Form 10-Q Coinbase Global, Inc. For: Mar 31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended | |||||
| OR | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to . | |||||
Commission file number 001-40289
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
Not Applicable(1) | Not Applicable(1) | ||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||||||||
Not Applicable(1)
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | | ||||||||
| Emerging growth company | | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of April 25, 2024, the number of shares of the registrant's Class A common stock outstanding was 199,758,519 and the number of shares of the registrant's Class B common stock outstanding was 45,810,422 .
(1) We are a remote-first company. Accordingly, we do not maintain a headquarters. For purposes of compliance with applicable requirements of the Securities Act of 1933, as amended, and Securities Exchange Act of 1934, as amended, stockholder communications required to be sent to our principal executive offices may be directed to the email address: [email protected], or to our agent for service of process at Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware 19808.
TABLE OF CONTENTS
| Page | |||||
1
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” or the negative of these terms or other similar expressions.
Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•our future financial performance, including our expectations regarding our net revenue, operating expenses, and our ability to achieve and maintain future profitability;
•our business plan and our ability to effectively manage any growth;
•anticipated trends, growth rates, and challenges in our business, the cryptoeconomy, the price and market capitalization of crypto assets and in the markets in which we operate;
•market acceptance of our products and services;
•beliefs and objectives for future operations;
•our ability to maintain, expand, and further penetrate our existing customer base;
•our ability to develop new products and services and grow our business in response to changing technologies, customer demand, and competitive pressures;
•our expectations concerning relationships with third parties;
•our ability to maintain, protect, and enhance our intellectual property;
•our ability to continue to expand internationally;
•the effects of increased competition in our markets and our ability to compete effectively;
•future acquisitions of or investments in complementary companies, products, services, or technologies and our ability to successfully integrate such companies or assets;
•our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally given the highly evolving and uncertain regulatory landscape;
•general macroeconomic conditions, including interest rates, inflation, instability in the global banking system, economic downturns, and other global events, including regional wars and conflicts and government shutdowns;
•economic and industry trends, projected growth, or trend analysis;
•trends in revenue;
•trends in operating expenses, including technology and development expenses, sales and marketing expenses, and general and administrative expenses, as well as certain variable expenses, and expectations regarding these expenses as a percentage of revenue;
•our key business metrics used to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions; and
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•other statements regarding our future operations, financial condition, and prospects and business strategies.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on any forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in such forward-looking statements.
Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, restructurings, joint ventures, partnerships, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
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RISK FACTORS SUMMARY
Consistent with the foregoing, our business is subject to a number of risks and uncertainties, including those risks discussed at length below. These risks include, among others, the following, which we consider our most material risks:
•Our operating results have and will significantly fluctuate, including due to the highly volatile nature of crypto;
•Our total revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our platform. If such price or volume declines, our business, operating results, and financial condition would be adversely affected and the price of our Class A common stock could decline;
•Our net revenue may be concentrated in a limited number of areas. Within transaction revenue and subscription and services revenue, a meaningful concentration is from transactions in Bitcoin and Ethereum and stablecoin revenue in connection with USDC, respectively. If revenue from these areas declines and is not replaced by new demand for crypto assets or other products and services, our business, operating results, and financial condition could be adversely affected;
•We have in the past, and may in the future, enter into partnerships, collaborations, joint ventures, or strategic alliances with third parties. If we are unsuccessful in establishing or maintaining strategic relationships with these third parties or if these third parties fail to deliver certain operational services, our business, operating results, and financial condition could be adversely affected;
•Interest rate fluctuations could negatively impact us;
•The future development and growth of crypto is subject to a variety of factors that are difficult to predict and evaluate. If crypto does not grow as we expect, our business, operating results, and financial condition could be adversely affected;
•Cyberattacks and security breaches of our platform, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition;
•We are subject to an extensive, highly-evolving and uncertain regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition;
•We operate in a highly competitive industry and we compete against unregulated or less regulated companies and companies with greater financial and other resources, and our business, operating results, and financial condition may be adversely affected if we are unable to respond to our competitors effectively;
•We compete against a growing number of decentralized and noncustodial platforms and our business may be adversely affected if we fail to compete effectively against them;
•As we continue to expand and localize our international activities, our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions will increase and we may be subject to inquiries, investigations, and enforcement actions by U.S. and non-U.S. regulators and governmental authorities, including those related to sanctions, export control, and anti-money laundering;
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•We are, and may continue to be, subject to material litigation, including individual and class action lawsuits, as well as investigations and enforcement actions by regulators and governmental authorities. These matters are often expensive and time consuming, and, if resolved adversely, could harm our business, financial condition, and operating results;
•If we cannot keep pace with rapid industry changes to provide new and innovative products and services, the use of our products and services, and consequently our net revenue, could decline, which could adversely impact our business, operating results, and financial condition;
•A particular crypto asset, product or service’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset or product offering, we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition;
•We currently rely on third-party service providers for certain aspects of our operations, and any interruptions in services provided by these third parties may impair our ability to support our customers;
•Loss of a critical banking or insurance relationship could adversely impact our business, operating results, and financial condition;
•Any significant disruption in our products and services, in our information technology systems, or in any of the blockchain networks we support, could result in a loss of customers or funds and adversely impact our brand and reputation and our business, operating results, and financial condition;
•Our failure to safeguard and manage our and our customers’ fiat currencies and crypto assets could adversely impact our business, operating results, and financial condition; and
•The theft, loss, or destruction of private keys required to access any crypto assets held in custody for our own account or for our customers may be irreversible. If we are unable to access our private keys or if we experience a hack or other data loss relating to our ability to access any crypto assets, it could cause regulatory scrutiny, reputational harm, and other losses.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Coinbase Global, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(unaudited)
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Customer custodial funds | |||||||||||
| Safeguarding customer crypto assets | |||||||||||
| USDC | |||||||||||
| Loan receivables | |||||||||||
| Crypto assets held as collateral | |||||||||||
| Crypto assets borrowed | |||||||||||
| Accounts receivable, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Crypto assets held for investment | |||||||||||
| Deferred tax assets | |||||||||||
| Goodwill | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Customer custodial cash liabilities | $ | $ | |||||||||
| Safeguarding customer crypto liabilities | |||||||||||
| Crypto asset borrowings | |||||||||||
| Obligation to return collateral | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 19) | |||||||||||
Preferred stock, $ | |||||||||||
| Stockholders’ equity: | |||||||||||
Class A common stock, $ | |||||||||||
Class B common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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Coinbase Global, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenue: | |||||||||||
| Net revenue | $ | $ | |||||||||
| Other revenue | |||||||||||
| Total revenue | |||||||||||
| Operating expenses: | |||||||||||
| Transaction expense | |||||||||||
| Technology and development | |||||||||||
| Sales and marketing | |||||||||||
| General and administrative | |||||||||||
| Gains on crypto assets held for operations, net | ( | ||||||||||
| Crypto asset impairment, net | |||||||||||
| Restructuring | |||||||||||
| Other operating expense (income), net | ( | ||||||||||
| Total operating expenses | |||||||||||
| Operating income (loss) | ( | ||||||||||
| Interest expense | |||||||||||
| Gains on crypto assets held for investment, net | ( | ||||||||||
| Other (income) expense, net | ( | ||||||||||
| Income (loss) before income taxes | ( | ||||||||||
| Provision for (benefit from) income taxes | ( | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Net income (loss) attributable to common stockholders: | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | $ | $ | ( | ||||||||
| Net income (loss) per share attributable to common stockholders: | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | $ | $ | ( | ||||||||
| Weighted-average shares of common stock used to compute net income (loss) per share attributable to common stockholders: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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Coinbase Global, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Other comprehensive income (loss): | |||||||||||
Translation adjustment | ( | ||||||||||
| Income tax effect | |||||||||||
| Translation adjustment, net of tax | ( | ||||||||||
| Comprehensive income (loss) | $ | $ | ( | ||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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Coinbase Global, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
| Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | |||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| — | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon settlement of stock awards, net of shares withheld | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options, net of repurchases | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of capped calls | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of equity instruments as consideration for business combination | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon settlement of stock awards, net of shares withheld | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options, net of repurchases | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense recognized in relation to restructuring | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Restructuring stock-based compensation expense | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Unrealized (gain) loss on foreign exchange | ( | ||||||||||
| Non-cash lease expense | |||||||||||
| Fair value gains on crypto assets borrowed and borrowings | ( | ( | |||||||||
| Gains on crypto assets held as investments and operations | ( | ( | |||||||||
| Realized loss on crypto futures contract | |||||||||||
| Crypto asset impairment expense (prior to ASU 2023-08) | |||||||||||
| Other operating activities, net | ( | ( | |||||||||
| Net changes in operating assets and liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities | |||||||||||
| Fiat loans originated | ( | ( | |||||||||
| Proceeds from repayment of fiat loans | |||||||||||
| Purchase of crypto assets held for investment | ( | ( | |||||||||
| Sale of crypto assets held for investment | |||||||||||
| Settlement of crypto futures contract | ( | ||||||||||
| Other investing activities, net | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Issuance of common stock upon exercise of stock options, net of repurchases | |||||||||||
| Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||
| Proceeds received under the ESPP | |||||||||||
| Customer custodial cash liabilities | |||||||||||
| Issuance of convertible senior notes, net | |||||||||||
| Purchase of capped calls | ( | ||||||||||
| Fiat received as collateral | |||||||||||
| Fiat received as collateral returned | ( | ( | |||||||||
| Other financing activities | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Net increase in cash, cash equivalents, and restricted cash | |||||||||||
| Effect of exchange rates on cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Cash paid during the period for income taxes | |||||||||||
| Operating cash outflows for amounts included in the measurement of operating lease liabilities | |||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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1. NATURE OF OPERATIONS
Coinbase, Inc. was founded in 2012. In April 2014, in connection with a corporate reorganization, Coinbase, Inc. became a wholly-owned subsidiary of Coinbase Global, Inc. (together with its consolidated subsidiaries, the “Company”). On April 14, 2021, the Company completed the direct listing of its Class A common stock on the Nasdaq Global Select Market (the “Direct Listing”).
The Company provides a trusted platform that serves as a compliant gateway to the onchain economy and enables customers to engage in a wide variety of activities, including discovering, trading, staking, storing, spending, earning, and using their crypto assets in both proprietary and third-party product experiences enabled by access to decentralized applications. The Company offers (i) consumers their primary financial account for the cryptoeconomy, (ii) institutions a full-service prime brokerage platform with access to deep pools of liquidity across the crypto marketplace, and (iii) developers a suite of products granting access to the Company’s ecosystem.
The Company is a remote-first company. Accordingly, the Company does not maintain a headquarters or principal executive offices. Substantially all of the Company’s executive team meetings are held virtually, with meetings occasionally held in-person at locations that are either not in the Company’s offices or in various of the Company’s offices distributed around the world. The Company holds all of its stockholder meetings virtually.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and preparation
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries – entities in which the Company holds, directly or indirectly, more than 50% of the voting rights, or where it exercises control. The Condensed Consolidated Financial Statements are unaudited but have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) on the same basis as the audited Consolidated Financial Statements, and in management’s opinion, reflect all adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair presentation of the Company’s Financial Statements. Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions in the Condensed Consolidated Financial Statements and notes thereto. Certain prior period amounts in the Condensed Consolidated Financial Statements have been reclassified to conform to the current period’s presentation. The unaudited Condensed Consolidated Results of Operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year or any other period and should be read in conjunction with the audited Consolidated Financial Statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2024 (the “Annual Report”).
There were no changes to the Company’s most significant estimates and assumptions, significant accounting policies, or recent accounting pronouncements that were disclosed in Note 2. Summary of Significant Accounting Policies to the audited Consolidated Financial Statements included in the Annual Report, other than as discussed below.
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Concentration of credit risk
The Company’s cash and cash equivalents, restricted cash, customer custodial funds, accounts receivable, loan receivables and deposits are potentially subject to concentration of credit risk. Cash and cash equivalents, restricted cash, and customer custodial funds are primarily placed with financial institutions which are of high credit quality. The Company invests cash and cash equivalents and customer custodial funds primarily in highly liquid, highly rated instruments which are uninsured. The Company may also have corporate deposit balances with financial institutions which exceed the Federal Deposit Insurance Corporation insurance limit of $250,000. The Company has not experienced losses on these accounts and does not believe it is exposed to any significant credit risk with respect to these accounts.
The Company also holds cash, restricted cash, and crypto assets at crypto asset trading venues, payment processors, and clearing brokers, and performs a regular assessment of these venues as part of its risk management process. As of March 31, 2024, the Company held $203.3 million at these venues, including $124.8 million in unrestricted cash, $63.6 million in crypto assets, and $14.9 million in restricted deposits. As of December 31, 2023, the Company held $93.5 million at these venues, including $88.8 million in unrestricted cash, an immaterial amount of crypto assets, and $4.7 million in restricted deposits.
The issuer of USDC reported that, as of March 31, 2024, underlying reserves were held in cash, short-duration U.S. Treasuries, and overnight U.S. Treasury repurchase agreements within segregated accounts for the benefit of USDC holders.
As of March 31, 2024 and December 31, 2023, the Company had five and three counterparties and four and three counterparties, respectively, who accounted for more than 10 10
Crypto assets held
The Company holds crypto assets for investment and operating purposes, as well as borrowed crypto assets and crypto assets held as collateral.
Effective January 1, 2024, the Company adopted ASU No. 2023-08, Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) using a modified retrospective approach. Upon adoption, the Company recognized a fair value adjustment on crypto assets held of $739.5 million and established a deferred tax liability of $177.9 million, for a net cumulative-effect adjustment of $561.5 million increasing retained earnings.
As a result of the adoption of ASU 2023-08, the Company introduced four new categories of crypto assets held in the Condensed Consolidated Balance Sheets based on their nature. This updated presentation aligns with the requirements of ASU 2023-08 and describes the purpose of the various types of crypto assets held by the Company.
Crypto assets held for investment
Crypto assets held for investment are primarily held as long-term holdings. The Company does not engage in regular trading of these crypto assets. The Company may loan crypto assets held for investment through Prime Financing. See Note 6. Collateralized Arrangements and Financing for additional details on Prime Financing. Crypto assets held for investment are initially recorded at cost and
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are subsequently remeasured at fair value on a specific identification basis at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets held for investment are recognized within Gains on crypto assets held for investment, net in the Condensed Consolidated Statements of Operations. Cash flows from crypto asset investment purchases and sales are recorded in Net cash used in investing activities in the Condensed Consolidated Statements of Cash Flows.
Crypto assets held for operations
The Company may receive crypto assets as a form of payment for transaction revenue, blockchain rewards, custodial fee revenue, and other subscriptions and services revenue which are recorded in Crypto assets held for operations when received. Crypto assets received as a form of payment are converted to cash nearly immediately or are used timely to fulfill corporate expenses. Crypto assets held for operations are initially recorded at the transaction price of the crypto assets at contract inception and are subsequently remeasured at fair value on a first in first out basis at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets held for operations are recorded in Gains on crypto assets held for operations, net in the Condensed Consolidated Statements of Operations. Cash flows from crypto assets held for operations are recorded as Net changes in operating assets and liabilities in the Condensed Consolidated Statements of Cash Flows. Crypto assets held for operations are recorded in Other current assets in the Condensed Consolidated Balance Sheets.
Crypto assets borrowed
Crypto assets borrowed represent crypto assets borrowed from third parties to facilitate Prime Financing. Prior to the adoption of ASU 2023-08, crypto assets borrowed were designated as fair value hedges, and accounted for as hybrid instruments, with a liability host contract that contained an embedded derivative based on the changes in fair value of the underlying crypto asset. Contemporaneously with the adoption of ASU 2023-08, the Company dedesignated $62.9 million of crypto assets borrowed that previously qualified as fair value hedges against the corresponding crypto asset borrowing. There was a net zero impact of the cumulative fair value hedge basis adjustments that were reversed and recorded in Transaction expense. As of December 31, 2023, the cumulative amount of fair value hedging adjustment was $3.9 million.
Post dedesignation and ASU 2023-08 adoption, crypto assets borrowed by the Company, that have not been loaned out, are recorded in Crypto assets borrowed in the Condensed Consolidated Balance Sheets. Crypto assets borrowed are initially recorded at cost and are subsequently remeasured at fair value using the average costing method at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets borrowed are recorded within Transaction expenses. See Note 6. Collateralized Arrangements and Financing for further details on Crypto assets borrowed and Note 21. Supplemental Disclosures of Cash Flow Information for details on cash flows from crypto assets borrowed included in the supplemental schedule of non-cash investing and financing activities.
Crypto assets held as collateral
For loans receivable, the Company requires borrowers to pledge collateral on loans offered under Prime Financing. Crypto assets held as collateral are initially recorded at cost if the Company has the right to sell, pledge or rehypothecate and are subsequently remeasured at fair value using the specific identification method at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets held as collateral are recorded
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in Transaction expenses. See Note 6. Collateralized Arrangements and Financing for additional details on crypto assets borrowed and Note 21. Supplemental Disclosures of Cash Flow Information for details on cash flows from Crypto assets held as collateral included in the supplemental schedule of non-cash investing and financing activities.
The following table presents the effects of the changes in presentation in the Condensed Consolidated Balance Sheets (in thousands):
| December 31, 2023 | ||||||||||||||||||||
Previously Reported | Adjustment | As Adjusted | ||||||||||||||||||
Crypto assets held(1) | $ | $ | ( | $ | ||||||||||||||||
Crypto assets held for investment | ||||||||||||||||||||
Crypto assets held for operations | ||||||||||||||||||||
Crypto assets borrowed | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
Recent accounting pronouncements
There have been no new developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s Consolidated Financial Statements and footnote disclosures, from those disclosed in the Annual Report.
3. RESTRUCTURING
In January 2023, the Company announced and completed a restructuring impacting approximately 21 % of the Company’s headcount as of December 31, 2022. The restructuring was intended to manage the Company’s operating expenses in response to the ongoing market conditions impacting the cryptoeconomy and ongoing business prioritization efforts. As a result, the Company recorded restructuring charges of $144.5 million, which included $84.0 million in stock-based compensation, $57.7 million in separation pay, and an immaterial amount of other personnel costs. There were no restructuring charges during the three months ended March 31, 2024.
4. ACQUISITIONS
Information on acquisitions completed during the periods presented is set forth below. The impact of these acquisitions was not considered material to the Condensed Consolidated Financial Statements for the periods presented, and pro forma financial information has not been provided.
One River Digital Asset Management, LLC
On March 3, 2023, the Company completed the acquisition of One River Digital Asset Management, LLC (“ORDAM”) by acquiring all issued and outstanding membership units of ORDAM. ORDAM is an institutional digital asset manager which is registered as an investment adviser with the SEC. The Company believes the acquisition aligns with the Company’s long-term strategy to unlock further opportunities for institutions to participate in the cryptoeconomy.
Prior to the acquisition, the Company held a minority ownership stake in ORDAM, which was accounted for as a cost method investment. In accordance with ASC Topic 805, Business Combinations, the acquisition was accounted for as a business combination achieved in stages under the acquisition method. Accordingly, the cost method investment was remeasured to fair value as of the acquisition date. As the fair value of the cost method investment was equal to its carrying value, no gain or loss on remeasurement was recorded on the acquisition date.
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The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill. The goodwill balance was primarily attributed to the assembled workforce, market presence, synergies, and time-to-market advantages. The Company finalized the fair value valuation analysis of assets acquired and liabilities assumed and as a result no measurement period adjustments were recorded.
The total consideration transferred in the acquisition was $96.8 million, consisting of the following (in thousands):
| Cash | $ | ||||
| Cash payable | |||||
| Previously-held interest on acquisition date | |||||
| Class A common stock of the Company | |||||
| Total purchase consideration | $ | ||||
Included in the purchase consideration was $6.0 million in cash and 119,991 shares of the Company’s Class A common stock that are subject to an indemnity holdback. The cash and shares subject to the indemnity holdback will be released 18 months after the closing date of the transaction.
The results of operations and the provisional fair values of the assets acquired and liabilities assumed have been recorded in the Condensed Consolidated Financial Statements as of the date of acquisition. The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):
| Goodwill | $ | ||||
| Intangible assets, net | |||||
| Other assets and liabilities, net | |||||
| Net assets acquired | $ | ||||
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data):
| Fair Value | Useful Life at Acquisition (in years) | ||||||||||
| Licenses | $ | Indefinite | |||||||||
| Customer relationships | |||||||||||
| In-process research and development (“IPR&D”) | N/A | ||||||||||
Customer relationships are amortized on a straight-line basis over their respective useful lives to general and administrative expense. The licenses have an indefinite useful life and will not be amortized. Management applied significant judgment in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to forecasted revenues and expenses, and costs to recreate the IPR&D and obtain the licenses.
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5. REVENUE
The following table presents revenue of the Company disaggregated by revenue source (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Net revenue | ||||||||||||||
| Transaction revenue | ||||||||||||||
Consumer, net(1) | $ | $ | ||||||||||||
| Institutional, net | ||||||||||||||
Other transaction revenue(1) | ||||||||||||||
| Total transaction revenue | ||||||||||||||
| Subscription and services revenue | ||||||||||||||
| Stablecoin revenue | ||||||||||||||
| Blockchain rewards | ||||||||||||||
Interest and finance fee income(2) | ||||||||||||||
| Custodial fee revenue | ||||||||||||||
Other subscription and services revenue(2) | ||||||||||||||
| Total subscription and services revenue | ||||||||||||||
| Total net revenue | ||||||||||||||
| Other revenue | ||||||||||||||
| Corporate interest and other income | ||||||||||||||
| Total other revenue | ||||||||||||||
| Total revenue | $ | $ | ||||||||||||
__________________
(1)During the first quarter of 2024, the Company reclassified Base and payment-related revenue from consumer, net to other transaction revenue. Prior period amounts have been reclassified to conform to current period presentation.
(2)During the first quarter of 2024, the Company reclassified Prime Financing fees earned from other subscription and services revenue to interest income, and renamed interest income to interest and finance fee income. Prior period amounts have been reclassified to conform to current period presentation.
Revenue by geographic location
In the table below are the revenues disaggregated by geography, based on domicile of the customers, as applicable (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| United States | $ | $ | ||||||||||||
International(1) | ||||||||||||||
| Total revenue | $ | $ | ||||||||||||
__________________
(1)No other individual country accounted for more than 10% of total revenue.
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6. COLLATERALIZED ARRANGEMENTS AND FINANCING
Loans and related collateral
The Company may lend crypto assets borrowed, crypto assets held for investment, crypto assets held for operations, corporate cash, and corporate USDC to eligible institutional customers through Prime Financing. Prime Financing lending arrangements may have open ended or fixed terms, with the exception of trade finance, where the Company enables customers to instantly invest in crypto assets without pre-funding their trade, which transactions are typically settled in one to three days. Crypto asset and fiat loans are recorded in Loan receivables in the Condensed Consolidated Balance Sheets. USDC loaned to customers does not meet derecognition criteria under ASC 860, Transfers and Servicing (“ASC 860”) as the borrower has an obligation to return the same financial assets (USDC) back to the Company in order to release the collateral pledged for the loan. This constitutes a form of continuing involvement with the USDC transferred and therefore the Company maintains effective control over the USDC. USDC loaned remains recorded in corporate USDC in the Condensed Consolidated Balance Sheets.
The following table summarizes the Company’s Prime Financing lending arrangements (in thousands):
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
Loan receivables | |||||||||||
| Trade finance receivables | $ | $ | |||||||||
| Fiat loan receivables | |||||||||||
| Crypto asset loan receivables | |||||||||||
| Total loan receivables | $ | $ | |||||||||
| Customer loans not meeting recognition criteria | |||||||||||
| USDC | $ | $ | |||||||||
Prime Financing loans are fully collateralized by a customer’s pledged crypto assets, USDC, or fiat, with collateral requirements ranging from 100 % to 400 % of the fair value of the loan.
The Company adheres to strict internal risk management and liquidation protocols for loan counterparty defaults, including restricting trading and withdrawals and liquidating assets in borrowers’ accounts as contractually permitted. If the value of the borrower’s eligible collateral falls below the required collateral requirement, the customer is obligated to deposit additional collateral up to the required collateral level. The Company continuously and systematically monitors the fair value of the related collateral assets pledged compared to the fair value of the related loan receivable, and requires additional collateral pursuant to the contractual terms of the loan agreements. Due to the collateral requirements the Company applies to its loans, the collateral maintenance process, and collateral being held on its own platform, the Company’s credit exposure is significantly limited and no allowance, write-offs or recoveries were recorded against loans receivable for the periods presented. The Company would recognize credit losses on these loans if there were a collateral shortfall and it is not reasonably expected that the borrower will replenish such a shortfall.
If the Company receives fiat collateral into a Coinbase controlled collateral wallet, the Company records the collateral in Cash and cash equivalents and a corresponding liability in Obligation to return collateral in the Condensed Consolidated Balance Sheets. If the Company receives USDC or crypto assets as collateral with contractual rights to sell, pledge, or rehypothecate the collateral, the Company records the collateral in corporate USDC or Crypto assets held as collateral, respectively, and a corresponding liability in Obligation to return collateral in the Condensed Consolidated Balance Sheets. Obligation to return collateral, if a crypto asset, is accounted for as a hybrid instrument, with a liability host contract that contains an embedded derivative based on the changes in the fair value of the underlying
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crypto asset. The remeasurement of the crypto assets held as collateral and the obligation to return collateral are recorded net in Transaction expense.
If the Company does not obtain control or have the right to sell, pledge, or rehypothecate customer collateral, the collateral is recorded in Safeguarding customer crypto assets and Safeguarding customer crypto liabilities if the collateral is USDC or crypto assets and Customer custodial funds and Customer custodial cash obligations if the collateral is fiat, as the collateral is required to be held on the Company’s platform.
The Company’s Crypto assets held as collateral and Obligation to return collateral consisted of the following (in thousands, except units):
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Units | Fair Value | Units | Fair Value | ||||||||||||||||||||
| Crypto assets held as collateral | |||||||||||||||||||||||
Bitcoin(1) | $ | $ | |||||||||||||||||||||
| Total held as collateral | $ | $ | |||||||||||||||||||||
Obligation to return collateral | |||||||||||||||||||||||
| Fiat | N/A | $ | N/A | $ | |||||||||||||||||||
| Bitcoin | |||||||||||||||||||||||
Total obligation to return collateral | $ | $ | |||||||||||||||||||||
Customer collateral pledged, not recognized | nm | $ | nm | $ | |||||||||||||||||||
__________________
nm - not meaningful
(1) The cost basis of bitcoin held as collateral as of March 31, 2024 was $75.4 million.
The following table summarizes the reconciliation of Crypto assets held as collateral for the three months ended March 31, 2024 (in thousands):
| January 1, 2024 | Cumulative Adjustment | Collateral Received | Collateral Returned | Gains(1) | Losses(1) | March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Crypto assets held as collateral | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||
__________________
(1)No cumulative realized gains or losses occurred during the period.
Borrowings and related collateral
To facilitate Prime Financing, the Company may borrow crypto assets from third parties and records the associated liability in Crypto asset borrowings in the Condensed Consolidated Balance Sheets. Crypto asset borrowings that have not been loaned out are recorded in Crypto assets borrowed. Crypto asset borrowings are accounted for as hybrid instruments, with a liability host contract that contains an embedded derivative based on the changes in the fair value of the underlying crypto asset. See Note 13. Derivatives for additional information. As of March 31, 2024 and December 31, 2023, the weighted average annual fees on these borrowings were 2.3 % and 2.0 %, respectively. See Note 13. Derivatives, for additional details regarding Crypto asset borrowings.
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The following table summarizes the units, cost basis, and fair value of crypto assets borrowed (in thousands, except units) and the associated crypto asset borrowings:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Units | Cost Basis | Fair Value | Carrying Value | |||||||||||||||||||||||
| Crypto assets borrowed | ||||||||||||||||||||||||||
| Bitcoin | $ | $ | $ | |||||||||||||||||||||||
| Ethereum | ||||||||||||||||||||||||||
| Solana | ||||||||||||||||||||||||||
Other crypto assets(1) | nm | |||||||||||||||||||||||||
Total borrowed | $ | $ | $ | |||||||||||||||||||||||
| Crypto asset borrowings | ||||||||||||||||||||||||||
| Bitcoin | $ | $ | $ | |||||||||||||||||||||||
| Ethereum | ||||||||||||||||||||||||||
| Solana | ||||||||||||||||||||||||||
Other crypto assets(1) | nm | |||||||||||||||||||||||||
Total borrowings | $ | $ | $ | |||||||||||||||||||||||
nm - not meaningful
(1)Includes various other crypto assets balances, none of which individually represented more than 5% of total crypto assets borrowed and crypto asset borrowings.
The following table summarizes the reconciliation of Crypto assets borrowed for the three months ended March 31, 2024 (in thousands):
Additions | Dispositions | ||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2024 | Crypto Borrowings Originated | Crypto Loans Repaid | Crypto Borrowings Repaid | Crypto Loans Originated | Gains(1) | Losses(1) | March 31, 2024 | ||||||||||||||||||||||||||||||||||||||||
| Crypto assets borrowed | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
(1)No cumulative realized gains or losses occurred during the period.
Under the terms of the Company’s borrowing arrangements, the Company may be required to maintain a collateral to loan ratio and pledge fiat, USDC, or crypto assets for crypto asset borrowings. If the lender has the right to use the collateral, or if the collateral is fiat, the Company records the collateral pledged as a right to receive the collateral within Other current assets in the Condensed Consolidated Balance Sheets. USDC pledged as collateral to lenders, where the lender does not have the right to sell, pledge or rehypothecate, is not recorded as assets pledged as collateral as the pledged USDC does not meet the derecognition criteria under ASC 860. This collateral continues to be recorded in USDC in the Condensed Consolidated Balance Sheets.
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The Company’s corporate assets pledged as collateral against crypto borrowings consisted of the following (in thousands, except units):
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Units | Fair Value | Units | Fair Value | ||||||||||||||||||||
| Assets pledged as collateral | |||||||||||||||||||||||
USDC | $ | $ | |||||||||||||||||||||
| Fiat | N/A | N/A | |||||||||||||||||||||
Total pledged as collateral | $ | $ | |||||||||||||||||||||
| Assets pledged as collateral not meeting derecognition criteria | |||||||||||||||||||||||
USDC | $ | $ | |||||||||||||||||||||
7. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net of allowance consisted of the following (in thousands):
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Stablecoin revenue receivable | $ | $ | |||||||||
Customer fee revenue receivable(1) | |||||||||||
In-transit customer receivables | |||||||||||
Other accounts receivable(1) | |||||||||||
| Less: allowance for doubtful accounts receivable | ( | ( | |||||||||
| Total accounts receivable, net | $ | $ | |||||||||
__________________
8. CRYPTO ASSETS HELD FOR INVESTMENT
The following table summarizes the units, cost basis, and fair value of Crypto assets held for investment (in thousands, except units):
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Units | Cost Basis | Fair Value | Carrying Value(1) | ||||||||||||||||||||
| Bitcoin | $ | $ | $ | ||||||||||||||||||||
| Ethereum | |||||||||||||||||||||||
Other crypto assets(2) | nm | ||||||||||||||||||||||
| Total held for investment | $ | $ | $ | ||||||||||||||||||||
nm - not meaningful
(1)Recorded at impaired cost as of December 31, 2023.
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The following table summarizes the reconciliation of Crypto assets held for investment for the three months ended March 31, 2024 (in thousands):
Transfers | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2024 | Cumulative Adjustment(1) | Additions(2) | Sales | From Operating | Crypto Loans Originated | Crypto Loans Repaid | Gains(3) | Losses(3) | March 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Crypto assets held for investment | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
__________________
(1)Fair value adjustment on Crypto assets held for investment upon the Company’s adoption of ASU 2023-08.
(2)Additions represent purchases of and staking rewards earned on Crypto assets held for investment.
(3)Includes $17.0 million of cumulative realized gains from sales that occurred during the period and no cumulative realized losses.
The Company has $264.3 million of assets subject to selling restrictions recorded in Crypto assets held for investment. The selling restrictions are time-based and lift between 2024 and 2029. Restrictions do not consist of any other obligations.
9. CUSTOMER ASSETS AND LIABILITIES
The following table presents customers’ cash and safeguarded crypto positions (in thousands):
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Customer custodial funds | $ | $ | |||||||||
| Safeguarding customer crypto assets | |||||||||||
| Total customer assets | $ | $ | |||||||||
| Customer custodial cash liabilities | $ | $ | |||||||||
| Safeguarding customer crypto liabilities | |||||||||||
| Total customer liabilities | $ | $ | |||||||||
During the three months ended March 31, 2024 and 2023, no
The following table sets forth the fair values of Safeguarding customer crypto assets as shown on the Condensed Consolidated Balance Sheets (in thousands, except percentages):
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Fair Value | Percentage of Total | Fair Value | Percentage of Total | ||||||||||||||||||||
| Bitcoin | $ | % | $ | % | |||||||||||||||||||
| Ethereum | % | % | |||||||||||||||||||||
| Solana | % | % | |||||||||||||||||||||
Other crypto assets(1) | % | % | |||||||||||||||||||||
| Total safeguarding customer crypto assets | $ | % | $ | % | |||||||||||||||||||
__________________
(1)Includes various other crypto assets balances, none of which individually represented more than 5% of total Safeguarding customer crypto assets.
See Note 14. Fair Value Measurements, for additional details regarding the Safeguarding customer crypto assets and Safeguarding customer crypto liabilities.
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10. OTHER CURRENT AND NON-CURRENT ASSETS
Other current assets and other non-current assets consisted of the following (in thousands):
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Other current assets | |||||||||||
| Crypto assets held for operations | $ | $ | |||||||||
| Prepaid expenses | |||||||||||
Assets pledged as collateral(1) | |||||||||||
| Income tax receivable | |||||||||||
| Other | |||||||||||
| Total other current assets | $ | $ | |||||||||
| Other non-current assets | |||||||||||
Strategic investments | $ | $ | |||||||||
| Property and equipment, net | |||||||||||
Intangible assets, net | |||||||||||
Lease right of use assets | |||||||||||
| Deposits and other | |||||||||||
| Total other non-current assets | $ | $ | |||||||||
_______________
(1) See Note 6. Collateralized Arrangements and Financing for additional details.
Crypto assets held for operations
The following table summarizes the units, cost basis, and fair value of crypto assets held for operations (in thousands, except units):
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Units | Cost Basis | Fair Value | Carrying Value(1) | |||||||||||||||||||||||
| Bitcoin | $ | $ | $ | |||||||||||||||||||||||
| Ethereum | ||||||||||||||||||||||||||
| Solana | ||||||||||||||||||||||||||
Other(2) | nm | |||||||||||||||||||||||||
| Total held for operations | $ | $ | $ | |||||||||||||||||||||||
nm - not meaningful
(1)Recorded at impaired cost as of December 31, 2023.
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Measurement alternative investments
The changes in the carrying value of strategic investments accounted for under the measurement alternative are presented below (in thousands):
March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Carrying amount, beginning of period | $ | $ | |||||||||
Net additions(1) | |||||||||||
| Upward adjustments | |||||||||||
| Previously held interest in ORDAM (see Note 4) | ( | ||||||||||
| Impairments and downward adjustments | ( | ( | |||||||||
| Carrying amount, end of period | $ | $ | |||||||||
__________________
(1)Net additions include additions from purchases and reductions due to exits of strategic investments.
Upward adjustments, impairments, and downward adjustments from remeasurement of investments are recorded in Other (income) expense, net in the Condensed Consolidated Statements of Operations. As of March 31, 2024, cumulative upward adjustments for investments held as of that date were $5.0 million and cumulative impairments and downward adjustments were $127.6 million. As of December 31, 2023, cumulative upward adjustments for investments held as of that date were $4.9 million and cumulative impairments and downward adjustments were $127.0 million.
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following (in thousands):
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Accrued payroll and payroll related | $ | $ | |||||||||
| Other accrued expenses | |||||||||||
| Income taxes payable | |||||||||||
| Accounts payable | |||||||||||
| Lease liabilities | |||||||||||
Other payables(1) | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
__________________
(1)Includes other payables denominated in crypto assets. See Note 13. Derivatives for additional details.
23
12. LONG-TERM DEBT
The components of long-term debt were as follows as of March 31, 2024 (in thousands, except percentages):
Long-term Debt | Effective Interest Rate | Principal Amount | Unamortized Debt Discount and Issuance Costs | Net Carrying Amount | ||||||||||||||||||||||
| % | $ | $ | ( | $ | ||||||||||||||||||||||
| % | ( | |||||||||||||||||||||||||
| % | ( | |||||||||||||||||||||||||
| % | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
The components of long-term debt were as follows as of December 31, 2023 (in thousands, except percentages):
Long-term Debt | Effective Interest Rate | Principal Amount | Unamortized Debt Discount and Issuance Costs | Net Carrying Amount | ||||||||||||||||||||||
| % | $ | $ | ( | $ | ||||||||||||||||||||||
| % | ( | |||||||||||||||||||||||||
| % | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
2030 Convertible Notes
In March 2024, the Company issued an aggregate principal amount of $1.3 billion of convertible senior notes due 2030 (the “2030 Convertible Notes”), which included the full exercise by the initial purchasers of their option to purchase up to an additional $165.0 million aggregate principal amount of the 2030 Convertible Notes, pursuant to an indenture, dated March 18, 2024 between the Company and U.S Bank Trust Company, National Association, as trustee (the “Indenture”). The 2030 Convertible Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
The 2030 Convertible Notes are senior unsecured obligations of the Company and accrue interest of 0.25 % per year payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2024. The 2030 Convertible Notes mature on April 1, 2030, unless earlier repurchased, redeemed or converted. The proceeds received of $1.2 billion, were net of a 1.5 % original issue discount.
The 2030 Convertible Notes will be convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election at an initial conversion rate of 2.9981 shares of the Company’s Class A common stock per $1,000 principal amount of notes. This is equivalent to an initial conversion price of approximately $333.54 per share of the Company’s Class A common stock. The conversion rate and conversion price are subject to customary adjustments under certain circumstances in accordance with the terms of the Indenture.
The 2030 Convertible Notes will be convertible at the option of the holders after the calendar quarter ending on June 30, 2024, if the last reported sale price per share of Class A common stock exceeds 130 % of the conversion price for each of at least 20 trading days, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter. Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as applicable, cash, shares of the Company’s Class A common stock or a combination of cash and shares of the
24
Company’s Class A common stock, at the Company’s election, based on the applicable conversion rate. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. Additionally in the event of a corporate event constituting a fundamental change (as defined in the Indenture), holders of the 2030 Convertible Notes may require the Company to repurchase all or a portion of their 2030 Convertible Notes at a repurchase price equal to 100 % of the principal amount of the 2030 Convertible Notes being repurchased, plus accrued and unpaid special interest or additional interest, if any, to, but excluding, the date of the fundamental change repurchase.
The Company accounted for the 2030 Convertible Notes wholly as debt because (1) the conversion features do not require bifurcation as a derivative under ASC 815 and (2) the 2030 Convertible Notes were not issued at a substantial premium.
Debt issuance costs related to the issuance of the 2030 Convertible Notes recognized were $3.2 million, and include commissions payable to the underwriters and third-party offering costs. As of March 31, 2024, the outstanding aggregate principal balance of the 2030 Convertible Notes and the related unamortized discounts were $1.3 billion and $22.0 million, respectively.
Capped calls
On May 18, 2021, in connection with the pricing of the convertible senior notes due in 2026 (the “2026 Convertible Notes”), on March 13, 2024, in connection with the pricing of the 2030 Convertible Notes, and on March 14, 2024, in connection with the full exercise by the initial purchasers of their option to purchase additional 2030 Convertible Notes, the Company entered into privately negotiated capped call transactions (the “2026 Capped Calls” and “2030 Capped Calls,” respectively, and “the Capped Calls” collectively) with certain financial institutions (the “2026 Option Counterparties” and “2030 Option Counterparties,” respectively and the “Option Counterparties” collectively) at a cost of $90.1 million and $104.1 million, respectively, in each case in exchange for the right to receive a predetermined amount of cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election. The Capped Calls cover, subject to customary adjustments, the number of shares of the Company’s Class A common stock initially underlying each of the 2026 Convertible Notes and 2030 Convertible Notes (collectively, the “Convertible Notes”), as applicable. The Capped Calls allow the Company to hedge the economic effect of the conversion options embedded in the Convertible Notes and purchase shares of its own Class A common stock at a specified strike price. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its Class A common stock (or, in the event a conversion of the Convertible Notes is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion of the Convertible Notes its Class A common stock price exceeds the conversion price of the Convertible Notes. The 2026 Capped Calls have an initial strike price of approximately $370.45 per share of Class A common stock (the “2026 Initial Strike Price”) and an initial cap price of approximately $478.00 per share of Class A common stock (the “2026 Initial Cap Price”). The 2030 Capped Calls have an initial strike price of approximately $333.54 per share of Class A common stock (the “2030 Initial Strike Price” and, together with the 2026 Initial Strike Price, the “Initial Strike Prices”) and an initial cap price of approximately $503.46 per share of Class A common stock (the “2030 Initial Cap Price” and, together with the 2026 Initial Cap Price, the “Initial Cap Prices”). Upon expiration of the agreements underlying the Capped Calls, the Capped Calls will be automatically exercised. If the closing market price of the Class A common stock is above the applicable Initial Cap Price, the initial investments will be returned with a premium in either cash or shares at the Company’s election. If the closing market price of the Class A common stock is at or below the applicable Initial Strike Price, the Company will receive the number of shares specified i n the agreements.
Upon certain extraordinary events, nationalization, insolvency or delisting event, or additional disruption events, the Capped Calls are contractually structured to terminate. The Company has the contractual right to terminate the Capped Calls upon repurchase, redemption or conversion (in the case of conversion, prior to December 1, 2025 or October 1, 2029, for the 2026 Capped Calls and 2030 Capped Calls, respectively) of the underlying Convertible Notes, in certain circumstances.
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The Capped Calls also include early termination provisions based on beneficial ownership positions of the counterparties. That is, if at any time the counterparty’s holdings exceed 8% beneficial ownership of the Company (as defined under Section 13 of the Exchange Act) and the counterparty is unable, after commercially reasonable efforts, to effect a transfer or assignment of all or a portion of the transaction such that an excess ownership position no longer exists, the counterparty may early terminate a portion of the Capped Calls, in which case the Company can settle in cash or shares of its Class A common stock.
13. DERIVATIVES
The following outlines the Company’s derivatives, which were all embedded forward contracts as of March 31, 2024:
| Location of Host Contract and Derivative on Balance Sheets | Description of Derivative | ||||
The Company provided services for which, under the contract, the counterparty pays a fixed amount in crypto assets in the future. | |||||
Crypto asset borrowings | The Company borrowed crypto assets that resulted in the obligation to deliver a fixed amount of crypto assets in the future. See Note 6. Collateralized Arrangements and Financing for additional information. | ||||
Obligation to return collateral | The Company receives crypto asset collateral that results in the obligation to return collateral received as a fixed amount of crypto assets. See Note 6. Collateralized Arrangements and Financing for additional information. | ||||
The Company entered into arrangements that result in the obligation to deliver a fixed amount of crypto assets in the future. | |||||
Impact of derivatives on the Condensed Consolidated Balance Sheets
The following table summarizes the notional amounts of derivative instruments outstanding, measured in U.S. dollar equivalents (in thousands):
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
Designated as hedges | |||||||||||
Crypto asset borrowings(1) | $ | $ | |||||||||
| Not designated as hedging instrument | |||||||||||
| Accounts receivable denominated in crypto assets | |||||||||||
Crypto asset borrowings | |||||||||||
| Obligation to return loan collateral | |||||||||||
| Other payables denominated in crypto assets | |||||||||||
__________________
(1) Prior to the adoption of ASU 2023-08, the Company applied hedge accounting using these derivative instruments in qualifying fair value hedges to hedge the fair value exposure of crypto asset prices for the crypto assets borrowed. As of January 1, 2024, the date of ASU 2023-08 adoption, these derivative instruments have been dedesignated.
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The following tables summarize information on derivative assets and liabilities that are reflected on the Condensed Consolidated Balance Sheets, by accounting designation (in thousands):
| Gross Derivative Assets | Gross Derivative Liabilities | ||||||||||||||||||||||||||||||||||
| Not Designated as Hedges | Designated as Hedges | Total Derivative Assets | Not Designated as Hedges | Designated as Hedges | Total Derivative Liabilities | ||||||||||||||||||||||||||||||
| March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Accounts receivable denominated in crypto assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Crypto asset borrowings | |||||||||||||||||||||||||||||||||||
| Obligation to return loan collateral | |||||||||||||||||||||||||||||||||||
| Other payables denominated in crypto assets | |||||||||||||||||||||||||||||||||||
| Total fair value of derivative assets and liabilities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Accounts receivable denominated in crypto assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Crypto asset borrowings | ( | ||||||||||||||||||||||||||||||||||
| Other payables denominated in crypto assets | |||||||||||||||||||||||||||||||||||
| Total fair value of derivative assets and liabilities | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Impact of derivatives on the Condensed Consolidated Statements of Operations
Gains (losses) on derivative instruments recognized in the Condensed Consolidated Statements of Operations were as follows (in thousands):
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||
| Derivatives | Hedged Items | Income Statement Impact(4) | Derivatives | Hedged Items | Income Statement Impact | ||||||||||||||||||||||||||||||
| Designated as hedging instrument | |||||||||||||||||||||||||||||||||||
Crypto asset futures(1) | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Crypto asset borrowings(1) | ( | ( | |||||||||||||||||||||||||||||||||
| Not designated as hedging instrument | |||||||||||||||||||||||||||||||||||
Accounts receivable denominated in crypto assets(2) | |||||||||||||||||||||||||||||||||||
Crypto asset borrowings(3) | ( | ( | |||||||||||||||||||||||||||||||||
Obligation to return loan collateral(3) | |||||||||||||||||||||||||||||||||||