Green Dot Corp (GDOT) 2019 Q1 法說會逐字稿

Good day, and welcome to the Green Dot First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

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

Thank you and good afternoon, everyone. On today's call, we'll discuss Green Dot's first quarter 2019 performance and thoughts about the remainder of the year. Following those remarks, we'll open the call for questions.

For those of you who haven't yet accessed our 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'll 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 in the 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 a property of the 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 the Green Dot Corporation Q1 2019 Earnings Call. We have an unusually big call for you today where we'll start with the traditional review of our historically biggest quarter of the year and a quarter where BaaS took center stage as the company's most significant growth engine. I'll also update you on all of our progress in executing against our exciting, yet challenging 2019 Six-Step Plan, including the announcement of a big move we're making to more surely fulfill our long-term destiny of hands-down leadership in the Banking-as-a-Service platform space and as a provider of the banking industry's coolest and most mass appeal bank accounts designed to delight the 25-year-old in all of us. Then we'll finish up with Mark's review of the quarter, including his commentary on a revised financial outlook for the remainder of the year.

So let's get into the numbers. Green Dot's products and platform model generated Q1 consolidated non-GAAP total operating revenues of $326 million, a 6% year-over-year increase. We note that this growth is 100% organic and grows over a very large Q1 comp from last year that benefited from the de novo launch of our TurboTax BaaS program, young and rapidly growing Apple Pay Cash and Uber Rewards card programs and 2 months of the UniRush acquisition that had not yet fully lapped the year.

Adjusted EBITDA for the quarter exceeded our expectations, delivering $119 million on a consolidated basis, representing a year-over-year growth rate of 9%. The leverage in our operating model was again visible as margins expanded by nearly 100 basis points on a year-over-year basis.

Consolidated non-GAAP EPS for the quarter was $1.51, representing a year-over-year growth rate of 8% despite having higher D&A and a slightly higher share count this year.

In our Account Services segment, non-GAAP total operating revenues in the segment increased by 5% to $228 million with 90-day active accounts totaling $6.05 million in the quarter, which represents an increase of around 1% year-over-year.

As in most subscription model businesses, we have different components of customers that make up the total active base with some components delivering more profitability and value than others.

Looking at our various components of active accounts. New product lines are now the largest drivers of active account growth in the entire Account Services segment. In fact, in Q1, new product lines, primarily consisting of BaaS programs, contributed over 420,000 new active accounts all from product lines that largely didn't even exist just 2 years ago. At the same time, we're experiencing some erosion in the number of legacy product line nondirect deposit active accounts primarily from our legacy brick-and-mortar retail channel and, to a lesser degree, from our RushCard and AccountNow digital direct brands.

Since 2016 when we first introduced our now popular cash back rewards cards, our risk controls, product design elements and marketing strategies have collectively been designed to attract high-value long-term customers, sometimes at the expense of low value or what we call one-and-done customers.

To help you size the revenue difference between the different active account types, a typical direct deposit account across all product lines generates around 3x the amount of revenue as an average nondirect deposit active account. While these legacy nondirect deposit customers and especially the nonreloading one-and-done customers that are within that segment are not our best customers by a long shot, those accounts still generate revenue for us at a better-than-average contribution margin. So while the decline in this low-value active component isn't in and of itself a long-term strategic problem, it is a short-term headwind to overall segment revenue since revenue is revenue and declining actives in any segment means less revenue.

Our belief is that our new Gen Z targeted products as referenced in step one of our Six-Step Plan and that are on track to launch in the second half of this year, along with the new and dramatically more compelling value proposition of these new products, will help increase the number of active accounts acquired from our legacy retail and digital direct acquisition channels in an amount sufficient to overcome these active card declines. But if left uncorrected, we would worry that a continued long-term decline in these legacy nondirect deposit active accounts could pose a headwind to our overall Account Services segment financial plan, although as you can tell from our Q1 results, this factor didn't appear to impact results in a material way up to that point.

We do, however, expect the lower number of legacy nondirect deposit actives to have an impact in Q2. So something for us to watch for sure as we seek to improve this trend when we launch our new and more compelling products in the second half.

Let's now move on to our Processing and Settlement Services segment where we had another solid quarter of growth. Non-GAAP total operating revenues in this segment grew by 9% in the quarter to $107 million driven by increasing transaction counts and cash transfers, much higher numbers of SimplyPaid corporate disbursement transactions and the increasing number of tax refunds processed to Green Dot TPG, which grew by 7% year-over-year, a very healthy result for our tax business.

In fact, based on the public disclosures we have seen for TPG's competitors in the tax space, it would appear that Green Dot TPG is both the largest and fastest-growing tax refund service provider in the industry. I'm very proud of Brian Schmidt, Brad Cowie, David Kring and our entire sales and operating team at TPG who continue to turn in great results.

I'd also want to thank our awesome Green Dot TPG partners in the tax-preparation industry who continue to find new and innovative ways to serve our government, the ERO tax-preparation community and our mutual customers who are lucky enough to be receiving a refund to help ensure the smooth and safe movement of funds from the United States Treasury to the millions of Americans each tax season who depend on Green Dot TPG and its tax industry partners.

Now I'd like to share some recent business updates and then update you on our progress in achieving our 2019 Six-Step Plan. First in the Money Processing division, it was another big quarter of biz dev with cash transfer deals with ECARD, a prepaid program serving Asian communities in the USA; University Fancards, a company that offers prepaid cards for college sports fans, and new cash processing programs at banks and prepaid card program managers, including Newt, SynapseFI and PayActiv, a platform for on-demand wage access, just to name a few. All of them now using Green Dot cash processing to enable their customers to add cash to their accounts at our network of over 100,000 retail partners.

We're also pleased to announce a multiyear partnership with Rapid Financial Technologies, a London-based international FinTech payments provider that will be using Green Dot's network to facilitate cash payments for goods and services in the U.S.

Now I'd like to brag a little about our amazing PayCard and corporate disbursement division called Green Dot RapidPay and its incredible enrollment and sales teams. In the first quarter, RapidPay signed another 235 corporate PayCard partners where those companies' workers can soon receive their wages on the Green Dot RapidPay debit card. Among the many RapidPay new corporate partners, 2 of note, would be CVS Pharmacy and CVS' large worker base across so many thousands of stores and warehouses and New York's Madison Square Garden. Next time you're at the Garden taking in a concert or a sporting event, and you notice the guy at the snack bar smiling, it could be that at least one of the reasons is he's getting paid fast with Green Dot RapidPay.

In our retail channel, Green Dot gets to earn more dollars for our Green Dot family with Family Dollar where this top 10 Green Dot retailer awarded us with extra shelf space at the register of their 8,200 U.S. stores.

Lastly, we know that many of you have asked our thoughts on Walmart and the 2020 renewal of the Walmart MoneyCard contract. While I can't make any announcements on a renewal today, I can tell you that we believe we have a strong and vibrant partnership with Walmart and are actively working on several programs together. While we're not yet ready to share specifics, we're excited about where we're headed with the Walmart team, and of course, where we're able to announce any developments, our team responsible for filing 8-Ks will be among the first to know.

And now I'd like to share with you a slew of new partnerships and expansions of existing partnerships in our Banking-as-a-Service business line, better known as Green Dot BaaS. The sales pipeline has picked up quite a bit for Green Dot BaaS with a wide variety of new types of programs and companies looking to create a bespoke and compelling financial experience for that special stakeholder in their lives who they want to hold more dear. From long established service providers catering to the masses, to the newest and most high-tech innovators serving the classes, to a lender who owns the pet care space, paws down, the platform that helps serve the poor, delight the rich and heal man's best friend, is Green Dot's BaaS.

And now some details. First, we're pleased to announce a new partnership with EZCORP, a NASDAQ traded operator of pawn lenders and neighborhood financial centers as they launch a key new corporate initiative with a mission of bringing financial inclusion to those who need it the most. Their new app-based FinTech initiative is intended to deliver a great bank account experience, especially designed to serve the under banked and unbanked customer segment. And at the heart of their initiative sits Green Dot's BaaS APIs.

Next, we're pleased to announce a multiyear partnership with Security Finance. Security Finance has been offering traditional installment lending products for over 60 years through their now over 900 branches throughout the U.S. Security Finance has their sights set on creating a feature-rich and compelling branded debit card product intended to drive loyalty and an ongoing connection to their large base of customers whose connection to Security Finance will be connected to Green Dot's BaaS APIs.

Next, Pangea, a growing app-based remittance and money transfer technology platform, is making our BaaS Platform part of their remittance platform with the goal of using our BaaS APIs to create a bank account that's intended to enable a seamless mobile money transmission and mobile banking experience for their growing customer base.

Next, Green Dot welcomes Scratchpay to the BaaS platform. Scratchpay, which entered into an LOI with Green Dot, is a mobile first point of sale lender focused on serving America's veterinarians, their furry patients and their loving pet moms and dads. Each year, millions of pet owners will find themselves in need of an emergency trip to the vet, but without the thousands needed to pay the bill. That's when Scratchpay steps in to lend money to pay the vet so the vet can save the pet. Scratchpay has a goal to create a special kind of bank account and debit card to help Americans better deal with the often high and unpredictable cost of pet ownership. And to help accomplish this goal, Scratchpay will use our BaaS APIs to teach their app some new tricks.

And last but truly not least, Green Dot welcomes Wealthfront to our Banking-as-a-Service platform to the FinTech stars. Wealthfront is the highly innovative and highly successful FinTech innovator best known for revolutionizing investing. Earlier this year, Wealthfront launched a new cash account to a resounding success, garnering over $1 billion in deposits in just a couple of months and now manages over $14 billion for its large and growing customer base. Wealthfront now wants to do to banking what it did to investing and has chosen Green Dot's BaaS Platform as the best way to get the job done, delivering a next-gen banking solution that provides our customers with greater access to their cash accounts, through a Visa debit card that goes everywhere they want to be while allowing Wealthfront banking customers the ability to automatically pay bills and direct deposit their paychecks right to their Wealthfront account, all while receiving a market-leading interest rate on their balance.

Green Dot is pleased to marry our high-performance BaaS APIs to Wealthfront's high-performance APRs to create something bespoked and special for their special and bespoked customer base. We're very proud to be chosen as the platform behind such a cool platform as Wealthfront.

Next, we're pleased to announce some significant developments and expansions with some of our current BaaS partnerships. First, I'm pleased to announce the national rollout of the new and improved Green Dot BaaS powered Uber Visa debit card now with even more exciting and valuable cash back rewards for Uber's driver partners on top of all the extreme value the Uber Visa debit card already offers its large base of cardholders. Plus, to maximize incremental adoption, Uber will now be featuring account enrollment on much more prominent parts of the Uber driver app so that more drivers than ever can see the new offer, sign-up and make their driving more rewarding.

The Uber Visa debit card program is a great example of the way Green Dot's BaaS platform can helps its partners accelerate loyalty and create value for their most important stakeholders.

And as you may have seen on our CNBC Jim Cramer segment, BaaS partner, Stash, recently launched their innovative new stock back rewards program. Stock back is like a cashback program, except Stash uses our BaaS APIs to facilitate rewards of stock in companies where their customers shop with their Green Dot issued bank Stash debit card. This allows users to turn spending into investing in a seamless way that furthers Stash's mission of providing financial opportunity to all. The launch has been extremely well received by all stakeholders, and we believe this innovation and the many more cool ideas sure to come will continue to make Stash one of our fastest-growing new BaaS programs.

I also want to take this opportunity to congratulate Stash CEO, Brandon Krieg and Chief Revenue Officer, Giff Carter, for winning the FinTech Innovator of the Year Award for their Stash bank account and debit card, both powered by Green Dot's now award winning BaaS platform. We're proud of Stash and the way they've put our bank and APIs to great use, and we were honored to be with them for the awards dinner in San Francisco a few weeks back.

In summary, the headline on BaaS is that I'm very pleased with how we're performing both with new partnerships banking on Green Dot and existing partnerships looking to improve their existing offerings and expand into new products.

In fact, nearly every current BaaS partner like Intuit, Apple, Uber, PayPal and Stash, all are now using the power of our platform to expand their offerings into new products and services or using our BaaS platform's robust collection of APIs to materially increase the appeal and adoption of their current BaaS-powered offerings.

Meanwhile, the pace of new BaaS deal closings have started to quicken as you can tell with the future pipeline of BaaS platform opportunities starting to fill much more rapidly than what I commented on the pipeline in last quarter's call. There are now many deals of various sizes and styles on the horizon with the opportunity to win several potential partnerships that we think could be quite material, including one potentially very large enterprise-sized partnership where we are currently in the contract stage. Of course, nothing closes until it closes, but as you can tell from today's collection of announcements on both current partner expansions and new companies becoming BaaS partners, I'm feeling very good about our future prospects for growth for our Banking-as-a-Service business line.

On this topic, I want to congratulate Seth Ross. Seth is our Head of Business Development for the BaaS platform, and he has been one busy sales exec. So my sincere appreciation to Seth and his great team. More on BaaS coming up soon.

Now I'm pleased to bring you up-to-date on how we're executing against our 2019 Six-Step Plan. For those of you who are new to our company, each year, we publish a Six-Step Plan that details the strategies and tactics we intend to execute upon. The goal is to help investors better understand management's agenda for the year and also to make it easier to track our progress during each quarterly earnings call.

Step one is about launching 2 new innovative and exciting products that target Gen Z. Our new product sees a development concept we call Gen Z MODE, which stands for mobile-only digital everything, and we think it's a demographic and product design philosophy in which Green Dot has a strong natural advantage. As such, creating increasingly innovative products that can help expand our TAM and increase Green Dot's market share within that larger TAM is step one.

I'm pleased to announce that we're making excellent progress with this step with a lot of activity in the company centering around this initiative. While I don't want over share due to competitive concerns, I will tell you that we're now planning for 3 new products inclusive of a new Gen Z focused app product that we think will truly reinvent what pops into your head when you think of a bank account and the new product version for large partner that we think will have materially greater appeal to its target customer base than the current version.

The research on our new branded products is extremely strong, and we believe that all of these products, and especially our Gen Z app, has the opportunity to generate significant adoption, usage, and therefore, revenue over time.

In fact, as Mark will discuss in his section of the call, between the stronger-than-expected activity and the BaaS business line that we just discussed, and the potential strength of our new products in development, we've decided to invest materially more in our business in the second half of the year to ensure we could take advantage of the strength and all of these large growth opportunities in both the platform and product areas of our business. We think we have lightning in a bottle on both these new product initiatives and on the growing BaaS platform opportunities we discussed a few minutes ago. We have patiently and prudently socked away cash on the balance sheet for just such an occasion, and we believe now is the time to invest in our destiny while still being disciplined on our ROI hurdles. Mark and I will share more about that shortly.

Step two is about our long-held strategy of increasing the average purchase volume and retention from our base of active account holders and attracting new customers who we believe intend to use our account products as a long-term primary account. Higher purchase volume and attracting the more committed customer base should in turn lead to higher revenue and a better profit margin on those accounts. Step two is to continue that trend.

As our Q1 active KPIs indicate, we are very much on track with this step two. For example, in Q1, Green Dot increased total purchase volume by 10% to $8.2 billion. Furthermore, we have plans to be launched at various points in Q2 and Q3 to convert all high-value customers to EMV cards, roll out Apple Pay and Google Pay for all qualifying customer segments and introduce new and easier ways for our customers to make sure their Green Dot issued product is their default card on file in their favorite apps and websites. We feel like we have a lot of upside in making our cards top of wallet for an increasing number of our active account holders, and we are, in many areas, just getting started. So, so far so good on step two.

Step three is about finishing development on and then deploying BaaS 3.0 so we can onboard the new BaaS partners we've announced today and others we expect to close.

While step four is about creating the technology and operational underpinnings for Green Dot's bOS for developers, the revolutionary and bold, new business model where developers and other nonenterprise participants can safely access our BaaS platform with the right controls and developer support so that they can integrate our BaaS APIs into their own special projects, enabling potentially material and highly diversified growth for our platform business line.

For these steps three and four, development is on track with the original project time line set forth on our technology road map. Having said that, our current book of BaaS business is innovating, iterating and growing much faster than we had anticipated, and therefore, requiring more product and technology resources than we had originally expected when we first guided the year just a few months ago. Plus, the future pipeline of new BaaS opportunities, some of which that have the potential to be quite large, and others that are potentially material, but that are still in the discussion stages, could begin to challenge our resourcing plans. This leaves us with 3 options: a, we could choose to delay new BaaS launches beyond our original capacity plan and hope that partners in waiting will stick with us and be patient; b, we could choose to prioritize only the largest 1 or 2 opportunities and pass on all the rest; or c, we can choose to invest more money sooner than we had planned in order to advance completion of the platform, assign more account management and development support resources as needed and then accept only the best programs that we feel will drive sufficient revenue and margin to make it worth our time.

Of course, c is the right answer. We think that stepping up investment in the platform now is the right decision. Not only does this option create the opportunity for us to drive material incremental growth into 2020 and beyond, but we also think it's a solid strategic and defensive decision. When leaders run out of bandwidth, an opportunity is created for the #2 or #3 player to get their foot in the door. Why does Avis exist? Because the lines at Hertz were too long. We don't want to create any openings for some Green Dot wannabe to service our accounts better than we can.

For partners or projects too small to qualify for a dedicated account manager and the support team on the BaaS 3.0 platform, that's where the self-serve bOS for developers business model comes into play when we release BaaS 4.0 next year.

As we think about our first 4 steps, it's clear that Green Dot is both a regulated bank and a products and platform technology leader that innovates and grows through big ideas that actually launch into production. As such, step five is continuing to improve and scale our operating infrastructure to ensure expanded capabilities, better performance, increasing customer satisfaction and increasingly strong controls to ensure safe and compliant operations.

We're making excellent progress here with tremendous strides in fraud management, more efficient supply chain and new partnership with Twilio to help reinvent our call centers, a new partnership with Quavo and Pega to automate disputes and chargebacks, a new enterprise project management office with fresh ideas to deploy big things faster and more efficiently and a new technology road map strategy that helps us allocate resources where they are needed most.

Improving operations is never a point in time. Rather, it's all the time. And step five holds an evergreen spot on our annual Six-Step Plan.

Lastly, step six is about the smart and accretive allocation of capital to enhance shareholder value over time. We're doing a lot in this area, not the least of which is that we plan to invest an incremental $60 million in the second half of this year to ensure we can take advantage of what we believe to be tremendous and highly appealing growth opportunities on both the product and platform sides of our business, specifically the aggressive marketing of our new products, which we believe have the opportunity to be industry changing, not just Green Dot changing, and accelerating resource allocation and the associated development time lines for BaaS 3.0 and 4.0 for the reasons we just discussed. We believe the return on this $60 million incremental investment is potentially significant, and Mark will walk you through the ROI framework we used to help us size the return on that investment.

Additionally, we're supportive of executing a $100 million accelerated share repurchase plan as soon as practical. While we already have a buyback authorization from our Board, such a share repurchase plan would be subject to regulatory approval. It's difficult to forecast the timing of such a regulatory review and the ultimate outcome. Our regulators have a tough and important job, and we are always respectful of them as people and respectful of the rigorous review and approval process that they're required to undertake.

Mark and I believe that executing such a buyback transaction at this point in time is strategically advantageous and potentially highly accretive, especially if we're successful in achieving the growth ramp into 2020 that predicates our $60 million investment thesis.

As you can tell from my comments on the robust pace of new business development across the enterprise, Mark and I believe that right now, the absolute best and most accretive use of Green Dot's expanding capital war chest is Green Dot. In particular, investing in Green Dot product and TAM expansion, investing in Green Dot BaaS platform expansion and BaaS partner onboarding acceleration as well as buybacks of our own Green Dot equity subject to regulatory approval.

Risk management is an essential and well respected part of our culture at Green Dot, both as a leading FinTech platform that backed some of the largest companies in the world and as a regulated bank holding company that serves many millions of customers and processes many billions of dollars every year. As such, I want to be very clear that there is always an elevated risk profile inherent in the launching of new and unproven consumer products like those I mentioned that in step one or in the uncertain success we might achieve in the deployment of any given new BaaS partner program such as those I referenced in step three or the lack of clarity surrounding the development and deployment of new BaaS platform technologies and the associated business models therein, such as bOS, for developers in step four.

But even on a risk adjusted basis, given what we know about our business and the opportunity therein, Green Dot is bullish on Green Dot, and we intend to invest accordingly.

Green Dot invented Banking-as-a-Service, and we believe we are the largest and most successful player in this space. We believe the reason is that we're the only BaaS provider with an integrated and well-respected bank, a big balance sheet, an integrated comprehensive program management capability and a high scale and highly proven technology platform that offers an expanding and robust API library that increasingly powers the innovation, that powers the most powerful powers to be in all the FinTech.

Green Dot is quite literally the total package. Green Dot's BaaS Platform has an increasing number of platform imitators and bank charter wannabes, but we believe the simple truth of the matter is that Green Dot has no equals. Given the cash from operations that Green Dot generates every year, even with this year's incremental investment, we believe we are in a very favorable position to invest prudently and accretively to fulfill our long-term destiny of hands-down leadership and segment-leading growth in both the platform and product parts of our business with a goal to build long-term enterprise value for our shareholders at every step of the journey.

With that, I'll hand the call over to Green Dot's Chief Financial Officer, Mark Shifke, for his commentary. Mark?

Thanks, Steve.

We're pleased with our results this quarter. And as Steve articulated in his section of the call, we are even more pleased with what we believe to be the tremendous opportunities in the second half of this year to secure material incremental growth rates in both our product and platform business lines as we exit 2019 and enter 2020.

Green Dot's annual cash flow from operations is roughly equal to its annual adjusted EBITDA result. And absent any incremental adjustments discussed on today's call, we would have expected to have well over $300 million in unencumbered cash on our balance sheet at year-end. Plus, we generally hold little to no debt and are debt-free currently. We see our liquidity management philosophy as more than just a prudent way to run our business. We also see it as a competitive weapon because when we're fortunate enough to be presented with an opportunity to accretively invest, we can access our large cash reserves and take advantage of those opportunities quickly.

As Steve covered in his prepared remarks, we believe we have 2 such opportunities before us right now. One being the opportunity to take advantage of the potential strength and broad appeal of our new products referenced in step one of our Six-Step Plan to materially expand our TAM and then issue a large number of high-value accounts into that expanded TAM in the second half of 2019 so that they start generating significant revenue in 2020. The other opportunity is to advance development of our BaaS Platform initiatives referenced in steps three and four of our Six-Step Plan in order to take advantage of the growing demand and growing success of our BaaS Platform business line, inclusive of expanding opportunities with existing partners and new programs from new partners inclusive of the deals you know about and the potential new deals in varying stages of our pipeline and sales cycle that we expect to announce in the second half. As such, we are excited to take advantage of our strong cash position and invest a total of $60 million in incremental marketing, technology and operational initiatives designed to set ourselves up for strong incremental growth rates into 2020 and beyond while strategically establishing Green Dot as a clear and undisputed leader in the product lines and platform business models we invented.

So now let's talk about how to think about the ROI case for the $60 million of investments. Whether money is being spent on marketing the new products or enabling the development of a BaaS technology initiative or rolling out a new BaaS program, we use a simple ROI framework to help us understand the financial return on our investment. The framework assumes some amount of spending divided by an assumed CPA or cost per active account. This yields an incremental number of active accounts issued as a direct result of this incremental investment. In turn, those incremental active accounts can be expected to generate an historically well understood average of lifetime revenue per active account, which we will assume is a blend of both direct deposit and nondirect deposit accounts.

Under this ROI framework, we estimate that the incremental $60 million of investment could deliver over 1 million incremental active accounts at the exit of 2019, heading into 2020, more than half of which we expect could be enrolled in payroll direct deposit. Additionally, we would expect more incremental new active cards to enroll in 2020 as a result of the 2019 product marketing and BaaS platform incremental investment.

Assuming 1 million incremental active accounts at year-end, we would expect those active to deliver lifetime revenue of approximately $200 million to $300 million at an approximate average contribution margin of 50%. Of course, we are not in any way intending to guide our full year 2020 results. Actual full year results will, of course, depend on a number of other factors across a consolidated business. In any event, given our expectations from this incremental $60 million of investment, plus the significant strategic benefits we expect to achieve, you can see why we believe this is a compelling opportunity.

Now let's to turn to our Q1 results, full year forecast and soft guide for Q2. As a reminder, starting this quarter, we are using a new presentation for GAAP and introducing a non-GAAP revenue measure. As discussed on previous calls and as disclosed in our 2018 quarterly earnings releases, we believe these changes better reflect the economics of Green Dot's business.

First, GAAP revenue will now include net interest income generated at Green Dot Bank from the investment of customer deposits. Our new non-GAAP revenue will reduce GAAP revenue by commissions and certain processing related costs associated with certain BaaS partner programs where the partner, and not Green Dot, controls customer acquisition.

Q1 non-GAAP operating revenue was $326 million, including $11 million of interest income this quarter, offset by $15 million of processing costs and commissions. Q1 adjusted EBITDA of $119 million represents year-over-year consolidated growth of 9% with the adjusted EBITDA margin in the quarter coming in at 36.5%. Non-GAAP EPS came in at $1.51 per share for the quarter, up 8% year-over-year.

Turning now to the remainder of the year. Given the totality of our commentary today, we are holding our top line guidance unchanged for now. Consequently, our top line guidance remains at $1.114 billion to $1.134 billion, while our 2019 adjusted EBITDA full year outlook moves from a range of $315 million to $321 million to a range of $255 million to $261 million with the resultant non-GAAP EPS now expected to move to a range of $2.82 to $2.91 per share from the current range of $3.59 to $3.67 per share for the full year. We expect Q2 to deliver non-GAAP operating revenue of $261 million, up about 3% year-over-year. Our original expectation for Q2 when we first guided the year was for revenue to be a few points higher than our current expectation. The reason we pulled down our soft guide to just 3% is that we believe the lower number of legacy nondirect deposit actives that Steve spoke about, plus lower tax refund processing revenue than initially expected will together cause a few points of lower revenue in the quarter than initially projected.

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

(Operator Instructions) Our first question today will come from Steven Kwok of KBW.

First question I had, it was just around the $60 million of investments. Why now? And then also, you mentioned about the payback. How -- over what time period will that payback be? And then lastly, also, I know you guys kept the revenue guidance unchanged, but is there any assumed revenues from this $60 million investment?

Yes. So let me divide those up. So why now, I think, is the first question. And this is going to sound cliché but, if not now, when? And if not us, who? If you look at the products that we've invented on BaaS for other companies and how other technology companies have used our increasingly powerful APIs, there's some cool stuff out there and it's raised the bar, we think, for the entire banking industry and, of course, for Green Dot because you can't unring the bell, you can't unlearn what you've learned. So we have our own product designers who do not work with our BaaS clientele. They're separate people. But we all consume the APIs on our BaaS platform. So the question is, hey, if the company can do that, why can't we do this and why can't you do that and how come we can't do that? So you have this renaissance of excitement about what can be done with our technology, and then the technology is constantly improving because our clients force us to.

So there's an opportunity, we think, to build these new products, especially the Gen Z products that we spoke about in this call, but especially on last call during the guidance call because we think there's an unserved audience there, people who simply don't relate to bank accounts. And if the actual end result of this, I'll call it a banking app for the purposes of this call, comes out as good as the wire frames and the creative iterations we're doing, it's going to be very powerful. And there's never a bad time to roll out a great new product concept to set up Green Dot for another decade of success. And so it's time to do that.

So that's why now -- because why not now? The reason why we're spending the money now is because -- and this is going to sound a little bit dark maybe, but you have to have a launching pad -- in marketing, you have to have a launching pad or the sacrificial child, I guess -- or lamb is a better one. Because when you're going to invest a lot of marketing dollars, you have to accrue it under accounting rules in the moment you spend it. So whether you end up blowing up the EBITDA for this period or that period or the next period, some period, you're going to blow up to do that with. And our thought was that if you're going to do that, second half of '19 is the right place for it because what that means is that you're taking all the pain or much of the pain in the second half of '19, but you have pure gravy and the seasoning revenue and margin of those portfolios in 2020 and beyond. If we didn't do it now, we dribbed and drabbed, you'd never get the power of a big launch. Or if you said no, no, let's leave 2019 alone, we'll sacrifice the first half of 2020, but then you've blown up 2020. So there's never a good time to feel the pain, if you will.

But given the pace of our development, the size of the opportunity and the fact that we don't want to wait to launch something that we think can be company changing, the second half of 2019 seems as good as any. But to be clear, no matter when you do that, because of the nature of how marketing is accrued for on the income statement, you're always going to injure some period of time, and so 2019 second half is that period.

But to your point, it could have been some other time, or what we could have done is drib and drab it and boot strap it. And that's how we've done it for 20 years. The last time we did a big TV campaign was back in around 2005, which is what made Green Dot a national brand name. And that TV commercial, even though it hasn't been on the air in, oh, my god, 13 years, 14 years, is still the commercial that carries the Green Dot brand name. That and Steve Harvey thing we did several years ago and the Family Feud stuff that you may see us on in reruns that stuff will play forever, I think. It's part of what gives the brand its appeal and its allure. And we think now there's a whole new set of customers, especially if you're in your 20s and 30s, that has not heard of Green Dot. It's hard to believe that we're 20 years old, but the customers that I remember meeting, when I was a younger entrepreneur starting out, are themselves now having kids who are the age of the people they were when we first started the company. So it's a really good opportunity to hit it hard and to reestablish a whole new set of customers, grow that TAM. But to do that, you have to have really cool products, and I think we have really cool products. So that's the reason why now.

And then the second part is -- to quote John Kennedy, I suppose, if not us, who? We have the right technology. We certainly know more about consumer products and banking than, I think, any bank does. We've done nothing but that for 20 years and we've had such a tremendous success record with it. Plus, we work with everyone else who does that too. So we see more than anybody else. We develop more than anybody else. We certainly have more scale and heft than anybody else through all of our many divisions, whether it's tax or payroll cards or general purpose retail debit cards or driver cards. You name it, we do it. So we think we're the right company to do it, and we want to get moving.

There's another broader -- you didn't ask this question, but I'll set it up. There's another broader macro that we're working with. And we think that increasingly, luckily, more and more, investors when we meet them at various investor conferences and so forth, we'll be in Boston for -- is it JPMorgan? next week -- is that more and more investors ask us questions and think of us as a growth company. But for a lot of our 20-year career, and since we've been public starting in 2010, people have looked at us as kind of a value company or a SMID value company, kind of half-and-half.

When you look at the valuations of companies that are a lot smaller than we are who lose money, they have bigger multiples than we do, and yet we throw off $200 million and $300 million a year in free cash, and then on top of that, grow double digits, except in the few years [over 20] that we haven't. And so when you think about that, there's an opportunity there. And so we had to make a choice. And as we all gathered around the proverbial kitchen table here at the company, it's called the white room, which is in my office, and we sat around the white room and we said, look guys, if we're going to be a growth company, let's be a growth company. We're still going to throw off more cash and have more profit than almost every FinTech competitor that competes with us combined. So it isn't like we're hurting the balance sheet or doing something that is potentially irreversible to the company. That's why we have the war chest. If you have the money but never spend it on growth, what else would you spend it on? So we just think that it sort of turns the page on us being a growth company, on not being afraid to invest in growth, having the right products to do it. We'll see how they go. Of course, there's always some risk. And using all the skills we have with both technology and marketing to take this company's growth rate and step change it. So I don't know if that answers the question maybe more than what you asked, but I wanted to share those thoughts with you. The other question you had -- help me out, Steve, it was -- sorry what was it?

How long is the payback period?

Oh, lifetime revenue.

(inaudible) time frame for getting our (inaudible).

So, lifetime revenue for our typical accounts, depending on what they are -- the direct deposit go for 2 to 3 years, call it 2.5 years, some less depending on the brand. And the lifetime revenue for nondirect deposit happens within the year, call it 8, 9 months. So it just depends. But the cherry of the revenue, if you will, is that month 06 to 18 because you're using it more and more and more. The acquisition costs are long in the rearview mirror, and so you're throwing off very high margin increasing revenue, as cardholders use their products more and more. So what that means is that if this goes as planned is that yes, we are penalizing 2019. There's no way around that. But we're advantaging 2020, 2021 and part of 2022 in a way that we just couldn't otherwise do. Okay? And what was the third question?

Yes. The last one was just around your revenue guidance is unchanged. But from these initiatives that you're running, are there any incremental benefits that are helping offset anything?

Yes. The answer is we think so, but it wasn't worth the effort in changing guidance and top line. Here's why. Some of these new accounts will sell at, say, in June or something like that, and they'll have 6 months' of revenue.

Others will sell in December, and they'll have 3 weeks of revenue. And then you have to figure a half life of 90 days, call it the half-life of a June sale and a December sale will be a 90-day half-life. But then it's low margin revenue because you're just getting the cards issued, and it just seemed like we're better off and more prudent just to let it be. If it turns out that it's a tailwind, well, that's great. And then of course, you have a headwind that we're not certainly sure about how that plays out. In Q1 it didn't play out at all, but it might in Q2. We're thinking it might. We'll see. And that is that this lower number of legacy actives -- and there's about a couple hundred thousand lower of them, which is small relative to the size of the company. But revenue is revenue, and a lot of these guys are very small revenue customers, $15, $18, they're one-and-done customers who come in, pay a bill, take the rest of the money off at an ATM, and that's the end of them. So it's not a lot of revenue. But even if it's $3 million or 4 million, it's money, right? So we figured with the negatives of the lower actives there until we reverse course in second half, offset by the positives of these accounts rolling out, we figured it was about breakeven, and it wasn't worth the effort of changing top line guidance. But we'll see how it goes.

The next question will come from Andrew Schmidt of Citi.

First question, just drilling down the incremental $60 million in investment. Similar to the last question, 3 months -- I guess, what has transpired in 3 months that sort of forced the decision to invest the incremental EBITDA? Just because -- is it something from a demand perspective? You've seen stepped up the last 3 months? It just seems like the pipeline, you could have seen it coming, I think, at least in February, but you did have comments the pipeline growth was a little bit slower. Just in general, curious why a decision now versus, say, the end of last year.

So a different answer is depending on the business line. In the case of BaaS, it literally is the demand over the last 60 days has exploded, both with -- I mean, look, there are several deals we couldn't announce today just because we didn't get the contracts done in time. There's one we announced as an LOI only because I know the guy really well. And I know he -- in fact it's -- you know who that is, Scratchpay is run by John Keatley, who, for 10 years, was our CFO. I don't know if you remember John, but he has this wonderful start-up that's a few years old and he's kicking butt with it. But we announced, I don't know, 5 or 6 deals, including some very large ones like Wealthfront. And then on top of that, every one of our current BaaS partners is expanding in ways that we had not at all forecast. And when those expansions happen, they tend to happen fast. It goes something like this. Hey, Green Dot account rep or depending on who they are, they may text me directly and say, hey, Steve can you call me? I've got a problem. You call the client back, these are all big clients. How can we help? We have this initiative, we have that initiative. And we very quickly need to do this, that, that and this and we've got a jump account sales by 20%. And my boss needs us to do this segment and then we're doing this new segment, and I hate to ask but we need it in 30 days. That's turned into a fairly common conversation with all of our large partners, and we're never going to say no to a partner. I would rather die than say no to a partner, assuming we can do it. If we can't do it, we tell them. So that means everybody puts in overtime. Everybody comes in to get the job done, and we deliver. I don't believe we've ever missed, and it's one of the reasons why our partners have a close relationship with us and why we're a great company to be partnered with.

But you have that taking up all the bandwidth that we had allocated for the new programs. Then on top of that, suddenly now new programs are closing, the ones that they've been working on for a while, or they've gone away, but then you close a new deal in just 2 or 3 weeks because they needed it quickly, and they want a program that they can believe in and Green Dot's BaaS platform has a fabulous reputation. So the demand on BaaS is clear. And while I probably bored some of you with all the detail, I wanted to give you that detail because it gives you a sense of just some of what's happened the past 60 days.

When I was on the call in whatever it was February or I think it was early February, I lamented that it cost us a good $10 a share, I think, in that lamentation. But I lamented that the pipeline was just not up to my satisfaction that we're moving too slow, that we could maybe do a better job of our sales presentation materials, this kind of thing. If you remember the commentary. And I'm transparent, and it is what it is, and that's what I felt at the time. We did change some of those sales materials, but at the same time, our sales team heard that and said we'll show Steve. They came through.

But I think you're seeing a maturation of the platform concept and -- but yes, that's all developed really in the last 60 days, and it's the combination of existing partners growing rapidly, taking up the resources that we had allocated for new programs and then more new program signing than we had anticipated.

And as I wrote in my prepared remarks, when you sit down with your technology team and your developing team, the people who work with the developers on the -- with a partner, and they say, look, guys, we can't work 24 hours a day so we have a couple of choices: Either one, we're just going to say no, or say, sure, we'll deploy you in 1.5 years, and you can imagine how that conversation goes, or we've got to hire more people and advance the completion of BaaS to 3.0 and the later 4.0 with bOS, which we think is going to be really good, and we've opted to advance that development. It's the decision that anybody rational would make if you were in our position, I think. So that's the BaaS side of the house. Let me stop there and see if that makes sense, and then I'll go into the marketing strategy.

That's really helpful and then I think where you're going I was going to ask what's the breakdown of maybe BaaS partner-up ramps versus marketing, but it seems like that's where you're going to go now.

Right. Yes. The answer is it's mostly marketing, and the reason is, is because a lot of the expenses on BaaS will be capitalized anyhow. So even if we spent in cash $20 million or $25 million, it wouldn't hit the income statement that way. So the biggest part of the expensed income statement impact would be the marketing just by the nature of how the accounting works, so -- if for no other reason.

On the marketing side, you have a strategy to make, and that is do you want to drib and drab yourself to success, which you can't do. It's sort of like if it takes 100 gallons of water to keep your lawn green, that doesn't mean that you can take 100 gallons, you need 1 gallon for 100 years. The lawn will simply be dead all the time. So you can't really drib and drab yourself to expanding a TAM; Either you're committed to doing it or you're not.

So the first conversation is, do we have the guts to commit to ourselves and our investors, and we know some of you will not like it. Make no mistake, we're not blind to that fact. And for those of you buying us as a value stock, you won't like it. For those of you buying us as a growth stock, you're probably going to be thrilled with it. But buy us for the growth and all the profit and cash flow comes along for free, I guess. But -- that's a good slogan.

So -- but the answer is no, we're not going to drib and drab it. We're going to expand our TAM best we know how. It may or may not work. There's always a risk as I pointed out, but we're going to do that. We're going to go for it. We're going to make it big, and we think we have a really good chance to succeed because we do this every day now anyhow, just not at this scale. If we don't succeed, then it isn't a question of do we fail -- or pass or fail. It's not binary because even if we issue 100,000 new accounts instead of 1 million or 2 million instead of 1 million, it's still all incremental high-margin revenue for 2020 and beyond. So there's no losing here. It's just a question of how big we win. And the answer is if it turns out that the efficiency of the cost per acquisition is worse than what we thought, okay, it is. But the -- not to be cavalier about it, but the $30 million or $40 million, I'd say, in that analogy that was spent at a lower efficiency rate doesn't do anything long term to the company. It doesn't harm our balance sheet. It doesn't hurt our capital ratios. It doesn't do anything damaging long term to the thesis or the platform.

So part of the strategy was our commitment around the white table to say, are we a growth company? Or are we a cash flow machine? The answer is we're going to be both, but in Q2 of '19, we're going to pay the piper. We're going to go for it. We're going to see what we can do to grow this thing, establish a bigger TAM, introduce our amazing products, and these are some pretty cool products, to a new customer base and let's see if we can step grow our company with high-margin revenue over the next couple of years. So it's a strategic question of how we're doing that.

But to your earlier point, could we have said, well, let's just take EBITDA down by $10 million and we'll reguide $10 million, but then we'll drib and drab, our feeling was either don't do it at all and just filter in what we call bleed in your new products over time and you'll sell what you'll sell, or make a statement and do your best to expand your TAM, and we chose that option.

Understood. That's helpful. And then just a quick question on the current year revenue outlook. With the second quarter revenue growth coming down, it puts more emphasis on growth in the back half. I guess could you just talk about comfort in hitting the full year revenue outlook? And maybe just some factors that's sort of drive the back half pickup. And then, I guess, in that, can you talk about the risk that sort of lower nondirect deposit actives pose in that outlook.

Right. So if we thought we couldn't hit it, or wouldn't hit it, we would've guided down revenue. So what we opted to do is leave revenue the same. We're not going to raise it, even though we think we'll, over the course of those 6 months, issue more incremental cards, we're certain of it. But we're not going to raise revenue there because it's why? It just creates incremental risk. It doesn't help anybody. Nobody's going to buy the stock because of that. So we're not going to do that, that's risky. And at the same time, it would be imprudent to lower revenue, because we don't see any reason to lower revenue, especially given that we have incremental revenue. So if you were to sort of have to weigh the risk, here is the risk that we talk about around the guidance table, and that is, do we think the headwinds of a few million dollars, or whatever it turns out to be, per quarter, on lower nondirect deposit legacy actives, do we think the risk of that headwind is more severe, or what you called the negative impact of that headwind, is more severe than the positive tailwind potential of issuing new accounts? And it's kind of a toss up. We don't know. And the goal of issuing in part these new accounts and the market that goes along with it, is to stop the slide of these accounts.

By the way, I want to be clear that we're not going to change our marketing to attract more low-value customers. That's not the game we're trying to play. It's a relative value. What we try to give investors a lot more incremental information about our active cards in this call because many have asked and hopefully you've found that helpful and enlightening. But if you think about it roughly 3.5 to 1 difference of the value of a long-term customer, whether they're direct deposit or cash reloading, but the relative value of a long-term customer versus a short-term customer on average is 3.5 to 1 and we're being generous. If you're a one-and-done guy, 8 or 9 to 1. So the average is call it 3.5 to 1.

So the goal isn't to issue more low value customers to try to get that segment to reembrace us. We don't want that. The goal is to sell enough new high-value customers to overcome it. So that means if you're selling -- if you're losing 4 low-value customers, we want to sell 1 or 1.5 new high-value customers. So if we're down by, let's say, 3, and for easy math, if we're down by 300,000 low-value legacy direct deposit customers, which is about what it is on a year-over-year basis, if that's what we're down, that means we have to sell 100,000 incremental high-value customers or 80,000 high-value customers to make up the difference in the period, and then those high-value guys will create more revenue long term for us. So the new marketing and everything else will still be targeting high-value customers. We've been very successful with that. And frankly, we also keep ratcheting up our risk controls. We don't talk about it a lot because it's not a sexy topic, but it's something that, as a regulated bank holding company, we're obsessed with. I'm obsessed with it personally as the Chairman of our bank. I want this bank so clean it squeaks. And as a result of that, you're always looking up the fraud controls, the new CIP controls. Why? Because I can't do Apple Pay and Google Pay, but Apple Pay primarily with our customer base, and I can't do that. I can't do all the cool things you're doing with rewards cards. I can't do some of the things we have planned down the road that give our customers certain options and certain other benefits and features, I guess, is the best I could say it, if we don't do a great job of controlling the way our products are used. And so if you're an honest customer and you're willing to let us verify your cell phone number and geo locate you and you're willing to provide us with the right address information and do all the things that any honest customer has no trouble doing, if you're going to have a problem giving us that information, you're not going to like Green Dot. And we absolutely have lost some customers, especially to some of the online competitors, and we get that. But we've just been doing it too long, and we know the game too well. And we could -- if we wanted to juice the hell out of a low-value customers, there's a lot of easy ways to do it, but that's not the long game we're trying to play. We really believe we have an opportunity, especially with the younger customers in the distribution channels and the technology we have, frankly, we don't think any other bank has, we don't care what the size of the bank is. We have an opportunity to do something special, but to do it, we have to have the right kinds of customers who make the cost of acquisition worthwhile and will allow us to rollout features and other services and add-ons that increase retention. But to do that, you need to have a clean portfolio. And that's frankly hurt our sales somewhat as well, but it is what it is.

The next question will come from Bob Napoli of William Blair.

Just to follow up on half of this, obviously the $60 million and what it gets. So I mean is this -- so the $60 million, as I understand it, is not related to BaaS. You have all these BaaS customers coming on. There's more BaaS expense, which will be capitalized, and the $60 million is related to new products and other parts of your business.

Sort of. Not quite. I don't want you to -- let me sort of correct that. What I said was that the majority of the investment would be on marketing because the cash investment, while sizable, much of it, but not all of it gets capitalized. But things like software licenses and call center seats and other things you need to build out BaaS, the operational aspects of it -- what's that?

Facility.

Yes, all of that gets expensed, but to the extent that part of that money goes for the advancing of development and putting more developers on the job to complete the platform, that does get CapEx-ed. But it would be wrong to say that none of this is going to -- a significant portion is going to BaaS to speed up those client onboardings and to finish those platforms. But the majority, to your point, is going to the marketing piece on the product side of our business.

So now -- say, we're ramping up marketing and the -- and you see a really high IRR on that marketing, what is -- so what -- how should we think longer term? So this isn't just like a onetime shot. We're going to market like heck and what is the -- what kind of a growth should we expect in 2020? I think, Steve, right now people are looking at like a 9% or a high single-digit organic growth rate, 9% to 10%. And with the margins coming down, should we expect now higher revenue growth in 2020? Are we talking a mid-teens number? And then the margins -- bringing the margins down this year, then should we expect a kind of gradual -- you're going to continue marketing next year if you're getting high IRR returns. And should we expect margins to start to improve off of this year's level next year but with higher growth to support?

So yes, let me help explain the way that it works. So when you have a launch campaign, what I call launch economics, they are materially different than ongoing economics. There's an inertia. If you think about the amount of gas it takes to accelerate a car from 0 to 60, it is many times more gas to do that than it does to keep the car at 60. Or if you know anyone who knows planes, you'll use up a higher percentage of gas in the takeoff than you will for 3 hours of flight time at altitude.

So when you're doing a launch, you have to introduce your product to a lot of people. You have to have a lot of sources. Some channels of marketing will be more efficient than others in terms of how many people you get, and I don't care what anyone says you're not going to get it right every time. So you look back and say okay, well, that channel didn't work as well as we thought. This channel really did better than we thought. But you'll have sort of a blended cost of acquisition that you try to hit. And we think we've budgeted amply for that by taking our real -- remember, we do this every month now. We operate 5 direct-to-consumer websites, so we're not foreigners to this concept.

So we took our actual real cost per acquisition that we have in real life today, and we made it way less efficient for the assumption of this model because you want to have room for error and because when you're doing the launch economics, you have to have a lot more gas, meaning money, to build that awareness. Once you built that awareness, you can spend a lot less money to keep the awareness static or to increase it slightly.

To give you a sense, if you think back 15, 20 years ago, you couldn't watch any kind of business channel or golf game without seeing a commercial for Charles Schwab, and maybe it's more than that. I'm getting old, but Chuck, who is such a cool guy, he was on TV constantly because he had to establish in those days, Charles Schwab: We do discount brokerage here. In those days it was telephones, right. Here's what we do. Here's how we do it. Once everyone knows Charles Schwab and company, you're able to do a maintenance campaign that's fractional to keep the brand awareness there and then if you have a particular promotion, trades for a dollar, or whatever it's going to be, well then you may market that. But -- so you wouldn't have the launch economics play out every year any more than you'd have an airplane in constant takeoff mode at full throttle. So you have more efficient economics.

A real-life example for Green Dot is the last time we did a big TV campaign was easily 15 years ago in or around 2004 or '05 when we got into Walgreens and we had enough scale to do that. And that campaign sustained us for a very long time. We were on the Steve Harvey Show for 2 years. We've been off now for 2 years, and there are people every day who swear to God that they saw us on the Steve Harvey Show today. And so that's how it works.

So there's a -- you sort of have these launch economics that we would not expect to continue, and then you have the maintenance economics, which we do today every day. I mean we spend tens of millions of dollars here on marketing as it is today. So we don't think that would change that much, but the launch economics are going to be punishing the second half this year. So that's how that works.

If to your point though we're getting a great IRR that is highly accretive, the key is in the period. If you're not going to be accretive in the year, let's say, I don't like that promotion because it's too punishing. But if you can spend $1 in January to make $5 over the course of the next 12 months, that's a deal you take every day, right? So I'm not going to say we're going to do marketing or not. Obviously, we're always marketing, we always have, we always will, but not at the level that we're talking about. At a $60 million investment, let's for easy maths say it's all marketing, it's not, but just to take some number. I don't want to give the number, Bob, because we have competitors who listen, and I don't want to do that. But let's say for easy math the full $60 million is for marketing. That's a run rate of $120 million annually, right, if I'm doing $60 million in the second half. That's a big campaign. And it's not going to be for all 6 months, so we got to squeeze it even more. But at that level, that allows the target we think that we're trying to reach to say, wow, that's a cool product. I never heard of that. Wow, you can do that. You can do this. And it creates a buzz and then we'd hope to be more efficient in subsequent years.

In terms of the margin characteristics, the margins should be very strong for next year. And the reason is, as you remember from when we launched some of the new BaaS programs, and Mark explained it last year, the lowest margin revenue you get is in the first 30 days of a card's life, because you have to do the plastic and fulfill it and send it in the mail, it's couple of bucks. You have the call center expenses because people use of the call center more when they're new customers, or whenever they're accessing for customer care whether there's a chatbot or something else. So you have those expenses. And then you have the cost per acquisition and the rev share if it's a retailer card or if it's an online direct card, you have the marketing cost per acquisition, if it's a something on creditcards.com, or whatever where you're paying per click. So you're actually at relatively low margins or even negative margins in this first 30 days. And then you begin to make more money, and as those cards season, let's say, at year end, you could be at 70% or 80% gross margins because all your costs are way in the rearview mirror, and now all you have is revenue, which increases as people use it more and you can see that from our own quarter-over-quarter results with our existing cards. So you have increasing revenue per unit, but your costs are the same, which is processing, fraud losses and maybe some occasional call center utilization.

So Q2 of 2019, if you will, is taking the bullet for the margin. And then the higher-margin revenue that spins off of it, it's designed to happen in 2020 and beyond. So we think this would have, to the extent that we're talking about this incremental revenue, the incremental revenue on these cards would have a rich margin or richer than normal margin in 2020. We don't know what the rest of the year is doing now. We have a lot of product lines, and we're talking about one of them right now and there's other things happening in the company. But this particular...

Yes, I think investors want to see, Steve, they want to understand that revenue growth is going to accelerate because of this investment. Is that what you expect?

That's certainly the plan, yes, but I'm always nervous to say, oh, it's not going to be 9. It's going to X. It's dependent on a lot of things in the year. But clearly, we're looking to achieve a step growth function. And if you think about entering the year with 1 million active accounts, of which maybe 500,000 or 600,000 are direct deposit, and Mark gave you the sense of how the lifetime revenue plays out, $200 million, $300 million, the majority of that revenue, or more than half, is in the first year. So we would think that assuming the rest of the business holds up as it has been, then that would be incremental growth on a year-over-year basis. But I'm very hesitant as any CEO would be to be here in May and to give you an exact growth percentage for 2020. So we can say that if we're successful at generating, let's say, half of $200 million is $100 million, if you're successful, if you're successful at generating that, that'd be another 7%, 8%, 9% on its own and then you'd have whatever the business does. But there's no way for us to guide that and give an exact number until we look at the other business lines, and we have other initiatives that are more pedestrian, the things we do every day in the other lines of business.

So any of the BaaS stuff, which we haven't even encountered or talked about because until those rollout, you're never quite sure how big they'll be.

Yes. Just to recap some of Steve's points, we're not resetting our expense base to a higher permanent expense base. This is a very large onetime set of launch costs. And what's related to that is, and the reason for it is, we have an opportunity, we believe, to launch some very exciting products for a much broader TAM than our traditional TAM. If we were marketing to our traditional customers our traditional product, we wouldn't be spending this money. We'd continue to just to do business as usual. And in terms of next year, our expectation is we will exit this year at a stronger exit run rate than we otherwise would have been exiting without the spend. So I think those are sort of the 3 highlights from the comments.

Certainly intended to be helpful to growth rates, not unhelpful to growth rates. But you can understand why I don't want to give a precise number.

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I would like to turn back.

Well, you're saying because the hour is up, operator, is that why you said that? Why don't we do this? We have 5 more analysts, and it's an important call and unusual call. I'm fine to take the questions, Mark, if you are. What do you want to do?

I'll judge the questions based on how they come and then we'll decide.

Operator, if it's okay with you, let's keep going, okay, and then we'll do Ramsey and we'll keep going.

Absolutely. Let's continue. And our next question will come from Ramsey El-Assal with Barclays.

So are you -- is there any connection with -- can you kind of characterize any connection between the $60 million investment and the Walmart contract? Is that one of the sources of catalysts for you guys actually making the investment?

No. But what's funny is I read a pretty powerful paragraph about Walmart, and I think these were so many new deals on the call that it just got ignored. But the answer is no, Walmart has nothing to do with it, but...

I was going to ask you -- I was going to follow up with that. So basically, candidly, your tone on the call today was quite optimistic or confident around Walmart, not that you're disclosing anything or can disclose anything. But what was the -- what kind of got you to sound an incrementally more confident tone? You mentioned some new projects or new partnerships. I'm just curious about sort of what's changed there.

Okay. Let me think about what I -- so I think the best thing I can say about that, Ramsey, is I'm always very consistent intentionally so with my commentary about any contract renewal, in particular Walmart. And so anything we say is always coordinated with our partners. So I'll probably just say that and read this transcript, but I never unintentional with my prepared remarks. So we do feel incrementally more confident, but I would let my commentary speak for themselves.

Okay. I also wanted to ask you about tax-related volumes. Your competitor, NetSpend, also had some soft tax performance in the first quarter. I think there was a broad investor expectation that as with prior years, you get that sort of shift back into the second quarter that wasn't really lost. It was just kind of moving around. What's caused the tax impact to actually be, I guess, on the net basis sort of smaller this year than you anticipated? And is this the new normal? Is it the result of tax reform and of that? Or...

I don't know. It was pretty wacky and Brian Schmidt, who runs our tax division, is such a greater expert on it than I that I wish he was here to answer. But the answer is we had a decent Q1. We're up 7% in tax refunds process, but that doesn't always translate into exact dollar-for-dollar revenue. We have an advantage that NetSpend, they're a good company, so I don't mean that in a negative way, but we have advantage in what they and others don't, and that is that we partnered with all the big online tax preparers, Intuit, with TurboTax and TaxHawk and -- help me out, guys, and TaxSlayer, and they're all great partners. And the online channel, the Internet channel, is growing leaps and bounds every year over the in-person pro channel or assisted tax channel. It's just a macro of how the world works.

And so we're fortunate that the losses at the other companies who by definition have all the in-person tax places, because we have all the other contracts, that means if they're feeling the contraction of the in-person assisted channel on a year-over-year basis, we're not seeing the contraction because we're partnered with all these awesome new-age digital players, but the revenue per refund process is less because the price is charged by the online players led by Intuit's TurboTax is fractional to what are charged in, sometimes, the pro-channel location. So it's a trade-off of volume and price. And what our job is, is to have a mix where we're very proud to serve our pro channel. Pro channel means the in-person assisted channel that are not the chains. The chains would be Jackson Hewitt or an H&R Block. Those are called chains. There's a name for them that has escaped my brain right now. But you know what I'm talking about, those are all [euros], but the chains are called...

Franchise.

Franchise, thank you, the franchise market. Very good, Jess. 10 points, flip the card. Okay. And then you have the pro channel, which are, in effect, the small businesses, the mom-and-pops that operate in strip shopping centers and generally in ethnic communities, that still do a pretty good business. So we compete very aggressively in the pro channel, and we always will, but the macro is clearly towards the online space, and that's why you see other guys down and us up in volume, but I think that's a headwind for margin for everybody in the industry.

Then on top of that, you have the wackiness of just tax season where it was delayed but then it came out bigger, but then people got less money. Everybody now has these tax loans, including Green Dot. They were not existing 3 or 4 years ago. Now everybody has them. What that means is that you're having bigger Q1s because everybody is getting their tax refunds upfront. But then when the real tax refund comes, say, in April or May, it just gets absorbed and the bank pays themselves back. So it's a different cash flow. So it may not even be that the tax disbursement rate is any different or delayed. It's just that it's more Q1 pronounced because you have these immediate tax loans that to the customer is the same as getting their tax refund. So they say I got my tax refund, but what they really mean to say is, I got a loan today for free against my forthcoming tax refund, but they don't necessarily think about it that way.

So I think all these things are part of a changing ecosystem. In the tax industry, we're glad to be a leader, and we always end up on the right side of the fence through the great leadership of our team at TPG, but there's a lot of changes going on there, and I don't think anybody knows exactly how it's playing out.

The next question will come from Ashish Sabadra of Deutsche Bank.

So Steve, my question was about the active card, you talked about erosion of one-and-done customers. Just as you think about the competitive environment, do you think it's also the competition from the likes of Square and PayPal, those could be increasing as well at the edges, and could that be also creating any kind of headwinds for that to conclude? Is there any way to track it?

Yes. We don't know. We know that the low value or, whatever you want to call it, the short-term customer, whether it's one or done, which is not a complementary phrase, I guess, that phrase, that the more -- the less committed you are, the more you tend to be attracted to the easier cards, the easier free cards online because the CIP tends to be easier than the customer rules. They don't do a lot of ACH as a relative percentage of loads. And they're not bad products. But if you were someone just looking for a quick hit, you've got a lot more choices today than you had 5 years ago. That's for sure, right?

And so I think you have those out there. Those have a lot of good products online that are doing different things. And there are some who -- it's a big market out there, right? So there's a lot of good competitors out there, and then you have others who are online banks. You have all the big banks with their offerings, Finn from Chase, you have a young start-up run by a former Green Dot alumni, young man named Chris, well he's not young anymore. I'm old, so he's got to be older. Chris Britt, who runs Chime, and so you have a lot of Green Dot alumni out there doing their thing, and Chime's a really good company, too. So you do have a lot of more options for these customers who are looking for a different kind of account than what we offer, at the same time, we really did a great job by coming up with cashback rewards at a time when nobody was doing than on debit, and still isn't. And we think that on our new product suite, our goal is to have outrageous value that will continue to make our cards to standout. But you're never going to be a winner with everybody.

So to your point, Ashish, it's a big world out there, and our actives continue to grow at 6.1, or whatever it was this quarter. That's a lot of customers. And then a TAM or total customer base is about 50 some-odd million across the entire enterprise through all of our different product lines and channels. And then we have our own BaaS product lines, which are us, but us in a different brand name, and they're great products. They're all great products that are sold through different channels.

So I think if your question is -- if I can rephrase your question is: Steve, between your own BaaS products, all the new online products, all the major banks, do customers have more choices today than they have 5 years ago for the so-called neo-bank accounts? The answer is absolutely. Has Green Dot continued to compete well in the face of all that over 20 years? Absolutely. Will it help us to reinvent our products with fresh new offerings, outrageous value and a new TAM to be introduced to our products? Absolutely.

That's helpful. And maybe just a question on the visibility. So you've given like the second quarter guidance range, there was an expectation that you grow better and you have to take it down just in a couple of months. And the full year guidance implies like a 15% -- 15% to 16% growth in the back half. And I was just wondering, is there -- obviously, you talked a lot about a lot of new programs that are coming on. I was just wondering is there any kind of risk to that guidance? Because again, I'm reminded of 2015 when there was -- when the active cards started slowing down, but then growth started to slow down as well, and it wasn't as much visibility when that first started to happen.

Well, we've had a lot of big growth here since 2015. I mean -- I think, Ashish, with respect you can come up with any sort of take on it. So I'm not sure what the question is. Is there risk to our full-year guidance we made in Q1? We pulled down guidance for EBITDA. And I think I've tried to do good job, but I know we have a one-on-one after this so we can go in more in-depth, because I want to get to the other 4 questions. If the question is, is the risk I explained or tried to explain best I could that you have the upside positive of all the new marketing for our new products, plus all the new BaaS, offset by the negative of these low-value customers where there are fewer this year than last, and we're not quite sure how that mix plays out. So we feel fairly confident at the bottom line, but the top line wasn't -- there wasn't enough left or right good or bad to change our guidance. So -- but it's early in the year. And right now, it could be higher or lower. We're not sure. So we're trying to be as transparent as we can with the puts and takes. And hopefully, that's helpful.

Our next question is from John Hecht from Jefferies.

I guess a little bit of a take on the last question, but the guidance would imply that you have a really good acceleration of, I guess, adoption rate in the second half of the year. I know you're going after a new TAM, to some degree, and you've got new products. But maybe can you tell us about the channels, the difference in channels you might be using or the difference in marketing campaigns or what kind of characteristics about those products should result in improved adoption rates.

Well, I don't know that we're actually guiding for improved adoption rates. In fact, we're assuming a lot less efficient lower cost per acquisition than we have in real-life currently because we want to give ourselves some margin of error. But what we have going for us is we're spending a whole lot more money. I mean you have to understand relative to Green Dot's marketing, $60.5 million would be, or some portion of that, but the amount that we're reserving publicly for $60 million for both BaaS initiatives and marketing for the product side, it's a lot of money. It's not a lot of money for other companies and certainly a very small amount of money for growth companies, but relative to Green Dot's history, it's a lot of money for marketing in a half a year. So what we have going for us is a lot of marketing that's concentrated. We think the campaigns will be well coordinated and clever, but we can't really share a lot about that. And any other products, which is no question that they are not a little bit better than today's products, but way better than today's products, both in terms of their look and feel and the value offered to our consumers. So they'll certainly stand out from the crowd.

Now the question is, is the amount of money we're going to spend on marketing too much too little? Are the products as good as the research shows? Or if they are, will people care? Maybe they're happy with what they have. Will we hit our planned cost per acquisition and do our 1 million plus? Or will our cost per acquisition be less efficient and be less? Those are the things, frankly, that you take a good conservative guess based on all the things you know and you come up with your guidance. And that's exactly why we're not messing with top line guidance to Ashish's question because we could assume such a wide range of outcomes, it'd be best to leave it where it is, which is a decent guidance range of 10% at the center -- at the midpoint.

So I think that's what we have going for us. What do we have going against us? Not a lot because our competitive set is what it is. In other words, you already have all the products out there, there could be some new products launching, we think, over time. And to the extent that any launch from other companies in second half and make a big splash, that could interfere with our splash, if you will. But we think that there's -- whenever you spend that much more money with the way better product offering, the question is, will we issue more cards incrementally? The answer is yes. We will issue more cards incrementally. Will we issue 0.5 million, 1 million, 2 million? I can make a case probably all the way up to 3 million depending on the cost per acquisition you assume. So we think we're trying to do a good job of being thoughtful and prudent about it. But the truth is whenever you have new products and new tactics, there's always risk of the unknown, and we've tried our best to be really transparent with sharing that risk.

Okay. And then I guess unrelated follow-up question, to your point, Steve, you're lamenting last quarter about, I guess, an uncertain sales cycle with the BaaS program. Clearly, you cleared a few -- you had new partners. It sounds like the pipeline's still pretty active. Maybe can you give us an update on your perspective on the sales cycle and any near-term outlook for any potential opportunities?

Yes. And I know there's a ton of information in the script. It was a long script because there's so much going on, and we wanted to give our investors a lot -- I know we got to wrap it up. I'm over here and Mark has his sweater and his books and he's out. Okay. What we're talking about? BaaS pipeline. So there's a lot of incremental information in the script about that. And if you want to go back and look at the transcript, but I'll share some of it with you.

The pipeline has been very, very active more so than we would have thought just 60 or 90 days ago. And in fact, it is than we thought 60 or 90 days ago. And we think that closing cycles are slightly faster because people now understand what it is, and there's a sense that we want to get ours going on. I think we're doing a better job selling it and understanding more what customers and partners may want. And so we feel really good about the pipeline.

I mentioned that we have several in the contracting stage that have not yet been announced, but we also announced a slew of new partners today, a lot of them, including some very exciting ones and productive ones. So we try to give a lot of flavor today of all the stuff that we've announced, and then we did tease the fact that we believe there's others, including one very large deal that we're in the contracting process for. But until those things close, you never know. So we feel good about both what we've announced and what's coming that we haven't yet announced, but these are new business lines.

If you look at just the sheer volume, I said earlier in the call, that's 420,000 actives, the majority of which were direct deposit actives. Just from BaaS and one other new product line that was not even 2 years old. Guys, that's unheard of. To think about roughly an 8% or 9% growth in total actives on product lines that didn't even exist 24 months ago. And I think that shows you that we're investing in the right spots, that we're executing in the right ways and that we have more odds than not to be successful in what we do. And I think our track record is actually pretty good given that everything we do is new. We don't have the luxury of doing mortgages or car loans or things that have been done for 50 years, and the models are well-known. Everything we do, for the most part, are things that we or our partners invent from scratch. And it's pretty cool when you think of the success we're having, but that does always add a little bit of mystery to it, doesn't it?

And I think that's it. I saw our last analyst disappear. So we're done? Okay.

So thank you, everybody, for listening. Have a wonderful day, and we'll see you in Boston at the JPMorgan conference next week. And operator, thank you for your patience.

Thank you all. The conference has now concluded. Thank you all, and have a great day.