Green Dot Corp (GDOT) 2017 Q4 法說會逐字稿

Good day, everyone, and welcome to the Green Dot Corporation Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) And please note that today's event is being recorded.

I would now like to turn the conference over to Dara Dierks. Please go ahead.

Thank you, and good afternoon, everyone. On today's call, we'll discuss 2017 fourth quarter and full year performance and thoughts about 2018. Following those remarks, we'll open the call for questions. For those of you who haven't yet accessed the earnings release that accompanies this call and webcast, it can be found at ir.greendot.com.

As a reminder, our comments include forward-looking statements, among other things, our expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Green Dot's filings with the Securities and Exchange Commission, including our most recent Form 10-K and 10-Q, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call, we will make reference to our financial measures that do not conform to generally accepted accounting principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today, including revenue per active card, will be on a non-GAAP basis.

Information may be calculated differently than similar non-GAAP data presented by other companies. Quantitative reconciliations of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release.

The content of this call is property of the Green Dot Corporation and is subject to copyright protection.

Now I would like to turn the call over to Steve.

Thank you, Dara, and welcome, everyone, to Green Dot Corporation's Q4 2017 Earnings Call. Today, we'll review our financial performance for Q4 and the full year, I'll provide updates on how we did on the execution of our 2017 Six-Step Plan, and then we will unveil our new 2018 Six-Step Plan, which will serve as your syllabus for how we intend to achieve yet another year of double-digit top and bottom line growth. Then Mark will provide additional granularity on our Q4 and full year results, details on how tax reform will positively impact our net earnings and, of course, he'll share our 2018 full year financial outlook and our Q1 directional guidance.

So a lot to cover. Let's begin with the review of our Q4 and full year 2017 financial performance.

Q4 was yet another very strong quarter for Green Dot, capping a year that, on many levels, was, without question, the finest year in Green Dot's history to date. We beat our financial expectations with 4 consecutive quarters of accelerating financial results and raised top and bottom line guidance in every quarter. We achieved record revenue, record profits and expanding margins. We saw the return to active account growth, had multiple new Banking as a Service program wins with world-class partners and we made 2 strategic acquisitions, all while successfully advancing our evolution into an enterprise-scale products and platform model with now 7 revenue divisions, each with its own growth strategies and more than 2 dozen products and services offered across what we believe is the largest and most ubiquitous omni-channel distribution platform of any bank or financial services organization in America.

As both Founder and CEO, I'm so proud of our amazing Green Dot team members across the organization. It's an honor and a privilege to lead the mighty dot, and Mark and I thank our great team for all of their tremendous contributions to our success.

Now let's talk about the quarter. Q4 total consolidated operating revenue came in at $213 million, representing a 31% year-over-year growth rate. Excluding the UniRush acquisition, organic revenue grew 12% year-over-year, which is the third successive quarter of double-digit year-over-year organic growth despite the year-ago period being successively tougher comps. Adjusted; EBITDA for the quarter was $32 million on a consolidated basis, representing a year-over-year growth rate of 47%, with consolidated non-GAAP EPS for the quarter of $0.29, representing a year-over-year growth rate of 53%. This is now the ninth consecutive quarter in which actual results exceeded our expectations, the sixth consecutive quarter of year-over-year margin expansion and the sixth consecutive quarter in which we have posted double-digit or better year-over-year growth in non-GAAP EPS. These terrific bottom line results were achieved despite spending several million dollars in incremental expenses in the period to recruit more people, deploy new and more rigorous risk management tools and processes and continue to build out an increasingly more robust operating platform needed to support the increasing scale and diversity of our growing business.

For the full year 2017, Green Dot posted total GAAP revenue of $890 million, representing a year-over-year growth rate of 24%; adjusted EBITDA of $206 million, which represented a year-over-year growth rate of 32%; and non-GAAP EPS of $2.16, which represented a year-over-year growth of 48%.

We obviously feel great about these outstanding financial results for both Q4 and the full year, but we're even more pleased with how our unique and compelling products and platform model is generating business momentum across both of our reporting segments as well as each of our 7 operating revenue divisions, which gives us the foundation for our optimism regarding growth into 2018 and beyond.

In our Account Services segment, organic growth and total active accounts increased for the second consecutive quarter, growing by 4.5% year-over-year despite a tougher year-ago comp, with active accounts receiving direct deposit, growing by 21% in the quarter. This continuing long-term portfolio mix shift towards higher lifetime value accounts helped push organic Account Services gross dollar volume or GDV flowing through our programs up by 17%, marking the eighth successive quarter of year-over-year growth in organic GDV.

And organic purchase volume, on which we were an interchange revenue, was up by 14%. On a consolidated basis, inclusive of the UniRush acquisition, the number of active accounts grew for the fifth sequential quarter to nearly 5.3 million active accounts, representing year-over-year active account growth of 27%. Within those 5.3 million Q4 actives, the number of customers receiving direct deposit grew by 87% year-over-year, propelling total company consolidated GDV by 51% year-over-year, posting a record-setting $8.6 billion in the quarter, a full $1 billion more in GDV than our nearest prepaid competitor.

Our Processing and Settlement Services segment also achieved record-setting results in the quarter, generating approximately $41 million in revenue, equating to a 19% year-over-year increase. The strong performance in the segment was driven by the number of cash transfers increasing by 6% year-over-year and the revenue we earned for cash transfer transaction improving by 13% year-over-year, marking the seventh quarter in a row with improving year-over-year growth in that metric. We also benefited from strong performance from our SimplyPaid corporate disbursement product where we instantly pay wages to 1099 or gig economy workers, which grew triple digits year-over-year.

It's an exciting time at Green Dot as the strong momentum in our established business lines, as we just detailed, are occurring at the same time as many of our new product lines that were launched as new initiatives just within the last year or so are creating new growth vectors. For example, our Green Dot Platinum Visa Secured Credit Card business line has grown in terms of accounts, assets and revenue to become a sizable portfolio that, while still small relative to our deposit account business, continues to grow rapidly into what we believe can be one of the nation's largest secured credit card portfolios over the next few years.

From our Money Processing and PayCard divisions, new products like MoneyPak and our SimplyPaid 1099 corporate disbursement solution have quickly grown into meaningful product lines, with sales and revenue growing triple digits over the same period last year.

And looking forward into 2018, we expect our new Banking as a Service programs have recently launched like the Intuit TurboTax card program and the Apple Pay Cash spend-based P2P program to provide additional benefits and synergies. Both programs were off to a good start, and both have the potential to deliver material incremental growth over time on top of our growing established product lines.

On the topic of Apple Pay Cash, we are encouraged by the program's rapid growth so far and the positive reviews from both tech writers and consumers. Consistent with our prior guidance, the program revenue in Q4 was immaterial, and we expect that program revenue will remain immaterial throughout 2018. We believe it'll take time for the spend-based interchange revenue to grow as both the program itself continues to grow and as the mobile payments ecosystem continues to also evolve and grow. We're very pleased with our Apple partnership and believe it positions Green Dot very well for the future of consumer payments and mobile banking.

Now I'm pleased to review our performance and strong execution against our 2017 Six-Step Plan and also introduce our new 2018 Six-Step Plan, which will serve as the foundation for how we expect to again achieve double-digit top and bottom line growth.

In 2017, step 1 was to grow the number of active accounts year-over-year by early 2018. We beat that goal handily with a number of both organic accounts turning positive in Q3, nearly 6 months ahead of our plan, and consolidated active accounts also growing well ahead of plan.

For 2018, step 1 will be to continue to grow the number of active accounts year-over-year and to improve the unit economics of those accounts. In particular, we intend to focus on attracting millennials and other consumer segments who are more likely to enroll in direct deposit, take advantage of our award-winning mobile apps, benefit from our cash back rewards programs and enjoy the other features we've designed into our products to encourage higher deposits and longer-term retention. This, in turn, is expected to deliver increased average revenue per active account and more robust flow-through of that revenue to contribution margin.

Step 2 in 2017 was to secure shelf space for the new MoneyPak, add an additional 20,000 retailers by year-end and to launch a new and compelling use case for the MoneyPak product. We materially beat the distribution goal by having MoneyPak in nearly 65,000 retailers by year-end, with sales having reached levels well beyond our initial expectations. We did build and roll out a pilot in the use case for MoneyPak, but we did not execute a full-scale public launch of that new capability because we decided to reprioritize those efforts after the launches of Apple Pay Cash and Intuit.

So for 2018, step 2 will be the launch of the new use case for MoneyPak that was planned for last year and to continue to increase the number of cash transfer transactions each quarter on a year-over-year basis, thus, driving both top line growth and an expanding contribution margin in the Processing and Settlement segment.

Step 3 in 2017 was to make modest investments in new high potential initiatives. We really overachieved with this step with several large-scale wins. First, our investments in BaaS, our Banking as a Service platform, began to pay meaningful dividends by helping us secure partnerships with leading technology companies like Intuit and Apple.

Second, we invested in organically building a de novo secured credit card program and then supplemented those build efforts with the acquisition of a small bolt-on secured card portfolio. Today, the Green Dot Platinum Visa Credit Card shows real promise of material future revenue growth and contribution margin.

Third, we invested in the build-out of an enterprise-scale corporate disbursement platform and named it SimplyPaid. SimplyPaid is grown rapidly both in terms of transaction of volume and revenue with a growing pipeline of new opportunities.

Fourth, we continue to invest in making our legacy account products better with more capable mobile apps, cash back and purchases, integrated savings accounts and more. These investments, in turn, yielded more engaged than active customers and more revenue per active card.

Fifth, we invested in technology, infrastructure and operations, ensuring we can handle the growth responsibly, improving network performance and security, upgrading our data reporting and model management capabilities while improving the quality of our tools and processes in the areas of risk management and compliance.

And lastly, and perhaps most importantly, we invested in people. As we shared throughout the year, we made the strategic decision to reinvest some of our profit outperformance back into SG&A in order to recruit experienced and highly competent senior talent to more tightly manage our business, ensure we can scale in an orderly way and execute our business plans with precision.

For 2018, step 3 will continue to be about investing prudently for the future. One of the advantages of the significant tax savings we expect to realize this year is that we can selectively afford to deploy a portion of our profit outperformance back into new high potential organic initiatives that we believe had a likely opportunity to generate growth well beyond 2018, including substantial investments in the people, systems and processes necessary to ensure our operating platform and risk management capabilities can safely and assuredly scale well in advance of that growth. Given the large and promising crop of new initiatives generated from our 2017 investments, we expect to balance the number of new investments in 2018 with allocating appropriate follow-on resources to build upon the momentum of the products and services we've already launched.

Step 4 in 2017 was to drive increasing efficiencies across our consolidated operating platform in order to successfully expand margins year-over-year, while still giving us room to invest in growth for tomorrow. We did just that. As detailed in step 3, we invested heavily and smartly to ensure that Green Dot has the opportunity to deliver compounding double-digit revenue growth for years to come, all while still allowing for margin expansion. In fact, despite these platform growth investments adding millions to our expense base in 2017, we delivered full year-over-year adjusted EBITDA margin expansion of 140 basis points and grew EPS year-over-year by 48%.

For 2018, step 4 will remain the same, running an efficient business is always in style and we believe needs to be an ongoing key objective. Despite the incremental year-over-year SG&A from new hires, the ongoing investments into better products for today and new products for tomorrow, the increasing expenses associated with scaling our operating platform to handle the load and the fact that the margins on some of our new BaaS programs are materially lower than those of our established and at scale legacy product lines, we intend to, once again, deliver adjusted EBITDA margin expansion in 2018 of at least another 100 basis points on a full year-over-year basis.

In 2017, steps 5 and 6 were about the smart deployment of capital. Step 5 was about making accretive and strategic acquisitions, and we did just that with the purchase of UniRush in February and the primor secured credit card portfolio in August. Both of these acquisitions, like acquisitions made in prior years, have worked out extremely well for us, achieving the expected financial synergies as planned so far and realizing the desired industrial logic.

Step 6 was about returning capital to shareholders in the form of share repurchases. In March, we completed our multi-year $150 million repurchase authorization by purchasing $50 million of Class A common stock under an accelerated stock repurchase transaction. In aggregate, this repurchase plan was highly accretive, with approximately 11% of our total outstanding shares being retired at an average share price of approximately $23. Over the last 3 years, Green Dot has generated more than $490 million in cash flow from operations, which has afforded us the ability to both deploy significant level of capitals for things like new innovations and acquisitions and building out an increasingly more robust operating platform to handle all that growth. And it afforded us the ability to return significant levels of capital to shareholders through buybacks.

For 2018, step 5 and step 6 will remain the same as evergreen parts of our strategic road map. While we always have our eyes open for acquisitions that meet our stringent criteria for strategic rationale and financial synergies, we plan to focus on the continued integration of UniRush and the secured card portfolio acquisition for the first part of the year, and we would not expect to complete any new M&A activity until Q4 at the soonest, subject to regulatory approval. Our management plan and guidance for 2018 assumes no M&A activity, so any acquisition would be incremental to guidance.

On the topic of share repurchases, last year, our board approved another $150 million share buyback authorization, which, if we sought and received regulatory approval, would give management the ability to repurchase shares as another option in strategically and accretively deploying capital. While it's premature to get specific guidance on whether or when we might consider such a share repurchase, it's pretty clear that Green Dot shares have been a great investment, and we are keen to do more over time.

With a continuing strong momentum in our business, as evidenced by our record-setting Q4 results, we expect an incremental year-over-year contributions from our new large-scale Banking as a Service programs, the 2 incremental months of revenue from the UniRush acquisition, which won't lap until the end of February, and a tremendous benefit from the new tax law, which Mark will detail for you shortly, we believe we have the right strategies, products, people and momentum to make 2018 another year of double-digit top and bottom line growth.

Before handing over the microphone to Mark, I am pleased to update you all on the CFO search. Today, I'm thrilled to be able to announce that Mark Shifke will be staying on as CFO of Green Dot. Over the past year, with more support here at headquarters, Mark has been able to effectively serve as our CFO without as much travel. As you'll recall, commuting regularly to our main offices here in Pasadena from Manhattan was the prime reason for Mark's desire to step down as CFO and return to his former role as Head of Green Dot M&A, which is based in New York. While we met several terrific senior CFO candidates over the course of the recruit, I am very happy that Mark will continue to be my partner as Green Dot's Chief Financial Officer for what we hope will be many years to come.

With that, I'll now hand the call over to Mark Shifke for his CFO report. Mark?

Thanks, Steve. I couldn't be more proud of the team that we've assembled and delighted to stay on as CFO with an exciting year ahead of us. To echo Steve's comments, the strong momentum in our 6 revenue divisions, plus our bank, combined to once again deliver better-than-expected results on both an organic and consolidated basis.

Consolidated total operating revenue of $213 million represented a year-over-year growth rate in the quarter of 31%, while organic revenue grew by 12% to $183 million, marking the seventh consecutive quarter of organic double-digit year-over-year revenue growth.

On a consolidated basis, the Account Services segment delivered record Q4 revenue of $180 million, representing year-over-year growth of 33%. That result was driven primarily by 3 key factors. First, active accounts increased 27% year-over-year to approximately 5.3 million active accounts. Second, gross dollar volume, driven by a large 87% year-over-year increase in accounts receiving direct deposit, grew by 51% to deliver approximately $8.6 billion in GDV. And third, that large amount of GDV drove purchase volume up by 41% to approximately $5.6 billion. All combined, this means we had more customers than ever using their accounts to receive more deposits than ever, which, in turn, allowed them to make more purchases and ATM withdrawals than ever, which, in turn, generated more than ever interchange and fee revenue in the quarter.

Our Processing and Settlement Services segment also achieve record-setting results for the quarter, generating approximately $41 million in revenue, equating to a 19% year-over-year increase. That result was driven primarily by the number of cash transfers increasing 6% year-over-year and the revenue we earned per cash transfer transaction improving by 13% year-over-year. The combined operating segments generated adjusted EBITDA of $32 million in the quarter, up 47% year-over-year, reflecting margin expansion of 170 basis points.

Non-GAAP EPS came in at $0.29 per share, up 53% year-over-year. We achieved this outperformance on EPS primarily from a combination of the flow-through from our better-than-expected EBITDA, a year-over-year decline in depreciation, modestly higher interest income on cash investments held at our bank subsidiary, offset in part by both a higher effective tax rate and a modestly higher share count compared with the prior year period, attributable primarily to the dilutive impact of equity awards.

Green Dot once again generated excellent cash flow from operations of $55 million during the quarter and $218 million for the full year. We exited Q4 with nearly $49 million of unencumbered cash in our balance sheet.

Our strong Q4 results capped the year of tremendous performance across practically every revenue and operating division in the company. For a full year 2017, we delivered revenue of $890 million, representing year-over-year growth of 24%; adjusted EBITDA of $206 million, representing year-over-year growth of 32%; and non-GAAP EPS of $2.16, representing year-over-year growth of 48%.

I would now like to discuss our plan to adjust our presentation of revenues beginning next year in 2019. As Green Dot's business model continues to successfully evolve from what used to be largely a monoline, single channel model of selling prepaid cards and cash reloads at retail stores, into a new kind of bank, a modern, pro-consumer, technology-forward branchless bank that offers many products and services directly to consumers and through enterprise-level partnerships via our Banking as a Service platform. We believe our current presentation of revenues should also evolve to ensure we are properly presenting our company's financial performance in a way that's transparent, easy to follow and fully reflective of our evolution into a unique, growing and increasingly diverse FinTech bank holding company.

As such, starting in 2019, we intend to make the following revisions: First, for GAAP reporting, we intend to present 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 generated outside of the bank will continue to be reported below the line, as it is currently. So in summary, the only change to our GAAP presentation of total operating revenues will be the inclusion of net interest income generated by the bank.

Second, starting at the same time in 2019, we intend to present a new non-GAAP revenue figure that reduces GAAP total operating revenue by commissions and certain processing-related costs associated with certain BaaS partner programs, where the partner, and not Green Dot, controls customer acquisition. We believe this approach is consistent with that of our FinTech peers and will better reflect our economic revenue in respective certain platform relationships. Whether revenue generated from a BaaS program is treated as gross or net, we'll follow a simple test. If the revenue is generated from a BaaS program where Green Dot controls customer acquisition, then the revenue will be reported in our non-GAAP revenue as gross. If the revenue is generated from a BaaS program where the partner controls customer acquisition, then the revenue will be reported as net. Of course, Steve and I are happy to provide some examples during Q&A or when we talk after the call.

On the matter of reporting net interest income as a component of consolidated GAAP revenues starting in 2019, net interest income at Green Dot Bank is becoming an increasingly important revenue component for the consolidated Green Dot. In fact, our ability to invest our growing customer balances and generate interest income is a truly unique and compelling advantage of Green Dot being not just a FinTech leader but a FinTech leader that is also a regulated bank that can earn revenue in ways that other peer technology companies cannot.

On the matter of reporting non-GAAP net revenue on applicable BaaS programs, we believe that as these kinds of partnerships become more material, continuing to report the associated revenue as gross could have the unintentional effect of overstating our economic revenue from such programs and, therefore, also have the effect of understating our consolidated adjusted EBITDA margins. Of course, you will still have our GAAP reporting presentation to see, which will continue to recognize BaaS program revenue as gross. So you will be able to compare the 2 reports quite easily. Furthermore, in our non-GAAP reporting, whether the revenue is recognized as gross or net, EPS will be the same result under either method.

In order to provide a smooth transition, we will guide, and report results in 2018 as we always have, using our current GAAP presentation and non-GAAP measures. To aid in the smooth transition, we will also provide supplemental reporting that shows what our results would look like under our new presentation of revenues. Our goal is to make sure you are familiar and comfortable with those revised presentations well before they begin in 2019.

Lastly, before turning to guidance, let me briefly comment on the benefits we expect to realize from the significantly lower corporate tax rates resulting from the 2017 Tax Cuts and Jobs Act. First, we expect that in 2018, our effective tax rate will decline to approximately 25%, generating at the midpoint of our guidance an incremental $0.41 of earnings per share or approximately $22 million of incremental after-tax earnings.

Second, Steve and I think lowering the corporate tax rate is a positive step for growing businesses like Green Dot. It means we can take some portion of incremental after-tax cash flow and pay it forward in the form of incremental capital investments that can help us more rapidly build and deploy new infrastructure, products or services that, in turn, can help power more growth for the future.

Further, we intend to invest some of the incremental earnings in improving the financial lives of our team members. Green Dot's amazing team is the reason for our success, and we intend to use a portion of the incremental earnings to improve our 401(k) program, which will help our employees buy more shares at Green Dot stock as part of our employee stock purchase plan or to develop other ways of sharing the wealth with our team.

Lastly, on this topic, the incremental capital investments and SG&A we plan to allocate as a result of tax reform-related investment are already incorporated into the guidance I'm about to share.

For full year 2018, Green Dot is expecting operating revenue to be in a range of $982 million to $997 million, equating to year-over-year revenue growth of between 10.3% and 12% for the full year. We are expecting adjusted EBITDA to be in a range of $236 million to $241 million, equating to year-over-year growth of between 15% and 17% and margin expansion of approximately 100 basis points at the midpoint. And we expect our non-GAAP EPS to be in a range of $2.81 to $2.88 per share, equating to year-over-year growth of between 30% and 33%. On a non-GAAP EPS range, assumes a tax rate of approximately 25%, a fully diluted share count of 54.5 million shares, net interest income of $8.5 million and depreciation and amortization of $40 million.

Finally, let's talk about our thoughts around revenue for Q1, taking into consideration our expectations for our tax refund processing product line, TPG, our new BaaS platform partnerships and the addition of the UniRush acquisition, which doesn't lap until end of February. For Q1, we expect to generate record-breaking revenue of between $295 million to $300 million.

And with that, I would like to ask the operator to open the phone for questions. Operator?

(Operator Instructions) And our first questioner today will be Ramsey El-Assal with Jefferies.

I wanted to ask about the revenue and EPS kind of cadence in 2018. I know you've got Rush contributing a little bit in the first quarter, you have TurboTax, I would imagine, would be a boost in the first quarter, Walmart is a new year-over-year tailwind in terms of the expansion of that relationship. What is -- what will the cadence look like? Is it the same as a normal year or will it look a little bit different this year?

Good question. Mark, go ahead.

Yes. No, great question, Ramsey. I think, ballpark, we're looking at the same cadence as you saw in '17. I think we're, give or take, around 31% in Q1, then continuing in the low-20s for each of Q2, 3 and 4.

Okay. And then 1 follow-up from me. You're changing your reporting format to more sort of accurately reflect the contribution from earnings from your bank. Can you remind us of any commentary [given in the past] in terms of earnings sensitivity to higher rates? It feels, obviously, we're in an upward trajectory here in terms of rates. So what, for example, would a 25-bps sort of increase in interest rates translate into in terms of an EPS tailwind? I don't know if you can get that specific. Any color will help.

Well, I think a way to think about it is, and I think you all know this, that we have call reports that we issue for the bank that you can pull up separately from the SEC public company reporting. And the reason why that's relevant is it gives you the end-of-period average balances on account, which is roughly equivalent to what you can invest on a nightly basis. And that amount will change quarter-to-quarter. For example, Q1 with tax season would generally be higher, Q3 is usually our lowest and so forth. But at the end of Q1 of the call report, I want to say it was about $1 billion. And so if you just sort of think about what that is for a cash and cash equivalent investment rate, that will give you a sense of how we invest. And how it turns the EPS, I'll let the accounting geniuses answer that. But it gives you a sense of what that revenue from interest is.

Yes. I mean, last year, I think on average, over the year, we had about $600 million or $700 million in investable balances. And so this year, we would expect for that to go up a little bit.

And our next questioner today will be Andrew Jeffrey with SunTrust.

The results, I think, speak for themselves, but what I'd like to understand a little bit is how you think internally and how you might communicate to us your progress toward expanding the TAM. I mean, intuitively, it seems to make sense, the yields are going up, so forth. But are there some benchmarks that you look for or guidepost internally to say, "Ha, this really is a business that's growing beyond the traditional unbanked, underbanked consumer?" I don't know if it's demographic. Do you see that we don't? Or something else that can help us.

Yes. Well, let me try to think about how -- so you know how when these calls, you prepare for all the likely questions, and that's one we didn't prepare for it. It's a really good one. So let me think...

I like throwing a curveball, Steve.

That's what you get paid for. So let me think about what I can say without giving away some competitive secret sauce. Part of the expansion that you're seeing now is the macroeconomics of the country. We have maximum employment at around 4%, inflation is minimal and the interest rate environment, while it's gotten hotter, is still good and we have people working and depositing money. You have even small businesses now taking advantage of all the modern products offered by online payroll companies, which means that, now, everybody can have direct deposit, whereas -- oh, even 3 years ago, direct deposit was only limited to larger companies. So all these things are macro tailwinds. If you look at our products, in particular, you're seeing that we're growing younger and younger, which is a good thing. I didn't pull up the statistic today, but for the last call, it was about 55% of our customers were millennials, which was up quite a bit from even just a few years ago, and I would expect that trend will continue. And that's helpful because millennials are far more comfortable with digital products. So if you think back to Green Dot, oh, even 6, 7 years ago, the concept of getting a bank account or a checking account at a grocery store or at a Walmart or something like that would have been -- felt very alternative and edgy and [nitchy] and something that people would have said, "Oh, that's not for me." But when you look at consumers today and millennials today in 2018, that simply doesn't come up in that amount(inaudible). You still get it from older folks but not from people in their 30s and 40s because everything in their world is on a mobile app or on a website. And so the likelihood to view our product offerings as mainstream and cutting-edge and modern as opposed to weird or alternative has been a real positive macro for us. So I think all those things have contributed. Having said that, we have some opportunities in our company that you'll see deploy here or that we will deploy in pilot and then rolling out more broadly if it works, an opportunity, let me think about this, to communicate our benefits in a more unique and differentiated way to a wider set of consumers. And we think if we do that successfully, we can become used more and more as a bank that serves mainstream America, but the digital made of younger side of mainstream America. And we'll never abandon our passion and commitment for a low and moderate-income consumers, which is the core of our history. And we're still very passionate about the concept of democratizing banking, in other words, making the checking account from a regulated bank something that everybody can have. Everybody should be able to have a savings account from a regulated bank. Everyone should be able to have consumer protections that are offered by regulated banks. But that shouldn't be limited to how much money you can afford an overdraft fees or whether or not 19 years ago, you bounced the check and now you're blacklisted on somebody's underwriting score table. And I think we've done a really, really good job of that. And as we branch out just naturally from what began as a service catering to a low income American, it turns out that low prices, no overdraft fees, rate technology, is in fashion, whether you're rich or poor, anything in between, but it's taken some time to evolve. So that's a long way of saying we think the TAM has improved organically, if you will, just as a country moves and technology becomes more familiar. And it's moved because we've designed better products that speak to a broader base of customers, and we expect to do more of that.

Yes. Just to echo what Steve said. Now if you start from -- if you go back to where we started, it was prepaid card sold at retail, and today, we've got a platform where we're providing broader set of financial services and reaching consumers of enterprises that we partner with. So now if you have an Apple phone, you're getting our financial services. And if you drive for Uber, you're getting our financial services. And it continues on that we can provide broadly for -- as Steve said, for all Americans on demand financial services.

Okay. Just a quick follow-up. What should we interpret or infer from this change in accounting? I mean, I kind of infer that as you look to '19, you think you're going to have more meaningful contribution from some of these platform customers. Is that the right conclusion? Or am I...

It is. Yes. I mean, right now -- and the math today, if we were to make the change right now in 2018, which we'll never do, we always want people to have time to get familiar and comfortable with whatever it is we're going to do. But if we were to make the changes here, maybe it would have been a $5 million difference or something like that on the top line. It just wouldn't matter for this year. But as the BaaS programs become bigger, let's say, the Intuit program or maybe if we're lucky and the macro continues to go, the Apple programs and all the other ones we're doing, it will become more meaningful. And in those programs, the gross revenue we get is not the same as the revenue we get from programs where we're controlling the product from inception to consumer acquisition through the life cycle of the customer. They're different. We have different kinds of processing or routing fees that are not customary. We have rev shares or other kinds of expenses with the client where we're not seeing the full dollar because they're, in effect, [reselling under their] consumers. And every program is a little bit different. But if we didn't make the change now when it was meaningless, by the time it became meaningful, it would have been maybe too late to make the change. So we want to announce it now, and then by next year, it'll become a little bit more material. And as years go by, we think it will be way more material because we think our BaaS programs will begin to become a big driver, which isn't to say that our own products don't continue to grow beautifully, but it is a different kind of offering, right?

And our next questioner today will be Bob Napoli with William Blair.

Mark, glad to have you onboard. The -- you guys, I think you mentioned double-digit organic growth continuing for the next few years. The mix of that between growth of active cards and revenue per card, do you have some thoughts around that?

Well, so we talked about continuing double-digit top and bottom line growth. I don't know that we said organic, not that it wouldn't, but we probably didn't get that precise [with it] in our prepared remarks. But I always look forward to you catching on something, so maybe I'm wrong about that. But nevertheless, we appreciate, as always, Bob, your optimism. So the question -- the answer is, yes, we think that our growth generally in the company is driven by more customers depositing more money, therefore, spending more money, thereby, having their accounts longer, which may mean more monthly maintenance fees, more interchange when they spend more money using other ancillary services and so on and so on. So more equals more in our business, obviously. And what I love about the growth we're seeing, in fact, we were commenting on this before coming into the studio, is that the growth isn't from any 1 fee or lapping the fee changes we made a couple of years back, believe it or not, it's already been 2 years since we had our fee changes, it was really in 2016, it's that people are using the products more, which is where you want to see the growth. You don't want it to be about any 1 event or any -- it's about I have a Green Dot Bank account, and I use it as a bank account. And as we continue to have that kind of growth and that kind of macro expansion, that should deliver that growth ongoing.

And then did you mention the Intuit program is -- I would imagine it's in full swing, how that's progressing?

Oh gosh, what can we say? The answer is, it is in full swing, and we love the partnership, but obviously, we couldn't portend the results this early in the Q.

And just last question on net interest income becoming a bigger part of the pie. Is that -- can you -- are there other products besides the secured card? Or do you expect substantial growth to the secured card or just higher interest rates on deposit balances?

It's both. We think the drivers of more interest will clearly be more deposits with more accounts on file that you're investing in your nightly investment opportunities. But today, as you know, the bank can only invest, really, in very short-term, highly liquid cash and cash equivalents, for the most part. We have some pockets of money that can-do things, that are slightly more aggressive, but generally, it's a very, very conservative investment policy for lots of different reasons. And as the Fed has increased their interest rates, that's clearly helped us, and that's been a nice tailwind. But then to your point, we do have the 5 -- I'm sorry, the secured card portfolio, which is done very well, and that interest is in top line as well. Well, today, it's not material in and of itself, all of this creates a tailwind for interest rates and both of those other drivers.

Our next questioner today will be Brad Berning with Craig-Hallum Capital.

One higher-level question a little bit is, as we see Banking as a Service get expanded into a new distribution channel of employers rather than need necessarily get the branches, can you talk about what are you seeing from employers or a gig employer-type interest in expanding their relationships with their employees and contracted employees? What are you seeing for activity levels out there? And how do you think about opportunities in 2018 to potentially find more partners?

So our BaaS platform is used for many different things, SimplyPaid being one of them, which is our 1099 corporate disbursement or wage disbursement product. But it's also anything custom that anybody wants to do would be part of BaaS. When I say anybody, obviously, you have to be a qualified partner, but within reason. And SimplyPaid is a part of our Banking as a Service offering, and the interest is very high in it. I think employers are recognizing that employees want money, sooner not later, how about that? And by the way, it's funny, people will say, "Steve, is that because low income people like their money faster?" The answer is, it's because all people, as it turns out, want their money faster. I'm sure folks who work for you as well want it that way. So getting your money faster is in style, and employers are recognizing, especially with the unemployment rate, where it is, so low, that you have to compete for talent. And increasingly, folks are saying, "Wow, I can do this. It's relatively inexpensive, and my employees find it a great value." So we have a tremendous amount of business pipeline activity for SimplyPaid and -- but it's very early on, its meaningful today and becoming better, but we hope that we'll have more and more accounts for SimplyPaid. We think it's a great offering. A lot of people are offering similar services. We're not the only ones. We may have been one of the first to start it and maybe the only one to start it initially at our size and scale with Uber. But a lot of people are offering it, and there's a lot of competition for it. But we think given our unified asset stack of a bank and the technology provider and every -- all the regulation, everything that goes in the middle, we're ideally suited to offer this to enterprise-level clients. And so we hope that, that product will continue to do well. But so far, it's done very, very well.

And over the longer term, does -- can that be a domestic-only type solution? Or do global employers want to see global solutions? And how do you think about that strategically over time?

So the answer is that global employers absolutely want to see global solutions, and it's really, really hard. So we have teams working on how to crack that nut, but it's tough. Clearly, Europe is easier than China, for example. You have certain relatively easy zones you can go into and geographies, and then we have others that are really tough. But we do have people working on how to expand it in a way, but it's highly complex because of regulatory reasons, because of technology reasons, payments don't move the same as they do in the U.S. So it's not an easy thing to solve, but it's one that we would like to solve.

One technical, quick. I'm sorry if I missed this, but the organic growth for cards in the quarter on a year-over-year basis, what did that look like?

4.5%.

And our next questioner today will be Andrew Schmidt with Citi.

First question, a few moving parts in FY '18. You have the Intuit ramp, you have Apple Pay Cash ramping, improvements in the core prepaid business. What's the best way to think about active card growth and revenue per active card, just given all those input? Just trying to get a better handle on that?

Do you want to -- okay? So the answer is, our guidance is constructed or our forecast is constructed, assuming that we'll continue to have moderate and modest growth in active cards, we're doing 4.5%, 5%, and we think anything like that or close to it will be ample to hit our plan. And so we're assuming that. It could be higher, and if it's higher, that's great. And the revenue per active has, in real life, continued to grow, and we're seeing trends that will lead us to believe that it'll also continue to grow, in large part just because more and more people are using direct deposits. So our guidance assumes modest and achievable growth proactive and a few more actives, but nothing that I would call a stretch or anything crazy.

And to Steve's point earlier in the call, the growth in revenue per active is really no longer from fees. I mean, we've sort of lapped that, and this is really we're getting greater GDV per active and, with that greater purchase volume, use of ATMs and interest income.

Understood. That's helpful. And then, clearly, the increased TAM is a positive factor. Huge beneficial driver for longer term, but just -- I was wondering of the way to conceptualize the materiality of the new business lines versus the established business lines and just any way to size that. I know probably small initially, but any thoughts on that.

Oh gosh. I mean, obviously, we track our established products versus new products internally, but we disclosed just the segments. The answer is that our -- if you think about our established business lines or legacy business lines being prepaid cards and reloads, right, that would be the historic Green Dot, those 2 lines of business continue to be a good part of our revenue and certainly more than half of our revenue. But the new lines of business are sizable and getting more sizable. So the answer is our bread and butter from the old days is still our bread and butter today. Just like coffee is still important to Starbucks. But the new ads we put in are becoming more and more material, which is, in part, why we're looking at different accounting presentations for next year. And while we've had to build out and have been excited to build out so much more sophistication in our operating platform because you're doing lots of different things simultaneously, and so that's been all part of our growth.

Understood. That's helpful. And then my last question. On the tax rate, the 25% tax rate. I was wondering, Mark, could you just walk us through some of the assumptions in there? Is that sort of an initial cut at the tax rate? If you evaluate this, could -- is there potential for this to come down? Just if you could walk us through the puts and takes, that would be helpful.

We just threw spaghetti against the wall and said, "What feels good?" Yes, I'm going to let Jess join in on this as well, our Chief Accounting Officer. But basically, we looked at 21% rate as a starting point, as you know, we're all domestic income, and we're building from there, predominantly from 162(m) adjustments, but there are probably some others as well that would factor in.

Yes, you mentioned the majority of it. So I think that's a good cut. It's our best estimate at this point in time. And to Mark's point, the -- there are things that are incremental to the tax rate like 162(m) and the like, but overall, the 25% feels really good.

Yes. We're -- look, as we do with most things, I think we're hopeful that we come in under 25%. We think it's about right, but there's probably some upside to that.

A little [pat], I guess, right?

It makes sense.

Yes. We want to be careful.

Of course. It makes perfect sense.

And the next questioner today will be Steven Kwok with KBW.

Just when I go back to your prepared remarks on the Six-Step Plan, you mentioned about the new M&A activity being fourth quarter as the earliest you can complete something. Are you guys looking at anything right now just curious [as] the pipeline? And then how large of an acquisition could it be? How much room do you have to flex? Do you have the capability to flex up?

Well, it depends. So we have sort of a range of acquisition targets that we're always looking at. There's nothing particularly hot or burning now, although we get books all the time, and Mark and I will look at them and some excitedly more than others, you know how that works. So you're not always going to see something great. But in theory, depending on our available cash and what we want to do with the balance sheet and everything else, you could make large acquisitions. The biggest one we've ever made was around $400 million or so, which would have been TPG. And we've made a very small acquisition for just a few hundred thousand dollars. So it runs the gamut. But to your point, we did so much activity last year between large share buybacks and 2 acquisitions, one of which was sizable and complex with UniRush, that we're going to want to build up our cash balances, we're going to want [to look] -- the year play out, we want to make sure our risk management systems are tight and we want to do all the things that we want to do. And we have a lot of new programs we're integrating as well. So it would feel -- if you're sitting where we're sitting, it would feel out of sequence to haul off and do another large acquisition in the near term. But to answer your specific question, there's nothing burning. I don't think -- you may have a different opinion, but there's nothing burning in the pipeline that I'm flipping out about(inaudible).

Yes, I agree with you entirely. I think we said on the Q3 call that -- and are reiterating here, that right now, our primary focus is on the launch of our platform programs, and we just want to make sure we have the cash to support them, and that's our focus. And as we get to the second half of the year, then we can start turning our attention to other things.

Got it. And then just as a follow-up. When we look at the legacy, the cash transfer revenues as a percentage of the number of cash transfers that happens, that fee has continuously been going up. Like is there a ceiling that it would approach at some point? Can you help us think through that?

Well, the reason that it's been going up is that we continue to sell a lot of reloads and increasing number of cash transfers or reloads, both the reloads, not all. And the reason the average revenue per transaction is going up is, number one, MoneyPak is selling more and more, and MoneyPak sells for $5.95 versus a swipe reload, which is $4.95 in some retailers and $3 at Walmart. So as MoneyPak is more infiltrated, if you will, into that segment, you're going to have some upward pricing on an average there. And then we have products in the past that are no longer in the market that advertise free reloads, and we don't have those anymore, but there's still a lot of those customers out there. So as those portfolios are trite(inaudible) over years, then they're replaced by customers who are paying for reloads. I think what's so fascinating, and I love learning about consumer behavior because whatever you think you know, you don't, you learn it in the wild only, not in the classroom, is that our reload activity with customers who pay for the reloads is every bit as more robust and, in some cases, more robust than when we thought it would be a good idea to do it for free. So -- but that's why you're seeing that upward pressure because you have more people paying for their reloads, which means less of the free reloads, and you’re seeing the MoneyPak infiltrate the overall average.

(Operator Instructions) And our next questioner today will be Mike Grondahl with Northland Securities.

Two questions. The first one, on the higher economic cards from early 2016, at Walmart and the non-Walmart locations, what inning do you think you're in, in getting those into your portfolio? And then secondly, what do you think has been the secret sauce into sort of driving direct deposits? It really is done well the last couple of quarters. If you could kind of help us on that, it would be great.

Sure. By the way, I think the secret sauce at McDonald's is ketchup and mayonnaise, I think, actually. It was a big debate at one point. Okay, [that was salad dressing]. So okay, first thing's first. I think what you're asking is when we rolled up the new fee plans back in January or Q1, really, of 2016, what percentage of our active cardholders today would be on those new fee plans? Is that kind of what you're asking?

Yes. For both Walmart and, I guess, what you'd call non-Walmart.

Well, I don't think we would ever differentiate between the two, just on a portfolio-wide basis.

Yes. So what we said is, last quarter, that we're about halfway to 2/3 there, depending on the portfolio, and that's really where it still is. And the reason why, and, Mike, I don't think it's going to change a lot for some time to come, it may go a few percentage points here or there, the reason is, is that the fast turners, if you will, or the fast churners are already churned through, it's been 2 years. The average life of a prepaid card is a lot less than 2 years. So those are fully done, but then you have your best customers who many of them pay no fees anyhow because they're on direct deposit or they're depositing enough to waive the fee. And so they wouldn't know there was a fee increase one way or the other. And they still retain. So you're never going to get to 100%, or if you did, it would be a bad thing because it meant that you lost all your legacy customers. So we kind of are as lapped as we're going to be within reason. There's no big [paboom] left to come. There's no big shoe left to drop. So what you see is what you get. And now the increases we're seeing, which are still sizable in revenue per active, is driven by usage, as Mark addressed earlier. So that's that. The next question is secret sauce for direct deposit. There's a couple of things. One is the macro, as I mentioned earlier, younger people who are more employed using payrolls and small businesses using payroll services that make it easy to enlist your employees on direct deposit. So that's number one, and that's part of what we're benefiting from and everybody. It's not just us. But I would expect that competitors and others in the space are benefiting similarly. In fact, we see that at companies we bought. So you're seeing that as a macro trend. And then Green Dot, in particular, I think has done a good job, although we're going to do a lot better, in making it more and more easy and intuitive to enroll a direct deposit, and that has been a big advance for us. When you have more people using your mobile apps and more people using digital ways to communicate with a bank, you can now market more smartly and provide better life cycle messaging and all the things that you want to do that we really couldn't do in the old days. So part of it is macro and the other part is that we have a good marketing effort that we intend to have better. Thank you, Mike.

Thanks, Mike.

Operator, it looks like it's all she wrote on the questions. Is that right?

Yes, sir.

Okay. Well, listen, everybody. Thank you for listening in today. Have a wonderful evening on the East Coast and a wonderful day here in beautiful West Coast. And we'll see you at a conference near you. Have a good day, everybody.

Thank you, all.

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.