Q3 2023 Green Dot Corp Earnings Call
Good day, and they'll come to the Green Dot Corporation third quarter 2023 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 todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Kimberly.
Senior Vice President Finance and corporate development. Please go ahead.
Thank you and good afternoon, everyone. Today, we are discussing green dots third quarter 2023 financial and operating results.
Following our remarks, well open the call for your questions.
Our most recent earnings release that accompanies this call and webcast can be found at IR Dot 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's 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 the forward looking statements.
During the call we will refer 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.
Comparable GAAP financial information appears in today's press release.
On this call is property at the Green Dot Corporation and is subject to copyright protection now I'd like to turn the call over to George.
Good afternoon, everyone and thank you for joining our third quarter 2023 earnings call.
Jess will provide an in depth review of our financial results, but before passing it to him I'd like to share my perspective on the quarter and what drove our performance overall.
Our non-GAAP revenue was up about 3% compared to the same quarter last year, while both non-GAAP and GAAP earnings metrics declined.
We made progress on our major strategic goals. These results were below our internal projections due to a variety of transitory factors.
We have had a lot going on this year, we converted several partners refunds that legacy brand within our direct to consumer business to invest in and grow DAU to bank.
And we were impacted by increasing interest rates due to partner interest sharing arrangements negotiated in a zero interest environment.
Additionally, as we completed the final stage of our process or conversions, we encountered challenges that impacted revenue growth and we experienced increases in transaction losses arising from customer disputes.
These latter issues are transitory in nature, but had a meaningful negative impact on the quarter and our projections for the balance of the year.
Jeff will discuss their impacts in more detail shortly.
Lastly, we have increased and will continue increasing investments to enhance our regulatory and compliance infrastructure.
Now, let me update you on our strategic priorities.
First I am pleased to confirm we have completed our processor conversion. The entire company has been focused on ensuring we complete this project, which has been a consuming multi year journey.
I wanted to thank everybody involved in helping us accomplish this goal.
The move to our new card management system makes us a more nimble efficient enterprise where.
While we still have important post conversion cleanup work remaining the completion of the conversions now allows us to redirect our focus and energy to other priorities opportunities, including additional enhancements to our technology and product offerings compliance infrastructure and of course gross.
Second business development remains a key priority and with the processor conversion is completed this is an exciting area, where we are redirecting our resources and focus we've been very busy over the past several months signing and launching new partners. You may recall on our last earnings call, we announced ceridian as a new partner in the bass channel in Science CLS is a key.
Key partner for the consumer segment.
During the third quarter, we launched credibly further expanding our reach to serve small and micro businesses, and we announced stockpile as a new partner, which we will be developing and supporting a DDA accounts theyre investing platform customers.
Additionally, I just returned from money 2020, where our team has met with current partners and spent quite a bit of time with prospective partners and those discussions reinforce my confidence about our opportunity for significant growth as the embedded finance market continues to evolve and expand.
Finally, we are making significant strides in evolving our workforce to maintain a dedicated focus on managing costs and allocated capital with a considerate and thoughtful approach.
Non processing expenses were down 5% year over year or down 7% year to date as the team continues driving efficiencies.
Were increasingly realized cost savings from our platform conversions as we move through the fourth quarter and into 2024.
And we will remain equally focused on driving efficiency in our investments and ensuring we are maximizing ROI as we capitalize on growth opportunities.
Complementing this focus on efficiency. It's also ensuring that we are diligent and thoughtful in how we allocate our capital.
We will continue to invest in areas like product and business development as well as in our regulatory and compliance infrastructure to better serve and support our customers I firmly believe it is critical for green dot to set the standard and be recognized as a trusted leader by both our business regulatory partners.
The market for embedded finance matures and evolves.
I believe if it's done right there will be a competitive advantage in summary, we are making important strides in our journey and accomplished a significant milestone with the completion of our platform convergence.
We're still in the middle innings with plenty to do I want to thank all of our team members partners and investors for coming along with US as we execute this strategy.
Now, let me hand, it over to Jeff.
Thanks, George and good afternoon, everyone.
Walk you through our key financial highlights and then I'll provide color on our updated guidance for the year.
Our GAAP and non-GAAP revenue for the quarter, each grew 3% year over year, while adjusted EBITDA and non-GAAP EPS was down year over year.
As George mentioned in his comments it was a solid quarter of progress toward our operational goals.
However, the quarter was below our expectations for several reasons first we completed our processor conversion with the final account migrations in Q3.
During that process, we encountered challenges that had a negative impact on revenue and costs.
We also had an increase in transaction losses associated with customer disputes, Mike George I believe those challenges are transitory that said, we've been aggressively working to remediate these issues and kantar.
Can you just see steady progress and believe that many of these issues will be behind us as we exit the year.
Lastly, we incurred incremental expenses in Q3 in connection with our ongoing investments in our anti money laundering program, including improvements to our compliance controls policies and procedures.
As mentioned in previous earnings calls and SEC filings.
To continue to invest in these programs to ensure we had market leading compliance programs and to mitigate and reduce our fraud losses over the long term.
With that high level context third quarter results I'll provide color on each of our segments.
First is our consumer segment.
As you know our consumer segment is comprised of both our retail and direct to consumer distribution channels as I've discussed on prior calls this segment is impacted by changing consumer patterns within retail.
Non renewals the retail program.
Dedicated focus on our go to bank brand and our direct consumer channel and the extensive legacy brands that are now in run off.
While our retail channel was impacted by secular changes and their Nonrenewals a program, we are taking steps to reposition this business.
Specifically, we are actively working with our retail partners on strategies that encompass a wide range of embedded account obtaining experiences that are designed to help our retail partners continue to build enduring and loyal customer relationships through digital financial experiences not just products on shelves.
While we are making investments in digital product development. We are also intensely focused on making our cost structure in retail and more efficient.
In our direct to consumer business, we continue to fully commit our marketing spend to supporting our go to bank brand and as a result, we deliberately put legacy brands such as rush count now and others into run off.
As mentioned in previous calls we sunset some brands in the second quarter as we continued to move through our processor conversions.
Had success converting a portion of those accounts to go to bank. However.
However, as expected and then you did not convert and attrition of these legacy brands accelerated in Q2.
We felt the full quarter impact of that attrition in Q3.
As a result of the strong growth and go to bank combined with the attrition of legacy brands over the last two years <unk> Bank now represents a substantial majority of the active accounts in the direct to consumer channel.
And its growth rate will have a more pronounced impact as we move forward.
In the third quarter Deutsche Bank continues to have strong year over year growth with direct deposit accounts up just over 20%, which resulted in strong growth in revenue per account.
With that context in place now.
Let me give color on the segments performance during the quarter.
<unk> revenue was down 13% driven by the year over year decline in active accounts.
Revenue in our retail channel was down approximately 10% year over year. So I would note that there were some modest timing benefits to revenue during the quarter and I would not view this rate of decline as the core performance of the business, which I estimate was still probably declining at a rate in the mid teens.
However, I remain confident that the rate of decline is moderating.
My earlier comments the direct channel saw a revenue decline of approximately 20% an acceleration from the prior quarter due to the brands we sunset in Q2.
It's worth pointing out that excluding the impact of the products that were sunset in the direct channel. We believe the rate of decline in direct deposit accounts continues to moderate.
This is fueled in part by some moderating declines in retail.
But also in the direct channel is down two bank builds momentum.
Direct deposit accounts are about a quarter of our total accounts in this segment and these accounts are more engaged with higher volume and revenues than non direct deposit accounts.
Overall revenue per account continues to improve slightly despite some headwinds related to the conversion as we drive deeper engagement rates, particularly with go to bank, helping to offset the attrition in legacy portfolios.
As I've said many times. This is an evolution and we are encouraged by what we're seeing from go to bank and the impact that's having on the direct channel and the increased likelihood that can help drive continued moderation in the rate of decline for the overall consumer segment and I believe we were moving closer to an inflection point.
Segment profit was down year over year by 21% due to the decline in revenue from the headwinds discussed as well as the impact on expenses from challenges around our conversion and transaction losses that I mentioned earlier.
Partially offset by a modest decline in processing costs as we moved away from our third party processor with our final account migration.
In the <unk> segment, which consists of our bass and rapid take our channels aggregate revenue growth of 26% remains driven by our best channel where revenue was up approximately 30%.
The growth of one of our larger bass customers continues to power the top line, while we faced headwinds on revenue and actives from the roll off of two best partners.
We also began to see some of the positive impact of new partner launches.
In the rapid take our channel our revenue and active account growth has moderated due to macro shifts in the temporary staffing industry. One of our primary verticals, where we believe that wage inflation and recession fears that impacted hiring decisions we.
We experienced active declines in this vertical in late 2022 through May of this year and we have seen a steady sequential rebound.
Our revenue was also impacted by a shift in the mix of purchase volume that is weighing on interchange rates and changes in consumer ATM behavior.
That said strong sales activity and beating indicators in the core pay card products as well as continued growth in our EW, a offering gives us confidence and momentum in this channel should reaccelerate in the coming quarters with the third quarter showing improvement versus the first and second quarters.
Profit in the <unk> segment was down 16% and margins compressed as expected driven largely by the impact of client conversions in the bass business and the dynamics I just discussed and the rapid pay car channels.
While we face what we believe are temporary pressures on revenue growth. We continue to invest in the pay card business and sales momentum has been strong while also incurring expenses to support the launch of <unk> partners.
Shifting to our money movement segment revenue was down 15% year over year from the decline in cash transfer volume and the timing of tax refund volume.
Green Dot network business continues to see the rate of decline moderate from the mid teens in 2022 to a low double digit decline in the third quarter of 2023.
Revenue declines were made driven principally by the impact of the decline in active accounts in our other segments par.
Partially offset by the continued growth of third party transactions.
Volume from third party programs represent over 60% of our total cash transfer volume.
<unk> to grow in proportion to total volume with numerous new partner slated to launch in the coming quarters I am optimistic about returning to overall growth in this segment.
Our tax refund volume was down year over year, because of timing shifts versus last year and on a year to date basis revenue in our tax processing channels generally flat with last year.
Profitability remains solid.
Modest margin expansion in both tax and Green Dot network businesses.
Our final segment corporate and other reflects the interest income we earn interbank net of the revenue share on interest and he paid the bass partners as well as salaries and administrative costs and some smaller intercompany adjustments.
Interest income net of partner sharing was down year over year as expected due to a higher rate environment. As a reminder, the rapidly rising rate environment of 2022, and 2023, creating an imbalance between the blended yields we earn on our cash and investments and the rate we pay our best partners and effective.
It creates a headwind for revenue in this segment.
Sales and other general and administrative expenses were down slightly from last year as we began to see the impact of our cost cutting efforts and the early benefits of reducing the costs associated with our technology conversions, partially offset by our investments in regulatory and compliance infrastructure.
Now turning to guidance, we are raising our revenue range to $1 $4 6 billion to $1 48 billion and we.
We are reducing our adjusted EBITDA range to $170 million to $175 million.
Likewise, we are reducing our non-GAAP EPS range to $1 62 to $1 69.
We are lowering our bottom line guidance based on our Q3 performance and our belief that the headwinds associated with the conversion and customer disputes will continue to persist into the fourth quarter.
As mentioned, we believe these matters will be resolved before we exit 2023.
Also expect to have incremental expenses in Q4 associated with our continued investment in regulatory and compliance infrastructure.
Let me provide you with some general commentary on how you expect the fourth quarter to play out.
In the consumer segment, we expect revenue to be down a little bit more than 20% while margins should be up over 500 to 550 basis points from last year.
In the <unk> segment.
For revenue growth in the quarter to be in the low 30% range with margins to be up approximately 75 to 100 basis points.
And the money movement segment, we expect revenue to be down low single digits and margins to be down approximately 300 to 350 basis points.
In the corporate and other segment, we still face an earnings headwind from higher interest revenue share, which influences the corporate revenue line.
And that is expected to continue into the fourth quarter. So.
So we expect to realize additional reductions in expenses as we wrap up the post conversion work, we anticipate that those benefits will be offset to some degree by our ongoing investment in our regulatory and compliance programs.
For the quarter I expect our non-GAAP effective tax rate to be 23% and a diluted weighted average share count to be approximately 52 million shares with that I'll turn it back to George.
Thank you Jos while our financial results in the third quarter were below our expectations completing the process of conversions was a critical accomplishment and it's fundamental to our long term growth strategy and success.
Cause I stop and reflect on where we are today I am encouraged by the progress we're making.
Development efforts are building momentum as we signed several new enterprise partners that our bass and consumer segments.
More than 270, new customers in rapid pay card and EW OE business and we added five new partners to the Green Dot network.
As I mentioned previously I remain very encouraged by the feedback and discussions we're having with current partners and prospects in our pipelines remain strong.
We remain very focused on driving efficiency and smart investments throughout the organization and are now beginning to realize the cost savings from our platform conversions.
Completion of this project positions us to be nimble streamlined company and deliver innovative efficient and customizable solutions for our partners and their customers just.
Just as important this enables us to reallocate resources to focus on other areas and opportunities for the company and invest in areas, such as product development and risk and regulatory infrastructure.
As I said in my opening remarks, I want a position green dot as the trusted partner for all of our stakeholders and view this as a competitive differentiator as the market evolves.
But we are not yet able to provide guidance for 2024, I would like to share some thoughts with you.
One year ago, we were faced with the reality that several partners would be moving on and we had a significant and critical processor conversion underway.
Today I can confidently report that we have made significant progress in navigating those circumstances and position in green dot for growth.
The one metric that I keep coming back to when I think about our ability to generate sustainable growth and shareholder value is account growth.
I believe that we are in a much different position than we were one year ago.
In our consumer segment, we are seeing moderation in the rate of decline the repositioning of the direct channel is in its final innings, and we will be launching pls in the first half of next year.
And our <unk> Division, we will be lapping that the conversion of two bass partners, while simultaneously enjoying the benefit of March it's already incredibly and stockpile on top of growth from our existing customer base and with continued solid pipelines.
No rapid pay card saw pressure on accounts in the first half of the year. We are now seeing steady sequential improvement.
Our own as many moving parts when you go through the process of building budgets and forecasts, but unlike last year. When we saw a clear headwind for account growth coupled with a big technology lift it looks markedly different as I stand here today.
There is still plenty of work to do but I am pleased with where we are on our transformation and I'm very grateful for the hard work and dedication of the Green Dot team as we work to deliver on our goals for 2023 and beyond well being good stewards of the trusts in capital, but our customers and investors have given us.
Thank you for your interest in Green Dot and now let's open the line for questions.
Thank you.
We will now begin the question and answer session to 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.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Ramsey El <unk> with Barclays. Please go ahead.
Hi, Thanks, so much for taking my question Tonight I appreciate it.
I wanted to ask for a little bit more color on the some of the challenges you encounter in around the processor conversion and also on the customer disputes that you called out as well.
Where those two things and do you feel pretty confident that they're fact transient and kind of move past them by the end of the year as I think you mentioned.
Hey, Ramsey, it's Jeff Thanks for the question.
Without going into too many details.
There was some.
Called general configuration issues that were on the margin that affected certain revenue streams associated with accounts.
And then we had other impacts you know like we said associated with elevated customer disputes.
So all in.
I would expect that impact was although it's hard to specifically quantify it was around $8 million in Q3.
And so those some of those challenges have been mitigated throughout the course of Q3 summer continuing in so I think in some respects.
Some of the migration there conversion issues are still there just not as plentiful as they were in Q3 and then we're still seeing elevated dispute volume in October.
Okay.
And you mentioned the go to bank in and are making progress there in terms of that being now that the large majority of of of that part of your business.
And also taking steps to kind of reposition the business I think you said working with retail partners on embedded accounts and building relationships with digital experience or something like that I'm looking at my notes here, but.
Can you give us any hint in terms of what the future of their might look like what types of categories of improvements or refinements that you're making or that could see the product catch a catch a tailwind from some you know enhanced offerings as we move forward here.
Hey, Ramsey Thanks for that question. This is George.
Yes that first to.
To be clear for the broader audience within our direct to consumer channel at the beginning of this year, we were managing a number of of brands. Several of those brands have been acquired through M&A. Some number of years ago, and they had the spare processing platforms and user interface technologies.
So it was.
Complicated challenge to continue to manage.
Individually small.
Subscale brands. So we made the decision to migrate away from managing those legacy brands and put our investment dollars to go to bank as you are aware of.
Well go to bank today, and will remain is and will remain our flagship consumer product that we will offer direct to consumers. We also offer a go to bank and retail locations on a selective basis, where it's appropriate for that brand.
So as we make marginal investment in our own branded go to bank product it'll be all around and focused on ease of use ease of understanding consumer education.
Access to credit in the future down the road.
Payment types form et cetera, So we can concentrate our investment on one platform one capability. So.
So go to bank will be that flagship product for us.
It is today and it will be in the future, but as we move through this year, we're able to discontinue the investment in these other brands that Jeff mentioned in his remarks.
Okay got it that's very helpful. Thank you.
Thank you.
Our next question comes from Chris Kennedy with William Blair. Please go ahead.
Good afternoon, and thanks for taking the question, there's a lot of discussion about it.
Investment in regulation, the regulatory infrastructure can you just talk about the regulatory environment and how you see that market, particularly within the bass business.
Sure Thanks, Chris for that question.
It's correct.
Our our efforts to ensure.
Tenured.
Adherence to high standards with respect to regulatory compliance.
We continue.
Continue they will continue there and a very important part of our value system at the company our primary value being stewardship, we're stewards of deposits and it is critical that we.
Treat those deposits and those transactions associated with them with the highest level of care.
So we're going to continue to improve how we perform along those lines, but to take the broadest view of your question.
I'm sure most of the participants on the call today are familiar with some of the more recent news events associated with regulatory developments.
The pointed part of your question around bass in particular so.
You may be familiar with the.
Executive branch regulatory agencies launched a novel Bank program.
Four months ago.
I assume that program has a number of objectives associated with it but certainly I think one of those objectives is to.
Enable.
The regulatory agencies to.
Broaden deepen their knowledge with respect to bass model sponsor bank models et cetera.
Just this week you saw the CFPB issue a notice of a rule.
Hum.
The draft rule intended to expand their oversight of <unk>.
Extensively nonbank enterprises that are conducting financial transactions, that's a very important development.
So.
You can see that there is a lot of regulatory attention and activity associated with.
I guess, if you put a cynical of frame to a regulatory arbitrage or basically payment transactions that move outside of our banking system and therefore might get treated by.
By the manager of that payment transaction in a different way than a bank might treat that regulatory oversight.
Now in general.
That that.
Set of developments and our views very positive.
And I'll come back to why we think that in a minute.
But before I before I leave this kind of overview of some recent news I'd also point out you may have read in the times this weekend and article.
That was discussing numerous circumstances, where consumers get their accounts closed without information, which leaves an alert.
Largely as the article suggested due to BSA and anti money laundering.
Activities in controls put in place by banking institutions, which is having a real implications to consumers.
And then that even if they do.
Don't engage in.
Any other.
Otherwise any nefarious activity whatsoever. So we have this kind of environment. That's that's developing.
Developing I suggested to you I think it's a good development from our perspective, we do have a lot of scale.
Which we can capitalize on to invest in.
Adequate appropriate advanced compliance tools and systems.
And what we hear is what we want out of the regulatory environment.
I'll pause after this let you ask a follow up question, but.
We we green dot absolutely want a rigorous regulatory environment.
Our core values stewardship, it's absolutely imperative that our economy.
Trust DDA accounts that trust is fundamental.
So having rigor in a regulatory environment is something we view as very positive.
But we want like all participants in a market like this a level playing field.
All payment transactions need to be treated comparably, regardless of how their shepherded through payment lifecycle and by who.
We want transparency transparency and regulation, we want the regulations to be clear.
Clearly.
Understood.
And we want them applied consistent consistently across regulatory agencies.
So I think those are pretty modest.
The buyer with respect to what we want out of the regulatory environment. We do view the recent developments to be positive.
That would leave I would leave this topic with this thought.
Green Dot was formed more than 20 years ago with the promise of bringing.
Banking to Americans, who did not have access to the traditional banking.
System.
On that promise remains we continue to do that we provide millions of accounts to consumers, who have an average deposit of two or $300.
And those consumers remain in need or in the economy. The large banks do not want to serve those consumers. We are hurting here to serve.
Serve them.
Of course, it's incumbent on policymakers to.
To decide.
How they want to regulate entity that provide.
These services to lower income Americans.
We would encourage policymakers whether out of the executive branch with a wide set of brands to continue their efforts to.
Provide that clarity so I've rambled on a bit it's a hot topic, but I. Appreciate the question on I'll pause on that you'll have to follow up.
No. Thank you very comprehensive on a separate topic I understand youre not going to give 2024 guidance, but when you think about.
Everything that you've done focused internally over the last several years and is now that you focus externally can you just.
Talk about the growth of the business you know over the next three to five years and kind of what Youre thinking Green Dot can do thank you.
Yeah.
I'm going to stay away from your invitation to give any quantitative.
Respective on that although I will just make some observations about each of our channels in a qualitative way.
And we have our rapid pay card business, it's a great business very well managed.
<unk>.
It has been a consistent.
<unk> growth engine for the company understanding.
We had a particular category of that business that pulled back this year, we think that's temporary.
And in addition to the standard rapid pay card.
Distribution, we have in that channel. We also have the emergence of GWA and as I've mentioned in prior calls, we're extremely optimistic and enthusiastic about that product category.
So I feel very very good about that and our direct to consumer business. We just mentioned go to bank.
Not quite.
<unk> transitioned through the attrition of legacy brands. So that's inevitable in the very near term.
And go to bank.
Last quarter. This quarter, we expect next door is growing very nicely.
<unk>.
Bass business.
Uh huh.
Many many many opportunities to be very successful within that business in an immense market.
We have highly differentiated capabilities to serve that market and we think that's going to serve us well in a growth perspective and to Justin's comments, we've migrated off of the platform and we'll grow through the declines that we've experienced in that business.
Our tax processing business TPG.
Has a remaining important opportunities to grow margins and to sell incremental services to tens of thousands of small businesses micro businesses 123 person.
<unk> businesses.
And just a very rich set of potential product offerings within that business and then we have retail business retail business has been declining.
I'm not going to sit here and say I have unbound optimism that.
This product procure it off with a rack in a retail location.
Is something thats going to be a growth engine for us we do think it'll level at some point in the relative near future.
What's important about the retail business to us is that we have embedded.
Uh huh.
Set of relationships with the nation's largest retailers all of who want to deepen their relationships with their consumers, particularly those consumers who are using today their loyalty and rewards program and so the future of the retail business is to embed.
Financial solutions into those reward programs. So that's a little further down the road and a little bit more complicated from an execution perspective, but even that business given our existing relationship has a lot of opportunities for us. So I know I didn't directly to give you numbers that you might have hoped for but that's kind of the way I think of each of our channels.
Understood. Thanks, a lot for taking the questions.
Sure. Thank you.
The next question comes from Michael Perito with K B W. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions.
Hey, Michael.
I wanted to kind of stick on the last topic for a second here as you guys were talking I was just looking at your segment revenues over the last few years, you've kind of more for me I think back in 'twenty. One it was like 50% consumer a third b to be 15% money movement.
The 15%, it's been pretty steady contribution, but now would be to beat about 50 consumers about a third I guess.
Is that indicative of.
Obviously, where you guys are investing but as we think about kind of where that trends from here and in all your shaping commentary today I mean, it's the Peter B is that where you guys are seeing the best kind of margin and pricing opportunities I mean, it would seem to dovetail a little off the regulatory comment too I mean, it is as that gets more onerous to me this is pricing and back got better or a little.
At least a little bit less competitive I'm, just kind of curious in terms of like allocating capital to the most profitable opportunities. How you guys are thinking about that.
Thanks, Michael.
First on your comps just to clarify there's two kind of important aspects that I would highlight on your comp. One is obviously over the last two years, where you went from a well I guess, if I went back four years you'd go from a pre COVID-19.
Covid two substantial federal stimulus.
That impacted the business comp and then the withdrawing of that comp. So that's something always important to keep in mind that.
Of course, we have a singular bass partner on the revenue side that makes up a significant percentage of our revenue and I don't know the page number in the 10-Q, but we disclose it in there and you can look at that later, so that that's kind of a.
That particular contract has think of it as a relatively fixed margin.
Not fix percentage fixed dollar margin.
So that's a that's a complicating factor when you think about these trends, but now for the substance of your question.
When we think about account growth as a leading driving metric for our business.
We do and we'll continue to.
To invest capital in our direct to consumer business, our go to bank product.
That is absolutely going to be quarter, what we do we're going to continue that.
That's going to remain unchanged and to the extent, we develop opportunities to increase that capital into that business, we will on a.
On a cautious basis.
Now the nuances of that capital implications are that.
Of course, when you invest in a direct to consumer business that capital investment directly hit your P&L.
At the moment it's incurred.
And so that that creates some constraints with respect to the capital allocation and importantly, when you when you put a lot of capital into direct to consumer in a particular narrow product set.
In and of itself cause inflation in the cost of acquisition and so were very cautious about those variables and so we will continue to invest in that on a steady basis, but I would not expect a dramatic change in that investment so.
We have our bath business, which when we win.
Bass opportunity obviously these.
Clients have a large embedded customer set.
That then is marketed into that.
Set of customers.
By oftentimes the bass partners, sometimes with our help.
And so if we acquire the right type of bass partners. We're looking at acquiring account portfolios of 100000, 200000, and 300000 type accounts.
And.
If you think of the marketing element associated with that partnership they come through as commissions and we only incur the marketing cost when we sell our product and so there's various advantages to that market Lastly, I.
I will leave you with the concept that of course, we have a set of platforms to deliver our services, we have a banking platform or the.
The Green Dot network platform.
A product platform, we have a technology platform and each of these platforms are intended over time to serve all of our distribution channels irrespective of the capital allocation. So we allocate capital into those platforms. The marginal capital to go to market and one of our distribution channels channels to win.
Our client.
It's relatively small.
If we do a good job in building these platforms will how scalable operations and our marginal capital to exploit the channels were already yeah.
Is there for us.
But I expect that we will continue to increase will increase in the future of both our investment in our platforms and our distribution capabilities and competencies in selling approach in the bass channel in particular, but I don't mean that to mean that we're going to start with the rest of our channels.
No. That's helpful perspective, Thanks, George second.
Second question for me.
Not to kind of go.
Go back to your kind of you guys said youre, not providing 24 guide yet, but but maybe less on the revenue side just on the expense side, just curious because it sounds like they're.
There are some expense tailwind, possibly if you've come out of the core conversion.
You know related to that but I imagine there is also kind of redeployment, maybe if some head count into other areas, whether that evolves, maybe hiring some new people, even though it's net net not a lot of FTE adds.
You know obviously, they're still the regulatory piece I imagine kind of sustain for the foreseeable future and elevated run rate, but just curious if you're willing to provide any context around some of the things we should be thinking about for expense growth and 24, just coming out of the conversion and based on what you're seeing today.
I've been talking so much I'll, let Jeff take a swing at that one.
Yes.
Sure sounds good.
Several quarters ago, we talked about savings associated with the conversion I would say those are largely on tax on track starting to realize the savings now the processor conversion is complete.
Yes, so we expect that the year over year benefit in 2024 would be something less than.
Annualized savings that gets it will grow over savings achieved this year, but nonetheless that will help margins, particularly in the consumer segment and the BD and to a lesser extent the <unk> segment.
Will impact both favorably.
You know that that was a huge undertaking for us because it is a material benefit to margins long term, we have other long range planning activities. We still use a third party processors for example in a rapid pay card business. There is an opportunity to take out that third party processor that has material savings.
<unk> for us.
So there is seven.
Several things underway that would enhance margins over the long term.
<unk> services George mentioned, we have a particular contract that has a fixed structure.
So as long as that remains.
Weigh on overall margins, but if you exclude that particular partner the rest of the bass partnerships have strong margins.
So and of course, our money movement business, particularly in the TPG business really really strong margins and even in our money processing called the Green Dot network.
<unk> has really really strong margins as those grow and then lastly, I would say.
In the pay card business EW a.
It is also I would say has a margin in excess of what a traditional pay card business would have.
Georgia anything you want to add.
I would just add when.
When we talk about savings from the conversion.
The processor conversion and we've quantified that in prior calls.
That.
<unk>.
Savings.
Has two elements to it.
Has the Opex savings because we have now a much lower cost structure per unit of processing.
And we invested considerable capital.
And in 2023, and 22 with respect to that.
Activity in preparation for and building out the new platform and so we expect to have an opportunity to reduce our capital consumption and to improve our margins and thereby our primary focus will be improving free cash flow as a result of those efforts.
And I'll just leave you with the B.
I hope the appreciation that we're extremely focused on over the long term on building a scalable enterprise that has marginal growth.
From the incremental dollar of revenue on our EBITDA another earnings metrics.
So I'll pause there and hopefully we've helped you with your question.
Yeah no for sure. Thank you guys. Thank you both and then just lastly for me.
Understand that might not be the biggest strategic priority here, but with the some of the technology projects under your belt and.
A very kind of disrupted and.
Generally broader kind of.
Good tax payments banking market and and and.
Valuations down pretty much across all sectors. There's is there any.
Thoughts or updated.
<unk> thought too really to provide around kind of M&A or any opportunities to put capital to work in that arena.
No that's fine I just wanted to.
I don't believe we've kind of chatter about it in a little while here. So I just wanted to see if there's any updated thoughts.
Yeah.
First I'd say with respect to the interest rate environment.
As you know.
Some some benefits to us and it has some challenges for US just comment upon some of those challenges in his in his remarks.
So I won't repeat them.
But.
The competitive landscape perspective, obviously in 2020 in 'twenty, one et cetera.
In our extraordinarily low interest rate environment.
Emerging companies V C level companies could acquire very inexpensive capital and in some cases be unruly with that capital with respect to how they go to market to acquire accounts and that kind of behavior is tempered in our current interest rate environment, we view that as a very positive development for us since we're not generally in the.
Trying to find capital business right now.
So that's good.
And then.
Over over the course, whatever your prognosis is for interest rates and 24 and one of the biggest variables. So our planning and budgeting process and 'twenty four is what to expect for.
But interest rates and 24 that were.
That we're working through.
And by the time, we can give guidance when he had to take a perspective on that but should those rates decline in 'twenty four.
That could have a relatively significant positive impact.
On us.
<unk>.
But as it relates directly to your question around M&A I think that we're really focused on building out our capabilities the platforms our distribution capabilities.
And focused on are putting our capital to work there.
As opposed to layering on more complexity with integrations et cetera. So I would say generally to the extent we would be interested in M&A, we would be extremely cautious about it.
Perfect Alright, guys. Thank you very much.
Thank you.
Before we move onto the next question I would like to request question is to stick to one question and one follow up.
And the next question comes from John Hecht with Jefferies. Please go ahead.
Hi, guys.
First question is just a very technical like what's the duration of the Securities book at this point in time.
Yeah.
Believe it's around six years.
Okay, and then a.
Second question is yes.
In the consumer segment.
<unk>.
<unk> and <unk> like relative to recent quarters, youre seeing different growth trajectories and different like dollar amounts and I know that you guys talked about different products that are that you are kind of.
That haven't renewed and obviously within the go to bank.
A different approach to getting a direct.
Banking customer and this is Matt. So the question is can you characterize kind of how the customer is using green dot services.
And kind of the mix of revenue now say versus like a year or so ago.
Yeah.
So it's a good question.
So as you know several years ago, we launched overdraft protection for our consumers we offered that to.
Principally only our direct deposit base. So that has helped drive direct deposit attachment rates makes us overly overall more efficient with our customer acquisition costs.
And then ultimately lifetime value because direct depositors are more highly engaged drive higher GDP higher revenue per active et cetera.
We've rolled out across almost all of our brands.
So that certainly had been change I think a lot of the product enhancements and things that we've done also helped drive engagement we've offered.
Monitoring products and we've got a full suite of things that we're focused on in 2020 forward to continue to drive retention.
Our retention and engagement amongst the consumer base.
And then in Das I would say just the type of partners. We are engaging with we've been very encouraged with the growth of those so those partners. We've added in the last couple of years. So some of them are.
Some of them are SMB some of them are.
Sort of verticals, but we're seeing good attach rates there.
Strong revenue per active in those in those.
Particular verticals et cetera.
Sorry.
We will continue to do is.
Iterate on our product offerings.
And continue to drive acquisition efficiency and engagement I'm not sure I'm answering your question, Jonathan Let me stop there.
No I mean, you talked about the different focus is it I guess is it is there a way to explain the standard customer.
The mix of revenue at the customer level and whats changed predominantly over the past year.
Interchange is still one of the largest drivers of revenue for any of the products.
That's followed and in some cases by.
Other fees.
<unk>, so I haven't seen a dramatic shift.
And so the revenue.
But we have seen as we've mentioned with go to bank.
Strong strong growth in direct deposit and that will have long term benefits for us.
Okay, great. Thanks, guys.
Thank you.
Our next question comes from George Sutton with Craig Hallum. Please go ahead.
Hey, guys. This is James on for George Thanks for taking my questions.
What inning would you say we are in in terms of running off the legacy portfolio other than the consumer business and sort of how we should think about when that process might be over and maybe when we could see the consumer segment Navy returned to growth.
Yes, without providing any 2044 guidance.
Precursor Julie.
Following comments.
I do think that we've talked about retail moderating I think were largely in <unk>.
The seventh inning, if you will on the legacy products and run off so.
So there is a possibility that in the second half of next year, we could start to see overall growth in the consumer business.
Great.
And then congrats on the new banking as a service partners this quarter.
And last quarter I guess.
How would you describe the banking service pipeline today compared to maybe the start of the year and then is the completion of the platform conversion sort of helping you closed deals or become more competitive.
Yeah.
Thanks James.
The pipeline work, let me, let me start with that so a year ago. When in fact, I think yesterday, if I recall was Christopher Poles, one year anniversary in his new role as Chief revenue Officer.
Prior to my arrival at least for a couple of years prior to my arrival that position did not exist at the company and so.
Christmas first job was to.
Embed and conform all of our divisions to kind of standard.
<unk> with respect to pipeline management.
<unk> consistent tools methodology measurement et cetera, we've gotten that in place and so now I can.
Fulsomely.
Answer your question our pipeline from the beginning of this year has grown <unk>.
Considerably.
It's qualified.
Measurable.
As stated on.
Probability based.
Standard.
And so so our pipeline in the bass business and in fact in several of our business I think is healthy and growing.
We.
Yeah.
I would say.
Some areas, we need to improve that as.
And so we need to improve our ability to.
Onboard expeditiously, both small and large clients.
We're going to be very focused on that.
Type of improvement in.
2024.
We've got a great pipeline, we have a lot of evidence we can close deals.
We need to do a better job at bringing those deals into the P&L in a much quicker way.
Great.
Thank you.
With no further questions. This concludes our question and answer session I would like to turn the conference back over to George question for any closing remarks.
Well, thank you operator.
To focus my closing remarks today.
Our colleagues and associates at the company.
It's been a lot of work to go through this process or conversion takes a lot of late nights a lot of weekends.
A lot of effort and we have a really dedicated team of professionals at the company and I want to.
Make sure they understand that they appreciate it and.
The work they have done and it's been extremely valuable for us. So let me just close by thanking our colleagues and team members and employees of the company.
And thank you to the rest of you for keeping interested in our story as we move along this path very much appreciate it. Thank you all bye bye.
The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.