Green Dot Corporation

Good day and welcome to the Green Dot Corp. Fourth Quarter 2020 Earnings Conference Call. All participants will be in a 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 the star then one. Please note that this event is being recorded. I would now like to turn the call over to Allie Luber, Vice President of Communications. Please go ahead.

Thank you and good afternoon, everyone. Today we are discussing Green Dot's fourth 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 a non-GAAP basis. Information may be calculated differently than similar non-GAAP data presented by other companies. Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release. The content of this call is property of the Green Dot Corporation and is subject to corporate protection. Now I'd like to turn it over to Dan.

Thank you, Allie, and welcome everyone to Green Dot's Q4 2020 earnings call. We thank you all for being with us today. Once again, we are pleased to report a better than expected quarter, driven primarily by strong demand and continued growth across all account programs. We've got a lot to cover today. Before I pass over to Jess for a comprehensive report on our financial results, I'd like to share my perspectives on our progress to date and our plans and priorities moving forward into 2021 and beyond. First, a look at Q4 financials. Non-GAAP revenue grew by 15%, adjusted EBITDA increased by 59%, and non-GAAP EPS of 31 cents translated to a growth of 121%. During the quarter, we saw revenue growth from fees charged to our BAS partners, and we benefited from heightened deposit balances on products in our retail and direct channels as a result of the first federal government stimulus, and to a lesser degree, the second stimulus. While the various federal government programs contributed to growth in 2020, it is important to note that COVID-19 also had a negative impact on growth trajectories of several of our businesses, including Paycard, and Uber Cash. We also faced some revenue headwinds during the quarter in our money processing business as well as in interest income. We'll share more on that in a bit, but overall, I'm very pleased we delivered another strong quarter and are making the necessary investments for Green Dot to continue playing an essential role in banking and payments for low to moderate income consumers. I'd like to take a few minutes to focus on key areas of progress and achievement over the past year. First, we built and launched GoToBank, our flagship challenger bank designed to address the unique needs and challenges of today's low to moderate-income consumers who are struggling to make ends meet and could truly benefit from better banking and payment solutions. We built this platform from the ground up, offering a total value proposition that includes tools like consumer-friendly overdraft, access to a secured credit card, high value rewards and other features that are meaningful and are already resonating with this audience. The results we're seeing with GoToBank are very promising and exceeding expectations. For example, more than half of our customers have opted in for overdraft protection and applications for our secured card are 20% higher than our original forecast. This level of demand gives us confidence in our strategy and our continued investment to market and expand this product. It's also important to note the investment we're making in GoToBank will reap rewards far beyond our direct-to-consumer lines of business, as we'll be able to leverage the technology, tools, and intelligence of this product on behalf of our BAS partners as well. And speaking of BAS, this business also had a productive fourth quarter and year. During 2020, we announced plans to partner and launch new platforms with a variety of exciting companies like Amazon, Cabbage, Google, GigWage, Intuit, and others. In Q4, Amazon launched the Flex debit card powered by Green Dot. We also announced plans to collaborate with Google Pay and offer Plex accounts to our go-to bank customers. And we announced our investment in and partnership with GigWage, a fast-growing and high-potential startup focused on bringing innovative payments and functionality to the rapidly growing gig economy. These partnerships and investments illustrate our new BAS strategy to partner only with select high-impact and high-potential companies looking for a true end-to-end partner to deliver modern, seamless, and accessible banking and payment solutions to consumers and small businesses. On that note, allow me to frame up this opportunity and define what we mean by small business. Just as the traditional banking system is not equipped to serve low to moderate income consumers in the U.S., they are also not equipped to serve many of today's small and micro businesses. Whether it's a micro merchant selling their wares on Amazon or Etsy, an independent gig worker, or a startup with limited cash flow or resources, these entrepreneurs and job creators face similar challenges and need a banking partner who can support their unique needs. Our partnerships with Intuit, Cabbage, Amazon, Uber, and GigWage are all focused on this growing audience and economy, and we're in the process of building differentiated value-based experiences for the small business sector. It's important to appreciate the powerful and unique collection of assets we have at Green Dot, including our bank, technology stack, distribution network, reload network, experienced customer service, and fraud controls. This full solution set is unmatched in the FinTech banking as a service arena and provides Green Dot with competitive differentiation through its portfolio of turnkey solutions. The quality of partners that have chosen to work with us proves that. It is our intention to press this advantage and to continue investing in our platform and our partners so that we can together deliver powerful, seamless, embedded payment solutions to tens of millions of consumers. Final comment on the Bass business. I am thrilled to announce Amit Parikh is joining Green Dot to lead this business line. You may have seen our press release announcing Amit's appointment earlier today. Amit is joining us from Apple, where he worked across the Apple Pay business and held a variety of leadership roles, building new partnerships and features. We are thrilled to have him on board to help grow and scale our Bass business. Now, moving over to the retail side of the house, this team has been hard at work as well and we're beginning to see the fruits of our labor. Here are a number of noble highlights and milestones to share. We launched Pay As You Go and our new 2x2, that's 2% cashback and 2% savings, products across all retail. These two product offerings are delivering net new sales at 10% and 11% respectively. Of note, Pay As You Go launched nationally in Walmart during the fourth quarter and is already delivering 17% incremental sales growth to the Green Dot brand. We also partnered to offer the Walmart Money Card as a money management tool to help more Americans manage their government stimulus payments. All current retail products are now demand deposit accounts and offer opt-in overdraft. Legacy cardholders will convert to demand deposit accounts over the course of 2021. We are expanding prominence in retail. For example, we expanded J-Hook facings at 7-Eleven locations nationwide and have gone from an average of five to 14 facings per display across 8,000 locations nationwide. We also grew and strengthened our Green Dot network, launching 14 new partner programs for cash funding and payments in the fourth quarter alone. We also renew our largest client in our financial services and check cashing group for six years and are rolling out Green Dot branded demand deposit account products across the full channel later this year, 2021. The ongoing success of our retail operations continues to provide meaningful cash flow that can be harvested and reinvested to support Green Dot's multiple growth strategies. Overall, a lot of progress in retail and more to come. In our tax business, TPG, we secured a long-term contract renewal with a key tax processing partner. With this renewal, we will experience a one-time decline in this program's revenues in 2021, but are now set up for long-term stability, predictability, and growth going forward. And we are confident about the growth opportunity in this channel. Now, for our Rocky Balboa story of 2020. Despite COVID's impact on business and employment across the country, our pay card team at Rapid still delivered 6% revenue growth during the year. The sales team at Rapid doubled down their efforts, took advantage of remote virtual sales world, and added close to 1,300 new corporate employers to our Rapid client list. These strong new client wins, expanded product set, and new and improved mobile app provide a springboard for our pay card business to grow an anticipated 20% in 2021. Upon my arrival here, Green Dot's objective in 2020 was to preserve, stabilize, and invigorate top line growth in every one of our business lines. With complete confidence and candor, I can say we accomplished this objective. And most importantly, We now have exceptional leaders across each of these business lines who are aligned and committed to our shared objectives of driving growth and margin expansion for Green Dot. As you can imagine, we dedicated a lot of resources over the past year toward identifying critical areas for investment and improvement at Green Dot. With each of our business lines under solid leadership and on their path to growth and margin expansion, we will now be placing considerable energy and investment in creating operational improvements and efficiencies. Looking forward into 2021, we'll be investing time and resources into improving the customer experience we deliver and updating our core banking platform and card management solutions. We believe these investments possess a demonstrable ROI that will lead to higher LTVs and greater customer satisfaction. Core banking and card management systems are a mission-critical build as this will allow us the ability to consolidate multiple and disparate outsourced processors onto our own platform. This will eliminate significant third-party expenses, turn a big variable cost into a smaller fixed cost, and most importantly, increase our ability to innovate and preserve margins over the long term. Owning and controlling this part of our business is critical to delivering on our vision to build seamless banking and payment experiences for customers on a massive scale. We've already begun a company-wide effort to elevate our customer experience as we recognize many of our systems, policies, and practices need to be improved. We spent a lot of time in 2020 laying the groundwork for these changes, and 2021 will be the year we build and implement them. Our goal continues to be providing a world-class, customer experience. These improvements will require incremental investments in 2021 in both our people and technology. Current systems will need to be maintained as we build new solutions. And hence, we expect some redundant expenses until we're able to benefit from improved efficiencies. As Jess will share in a bit, despite these meaningful growth investments, we still expect to deliver EBITDA growth in 2021. I'm gratified to share many of the investments we made in 2020 are setting the stage for growth and expanding margins in our key business lines. In 2021, we expect retail, direct-to-consumer, BAS, and pay card to grow revenue year over year. For our retail and direct channels, that is a significant achievement given these businesses were in a decline just a few years ago. As we support these business segments with long overdue investments and operational improvements, we'll ultimately be able to keep our fixed costs fixed and improving margins will see their way to the bottom line. As we think about guidance for 2021, it's important to note that although 2020 is behind us, COVID and the unpredictable impacts it has on consumers and the economy remain. Given that continued uncertainty, we are taking a conservative approach in our guidance for 2021. And though we anticipate another stimulus, that too remains uncertain, and therefore, our guidance and growth models do not include that potential tailwind. We are committed to delivering efficiencies across the business to creating meaningful operating leverage and to enhancing our margins and profitability. We will continue to invest in customer experience, enhancement of our products, and building scalable platforms, all of which will lead to a significant increase in profitability across the enterprise. I would like to thank our employees who have been working tirelessly to support our customers and build our business through these challenging times. And also, thank you to our shareholders for their continued trust and support. And with that, I'll pass it over to Jess.

Thanks, Dan. Good afternoon, everyone. Green Dot delivered another quarter with strong year-over-year growth that exceeded the guidance we provided during our last earnings call. In Q4 2020, non-GAAP revenue grew 15% to $275 million, and we delivered adjusted EBITDA of $35 million and non-GAAP EPS of $0.31. We experienced a few significant tailwinds as well as headwinds in the quarter that I'll walk you through. Overall, we were pleased with the strength of the consolidated performance. Focusing on our top-line results for a moment, non-GAAP revenue growth in the quarter was driven by our account programs, with strong performance in key metrics such as gross dollar volume, purchase volume, and active accounts. The growth in gross dollar volume was driven by higher active accounts from new and existing customers utilizing our platform. As we've discussed throughout the year, COVID accelerated the demand for digital payments and we have been uniquely positioned to serve consumers through our omnichannel distribution and drive engagement with our suite of products and services. Gross dollar volume in the quarter was also boosted by a second round of stimulus funds received late in December, which added approximately $570 million during the last two days of 2020. Altogether, this resulted in increased management service fees in our Bass Channel, increased monthly maintenance fees from elevated deposit balances, and growth in interchange revenue. Consistent with the previous two quarters, the interchange rate we earned was down year-over-year in Q4 due to a 22% increase in the average ticket size per transaction. Since interchange fees have both fixed and variable components, we earned smaller fees in percentage terms on larger transactions. Partially offsetting the increase in revenue in our account segment was an increase in cash rewards related to Green Dot Unlimited accounts and a decline in gift card revenue. Our gift card program is very seasonal and is primarily concentrated in Q4. Our gift card revenue has been negatively impacted by the decline in retail foot traffic because of COVID. Our processing and settlement service revenue declined 18% year-over-year from a decline in both simply paid disbursement transactions and the number of cash transfers. Our simply paid disbursement volume has been disrupted by the effects of COVID on the ride-sharing business. Our cash transfer volume was down year-over-year by 7% because we decided not to renew an agreement with a large reload partner, and as discussed on our previous earnings call, had relatively low contribution margin. Another headwind discussed on prior calls was the year-over-year decline in net interest income due to lower yields on our cash and investment balances as a result of rate cuts by the Federal Reserve earlier this year. Let me turn our attention to our expenses and margins. Our total non-GAAP operating expenses in Q4 grew by 23 million, or 11% year-over-year. As you may remember from our last call, we believe reinvesting some of the stimulus-driven outperformance back into growth initiatives is prudent. Despite the higher operating expenses, our margins expanded by approximately 350 basis points. Sales and marketing expenses declined by 8% due to timing differences since our marketing spend in 2019 was heavily concentrated in the back half of the year, whereas it was spread evenly in 2020. Lower marketing expense was primarily offset by an increase in supply chain costs to support the rollout of our Green Dot pay-as-you-go product in retail and, to a lesser extent, an increase in revenue share with our partners, including an increased revenue share rate associated with last year's renewal of the Walmart Money Cart program. Compensation and benefits expenses declined 11%, primarily due to year-over-year timing differences related to annual bonuses, lower travel expenses as a result of COVID, and lower headcount and contractor expenses. Processing expenses increased 61% in line with corresponding revenue increases in our BAS fees and interchange revenue. A portion of our processing expenses are passed through as fees charged to our BAS partners. other general and administrative expenses increased 22%, mainly as a result of an increase in transactional losses from higher volumes of customer disputes similar to prior quarters. We expect loss rates to begin to normalize in 2021 as we continue to work diligently on improving the customer experience and investing to align our fraud prevention processes with the industry's best practices and performance. Depreciation expense in Q4 increased 11% year-over-year due to an increased capitalized development costs over the past several years to support our strategic initiatives. We expect depreciation expense to begin to flatten out in 2021 as we reduce the level of overall spend on development by consolidating some of our products and focusing on prioritizing our development based on strategic impact and incremental operating margins. On a gap basis, we had an impairment charge of approximately $22 million related to facilities and internal use software that we excluded from our non-gap measures. As we've mentioned in the past, there are significant benefits to our adoption of a work-from-anywhere corporate policy. In connection with that policy, we have commenced closure of most of our leased office space location in the U.S. beginning in 2021. While we will be required to continue making our contractual payments until our operating leases are formally terminated or expire, we recorded impairment charges to our operating lease right of use assets and related property and equipment located at our office facilities during the period. In addition, we recorded an impairment charge in connection with internal use software related to legacy platforms that had been replaced by new technology platforms expected to better scale with our operations. From a liquidity perspective, Green Dot continued to produce substantial cash flow, generating 207 million of operating cash flow during the year, and our cash at the holding company at year end was 146 million. Our cash balance and the strength of our operating cash flow, together with our 100 million revolver available to us, provides us with sufficient liquidity to invest in our strategic initiatives. Now I'd like to focus on guidance for 2021. We expect our non-GAAP revenue will be in the range of 1.23 billion to 1.25 billion, or up 3% year-over-year at the midpoint. We expect adjusted EBITDA to be in the range of $210 million to $217 million, up 4% at the midpoint. Lastly, we expect non-GAAP EPS to be in the range of $2.06 to $2.15 or flat year-over-year at the midpoint. As you think about your models for 2021, there are a few key items to consider regarding our guidance. As you all know, we are still in a COVID environment. Significant strides have been made to curb the effects of the virus, but the impact of COVID is still lingering, and that creates uncertainty for the economy, and therefore, we are being cautious with our guidance. Our guidance only incorporates the late December relief package that included stimulus funds in late December and early January, as well as supplemental federal unemployment benefits at $300 per week through March 2021. Our guidance does not consider any future federal stimulus or supplemental unemployment benefits, including the COVID relief bill that Congress is expected to finalize in early to mid-March. Until we have more clarity on dollars and timing, we have kept the relief program out of our guidance. As a result, the federal relief programs that helped us deliver better than expected results in 2020 have created a headwind to our revenue and earnings in 2021. Lastly, we intend to continue to make growth-oriented investments in 2021 that we expect will accelerate revenue growth and allow margins to expand in 2022 and beyond. Notwithstanding this investment, which I will describe in more detail in a few moments, we are maintaining steady margins in 2021 and expect to grow adjusted EBITDA at a rate that is in line or slightly above our forecasted revenue growth. I'd like to share some important context around our guidance. From a revenue perspective, we're excited about the growth in 2021. We have a lot of momentum coming into 2021 from the launch of our GoToBank product in our direct channel. As Dan mentioned, GoToBank is our flagship direct-to-consumer digital bank that we launched earlier this year, and the initial results have exceeded our expectations. The substantial target market, together with our robust and relevant features, provide us with a high level of confidence that we will have revenue growth for years to come and the compelling unit economics will help drive margin expansion. The retail channel has turned a corner after a number of years of declining revenue. The combination of effective account management, new and improved product mix, as well as the delivery of omni-channel capabilities to our large retail partners is expected to result in revenue growth in 2021 and beyond. Our pay card business has returned to its pre-COVID double-digit revenue growth, partly as a result of continued and successful sales efforts over the course of 2020. Our Bass Channel is expected to continue the strong growth trajectory as we ramp new partners, as Dan touched upon earlier, and continue to grow existing partnerships. We are very excited about the potential of this channel, given the significant reach our partners have within their respective markets, and believe investing to support these growth opportunities is strategic. Revenue related to our money processing services is forecasted to be down year-over-year from our decision to not renew a significant reload partner, as mentioned previously, but the adjusted EBITDA impact will be muted as the partnership carried a significant revenue share. Revenue from our tax processing services is forecasted to be down year-over-year as a result of securing a multi-year agreement with one of our largest customers in exchange for lower economics on refund transfers. Lastly, interest income is expected to be up year-over-year as a result of investing more of our cash at Green Dot Bank in agency-backed fixed income securities in order to enhance our yield. As it relates to expenses, we've made good traction during 2020, laying the foundation for meaningful revenue growth and operating leverage for years to come. Given the multi-year opportunity we see ahead, we will continue to make targeted growth-oriented investments in 2021. The market opportunity to build a category-leading digital bank for consumers and small businesses directly and through our partners is significant. Our growth investments are focused on improving our customers' overall experience, marketing GoToBank, which has an extremely compelling LTV that turns positive a few quarters after acquiring customers, and building a modern and scalable core banking and card management platform that that reduces all reliance on third-party processors and increases our ability to innovate and preserve margins. Our investment in customer experience and a modern banking platform will be both people and technology, and therefore, our compensation and benefits expenses is expected to increase year over year, and components of other and general administrative expenses, such as software licenses and hosting costs, are expected to be up year over year. The returns on these investments will appear within 12 to 24 months. Specifically, beginning in 2022, we expect the investment in our modern banking platform will begin to reduce a portion of our processing expenses and enhance margins. Our investment in marketing will be reflected in sales and marketing expenses. However, we do not expect our sales and marketing expenses to be up year over year, despite the increased marketing, because we have a reduction in revenue share associated with the non-renewal of the significant reload partner discussed earlier. With respect to non-GAAP EPS, our guidance reflects an increase in our non-GAAP diluted weighted average shares by $2 million, principally from equity awards granted in 2020 to new executive hires, and an increase in our non-GAAP effective tax rate from 22% to 23.3%. As I mentioned earlier, we are not including additional stimulus benefits into our initial 2021 guidance. As such, the federal relief programs that benefited us in 2020 are initially forecasted to be a headwind to our guidance for 2021. While it's difficult to definitively quantify the 2020 ecosystem impact of the government benefits, we estimate that our 2021 guidance at the midpoint would represent high single-digit revenue growth and low double-digit adjusted EBITDA growth when removing the impact of the government benefits in both 2020 and 2021. As we think about the financial results for the first quarter of 2021, we are forecasting low single-digit revenue growth year-over-year and a margin of approximately 20%. There are two items to keep in mind about our margin in Q1. First is the timing of our marketing spend. We plan to take advantage of the tax season to promote our go-to-bank product and expect to front-end load marketing expenses into the first half of the year. Second is the headwind on our tax processing services I discussed earlier. To recap, 2021 is about continuing to lay the groundwork for the years to come. We will be making investments in marketing, people, and technology over the course of the year to grow our base of go-to-bank customers and reduce the overall complexity of our operations with the goal of generating consistent operating leverage in the years to come. Demonstrating the inherent leverage in our model, we are still forecasting adjusted EBITDA growth despite numerous growth investments and meaningful headwinds as we lap the 2020 government benefits. Should the federal government's current negotiations result in another relief program, then we will update our guidance accordingly.

With that, operator, let's open the line for questions. And we will now begin the question and answer session. To ask a question, you may press star then 1. If you're using a speaker phone, please pick up your hand before pressing the keys. To withdraw your question, please press star then 2. And at this time, we will pause momentarily to assemble the roster. And our first question today will come from Ramsey LSL with Barclays. Please go ahead. Hi. Thanks for taking my question. Apologies. One moment, please. Please go ahead with your question.

Okay, thanks for taking my question again. I wanted to ask it about potential, the impact of incremental stimulus that you made very clear is not in your preliminary guidance. But given that you've seen the impact of stimulus now a couple of times already on the model, you probably have a pretty decent idea about what that would mean. Given the outline of stimulus is sort of out there in the media, I mean, can you help us think through what that might translate into in terms of a P&L impact? You want me to take that?

Yeah, Jason, please. All right. Go ahead. Pretty good, thanks. Yeah, so I think, you know, what we've heard thus far from the federal government is something like $1,400 per individual, an extension of the unemployment benefits, I think, through potentially September of 2021. So the next stimulus, if it is approved, you know, feels a lot like what we saw in Q2 and Q3 of 2020. And so the way we think about the benefits the benefit to the P&L is looking at what I'll call revenue yield on GDP dollars. And so you can, if you think about it simplistically, if everyone were just to turn around and spend the money, right, that would all, end up in purchase volume and then be reflected as interchange revenue. And just for simple math, we earn 120 basis points on interchange. And that fluctuates a little bit. But there are other streams of income like ATM withdrawals, monthly maintenance fees, all of which have higher yields than interchange. And so I guess you don't have the – channel-level detail that we do, but the way we think about it is go through each of the channels, look at the revenue yields. But what you can do at home, effectively, is look at the revenue yield on account services revenue. So if you take the GDB, which is purely associated with account services revenue, look at the revenue dollars in the segment disclosures, and that would give you a good sense for what that revenue yield translates to, and then apply that to whatever you think that GED will be. So last year, we had about $4 billion across one-time stimulus payments in Q2 and better unemployment benefits across Q2 and Q3. What we saw in late December is really going to benefit 2021. So there you can sort of approximate what the revenue impact is. And then from a margin standpoint, certainly it will be above our consolidated corporate margins because you don't have incremental fixed costs generally associated with that flow through. And it should be somewhere in the 30s. You know, you've got to remember that stimulus also brought in quite a bit of cost for us in 2020. We had heightened dispute losses there. We had customer service issues, et cetera. And so it wouldn't be our highest flow through that we would see on just typical spend. There's generally some higher costs that come with it.

Thanks. That's super helpful. It sounds like there's a little bit of, you know, presuming that that gets passed, there's a little bit of upside sort of potentially baked into the environment, let's just say. Certainly. A second question, my second question. I wanted to ask about the GoToBank launch program. You know, any color that you can share with us there on the pace of adoption, how you might see that play out as the year progresses, any changes in the types of customers you're acquiring, usage patterns, spend categories, any color around GoToBank would be greatly appreciated.

Yeah, Ramsey, this is Dan. I'll take that. You know, it's really been... great to see the response we've gotten so far from the customers. So, I mean, all I can really say is, you know, as what we said on the call, is we're seeing, you know, demand for our secured credit card is, you know, 20% higher than we thought, and sign-up for overdrafts are stronger than we thought, and registration is even stronger than we thought. So, the, you know, the long-term plan of this, you know, is as we envision, you know, which is heads down, continue to execute, continue to invest marketing dollars, acquire customers, predominantly acquire customers on direct deposit, that give us great recurring revenue and very good lifetime value. So far, so good. Okay. All right. Terrific. Well, thanks for taking my questions this evening. Thank you, Ramsey.

Thank you, Ramsey. And our next question will come from Andrew Jeffrey with Truth Securities. Please go ahead.

Thanks. Good afternoon. Appreciate you taking the question. Dan, I'm intrigued by some of your comments on SMB, and I'm wondering if you can elaborate a little bit on what you think the opportunities are there. Is it that some of these small businesses that you're targeting are distinct from those that might allow you to use some of the other SMB opportunities? banking options in the market. I'm thinking about Square Cash, for example. Is it more of a targeted demographic or is it more of a targeted solution set? And maybe a couple of examples of use cases would be helpful.

Sure, Andrew. I appreciate the question. To be real candid on it, it's just more and more of a theme that we are seeing kind of proliferate amongst, you know, our partners and also from our customers. So, you know, really starting with Uber, and you just think of what's happening in the world is so many workers are becoming independent contractors, and then with, you know, solutions out there offered by Amazon and Etsy for, you know, small manufacturers and whatever sort of products, you know, able to set up and sell and distribute products And when I talk about businesses that are doing millions of years of turnover, we're talking about businesses doing tens of thousands of dollars a year of turnover and sales. And this is a business-slash-consumer, typically a sole proprietorship, that is not too unlike a low-income consumer in the way that traditional financial institutions just... either are not equipped or don't really want to be bothered with such, you know, what they consider small customers. So it's going to be, you know, we're going to, you know, target, you know, with our products and our solutions and then also target against, you know, this demographic, if you will, of small and micro business. And really kind of, you know, came to the determination on this because, you know, what we're working on and building together with, partners like QuickBooks and Uber and GigWage and Cabbage. And so I kind of feel that together, collectively, we can reach what is, you know, a target of tens of millions of small businesses that what we're hearing, you know, they have unique needs compared to larger businesses out there.

Okay, that's helpful. And just as a follow-up, as you... gain more SMB or micro merchant customers, do you think it will make sense to vertically integrate the tech stack in the digital world, offering omni solutions or web design or even reselling third party payment solutions or something like that as far as a means of driving monetization?

When you say vertically integrating the solutions,

I know there are other companies offering services like web design or fulfillment. Do you intend to offer more of those services for a customer lifecycle, or is it really strictly about the money management and payments?

What we're going to be focused on is just the unique money management financial solutions for small business. As you know, we don't do acquiring, and that's a big piece of what most small businesses are going to be looking for, so we won't be playing in that space. But for the small business who needs a bank account, needs to be able to pay some of their employees, we will leverage our rapid pay cards. from they need access to small, you know, small denomination credit, you know, maybe to fund receivables. All of those things, you know, the ability to get a secured credit card, build a credit score, access to credit, find out pay later solutions. You know, all of those things are in the potential of what we can bring to today's small business. Okay. Thank you. Appreciate it. Absolutely. Thank you, Andrew.

And our next question will come from George Sutton with Craig Hellam. Please go ahead.

Thank you. I wondered if you could talk about the incremental investment side of the equation and break it down, if you could, into the core banking and management platform spend separate from the SMB bill. I'm just willing to try to compartmentalize those if possible.

Sure, I'll start with that just in terms of, you know, the logic behind it, and then Jess can share with you any sort of numbers, if there are such numbers to share. But first off, on the small business piece, there's not going to be a huge, you know, incremental increase in the SG&A spend for the small business piece. I mean, we're in the process of building solutions for a number of our past partners. And, you know, we've got fungible IT and development resources that we'll be able to use. And as we lay out kind of the feature functionality that we would create for, you know, small microbusiness against the feature functionality that we're creating for our go-to-bank customers, I think 70%, 80% overlap there. So incremental builds for small businesses is going to be somewhat nominal for us. So that's... That's the reason why we're, you know, going to pursue this aggressively is because the incremental cost to go after it is not that dramatic. Now, in terms of core banking and card management, this is a big project, right? And it's absolutely mission critical. You maybe have heard me talk before of, you know, Green Dot made a number of acquisitions over the years, now never integrated them, so now we are running on using six or seven different outsourced processing platforms, and even sponsor banks aren't Green Dot Bank. And as we look at how to really create operating efficiencies at Green Dot, the effort to consolidate everybody onto one other outsourced platform makes no sense. So what we're going to be doing is contracting for software to run a core banking platform and card management system, And these are from, you know, these will be. We haven't made our final decision yet, but these will be from absolutely top industry standard operators that have these solutions in hundreds of finance institutions around the world. So it's proven technology. There's plenty of IT resources that know how to operate it. And from an affordability standpoint, yes, there's an initial cost to license these solutions. But once we pay for that license fee, our ongoing operating costs will be dramatically less than what we're paying the third parties today. And so that's why, one, from an efficiency profitability standpoint, you know, maintaining margin expansion, it's critical. We'll take a variable cost of our outsourcing processors and turn it into a much smaller fixed cost. And we'll then control this platform, if you will, and it's going to allow us to move much faster on creating new solutions and innovation. And where I really get excited is we think about, you know, between our own customers and products that we have on our platform, and then we have customers and partners running on the same platform, the things that we can do in terms of connectivity of those ecosystems gets really exciting down the road.

Perfect. And one other question on the go-to-bank app side. We've been tracking the downloads. What we are looking at looks like a substantially larger number in the initial days than what you were seeing going back to the unlimited offering. Could you just give us some perspective of the relative success that you've seen versus other prior programs?

On a relative basis, we can say that it's probably been our most successful launch of a new program. I mean, the downloads are outpacing what you track from Green Dot Unlimited, I think around this time last year. So what's nice is we might be able to say it's probably the best received product launch that Green Dot has ever done, but we're also going to say it's going to be the last Green Dot branded product launch that we're going to do. GoToBank is it. This is our product. We are looking for customers to commit to GoToBank as their primary bank account. And we will commit to that customer to provide them future functionality unlike anything else that they'll get from any finance institution or any other neobank or any other challenger bank out there in the space. Perfect. Thanks. Thank you, George.

And our next question will come from Bob Napoli with William Blair. Please go ahead. Thank you. Good afternoon, Dan and Jess.

Thanks for taking the question.

So just as we think about 2022 and longer term, Dan, and I guess, Jess, you talked about high single-digit revenue growth and low double-digit earnings growth.

Is that kind of the... you know, the model that you're looking at for the medium to long term, and are you gonna give different segment information than we've received in the past?

Hey Bob, I'll take a crack at answering that. To your latter question, yes, segments is absolutely still on our plate, and We're hoping to have it done for this call, but we need a little bit more time. On your first question around, you know, margins, I think, you know, what we talk about with respect to the core banking platform, we have, you know, roughly $50 million of processing expense with third-party providers, and that's sort of the nugget we're going after. Now, it won't go away completely. Obviously, we'll be changing some of that variable into a much smaller amount to fix costs that we'll carry because we'll have SaaS licenses and other things, and we'll have... people to man those, you know, those infrastructures, et cetera. But, you know, not to get too far ahead on what margins will look like in 2022. That's the nugget we're chasing and expect to start to deliver on that and start to see those results flush through in 2022. So I think... I would not suspect us to have sort of that steady margin year over year getting into 2022. As Dan mentioned in his preparatory remarks, we've got redundant expenses in the system. So there's a lot of pieces to the puzzle. But, yeah, it was certainly margin expansion 2022. I don't want to necessarily get ahead of myself and quote what I think that margin will be.

and segment, you know, segmentation, like, you know, the bass business or, you know, small business, or I don't know, the thoughts on giving additional segment information. Yeah, look, don't hold me to it.

I would say, you know, our retail and our direct business have very similar characteristics. And then, obviously, our bath and pay card are very much tailored towards a B2B relationship, so those are a natural sort of fit together. And then you have our money movement services. So, yeah, that's a possibility of what the segments could look like. But, again, don't hold me to it.

And then I guess the Walmart-Ribbitt with, you know, Green Dot has the Tailfin relationship.

What is going on with the relationship with Walmart in that regard? I think you both have invested in Tailfin, Green Dot, and Walmart. Then you have the Ribbit relationship. Yes, Bob. I'm glad you got that question out there. You know, that Walmart, with its investment in a FinTech JV of, you know, to yet to be decided, you know, it's not unlike, you know, many other investments that Walmart has made, including, you know, the investment that, you know, they've made in Green Dot over the years. So we've had really... really productive conversations with Walmart recently. As you know, we've got close to six years left on our existing agreement with Walmart. We've been in there for 20-plus years. And, you know, as evidence of the things, some of the things we've rolled out with Walmart this past year that we just mentioned on the call, I can say I don't know exactly what the details are of the Rivet and the JV and what Walmart and them are thinking about going down. You know, who knows? But I do know what we're in discussions with Walmart about currently are quite exciting.

Great. Thank you. Appreciate it.

Thank you, Bob.

And our next question will come from Andrew Schmidt with Citi. Please go ahead.

Hey, John. Hey, Jess. Thanks for taking my questions, and thanks for all the context on the call. I want to dig a little bit into the core banking and card management system overhaul. I do agree. I think that's a big opportunity. On the expense side, the benefits are fairly clear. But on the revenue side, I want to talk a little bit more about that. I can see greater agility, faster speed to market, things like that.

But are there new use cases that you could roll out that could help accelerate revenue growth and Give us some examples.

I think you alluded to some earlier, connectivity, ecosystems, things like that, but anything on the new use case front from the systems overhaul and the streamlined IT infrastructure would be helpful.

Yes, Andrew, and I'll take a shot at that, but I'm going to ask Jess even to quantify what we think are going to be some of the expense savings. from this because we do have a big process and expense line inside of Green Dot and I don't want to mislead anybody to think that that entire expense line is going to go away, but a meaningful piece of it will. But in just terms of flexibility and opportunity for us with this, Just fundamentally, if you think, you know, the structure of how we will manage consumer accounts will change and improve. So, just the ability for us to have one customer with multiple products or accounts will be a tremendous benefit, you know, and the ability to then offer credit products to consumers and then to small business. And I want to be really, really clear here on credit products. We're not talking about large loans where we're taking credit risk and we're not talking about, you know, financing automobiles and homes and such. We're talking about, you know, things like, you know, very consumer-friendly overdrafts that we offered on our on our go-to bank product. Things maybe, you know, small merchant cash advances or cash advances on receivables for small business. Things of that nature where we've got really good line of sight into our customers' financial lives and any credit that we extend would be, you know, very short term and very low risk. So we just, I don't know, it's really hard to quantify and say, hey, if we have our own core banking platform and card management system that there's, we can do this product, this product, and that product. We'll just be able, we'll be able to do what we're doing now and what's on our current roadmap much more efficiently and at a lower cost basis because we're not going to be paying, you know, piece of every transaction to a third-party provider. And most importantly, we're not going to be waiting in line for that third-party provider to create something for us, you know, but only after they've created or finished projects that they have for other clients.

Makes sense. Thank you. Jeff, did you have a clarification? No, just to add on to Dan's point, the processing line item on a year-to-date basis is like $284 million. So of that, there's about a $50 million subset that is very tied to our third-party processors. I just wanted to reiterate that. Right. Yep, that's super helpful. Thank you for that. And then just a quick follow-up. It sounds like the Google Bank launch is going better than expected. How about on the customer acquisition cost side? Is that trending in line with your expectations? And maybe just, you know, any thoughts on just the marketing budget for that this year or incremental expense?

The cost per acquisition is in line with what we're looking for, maybe even a little bit less. You know, still early indications on that. And then from a marketing spend standpoint, I'll let Jess address that one.

Yeah, the group. We're going to spend approximately $5 million incremental year over year. And so part of that investment we talked about, growth-oriented investments, is in part marketing the go-to bank product. Clearly, we've seen... some really good early indications of success there. And that's a testament to all the marketing research that the teams did in advance of launching this product. And then, as Dan mentioned, also customer service enhancements and then the core banking platform.

And, Josh, you might want to mention that the marketing spend, you know, is kind of heavily loaded in the first quarter, you know, as compared to prior years of marketing spend.

Yeah, take advantage of the tax season. That's a great acquisition time for us, and clearly we have a lot of different channels in order to do that. Got it.

Makes sense, guys. Thanks a lot. Welcome. No one has yet to congratulate us on a really good fourth quarter that's beat everybody's expectations. So, anyway, not that I'm fishing for compliments, but just kind of quiet on that front.

And our next question will come from George Mihalas with Cowan. Please go ahead. Hey, guys.

Thanks for taking my questions, and congrats on a strong fourth quarter. Thank you, George. Just a quick one from you. I guess, firstly, as you look at it into 2021, how have you thought, you know, potentially, and maybe what are the puts and takes of the business model in sort of a higher rate environment? How are you guys thinking about that, if you were thinking about that at all at this point?

Puts and takes in terms of a higher interest rate environment?

Yeah, just a rising rate environment, broadly, to the extent that that comes to fruition.

I think that'll be, you know, good for us because we'll have – they'll make, you know, much better returns on all the cash we have at our – at Green Dot Bank.

And to be clear, that's not factored into the guide. That would be additive. That would be additive. Yeah, we haven't forecasted any rate increases from Fed into any of our guidance. Okay. Okay, that's all.

I guess a point of clarification, the one-time impact as it relates to the tax processing revenue from the renewal, how big of an impact is that going to have on revenue?

It's going to be somewhere in the neighborhood of $9 million. Okay, great.

Thank you, George. Our next question will come from John Hecht with Jefferies. Please go ahead. Afternoon, and congrats on a good quarter.

Thanks, John. Dan, I know you've talked about going forward, BAS is going to be not just lobbying for a bunch of numbers but getting some high-quality partnerships. But I'm wondering, can you talk about the BAS pipeline, give us any sense for any movement there? And if so, any different or changing characteristics of kind of new upcoming BAS partnerships?

Yeah, sure, John. Appreciate that. And, you know, the nice thing is we have already a lot of very high-quality VAST partners in hand. So I hope my comments were never misleading to any of our existing partners. But what we're working on that's so exciting is you know, the conversations we're having with our existing partners are about, you know, how do we take this, you know, to the next level? What next can we add in terms of feature functionality to the solution? Because, you know, we're focused on, you know, creating, you know, seamless, meaningful payment solutions that are embedded, you know, in the solutions, you know, and applications of our partners. So if I think of all of our partners, you know, not just that, you know, Walmart. Everybody thinks of Walmart as a retail partner. I mean, you know, they're a partner. So, you know, inclusive Walmarts and QuickBooks and Cabbage and, you know, Amazon, we just announced with Flex, you know, we're already talking about, you know, what's the next feature functionality we add to that Flex account. So I can say with, you know, with all of our partners, we're in discussions with, okay, what's the next chapter in terms of future functionality that we bring here? So, one, existing base of business is all real positive. And then in terms of the pipeline, you know, at any given time, you know, now with our refocus on, you know, large, impactful, or, you know, really powerful new solutions out there, At any given time, we're in a half a dozen conversations with potential new partners.

Does that help you? Absolutely. Thanks for that context and the color. Second question is just looking at some of the metrics, user engagement obviously has been picking up. I know it's early with the go-to bank, but can you distinguish customers you've got through that channel versus earlier customers, and is there any tendency for greater interaction or, I guess, better revenue growth at the customer level or at an earlier part of their life cycle?

John, I would say that, you know, the approach of GoToBank is different than the approach of Green Dot products of the past. So, you know, without knowing exactly, you know, who our customers are, I would say that we probably are with GoToBank attracting, you know, a different kind of type of customer and that we are offering a We're offering a bank account that's designed specifically to serve the needs of consumers living paycheck to paycheck in this country, which is estimated to be close to 100 million consumers. And I do believe that the revenue potential and the profitability of these customers will be much greater than what the customers of Green Dot would market to in the past. Because when we... It is a fee-free product when a customer signs up for direct deposit, and that is by design. We want the customer to commit to this product. We want them, you know, statistical averages, you know, load $1,200 to $1,500 a month through the product, sign up for our consumer-friendly overdraft, sign up for a secured credit card, really embrace the full, you know, suite of services, and measure their lifetime with us, not in months, but in years. And, you know, my experience and the experience of others we brought onto our team to lead this initiative, you know, tell us with a great degree of confidence that these customers that we are acquiring today, they will be with us for years.

And maybe one early sign of positive engagement, certainly that's exceeding our expectation, is the opt-in, not the overdraft. So you have to be a direct deposit customer. And so, given the outsized, I guess, opt-in, if you will, on the go-to-bank products, certainly lead us to believe that we're going to have a strong DD enrollment in that product. Certainly better than what we had seen at that moment in some of the predecessor products.

Yeah, and I just want to make sure, did you say something north of 50% we're opting in?

What was that specific figure? I didn't give a specific figure. I was just saying that we're seeing something well above expectations. Okay, thank you.

And again, if you'd like to ask a question, please press stars and one. And our next question will come from Ashish Tabhadra with Deutsche Bank. Please go ahead.

Thanks for taking my question. Let me add my congrats to the fourth quarter. Maybe just on the quarter itself, the car reviews and other fees was pretty strong. It has been pretty strong over the last two quarters. Just how should we think about the sustainability of the growth there? And if you can parse out what has been driving such a strong growth on those line items. Thanks.

Over the past couple quarters, we've been mentioning that BAS fees, so these are fees that we actually charge to our BAS partners, have been increasing. In part, some of that is tied to the processing volume you're seeing, the uptick year over year in that particular line item. There's one particular engagement or agreement with a BAS partner where we pass through some of those processing costs really associated with merchant acquiring. So part of that is driving the outsized performance on card revenue and other fees, and I would say second to that is going to be monthly maintenance fees, just because you have heightened deposit balances, more active customers in the mix. And then to a lesser extent, you've got the ATM volume as well.

That's very helpful. And maybe just a question on the use of cash. How should we think about it? You've talked about, obviously, the investment opportunities. How do we think about potential ducking M&As or... or buybacks, any color on that trend, any color on M&A Pipeline? Thanks.

Nothing really to report on the M&A Pipeline. You know, we're always, you know, going to be open and looking for, you know, opportunities. In terms of the use of cash, you know, I like seeing our cash balance grow, so I'm going Jeff and I might arm wrestle a couple times on share repurchases and such, but as for right now, I'd like to see our cash balance, you know, grow healthily for a few more quarters.

That's very helpful. Thanks.

And our next question will be a follow-up from Bob Napoli with William Blair. Go ahead. Thank you. Thank you.

Some of the questions were answered. Dan, we expect you to have a good quarter, so it's expected. Thanks. Thanks, Bob. You're like my mom. I could always do better. Thank you.

Do you have any thoughts on the product set out of GoToBank and how you want to expand that product set over the next few years? Are there

different items on the agenda that I think, you know, always adding to the platform, if you would? Yes. I'm opening up something to look at. You know, without kind of telling you, like, the details of what we're doing, what we're looking at is just kind of like product sets to where, One, first and foremost, just a payments transaction account for the consumer. So to give them early access to wages, you know, information at their fingertips in terms of what their balance is, what their last transactions were, you know, so that they can, you know, in essence, have the same knowledge of what they have, you know, as if they had that cash in their pocket. And so that's really, really, you know, mission critical. And then also, you know, the the things that, you know, are kind of not typical with other traditional financial institutions, like, you know, eliminating authorization holds on the accounts, you know, much faster than others do, just to give people access to those funds. So just, you know, as I mentioned, consumer-friendly overdrafts, such that. So then, you know, with the fundamental of, like, you know, a transaction tool for a low-income consumer, Again, I can't overemphasize how important that is because it's got to be different than what is designed for people with excess capital. So transaction tool, get that box checked, and I think we've got most future functionality there in place. But then in general, we're going to be focused on credit solutions for consumers, credit building, buy now, pay later type of solutions. Rewards programs, and we've rolled out a very powerful rewards program already with initially GoToBank, so continue to focus on how we can help our customers stretch their dollars. Investment options, so our partnership with Stash illustrates the ability of, and I love Stash and their mission of being able to make investing available and just part of you know, mainstream financial health. So we want to be able to offer similar sorts of solutions for the go-to bank consumer. And then also just general wellness, you know, just things that kind of help our customers, you know, peace of mind, you know, such as savings and insurance and things of that nature. Like I said, this is a mission that we have to really deliver solutions to this customer that no one else is able to. And would many of those products have to wait until the core banking platform is updated? No, they do not. So that's the thing. I hate this expression because it's used, but we're building a plane while we're flying it sort of thing. So, you know, we're not going to, like, you know, say, okay, everybody stop, tools down, we now got to launch core banking card management. No. We're going to keep building on GoToBank, keep going up the feature functionality and upgrades on our retail business, our tax business, our pay card business, while simultaneously strengthening the foundation. And so that's why we're going to have a short-term jump up in SG&A this year because we're going to maintain our existing systems, our existing momentum and while building this new platform. Thank you. Appreciate it. Thank you, Bob.

And this will conclude our question and answer session. I'd like to turn the conference back over to Dan for closing remarks.

Thank you, Operator. Thank you, everybody, for the time and the questions. Look forward to catching up with everyone over the weeks to come, and looking forward to getting back to work. Very excited about 2021. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines this time.