Green Dot Corp (GDOT) 2022 Q3 法說會逐字稿

Good day, and welcome to the Green Dot Third Quarter 2022 Conference Call. (Operator Instructions) Please note that this event is being recorded.

Now I'd like to turn the conference over to Mr. Tim Willi, Senior Vice President of Investor Relations and Corporate Development. You may now begin now, sir. Thank you.

Thank you, and good afternoon, everyone. Today, we are discussing Green Dot's Third Quarter 2022 Financial and Operating Results. Following our remarks, we will open the call for questions. Our most recent earnings release that accompanies this call and webcast can be found at ir.greendot.com.

As a reminder, our comments may include forward-looking statements and 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 and certain 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 with 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 reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release. The content of this call is property of the Green Dot Corporation and is subject to copyright protection.

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

Thank you, Tim, and good afternoon, everyone. We have a lot to cover today, including the recent changes to our management team you should all now be aware of, an overview of our third quarter results, an update on our key near-term priorities as we continue transforming Green Dot into a next-generation financial services platform and a brief overview of our longer-term strategic opportunities and priorities. Then we will open it up for questions. So let's jump in.

Our financial results for the quarter came in at or above the high end of our guidance range. Revenue of $337 million was up 3%, while EBITDA margins were 13.5% and EPS of $0.44 was up 2%. We have been seeing weaker-than-expected consumer activity, particularly in the retail space, which then extends to Green Dot Network utilization. These shortfalls have been largely offset by stronger-than-expected performance from our BaaS partnerships and contributions from our bank.

On a year-to-date basis, revenue was up about 2%, while adjusted EBITDA and EPS were up about 11% and 15%, respectively. Free cash flow on a year-to-date basis was up 78%. Jess will provide some additional details on our results in a few minutes.

Though we faced some uncertainties related to the broader macro environment, we have made significant positive changes at Green Dot. I am happy with our consolidated results and grateful for all the hard work the team has put in to drive our business forward.

I'd now like to take a moment to share a little more context and my perspective on taking on the role as CEO. Dan Henry has been a friend and colleague for many years. He has had an amazing career of value creation. He laid a strong foundation and path forward for Green Dot during a period of critical transition. He built an impressive management team and established a solid vision and purpose, and we appreciate his contributions. Dan will continue to be a friend of Green Dot for many years to come, and we wish him the best in his future endeavors.

I am humbled and feel privileged to assume this role. I simply couldn't feel more strongly about the opportunities this company has in front of it. And I hope my experience, knowledge and approach will serve Green Dot well and lead it to its inevitable success.

The 2 most important first steps I plan to take in this role are to, first, set us forward on a clear strategic path to success. I recently had the privilege of laying out our strategic road map for our Board and will share some of those highlights with you in a few moments. Second and equally important will be to ensure we have the right team to execute against our opportunities.

To that end, I am pleased to make the following changes to our leadership team. Chris Ruppel has been named Chief Revenue Officer, responsible for overseeing all revenue-generating businesses, including BaaS, consumer/direct, tax processing, Green Dot Network and PayCard as well as the company's marketing and product development teams. Chris brings a wealth of experience to this role as an entrepreneur and proven value creator.

He cofounded and ran our PayCard business for nearly 20 years, building it into one of the largest and fastest-growing PayCard businesses in the country. Prior to cofounding rapid!, he held numerous leadership roles at private equity portfolio companies. He is a proven executive that can help maximize the revenue opportunities across our franchise via his ability to understand cross-channel collaboration, disciplined resource allocation and mentoring talent.

Jess Unruh, who most recently served as operational CFO and Chief Accounting Officer and previously served as interim CFO, has been named Chief Financial Officer. Prior to joining Green Dot in 2009, Jess was with Ernst & Young for a number of years. Over the last year, he has been a tremendously valuable resource and partner. His deep understanding of our business and financial metrics and analytics are unparalleled, and we are fortunate to have him lead this function in an official capacity going forward.

Finally, Teresa Watkins, who most recently served as our SVP of Operations, has been named Chief Operations Officer, responsible for overseeing payment processing, payment networks, supply chain, settlement, sourcing, procurement and customer experience and support. Teresa is a natural leader with deep experience managing complex operational teams and implementations. She's also played an instrumental role in our banking and payment platforms transformation, and she is a valuable addition to the executive team.

Let me now hand it over to Jess to give you some more detail on our third quarter results and full year expectations.

Thank you, George, and good afternoon, everyone. With the press release and slide deck, you should have all the necessary financial numbers and metrics. Let me provide some qualitative commentary about each segment to help you better understand the quarter and what's going on in the business.

Turning first to our consumer segment, which is comprised of 2 unique channels: retail, which is our largest single channel across the company; and direct-to-consumer. Aggregate revenue declines largely remained a function of decline in active accounts in both channels driven in part by the impact of stimulus programs in the prior year and in part by very distinct dynamics within those channels. Regarding stimulus, many accounts benefited from enhanced pandemic-related unemployment benefits through much of Q3 2021 as well as elevated deposit balances from stimulus money earlier in that year.

As for distinct dynamics, the retail channel is faced with 2 challenges. First is the headwind associated with the secular change in consumer foot traffic. Second, and to a lesser degree, is the competitive environment as consumers now have a variety of direct-to-consumer options.

However, in our direct channel, the declines are driven by 2 factors. First, as we have discussed in the past, we've made a very deliberate decision at the beginning of 2021 to deemphasize legacy brands while we invest solely in building the GO2 brand from scratch. Second, as we've noted in prior calls, we pulled back our marketing spend for GO2 in the first half of the year, which has had a negative impact on account growth that we have begun to put marketing dollars back to work. We believe this reacceleration in marketing spend is well timed as we have worked to improve the customer experience and our competitors have shifted their focus to reducing their expense base by pulling back marketing spend and reducing head count.

While we continue to see year-over-year declines in aggregate accounts, over the last couple of quarters, the rate of sequential decline in our direct deposit accounts has been moderating, which we believe is encouraging. We would attribute this to a combination of stimulus-related accounts having largely left the platform while also benefiting from improvements in customer experience and stronger conversion rates as we improve the customer journey from account acquisition and opening to signing up for direct deposit.

Looking at revenue, there is one callout I'd like to mention. Though it is still early, revenue in the direct channel, which accounts for a little bit less than 30% of segment revenue, has been reasonably consistent for the last several quarters. This may be an early indicator that we could be finding a bottom in this channel, particularly with direct deposit customers who monetize at much higher rates. While not going into specifics, an example I would provide is that revenue in the direct channel is now higher than it was 2 years ago, while retail is down. Again, it's early. We are encouraged by what we're seeing in the direct channel.

As you know, the GO2 brand is our key customer-facing product, and this is the product we put nearly all of our marketing dollars behind in the direct-to-consumer channel. While we don't disaggregate individual product performance in our segment reporting, I'd like to share a few metrics on GO2. The GO2 product now represents 40% of the revenue in our direct channel. And just as important is that within GO2, the growth of direct deposit actives is up 58% versus last year. We're very pleased with the performance of GO2 and encouraged by what we are seeing.

Last, a trend we've highlighted in prior quarters. Revenue per active was up 13% over last year as the mix of active accounts continues to improve and we enjoyed continued success in driving engagement and penetration of overdraft in the customer base. It's worth noting that the growth of ARPU in our direct channel has been growing at a higher rate than the overall consumer segment due to improving account mix and direct customers have a higher annual revenue per active account than those in the retail channel.

Looking at B2B, which consists of our BaaS and PayCard channels. Growth was driven by both BaaS and PayCard, while margins remained impacted by contracts that have a fixed profit component. Growth of one of our larger customers continues to power the top line in the BaaS business, while the remaining portion of the business is still lapping the deconversion of a customer in early 2022, which also accounts for the bulk of the year-over-year decline in active accounts. The PayCard division saw solid results with revenue and account growth in the low to mid-teens.

Looking at margins. The impact of a couple of customers with fixed profit structures continues to weigh on the aggregate segment margin. If we look at the segment excluding this impact, we believe it gives us a better feel for the margin performance and how we manage the business. In that context, margins were stable to up as we continue to see improvement in areas such as customer care, risk management and supply chain.

Let's turn to Money Movement, which is comprised of our tax processing business known as TPG and the Green Dot Network, which serves our own account base but is seeing an increasing amount of volume from third-party partners. While revenue was down in the quarter, timing around tax volumes and associated revenue could have a disproportionate impact to growth rates. More importantly, if we look at the year-to-date revenue for this segment, it is down 6% with TPG seeing nice growth in transactions and revenue, while the Green Dot Network is seeing declines from the impact of the decline in active accounts in our other segments.

That said, the rate of transaction declines for the Green Dot Network is less than our active account base as this channel is seeing momentum in adding new partners. We believe that the Green Dot Network is a unique asset that is undermonetized. And other entities, some of which you may view as our competitors, see the value in joining this network, providing convenient cash in and cash out access to their customers.

Over the last several years, third-party partner volumes have grown, and we expect that to continue for the foreseeable future as we sign and launch new partners. The margins for the Money Movement segment were down year-over-year in Q3 due to the timing of tax season. On a year-to-date basis, they are up almost 400 basis points and remain at a very healthy level of roughly 56%.

Turning to our Corporate and Other segment. This segment reflects the interest income we earn at our bank and any related expenses, our fixed expenses such as salaries and administrative costs and some smaller intercompany adjustments. For the quarter, there were some modest increase in salaries and administrative costs mostly tied to the expense related to our technology transformation. And revenue, specifically interest revenue, was up and reduced the drag on earnings.

It's important to understand how our interest income works and how it is reported in our segment results. Functionally, our cash balances benefit from the rise in short-term rates. However, we have arrangements with certain partners that result in us sharing a substantial portion of that interest income. Conversely, we see yields on our investment portfolio increase but at a slower rate as securities mature and proceeds are reinvested. In our segment reporting, the interest we share with our partners is netted against the interest income we generate on cash and investments.

The last thing I'd like to discuss is our focus on managing expenses and driving efficiency. Over the last year, we have focused intently on improving our cost structure, and we will continue to make this a priority. As you've heard us mention several times on this call, we are seeing tangible improvements in key areas such as fraud and risk, customer care and supply chain. At the same time, we'll continue to carefully invest in areas like security and compliance as well as marketing when there's a clear payoff.

Last, I would point out that while we are currently shouldering expenses tied to our technology transformation, as we complete that effort, those expenses will roll off and efficiencies will be gained.

Turning to capital and liquidity. We continue to have a strong balance sheet and liquidity position. We had free cash flow of approximately $41 million in the quarter. And at quarter end, we had $92 million of unrestricted cash at the holding company. During the quarter, we repurchased 1.3 million shares at an average price of $22.92. At the end of October, we had $16 million remaining on our current share repurchase authorization. We expect to give an update about capital allocation on our next earnings call after we report Q4 results.

Before turning it back over to George, let me give you our updated thoughts on 2022 guidance. For 2022, we reiterate our full year non-GAAP revenue guidance range of $1.394 billion to $1.43 billion. We are reaffirming the midpoint of our adjusted EBITDA range while narrowing the low and high end of the range to $232 million and $238 million. We are raising our non-GAAP EPS to a range of $2.42 to $2.51 to reflect a slightly lower share count as well as slightly lower depreciation expense. Backing into Q4, the midpoint of our guidance implies non-GAAP revenue of $325 million, adjusted EBITDA of $32 million and non-GAAP EPS of $0.24.

Addressing what may likely be someone's question about not raising the midpoint of EBITDA guidance despite the third quarter beat, I would point out several things. First, as we discussed on our Q2 call, we expect to incur additional expenses to improve our anti-money laundering compliance controls, policies and procedures, which could impact our margins and other results of operations. Second, we are still uncertain about the timing of partner deconversions. Third, we're encouraged by the performance of GO2 and reserve some flexibility to elevate marketing spend if we believe it makes sense.

With that, I'll hand it back over to George.

Thank you, Jess. As we assess current conditions and anticipate the challenges and opportunities ahead that we plan to navigate and capitalize on, I want to reiterate that our near-term priorities have not changed. First, our technology transformation will continue. We must move the company onto a modern technology platform. This is critical to our long-term success as it will unlock our capabilities and potential while driving significant efficiencies across the enterprise.

Second, operational excellence. We must remain focused on finding ways to be more efficient and making this a part of our cultural DNA. Areas like fraud, risk management and customer care continue to see improvements, all of which are key to optimizing the customer experience and driving account growth. We are committed to maintaining a disciplined approach to managing the cost structure of the business in the years to come.

Third, business development. We continue to focus on building a strong business development effort, and we are beginning to see success. We recently signed a large BaaS partner, and we also launched Earned Wage Access with one of the largest retailers in the United States. These 2 noteworthy successes are in addition to the renewal and extensions of 2 important BaaS partners, along with a constant flow of wins in our GDN and PayCard businesses. Building out a strong sales engine is a priority, and I believe that Chris is the right person to lead that effort, while we also focus on investing in the infrastructure to ensure that we deliver and expand upon partnerships that we are creating.

Now I'd like to take a moment to share our perspective on 2023 and the opportunities ahead of us that prompted me to join Green Dot a year ago and are even more apparent to me now as the CEO.

First, let's talk about 2023. We are in the midst of refining our views on our expected 2023 financial performance. We previously indicated that a path to EBITDA growth in 2023 may be likely despite several customer nonrenewals. Based on consumer and other trends we have observed in our business since the second quarter, we now believe adjusted EBITDA will decline on a year-over-year basis in 2023 compared to 2022.

My commentary is based on factors, including the macroeconomic outlook, interest rates, duplicative costs associated with our technology transformation and the timing of the related expense savings and the performance of the retail channel. While the net savings from the technology transformation may be less than expected in 2023, we still fully expect these costs to come out in 2023 and view this as a timing-related issue. This directional guidance is preliminary and subject to change as it may be impacted by a variety of factors, including those described in our public filings.

As we wrap up the budgeting process and have additional discussions with the Board, we are intently focused on finding a balance between managing our expenses and investing in growth opportunities. We will have more clarity on our outlook and I look forward to providing more detail on our year-end call.

I'd now like to summarize our thinking about our longer-term strategic opportunities, which we recently shared with our Board. Green Dot is a complicated company, put together over many years without an eye toward optimization efficiencies or synergies. But the markets we operate in are vast and present a variety of growth opportunities. We are in the business of solving everyday problems for consumers, how they access their money, pay for things and keep their money safe. Across all our major operating segments, the addressable markets are significant, and we have tremendous opportunity to capitalize on them through our platforms.

We already operate successfully in these markets with proven capabilities. We serve 4 of the top 5 Fortune 500 companies today with our products and services. We have more than 75% of the top 20 retailers in the United States. We serve over 6,000 businesses with PayCard products. We process the majority of all tax refund transfers each year, and we have millions of consumers and customers.

We all know consumer behavior is changing, and the rate of change is increasing. They go to retail outlets less frequently and demand convenience, speed and simplicity in the financial products they use. Our partners, current and prospective, know this, too. They are adapting to this generational shift by experimenting with new ways to deepen engagement with their customer networks. Often, that leads them to some form of payment solution.

We are building an enduring platform business. Our modern, configurable technology platform will combine with our banking platform and Money Movement platform to offer partners and consumers unmatched capabilities and product offerings at market-leading low costs. Our partner and consumer-facing channels, retail, BaaS, direct-to-consumer and PayCard, will eventually all pull from these capabilities in order to provide solutions for their particular market needs. You can think of these platforms as our embedded finance offerings, but it is an offering that will be highly differentiated in the market. From this offering will spring credit solutions, advanced disbursement capabilities, SMB banking products, PayCard solutions and much more.

But not only will we be offering simplified package solutions to partners to help them deepen and expand their relationships with their own customers, we will do that at very low marginal cost with the technology we own, along with our ability to bundle capabilities, including payment network and banking offerings. While many of our competitors will have parts of this equation, none will have the capabilities we offer across the breadth of our channels and platform.

Our strategy does not rely solely on the build-out of technology and integration of processes. While we believe those opportunities are immense, let me give you just a few more modest examples unrelated to our technology road map.

Our PayCard business, branded rapid!, serves over 600,000 consumers and is the fastest growing PayCard business in the United States according to Visa. While it is not today the largest business within Green Dot, it is an all-star. Consider this: early wage access, or EWA, the business of getting people their pay as they earn it, is a greater than $3 billion market, which is largely untapped today. We believe everyone will inevitably have access to EWA sooner or later we are selling this product today. We have a differentiated offering in the market. We have a large existing customer base to sell to with the best PayCard sales team in the country to do it. It is early days, but we intend to win this race.

Our tax business, TPG, also presents clear and attainable opportunities. The tax business has generally been driven by a single, highly profitable product but with low organic growth. This division processes over 15 million consumer tax refunds and works with a network of 27,000 small businesses that prepare those taxes. So we have 27,000 small business clients in this channel, but we do not offer them business bank accounts. We will.

We opened about 15 million temporary accounts for consumers to process their tax refunds, all of which are closed shortly after the refund is processed. These are essentially temporary accounts. And soon, many of these consumers will have a permanent go-to bank account open when their tax refund is processed.

Today, we offer no credit or additional SMB solutions to these small businesses. That will change. By leveraging our bank, we will be able to create payment and credit products to distribute at low incremental cost across this network of SMBs and consumers.

The Green Dot Network forms a unique nexus within the U.S. payment system. As companies seek to build digital-only financial platforms, they need to provide their customers access to a network, the Green Dot Network, with 90,000 locations that facilitate both cash and digital transactions.

All payment transactions are and will remain in the domain of regulated enterprises, providing safe, secure stewardship of consumer deposits. Our bank returns remain well below any comparable peer. And with steady progress and careful capital planning, we will bring the bank's returns in line with the market while keeping our depositors' funds safe and secure. This will be accomplished over time through conservative investment practices, careful introduction of modest credit products into our existing partner and consumer base, consolidation of all banking relationships we now conduct with third-party banks on to our bank and the extension of services already provided by the banks such as sponsorship.

All the opportunities that I just referenced are real and in various stages of motion. In the case of products like EWA and embedded finance, we firmly believe we are in the early stages of what are once-in-a-generation opportunities.

In summary, we have a tremendous growth opportunity ahead of us given the size of our markets and changing needs and demands that our differentiated assets and capabilities can address and serve. We see and understand the challenges as well as the vast growth opportunities ahead of us. We have tremendous strengths and potential compared to many of our peers, and we have a strong plan and team in place to lead Green Dot to the success it is capable of. There is much work that remains, but we are focused, energized and committed to executing our plan and delivering value for all of our stakeholders.

With that, I'll turn it back to the operator to take your questions.

(Operator Instructions) The first question will be from Bob Napoli of William Blair.

Very interesting, George, appreciate the discussions around embedded finance and some of the opportunities you see. What do you see is the biggest challenges? And what is the right growth rate long term for Green Dot? What do you see as the biggest challenges? When would you see like net account growth pick up year-over-year? And I would really appreciate it.

Thanks, Bob. Look, I think to the extent we'd characterize challenges, they probably stand within our control in the sense that we're fully occupied right now with executing against internal, inwardly focused activities around technology platform modernization. Those are complex challenges. Obviously, they take a lot of time and focus.

So while we're doing that, we need to also keep the BD engine running, develop our team, all of those sorts of things. So the challenges are not necessarily from our perspective, external in the sense of changing consumer behavior or macroeconomic conditions. It's mostly getting important things done quickly so that we can be fully leveraging our capabilities. So that's the way I'd put it.

I would shy away at this point from giving you any quantifiable long-term growth rates or margins. But our addressable markets, the markets we're in today, our direct-to-consumer market is $40 billion, PayCard, $3 billion, they're gigantic markets. And really, our potential, in my view, is unlimited with respect to those market opportunities, and it's all about us executing against them.

And just a quick follow-up. You talked about EBITDA being down next year. Can you give any feel for how much of a decline in EBITDA you would expect?

No. I can't quantify it. I'll tell you this. I think it was generally imprudent for us to try to run ahead of 2023. We need to finish our planning and our work. It's meaningful, obviously, enough for us to put some point on it in this call. So I'll leave you with that comment, and we'll get back to you when we do our Q4 release.

Our next question will be from Andrew Schmidt of Citi.

Congrats to everyone on their new roles here.

Thanks, Andrew.

A lot of changes, good to see. So I think starting off, just a question for you, George. It's pretty clear that nothing changes in the near term. You kind of outlined a lot of the opportunities and why everything fits together. So it doesn't seem like portfolio optimization is on the table at least in the near term. But maybe if you could just talk about how your philosophy or how your focus changes as we go out a little bit further in terms of just incremental investment areas, opportunities, just any difference regarding kind of the previous approach. Just curious to get a feel there.

Thanks for that question. First, I'll say I don't think that this is about comparing myself to Dan in any way. I mean -- but I will try to expand on my way of thinking as it is. I tend to be process-oriented, very focused on management execution and accountability. I think very carefully about milestones and how the team is going to achieve those milestones and try to put a lot of focus and maintain focus on each incremental step along the way. I try to build teams that share that philosophy.

My core value as a corporate leader is one of stewardship. Obviously, we accept deposits from millions of consumers. It couldn't be more critical that we take good care of those deposits and manage them prudently. And obviously, we have a large number of investors that we are stewards of their investment and their capital as well, and we take those obligations quite seriously.

So we think about these questions in terms of capital and capital returns over the long term. So of course, the steps we're taking over the next 4 to 6 quarters are approximately the same steps. We'll put a tremendous amount of focus on business development, integrating our sales capabilities, making sure that we're packaging products and services into the market appropriately. That's why I've asked Chris Ruppel to join me in this effort.

So I think you'll see some shifting of priorities and a lot of focus on basic blocking and tackling management disciplines. But the path, in my view, is clear. We have amazing assets. We have to get them working together in the right way sooner rather than later, and our future is boundless then.

Got it. No, I appreciate that context. That's helpful. And you mentioned a lot of opportunities from a product perspective. Not looking for any quantifiable kind of time frame, but I guess just generally speaking, when do we get to a point where we can see a faster kind of product velocity and see sort of the ability to kind of go after a lot of those areas that you referenced? Does the MVP have to be in place in order to see that product velocity step up? Because I do agree there is a big opportunity. But I'm just curious in terms of when we'll start to see some of these areas start to be attacked. Any color there would be helpful.

Yes. No, that's a great question, Andrew. So this is a complicated question. Let me -- I'm going to give it a shot to try to simplify our strategy that we talked to our Board about over a couple of hundred pages that I'm going to try to do it here in a minute.

So if you think about our platform business, we're -- we have a bank platform. Sitting on top of that is a set of shared service capabilities, and on top of that is a money payment network, the Green Dot Network. And then on top of that, it's a technology platform. Most of our channels in the near term, direct, our BaaS channel and retail, will sit on top of those capabilities and distribute capabilities out of that platform. And in fact, that happens today, but it happens in a very complicated, high-cost way. And in the future, PayCard will sit on top of those platforms as well.

So there's 2 elements to your question. One is bringing the cost point down materially so that we have a differentiated cost advantage in the market. And that could be bringing consumer products to market or it could be bringing partner products to the market. And then the other element -- and the cost element of that is a multiyear journey. We've talked about the first step in that journey, which is the processor migration consolidation, which will occur in '23. But that's just the first step. I've alluded to other steps in previous calls, I won't repeat those.

But as we go through those steps in '23 and in '24, all of these capabilities, these product capabilities you're asking about will be consolidated in a configurable way on the platform. So whether we're talking about our API developer capabilities, path to credit capabilities, SMB product offerings, advanced disbursements, all of those capabilities will incrementally become available over the next 24-month period of time. But it is our view and our focus to have the vast majority of that journey done in -- by the end of '24.

Next, we'll go to Ramsey El-Assal of Barclays.

I was just on the Marqeta earnings call. They mentioned that they had won an issuance and processing relationship with Walmart for a product called ONE, I think, which is something they're putting out in conjunction with the Ribbit JV. I'm just curious about how -- what your read is on that. Was that something you guys were in the running for? Does it have any read-through impact on your programs with Walmart?

Thanks for that question, Ramsey. First, I'm going to expand your question a bit and take an opportunity to make sure our audience understands our relationship with Walmart while I answer that question.

So first, of course, we have an agreement that -- with Walmart that goes into January of 2027 to manage the Walmart MoneyCard and distribute various Green Dot products within Walmart locations. And we have a number of ancillary services and activities associated with those agreements. So that agreement is in place, been in place for a long, long time, will remain in place. We also have a TailFin joint venture, which you can read about in our public filings, that is primarily in place in order to create a pool of resources that can be used to foster innovation and distribution of the very products I just mentioned. That JV is active. It is doing exactly what it was intended and designed to do, and it is currently designating investment opportunities for this sort of innovation.

And as we all know, Walmart has entered into this other JV with ONE in order to do certain other payment services. We have a relationship with ONE. I wasn't listening to the Marqeta call, so I can't comment precisely on what it is they were characterizing. My understanding is that Marqeta previously was the processor for ONE and remains the processor for ONE. So it's not new information from our perspective, but we don't consider that to be a material change.

But I would highlight that as ONE considers the opportunities that they have to expand their payment footprint, they'll seek out various vendors to do different things. Obviously, there'll be banking relationships, there'll be payment processing relationships. They'll need money network access points. They'll need different products and features to bring to bear, and we expect to compete for those. So we view this opportunity with ONE as expansive, not narrowing. So I can't comment further on what Marqeta said, but that's our view of the overall relationship with Walmart.

Our next question will be from John Hecht of Jefferies.

I guess just with respect to the high level of preliminary EBITDA commentary, I mean, can you give us color just in terms of marketing? Was this a revenue thing from the consumer segment? Was it the fact that these cost saves may be delayed over the course of the year as you implement the new system? Is it a little bit of everything? Just -- again, just trying to think about the trajectory of modeling.

So you mentioned the consumer segment, yes. As we've gone through another quarter and we look at the acquisition trends primarily within bricks-and-mortar retail, they continue to be below our own expectations and below our expectations when we talked to our investors 3 months ago. That's one point.

Interest rate environments are complicated with respect to Green Dot. Jess made some comments in his prepared remarks with respect to how those affect us. I would go back and look at those. It would be burdensome to explain all the nuances of them. But as short-term interest rates increase at a rate faster than we can invest in longer-term instruments, that tends to have a short-term negative impact on us. So that's a factor.

And the timing and pace in our own decision to slow marketing spending, particularly in the first half of 2022, has a negative impact on '23. We think that latter issue will have an opportunity to rehabilitate itself because as I'm sure you know, many of our direct-to-consumer competitors are facing brand-new capital constraints that they've never experienced before. We think that's going to harm their ability to compete in the market and direct-to-consumer businesses. So we think that may turn in our favor in '23. But I think it's really early to make that declaratively stated.

Okay. And then turning to the BaaS segment, I guess kind of 2 questions, one is quick about the BaaS segment and then a second one. The first one is did -- I know there were some customer losses last quarter that were announced. Were those all out all the way through this quarter?

And second question is the ARPU in that category has been showing a nice upward to the right trend. Can you talk about what's moving that increased productivity with the BaaS customers?

The latter question, I'm going to kick it over to Jess here because I want him to at least have a little bit of an opportunity to comment in this call. The first part of your question is no, those partners trail off through the quarter. They'll largely be exited by the end of the quarter or very early Q1 of '23. And then Jess, if you want to handle the second question.

Yes. I think the ARPU in the BaaS businesses, there are certain BaaS customers that are high growth rate. That same BaaS customers have some of the fixed profits. So you're seeing a solid flow-through of ARPU on the top line, but you're not seeing necessarily that flow through on the contribution per active.

Okay. Congratulations on everybody's roles.

Thank you.

Thank you very much.

Next, our question will come from Joel Riechers of Truist.

So I was just wondering if you could provide any update on the BaaS pipeline as well as just any insight on contract renewals for B2B and what the timing on those looks like. I know kind of somewhat related to the last question.

Yes. No, thanks for the question. So in my prepared remarks, somewhere in the first 1/3 or so, I did a quick list. I didn't name any particular partners, but we did sign this quarter a fairly meaningful BaaS partner opportunity. That partner is being staged for onboarding throughout Q4 and would be expected to be onboarded in the first 1/3 of 2023. So that's very positive news. We've also extended another partner for a multiyear term in the last quarter within the BaaS business, a smaller partner but nonetheless an important one. We added to the services that we're providing one of our other large BaaS partners through a contract addendum in -- over the last few months. So that's an important victory for us.

And the pipeline is good in the BaaS business. There are so many opportunities. I think we need to have a much higher set of expectations with respect to the opportunities we can mine out of that opportunity. So we have a good pipeline. It's a long selling cycle, a long onboarding process. So we need to shorten the selling cycle, shorten the onboarding price -- process and improve our cost structure, as I mentioned to one of the earlier questions.

Just also, you didn't quite ask about the other businesses, but understand that in our PayCard business, we sell, sign and onboard several hundred businesses per quarter, each quarter. In our Green Dot Network business, the numbers are much more modest, but between 5 and 10 partners per quarter that we sign and implement within that channel. So we have a lot of other BD activities that go on throughout the organization that don't quite get the attention of our BaaS channel.

All right. Awesome. And then I kind of have just one final one. We've been hearing from some investors just almost paralleling Green Dot a little bit with Western Union. And while we don't really agree at all, the comparison kind of does beg the question of how you escape this trap of dealing with deaccelerating retail segment and also being a bit of a late mover to digital. So I was just kind of wondering, I mean, what do you guys think the answer to that is?

That's a great question. So we wake up today and we find ourselves with this great set of assets. We have some legacy businesses. So obviously, the company was founded in retail, in bricks-and-mortar retail, general purpose, reloadable prepaid cards. Dan Henry set us on a transitional path to migrate most of that activity to DDA, traditional DDA accounts, launched more progressive payment features on those accounts, including overdraft. Those are all great moves for us. So that puts us in a framework with a bank to offer all sorts of different account solutions for partners or consumers.

But we have this complicated, expensive infrastructure, and we are committed to bridging the divide. And so we have to make careful capital and operational expense choices to both manage our P&L, which everyone on this call expects us to do. We don't have the privilege of losing tens of millions of dollars every quarter like many of our competitors do, and they get celebrated for it. We don't have that privilege. So we manage our P&L.

And however, we have to invest in growth opportunities like EWA. EWA is an amazingly spectacular opportunity for us. So we're going to win that game, but we have to invest in it. And so our challenge is different than Western Union's. And my view is that we successfully navigate that tension that I just described. We're going to merge with market-leading capabilities, highly differentiated, vertically integrated capabilities that will have a huge cost advantage in the market. And we're taking the actions and we're undertaking the risk associated with executing that. We think some of the contemporary companies that you might be thinking of have not done that. We intend to do it, and we intend to do it successfully. And that's going to put us in a much better place in a year or 2.

(Operator Instructions) Next question will be from George Sutton, Craig-Hallum.

This is James on for George. On the opportunity to sort of leverage your assets more collectively and opportunity to roll out some of the SMB products and some of the tax prep customers' credit products that you talked about, you mentioned they should roll out within 24 months. But could you maybe talk about which one of those opportunities you're prioritizing?

Yes. Thanks, James. I'm going to take your question as another opportunity to make sure the rest of our audience appreciates what we're talking about here. So our tax business, TPG, is not and will not be integrated into the platform, the technology platform that I've been making reference to. We have built, and it's not quite but largely, in place a separate, distinct technology capability with respect to our TPG business. It's a highly unique business, very specialized. And so that investment has been made and is largely complete. So that's important to understand.

It's also important to understand some of the things we alluded to in our prepared remarks. We use a number of other banks. We own a bank. But if I look at the list of our bank competitors, there's 3 or 4 of them that we use for sponsorship, for small dollar credit products or other things, and that needs to stop. So first step within TPG was to get this platform in place, stable, operating, and it ran successfully during the last year's tax season. Next step is to consolidate all TPG-related activities on to our bank, and that's mostly a cost synergy activity.

Then with these capabilities, that will position us to issue SMB bank accounts that we made reference to. It will position us to issue permanent go-to bank accounts to the people conducting refund transfers where we cannot do that today efficiently. So in the '24 tax year, we expect to be able to do both of those things. But we have to get a few precedents completed, which most of those are done, but they're not quite done. So we need to round off that work in '23, and we'll be prepared to do those things we mentioned in our script in '24.

Great. It sounds like a logical and attractive opportunity, so that makes sense. And then on the B2B side, congrats on signing the new partner. I guess have you seen any change in the market overall compared to maybe 12 months ago in terms of the level of interest for your debit programs and the embedded finance capabilities you're able to provide?

Have we seen any difference like in the market for those activities or the competitive market? Was that your question?

I'm just thinking sort of a level of interest in sort of...

From the demand side, okay. I'm sorry. I didn't quite catch all of your question. I would say the demand -- well, here's my characterization of it. The demand is constant, a little uneven in the sense of -- so there's a lot of interest from companies that have large customer networks in embedding finance capabilities into those customer network solutions. There's a large interest for that. But there's a very uneven degree of sophistication with respect to the purchaser, if you get my meaning. Like the procurer of these services, they might have a sophisticated kind of payments capability within their company or they may not have that, largely not.

And so that unevenness, it complicates the selling cycle because there's a lot of education, a lot of information sharing that needs to happen. And then of course, there's an evolution of purchasing intent as that education happens. So a lot of demand, the demand's just uneven with respect to sophistication. But I expect the demand will continue to increase.

That concludes our question-and-answer session. Now I will turn the call back over to Mr. George Gresham for closing remarks.

Well, thank you, operator. I'd just like to say in closing, I appreciate your high-quality questions today. I'm personally extremely excited about what we're doing here. As we mentioned in our prepared remarks, we operate into vast markets. We have highly differentiated assets.

The thing that stands between us and really a transformative future at this company is executing some blocking and tackling activities. Complicated? Yes. Doable? Yes. So we're on that journey. I hope you all stick with us through it. I think the rewards will be there for all of us, and thank you for your interest. That's all, operator.

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