Green Dot Corporation

Good afternoon and welcome to the Green Dot Corp fourth quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Tim Willey, Senior Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you and good afternoon, everyone. Today we are discussing Green Dot's fourth quarter 2022 financial and operating results. Following our remarks, we'll open a call for your 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 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.

Good afternoon, everyone, and thank you for joining our fourth quarter and full year 2022 earnings call. Today we will cover the following topics. We'll review our fourth quarter and full year earnings along with our accomplishments for 2022. I will provide a preview of our 2023 guidance and priorities for the coming year. Jess will provide you more details on 2022 results and 2023 guidance, and I will share some closing comments before opening it up for your questions. Let's jump in. Our fourth quarter financial results came in at or above the high end of our guidance range. Non-GAAP revenue of $337 million was up 5% year over year. EBITDA margins were 10.5%. and non-GAAP EPS of $0.34 per share was up 26%. For the full year, we finished with non-GAAP revenue of $1.43 billion, up 3% year-over-year, EBITDA margins of 17%, non-GAAP EPS of $2.59 per share, up 17%, and free cash flow of $193 million. As I recap 2022, first, Let me say I am proud of our team and the focus and hard work they put into moving Green Dot forward. Let me take you through a few highlights. First, our fundamental performance. We finished the year ahead of initial guidance due to a combination of solid revenue performance, diligence in managing costs, and improvements in key operational areas such as fraud and customer care. Second, our technology transformations. We completed our first platform conversion in the fourth quarter and are moving forward on remaining conversions. The first conversion went well, and we intend to complete the rest of the conversions by mid-year. Third, we had notable business wins. We had a significant business win in our BAS division in late 2022, which we look forward to announcing soon, along with continued wins in our Green Dot Network and Rapid Paycard channels. This was a result of hard work and coordination by our teams over the course of 2022 as they worked together to ensure that our new customers fully understood the vision and capabilities we will have when we complete our technology conversions. Our focus on business development will accelerate with the previously announced appointment of Chris Ruppel as Chief Revenue Officer and as we move beyond our intense focus on technology changes. Given the significant roll-off of stimulus in 2021, the tremendous work and investment we put into our technology platform, and the changes in CEOs during the year, again, I am very proud of what our teammates at Green Dot accomplished in 2022. Before turning to our plan and priorities for 2023, I want to address our guidance. As you have seen in our press release, we have provided our 2023 guidance at the midpoint for revenue of $1.4 billion EBITDA of $185 million, and EPS of $1.85 per share. This guidance is disappointing, and I want to address the underlying drivers up front. First, we previously announced the loss of certain partners, and those accounts started rolling off in the fourth quarter of 2022, but will have their most significant impact on 2023. While we have won accounts that are meaningful, they will not start contributing until late 2023 and into 2024. Second, our classic retail businesses underperformed our expectations in the second half of 2022, causing us to recalibrate the outlook for the business in 2023. Third, we're seeing changes in consumer behavior likely resulting from heightened inflation. A greater percentage of purchase volume is going to core needs like groceries and fuel. This slows our interchange revenue, and consumers appear to be more actively seeking out surcharge-free ATM networks, weakening our ATM revenues. Fourth, the movement in the short end of the yield curve as we move through the back half of 2022 will result in less benefit and will pressure net interest income in 2023 versus 2022 due to the legacy nature of our partner agreements. Fifth, The cost savings from the technology conversion will be less than expected as we have adjusted our conversion schedule to accommodate partner needs and new account onboardings. We continue to expect cost savings in the back half of 2023 with substantial benefit in 2024. Last, we will continue to invest in compliance-related activities, GoToBank, and the capture of earned wage access business within our rapid pay card channel. We are intensely focused on managing costs, including headcount, other non-employee costs, and third-party vendor management. We undertook the unpleasant task of reducing our headcount in early 2023 and are continuing to work on all areas of our cost structure. Several issues negatively impacting our outlook have a clear line of sight to resolution, with several directly under our control. We expect to exit 2023 as a leaner, more nimble operation with much heavy lifting behind us operating in a marketplace that offers boundless opportunities for growth. Our efforts today in reducing our cost structure, enhancing our technology platforms, onboarding new customers, along with the abatement of inflationary pressures on consumers and a moderating interest rate environment each serve to position our company well as we head into 2024. Our specific priorities and goals for 2023 are to meet or exceed our financial targets and to put the company on track to grow both revenue and earnings in 2024. This means 2023 must and will be all about execution. In prior calls, I have talked about our vision and the vast market opportunity that is in front of us. We are focused on leveraging our differentiated assets and new technology infrastructure to be a next generation financial services platform. But we must have more than a vision. We must execute and deliver on the initiatives that move us toward that vision as efficiently as possible. That is what 2023 is all about, executing. I have made it clear to my executive team and the company as a whole that execution will be our number one focus. Our execution must improve, and we will build on the momentum that has been generated in 2022. The market and our investors deserve transparency and the ability to understand the accountability that we will hold ourselves to. I am often asked by investors, how do I judge your success? How do I know when you are accomplishing goals? As we move through 2023, I intend to continually update you on these key operational initiatives and how we are doing. It is my firm intent to make sure that you know what we are working on, when we intend to complete it, when it's completed, and what it will mean. I will walk you through my checklist as we move through the year. These are complicated undertakings and it won't be easy, but we have been doing this work to prepare ourselves for this moment. Many Green Dot employees and the executive management team are listening to this call. I have consistently spoken with them about the topic of execution as we worked through our planning for 2023. They are now hearing me share it with you. It's clear what we need to do this year. So, let's summarize my priorities and the boxes that we need to check as we go through 2023. First, it is our technology transformations. This is our number one priority for the year and is essential to us achieving our vision. The transformation is a complicated process that requires the focus and effort of the entire organization. We completed the first conversion in the fourth quarter and have the remaining conversions slated for the first and second quarters. When completed, this will result in a minimum of $35 million in annual expense savings, which will become visible as we exit 2023 and more fully realized in 2024. Also, and more importantly, On a longer-term basis, we will have a platform that will provide us with much more robust and efficient product development, risk management, and customer care capabilities to leverage across our franchise. Second is expense management. While we made progress in 2022, there is still work to be done. We are stewards of shareholder capital, and I take that very seriously. Building a culture of stewardship, which includes accountability and expense management, is central to that evolution. Beyond the initial cost savings of the technology conversions, I am focused on maximizing the scale and cost advantages of our vertical integration and using that as a tool to win customers and gain market share. Last, a more disciplined approach to expense management and capital allocation will enable us to make investments in the company that will drive attractive growth and shareholder returns. I am focused on earnings growth and return on capital. They are both central to the creation of shareholder value. Next up is the onboarding of new business. As mentioned previously, we signed a significant new customer in the Bass business. We have also signed almost 1,300 new clients in our Paycard business, and we signed 16 new partners in our Green Dot network. And we still have a strong pipeline in both of these channels. Onboarding these relationships is an important priority as it will demonstrate to the market our ability to bring new customers on board. Fourth is to build business pipelines and win more customers. While we win in the marketplace, particularly in our green dot network and rapid pay card channels, we need to build stronger pipelines around our BAS and retail embedded finance offerings. We are committed to optimizing how we build our business pipelines and winning more business. As our Chief Revenue Officer, Chris Ruppel's top priorities are to better understand and manage our business development efforts and to create more alignment and collaboration across Green Dot to more fully leverage our assets to win business. This entails not only better managing our teams when pursuing and pitching business, but also identifying where there are new market opportunities and allocating resources to capitalize on those opportunities. It is our people who will accomplish these priorities. So we need to ensure we are building a world-class, high-performing workforce aligned on our mission, purpose, and priorities, and fiercely committed to achieving the goals we have set forth as an organization. A strong culture of high performance, diversity, and accountability translates to a talented workforce that is committed to serving our customers and partners while being responsible stewards of shareholder capital. We will be focused in 2023 in building this culture at the company with a particular focus on management leadership competencies. With that, let me turn it over to Jess to discuss the numbers and go through our guidance.