Green Dot Corporation

Thank you. Thank you. Good afternoon and welcome to the Green Dot Corp third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Alison Lubert, Vice President of Communications. Please go ahead.

Thank you and good afternoon, everyone. Today we are discussing Green Dot's third quarter 2020 financial and operating results. Following 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. As a reminder, our comments may include forward-looking statements and expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Green Dot's filings with the Securities and Exchange Commission, including our most recent Form 10-K and 10-Q, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we'll make reference to our financial measures that do not conform with generally accepted accounting principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today will be on the non-GAAP basis. Information may be calculated differently than similar non-GAAP data presented by other companies. Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release. The content of this call is property of Green Dot Corporation and is subject to copyright protection. Now I'd like to turn the call over to Dan.

Thank you, Allie. Welcome, everyone, to Green Dot's Q3 2020 earnings call. It's been a busy and productive few months since we last gathered. We are pleased to report a better than expected third quarter, which we attribute to a number of factors, including our continued work to drive efficiencies and lower costs and increase demand for our products across our consumer, retail, and B2B offerings. We remain focused on unlocking new opportunities and capitalizing on the accelerated shift from cash to digital banking and payments, which was further illuminated by the pandemic and other dynamics taking place in the marketplace. As we and we are already seeing benefits from our work from anywhere initiative from both a cost savings and talent recruitment perspective. In a few minutes i'll pass it over to just to walk you through the details of our financial results, but i'd like to start by sharing a few highlights and my perspective on what contributed to a solid third quarter. i'm going to focus on three key areas of progress the stem back to the objectives I laid out earlier this year. These will include improving our financial performance and execution, refocusing and enhancing our BAS strategy, and launching our new and lasting Challenger Bank initiative. While Jess will cover the financial performance in detail, let me provide you with my take on the results for the quarter. Non-GAAP revenue increased 22% compared with the third quarter of the prior year. This higher revenue was driven by a combination of new and existing customers using Green Dot products to electronically receive their income, elevated deposit balances from stimulus funds received in Q2, growth in our BAS partner fees, and accelerated demand for digital banking and payments products. We also started to see recovery in areas of our business that were negatively impacted by COVID-19. Our total operating expenses for the third quarter of 2020 increased by $42 million compared to the third quarter of the prior year and our margins expanded by approximately 100 basis points. A big component of the increase in operating expenses was related to growth of our BAS business. We also had lower marketing expenses in the quarter. If you recall, Green Dot spent a majority of its full 2019 marketing budget in the second half of 2019. Finally, we had a few headwinds to margins, especially an increased revenue share with one of our key retail partners, higher transaction losses on our purchase volume, and the timing-related expenses associated with incentive compensation for our employees. Moving on to our BAS business. As we previously announced, we officially kicked off new relationships with Intuit and Cabbage in third quarter. which further positions Green Dot to serve and empower America's 30 million plus small businesses and entrepreneurs. Leveraging Green Dot's capabilities, Intuit announced their plans to launch a QuickBooks cash account, and Cabbage announced plans for Cabbage checking. We're also very excited about Cabbage's accelerated potential now that they're a part of American Express. Through these products, small business owners will now have access to more seamless, safe and value-driven banking and cash management for their businesses. We're incredibly proud to be a part of this movement and look forward to deepening our partnerships with Intuit and Cabbage and doing more for small businesses in the future. We believe the opportunity for Green Dot to offer its services to the vast SMB segment is immense, and we look forward to providing you with more updates regarding this opportunity. On that note, you may have seen an exciting announcement last week about a new strategic investment and partnership with GigWage, which, for those who may not be familiar, is a very impressive and fast-growing startup focused on creating a better financial ecosystem for the rapidly expanding gig economy. When I met GigWage's founder, Craig Lewis, earlier this year, it quickly became clear that we have similar goals and visions for the industry and for our customers, and that we could do a lot together. Green Dot led GigWage's Series A funding round and we will serve as their infrastructure bank partner, enabling GigWage to launch a number of new financial solutions designed for 1099 workers and their employers. As a strategic investor and VAST partner, Green Dot has an exciting opportunity to grow this vertical and capitalize on the growing demand for better banking and payment solutions for the gig economy. Also, we have a few new partners we will be announcing soon. brands that everyone will know and recognize. One thing I want to reiterate is our commitment to partnering with select high-impact and high-potential companies, meaning they are highly respected brands with very impressive reach or they're startups with tremendous potential, which we will differentiate ourselves as a BAS provider by acting not just as a bank sponsorship, but also a true partner providing end-to-end support expanding technology, program management, call center support, fraud, and our reload network, and more, which we consider a huge differentiator for Green Dot. Last, but certainly not least, one of the most important and exciting areas of focus and progress has been unlocking our potential as a powerful challenger bank. Earlier this year, one of the goals I set for the company was to introduce a new direct-to-consumer bank and that vision will come to fruition very soon. Last week, we officially launched our wait list for GoToBank, which is an entirely new and simplified digital banking experience that will offer meaningful value and features designed to save people time and money and manage and move money effortlessly. We chose GoToBank as our new brand by doing some pretty extensive research and because we want this product to be the go-to destination for modern banking and money movement for everyone, wherever they go. GoTo will be a solution designed primarily for low to moderate income consumers who are looking for and can benefit from a better way to bank and transact. And we plan to expand the target market as we enhance the product features and services over time. As one of the only challenger banks to actually be a bank, GoTo Bank will position Green Dot to compete aggressively and profitably. When we launch early next year, GoTo will offer a compelling value proposition to a wide range of customers, including the security and protection that comes with a member FDIC bank, an intuitive mobile app and experience where you can quickly set up and manage your account, no monthly fees when you use direct deposit, free in-network ATMs, 10 times national average APY, and other valuable features and rewards. And our plan is to expand on those features quickly. This new brand and product set represent a meaningful and long-term commitment and strategy for Green Dot. So you can expect to see a lot more of this in 2021 and beyond. While we intend to spend to develop the go-to bank brand and acquire customers, our marketing dollars will be based on a data-driven marketing strategy driven by thoughtful and rigorous return on investment requirements and expectations for lifetime value. Green Dot has a proud 20-year history of serving over 33 million customers through our retail direct-to-consumer products and many more through our banking partners like Walmart, Apple, Uber, and other well-known innovative brands. We know how to build products that make money movement and access more seamless, intuitive, and safe for everyone. We also know There is a significant segment of our population that continues to be underserved by the financial services industry, and we have the opportunity to change that with GoToBank. I encourage you to visit gotobank.com and join our waitlist. As you may be able to tell, we have been incredibly busy laying the foundation to deliver value-added products and services to our customers directly as well as through our valuable BAS partners. At the same time, we are delivering on our commitment to right-size the cost structure and establish sustainable operating leverage, which will create value to you, our shareholders. I would like to thank our valuable employees who have been working tirelessly through these challenging times. And with that, I'll pass it over to Jess to walk through our numbers.