Green Dot Corporation

Hey, and welcome to the Green Dot third quarter 2022 conference call. All participants will be in listen-only mode. If 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. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Tim Willey, Senior Vice President of Investor Relations and Corporate Development. You may now begin now, sir. Thank you.

Thank you and good afternoon, everyone. Today we are discussing Green Dot's third quarter 2022 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. 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 and certain 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 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 copyright protection. Now, I'd like to turn the call over to George.

Thank you, Tim, and good afternoon, everyone. We have a lot to cover today, including the recent changes to our management team you should all now be aware of, an overview of our third quarter results, an update on our key near-term priorities as we continue transforming Green Dot into a next-generation financial services platform, and a brief overview of our longer-term strategic opportunities and priorities. Then we will open it up for questions. So let's jump in. Our financial results for the quarter came in at or above the high end of our guidance range. Revenue of $337 million was up 3%, while EBITDA margins were 13.5%, and EPS of 44 cents was up 2%. We have been seeing weaker-than-expected consumer activity, particularly in the retail space, which then extends to Green Dot Network utilization. These shortfalls have been largely offset by stronger-than-expected performance from our BAS partnerships and contributions from our bank. On a year-to-date basis, revenue was up about 2%, while adjusted EBITDA and EPS were up about 11% and 15% respectively. Free cash flow on a year-to-date basis was up 78%. Jess will provide some additional details on our results in a few minutes. Though we face some uncertainties related to the broader macro environment, we have made significant positive changes at Green Dot. I am happy with our consolidated results and grateful for all the hard work the team has put in to drive our business forward. I'd now like to take a moment to share a little more context and my perspective on taking on the role as CEO. Dan Henry has been a friend and colleague for many years. He has had an amazing career of value creation. He laid a strong foundation and path forward for Green Dot during a period of critical transition. He built an impressive management team and established a solid vision and purpose, and we appreciate his contributions. Dan will continue to be a friend of Green Dot for many years to come, and we wish him the best in his future endeavors. I am humbled and feel privileged to assume this role. I simply couldn't feel more strongly about the opportunities this company has in front of it, and I hope my experience, knowledge, and approach will serve Green Dot well and lead it to its inevitable success. The two most important first steps I plan to take in this role are to first, set us forward on a clear strategic path to success. I recently had the privilege of laying out our strategic roadmap for our board, and we'll share some of those highlights with you in a few moments. Second, and equally important, will be to ensure we have the right team to execute against our opportunities. To that end, I am pleased to make the following changes to our leadership team. Chris Ruppel has been named Chief Revenue Officer, responsible for overseeing all revenue-generating businesses, including Bass, Consumer Direct, Tax, Processing, Green Dot Network, and PayCard, as well as the company's marketing and product development teams. Chris brings a wealth of experience to this role as an entrepreneur and proven value creator. He co-founded and ran our pay card business for nearly 20 years, building it into one of the largest and fastest growing pay card businesses in the country. Prior to co-founding Rapid, he held numerous leadership roles at private equity portfolio companies. He is a proven executive that can help maximize the revenue opportunities across our franchise via his ability to understand cross-channel collaboration, disciplined resource allocation, and mentoring talent. Jess Unruh, who most recently served as operational CFO and chief accounting officer and previously served as interim CFO, has been named chief financial officer. Prior to joining Green Dot in 2009, Jess was with Ernst & Young for a number of years. Over the last year, he has been a tremendously valuable resource and partner. His deep understanding of our business and financial metrics and analytics are unparalleled, and we are fortunate to have him lead this function in an official capacity going forward. Finally, Theresa Watkins, who most recently served as our SVP of operations, has been named Chief Operations Officer, responsible for overseeing payment processing, payment networks, supply chain, settlement, sourcing, procurement, and customer experience and support. Teresa is a natural leader with deep experience managing complex operational teams and implementations. She's also played an instrumental role in our banking and payment platforms transformations, and she is a valuable addition to the executive team. Let me now hand it over to Jess to give you some more detail on our third quarter results and full year expectations.

Thank you, George, and good afternoon, everyone. With the press release and slide deck, you should have all the necessary financial numbers and metrics. Let me provide some qualitative commentary about each segment to help you better understand the core of what's going on in the business. Turning first to our consumer segment, which is comprised of two unique channels, retail, which is our largest single channel across the company, and direct-to-consumer. Aggregate revenue declines largely remain a function of decline in active accounts in both channels, driven in part by the impact of stimulus programs in the prior year and in part by very distinct dynamics within those channels. Regarding stimulus, many accounts benefited from enhanced pandemic-related unemployment benefits through much of Q3 2021, as well as elevated deposit balances from stimulus money earlier in that year. As for distinct dynamics, the retail channel is faced with two challenges. First is the headwind associated with the secular change in consumer foot traffic. Second, and to a lesser degree, is the competitive environment as consumers now have a variety of direct consumer options. However, in our direct channel, the declines are driven by two factors. First, as we've discussed in the past, we've made a very deliberate decision at the beginning of 2021 to de-emphasize legacy brands while we invest solely in building the go-to brand from scratch. Second, as we've noted in prior calls, we pulled back our marketing spend for go-to in the first half of the year, which has had a negative impact on account growth. So we have begun to put marketing dollars back to work. We believe this re-acceleration of marketing spend is well-timed as we have worked to improve the customer experience, and our competitors have shifted their focus to reducing their expense base by pulling back marketing spend and reducing headcount. While we continue to see year-over-year declines in aggregate accounts, over the last couple of quarters, the rate of sequential decline in our direct deposit accounts has been moderating, which we believe is encouraging. We would attribute this to a combination of stimulus-related accounts having largely left the platform while also benefiting from improvements in customer experience and stronger conversion rates as we improve the customer journey from account acquisition and opening to signing up for direct deposit. Looking at revenue, there is one call-out I'd like to mention. Though it is still early, revenue in the direct channel, which accounts for a little bit less than 30% of segment revenue, has been reasonably consistent for the last several quarters. This may be an early indicator that we could be finding a bottom in this channel, particularly with direct deposit customers who monetize at much higher rates. While not going into specifics, an example I would provide is that revenue in the direct channel is now higher than it was two years ago while retail is down. Again, it's early. We are encouraged by what we're seeing in the direct channel. As you know, the go-to brand is our key customer-facing product And this is the product we put nearly all of our marketing dollars behind in the direct to consumer channel. While we don't disaggregate individual product performance in our sales reporting, I'd like to share a few metrics on GoTo. The GoTo product now represents 40% of the revenue in our direct channel. And just as important is that within GoTo, the growth of direct deposit active is up 58% versus last year. We're very pleased with the performance of GoTo and encouraged by what we're seeing. Last, a trend we've highlighted in prior quarters, revenue for active was up 13% over last year as the mix of active accounts continues to improve and we enjoy continued success in driving engagement and penetration of overdraft in the customer base. It's worth noting that the growth of ARPU and our direct channel has been growing at a higher rate than the overall consumer segment due to improving account mix and direct customers have a higher annual revenue proactive account than those in the retail channel. Looking at B2B, which consists of our BAS and PayCard channels, growth was driven by both BAS and PayCard, while margins remain impacted by contracts that have a fixed profit component. Growth of one of our larger customers continues to power the top line in the BAS business, while the remaining portion of the business is still lapping the deconversion of a customer in early 2022, which also accounts for the bulk of the year-over-year decline in active account. The pay card division saw solid results with revenue and account growth in the low to mid teams. Looking at margins, the impact of a couple of customers with fixed profit structures continues to weigh on the aggregate segment margin. If we look at the segment excluding this impact, we believe it gives us a better feel for the margin performance and how we manage the business. In that context, margins were stable to up as we continued to see improvement in areas such as customer care, risk management, and supply chain. Let's turn to money movement, which is comprised of our tax processing business, known as TPG, and the Green Dot Network, which serves our own account base, but is seeing an increasing amount of volume from third-party partners. While revenue was down in the quarter, timing around tax volumes and associated revenue can have a disproportionate impact to growth rates. More importantly, If we look at the year-to-date revenue for this segment, it is down 6% with TPG seeing nice growth in transactions and revenue, while the Green Dot Network is seeing declines from the impact of the decline in active accounts in our other segments. That said, the rate of transaction declines for the Green Dot Network is less than our active account base as this channel is seeing momentum and adding new partners. We believe that the Green Dot Network is a unique asset that is under-monetized and other entities some which you may view as our competitors, see the value in joining this network, providing convenient cash-in and cash-out access to their customers. Over the last several years, third-party partner volumes have grown, and we expect that to continue for the foreseeable future as we sign and launch new partners. The margins for the money movement segment were down year-over-year in Q3 due to the timing of tax season. On a year-to-date basis, they're up almost 400 basis points. and remain at a very healthy level of roughly 56%. Turning to our corporate and other segment, this segment reflects the interest income we earn at our bank and any related expenses, our fixed expenses, such as salaries and administrative costs, and some smaller intercompany adjustments. For the quarter, there was some modest increase in salaries and administrative costs, mostly tied to the expense related to our technology transformation. And revenue, specifically interest revenue, was up and reduced the drag on earnings. It is important to understand how our interest income works and how it is reported in our segment results. Functionally, our cash balances benefit from the rise in short-term rates. However, we have arrangements with certain partners that result in us sharing a substantial portion of that interest income. Conversely, we see yields on our investment portfolio increase, but at a slower rate as securities mature and proceeds are reinvested. In our segment reporting, the interest we share with our partners is netted against the interest income we generate on cash and investments. The last thing I'd like to discuss is our focus on managing expenses and driving efficiency. Over the last year, we have focused intently on improving our cost structure, and we will continue to make this a priority. As you've heard us mention several times on this call, we are seeing tangible improvements in key areas such as fraud and risk, customer care, and supply chain. At the same time, we'll continue to carefully invest in areas like security and compliance as well as marketing when there's a clear payoff. Last, I would point out that while we are currently shouldering expenses tied to our technology transformation, as we complete that effort, those expenses will roll off and efficiency will be gained. Turning to capital and liquidity, we continue to have a strong balance sheet and liquidity position. We had free cash flow of approximately 41 million in the quarter. And at quarter end, we had $92 million of unrestricted cash at the holding company. During the quarter, we repurchased 1.3 million shares at an average price of $22.92. At the end of October, we had $16 million remaining on our current share repurchase authorization. We expect to give an update about capital allocation on our next earnings call after we report Q4 results. Before turning it back over to George, let me give you our updated thoughts on 2022 guidance. For 2022, we reiterate our full year non-GAAP revenue guidance range of 1.394 billion to 1.43 billion. We are reaffirming the midpoint of our adjusted EBITDA range while narrowing the low and high end of the range to 232 million and 238 million. We are raising our non-GAAP EPS to a range of $2.42 to $2.51 to reflect a slightly lower share count, as well as slightly lower depreciation expense. Backing into Q4, the midpoint of our guidance implies non-GAAP revenue of $325 million, adjusted EBITDA of $32 million, and non-GAAP EPS of $0.24. Addressing what may likely be someone's question about not raising the midpoint of EBITDA guidance despite the third quarter beat, I would point out several things. First, as we discussed on our Q2 call, we expect to incur additional expenses to improve our anti-money laundering compliance controls, policies, and procedures, which could impact our margins and other results of operations. Second, we are still uncertain about the timing of partner deconversions. We're encouraged by the performance of GoTo and reserve some flexibility to elevate marketing spend if we believe it makes sense. With that, I'll hand it back over to George.

Thank you, Jess. As we assess current conditions and anticipate the challenges and opportunities ahead that we plan to navigate and capitalize on, I want to reiterate that our near-term priorities have not changed. First, our technology transformation will continue. We must move the company forward. onto a modern technology platform. This is critical to our long-term success as it will unlock our capabilities and potential while driving significant efficiencies across the enterprise. Second, operational excellence. We must remain focused on finding ways to be more efficient and making this a part of our cultural DNA. Areas like fraud, risk management, and customer care continue to see improvements, all of which are key to optimizing the customer experience and driving account growth. We are committed to maintaining a disciplined approach to managing the cost structure of the business in the years to come. Third, business development. We continue to focus on building a strong business development effort, and we are beginning to see success. We recently signed a large VAS partner, and we also launched earned wage access with one of the largest retailers in the United States. These two noteworthy successes are in addition to the renewal and extensions of two important VAST partners, along with a constant flow of wins in our GDN and Paycard businesses. Building out a strong sales engine is a priority, and I believe that Chris is the right person to lead that effort, while we also focus on investing in the infrastructure to ensure that we deliver and expand upon partnerships that we are creating. Now I'd like to take a moment to share our perspective on 2023, and the opportunities ahead of us that prompted me to join Green Dot a year ago and are even more apparent to me now as the CEO. First, let's talk about 2023. We are in the midst of refining our views on our expected 2023 financial performance. We previously indicated that a path to EBITDA growth in 2023 may be likely despite several customer non-renewals. Based on consumer and other trends we have observed in our business since the second quarter, we now believe adjusted EBITDA will decline on a year-over-year basis in 2023 compared to 2022. My commentary is based on factors including the macroeconomic outlook, interest rates, duplicative costs associated with our technology transformation, and the timing of the related expense savings and the performance of the retail channel. While the net savings from the technology transformation may be less than expected in 2023, we still fully expect these costs to come out in 2023 and view this as a timing-related issue. This directional guidance is preliminary and subject to change as it may be impacted by a variety of factors, including those described in our public filings. As we wrap up the budgeting process and have additional discussions with the board, we are intently focused on finding a balance between managing our expenses and investing in growth opportunities. We'll have more clarity on our outlook and I look forward to providing more detail on our year end call. I'd now like to summarize our thinking about our longer term strategic opportunities, which we recently shared with our board. Green Dot is a complicated company put together over many years without an eye toward optimization, efficiencies, or synergies, but the markets we operate in are vast and present a variety of growth opportunities. We are in the business of solving everyday problems for consumers, how they access their money, pay for things, and keep their money safe. Across all our major operating segments, the addressable markets are significant, and we have tremendous opportunity to capitalize on them through our platforms. We already operate successfully in these markets with proven capabilities. We serve four of the top five Fortune 500 companies today with our products and services. We have more than 75% of the top 20 retailers in the United States. We serve over 6,000 businesses with pay card products. We process the majority of all tax refund transfers each year, and we have millions of consumers as customers. We all know consumer behavior is changing and the rate of change is increasing. They go to retail outlets less frequently and demand convenience, speed, and simplicity in the financial products they use. Our partners, current and prospective, know this too. They are adapting to this generational shift by experimenting with new ways to deepen engagement with their customer networks. Often that leads them to some form of payment solutions. We are building an enduring platform business. Our modern configurable technology platform will combine with our banking platform and money movement platform to offer partners and consumers unmatched capabilities and product offerings at market-leading low cost. Our partner and consumer-facing channels, retail, BAS, direct-to-consumer, and pay card will eventually all pull from these capabilities in order to provide solutions for their particular market needs. You can think of these platforms as our embedded finance offerings, but it is an offering that will be highly differentiated in the market. And this offering will spring credit solutions, advanced disbursement capabilities, SMB banking products, pay card solutions, and much more. But not only will we be offering simplified package solutions to partners to help them deepen and expand their relationships with their own customers, We would do that at very low marginal costs with the technology we own, along with our ability to bundle capabilities, including payment network and banking offerings. While many of our competitors will have parts of this equation, none will have the capabilities we offer across the breadth of our channels and platform. Our strategy does not rely solely on the build-out of technology and integration of processes. While we believe those opportunities are immense, let me give you just a few more modest examples unrelated to our technology roadmap. Our pay card business, branded Rapid, serves over 600,000 consumers and is the fastest growing pay card business in the United States, according to Visa. While it is not today the largest business within Green Dot, it is an all-star. Consider this. Early wage access, or EWA, the business of getting people their pay as they earn it, is a greater than $3 billion market, which is largely untapped today. We believe everyone will inevitably have access to EWA sooner or later. We are selling this product today. We have a differentiated offering in the market. We have a large existing customer base to sell to with the best pay card sales team in the country to do it. It is early days, but we intend to win this race. Our tax business, TPG, also presents clear and attainable opportunities. The tax business has generally been driven by a single, highly profitable product, but with low organic growth. This division processes over 15 million consumer tax refunds and works with a network of 27,000 small businesses that prepare those taxes. So, we have 27,000 small business clients in this channel, but we do not offer them business bank accounts. We will. We open about 15 million temporary accounts for consumers to process their tax refunds, all of which are closed shortly after the refund is processed. These are essentially temporary accounts, and soon, many of these consumers will have a permanent go-to bank account open when their tax refund is processed. Today, we offer no credit or additional SMB solutions to these small businesses. That will change. By leveraging our bank, we will be able to create payment and credit products to distribute at low incremental costs across this network of SMBs and consumers. The Green Dot Network forms a unique nexus within the U.S. payment system. As companies seek to build digital-only financial platforms, they need to provide their customers access to a network, the Green Dot Network, with 90,000 locations that facilitate both cash and digital transactions. All payment transactions are and will remain in the domain of regulated enterprises providing safe, secure stewardship of consumer deposits. Our bank returns remain well below any comparable peer, and with steady progress and careful capital planning, we will bring the bank's returns in line with the market while keeping our depositors' funds safe and secure. This will be accomplished over time through conservative investment practices, careful introduction of modest credit products into our existing partner and consumer base, consolidation of all banking relationships we now conduct with third-party banks onto our bank, and the extension of services already provided by the bank, such as sponsorship. All the opportunities that I just referenced are real and in various stages of motion. In the case of products like EWA and embedded finance, we firmly believe we are in the early stages of what are once-in-a-generation opportunities. In summary, we have a tremendous growth opportunity ahead of us, given the size of our markets and changing needs and demands that our differentiated assets and capabilities can address and serve. We see and understand the challenges as well as the vast growth opportunities ahead of us. We have tremendous strengths and potential compared to many of our peers, and we have a strong plan and team in place to lead Green Dot to the success it is capable of. There's much work that remains, but we are focused, energized, and committed to executing our plan and delivering value for all of our stakeholders. With that, I'll turn it back to the operator to take your questions.

Thank you. I'll begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To draw your question, please press star then two.

This time, we'll pause momentarily to assemble the roster. First question will be from Bob Natalie of William Blair. Please go ahead.

Thank you. Good afternoon, George, Jeff, Tim. Thank you for the question. Very interesting, George. Appreciate the discussion and discussions around embedded finance and some of the opportunities you see. What do you see as the biggest challenges and what is the right growth rate long term for Green Dot? What do you see as the biggest challenges? When would you see like net account growth, you know, pick up year over year? And we'd really appreciate it.

Thanks, Bob. Look, I think to the extent we've characterized challenges, they probably stand within our control in the sense that we're fully occupied right now with executing against internal, inwardly focused activities around technology platform modernization. Those are complex challenges. Obviously, they take a lot of time and focus. While we're doing that, we need to also keep the BD engine running, develop our team, all of those sorts of things. The challenges are not necessarily, from our perspective, external in the sense of changing consumer behavior or macroeconomic conditions. important things done quickly so that we can be fully leveraging our capabilities. That's the way I'd put it. I would shy away at this point from giving you any quantifiable long-term growth rates or margins, but our addressable markets, the markets we're in today are direct-to-consumer markets, $40 billion, pay card, $3 billion. They're gigantic markets, and really our potential, in my view, is unlimited with respect to those market opportunities, and it's all about us executing against them.

Thank you. And just a quick follow-up. You talked about EBITDA being down next year. Can you give any feel for how much of a decline in EBITDA you would expect?

No, I can't quantify it. I'll tell you this. I think it was generally imprudent for us to try to run ahead of 2023. We need to finish our planning and our work. It's meaningful, obviously, enough for us to put some point on it in this call. So I'll leave you with that comment, and we'll get back to you when we do our Q4 release. Thank you. Appreciate it.

Thank you. Our next question will be from Andrew Schmidt of Citi. Please go ahead.

Hey, George, Jeff, Tim. Thanks for taking my questions. Congrats to everyone on their new roles here. Thanks, Andrew. A lot of changes. Good to see. So I think I... Starting off, just a question for you, George. It's pretty clear that nothing changes in the near term. You kind of outlined a lot of the opportunities and why everything fits together, so it doesn't seem like portfolio optimization is on the table, at least in the near term. But maybe you could just talk about how your philosophy or how your focus changes as we go out a little bit further in terms of just incremental investment areas, opportunities, just any difference there. Regarding kind of the previous approach just just curious to get a feel there.

Thanks a lot Thanks for that question first. I'll say You know I I don't think that this is about comparing myself to Dan in any way I mean, but I will try to Expand on you know my way of thinking as it is You know I tend to be process-oriented, very focused on management execution and accountability. I think very carefully about milestones and how the team's going to achieve those milestones and try to put a lot of focus and maintain focus on each incremental step along the way. I try to build teams that share that philosophy. My core value as a corporate leader is is one of stewardship. Obviously, we accept deposits from millions of consumers. It couldn't be more critical that we take good care of those deposits and manage them prudently. And obviously, we have a large number of investors that we are stewards of their investment and their capital as well. And we take those obligations seriously. quite seriously. We think about these questions in terms of capital and capital returns over the long term. Of course, the steps we're taking over the next four to six quarters are approximately the same steps. We'll put a tremendous amount of focus on business development, integrating our sales capabilities, making sure that we're packaging product and services into the market appropriately. That's why I've asked Chris Ruppel to join me in this effort. So I think you'll see some shifting of priorities and a lot of focus on basic blocking and tackling management disciplines. But the path, in my view, is clear. We have amazing assets. We have to get them working together in the right way sooner rather than later, and our future is boundless then.

Got it.

I appreciate that context. That's helpful. And you've mentioned a lot of opportunities from a product perspective. Not looking for any quantifiable kind of timeframe, but I guess just generally speaking, When do we get to a point where we can see a faster kind of product velocity and see sort of the ability to kind of go after a lot of those areas that you referenced? Does the MVP have to be in place in order to see that product velocity step up? Because I do agree there is a big opportunity, but I'm just curious in terms of when we'll start to see some of these areas start to be attacked. Any color there will be helpful. Thanks.

Yeah, no, that's a great question, Anderson. It's a complicated question. I'm going to give it a shot to try to simplify our strategy that we talked to our board about over a couple hundred pages. I'm going to try to do it here in a minute. So if you think about our platform business, we have a bank platform. Sitting on top of that is the set of shared service capabilities, and on top of that is a money payment network, the Green Dot Network, and on top of that is a technology platform. Most of our channels in the near term, direct, our BAS channel and retail, will sit on top of those capabilities and distribute capabilities out of that platform. And in fact, that happens today, but it happens in a very complicated, high-cost way. And in the future, Paycard will sit on top of those platforms as well. So there's two elements to your question. One is bringing the cost point down materially so that we have a differentiated cost advantage in the market. And that could be bringing consumer products to market or it could be bringing partner products to the market. And then the other element, and the cost element of that is a multi-year journey. We've talked about the first step in that journey, which is the processor migration consolidation, which will occur in 23. But that's just the first step. I've alluded to other steps in previous calls. I won't repeat those. But as we go through those steps in 23 and in 24, all of these capabilities, these product capabilities you're asking about will be consolidated in a configurable way on the platform. So whether we're talking about our API developer capabilities, path to credit capabilities, SMB product offerings, advanced disbursements, all of those capabilities will incrementally become available over the next 24 month period of time. But it is our view and our focus to have the vast majority of that journey done by the end of 24.

Got it.

Very helpful, George. Thank you so much for the comments.

Thank you, Andrew. Thank you. Next, we'll go to Ramsey Els of Barclays.

Please go ahead.

Hi. Thanks so much for taking my question tonight. I was just on the Marketo earnings call, and they mentioned that they had won an issuance and processing relationship with Walmart for a product called One, I think, which is something putting out in conjunction with the Rivet JV. I'm just curious about what your read is on that. Was that something you guys were in the running for? Does it have any read-through impact on your programs with Walmart?

Thanks for that question, Randy.

First, I'm going to expand your question a bit and take an opportunity to make sure our audience understand our relationship with Walmart while I answer that question. So first, of course, we have an agreement with Walmart that goes into January of 2027 to manage the Walmart money card and distribute various Green Dot products within Walmart locations. And we have a number of ancillary services and activities associated with those agreements. So that agreement's in place, been in place for a long, long time, will remain in place. We also have a Tailfin joint venture, which you can read about in our public filings, that is primarily in place in order to create a pool of resources that can be used to foster innovation and distribution of the very products I just mentioned. That JV is active. It is doing exactly what it was intended and designed to do and it is currently designating investment opportunities for this sort of innovation. As we all know, Walmart has entered into this other JV with one in order to do certain other payment services. We have a relationship with one. I wasn't listening to the Marketa call, so I can't comment precisely on what it is they were characterizing. My understanding is that Marketa previously was the processor for one and remains the processor for one. So it's not new information from our perspective, but we don't consider that to be a material change. But I would highlight that as one considers the opportunities that they have to expand their payment footprint, they'll seek out various vendors to do different things. Obviously, they'll need banking relationships, they'll need payment processing relationships, they'll need money network access points, they'll need different products and features to bring to bear, and we expect to compete for those. We view this opportunity with one as expansive, not narrowing. So I can't comment further on what Marketa said, but that's our view of the overall relationship with Walmart.

Got it. All right. Well, thanks so much for that. I appreciate it. Sure. Thank you, Randy. Thank you. Our next question will be from John Heck of Jefferies. Please go ahead.

Afternoon, guys, and thanks for taking my questions. I guess just with respect to the high level of preliminary EBITDA commentary, I mean, can you give us color just in terms of marketing? Was this a revenue thing from the consumer segment? Was it the fact that cost savings may be delayed over the course of the year as you implement the new system? Is it a little bit of everything? Again, just trying to think about the trajectory of model it. So you mentioned the consumer segment, yes.

As we've gone through another quarter and we look at the acquisition trends primarily within bricks and mortar retail, they continue to be below our own expectations and below our expectations when we talked to our investors three months ago. That's one point. Interest rate environments are complicated with respect to Green Dot. Jeff made some comments in his prepared remarks with respect to how those affect us. I would go back and look at those. It would be burdensome to explain all the nuances of them, but as short-term interest rates increase at a rate faster, then we can invest in longer-term instruments that tend to have a short-term negative impact on us, so that's a factor. And the timing and pace in our own decision to slow marketing spending, particularly in the first half of 2022, has a negative impact on 23. We think that latter issue will have an opportunity to rehabilitate itself because, as I'm sure you know, many of our direct-to-consumer competitors are facing brand new capital constraints that they've never experienced before. We think that's going to harm their ability to compete in the market and direct to consumer businesses. So we think that may turn in our favor in 23, but I think it's really early to make that declaratively stated.

Okay. And then turning to the BAS segment, I guess kind of two questions. One's quick about the BAS segment and the second one. The first one is, I know there were some customer losses last quarter that were announced. Were those all out all the way through this quarter? And the second question is the ARPU in that category has been showing a nice upward to the right trend. Can you talk about what's moving that increased productivity with the vast customers?

The latter question, I'm going to kick over to Jeff here because I want him to at least have a little bit of an opportunity to comment in this call. The first part of your question is, you know, those partners trail off through the quarter will largely be exited by the end of the quarter or in very early Q1 of 23. And then, Jeff, if you want to handle the second question.

Yeah, and I think the ARPU and the BAS businesses, there are certain BAS customers that are high growth rate.

That same BAS customers have some of those fixed profits. So you're seeing a solid flow through of ARPU on the top line, but you're not seeing necessarily that flow through on the contribution proactive.

Okay. Thanks very much and congratulations on everybody's roles. Thanks very much. Thank you. Thank you very much.

Thank you. Next, our question will come from Joel Rikers of Truist.

Please go ahead. Joel Rikers Hi, guys. Thanks so much for taking my question. So, I was just wondering if you could provide me an update on the BAS pipeline as well as just any insight on contract renewals for B2B and what the timing on those looks like. I know kind of somewhat related to the last question.

Yeah, no, thanks for the question. So in my prepared remarks, somewhere in the first third or so, I did a quick list. I didn't name any particular partners. But we did sign this quarter a fairly meaningful BAS partner opportunity. That partner is being staged for onboarding throughout Q4. and would be expected to be onboarded in the first third of 2023. So that's very positive news. We've also extended another partner for a multi-year term in the last quarter within the Bass business, a smaller partner, but nonetheless an important one. We added to the services that we're providing one of our other large BAS partners through a contract addendum over the last few months, so that's an important victory for us. And the pipeline is good in the BAS business. There are so many opportunities. I think we need to have a much higher set of expectations with respect to the opportunities we can mine out of that opportunity. So we have a good pipeline. It's a long selling cycle, a long onboarding process. So we need to shorten the selling cycle, shorten the onboarding process, and improve our cost structure, as I mentioned to one of the earlier questions. Just also, you didn't quite ask about the other businesses, but understand that in our pay card business, we sell, sign, and onboard several hundred businesses per quarter, each quarter. In our Green Dot Network business, the numbers are much more modest, but between five and ten partners per quarter that we sign and implement within that channel. So we have a lot of other BD activities that go on throughout the organization that don't quite get the attention of our BAS channel.

All right. Awesome. Thanks. And then I have just one final one. You know, we've been hearing from some investors just almost parallel and greened out a little bit with Western Union. And while we don't really agree at all, the comparison kind of begs the question of how you escape this trap of dealing with deaccelerating retail segments. and also being a bit of a late mover to digital. So I was just kind of wondering, what do you guys think the answer to that is?

That's a great question. So we wake up today and we find ourselves with this great set of assets. We have some legacy businesses. Obviously, the company was founded in retail, in bricks and mortar retail, general purpose, reloadable prepaid cards. Dan Henry set us on a transitional path to migrate most of that activity to DDA, traditional DDA accounts, launch more progressive payment features on those accounts, including overdraft. Those are all great moves for us. So that puts us in a framework with a bank to offer all sorts of different account solutions for partners or consumers. But we have this complicated, expensive infrastructure And we are committed to bridging the divide. And so we have to make careful capital and operational expense choices to both manage our P&L, which everyone on this call expects us to do. We don't have the privilege of losing tens of millions of dollars every quarter like many of our competitors do, and they get celebrated for it. We don't have that privilege. So we manage our P&L. However, we have to invest in growth opportunities like EWA. EWA is an amazingly spectacular opportunity for us. We're going to win that game, but we have to invest in it. And so our challenge is different than Western Union's, in my view, is that we successfully navigate that tension that I just described. We're going to emerge. with market leading capabilities, highly differentiated, vertically integrated capabilities that will have a huge cost advantage in the market. And we're taking the action and we're undertaking the risk associated with executing that. We think some of the contemporary companies that you might be thinking of have not done that. We intend to do it and we intend to do it successfully and that's going to put us in a much better place in a year or two.

It's just an incredibly thoughtful answer.

Thanks a lot, George. Sure, you bet. Thank you. Thank you. And again, if you have a question, please press star then one. Next question will be from George Sutton. Greg Allen, please go ahead.

Hey, guys. This is James on for George. Thanks for taking my questions. On the opportunity to sort of leverage your assets more collectively and opportunity to roll out some F&B products with some of the tax prep customers, credit products that you talked about, you mentioned they should roll out within 24 months, but could you maybe talk about which one of those opportunities you're prioritizing?

Yeah, thanks, James. I'm going to take your question as another opportunity to make sure the rest of our audience appreciates what we're talking about here. So our tax business, TPG, is not and will not be integrated into the platform, the technology platform that I've been making reference to. We have built, and it's not quite but largely in place, a separate, distinct, technology capability with respect to our TPG business. It's a highly unique business, very specialized, and so that investment has been made and is largely complete. So that's important to understand. It's also important to understand some of the things we alluded to in our prepared remarks. We use a number of other banks. We own a bank. But, you know, if I look at the list of our bank competitors, you know, there's three or four of them that we use for sponsorship, for small dollar credit products, for other things, and that needs to stop. So first step within TPG was to get this platform in place, stable operating, and it ran successfully during the last year's tax season. Next step is to consolidate all TPG-related activities onto our bank. and that's mostly a cost synergy activity. Then, though, with these capabilities, that will position us to issue SMB bank accounts that we made reference to. It will position us to issue permanent go-to bank accounts to the people conducting refund transfers, where we cannot do that today efficiently. So in the 24 tax year, we expect to be able to do both of those things. but we have to get a few precedents completed, which most of those are done, but they're not quite done. So we need to round off that work in 23, and we'll be prepared to do those things we mentioned in our script in 24.

Great.

Sounds like a logical and attractive opportunity, if that makes sense. And then on the B2B side, Congrats on signing the new partner. I guess, have you seen any change in the market overall compared to maybe 12 months ago in terms of the level of interest for debit programs or the embedded finance capabilities you're able to provide?

Have we seen any difference, like, in the market for those activities or the competitive market? Was that your question?

I'm just thinking sort of level of interest.

Oh, from the demand, the demand side. Okay, I'm sorry, I didn't quite catch all of your questions. I would say the demand, well, here's my characterization of it. The demand's constant, a little uneven in the sense of, so there's a lot of interest from companies that have large customer networks in embedding finance capabilities into those customer network solutions. There's a large interest for that. But there's a very uneven degree of sophistication with respect to the purchaser, if you get my meaning, like the procurer of these services. They might have a sophisticated kind of payments capability within their company, or they may not have that, largely not. And so that unevenness complicates the selling cycle because there's a lot of education, a lot of information sharing that needs to happen. And then, of course, there's an evolution of purchasing intent as that education happens. So a lot of demand, demand just uneven with respect to sophistication.

But I expect the demand will continue to increase. Great. Thanks for taking my questions. Thank you, James. Thank you. That concludes our question and answer session.

Now we'll turn the call back over to Mr. George Gresham for closing remarks.

Well, thank you, operator. I'd just like to say in closing, I appreciate your high-quality questions today. I'm personally extremely excited about what we're doing here. As we mentioned in our prepared remarks, we operate into vast markets. We have highly differentiated assets. The thing that stands between us and really a transformative future at this company is executing some blocking and tackling activities. Complicated, yes. Doable, yes. So we're on that journey. I hope you all stick with us through it. I think the rewards will be there for all of us, and thank you for your interest.

That's all, operator. Thank you. Call is now concluded. Thank you for attending today's presentation. You may now disconnect. Operator? Hi, Joe. You owe me, like, lunch or dinner or something.