mainframes. It's things that we feel good about, uh, great teams. And so most of the acquisitions we, we've done, the founders then become the GMs of those business use internally. Makes sense. We bought them because they were beating us. That's something we wanted to do. And so then we asked them to come lead it rather than saying, hey, we know how to do it and we've had some real success there with, with leaders coming in and even taking on broader responsibilities. Um, and the last thing is speed to market. It is a land grab. So can it accelerate us by 18 to 24 months? Is, is the rough mental heuristic. Then of course it needs to pass all the IRR and NPV and internal thresholds we look at. But that's a little bit of the philosophy. Um, and then the last thing is shareholder return. And so any additional capital we return to shareholders. We have a $1.5 billion share repurchase program and continue to do that. So when I look across all of those, we're in the proverbial spot where we can have our cake and eat it too. We can invest for organic growth, we can do M and A and uh, we can return capital shareholders. Um, so to answer your question directly, which has had the biggest impact on, I look at it on of the three arcs that we're on, where are we going to use M and A? So our three arcs are we want to win in active traders, we want to grow wallet share. We want to be the dominant global financial ecosystem, the active trader arc. We have not done much in M and A. That is our core business. We know how to do that. Steve Cork, our chief brokerage officer, came from thinkorswim and has built out a great platform. And so we tend to use it less. Where we use M and A is those middle two arcs, wallet share and uh, global ecosystem. And so the reason for that is these are our longest ARCs. The wallet share is three to five years. The ecosystem is five to 10. There's only so much you can build. But if you start with M and A on some of those longer term arcs, you can pull them forward. And so, you know, you know, we mentioned the uh, bitstamp exchange or the advice. Those are things that over the next 10 years we knew we wanted to do. But one, it wasn't one, that we, we saw we were doing recently. And two, it wasn't our core skill set. And so that's why we've accelerated in there. And so every company does it a little bit differently. But um, for us, we tend to make more of our M and A investments on the longer time horizon arcs.

Speaker C: To understand really the revenue model that Robinhood has, how it makes money. Uh, we think of subscriptions, we think of through transactions, we think of interest. Which lens maybe explains it best?

Speaker B: Yeah, so you can take a couple lenses. Uh, one that many of our investors use is transaction revenue versus net interest revenue versus other, which tends to be subscription. Um, and so if you look at our core business, we're roughly 50 to 60% transaction revenue. But that's diversified across a lot of different business lines. So it's equities, it's options, it's crypto, it's event contracts. Uh, it's now the credit card which has transaction revenue in there and interchange. And so that is a customer doing something and you get a transaction fee on it. Now you work for very, very small amounts, but at scale that adds up to that. You know, the 5 billion of revenue that I was mentioning. And so our philosophy is we want to pass on most of the value to customer nearly everything, work for thin amounts of margins, build with high fixed costs and low variable costs, and then you can have really high incremental margins. And so that's how our transaction revenue is based. And um, it continues, depending on the macro environment, it can be 50 to 60% of revenue. Uh, the second line item, um, is net interest revenue. Um, that is where we earn a small margin, typically on things like cash. And so we have a high yield suite program where we paid a vast amount of the interest to customers, uh, about 3.5%. We keep a very tiny margin. There's about 30 billion plus in that program. And uh, that adds up over time. Uh, we have other areas that you have a small amount of net interest margin, whether it's securities lending or the banking products. Um, and so that's kind of the second larger bucket. It's not transaction based, it's more based on the total assets you have and what's your small take rate on that. And then the third is um, it's other. But most of our other revenue tends to be subscription revenue. And so we have a Robinhood gold product. It's $5 a month or $50 a year. We think it's the best deal in financial services, akin to the Costco model. Um, there's about 5 million customers on there. And so that's kind of recurring revenue stream. We don't really think about it even as recurring revenue. And the reason we do it, we do it more because it's a loyalty product and it drives engagement and cross and our customers love it. But that's the line item there. Um, the one thing I, I really enjoy in our business is uh, it is diversified. And so you know I mentioned the 13 different business lines doing 100 million of ARR that are baked into those. They are across all the different buckets. Some of them are transaction based, some of them are NIM based, some of them are others, some of them are, are non, uh, brokerage businesses like our credit card that just joined there. And so it's really nice to have kind of this diversity of business. Um, the other part is it's a natural hedge in the macro environment. So what I mean by that is, uh, let's say interest rates are low. What you'll see is asset valuations will be higher, there'll be more investment in trading. So transaction revenue will be higher, but Nim, um, will probably be lower. Conversely, if you're in a higher interest rate environment, asset valuations will be lower, you'll probably see less trading, but NIM will be higher because people save more. And so there's this really nice natural hedge in financial services across these business lines. And so what we really focus is on can we serve customers, can we pass on value? And then if you do that and you build this across a diversified business, that's a really great return for shareholders as well.

Speaker C: We like to uh, understand better your lines of sight into the business. I mean before revenue appears, which signal tells you the most? Is it net deposits, product adoption or trading activity? How am I doing this?

Speaker A: Am I close?

Speaker B: Um, 100%. So our North Star KPI is net deposits. That is our customers trusting us with their hard earned assets. And so this is what we tell investors, this is what we tell the teams internally. Everything we're building for is how do we get customers to trust us more. And I think net deposits is a great way to do that. So net deposits then drives AUC and the largest Predictor of revenue over time is just assets under custody. And so we have a chart in our investor day from a few years ago that shows as assets grow, the scale of revenue correlation is about 90, 90% plus. And so it's great for shareholders and it's great for customers. And so that's our North Star KPI. When I go into each of the three different buckets, they are gold on one to two North Star KPIs. If I start with transaction revenue, it's just market share. Every single team is gold and market share, equities, options, cryptos, event contracts. Um, the reason we do this is we don't do revenue or even down to profitability is it's market agnostic. And so if markets are going up and your revenues are going up and your volumes are going up, you could pat yourself on the back, but it could really just be the market. Conversely, if the markets are doing well and volumes of revenue slowing, but you're gaining market share, you actually might miss that, you're doing well. And so we use market share for all of them. Now we put financial constraints on there and we have pricing principles because one way to grow market share is just eat your margin or uh, even go negative, which is not how we run the business. So, so it's a really nice way to look at it where you have to grow market share, but you have to stay within the financial principles. Um, if I look at our second bucket, grow wallet share, that is net deposits and gold subscribers. So net deposits we just talked about, gold is our subscription product. And so that's what we ask the teams to kind of drive in that bucket. And then in the third bucket, which is global ecosystem, on the consumer side, it's just net funded accounts for them. They are early in their journey, they are gold on growing users and making sure that they're starting the ecosystem there. And so NFAs are their top KPIs. And then for the institutional side it either tends to be market share or their equivalent of net deposits, which might be net asset flows or something like that. So very consistent across the business. Um, there's a ton of sub metrics that every team is gold on. But what I tell investors, and for everyone who wants to understand Robinhood's business, if, if we are growing net deposits, the business will do well. And then if we are gaining market share across all of our different products, that's how you should be evaluating us.

Speaker C: I was looking over some of what I would call, I guess milestone, uh, headlines out there. One came, uh, front and center. Robinhood raised 2.2 billion through zero coupon convertibles. I'd like to ask why was that the right financing?

Speaker B: Yeah, it's a great question. Um, first question I get asked is, well, why did you even do the financing? You're in the fortunate position. We have $6 billion plus on the callit sheet. We're spinning off more free cash flow than what to do with. Why did you raise incremental capital for first time in five years? Um, I was trained in the mantra of you raise the capital when you can, not when you need it. Um, it's much harder to do it in times of when you actually need it rather than the markets are doing well. So that was kind of the first point. Um, the second thing is we did it in a way that was really beneficial to shareholders. And so, uh, it was a $2 billion plus convert. But first it was 0% coupon so there's no cash interest and so that's great for shareholders. Um, second, because it was a convert, uh, the way we structured is there is no dilution on the convert until the stock goes from at the time we were, you know, around $110 to $230 plus so over a hundred percent gain. That is the first time shareholders would, would actually take any dilution. And then third, we took some of that capital and we did a 300 million dollar share repurchase on day one because we believe in it and we still think we have a long way to go. And so you add that piece in there and then you don't take a dollar of dilution until we're over $300 share price. And so you put it all together and um, the convert market was incredibly strong. They're giving US capital, 0% interest rate. We can structure in a way for equity shareholders where we can do a large share repurchase on day one and not take any dilution until a very high um, uh, share price increase. And it seemed like the right time to take in some capital. What it does is it just gives us flexibility. As I mentioned, we look at organic growth, we look at M, M and A and then we do shareholder return. And this is just one tool. Um, but if you put together a strong macro backdrop and that we were a very nice first time issuer, large in scale with high volatility so we could get great terms. It just gave us an even stronger balance sheet and a little bit extra optionality.

Speaker C: We want to quickly touch on AI with you. There's Cortex customer Support and fraud detection, all using AI today. Where is the clearest value though?

Speaker B: Yeah, great, great question. So, um, we are fully AI pilled. This is something we've been focused on for years. So, ah, Vlad, our CEO and co founder, um, has another AI company that he also started. And so that's kind of the, the world that we live in. And so he's making sure that we are fully, uh, embracing it. Um, when ChatGPT Enterprise came out in 2022, we were on the phone with Sam the first weekend trying to get access to it. And so we've been making sure that we had these tools time. So where did we start? Um, the first, the easy things were software, uh, development and customer service. Like that's where we started software development really increased our productivity and we've shared some numbers before that. You know, uh, when I looked at the middle of this year, our commit Velocity, which it's a proxy for how fast we're shipping. But go back to the start of last year, it had already doubled since then and that was up, uh, even more than the year before. And so one of these reasons is really empowering your software developers, but also your entire team with some of these AI tools. The next thing we did is we looked at customer service. It was the lowest hanging fruit, one of the biggest cost items. And so, you know, we've shared before that we took out, you know, over nine, uh, figures of savings of cost based between customer service and other operational things from that. But those were kind of the early days. Um, so we built all the customer service in house. We didn't use a third party. Um, and so today we deflect about 70% of our customer service tickets using AI. Now what are we focusing on is how do we really take those gains and make the products better. And so you mentioned a couple of them. Uh, you have Cortex, which is an AI assistant for customers. We now have Agentic Trading. Um, it's a way for customers to go in and have their agents in trading. And so the easy stuff with software development and customer service now it's how do you build a 10x product? It's really easy to say I just want to put AI into my products or I'm going to have agents. But unless you do it well, it's not helpful for customers. And so when we think about where the world is going, um, there will be some things like the Robinhood Assistant or Cortex, where you can just go in and talk to your agent. It'll help. There'll be other things like Agents, uh, agents is just a way to abstract a customer problem away. Doesn't matter what it is, it's a pain point. And so we started with both trading. We also did it on the credit card where you can have agentic payments. And so you're going to see us use more and more of these agentic products to help our customers with pain points. Um, and then the last piece we're really focusing on is just increasing productivity and shipping velocity in Turling. So we started with software developers. Now everybody at Robinhood has these tools. Uh, we don't token maximize. And so that was by design, but we really want to encourage people to use them, to use them. Well, we built our own harness internally. And so if you want to go in and create an agent, we makes it super simple. You can create an agent and abstracts all of the layers behind it, such as needing to go through okta, the security logins. It's one portal. You go in and you can do that. And so really giving our teams the tools, and then we're investing in training and education for our employee workforce. People are hungry for these tools, but they need help and how to use them. So we'll do weekend hackathons. We'll have people share ideas with others. There'll be, uh, shared skills across the firm. And so that's really, we're making our investments and then we should be judged on our product velocity. Like, one of the best ways to see are these tools working is are you shipping faster for customers? And so that's one of the things that we're looking at constantly. And you see it now, and we get asked so many times, how are you shipping so fast? And it's a lot of different things internally, whether we have a GM model or run lean and discipline, we got rid of committees. But now using these AI tools is another way to really help accelerate that.

Speaker C: We, uh, often hear about speed and accelerating how work gets done, uh, inside the finance organization when we ask CFOs about AI. But we wonder if anywhere has AI moved beyond faster work to maybe improve finance, uh, decision making?

Speaker A: Are you seeing that yet?

Speaker B: Yeah, absolutely. Um, so a couple things I'll point you to. Internally, we're doing kind of the basic blocking and tackling, like, can you automate journal entries, can you reduce workflows? I think that's helpful for finance. But to your point, how do we make it to improve insights? That's something I'm super excited about. So there is a team within finance where we've built our own internal we call it an insight engine. It's built on the back of some of our AI tools. And instead of needing to go to an analyst and saying, hey, can you, can you help me understand what happened with this trend? You can go directly to the insights engine. You can either see it or you can talk to it and can share it. So we start with a couple of very simple use cases. Uh, one of them was capital allocation. Where is capital allocation going? Where's our engineers? What are they working on? What is their productivity? Uh, then we expanded it to marketing because that's one of our other bigger buckets. Now we're expanding it to across everything we do. Um, I look at that tooling and it is phenomenal and it's less than six months old. And so I think if you're in a finance org, uh, it's important to do both. You have to do the meat and potatoes. Using these AI tools to help automate some of your workflows or improve the efficiency of your teams is kind of a priority. But where you can really take the jump is when you can start to turn to insights and you can help to drive things better. Um, we automate a ton of our reports. Now one of the things in finance is you're constantly producing reports and ingestion and you're trying to get not just the what but the why. But a lot of that is a lot of tedious work. And so being able to automate that then allows a lot of the team to be more freer for the higher level things to focus on. And so it's across all of these different buckets, it's automation, it's doing the meat and potatoes work, but then it's also trying to focus on kind of this insights and how you make great decisions going forward.

Speaker C: We always, uh, again we always like to, uh, put a lens on some of the trade offs that finance folks are involved in helping their companies make. I mean, as Robinhood adds products, what's harder judging durable adoption or separating growth from market activity?

Speaker B: Yeah, it's a great question. Um, so we spend a lot of time on when we're building a product, who is the customer, what pain point are you solving? And then we go to what is the ROI and how do we build it? You always start with the customer. Um, we have a set of pricing principles that we give to all of our GMs and our product managers and engineering leaders. And so when they're building it, they have a framework for using. So for example, um, one of the things we Say is what are the unit economics? I always start with unit economics. Um, it's interesting, Jason, I mentioned before, my predecessor coming from Amazon, he always starts with what's the 5 to 10 year P and L. We still look at that. I think that's incredibly important. But I'm trained in starting with what are the unit economics. I'm a simple man, like, what are the, what are the costs, what are the inputs? Um, how's it going to look? Then we go to, um, can you minimize the variable costs? So I've said this publicly before, I hate variable costs. We try to make as much fixed costs as possible. And so when you do that, if you do the hard work up front and you automate things and you do it fixed costs, you can work for a thin margin for customers, but then the entirety goes to profits as incremental margins. So that's some of the things we build. And then we look at the scale. Can this be a hundred million dollar ARR business in some amount of time? We have internal time horizon. It's not enough to have a great IRR and a great product anymore. You also have to make sure it can get to scale. So that's some of the things we look at. Um, and then to your point, depending on the product, is this revenue durable? Are you solving the customer pain point? Is it transaction revenue? Is it nim, is it sticky revenue? What is it fit? All of those are kind of downstream impacts. But the most important part is are you solving the customer pain point? And then is it a good roi? And if it passes our pricing principles? If so, then we want to fund it, then it's just stack ranking against all of your other priorities you're looking at. But we usually don't start with is this a durable revenue stream or what kind of revenue is it? What's it going to look like? That's a little bit backwards. It's start with the customer and then make sure it's a great business and then it's something we want to fund.

Speaker C: Well, great, uh, great overview for us. We are, uh, up to what we like to refer to as our finance strategic moment question. Again, this might have happened anytime during your career, but what comes to mind when we ask for a finance strategic moment?

Speaker B: Yeah, it's a great question. There's a lot of different ways we could go, but, um, I'll share a story that, you know, that we've shared publicly before. But in 2022, um, you know, we had just come off the IPO, the markets were turning Interest rates were rising, There was a big period of uncertainty, um, and we had to do a very painful change, uh, to the company. And so we went from a centralized model where you have a cpo, a cto, a coo, to a GM model. Um, and then we also had to reduce about 30 to 40% of our workforce. The beauty of Robinhood was we was always spinning off free cash flow and we were growing fast. We know to do it, but we never burn cash. And we had gone from 2,000 people to about 4,000 people in 18 months. And we just got away from solving hard problems and using engineering to kind of throwing bodies at the problem. And so we, we did the proverbial. We had to uh, rebuild, uh, the plane while flying it. We were in the public markets, we went through it. It was very painful. Um, and finance had to help lead that. You know, one of the main things I spent during that time was working with Flat as well. What do you want the future of the company to be and how should that look like and what should the goals be? What should the KPIs be? And so we ripped apart the company. We went back to first principles. Um, we started building for active traders. We had never built for them before. When we talked to our customers, it was our most engaged customers actually had the lowest nps. That was incredibly backwards. And the reason was we had never built for them. We had just built a product that was so good that they started to come but we weren't solving their pain points. And so this is when we came up with the 3 ARC framework. You know, winning Active Traders number one in Wallet Share global financial ecosystem. We redid all our KPIs to focus on market share and net deposits and gold subscribers. We went to the GM model, we reduced the workforce. Um, it was one of the hardest things I've ever had to do. Um, from the human element and working with the employees to trying to do this while being public. But where I look at where we are today, five years ago, if we wouldn't have done those hard things, there's no way we'd be in the position to be here. And so that's one that always comes to mind. And I give Vlad and the team a lot of credit. He came to Jason and me and he said what would it take to get us to be back to break even, to cash flow positive asap and what do we need to do and what does the company need to look like and what should we be doing? And there was no sacred cows. Start from Scratch. And in finance we built that plan and we knew it would be painful and we understood the ramifications. We went through the pros and cons. M. And then once we decided as a leadership team to go through with it, then we did it and we just meticulously executed and um, you know, our stock went from the IPO price of 38 down to $8. We were trading at cash value and people had written us off. But we could see internally what was happening. We could see the customer pain points starting to be solved. We could see the NPS going back up. We could see the engagement rising. And so we just kept at it. Uh, and now I look at where we are today. S&P 500 nearly $100 billion company with ah, close to 30 million customers and 400 billion of assets and none of that would have been possible. And so um, as hard as it was, I feel incredibly humbled and proud to have been part of the team to uh, help right size the ship and be able to start growing for customers again.

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Speaker C: There are CFOs who uh, uh, are building their careers in far quieter corners. Uh, you've seen Robinhood grow under near constant scrutiny since 2018 and we wonder what is leading finance in that environment?

Speaker A: Demand.

Speaker B: Yeah, it's a great question. Um, I think the main thing is you never get too high or you never get too low. You know that when everything seems like it's falling apart and it's a really hard time, it's probably not as bad as it seems. At the same time when, when everything's going well and you're in hypergrowth mode and you're the darling everybody loves, it's probably not going to last forever. And so what we always remind employees of, after every earnings, myself and Vlad and the team, we go up and we talk to them and we say, as hard as it is, don't look at the stock price. I know we're a stock Trading app. And we have that focus on customers, focus on the inputs, do the right things and good things will happen. And so, uh, I think being a finance leader who can help do that really resonates with the company. If the leadership team or in particular finance, is always worried or saying this isn't working or is getting too excited, that resonates down. But if you just remind employees, hey, we're in this for the long term, we're going to serve customers, we have such a great opportunity. That's something that I really focus on. Um, one other thing that I like to use, and again, I took this from Jason, um, who trained us, is finance's role is equal parts controllership and business enablement. It's the Amazon model. It's not bean counters. You're not going in there to say no. Your job as the finance leader is to go to get to a yes. Now. You have to take controllership seriously. That is the only way it works. In particular, when you're a public company, that is in incredibly important. But you also have to be focused on business enablement. So all of the finance leaders that we train and that we work with, we really try, uh, to ingrain that in them. That's not enough to be controllership or business enablement. You have to do both. And that's one of the things I love at Robin. I'm still an ic, I still work at a lot of projects, and being able to do that reminds me of a business enablement. But you also have to be able to say no. You have to be able to say no and do the hard things. Uh, I still personally approve every headcount and every marketing dollar that comes through. That hasn't changed. One, it gives me a good view of the business, but two, it reminds people of the importance of being lean and disciplined, that controllership side. So that's a little bit of, uh, how we run it internally.

Speaker C: You explained how you worked beside, uh, an experienced CFO for years before stepping into the role. You saw the company grow up, uh, along with your career. Uh, what surprised you as you took on the role? What didn't you know you, uh, didn't expect? Maybe I didn't know. This is part of the job. You know, what was it when you finally got there despite being in such close proximity?

Speaker B: Yeah, um, it's a good question. Uh, I'm still learning and still trying to figure it out. And I think that's one of the beauties of it. You know, no matter what you do, there's still always Much more to do. Um, Jason had done a great job, and we had been working on that transition for a while, and I'd gradually taken on more of the team. So I think when he actually chose to retire and when I took on the big chair, the internal transition was pretty smooth. And there wasn't anything Anything different. And most employees, it was kind of okay. This is the same thing. Should have been doing planning and approving Hightown and Dollars for a while, and so that wasn't a surprise. I think the external side, I'd run investor relations before, and I had done a lot of IR with Jason, but I think seeing the amount that it is, it was probably the biggest surprise. And so if I look at what changed the most, I think internally, it's pretty similar. But externally, uh, the investor engagement, the press and media engagement, working with business partners, externally, regulators, that's some of it. That was kind of the. That I needed to learn and was a little bit of a change. And so it's been wonderful. Um, I love being able to tell our story. I feel super fortunate, whether it's investors or media or business partners and regulators, but it was just a reminder of time is sacred. There's only so many hours in the day and everything you want to do. And I think for people who are starting out as CFOs, whether they grew up internally or taking it on, realizing the amount of time commitment it is on the IR side and the press and engagement and business partner side, that was probably the biggest change.

Speaker C: Shiv, we always like to ask our guests to reflect a little bit on the personal side. Sarah, you've been there, so quite a few years, so I don't know if your colleagues, uh, don't know everything about you already, but what's something that they might not know? Some, uh, pursuit that you had, some interest, some past milestone? You can even give us an Oakland Athletics story if you like.

Speaker B: No. Great question. So, a, um, couple tidbits that my friends or family know. Well, um, I'm a voracious reader. It's my catharsis. It's still what I love to do. I have a young daughter at home, and after she goes to bed, I either log on and work, or I like to read or if I'm traveling. And so I'm usually reading three or four different books at one time. I just jump around depending on what's interesting. So that's one. Um, the second thing I'll share with you is I'm a Jeopardy buff. Um, I've been watching the show since I was as young as I can remember. And I've been trying out for the show probably for the past 20 years. Um, I've got into the final round twice. And so the way it works is about a hundred thousand people take the test every year. They call about 2,000 people who pass the test for in person auditions. And then of that 2,000 people, about 500 people get on every year. So I've made it to that last step twice. And so one of these days, um, I think I'll hopefully make it on there. Uh, I have a very strange memory. I can remember facts and things from years ago or from books that I've read. And so it serves me well in jeopardy. And so it's fun, it's a good story. And uh, hopefully one of these days I'll, uh, be able to see if I can make it onto the show.

Speaker C: What about a book for your fellow, uh, CFOs out there? Something that's influenced your thinking or you thought was worthwhile? There's a lot I'm sure, that you don't prescribe, uh, to.

Speaker A: But what would you, uh, what would you tell us?

Speaker B: Yeah, absolutely. I'll give you a couple of my favorites. Uh, the first is the Outsiders by Thorndike. Um, I think it's the best book I've ever read on capital allocation. And once I read it, actually shared it with Vlad and others people internally, and I was like, hey, we have to read this. And it tells some stories of, of what are the best capital allocators of public companies in general. What have they ever done? Really, really enjoyed that. Another book is the Goal. It's a famous book from the 70s or 80s, MBA 101. It tells the operational processes of a factory. Uh, we gave it to the entire leadership team a few years ago. It is a really good way of looking at constraint theory and bottlenecks and for software development it's very relevant. And so that's when I find that, uh, that's very helpful. Um, another one is Only the Paranoid Survive. It's by the old Intel CEO and he's got some great stories in there. But there's a thought exercise that we often use internally. Um, when intel was not doing well and he said, hey, if a new CEO came in, what would they do from scratch and what would they do and start over? And then instead of waiting for someone new to come in, should we do that? And so oftentimes we'll kind of use some of that thought exercise internally for trying to make a Hard decision. Hey, if a new CEO were to come in from scratch and look at this, how would that do? And so I thought that was a good takeaway. But, yeah, there's a whole litany of books out there, but those are a couple of my favorites.

Speaker C: Wonderful. Uh, great selections for us. We're up to our last question. This is where we ask you to look forward finally. And what we'd like to know are your priorities for the coming 12 months? What would those be?

Speaker B: Yeah, um, it's pretty similar to what we're doing before. Uh, the first is keep shipping for customers. I mean, that is our bread and butter. You have to be delivering a product velocity. You can never get complacent. And so really making sure that we keep shipping and we keep thinking about the customers. Uh, the second is how do we continue to make sure that we are best in class and using AI? And we talked about that a lot, but that's both on the internal side and for the customer side. We are such early days on there, but how do we make sure that we can be a leader on that, not just in financial services, but across public companies? So that's one that, that we're focused on. Um, and the third is just keep making progress on our mission. Um, you know, Vladis start to say more publicly that one thing we're really focused on is ownership. We think this is a moment in time right now where the American public is looking for ownership, and we are one of the best ways to provide that, whether it's across equities or other asset classes. Private assets, public assets. And so we're really making a big push in how to make sure that Americans get ownership in the financial ecosystem. Um, if we keep working on that, I think good things will happen. But, uh, those are probably our top three priorities for the next few months.

Speaker C: Shiv Verma, thank you for joining us on, um, CFO Thought Leader.

Speaker B: Awesome. Thank you for having me. Hello.

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