Good afternoon, and welcome to Green Dot Corp. Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tim Willi, Senior Vice President of Investor Relations and Corporate Development. Please go ahead..

Thank you, and good afternoon, everyone. Today, we are discussing Green Dot's fourth quarter 2021 financial and operating results. Following our remarks, we'll open the call for questions. Our most recent earnings release that accompanies this call and webcast can be found at ir.greendot.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 make reference to our financial measures that do not conform with generally accepted accounting principles. For the sake of clarity unless otherwise noted all numbers we talked about today will be on a non-GAAP basis. Information may be calculated differently 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. 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 Dan. .

Thank you, Tim. Good afternoon, everyone. And thanks for joining us to discuss our fourth quarter 2021 results. We finished the year with solid performance with GAAP revenue growth of 14% and GAAP EPS that more than doubled to $0.85.

We saw this growth even as we invested in our platform navigated a variety of industry wide challenges, and saw the impacts from stimulus begin to receive. George will share more on our financial performance with you shortly. A lot has happened and changed since I joined in early 2020.

Though I underestimated and could not have predicted many of the challenges we faced, I'm proud of how we adapted and of the progress we've made. And I'm also confident in our plan forward. As I look at 2021, we made substantial progress to strengthen our organization, which will serve as well in 2022 and beyond.

We built out our Management team to complement our efforts in 2020. Over the course of 2021 we had a new Executives to head up fast customer care and compliance. We hired a new CTO and finished the year by bringing on George Gresham as our new CFO, COO.

These positions are all critical to moving the company forward and providing experienced leadership for the organization and our employees. Having the entire team in place for 2022 will be something that we have not had since I joined the company.

Under George's leadership, we are strengthening our internal decision-making and prioritization processes, elevating them to a level that has not existed at Green Dot in the past. This will ensure that initiatives are being prioritized correctly and they are given the proper resources to ensure optimal outcomes.

We also appointed a new Chief Product Officer and effectively streamlined how we prioritize, design, build and deliver new products, both directly and through our partners.

We began our technology transformation, which as George will highlight, will not only provide financial benefits and efficiencies, but will also dramatically strengthen our positioning and capabilities as a provider and partner. Finally, and most importantly, our culture and people.

Anyone who knows me knows that I am a big believer that people are the heart of a successful company. We have fully embraced work from anywhere and are judicially hiring quality employees nationwide. 400 talented and experienced folks for more than 40 states have joined Green Dot since my arrival almost two years ago.

In that same period, we grew revenues by 29%, but kept total headcount virtually flat. This focus on increasing talent density will drive efficiency as we're becoming more engaged accountable workforce and develop a culture built on trust and responsibility.

As we step into 2022, I remain very bullish on the value of the unique and powerful set of assets we have at Green Dot. First, the collection of partners we work with, both in the physical and digital distribution of our products is unmatched. Our engagement and alignment with these partners and their channels continues to deepen.

Take Walmart, for example, Walmart has just begun offering first of its kind deposit and withdrawal service in their 4,700 plus stores nationwide. Powered by Green Dot, this new service enables customers to quickly and seamlessly access their bank or credit union account without having to visit a branch.

This creates meaningful value and further financial inclusion for the more than 150 million customers who transact with Walmart each week, especially as more and more bank branches close. Amazon Flex recently announced enhanced rewards on its Amazon Flex Guard for a limited time in March to help drive spending volume and account growth.

Turning to our partnership with Intuit. We've seen exciting growth from the QuickBooks checking product over the last two years and their account base has quadrupled since January of 2021, with 1/3 being businesses that have been in operation for less than a year.

These are just a handful of examples how Green Dot is working with partners to innovate and create products designed to drive growth by bringing seamless and affordable banking to all.

And after we complete our tech transformation, we will be able to build and deliver more products, services and feature functionality to our partners and distribution channels with greater efficiency and flexibility.

Second, we're improving the way our leaders and teams collaborate internally, enabling us to pursue more growth opportunities across channels and partners. For example, our PayCard business now works closely with our Consumer segment to create PayCard solutions for our retail partners.

Third, we have an ecosystem that can be monetized and will be more valuable as it grows. Across our channels and partners, we touch millions of consumers as they go about their daily lives. Consider this scenario, an Uber driver shops at one of our retail partners and pays with a physical card or Apple Pay.

That scenario touches our platform in three unique places and presents opportunity to create valuable experiences for the customer, the employer and the retailer, all within our ecosystem. Now trying to monetize that ecosystem across numerous platforms and antiquated technology would be cumbersome at best.

When we have one technology platform, that path to success and monetization will be much easier. Fourth, we maintain our belief that having our own bank is a valuable differentiator that is under monetized, but that will change. Ownership of the bank is something that partners have routinely mentioned to me as being very valuable to them.

As we implement the new technology and processing platform at the bank, we will have a truly integrated product development and operating infrastructure and our value to our partners will only increase. And finally, the Green Dot network.

This vast network of more than 90,000 locations has long provided a convenient cash in, cash out ecosystem which many other digital banks and Fintech use to provide a valuable omnichannel experience to their customers.

It's also an important extension of our brand marketing and customer engagement strategy as it places products like GO2bank, front and center in the stores or customers shopping regularly.

In closing, while the last two years presented challenges in situations more complicated than we estimated, it has also accelerated a seismic shift in consumer behaviors. The opportunity is much larger than I thought when I joined Green Dot.

But most importantly, I'm confident that the moves we have made and our tech transformation will position Green Dot to deliver exceptional products and experiences for our customers and partners and strong revenue and EPS growth for our shareholders. With that, I'll hand it over to George..

one, the consolidation of processing activities into an in-house processing capability; two, the implementation of modern real-time enterprise risk management tools; three, the creation of a modular digital front-end frameworks; and four, a cloud-native stack conversion. Each of these activities are critical for the success of Green Dot.

Once completed, there are not only substantial near-term cost benefits to be realized, but there are important strategic benefits as well. 2021 saw us invest substantial time and effort in preparing for the upcoming transformation and conversions. We are now in the testing phase and expect to begin the heavy lifting in the second quarter.

While we look to make substantial progress in 2022 and look forward to providing you with tangible updates on these calls, the reality is that this is a process where pragmatism and discipline are required to ensure orderly smooth conversions and will result in substantial completion of this exercise by mid-2023.

We would expect to wrap up the migration of the largest of the third-party platforms, the implementation of the risk management tools and to have completed the build-out of the front-end framework by the end of 2022 or very early 2023.

The cloud migration will continue into 2023 and additional third-party platforms will be consolidated on an orderly basis into 2024. Our focus on ensuring a top-tier outcome will result in us being patient when it comes to shutting down platforms.

This is the correct and responsible thing to do, and therefore, we expect the financial benefits realized in 2022 will be modest and will materialize as we move through the latter part of the year.

That said, we're not providing guidance for 2023, we would expect a more meaningful impact on our financials in 2023 with a substantial portion of these investments being realized in 2024.

Based on our current project time lines, our expectation is that the minimum cost savings resulting from this investment will be approximately $35 million on an annualized basis. Let me take a moment to be clear about what I mean.

These savings are compared to our cost structure as we exit 2021 using that year as a baseline and include directly traceable processing costs that we are currently incurring related to two processes, which we will avoid in the future, net of incremental costs associated with the licensing of our in-house platform.

Additionally, we expect to obtain savings related to the technology costs we are currently incurring to maintain our integration with the external processes while the transition is underway of about $14 million annualized. These savings will be largely reflected as reductions in capital expenditures.

As such, the reductions will benefit cash flow but not be reflected in adjusted EBITDA.

This estimate does not include potential savings related to the consolidation of additional processing platforms that will be converted in the future, general operating efficiencies we expect to achieve across the organization resulting from a simplified operating environment or revenue enhancement opportunities we additionally expect to achieve.

These additional savings and opportunities are more difficult to measure at this stage of the project, although we expect to have more insight into these opportunities by our Q3 earnings call.

We expect that a majority of these savings will be achieved in 2023 with each subsequent year capturing additional savings as platforms continue to be converted. We consider this estimate to represent the floor of the returns to be achieved from this investment. While cost savings are important.

The more important driver for this investment is what it will do for Green Dot as we compete in the markets in which we serve. We will become a more streamlined and agile company.

We will have significantly more efficient and effective product development, modular product offerings tailored to any partner's needs, speed to market, enhanced risk and consumer care functions all while being able to deploy new accounts at very low marginal cost.

This will enable us to grow our partner and customer base, more effectively monetize that base with value-added products and services and retain them via improved experiences, elevated service levels and higher levels of trust in our products.

While much has been done, there is still much to do, but we are confident that upon completion, this will be a much stronger competitive and valuable company for our customers and our shareholders when we look forward to giving you updates on our efforts as we move through the year.

Before handing it back to Dan for his closing comments, based on the trends we are observing as government stimulus receives from the macro environment, we currently expect full year 2022 non-GAAP revenue to be in a range of $1.39 billion to $1.43 billion, adjusted EBITDA to be in the range of $225 million to $235 million and adjusted fully diluted earnings per share in a range of $2.22 to $2.35 per share.

Given the timing of the stimulus payments in the prior year, we currently expect the first quarter of 2022 to reflect flat to modest single-digit revenue, adjusted EBITDA and non-GAAP EPS growth compared to the equivalent prior year quarter, understanding that the timing of tax disbursements is the single most important driver of first quarter results.

Given our 2022 expectations, our enthusiasm for our prospects and our currently expected cash balances, we are pleased to announce that our Board has authorized a $100 million share repurchase, which will be executed through 2022.

Additionally, we are pleased to announce that we intend to hold an Investor Day in November this year, where we will be sharing our strategy and expectations for the years ahead based on the investments we have made to make Green Dot a great company. Let me now hand it back to Dan..

Thanks, George. As I look back on 2021, we accomplished quite a bit that will serve as the foundation for Green Dot as we move forward, specifically our people, our processes and our technology.

As indicated in our guidance, we expect to continue to see growth in 2022 and look for more attractive growth in the years ahead, fueled by a more powerful modern banking platform that will not only deliver financial efficiencies, but also set the stage for a much leaner, more nimble, more scalable and profitable Green Dot in years to come.

I look forward to discussing our progress throughout the year on these calls and providing more detail and thoughts about our future when we host an Investor Day in late 2022. With that, we'll be happy to take your questions.

Operator?.

[Operator Instructions] And our first question will come from Ramsey El-Assal of Barclays. Please go ahead. .

Hi guys, it's Damian on for Ramsey. Thanks for taking the questions. Dan, George, good to be introduced to you. Welcome. So I wanted to ask a higher level question, I guess, about the investment in the business as it relates to your growth. So you're setting the stage here for growth.

Are you still planning to invest the sort of excess EBITDA back into the business? And when do you think about shifting your focus to letting the earnings start to flow through the model? And maybe if you've given it any thought what you think about the sort of long-term margin profile of the business..

Hi, Damian, this is George. Nice to meet you, too. So when we think about these investments, I mean, of course, the company has been consuming financial resources through 2021 and into certainly the first part of 2022 as we essentially add resources to manage this migration that we're about to launch, as I mentioned in Q2.

So we do expect some very modest contributions, EBITDA contributions that will flow through earnings in the latter half of 2022. But for the most part, we expect the returns that I mentioned in my prepared comments to positively impact the company in 2023.

And our expectation is that we'll go through EBITDA as opposed to, for example, being reinvested into other aspects of our business as I think you characterized..

Yes, that's helpful. That is helpful. Maybe I'll ask just switch gears then. And Dan, I'm hoping maybe you can comment on your appetite for strategic combinations. Obviously, you've talked a lot about the organic investment in the business, and there's a lot of work to do, all of that exciting.

But I think we've all seen the reports about a certain prepaid asset potentially being up for sale. Do you want to do M&A at this point? Or are you focused on organic growth in the business? Thanks..

Damian, I appreciate that question because I'm sure it's probably on minds of a lot of folks. I always prefer organic growth to acquire growth. But that being said, we're always going to be looking opportunistically at intelligent ways to grow the business. So when there's interesting assets on the market, we certainly will be looking at them..

Thanks so much. .

The next question comes from Andrew Schmidt of Citi. Please go ahead. .

Hey, Dan, George, Tim, thanks for taking my questions in. I appreciate the clarity and detail regarding the technology transformation. I want to start off just on the Consumer Services segment. The -- obviously, as you called out, there's a big headwind from government program roll-offs.

But is it possible to kind of peel the layers back and talk about the health of new customer acquisition, how that's trending and whether that's healthy areas of improvement, things like that. Just curious on the new customer front. Any observations to there would be helpful..

Yes. Andrew, this is Dan. I'll take the first shot at this and George can add a few wishes. But our whole approach on customer acquisition with our GO2bank product from the very beginning was one about quality, not quantity.

So I think you've heard me on these calls talk about how we're focused on acquiring customers that commit to our product and its relationship and the biggest indicator of that is when they sign up for direct deposit. So our price and our products are designed to encourage and support customers that make that commitment to us.

And so what I can say is that even with all the activity out there and lots of spend by others, our customer acquisition costs, when we look at growing the direct deposit base, is within our bounds of target bonds at there, what we set. And what we see is when we choose to spend, we're able to acquire customers.

And the reason why I say when we choose to spend, what we are sensitive to is others in the market if they're out spending aggressively in bidding prices, we may back off until costs become more reasonable.

Did that answer your question?.

Yes, it did, Dan. Yes, focus on unit economics and high-quality customers. I appreciate that. And then next question on the technology transformation time line. I guess more about what happens between now and then. Obviously, you're not going to stand still, I assume, you still have a lot of efforts in the works from a product perspective.

You mentioned better monetizing the bank, et cetera. But does this technology transformation do now in let's call it, mid-2023, does it inhibit your ability at all to develop and roll out new products? Or should we expect you to continue to roll out new products at a healthy clip? Any insight there would be helpful..

Sure, Andrew. I appreciate that. I actually spent the day yesterday with our Chief Product Officer and a couple of our business leaders and this was one of the topics of discussion. And the short answer is no, it's not going to delay us, and we're working on parallel fronts to roll out meaningful products.

And even before the technical transformation is complete and doing also a lot of design and build work so that when the transformation is complete, then we follow the heels of that very quickly with new products..

So let me Andrew, I'm going to just jump in. So as this question that that you’ve ask gives us a good opportunity to contrast what happens today versus what we expect in the future as it relates to product development. So for example, if the company rolls out a new product feature today in our direct-to-consumer channel.

Of course, and that feature becomes available for that channel. But if we want to then develop that feature for retail, or for 1 of 100 different partners within retail or within partners within BaaS, et cetera.

Each of those platforms need to be independently engineered in order to configure the particular product characteristics across you can imagine the permutations that we're talking about. So we do produce product and features. We're doing that every day, of course.

But imagine in our post integration world, many of these products are out of the box in the sense that our card management system and core processing system will have these product features preconfigured. So if you take overdraft as an example, 40 preconfigured attributes to it.

If we wanted to tailor and distribute that product to all of our partners, all of our channels, all differently, all uniquely, all customized. That's nothing more than a matter of configuration without any engineering work at all.

So you can imagine the difference in speed to market with respect to our ability to go after new product opportunities in that future state..

Yes. The modular approach definitely makes a lot of sense. I look forward to seeing that. Thanks a lot Dan, George, appreciate the comments. .

Our next question comes from Mayank Tandon of Needham. Please go ahead. .

Good afternoon guys. This is actually Kyle Peterson on for Mayank, appreciate for taking the questions.

Just wanted to check and see if your guidance assumes kind of any federal funds rate hikes for the coming year? And maybe if you guys could just remind us on the impact that changes in the Fed funds rate does have on your business?.

Sure. I'll take that, Kyle. The answer is yes. We do have an assumption, we think a modest and conservative assumption. If you look at the different perspective on what may or may not happen with rates, something from rate changes to 8 rate changes, I think we're kind of in a more conservative framework as it relates to the guidance that we're giving.

Obviously, those rate changes, although we expect them have not happened. So I'd put it on us on the conservative side of it. To the latter part of your question, we have obviously a portfolio invested in securities, government-backed securities that have less short-term rate sensitivity.

Obviously, they have a tenure and they roll off and get repriced, et cetera. But we're really talking about the cash balance at the bank, which is substantial and that is sensitive to changes -- short-term changes in the federal funds rate..

Got it. That's helpful. And maybe just a follow-up on the buyback. Good to see the announcement today. How are you guys thinking about deploying that $100 million in share repurchase.

Do you anticipate doing it more on kind of a steady basis? Or do you think if the share price got kind of, in your view, significantly dislocated, would you step in a little more aggressively or in chunks at certain levels?.

Yes. In general, Kyle, our intention is to execute this methodically over the course of the balance of the year via 10b5-1 plan.

That's our general assumption, although I don't want to leave you with the impression that we wouldn't consider and we may consider doing more near-term transactions in the form of a smaller ASR or share repurchase -- accelerated share repurchase program we may do that.

But our current plan and what is included in our guidance is a steady state repurchase beginning in April, ending in December..

Got it. That’s helpful. Thanks guys..

[Operator Instructions] And our next question will come from George Sutton of Craig-Hallum. Please go ahead. .

This is James on for George. Thanks for taking my questions. So earn wage access products and instant payouts seem to be seeing a pretty strong demand particularly as employees are facing hiring and retention challenges.

I guess could you talk about how you're addressing those opportunities, what you view as your differentiators there or just any examples of wins in a quarter of conversations with customers with respect to those offerings..

Sure. This is Dan. We have -- that product and feature is something that we are selling through our pay car business at Rapid. And we're feeling very good about the traction and progress that we're making there.

We've not announced any wins over the past quarter, but I can say that we are like everybody else in the market, I'm very bullish on our potential with that product..

Yes. I'd just add, of course, that particular channel has many, many, many small wins every month. So no individual win rises to the level of an external press release, but that channel is growing very well. It's a very healthy business, very well-run business. EWA, we think to emphasize Dan's comments is an extraordinary opportunity for that business.

And the features within an EWA product may not be that differentiated from one EWA offering to another. But what we have is a differentiated advantage is hundreds and hundreds of installed PayCard clients to sell into. So we're very excited about that product over the course of the next few years..

Perfect. And then last quarter, you sort of touched on this beyond the rack strategy.

Any progress you can share there in terms of level of interest or when you might see some development?.

I think the prudently share right now is we're still engaged in really good conversations with some partners on that. And everybody is even with each passing day as more and more things, press towards digital. Our partners are more interested in the solutions we can bring them, nothing yet to announce, though..

Got it. And then lastly, could you just touch on the Walmart relationship? I mean, you touched on the expanded deposit and actual service, job postings about doing more work with them. But obviously, a lot of noise out there with the Rivet JV. So I think any color you would be willing to share there, I think, would be helpful..

Yes, I really -- I can't only comment on anything with the JV partnership. But what I continue to comment on is we have a 20-year plus working relationship with Walmart. By place years remaining on our existing contract as evidenced by what we announced today, I mean, in essence, our solution enables millions of consumers in the U.S.

to see Walmart locations as their bank branch for making deposits that withdraws. And so that, we talked about rolling out our -- the overdraft product was all our money cards last year. I feel very good about our partnership and relationship with Walmart..

Thanks for taking my questions..

Our next question is a follow-up from Andrew Schmidt of Citi. Please go ahead. .

Hey guys, thanks for taking my follow-up. I was wondering if you could just talk a little bit about just how you're thinking about active account growth in 2022 for Consumer Services.

Obviously, there's a balance there between active account growth and productivity or revenue per average active but just curious if you could give us any thoughts or think about active account growth given the seamless headwinds and the other comp issues that we'll face next year. Thanks..

Yes. Thanks, I'm sorry, Dan, go ahead..

No. Go ahead, George. I'm just going to look like a more quantitative answer we will just see the function flower. So go ahead and....

Well, yes, let's start with that..

I would just reiterate the quality versus quantity sort of approach that we have. And still optimistic about it. But George, why don't you go ahead and maybe give them a little bit more info..

Yes. Well, I mean, I want to put a little subtlety around your question. I'm going to talk about it first, Andrew, in the context of the total account activities. And I think that when we think about consumer, the consumer business, largely track my general comments here.

First, I think when we think about our overall account trends, I'm going to start way back in December of '20.

Because what's important about that period was right at the end of December was the major government stimulus event that occurred within the last days of 2020, and that would have had the effect on us of having activated some accounts that were otherwise sitting dormant, right? Deposits are hand so lower account numbers probably got a little bit of a boost in that very in period.

And then obviously, as we've trailed through 2021, whatever accounts were here just for the stimulus benefits have attrited of or are in the process of trading off.

And so as we look into '22 and what our guidance is based on general the general assumption as I think you see our seasonal trends, where you have a dip from Q3 to Q4 and then you have a lift in Q1 into Q2, et cetera. We would expect a similar pattern going into '22.

I would say that we do expect to end the year with account growth over '21, although I think if you were looking at the average accounts on the platform in '21 versus our assumptions for '22, you would see a decline on average with an upswing in the exit.

And I think you're going to see similar patterns specific to the consumer services business as well..

Very helpful. And then -- and then if I could sneak one more in, just maybe help folks kind of from a modeling perspective. Just within the context of the outlook, just how the balance of growth, we should think about the balance of growth in consumer B2B and Money Movement.

It seems like you should see something similar to this year where you kind of see B2B outperforming on a relative basis. But just any commentary in terms of how the segment shake out would be helpful. Thanks..

Sure. Well, yes, to try to dodge a little bit on giving individual segment level guidance. I'll say, of course, starting with Money Movement, we had a grow-over issue over the last year because of the account we've made reference to many, many times. And we're kind of rounding the bend on that.

So we would expect to not have a continuation of declines in that channel. We would continue to expect our B2B services channel to have the highest growth rate across the segments, and we would expect consumer services to have a very, very modest growth rate, if that's the way I might put it..

Perfect. That’s very helpful. Thank you very much for time guys. Appreciated. .

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

Thank you, operator. Thank you, everybody, for your time today. Appreciate it very much. As always, we're available for follow-up questions. I'd just ask you to for the most efficient, direct that through Tim Willi. Thank you all. Take care..

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