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.

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 ir.greendot.com. As a reminder, our comments include forward-looking statements, among other things, our expectations regarding future results and performance. Please refer to the cautionary language in 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.

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…

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…

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

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?

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…

Our next question comes from Andrew Jeffrey of SunTrust.

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?

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…

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.

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.

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?

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?

1.040.

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.

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?

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…

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

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.

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…

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?

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.

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.

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?…

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?

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.

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.

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