Q3 2021 Green Dot Corp Earnings Call

Including our most recent Form 10-K, and 10-Q or additional information concerning factors that could cause actual results to differ materially from the forward looking statements.

During the call will 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 talked about today will be on a non-GAAP basis information may be calculated differently and similar non-GAAP data presented by other companies quantitative reconciliation are non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release.

The contents of 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 Dan.

Good afternoon, everyone and thanks for joining us as we announce our third quarter 2021 results.

This was another solid quarter for Green Dot as we exceeded our guidance with consolidated non-GAAP revenue up 18% adjusted EBITDA up 37% and non-GAAP EPS up 72% compared to the prior year.

Much like previous quarters R. Q3 results were driven in part by unique circumstances stemming from the pandemic, including shifts and tax season, and filing deadlines and government stimulus programs as well as customer behaviors and trends that have continued reinforcing the value and potential of the products we offer.

Both directly and through our valued partners.

We are driving forward with our plan to invest the financial outperformance back into our infrastructure and create a stronger leaner more scalable platform and enterprise.

I believed great companies are built with great people and.

And I'm pleased to highlight two editions, we have made to our leadership bench.

First being Mike Althouse, our new Chief compliance officer, and most recently the appointment of George Gresham, Our new Chief Finance and Chief operating Officer.

You'll hear from George in a few minutes, but first a few highlights from each segment during the quarter.

Starting with our consumer segment, which includes a retail and direct to consumer distribution channels.

To the digital ecosystem, where customers are increasingly seeking convenient payment and money movement solutions.

We also announced partnerships with Dennis and experience and empowering customers with tools and features to help them build improve and protect their credit.

These solutions reinforce our commitment to understanding and serving our core customers who tend to be low to moderate income consumers living paycheck to paycheck, who can greatly benefit from seamless affordable accessible solutions.

Now moving over to the <unk> segment, which includes bass, our banking platform services as we call it and our employer platform rapid.

Starting with banking platform services. This is one of our main areas of strategic investment and growth at Green Dot as we partner with some of the most highly respected and innovative brands in the world to design and deliver seamless banking and payment solutions for their customers.

As we focus on strengthening our technical foundation internally. We're also upgrading the talent that supports our partners. The combination of great Tech and great talent is what brings exceptional products to market for.

For example, last month and two at the global Technology platform that makes Quickbooks launched a new service money by Quickbooks. The latest edition to Quickbooks comprehensive solution suite powering small business.

The money by Quickbooks mobile App gives entrepreneurs freelancers and sole proprietors complete control over their money with the ability to accept payments and manage expenses plus debit card and bill payment capabilities and more green Dot is proud to be the banking platform service provider behind this important new.

<unk> from Quickbooks.

<unk> from Quickbooks.

Another one of our partners cabbage from American Express has begun increasing acquisition marketing for their <unk> checking account, which is also powered by green dot.

Serving and empowering America small business was seamless safe value driven banking and cash management solutions to something Green Dot is well positioned for bi.

By partnering with companies like cabbage into it we're building and delivering solutions that are designed to reduce stress save money and build confidence for today small business owners through solutions like small business banking and banking bill pay remote check capture debit cards and rewards.

We anticipate continued scalable growth in years to come from our banking platform services business as we work closely with partners to rollout. These innovative in demand solutions that are designed for today's small business owners and consumers.

Now over to our employer platform business branded as rapid.

This business saw solid growth in Q3 with revenues up 20% year over year and quarterly actives up 14% year over year, we added 295 employers during the quarter, bringing our total to nearly 5500 small and medium sized businesses, a 19% year on year.

And we continue to see growth from new client acquisitions and expansion as the economy recovers.

Wrapping up with our third segment money movement, which includes money processing also known as Green Dot network our GDN.

And our tax processing business known as TPG.

We launched 11, new GDN partner programs during the quarter, including pay active alternative prepaid spruce wealth I and others.

And we expanded cash disbursements at Walmart by launching ADP cash out, allowing end users or employees to cash out funds as needed from their pay card at Walmart locations. This is a very valuable feature to these workers.

Now looking at tax processing or TPG.

In the third quarter as we saw continued shifts in refunds from tax delays, we remained focus on enhancing our tax processing business and platform.

It was announced that we will not be moving forward with the acquisition of Trs.

The broadest and deepest money network in the country.

Would want to be associated with World class partners, like Walmart and Uber and I would want to control my own destiny with the bank charter.

I would also want others synergistic distribution capabilities that serve the same community.

Finally, I would want a great team to collaborate with on this mission to bring great financial solutions to those in need.

So that's the answer and I couldn't be more excited to be back at it. Thank you Dan and now I'll pass it over it suggests.

Thanks, Dan and George Good afternoon, everyone.

Before I get into the quarter I'd like to welcome George to his first Green Dot earnings call I got to know GA. The Green Dot Board member a few years ago and he is a great addition to the team that Dan and assemble them excited he is here.

Now I'm moving to the quarter, we had strong results delivering $329 million of non-GAAP revenues up 18% year over year.

Despite continuing to invest back into our modern banking platform and customer service, we expanded our adjusted EBITDA margin by 200 basis points.

Combination of organic growth new revenue streams, such as our consumer friendly overdraft protection program.

And maintaining a fixed cost structure, resulting in adjusted EBITDA $46 million and non-GAAP EPS of 43 cents.

We continued to produce substantial cash flow generated $147 million of operating cash flow year to date.

And our cash at the holding company at quarter end, but the $153 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 want to turn our focus to our segment results and key trends.

And our consumer services segment, we grew segment revenues and profit despite some headwinds Turkey metrics, but first of all focus on the metrics.

Gross dollar volume declined 18% in part due to a decline in unemployment benefits and the timing of tax refund pain.

In Q3 2020, the federal government provided supplemental unemployment benefits of $600 per week, those benefits were reduced to $300 per week in 2021 and expired in early September 2021.

Additionally, tax filing deadlines in 2020 were extended which resulted in a portion of refund volumes shifting from the second quarter to the third quarter of 2020.

Segment profit still increased due to the growth in other ancillary tax processing services offered through our tax business and the loss of low margin cash transfer revenue.

Overall, our money movement segment revenue declined $11 million or 19% and profit grew $1 million or 4%.

Now I'd like to focus on guidance for the remainder of 2021.

We are raising our non-GAAP revenue guidance in light of our Q3 performance and expectations for the remainder of the year to a range of $1 $3 7 billion to $1 38 billion.

We are reiterating the midpoint of our adjusted EBITDA range, while tightening the low and high end to $217 million to $223 million.

Based on our strong year to date performance and opportunities for growth in 2022 and beyond we believe it's prudent to continue making growth oriented investments in Q4.

We are raising our non-GAAP EPS range to $2 19 to $2 27.

Affect our tightened adjusted EBITDA range and refinements in our assumption of the weighted average share count.

Based on the midpoint of our adjusted EBITDA range, the implied fourth quarter earnings of approximately $38 million.

This figure reflects a reinvestment of profit upside back into our modern banking platform customer service and go to bank and as a result, we anticipate our consolidated adjusted EBITDA margin to decline both year over year and sequentially from Q3.

Keep in mind that we expect our corporate and other costs to increase in the fourth quarter as we invest in our new modern banking platform.

We expect this investment to begin delivering a payback in 2022 with a reduction in processing expenses, which will become more substantial in 2023.

We've made significant progress thus far in 2021, elevating our workforce both at the executive level and more broadly making.

Making growth oriented investments in our platform and our products and fostering an improved culture of customer service.

Although we still have work to be done we're proud of the milestones we've achieved and the results we've delivered.

We look forward to closing the year out strong and building on that momentum in 2022 with that I'll turn it over to Dan for closing remarks.

Thank you Jess we are pleased with the results, we're delivering while making considerable progress on our plan to become a stronger leaner more scalable digital bank and Fintech as.

As we look to the future and think Big picture. We know there's plenty of work ahead of us as we bring branchless banking to the many millions of underserved consumers and small businesses across our country.

We are very optimistic about our plan and potential of what we can build with the most differentiated collection of assets in our industry.

We will be focused on a few key areas to deliver sustained scalable growth.

Maintaining our focus and investment in our infrastructure and capabilities.

Exploring opportunities for cross channel integration and marketing between our partners and across business segments, and third innovation and accessibility. We will continue to introduce seamless affordable and useful products and features and making them more accessible to everyone.

There is a lot of work to be done and a lot to look forward too. Thank you.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then.

Kayla.

Our first question today comes from Ramsey El <unk> with Barclays.

Hi, guys. This is damian on for Ramsey, Thanks for taking my questions.

Nice results Tonight.

Lots to talk about here, but perhaps we can we can start with the <unk> segment.

We see some nice outperformance there I'm wondering.

Born in terms of you know kind of embedding ourselves as the digital payments financial service provider to many of these key partners some really exciting things on the horizon I believe.

Yeah I agree.

Then maybe I'll I'll pivot here and.

Ask a question about the the Republic deal the tax processing deal. If there's anything you could call out about you know why the regulator didn't approve that or was it something particular about the asset or maybe it was your use of capital generally and and maybe related to that you're talking about.

You know a sizable cash position 153 million of cash.

The plan to deploy that an absence of the Republic deal. Thanks.

Sure Uhm as we said before you know we were disappointed on the tiara as soon as action, but we're really not allowed to comment on that.

The result, there are any any comments from our regulators on it it was a transaction besides pretty nice little tuck into our tax business, but it buys by no means was anything mission critical to our long term strategic growth Holistically at Green Dot so.

[noise] kind of a disappointing bump in the road.

If you will.

Hand, Smith and the consumer segment to be to be segment, certainly be more pronounced when we get into 2023 when the platforms are fully operational.

[noise] and just you know from an operational side as as just mentioned here by bringing this craner on platform and having that in house, we we take a variable costs and we make it fixed and so then when we talk about your green Dodge as.

As a as a bank and a financial institution and our ability to create an embed digital demand deposit account.

Seamlessly and then almost an extremely extremely if not almost a free course of embedding those accounts into the apps and experiences of our major partners that is why is it. This effort is is such a game changer for us here a green dot.

Got it that's really helpful and maybe as a follow up could you just talk about how we should think about you know some of the moving pieces basically between.

So now we're gonna you know being a being a spot where.

Our performance is and will clearly be visible.

Got it I appreciate the color nice quarter. Thanks, yes.

Thank you.

Our next question comes from George certain with Craig Hallum.

Thank you guys I think your performance was clearly visible this quarter. So congratulations and welcome to George Fabulous named to have so then.

Then I I wanted to make sure I understood. The new collaboration efforts with Walmart and if you could just detail that a little bit more and as an aside to that you know we get probably the most confused questions from clients around the rib at Walmart relationships. So if you can just discuss that in totality and and re.

Relative to their decision not to pursue.

Pursue a bank charter thanks.

I'm sure George Thanks.

Thanks for the question in the comments and.

I'm I'm not able to comment on you know whatever ribbit Walmart decided in there and their strategy around that when I can comment on is is what I have this in the past and you know probably with with more confidence and clarity uhm. After last week, when we met with a number of Walmart colleagues at money 2020 is that.

You know, whether it's new partners versus <unk>.

Growth at existing partners.

Lance you cut out a little bit there and so I mean, Jess I don't know if you heard that question well, but I think to answer your question is more about wage growth coming from whats the mix there.

Yeah, sorry about that you know with the with the best platform the new versus existing.

So again, it's on the bass platform, where we can see growth coming from new partners or existing partners.

Correct sorry.

Okay Alright.

Okay Alright.

Jesse you want to take a shot at that now add color yeah, Yeah, I think I think in the near term.

Youre going to see quite a bit as well we're excited about the existing customers. We've had on the on the platform for some time, we've seen continued growth there. We got to we know you've launched a few new partners at the end of last year and those are gaining traction. So I think in the near term a lot of growth would come from from those existing.

Partnerships and then of course.

Our bass team has a very active pipeline. So it's hard to say long term how that mix is going to shake out, but I think as Dan has mentioned on previous earnings calls, there's so much opportunity with the existing base of customers that we have but.

The growth rates, there are appealing enough, but I would expect that our cable ad.

<unk>, new customers to that platform in the quarters and years to come.

And as a little bit of a follow up there what are what are some of the criteria you look at when you choose the partners.

Okay.

When were.

Choosing our partners on that platform. What we're looking for is either partners have already achieved significant scale and have a large customer base.

We want to we want to focus and drive deep with our existing partners the size and scale potential of our existing partners.

<unk> is more than enough to triple the size of Green Dot currently and then be quite selective on other new partners that we bring in.

Thank you very much.

<unk>.

This concludes our question and answer session I would like to turn the call back over to Dan Henry for some closing remarks.

Well that was pretty short and sweet and I want to thank everybody for time and interest and support we are continuing.

Continue to work hard here, we're going to be continuing to invest in the growth of this business and we intend to continue to deliver bottom line growth in this business. So thank you everyone very much and we'll talk to you soon.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.