Green Dot Reports Third Quarter 2018 Results
PASADENA, Calif.--(BUSINESS WIRE)--Nov 7, 2018--Green Dot Corporation (NYSE: GDOT) today reported financial results for the quarter ended September 30, 2018.
For the third quarter of 2018, Green Dot reported total operating revenues of $230.6 million and GAAP net income and GAAP diluted earnings per common share of $4.6 million and $0.08, respectively. Green Dot also reported adjusted EBITDA 1 and non-GAAP diluted earnings per common share 1 of $45.1 million and $0.59, respectively.
Differences between GAAP and non-GAAP results were accentuated in the quarter primarily due to two unique operating expenses impacting the Company’s GAAP results. First, the Company resolved the final performance period payment under an earn-out provision for the 2014 acquisition of the Company’s tax refund processing business. The Company agreed to a payment of $13.5 million, which is accrued on its consolidated balance sheet as of September 30, 2018 and reflected as a component of other general and administrative expenses on its consolidated income statement during the quarter. Second, the Company accelerated $4.2 million of stock-based compensation expense during the quarter associated with retirement eligible employees pursuant to its recently adopted retirement policy. Stock-based compensation is reflected as a component of compensation and benefits expenses on the Company’s consolidated income statement. These expenses have been excluded from the Company’s non-GAAP results.
Said Green Dot Founder and CEO, Steve Streit, “As evidenced by our double-digit year over year organic growth thus far in 2018, we believe Green Dot’s products and platform strategy is in the right place at the right time. Furthermore, our expanding margins and increasing profitability provides us the ability to incrementally invest selectively in the many new business opportunities and platform enhancements before us such that we can be best positioned to deliver yet another year of double-digit top and bottom line growth in 2019.”
GAAP financial results for the third quarter of 2018 compared to the third quarter of 2017:Total operating revenues on a generally accepted accounting principles (GAAP) basis were $230.6 million for the third quarter of 2018, up from $201.6 million for the third quarter of 2017, representing a year-over-year increase of 14%. GAAP net income was $4.6 million for the third quarter of 2018 compared to $13.6 million for the third quarter of 2017, representing a year-over-year decrease of 66%. GAAP diluted earnings per common share was $0.08 for the third quarter of 2018 compared to $0.26 for the third quarter of 2017, representing a year-over-year decrease of 69%.
Non-GAAP financial results for the third quarter of 2018 compared to the third quarter of 2017: 1Adjusted EBITDA 1 was $45.1 million, or 19.6% of total operating revenues for the third quarter of 2018, up from $33.9 million, or 16.8% of total operating revenues for the third quarter of 2017, representing a year-over-year increase of 33%. Non-GAAP net income 1 was $32.2 million for the third quarter of 2018, up from $17.8 million for the third quarter of 2017, representing a year-over-year increase of 80%. Non-GAAP diluted earnings per share 1 was $0.59 for the third quarter of 2018, up from $0.34 for the third quarter of 2017, representing a year-over-year increase of 74%.
The Company believes the following measures are the primary indicators of quarterly and annual revenues and expenses:
Gross Dollar Volume - represents the total dollar volume of funds loaded to the Company’s account products. The Company uses this metric to analyze the total amount of money moving onto its account programs, determine the overall engagement and usage patterns of its account holder base and serves as a leading indicator of revenue generated through its Account Services segment products, inclusive of interest income generated on deposits held at Green Dot Bank, fees charged to account holders and interchange revenues generated through the spending of account balances.
Number of Active Accounts - represents any bank account within our Account Services segment that is subject to United States Patriot Act compliance and, therefore, requires customer identity verification prior to use and is intended to accept ongoing customer cash or ACH deposits. This includes general purpose reloadable prepaid card accounts, demand deposit or “checking” accounts, and credit card accounts in the Company’s portfolio that had a purchase, deposit or ATM withdrawal transaction during the applicable quarter. The Company uses this metric to analyze the overall size of its active customer base and to analyze multiple metrics expressed as an average across this active account base.
Purchase Volume - represents the total dollar volume of purchase transactions made by the Company’s account holders. This metric excludes the dollar volume of ATM withdrawals. The Company uses this metric to analyze interchange revenue, which is a key component of its financial performance.
Number of Cash Transfers - represents the total number of cash transfer transactions conducted by consumers, such as a point-of-sale swipe reload transaction, the purchase of a MoneyPak or an e-cash mobile remittance transaction marketed under various brand names, that the Company conducted through its retail distributors in a specified period. This metric excludes disbursements made through the Company’s Simply Paid wage disbursement platform. The Company reviews this metric as a measure of the size and scale of its retail cash processing network, as an indicator of customer engagement and usage of its products and services, and to analyze cash transfer revenue, which is a key component of the Company’s financial performance.
Number of Tax Refunds Processed - represents the total number of tax refunds processed in a specified period. The Company reviews this metric as a measure of the size and scale of its tax refund processing platform and as an indicator of customer engagement and usage of its products and services.
The following table shows the Company’s quarterly key business metrics for each of the last seven calendar quarters under these revised definitions. Metrics previously reported in the Company’s latest Annual Report on Form 10-K have been restated for comparability with the new or revised metrics reflected above.
For comparative purposes, the following table shows the Company’s quarterly key business metrics for each of the last seven calendar quarters under the prior year definitions described in the Company’s latest Annual Report on Form 10-K.
Said Mark Shifke, Green Dot’s Chief Financial Officer, “The continuing strong momentum in both the Account Services and Processing & Settlement Segments combined once again to deliver truly outstanding results for the quarter. We are very pleased with both our results and the underlying strategies and initiatives driving those results. And, as such, this strong performance enables us to once again raise both top and bottom line full year guidance for the remainder of the year.”
Updated Outlook for 2018
Green Dot has provided its updated outlook for 2018. Green Dot’s outlook is based on a number of assumptions that management believes are reasonable at the time of this earnings release. Information regarding potential risks that could cause the actual results to differ from these forward-looking statements is set forth below and in Green Dot’s filings with the Securities and Exchange Commission.
Total Operating RevenuesGreen Dot now expects its full year total operating revenues to be between $1,038 million and $1,042 million, versus its previous guidance range of $1,022 million and $1,032 million.
Adjusted EBITDA 2Green Dot now expects its full year adjusted EBITDA 2 to be between $247 million and $251 million, versus its previous guidance range of $244 million and $248 million.
Non-GAAP EPS 2Green Dot now expects its full year non-GAAP EPS 2 to be between $3.18 and $3.22, versus its previous guidance range of $3.03 and $3.08.
The components of Green Dot’s non-GAAP EPS 2 guidance range are as follows:
Supplemental Financial Presentation Information
As mentioned during Green Dot’s previous quarterly earnings call on February 21, 2018, Green Dot will adjust its presentation of revenue beginning in 2019 to better reflect its successful evolution into a diverse technology-focused bank holding company that generates its revenue through a unique “Products and Platform” operating model.
Beginning in 2019, Green Dot will be presenting net interest income generated at Green Dot Bank from the investment of customer deposits as a component of GAAP total operating revenues, whereas today that item is reported below operating income and is consolidated along with net interest income generated outside the bank. Net interest income at Green Dot Bank is becoming an increasingly important revenue component as Green Dot Bank’s ability to invest its growing customer balances and generate interest income is one of several unique advantages of Green Dot being not just a leading consumer technology company, but also a federally regulated bank. Net interest income generated outside of Green Dot Bank will continue to be reported below the line as it is currently.
Also beginning in 2019, Green Dot will be presenting a new non-GAAP revenue figure that reduces GAAP total operating revenue by commissions and certain processing-related costs associated with certain “Banking as a Service,” or “BaaS,” partner programs, where the partner and not Green Dot controls customer acquisition. Green Dot believes that a net revenue presentation will better reflect the relevant amount of revenue Green Dot generates in respect of these types of BaaS platform programs.
The following table provides supplemental financial presentation information for third quarter 2018 and 2017 under the new format discussed above:
The Company will host a conference call to discuss third quarter 2018 financial results today at 4:30 p.m. ET. Hosting the call will be Steve Streit, Chief Executive Officer, and Mark Shifke, Chief Financial Officer. The conference call can be accessed live over the phone by dialing (888) 348-8307, or for international callers (412) 902-4242. A replay will be available approximately two hours after the call concludes and can be accessed by dialing (844) 512-2921, or for international callers (412) 317-6671; and entering the conference ID 10125496. The replay of the webcast will be available until Wednesday, November 14, 2018. The call will be webcast live from the Company’s investor relations website at http://ir.greendot.com/.
This earnings release contains forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding the Company’s future performance contained under “Updated Outlook for 2018” and in the quotes of its executive officers and other future events that involve risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements contained in this earnings release, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from those projected include, among other things, the timing and impact of revenue growth activities, the Company’s dependence on revenues derived from Walmart, impact of competition, the Company’s reliance on retail distributors for the promotion of its products and services, demand for the Company’s new and existing products and services, continued and improving returns from the Company’s investments in new growth initiatives, potential difficulties in integrating operations of acquired entities and acquired technologies, the Company’s ability to operate in a highly regulated environment, changes to existing laws or regulations affecting the Company’s operating methods or economics, the Company’s reliance on third-party vendors, changes in credit card association or other network rules or standards, changes in card association and debit network fees or products or interchange rates, instances of fraud developments in the prepaid financial services industry that impact prepaid debit card usage generally, business interruption or systems failure, and the Company’s involvement litigation or investigations. These and other risks are discussed in greater detail in the Company’s Securities and Exchange Commission filings, including its most recent annual report on Form 10-K and quarterly report on Form 10-Q, which are available on the Company’s investor relations website at ir.greendot.com and on the SEC website at www.sec.gov. All information provided in this release and in the attachments is as of November 7, 2018, and the Company assumes no obligation to update this information as a result of future events or developments.
About Non-GAAP Financial Measures
To supplement the Company’s consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (GAAP), the Company uses measures of operating results that are adjusted to exclude net interest income and expense; income tax benefit and expense; depreciation and amortization, including amortization of acquired intangibles; employee stock-based compensation and related employer payroll taxes; incremental expenses related to the delay in migration of the Company’s remaining customer accounts from its former processor to its new processor; change in the fair value of contingent consideration; transaction costs; impairment charges; extraordinary severance expenses; legal settlement expenses; other charges and income; and income tax effects. This earnings release includes adjusted EBITDA, non-GAAP net income, and non-GAAP earnings per share. It also includes full-year 2018 guidance for adjusted EBITDA, non-GAAP net income and non-GAAP EPS. These non-GAAP financial measures are not calculated or presented in accordance with, and are not alternatives or substitutes for, financial measures prepared in accordance with GAAP, and should be read only in conjunction with the Company’s financial measures prepared in accordance with GAAP. The Company’s non-GAAP financial measures may be different from similarly-titled non-GAAP financial measures used by other companies. The Company believes that the presentation of non-GAAP financial measures provides useful information to management and investors regarding underlying trends in its consolidated financial condition and results of operations. The Company’s management regularly uses these supplemental non-GAAP financial measures internally to understand, manage and evaluate the Company’s business and make operating decisions. For additional information regarding the Company’s use of non-GAAP financial measures and the items excluded by the Company from one or more of its historic and projected non-GAAP financial measures, investors are encouraged to review the reconciliations of the Company’s historic and projected non-GAAP financial measures to the comparable GAAP financial measures, which are attached to this earnings release, and which can be found by clicking on “Financial Information” in the Investor Relations section of the Company’s website at http://ir.greendot.com/.
About Green Dot
Green Dot Corporation, [NYSE:GDOT], is a financial technology leader and bank holding company with a mission to power the banking industry’s branchless future. Enabled by proprietary technology and Green Dot’s wholly-owned commercial bank charter, Green Dot’s “Banking as a Service” platform is used by a growing list of America’s most prominent consumer and technology companies to design and deploy their own bespoke banking solutions to their customers and partners, while Green Dot uses that same integrated technology and banking platform to design and deploy its own leading collection of banking and financial services products directly to consumers through one of the largest retail banking distribution platforms in America. Green Dot products are marketed under brand names such as Green Dot, GoBank, MoneyPak, AccountNow, RushCard and RapidPay, and can be acquired through more than 100,000 retailers nationwide, thousands of corporate paycard partners, several “direct-2-consumer” branded websites, thousands of tax return preparation offices and accounting firms, thousands of neighborhood check cashing locations and both of the leading app stores. Green Dot Corporation is headquartered in Pasadena, California, with additional facilities throughout the United States and in Shanghai, China.
The Company’s operations are comprised of two reportable segments: 1) Account Services and 2) Processing and Settlement Services. The Account Services segment consists of revenues and expenses derived from the Company’s deposit account programs, such as prepaid cards, debit cards, consumer and small business checking accounts, secured credit cards, payroll debit cards and gift cards. These deposit account programs are marketed under several of the Company’s leading consumer brand names and under the brand names of the Company’s Banking as a Service, or “BaaS,” partners. The Processing and Settlement Services segment consists of revenues and expenses derived from the Company’s products and services that specialize in facilitating the movement of cash on behalf of consumers and businesses, such as consumer cash processing services, wage disbursements and tax refund processing services. The Corporate and Other segment primarily consists of eliminations of intersegment revenues and expenses, unallocated corporate expenses, depreciation and amortization, and other costs that are not considered when management evaluates segment performance.
The Company believes that the non-GAAP financial measures it presents are useful to investors in evaluating the Company’s operating performance for the following reasons:the Company records employee stock-based compensation from period to period, and recorded employee stock-based compensation expenses and related employer payroll taxes of approximately $16.9 million and $11.0 million for the three months ended September 30, 2018 and 2017, respectively. By comparing the Company’s adjusted EBITDA, non-GAAP net income and non-GAAP diluted earnings per share in different historical periods, investors can evaluate the Company’s operating results without the additional variations caused by employee stock-based compensation expense and related employer payroll taxes, which may not be comparable from period to period due to changes in the fair market value of the Company’s Class A common stock (which is influenced by external factors like the volatility of public markets and the financial performance of the Company’s peers) and is not a key measure of the Company’s operations; adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items, such as net interest income and expense, income tax benefit and expense, depreciation and amortization, employee stock-based compensation and related employer payroll taxes, incremental expenses related to the delay in migration of the Company’s remaining customer accounts from its former processor to its new processor, changes in the fair value of contingent consideration, transaction costs, impairment charges, severance costs related to extraordinary personnel reductions, legal settlement expenses, and other charges and income that can vary substantially from company to company depending upon their respective financing structures and accounting policies, the book values of their assets, their capital structures and the methods by which their assets were acquired; and securities analysts use adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies.
The Company’s management uses the non-GAAP financial measures:as measures of operating performance, because they exclude the impact of items not directly resulting from the Company’s core operations; for planning purposes, including the preparation of the Company’s annual operating budget; to allocate resources to enhance the financial performance of the Company’s business; to evaluate the effectiveness of the Company’s business strategies; to establish metrics for variable compensation; and in communications with the Company’s board of directors concerning the Company’s financial performance.
The Company understands that, although adjusted EBITDA and other non-GAAP financial measures are frequently used by investors and securities analysts in their evaluations of companies, these measures have limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of the Company’s results of operations as reported under GAAP. Some of these limitations are:that these measures do not reflect the Company’s capital expenditures or future requirements for capital expenditures or other contractual commitments; that these measures do not reflect changes in, or cash requirements for, the Company’s working capital needs; that these measures do not reflect interest expense or interest income; that these measures do not reflect cash requirements for income taxes; that, although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and these measures do not reflect any cash requirements for these replacements; and that other companies in the Company’s industry may calculate these measures differently than the Company does, limiting their usefulness as comparative measures.
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CONTACT: Green Dot Corporation
Brian Ruby, 203-682-8286
KEYWORD: UNITED STATES NORTH AMERICA CALIFORNIA
INDUSTRY KEYWORD: PROFESSIONAL SERVICES BANKING FINANCE
SOURCE: Green Dot Corporation
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PUB: 11/07/2018 04:05 PM/DISC: 11/07/2018 04:05 PM