Good day everyone, and welcome to the Green Dot Corporation Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dara Dierks. Please go ahead.

Thank you, and good afternoon everyone. On today’s call, we will discuss 2017 fourth quarter and full year performance and thoughts about 2018. Following those remarks, we’ll open the call for questions. For those of you who haven’t yet accessed our earnings release that accompanies this call and webcast, it can be found at ir.greendot.com. As a reminder, our comments include forward-looking statements, among other things, our 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 to generally accepted accounting principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today, including revenue per active card will be on a non-GAAP basis. Information may be calculated differently than similar 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 protections. Now, I’d like to turn the call over to Steve.

Thank you, Dara, and welcome, everyone, to Green Dot Corporations Q4 2017 earnings call. Today we’ll review our financial performance for Q4 and the full year, I’ll provide updates on how we did on the execution of our 2017 Six-Step Plan and then we will unveil our new 2018 Six-Step Plan, which will serve as your syllabus for how we intend to achieve yet another year of double-digit top and bottom line growth. Then Mark will provide additional granularity on our Q4 and full year results, details on how tax reform will positively impact our net earnings and of course, he'll share our 2018 full year financial outlook and our Q1 directional guidance. So a lot to cover. Let's begin with the review of our Q4 and full year 2017 financial performance. Q4 was yet another very strong quarter for Green Dot, capping a year that on many levels was without question, the finest year in Green Dot's history to date. We beat our financial expectations with four consecutive quarters of accelerating financial results and raised top and bottom line guidance in every quarter. We achieved record revenue, record profits and expanding margins. We saw the return to active account growth, had multiple new banking as a service program wins with world class partners and we made two strategic acquisitions, all while successfully advancing our evolution into an enterprise scale, products and platform model with now seven revenue divisions, each with its own growth strategies and more than two dozen products and services offered across what we believe is the largest and most ubiquitous omni-channel distribution platform of any bank or financial services organization in America. As both Founder and CEO, I'm so proud of our amazing Green Dot team members across the organization. It's an honor and a privilege…

Thanks, Steve. I couldn't be more proud of the team that we've assembled and delighted to stay on as CFO with an exciting year ahead of us. To echo Steve's comments, the strong momentum in our six revenue divisions plus our bank combined to once again deliver better than expected results on both in organic and consolidated basis. Consolidated total operating revenue of $213 million represented a year-over-year growth rate in the quarter of 31%. While our organic revenue grew by 12% to $183 million marking the seventh consecutive quarter of organic double-digit year-over-year revenue growth. On a consolidated basis, the Account Services segment delivered record Q4 revenue of $180 million, representing year-over-year growth of 33%, that result was driven primarily by three key factors. First, active accounts increased 27% year-over-year to approximately $5.3 million active accounts. Second, gross over volume driven by a large 87% year-over-year increase in accounts receiving direct deposit, grew by 51% to deliver approximately $8.6 billion in GDV. And third, that the large amount of GDV drove purchase volume up by 41% to approximately $5.6 billion. All combined, this means we had more customers than ever, using their accounts to receive more deposits than ever, which in turn, allow them to make more purchases and ATM withdrawals than ever, which in turn generated more than ever interchange and fee revenue in the quarter. Our Processing and Settlement Services segment also achieved record setting results for the quarter, generating approximately $41 million in revenue equating to a 19% year-over-year increase. That result was driven primarily by the number of cash transfers increasing by 6% year-over-year and the revenue we earned for cash transfer transaction, improving by 13% year-over-year. The combined operating segments generated adjusted EBITDA of $32 million in the quarter, up 47% year-over-year, reflecting margin…

Thank you. We will now begin the question and answer session. [Operator Instructions] And our first questioner Ramsey El-Assal with Jefferies. Please go ahead.

Thanks for taking my question guys.

Hi, Ramsey.

Hi. I wanted to ask about the revenue and EPS, kind of cadence in 2018. I know you've got Rush contributing a little bit in the first quarter, you have TurboTax, I would imagine, would be at least, in the first quarter, Walmart is a new year-over-year tailwind in terms of the expansion of that relationship. What is -- what would the cadence look like? Is it the same as a normal year or a little bit different this year?

Good question, Ram. I think ballpark, we're looking at the same cadence as you saw in 2017. I think, we're give or, around 31% in Q1. Then continuing in the low-23s for each of Q2, 3 and 4.

Okay, and then one follow-up from me. You're changing your reporting format to more sort of accurately reflect the contribution from earnings from your bank. Can you remind us of any commentary you've given in the past in terms of earnings sensitivity to higher rates, it tells obviously, we're in an upward trajectory here in terms of rates? So what, for example would a 25 bps sort of increase in interest rates translate into in terms of an EPS tailwind? I don't know if you can get that specifically, but any color will help.

Well, I think a way to think about it is and I think you all know this but we have call reports that we issue for the bank that you can pull up separately from the SEC public company reporting. And the reason why that's relevant is it gives you the end-of-period average balances on account, which is roughly equivalent to what you can invest on a lightly basis. And that amount will change quarter-to-quarter for example Q1 with taxes would generally be higher, Q3 is usually our lowest and so forth. But at the end of Q1 of the call report, I want to say it was about $1 billion. And so if you just sort of think about what that is for a cash and cash equivalent investment rate, that will give you a sense on how we invest, and how it turns the EPS, will be the accounting geniuses answer that. But it gives you a sense of what that revenue from interest is?

I last year, I think on average, over the year, we had about $600 million to $700 million in investable balances. And so this year, we would expect for that to go up a little bit.

And our next questioner today will be Andrew Jeffrey with SunTrust. Please go ahead.

Good afternoon. Hi, there. The results, I think, speak for themselves, but what I'd like to understand a little bit is how you think internally and how you might communicate to us your progress toward expanding the TAM. I mean, intuitively, it seems to make sense, the yields are going up so forth. But are there some benchmarks that you look for or guidepost internally to say hot. This really is a business that's growing beyond the traditional on bank to under bank consumer. I don't know if it's demographic, do you see that we don't or something else that can help us?

Well, let me try to think about how -- and so you know when these calls you prepare for all the likely questions, and that's what we didn't prepare for, it, it’s a really good one. So let me think.- No should pay for it. So let me think about what I can say without giving some competitive secret sauce. Part of the expansion that you're seeing now is the macro economics of the country. We have maximum employment at around 4%, inflation is minimal and the interest rate environment, while it got harder is still good and we have people working and depositing money. You have even small businesses now taken advantage of all the modern products offered by online payroll companies, which means that now, everybody can have direct deposit, whereas, even three years ago direct deposit was only limited to larger companies. So all these things are macro tailwinds. If you look at our products, in particular, you're seeing that we're growing younger and younger, which is a good thing. I didn't pull up the statistic today but for the last call, it was about 55% of our customers were millennials, which was up quite a bit from even just a few years ago, and I would expect that trend will continue. And that's helpful because millennials are far more comfortable with digital products. So if you think back to Green Dot on even six, seven years ago the concept of getting a bank account or checking account at a grocery store or at a Walmart or something like that, would have been felt very alternative and edgy and nitchy and something that people would have said, oh, that's not for me. But when you look at consumers today and millenials today in 2018, that simply doesn't…

Just to echo what Steve said. Now if you start from -- if you go back to where we started, it was prepaid card sold at retail and today, we've got a platform where we're providing broader set of financial services and reaching consumers of enterprises that we partner with. So now if you have an Apple phone, you're getting our financial services. And if you drive for Uber, you're getting our financial services. And it continues on that we can provide broadly for, as Steve said, for all Americans on demand financial services.

Okay. Thanks. Just a quick follow-up. What should we interpret or infer from this change in accounting? I mean, I kind of infer that as you look to 2019, you think you're going to have more meaningful contribution from some of these platform customers, is that the right conclusion, or am I…

It is. Yes. I mean, right now, the math today, if we were to make the change right now in 2018, which we'd never do, we always want people to have time to get familiar and comfortable with whatever it is we're going to do. But if we are to make the changes here, maybe would've been a $5 million difference or something like that on the top line, it just wouldn't matter for this year. But as the BaaS programs become bigger, let's say, the Intuit program and/or maybe if we're lucky, and the macro continues to go, the Apple programs and all the other ones we're doing, it will become more meaningful. And in those programs, the gross revenue we get is not the same as the revenue we get from programs where we're controlling the product from inception to consumer acquisition to the life cycle of the customer. , :

And our next questioner today will be Bob Napoli from William Blair. Please go ahead.

Thank you and nice job on a quarter. Mark, glad to have you onboard. The -- you guys, I think you mentioned double-digit organic growth continuing for the next few years. The mix of that between growth of active cards and revenue per card, do you have some thoughts around that?

Well, so we talked about the continuing double-digit top and bottom line growth. I don't know that we said organic, not that it wouldn't, but we probably didn't get that precise we did in our prepared remarks. But I always look forward to you catching on something so maybe I'm wrong about that. But nevertheless, we appreciate, as always, Bob, your optimism. So the question -- the answer is, yes, we think that our growth generally in the company is driven by more customers, depositing more money therefore, spending more money, thereby having their accounts longer, which may mean more monthly maintenance fees, more interchange when they spend more money, using other ancillary services and so on and so on. So more equals more in our business obviously. And what I love about the growth we're seeing, in fact, we were commenting on this before coming into the studio, is that the growth isn't from any one fee or lapping the fee changes we've made a couple of years back, believe me or not, it's already been two years since we had our fee changes, it was early in 2016. It's that people are using the products more, which is where you want to see the growth. You don't want it to be about any one event or any, it's about time, I have a Green Dot Bank account and I use it as a bank account and as we continue to have that kind of growth in that kind of macro expansion, that should deliver that growth ongoing.

And then did you mention the Intuit program is, I would imagine it's in full swing, how that -- how that's progressing?

Oh gosh, what can we say. The answer is, it is in full swing, and we love the partnership, but obviously, we couldn't portend the results this early in the queue.

And just last question on net interest income, becoming a bigger part of the pie, is that -- can you -- are there other products besides the secured card? Or do you expect substantial growth in the secured card? Or just higher interest rates on deposit balances?

It's both. We think the drivers of more interest will clearly be more deposits with more accounts on file that you're investing in your nightly [ph] investment opportunities. But today, as you know, the bank can only invest really, in very short term highly liquid cash and cash equivalents for the most part. We have some pockets of money that can do things that are slightly more aggressive but generally, it's a very, very conservative investment policy for lots of different reasons. And as the Fed has increased in their interest rates, that's clearly helped us, and that's been a nice tailwind. But then to your point, we do have the five -- I am sorry, the secured card portfolio, which is done very well and that interest is in top line as well. Well, today, it's not material in it of itself, all of this creates a tailwind for interest rates and both of those other drivers.

Our next questioner today will be Brad Berning with Craig-Hallum Capital. Please go ahead.

Hi, Good afternoon guys. One higher-level question a little bit is as we see banking-as-a-service get expanded into a new distribution channels of employers rather than needing necessary get the branches, can you talk about what are you seeing from employers or gig employer type interest in expanding their relationships with their employees and contracted employees? What are you seeing for activity levels out there? And how do you think about opportunities in 2018 to potentially find more partners?

turns: So getting your money faster in style and employers are recognizing, especially with the unemployment rate where it is so low, that you have to compete for talent and increasingly, folks are saying, wow, I can do this, it's relatively inexpensive and my employees find it a great value. So we have a tremendous amount of business pipeline activity for SimplyPaid and, but it's very early on meaningful today and becoming better, but we hope that we'll have more and more accounts for SimplyPay. We think it's a great offering, a lot of people are offering similar services, we're not the only ones. We may have been one of the first to start it and maybe the only one start it initially at our size and scale with Uber, but a lot of people are offering it and there's a lot of competition for it. But we think given our unified asset stack of a bank and the technology provider and every, all the regulation, everything that goes in the middle, we're ideally suited off for this to enterprise-level clients. And so we hope that, that product will continue to do well but so far, it's done very, very well.

And over the longer term, does -- can that be a domestic-only type of solution or do global employers want to see global solutions, and how do you think about that strategically over time?

So the answer is that global employers absolutely want to see global solutions, and it's really, really hard. So we have teams working on how to crack that nut, but it's tough. Clearly, Europe is easier than China, for example. You have certain relatively easy zones you can go into and geographies, and then you have others that are really tough. But we do have people working on how to expand it in a way, but it's highly complex because of regulatory reasons, because of technology reasons, payments don't move the same as they do in the U.S. So it's not an easy thing to solve, but it's one that we would like to solve.

One technical, quick. I'm sorry if I missed this but the organic growth for cards in the quarter on a year-over-year basis, what did that look like?

4.5%

Okay. Thank you.

Brad, thank you.

And our next questioner today will be Andrew Schmidt with Citi. Please go ahead.

Hey, Mark and Steve, how are you?

Good. How are you Andrew.

How are you.

Doing great, thanks. First question, a few moving parts in FY 2018 you have the Intuit ramp, you have Apple Pay Cash ramping, improvements in the core prepaid business, what's the best way to think about active card growth and revenue per active card? Just given all those input, just trying to get a better handle on that?

Do you want to -- Okay. So the answer is, our guidance is constructed or forecast is constructed assuming that we'll continue to have moderate and modest growth in active cards. We're doing 4.5%, 5%, and we think anything like that or close to it will be ample to hit our plan. And so we're assuming that. It could be higher and if it's higher, that's great. And the revenue per active has in real life, continued to grow, and we're seeing trends that will lead us to believe that it'll also continue to grow. In large part just because more and more people are using direct deposits. So our guidance assumes modest and achievable growth proactive and a few more actives, but nothing that I would call a stretch or anything crazy.

And to Steve's point earlier in the call, the growth in revenue per active is really no longer from fees. I mean, we've sort of lapped that, and this is really we're getting greater GDV per active and with that greater purchase volume use of ATMs and interest income.

Understood. That’s helpful. And then clearly, the increased TAM is a positive factor. Huge beneficial driver for longer term, but just -- I was wondering if the way to conceptualize the materiality of the new business lines versus the established business lines? And just any way to size that? I know, probably small initially, but any thoughts on that?

Gosh. I mean, obviously, we track our established products versus new products internally, but we disclosed just the segments. The answer is that our -- if you think about our established business lines or legacy business lines being prepaid cards and reloads, right, that would be that historic Green Dot. Those two lines of business continue to be a good part of our revenue and certainly more than half of our revenue, but the new lines of business are sizable and getting more sizable. So the answer is our bread and butter from the old days is still better butter today. Just like coffee is still important to Starbucks, but the new ads we put in our becoming more and more material, which is in part why we're looking at different accounting presentations for next year, and while we'd have to build-out and have been an excited to build out so much more sophistication in our operating platform because we're doing a lot of different things simultaneously, and so that's been all part of our growth.

Understood, that's helpful. And then my last question. On the tax rate, the 25% tax rate. I was wondering, Mark, could you walk us through some of the assumptions in there? Is that sort of an initial cut at the tax rate? If you evaluate this, could -- is there potential for this to come down? Just if you can walk us through the puts and takes, that would be helpful.

We just threw spaghetti against the wall and said, what feels good? Yes, I'm going to let Jess join in on this as well, our Chief Accounting Officer. But basically, we looked at 21% rate as a starting point, as you know, we're all domestic income and we're building from there, predominantly from 162(m) adjustments, but there are probably some others as well that would factor in.

Yes. You mentioned the majority of it. So I think that's a good cut, it's our best estimate that this point in time. And to Mark's point, the -- there are things that are incremental to that tax rate like 1 62 M and the like but overall, the 25% feels really good.

We're -- look as we do with most things, I think we're hopeful that we come in under 25%. We think that it's about right, but there's probably some upside to that.

A little impact, I guess, right?

And the next questioner today will be Stephen Kroc with KBW. Please go ahead.

Hi, good quarter and thanks for taking my questions. Just when I go back to your prepared remarks on the Six-Step plan, you mentioned about the new M&A activity being fourth quarter as the earliest you can complete something. Are you guys looking at anything right now, just curious as the pipeline? And then how large of that acquisition could it be? How much room do you have to flex? Do you have the capability to flex up?

Well it depends. So we have sort of a range of acquisition targets that you're always looking at. There's nothing particularly hot or burning now, although we get books all the time and Mark and I will look at them and some excitedly more than others, you know how that works. So you're not always going to see something great. But in theory, depending on our available cash and what you want to do with the balance sheet and everything else, you could make large acquisitions, the biggest one we've ever made was around $400 million-or-so, which would have been TPG, and we've made the very small acquisition for just a few hundred thousand dollars. So it runs the gamut. But to your point, we did so much activity last year between large share buybacks and two acquisitions, one of which was sizable and complex with UniRush, that we're going to want to build up our cash balances, we going to look the year play out, we want to make sure our risk management systems are tight and we want to do all the things that we want to do, and we have a lot of new programs we're integrating as well. So it would feel if you're sitting where we're sitting, it would feel out of sequence to haul off and do another large acquisition in the near term. But to answer your specific question, there's nothing burning. I don't think -- you may have a different opinion but there's nothing burning in the pipeline that I'm….

I agree with you entirely. I think we said on the Q3 call that and are reiterating here. But right now, our primary focus is on the launch of our platform programs, and we just want to make sure we have the cash to support them, and that's our focus. And as we get to the second half of the year then we can start turning our attention to other things.

Got it. And then just as a follow-up, when we look at the legacy, the cash transfer revenues as a percentage of the number of cash transfers to happen, that fee has been continuously been going up like, is there a ceiling that it would approach at some point, can you help us think through that?

Well, the reason that it's been going up is that we continue to sell a lot of reloads and the increasing number of cash transfers or reloads, both are reloads, not all. And the reason the average revenue per transaction is going up is, number one, MoneyPak are selling more and more and MoneyPak sells for $5.95 versus a swipe reload, which is $4.95 in some retailers and $3 at Walmart. So as MoneyPak is more infiltrated, if you will, into that segment, you're going to have some upward pricing on an average there. And then we have products in the past that are no longer in the market that advertise highs free reloads, and we don't have those anymore but there's still a lot of those customers out there. So as those portfolios tried over years, then they're replaced by customers who are paying for reloads. I think what's so fascinating and I love learning about consumer behavior because whatever you think you know, you don't, you learn it in the wild only, not in the classroom. Is that our reload activity with customers who pay for the reloads is every bit as a more robust and in some cases, more robust than when we thought it would be a good idea to do it for free. So but that's why you're seeing that upward pressure because you have more people paying for their reloads, which means less of the free reloads, and you see in the MoneyPak infiltrate the overall average.

[Operator Instructions] And our next questioner today will be Mike Grondahl with Northland Securities. Please go ahead.

Thanks guys and congratulations on a quarter and the year. Two questions. The first one, on the higher economic cards from early 2016, at Walmart, and the non-Walmart locations, what inning do you think you're in, in getting those into your p ortfolio? And then secondly, what do you think has been the secret sauce in sort of driving direct deposits? It really is done well the last couple of quarters, if you can kind of help us on that, that'll be great.

Sure. I think the secret sauce in McDonald's is ketchup and mayonnaise. I think, actually. It was a big debate at one point. Okay, that was only the dressing. So okay, first thing's first. I think what you're asking is when we rolled out the new fee plans back in January or Q1 really of 2016, what percentage of our active cardholders today would be on those a new fee plans? Is that kind of what you're asking?

Yes. For both Walmart and I guess, what you'd call non-Walmart.

I don't think we would ever differentiate between the two. Just a portfolio-wide basis.

Yes. So what we said last quarter that we're about half way to two-thirds there depending on the portfolio, and that's really where it still is. And the reason why and Mike, I don't think it's going to change a lot for some time to come, it may go a few percentage points here or there. The reason is, is that the fast turners, if you will, or the fast turners are already turned two, it's been two years, the average life of a prepaid card is less than two years. So those are fully done, but then you have your best customers, who many no fees anyhow because they're on direct deposit or they're depositing enough to waive the fee. And so they wouldn't know there was a fee increase one way or the other. And they still retain. So you're never going to get to 100% or if you did, it would be a bad thing because it meant that you lost all your legacy customers. So we kind of are as lapped as we're going to be within reason, there's no big kaboom [ph] left to come, there's no big shoe left to drop. So what you see is what you get and now, the increases we're seeing which are still sizable in revenue per active is driven by usage, as Mark addressed earlier. So that's that. The next question is secret sauce for direct deposit, there's a couple of things. One is the macro, as I mentioned earlier, younger people who are more employed, using payrolls and small businesses, using payroll services that make it easy to enlist your employees on direct deposit. So that's number one, and that's part of what we're benefiting from and everybody, it's not just us, but I would expect that competitors and others in the space are benefiting similarly. In fact, we see that at companies we bought. So you're seeing that as a macro trend. And then Green Dot, in particular, I think has done a good job, although we're going to do a lot better in making it more and more easy and intuitive to enroll a direct deposit, and that has been a big advance for us. When you have more people using your mobile apps and more people using digital ways to communicate with the bank, you can now market more smartly and provide better life cycle messaging and all of the things that you want to do that we really couldn't do in the old days. So part of it is macro and the other part is that we have a good marketing effort that we intend to have better.

Okay. Well, listen, everybody. Thank you for listening in today. Have a wonderful evening on the East coast to the wonderful day here in beautiful West coast, and we'll see you at a conference near you. Have a good day, everybody.

Thank you all.

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.