Good day and welcome to the Green Dot Third Quarter 2022 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Tim Willi, Senior Vice President and Investor Relations and Corporate Development. You may now begin, sir. Thank you.

Thank you and good afternoon, everyone. Today we are discussing Green Dot's second 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 George.

Thank you, Tim. And good afternoon, everyone. We have a lot to cover today, including the recent changes to our management team, you should all now be aware of, and overview of our third quarter results, an update on our key near term priorities as we continue transforming Green Dot into a next generation financial services platform and a brief overview of our longer-term strategic opportunities and priorities. Then we will open it up for questions. So let's jump in. Our financial results for the quarter came in at or above the high end of our guidance rage, revenue of $337 million was up 3%. While EBITDA margins were 13.5% and EPS of $0.44 was up 2%. We have been seeing weaker than expected consumer activity particularly in the retail space, which then extends to Green Dot network utilization. These shortfalls have been largely offset by stronger than expected performance from our BaaS partnerships and contributions from our bank. On a year-to-date basis, revenue was up about 2% while adjusted EBITDA and EPS were up about 11% and 15% respectively. Free cash flow on a year-to-date basis was up 78%. Jess will provide some additional details on our results in a few minutes. Though, we face some uncertainties related to the broader macro environment, we have made significant positive changes at Green Dot I am happy with our consolidated results and grateful for all the hard work the team has put in to drive our business forward. I'd now like to take a moment to share a little more context and my perspective on taking on a role as CEO. Dan Henry has been a friend and colleague for many years, he has had an amazing career of value creation, he laid a strong foundation and path forward for Green…

Thank you, George. And good afternoon, everyone. With our press release and slide deck, you should have all the necessary financial numbers and metrics. Let me provide some qualitative commentary about each segment to help you better understand the core what's going on in the business. Turning first to our consumer segment which is comprised of two unique channels retail, which is our largest single channel across the company, and direct to consumer. Aggregate revenue declines largely remain a function of decline in active accounts, and both channels driven in part by the impact of stimulus programs in the prior year, and in part by very distinct dynamics within those channels. Regarding stimulus, many accounts benefited from enhanced pandemic related unemployment benefits through much of Q3 2021, as well as elevated deposit balances from stimulus money earlier in that year. As for distinct dynamics, the retail channel is faced with two challenges. First is the headwind associated with the secular change in consumer foot traffic, second into a lesser degree is a competitive environment as consumers now have a variety of direct consumer options. However, in our direct channel declines are driven by two factors. First, as we've discussed in the past, we've made a very deliberate decision at the beginning of 2021 to deemphasize legacy brands, while we invest solely in building the GO2 brand from scratch. Second, as we've noted in prior call, we pull back our marketing spend for GO2 in the first half of the year, which has had a negative impact on account growth, that we have begun to put marketing dollars back to work. We believe this reacceleration in marketing spend, as well time as we have worked to improve the customer experience. And our competitors have shifted their focus to reducing their expense…

Thank you, Jess. Let's reassess current conditions and anticipate the challenges and opportunities ahead that we plan to navigate and capitalize on, I want to reiterate that our near-term priorities have not changed. First, our technology transformation will continue, we must move the company onto a modern technology platform. This is critical to our long-term success as it will unlock our capabilities and potential while driving significant efficiencies across the enterprise. Second, operational excellence, we must remain focused on finding ways to be more efficient and making this a part of our cultural DNA. Areas like fraud, risk management and customer care continue to see improvements, all of which are key to optimizing the customer experience and driving account growth. We are committed to maintaining a disciplined approach to managing the cost structure of the business in the years to come. Third business development, we continue to focus on building a strong business development effort and we are beginning to see success. We recently signed a large BaaS partner and we also launched Earned Wage Access with one of the largest retailers in the United States. These two noteworthy successes are in addition to the renewal and extensions of two important BaaS partners along with a constant flow of wins in our GDN and PayCard businesses. Building out a strong sales engine is a priority. And I believe that Chris is the right person to lead that effort. While we also focus on investing in the infrastructure to ensure that we deliver and expand upon partnerships that we are creating. Now I'd like to take a moment to share our perspective on 2023. And the opportunities ahead of us that prompted me to join Green Dot a year ago and are even more apparent to me now as the CEO.…

[Operator Instructions] Our question will be from Bob Napoli, William Blair.

Thank you. Good afternoon, George, Jess, Tim. Thank you for the question. Very interesting, George, appreciate the discussion and discussions around embedded finance and some of the opportunities you see. What do you see as the biggest challenges? And what is the right growth rate long term for Green Dot? What do you see is the biggest challenge, when would you see like net account growth pick up year-over-year, and really appreciate it.

Hi, Bob. Look, I think to the extent we've characterized challenges, they probably stand within our control in the sense that we're fully occupied right now with executing against internal inwardly focused activities around technology platform, modernization, those are complex challenges. Obviously, there, it takes a lot of time and focus. So while we're doing that, we need to also keep the BD engine running, develop our team, all of those sorts of things. So the challenges are not necessarily from our perspective, external in the sense of changing consumer behavior or macro-economic condition. It's mostly getting important thing done quickly, so that we can be fully leveraging our capabilities. That's the way I'd put it. I would shy away at this point, from giving you any quantifiable, long term growth rates or margins. But our addressable markets, the markets we're in today, our direct-to-consumer market, $40 billion, PayCard, $3 billion. They're gigantic markets. And really, our potential in my view is unlimited with respect to those market opportunities, and it's all about us executing against them.

Thank you. And just a quick follow up, you had talked about EBITDA being down next year, can you give any feel for how much of a decline in EBITDA you would expect?

No, I can't quantify it. I'll tell you this. I think it was generally imprudent for us to try to run ahead of 2023. We need to finish our planning and our work. It's meaningful, obviously enough for us to put some point on it in this call. So I'll leave you with that comment. And we'll get back to when we do our Q4 release.

Our next question will be from Andrew Schmidt of Citi.

Hey, George, Jess, Tim, thanks for taking my questions. And congrats to everyone on the new roles here. A lot of changes. Good to see. So I think starting off just a question for you, Georgia, it's pretty clear that nothing changes in the near term, you kind of outline a lot of the opportunities and why everything fits together. So it doesn't seem like portfolio optimization is on the table, at least in the near term. But maybe you could just talk about how your philosophy or how your focus changes as we go out a little bit further, in terms of just incremental investment areas, opportunities, just any difference regarding kind of the previous approach. Just curious to get a feel there. Thanks a lot.

Thanks for that question. First of all, I'll say I don't think that this is about comparing myself to Dan in any way, I mean, but I will try to expand on my way of thinking as it is I tend to be process oriented, very focused on management, execution and accountability. I think very carefully about milestones and how the team is going to achieve those milestones and try to put a lot of focus and maintain focus on each incremental step along the way. I tried to build teams that share that philosophy. My core value as a corporate leader, is one of stewardship. Obviously, we accept deposits from millions of consumers, it couldn't be more critical that we take good care of those deposits and manage them prudently. And obviously, we have a large number of investors that we are stewards of their investment and their capital as well. And we take those obligations quite seriously. So we think about these questions in terms of capital and capital returns over the long term. So of course, the steps we're taking over the next 46 quarters are approximately the same steps, we'll put a tremendous amount of focus on business development, integrating our sales capabilities, making sure that we're packaging products and services into the market appropriately. That's why I’ve asked Chris Ruppel to join me in this effort. So I think you'll see some shifting of priorities and a lot of focus on basic blocking and tackling management disciplines. But the path, in my view is clear. We have amazing assets, we have to get them working together in the right way, sooner rather than later. And our future is boundless then.

Got it. Now, appreciate that context, that's helpful. And you've mentioned a lot of opportunities from a product perspective. Not looking for any quantifiable kind of timeframe. But I guess just generally speaking, when do we get to a point where we can see a faster kind of product velocity and see sort of the ability to kind of go after a lot of those areas that you referenced? Does the NDP have to be in place in order to see that product philosophy step up? Because I do agree there is a big opportunity. But I'm just curious in terms of when we'll start to see some of these areas start can be attacked? Any color, there will be helpful. Thanks.

Yes, no, that's a great question, Andrew. And it's a complicated question. Let me, I'm going to give it a shot to try to simplify our strategy that we talked to our board about over a couple 100 pages. I'm going to try to do it here in a minute. So if you think about our platform business where we have a bank platform, sitting on top of that as a set of shared service capabilities. And on top of that is a money payment network, the Green Dot network, and on top of that, it's a technology platform. Most of our channels in the near term direct our BaaS channel and retail will sit on top of those capabilities and distribute capabilities out of that platform and in fact, that happens today. But it happens in a very complicated high-cost way. And in the future PayCard will sit on top of those platforms as well. So there's two elements to your question. One is bringing the cost point down materially, so that we have a differentiated cost advantage in the market. And that could be bringing consumer products to market or it could be bringing partner products to the market. And then the other element in that cost element of that well, is a multiyear journey. We've talked about the first step in that journey, which is the process or migration consolidation, which will occur in ‘23. But that's just the first step. I've alluded to other steps in previous calls. I won’t repeat those. But as we go through those steps, in ’23 and in ‘24. All of these capabilities, product capabilities you're asking about will be consolidated in a configurable way on the platform. So whether we're talking about our API developer capabilities, have to credit capabilities, SMB product offerings, advanced disbursements, all of those capabilities will incrementally become available over the next 24-month period of time, but it is our view and our focus, to have the vast majority of that journey done in by the end of ‘24.

Next, we'll go to Ramsey El-Assal of Barclays.

Hi, thanks so much for taking my question tonight. I was just on the Marqeta earnings call and they mentioned that they had won an issuance and processing relationship with Walmart for a product called One I think which is something putting up in conjunction with a [Inaudible] JV. I'm just curious about how -- what your read is on that. Was that something you guys were in the running for? Does have any read through impact on your programs with Walmart?

Thanks for that question, Ramsey. First, I'm going to expand your question a bit and take an opportunity to make sure our audience understand our relationship with Walmart while I answer that question. So first, of course, we have an agreement that with Walmart that goes into January of 2027, to manage the Walmart Money Card and distributes various Green Dot products within Walmart locations. And we have a number of ancillary services and activities associated with those agreements. That agreements in place been in place for a long, long time will remain in place. We also have a Tailfin joint venture, which you can read about in our public filings that is primarily in place in order to create a pool of resources that can be used to foster innovation and distribution of the various products I just mentioned. That JV is active, it is doing exactly what it was intended and designed to do. And it is currently designating investment opportunities for this sort of innovation. And as we all know, Walmart has entered into this other JV with One in order to do for other payments services, we have a relationship with One, I wasn't listening to the Marqeta call. So I can't comment precisely on what it is they were characterizing. My understanding is that Marqeta previously was the processor for One and remains the processor for One. So it's not new information from our perspective, but we don't consider that to be a material change. But I would highlight that as One considers the opportunities that they have to expand their payments footprint. They'll seek out various vendors to do different things. Obviously, there'll be banking relationships, on the payment processing relationships, they'll need money network access points. They'll need different products and features to bring to bear and we expect to compete for those. So we view this opportunity with One as expansive, not narrow. So I can't comment further on what Marqeta said. But that's our view of the overall relationship with Walmart.

Our next question will be from John Hecht of Jefferies,

Good afternoon, guys, and thanks for taking my questions. I guess just with respect to the high level of preliminary EBITDA commentary. I mean can you give us color just in terms of marketing? Was this a revenue thing from the consumer segment? Was it the fact that is cost aided maybe delayed over the course of the year as you implement the new system? Is it a little bit of everything, just again, just trying to think about the trajectory of modeling?

So you mentioned the consumer segment.

Yes.

As we've gone through another quarter, and we looked at the acquisition trends, primarily within bricks-and-mortar retail, they continue to be below our own expectations, and below our expectations when we talk to our investors three months ago. That's one point. Interest rate environments are complicated with respect to Green Dot, Jess made some comments in his prepared remarks with respect to how those affect us, I would go back and look at those, it would be burdensome to explain all the nuances of them. But as short-term interest rates increase at a rate faster than we can invest in longer term instruments, that tends to have a short-term negative impact on us. So that's a factor. And the timing and pace in our own decision to slow marketing spending, particularly in the first half of 2022, has a negative impact on ‘23. We think that latter issue will have an opportunity to rehabilitate itself, because I'm sure many of our direct-to-consumer competitors are facing brand new capital constraints that they've never experienced before. We think that's going to harm their ability to compete in the market and direct-to-consumer businesses. So we think that may turn in our favor in ‘23. But I think it's really early to make that declaratively stated.

Okay, and then turning to the BaaS segment, I guess kind of two questions. One's quick about the BaaS revenue. The second one, the first one is, did -- I know there were some customer losses last quarter that were announced. Were those all out all the way through this quarter? And second question is the ARPU in that category has been showing the nice upward to the right trend, can you talk about what's moving that increased productivity with the BaaS customers?

The latter question, I'm going to kick over to Jess, because I want him to at least have a little bit of an opportunity to comment in this call. The first part of your question is no, those partners trail through the quarter will largely be exited by the end of the quarter or in very early Q1 of ‘23. And then Jess if you want to handle the second question.

Yes, I think the ARPU in the BaaS businesses, there's certain BaaS customers that are high growth rate. That same BaaS customers have some of those fixed profits, so you're seeing a solid flow through of ARPU on the top line, but you're not seeing necessarily that flow through on the contribution practice.

Next our question will come from Joe Wikers of Truist.

Hi, guys, thanks so much for taking my question. So I was just wondering if you could provide me an update on the BaaS pipeline, as well as just any insight on contract renewals for B2B and what the timing on those looks like? I know kind of somewhat related to the last question.

Yes, no, thanks for the question. So I in my prepared remarks somewhere in the first third or so I did a quick list. I didn't name any particular partners. But we did sign this quarter, a fairly meaningful BaaS partner opportunity. That partner is being staged for onboarding throughout Q4 and would be expected to be on boarded in the first, third of 2023. But that's very positive news. We've also extended another partner for multi-year term in the last quarter within the BaaS business, a smaller partner but nonetheless an important one. We added to the services that we are providing one of our other large BaaS partners through a contract addendum in over the last few months. So that's an important victory for us. And the pipeline is good in the BaaS business, there are so many opportunities, I think we need to have a much higher set of expectations with respect to the opportunities we can mine out of that opportunity. So we have a good pipeline, the long selling cycle, a long onboarding process. So we need to shorten the selling cycle, shorten the onboarding price process and improve our cost structure, as I mentioned, to one of the earlier questions. Just also, you didn't quite ask about the other businesses but understand that in our PayCard business, we sell fine and onboard several 100 businesses per quarter, each quarter, in our Green Dot network business, the numbers are much more modest, but between five and 10 partners per quarter that we sign and implement within that channel. So we have a lot of other BD activities that go on throughout the organization that don't quite get the attention of our BaaS channel.

All right, awesome. Thanks. And then kind of have just one final one. we've been hearing from some investors, you should almost parallel and Green Dot a little bit with Western Union. And while we don't really agree at all, the comparison kind of begs the question of how you escape this trap of dealing with deaccelerating retail segment, and also being a bit of a late mover to digital. So I was just kind of wondering, I mean, what do you guys think the answer to that is?

That's a great question. So we wake up today and we find ourselves with this great set of assets. We have some legacy businesses, obviously, the company was founded in retail and bricks-and- mortar retail general purpose reloadable prepaid cards, and Dan Henry set us on a transitional path to migrate most of that activity to DDA, traditional DDA accounts launched more progressive payment features on those accounts, including overdraft, those were all great moves for us. So that puts us in a framework with a bank to offer all sorts of different accounts solutions for partners or consumers. While we have this complicated, expensive infrastructure. And we are committed to bridging the divide. And so we have to make careful capital and operational expense choices about manage our P&L, which everyone on this call expects us to do, we don't have the privilege of losing 10s of millions of dollars every quarter like many of our competitors do, and they get celebrated for it, we don't have that privilege. So we manage our P&L. And, however, we have to invest in growth opportunities, like EWA, EWA is an amazingly spectacular opportunity for us, we're going to win that game, but we have to invest in it. And so our challenge is different than Western Unions in our -- in my view is that we successfully navigate that tension that I just described, we're going to emerge with market leading capabilities, highly differentiated, vertically integrated capabilities, that will have a huge cost advantage in the market. And we're taking the actions and we're undertaking the risk associated with executing that. We think some of the contemporary companies that you might be thinking of have not done that. We intend to do it, and we intend to do it successfully. And that's going to put us in a much better place in a year or two.

Next question will be from George Sutton from Craig-Hallum.

Yes, this is James on for George. Thanks for taking my questions. On the opportunity to sort of leverage your assets more collectively, and opportunity to rollouts with SMB products of some of the tax prep customers credit products they talked about. You mentioned they should roll out within 24 months, but can you maybe talk about which one of those opportunities you're prioritizing?

Yes, thanks, James. I'm going to take your question as another opportunity to make sure the rest of our audience appreciates what we're talking about here. So our tax as an TPG is not and will not be integrated into the platform, the technology platform that I've been making reference to. We have built and t's not quite but largely in place a separate, distinct technology capability with respect to our TPG business. That's a highly unique business, very specialized and so that investment has been made and is largely complete. So that's important to understand. It's also important to understand some of the things we alluded to in our prepared remarks, we use a number of other banks, we own a bank. But if I look at the list of our bank competitors there's three or four of them that we use for sponsorship for small dollar credit products for other things. And that needs to stop. So first step within TPG was to get this platform in place stable operating, and it ran successfully during the last year's tax season. Next step is to consolidate all TPG related activities onto our bank. And that's mostly a cost synergy activity. Then with these capabilities that will position us to issue SMB bank accounts that we made reference to, it will position us to issue permanent GO2bank accounts, to the people conducting refund transfers, where we cannot do that today efficiently. So in the ‘24 tax year, we expect to be able to do both of those things. But we have to get a few precedents completed, which most of those are done, but they're not quite done. So we need to round off our work in ‘23. And we'll be prepared to do those things we mentioned in our script in ‘24.

Great, sounds like a logical and track of opportunity, if that makes sense. And then on the B2B side, congrats on signing the new partner, I guess, have you seen any change in the market overall, compared to maybe 12 months ago, in terms of the level of interest for debit programs, or the embedded finance capabilities you're able to provide?

Have we seen any difference like in the market for those activities with the competitive market, was that your question?

I'm just thinking sort of a level of interest. And sort of –

Oh, from the demand side, okay.

Yes.

Understand, I didn't quite catch all of your question. I would say the demand, here's my characterization of it the demands constant. A little uneven in the sense of so there's a lot of interest from companies that have large customer networks, and embedding finance capabilities into those customer network solutions, the large interest of that, but there's a very uneven degree of sophistication with respect to the purchaser, if you get my meaning, right, the procure of the services, they might have a sophisticated kind of payments capability within their company, or they may not have that largely not. And so that unevenness complicates the selling cycle. Because there's a lot of education, a lot of information sharing that needs to happen. And then of course, there's an evolution of purchasing intent as that education happened. So a lot of demand and demand, just uneven with respect to sophistication. But I expect the demand will continue to increase.

Thank you. That concludes our question-and-answer session. Now we'll turn the call back over to Mr. George Gresham for closing remarks.

Thank you, operator. I just like to say in closing, I appreciate your high-quality questions today. I'm personally extremely excited about what we're doing here. As we mentioned in our prepared remarks, we operate into vast markets. We have highly differentiated assets, the thing that stands between us and really a transformative future at this company, it's executing some blocking and tackling activities. Complicated, yes, doable. Yes. So we're on that journey. I hope you all stick with us through it. I think the rewards will be there for all of us. And thank you for your interest. That's all operator.

Thank you. Call is now concluded. Thank you for attending today's presentation. You may now disconnect.