Green Dot Corp (GDOT) CEO Steven Streit on Q3 2018 Results - Earnings Call Transcript

About: Green Dot Corporation (GDOT)
by: SA Transcripts

Call Start: 16:30 January 1, 0000 5:28 PM ET

Green Dot Corp (NYSE:GDOT)

Q3 2018 Earnings Conference Call

November 07, 2018, 16:30 ET


Steven Streit - Founder, President, CEO & Director

Dara Dierks - IR

Mark Shifke - CFO


Andrew Schmidt - Citigroup

Bradley Berning - Craig-Hallum Capital Group

Andrew Jeffrey - SunTrust Robinson Humphrey

Joseph Vafi - Loop Capital Markets

Robert Napoli - William Blair & Company


Good day, and welcome to the Green Dot Corporation Third Quarter 2018 Earnings Conference Call. Please note that the contents of this call are being recorded. I would now like to turn the conference over to Dara Dierks. Please go ahead.

Dara Dierks

Thank you, and good afternoon, everyone. On today's call, we'll discuss the third quarter 2018 performance and talk 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 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 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'll 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 the property of the Green Dot Corporation and is subject to copyright protection.

Now I'd like to turn the call over to Steve.

Steven Streit

Thank you, Dara, and welcome, everyone, to the Green Dot Corporation Q3 2018 Earnings Call. Today, we'll start with a review of yet another outstanding quarter of performance, where our business momentum and financial results exceeded our already high expectations. I'll then provide an update on how we've been executing on our 2018 Six-Step Plan, which will be followed by Mark's overview of our quarterly results, including yet another upward revision to our outlook on how we expect the rest of the year to play out. As evidenced by our ongoing operating and financial results, we believe Green Dot's products and platform strategy is in the right place at the right time.

Q3 total consolidated operating revenue grew by 14% to $231 million, and we note that this growth is 100% organic and quite robust, especially given the tougher year-over-year comp as Q3 last year was very strong.

Adjusted EBITDA for the quarter was $45 million on a consolidated basis, representing a year-over-year growth rate of 33%. The inherent leverage in our operating model was notable, with very strong margin expansion of 280 basis points on a year-over-year basis, with this impressive profitably achieved despite the material increase in spending in the quarter associated with new programs, new technologies and infrastructure and more robust spending across the organization, especially in the areas of bank management, risk management, compliance, audit, and other control and governance parts of the company.

Consolidated non-GAAP EPS for the quarter was $0.59, representing a year-over-year growth rate of 74%, marking the ninth consecutive quarter in which we have posted double-digit or better year-over-year growth in non-GAAP EPS.

As Founder and CEO, I'm so proud to announce these results, and that even more proud, humbled in fact, to know that these results had derived from the coordinated efforts of so many Green Dot people across the United States, the Philippines and at our Shanghai Technology Development Center, all coming together to deliver this outperformance.

Given the size of our partnerships, the fast-moving evolution of payments and financial technology and the highly regulated nature of our business, Green Dot can be a complex organization to run. But our team sure makes it looks easy. And since our big annual Thanksgiving luncheon is tomorrow, at our Pasadena headquarter, I'm looking forward to breaking bread with you altogether and sharing my appreciation to give you my thanks to you all in person.

Now let me take a second to step back and share how management thinks of our company and its future prospects. Green Dot has a long-term strategic plan to be a leader in two distinct go-to-market verticals that bodes to a very large total addressable markets. First, we want to be the leading bank of tomorrow, a 0 branch yet solid-state always available consumer technology centric bank with awesome products that delight customers and get the job done.

The core of this market segment is 18 to 44 years of age. Generation is generally known as millennials, and Gen Zers and it makes up a good 100 million plus Americans who aren't afraid to try new apps and often use more than one bank account. To appeal to this segment, our bank account products need to increasingly look and act like an app that no by the way it comes with a debit card and less like a debit card, they know by the way, it comes with an app. This means that we need to be a serious bank with serious technology chops and app designers who live the lifestyle and can build apps that compete with the best of the best.

Second, we want Baas to be the most unique, most feature-rich, most industrial-strength and most versatile bank tech platform available, such that it's a hand down default go-to-solution for the many large enterprises that themselves want to provide modern financial solutions for their customer segments. When a large enterprise decide that they want to create a highly customized and seamlessly integrated bank-like product for their customer base, we want them to automatically think Green Dot BaaS, who else would you choose? We believe Green Dot's BaaS platform has established itself as the platform of choice for anyone serious. And our business development pipeline of new Banking-as-a-Service platform partnerships is extremely robust and well ahead of our expectations.

Based on the size and scale of these potential partnerships, we believe our BaaS platform alone has the potential to drive consolidated double-digit revenue growth for Green Dot several years into the future. We believe the TAM for our Banking-as-a-Service product line is as big as the customer bases of all our current and future BaaS partners in aggregate. So perhaps it's fair to say that anyone over 18 that uses technology could at some point come in contact with the banking product that's provided by Green Dot.

The most recent Federal Reserve study takes a number of Americans who hold a bank account at 92% of the U.S. adult population. Of course, the total addressable market for our own branded banking products that I mentioned earlier, is a subset of the BaaS total addressable market, but in any event, we believe that whether it's our own products that we market directly to potential customers or products created by the partners of our BaaS platform, that they then market to their customers. It's fair to say that Green Dot's products and services are financial staples of the types almost everyone needs and uses every day. Our goal is to increase our penetration there in and grow accordingly. In our Account Services segment, total revenue increased by 14% to $194 million, with a seventh consecutive quarter of active card growth of 3%, now to 5.4 million active accounts. While the number of active accounts receiving direct deposit grew by 13% year-over-year.

To put this into perspective, looking back to Q3 2016, in the last 2 years, Green Dot has added 1.3 million new active accounts and added 1.1 million direct deposit active accounts, a two year growth rate of 33% in actives and 114% in direct deposit actives over the previous 2Q, 3 periods, a quarter that is typically our seasonally softest quarter. While active account growth, and more specifically the direct deposit mix have been important drivers of our results, the account usage and engagement metrics illustrate how integral Green Dot products are in our customer's lives.

For example, total GDV in the quarter was up 18% to nearly $9.1 billion, marking the seventh quarter in a row with double-digit GDV growth, with more than 70% of that coming in through direct deposit. Our Processing and Settlement Services segment continues to build in its growth momentum, achieving another record-setting results in the quarter. Revenue in the segment grew 13% to $44 million, driven by increasing transaction counts and cash transfers and SimplyPaid corporate disbursements. Now I'd like to share some recent business updates, and then I'll share the status of our Six-Step Plan.

Let's start with new business updates of note in our Banking-as-a-Service business line, or BaaS. First, you may have seen the headlines a few weeks ago about a new partnership with PayPal and Walmart, whereby PayPal customers can opt to receive a barcode to their mobile phone and then redeem that code at any Walmart store to receive cash off your PayPal account. We're proud to let you know that this is a Green Dot BaaS-powered program, with both Walmart using our platform to facilitate the transaction on the store side and PayPal using our platform to generate the barcode to the PayPal customer's cell phone on the web mobile side.

Green Dot's BaaS platform facilitates the connection between the retail point-of-sale and mobile barcode technology, handles customer service and processes and settles the crediting and debiting of funds for all the parties involved in the transaction. There are many parts to a complex program like this, but we think it's a great example of the seemingly endless variety of products and services that great companies like Walmart and PayPal can create with our unique and highly versatile BaaS platform.

Next, during the Money20/20 Conference a few weeks back in Las Vegas, TaxSlayer announced their new TaxSlayer Prepaid Visa Card, built upon and managed by Green Dot's Banking-as-a-Service platform. This new product is integrated into the TaxSlayer online tax preparation service and will be available to customers in this coming tax season. We thank TaxSlayer for their trust and partnership and believe the program will be highly successful for them. Also at Money20/20, Stash, the BaaS-powered super modern debit account that's integrated into the Stash money invest app, made its first prelaunch debut at a special press function that Stash hosted at the conference.

It's quite a product, and the app designers at Stash seemingly used just about every ounce of our platform and is growing library of restful APIs to create a debit account product that integrate seamlessly into the Stash experience. I was able to demo the app over dinner with the Stash management team, and I got to say, the user platform to create an amazing customer experience.

As Stash announced at the press event in Las Vegas, they've already signed up 80,000 fully-funded customers. At that point, we'll be first in line to get the new Stash debit account, when it's released to the public later this month. Meanwhile, other previously announced BaaS programs continue to grow nicely, and add new features and functionality from new product variations in some programs through rewards and new types of enrollment incentives on others. The point is that the platform affected BaaS with new partners launching new programs and existing partners expanding existing programs is expected to help drive compounding growth in our business over time.

While still early days, with much infrastructural work still to be done to ensure our platform can stay ahead of all that potential growth, as a highly regulated financial institution and as a key technology provider to many of America's largest companies, we believe Green Dot's BaaS platform has already become the go-to-solution for serious high-scaled partners, and we believe is already on its way to becoming the FinTech engine that powers how digital natives will increasingly consume core banking services with a click or tap or the download of an app. In addition to all the positive business developments on our BaaS platform, Green Dot continues to have robust business development in our other revenue divisions across the company as well.

Highlights include the ongoing expansion of our industry-leading Green Dot RapidPay PayCard product, where we won the PayCard contracts with another 177 corporate clients in just Q3 alone, and over 500 new contracts year-to-date. RapidPay is known as a high-touch partner-driven company that provides PayCard services to the employees of great corporate partners like Nordstrom's, Crate and Barrel, IKEA and more than 3,000 other companies across America that rely on Green Dot RapidPay for PayCard and other worker disbursement solutions.

I'm also pleased to let you know that Green Dot's heritage retail distribution channel continues to go after all these years, both at new retail stores selling our products and new products being sold in those retail stores. First, we're proud to welcome Giant Eagle, Price Chopper and QuickChek to our list of major name retail stores that sell Green Dot products and services. In all, this represents expansion of around 500 new retail locations for us, bringing our total retail channel distribution count to approximately 100,000 retail locations from coast-to-coast plus Alaska, Hawaii and Puerto Rico. Next, I'm happy to announce that our highly regarded and award-winning mobile app-centric checking account, GoBank, went on sale in Q3 at more than 12,000 retail stores, including CBS and 7-Eleven, with a total of 48,000 Green Dot retailers contracted to begin selling GoBank by the end of the year. This is the first expansion of GoBank in the retail channel since the product was first launched in Walmart four years ago.

Lastly, we added significant incremental placement for our products at Rite Aid stores nationwide, where we also extended our agreement for another 2 years, and Fred's, where we earned significantly more shelf space for the Green Dot brand across their chain of stores. Now let me review how we're performing against our 2018 Six-Step Plan. Step 1 is to continue to grow the number of active accounts year-over-year and to improve the unit economics on those accounts. Total active accounts have grown 12% year-to-date compared to the same period last year and more interesting perhaps on the total number of active accounts is the number of active accounts that receive direct deposit, which grew by 13% in the quarter, with 230,000 more accounts receiving direct deposit this Q3 than in the prior year period, with a very strong growth in GDV spend and revenue per active account compared to 2017.

So we are on track with step 1 and feel like our future prospects for further growth in both actives and the quality of those actives are very strong. Step 2 is the launch of new and compelling use case for the new MoneyPak, and to continue to increase the number of retail stores selling MoneyPak. Both unit sales and the number of stores selling MoneyPak continues to grow, with the total number of retailers now selling MoneyPak in nearly 80,000 stores. We continue to refine the use case, although this will be most likely a 2019 launch, as we've decided to redesign the product to position it for a larger and broader based TAM.

Step 3 is about continuing to invest prudently for future growth. I think we've done a disciplined job here, with significant incremental allocations of capital being deployed to invest in the potential opportunities of tomorrow, including the continuing build out of solid risk management and operational people, processes and technologies, to ensure we can amply handle those opportunities. As a revenue growth and margin performance shows, we believe we have invested in the right things thus far, and intend to continue investing in the right parts of the business, with the goal of generating controlled growth and acceptable return expectations in 2019 and beyond. So I believe it's fair to say, we are on track with step 3.

Step 4 is about continuing to drive increasing efficiencies across our consolidated operating platform, so that absent more compelling investments, we can continue to drive margin expansion as part of our standard operating rhythm. We're proud of our track record here, and we intend to do more. The goal is and so much to save money that drops to the bottom line, although that certainly always a good thing, and much of our savings has, in fact, done that. But the bigger goal is to reallocate spending away from lower value areas of the company, so that we can have the option to spend much more on higher value areas of the company.

We think we have the opportunity to save millions of more over time in areas like customer care, loss management, processing, and other traditional areas of big spend that could be reimagined to be more robust and get more cost-efficient than they are today. Of course, innovations require targeted investments to successfully bring them to market, but we believe these investments to be more than offset over time by the results in cost savings and improved customer satisfaction. We feel good about how things are developing here, and so we'll check the box on this step 4.

Step 5 and 6 are about the smart and accretive allocation of capital to enhance shareholder value over time. We continue to review acquisition opportunity, share buybacks and other uses of cash, that management and the board feel are accretive, strategic, and of course, subject to regulatory approval. While we have nothing new to disclose on today's call, we feel good about our growing cash position and the optionality it creates to roll out large Baas programs, return to buying our own stock or consider acquisitions.

So in summary, [indiscernible] very pleased with this quarter's report and feel very good not just about the strong double-digit organic growth in 2018 thus far, but also about the opportunities before us that we believe put us in a great position to deliver another year of organic top and bottom line growth in 2019 as well. We greatly appreciate your partnership and confidence in Green Dot.

And with that, I'll now hand the call over to Mark Shifke for his CFO report. Mark?

Mark Shifke

Thanks, Steve. The continuing strong momentum in both the Account Services and Processing and Settlement segments combined once again to deliver truly outstanding results for the quarter. GAAP total operating revenue was $231 million, representing 14% year-over-year consolidated growth all of it organic, despite lapping record-breaking third quarter revenue in 2017.

This was the sixth consecutive quarter of double-digit year-over-year organic revenue growth, a trend we expect to continue into the fourth quarter. Q3 adjusted EBITDA of $45 million represents a year-over-year consolidated growth rate of 33%, with the adjusted EBITDA margin in the quarter coming in at 19.6%. As Steve noted earlier, the strong year-over-year margin expansion of 280 basis points was achieved despite ongoing investments into BaaS growth initiatives and corporate infrastructure. This performance is a result of improving margin flow-through at some of our new BaaS programs and the continuing trend of dramatically improving margins on our established product lines, on top of an increasingly efficient, high-scale operating platform.

Non-GAAP EPS came in at $0.59 per share, up 74% year-over-year. This is the ninth consecutive quarter of double-digit or better non-GAAP EPS growth. We believe this extreme level of growth is even more notable because we have been in a period of heightened investments to support the buildout of our BaaS platform, and many associated technology and governance projects, along with the associated incremental non-capitalized expenses that go along with that kind of buildout. The outperformance on non-GAAP EPS was primarily driven by better-than-expected adjusted EBITDA, combined with strong interest income from the investment of cash deposits, held at Green Dot Bank and a lower year-over-year effective tax rate. Green Dot once again generated excellent cash flow from operations, with $214 million of cash from operations through the first 9 months of 2018 or a 31% year-over-year increase.

We ended Q3 with $162 million of unencumbered cash on our balance sheet or approximately $106 million more than Q3 of last year. I would like to point out an accounting item in our GAAP earnings presentation this quarter, that could benefit from some additional commentary. You will notice that GAAP net income and GAAP diluted EPS are down 66% and 69% in the period, respectively, while adjusted EBITDA and non-GAAP EPS are up 33% and 74%, respectively. The two principal reasons for the difference in our GAAP and non-GAAP measures are first, we agreed to pay $13.5 million to the sellers of TPG, as the final and only earnout payment under the 2014 acquisition agreement. Consistent with GAAP, this earnout payment is reflected as a component of other G&A on our Q3 consolidated income statement.

Second, we accelerated $4.2 million of stock-based compensation associated with the retirement eligible employees, pursuant to our recently adopted retirement policy, which is also accounted for under GAAP as an operating expense. Speaking of accounting, as we discussed previously, starting in 2019, we will begin using a new presentation for non-GAAP revenue, which we believe better reflects the economics of Green Dot's business and more closely conforms to how banking institutions treat interest income on customer deposits. As a reminder, the new non-GAAP revenue presentation format will include net interest income generated at Green Dot Bank from the investment of customer deposits, and will be reduced by commissions and certain processing-related costs associated with certain BaaS partner programs, where the partner and now Green Dot controls customer acquisition.

So that you can be better prepared for how to think about our non-GAAP revenue under that new presentation, our Q3 non-GAAP revenue result would have been $227 million, including $5.7 million of interest income this quarter, offset by $9.2 million of processing costs and commissions. Now diving into the segments. The Account Services segment delivered GAAP revenue of approximately $194 million, representing organic year-over-year growth of 14%. We are seeing strong organic momentum across practically all of our various revenue divisions and product lines, with GDV growth of 18% and purchase volume growth of 13%, coming equally from both new and established product lines.

Our Processing and Settlement Services segment generated approximately $44 million in GAAP revenue, equating to more than a 13% year-over-year increase. The strong results were driven by organic growth in all the segment's various product lines, including cash transfers and SimplyPaid worker disbursements. Now turning to our updated guidance for the full year 2018. We are very pleased with both our results and the underlying strategies and initiatives driving those results. And as such, this strong performance enables us to once again raise both top and bottom line full year guidance for the remainder of the year.

First, let's talk about full year revenue guidance. We overperformed our revenue expectations in Q3 by approximately $8.5 million. Based on the strong business trends we experienced in Q3, continuing into October, we are raising our current full year guidance by $13 million at the midpoint, which incorporates the $8.5 million of Q3 outperformance as well as an additional $4.5 million of upside, we now expect for Q4 when compared to the guidance we provided in August

As such, we now expect 2018 GAAP revenue to be between $1.38 billion to $1.42 billion, which at the midpoint, reflects a $13 million increase from our prior guidance range of $1.22 billion to $1.32 billion. We are now projecting consolidated year-over-year organic revenue growth of 17% at the midpoint. Now let's talk about our adjusted EBITDA guidance. We overperformed our adjusted EBITDA expectations in Q3 by about $7 million. On top of that, we would expect another approximately $1.5 million of adjusted EBITDA to flow-through from the incremental $4.5 million of higher revenue we are now forecasting for Q4. So together, this means we would be adding another $1.5 million to our previous implied Q4 expectation to around $46 million in adjusted EBITDA, and the full year forecast would be $8.5 million higher than our previous full year guidance range of $244 million to $248 million.

However, considering the robust pipeline of new opportunities across the company, including the development of new BaaS programs and enhancements to existing programs, plus the new hires and new systems investments we are making to grow and improve vitally important control areas of the company, like risk management, compliance, AML and BSA programs, InfoSec, and other areas that enable our growth to take place on a platform that intends to expand to become more robust in advance of that new business growth, we are not going to add the full $8.5 million of expected incremental adjusted EBITDA to our full year guidance range. Instead, we are planning to reinvest approximately $5.5 million of the $8.5 million of adjusted EBITDA upside, which means we will be raising our annual EBITDA expectations by $3 million at the midpoint. As such, our revised full year adjusted EBITDA guidance range is now $247 million to $251 million, equating to a year-over-year projected growth rate of between 20% and 22%.

At the midpoint of $249 million, this revised guidance implies adjusted EBITDA margins are expected to expand on a year-over-year basis by approximately 83 basis points for the full year. We now expect our non-GAAP EPS to be in a range of $3.18 to $3.22 per share, equating to a year-over-year growth of 48% at the midpoint, and about a $0.35 per share increase to the midpoint of our original annual guidance range of $2.81 to $2.88. Our non-GAAP EPS forecast assumes a tax rate of approximately 23.5%, a fully diluted share count of 54.6 million shares, net interest income of $90 million, and depreciation and amortization of $40 million.

And with that, I would like to ask the operator to open the phone for questions. Operator?

Question-and-Answer Session


[Operator Instructions]. And our first question comes from Bob Napoli of William Blair.

Robert Napoli

And one, I would like to understand, the business is changing so rapidly. I mean, it does - the revenue was up, I think, 14% organic revenue growth, but the cards were up 3%, so the revenue per card is up pretty materially. I was just trying to understand, what we should expect as we think forward to 2019, '20? And I think Steve you suggested that the pipeline of BaaS' suggest double-digit organic growth for years to come, if I heard that correct?

Steven Streit

I think it - what we said is it has the potential to it. Of course, it depends how that pipeline materializes. But the pipeline is pretty robust and the platform, in fact, has the opportunity to do that. But let me comment on the active card number, because it is goofy. And we knew it stand out. It certainly stood out with us. So we guide mid to single digits, as you know, which most people take as 5. And if you think about the 3 months that make up the quarter, we were that or better. We were about 7% or 8% in July, 7% or 8% in August. And then September fell out of bed, and was like 2% or something. And that's why the average is where it is. So we actually went back and looked to narrow some year-over-year comp issues in September discreetly as it related to the natural disasters that happened last year and a large number of cards that we sold related to Disaster Relief and FEMA funds and other things that go into cards for that purpose. So it was just a wacky comp, if you will, but not indicative of anything related to the business. And in fact, for Q4, we think it will be a 5% or above based on how we're tracking in October.

So it is a strange number, and we knew it would stand out and so I'm glad you asked the question because it allowed me to explain it. But not anything we should focus on. Absence September, it would have been that same 5%, 6%, 7% average growth. So that's 1. But you made a very good point that it is changing. We sell fewer one-and-done, for lack of a better words, or nonreloadable as a phrase we use, and not when it done, it's a wrong phrase because we may use it several times, but nonreloadable versus reloadable. The percentage of people who acquire our accounts now are far more likely to reload and when they reload, they're far more likely to do it through electronic means, meaning direct deposit. And that does mean more revenue per card. That is real, and is a trend we see continuing. It has been there for a very, very long time, at least 1.5 or 2 years. And we see that opportunity continue. So we don't see anything slowing down with that, but we do think that, over time, in the absence of new products, which we certainly have a slate of new products we'll roll out, which we think will be compelling and attract customers and new BaaS programs that we think will continue to attract customers and then new programs that will attract new customers. We think the opportunity for active card growth that will continue there as it has been. But don't be distracted. And I'm really glad you asked it, to other investors listening, the 3% number is a little goofy, and I wouldn't put much into it, except for that September comp.


Our next question comes from Andrew Jeffrey of SunTrust.

Andrew Jeffrey

Nice to see the momentum in your business. Mark, I think you made the comment, we may have been used to - correct me, if I'm wrong, but about the BaaS business alone being able to support 10% organic revenue growth. And I know better than to ask you to quantify BaaS, as you're not going to. But I wonder if you can frame that up. Is that an aspirational goal? Is that something that we should think about from '19 in the context of your goal to support 10% revenue growth? What are you trying to communicate, I guess with that?

Steven Streit

Well, when you look at BaaS and you think - first of all, as a company, as I mentioned in the prepared remarks, I think Mark did in his script too, that we certainly have our goal as we have for a long time to have 10% or better growth year-over-year on top and bottom line. We've done that handily last few years and we want to do it again in 2019, and so we're certainly setting ourselves up to do that. We're not guiding the year. I don't want to say that, but clearly, it's no secret that our goal is to continue to do that. And my comment of BaaS is when you look at just the pipeline of opportunities, it doesn't mean we'll close them all and it doesn't mean when we close them that the BaaS part will be successful and hitting it at the park every - as you know, every partner does their own marketing and they're responsible for selling it to their constituency, right? But when I see the quality of the pipeline and the numbers of customers in aggregate that pipeline represents, you can see this platform effect happening, where you have 2 components. One is the existing group of BaaS partners, all the ones you know, whether it's Apple or Intuit and Uber and the rest, all developing plans to issue more products to their customer bases and as the products mature, more people get them and generate more revenue from those products. As you know, portfolios at age two better than those that are young. And then we see new programs coming on with de novo programs that will generate growth by themselves. A good example of that is Stash, that as I mentioned, as a few weeks ago at the Money20/20 conference already had about 80,000 customers signed up and funded before the product is even available. And there's others like that. So I think the answer is if you were to look at the pipeline and assume we close a percentage of that pipeline and then the size of the customer bases at each of those companies believes that they could penetrate with the product, it could generate enough revenue to grow us 10%. So that's what the comment mean. But I want to be clear no way are we saying that we closed them all, that we're going to close them all, but it is a comment and the reason we put it in there. It is a comment to the size of BaaS and the opportunity that we're seeing with this platform effect of existing programs growing and new program starting growth from scratch. And then unrelated to BaaS, of course, we have our own legacy products and established business lines, which are no [indiscernible]. I mean, those are doing very well and continue to grow. So we feel pretty good about the future prospects and that's what I was trying to relay. Does that make sense?

Andrew Jeffrey

Yes, it does. I appreciate the clarification or the elaboration. Maybe I could dig in just a little more as a follow-up. You talk about continued growth in the installed base of BaaS customers. I think Intuit I know has a seasonal aspect to it, but maybe Uber, as an example, reference customer, can you just characterize the rate of growth in the installed base? It is - has it remained relatively constant? Has it accelerated? Has it decelerated. Just trying to parse a little bit more the growth drivers.

Steven Streit

So the - yes, the answer is, let me think about how to help you with this and others listening. So absent the seasonal aspects of those programs that are highly seasonal, we know those are the tax programs, more next year with TaxSlayer that we announced and others. So absent the seasonal run, the answer is the BaaS platform grows, because the nonseasonal components, if you will, the Uber, the retained portion of Intuit customers who use the card for beyond just the disbursement, the Walmart MoneyCard [indiscernible] what else is on there. The Apple program although Apple is not including in active cards. Those are all growing in and of themself as well. The growth is somewhat hard to isolate because you do have this massive influx of accounts in Q1 and Q2 related to the tax business. So that does kind of make it a little bit harder for an analyst to maybe pull it out. But the answer is absent those seasonality - seasonally heavy programs, yes, it's growing. And the legacy side is growing. So we feel really good about all of it. And then we have a slate of new products next year on our own side. In other words, I'll tell you what I think was an interesting story, but I love meeting with our partners and our clients.

And when I saw the job BaaS - Stash did with our own platform, I said to our product designer, I said, this is a case of the cowboys kids having those shoes. It's our platform and our APIs and our technology and our people and the Stash product is so much more beautiful than anything we have had at Green Dot under our brand name to be honest with you. And Uber product is amazing as well. And it's interesting because it's all Green Dot, but it shows you how we all learn from each other and this all kind of drives the ambition on the quality higher. But we have our own products that we're using that also consume our own BaaS platform. In other words, we alone use our same stuff. And we have our own new products that we'll roll out, and we think we'll generate more consumer interest, just like we have 2 years ago when we brought all the rewards products. So there's a lot of activity happening there and we feel really good about all of that.


Our next question comes from Andrew Schmidt of Citi.

Andrew Schmidt

So I hate to beat a dead horse, but in the context of the double-digit organic revenue growth in 2019, that commentary, I guess if you could just drill down a little bit more and talk about how the drivers in 2019 might be different from 2018, especially since you're coming off a pretty strong growth in '18? And I guess just a definitional question, when you talk about double-digit growth, that would assume the new operating revenue definition, which includes a benefit from interest income?

Steven Streit

That's a fair point. And because this statement is general, I don't think I've gone through the generality of netting out what programs would be double-digit absent the accounting treatment and so forth. But if you think about our midpoint, which is 1 0 4 2 - is that the new midpoint of revenue?

Mark Shifke


Steven Streit

0 4 0. Mark, by the way, I hope you all notice this. When Mark was reading a script, we tried to throw ice water on him. But he said 1 4 2 0, but I think you all know he met 1 0 4 0, not 1 4 0. Anyhow I think you all - well, I get to see the transcripts tomorrow. Green Dot raises revenue by - anyhow, so but when you think of that midpoint, and you think of 10% on top of that, right, so 10% on top of 1 0 4 0, we think we can achieve that based on the natural momentum of our portfolios. And you can see how the momentum goes. As portfolios age, people more money on them. You get more GDV which means more spend. More spend means more interchange. Those programs that have a monthly subscription fee pay those subscription fees and on and on and on, and as they retain longer and put more money on, we make more revenue which is how we've been growing for some time.

So you're going to have new accounts, but we actually make much more money on the established accounts as they age and use them more heavily. So we'll get this natural momentum of those accounts, and then our other businesses that are not about active accounts, things like our Money Transfer business, which has been very healthy and new programs like we talked about with - of Walmart and PayPal and our SimplyPaid platform. Our PayCard business, which I decided to highlight this quarter, I don't normally. And shame on me for not because it's a wonderful business, and Chris Ruppel and his team at RapidPay do a fabulous job of growing that business. And all these things come together. Beyond just our established card business, if you will. And so when you look at the natural trajectory of those, plus new deals that we expect to sign, plus deals that we've already signed that are rolling out, like let's say a Stash or the PayPal-Walmart deal, all this comes together to generate that extra $100 million plus, that we think we need to get to a 10% top line growth and something similar or better on the bottom line as a percentage. So that's the simple math of how we do it. And when you see just the actives and the programs for next year, that's how it comes together, so it's fairly straightforward.

Andrew Schmidt

Got it. That's good context. And then if we think about the Banking-as-a-Service platform, you have your existing set of products, but there's also a component in terms of growth that involves adding new use cases and things like that. I'm sure you have a roadmap for capabilities you can support. I guess when you think about just the vast roadmap, what sort of things or use cases do you envision that's incremental relative to today?

Steven Streit

Well, gosh, let's think how I'll answer this without saying things I shouldn't. So for those of you who are technology centric, the way a platform works is you have what's called a library of APIs or "Restful" capital R-e-s-t-f-u-l, in small letters, APIs, that allow a developer to come in and take a software development kit or an owner's manual for lack of a better word or an instruction manual like when you're building a piece of IKEA furniture but hopefully ours is easier. I always have parts left over. But that they can come in and use our APIs and say, "Oh, gosh. I want to add this free ATM network. Okay, I'll enable that API. Oh, I want to do rewards. Okay I'll utilize that API." And invariably, when you have a big program partner with us, they will have requests for things that we don't do. It's just as old as the hills in terms of how these businesses work, and they'll say, "Gosh, we love the 14 APIs you have, but we want to do a thing where a guy goes up to a Burger King and does this and then that happens and then something else happens." And you end up building a custom API for that program, that then becomes a permanent part of that API library. So with each partner, you expand your capabilities and as those capabilities expand, we can use them for other things or other partners can do it for other things. It's not at all uncommon that an existing BaaS partner will hear through an earnings call or through a press release or they'll try another product made by another Green Dot partner and they'll say, "Hey! I didn't know you could do that. Can we do that on ours too?" And their account rep will come in and say, "Hey, such and so would like to add rewards. They want to add this or that or they want to use the Walgreens ATM network," whatever it might be. So this is how it sort of plays out. And then what we do as product designers inside Green Dot, and I'm frankly still part of that after all these years. I enjoy it, and it's something that I'm decent at doing with our team. So we say, "Well, look. What are the needs in the market? What can we build under the Green Dot or GoBank or Walmart brand names that we can use to expand that customer base, make it more compelling for our existing customers and then draw new customers in? And so it's a constant. It's like painting the Golden Gate Bridge. You're never done. You're just at a certain point of the bridge and then you go back and start all over again. And that's the way it is with consumer product development.

You can never look stale or be complacent with the features and the functionality. But the platform of having so many talented product designers from so many fabulous companies, small and large, who are innovative, drives us to do better things and we think we're going to continue to have some of the coolest products that are out there. And I want to say this because it's so important as to who we are and to have them out there in a manner that's safe and consistent with the fact that Green Dot, at the end of day, is a bank holding company that has tremendous obligations that we take very seriously in the areas of risk management and BSA and AML protective measures and all the various compliance tools that we follow as a regulated bank and we try to do a really great job of that. So you're always building ahead of your growth to make sure that you don't outgrow or outstrip your foundation.


Our next question comes from Brad Berning of Craig-Hallum Capital Group.

Bradley Berning

To follow up on the partnership opportunities. One thing I think would be interesting to hear is the maturity of that pipeline. You've obviously been working on a number of things. In different times, you guys have announced partnerships at various, I think, stages of implementation. I think and, too, it wasn't really announced until you were actually ready to execute. I guess, give us a kind of a view on where that pipeline is? Do you have deals that you've already signed and you're working on implementation? Do you actually have to announce deals once you've signed them? Just help us understand the maturity of the pipeline and where you're at in the progress, because I know you guys are working on a lot of different potential partners and opportunities out there? Give us some context, if you don't mind.

Steven Streit

Yes, so the answer is yes, we're currently working on deals that we have not announced. Most of our big partners, maybe all of them, frankly, have various rules and cultures that do not allow a product to be announced until literally it rolls out or right before it rolls out. And that's actually very common, especially with technology companies. That's the norm. So to answer the question directly, there are a couple of programs right now that we're working on that we haven't announced. That's 1. Number 2, how are we doing with the maturity of the pipeline? I think the pipeline is so new, I'll give you a sense. I wish Brett were here. Is Brett going to be at the Citibank thing? So you'll meet Brett Narlinger, who's our Chief Revenue Officer and we have him out at some of our investor meetings and conferences and he'll be with us. The pace of business development has just become so rapid. I think as people are finally getting to understand that, "Wait a second. Somebody does this? Wait, you can actually call somebody and they can do this?" And that's what generates the activity. We were at Money 20/20, and this is just anecdotal, it gives you an honest sense of why we feel like we're onto something. I had a suite, obviously, where you have meetings.

And I must have gone from 7:00 a.m. to 8:00 at night, 8:30, with meeting after meeting after meeting with my wonderful admin who's been with me 15 years, bringing food in so we could eat in between - because the pace was so hectic. And then on top of that, there were other people who are existing clients who were all very large who needed time and we're happy to - and honored to do that as well. But if you can just sort of gauge a conference like that where you're meeting with, not only your existing partners, but all the people who just said, "Hey, Steve, we've never met, but I run such and so and is it true that you guys can do this?" Or I was talking to somebody at some company and they said that you actually can make this happen because "We were trying to do this but we couldn't because of a, b and c." "Yes, we can do that. Do want to meet?" And then we meet about it. Look, I've been in sales a long time, and only a fool would count their chickens before they're hatched and in no matter, shape or form am I doing that. And I want to be clear about that.

At the same time, you know when you have a hit record just based on, in the old days, where you used to say, "How'd they dance to it and how's the beat?" If you have an offering in the market that generates that kind of excitement and demand for conversations that generate then follow-up demands and then phone calls on top of that, it's pretty certain that you're onto something. I think for me, the biggest, Brad, additional color I can share is that traditionally, even I was thinking of BaaS for our partners who will go directly to consumers, in other words, people who use the account as a personal bank account.

But I'm going to say the hottest interest we had was actually from small business providers who are looking to provide small business account solutions. We do that today for Uber, as you know. The Uber account is a small business account. But the activity on that side of our world was actually hotter than even the consumer side, which is a vertical that, frankly, I don't think we would have thought about, 2 weeks prior to the conference. So it just shows you how when you have an exciting product or platform that you know what you think you're doing but then other partners and customers will have other ideas. And we're always interested in listening. Some things we just can't do because we think it's not something we can do or should you or maybe we think it's too risky or just not something that fits our culture. But then, there are other things that are right down the alley and right in our wheelhouse and you think, "Gosh, what a wonderful use of our platform. That makes a lot of sense."

So I think it's more of a commentary on how we feel about the potential pipeline and the vitality of what we've created here. But to be clear, we're not forecasting the future or anything else, but if you thought about the extra $100 million or so in revenue with that we would need to hit to do 10% next year, the comment that BaaS between its current products and partnerships, new ones coming on announced and unannounced, and others that we may close because they together, could certainly deliver that $100 million. I think that's what I'm trying to communicate, and I hope we can. But we'll guide the year when we guide the year. I wouldn't get in front of us, but I think what you should be taking away from it - what I took away from it is I think we're on to something here that has the potential to be market changing and disruptive and I'm really glad we're doing it and we're going to continue to do our best.

Bradley Berning

One follow-up. The account growth is one thing, but I think there's some programs that don't get into card numbers because of various definitions of things. If you were to look at the real just kind of user whether they're recurring, non-recurring, what - whether they're various programs. The number of people that you're touching on a year-over-year basis, what's the real kind of underlying trend?

Steven Streit

Well, the trend is certainly bigger. I can't give you a percentage or quantify it. That would probably be ill advised and I'm not sure I know it. But if you think of just numbers of customers that are outside of what we call active card users, it's - we're a pretty big company. I mean PPG alone in tax it does, $11 million, $12 million, $13 million something like that, tax refunds annually. And then you have the tax cards. You have our MoneyPak consumers who were not counted. You have our gift card customers were not counted. All of Apple, which as Tim Cook - I always want to be respectful that Apple announces Apple's news, but he's used in his earnings calls several million or millions and I think that's certainly true. So if you add it all together, there's probably another, oh, I don't know, 15 or 20 million customers who regularly use Green Dot that have nothing whatsoever to do with our active card business. And if we were to start the company again today, I've never used the word active cards. It wouldn't be relevant to our business? But remember when we went public in 2010, we were a monoline, 1-product company, which was a prepaid card, of which 70% of the revenue or something like that came from Walmart. So it's a very different company today and the active card number is somewhat passé, but we're also afraid to get rid of it, because we don't want people like you and other analysts to think that we're trying to get rid of a metric they've become accustomed to so we keep it, but the truth is in and of itself, it's not as relevant as it was 5, 6, 8 years ago.


Our next question comes from Joseph Vafi of Loop Capital.

Joseph Vafi

I was wondering if you could circle back to the Walmart-PayPal deal. Neither of those companies are technology slouches in their own right and maybe helpful to get an idea of why you are involved in putting that - helping them putting that product together instead of them doing it by themselves.

Steven Streit

Well, listen, company - first of all, to your point, PayPal is an amazing company and could certainly build or deploy anything they want in any way, shape, form or concept and they're incredibly innovative partners. And people don't automatically think of Walmart as a technology company, but to your point, they are. If you're ever in Bentonville - first of all, it's an amazing company in any respect you'd think of any company. But they have this gorgeous new David Glass Technology Center, which is just massive. I don't know how big it is, but it looked to me the size of 2 football fields, for real, that house technology employees as far as the eye can see. I've never seen anything like it in all my years. And they - David Glass, by the way, was their first technology officer and then Sam's closest partner back when they had big tapes of those machines. Not univacs, but the big-wheeled reel machines that they had in the old days. And they named the building after him. I think he's still alive and it's a cool culture.

So you're right. Between either of those companies that they can build whatever they want to build and I want to make sure that, that is absolutely clear. I think the reason why companies that can do it whatever they want like Apple or anyone else, it's a question of what can you do and what is it wise to do. And in the case of Walmart, we already have so many cash products that we support there, and so many products we sell there that we're integrated in 2. Remember that we already have the Green Dot network. They call it - I'm losing my mind. Not rapid - rapid reload, right? Rapid Reload, I would've known by heart. I'm sorry. It's not - it's been a long day. But they have the rapid reload system, which is Green Dot's network and then they also tie in other networks that compete with Green Dot to make that a very robust service. So we're already integrated into their point of sale and integrated meaning both as a settlement partner and as a regulated entity and all the things we do with Walmart on a daily basis. And we also have the technology that allows the cashiers to put money in and out on an auditable safe way. So we have that advantage there. And we already operate some of those businesses for them.

On the PayPal side, I think you may know that for some years we've already done - have been doing PayPal CASH on. So the way you get cash on to a PayPal account is you go on, they'll tell you how to do it. You request a barcode gets sent to your smartphone and that's a Green Dot service, and we've done that for a long time. So we already had the barcode technology built. We already have the cash inside built. We already have the ability to, in a safe and audited way, issue the barcodes, which you can't fake or forward to one another. It's a secure barcode. And, so we already had that built. So I think it just makes sense to say, "Look, can we use a partner that knows how to do this and can they do this quickly? And as part of the services we already do, it wouldn't make sense - just like Green Dot is a no technology slouch, but we use a ton of partners to do things like the back-end, the bill pay. Why would I build that on my own when you can use FIS or FiSCA or somebody else?" So I think technology and payments in particular is a large sandbox business where people play to get along and do what they do best. And I think they just simply made a wise decision.

Joseph Vafi

And then just 1 follow-up on EBITDA margins relative to BaaS. I'm trying to get a sense for - we saw good expansion in EBITDA margins, but you also indicated that you're still investing in the business. Is it fair to say that BaaS is EBITDA accretive at this point to the business, despite ongoing investment and potentially some of these new clients that haven't been announced yet? Just trying to get a feel for that EBITDA capability or contribution?

Steven Streit

Yes, you bet. It's a good question. So again, BaaS is one part of the business. The reason why we hope you invest in Green Dot - you, meaning investors in the analysts who help them make their decisions more wisely, is that we're highly diversified. So it's not just BaaS and it's not just our collection of GoBank and Green Dot brands and legacy products and RushCard and the other brands we have account balance over. But it's - and RapidPay. I mean, it's become a large collection of products and a lot of divisions doing their thing. And so BaaS is 1 part of that. So we get margin from different products and different segments at different times of the year and different components. So it's not as simple as BaaS and non-BaaS, I guess. But to your point, Mark said earlier in the year that we expected the BaaS programs to contribute at a lower margin than our established programs. I think that's true. They have. And then he said - prognosticated that as we got into the second half of the year, we'd have margin expansion that seemed pretty large because as those accounts age, they'd throw off margin because you're not paying the onetime cost of acquisition as you did in Q1 and Q2.

And at the time, if you remember some investors, appropriately, were nervous said, "Wow, that's a lot of margin expansion in the second half. Can you really pull that off?" And I thought, Mark, you eloquently described almost an abridged slide kind of way how you could make margin on each of those components increasing over time. And I think it's played out exactly as you called it and so the margin expansion, maybe more than we expected, is there because we're getting margin from most of our business lines. Or maybe some new products were not so I can't be overly specific, not because I'm hiding it. I just don't know. But to your point, as a group of - as a collection of products, we're doing very well on revenue dropping to the bottom line despite investing in a lot of compliance and what I'll call safety and soundness and issues and that platform and investing in new programs. So we've been very blessed that we've had an opportunity to make a lot of money and spend a lot of money. And we don't take that for granted. You've really got to run the business. It doesn't happen on its own, and the annual budgeting process is a big part of it. But so far, so good.

Steven Streit

I think, Operator, that's all she wrote on the question list. And if I'm not missing anything, I'll tell you all thank you, and have a wonderful day. Thanks for listening to the call. We'll see you at the Citibank Conference for those of you in attendance in New York next week. Bye, bye.


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