Green Dot Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to the Green Dot Second Quarter 20 24 Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Tim Willey, Senior Vice President, Finance. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Today, we are discussing Green Dot's Q2 2024 Financial and Operating Results. Following our remarks, we'll open the 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.

Speaker 1

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 ks 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 refer 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.

Speaker 1

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.

Speaker 2

Good afternoon, and thank you for joining our Q2 earnings call. It was a solid quarter that was generally in line with our expectations, and we continue to make progress on many fronts, including the finalization of our consent order, which you would have all seen by now. Consistent with our prior disclosures, much of the order relates to matters arising and resolved several years ago. I am pleased that we have come to an agreement with our regulators related to these issues and as you would expect, we have been diligently working to address the requirements contained within the order. Ensuring we are good stewards of our customers' funds is our top priority and one we take very seriously.

Speaker 2

Security, risk management and regulatory compliance are the most important aspects of our job and critical to our mission responsible stewards of our customers' money and our shareholders' capital. This experience, while costly, will make us a better company for all of our stakeholders. And I continue to believe the investments not only ensure the safety of our customers' money, but will also prove to be a competitive advantage. I look forward to these standards being applied uniformly and transparently across the embedded finance and payments landscapes. During the Q2, we delivered results that were in line with our internal expectations as we navigated remaining headwinds associated with the conversions in the first half of 2023 and elevated spending on compliance and regulatory initiatives.

Speaker 2

We kept our heads down, stayed focused on our goals and saw continued progress on a variety of fronts in addition to the regulatory work we have been doing. We are making steady progress and pragmatically moving forward on our plan to continually improve Green Dot's performance and return to growth. Our most urgent priorities have been and remain 1st compliance, ensuring we are good stewards of our customers' funds as demonstrated by building exceptional risk management capabilities, implementing state of the art compliance focused technologies and driving a culture that puts stewardship, compliance and partner and customer needs first. 2nd, revenue, building sustainable and predictable business pipelines and onboarding capabilities to replenish partners and revenue streams lost in prior years, so both Green Dot Corporation and Green Dot Bank can remain financially healthy for years to come. And 3rd, margins, being good stewards of our investor funds by managing costs, improving margins and bringing our product to market at low marginal cost.

Speaker 2

Let me now hand it over to Jeff for his comments before I make some additional comments regarding these priorities. Jeff?

Speaker 3

Thank you, George, and good afternoon, everyone. Non GAAP revenue grew 11% year over year, primarily from continued growth in our B2B segment and modest growth in our Money Movement segment. Adjusted EBITDA of $34,000,000 and non GAAP EPS of $0.25 both decreased from last year due to secular headwinds in retail, portfolio sun setting in our direct channel and partner program deconversions in early 2023. At the same time, we've incurred incremental expenses associated with our ongoing investment in regulatory and compliance initiatives, while benefiting from a reduction in processing expenses from last year's processor conversion. Our GAAP results for the quarter reflect an incremental $24,000,000 reserve for the final consent order on top of the $20,000,000 reserve established in the previous year.

Speaker 3

Now I'll touch on the factors that influence the performance of our segments and will refer you to our press release and quarterly slide deck for our segment results and key metrics. 1st is our Consumer Services segment, which is comprised of our retail and direct channels. Consumer segment revenue remains under pressure due principally to the secular headwinds in the retail channel that continue to impact a number of active accounts on our platform. Year over year growth has also been impacted by a program deconversion in the first half of twenty twenty three. Excluding this program, segment revenue decline was in the low 20% and we've generally seen stability in volumes per active and a bit of improvement in revenue per active.

Speaker 3

Looking forward, as we lap the de converted program and our new program with PLS begins to ramp, anticipate a more moderate revenue decline towards the latter half of the year. Our direct channel repositioning is progressing well. We phased out multiple legacy brands in Q2 2023, which resulted in year over year headwinds. Nevertheless, the direct channel revenue is showing signs of sequential stabilization following years of persistent declines. In the quarter, Go2bank continued to see growth in revenue, while legacy portfolios continue to trip.

Speaker 3

Looking at the quarter on a per active basis, Go2 Bank revenue per active continued to grow at a faster pace than the direct channel as a whole. GoToBank currently makes up approximately 75% of the direct channel revenue. As I previously mentioned in our first quarter call, when Gochi Bank reaches 85% of the direct channel, we will likely stop providing separate commentary on this product. Profitability in the Consumer segment remains under pressure from the revenue declines discussed. Excluding the program deconversion last year, profit on the consumer division declined in low single digits, thanks to effective expense control, reduced risk expenses and the positive impact of the processor conversion that balance out some of the revenue declines.

Speaker 3

Now I'll turn to the B2B segment, which is comprised of our BaaS and Rapid Pay Card channels. Revenue growth remains driven by a significant BaaS partner. It's worth mentioning that aside from the growth from this major partner, the other BaaS partnerships grew revenue year over year for the first time in several quarters, even as we navigated through the lingering impact of partner de deconversions that occurred in the first half of twenty twenty three. In terms of our key metrics, purchase volume in actives have seen positive momentum following the launch of new partners and growth of existing partners. I'm optimistic that the momentum will persist and we should anticipate continued year over year growth from the entire BaaS channel.

Speaker 3

Our Rapid PayCAR channel had revenue growth as pricing strategies continue to offset the pressure on active accounts. The business continues to face headwinds as the staffing industry, which is one of the largest verticals, has retrenched over the last year and a half. That said, year to date sales activity has improved versus last year and we've initiated several programs designed to boost employer and employee engagement, enhance activations and improve retention. For the first time in several quarters, we saw modest profit growth in the B2B segment. The BaaS division saw modest growth in profits despite headwinds from the deconversions, while RapidPay Card had solid growth in profits and margin expansion.

Speaker 3

Turning to our Money Movement segment, which is comprised of our tax processing business and our Green Dot Network business, which we refer to as GDN. Revenue growth remains driven by our Tax Processing division, which had a strong tax season. Our GDN business continues to face headwinds that stem from the decline in our own active account base. While those headwinds continued to weigh on the quarter, our 3rd party business saw growth in transactions due to the growth of existing partners and new partner launches. Profitability in the segment remains solid as both our Tax Processing business and our Green Dot Networks saw our margin expansion in the quarter with cash processing benefiting from some timing related items, while GDN continues to focus on managing its expense base.

Speaker 3

The Corporate and Other segment reflects the interest income we earn at our bank, net of the revenue share on interest we pay to BaaS Partners as well as salaries, technology and administrative costs and some smaller intercompany adjustments. Revenue was down from last year reflecting the lingering impact of the rising rate environment and seasonal declines in deposits at the bank. Expenses were up slightly from last year as ongoing expense reduction initiatives are offset by the elevated costs associated with regulatory and compliance investments. Now let me turn to guidance. We are raising our non GAAP revenue guidance to a range of $1,600,000,000 to 1,700,000,000 dollars We believe our adjusted EBITDA and non GAAP EPS results may be at the low end of their respective ranges of $170,000,000 to $180,000,000 and $1.45 to $1.59 based on continued headwinds in retail and the timing of expenses associated with regulatory and compliance investments.

Speaker 3

As we think about the back half of the year, our outlook on the cadence of earnings is largely unchanged. At the consolidated level, we anticipate a modest acceleration in revenue growth moving from Q2 to Q3 and a more noticeable increase in Q4 due to more normalized comparisons and the ramp of our new PLS program. We believe adjusted EBITDA margins in Q3 to be similar to or slightly improved compared to 2023, while Q4 margins are projected to expand 400 to 500 basis points for revenue growth and favorable expense comparisons relative to last year. Turning briefly to the segments. We anticipate mid teens percentage declines in the Consumer segment revenues for the full year.

Speaker 3

Following 20 plus percentage point declines in the first half, we expect revenue declines to moderate to the mid teens in Q3 and shift to low to mid single digit growth in Q4 as we've asked program deconversions and portfolio sunsetting in the first half of twenty twenty three, coupled with the ramp of our new PLS program. Margins for the year are expected to increase about 500 to 600 basis points as a result of improvements expected in Q3 and Q4 from improved risk management and cost control efforts. In the B2B segment, we forecast full year revenue growth in the mid-thirty percent range with revenue growth in the second half of the year closer to 30%. Margins are still expected to be down 150 to 200 basis points compared to 2023, but there should be sequential improvement in both Q3 and Q4. I anticipate revenue growth in the mid to high single digits from the Money Movement segment.

Speaker 3

Due to the timing of revenues in the Tax business, I would expect revenues to be flat year over year in Q3 and mid to high single digit revenue growth in Q4 from the continued growth of our 3rd party business in the Green Dot Network and incremental cash transfer volume from our new PLS program. Margins are expected to expand 250 to 300 basis points with some modest expansion in the 3rd and 4th quarters year over year. In the Corporate and Other segment, revenue should be in the mid to upper single digits, reflecting our efforts to optimize yields on our cash and investments. Expenses should be up in the mid teens related to our spending on regulatory infrastructure and an increase in expenses in Q4 as a result of a lower bonus accrual in the prior year. I expect our tax rate to be 22.5 percent with a fully diluted share count of 54,000,000 shares outstanding.

Speaker 3

Now let me turn it back to George.

Speaker 2

Thank you, Jess. Before taking your questions, I would like to spend some time discussing the actions we are taking to address the 3 priorities I mentioned at the outset of this call. 1st, on the compliance front, we have been very busy in making substantial investments in our infrastructure. We have built our plan and are allocating these investment dollars after taking into consideration the conversations we have had with our regulatory stakeholders and aligning that feedback with our own internally identified initiatives. Our spending on regulatory and compliance infrastructure in 2024 is anticipated to be $15,000,000 to $20,000,000 higher than that in 2022, which is a material and deliberate investment in this area of our company and has been made in the face of partner attrition and a smaller reported active account base.

Speaker 2

The areas we are investing in include improved systems to help us better onboard and verify newly acquired accounts, enhanced BSA AML monitoring and reporting systems, enhanced fraud management systems and the addition of internal audit compliance and risk management personnel. Beyond the dollars invested, we have been highly focused on changing the culture to one that prioritizes risk management. There are many benefits to these investments and actions. 1st and most important, they enhance the safeguarding of our customers' deposits and financial transactions, which is an obvious imperative for remaining a strong financial institution. 2nd, they enhance our end to end customer experience, resulting in an improved customer retention, a key lever for improving our profitability.

Speaker 2

Also, these investments allow us to more efficiently comply with our regulatory obligations, allowing us to grow at scale with effective and enhanced risk management. The next priority, revenue generation is critical to sustaining and strengthening our company and our bank. As you know, coming out of COVID, we ended our partnerships with several key partners and intentionally sunset various consumer brands to streamline our focus on GoToBank, resulting in a period of declining account basis and profitability. These factors have been exacerbated by sustained downward pressure on our retail channel. These changes led to reductions in several key metrics, including active accounts, purchase volumes and cash transfers as well as total BaaS partners since 2022.

Speaker 2

However, they have also enabled us to more easily streamline and simplify our business as we invested in building a more powerful and efficient platform to serve our direct customers and partners, priming us for steady, scalable, long term growth. What else have we or are we doing to build our revenue generating capacity? We have been actively investing in our product features and functionality and as I mentioned improved and simplified our products. We have also been investing in the infrastructure required to onboard partners and evolve with their strategies. Most importantly, we have built out and standardized our business development capabilities.

Speaker 2

These efforts are starting to bear fruit. For example, our probability weighted pipeline has more than doubled over the last year. Just last month, after extensive planning and preparation, we successfully launched the PLS Expectations Plus Debit Card Program, which is off to a very strong start. Our tax division, Santa Barbara Tax Products Group is performing exceptionally well after introducing a market leading product and technology platform last year. We have renewed and extended contracts with some of our largest partners and most importantly, we're very pleased to announce the renewal and extension of our largest BaaS partner by revenue for a multiyear period with improved financial terms.

Speaker 2

We have signed a large merchant processor and an auto lender in our BaaS group and are expecting to launch these new partners in early 2025. In our Green Dot Network, we signed a leading embedded finance platform that wanted to strengthen its capabilities and enable its partners and their customers to have access to the convenience that Green Dot Network offers. We also continue to sign and renew partners, including a variety of Fintechs and digital banks, demonstrating the differentiated value of and demand for this asset. We continue to win and add partners in our Rapid PayCard and UWA business with the total partner count now greater than 7,000. That is a lot of success, and I am tremendously pleased with the work our revenue product, technology and support teams have done to get us in a position to replace lost revenue and retain the partnerships we have.

Speaker 2

Understand, however, we take very seriously the risk profile of each partner and each account we choose to be associated with and this risk perspective will cause us to turn down opportunities. It's also important to point out companies that want to leverage the power of embedded finance and work with us have intensified their focus on compliance and regulatory capabilities. The companies in our pipelines are increasingly focused on ensuring they are working with a partner that will enable them to deliver financial services, while managing risk to their customer base and their reputations. We and our partners are in this together. We have a shared interest in serving our mutual customers with a high quality experience and compliance at the forefront.

Speaker 2

The 3rd priority I discussed was margins. Again, another obvious point of focus, but our previous unconsolidated acquisitions, multiple processors, multiple customer service approaches and disaggregated compliance and risk management functions made for high complexity and eroded margins. So what are we doing on this front? 1st, we undertook a complicated and lengthy process to convert our processing platforms. Undertaking this project resulted in substantial savings, but more importantly, it served as a catalyst to simplify how we operate the company, which ultimately enables us to better manage risk and serve our customers.

Speaker 2

2nd, as I alluded to earlier, we have embarked on a company wide simplification process that has resulted or will result in simplified technology, a simplified product footprint, fewer consumer brands to manage and higher partner acceptance standards. This work is not done. We are working to optimize profitability while ensuring that Green Dot Corporation and Green Dot Bank remain strong financial institution. In addition to that primary goal of ensuring we remain financially strong is the reality that as we drive scale, it enables us to invest in the critical components of our business on a sustainable basis for the benefit of all of our stakeholders. We have significant scale today and we need to rush down the path of leverage that scale through expanding margins.

Speaker 2

Keep in mind that we've seen considerable profit impact since 2022 from partner losses and brand discontinuations, amounting to roughly $60,000,000 alongside a rise in regulatory compliance costs of nearly 20,000,000 dollars This totals a reduction in adjusted EBITDA of approximately $80,000,000 Nevertheless, our management team has mitigated these setbacks and stabilized the company amid a backdrop of post COVID and post stimulus economy, technological upgrades, increased regulation and a complex turnaround effort. While the work isn't finished, I'm extremely proud of the team for steering us through this challenging time and for laying a more robust, reliable groundwork for future growth. We continue to work diligently on our priorities and there is no doubt in my mind that we are a better company than we were a year ago, 2 years ago or 4 years ago. We are making progress towards our goal of ensuring that we not only remain a strong organization, but that we build upon that, which I believe will be a competitive advantage that will serve as the pathways creating value for all of our stakeholders. The markets we serve and the opportunities they hold are not going anywhere and we will emerge from this transition as the most asset rich, differentiated, compliant, well managed company in the Fintech space.

Speaker 2

Thank you for your interest in Green Dot. Jess and I are now happy to take your questions. Operator?

Operator

Our first question is from Ramsey El Assal with Barclays. Please go ahead.

Speaker 4

Hi, thanks so much for taking my question this evening. My question is on the B2B segment revenues, which came in ahead of our model. Could you disaggregate how much of the segment's growth was driven by the largest BaaS partner that you mentioned versus from the remainder of the segment? I'm just trying to get an idea about the sort of balance of growth in the segment.

Speaker 3

Hey, Hamirah, it's Jess. So the predominant growth came from that KeyBaaS partner, but we took note in the prepared remarks to call out that even if you put that key VaaS partner aside, we had growth from the existing partnerships and some of the newer partnerships that we launched last year, including Dayforce. So although we don't break those out, certainly the key BaaS partner was the primary driver, but nonetheless, the other programs also grew.

Speaker 4

Got it. And a quick follow-up and apologies if you covered this already. I missed some of the prepared remarks unfortunately. Could you what about the next sort of 12 to 18 months? Are there any other large renewals that are sort of pending?

Speaker 4

Are you feeling now sort of like things are relatively stable just in terms of contract discussions?

Speaker 2

Ramsey, thanks. This is George. I would say over the course of the last year, if you would have asked that question a year ago, probably would have given you a very different answer. But here as we sit today, as it relates to our key VaaS partners this year in 2024, we've renewed and extended the vast majority of our current SaaS revenue. And in our prepared remarks, I also mentioned that we've signed I pointed out a couple of reasonably important new BaaS partners that are under contract and we're currently on boarding and will be launched in early ish 2025.

Speaker 2

And let me also say that the partners that Jess was referring to beyond the largest of our BaaS partners have generally been performing very well, have been growing year over year and have relatively healthy trends. And last, before I stop rattling on, we don't contain within our BaaS group, the PLS opportunity. Although, I mentioned that that partner, which is contained within our retail, which is in our consumer business, launched earlier this summer in July and has just been performing very, very well. So we're super excited about that. So I probably over answered your question, but let me pause and see if you have any follow-up.

Speaker 4

No, that's perfect. I appreciate the fairness of it. Thanks so much.

Speaker 2

Thank you.

Operator

The next question is from Tim Switzer with KBW. Please go ahead.

Speaker 5

Hey, good afternoon. Thank you for taking my question.

Speaker 2

Hey, Tim.

Speaker 5

My first question is on the growth outlook here. You guys mentioned probably for the company accelerating growth as we move through the back half of the year. It seems like we're kind of implying year over year growth 20% or higher by the end of the year. Should we assume a continued acceleration above that level in 2025 given all the momentum you have in BaaS and some of the other areas?

Speaker 2

Well, Josh, why don't you take the first kind of the guidance part of that question and then I'll chime in at the tail.

Speaker 3

Yes. I think your implied growth rates in the back half of the year in the zip code of mid teens to upper teens area, accelerating growth throughout the year?

Speaker 2

Yes. So underlying yes, Tim, if you don't mind, I'll just expand a bit. Underlying that, of course, are the initiatives started now 2 years ago, even prior to my having this role with respect to retirement of some brands, migrating some brands off the portfolio, the sunsetting of some partnerships, etcetera. For the most part, those activities we will have rolled through by the back half of this year. And in the back half of last year, we had some very elevated costs associated with dispute related losses, our migration off of the processing platform onto ACI, etcetera.

Speaker 2

Obviously, we don't expect to replicate those costs. Then as we think, obviously, we're not in a position to give 2025 guidance, but we do believe the last question that our current partnerships, we've had a lot of success in renewing and extending those contracts even in the midst of the pending overhang of the consent order. So we're very pleased with that. That makes us feel good about future years. I'd also point out that I think if you look at our free cash flow year to date, it's about comparable to prior year even though the core underlying business has shrunk a bit.

Speaker 2

But nevertheless, we're generating $35,000,000 contribution to Tailfin have for the last 5 years. The last contribution was made in this year in 2024. Now that's treated as an investment for all the right reasons, but we will not be making a similar contribution next year. So irrespective of business activities, etcetera, which we feel pretty optimistic about, our cash flow will be at least $35,000,000 better irrespective of trends in the underlying business. So I'll stop again, maybe I've over answered your question, but I got to take my opportunity where I can.

Speaker 5

Yes. No, that was great. Thank you. And then my other question is on the expense side of things. You guys mentioned the spending on regulatory infrastructure should peak or has already peaked.

Speaker 5

Should we expect that's now staying flat as you continue to just continue investing on top of that? Or is there an opportunity for maybe lower expenses or for you to redeploy that elsewhere? And then where else would

Speaker 3

you guys like to be investing right now?

Speaker 2

Okay, great. I'm going to again take an opportunity to expand on your question. It's good. It's something I want to talk about. We and the companies you follow and our other analysts follow obviously are operating in a regulatory environment of I think of some intensity.

Speaker 2

We, Green Dot are not in the business of regulatory arbitrage. We're in the business of building a vertically integrated solution set for consumers and B2B partners. And so the vast majority, if not all of the regulatory activities that have to happen within the value chain that I'm discussing happen within our 4 walls. And that's good because we can control those, we can manage those activities. And we have invested, as I've mentioned, and we have invested as I've mentioned considerably in improving our capabilities.

Speaker 2

Now again, caveating that we're not giving 25 guidance, we have both invested significantly in the buildup of our operating compliance platforms. And those will be ongoing costs. But we've also invested in activities this year that look backwards in some way in the consent order, etcetera. We've been doing a lot of work that probably and I expect not to repeat. So I don't want to break out those two elements of our regulatory costs.

Speaker 2

But simply put, I would expect some of those costs not to repeat. The last part of your question, which is an excellent question, is what would we want to invest in? What we are investing in this year is we have some portion of technology debt we're continuing to eradicate. That's very important. As Jess mentioned, we have seen persistent declines in our retail distribution business unit greater than our expectation, that product has not received material investment for some time.

Speaker 2

This year, we are investing materially in a complete refresh of the user experience for the Green Dot product, the Walmart MoneyCard product and the GoToBank product. So those investments are underway. And importantly, 2 of those 3 products run on a legacy technology platform, which inhibits our ability to launch new features. So that investment is also being made to migrate off of that legacy platform. And much of that investment is being invested by the Tailfin joint venture.

Speaker 2

So it's not coming directly out of our entities capital pool. So we're making those investments. And in the future, I hope to significantly accelerate our onboarding and product featuring capabilities for our business to business DaaS embedded finance capabilities. We are making some of those investments this year, but I would characterize those investments as modest relative to what we would like to do. So as we gain new accounts and start growing again and create some capital growth availability, we and hopefully reduce capital spend in some other areas, we would primarily direct that into our B2B like acquisition capabilities and to a lesser extent the enhancement of the features and functionalities that we offer consumers through our direct and retail channels.

Speaker 5

That was great. Appreciate all the color. Thank you, guys.

Speaker 2

Sure. You bet, Tim. Thanks for the questions.

Operator

The next question is from George Sutton with Craig Hallum. Please go ahead.

Speaker 5

Hey, guys. James on for George. Thanks for taking my questions. First question is probably for Jeff, but it sounds like the return to growth in the consumer segment is getting pushed out a bit. I guess what's changed there relative to your prior expectation?

Speaker 3

Yes, I would say principally in the retail business, George sort of alluded to it, we have continued pressure from digital offerings, competition, executive trends, etcetera. But also note that we enhanced our risk management processes. And in doing so, that pushes out some higher risk, lower value accounts. So that does have an impact on our active account trends and has some impact on segment profits. So I think that's slowing some of our expectations.

Speaker 3

So the retail the declines are not necessarily moderating as quickly as we would have liked.

Speaker 5

And then on the banking as a service side, congrats on growing the pipeline there and adding a couple of new partners. I guess what do you think is driving the growth in the pipeline? And then any anecdotes you can share on the couple of new partners you added, whether or not with Green Dot or what do you think sort of led to those wins?

Speaker 2

Sure. A couple of things led to the growth of 5.1. One is, when I became the CEO, I asked Chris Ruppelt to become the Chief Revenue Officer and the purpose of that was to consolidate and standardize our go to market efforts where they had been disparate before. And that team has done a very nice job in focusing on the right types of opportunities to address, getting them under contract, getting them in the pipeline and doing it under a relatively challenged environment. So that's job 1 and they've done a great job and I want to express my gratitude to them for that.

Speaker 2

Also, there's been a lot of disruption in the broader FinTech industry, of course, disruption with sponsored banks and FinTech providers, all these stories. And that creates a churn within the market. And I think we're well positioned to capitalize on the best of that churn, the best opportunities within that churn. I think we're well positioned to be a safe landing for some of those companies since we have now for 2 years been devoted to significant enhancements in our compliance and regulatory oversight. And this is very important to all prospects now.

Speaker 2

So that's an important factor. And third, the overarching secular trend, which companies are waking up, they have important customer relationships, some of them might be financial in nature and they want to provide a more financial solution so that they can have longer term, more meaningful, more depthful relationships. So I think those three factors have all been working in our favor and leading to some of our success so far.

Speaker 5

And then lastly for me on the renewal

Speaker 2

of the

Speaker 5

large bank as a service partner, any changes in the relationship or unit economics of that renewal that you can share? And also I'd be curious to know if this is something that went up as a competitive process. Thanks.

Speaker 3

Sure.

Speaker 2

I don't have a response for the latter part of your question, but I did allude to in the outset of my I guess towards the end of my prepared remarks that the agreement is for a longer term than it has been in the past, which allows us substantial amount of runway to provide other solutions and problem solving initiatives to this partner that are important and that's great. And the economics, which I think we've talked about in the past have been relatively static. So by that we mean, the revenue growth or lack thereof does generally not impact the margin, the dollar margin of that account. And the account has been adjusted in order to allow some opportunity for us to have growth in that relationship as revenue grows. I wouldn't call it linear, but it's better than it was before and we're quite pleased with that relationship.

Speaker 5

Sounds good. Congrats on the progress.

Speaker 2

Thanks, James. Appreciate it.

Operator

This concludes our question and answer session. I would like to turn the conference back over to George Gresham for any closing remarks.

Speaker 2

Thank you, operator. As I do from time to time in closing, I would say, the company has gone through a journey over the last couple of years, been some downs for sure. We've had some challenges that we've weathered and I want to take an opportunity to express my deep gratitude to our team members around the world, who are contributing so much to Green Dot. We have a great team of people and really appreciate all their hard work and effort and of course appreciate our investors and those of you interested in our story. So we're going to keep swinging.

Speaker 2

We've got a great future ahead of us and really looking forward to getting there. Thank you all for your interest in the company. Bye bye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Green Dot finalized a long-running consent order, taking a total $44 million reserve and investing heavily in enhanced BSA/AML, fraud monitoring and internal audit capabilities to strengthen compliance and risk management.
  • Q2 non-GAAP revenue grew 11% year over year—driven by the B2B segment—while adjusted EBITDA of $34 million and EPS of $0.25 declined due to retail headwinds, partner de-conversions and higher compliance costs.
  • The Consumer segment saw revenue down over 20% Y/Y, though Go2bank now represents 75% of direct channel revenue and is driving sequential stabilization, with separate commentary to cease at 85% weighting.
  • Full-year non-GAAP revenue guidance was raised to $1.6–1.7 billion, but EBITDA ($170–180 million) and EPS ($1.45–1.59) are expected at the low end of ranges, with accelerating H2 growth and 400–500 bp margin expansion in Q4 from the new PLS program.
  • Management’s three priorities—1) rigorous compliance and fund stewardship, 2) rebuilding predictable revenue pipelines via BaaS partner renewals and new launches, and 3) margin improvement through platform simplification—are on track to drive future growth.
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Earnings Conference Call
Green Dot Q2 2024
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