Q3 2022 Green Dot Corp Earnings Call
Good day and welcome.
Yeah.
The Green Dot third quarter 2022 conference call.
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Okay. Thanks presentation, there'll be an opportunity to ask questions.
Please note that this event is being recorded.
Now I'd like to turn the conference over Mr. Willey Senior Vice President of Investor Relations.
And corporate development.
You may now begin sir thank you.
Thank you and good afternoon, everyone. Today, we are discussing green dots third quarter, 2020, chief financial and operating results.
Following our remarks, we'll open the call for questions Administration earnings release that accompanies this call and webcast can be found at IR <unk> com.
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 dots filings with the Securities and Exchange Commission.
<unk> most recent Form 10-K.
And 10-Q for additional information concerning factors that could cause actual results to differ materially from the forward looking statements.
During the call, we 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 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 reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press.
Release.
<unk> 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 George.
Thank you Tim and good afternoon, everyone. We have a lot to cover today, including the recent changes to our management team you should all know be aware of.
An overview of our third quarter results and update on our key near term priorities as we continue transforming green dot into a next generation financial services platform and a brief overview of our longer term strategic opportunities and priorities.
Then we will open it up for questions.
Jump in.
Our financial results for the quarter came in at or above the high end of our guidance range revenue of $337 million was up 3%, while EBITDA margins were 13, 5% and EPS of <unk> 44 cents.
It's up 2%.
We have been seeing weaker than expected consumer activity, particularly in the retail space, which then extends to green Dot network utilization. These shortfalls have been largely offset by stronger than expected performance from our bass partnerships and contributions from our bank.
On a year to date basis revenue was up about 2%, while adjusted EBITDA and EPS were up about 11% and 15% respectively.
Cash flow on a year to date basis was up 78%.
Jeff will provide some additional details on our results in a few minutes.
Though we faced some uncertainties related to the broader macro environment. We have made significant positive changes at green dot.
I am happy with our consolidated results and grateful for all the hard work. The team has put in to drive our business forward.
I would now like to take a moment to share a little more context, and my perspective on taking on the role as CEO .
Dan Henry has been a friend and colleague for many years. He has had an amazing career of value creation, you laid a strong foundation and path forward for Green Dot during a period of critical transition.
He built an impressive management team and established a solid vision and purpose and we appreciate his contributions.
Dan will continue to be a friend of green dot for many years to come and we wish him the best in his future endeavors.
I am humbled and feel privileged to assume this role I simply couldn't feel more strongly about the opportunities. This company has in front of it and I Hope my experience knowledge and approach will serve green dot well and leave it to its inevitable success.
The two most important first steps I plan to take in this rollout to first set us forward on a clear strategic path to success I recently had the privilege of laying out our strategic roadmap for our board and we'll share some of those highlights with you in a few moments.
Second and equally important will be to ensure we have the right team to execute against our opportunities.
To that end I am pleased to make the following changes to our leadership team.
Chris Ruble has been named Chief revenue officer responsible for overseeing all revenue generating businesses, including bass consumer direct tax processing Green Dot network and pay card as well as the company's marketing and product development teams Chris.
Chris brings a wealth of experience to this role as an entrepreneur and proven value creator.
Co founded and ran our pay card business for nearly 20 years building it into one of the largest and fastest growing pay card businesses in the country.
Prior to co founding rapid he held numerous leadership roles at private equity portfolio companies. He is a proven executive that can help maximize the revenue opportunities across our franchise via his ability to understand cross channel collaboration disciplined resource allocation and mentoring talent.
Jess Unruh, who most recently served as operational CFO and Chief Accounting Officer, and previously served as interim CFO has been named Chief Financial Officer prior to joining Green Dot in 2009 Justice with Ernst and young for a number of years.
Over the last year. He has been a tremendously valuable resource and partner his deep understanding of our business and financial metrics and analytics are unparalleled and we are fortunate to have him lead dysfunction in an official capacity going forward.
Finally, <unk> Watkins, who most recently served as our SVP of operations has been named Chief operations Officer responsible for overseeing payment processing payment network supply chain settlement sourcing procurement and customer experience and support.
<unk> is a natural leader with deep experience managing complex operational teams and implementations.
He has also played an instrumental role in our banking and payment platforms transformations and she is a valuable addition to the executive team.
Let me now hand, it over to Jeff to give you some more detail on our third quarter results and full year expectations.
Thank you George and good afternoon, everyone with the press release and slide deck, you should have all the necessary financial numbers and metrics. Let me provide some qualitative commentary about each segment.
Better understand the quarter whats going on in the business.
Turning first to our consumer segment, which is comprised of two unique channels retail, which is our largest single channel across the company and direct to consumer.
Aggregate revenue declines largely remaining function of decline in active accounts in both channels driven in part by the impact of stimulus programs in the prior year and in part by very distinct dynamics within those channels.
Regarding stimulus many accounts benefiting from enhanced pandemic related unemployment benefits through much of Q3, 2021, as well as elevated deposit balances from stimulus money earlier in that year.
Ashford distinct dynamics the retail channel is faced with two challenges first as the headwind associated with the secular change in consumer foot traffic.
Second into a lesser degree is the competitive environment as consumers now have a variety of direct to consumer options.
However, in our direct channel the declines are driven by two factors first as we've discussed in the past we've made a very deliberate decision at the beginning of 2021 and deemphasize legacy brands, while we invest solely in building the <unk> brand from scratch.
Second as we've noted in prior calls we pulled back our marketing spend for <unk> in the first half of the year, which has had a negative impact on account growth that.
We have begun to put marketing dollars back to work.
We believe this reacceleration in marketing spend is well timed as we have worked to improve the customer experience.
And our competitors have shifted their focus to reducing their expense base by pulling back marketing spend and reducing head count.
While we continue to see year over year declines in aggregate accounts.
Over the last couple of quarters the rate of sequential decline in our direct deposit accounts.
Moderating, which we believe is encouraging.
We would attribute this to a combination of stimulus related accounts, having largely left the platform. While also benefiting from improvements in customer experience and stronger conversion rates as we improve the customer journey from account acquisition and opening to signing up for direct deposit.
Looking at revenue there was one call out I would like to mention.
Though it is still early revenue in the direct channel, which accounts for a little bit less than 30% of segment revenue has been reasonably consistent for the last several quarters.
This may be an early indicator that we can be finding a bottom in this channel, particularly with direct deposit customers, who monetize at much higher rates.
While not going into specifics and example is to provide as net revenue in the direct channel is now higher than it was two years ago. While retail is down again. It's early we're encouraged by what we're seeing in the direct channel.
As you know the Goto brand as our key customer facing product and this is the product we put nearly all of our marketing dollars behind in the direct to consumer channel.
While we don't disaggregate individual product performance and our second reporting I'd like to share a few metrics on <unk>.
The go to product now represents 40% of the revenue in our direct channel and just as important is that within go to the growth of direct deposit active is up 58% versus last year.
Very pleased with the performance of Goto and encouraged by what we're seeing.
Last a trend we've highlighted in prior quarters revenue per active was up 13% over last year as the mix of active accounts continues to improve and we enjoyed continued success in driving engagement and penetration of overdraft in the customer base.
It is worth noting that the growth of <unk> and our direct channel has been growing at a higher rate than the overall consumer segment due to improving account mix and direct customers have a higher annual revenue per active account than those in the retail channel.
Looking at <unk>, which consists of our bass and pay card channels growth was driven by both bass and pay card while margins remain impacted by contracts that have a fixed profit component.
Growth of one of our larger customers continues to power the topline in the bass business, while the remaining portion of the business is still lapping the deconversion of the customer in early 2022, which also accounts for the bulk of the year on year decline and lack of accounts to pay car division saw solid results with revenue and account growth in the low to mid teens.
Looking at margins the impact of a couple of customers with fixed profit structures continues to weigh on the aggregate segment margin. If we look at the segment. Excluding this impact we believe it gives us a better feel for the margin performance and how we manage the business.
In that context margins were stable to up as we continued to see improvement in areas, such as customer care risk management and supply chain.
Let's turn to money movement, which is comprised of our tax processing business known as TPG and the Green Dot network, which serves our own account base, but is seeing an increasing amount of volume from third party partners while.
While revenue was down in the quarter.
Timing around tax volumes associated revenue can have a disproportionate impacted growth rates.
More importantly, if we look at the year to date revenue for this segment is down 6% with TPG seeing nice growth in transactions and revenue while the Green Dot network has seen declines from the impact of the decline in active accounts in our other segments.
That said the rate of transaction declines for the Green Dot network is less than our active account base. As this channel is seeing momentum in adding new partners. We believe that the green Dot network is a unique asset that is under monetized and other entities, some which you may view as our competitors either value in joining this network.
Providing convenient cash in and cash out access to their customers.
Over the last several years third party partner volumes have grown and we expect that to continue for the foreseeable future as we signed and launched new partners there.
The margins from the money movement segment were down year over year in Q3 due to the timing of tax season on a year to date basis. They are up almost 400 basis points and remain at a very healthy level of roughly 56%.
Turning to our corporate and other segment. This segment reflects the interest income we earn at our bank and any related expenses are.
Our fixed expenses, such as salaries and administrative costs and some smaller intercompany adjustments for.
For the quarter, there were some modest increase in salaries and administrative costs, mostly tied to the expense related to our technology transformation.
And revenues, specifically interest revenue was up and reduce the drag on earnings.
It is important to understand how our interest income works and how it is reported in our segment results.
Functionally our cash balances benefit from the rise in short term rates. However, we have arrangements with certain partners that results in us sharing a substantial portion of net interest income.
Conversely, we see yields on our investment portfolio increase but at a slower rate as securities mature and proceeds are reinvested.
In our segment reporting the interests, we share with our partners is netted against the interest income regenerate on cash and investments.
Lastly, I'd like to discuss is our focus on managing expenses and driving efficiency over.
Over the last year, we have focused intently on improving our cost structure and we will continue to make this a priority.
As you've heard US mentioned several times on this call. We are seeing tangible improvements in key areas, such as fraud and risk customer care and supply chain.
At the same time, we will continue to carefully invest in areas like security and compliance as well as marketing when theres a clear payout.
Last I would point out that while we are currently shouldering expenses tied to our technology transformation.
We complete that effort and those expenses will roll off inefficiencies will be gained.
Turning to capital and liquidity, we continue to have a strong balance sheet and liquidity position, we had free cash flow of approximately $41 million in the quarter.
And at quarter end, we had $92 million of unrestricted cash at the holding company.
During the quarter, we repurchased one 3 million shares at an average price of $22 92.
At the end of October we had $16 million remaining on our current share repurchase authorization.
We expect to get an update about capital allocation on our next earnings call. After we report Q4 results.
Before turning it back over to George Let me give you our updated thoughts on 2022 guidance.
For 2022, we reiterate our full year non-GAAP revenue guidance range of $1 $3 94 billion to $1 43 billion. We are reaffirming the midpoint of our adjusted EBITDA range, while narrowing the low and high end of the range to $232 million and $238 million.
We are raising our non-GAAP EPS to a range of $2 42.
To $2 51.
To reflect a slightly lower share count as well as slightly lower depreciation expense.
Backing into Q4, the midpoint of our guidance implies non-GAAP revenue of $325 million adjusted EBITDA of 32 million and non-GAAP EPS of <unk> 24.
Addressing what may likely be someone's question about not raising the midpoint of EBITDA guidance. Despite third quarter B I would point out several things first as we discussed on our Q2 call. We expect to incur additional expenses to improve our anti money laundering compliance controls policies and procedures.
Could impact our margins and other results of operation.
Second we are still uncertain about the timing partner deconversion.
Third we are encouraged by the performance of Goto and reserve some flexibility to elevate marketing spend if we believe it makes sense.
With that I'll hand, it back over to George.
Thank you Jess let's reassess current conditions and anticipate the challenges and opportunities ahead that we plan to navigate and capitalize on I want to reiterate that our near term priorities have not changed first our technology transformation will continue we must move the company onto a modern.
<unk> platform. This is critical to our long term success as it will unlock our capabilities and potential while driving significant efficiencies across the enterprise.
Operational excellence.
We must remain focused on finding ways to be more efficient and making this a part of our cultural DNA areas like fraud risk management and customer care continued to see improvements all of which are key to optimizing the customer experience and driving account growth. We are committed to maintaining a disciplined approach to managing the cost structure of the business in the years to come.
Third business development, we continue to focus on building a strong business development effort and we are beginning to see success. We recently signed a large vast partner and we also launched earned wage access with one of the largest retailers in the United States.
These two noteworthy successes are in addition to the renewal and extension of two important bass partners, along with a constant flow of wins in our GDN and pay card businesses.
Building out a strong sales engine is a priority and I believe that Chris is the right person to lead that effort. While we also focus on investing in the infrastructure to ensure that we deliver and expand upon partnerships that we're creating.
Now I'd like to take a moment to share our perspective on 2023 and the opportunities ahead of us that prompted me to join Green Dot a year ago and are even more apparent to me now as the CEO .
First let's talk about 2023.
We are in the midst of refining our views on our expected 2023 financial performance. We previously indicated that our path to EBITDA growth in 2023 may be likely despite several customer nonrenewals.
Based on consumer and other trends, we have observed in our business since the second quarter. We now believe adjusted EBITDA will decline on a year over year basis in 2023 compared to 2022.
My commentary is based on factors, including the macroeconomic outlook interest rates duplicative costs associated with our technology transformation and the timing of the related expense savings and the performance of the retail channel.
While the net savings from the technology transformation may be less than expected in 2023, we still fully expect these costs to come out in 2023 and view this as a timing related issue.
This directional guidance is preliminary and subject to change as it may be impacted by a variety of factors, including those described in our public filings.
As we wrap up the budgeting process and have additional discussions with the board. We are intently focused on finding a balance between managing our expenses and investing in growth opportunities.
We'll have more clarity on our outlook and I look forward to providing more detail on our year end call.
I'd now like to summarize our thinking about our longer term strategic opportunities, which we recently shared with our board.
Green Dot is a complicated company put together over many years without an eye toward the optimization efficiencies or synergies.
The markets, we operate in are vast and present a variety of growth opportunities.
We're in the business of solving everyday problems for consumers, how they access their money pay for things and keep their money is safe.
Across all our major operating segments. The addressable markets are significant and we have tremendous opportunity to capitalize on them through our platforms.
We already operated successfully in these markets with proven capabilities. We serve four of the top five fortune 500 companies today with our products and services, we have more than 75% of the top 20 retailers in the United States. We serve over 6000 businesses with pay card products. We process. The majority of all tax refund transfers.
Each year, and we have millions of consumers as customers.
We all know consumer behavior is changing and the rate of change is increasing they go to retail outlets less frequently and demand convenience speed and simplicity in the financial products they use.
Our partners current and prospective notice too they are adapting to this generational shift by experimenting with new ways to deepen engagement with their customer networks.
And that leads into some form of payment solution.
We are building an enduring platform business, our modern Configurable technology platform combined with our banking platform and money movement platform to offer partners and consumers unmatched capabilities and product offerings at market, leading low costs are.
Our partner in consumer facing channels retail bass direct to consumer and pay card will eventually all pull from these capabilities in order to provide solutions for their particular market needs.
You can think of these platforms as our embedded finance offerings, but it is an offering that will be highly differentiated in the market.
From this offering will spring credit solutions advanced disbursement capabilities, SMB banking products pay card solutions and much more but.
But not only will we be offering simplified package solutions to partners to help them deepen and expand their relationships with their own customers. We will do that at very low marginal cost with the technology, we own along with our ability to bundle capabilities, including payment network and banking offerings.
Well many of our competitors will have parts of this equation. None we'll have the capabilities, we offer across the breadth of our channels and platform.
Our strategy does not rely solely on the build out of our technology and integration of processes. While we believe those opportunities are immense let me give you just a few more modest examples unrelated to our technology roadmap.
Our pay card business branded rapid serves over 600000 consumers and it's the fastest growing pay card business in the United States. According to visa.
While it is not today the largest business within green Dot. It is an all star consider this early wage access or <unk> the business of getting people their pay as they earn it is a greater than $3 billion market, which is largely untapped today we.
We believe everyone will inevitably have access to AWS sooner or later.
We are selling this product today, we have a differentiated offering in the market, we have a large existing customer base to sell to.
The best pay card sales team in the country to do it.
It is early days, but we intend to win this race.
Our tax business TPG also presents clear unattainable opportunities the tax business has generally been driven by a single highly profitable product, but with low organic growth.
This division processes over 15 million consumer tax refunds and works with a network of 27000 small businesses that prepare those taxes.
So we have 27000 small business clients in this channel, but we do not offer them business Bank accounts, we will we open about 15 million temporary accounts for consumers to process their tax refunds all of which are closed shortly after the refund is processed.
These are essentially temporary accounts and soon all of these consumers will have a permanent go to bank account opened when their tax refund this process.
Today, we offer no credit or additional SMB solutions to these small businesses that will change.
Bridging our bank, we will be able to create payment and credit products to distribute at low incremental costs across this network of smbs and consumers.
The Green Dot network forms a unique nexis within the U S payment system as companies seek to build digital only financial platforms that needs to provide their customers access to a network. The green Dot network with 90000 locations that facilitate both cash and digital transactions.
All payment transactions are and will remain in the domain of regulated enterprises, providing safe secure stewardship of consumer deposits are.
Bank returns remain well below any comparable peer and with steady progress and careful capital planning, we will bring the banks' returns in line with the market, while keeping our depositors funds safe and secure.
This will be accomplished over time through conservative investment practices careful introduction of modest credit products into our existing partner in consumer base consolidation of all banking relationships. We now conduct with third party banks onto our bank.
And the extension of services already provided by the banks such as sponsorship.
All of the opportunities that I, just referenced are real and in various stages of motion in the case of products like AWS and embedded finance. We firmly believe we are in the early stages of what a once in a generation opportunities.
In summary, we have a tremendous growth opportunity ahead of us given the size of our markets and changing needs and demands that are differentiated assets and capabilities can address and serve.
We see and understand the challenges as well as the vast growth opportunities ahead of us we have tremendous strength and potential compared to many of our peers and we have a strong plan and team in place to lead Green Dot to the success that is capable of.
There is much work that remains but we are focused energized and committed to executing our plan and delivering value for all of our stakeholders.
That I will turn it back to the operator to take your questions.
Thank you and I'll begin the question answer session.
Ask a question you May press Star then one on your Touchtone phone.
Is it a speakerphone please pick up your handset before pressing the keys.
So it's all your question. Please press Star then two.
At this time, we'll pause momentarily to assemble the roster.
First question will be from Bob Napoli of William Blair. Please go ahead.
Alright. Thank you Ed Good afternoon, George Jeff Tim. Thank you for the question very interesting George I appreciate the discussion.
Questions around embedded financing some of the opportunities you see what do you see as the.
The biggest challenge is and what is the right growth rate long term.
For Green Dot what do you see as the biggest challenge is when would you see like net account growth.
Pick up year over year.
Really appreciate it.
Thanks, Bob.
Look I think that I think to the extent, we had characterized challenges they probably stand.
Within our control in the sense that.
We're fully occupied right now with executing.
Executing against internal inwardly focused activities around technology platform modernization those are complex challenges.
Hum.
Obviously there.
It takes a lot of time and focus.
While we're doing that we need to also keep the BD engine running develop our team all of those sorts of things. So the challenges are not necessarily from our perspective external in the sense.
Change in consumer behavior or macroeconomic condition.
Mostly getting.
Important thing quickly so that we can be.
Fully leveraging our capabilities, that's the way I'd put it I would shy away at this point from giving you any quantitative quantifiable long term.
Growth rates and margin but.
Our addressable markets the markets. We're in today are.
Our direct to consumer market is $40 billion.
Pay card $3 billion.
They are gigantic markets.
And really our potential in my view the unlimited with respect to those market opportunities and it's all about us executing against them.
Thank you and just a quick follow up and you had talked about EBITDA being down next year can you give any.
Feel for that.
How much of a decline in EBITDA you would expect.
Yeah.
No I can't quantify it I will tell you this.
I think it was generally imprudent for us to to try to run ahead of 2023, and we need to finish our planning and our work it's meaningful obviously enough for us to put some points on in this call. So I'll leave you with that comment and we will get back to.
Two when we do our Q4.
Release.
Thank you I appreciate it.
Okay.
Thank you. Our next question will be from Andrew Schmidt of Citi. Please go ahead.
Hey, George just Tim Thanks for taking my questions and congrats to everyone in their new roles here.
[laughter], thanks, and a lot of changes.
So I think starting off just a question for you George.
Pretty clear that nothing changes in the near term you kind of.
Outlined a lot of the opportunities and why everything fits together. So it doesn't seem like portfolio optimization is on the table at least in the near term, but maybe you could just talk about how your philosophy or how your focus changes as we go out further in terms of just incremental investment areas opt.
<unk> just any difference regarding kind of the previous approach just curious to get a feel there. Thanks a lot.
Thanks for that question first of all I'll say.
I don't think that this is about comparing myself to Dan in any way, but I will try to expand on my way of thinking.
As it is.
I tend to be.
<unk>.
Process oriented very focused on management execution and accountability.
I think very carefully about milestones and how the team is going to achieve those milestones and tried to put a lot of focus and maintain focus on each incremental step along the way.
I tried to build teams that share that philosophy.
My core value as a corporate leader.
<unk> is one of.
Stewardship.
Stewardship.
Obviously, we accept deposits from millions of consumers it couldnt be more critical that we take good care of those deposits and manage them prudently.
Obviously, we.
We have.
A large number of investors that we are stewards of their investment in their capital as well and we take those obligations.
Quite seriously. So so we think about these questions in terms of capital and capital returns over the long term.
So of course.
The steps we're taking over the next four to six quarters are are approximately the same steps will put a tremendous amount of focus on business development.
Integrating our sales capabilities, making sure that we're packaging products and services into the market appropriately.
That's why I've asked Chris ruble to join me.
This effort.
So I think youll see some shifting of priorities in a lot of focus on basic blocking and tackling management disciplines.
But the path in my view is clear.
We have amir.
Amazing asset we have to get them working together in the right way.
<unk>, rather than later and in our futures boundless them.
Got it I appreciate that context thats helpful.
You've mentioned a lot of opportunities for us.
From a product perspective.
Not looking for any.
Quantifiable kind of timeframe, but then I guess, just generally speaking when do we get to a point, where we can see a faster kind of product velocity and see sort of.
The ability to kind of go after a lot of those areas that you referenced Disney MVP has to be in place in order to see that that product philosophy step up because they do agree there is a big opportunity.
But I'm just curious in terms of when we'll start to see some of these areas.
Start to be attack.
Any color there would be helpful. Thanks, Yeah, no. That's a great question, Andrew that's a complicated question, let me give it a shot to try to simplify simplify our strategy that we talked to our board about over a couple of hundred pages that I'm going to try to do it here in a minute.
So if you think about.
Our platform business.
We have a bank platform sits.
Sitting on top of that as a set of shared service capabilities and on top of that is a it's a money payment network the green Dot network and on top of that as a technology platform.
Most of our channels.
In the near term direct.
<unk> channel and retail will sit on top of those capabilities and distribute capabilities out of that platform and in fact that happens today, but it happens in a very complicated high cost way.
And in the future pay card will sit on top of those platforms as well. So there's two elements to your question one is bringing the cost down materially. So that we have a differentiated cost advantage in the market and that could be bringing.
And their products to market or it could be bringing partnered products to the market.
And then the other element and a cost element of that.
<unk> journey, we've talked about the first step in that journey, which is the processor migration consolidation, which will occur in 'twenty three but that's just the first step.
I've alluded to other steps in previous calls I won't repeat those but as we go through those steps in 'twenty, three and <unk> 24.
All of these capabilities. These product capabilities are asking about will be consolidated in a configurable way on the platform. So whether we're talking about our API developer capabilities.
To credits capabilities.
<unk> product offerings.
Advanced disbursements.
All of those capabilities will incrementally become available over the next 24 month period of time, but it is our view and our focus to have the vast majority of that journey done in by the end of 'twenty four.
Got it very helpful. George Thank you so much for the comments.
Thank you Andrew.
Thank you next we'll go to Ramsey El <unk> of Barclays. Please go ahead.
Hi, Thanks, so much for taking my questions Tonight.
I was just on the Marquette earnings call. They mentioned that they had won a issuance and processing relationship with Walmart for a product called one I think which is something I think that in conjunction with the river JV I'm just curious about how what your read is on that was that something you guys were in the running for does it have any read through or impact on your your programs with Walmart.
Alright, Thanks for that question, Randy I'm going to I'm going to expand your question a bit and take an opportunity to make sure our audience.
Understand.
Our relationship with Walmart.
I answer that question.
Of course, we have an agreement that with Walmart that goes into January of 2027th to manage the Walmart Moneycard and.
Tributes various green dot product within Walmart locations.
And we have a number of ancillary services and <unk>.
The activities associated with those agreements.
That agreement is in place been in place for a long long time will remain in place.
We also have the <unk> joint venture.
You can read about it in our public filings that is primarily in place in order to.
Create a pool of resources that can be used to foster innovation and distribution of the very products I just mentioned.
That JV is active it is.
Doing exactly what it was intended and designed to do and it is it is currently designating our investment opportunities for this sort of innovation.
And as we all know.
Walmart has.
Into this other JV with warm.
In order to do certain other payment services, we have a relationship with long I wasn't listening to the Marquette a call. So I can't comment precisely on what it is they were they were characterizing.
My understanding is that Mark had previously was the processor for one and remains the processor for one.
So it's not new information from our perspective.
<unk>.
We don't consider that to be a material change, but I would highlight that as one.
Consider the opportunities that they have to expand their payments upfront.
They will seek out various vendors to do different things.
Obviously, though the banking relationships only a payment processing relationship still need money network access points.
Different products and features to.
Bring to bear and we expect to compete with US. So we view this opportunity with one is expansive not more so.
Can't comment further on what Mark said.
But that's our view of the overall relationship with Walmart.
Got it alright, well thanks, so much for that appreciate it.
Sure. Thank you Randy.
Thank you. Our next question will be from John Heck of Jefferies. Please go ahead.
Afternoon, guys and thanks for taking my question I guess.
Just with respect to.
The high level of preliminary EBITDA.
Momentary.
I mean can you give us color just in terms of marketing was this a revenue thing from the consumer segment.
Back book cost.
Cost savings may be delayed over the course of the year as you implement the new system is it is it a little bit of everything just again, just trying to think about the trajectory of modeling.
So you mentioned the consumer segment, yes.
As we've gone through another quarter and we looked at the acquisition trends, primarily within bricks and mortar retail.
They continue to be below our own expectations and below our expectations. When we talk to our investors three months ago.
That's one point.
Interest rate environments are complicated with respect to green Dot just made some comments in his prepared remarks with respect to how those affect us I would go back and look at those it would be burdensome to explain all the nuances of them, but as short term interest rates.
Increased at a rate faster than we can invest in longer term instruments that tends to have a a short term negative impact on us. So that's a factor.
And the timing and pace and our own decision too.
Slow marketing spending, particularly in the first half of 2022 as a negative impact on 2003.
We think that ladder issue well have an opportunity to rehabilitate itself because as I'm sure you know many of our direct to consumer and consumer competitors are facing.
Brand new capital constraints that they have never experienced before.
We think thats going to harm our ability to compete in the market and direct to consumer businesses.
So we think that may turn in our favor in 'twenty three but I think it's really early to.
To make that Declaratively stated.
Okay, and then turning to the <unk> segment.
I guess kind of two questions.
Once quick about the about several of them, but the ones. The first one is I.
I know there were some customer losses last quarter that were announced were those all out all the way through this quarter and second question is the <unk> category has been showing a nice upward to the right trend can you can you talk about what's moving that increased productivity with the best customers.
The latter question I'm going to kick it over to Jeff here, because I want him to at least have a little bit of an opportunity.
The comment in his skull doing the first.
The first part of your question is no.
Those partners trail off.
Through the quarter.
It will largely be exited by the end of the quarter are at very early Q1 of 'twenty three and then Jess if you want to handle the second question.
Yes, I think the <unk> and the vast businesses, they're certainly SaaS.
SaaS customers that are a high growth rate.
That same bass best customers have sort of a fixed profit so youre seeing a solid flow through of our two on the topline, but youre not seeing necessarily that flow through on the contribution crackly.
Okay, Thanks, very much and congratulations on everybody rules.
Thanks very much. Thank you. Thank you.
How much.
Thank you next question will come from Joel <unk>. Please go ahead.
Hi, guys. Thanks, so much for taking my question.
So I was just wondering if you could provide any update.
On the vast pipeline as well as just any insight on contract renewals for <unk> and what the timing on those looks like.
I know kind of somewhat related to that last question.
Yeah no. Thanks for the question.
So I in my prepared prepared remarks.
Somewhere in the first third or so I did a quick list I didn't name any particular partners.
But we did sign this quarter.
A fairly meaningful vast partner opportunity.
That partner is.
Being staged for Onboarding throughout Q4 and would be expected to be on boarded in the first third of 2023.
So that's very positive news we've also.
Standard another.
Partner for a multi year term in the last quarter within the bass business, a smaller partner, but nonetheless, an important one.
We are.
Added to the services that we're providing one of our other large bath partners through a contract addendum.
In over the last few months, so that's an important factor for us.
And the pipeline is good in the bass business. There are so many opportunities I think we need to have a much higher set of expectations with respect to the opportunities. We can we can mine out of out of that opportunity. So we have a good pipeline its a long selling cycle a long on boarding process. So we need to shorten this.
Selling cycle shortened the onboarding price process and improve our cost structure as I mentioned to one of the earlier questions.
I'll just also you didn't quite ask about the other businesses, but.
Understand that in our pay card business, we sell.
Sign and onboard several hundred businesses per quarter.
Each quarter.
In our Green Dot network business the numbers are much more modest but between five and 10 partners.
Per quarter that we sign and implement within that channel.
So we have a lot of other BD activities that go on throughout the organization that don't quite get the attention of our mass channel.
Alright awesome. Thanks, and then just one final one we've been hearing from some investors should almost parallel and green dot a little bit with Western Union and while we don't really agree at all of the comparison kind does beg. The question of how you escape. This trap of dealing with de accelerating retail segment and also.
Being a bit of a late mover to digital so I was just kind of wondering I mean, what do you guys think the answer to that is.
No that's a great question so.
We went out today and we find ourselves with this great set of assets. We have some legacy businesses. Obviously the company was founded in retail in bricks and mortar retail general purpose reloadable prepaid card and.
Henry you set up on a transitional path to migrate most of that activity to DDA traditional DDA accounts launched more progressive payment features on those accounts, including overdraft those are all great moves for us.
That puts us in a framework with a bag too.
Offer.
All sorts of different account solution for partners or consumers.
We have the complicated expensive infrastructure.
We are committed to bridging the divide and so we have to make careful.
Capital and operational expense choices.
So both manage our P&L, which everyone on this call expects us to do we don't have the privilege of losing tens of millions of dollars every quarter like many of our competitors do and they get celebrated for it we don't have that privilege.
Manage our P&L.
And however, we have to invest in growth opportunities like AWS.
<unk> is an amazingly spectacular opportunity for us we're going to win that game, but we have to invest.
And so our challenge is different than the western unions in our in my view is that we will successfully navigate that tension that I just described.
We're going to emerge.
With market, leading capabilities highly differentiated vertically integrated capabilities that we will have a huge cost advantage in the market and we're taking the actions and where.
Undertaking the risks associated with executing that way.
Some of the contemporary companies that you might be thinking of have not done that.
And we intend to do it and we intend to do it successfully and that's going to put us in a much better place.
In a year or two.
Okay.
Credibly thoughtful answer thanks, Thanks, a lot George.
Sure you bet. Thank you.
Thank you and again if you have a question. Please press Star then one.
My question will be from George Sutton Craig Hallum. Please go ahead.
Hey, guys. This is James on for George Thanks for taking my questions.
On the opportunity to sort of leverage your assets more collectively.
The rollout of new products and some of the tax prep customers credit products that you talked about.
You mentioned that rollout within 24 months, but could you maybe talk about which one of those opportunities you're prioritizing.
Yeah. Thanks James.
I'm going to take your question as another opportunity to make sure the rest of our audience appreciates what we're talking about here so our tax business TPG.
It is not and will not be integrated into the platform. The technology platform that I've been making reference to we have built and it's not quite but largely in place a separate distinct.
Technology capability with respect to our CPG.
Business.
A highly unique business.
Very specialized and so that investment has been made and is largely complete.
So that's important to understand.
It's also important to understand some of the things we alluded to alluded to in our prepared remarks, we use a number of other banks, we own a bank.
But if I look at the rest of our bank competitors you know, there's three or four of them that we used for sponsorship for small dollar credit products or other things and that needs to stop.
So first step within TPG was to get this platform in place stable operating and it ran successfully during the last year's tax season.
Next step is to consolidate all TPG related activities onto our bank and that's mostly a cost synergy activity.
Then with these capabilities that will position us to issue SMB Bank accounts that we made reference to it will position us to issue.
Permanent go to bank accounts.
To the people conducting refund transfers, where we cannot do that today efficiently. So in the 'twenty four tax year, we expect to be able to do both of those things, but we have to get a few precedent completed.
Which most of those are done, but theyre not quite done.
Need to round off that work in 2003, and we'll be prepared to do those things we mentioned in our script in 'twenty four.
Great.
It sounds like a logical and attractive opportunity set.
Yeah.
And then on the <unk> side.
Congrats on kind of the new partner I guess have you seen any change in the market overall.
Compared to maybe 12 months ago in terms of the level of interest for debit programs.
Guided by that flexibility is able to provide.
Hum.
Have we seen any difference in the market for.
Those activities with the competitive market was that your question.
Thank you sort of a level of interest and sort of oh from the demand the demand side, Okay, I'm, sorry, I didn't quite catch all of your question.
I would say the demand here's my characterization of it the demands constant.
A little.
A little uneven.
Uneven in the sense of so so theres a lot of interest from companies that have large customer networks and embedding finance capabilities into those.
And then that one solution.
Large interest for that but there's a very uneven.
Degree of sophistication with respect to the purchasers if you get my meaning like the procure of these services.
They might have a sophisticated kind of payments capability within within their country or they may not have that largely not in so that even is uneven.
Implicates the selling cycle.
Because there's a lot of education, a lot of information sharing that needs to happen and then of course, there is an evolution.
Purchasing intent is that education happened, so a lot of demand.
Demand just uneven with respect the sophistication.
The demand will continue to increase.
Great. Thanks for taking my questions.
Thank you James.
Thank you that concludes our question and answer session now I will turn the call back over to Mr. George question for closing remarks.
Well. Thank you operator, I'd just like to say in closing I appreciate your high quality questions today.
I'm personally extremely excited about about what we're doing here as we mentioned in our prepared remarks, we operate into vast markets.
We have highly differentiated assets.
The thing that stands between us and really a transformative future at this company, it's executing some blocking and tackling activities complicated, yes doable, yes.
So we're on that journey.
I hope you all stick with us through it I think the rewards will be there for all of us.
You for your interest.
That's all operator.
Thank you call is now concluded. Thank you for attending today's presentation you may now disconnect.
Operator.
Hi, Joe.
Lots of luck.
Yes.
Yes.