Q1 2021 Green Dot Corp Earnings Call
[music].
Good day and welcome to the Green Dot Corporation first quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May press star.
And then one on a touchtone phone to withdraw your question. Please press Star then two in the interest of time. Please limit yourself to one question and one follow up. Please note. This event is being recorded I would now like to turn the conference over to Ali Lubec VP of Communications. Please go ahead.
Thank you and good afternoon, everyone. Today, we are discussing green dot first quarter, 2021 financial and operating results.
Following remarks, we'll open the call for questions.
<unk> earnings release that accompanies this call and webcast can be found at IR at Green Dot Dot com.
As a reminder, 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 and 10-Q for additional information concerning factors that could cause actual results to differ materially from forward looking statements.
During the call, we'll make reference to our financial measures that did 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 basis information may be calculated differently than similar non-GAAP data presented by other companies.
Quantitative reconciliations of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release.
The content on this call is property of the Green Dot Corporation and is subject to copyright protection now I'd like to turn the call over to Dayton.
Greetings to all and thank you for joining US we're pleased to announce a strong first quarter of 2021 with revenue well ahead of the guidance provided in February even despite the well documented shift in tax volumes on the first or second quarter.
For the quarter, we delivered $380 million of non-GAAP revenue adjusted EBITDA of 73 million and non-GAAP EPS of <unk> 83.
As we communicated last quarter, we intend to reinvest outperformance back into growth initiatives, which is what we did with revenue upside in Q1.
Before jumping into the results I want to talk about some important changes, we're making to our segment reporting and why we are doing it.
Starting this quarter the first quarter of 2021, we will breakdown on our numbers into three key segments first will be our consumer segment, which includes green dot retail and direct businesses.
Second our business to business segment, including bass for banking platform services, and our employer business branded as rapid.
And third our money movement segment, which includes our tax processing business and our money processing network.
Also known as Green Dot network.
Our purpose, making this shift.
Delivered greater clarity on what's driving performance and key contributions across our individual businesses.
To help investors better appreciate our long term strategy and areas of investment moving forward.
We will also provide better clarity on our key metrics of active accounts and direct deposit accounts and different segments.
This is intended to give investors a deeper understanding of the growth metrics, we focus on across our different lines of business.
On our last earnings call. We declared 2021 will be a year of both growth and investment focused on creating a leaner more stable growth minded company and a year should come.
We intend to make strategic investments in marketing people and technology to grow our base of Goto bank customers and to reduce the overall complexity of our enterprise with the goal of generating significant bottom line growth in 2022, and consistent operating leverage in years to come.
Before passing it over to Jeff for a deep dive on our financial results allow me a few minutes to walk you through highlights from our three segments of consumer B to B and money movement first our consumer segment income.
<unk> retail indirect youre showing solid year over year revenue growth and combined this segments revenue increased 21% in the first quarter.
Meanwhile, contribution was up only 6% in Q1 due to our aggressive marketing spend fueling go to bank customer acquisition strategy.
Our consumer segment alone has more than 4 million active accounts and close to $1 million direct deposit accounts.
In the first quarter active accounts grew by more than 10% year on year and our direct deposit active accounts grew by 9%.
A few additional highlights on the consumer segment.
Our consumer business, a combination of on our retail and direct businesses is a powerful customer acquisition machine.
While our retail network may not be the choice banking channel for high net worth individuals. These retail locations are some of the most important destinations in the daily lives of the more than $100 million low to moderate income consumers in America.
Our retail network is made up of 90000 locations nationwide.
Including direct integrations with some of the largest retailers in the world such as Walmart Cvs Kroger and several others.
This is a powerful competitive advantage, we have in growing our consumer business as we offer customers. The convenience of these locations to deposits and withdraw cash in their accounts payable.
And the money.
From these 90000 locations, we saw a 9% year over year growth in funded accounts in Q1.
Powering payments and retail integration as part of our DNA.
With our valued retail partners, we will continue delivering a unique set of products and capabilities to the consumer both in and out of the store.
Now in our direct business and particularly Goto bank revenues are up significantly.
Demonstrating strong demand and opportunity for growth, hence our decision to invest aggressively in marketing and delivering an exceptional customer experience that will fuel long term exponential bottomline growth.
Go to your bank customers are engaging with us online and in the App and impressive levels.
<unk> purchase volumes, both ended the quarter significantly above expectations up 28% and 22% respectively.
Super friendly overdrafts in the direct business continues to perform outpatient expectations on enrollment active and revenue.
And I'd also like to note that over 65% of the overdraft transactions, we cover our no fee transactions, which means we are helping our customers when and where they need it most.
We plan to extend this feature to all product portfolios at the end of this month.
We will continue to invest in and expand goto with tools and features that help our customers build and improve credit access lending products and build a stronger financial foundation overall.
When considering our consumer segment alone.
Has more than 4 million active accounts and is growing at double digits couple.
Coupled with the growth rate, we're seeing and go to your bank.
This segment is larger and growing faster than many of the most popular new banks in the market today.
Now, let's move over to our <unk> segment.
Consisting of our banking platform services, our bass and our employer platform.
Revenues are up in this segment as well.
Contribution margins are tracking lower due to several factors.
Our banking platform services or bass business is relatively young and we remain focused on investing in and strengthening our platform, while deepening our partnerships and delivering stability and scalability for years to come.
Additionally.
Some of our best contracts were designed with a flat fee, creating a declining margin situations.
Our plan is to evolve the way we frame these agreements moving forward.
We see significant opportunity and potential in this part of the business and the focus now setting a solid foundation and investing in our partnerships, which present tremendous potential for innovation growth and contribution as we continue diving deeper into embedded finance.
As you know.
Had a number of significant partners in the second half of 2020, and we're spending a lot of energy and resources on strengthening innovating on behalf of our partners with a focus on high growth segments, where we have expertise.
For example, they gave economy.
We're working with partners like Uber, Amazon and gig wage next to small business and partnering with innovative and highly respected brands like cabbage and intuit and finally investing.
Irene innovators like stash and wealth front and their mission is to make invest investing more seamless accessible and affordable than ever before.
Our commitment to seamlessly connecting people to their money was exemplified in Q1, when we delivered stimulus funds to millions of our bass partners customers up to four days earlier than most financial institutions.
This is yet another proof point on the value of having our own banking platform as we can move and make decisions quickly to benefit our partners.
And their customers.
Now, let's talk about our employer platform business branded as rapidly which is a valuable assets does not often discussed within our <unk> segment.
Favorable employment trends, including.
Current clients, adding employees more companies looking for best in class pay card solution and also strong interest and disbursement in early wage access have translated to solid growth in Q1 with net revenue up 11% year on year. This.
This is very impressive considering Q1 2020 was pre COVID-19.
We added 336, new employers in Q1, bringing our total to nearly five.
5000, small and medium sized businesses utilizing our products.
We also continue the rollout of our new early wage access and disbursement products to existing and new employers.
Investors should take note.
Our rapid pay card is currently used by only a small percentage of employees over 5000 clients, who don't have a traditional bank account. However, early wage access as a valuable and attractive service to all 7 million employees of our 5000 small and medium size businesses.
The value of and demand for early wage access is significant and we expect this product to increase revenue and operating margins in this business segment over time.
Finally, our third segment is money moving which is made up of our tax processing business and money processing.
And our tax processing business as we shared earlier this year, we secured a long term contract renewal on our key tax processing partner.
With this renewal we expected to experience a onetime decline and the programs revenues in 2021.
More importantly, this contract renewals set us up for long term stability predictability and growth going forward in our tax business.
The IRS reported refunds were down 16% Nash nationally during the quarter.
We have very good visibility into the volume of returns submitted through our tax partners. The IRS is delayed and processing taxpayer returns due to the priority given to VIP three and child tax credits once the IRS catches up on processing returns. We are confident we will deliver on our management plan for <unk>.
<unk> pricing tax processing in 2021.
Now.
Moving on to money processing also referred to as the Green Dot network.
The Green Dot network as the money movement network, unrivaled and scope and capabilities. Our network consists of more than 90000 retail locations across the country more locations in all of the bank branches in the U S combined.
Through this network, we offer greater accessibility and any other bank or financial institution in the U S. In fact, there is a green dot network location within three miles on 96% on the U S population.
In addition to main street, our network is in cities and small towns and traditional banks have abandoned.
The value of this network as evidenced by the more than 200 partners, whose customers depend on our network when face to face interaction as needed.
Customers, who need to transfer funds pay bills send money deposit or withdraw cash.
And although cash transfers were down year over year due to a non renewal of a large partner the green Dot network is still experiencing significant growth driven by new products and new partners a.
A few points to illustrate the debt and potential of this network of ours now.
First quarter, we added another 13, new partners, including pay fair and so far.
Our existing Neo Bank partners delivered 18% year on year growth in transaction volume.
Our point of banking service, what a traditional bank customers can deposit funds two accounts outside of their bank branches saw 53% transaction growth year on year.
Recently integrated top online bill payment provider in the U S to allow customers to pay their bills with cash utilizing the green Dot network.
We are expanding the barcode cash withdraw capabilities at Walmart and several other national retailers for a number of existing and new partners.
First to debit is becoming a very popular way to move funds digitally in the U S.
Green Dot is currently a top five U S push the debit provider.
And as we combined pushed to debit offering together with our cash access network, we see great opportunities to expand to other verticals, including digital card programs gaming insurance claim payouts and lending.
All in all our money processing business delivers durable cash flows generated from more than 200 partners all with minimal ongoing maintenance.
We hope that our new segment reporting will offer greater clarity on the value of this business and all of the businesses within Green Dot.
Finally, I'd like to point out an important dynamic related to deposit balances and savings held for our customers at Green Dot Bank.
Deposits are currently levels twice, what we saw at this time last year up nearly $2 billion we.
We believe this is an indicator of consumer cautiousness stemming from the pandemic and related uncertainties as we expect a large some of these deposits will translate to increased purchase volumes in the second half of this year.
We remain steadfast on our commitment to reinvest in incremental revenues from the business focusing on areas that present, the most growth potential like go to bank in bass as well as strengthening the foundational building blocks of our company, including core processing card management.
And the customer experience.
2021.
It will be a year characterized by steady growth and investment.
I don't know us up for long term stability and significant year on year growth in 2022 and beyond.
I'll pass it over to Jeff to give you a breakdown of our numbers.
Thanks, Dan and good afternoon, everyone before I get into our financial performance of course, but a few minutes on our revised segments and changes to our key metrics.
To reiterate Dan's comments earlier.
Three exciting segments of our business each with a total focus and growth trajectory consumer services.
<unk> services and money moving.
Our intention with the revised segment is to bring greater clarity to our financial performance.
Our long term strategy.
Areas of investment.
Segment profit reflects each segment's net revenue less direct costs, such as sales and marketing expenses processing expenses third party call center support and transaction losses.
Our corporate and other segment consists of net interest income earned by our bank elimination of inter segment revenues and expenses.
And fixed cost that we don't allocate back to the other segments.
These fixed costs, primarily represent the salaries wages and related benefits for our employees professional service fees software licenses.
<unk> communication costs rent and utilities and insurance.
<unk> heard us say it before if we keep our fixed cost fixed and make smart profitable investments to grow our three segments, we will expand margins each year.
In addition to our consolidated metrics are now also providing certain metric at the segment level.
We've also revised the definition of our direct deposit active accounts metric in two ways. We limited the metrics for our consumer services segment, meaning it no longer includes direct deposit active accounts in our <unk> services segment.
We've narrowed the definition to include only active accounts that have risk.
<unk>, one or more payroll our government benefit transactions during the period.
This revised metric is intended to better reflect the core subscription like customer base, you would expect from a payments company journey.
Generating consistent bottom line growth each year in our consumer services segment will be tied to our success in attracting and retaining direct deposit accounts across both our retail and direct channels.
There have been no changes to our definitions of our other key metrics and no changes to our previously reported consolidated financial results.
For more information. Please reference the 8-K, we filed earlier this week furnishing supplemental financial results and key metric data for 2019, and 2020 under our revised reportable segment structure and revised direct deposit active account metric.
Now I'll jump into the quarter.
We delivered another strong quarter, despite a significantly delayed taxi.
Our Q1 2021, non-GAAP revenue grew 10% to $380 million and we delivered adjusted EBITDA of 73 million and non.
Non-GAAP EPS of <unk> <unk>.
Focusing on our top line results from <unk> non-GAAP revenue growth in the quarter was driven by our consumer and <unk> segments 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.
Accelerated demand for digital payments continues.
<unk> also provided a benefit in the quarter as we received approximately $500 million of gross dollar volume in early January and approximately $3 billion in March from the second and third rounds of stimulus respectively.
All in our consolidated gross dollar volume grew 45% year over year.
Excluding stimulus our gross dollar volume still increased by a very healthy high teens rate year over year.
Consolidated purchase volume and the number of active accounts grew 26% and 11% respectively.
Let me turn our attention to segment revenue profit and margins.
And our consumer services segment gross dollar volume purchase volume the number of active accounts and direct deposit active accounts grew 34%, 28%, 10% and 9% respectively.
Growth in these metrics resulted in increases in interchange revenue monthly maintenance fees and ATM fees.
Consistent with prior quarters that have been impacted by stimulus funding interchange rate. We earned was down year over year as the average ticket size per transaction increases.
So senior change fees have both fixed and variable components, we on a smaller fees in percentage terms on larger transactions.
Overall, our consumer services segment revenue grew 21% year over year.
We believe that excluding the impact of stimulus on.
Our revenue growth rate risk still been pushing double digits year over year.
The exemplary performance in this segment is a stark contrast to the declining revenue growth rates over the last few years and we're gratified that our strategic focus has resulted in such strong momentum.
Expenses within this segment grew 28% year over year due to our investment in staffing of third party call Center support to meet the demand associated with the federal relief programs.
As we mentioned on our last call improving our customers overall experience and building a service infrastructure capable of handling a larger ecosystem is one of our growth oriented investments in 2021.
The increased customer support costs were important to continue to earn and keep our customers trust, especially during such a trying time.
Expenses also increased year over year due to the timing of our marketing spend we took advantage of the tax season to promote our goto baked product and in doing so are frontloading marketing spend in the first half of the year.
Lastly transaction losses were up year over year in connection with the growth in purchase volume.
As a result of our investments in customer experience and marketing, we allowed our year over year margins to compress and consequently, our segment profit was up $3 million or 6%.
And our <unk> services segment gross dollar volume purchase volume and the number of active accounts grew 56%, 21% and 12% respectively. The growth on these metrics resulted in increases in bass partner fees interchange revenues on monthly maintenance fees.
Our consumer services segment, we experienced a decline in our interchange rate as a result of an increase in the average ticket size per transaction.
Overall segment revenue grew 44%.
Absent the stimulus we believe our <unk> segment revenue would have increased double digits year over year.
Expenses within this segment grew 64% primarily from an increase in processing expenses in line with corresponding revenue increases in our vast partner fees and interchange revenue.
As we've mentioned in the past a portion of our property expenses are pass through as fees charged to our best partners.
Like our customer segment, our <unk> segment experienced heightened costs from customer support and transaction losses associated with <unk> and purchase volume growth.
We're also experiencing margin compression in our <unk> segment, because some of our best contracts were designed with a flat profit and therefore, our profit isn't scaling with revenue growth.
<unk> is our newest channel of business and we remain focused on investing behind it and exploring new partnership agreements moving forward overall.
Overall, our <unk> segment profit declined $2 million or.
Or 12%.
Revenue in our money movement segment was down 25% year over year due in large part to the shift in the timing of tax refunds processed from the first quarter to the second quarter of 2021 as a result of the extension of the tax filing deadline and potentially a backlog created by stimulus funding.
Our tax refunds processed in the quarter were down 23% year over year as the comparison through the first quarter. The number of refunds processed by the IRS were down 16% year over year throughout April the IRS has made significant progress and book the IRS and Green dot are down less than 10% year to date.
Consequently, we anticipate seeing this high margin revenue materialize in Q2, while also seeing volume that typically occurs in Q2 does spill over to Q3.
In addition to the delayed tax season.
<unk> headwinds, we discussed on our last call impacted the money moving segment first.
First on multiyear agreement with one of our largest tax partners was accompanied by lower economics on tax refund transfers.
As Dan mentioned this onetime decline in revenue is outweighed by the long term stability predictability and growth associated with the contract renewal.
Second our decision not to renew with significant reload partner resulted in a decline in cash transfers and revenue.
Because of this contract has less favorable economics, and a higher than average revenue share. The overall impact on segment profit from this non renewal was muted.
Overall segment profit declined $18 million or 27%. We believe a majority of this decline will be recovered assets.
Simply represents a timing shift and high margin tax revenue.
Moving below adjusted EBITDA depreciation expense in Q1 decreased 4% year over year as a result of our efforts to reduce the level of overall spend on development and prioritizing based on strategic impact and.
Incremental operating margins.
Our diluted weighted average share count increased by $2 million, primarily due to equity awards granted in 2020.
From a liquidity perspective green dot continues to produce substantial cash flow generated $81 million of operating cash flow during the quarter and our cash at the holding company at quarter end was $162 million.
Our cash balance and the strength of our operating cash flow together with our $100 million revolver available to us provide us with sufficient liquidity to invest in our strategic initiatives.
Now I'd like to focus on guidance for 2021.
We are raising our non-GAAP revenue guidance in light of stimulus and other factors to a range of $1 7 billion to $1 $2 9 billion.
We are reiterating our guidance range for adjusted EBITDA of $210 million to $217 million and our non-GAAP EPS range of $2 <unk>.
To $2 15 for two reasons first we're being cautious with our guidance and COVID-19 is still clearly creating uncertainty in the economy.
Second we believe it is prudent to continue to reinvest revenue upside in 2021 back into marketing for <unk>.
Moving customer experience and building a modern and scalable core banking platform as we believe these investments will accelerate revenue growth and allow margins to expand in 2022 and beyond.
Even with these strategic investments are reaffirmed adjusted EBITDA range reflects year over year growth.
As you think about your models for Q2, and the remainder of 2021 day or a few items to consider regarding our guidance.
In Q2, we expect to see a continued benefit from the March 2021 stimulus funding.
Our consumer and <unk> segments.
However, we will have a headwind from the $2 billion of stimulus funding that occurred in Q2 2020, we expect to grow over that revenue headwind in both segments, but continue to have year over year margin compression in these segments from heightened third party customer support costs that are needed to continue to support stimulus related call.
Volume.
In addition, the timing of marketing spend will create additional compression in our consumer segment.
Our full year money movement segment revenues and profit are forecasted to be down year over year from the two headwinds I discussed earlier, we expect to see a shift in tax refunds process from Q1 to Q2 and.
And volume that typically occurs in Q2 to spill over to Q3.
As for our corporate and other costs, we anticipate an increase in the second half of the year as we invest in the modern banking platform I mentioned previously.
Those costs will be in the form of people and technology and therefore, our compensation and benefit expenses are expected to increase year over year and components of other general and administrative expenses, such as software licenses and hosting costs are expected to be up year over year.
As we discussed on our last earnings call.
The returns on these investments will appear within 12 to 24 months specifically beginning in 2022, we expect the investment in our modern banking platform will begin to reduce a portion of the processing expenses and enhance margins.
Although we don't typically provide quarterly guidance for adjusted EBITDA in light of the historic delay on the taxi to stimulus programs. This year, our investments in marketing for <unk> and our new segments. We feel it's constructive to provide clarity around the cadence of EBITDA performance for the remainder of the year.
Based on the midpoint of our reaffirmed full year adjusted EBITDA guidance, our forecasted EBITDA cadence is as follows 34% in Q1, 20% in Q2, 21% in Q3 and 25% in Q4.
Specific to the second quarter of 2021, we are forecasting low single digit revenue growth year over year as we lapped 2020 stimulus tailwind.
In conclusion, we're excited about the strength of each of our segments and Dan laid out the terrific progress, we're making in each area combined with the growth oriented investments, we're making this year. We believe we'll be on solid footing to generate consistent operating leverage and earnings growth in the years to come.
And even with these investments we are still forecasting adjusted EBITDA growth in 2021 with that operator, let's open the line for questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Anytime Youre question Thats been addressing I would like to withdraw your question. Please press Star then two.
In the interest of time, please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Our first question will come from Bob Napoli with William Blair. Please go ahead.
Thank you and thanks for all the new information segment day, that's very very helpful. I really appreciate it a lot going on here.
I guess.
And being limited to two questions.
<unk>.
Just asking maybe about the consumer segment the growth was a lot stronger there than then.
And then I would have thought.
And you mentioned that the go to bank.
I know there is some stimulus in there but.
Whats the direct versus the in store what is going on what has been outperforming and what's kind of the long term view of that segment is the growth of that segment.
Hey, Bob.
Dan, Yes, I'll start with that and Jeff you might want to quantify some of my statements, but I think Bob what you have there is what we've tried to two two share and signal earlier is that.
With our new leader into our business ran at Thompson, Jamie working on others that they've hired.
Really over the last nine months intensively focused on that retail business and.
To really.
Do the right things there to reverse the declines that were present in so that strong growth that you see is a combination of us.
Stopping the decline in the retail business and actually getting some moderate growth on.
Retail and then on top of that some really strong growth coming from go to bank.
That's why you're seeing such such good numbers out of that consumer segment.
Okay.
Thanks, very good I guess.
Hopefully quantify some of that indicate to bank do you. Let me just follow up with any.
And Jeff.
And from our standpoint, where we think thats going on I think we're just seeing more of the same because we have yet.
Step one is reverse.
On the backwardness on the retail side step backs and start moving forward. So.
I think we're going to see.
Increased growth and are on our traditional retail business and then continued accelerated growth in the direct business. So we're very very bullish on our consumer side I mean as I tried to mention when you think about just our consumer segment alone 4 million active accounts and close to a million direct deposit accounts that's more.
Then most all of these high flying Neo banks out there on the market today.
So super optimistic about what we're doing there.
Thank you then maybe just a follow up on the expenses the increase in the expenses I appreciate the investment, but just trying to get a little color on either way you broke out the segments you have.
<unk> corporate expense number.
Not in the segments, just trying to think about that what's exactly in there the modern banking platform. It sounds like fas's platform migrating to.
The expenses as you move into 2022 are we going to see that operating leverage so what's in that corporate expense number.
And then what are you going to get.
Continued investment in 'twenty, two or are we going to see operating leverage in 'twenty two.
Sure well I'll take that one on the corporate another bucket I.
Think of it as interest income earned by the bank. So there is some amount of revenue.
And then on the on the cost per profit side of that segment and think of it as <unk>.
Truly our fixed sort of employee base think of it like a generic SG&A bucket and when Dan and I have talked about in the past keeping fixed costs fixed while growing the three core channels of consumer b to B and money movement, that's where we start to really expand margins and then as we talked about the investment in the core platform, specifically that's really tar.
We're getting some of those variable costs that are within those segments and thats that is going to be something that will start to bear fruit in 2022.
And Bob I appreciate your fishing for FIA assets, but we've not we've not finalized or decided on a core banking platform yet that we're going to use.
Our next question will come from George Sutton with Craig Hallum. Please go ahead.
Hey, guys. This is James on for George So you mentioned account growth and go to bank is outpacing other available on the market curious sort of what you think the longer term account growth rate could look like and in terms of some of the marketing investments, you're making could you maybe talk about where you're seeing good ROI on those marketing dollars so far.
Sure.
Wont comment on the on the rate because I think thats as kind of a hard target to nail down, but I can say that just.
We've got a very experienced team that we brought on from folks I've worked with in the past folks that were here when I showed up and also others from outside the industry.
And one of the things that really helps us in our direct to consumer marketing.
Male or search engine optimization.
We are a bank.
And.
I've said that from the day day I got here and actually some of the folks we've recruited in from the Neo Bank space come here, saying, how powerful it is for us to be able to use the word bank and our marketing because we are a legitimate finance institution.
Words like bank savings accounts and others.
Things that other neo banks and challenger banks.
Should not be allowed to us.
Just again.
We're seeing.
Really good effective returns on investment dollars or marketing dollars that we're spending.
Our traditional direct to consumer.
Methods.
And it gets it gets fueled when we're able to stay.
Educate consumers that we really are a financial institution.
Great and then outside of the gig economy, I guess are there any particular verticals, where the early age weighted you access product is.
Seeing interest.
In terms of just verticals.
Yes.
The gig channel.
Most certainly is probably one of the most.
On popular as well for early wage access just because of the nature of our.
Although a gig worker.
I can say at gig workers have been around for a long long time, it's just now that because of the digital payments and also on the technology of mobility, we've created a whole new segment, but.
Back when I was a game Parker and I cut somebody Gerard I want to get paid that right, then and there and same thing with gig workers that are out there beyond the <unk>.
Developers are higher or people working events they want to get paid when the when the work is done so early wage access for that group and segment of employee is very very popular but really the really big impact that early way Jackson since going to have is for <unk>.
Traditional low to moderate income consumer in America.
Who was kind of living paycheck to paycheck and they get paid every two weeks.
Early wage access really is going to allow.
On a consumer who kind of runs out of money at the end of the month is going to allow them to avoid pay day loans and be able with a small tier 300 hourly wage access and I'll be able to get through the next pay period. So we really think that.
<unk> tried to highlight in the in the script.
Inside of our rapid pay card business.
There are 7 million employees.
Inside of our 5000 small businesses that we serve and I believe the early wage access will be very beneficial from time to time to all 7 million employees.
Our next question will come from Ramsey El <unk> with Barclays. Please go ahead.
Hey, good afternoon, guys, it's Damien on for Ramsey, Thanks for taking the question.
Lots to go through here, thanks for sharing the revenue risk segmentation.
Guess, what I'd love to hear a little bit more about this go to bank, obviously high high profile launch I don't know.
If there is any other kpis that you can talk about and I think last quarter, you talked about the direct deposit attach rate on on those accounts or anything you can share about LTV to CAC or anything else you can kind of share on <unk> would love to hear about it.
Damian.
We'd love to give all of our critical metrics out to you but.
Yes.
Yes.
So it really I don't mean to be evasive, but we really just have to speak in generalities here, but it's.
I've been through this before many of the folks on my team we've been through this before at our last company and we really are just.
Things are kind of better than ever and again I think it's a combination of.
Being able to actually be a bank you used the word bank on our terminology.
On the solution set that we have going to market with and I think also just the overall general awareness in the in the country.
Of a digital bank and what it is and what it means and what it gives me as a consumer.
Also as we said on hard times fueled by COVID-19.
So the metrics. We shared is the metrics that we will continue to share on a go forward basis active accounts direct deposit accounts.
All I can say is that we're seeing really really good promising uptake in terms of activation.
Listen it takes in terms of usage and enthusiasm with our consumer friendly overdraft product.
The numbers are exceeding our internal expectations.
Alright fair enough.
On.
I guess then.
Pivot here to be.
The new revenue segment, so specifically on on <unk> here, obviously last year saw some pretty impressive growth rates I'm. Just wondering if you can kind of.
Two.
Drill down there a little bit for us and help explain what was driving some of that triple digit growth in 2020.
And then maybe what your expectations are for that segment going forward.
Thanks.
Sure.
I believe that the revenue in that segment will continue to grow.
Simply because we've got.
Yes.
Powerful.
<unk> solutions embedded in the applications of your partners like Apple Intuit Quickbooks that have.
Millions not tens of millions of users.
Believe it that revenue growth is going to continue.
As we.
Tried to illustrate and demonstrate is that the the margins and the profit metrics on those contracts vary and so we're working to.
Youre streamline those better improve those to a degree to where are our bottomline growth.
Better match, our revenue growth inside of the of the Vas on the <unk> business.
That being said as well as debt.
That is.
That bass business, particularly that is our more long term growth engine. So we're going to be investing quite heavily in that business and most of that will be investing together with our partners in that business.
It creates some really powerful embedded financial solutions.
That will also involve small credit solutions.
To consumers through our partners.
Net net as I've said over the last 12 months first and foremost we're shoring up what we have we're focusing on are.
Long term traditional businesses and strengths, we're investing in the near term with Goto bank and consumer friendly overdrafts and simultaneously we are building with our best partners.
Our long term phenomenal growth engine for this company.
Our next question will come from Andrew Jeffrey with Truest. Please go ahead.
Hi, Good afternoon I appreciate you taking the questions.
Dan can you talk a little bit about.
I just want to understand total long term profitability.
Particularly your direct deposit accounts on the consumer segment I think its certainly helpful that debt. Those are all now being reported there can you talk about sort of relative profitability of those accounts.
What you think the drivers are going to be I get a lot of questions about the sustainability for example of the interchange model and then how much overdraft you think contributes to the long term profitability of those accounts. It seems like that's a really critical driver of that segment.
Okay.
Andrew Yes, I wanted to talk to all of that thank you.
Yes.
Yes.
So.
We broke out the direct deposit accounts in the consumer segment, because one thing that we learned a long time ago last company.
When a customer takes this product and they sign up for direct deposits to have their paycheck or government benefits directly deposited into this account.
They've made this their primary bank account.
And we know that those customers will stick with us for years.
We certainly know that here inside of Green dot because.
A number of three to five years ago Green Dot bought portfolios on companies like account on rush card and with those portfolios came direct deposit customers and we still have service many of those direct deposit customers today, so the longevity and stickiness of a direct baas customer last for a long long time.
The profit economics on them are such to wear.
Okay.
Between fee that we can earn off of interchange and ATM transactions.
Consumer front on the overdraft to that.
<unk>, we can deliver a customer.
That would deliver to us.
Monthly contribution somewhere between 15 and $20 a month.
And so if you kind of round that up to 20.
$240 a month, you get 1 million customers on direct deposit you've got $240 million per the contribution.
We are.
Were able to successfully make the investments we're talking about in this year to be able to build efficiencies on our operations get her on core banking system get her on card management system get a big variable costs make that fix and keep our fixed cost mix.
As I mentioned, we've got close to a nine customers on direct deposit today.
Our next million customers on direct deposit.
If we can keep our fixed cost to fix that.
On that incremental 200 $240 million of contribution should fall to our bottom line.
Yeah.
Okay.
How do you think about.
Driving those direct deposit active on what are the what are the key levers.
And what's what's the Tam Dan yes.
Yes.
What's the Tam total available market.
Yes, Im just trying to think about it would be great assets.
How do you get there.
Yeah.
Okay.
This is this goes back to kind of like the.
This is the type of business that I've always gravitated towards because I'm just not that good of a shot so what's the it's decided the barn sort of analogy. Okay. The total available market is the 100 million plus consumers in the U S. We are living paycheck to paycheck.
Alright.
Give us 5% of $100 million and we've got a multibillion dollar business in terms of revenue just in this direct to consumer segment profitability.
The way, we get there in terms of market is.
And this also is part of the great benefit of us being a bank.
First off here as a bank account its not a prepaid card if it's a bank account.
If you take this account.
You sign up for a direct deposit.
Youll have no fee on this account will gave you up to $200 on free overdraft protection.
We'll have.
Additional features here on the secured credit card to where you can build credit other tools to where you can build your credit score a pathway to traditional credit products.
All wrapped up into this go to bank account.
Tend to offer other solutions such as investment.
Investment tools that consumers can easily access.
Not to mention great customer service.
Maybe even some buy now pay later solutions are all on the roadmap. So it's really it's a method of being able to take what.
<unk> has.
<unk> has always traditionally kind of on hey, Here's just a prepaid card for you low income consumer. So you can get your paycheck to hear as a bank account.
Issued and offered by the finance institution, who is truly embrace of lower margin consumer.
To serve you and meet your needs.
Our next question will come from Andrew Schmidt with Citi. Please go ahead.
Hey, Dan Hey, Jess Thanks for all the detailed commentary, let me Echo others' and secondly, the adjusted disclosure extremely helpful.
Thank you for that.
I wanted to start off with.
Question on the profitability of the <unk> segment.
Could you just talk about kind of longer term margins or incremental margins for the <unk> segment considering the.
On the.
The banking as a service kind of.
Contract structures as they stand today and then.
How difficult is it to realize those structures kind of a two part question that.
On to each other.
Yes sure.
Sure Andrew I'll take a shot at that and Josh you can add chime in if I've over share pack.
Pass over anything.
We're not going to be able to change in any of the.
Significant contracts overnight, so we'll probably over the over the near term, we may see kind of margins decline.
As revenues continue to grow on the.
On the fixed contracts that we have.
I don't believe the ability to restructure the contracts is.
Is there anything thats.
Overly difficult.
But it's going to be something that just going to take a little time, because we're probably restructure those when they come up for renewal.
So do.
So we do intend to make those changes and when we get there, we'll certainly be sharing those with everyone.
Yes.
When we restructure those contracts at what debt.
It will have an impact predominantly on revenues.
But not a not a negative impact on the bottomline contribution on those contracts.
But all day.
Obviously, yes, obviously I think yes, I think you can see obviously why we why we broke that out is because now by breaking this out you can see.
How strong our consumer business really right, yeah and Greg.
On with.
Understood that's very helpful.
And then.
Dan you threw out a number of products in your prepared remarks, whether it's disbursements lending products overdraft et cetera, it sounds like Theres, a good roadmap, there which is great.
What are the let's call. It I know, it's probably hard to pick one of the top.
A couple of project products that you think has the most revenue potential and get you. The most excited.
Okay.
I would say.
Criminal and kind of line of sight.
In order I would say.
And order overdraft disbursements, and then lending and simple because overdraft is launched and so we launched overdrafts with our go to bank product when we launched in January.
We've rolled that out now to our retail channel is very recently and we expect to have it into our other all of our direct portfolios available.
By the end of this month.
So overdraft is here and now and so we know we've got the revenue coming on that.
Disbursements, it's launched inside of our rapid pay card business, but.
But.
<unk> recently launched and so now what we've got to do is just make all the warm phone calls or 5000 small businesses and enroll the early wage disbursements out to those 5000 small businesses and their 7 million employees.
And then lending is my name is on the roadmap.
Not not yet launched so thats why I put that third.
Okay.
Our next question will come from Steven Kwok with <unk>. Please go ahead.
Hi, guys. Thanks for taking my question I guess as we look at the debt.
The new segment disclosure.
Segment do you think has.
Has the.
Strong growth opportunities for growth because it seems like that will dictate where the margins can go.
And in addition, like is there potential for more upside to some of the margins that we're seeing today is within that each of the segments and if so what's the incremental margin on the thought that debt.
And how should we should think about that thanks.
Steven I'll, let Jeff trying to.
Pick apart on the margin I can just say in general that IC growth there's growth potential on everything we have which is why I'm. So excited about.
This and I'm, so glad we've broken everything out.
There is growth in our retail business Super strong growth potential on our direct business.
Our tax business.
Yeah.
We are engaged in some very exciting conversations with many of our partners about some new products to rollout.
To grow that taxes.
So im looking forward to 2022 and tax to be.
Meaningfully higher than 2021.
Alright talking about your pay card pay card even in the midst of COVID-19 is growing so I can't wait till we as a country get out of COVID-19 and let pay card really really take off especially add to what they've got potential with their early wage.
Firstly on business.
And then I also.
The Green Dot network as we tried to emphasize on this call.
We have three that tremendous amount on who lives.
Into the Green Dot network.
<unk>.
Evidenced by over 200 partners use that network.
I saw it today is that we in last 12 months theres been over $18 billion of cash.
Digitized through the Green Dot network through over something like $40 million transactions that is a real hidden gem in terms of.
This move of everything go on digital you know there is always going to be that small percentage of customers with transactions that have to be done on cash. We believe our green Dot network is going to become very very valuable to most all of the players in the industry.
No.
So with that with Theres growth comment across the board.
We're getting serious about fixing our fixed costs were making improvements on our infrastructure to consolidate some of our operating platforms. We will see margin expansion margin improvement in all lines of business.
Okay.
<unk>.
Our next question will come from Mike Grondahl with Northland Securities. Please go ahead.
Hey, Thanks, guys.
Is there any sort of high level color you can give us.
Your 4 million accounts in consumer services.
Can you speak at all to how many you picked up with the stimulus dollars.
Or even if you could give us sort of the ZIP code that go to bank.
Picked up in the quarter.
And I think the reason people are really curious about it is.
Inversely it speaks a little bit to the runoff in the legacy portfolio. So I don't know if you can help us with that that would be great and then I have a follow up.
Mike is your question on go to bank benefited from stimulus.
No.
Consumer services did you pick up any roughly how many accounts did you pick up because of the stimulus dollars.
And then how many new accounts go to bank, even if you can just give us the ZIP code of new account.
Trying to back into kind of the legacy accounts on any any runoff that could be happening there.
Yes, so Mike just.
Yes.
Yes, Jess Jess I have a bad zim connections that we're having a hard time give each other hand signals as to who should take that question.
Jess why should I.
I got a couple of points I definitely on Omega why don't you go first and then if you don't make the points I will add in sure.
Just on the former Mike which is around new customers I think the way that VIP three it really <unk> designed is that these were folks the deposits came on to the accounts it.
We're recipient for AIP one right. So these are a lot of customers that are.
On.
Recurring customers within Green dot ecosystem versus brand new customers that are coming through and benefiting stimulus right. You received your tax deposits in 2020 on a green Dot card you've got <unk>, you've got AIP three on that same card program. So a lot of it is existing customer base.
Yes.
I think thats that is the point I mean, the reality is is that.
If you didn't have on accounts that are with direct deposit your VIP deposits didn't hit that account, so as evidenced by 11%, 10% and 9% account acquisition in terms of active accounts direct deposit accounts juxtaposed against 21% revenue growth and I think it was 28% GDP growth.
Shows that.
<unk>.
I believe that we.
That our account growth that.
Debt, we had the great account goes we had very little to do with stimulus.
Got it got it and then go to bank kind of the ZIP code of sort of.
New active accounts.
Yeah.
I just save on the ZIP code is it.
The majority of the growth we had on the consumer segment came from go to bank.
I'm trying to stay away from any individual one product like debt.
Lot of good growth is coming I would say both.
<unk> got good growth coming from the pay as you go products that we launched in retail last year, you've got growth coming from go to bank.
We've got a good core sustaining base of direct depositors from some of those programs as Dan mentioned as well rush account now et cetera, So a lot of different areas youre seeing growth.
Okay and.
My follow up was just.
At the retail level is go to bank.
Sort of replacing the Green Dot brand or are you still utilizing the green dot brand at retail.
Well absolutely utilized on the Green Dot brand at retail, it's got tremendous consumer recognition and on.
Awareness and so we're definitely maintaining the green dot brand at retail.
So.
And I do not see that the go to bank as will cannibalize that business because of it.
As we tried to stress before as debt.
A customer most typically a customer when they purchase a card in retail they're more of a one and done customer who are picking up a product a green dot products ideally.
Two to solve a onetime payments need.
And hence the launch of our pay as you go product combined with our other green dot everyday products.
And that business is strong and I said, we've reenergized net business.
<unk> Bank product is designed for the customer who is looking for.
On a better bank account or on alternatives Bank account.
We do not believe they go to bank is cannibalizing the green dot products in any meaningful way.
This concludes our question and answer session I would like to turn the conference back over to Dan Henry for any closing remarks.
Thank you very much operator, and thank you all for this call really appreciate it.
We are super excited about what we see very early on in 2021 as we are.
Making investments to improve and strengthen and grow this business and we appreciate your your trust as.
As we journey along here. Thank you so much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.