Greetings, welcome to the Green Dot Corporation Third Quarter 2019 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to Dara Dierks, you may begin.

Thank you and good afternoon, everyone. On today's call, we'll discuss Green Dot's third quarter 2019 performance and thoughts about the remainder of the year. 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'll 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 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 a property of the Green Dot Corporation and is subject to copyright protection. Now I'd like to turn the call over to Steve.

Thank you, Dara. And welcome everyone to the Green Dot Corporation. Q3 2019 earnings call. We have a very full agenda today starting with a review of our Q3 financial results and as part of today's presentation, our team has prepared a supplemental investor deck that Mark and I will reference throughout the call. May want to take a moment now to access that deck, which is available on our website at greendot.com/IR. I'll focus on three key topics today. First, an update on our Card Program sold to our retail and online channels, which I'll refer to as our Consumer Business, including the details of our new seven year contract renewal with Walmart for the Money Card Program. And I will have a review of the performance of our newest app based bank account product called the Unlimited Cash Back Bank Account, which launched on July 30. Next, I’11 update of our BaaS or Banking as a Service business line where we continue to see exceptional momentum with significant year-over-year growth, new large enterprise deals with Uber and Intuit and an exciting new FinTech joint venture with Walmart. And then given that we now have certainty around the economics of the Walmart renewal and more informed assumptions around the other parts of our business, Mark will discuss our preliminary thoughts on 2020 guidance that should consider when thinking about your models for next year. So, let's start with a review of our Q3 results. Green Dot generated Q3 consolidated non-GAAP total operating revenues of $229 million which is just a 1% year-over-year increase as a result of the anticipated decline in the number of consolidated active accounts. The year-over-year decline was around 250,000 accounts on a net basis, comprise of around 620,000 fewer active accounts from our consumer business…

Thanks, Steve. As a reminder starting in Q1, we began using a new presentation for GAAP to include net interest income generated at Green Dot Bank from the investment of customer deposits and introduced a new non-GAAP revenue measure to reduce GAAP revenue by commissions and certain processing related costs associated with certain BaaS partner programs, where the partner and not Green Dot controls customer acquisition. Q3 consolidated non-GAAP operating revenue grew 1% year-over-year to $229 million, including $7 million of interest income and net of $11 million of commissions and processing related costs associated with certain BaaS partner programs. From a segment perspective, the Account Services segment delivered non-GAAP revenue of approximately $184 million, representing a year-over-year decline of 5%, this decline was the result of the expected year-over-year decrease in quarterly active accounts from our consumer business, partially offset by an increase in active accounts from our platform services business. Despite the fewer number of consumer active accounts, we increased consolidated direct deposit accounts year-over-year by 4% which in turn contributed to year-over-year growth of 8% in GDV and 2% in purchase volume, and corresponding growth in interchange revenue of 4%. Our Processing and Settlement Services segment had a great quarter and generated approximately $52 million in non-GAAP revenue, representing your over year growth of roughly 29%, this continued growth is attributable to higher transaction volumes across the segment’s product lines. Q3 consolidated adjusted EBITDA of $25 million outperformed our expectations by around $10 million, due to savings from lower than expected SG&A costs, higher than expected operating efficiencies and lower than budgeted marketing spend. In Q4, we expect our adjusted EBITDA performance to offset the Q3 overperformance ending the year at the lower end of our full year adjusted EBITDA guidance range. The reasons for the expected…

Thank you. [Operator Instructions] Our first question is from Bob Napoli with William Blair. Please proceed.

Hey Bob, you. Hey Bob, one second before you begin the questions, I want to introduce to our investors and analysts on the call today. Jess Unruh, many of you know Jess, he's been with our company for quite some time as Co-operational Chief Financial Officer and Chief Accounting Officer. And as our company continued to expand and we do more things, Jess is going to be increasingly supporting Mark and I, both at Investor Conferences and here in the company in all aspects of getting our finances done on a day-to-day basis. So I'd like Jess to introduce himself, say a few words and we'll go into your question Bob.

Thanks Steve. I'm excited to be here. Some of you have met me at conferences and on investor calls, for those who don't, my name is Jess Unruh and I've been at Green Dot for a little over 10 years, prior to Green Dot, I was at Ernst & Young for many years. At Green Dot, I've been the Chief Accounting Officer for the past five years and Operational CFO for the past three years. And I oversee accounting, financial reporting, tax, data, procurement and our shared service operations. So, thank you for the opportunity.

Very good. Okay, Bob with that. Nice to hear your voice and let's go ahead and take your question.

Okay. A lot going on here, that's for sure. Just on the platform services businesses, the growth rate – how sustainable is the growth rate of that business and can you break out any – we have an idea of what the tax piece is, but what is the BaaS, which pieces are growing faster? What is – so what kind of a growth rate do you expect for platform services and how big is that BaaS business? And I would think that would be the fastest growing piece of the business.

Yes, I think that's right. A lot of our platform services businesses have been around for a long time, our money processing network, TPG, which is a tax processor and PayCard, Rapid! Paycard. So a lot of those have been around for awhile and BaaS is without question among those pieces the fastest growing. And the CAGR expect to continue, but we don't want to guide anything specific until we have all the facts and figures ready for the guidance call in February. But in the CAGR, it’s indicative of what it's doing and Bob, that we announced last week, fairly significant number of expansions and new partnerships and the pipeline looks robust, and so those new partnerships you build them, you deploy them and then they grow in season over time. Just like now we're benefiting from the ones that we've launched over the past years, as they've grown and seasoned. So the BaaS platform has a lot of growth we think to it and every time we get more information on it, we share it and as we promised in the call, as we're going to continue to highlight the platform services portion of the company with more granularity, and in particular on the guidance call, so that you and others can have a better appreciation for how to size it and how to view it in relative comparison to our accounts business.

And then, I guess the consumer business, the Unlimited product and the other products, I mean the – what effect – you said that the – it's equal to 90% of the profitability of the prior products. And when do you – by the time you enter exit 2020, would you expect that business to have year-over-year growth?

So, what we said in Unlimited, and for those of you who – I know it's hard when you have a lot of calls that you're going to at a same time. But we put a deck together, Samir in our FP&A team put this together and it's actually quite good, it's called supplemental earnings call deck, very creative title. And – but in there it has a section called Unlimited by the numbers and it actually gives with granularity and actual charts more than – really most companies we do, but we really wanted investors to have a sense of it. What our decline was and then the launch of Unlimited and what that portfolio has done. And what's so impressive about it, frankly, even from us, and then – we designed the products, so you don't always know how these things would work, it picture our six main consumer portfolios that have been declining in particular since the more aggressive marketing of our free competitors, and that's – and the question affected us and we've talked about that. So you have all these six portfolios, like a boulder coming downhill and you've seen that decline especially starting and accelerating in Q2 of this year. So we have this big boulder coming down, then Unlimited comes in and steps in front of the boulder and it has actually been able to slow it dramatically, and a lot of our leading edge, all of our leading edge metrics has stopped the boulder and it's not pushing it back up the hill despite that in fact that we still have losses in the other five portfolios. It's just a very impressive result for such a young product and the quality of the customers as we showed them the deck is pretty…

Right. Thank you.

Yes.

Our next question is from Andrew Jeffrey with SunTrust Robinson Humphrey. Please proceed.

Hi, good afternoon guys. Thanks for taking the question. I mean, clearly the 2020 guide is below, what we're looking for, but the metrics are encouraging. I mean, there are a couple things, one, I guess, it seems to be worth calling out Steven and maybe you can elaborate a little bit? I mean correct me if you think I'm wrong in this characterization, but it seems like 90% of your consumer business revenues, despite the overall business declining are really sticky, right around direct deposit or monthly depositors.

It's been incredibly resilient, shockingly so, yes very, very resilient.

So I mean, I guess for those who are worried that the legacy business sort of broadly defined by non-direct deposit, that was a way that should be a – which is a draconian assumption, that should be a pretty powerful bulwark against that thought, right?

It is. I mean, that's sort of the – look, we want to be transparent and there's nothing worse than clobbering analysts or investors with the surprise, we just hate it. And we've done the – without meaning to, obviously we have a lot of people in the finance team and in our product team work really hard. But we've done a pretty poor job of financial guidance, not intentionally, but it's been so hard to sort of understand the month-over-month and quarter-over-quarter declines when you're looking at the 90-day group of cards, many of which are one and done, some of which you past CIP, customer identification, but then don't reload. Then we have all these portfolios and millions of customers, we’re trying to figure out, okay, who is going to attrite and when and how much dollar are those guys worth? Who is going to sign on and when? And how many dollars are those guys worth? And we've just – and then of course, we don't know what our competitors' plans are. So when big marketing campaigns rollout, we see it. And so we really missed this falling, what do you want to call it? The falling knife whatever you want to call it, starting primarily in Q2 and March, you can really see it on the charts we supplied. And just continues to accelerate, it's like, wow, luckily, we had Unlimited that was rolling out and we were working on it and thank goodness we did. And it's a really good product. So we knew the product would do well because of all the research and testing, but you never know until you know, and thankfully it's done very, very well. So yes, I think people should be encouraged by that without question, it's again, I've…

Yes, well I'm among those who miss model next year, appreciate that. Getting on front, maybe I can ask, no – I'll drop back into queue. So from this perspective, if we're looking at something that's in the neighborhood of $180 million considering the headwinds, but also considering the growth in these new products and recognizing that the Walmart hit is one-time hit and that you go on and start to grow. Is that kind of a base case for what you would view as being durable ongoing Green Dot business, you're on the other side of this consumer decline and for the most part new products are kicking in and that's kind of high-value EBITDA, it's one way of thinking about it that Green Dot is generating?

I think so. I mean, if you look at one-time hits are what they are and the interest rates, I don't – I think you all know that I'm on the board of the Federal Reserve for District 12, but clearly I don't have any information or knowledge that the general public wouldn't have the interest rate or those kind of things, but if you just look at what the interest rates are, you can make up your own decision of what you think there'll be a year from now at the exit rate. But to your point, the Walmart renewal is a one shot deal for seven years. It's a very long-term stability and a lot of time for us to overgrow with that efficiencies and bigger sales with Walmart. You have the SG&A, which is for any platform that's growing we have to invest in that we've done that for years, while at the same time, saving money in other areas like customer care and automation for various things and we've done a good job with that every year and benefited from that again, as you know this Q3 that's one of the reasons why we – how the EBITDA performance we did. So a lot of these, to your point at one time, they reset. And then as you have the consumer account division building back up, we need to build up to about 600,000 accounts in total to get back to where we were at our all time peak in 2018. And so we've already come back quite a bit as you can see from the charts and we have to keep going. We'll know more in February if we'll do that in Q3 or Q4 and not even in the year. I don't know, I…

Thank you.

You bet.

Our next question is from Ramsey El-Assal with Barclays Investment Bank. Please proceed.

Hi guys. Good evening. It's Damian on Ramsey and welcome to the call Jess, good to have you. So I just wanted to drill down into your confidence in terms of the bottoming out of the decline in Q1. I know you quoted MoneyCard launching and the Gen Z app launch at the beginning of next year, but maybe you can talk us through sort of your confidence and then the slowdown and then the decline in Q4, the bottoming out in Q1 and then what kind of growth are you thinking you can kind of get to that.

Okay. Well I don't want to give too many forward-looking belief statements on where we can get to. And Damian, you didn't – it was unintentional, but I want to make sure I didn't say the beginning of next year for the launches of the new products. I said first half because I don't – again, we want to make sure we get everything we say. But yes, new products, so we have high hopes for as well. If you look at the rate, here's what I would do if I were building a model, because I'm not going to give you an answer, but I'll sort of try and do some breadcrumbs for you. If you look at the month-over-month on the charts we gave growth, right, how many weeks are there; we told you how many weeks and so forth. You can plot on a graph and model how many active accounts we lost per week, per month, take your pick. Starting with the beginning of the year of 2019, down to the peak at the launch of Unlimited and then how many we've gained. And then you can sort of take that exact model and just add to it, because these are net actives. In other words, each month, number of actives is by definition the net of who has tried it and who's new and who's active in that month, so it's a net number. And you can figure that now, what you don't know is, will we fall off our pace, will we increase our pace and that you don't know and that we'll have to figure out, but I can give you sort of a good sense of a run rate as you go through the end of 2020. And that's what I would probably do if I were building a model and didn't have insight information. And frankly, that's kind of how we build our models because you just don't know I don't know what the competitor reaction's going to be. Right, you know these things, but at least that gives you a sense of how to look at it and then you can make your own conclusions and decisions.

Alright, we'll be doing our modeling on our side, but maybe another question then on margins. So you announced the sort of $60 million to $65 million incremental headwind for next year. And I'm thinking about then this year you had the $60 million of spend, the one-time marketing spend. So is that 2020 in addition to the lower, the $60 million lower EBITDA in 2019 or is it in lieu of it? And then maybe just longer term, if you think about your business, do you think that the level of investment in your business to require to sort of hit the same level of growth has changed as a result of all of this or do you think it's relatively the same?

This is going to sound really dumb. I'm not sure I understand the question. Are you saying – are you saying that the investment we need to make in 2020 more than the investment we made this year to achieve the same level of growth on the limited, is that kind of what you're saying directly?

Well, there's two parts to it. So the first half is, it's going to be $60 million to $65 million of the negative EBITDA hit in 2020, that's in addition to the negative $60 million that you took this year of the market spent…

Well, it's a net number what we're saying is that, if we did 240 million, which is what we said our guidance was for this year to finish the year up, and we took $65 million off that it'd be on a $175 million or something like that and that would be our exit rate, that'd be our exit run rate heading into next year, not because of company performance per se, those offset the platform and the consumer business offset each other largely, it’s because of, as we mentioned, the one-time hit from the Walmart, renewal which laps, the interest rates which is anyone's guess, it's the increase in SG&A, which you don't do every year, but the size of the programs we announced are a pretty big programs. These are any – any one of these are sizeable, let alone all of them together. And plus you have tailspin which could be quite, whatever we come up and bending there could be quite significant, we don't know. So you're not going to do that every year. Right, nor have we done that every year. So a lot of those will reset and then go into 2021. So that number that we're in indicating that could be our guidance, that 175 includes everything, that's where we're saying that that numbers, so it isn't one 175 minus another 60 for marketing that's what we’re asking. Our marketing expense on a year-over-year basis isn't probably much different, it’s pretty flat to what we spent in 2019 and total for the full year versus what we're planning to spend next year. But we want a little bit of – little bit of room because we've done so well with the way we've a gated our marketing with Unlimited. In fact, you may have heard Mark's commentary that we actually spent less in Q3 than what we budgeted because we are achieving our goals. The trick is, look, we're not a startup. We've been here for awhile and the trick to marketing, if you can do it and you're lucky and you do the right things and you have a good product. If not, spend your money as fast as you can so you can have a headline number, we acquired this many accounts, whatever it is. The trick is to acquire enough accounts slowly but surely over time. So you're growing but in a way that's profitable on a cost of acquisition versus unit economic basis. And that's what we do. So it's about gating that and if we can continue to do that successfully, we want to make sure we have a little more room next year because we're launching those other products. So that's why we made that. But that $65 million in total headwind, that net headwind, is that the full number inclusive of whatever else you think might be in there.

Thanks for the commentary.

Yes. You bet. So, team, here's what we're going to do. Mark is signaling me that we're at the top of the hour and my eyes aren't good enough to see what's on the screen in front of me, so I don't know how many …

We’re finished and that we're going to have another call.

Yes, for those of you who don't know, because we don't want to have black box anyone on any information, we want to make sure you get what you want to ask. After each earnings call, we do a group call with a lot of analysts and the others who join and if you're not an analyst on that, I believe you certainly can be, can anyone be on that or how do they do that?

I think we're done.

Okay. Well, going to hold on to Don Duffy who runs ICR. He's our investor relations and way beyond that and then we'll have the follow-up calls. We really appreciate you being here today and glad you got to ask your questions, I know there's one or two that we won't get to. Well, we thank you all for joining us today. We'll see you at the Citi Conference next in New York in few days. Okay. See you then. Thank you. Bye-bye.

This concludes today’s conference you may disconnect your lines at this time and thank you for your participation.