Hello, and welcome to the Green Dot Corp. First Quarter 2024 Conference Call. [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, Finance. Please go ahead.

Thank you, and good afternoon, everyone. Today, we are discussing the Green Dot's first quarter 2024 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, and thank you for joining our first quarter earnings call. I'd like to start by making some brief comments on our progress during the quarter before turning it over to Jess for a more detailed financial discussion. I will then make some closing comments, and we will open it up for your questions. First, there are no material developments to report since our fourth quarter earnings release regarding the proposed consent order received from the Federal Reserve Board. As we have previously disclosed, the matters addressed in the proposed consent order relate to activities and practices that commenced prior to the company's CEO transition in 2020. As I have mentioned many times, as an organization, risk management and compliance remain a top priority, and we continue making significant investments in our control functions to ensure that our business activities are performed in a safe and sound manner and in compliance with all applicable laws and regulations. We strive to be recognized as an industry leader in risk management and compliance which, in time, I believe, will be a competitive advantage. Turning to the quarter, we are off to a solid start for the year. While our results reflect ongoing headwinds from client de-conversions a year ago, they were generally in line with our expectations for the quarter, and we continue to expect improved momentum in the second half of the year. I continue to see progress on key initiatives we've mentioned on previous calls that are critical to ensuring we maximize the value of our assets and differentiators. I would like to briefly touch on a couple of these initiatives before handing it over to Jess to discuss our results in more detail. First, we are focused on driving efficiency and higher returns on capital. The team continues…

Thank you, George, and good afternoon, everyone. Non-GAAP revenue grew 9% year-over-year, primarily from continued growth in our B2B segment. Adjusted EBITDA of $59 million and non-GAAP EPS of $0.59 were both down year-over-year, largely from a combination of secular headwinds in retail, sunsetting of portfolios and de-converting partner programs last year as well as incurring incremental expenses associated with our ongoing investment in regulatory compliance initiatives, while benefiting from a reduction in processing expenses as a result of our processor conversion last year. Regarding our GAAP results, I want to point out 2 items. First, we incurred onetime charges of $12 million in the quarter due to ending our partnership agreement for our core banking system. This is different from the card management system that we implemented in 2023. We decided that developing a new core banking system was no long the mutual beneficial interest for us and the vendor that had been selected for this initiative. Second, as it relates to the proposed consent order that we disclosed earlier this year, the $20 million estimated liability that we accrued in 2023 remain unchanged until we receive additional information. Before I discuss our segments, I want to mention that our quarterly investor presentation now contains an appendix with incremental data on the channels that comprise our 3 reportable segments, including 3 years of quarterly revenue and metrics for each to helping with your modeling. We'll keep reporting on our 3 segments that you are familiar with, and I believe it's important to continue to provide transparency and insight about our business to help the market better understand our various go-to-market channels and outlooks. Turning to the segment results, I will focus on providing insight and details about how they performed and what factors influenced the quarter results rather than…

Thank you, Jess. Before taking your question, let me just provide some additional comments on our priorities and vision for 2024 and beyond. As Jess indicated, we are off to a solid start. And more importantly, we see a path to accelerating growth as we move through the second half of the year. The first quarter is our toughest quarter for year-over-year growth. Comparisons from this point on become more forgiving as we move past a number of lingering headwinds. More important is our operating momentum is beginning to improve as we launch new partners, existing partners gain traction and see growth and we continue driving efficiencies. While the headwinds from 2023 make it a bit harder to see the momentum in our results in the first half, as we lap those headwinds, our momentum will reveal itself more clearly in the second half of the year. Additionally, I believe our pipeline activity and investments in product and partner infrastructure provide us with a clear opportunity to build on that momentum in 2025 and beyond. We continue to build a culture of financial discipline with an eye on driving scale and maximizing our returns on capital. This is driven, in part, by improving the processes by which we allocate capital and measure the return on those decisions. It also includes ensuring our company has strong leadership to guide and drive those processes. As I mentioned on our year-end call, we recently appointed new executives to head up product development and human resources. And most recently, we welcomed Renata Caine as our new General Manager of Banking as a Service. Renata is a long-time payments veteran with substantial experience in payments and risk management, and I look forward to the contributions that she'll make to the team and to our growth…

[Operator Instructions] Your first question comes from Tim Switzer from KBW.

I had a follow-up on your comment about the regulatory expenses. You mentioned you're spending about $17 million more this year compared to last year. Not all of that will be in the run rate permanently. Could you maybe provide a little bit of color or like a breakdown on where your regulatory expenses or what they're going towards over the course of this year? And then maybe which of those are temporary -- or just temporary investment or some that will be more like spending over the long term?

Sure, Tim. Thanks for that question. First, the metric that you're referring to is a 2-year comparison, so take note of that. And the nature of those investments are focused in what we would think of as traditional oversight and compliance activities. So internal audit, the compliance department, BSA/AML capabilities both on the technology side, people side, et cetera. So they fall in those traditional categories. We've been focused on heightened investment in the first half of this year. And we think some of those activities that are more transitional will be in place, and therefore, you would see a kind of first half, second half and maybe this year, next year decline because of those transitional investments we're making. I'm not going to quantify that for you. I would just say that it's an important, not a minor element of the $17 million data point that you made reference to. And then I would just take the opportunity, of course, to note as the entire fintech/sponsored bank industry goes through heightened oversight from various regulators, it couldn't be more important at this time for us to make sure that we develop the capabilities to be leaders in this activity. I can certainly see a time in 2 or 3 years down the road where a key differentiator in the marketplace needs to be strong, steady, stable regulatory capabilities at the bank level in the fintech space, and we intend to be a leader with respect to that capability. So hopefully, I answered your question. But please, if I didn't, feel free to ask a follow-up.

Yes. No, that was really helpful. And the other question I had is your guide on the B2B segment, you talked about kind of generally consistent year-over-year growth for the full segment. But the BaaS segment, I believe, it seems like you grew a lot more than people were expecting this quarter. And I don't know if that's driven by growth of current partners or you maybe had some people come online a little bit quicker. But could you maybe talk about your growth expectations in the BaaS segment and the trajectory maybe of when some of your partners will be coming -- will be launching over the course of the year?

Thanks, Tim. This is Jess. Yes, the forecast for the year has come up a little bit relative to the call we had back in February. That is principally being powered by one of our largest BaaS partners. You would have seen this consistent trend over the past couple of years. But that's not the sole reason. We also have a program that we launched last year, Ceridian, which is ramping over the course of the back half of '23 and through '24, and we have other existing partners that are also growing. But by and large, the outsized performance is being driven principally by that single partner.

Your next question comes from George Sutton from Craig-Hallum.

It's James on for George. Can you talk a bit more about the decision to walk away from the core banking platform?

Thanks, James. This is George. Yes, well, let me tell you what I can tell you. When I joined a couple of years ago, there was 2 categories of technology investment that had been initiated. One had to do with what we call a card management system. That vendor was ACI. That technology was used in our processor conversion that we undertook last year. Distinct from that, we had a relationship with another vendor, Temenos, which was focused on the core banking system, and think about core banking systems as kind of traditional account bank type features, interest rate calculations, credit, small business, BDA accounts sorts of things. Now that investment, we have a tremendous amount of legacy investment in those capabilities in our technology stacks as they are currently. So that investment wasn't a cost saving focus in the context of our current capabilities. It's more of a longer-term play. And frankly, as we changed focus from the card management system to the core banking system, it became obvious to us that there might be a better way to approach solutioning those sorts of activities. And so we ended up working through that with our vendor, and that's where we ended up.

Got you. Because as I recall, I think one of the advantages of the new core banking was just the idea that you could build products once, used many times across various BaaS partners along with your own products. Does that sort of change going forward?

No. No, that has not changed. So again, I'm going to make distinctions beyond the card management processing environment that I just made reference to. So on top of that capability, which is, call it, baked processing, so rather transaction over a network, getting authorizations and the authorization back, et cetera, right, basic transaction processing stuff, think of that as what we did last year. Then on top of that, our product features are organized in a set of, what we'd call internally, stacks. So we have a contemporary BaaS stack, we have a legacy stack and we have other technologies associated with some of our businesses. And so the activity that we've been undertaking of which the processor conversion was important to is eliminating older legacy stacks, which the stacks have product features within them. And that activity, that investment is unchanged. We continue to do that and we'll continue to do that. In fact, some of our most significant investments this year are focused on that effort. So the question when we think about our product road map longer term and we think about small business offerings or credit offerings, et cetera, credit might be the better example. When we are poised to launch consumer credit across our platform down the road, not in a current period, but down the road, the question will be, should we then implement a core banking system that already has those account features built on a third-party basis? Or do we enhance our then consolidated stack? So the consolidation and simplification that you're asking about is underway and unimpacted by this decision. How we launch future products and features, that is impacted by this decision. However, we have plenty of runway ahead of us to make that decision in a timely, coordinated way. So the simplification work, I want to be very clear, is not impacted at all by this choice.

Makes sense. Last one for me. So as I interpreted it, and correct me if I'm wrong, but it sounds like you're raising the outlook for B2B growth, bringing Consumer down a bit. So given the margin differentials between those 2 segments, what gives you the confidence in sort of maintaining the full year EBITDA guide for the year?

Yes, you're correct in Consumer coming down a bit, B2B coming up. I think in Money Movement, slightly moved up as well. And then, of course, as we always do, we're managing expenses through the business. So within Corporate and Other, I think our forecast on costs have come down for a variety of efforts by the management team. So we still feel confident in achieving the $170 million to $180 million EBITDA guidance.

[Operator Instructions] Your next question comes from Cris Kennedy from William Blair.

Can you just talk broadly about some of the changes in the embedded finance market that have taken place over the last 18 months or so and talk about how Green Dot can position to take advantage of that?

Sure, Cris. Thanks for that question. Well, there's been an array of changes. They're not going to stop. This is -- although companies have been talking about embedded finance about for quite a long time now, nevertheless, it's been a relatively immature industry in the sense that there's a lot of idiosyncratic relationships and business models and contracts in the marketplace. So that, I think, is still the case. So layer into that, I would say, a regulatory-light type environment, and what I mean by that is the regulation that happens primarily focused on banks. And oftentimes, that regulation does not see through the bank to the fintech as not in the past. So that -- one is the embedded finance market is starting to mature in a sense -- not mature, it's got plenty of ways to go, but the practices, the pricing, the structures, the needs are maturing in the sense buyers are becoming somewhat more knowledgeable about the industry. And the product offerings for embedded finance are becoming more tailored and designed to these specific needs as opposed to taking some legacy account structure and trying to fit it into an embedded finance need as opposed to custom or tailored-built, scalable business models. So that's happened. And then the regulatory change that's underway right now is, at least as far as our view is concerned, I think it's well supported by market information, is the regulators are quite intent on looking through the bank to the fintech to the non-bank fintech. Since many, many of the activities that you traditionally think of being managed by a bank, BSA/AML, are oftentimes managed at the fintech, not at the bank. And so that is an early-stage change in the market, which we think will have significant impacts on the…

No, that's very clear. I appreciate that. And then just separately, acquisitions have always been part of Green Dot's strategy historically. What's your thoughts on M&A today?

Sure. In the short term, I would say, extremely cautious about M&A, I'd put it that way. I think our appetite, given the priorities we're currently managing to introduce additional complexity into our organization in the short term, our appetite for that is low. And obviously, I'm sure it's obvious, I hope it's obvious that we would consider our equity value to be out of market. We're trading at a significant discount, which doesn't put us in an advantaged place, in my view, to be aggressive on those fronts. So what we need to do is continue to execute on our platform consolidations, I touched on earlier, bringing new product to market, focus on embedded finance, small business and our own consumer offerings and make sure that we're exceptional with respect to regulatory compliance. And then down the road a bit, when we've stabilized those priorities, it will be time, I think, to consider acquisition. And so when that time comes, the areas that we are focused on longer term, I mentioned one earlier, consumer credit. We'll have a build versus buy decision to make around that. And we're very, very focused on small business type services and activities. And those are kind of the areas of investment around products and services that we would expect to be making, whether that's internally build those activities or acquire them in the market.

There are no further questions at this time. I would like to turn the conference back over to Mr. Gresham for any closing remarks.

Well, thank you, operator. And I want to thank our investors and analysts and the people interested in the Green Dot story. We are here trying to provide access to financial services to all the Americans that are excluded from that set of activities. We've been at that mission for 20-plus years. We're going to continue on that mission. And before I close, I want to take a particular moment to express my gratitude to my colleagues, friends and coworkers at Green Dot. They're extraordinarily dedicated and focused on that mission. They're great stewards for our investors and our customers. And they're doing a great job in getting us to where we need to be. So thank you very much to everyone, and talk to you next time. Bye-bye.

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