Green Dot Reports Third Quarter 2019 Results

1

Reconciliations of total operating revenues to non-GAAP total operating revenues, net income to non-GAAP net income, diluted earnings per share to non-GAAP diluted earnings per share and net income to adjusted EBITDA, respectively, are provided in the tables immediately following the consolidated financial statements. Additional information about the Company's non-GAAP financial measures can be found under the caption “About Non-GAAP Financial Measures” below.

2019

2018

Q3

Q2

Q1

Q4

Q3

Q2

Q1

(In millions)

Gross dollar volume

$

9,827

$

10,019

$

12,977

$

9,809

$

9,088

$

9,413

$

11,719

Gross dollar volume from direct deposit sources

$

6,843

$

7,208

$

10,217

$

6,940

$

6,571

$

6,914

$

9,330

Number of active accounts at quarter end

5.18

5.66

6.05

5.34

5.43

5.86

6.01

Number of direct deposit active accounts at quarter end

2.14

2.31

2.87

2.04

2.05

2.26

2.64

Purchase volume

$

6,047

$

6,470

$

8,200

$

6,276

$

5,918

$

6,325

$

7,470

Number of cash transfers

11.73

11.25

10.98

10.91

10.68

10.56

10.10

Number of tax refunds processed

0.11

2.52

9.39

0.07

0.10

2.79

8.75

Range

Low

High

(In millions, except per share data)

Adjusted EBITDA

$

240.0

$

244.0

Depreciation and amortization*

(50.0

)

(50.0

)

Net interest expense **

(0.5

)

(0.5

)

Non-GAAP pre-tax income

$

189.5

$

193.5

Tax impact***

(43.6

)

(44.5

)

Non-GAAP net income

$

145.9

$

149.0

Diluted weighted-average shares issued and outstanding

53.8

53.8

Non-GAAP diluted earnings per share

$

2.71

$

2.77

*

Excludes the impact of amortization of acquired intangible assets

**

Excludes the impact of amortization of deferred financing costs

***

Assumes a non-GAAP effective tax rate of 23.0% for full year.

2

For additional information, see reconciliations of forward-looking guidance for these non-GAAP financial measures to their respective, most directly comparable projected GAAP financial measures provided in the tables immediately following the reconciliation of Net Income to Adjusted EBITDA.

GREEN DOT CORPORATION

CONSOLIDATED BALANCE SHEETS

September 30, 2019

December 31, 2018

(unaudited)

Assets

(In thousands, except par value)

Current assets:

Unrestricted cash and cash equivalents

$

861,275

$

1,094,728

Restricted cash

3,103

490

Investment securities available-for-sale, at fair value

15,027

19,960

Settlement assets

193,032

153,992

Accounts receivable, net

34,939

40,942

Prepaid expenses and other assets

46,624

57,070

Income tax receivable

—

8,772

Total current assets

1,154,000

1,375,954

Investment securities available-for-sale, at fair value

230,192

181,223

Loans to bank customers, net of allowance for loan losses of $1,558 and $1,144 as of September 30, 2019 and December 31, 2018, respectively

20,906

21,363

Prepaid expenses and other assets

8,201

8,125

Property and equipment, net

139,246

120,269

Operating lease right-of-use assets

28,877

—

Deferred expenses

6,763

21,201

Net deferred tax assets

10,867

7,867

Goodwill and intangible assets

528,861

551,116

Total assets

$

2,127,913

$

2,287,118

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

47,334

$

38,631

Deposits

888,870

1,005,485

Obligations to customers

65,959

58,370

Settlement obligations

11,928

5,788

Amounts due to card issuing banks for overdrawn accounts

556

1,681

Other accrued liabilities

91,329

134,000

Operating lease liabilities

7,811

—

Deferred revenue

15,583

34,607

Note payable

—

58,705

Income tax payable

17,519

67

Total current liabilities

1,146,889

1,337,334

Other accrued liabilities

13,843

30,927

Operating lease liabilities

27,201

—

Net deferred tax liabilities

12,796

9,045

Total liabilities

1,200,729

1,377,306

Stockholders’ equity:

Class A common stock, $0.001 par value; 100,000 shares authorized as of September 30, 2019 and December 31, 2018; 51,479 and 52,917 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

52

53

Additional paid-in capital

297,593

380,753

Retained earnings

627,347

529,143

Accumulated other comprehensive income (loss)

2,192

(137

)

Total stockholders’ equity

927,184

909,812

Total liabilities and stockholders’ equity

$

2,127,913

$

2,287,118

GREEN DOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands, except per share data)

Operating revenues:

Card revenues and other fees

$

102,231

$

113,474

$

353,421

$

364,317

Processing and settlement service revenues

54,620

43,043

229,272

203,901

Interchange revenues

77,080

74,060

250,955

235,706

Interest income, net

6,517

5,756

25,640

16,543

Total operating revenues

240,448

236,333

859,288

820,467

Operating expenses:

Sales and marketing expenses

98,352

72,745

284,485

247,191

Compensation and benefits expenses

46,678

57,070

156,451

166,055

Processing expenses

49,010

43,654

149,864

138,442

Other general and administrative expenses

48,595

62,193

145,327

153,760

Total operating expenses

242,635

235,662

736,127

705,448

Operating (loss) income

(2,187

)

671

123,161

115,019

Interest expense, net

112

991

1,748

3,531

(Loss) income before income taxes

(2,299

)

(320

)

121,413

111,488

Income tax (benefit) expense

(1,768

)

(4,893

)

23,209

7,057

Net (loss) income

$

(531

)

$

4,573

$

98,204

$

104,431

Basic (loss) earnings per common share:

$

(0.01

)

$

0.09

$

1.87

$

2.01

Diluted (loss) earnings per common share:

$

(0.01

)

$

0.08

$

1.84

$

1.92

Basic weighted-average common shares issued and outstanding:

51,595

52,580

52,405

52,046

Diluted weighted-average common shares issued and outstanding:

52,295

54,615

53,474

54,437

GREEN DOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended September 30,

2019

2018

(In thousands)

Operating activities

Net income

$

98,204

$

104,431

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property, equipment and internal-use software

35,929

28,154

Amortization of intangible assets

24,523

24,586

Provision for uncollectible overdrawn accounts

64,686

63,358

Employee stock-based compensation

30,136

37,373

Amortization of (discount) premium on available-for-sale investment securities

(209

)

914

Change in fair value of contingent consideration

(1,866

)

13,500

Amortization of deferred financing costs

1,253

1,195

Impairment of capitalized software

121

352

Changes in operating assets and liabilities:

Accounts receivable, net

(58,683

)

(55,486

)

Prepaid expenses and other assets

9,679

1,458

Deferred expenses

14,438

13,783

Accounts payable and other accrued liabilities

(20,132

)

(13,315

)

Deferred revenue

(19,385

)

(11,587

)

Income tax receivable/payable

25,961

2,452

Other, net

6

3,174

Net cash provided by operating activities

204,661

214,342

Investing activities

Purchases of available-for-sale investment securities

(117,959

)

(128,991

)

Proceeds from maturities of available-for-sale securities

72,569

45,774

Proceeds from sales of available-for-sale securities

4,905

11,125

Payments for acquisition of property and equipment

(58,185

)

(43,397

)

Net increase in loans

(1,457

)

(5,617

)

Net cash used in investing activities

(100,127

)

(121,106

)

Financing activities

Repayments of borrowings from notes payable

(60,000

)

(16,875

)

Proceeds from exercise of options

4,862

19,123

Taxes paid related to net share settlement of equity awards

(18,159

)

(33,180

)

Net decrease in deposits

(133,132

)

(5,506

)

Net decrease in obligations to customers

(25,311

)

(24,861

)

Contingent consideration payments

(3,634

)

(3,856

)

Repurchase of Class A common stock

(100,000

)

—

Net cash used in financing activities

(335,374

)

(65,155

)

Net (decrease) increase in unrestricted cash, cash equivalents and restricted cash

(230,840

)

28,081

Unrestricted cash, cash equivalents and restricted cash, beginning of period

1,095,218

1,010,095

Unrestricted cash, cash equivalents and restricted cash, end of period

$

864,378

$

1,038,176

Cash paid for interest

$

2,049

$

3,335

Cash (refund from)/paid for income taxes

$

(3,612

)

$

4,313

Reconciliation of unrestricted cash, cash equivalents and restricted cash at end of period:

Unrestricted cash and cash equivalents

$

861,275

$

1,037,617

Restricted cash

3,103

559

Total unrestricted cash, cash equivalents and restricted cash, end of period

$

864,378

$

1,038,176

GREEN DOT CORPORATION

REPORTABLE SEGMENTS

(UNAUDITED)

Three Months Ended September 30, 2019

Account Services

Processing and
Settlement Services

Corporate and Other

Total

(In thousands)

Operating revenues

$

191,273

$

56,025

$

(6,850

)

$

240,448

Operating expenses

173,014

49,151

20,470

242,635

Operating income (loss)

$

18,259

$

6,874

$

(27,320

)

$

(2,187

)

Three Months Ended September 30, 2018

Account Services

Processing and
Settlement Services

Corporate and Other

Total

(In thousands)

Operating revenues

$

199,476

$

44,193

$

(7,336

)

$

236,333

Operating expenses

150,189

42,610

42,863

235,662

Operating income

$

49,287

$

1,583

$

(50,199

)

$

671

Nine Months Ended September 30, 2019

Account Services

Processing and
Settlement Services

Corporate and Other

Total

(In thousands)

Operating revenues

$

646,938

$

236,714

$

(24,364

)

$

859,288

Operating expenses

515,375

149,533

71,219

736,127

Operating income

$

131,563

$

87,181

$

(95,583

)

$

123,161

Nine Months Ended September 30, 2018

Account Services

Processing and
Settlement Services

Corporate and Other

Total

(In thousands)

Operating revenues

$

636,786

$

208,133

$

(24,452

)

$

820,467

Operating expenses

485,924

135,633

83,891

705,448

Operating income

$

150,862

$

72,500

$

(108,343

)

$

115,019

GREEN DOT CORPORATION

Reconciliation of Total Operating Revenues to Non-GAAP Total Operating Revenues (1)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands)

Total operating revenues

$

240,448

$

236,333

$

859,288

$

820,467

Net revenue adjustments (8)

(11,214

)

(9,236

)

(39,362

)

(33,315

)

Non-GAAP total operating revenues

$

229,234

$

227,097

$

819,926

$

787,152

Reconciliation of Reportable Segment Revenues to Non-GAAP Reportable Segment Revenues (1)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands)

Account Services

Operating revenues

$

191,273

$

199,476

$

646,938

$

636,786

Net revenue adjustments (8)

(7,011

)

(5,156

)

(28,153

)

(21,598

)

Non-GAAP operating revenues

$

184,262

$

194,320

$

618,785

$

615,188

Processing and Settlement Services

Operating revenues

$

56,025

$

44,193

$

236,714

$

208,133

Net revenue adjustments (8)

(4,203

)

(4,080

)

(11,209

)

(11,717

)

Non-GAAP operating revenues

$

51,822

$

40,113

$

225,505

$

196,416

Reconciliation of Net Income to Non-GAAP Net Income (1)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands, except per share data)

Net (loss) income

$

(531

)

$

4,573

$

98,204

$

104,431

Employee stock-based compensation and related employer payroll taxes (3)

6,956

16,913

31,369

39,359

Amortization of acquired intangible assets (4)

8,174

8,175

24,523

24,586

Change in fair value of contingent consideration (4)

(1,866

)

13,500

(1,866

)

13,500

Transaction costs (4)

—

(16

)

—

(16

)

Amortization of deferred financing costs (5)

129

398

1,253

1,195

Impairment charges (5)

17

177

121

352

Extraordinary severance and other restructuring expenses (6)

879

769

5,269

1,665

Legal settlement expenses (5)

236

—

236

—

Other (income) expense (5)

(8

)

744

(42

)

744

Income tax effect (7)

(3,744

)

(13,043

)

(17,931

)

(37,670

)

Non-GAAP net income

$

10,242

$

32,190

$

141,136

$

148,146

Diluted (loss) earnings per common share

GAAP

$

(0.01

)

$

0.08

$

1.84

$

1.92

Non-GAAP

$

0.20

$

0.59

$

2.64

$

2.72

Diluted weighted-average common shares issued and outstanding

52,295

54,615

53,474

54,437

GREEN DOT CORPORATION

Supplemental Detail on Diluted Weighted-Average Common Shares Issued and Outstanding

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands)

Class A common stock outstanding as of September 30:

51,479

52,664

51,479

52,664

Weighting adjustment

116

(84

)

926

(618

)

Dilutive potential shares:

Stock options

83

214

130

372

Service based restricted stock units

199

1,032

463

1,223

Performance-based restricted stock units

373

780

413

791

Employee stock purchase plan

45

9

63

5

Diluted weighted-average common shares issued and outstanding

52,295

54,615

53,474

54,437

Reconciliation of Net Income to Adjusted EBITDA (1)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands)

Net (loss) income

$

(531

)

$

4,573

$

98,204

$

104,431

Interest expense, net (2)

112

991

1,748

3,531

Income tax (benefit) expense

(1,768

)

(4,893

)

23,209

7,057

Depreciation and amortization of property, equipment and internal-use software (2)

12,926

9,938

35,929

28,154

Employee stock-based compensation and related employer payroll taxes (2)(3)

6,956

16,913

31,369

39,359

Amortization of acquired intangible assets (2)(4)

8,174

8,175

24,523

24,586

Change in fair value of contingent consideration (2)(4)

(1,866

)

13,500

(1,866

)

13,500

Transaction costs (2)(4)

—

(16

)

—

(16

)

Impairment charges (2)(5)

17

177

121

352

Extraordinary severance and other restructuring expenses (2)(6)

879

769

5,269

1,665

Legal settlement expenses (2)(5)

236

—

236

—

Other expenses (2)(5)

—

744

—

744

Adjusted EBITDA

$

25,135

$

50,871

$

218,742

$

223,363

Non-GAAP total operating revenues

$

229,234

$

227,097

$

819,926

$

787,152

Adjusted EBITDA/Non-GAAP total operating revenues (adjusted EBITDA margin)

11.0

%

22.4

%

26.7

%

28.4

%

GREEN DOT CORPORATION

Reconciliation of Forward Looking Guidance for Non-GAAP Financial Measures to

Projected Non-GAAP Total Operating Revenues (1)

(Unaudited)

FY 2019

Range

Low

High

(In millions)

Total operating revenues

$

1,111

$

1,131

Net revenue adjustments (8)

(51

)

(51

)

Non-GAAP total operating revenues

$

1,060

$

1,080

Reconciliation of Forward Looking Guidance for Non-GAAP Financial Measures to

Projected Adjusted EBITDA (1)

(Unaudited)

FY 2019

Range

Low

High

(In millions)

Net income

$

89.5

$

92.8

Adjustments (9)

150.5

151.2

Adjusted EBITDA

$

240.0

$

244.0

Non-GAAP total operating revenues

$

1,080

$

1,060

Adjusted EBITDA / Non-GAAP total operating revenues (Adjusted EBITDA margin)

22.2

%

23.0

%

Reconciliation of Forward Looking Guidance for Non-GAAP Financial Measures to

Projected Non-GAAP Net Income (1)

(Unaudited)

FY 2019

Range

Low

High

(In millions, except per share data)

Net income

$

89.5

$

92.8

Adjustments (9)

56.4

56.2

Non-GAAP net income

$

145.9

$

149.0

Diluted earnings per share

GAAP

$

1.66

$

1.72

Non-GAAP

$

2.71

$

2.77

Diluted weighted-average shares issued and outstanding

53.8

53.8

(1)

To supplement the Company’s consolidated financial statements presented in accordance with GAAP, the Company uses measures of operating results that are adjusted to exclude various, primarily non-cash, expenses and charges. These financial measures are not calculated or presented in accordance with GAAP and should not be considered as alternatives to or substitutes for operating revenues, operating income, net income or any other measure of financial performance calculated and presented in accordance with GAAP. These financial measures may not be comparable to similarly-titled measures of other organizations because other organizations may not calculate their measures in the same manner as the Company does. These financial measures are adjusted to eliminate the impact of items that the Company does not consider indicative of its core operating performance. You are encouraged to evaluate these adjustments and the reasons the Company considers them appropriate.

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 $7.0 million and $16.9 million for the three months ended September 30, 2019 and 2018, 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 non-operating net interest income and expense, income tax benefit and expense, depreciation and amortization, employee stock-based compensation and related employer payroll taxes, changes in the fair value of contingent consideration, impairment charges, severance costs related to extraordinary personnel reductions, 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.

(2)

The Company does not include any income tax impact of the associated non-GAAP adjustment to adjusted EBITDA, as the case may be, because each of these non-GAAP financial measures is provided before income tax expense.

(3)

This expense consists primarily of expenses for restricted stock units (including performance-based restricted stock units) and related employer payroll taxes. Employee stock-based compensation expense is not 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. The Company excludes employee stock-based compensation expense from its non-GAAP financial measures primarily because it consists of non-cash expenses that the Company does not believe are reflective of ongoing operating results. The Company also believes that it is not useful to investors to understand the impact of employee stock-based compensation to its results of operations. Further, the related employer payroll taxes are dependent upon volatility in the Company's stock price, as well as the timing and size of option exercises and vesting of restricted stock units, over which the Company has limited to no control. This expense is included as a component of compensation and benefits expenses on the Company's consolidated statements of operations.

(4)

The Company excludes certain income and expenses that are the result of acquisitions. These acquisition-related adjustments include items such as the amortization of acquired intangible assets, changes in the fair value of contingent consideration, settlements of contingencies established at time of acquisition and other acquisition related charges, such as integration charges and professional and legal fees, which result in the Company recording expenses or fair value adjustments in its GAAP financial statements. The Company analyzes the performance of its operations without regard to these adjustments. In determining whether any acquisition-related adjustment is appropriate, the Company takes into consideration, among other things, how such adjustments would or would not aid in the understanding of the performance of its operations. These items are included as a component of other general and administrative expenses on the Company's consolidated statements of operations, as applicable for the periods presented.

(5)

The Company excludes certain income and expenses that are not reflective of ongoing operating results. It is difficult to estimate the amount or timing of these items in advance. Although these events are reflected in the Company's GAAP financial statements, the Company excludes them in its non-GAAP financial measures because the Company believes these items may limit the comparability of ongoing operations with prior and future periods. These adjustments include items such as amortization attributable to deferred financing costs, impairment charges related to internal-use software, realized gains or losses on the sale of investment securities, legal settlement expenses and other income and expenses, as applicable for the periods presented. In determining whether any such adjustment is appropriate, the Company takes into consideration, among other things, how such adjustments would or would not aid in the understanding of the performance of its operations. Each of these adjustments, except for amortization of deferred financing costs and realized gains and losses on the sale of investment securities, which are included as a component of interest income/expense, are included within other general and administrative expenses on the Company's consolidated statements of operations.

(6)

During the three and nine months ended September 30, 2019, the Company recorded charges of $0.9 million and $5.3 million, respectively, for severance costs related to extraordinary personnel reductions. Although severance expenses are an ordinary part of its operations, the magnitude and scale of this ongoing reduction in workforce for redundancies is not expected to be repeated. This expense is included as a component of compensation and benefits expenses on the Company's consolidated statements of operations.

(7)

Represents the tax effect for the related non-GAAP measure adjustments using the Company's year to date non-GAAP effective tax rate. It also excludes both the impact of excess tax benefits related to stock-based compensation and the GAAP IRC §162(m) limitation that applies to performance-based restricted stock units expense as of September 30, 2019.

(8)

Represents commissions and certain processing-related costs associated with Banking as a Service ("BaaS") products and services where Green Dot does not control customer acquisition.

(9)

These amounts represent estimated adjustments for non-operating net interest income, income taxes, depreciation and amortization, employee stock-based compensation and related employer taxes, contingent consideration, impairment charges, severance costs related to extraordinary personnel reductions, and other income and expenses. Employee stock-based compensation expense includes assumptions about the future fair 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).