Good day, and welcome to Green Dot's Third Quarter 2021 Earnings Conference. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tim Willi, SVP of Investor Relations and Corporate Development. Please go ahead.

Thank you, and good afternoon, everyone. Today, we are discussing Green Dot's Third Quarter 2021 Financial and Operating Results. Following our remarks, we'll open the call for questions. Our most recent earnings release that accompanies this call and webcast can be found at ir.greendot.com. [Operator Instructions]. Now I'd like to turn the call over to Dan.

Good afternoon, everyone, and thanks for joining us as we announce our third quarter 2021 results. This was another solid quarter for Green Dot as we exceeded our guidance with consolidated non-GAAP revenue, up 18%; adjusted EBITDA, up 37%; and non-GAAP EPS, up 72% compared to the prior year. Much like previous quarters, our Q3 results were driven in part by unique circumstances stemming from the pandemic, including shifts in tax season and filing deadlines and government stimulus programs as well as customer behaviors and trends that have continued reinforcing the value and potential of the products we offer, both directly and through our valued partners. We are driving forward with our plan to invest the financial outperformance back into our infrastructure and create a stronger, leaner, more scalable platform and enterprise. I believe great companies are built with great people, and I'm pleased to highlight two additions we have made to our leadership bench. The first being Mike Althouse, our new Chief Compliance Officer; and most recently, the appointment of George Gresham, our new Chief Finance and Chief Operating Officer. You will hear from George in a few minutes, but first, a few highlights from each segment during the quarter. Starting with our Consumer segment, which includes our retail and direct-to-consumer distribution channels. We continued investing and expanding our suite of consumer banking products available both digitally and across our expansive retail network. For example, GO2bank is being rolled out to an additional 30,000 retail locations nationwide, including Kroger, Walmart, Family Dollar, Walgreens, Dollar Tree and others. Now consumers can acquire our best-in-class digital bank account and more than 63,000 retail locations, and we plan to surpass 70,000 by the end of the year. As you know, the opportunity to display and market our GO2bank products across this vast…

Thank you, Dan. It is a privilege to be here and join you in the Green Dot team. Some of those listening in on the call might be wondering how you got me back to work full time, and that's a good question. As I look at the landscape of companies looking to address branchless banking opportunities or service the community of Americans that have so long been ignored by traditional banks, I ask myself what arrows in the quiver would I want to have at the ready? I would want a world-class direct-to-consumer capability. I would want the broadest and deepest money network in the country. I would want to be associated with world-class partners like Walmart and Uber. And I would want to control my own destiny with a bank charter. I would also want other synergistic distribution capabilities that serve the same community. And finally, I would want a great team to collaborate with on this mission to bring great financial solutions to those in need. So that's the answer, and I couldn't be more excited to be back at it. Thank you, Dan. And now I'll pass it over to Jess.

Thanks, Dan and George. Good afternoon, everyone. Before I get into the quarter, I'd like to welcome George to its first Green Dot earnings call. I got to know George as a Green Dot Board member a few years ago, and he's a great addition to the team that Dan had assembled, and I'm excited he is here. Now moving to the quarter. We had strong results, delivering $329 million of non-GAAP revenues, up 18% year-over-year. Despite continuing to invest back into our modern banking platform and customer service, we expanded our adjusted EBITDA margin by 200 basis points through a combination of organic growth new revenue streams such as our consumer-friendly overdraft protection program and maintaining a fixed cost structure, resulting in adjusted EBITDA of $46 million and non-GAAP EPS of $0.43. We continue to produce substantial cash flow, generating $147 million of operating cash flow year-to-date, and our cash at the holding company at quarter end was $153 million. Our cash balance and the strength of our operating cash flow, together with our $100 million revolver available to us, provide us with sufficient liquidity to invest in our strategic initiatives. Now I want to turn our focus to our segment results and key trends. In our Consumer Services segment, we grew segment revenue and profit despite some headwinds to our key metrics. So first, I'll focus on the metrics. Gross dollar volume declined 18%, in part due to a decline in unemployed benefits and the timing of tax refund payments. In Q3 2020, the federal government provided supplemental unemployment benefits of $600 per week. Those benefits were reduced to $300 per week in 2021 and expired in early September 2021. Additionally, tax filing deadlines in 2020 were extended, which resulted in a portion of refund volumes shifting from…

Thank you, Jess. We are pleased with the results we're delivering while making considerable progress on our plan to become a stronger, leaner, more scalable digital bank and fintech. As we look to the future and think big picture, we know there's plenty of work ahead of us as we bring branchless banking to the many millions of underserved consumers and small businesses across our country. We are very optimistic about our plan and potential of what we can build with the most differentiated collection of assets in our industry. We will be focused on a few key areas to deliver sustained scalable growth: first, maintaining our focus and investment in our infrastructure and capabilities; second, exploring opportunities for cross-channel integration and marketing between our partners and across business segments; and third, innovation and accessibility. We will continue to introduce seamless, affordable and useful products and features and making them more accessible to everyone. There's a lot of work to be done and a lot to look forward to. Thank you.

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

This is Damian on for Ramsey. Nice results tonight. A lot to talk about here, but perhaps we can start with the B2B segment. Obviously, some nice outperformance there. I'm wondering, Dan, if you could talk a little bit about how you think about KPIs in that segment going forward? If I look sequentially, users are down, purchase volume is down, but GDV is up and your revenue is up. Can you just kind of talk about how you're framing up the growth in that segment going forward? And what we should be focusing on?

And are you talking specifically about the B2B segment?

That's right.

Yes. So I think as I see and when we're looking at the B2B business, we are seeing -- yes, sequentially, active accounts might be down a little bit, but year-to-year, they're up. So we do look in terms of a key metric for us in that segment, we do look at active accounts, yes, and -- but also the total GDV in that segment is also a real important indicator. We had the Money20/20 conference last week, and I met with a number of our partners in that business, and I came away more enthusiastic than ever. about the path we're on in terms of kind of embedding ourselves as the digital payments financial service provider to many of these key partners, some really exciting things on the horizon, I believe.

Yes, I agree. Then maybe I'll pivot here and ask a question about the Republic deal, the tax processing deal. If there's anything you could call out about why the regulator didn't approve that? Or was it something particular about the asset? Or maybe it was your use of capital generally? And maybe related to that, you talked about a sizable cash position, the $153 million of cash, what's kind of the plan to deploy that in absence of the Republic deal?

Sure. As we've said before, we were disappointed on the TRS transaction, but we're really not allowed to comment on the result there or any comments from our regulators on it. It was a transaction we saw as a pretty nice little tuck-in to our tax business, but by no means was it anything mission-critical to our long-term strategic growth holistically at Green Dot. So kind of a disappointing bump in the road, if you will. In terms of excess cash on the balance sheet, there's a handful of things we can do with that excess cash. I'm going to give George Gresham a few more weeks or so here before we start making these sort of determinations on what we do with that cash.

Our next question comes from Mayank Tandon with Needham.

Good evening. It's actually Kyle Peterson for Mayank. Just wanted to touch a little bit on kind of the move to self processing that you guys are describing, and it seems like we're going to get a first leg of benefits through efficiencies in '22, and then eventually get the full benefit in '23 and beyond. How do you guys think about the benefits, whether it's in terms of a payback period or in terms of like percentage cost savings? Or like how should we think about that investment and what that could do to margins and efficiency moving forward?

I'll let Jess talk about kind of what that can do from a margin standpoint or maybe some expense reductions, and then I'll add just I think much, much more importantly, what that can do in terms of opening up our position in this transition to digital in this country.

Yes. And on the financial side, as we've talked about before, the cost of the new platforms is relatively fixed. And what we have today in PTS and some of the other processes we're using is very much a variable cost that grows as our base grows. So as we convert over to the new platform, what you'll see in terms of P&L reductions across the consumer segment and the B2B segment is principally a reduction in processing costs, while at the same time, the software costs are sitting in our corporate [indiscernible] and remaining relatively flat even as we grow. So you'll start to see margin enhancement in the consumer segment and B2B segment certainly be more pronounced when we get into 2023 when the platforms are fully operational.

And just from an operational side is, as Jess mentioned, we're -- by bringing this crane on platform and having that in-house, we take a variable cost and we make it fixed. And so then when we talk about Green Dot as a bank and a financial institution and our ability to create and embed digital demand deposit accounts, seamlessly almost and at an extremely, I mean, extremely if not almost a free cost of embedding those accounts into the apps and experiences of our major partners. That is why this effort is such a game changer for us here at Green Dot.

Got it. That's really helpful. And maybe as a follow-up, could you just talk about how we should think about some of the moving pieces basically between active accounts? And whether it's like a take rate or yield in the consumer and B2B segments moving forward? I know like there's been little bit of churn from stimulus and COVID and such, but it seems like at least the customers that are sticking have kind of higher per account economics. But like maybe if you could describe how we should think about the balance of those two over the next few quarters? And when that should kind of normalize out?

Kyle, I think you highlighted the most important point on that is you look at the quality, if you will, of those accounts in terms of revenue and profit that they generate is increasing. And the last 18, 20 months of delayed tax filings and tax return dates, stimulus payments, child tax credits, enhanced unemployment benefits, it has really kind of created an unpredictable turbine environment, if you will, from driving consumer behavior in terms of picking up our products. So what we have continued to focus on through these times is improving our offering, quality of our service and our products so that we are building our customer base to have a larger percentage of them committed to our products through meaningful direct deposit, making us their primary bank account, embracing our consumer-friendly overdraft products and driving that continue to drive our profitability, even though we've seen kind of a moderate decline in the active accounts quarter-on-quarter. In terms of when will this normalize? I believe that we've got simultaneously, what we're doing is focusing with our launch of GO2bank into our new direct-to-consumer initiative. We're migrating customers from legacy portfolios to our new GO2bank offering, that's happening at the same time, as I've mentioned already, many of the other market forces of COVID and stimulus payments, and unemployment benefits is happening. So your guess is probably as good as mine when the world is back to normal. But I would suspect that 12, 18 months from now, we're going to be in a spot where our performance is and will clearly be visible.

Nice quarter.

Thank you.

Our next question comes from George Sutton with Craig-Hallum.

Guys, I think your performance was clearly visible this quarter. So congratulations, and welcome to George. Fabulous name to have. So Dan, I wanted to make sure I understood the new collaboration efforts with Walmart. And if you could just detail that a little bit more. And as an aside to that, we get probably the most confused questions from clients around the Ribbit-Walmart relationship. So if you can just discuss that in totality and relative to their decision not to pursue a bank charter.

Sure, George. Thanks. Thanks for the question and the comment. And I'm not able to comment on whatever Ribbit and Walmart are deciding in their strategy around that. And what I can comment on is what I have said in the past and probably with more confidence and clarity after last week when we met with a number of Walmart colleagues at Money20/20 is that the programs that we have in Walmart, the Walmart MoneyCard programs, the solutions we have through the Walmart money centers, those are very important to Walmart and very important to Walmart customers. And we collectively, us from Green Dot and our friends at Walmart, talked about how we've been partnered with Walmart for 20 years. And there's a lot of new faces in Walmart Financial Services, as there are a lot of new faces here at Green Dot. And so we were able to be pretty honest with one another and say that for a partnership that's been around for 20 years, to have around one million Walmart MoneyCard customers isn't that impressive. So I can't tell you how thrilled I am with the new and renewed energy that we have and commitment between Green Dot and Walmart to significantly grow that base of customers and not just with a plastic card, but with embedded payments and solutions for Walmart customers and all points of access that Walmart has. So more on that as the quarters unfold, but again my level of confidence and excitement about our partnership with Walmart is stronger than ever.

One other thing, if I could. You mentioned strengthening your technical foundation in part with some of the upside that you're getting on the revenue side driving additional money to be spent. Can you just give us some sense of what you're referring to relative to that technical foundation?

It really kind of spans the entire platform, George. So it's primarily, first and foremost, building our own platform of our own core banking and card management system and then surrounding that all systems that will provide better customer service, better efficiencies on our part, better controls, better security for the company and for its consumers.

Awesome, thank you.

[Operator Instructions] Our next question comes from Lance Jessurun with Jefferies.

I just wanted to talk about the BaaS platform over the next three to five years. I kind of wanted to see what you think the mix of growth is going to be, whether it's new partners versus growth that exists in partners?

Lance, you cut out a little bit there. And so I mean, Jess, I don't know if you heard that question well, but I think to answer your question is more about where is growth coming from? And what's the mix there?

Yes. Sorry about that. With the BaaS platform, the new versus existing?

So we're going to -- on the BaaS platform, are we going to see growth coming from new partners or existing partners?

Correct. Sorry.

All right, all right. Jess, do you want to take a shot at that? And I'll add color.

Yes, yes. I think in the near term, you're going to see quite a bit of -- well, we're excited about the existing customers we've had on the platform for some time. You've seen continued growth there. As we know, we've launched a few new partners at the end of last year, and those are gaining traction. So I think in the near term, a lot of growth will come from those existing partnerships. And then, of course, our BaaS team has a very active pipeline. So it's hard to say long term how that mix is going to shake out. But I think as Dan has mentioned on previous earnings calls, there's so much opportunity with the existing base of customers that we have. But the growth rates there are appealing enough. But I would insist that -- expect that our team will add new customers to that platform in the quarters and years to come.

And as a little bit of a follow-up there. What are some of the criteria you look at when you choose the partners?

When we're choosing our partners on that platform, what we're looking for is either partners that have already achieved significant scale and have a large customer base that can benefit from the digital payment solutions that we can bring or we look for smaller -- if they're not large partners with large scale currently, we look for partners that have what we would believe are the ingredients for significant growth. A great example we have of that is Stash, one of our current partners, that when we started working with them, they were just getting started, and now they're in -- they've grown quite significantly. So it's really -- and I've said this on these calls since the beginning is that our collection of assets is really unmatched inside the payments and fintech space. So on a bank charter to have 90,000 points of distribution, the reload network of 90,000 locations, the partners that we have, our technology stack, we really want to keep our energy focused on areas of the highest and best return. And so the approach of going out and signing up, chasing fintechs to ride on our banking platform just to get the biggest number of fintechs, I don't want to take that shotgun approach of a strategy. We want to focus and drive deep with our existing partners because the size and scale potential of our existing partners is more than enough to triple the size of Green Dot currently and then be quite selective on other new partners that we bring in.

Thank you very much.

This concludes our question-and-answer session. I'd like to turn the call back over to Dan Henry for some closing remarks.

Well, that was pretty short and sweet. And I want to thank everybody for your time and interest and support. We are -- continue to work hard here. We're going to be continuing to invest in the growth of this business, and we intend to continue to deliver bottom line growth in this business. So thank you, everyone very much, and we'll talk to you soon.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.