Good afternoon, and welcome to the Green Dot Corporation First Quarter 2023 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Timothy Willi, Senior Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Anne. Good afternoon, everyone. Today, we are discussing Green Dot's first quarter 2023 financial and operating results. Following our remarks, we'll open the call for your 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 refer 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.

Good afternoon, everyone, and thank you for joining the first quarter 2023 earnings call. Today, we will cover the following topics. We will review our first quarter results. I will address what we've accomplished and our upcoming milestones as we execute on our 2023 operating plan. We will then be joined by our Chief Revenue Officer, Chris Ruppel, who will share his perspective on growth opportunities and strategy as we put more energy and focus behind our business development efforts. Jess will then provide further details on our Q1 results and outlook on the rest of the year. And lastly, I will share some closing comments before opening it up to your questions. First, a few comments on our results. For the first quarter, our non-GAAP revenue was $412 million and was up 4% year-over-year. Adjusted EBITDA of $82.5 million was down 9%, and non-GAAP EPS of $0.99 per share was down approximately 7%. GAAP revenue was also up about 4% with operating income of $51 million and fully diluted earnings per share of $0.69 per share, both down about 1%. Our first quarter financial results were slightly better than expected at a core level, and I am pleased with how the year started. Jess will walk you through the quarter's results in more detail. Now let me turn to what we've accomplished as we work toward positioning the company for improved growth and profitability in the coming quarters and in 2024 and beyond. Let's start with our process of conversion. We've now completed 3 major conversions onto our new platform, moving us closer to completion, which we expect to achieve in the second quarter. Upon completion, we will begin realizing annual cost savings of approximately $35 million, which will begin ramping in mid-third quarter and delivered significant additional savings…

Thank you, George, and good afternoon, everyone. When George asked me to consider taking on this role, it was not a hard decision for me to make. There is tremendous opportunity at Green Dot as we leverage our unique go-to-market channels, our bank and our new technology platform to capitalize on the rise of embedded finance. My prior experience aligns with the opportunities and challenges we face today. I cofounded and built our PayCard business for almost 20 years and then was asked to run GO2bank where I worked with the team to set the stage for reacceleration of its growth and performance. In both roles, I've had to build cohesive team cultures that prioritize product development, optimize marketing and, in the case of PayCard, build a top-tier sales and business development engine. As we look forward, I believe it's largely a matter of aligning the various divisions, improving the prioritization and allocation of product development and marketing resources to capture the opportunities in the market. With the rise of embedded finance, it's important we take a cohesive approach to product, marketing and business development to make sure that we are fully leveraging our unique capabilities and position in the market. After spending time reviewing the broad organization and the marketplace, we're going to align our 6 operating divisions and organize our go-to-market strategy around 4 primary opportunities. The first opportunity is embedded finance where we'll have a tighter alignment between our traditional BaaS business and our Green Dot Network. The BaaS market is increasingly looking for sophisticated money movement services as well as the convenience the Green Dot Network offers consumers and small businesses. The second opportunity is focused on consumers for our traditional retail business and our direct channel, which is primarily GO2bank. We are creating a culture…

Thank you, Chris, and good afternoon, everyone. As George mentioned in his earlier comments, the quarter was a bit better than we had expected due in part to cost management, timing of marketing spend and extending the life of some of the trading partner portfolios. Now let's turn to the segments. In our Consumer segment, revenue was down 12% year-over-year driven in part by the nonrenewal of a program in retail and by a decline in accounts from the dynamics we have discussed in the past. Specifically, active accounts in our retail channel remain impacted by a change in consumer foot traffic patterns and more digital competition. The direct channel continues to be impacted by attrition in legacy brands as we invest solely in building our GO2bank brand. This dynamic continues to weigh on overall growth rates. The rate of decline in the direct deposit accounts has moderated notably on a year-over-year basis. I'd point this out because our direct deposit accounts are more highly engaged with higher volume and revenue than nondirect deposit accounts. To the extent that the decline in direct deposit accounts continues to moderate, it should help slow the rate of decline for the overall segment. Within this segment, the retail channel saw revenue decline in the mid-teens year-over-year from the nonrenewal of program and lower accounts. Now turning to the direct division and GO2bank. The direct channel continues to see improved performance, and we remain encouraged by the growth of GO2bank. Revenue in this channel, which was just over 30% of total segment revenue in the quarter, was down mid-single digits from the prior year versus double-digit declines in each quarter of 2022. While accounts were down in the mid-teens, revenue per account continued to grow due to improving engagement rates, particularly with GO2bank, and…

Thanks, Jess. In closing, we got off to a solid start for the year financially and operationally. We made clear tangible progress on our technology conversions and our efforts to reduce expenses. I'm happy with our progress, but there is still work to be done, and every employee at Green Dot is focused on accomplishing the goals that we have laid out for the year, and we are off to a solid start. At Green Dot, we are responsible for overseeing and protecting something worth caring for and preserving. We accept consumer deposits. We accept investor capital that allows us to fulfill our mission of providing people the power to bank seamlessly, affordably and with confidence. And we have 1,200 dedicated employees coming to work every day to fulfill that mission. This is why stewardship sits at the center of our values. Green Dot is a dynamic company that has and will continue to go through change. But we operate in vast markets with tremendous opportunities in front of us. If we keep our focus on our core value, while we execute along this journey, our customers, partners, investors and team members will prosper along the way. Thank you for your interest in Green Dot. And now let's open the line for your questions. Operator?

[Operator Instructions] The first question comes from Ramsey El-Assal with Barclays.

This is Shray on for Ramsey. My first question is, could you guys comment a bit more on the magnitude of macro pressure that's factored into your guide? Does the guide contemplate any further deterioration of macro? Or is it more of a steady state?

Yes, I think I'll take that one. This is Jess. I think Q1 was off to a solid start. So we haven't seen any substantial impact from a worsening economy. I think it's fair to say that if the economy were to worsen dramatically, there could be some pressure on things like interchange rates. We you could see higher interest rates above and beyond what the Fed just recently did. Of course, we would take cost management actions to offset some of those trends. We haven't factored in a worsened economy within our guidance specifically. But certainly, we would have opportunities to offset some of that as it progresses through the year.

Got it. Super helpful. And my follow-up is for Chris. So specifically in sales and the other revenue-generating parts of the business, organizationally, are you where you want to be to properly execute on the strategy you outlined?

So thanks for the question. In terms of when you say where we want to be, do you have something in mind specific to that viewpoint?

Yes. Just whether it's the roles or the go-to-market strategy, is everything in place for you to start executing on what you outlined earlier?

Sure. Thank you for the clarification. We are in a position to execute on our go-to-market. We've made some realignments internally, we have very strong teams and are working towards moving our strategies forward. I think as it relates to product development and our go-to-market motion, there are some elements that we're taking the team and putting building blocks in place to help bring discipline around the way we're executing. But the core fundamentals and the teams exist, and they're not blockers to our ability to execute.

The next question is from Joel Riechers of Truist.

This is Joel on for Andrew Jeffrey. I have a question for Chris on GO2bank. So we see companies like SoFi using high APYs to draw on $3 billion in deposits. Square started to drive spend on its 51 million Cash App MAUs for products like Cash Card. So I'm just kind of curious, what features or product enhancements could be added to GO2bank to drive monetization and engagement? And are there really any limitations on the types of products GO2bank can offer based on your guys' charter?

Thanks for the question. Just for reference today, we do have a high APY savings capability built into GO2bank today. And then there's a feature set that is geared towards, in what we call, path to credit, but it's credit improvement, which is a secured card product and other things to help our customers improve their credit scores. But there are additional road map items that we'll be building in over time that create cardholder value. We have areas today, as an example, where we have made continual improvements to our overdraft programs to provide a greater amount of liquidity for our customers with a reasonable approach that's financially sound. I think we'll continue to take that approach as we move forward. From a product development standpoint, I think over the long run, I don't believe that there'll be limitations in what we're able to achieve from a bank charter perspective. But like all things, we would need to consider the regulatory environment as we're moving forward in our product development and road map.

The next question is from Matthew Hurwit of Jefferies.

The first one is in B2B. GDV was up 63%, but actives declined due to the de-conversion, but that's a quarter-end number. And there's a new partner starting this quarter. So could you give a sense of what the puts and takes are in terms of GDV for these partners coming and going or where it might be this quarter just with those dynamics?

So it's Jess, I'll take that one. So with respect to this quarter, certainly, the de-conversion of the partners is impacting that active base. GDV is in part driven by continued growth of some of our existing BaaS partners. And then I would add that there are some particular BaaS partners who offer high-yield savings, and that has drawn a lot of growth in deposits into those programs. We do not pay for that high-yield savings on those accounts, but that is a reason why we'll see sort of an uptick in GDV despite some of these de-conversion activities.

Got you. Okay. And then in terms of the new reorg around the 4 opportunities you outlined, is that for reporting purposes or just sort of from an operating perspective? And then maybe, if it is in reporting, a mapping from the current reporting to that structure, if you could?

Sure. Chris, I'll jump in, before Chris talks about the impact of his reorg. But from a reporting standpoint, the main operating divisions are still intact. I think Chris is just reorganizing his group on how to best tackle the go-to-market strategy, how best to improve BD pipeline conversion, et cetera.

The next question is from Bob Napoli of William Blair.

This is Adib on for Bob Napoli. On the competitive environment for the direct channel and GO2bank, are you guys seeing a trend of more rational pricing from competitors on the customer acquisition front just given the tighter environment for venture-backed fintechs?

So this is Chris. I'll take that question. The information that we get, of course, is anecdotal, so I'll couch my comments with that. But we are seeing evidence in the market that there is some pullback in areas around the marketing budgets. We've seen some public reporting of that. Most of the neobank competitors have started to really pay more attention to path to profitability in their public statements and discussions around the business, and I think ultimately, that leads to better competitive forces as it relates to rational marketing spend and pricing and models in terms of their overall dynamics that require profitability. I think for us, in comparison, we have products and marketing budgets in which we're producing profitable cardholders and our acquiring customers at a level where we are generating solid returns on the marketing investments. So I think we'll continue along that path and with that discipline as we move forward and our belief that, that will, over the long run, yield the best results.

Great. And if I could ask a quick follow-up. Clearly, a lot of technology and cost-related initiatives are taking place and we'll likely see more benefit next year and beyond. But once the business starts returning to growth in '24 and further out, how should we kind of think about operating leverage within Green Dot longer term from an EBITDA margin perspective?

Thanks for that question. This is George. Obviously, we've been on a journey here to reorchestrate our ability to deliver products and services at a much more efficient level than we had been able to in the past. And that journey is about to pass an extraordinarily important milestone at the end of this quarter with the next few migrations onto our new processing platform. That migration, we've put some measures before you with respect to the implications of that from a financial perspective. We see a number of opportunities beyond that in order to create simplification in our business, to continue to migrate to a consolidated approach on technology solutions. Those efforts will continue into '24. So when we think about the business and the implications of that, we have scalable business that, on the marginal dollar of revenue, should generate meaningful marginal EBITDA returns. That is what we're building here. And I think we're well on that path. And I think we'll start to enjoy the benefit of that in 2024.

[Operator Instructions] The next question is from George Sutton with Craig-Hallum.

James on for George. Nice quarter. So a couple of questions on the B2B segment. You noted in the press release looking forward to onboarding some major partners later this year. So partners being plural, it sounds like you've got multiple new opportunities in the pipeline, in addition to just the big new partner being onboarded in this quarter. Could you help us get a sense of scale of these potential partners, sort of whether these are new customers coming to market for the first time or if there are potential competitive takeaways? And then it's great to see the quarter-over-quarter margin improvement. I think that's the first time we've seen that in a very long time. So I guess do you think that margin expansion can continue? And then I've got one follow-up.

Thanks, James. This is George again. On your first question, we have a pipeline that is becoming more healthy as Chris gets his executional elements in place. The BaaS partners we're making reference to, these are long-term onboarding initiatives, at least one of them we've talked about for some time. We expect that partner to go live midyear, but they will ramp relatively slowly. And then we'll bring on additional partners, at least an additional partner, in the back half of the year and, depending on how things play out, possibly a third. So we're happy with the way the pipeline is developing. But just keep in mind that they are complicated onboarding projects which will probably have a muted effect on 2023. And as far as kind of the source of the wind, in one case, it was a takeaway from essentially an in-source solution where the firm had put together a bank sponsor, a processor, other service elements, et cetera, moving to a vertically integrated solution that we provide uniquely in the market. And in the other case, it was a greenfield opportunity for the first time for the partner to offer embedded finance solutions to their customer base. So we're very excited about these opportunities as a proof point. I don't expect them to have a dramatic impact on our actual financial results this year. But obviously, it's great to be planting these seeds for our future success.

Great. And then anything on the margin expansion in the quarter, I mean do you think margins should continue to expand from here?

Yes, I'm sorry about that. I think as Jess said in his prepared comments, we expect to see some margin compression in Q2 and Q3, which will probably be the most challenging quarters for this year as we have these legacy accounts rolling off the platform, and we expect that to stabilize towards the end of the year.

Got you. And then, Chris, since you haven't gotten enough questions already, I guess, as you look at all the opportunities ahead of you at Green Dot, what excites you the most? Or what do you think could be the biggest potential value driver for Green Dot over the next 3 years?

This is Chris. Thank you for the question. I think as you look at the marketplace and our ability to both the addressable market that we can go after and our ability to execute, we're most excited about our continued success in the embedded finance space, an expanding opportunity in what we consider sort of the GDN or our Money Movement business and then, within PayCard, our ability to grow early wage access business, along with the payroll card business. And I think those are sort of near term and then medium term, the largest opportunities to go after that have the most significance for the business. And over the long run, I think as we're building our consumer business and as we're able to take our lessons from GO2bank and apply those into our other brands, the consumer business product feature sets and our ability to acquire customers and move that across the entire consumer channel, which includes our retail business, that will yield additional significant results, and that's over a longer-term view.

This concludes our question-and-answer session. I would like to turn the conference back over to George Gresham closing remarks.

Thank you, operator. Let me just offer my gratitude to the community that's following Green Dot. And in particular,, as we move through the second quarter, our colleagues and teammates at the company are really working hard to implement these migrations that were initiated maybe 2 years ago. And I want to express my personal gratitude to the teammates and colleagues and employees around the world at Green Dot for all their hard work and effort. It's recognized and appreciated. And I'd extend the same to our investors who are with us today and our Board members. So thank you very much, everybody, and I look forward to catching up with you soon.

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