Good afternoon and welcome to the Green Dot Corp. First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Tim Willi, Senior Vice President, Investor Relations and Corporate Development. Please go ahead..

Thank you and good afternoon, everyone. Today, we are discussing Green Dot's first quarter 2022 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 talk about today will be on a non-GAAP basis. Information may be calculated differently than similar non-GAAP data presented by other companies.

Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release. 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..

Good afternoon, everyone and thanks for joining us to discuss our first quarter results. Green Dot delivered a strong first quarter, highlighted by margin expansion across our businesses with non-GAAP revenue up 4% and adjusted EBITDA increasing 23% driven by 360 basis points of margin expansion.

I could not be more proud of our team for delivering these results which George will cover in greater detail shortly. Before I turn it over to him, I'd like to share a few comments on our segments and key components of our strategic plan to unlock long-term shareholder value.

In Consumer Services, our efforts to strengthen our customer base continue bearing fruit as our revenue per average active increased 9% versus the prior year and is up 26% compared to the first quarter of 2020.

The launch of GO2bank and expansion of our features, including overdraft protection are fueling engagement and creating a more valuable customer base. I will touch on GO2bank further in a moment.

In B2B Services, our strong performance is driven by the incredible long-term growth potential afforded to us by our strong relationships with leading partners. Our partnerships offer unique channels to give customers new value.

For example, with 1 partner, we quickly enabled a successful cashback rewards promotion that provided meaningful value to their customers and help them reduce the burdens that their customers are facing from rapidly rising prices.

And I would be remiss if I did not mention our PayCard business which continues adding employers and driving adoption of earned wage access, resulting in attractive and profitable growth.

Finally, our Money Movement business benefited from a more normalized filing season in 2022, resulting in a 29% increase in tax refunds processed during the first quarter. I would now like to share my view of the powerful capabilities Green Dot and our robust product road map will benefit from once our technology transformation is complete.

In doing so, I want to reiterate that this exercise is far more than an effort to reduce costs and is more importantly, a transformation in the way we build and deliver products and serve our customers and partners.

As referenced on our last earnings call, 1 aspect of our technology transformation involves the creation of a modular, fully digital front end, allowing for build once, use many capabilities.

To help illustrate this, today, when we build a feature like overdraft or modify the user experience for our customers, we spend engineering time to develop that same feature for each unique processing platform we operate on.

Not only is the build itself required multiple times but so our quality control, risk management, compliance work, training materials, customer service and experience and on and on. Not only that, we are also building standard banking features multiple times in many cases.

You can imagine how inefficient and costly this process is and how excited we are about the dramatic improvements our transformation will deliver. In the future, our platforms will provide much of this capability out of the box with a configurable package and user experience.

This means we can offer a feature to 1 or all of our partners to 1 or all of our channels to 1 or all of our segments. Each product experience can be configured for each unique environment with little to no additional engineering support or resources. Let's imagine when we roll out a small dollar unsecured credit solution for our GO2bank customers.

Much of that functionality will be out of the box and can be quickly and seamlessly delivered to our other customers in the direct channel, our customers in retail and the customers of our partners with very low marginal cost. Small dollar credit is a single example.

This same experience will apply to any product we develop, whether that be small business banking, savings and investment products and other capabilities on our road map. All of this while having the ability to embed and distribute accounts across partner networks with nominal marginal cost of account creation.

Building on that, our platform will be supported by modern risk management and customer service tools, enabling a safer and enhanced feature-rich experience for the end user.

My strong belief is Green Dot will emerge from this transformation as a highly differentiated and formidable competitor, capable of delivering accelerating and profitable revenue growth. Now turning to GO2bank.

The number of GO2bank accounts continues to grow quarter-to-quarter and now makes up a meaningful percentage of our total actives in the direct business. Additionally, we are encouraged by the key performance indicators of GO2bank, including spend per account, the adoption of additional features and retention.

Simply put, we are pleased with GO2bank's performance to date, excited about its future and fully committed to allocating the appropriate level of resources to GO2bank to achieve an optimal return on our investment.

We are often asked about our plan to grow this business in an environment where our competitors are more focused on customer acquisition as opposed to revenue and profitability which is a fair question. Reality is we remain focused on maximizing the return on our marketing investment and are disciplined about when and how we go to market.

We are confident we understand our target customer and when it makes sense to put our marketing dollars to work.

In building any business, progress is rarely in a straight line but the results we are seeing give us confidence in our strategy and will enable us to continue growing GO2bank while ensuring we deliver the profitability our investors expect.

Finally, I would like to provide an update on Green Dot's business development efforts and the role line intent to play going forward. In the past 2 years we have seen Green Dot strengthened our operational footing, supported by new leadership across the organization.

With this foundation in place, Green Dot is increasingly focused on business development, ensuring the pieces are in place for long-term sustainable growth. I intend to play a key role in this effort and have devoted a considerable portion of my time over the last few months meeting with prospective partners and customers.

I've come away from this conversations within credible optimism like Green Dot's ability to deliver innovative financial solutions to an even larger market than originally envisioned. Much work demands on this front but I look forward to sharing our progress, including new wins in the coming months.

With that, I'd like to turn the call over to George to discuss our financial results..

one, the measurable financial impact of at least $35 million of annual cost savings and an additional $14 million of annual technology savings; or two, our time line which as a reminder, we expect to see a more meaningful impact during 2023 with a substantial portion of our investment being realized in 2024.

Remember that these estimates do 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 look forward to providing additional updates on our progress and milestones achieved in the coming quarters and at our Investor Day in November.

Before handing it back to Dan for his closing comments, based on the trends we are observing in our business today, we are making the following adjustments to our 2022 guidance. We are reaffirming our revenue range of $1.39 billion to $1.43 billion.

We are raising our adjusted EBITDA by $5 million on the low end and high end range is now $230 million to $240 million. Consistent with our raise on adjusted EBITDA, we are raising our non-GAAP EPS range to $2.32 to $2.46 per share.

With respect to the second quarter, as compared to the equivalent prior year quarter, we anticipate revenue to be approximately flat, our adjusted EBITDA margin to be approximately between 15% and 16%, with non-GAAP EPS expected to be in the range of $0.52 to $0.56 per share. With that, I'll turn it back over to Dan..

Thanks, George. In closing, I am encouraged by our strong start to 2022 and thankful for the collective efforts for our employees who contributed to these results.

I look forward to the remainder of the year and beyond as we make progress on our journey to make Green Dot a highly differentiated and formidable competitor, delivering value for our customers, partners and shareholders. I'd now like to hand it back to the operator for questions.

Operator?.

[Operator Instructions] Our first question will come from Ramsey El-Assal with Barclays..

Damian on for Ramsey. So let's focus on the B2B segment. I think that really came in a lot higher than what we were thinking and it's nice to see that you have that other key B2B Services customer. Maybe you can just give a little bit of color on the driver there.

Is this sort of a onetime thing? Or are you thinking it's more sustainable? And also good to see on the increasing margin there year-over-year, I guess, it's flat a little bit but it's still good given the fixed price contracts. So what are you thinking about that margin in that segment? A little bit more color would be appreciated..

I'll let George comment on the margins but just in terms of just that business segment, as I've said, I think, now for a couple of years, that's what we really see is our really tremendous growth engine potential with the sizable partners that we have there.

But in addition to those sizable partners in the BaaS business, not forget in the B2B segment, also included is our PayCard business and the earned wage access program that we're rolling out is beginning to get some traction. And I see that business continue to deliver, as it always has, over the past year, it's just good solid growth.

George, do you want to comment on the margin question?.

Yes. Sure, Dan. Thanks for the question, Damian. I think with respect to the margin, the 1 -- we have a large account in that channel which on the marginal revenue growth does not contribute material incremental margins.

So the margin sustainability in spite of that is coming from the rest of the BaaS partners that we have in that channel and importantly, as Dan mentioned, in the -- in our employer PayCard channel which is a great business, it grows steady and grows at high marginal returns.

So along with the cost control that we have undertaken in the quarter relative to the prior year, those customers are just healthy and have healthy economics and continue to grow..

Yes, that's super great. Maybe for a follow-up here. I'll ask Dan, I want to pick up on some of the commentary you had said about investing in GO2bank and you said you're committed to investing -- and I think in the past, we talked about the right level for customer acquisition.

Are you still feeling like this is the right level? Or are you finding you're able to acquire customers at a lower cost, given that pullback that you mentioned in January and February? Or are you thinking that you want to step up the investment to seize the opportunity based on what you're seeing on the revenue per customer side..

We continue to see, as evidenced by just the increase of revenue and profit per account, just our strategy around making GO2bank as an account that customers will commit to, buy a direct deposit, increase their spend and use future functionality that we have now and that we'll add.

So that's why we're just focused and committed to continue to grow it. And in terms of the spend, what we did and what we will always do is we'll monitor and we'll throttle that spend up and down based upon the return on the investment that we see. So there's always heightened spend seasonally.

And we saw the purpose of backing off in January, February until maybe the dollars or the cost out there that we're bidding against come down so we can more effectively spend our dollars.

So -- but our -- what we would expect to spend on an annual basis to market GO2bank, that's something that I would like to stay committed to so that we can consistently invest in and grow that business over time..

And our next question will come from Andrew Jeffrey with Truist Securities..

I guess I'd like to, Dan, perhaps dig in a little bit more on the sort of the CAC question. I mean is it in your mind purely seasonal that what you're seeing or what you saw in January and February was elevated cost to create new accounts.

And how do you gain confidence that the environment normalizes and you can spend what you want to this year at good economics.

Do you have some insight on that?.

Yes. I think it's seasonal but it's also cyclical in terms of investment dollars that are out there. And in terms of insights, I believe in some anecdotal information I've received is that it's harder for the neobanks to have free money to throw it at marketing.

And so for that reason, I do believe that the cost for customer acquisition for us is going to come down. And that's the thing I hope that people can see and recognize and appreciate that what we have here at Green Dot.

We have a very large enterprise that's generating good significant free cash flow and affords us the ability to consistently invest in our business, invest in technology, invest in the quality and also invest in marketing dollars on a consistent basis to grow GO2bank. We're not at the mercy of the market like other neo banks out there.

We need to raise funds in order to continue to feed their market invention. So as we all know, the environment has changed pretty dramatically over the last 6 months. So we do anticipate that our marketing costs or marketing dollars will be able to be spent more efficiently in the coming quarters..

Okay. That's helpful. It would be good to track that. And I guess as a follow-up, direct deposits, obviously such an important initiative.

When you look at what's driving growth there, is that predominantly PayCard today? And how do you feel about the momentum in that business versus GO2bank? And how do those 2 do you think interact over the next -- over coming quarters?.

I'm going to let George take the first crack at that because George has always been a tremendous fan of the PayCard business. And so George, why don't you guide. No, with all seriousness, I'm a tremendous fan as well. Don't get me wrong. But I think George has some really, really valuable insights..

Well, first Andrew, thanks for the question. I would -- I want to be clear, though, that in fact, when you look at the B2B Services channel, the direct deposit accounts are not disclosed and that therefore, most of the PayCard accounts are not included in our external disclosures.

The characteristic of those accounts, though, are such that if you looked at an individual -- let's say I have an employer with 100 employees, that employer may have very high turnover because there may be a restaurant chain, for example.

But nevertheless, the active accounts would nevertheless increase as that employer enjoyed growth, et cetera, irrespective of the average life of the card. So we think about the economics in that channel much differently than we might think about it as it relates to GO2bank experience.

So but -- so the accounts in that channel are growing on a very healthy basis. Very excited about it. And we have a huge market to grow into. We're a leader in the market. A very well-run business for us and we have the advent of early wage access which is coming into the market that provides a whole new stream of growth in PayCard.

So although it's small for us today, it's one of our most exciting businesses..

And our next question will come from George Sutton with Craig Hallum..

Dan, I'm excited to hear you're going to build up your frequent flyer mile account with the PD program.

I'm curious if you could just talk about where you think the BaaS platform is from a -- again, as you're pitching potential accounts at this point, both from a people and from a technology perspective and how that might have shifted over the past couple of quarters..

George, I hope to see you in an airport Sunday this year. It would be nice to catch up. I'd say on the people front, we're second to none out there. It's just the caliber of the team that we've built on that BaaS business. And it's been -- I think we have 90% of the team is new within the last 12 to 18 months.

So we can restack up, go toe to toe and have great vision and leadership there. On the technology side, as evidenced by everything we're doing with what we call project [indiscernible] and rebuilding our platform, we have some catching up to do.

But the fact of the matter is that in the interim between now and then, we've shown that we've got the resourcefulness to deliver what solutions are required by partners and they may not see how maybe challenging or difficult is to do that but [indiscernible] solutions that work.

So I'll give us A plus on the people and some work to do on the technology side but that's mostly for our benefit. It's not that visible to the customer..

And as a follow-up, so Global Payments on their call mentioned that NetSpend has had significant interest. And as I think, logically, you have a much more significant opportunity, the market really isn't giving you a lot of credit but seems to be very interested in that asset.

Can you just talk about that dichotomy in your view?.

Value is in the eye of the holder. So what else you want me to say on that, George. I bet on this team here all day long..

Well, maybe I'll add 1 to that, Dan. If you think about that asset relative to what we have today or maybe didn't have 2 years ago is that asset has a processing platform which is more than a decade old at this point. We're building out a contemporary internal processing capability.

That asset has a large retail footprint which is sitting below our brands in most retailers around America and performs worse than our brands and most retailers in America in our view. And so -- and it has a direct-to-consumer channel which we have as well which we think our channel performs quite well with our brand interest in surrounding GO2bank.

So for us, it's just a very different equation than perhaps for a firm that doesn't have our asset set..

And our next question will come from Mike Grondahl with Northland Securities..

Two questions. One, could you talk a little bit about the overdraft protection product and the contribution in the quarter and how that's maybe ramping? And then secondly, I think George mentioned some network vendor concessions but they weren't going to be repeated and maybe some higher fraud costs.

If we could just get a little bit more color there, it would be great..

Sure. Let me give this a shot here. So we won't be specifically disclosing the overdraft revenue, although I would point out that overdraft revenue in Q1 of 2021 was de minimis. So virtually all of the revenue coming from overdraft year-over-year represents an increase over the prior year.

And overdraft does come in at a relatively high margin compared to the portfolio. So it was a meaningful contributor to the expansion in margins on a year-over-year basis, although there is many moving parts to your question. We also enjoy the benefit of having relatively significant decreased costs in our customer service delivery operations.

As I mentioned in the script, we had a real scramble a year ago, trying to ramp up to respond to the stimulus payments and the customer issues that resulted from that, that disproportionately increased cost. So that was an important factor. We moderated our marketing spend and go to bank, as I mentioned and Dan commented on, that was a factor.

To the vendor question you have in other items I made reference to that, we might think of as nonrecurring.

There are 4 or 5 vendors that we were negotiating various issues with mostly related to ordinary course business challenges that you have with any partner where we felt that they owed us some money and we were successful in negotiating those things.

Those sorts of things I'm mentioning you can think of in $4 million to $6 million range for the quarter. There's some subjectivity to that. But that's the way I would think about it. Lastly, you mentioned fraud.

Along with the stimulus inflows in the prior year, I believe this is true for probably all financial institutions, neo banks, including Green Dot, our rate of fraud losses increased considerably in Q1 and Q2, in particular. And although they've come down, they remain, in our view, unacceptably high and there a drag on our quarter in Q1.

So hopefully, I've gotten the points you raised. And if not, let me know..

[Operator Instructions] Our next question will come from Andrew Schmidt with Citi..

Maybe to follow up on some of the other questions, just understanding that there's a lot of puts and takes with the direct deposit active accounts within consumer. What's the right way to think about the trajectory or obviously lapping some seamless impact and marketing headwinds here.

Is it fair to expect this -- and obviously, the other thing is some of the legacy program roll-offs. But is it fair to expect this to get back to growth by the end of this year? Or is this kind of a longer-term kind of drag until sometime in 2023. Just trying to understand the trajectory a little bit better here..

Yes, Andrew, thank you for the questions. I'd say, yes, I acknowledge it's a bit of a complicated story with the stimulus and some of the stimulus didn't tail off until into Q4 of '21, in fact. So there will still be some year-over-year stimulus impacts.

But I think as you have time and you sit back and think about our guidance and our results for Q1 and Q2, you'll see that buried in the implications of the guidance is that by Q4 -- and I'm talking just top line P&L numbers, not your specific account question is we would expect to see growth towards the end of the year in our P&L.

And the account implications of that are going to vary by channel..

Got it. That's helpful. And then just digging a little bit into tax season because it does seem like that was a bright spot. Maybe it's been a little bit while since we found a normalized tax season. When you say normalized tax season, do you mean sort of higher average refunds, higher number of refunds.

Is this more of a timing shift? Maybe just to dig into that a little bit more in terms of what you're seeing and just more to come in the second quarter? And then just to add on that to that, is there anything you're doing differently in the tax channel? I remember a few years ago, Green Dot was to continue to sort of add more products and services to the tax channel.

Curious if that's still a focus and if that's a factor here as well..

Yes, of course. Yes, I'm glad you asked another differentiated asset of Green Dot that we're very proud of and is doing very well. It is hard to understand the business analytically because of all the disruptions in '20 and '21 related to COVID.

But here's 1 way I think it might be helpful for you to think about it is if you look at our disclosures in our earnings release today, we disclosed $9.61 million tax refunds process, $9.61 million. If you look at that compared to the prior year first half numbers which were about $11.6 million. That's about 83% of the prior year first half year.

And if you look at the prior year Q1, it's about 64%, of the first half happened in Q1 last year. So that's increased. So we have seen a fairly important increase in our tax business revenue relative to the prior year quarter.

Although if you go back and you look at several prior years, you'll see that 83% is still a little bit lower than like 2019 or 2018. So we do think tax season was a little bit slow relative to our own internal expectations. But it's much more similar to years prior to 2020 than it has been in the past. So the business is doing great.

To the other point you raised in your question about new capabilities for the most part. Well, let me point out, we launched a new technology platform, hasn't gotten all the highlights of [indiscernible] but it was a very important investment throughout 2021 for us. It went live this year.

It basically allowed us to manage that business on a much more efficient basis. And I would say that's a huge success for our tax team and our technology team. Lastly, as I'm going on here, we did in-source some underwriting on tax advanced products.

That we are doing in our own bank this year that we had not done in the past which also considerably contributed to the increase in margin in that business. So the business is doing great. Certainly more excited about the leadership and how it's performing..

And if I could just sneak 1 more in on the tax business. Are you seeing the same level of deposits on, I guess, Green Dot cards that you would have seen in the past or has the -- there have been a little bit of a shift there in the market.

Just curious what you're seeing in terms of lost processing looks good but just I was just curious about the actual lot and associated spend..

Well, the average tax refund that we have seen has been high relative to prior years. So that's the actual refund that a client of the business get. Some of that will go into cards. Some of it will be dispersed via check. You'll never see it in our purchase time of GDV. But as -- so let me leave it there. So relatively high compared to prior periods..

This will conclude our question-and-answer session. I'd like to turn the conference back over to Dan Henry for any closing remarks..

Thank you, operator and thank you, everybody, for joining the call today and your continued trust and interest here at Green Dot. George touched on it briefly and just the leadership here. These results are a result of the people that we have in the organization.

And what I'm really proud of is that even in light of the times we're dealing with and all the headwinds this great quarter that we had is the result of many, many things going well. So improvements in areas of growth in various pockets across organization, improvement in cost control and efficiencies and important investments that we've made.

So that's just a sign to me of a team that's very capable and really starting to find their stride. So I'm super excited about our potential and looking forward to our next call. Thank you, everyone..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time..