Q4 2020 Green Dot Corp Earnings Call
[music].
Good day and welcome to the Green Dot Corp, fourth quarter 2020 earnings Conference call all participants will be.
And on the mood should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one. Please note that this event is being recorded I would now like to turn the call over to Alan Lowe Vice President of Communications. Please go ahead.
Thank you and good afternoon, everyone. Today, we are discussing green dot fourth quarter 2020 financial and operating results for.
Following remarks, we'll open the call for questions.
Our most recent earnings release that accompanies this call and webcast can be found at IR Dot Green Dot Dot com.
For the reminder of our comments may include forward looking statements and expectations regarding future results and performance.
Please refer to the cautionary language in the earnings release and in Green Dot filings with the Securities and Exchange Commission, including our most recent form 10-K on 10-Q for additional information concerning.
I suppose that could cause actual results to differ materially.
Forward looking statements.
During the call, we'll make reference to our financial measures that do not conform with generally accepted accounting principles.
For the sake of clarity unless otherwise noted all numbers, we talk about today will be on a non-GAAP.
Any thoughts there.
Information may be calculated differently than similar non-GAAP data presented by other companies.
Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release.
The content of this call is property of the Green Dot Corporation.
And is subject to copyright protection now I'd like to turn it over to Dan.
Thank you Ali and welcome everyone to Green Dot Q for 2020 earnings call.
We thank you all for being with US today. Once again, we are pleased to report a better than expected quarter driven.
Given primarily by strong demand and continued growth across all account programs.
We've got a lot to cover the day before.
For I pass over to jazz for comprehensive report on our financial results I'd like to share my perspective on our progress to date, and our plans and priorities moving forward into 2021 and beyond.
First I look at Q4 financials non-GAAP revenue grew by 15% adjusted EBITDA increased by 59% and non-GAAP EPS of <unk> 31.
Translated to a growth of 121%.
During the quarter, we saw revenue growth from fees charged to our.
Partners and we benefited from heightened deposit balances on products in our retail and direct channels.
As a result of the first federal government stimulus and to a lesser degree second stimulus.
While the various federal government programs contributed to growth in 2020 is important to note that COVID-19.
Also had a negative impact on growth trajectories of several of our businesses, including pay card and Uber cash.
Also faced some revenue headwinds during the quarter and our money processing business as well as in interest income.
We'll share more on that in a bit but overall I'm very pleased we delivered.
Vascular strong quarter and are making the necessary investments for green Dot to continue playing an essential role in banking and payments for low to moderate income consumers.
I'd like to take a few minutes to focus on key areas of progress and achievement over the past year.
First we built and launched go too.
<unk>, our flagship Challenger bank designed to address the unique needs and challenges of today's low to moderate income consumers, who are struggling to make ends meet and could truly benefit from better banking and payment solutions.
We built this platform from the ground up offering a total value proposition that includes.
In other words like consumer friendly overdraft access to the secured credit card high value rewards and other features that are meaningful and are already resonating with this audience.
The results, we're seeing with <unk> bank are very promising and exceeding expectations for example, more than half.
<unk> customers have opted in for overdraft protection.
And applications for our secured card are 20% higher than our original forecast.
This level of demand gives us confidence in our strategy and our continued investment to market and expand this product.
It's also important to note the investment we're making.
Making a go to bank will reap rewards far beyond our direct to consumer lines of business as we will be able to leverage the technology tools and intelligence on this product on behalf of our best partners as well.
And speaking of bass. This business also had a productive fourth quarter and year.
During two.
Of our 20, we announced plans to partner and launch new platforms with a variety of exciting companies like Amazon cabbage, Google gig wage into it and others.
In Q for Amazon launched the flex debit card powered by Green Dot, We also announced plans to.
To collaborate with Google pay and offer flex accounts to our Goto bank customers.
And we announced on our investment and partnership with gig, which are fast growing and high potential startup focus on bringing innovative payments functionality to the rapidly growing gig economy.
These partnerships and investments illustrate our new bass strategy to partner only with select high impact and high potential companies looking for a true end to end partner to deliver modern seamless and accessible banking and payment solutions to consumers and small businesses.
On that note.
Allow me to frame up this opportunity and define what we mean by small business.
Just as the traditional banking system is not equipped to serve low to moderate income consumers in the U S. They are also an adequate to serve many of today's small and micro businesses.
Whether it's a micro merchants selling on whereas on Amazon or etsy.
An independent gig worker or startup with limited cash flow of resources. These entrepreneurs and job creators face similar challenges and need a banking partner, who can support the unique needs.
Our partnerships with Intuit cabbage, Amazon Uber and gateways are all focused.
This growing audience and economy.
And we're in the process of building differentiated value based experiences for the small business sector.
It's important to appreciate the powerful and unique collection of assets, we have at Green dot, including our bank technology stack distribution network.
On the reload network.
Experienced customer service and fraud controls.
This full solution set is unmatched in the Fintech banking as a service arena and provides green dot with competitive differentiation through its portfolio of turnkey solutions.
Quality of partners that have chosen to work.
Net worth us proves that.
It is our intention to press this advantage and to continue investing in our platform and our partners.
So that we can together deliver powerful seamless embedded payment solutions to tens of millions of consumers.
Final comment on the bass business I am thrilled to announce.
Work with on that for reach is joining green dot to lead this business line.
You may have seen our press release announcing on minutes appointment earlier today.
Amit is joining us from Apple, where he worked across the Apple pay business and how the variety of leadership roles building new partnerships and features.
We are thrilled to have them on board to help.
And scale, our Vas business.
Now.
Moving over to the retail side of the house.
This team has been hard at work as well and we're beginning to see the fruits of our labor.
Here are a number of notable highlights and milestones to share.
We launched Payors.
Go and our new two by two that's 2% cash back and 2% savings products across all retail.
These two product offerings are delivering net new sales of 10% and 11% respectively.
Of note pay as you go launched nationally a Walmart during the fourth quarter and is already delivering.
Grow 17% incremental sales growth to the Green Dot brand.
We also partner to offer the Walmart Moneycard is it money management tool to help more Americans manage their government stimulus payments.
All current retail products are now demand deposit accounts and offer.
<unk> Rana Overdrafts legacy card holders will convert to demand deposit accounts over the course of 2021.
Okay.
We are expanding prominence in retail for example, we expanded J hook facings at 711 locations nationwide and have gone from an average of five to 14 facings for display.
Play across 8000 locations nationwide.
We also grew and strengthened our green Dot network launching 14, new partner programs for cash lending and payments in the fourth quarter alone.
We also renewed our largest client in our financial services and check cash group for six years.
<unk> on a rolling on Green Dot branded demand deposit account products across the full channel later this year 2021.
The ongoing success of our retail operations continues to provide meaningful cash flow that can be harvested and we invested to support green dot has multiple growth strategies.
Overall.
<unk> progress on retail and more to come.
And our tax business TPG, we secured a long term contract renewal with a key tax processing partner.
With this renewal we will experience a onetime decline in this programs revenues in 2021, but are now set up for long term.
A lot of rate predictability and growth going forward and we are confident about the growth opportunity in this channel now.
Now for our Rocky Balboa story of 2020.
Despite COVID-19 impact on business and employment across the country, our pay card team at rapid still delivered 6%.
To build revenue growth during the year.
The sales team at rapid <unk>.
Alba down their efforts took advantage of remote virtual sales world and added close to 1300, new corporate employers to a rapid client list.
These strong new client wins expanded product set.
<unk>, new and improved mobile app provide a springboard for our pay card business to grow an anticipated 20% in 2021.
Upon my arrival here Green Dot is objective in 2020 was to preserve stabilized and invigorate topline growth in every one of our business lines.
And with complete confidence in candor I can say, we accomplished this objective and.
And most importantly, we now have exceptional leaders across each of these business lines, who are aligned and committed to our shared objectives of driving growth and margin expansion for green dot.
Okay.
Lines, we can't imagine.
We dedicated a lot of resources over the past year toward identifying critical areas for investment and improvement at Green Dot.
With each of our business lines on their solid leadership and on their path to growth and margin expansion.
We'll now be placing considerable energy and investment in creating.
Operational improvements and efficiencies.
Looking forward into 2021, we'll be investing time and resources into improving the customer experience, we deliver and updating our core banking platform and card management solutions. We believe these investments possess a demonstrable ROI.
That will lead to higher ltvs and greater customer satisfaction.
The core banking and card management systems are mission critical billed as this will allow us the ability to consolidate multiple and disparate outsourced processors onto our own platform.
This will eliminate significant third.
Expenses try on a big variable cost into a smaller fixed cost and most importantly increase our ability to innovate and preserve margins over the long term.
Owning and controlling this part of our business is critical to delivering on our vision to build seamless banking and payment experiences for customers.
Third part a massive scale.
We've already gone on a company wide effort to elevate our customer experience as we recognize many of our systems policies and practices need to be improved.
Spent a lot of time in 2020 laying the groundwork for these changes in 2021 will be the year, we build and implement.
On.
Our goal continues to be providing a world class customer experience.
These improvements will require incremental investments in 2021, and both our people and technology.
Current systems will need to be maintained as we build new solutions enhance.
We expect some redundant expenses until we're able to benefit from improved efficiencies as <unk>.
Jeff will share on a bit despite these meaningful growth investments, we still expect to deliver EBITDA growth in 2021.
I'm gratified to share many of the investments we made in 2020.
Elements are setting the stage for growth and expanding margins in our key business lines and.
In 2021, we expect retail direct to consumer Vas and pay card to grow revenue year over year.
For our retail and direct channels that is a significant achievement given these businesses we're in a decline.
Just a few years ago.
As we support these business segments with long overdue investments and operational improvements will ultimately be able to keep our fixed cost fixed and improving margins will see their way to the bottom line.
As we think about guidance for 2021.
It's important to note that although <unk>.
Johnny is behind Us Covid and the unpredictable impact it has on consumers and the economy remain.
Yeah.
Given that continued uncertainty we are taking a conservative approach in our guidance for 2021.
And now we anticipate another stimulus that.
<unk> remains uncertain and therefore, our guidance and growth models do not include that potential tailwind.
We are committed to delivering efficiencies across the business to creating meaningful operating leverage and to enhancing our margins on profitability.
We will continue to invest in customer experience enhancement of other products.
That two building scalable platforms, all of which will lead to a significant increase in profitability across the enterprise.
I would like to thank our employees have been working tirelessly to support our customers and build our business through these challenging times and also thank you to our shareholders for their continued.
Trust and support.
And with that I'll pass it over to Jeff.
Thanks, Dan and good afternoon, everyone Green Dot delivered another quarter with strong year over year growth that exceeded the guidance we provided during our last earnings call.
In Q4, 2020, non-GAAP revenue grew 15%.
And $175 million.
We delivered adjusted EBITDA of 35 million and non-GAAP EPS of <unk> 31.
We experienced a few significant tailwind as well as headwinds in the quarter that I'll walk you through overall, we were pleased with the strength of the consolidated performance.
Focusing on our top line results for.
Non-GAAP revenue growth in the quarter was driven by our account programs with strong performance in key metrics such as gross dollar volume purchase volume inactive accounts.
The growth in gross dollar volume was driven by higher active accounts from new and existing customers utilizing our platform as.
<unk>.
For a moment about the year COVID-19 accelerated the demand for digital payments and we have been uniquely positioned to serve consumers through our omnichannel distribution and drive engagement with our suite of products and services.
Gross dollar volume in the quarter was also boosted by a second round of stimulus funds received late in December.
<unk>, which added approximately $570 million during the last two days of 2020.
Altogether. This resulted in increased management service fees and our best channel increased monthly maintenance fees from elevated deposit balances and growth in interchange revenue.
Consistent with the previous.
Quarters.
Change rate, we earned was down year over year in Q4 due to a 22% increase in the average ticket size per transaction.
Since interchange fees have both fixed and variable components.
Earned smaller fees in percentage terms on larger transactions.
Partially offsetting the increase.
Two core revenue in our account segment with an increase in cash rewards related to green Dot unlimited accounts and a decline in gift card revenue. Our gift card program is very seasonal and is primarily concentrated in Q4, our gift card revenue has been negatively impacted by the decline in retail foot traffic because of Covid.
Kris in our processing and settlement service revenue declined 18% year over year from a decline in both simply paid disbursement transactions and the number of cash transfers.
Our simply paid disbursement volume has been disrupted by the effects of Covid on the ridesharing business.
Our cash transfer volume was down year over year by 7%.
Because we decided not to renew an agreement with a large reload partner and as discussed on our previous earnings call had relatively low contribution margin.
Another headwind discussed on prior calls with the year over year decline in net interest income due to lower yields on our cash and investment balances as a result.
Cuts by the Federal Reserve earlier this year.
Let me turn our attention to our expenses and margins.
Our total non-GAAP operating expenses in Q4 grew by $23 million or 11% year over year.
As you May remember from our last call, we believe reinvesting some of the stimulus driven.
<unk> outperformance back into growth initiatives is prudent.
Despite the higher operating expenses, our margin expanded by approximately 350 basis points.
Sales and marketing expenses declined by 8% due to timing differences since our marketing spend in 2019 was heavily concentrated in the back half of.
If rate, whereas it was spread evenly in 2020.
Lower marketing expense was primarily offset by an increase in supply chain costs to support the rollout of our green Dot pay as you go product in retail and to a lesser extent an increase in revenue share with our partners, including an increased revenue share rate associate.
For year ended with last year's renewal of the Walmart Moneycard program.
Compensation and benefits expenses declined 11%, primarily due to year over year timing differences related to annual bonuses lower travel expenses as a result of Covid and lower head count and contractor expenses.
Processing expenses increased 61% in line with corresponding revenue increases in our bass fees and interchange revenue.
A portion of our processing expenses are pass through as fees charged to our Baas partners.
Other general and administrative expenses increased 22% mainly as.
Associated with an increase in transactional losses from higher volumes of customer disputes similar to prior quarters.
We expect loss rates to begin to normalize in 2021, as we continued to work diligently on improving the customer experience and investing to align our fraud prevention processes with the industry best practices and performance.
Performance.
Depreciation expense in Q4 increased 11% year over year due to an increased capitalized development costs over the past several years to support our strategic initiatives.
We expect depreciation expense to begin to flatten out in 2021, as we reduce the level of overall spend on development by consulting.
As a result of getting some of our products and focusing on prioritizing our development based on strategic impact and incremental operating margins.
On a GAAP basis, we had an impairment charge of approximately $22 million related to facilities and internal use software that we excluded from our non-GAAP measures.
As we've mentioned.
Solid there are significant benefits to our adoption.
While they work from anywhere corporate policy.
In connection with debt policy, we have commenced closure of most of our leased office space location in the U S. Beginning in 2021.
While we will be required to continue making our contractual payments until our operating.
And the leases are formally terminated or expired, we recorded impairment charges to our operating lease right of use assets and related property and equipment located at our office facilities during the period.
In addition, we recorded an impairment charge.
In connection with internal used software related.
<unk> to legacy platforms that have been replaced by new technology platforms expected to better scale with our operations.
From a liquidity perspective green dot continued to produce substantial cash flow generating $207 million of operating cash flow during the year and our cash at the holding company at year end was 140.
$46 million.
Our cash balance and the strength of our operating cash flow together with our $100 million revolver available to us provides us with sufficient liquidity to invest in our strategic initiatives.
Now I'd like to focus on guidance for 2021.
We expect our non-GAAP revenue will.
The range of 123 billion to $1, two 5 billion or up 3% year over year at the midpoint.
We expect adjusted EBITDA to be in the range of $210 million to $217 million up 4% at the midpoint.
Lastly, we expect.
Non-GAAP EPS to be in the range of $2 <unk>.
For $2 15.
We're flat year over year at the midpoint.
As you think about your models for 2021, there are a few key items to consider regarding our guidance.
As you all know we are still in a COVID-19 environment significant strides had.
Had been made to curb the effects of the virus, but the impact of Covid is still lingering and that creates uncertainty for the economy and therefore, we are being cautious with our guidance.
Our guidance only incorporates the late December relief package that included stimulus funds in late December and early January as well as supplemental federal.
<unk> unemployment benefits at $300 per week through March 2021.
Our guidance does not consider any future federal stimulus or supplemental unemployment benefits, including the Covid relief Bill that Congress is expected to finalize in early to mid March.
Until we have more clarity on <unk>.
Timing, we have kept the relief program out of our guidance.
As a result, the federal relief programs that helped us deliver better than expected results in 2020 have created a headwind to our revenue and earnings in 2021.
Lastly, we intend to continue to make growth oriented investments in 2021.
On that we expect will accelerate revenue growth and allow margins to expand in 2022 and beyond.
Notwithstanding this investment, which I will describe in more detail on a few moments we are maintaining steady margins in 2021 and expect to grow adjusted EBITDA at a rate debt is inline or slightly above our forecast.
Cash revenue growth.
I'd like to share some important context around our guidance.
From a revenue perspective, we're excited about the growth in 2021, we have a lot of momentum coming into 2021 from the launch of our go to bank product and our direct channel as day.
Dan mentioned go to bank as our flagship direct to consumer.
Consumer digital bank that we launched earlier this year and the initial results have exceeded our expectations.
Substantial target market together with our robust and relevant features provide us for the high level of confidence that we will have revenue growth for years to come and the compelling unit economics will help drive margin expansion.
The retail channel has turned a corner after a number of years of declining revenue.
The combination of effective account management, new and improved product mix as well as the delivery of omnichannel capabilities to our large retail partners is expected to result in revenue growth in 2021 and beyond.
Our pay card.
Card business has returned to its pre COVID-19 double digit revenue growth partly as a.
That's continued and successful sales efforts over the course of 2020.
Our best Channel is expected to continue the strong growth trajectory as we ramp new partners as Dan touched upon earlier.
And continue to grow existing.
<unk> partnerships.
We are very excited about the potential of this channel given the significant reach our partners have within their respective markets and believe investing to support these growth opportunities and strategic.
Revenue related to our money processing services is forecast to be down year over year from our decision to not renew.
Significant below partner as mentioned previously, but the adjusted EBITDA impact will be muted as the partnership carried a significant revenue share.
Revenue from our tax processing services is forecasted to be down year over year as a result of securing a multiyear agreement with one of our largest customers in exchange for lower economic.
Economics on refund transfers.
Lastly, interest income is expected to be up year over year as a result of investing more of our cash at Green Dot Bank in agency backed fixed income securities in order to enhance our yield.
As it relates to expenses, we've made good traction during 2020.
Laying the foundation for meaningful revenue growth and operating leverage for years to come.
Given the multiyear opportunity. We see ahead, we will continue to make targeted growth oriented investments in 2021.
Market opportunity to build a category, leading digital bank for consumers and small businesses.
Direct link and.
<unk> partners is significant.
Our growth investments are focused on improving our customers overall experience.
Marketing go to bank, which has an extremely compelling LTV that turns positive a few quarters after acquiring customers.
And building, a modern and scalable core banking and card.
Card management platform that reduces our reliance on third party processors and increases our ability to innovate and preserve margins.
Our investment in customer experience and our modern banking platform will be both people and technology and therefore, our compensation and benefits expenses as expected.
<unk> increase year over year and.
And component of other and general administrative expenses, such as software licenses and hosting costs are expected to be up year over year.
The returns on these investments will appear within 12 to 24 months specifically beginning in 2022, we expect the investment.
Modern banking platform will begin to reduce a portion of our processing expenses and enhance margins.
Our investment in marketing will be reflected in sales and marketing expenses. However, we do not expect our sales and marketing expenses to be up year over year. Despite the increased marketing because.
And a reduction in.
In revenue share associated with the non renewal of the significant reload partner discussed earlier.
With respect to non-GAAP EPS, our guidance reflects an increase in our non-GAAP diluted weighted average shares by $2 million principally from equity awards granted in 2020 to new executive hire.
<unk> and an increase in our non-GAAP effective tax rate from 22% to 23, 3%.
As I mentioned earlier, we are not including additional stimulus benefits into our initial 2021 guidance.
As such the federal relief programs that benefited us in 2020, our initially forecasted to be.
On a headwind to our guidance for 2021.
While it's difficult to definitively quantify the 2020 ecosystem impact of the government benefits, we estimate that our 2021 guidance.
At the midpoint.
Would represent high single digit revenue growth and low double digit adjusted EBITDA.
When removing the impact of the government benefits in both 2020 and 2021.
As we think about the financial results for the first quarter of 2021, we are forecasting low single digit revenue growth year over year and a margin of approximately 20%.
There are two items to keep in my.
About our margin in Q1 first is the timing of our marketing spend we plan to take advantage of the tax season to promote our goto baked product and expect to front end load marketing expenses into the first half of the year.
Second is the headwind on our tax processing services I discussed earlier.
To recap.
GAAP 2021 is about continuing to lay the groundwork for the years to come we were making investments in marketing people and technology over the course of the year to grow our base of <unk> customers and reduce the overall complexity of our operations.
The goal of generating consistent operating leverage in.
It has to come.
Demonstrating the inherent leverage in our model, we are still forecasting adjusted EBITDA growth, despite numerous growth investments and meaningful headwinds as we lap the 2020 government benefits.
Should the federal government's current negotiations result in another relief program and we will update our guidance across.
In the year.
With that operator, let's open the line for questions.
And we will now begin the question and answer session to ask your question you May Press Star then one.
If youre using a speakerphone please pick up the headset for pressing on the keys.
To withdraw your question. Please press Star then two.
So at this time, we will pause momentarily to assemble the roster.
So my first question today will come from Ramsey El <unk> with Barclays. Please go ahead.
Hi, Thanks for taking my.
Paul just one moment please.
Please go ahead with your question.
Okay. Thanks for taking my question again.
Wanted to ask about potential the impact of incremental stimulus that you've made very clear it's not in your preliminary guidance, but.
Given that you've seen the impact of stimulus now a couple of times already on.
On the model you probably have a pretty decent idea about what that would mean.
Given the outline of stimulus sort of out there on the media I mean can you help us think through.
What what that might translate into in terms of a P&L impact.
Let me take that.
Yes, certainly Jeff.
Okay.
Alright, Hey, Ron Jessica Lynch.
Pretty good thanks.
Yes, so I think what we have heard thus far from the.
Federal government is something like $4500 per individual and extension of the unemployment benefits through potentially September of 2020.
One so the next stimulus if it is approved feels a lot like what we saw in Q2 and Q3 of 2020. So the way we think about the benefit to the P&L is looking at what I'll call revenue yield on GDP.
And so you can if you think about it simplistically.
And politically if everyone were just the turnaround and spend the money right that would all.
And up in purchase volume and then be reflected as interchange revenue and just the simple math, we earned 120 basis points on on interchange net fluctuate fluctuate a little bit.
But there are other streams of income like ATM withdrawals.
On the monthly maintenance fees, all of which have higher yields and interchange and so I guess you don't have the obviously the channel level detail that we do but the way we think about it is go through each of the channels look at the revenue yields.
You can do at home effectively look at the revenue yield on account services revenue so.
So if you take the GDP, which is purely associated accounts.
Count services.
Look at the revenue dollars and the segment disclosures and that would give you a good sense for what that revenue yield translates to and then apply that to whatever you think that GDP will be so last year, we had about $4 billion across onetime stimulus payments in Q2 and federal unemployment benefits across.
In Q3, what we saw in late December is really going to benefit 2021. So there you can you can sort of approximate what the revenue impact is and then from a margin standpoint, certainly to be above our consolidated corporate margins. Because you don't have the incremental fixed cost generally associated with that flow through.
And it should be somewhere.
Somewhere in the 30% you got to remember that stimulus also brought in quite a bit of cost for us in 2020, we had heightened dispute losses, we had customer service issues et cetera. So.
It wouldn't be our highest flow through that we would see on just typical spend there is generally some higher costs that come with it.
Thanks.
That's super helpful. It sounds like Theres, a little bit of.
Presuming that that gets passed it a little bit of upside sort of potentially baked into the to the.
The environment lets just say.
Certainly.
Second our second question My second question I wanted to ask about the go to bank launch.
Any color that you can.
Can share with us there on the <unk>.
The pace of adoption and how you might see that play out as the year progresses any changes on the types of customers you are requiring usage patterns spend categories and any color around Gucci bank would be would be greatly appreciated.
Yeah Ramsey. This is this is Dan I'll take that.
It's really been.
Great to see the response, we've gotten so far from the customers.
So I mean, all I can really say is what we said on the call is we're seeing.
Demand for.
Our secured credit card is.
20% higher than we thought.
Center for overdrafts are stronger than we thought and Reggie.
Registration is even stronger than we thought some of the long term plan of this is as we envision just heads down and continue to execute continue to invest margin dollars acquire.
<unk> customers predominantly acquire customers on direct deposit.
Give us great recurring revenue.
Very good lifetime value.
So far so good.
Okay, Alright terrific well, thanks for taking my questions. This evening.
Thank you Ramzi.
Thanks, David.
And our next question will come from Andrew Jeffrey with true Securities. Please go ahead.
Thanks, Good afternoon I appreciate you taking the question.
Dan I'm intrigued by some of your comments on SMB and I'm wondering if you can elaborate.
A little bit.
On.
The opportunities are there is it debt.
Some of these small businesses you're targeting are distinct from those that might use some of the other SMB for the.
Banking.
Options in the market I'm thinking about square cash for example.
More of a targeted demographic.
Do you think is it more of a targeted solution set and maybe a couple of examples of use cases would be helpful.
Sure Andrew I appreciate the question.
Would it be.
To be real candid on it I mean, what we are.
It's just more and more of a.
Seeing that we are seeing.
Kind of proliferate amongst our partners and also from our customers so really starting with us with Uber and you just think of what's happening in the world is so so many so many workers are becoming independent contractors and solutions out there.
For by Amazon and Etsy for.
Yes, small manufacturers on whatever sort of products able to setup and sell and distribute.
We're not talking about businesses that are doing millions of years turnover, we're talking about business through tens of thousands of dollars a year of turnover and sales.
And.
This is a this is a business slash consumer typically a sole proprietorship.
That is no.
Not too on like a low income consumer on the way that traditional financial institutions just.
Either are not equipped or don't really want to be bothered with such what they consider small customers.
So it's going to be we're going to scale.
<unk> targets with our products and our solutions and then also target against this demographic if you will of small and micro business and really.
Kind of came to the determination on this.
What we're working on and building together with.
<unk> partners, like Quickbooks, and Uber and gig wage and cabbage, and so kind of feel that.
Together.
Collectively we can reach what is a target of tens of millions of small businesses.
<unk>.
We're hearing they have they.
They have unique needs compared to the larger businesses out there.
Okay. That's helpful and just as a follow up.
As you gain.
Gained more share.
<unk> or micro merchant customers do you think it will make sense to vertically integrate the tech stack in a digital world.
Offering omni solutions for web design, or even reselling third party payment solutions or for something like that as far as a means of driving monetization.
When you say vertically integrating our solutions what do you.
Right.
So when you ask that debt.
That might need.
There are other companies offering services like web design or fulfillment.
Do you intend to offer more of those services for a customer lifecycle or is it really strictly about the money management.
Payment.
I'm glad.
Well.
We're going to be focused on is just the unique money management financial solutions for for small business.
Now as you know, we don't do acquiring and Thats a big piece of what most small businesses are going to be looking for so we won't be playing in that space, but for the small business who.
Needs a bank account needs.
<unk> to be able to pay some of their employees, we will leverage our rapid pay card.
They need access to to small small denomination credit maybe to fund receivables I'm on.
All of those things the.
The ability to get a secured credit card, though the credit score.
Access to credit.
Buy now pay later solutions all of those things are on the potential what we can bring to to today's small business.
Okay. Thank you appreciate it.
Absolutely. Thank you Andrew.
And our next question will come from George Sutton with Craig Hallum. Please go ahead.
Thank you I wondered if you could talk about the incremental investment side of the equation and then break it down if you could enter the core banking and management platform spend.
From the SME build on just wanting to try to compartmentalize those are possible.
Sure.
George I'll start with that interest in terms of the logic behind it and then Jeff can share with you any sort of numbers. If there are such numbers to share but.
First of on the small business space.
There is not going to be a huge.
Incremental increase in SG&A spend for for the small business space, we're in the process.
Assets of.
Building solutions for a number of our Baas partners.
And where we've got fungible assets and development resources that will be able to use.
As we as we lay out kind of the folks the feature functionality that we would create for us.
Small micro business against the future.
Sure Optionality that we're creating for our go to bank customers.
70, 80% overlap there so incremental builds for small business is going to be somewhat nominal for us. So that's the reason why we are going to pursue this aggressively because the incremental cost to go after it is not that dramatic.
Now in terms of core banking and card management.
This is a big project right.
Ed.
And is absolutely mission critical you've maybe you've heard me talk before of Green Dot made a number of acquisitions over the years now never integrated them. So now we are running on.
Using six or seven.
Outsource processing platforms, and even sponsor banks arent Green Dot bank.
As we look at how to really create operating efficiencies Green dot.
The effort to consolidate everybody onto one other outsource platform makes no sense.
So what we're going to be.
On different is.
Contracting for software to run our core banking platform.
<unk> card management system and these are from.
These will be we haven't made a final decision yet, but it will be from absolutely.
Top industry standard operators that have these solutions in hundreds of finance institutions around.
The world So it's proven technology.
It resources that know how to operate it.
And from an affordability standpoint, yes, there is an initial cost of licensees solutions, but once we pay for that license fee, our ongoing operating costs will be dramatically less than what we're paying for third parties today.
And so that's why.
One from a efficiency profitability standpoint maintain margin expansion. It's critical we will take our variable costs of our outsourcing processors and turned it into a much smaller fixed cost.
And we'll then control this platform if you will.
<unk> is going to allow us to move much faster on creating new solutions and innovation.
Where I really get excited as we think about.
Between our own customers and products that we have on hand on our platform and then we have customers from partners running on the same platform. The things that we can do in terms of.
Connectivity of those ecosystems gets really exciting down the road.
Perfect.
And one other question on the go to bank.
GAAP side.
We've been tracking the downloads.
We are looking at it looks like a substantial.
<unk> larger number than the initial based on what you're seeing going back for the unlimited.
Offering.
Just give us some perspective on.
The relative success that you've seen versus other prior programs.
On a relative basis.
You can say.
It's probably been our most successful launch of a new program.
<unk> are outpacing what you.
Track from Green Dot unlimited I think around this time last year.
So.
Whats nice is apparel.
We might be able to say, it's probably the best received product launch for green.
<unk> has ever done.
But where I was going to say, it's going to be the last green dot product Green dot branded product launch that we're going to do.
<unk> is it this is our product.
We're looking for customers to commit to go to bank as their primary bank account and we will commit to that customer to provide them.
<unk> feature functionality on like anything else that they'll get from any financial institution for any other neo bank or any other challenger bank out there in the space.
Perfect. Thanks.
Thank you George.
And our next question will come from Bob Napoli with William Blair. Please go ahead.
Thank you good afternoon, Dan and Jeff.
Thanks for taking the question.
So just on as we think about <unk>.
22, ICU and longer term.
And then I guess, Jeff you talked about high single digit.
Revenue growth and low double digit earnings growth is that kind.
The.
The model that.
Youre looking at.
For the medium to long term and are you going to give segment different segment information.
And then we've received in the past.
Yeah, Hey, Bob I'll take a crack at.
To your latter question, yes segments is absolutely still on our plate and.
We're hoping to have it done for this call, but we need a little bit more time on your first question around margins I think what we talked about with respect to the core banking platform we have roughly.
Entering a $1 million of processing expense with third party providers and that sort of the nugget. We're going after now it won't go away completely obviously will be changing some of that variable into a much smaller amount of fixed cost that will carry because we'll have SaaS licenses and other things and we'll have <unk>.
People to demand those.
Those infrastructures, etc.
Fifth.
But not to get too far ahead on on what margins will look like in 2022 that debt.
That's the nugget on we're chasing.
To start to deliver on that and starting to see those results flushed through in 2022, So I think.
I would not suspect us to have sort of net steady margin year over year getting.
In 2000 and getting into 2022 as Dan mentioned in his prepared remarks, we've got redundant expenses in the system.
A lot of pieces to the puzzle.
But yes. It was certainly margin expansion 2022, I don't wanted to get ahead of myself and quote what do you think that margin will be.
And segment.
Seven.
Ah patient like the Vas business or.
Small business or I don't know if the thoughts on giving additional segment information.
For different segments.
If you don't know hold me to it.
I would say our retail in our in our direct business have very similar characteristics.
Segment, and then obviously, our bath and pay card or very much tailored towards.
<unk> relationships. So those are a natural fit together and then you have our money movement services. So that's that's a possibility of what the segments could look like but again don't hold me to it.
And then I guess.
Walmart Rabbit.
With the Green Dot has the tail fin.
Relationship what is going on with the relationship with Walmart in that regard I think you both had invested in Tailfin Green Dot and Walmart.
Then you have to read it.
On a relationship.
Yes, Bob.
Glad to glad.
Washing out there.
That Walmart Roberts investment in Fintech JV.
Two yet to be decided.
Not unlike many other investments at Walmart has made.
Including the investment that they've made in green dot over the year. So.
<unk>.
We've had.
Really really productive conversations for Walmart recently.
You know, we've got close to six years left on our existing agreement Walmart we've been in there for 20 plus years and.
As evidenced of the things some of the things we rolled out at Walmart. This past year that we just mentioned on the call.
Call them.
I can say.
I don't know exactly what the details are of the riveted on the JV on Walmart and there we're thinking about going down.
But I do know what we are in discussions with Walmart about currently are quite exciting.
Great. Thank you appreciate it.
Thank you Brian.
And our next question will come from Andrew Schmidt with Citi.
Right.
Hey, Yeah, Hey, Jess Thanks for taking my questions and thanks for all the context on the call.
So I wanted to dig a little bit into the core banking card net card management system overhaul.
Agree I think that's a big opportunity.
On the expense side, the benefits are fairly clear but.
On the revenue side I Wonder if you could talk a little bit more about that I can see greater agility.
Faster speed to market and things like that but other new use cases that you could rollout.
Two it would help accelerate revenue growth.
If you could give us some examples I think you alluded to some earlier connectivity ecosystems things like that but anything on the new use case front from the systems overhaul and streamlined.
It infrastructure will be helpful.
Yes, Andrew.
I'll take.
What's happening now I'm going to ask Jess to even quantify what we think are going to be some of the expense savings.
From this because we do on a big processing expense line inside of Green Dot and I don't want to mislead anybody to think that that entire expense line is going to go away, but a meaningful piece of it will.
But in just terms of flexibility.
A shot opportunity for us with this.
Just fundamentally.
Think.
Yeah.
The structure of how we will manage consumer accounts.
We will change and improve the ability for us now one customer with more.
Multiple products for accounts.
Ability on them.
<unk> will be a tremendous benefit.
And then the ability to then offer them.
Credit products.
Two are to consumers and then to small business and I want to be really really clear here on credit products, we're not talking about large loans, where we're taking credit risk and we're not talking about.
Financing and automobiles and homes, it's actually we're talking about.
Thanks, Mike.
Very consumer friendly overdrafts that we offered on our on our Goto Bank product.
Things, maybe small merchant cash advances or cash advances on receivables for small business things of that nature.
We've got really good line of sight into our customers' financial lives.
Any credit that we extend it would be very short term and very very low risk.
We just.
Yeah.
Alright.
It's really hard to quantify and say hey, if we have our own core banking platform.
Sure we can manage the system that we can do this product this product on that product.
Well just be able will be able to do what we're doing now on what's on our current roadmap much more efficiently.
In.
On a lower cost basis.
Because we're not going to be pain piece, a very transaction to a third party provider and most importantly.
Good for them is not going to be waiting in line for that third party provider to create something for us.
But only after they've created later finished projects for other clients.
Okay.
Makes sense. Thank you Jess did you ever clarification.
No.
Add on to Dan's point.
Partly on single line item on a year to date basis is like $284 million. So that there is about a $50 million subset that is tied to our third party processor I just want to reiterate that rate.
Yes, that's super helpful. Thank you for that and then just a quick follow up at.
It sounds like the bank launches going bad.
Other probably expected.
How about on the customer acquisition cost side is that trending in line with your expectations and maybe just just.
Any any thoughts on just the marketing budget for that this year.
Incremental expense.
Yeah.
The cost for acquisition is.
Better than going with what we're looking for maybe a little bit less.
So early indications on that.
And then from a from a marketing spend standpoint.
But I'll, let Jeff.
Address that one yes, the group, we're going to spend approximately $5 million incremental year over year, so part of that.
As in line, what we talked about growth oriented investments is in part marketing to go to bank product clearly we've seen.
Some really good urban early indications.
For indications of success there.
Testing until all the marketing research that the teams did in advance of launching this product and then as Dan mentioned also customer service enhancements.
And then Corp banking platform.
Final question on water.
Sparkling ingestion myeloma, you might want to mention that we are.
The marketing spend kind of heavy loaded in the first quarter.
Compared to prior years of marketing spend.
Yes, they can vantage of the tax season.
Great acquisition time for us.
And clearly we have a lot of different channels in order to do that.
Got it makes sense guys. Thanks a lot.
Welcome.
No one has yet to congratulate us on a really good fourth quarter Thats beat everybody's expectations. So.
Not that amputation for compliments.
Just kind of quiet on that front.
And our next question will come from George <unk> with Cowen. Please go ahead.
Hey, guys. Thanks, Thanks for taking my questions and congrats on a strong for quarter.
Thank you Bob.
Thank you.
[laughter].
Just a quick one for me I guess I guess, firstly as you look at it into 2021, how would you thought potentially and maybe what other puts and takes.
On the business model and sort of a higher rate environment. How are you guys thinking about that if you were thinking about that at all at this point.
Puts and takes in terms of on a higher higher interest rate environment.
Yes, just for rising rate environment broadly to the extent that that comes to fruition.
I think that'll be good for us as we will have they will make much better returns on on the cash we have at our Green Dot bank.
And to be clear, that's not factored into the guide that would be additive.
That would be additive.
Yes, we haven't we haven't forecasted any any rate increases from the fed.
Any of our guidance.
Okay. Okay. That's helpful.
I guess a point of clarification.
For one time impact as it relates to the tax processing revenue from the renewal how big of an impact is that going to have on revenue.
That's going to be.
Somewhere in the neighborhood of $9 million.
Okay, great. Thanks, Scott.
Thank you George.
And our next question will come from John Hecht with Jefferies. Please go ahead.
Afternoon, and congrats on a good quarter.
Thanks.
Dan I know you've.
Talked about the.
Going forward <unk> is going to be not just.
Lobbing for a bunch of numbers, but getting some high quality partnership.
But I'm wondering can you talk about the best pipeline give us any sense for.
Any movement there and.
If so is any different or changing characteristics of kind of new upcoming bass partnerships.
Yes, sure John I appreciate that.
The nice thing is we have.
Ships, a lot of very high quality <unk> partners.
Hans So I hope my comments for never misleading to any of our existing partners, which we're working.
Working on is so exciting is the.
The conversations we're having with our existing partners are about how do we take this to the next level what what next can we add in.
Already as a feature functionality.
The solution.
We are we're focused on creating.
Seamless meaningful.
Payment solutions that are embedded in the solutions and applications of our partners.
If I think of all of our partners.
In terms on not.
And not just the.
Walmart everybody thinks for Walmart retail partnering.
They are a partner so.
Walmart.
Quickbooks, and cabbage and and Amazon, We just ask for flex and we're already talking about what's the next feature functionality, we add to that.
Lex account.
So I can say with with all of our partners.
We're in discussions with okay. What's the next chapter in terms of feature functionality that we bring here. So we're on an existing base of business is a real positive.
And then in terms of the pipeline.
There is at any given time.
Now with our.
Net for refocus on.
Yeah.
Yeah.
Large impactful or really powerful.
New solutions out there.
Given time, we're in a half a dozen conversations with potential new partners.
Does that help you.
Absolutely. Thanks for that context on the color second question is just looking at some of the metrics.
User engagement, obviously has been picking up.
I know, it's early with the go to bank, but can you distinguish.
Customers, you got through that channel versus earlier.
Net customers and is there any tendency for greater interaction or I guess better revenue growth at the customer level or at an earlier.
Part of their lifecycle.
John I would say that.
The approach of Goto bank is different than the approach of green.
<unk> for the past so.
Our debt without knowing exactly who our customers are I would say that we probably are with Deutsche bank attracting.
A different kind of type of customer in that.
We are offering a robbing a bank account.
On that front.
So it's designed specifically to serve the needs of.
Consumers living paycheck to paycheck in this country, which is estimated to be close to a $100 million in consumers. So.
And I do believe that the revenue potential.
And the profitability of these customers will be much.
And what the customers are green dot with markets you in the past.
When we it is a it is a fee for your product when a customer signs up for direct deposit and that is by design.
We want the customer to commit to this product and.
Statistical averages low 12% to $1500 a month through the.
The product.
Sign up for our consumer friendly overdrafts sign up for a secured credit card really embrace a full suite of services.
And measure their life.
15, with us not in months, but in years.
And then.
My my experience on the experience of other as we brought on our.
Much greater to lead this initiative.
Tell us for the great degree of confidence that these customers are requiring today, they will be with us for years.
Maybe one thank you early signs early signs of positive engagement, certainly that's exceeding our expectations as the opt in on the overdrafts you have.
To be a direct deposit customer.
And so given the.
Outside.
I guess opt in if you will on the.
Go to a bank product certainly.
Lead us to believe that we're going to have a strong BD enrollment in that product certainly better than what we had seen them with our momentum and some of the predecessor.
Our team and I just want to make sure did you say something north of 50%, we're opting in what was that specific figure.
Well I didn't give a specific figure I was just saying that look I understand something well above expectations.
Okay.
Thank you.
Okay.
And again, if you'd like to ask a question. Please press Star then.
Products.
And our next question will come from Ashish.
<unk> with Deutsche Bank. Please go ahead.
Thanks for taking my question on that Michael that's affected the fourth quarter maybe.
Maybe just on the quarter itself.
These and other things was pretty strong it has been pretty strong for the last two quarters.
Just how should we think about the sustainability of the group debt and if you can parse out what has been driving such a strong growth on those line items.
Yes.
The past couple of quarters, we are mentioning that bass fees. So neither feeds that we actually charge to our best partners had been increasing.
And then part some of.
That is tied to the processing volume you are seeing the uptick year over year in that particular line items for you. There's one particular engagement or agreement with the best partner, where we.
We pass through some of those processing costs really associated with merchant acquiring so part of that is driving the outsized performance on on card revenues and other fees on that would say.
Second to that is going to be monthly maintenance fees on so as you have heightened deposit balances more active customers in the mix.
And then to a lesser net you've got.
When you've got some ATM volume as well.
That's very helpful and maybe just a question on on the use of cash.
Should we think about it you've talked about obviously the investment opportunities.
But how do we think about potential M&A or.
Total buybacks.
Any color on that front any color on M&A pipeline. Thanks.
Nothing really to report on the M&A pipeline.
<unk> is going to be opened on looking for opportunities.
In.
Terms of use of cash.
Aye.
I like seeing our cash balance grow so I'm going on.
Jessica on my arm wrestle a couple of times on share repurchases and such but as for right now I would like to see our cash balance grow for.
<unk> lead for a few more quarters.
That's very helpful. Thanks.
And our next question will be a follow up from Bob Napoli with William Blair. Please go ahead.
Thank you so much.
My questions were answered and Dan we expect you to have a good quarter. So its day that's expected.
Thanks, Bob you like my mom and I could always do better. Thank you.
[laughter].
I guess do you have any thoughts on like.
The product set added go to bank on how you want to expand.
That product set over.
Over the next few years are there.
Different items on the agenda.
Debt.
I mean, I think always.
Adding to the to the platform.
Good.
Yes.
Sure.
I'm, hoping it up.
Something to look at it.
Without kind of telling you like details on what we're doing and what we're looking at is just kind of like product sets to wear.
One first and foremost just a.
A payments transaction account for the consumers so to give them early access.
Access to wages.
Information at their fingertips in terms of what their balances what their last transactions were.
For that they can.
<unk> have had the same knowledge of what they have.
As if they had that cash in their pocket.
<unk> is really really mission critical and then.
Also.
The things that.
Kind of not typical with other for traditional financial institutions like eliminating authorization holds on the accounts much faster than others do.
To give people access to those funds.
So just on your.
As I mentioned consumer.
On the overdrafts such that so then with.
With the fundamental of like a transaction tool for our low income consumer again, I can't overemphasize, how important that is because it's got to be different than what you know.
<unk> is designed for people with excess capital.
Transaction total get that box share.
And I think we've got most future functionality their place, but then in general we're going to be.
Our focus on credit solutions for consumers on credit building.
I now pay later type of solutions rewards programs, we've got it rolled out a very powerful rewards program already with initially go to Max on continuing to focus on how we can.
Help our customers stretch their dollars.
Investment options. So our partnership with stash is illustrates the ability of <unk>.
I love stash them in their mission of being able to make investing.
<unk> available and just part of mainstream financial health, So we want to be able.
To offer similar sorts of solutions for the Goto Bank consumer.
And then also just general wellness.
Just things, we kind of help with our customers' peace of mind, such as share savings in insurance and things of that nature.
Yeah.
Yes.
This is.
This is a mission that we have to really led solutions as customers no one else is able to.
And with most many of those products have to wait until the core banking.
Platform is updated.
Sometimes youre bidding on.
No no they do not so that's okay.
That's the thing.
I hate this expression because of Skus, but we're building a planning while were flying it sort of thing so we're going to.
We're not going on.
Say, okay, everybody stopped tools down we now got to launch core banking card management now we're going to we're going on.
Can you keep building on go to bank keep going on.
Future functionality and upgrades on our on our retail business on our tax business, our pay card business, while simultaneously strengthening our foundation and so thats why.
We're going to have on short term jump up on SG&A This year.
And because we're going on we're going to maintain our existing systems on our existing momentum.
Wow.
Building this new platform.
Okay. Thank you appreciate it.
Thank you Bob.
And this will conclude our question and answer session I would like to turn the conference back over to Dan for closing remarks.
Thank you operator.
Thank you everybody.
Rental for the time on the questions look forward to catching up with everyone over over the weeks to come and go.
Looking forward to getting back to work very excited about 2021.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Everybody.