Green Dot Reports Fourth Quarter 2018 Results

Business Wire 20-Feb-2019 4:05 PM

• Fourth Quarter 2018 Total Operating Revenues, GAAP Net Income and GAAP Diluted EPS up Organically by 12%, 17%, and 13%, respectively
• Fourth Quarter Adjusted EBITDA and non-GAAP EPS up 37% and 93%, respectively
• Announces 2019 financial outlook with expectations for 100% organic double-digit top and bottom line growth rates at the midpoint of guidance ranges

Green Dot Corporation (NYSE:GDOT) today reported financial results for the quarter ended December 31, 2018.

For the fourth quarter of 2018, Green Dot reported total operating revenues of $237.8 million and GAAP net income and GAAP diluted earnings per common share of $14.3 million and $0.26, respectively. Green Dot also reported adjusted EBITDA¹ and non-GAAP diluted earnings per common share¹ of $43.9 million and $0.56, respectively.

Said Green Dot Founder and CEO, Steve Streit, "Green Dot's products and platform model generated strong consolidated organic growth in Q4 which capped another truly amazing year of double-digit top and bottom line growth for our company. Both in the quarter and the full year, Green Dot succeeded in growing topline revenue, adjusted EBITDA and non-GAAP EPS, all well in excess of original guidance, and once again expanded both Q4 and full year operating and adjusted EBITDA margins, despite the continued material investments we've made in our operating platform and our future innovations roadmap. Green Dot's long-term strategy is to create a unique, sustainable and highly valuable fintech ecosystem that fuels the engine of innovation for Green Dot and its many business partners, which we believe will help make Green Dot increasingly vital and growing for many years to come."

GAAP financial results for the fourth quarter of 2018 compared to the fourth quarter of 2017:

• Total operating revenues on a generally accepted accounting principles (GAAP) basis were $237.8 million for the fourth quarter of 2018, up from $213.0 million for the fourth quarter of 2017, representing a year-over-year increase of 12%.
• GAAP net income was $14.3 million for the fourth quarter of 2018, up from $12.2 million for the fourth quarter of 2017, representing a year-over-year increase of 17%.
• GAAP diluted earnings per common share was $0.26 for the fourth quarter of 2018, up from $0.23 for the fourth quarter of 2017, representing a year-over-year increase of 13%.

Non-GAAP financial results for the fourth quarter of 2018 compared to the fourth quarter of 2017:¹

• Adjusted EBITDA¹ was $43.9 million, or 18.4% of total operating revenues for the fourth quarter of 2018, up from $32.1 million, or 15.1% of total operating revenues for the fourth quarter of 2017, representing a year-over-year increase of 37%.
• Non-GAAP net income¹ was $30.9 million for the fourth quarter of 2018, up from $15.7 million for the fourth quarter of 2017, representing a year-over-year increase of 97%.
• Non-GAAP diluted earnings per share¹ was $0.56 for the fourth quarter of 2018, up from $0.29 for the fourth quarter of 2017, representing a year-over-year increase of 93%.

The following table shows the Company's quarterly key business metrics for each of the last eight calendar quarters. Please refer to the Company's latest Quarterly Report on Form 10-Q for a description of the key business metrics.

For comparative purposes, the following table shows the Company's quarterly key business metrics for each of the last eight calendar quarters under the prior year definitions described in the Company's 2017 Annual Report on Form 10-K.

Said Mark Shifke, Green Dot's Chief Financial Officer, "Our strong Q4 results capped a year of tremendous performance across practically every revenue and operating division in the company. Beginning in Q1 2019, Green Dot will adjust its presentation of revenue 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. Under this new presentation, non-GAAP revenue will include net interest income generated at Green Dot Bank from the investment of customer deposits and will be reduced by commissions and certain processing-related costs associated with certain BaaS partner programs, where the partner and not Green Dot controls customer acquisition."

Outlook for 2019

Green Dot has provided its outlook for 2019. 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.

As mentioned during Green Dot's quarterly earnings calls throughout 2018, Green Dot will adjust its presentation of revenue beginning with its report on the results of operations for the first quarter of 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 with the first quarter 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 with the first quarter 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.

Accordingly, Green Dot's outlook for non-GAAP revenues and adjusted EBITDA reflect this new presentation.

Total Non-GAAP Operating Revenues²

• Green Dot expects its full year non-GAAP total operating revenues² to be between $1.114 billion and $1.134 billion, representing 10% year-over-year increase at the mid-point (The mid-point of the range under the former presentation in 2018 would have equated to $1.148 billion, representing 10% year-over-year growth).
• For Q1, Green Dot expects non-GAAP total operating revenues² to be between $323 million and $327 million, representing 6% year-over-year increase at the mid-point.

Adjusted EBITDA²

• Green Dot expects its full year adjusted EBITDA² to be between $315 million and $321 million, representing 16% year-over-year increase at the mid-point (The mid-point of the range under the former presentation in 2018 would have equated to $288 million, representing 15% year-over-year increase).

Non-GAAP EPS²

• Green Dot expects its full year non-GAAP EPS² to be between $3.59 and $3.67, representing a 10% year-over-year increase at the mid-point.

The components of Green Dot's non-GAAP EPS² guidance range are as follows:

Supplemental Financial Presentation Information

The following table provides supplemental financial presentation information for the fourth quarter and years ended December 31, 2018 and 2017 under the new format discussed above:

Conference Call

The Company will host a conference call to discuss fourth quarter 2018 financial results today at 5:00 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 10128291. The replay of the webcast will be available until Wednesday, February 27, 2019. The call will be webcast live from the Company's investor relations website at http://ir.greendot.com/.

Forward-Looking Statements

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 "Outlook for 2019" 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 February 20, 2019, 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; realized gains or losses on the sale of investment securities; commissions and certain processing-related costs associated with BaaS products and services where the Company does not control customer acquisition, 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 2019 guidance for non-GAAP total operating revenues, 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 $13.2 million and $13.4 million for the three months ended December 31, 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190220005892/en/