Green Dot Corp (GDOT) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to Green Dot Corporation Second Quarter 2018 Earnings Conference Call. Please note that the contents of this call are being recorded.

And 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 2018 second quarter performance and talk about the remainder of the year. Following those remarks, we'll open the call for questions. For those of you 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 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 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 the property of Green Dot Corporation and is subject to copyright protection.

Now I'd like to turn the call over to Steve.

Thank you, Dara, and welcome, everyone, to Green Dot Corporation's Q2 2018 earnings call. Today, we'll start with a review of our outstanding financial results in yet another consecutive quarter, with performance that exceeded our expectations. I'll then provide an update on how we're executing on our 2018 Six-Step Plan, which will then be followed by Mark's overview of our quarterly results, including details of a significant increase to our 2018 full year revenue and earnings outlook.

We're pleased to say that our long-term strategic plan to be a new kind of bank is yielding very impressive results. By new kind Of bank, we mean one that uses technology, ubiquitous digital and retail brick-and-mortar distribution and large partnerships to acquire customers instead of branches. And a bank that generates revenue from increasing customer satisfaction not from increasing customer penalty fees. As evidenced by our ongoing operating and financial momentum, Green Dot continues to provide unique products and services for consumers as well as one-of-a-kind platform solutions for our BaaS partners.

Consolidated GAAP total operating revenue came in at $258.3 million, representing a year-over-year growth rate of just over 16%. We would note that this quarter's performance was entirely organic, with material growth being driven for both our established product lines and our new BaaS platform programs. And despite a more challenging year-over-year comparison, organic growth accelerated again, reaching its fastest rate since 2012.

Adjusted EBITDA for the quarter was $57.6 million on a consolidated basis, representing a year-over-year growth rate of 15%, exceeding our adjusted EBITDA margin expectations by over 140 basis points. And consolidated non-GAAP EPS for the quarter was $0.74, representing a year-over-year growth rate of 35% marking the eighth consecutive quarter in which we have posted double-digit or better year-over-year growth in non-GAAP EPS.

In our Account Services segment, total revenue in the segment jumped by 17% to $204.3 million as total active accounts jumped for the sixth consecutive quarter, growing by 14% year-over-year to 5.9 million active accounts or an additional 700,000 more active accounts, in which approximately 500,000 were new direct deposit accounts. Again, this growth was 100% organic.

In addition to having more active customers year-over-year, those active customers use their accounts more than ever and generated more revenue than ever with deposit volume, purchase volume and ATM usage all increasing double digits year-over-year. The continuing long-term portfolio mix shift towards higher lifetime value accounts helped push the gross dollar volume, or GDV, flowing through our various products to more than $9.4 billion, representing organic year-over-year GDV growth of 25%.

Our Processing and Settlement segment continues to build on its growth momentum, achieving record-setting results in the quarter. Revenue increased 12% in the quarter to $61.9 million, driven by increasing transaction counts in all of our product lines in the segment, including cash transfers, tax refunds and SimplyPaid corporate disbursements, which all grew year-over-year transactional volume by double digits.

Now I'd like to share some recent business updates and then I'll share the status of our Six-Step Plan for 2018. As you know, we operate under a unique products and platform model where we generate revenue through the issuance of our own internally designed and branded products that we distribute to the mass market and through our platform, which allows qualified outside partners to use our bank, technology and program management capabilities to design and brand their own products that they then distribute to their own customers. So, first, let me discuss some of the more notable programs on the platform side of our business called BaaS, or Banking-as-a-Service.

First, Apple Pay Cash continues to grow very nicely and while program revenue isn't expected to be material, Apple Pay Cash is already serving millions of customers across the U.S. less than 8 months since its launch. The Intuit Turbo card program has delivered wonderful results since its Q1 launch and has continued to do very well for us in Q2 as result of the tax refund volume that occurred in April and because a large number of customers have made additional deposits to their cards beyond the initial tax refund disbursement and are seemingly using the debit card as an ongoing bank account beyond tax season. Our Uber GoBank rewards account continues to grow very nicely, with new drivers increasing adoption of the account and existing account holders using it more often, while development continues on our new bank account products and partnership with Stash, which will be released later this year. In all, our BaaS programs collectively contributed materially to our year-over-year GDV growth, active card growth and revenue growth.

On the product side of our shop, Green Dot continues to gain traction. First, Green Dot's long-term retail distribution partners continue to increase their support for our products and services with Dollar General, Family Dollar, 7-Eleven, Rite Aid, Albertson's and Walgreens stores all adding either new incremental displays, expanded placement on those displays or increased in-store signage designed to increase sales of Green Dot brand products across their store locations nationwide.

We're also proud to announce that Green Dot launched the new placement of the Walmart MoneyCard at the check lanes in 600 incremental Walmart stores, and Green Dot products and services can now be found in all Walmart Puerto Rico stores.

Now let me review how we're performing against our 2018 Six-Step Plan.

Step 1, as you'll recall, is to continue to grow the number of active accounts year-over-year and to improve unit economics of those accounts. As you know from our Q2 results and our first half results more broadly, we're hitting the step 1 objective out of the park. Every metric in the Account Services segment reflects the powerful dynamic of an increasing number of active account holders who are generating far more usage and engagement with our products. The result continues to be an ongoing tailwind to the profitability and value of our account active portfolio. So I think it's fair to say that we are in a very good place with step #1.

Step #2 is to launch a new and compelling use case for the new MoneyPak and to continue to increase the number of retail stores selling MoneyPak. MoneyPak continued to gain traction with sales nearly doubling year-over-year and an additional nearly 8,000 retail locations now selling the products in the quarter up to nearly 78,000 retailers now selling MoneyPak. To put that number into perspective, at the beginning of last year, we only had around 30,000 retailers selling MoneyPak. The rapid expansion of retail distribution for MoneyPak speaks to Green Dot's brand power at many of America's best retailers. That new use case is now in pilot and showing good traction. We've decided to delay the official launch in order to make certain product improvements based on learnings from the pilot. So check the box in step #2 as it relates to distribution and unit sales of MoneyPak with a half check so for on the new use case.

Step #3 is about continuing to invest prudently for future growth. I think we've done a disciplined job here with significant allocations of capital being deployed to build new products and improve current ones, while investing in people, recruiting more senior leaders and highly capable team members to ensure we can manage our growth responsibly and in keeping with our strong cultural values around risk management, compliance and internal controls. We've also been continuing to invest in making our BaaS platform flexible, powerful and rigorous with the set of tools and capabilities that can allow us to scale quickly, safely and efficiently so that we can readily absorb the many opportunities ahead. Despite our philosophical commitment to reinvesting some of our financial performance back into an array of existing growth initiatives, we have protected profitability as seen in our continued expectations that 2018 margins will expand. So I believe we can say we are on track with step #3.

Step #4 is about continuing to drive increasing efficiencies across our consolidated operating platform in order to drive margin expansion as part of our standard operating rhythm. While we've had a lot of success with these platform initiatives over time contributing to an over 600 basis point improvement to consolidated adjusted EBITDA margins over the past 5 years, we still have a tremendous amount of innovation yet to come around the customer delivery platform and other parts of our business, like how we provide customer service, card delivery, fraud monitoring and that type of thing in ways that are more satisfying for the customer and yet much more scalable and more efficient for Green Dot. Of course, these innovations require targeted investments to successfully bring them to market. But we expect these investments to be more than offset over time by the resulting cost savings and improved customer satisfaction , which, of course, drives more favorable retention and usage.

When you consider our margin performance in this Q2 being 140 basis points ahead of our expectations and our forecast calling for expanded year-over-year margins for the full year despite the elevated level of investment in new product launches, platform improvements and people, you can see why we feel good about how things are developing here, and so we will check the box on this step #4.

Steps 5 and 6 are about the smart and accretive use of capital to enhance shareholder value over time. The past few years had been a period of heavy and rapid capital deployment at Green Dot, including buying UniRush and several other companies, and then completing a very successful and highly accretive $150 million share repurchase authorization last year. Then as we completed the last installment of our share repurchase plan, we launched our BaaS platform business, which has been successful beyond our greatest expectations.

Given the success of our recently launched BaaS programs, the number of potential BaaS deals in the pipeline that may require capital and the tremendous growth we're seeing in our established product lines and the new product opportunities coming in the pipeline on the product side of the house, we believe that digesting all the activity from the last few years and focusing on flawless execution is the right strategy at this time. As such, we will continue to build our capital reserves, which will only enhance our flexibility to pursue future M&A opportunities, share repurchases or other activities that meet or return objectives. So for step 5 and 6, I think it's fair to say we're investing in what we believe will be highly successful and accretive activities with an eye towards share buybacks or acquisitions down the road.

So in summary, today, we're very pleased with how we're balancing the execution against our longer-term corporate strategies with our focus towards hitting our targets in the 2018 Six-Step Plan. Mark and I feel terrific about being able to deliver such outstanding results for you, our investors, and greatly appreciate your partnership and confidence in Green Dot.

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

Thanks, Steve. The strong momentum in the Account Services segment, including strong results from both the products and platform parts of our business and the Processing and Settlement segment, inclusive of our various cash processing and tax refund processing product lines, combined once again to deliver truly outstanding results for the quarter. GAAP total operating revenue of $258.3 million represented a year-over-year consolidated organic growth rate in the quarter of just over 16%. This is the strongest organic growth rate our company has posted in 6 years, back when Green Dot was a much smaller company. We're quite proud to achieve such strong organic growth rate at our company's current size.

As we discussed on last quarter's call, starting in 2019, we will begin using a new presentation for non-GAAP revenue, which 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. Under that presentation, we would have added $5.3 million of interest income this quarter and subtracted $10.9 million of processing costs and commissions, resulting in $252.7 million of consolidated non-GAAP operating revenue in the quarter.

Now diving into the segments. The Account Services segment delivered GAAP revenue of $204.3 million, representing organic year-over-year growth of 17%. We increased total active accounts in the quarter by 14% year-over-year to approximately 5.9 million active accounts. This active account growth was spectacular and well ahead of our internal expectations. Even more encouraging is that the growth in active accounts is being driven both by our newer BaaS Platform programs and our own products. As Steve alluded to in his remarks, the larger portfolio of actives also continues to demonstrate healthy growth metrics and a more profitable average account. Consider that direct deposit accounts grew by 28% year-over-year, which helped drive GDV to $9.4 billion in the quarter, which was 25% higher than last year. Again, all this growth is organic.

Our Processing and Settlement Services segment generated approximately $61.9 million in GAAP revenue, equating to a 12% year-over-year increase. The strong revenue was driven by healthy growth in all the segment's various products lines, including the number of cash transfers, which increased approximately 11% year-over-year, and the number of tax refunds processed, which increased by 16% year-over-year.

The combined operating segments generated adjusted EBITDA of $57.6 million in the quarter, which equates to a year-over-year organic growth of 15%. Adjusted EBITDA margins in the quarter were 22.3%, a full 140 basis points better than our expectations. While a portion of that better-than-expected margin was a result of a timing shift of few million dollars of expenses that will get pushed into Q3, the remainder of this upside reflected better-than-expected margin flow-through at some of our new BaaS programs and the continuing trend of dramatically improving margins on our established product lines, where incremental revenue from higher deposits and higher spend falls to the bottom line at very high incremental margins.

Non-GAAP EPS came in at $0.74 per share, up 35% year-over-year. As Steve noted, this is the eighth consecutive quarter of double-digit or better non-GAAP EPS growth. We believe this is even more notable given that we have been in a period of heightened investments to support the build-out of our BaaS Platform and many other technology and infrastructural projects. We achieved this outperformance on non-GAAP EPS primarily from a combination of the flow-through from our better-than-expected EBITDA, higher interest income on the investment of cash deposits held at the bank and a lower effective tax rate.

Green Dot once again generated excellent cash flow from operations of $167.7 million during the quarter. We exited Q2 with $182.6 million of unencumbered cash on our balance sheet or nearly $100 million more than Q2 of last year.

Now turning to our updated guidance for the full year 2018 and directional guidance for Q3. We are very pleased with both our results and the underlying strategies and initiatives driving those results. And this strong performance enables us to once again raising both top and bottom line full year guidance for 2018.

First, let's talk about full year revenue guidance. We overperformed our revenue expectations in Q2 by $9 million. Furthermore, based on our actual performance trends, we expect that the revenue momentum across all of our business lines will continue for the remainder of the year. As such, we are raising our current full year revenue guidance range of $1.002 billion to $1.012 billion, by $20 million, which reflects the $9 million of overperformance in Q2 as well as an additional $11 million of upside we expect in the second half based on the momentum we are forecasting for the remainder of the year. So the new GAAP revenue guidance range for full year 2018 is $1.022 billion to $1.032 billion, which equates to a year-over-year revenue growth forecast range of between 15% and 16% for the full year. It is worth noting, the midpoint of our new revenue guidance range is $37.5 million above the midpoint of our original 2018 guidance range provided in February.

Now let's talk about full year adjusted EBITDA guidance. We overperformed our adjusted EBITDA expectations in Q2 by $5.6 million. But around $3 million of that overperformance was a result of a shift in timing of certain expenses that we originally expected to come in Q2 but we now expect will instead come in Q3. So in considering the spend that was originally earmarked for Q2, we would have generated incremental adjusted EBITDA of approximately $2.5 million on the $9 million of revenue overperformance in the quarter, which implies an adjusted EBITDA contribution margin of around 30% on that revenue overperformance. We would expect that approximate margin percentage to apply to our entire full year revenue guidance increase of $20 million, which would generate an incremental $6 million-or-so of adjusted EBITDA for the full year. If we guided the full amount of that incremental margin, we would be adding around $6 million to our previous adjusted EBITDA range of $240 million to $245 million.

However, considering the robust pipeline of new opportunities across the company, including new potential BaaS partnerships and new internally designed products and platform enhancements that we believe deserve some higher investment than originally planned, we are prudently going to raise our annual guidance by $3.5 million at the midpoint, which gives us additional flexibility to fund those investment opportunities. As such, our revised full year adjusted EBITDA guidance range is now $244 million to $248 million, equating to a year-over-year projected growth rate of between 19% and 21% and represents a $7.5 million raise compared to the original EBITDA guidance we gave in February. At the midpoint of $246 million, this revised guidance implies second half adjusted EBITDA margins are expected to expand by approximately 270 basis points year-over-year and approximately 85 basis points for the full year.

We now expect our non-GAAP EPS to be in the range of $3.03 to $3.08 per share, equating to year-over-year growth of between 40% and 43%, and a $0.09 per share increase at the midpoint from our prior guidance range of $2.93 per share to $3 per share. Our non-GAAP EPS forecast assumes a tax rate of approximately 24.2%, previously 25%; a fully diluted share count of 54.6 million shares; net interest income of $16 million, previously $15.5 million; and depreciation and amortization of $42 million.

Now let's talk about our expectations for Q3. We are estimating Q3 to deliver approximately $222 million in GAAP revenue and adjusted EBITDA to be around $38 million, implying an approximate 17.1% consolidated adjusted EBITDA margin, an improvement of approximately 30 basis points over Q3 2017. That $38 million in adjusted EBITDA is expected to deliver Q3 non-GAAP EPS of approximately $0.41. This Q3 guide at the midpoint implies that we expect Q4 GAAP revenue to be around $232 million and Q4 adjusted EBITDA to be around $46 million, equating to an implied Q4 margin of approximately 20%, an improvement of approximately 500 basis points over Q4 2017. The primary reason why our implied Q4 year-over-year margin comparison is so strong is that in Q4 of 2017, we were investing heavily in the development and deployment of several large BaaS programs, including programs for Apple, Intuit and Uber. At this year's Q4, while we still plan to invest incrementally in new development, on a percentage of revenue basis, it's less than what we spent last year in Q4.

Furthermore, this year, we're benefiting from the revenue that those new BaaS programs are generating. So, if you will, last year's Q4 was planting time for those new programs, whereas this year's Q4 is expected to be harvest time.

All told, the midpoint of our revised full year guidance imply expected second half GAAP revenue of $454 million and adjusted EBITDA of $84 million, which equates to an adjusted EBITDA margin of approximately 18.6%, which, as previously noted, equates to an approximate 270 basis point improvement over second half of 2017.

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

(Operator Instructions) And the first questioner today will be Andrew Schmidt with Citi.

Question on the -- just the longer-term margin outlook for the business -- the longer-term opportunity in terms of margins. Wondering if you can help just frame the opportunity here. Clearly, incremental margins, upper 20%, low 30%, given the way you currently report. What's the right way to think about just -- and I understand there are investments that are required, obviously ramping partners, et cetera. What's the right way to think about the longer-term margin progression of the business and the ultimate opportunity here?

Right. Well, we've expanded quite a bit as you heard from the prepared remarks. In fact, in looking at the data, I was shocked to see how much we've grown when you think of it over a 5-year span, 600 basis points of margin added to the business. Mark, do you want to take it about the longer-term concept of where we think we should be?

Yes. I don't think about it in terms of a specific EBITDA margin I'd like to be at. We are in a fortunate position of having a fantastic TAM in front of us, a great opportunity set for growth. And we're trying to strike the right balance of continuing to expand our margins as we grow at the same time. So just as we're doing this year, we could have if -- in the alternative, we could have just taken margins up if we didn't see great opportunities for investment in our growth over the long term. So I'd rather answer it qualitatively and say, I think we have plenty of room for margin expansion while we continue to grow.

I think that's a fair question. We have a goal that I think I've said on various earnings calls, margin expansion every year, and generally, we start off with a slate and look at 100 basis points and what we've want to do. But some years, again, and if we have big investment years, we may not hit it. This year we're got to do it pretty much. But that's the way to look at it. If you think about margins this year, by the end of the full year, I think about 100 bps of expansion, while not every year we'll hit it, some years will be bigger investment years, that's a good cadence that we would look to, to be successful.

Got it. That's helpful. And then just a follow-up. The Banking-as-a-Service pipeline, can you just frame, I guess, the -- how that's shaping up? Can you add multiple partners in a given year? What's -- anything just to conceptualize just the size and just the demand you're seeing for just Banking-as-a-Service partnerships. Clearly hitting nice demand trends here from just powering new FinTech use cases. So just curious if you could help just frame up the opportunity.

So there's a lot of opportunity for BaaS. And my gut is as you look at the sales pipeline, that we're just scratching the surface. At the end of the day, if you think about where banking is going and the power of banking in the hands of a few large organizations or regulated institutions that then have all the accounts, if you will. The future just like technology in general is putting the power of banking in the hands of individuals and corporates and others. And Green Dot has something unique, which is this platform that allows people to do that successfully at scale, and we're doing it. And that's very, very unique in the country. There's -- I'm not aware of anyone. There's a company out there that does the technology part but only that, not the banking, not the program management part, not the regulatory piece. There are other companies that may do something with something else. But only Green Dot has that vertically integrated asset stack of the regulated bank and the technology to build things de novo, from scratch, really complex things as well. And the program management skills, meaning, risk management and compliance and call centers all over the world and all the things that you have to do. A card design, just think of all the pieces; package design; distribution; fulfillment centers, all those things that go with it that people don't think about until they try to do one of these programs and they say, "Oh yes, what about that?" So I do think we have a great opportunity ahead of us and that we're just scratching the surface of pipeline. When you talk about, can we do multiple programs in a year? The answer is yes. We did 3 last year, and that's part of what we're building though is the opportunity to do more and to build that scale and to do it safely. A lot goes into rolling out an enterprise-level program. When you think of the size of the programs we're doing, these are large programs with very large partners. And so the level of governance and precision that has to go into it is extreme. And we do a very, very good job of that. We've got an amazing team. I'm just so proud of them because it isn't just what you see, "Oh, look, I got my card in the mail." When you think of all that goes into, including the regulatory parts of it, and all the things that have to happen to make sure that it works every time the right way at scale, we do a very, very good job. And I think the future on that is very bright. And I wouldn't be surprised that at some point if the BaaS side of our business eclipses the product side of our business. Right now they're about even. But BaaS is growing very quickly.

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

The account growth, obviously, very, very strong and accelerating. Can you give some color on where -- what is driving the incremental growth? Is it Uber? Is it -- I mean, is -- Apple is not in those numbers. So the Apple Pay Cash accounts are not in those numbers. What is driving that?

Yes. Apple is not in those numbers. So it's all of it, frankly. The BaaS side of the business grew a lot of accounts, obviously, with programs like the TurboTax program and the Uber driver program, those are active cards. But our established product lines, Bob, are just really doing well. So we're seeing growth from both. In fact, if you size sort of the revenue growth, where did the revenue growth come from? It's pretty much split along the middle, half from our established product lines and half from our BaaS products. And if you look at the GDV growth, it's about half and half. So everything's growing in relative lockstep. So it's coming from all of those things and we have a healthy macro. And we have a huge TAM. And all those things are contributing to the growth.

Now within the BaaS segment, the Uber or the gig economy type of business seems like a really good fit for your product. Are more of those types of businesses in the BaaS pipeline? Or what does -- what businesses fit best to the BaaS product?

Oh gosh, we have such a wide variety. I mean, think of the variety we have now. We have Apple Pay Cash, which is about money movement and technology and mobile tokens. You have traditional card programs like what we're doing with tax disbursements. We have a very complex and really great rewards product with Uber that is unlike any product we have in the company. In fact, I often talk to our product team who runs that, it may be the best product we have in the entire company, frankly. And they're all different. So what's so cool about Banking-as-a-Service and that platform keeps getting better and better with each iterative release, technology release, is that you have this whole menu of things that you can do and you're limited in large part only to your creativity as a product designer. So if this person wants cash back rewards, great. This other partner, no, I don't want cash back rewards, I want interest on a savings account. Okay, that's fine. This other person wants something else. The point is, is that you can select it all in a matrix and put it together in a very customizable way all existing on a platform. So I think the kinds of partners we have run the gamut of opportunity and I think that's kind of what our pipeline looks like now. There's so many businesses -- here's what I think about it, Bob, there's so many businesses that have the desire or the need to communicate to their customer base in a financial way. In other words, how I get wages to them or how people engage in their business, offering rewards. Just think of all the different ways that people communicate to people in an intimate way through their money. And as BaaS becomes more and more known and as more and more companies wake up to the fact that, "Wait a second, I don't have to take that off-the-shelf product from that large mainstream bank. I can make my own product and do what I want to do with it and use it to build my loyalty or use it to build my business the faster that pipeline grows." And we're very blessed to have so many fabulous marquee name clients early on in BaaS' life. But the fact is that there are just a tremendous number of opportunities out there that run the gamut.

Last quick question, if I may. The accounts that you're adding, #1 out of 6 of your target achievements is higher revenue per account. That is a lot of different types of accounts coming on. Do you still expect to have increasing revenue per account or profitability per account even given the huge growth?

Well, since it's not a metric we guide, let me answer it a different way instead of saying what we expect. What we've seen is that more accounts and more revenue per account, because revenue is driven primarily by spend and retention. So they're all sort of a wheel of synergy that creates that outcome of more revenue. So we think that to the extent we can continue to issue more accounts and that our existing users like the products, they enroll in direct deposit, I think in the prepared remarks we said that of the 700,000 new accounts year-over-year, 500,000 were direct deposit accounts. And as you know, we had a spectacular statistic in Q1 on that as well. That's big stuff, right, because the more they use it, the more they will use it, unless we do something to alienate the customer, but we hope not. And that's what generates that increasing revenue over time because accounts grow in revenue over time as they become more seasoned with the customer. So we think we have a lot of good stuff ahead of us. That's probably the best way I can answer it.

Yes. And I think just to further Steve's point. As you see the portfolio mix move more towards direct deposit customers as a percentage of total and away from one-and-dones, by definition, you'll have more revenue per active on the direct deposit customers than you will on your one-and-dones.

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

Maybe to elaborate a little better or ask you to elaborate a little bit on Bob's question, which I think is a good one. Recognizing that today your growth is roughly split half and half between traditional and BaaS, and also recognizing that -- and I'll just take Uber as an example, that it's probably a relatively immature product, it's a new product, can we think about a runway whereby an Uber driver is likely to use his rewards card more frequently with time? I guess, asked another way, how penetrated are you? And should we be thinking over the next couple of years that penetration and usage would increase such that more than half your growth is coming from these, and maybe a lot more than half of your growth is coming from BaaS as opposed to the core business?

Right. Well, the answer is, look, BaaS is going great and that's what I'm saying about seasoning before. If you look at the life of an account, the customer acquires it on day 1. By day 365, without question, that customer will be using it more. That's true. The more comfortable you get, the more money you put on it, it becomes top of wallet. So yes, the more those portfolios age, the better they get. Not just Uber, any of them. And so to your point, we're still very early on in the life cycle -- a lot of these new customers coming on, and we would expect all of those programs to be bigger year-over-year just as the organic snowball rolling downhill gets bigger. And as they get older and people use them more and like them more, we would expect them to have their own organic growth curves. The question of whether BaaS is bigger depends on how our product side continues to grow, and that's also been growing really, really well. I mean, we experienced growth with our -- I hate to use the word legacy because the products aren't legacy, they've been redone many, many times. But that original part of the business, if you will, selling cards and retail and whatnot. That's really going well for us. And the direct deposit penetration, the usage on that also continues to grow very, very well. So it's all growing and that's what's giving the kind of growth we had. I mean, for a company to be at our size and having record-setting organic growth, it's one thing to grow 15% or 16% organically when you're a $200 million company. At over $1 billion, that gets a little bit harder, and yet we're doing it rather handily, and that's exciting to see. And that's because right now everything's growing in lockstep. So it's hard to say what will grow faster. BaaS has the potential to grow faster because the power of many is always greater from the power of one. So it's creative, as our Green Dot designers are, and as wonderful as our distribution channels are, both consumer direct with the various online properties and our retail displays, when you have many, many companies using BaaS, you have just exponential growth opportunities ahead. So I do think that BaaS over time will eclipse our established product lines, but they're all doing well right now.

Okay. That's helpful. And as a follow-up, Steve, I know you mentioned the new use for MoneyPak is kind of a work in progress and you haven't guided '19. But when you think about your budgeting and how you may have factored that into '19, is that disappointing? Is that net slippage? Or is it really just more kind of a speed bump?

When you say '19, you mean '18, 2018?

Well, no. I'm thinking about if that product rolls out this year or at the end of this year, the impact will be on '19. You guys are always thinking ahead. I'm just wondering if that altered your internal view of what '19 growth might be to the extent you're delaying it.

No, no, no.

Okay, so not a material impact.

It is. And we -- MoneyPak, as it is right now, is selling very, very, very well. And we think that the new use case will open up MoneyPak to a broader selection of customers. But when you think of the size and scale of the company, no one product really is going to make or break the company. But we think it will be a nice add for sure.

And the next questioner today will be Joseph Vafi with Loop Capital.

I was wondering since this is the BaaS quarter, throw another BaaS question in. In terms of marketing the BaaS capabilities, is this an inbound effort still? Are companies more reaching out to you, they're hearing about this? Or do you have an outbound sales and marketing effort to drive awareness for this capability? And then I have a follow-up.

I think it would be fair -- if Brett Narlinger is in the studio, although he's right down the hall, let me go grab him. Imagine doing that, he'd freaked out, what are you doing? If he were in the studio, what he'd say is that, we can be more organized and better still. Most of our activity is inbound, although we know folks and we're well connected and we have a connected board. So obviously, we'll make calls to folks as we might. But today, we don't have a powerful marketing program for BaaS. Yet we've been so busy with just the inbound and that's what we've been working off of. But we absolutely will have a much more organized outreach to large companies that we think can benefit from creating a bank account in their own image that ties them more closely to their customer base or their employee base. We think the opportunities are just tremendous. And it's actually one of the things that Brett and I are working on is how do we get more efficient and better at finding those BaaS partnerships upsize and value because you don't want to waste your time on small ones. But so far, it's mostly inbound.

Okay, that's helpful. And then if you think about your incremental investment that you're making in the BaaS Platform, is it more company specific still? Or if you make, say, an incremental investment over the next 6 months of X dollars, it kind of potentially opens it up as a much broader, more widely applicable platform that could be applicable to a much larger TAM that's not as customer-specific?

Right. It's a good question. Today, BaaS can be pretty much anything the partner wants it to be because it does money transfer, it does -- remember, we have the Green Dot Network, which we don't talk a lot about in these calls. The Account Services segment usually overshadows that segment. But that's still a powerful segment with all kinds of money transfer capabilities and we do a lot of business in that segment. So you have them all the money transfer stuff, you have all the account [banky] kinds of things, if you will, and then you have all the technology pieces, all the mobile banking pieces and all the mobile payments pieces are in there, too. So the capabilities today are fairly robust, and it's rare that we would have a partner needs something that isn't there. Having said that, we do make custom things all the time like we made the savings vault originally for Walmart. That was their request. And yes, we have other things that will come up from time to time. And once we develop those, they become a permanent part, generally, of that platform for other people to use. Most of the work that we invest in on BaaS has to do with the back end. Let me think about this. First of all, you have to have scale. In other words, when you think about the numbers of transactions, whether it's $2 billion or $3 billion authorizations or transactions a year, you have to be able to support that without going down, right? You need to have 99.999% uptime or more depending on your SLAs, and you need to make sure you can deliver a regulated product that's consistent all the time. And that means you have to have bandwidth and scale and the right kinds of governance and operational procedures around running large networks, which we do. We've done it for years. But you're always adding to that and building to that. So that's part of it. The other part is the back end. So if you think of a -- here's an analogy we used internally recently at a meeting. If you think of a large neighborhood, it's one thing to say, hey, we now know how to efficiently build houses and condominiums and townhomes, and so we're going to build a community out of the Earth, 90 days, we're going to have a whole city with homes and apartment buildings." Okay, that's great. But then what about the sewage treatment plants and the electric power plants and the roads. And it's not the sexiest part, you'd much rather show a model home and the furniture and get everybody excited. But the truth is a lot of investment has to be made in infrastructure. And even though we don't talk about it on earnings calls, that's a big part of what I think about as CEO, it's a big part of what Kuan Archer, our Chief Operating Officer, thinks about. That -- all that stuff, right, so that you don't have toilets overflowing. The equivalent of a toilet overflowing in our world would be a call center with long wait times, or fraud monitoring tools that are too blunt and they don't get the job done or they block cards needlessly and this kind of thing. So you have to really invest in all that back end stuff so that as you're building new neighborhoods, you can elegantly service those neighborhoods and have traffic move smoothly and everything work properly. And so a lot of our work goes into that. The benefit though of that is it almost always turns into a much more cost efficient operation because as you build out a new way to handle customer care inbound inquiries or a new more smart way to monitor fraud, it always relies on new automation, new techniques that costs less than and does more than whatever it is we have no that we're replacing. So that investment is ongoing at constant and normally, that's the kinds of things we're referring to when we talk about investment.

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

Just around outperformance on the revenue side by $9 million this quarter, can you elaborate on what drove the outperformance?

Sure. Mark, can you...

Yes, yes. Well, as I think Steve alluded to, roughly half of it is coming from our BaaS programs, half of it is coming from our established programs. We had great overperformance in our actives and in direct deposit and so that was a key driver on the Account Services side. And then we also had a very nice pick up on the Processing and Settlement side. And I'd say a nice contributor with both MoneyPak and a little bit of overperformance on our RT transfers, new refund transfers.

So it's coming from everywhere. I mean, I don't think we have a division -- PayCard, all of it. I don't think we have a division that isn't growing at the rate we have forecast or better. So it's, I think, a unified effort.

Got it. And then just as I look at the guidance -- revenue guidance to the back half of the year. It seems like this quarter, the reported was 16% growth. If you take out the outperformance, it was 12%. Using your guidance, coming down 10%. Can you just walk us through like what's leading to that sequential decline? Is it tougher year-over-year comps? And then how should we think about what revenue growth is over like a longer-term?

Yes, that's a great question. And Mark can tell you the answer.

That is a great question, Steve, and thanks. Look, let me think about several points that we can put out there to put that -- to put our guidance into context. First, as you just noted, we are growing successively over successively tougher comps. For example, in Q3 last year, we grew organically by about 11%. In Q4 last year, we grew organically by about 12%. So you can see the comps are getting tougher year-over-year. Also, in the first half of this year, our year-over-year organic growth was helped by Intuit, and you know that's a large de novo program where most of the revenue is coming in the first half of the year. So that's accentuating our year-over-year organic growth rate in those quarters. Next, you may have observed, we take a prudent risk-adjusted approach to our guidance. And as such, we provide numbers in our outlook that we're highly confident we can achieve. So you're correct, our guidance does call for a lower percentage of organic growth in Q3 and Q4 that we actually achieved in the first half of the year, but we're not intending to say that our actual results may not be more robust if the performance continues as it has.

We have just one more. And that is -- looks like Tien-tsin.

And our next questioner will be Tien-tsin Huang with JPMorgan.

I think on the margins, you mentioned that you saw better flow-through of the BaaS program. So I was curious, can we apply the 30% incremental margin to the BaaS division as well?

Gosh, how do we break that down for a call like this? I think...

I'm asking because it sounds like, obviously, a lot the future growth is going to come there, you're quite bullish about the prospects in the pipeline. So just thinking about if that growth could come at a lower incremental margin at some point if we're already there?

Well, here's what I'd say. We know from previous discussion, anyone who looks at the model, the revenue performance on our established product lines are certainly greater than new product lines. They're older, they've been acquired for longer and so seasoned portfolios generate better margins. So without going into a breakout of the numbers or analysis of it, if we're doing about a 30% margin on that outperformance, that would imply that a lot of that is being driven by the legacy or established products customers have had for a long period of time. But on the BaaS side, as people have those products, they too become higher-margin products because they have longer time to use it and they use it more. So the margins are there, strong as well, but you have the rev share component. And that's why, as you know in our presentation starting next year, we're going to back out commissions and rev shares. We wouldn't expect our overall blended margins to be hindered by growth in BaaS materially. But the 30% also, certainly, is a normalized margin all mixed in. I think we had a pretty good contribution from our legacy and our established product lines.

Yes. I mean, just to follow on Steve's point, the back half of the year is going to be more weighted towards our established product lines rather than to our BaaS programs. And then for the long term, I think Steve's spot on, where you're looking at basically not having real sales and marketing but distributing cards through partners and having predominantly direct deposit relationships with their customers. And then on cash transfer side, I think there's an opportunity, we're still early days, with SimplyPaid. But that, and our cash transfer capabilities on that platform should also, ultimately, I think be fairly decent margins, too.

We feel -- I think, a global statement, Tien-tsin, is we feel good about margins because there's just so much opportunity for efficiency when you look at our platform and the way we do things and how customers are using the card. And the margin expansion from a direct deposit customer, whether they're from a BaaS partner or from a product we're selling ourselves on a shelf at a retail store, is so greater -- so much greater than the mix of customers that we used to have that would turn more quickly with the product, that we have plenty of opportunity to continue to expand margin, which is why we've been so bullish. It's very hard to expand margins the way we've been expanding them historically and what we're guiding for this year and still do the kinds of investments we're doing. But we are, in fact, doing that. And I think as you know a lot of public companies would very fairly say, "Look, we're investing in growth and, therefore, we're going to hold back EBITDA or we're going to have decreasing margins but we're doing it because we're growing." And there's nothing wrong with that, that's a very fair statement to make and there's nothing wrong with that. We're saying sort of that but we're also growing margins. We're saying, yes, we're investing in growth, new platforms, building both neighborhoods, if you will, and water treatment plants and electric plants, to use my analogy on one of the previous calls, we're doing all of that and we're expanding margins. And I think that does speak to the efficiency that we have in the business and more to come.

Right. And you will reinvest, which is great. So let me just ask one more on the Banking-as-a-Service. I like your answer on the being vertically integrated and doing program management, have the bank, et cetera. But I'm curious, how are the bake-offs for new potential partnerships being handled today? Is it -- are these sole-source negotiated deals? Are they RFPs? Are partners potentially looking at buying just components instead of looking at the vertically integrated piece? I'm just curious how it might be evolving?

I think -- yes, a good question. So I think what you said, I didn't understand at first, but I think you said bake-off. In other words, why are clients choosing us, is that what you're asking?

Well, how are they going about selecting their partners, right? So is it a sole-negotiated situation? Are they doing RFPs? That's what I was talking about.

You know what, most all are RFPs, I think most large companies do that for governance, if for nothing else, they're RFPs. Where we generally win, and I'm not aware that we've lost a lot of them, but I guess -- I mean, I've known all of them. But the reason we generally win is that they usually come to Green Dot first because of our technology. And they fall in love with the technology and, oh, my gosh, you can do that, you can do that and you can lead those teams and you're -- oh, you do Agile and they get -- and they get all excited about the technology capabilities, and we usually start talking tech with their tech teams. That's how our relationship normally begins. It blossoms though, once it becomes more real and they go, wait a second, you are the bank. Oh, you have your own risk management organization. Oh, wow, you have your own compliance. Oh, I see, okay. And then they realize that, wait a second, they're controlling compliance and risk management and the bank issuing and the balance sheet and capital deployment and the investment strategy, and oh, you also have worldwide call centers and -- that are highly scaled, we do millions of millions of calls a month, and on and on and on. And usually by the time the end of the RFP comes, what they're excited about is our capability set, that we're vertically integrated with all the pieces you need to make it happen. And then if that didn't win them over, the final piece is that -- I don't want to sound braggadocious because we feel very blessed and proud of it. But a lot of big partners have chosen us and are really happy they chose us. So when that prospective partner makes a call to one of our current partners, they hear really good things. And Tien-tsin, you may remember, you're -- we're both too young maybe to remember this, but back in the '80s, when IBM was the cat's meow, they had a sales slogan they used to use. And they said, you know, Joe -- this is back in the 80s -- you know, Joe, nobody gets fired for hiring IBM because it's very risky for head of IT in those days to choose a technology provider, nobody wanted to get fired to have their system blow up. And I think there's a lot of that today with Green Dot legitimately so, in that if you're choosing Green Dot and you're that buyer for that big enterprise-level headline risk-averse company, I think you take a lot of comfort that we are the bank and the provider for Walmart and Apple and Uber and Intuit. And that our products are sold nationwide in all these big name brand retailers and that we're part of a bank regulated by the Federal Reserve and that we operate in all 50 states and so forth and so on. I think there's a lot of comfort that big headline risk-averse clients take in that and they should.

Yes. I mean, my team always told me it was because of the finance department, but I suppose what you're saying may be correct.

Folks, this may be a record for the shortest call we have. We have no more questions in queue. We'll have the one-on-ones after and maybe we'll see you at a conference or 2 coming your way soon. Thank you, all for listening and have a wonderful day.

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