Q3 2024 Green Dot Corp Earnings Call
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Hello, and welcome to the Green Dot Corp, third quarter, 'twenty 'twenty four conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the stock he 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 your Touchtone fine to withdraw your question. Please press Star then two please note. This event is being recorded.
Now I'd like to turn the conference over to Mr. Tim Willi Senior Vice President Finance and corporate development. Please go ahead.
Thank you and good afternoon, everyone. Today, we are discussing green dots third quarter 2024 financial and operating results. Following our remarks, we'll open the call for your questions.
Most recent earnings release that accompanies this call and webcast can be found at IR, Scott Green Dot Dot com.
As a reminder, our commentary.
Looking statements and expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Green.
<unk> 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 do not conform with generally accepted accounting principles.
Hey, good clarity unless otherwise noted all numbers, we will talk about today will be on a non-GAAP basis information may be calculated differently.
Our non-GAAP data presented by other companies.
Quantitative reconciliations of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release. The content 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.
Good afternoon, and thank you for joining our third quarter earnings call.
During the quarter, we delivered results in line with our expectations and we have now largely moved past the headwinds associated with the conversions in the first half of 2023.
As a result, we are seeing improved year over year performance with non-GAAP revenue up 16% and adjusted EBITDA up 19% the strongest growth we have seen in these metrics in over two years.
These results were driven by the investments and continued improvement in our <unk> segment, particularly bass were embedded finance.
We have also seen moderating rates of decline in actives on a year over year basis, and we posted sequential growth for the first time since the first quarter of 2021.
This demonstrates were making progress improving the financial and operational performance of Green Dot.
As I have indicated on prior calls our goal is not just to return to green dot to a path of predictable performance and growth.
It will also provide our partners and customers valuable solutions and deliver them in a highly secure compliant and scalable way.
Over the long term, we believe this will solidify our competitive position while also ensuring that we're meeting the expectations of all of our stakeholders.
Turning to the quarter as I mentioned, our results were in line with our expectations and we continue to focus on three key tenants of our story investing in compliance.
Proving our cost structure and building an engine a sustainable and steady opportunities.
We made progress on all of these fronts during the quarter and we continue investing in our compliance and regulatory infrastructure and saw year over year improvement in our adjusted EBITDA margins.
We continue to see strong business pipelines and demand, which allows us to be very selective in considering only the highest quality opportunities.
Enable us to deliver on our high expectations related to risk management compliance and regulatory requirements and standards.
Yeah.
You may have seen we recently announced the launch of arc by Green Dot arc represents our embedded finance or bass capabilities that are powered by a secure scalable single source platform.
With this new brand, we have the opportunity to market and differentiate our end to end embedded banking and money movement tools that are designed for businesses of all sizes and do so in more meaningful impactful ways.
This launch represents a major milestone in our journey to establishing green dot as a leader and innovator in embedded findings and industry. We believe has significant long term potential.
We are excited about the feedback we are receiving from our partners and other industry leaders and Influencers on the swatch and we look forward to developing the Ark brand further in 2025 and beyond.
You will note we have modestly lowered our adjusted EBITDA guidance for 2024, while we tracked our expectations through the third quarter as we move through the third quarter and into October it became clear that the difficult trends in our retail channel would persist longer than anticipated.
Spicy anticipated shortfall, we remain committed to ensuring we are investing in three key areas I just discussed with you and separately with some of our investments in conversions and tucked at eradication behind US. We are finally, now and investing in the modernization of the user experience for all of our consumer products, which will allow us to more vigorously.
Pete in these product categories.
Let me now hand, it over to Jeff for his comments before I make some additional closing remarks and take your questions Jeff.
Jeff: Thank you George and good afternoon, everyone.
Jeff: Our third quarter non-GAAP revenue grew 16% year over year and adjusted EBITDA increased 19% primarily from continued growth in our <unk> and.
As George mentioned, we've largely moved past the challenges from D conversion activities in 2023, and we are continuing to benefit from our processing conversion and reducing risk related expenses, while investing in regulatory and compliance initiatives.
Most of these investments are now part of our ongoing spending and although we will keep investing we expect the growth rate of these investments to be more aligned with our revenue growth.
Jeff: non-GAAP EPS of 13 decreased due to a higher than normal tax rate from onetime matters.
Jeff: Now I'll touch on the factors that influenced the performance of our segments and we refer you to both our press release and quarterly slide decks or segment results and key metrics.
Jeff: First is our consumer services segment, which is comprised of our retail and direct channels.
Jeff: Consumer segment revenue remains under pressure due principally to the secular headwinds in the retail channel.
Jeff: <unk> to impact the number of active accounts on our platform.
Jeff: The decline in active accounts year over year slowed in this channel with the launch of the Pls partnership.
Jeff: Revenue in the retail channel lapped a significant portion of the program D conversions in the first half of 2023.
Jeff: There was still some modest impact in the quarter.
Jeff: Excluding this impact.
Jeff: Estimate that revenue in the retail channel declined in the low teens and we've generally seen stability blinds practice.
Jeff: It is improvement in revenue practice.
Jeff: Notably active accounts grew sequentially in the retail channel during the seasonally slow period, thanks to our strong start with Pls partnership.
Jeff: Our continuous efforts to reposition our direct channel are making progress. We believe we are now experiencing a period of sequential stability as we invest in feature functionality for the <unk> platform and positioning the channel for growth during.
Jeff: During the second quarter of 2023, we discontinued several legacy brands, resulting in year over year headwinds that are largely behind us now.
Jeff: In the direct channel is showing signs of stabilization after years of decline.
Jeff: Rate of decline this quarter was the slowest than it has been over two years, our focus remains on investing and negotiate platforms feature functionality and positioning us channel for growth in the quarter go to bank continued to see revenue growth and improved segment profitability go to bank now comprises almost 75% of the.
Jeff: Direct channel revenue.
Jeff: Revenue per active account continued to grow at a solid rate in line with the direct channel as a whole.
Jeff: As I've mentioned in previous calls when go to bank accounts for 85% of the revenue in the direct channel.
Jeff: <unk> to start providing separate commentary on this product.
Jeff: Overall segment profitability in the consumer segment remains under pressure from the revenue declines discussed while benefiting from expense control reduced risks expenses and the positive impact of the processor conversion.
Jeff: Now I'll turn to the <unk> segment, which is comprised of our fast and rapid pay card channels.
Jeff: Revenue growth remains driven by.
Jeff: Again best partner, while we saw stability in the rest of the vast portfolio.
Jeff: Metrics such as purchase volume after the accounts have improved due to new partners and growth in existing partnerships I'm optimistic that the momentum will persist and we anticipate continued year over year growth from the tire best channel.
Jeff: Our rapid pay card channel had modest revenue growth as pricing strategies continued to offset the pressure on active accounts.
Jeff: The staffing industry, one of our largest verticals and faced headwinds for almost two years and have not yet seen a rebound.
Jeff: Nevertheless year to date sales activity remains solid and the team is implementing programs and strategies designed to boost employer and employee engagement.
Jeff: Enhanced activations and improve retention.
Jeff: Asked and pay card segment profitability improved as we lapped deconversion headwinds experienced revenue growth and continued to focus on efficiency and driving scale <unk>.
Jeff: Additionally, there was a benefit in the quarter from onetime cost reductions.
Speaker Change: Absent this onetime cost reduction I estimate the profit growth for this segment to be around 30% in the third quarter.
Speaker Change: Turning to our money movement segment, which is comprised of our tax processing business and our money processing business, which includes the green Dot network oftentimes GDN.
Speaker Change: The tax business had some modest revenue growth in the seasonally slow third quarter.
Speaker Change: Our money processing is down slightly.
Speaker Change: While our money processing business continues to face headwinds that stemmed from the decline in our own active account base. We believe those headwinds R&D to a degree as third party transactions grew double digits due to existing and new partners.
Speaker Change: Profitability in this segment remains solid the tax business saw some margin declines due to timing while money processing some margin expansion as the team continues to focus on managing the expenses.
Speaker Change: Turning to revenue growth.
Speaker Change: The corporate and other segment reflects the interest income we earn interbank net of the revenue share on interest paid as partners as well as salaries technology and administrative costs and some smaller intercompany adjustments.
Speaker Change: While revenue was relatively flat year over year segment expenses increased due to higher costs related to regulatory and compliance investments, which were somewhat offset by ongoing expense reduction initiatives.
Speaker Change: Now, let me turn to guidance we.
We are raising the low end of our non-GAAP revenue guidance to a range of 165 billion to $1 7 billion.
Speaker Change: We now expect full year adjusted EBITDA to be in a range of $164 million to 166 million and non-GAAP EPS to be between $1 33 to $1 36.
Speaker Change: Although the first three quarters of the year aligned with our expectations as we moved through the third quarter and into October it became apparent to us that the retail channel would underperform our forecast.
Speaker Change: Declines in revenue in active accounts in this channel have moderated the performance is falling short of our expectations.
Speaker Change: As George mentioned in his comments, we are now investing in the platform to enhance features and modernize the user experience aiming to improve account growth and our ability to drive higher revenue per active which will benefit the retail channel.
Speaker Change: On a consolidated level, we anticipate a modest acceleration in revenue growth moving from the third quarter to the fourth quarter as we have more normalized comparisons and we continued to benefit from the ramp of our new Pls program.
Speaker Change: We believe adjusted EBITDA margins in the fourth quarter will be up 200 to 300 basis points from last year.
Speaker Change: We benefit from revenue growth and favorable expense comparisons relative to last year.
Speaker Change: Now I will turn briefly to the segments.
Speaker Change: I expect revenue in the consumer segment to decline in the fourth quarter at a rate in the low single digits with full year declines in the high teens.
Speaker Change: The improvement in the rate of decline in the fourth quarter reflects the ongoing stability that we're seeing in the direct channel as well as the positive impact from the ramp of Pls.
Speaker Change: For the fourth quarter I would expect consumer segment margins to be up over 10 percentage points from last year.
Speaker Change: Benefits from improved revenue metrics.
Speaker Change: And shouldn't see notable improvement in our risk costs after working through a higher than normal expenses associated with our internal platform conversion last year for.
Speaker Change: For the full year, we expect to see margin expansion of 400 to 500 basis points.
Speaker Change: In the <unk> segment.
Speaker Change: Revenue growth in the fourth quarter in the low 30% range as we move into more normalized comparisons after the initial benefit from launching <unk>.
Speaker Change: We expect full year revenue to be in the mid 30% range in.
Speaker Change: In the fourth quarter margins in the <unk> segment are expected to be up 100 basis points from last year, while full year margins will be down roughly 100 basis points.
Speaker Change: We anticipate revenue in the money movement segment to be flat to down slightly with full year revenue growth in the low single digits for the fourth quarter margins. In this segment should be down 100 to 200 basis points, while full year margins are expected to be up approximately 200 basis points.
Speaker Change: In the corporate and other segment revenue is expected to increase considerably as a result of an interest rate reduction and our efforts to optimize yields on our cash and investments and expenses.
Speaker Change: Are anticipated to grow in the mid teens driven by increased spending on regulatory infrastructure. Additionally expenses were lower last year due to reversing our bonus accrual in the fourth quarter.
Speaker Change: I expect our full year tax rate to be approximately 24%.
Speaker Change: Fully diluted share count of approximately $54 9 million shares outstanding for the quarter.
George: <unk> $54 2 million for the full year now, let me turn it back to George.
Speaker Change: Yeah.
George: Thank you Jess before taking your questions I would like to spend a few moments on our vision for green Dot and our decision to invest strategically in embedded finance and the launch of arc.
George: As you know Green Dot is a pioneer in digital payments and was among the first to introduce prepaid cards and other tools and features that give LMI consumers more seamless secure and value driven ways to manage and move their money.
George: Since being founded almost 25 years ago Green Dot has evolved dramatically and we now build and offer a wide spectrum of financial technologies and services that create value retain and reward customers and accelerate growth for businesses of all sizes. We.
George: We do this through our portfolio of brands, including Green Dot Bank go to bank rapid our tax products group, the Green Dot network and now our embedded finance brand arc, which will enable us to more effectively market and grow our secure banking and money movement capabilities that benefit consumers and businesses of all <unk>.
George: <unk>.
George: Ark already power some of the world's most trusted brands and thousands of other businesses at all stages of growth with seamless secure and useful financial tools and experiences.
George: Arc is different from many other basket embedded finance providers.
George: <unk>.
George: <unk> integrated with Green Dot bank, providing partners with leading FDIC insured banking products and tools, plus regulatory and compliance expertise oversight and peace of mind.
George: Arc features flexible modular technology cloud based and scalable by design to meet a wide range of business needs and goals and to adapt as our partners grow.
George: Anther comprehensive program management.
George: <unk> centre and banking services powered by enterprise grade API is an offer our partners access to comprehensive customer support fraud protection access to the largest retail deposit and ATM network in the U S and much more.
George: The addition of <unk> to our portfolio of brands is an important milestone for us as we continue investing in differentiating in marketing, our embedded finance platform and capabilities and powering more companies with seamless banking and payments that fuel value loyalty and growth.
I think most would agree embedded finance is transforming banking as we know it boosting value and convenience for consumers and driving engagement and revenue for businesses.
George: We believe in the not too distant future, we will see payments and banking embedded everywhere across all industries and all brands.
George: Again, it is our belief that we are only scratching the surface of this industry and we are very excited to be part of its growth as we bring modern banking to more consumers and businesses and compliant secure and scalable ways.
George: I believe giving our banking as a service business unit a unique brand that has substantive differentiated meaning in the marketplace is important for that business.
George: Of course, we continue to manage other world class brands, including Santa Barbara tax products group rapid pay card the Green Dot network, the Green Dot suite of products, Walmart Moneycard and go to bank and we welcome arc by Green Dot to that product family.
George: In summary, it was a solid quarter in which we returned to positive growth and we expect to see positive growth in the fourth quarter as well I.
George: I would like to thank the entire team for all their hard work as we continue to make demonstrable progress improving the performance of Green Dot.
George: I will now be happy to take your questions operator.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: A question you May Press Star then one on your Touchtone sign if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Once again to ask a question. Please press Star then one.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: There are no questions at this time I'd now turn the call back over to George <unk> for any closing remarks.
George: Well. Thank you operator, you have everywhere.
George: So thorough and our overview or there's a lot of competition out there for attention in the market Tonight.
George: But regardless of that I want to take just an opportunity in closing to of course, thank all of our associates and colleagues at Green Dot and who've worked so hard on platform consolidations eradication of tech.
George:
George: Improvement of our regulatory environment.
George: All of those efforts.
George: Those and others that I haven't mentioned and of course.
George: Since we have many of the premier companies in the United States as partners certainly want to thank them and our customers for all their support.
George: For Green Dot.
George: So thank you all I appreciate talking to you in the future of Macquarie.
Speaker Change: Thank you operator bye bye.
Speaker Change: Thank you and that does conclude our conference for today. Thank you for participating you may now disconnect.
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