Green Dot(GDOT) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Green Dot Corporation's unaudited consolidated financial statements for Q1 2023 are presented, covering Balance Sheets, Statements of Operations, and Cash Flows, with detailed accounting notes Consolidated Balance Sheets Total assets decreased from $4.79 billion to $4.69 billion in Q1 2023, driven by lower cash, while total liabilities decreased and stockholders' equity increased to $860.6 million Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $4,686,257 | $4,789,176 | | Unrestricted cash and cash equivalents | $722,003 | $813,945 | | Investment securities available-for-sale | $2,369,332 | $2,363,687 | | Total Liabilities | $3,825,657 | $4,007,695 | | Deposits | $3,344,903 | $3,450,105 | | Line of credit | $0 | $35,000 | | Total Stockholders' Equity | $860,600 | $781,481 | Consolidated Statements of Operations Total operating revenues increased to $416.4 million in Q1 2023, but higher operating expenses led to a slight decrease in operating income and net income of $36.0 million Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total operating revenues | $416,380 | $400,617 | | Total operating expenses | $365,385 | $349,025 | | Operating income | $50,995 | $51,592 | | Net income | $36,012 | $38,624 | | Diluted earnings per common share | $0.69 | $0.70 | Consolidated Statements of Cash Flows Net cash from operations was $100.5 million in Q1 2023, while investing cash use significantly decreased, and financing activities resulted in a $161.6 million net cash use, leading to an overall $93.8 million cash decrease Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $100,532 | $115,642 | | Net cash used in investing activities | ($32,720) | ($300,614) | | Net cash (used in) provided by financing activities | ($161,648) | $185,974 | | Net (decrease) increase in cash | ($93,836) | $1,002 | Notes to Consolidated Financial Statements Detailed notes explain accounting policies and financial data, covering revenue by segment, investment portfolio, loan quality, deposits, debt, income taxes, stock compensation, and customer concentrations - The company operates in three reportable segments: Consumer Services, B2B Services, and Money Movement Services. The CODM assesses performance based on segment revenue and profit[116] Revenue by Segment (in thousands) | Segment | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Consumer Services | $139,833 | $158,757 | | B2B Services | $171,292 | $133,900 | | Money Movement Services | $98,241 | $97,316 | - Walmart remains a significant retail distributor, accounting for 17% of total operating revenues in Q1 2023, down from 20% in Q1 2022. A single BaaS partner generated 32% of total operating revenues in Q1 2023, up from 23% in the prior year[113][115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, highlighting a 3.9% revenue growth driven by B2B Services, offset by higher expenses leading to a 6.8% net income decline, and outlines the fiscal 2023 outlook Consolidated Financial Results Summary (in thousands) | Metric | Q1 2023 | Q1 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $416,380 | $400,617 | $15,763 | 3.9% | | Total operating expenses | $365,385 | $349,025 | $16,360 | 4.7% | | Net income | $36,012 | $38,624 | ($2,612) | (6.8)% | - The company's outlook for fiscal year 2023 anticipates a decline in consolidated operating profit due to macro-economic factors, interest rate impacts, growth-oriented investments, and non-renewals in certain segments[142] - Key growth investments are focused on marketing for the GO2bank product and building a modern, scalable core banking platform to reduce reliance on third-party processors and improve margins long-term[140] Consolidated Key Metrics Key performance indicators show mixed Q1 2023 results, with 33.6% gross dollar volume growth driven by B2B, but active accounts and purchase volume declined, while tax refunds processed increased Key Metrics Comparison (in millions) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Gross dollar volume | $23,289 | $17,436 | 33.6% | | Number of active accounts | 3.84 | 4.93 | (22.1)% | | Purchase volume | $6,145 | $7,192 | (14.6)% | | Number of cash transfers | 8.70 | 8.87 | (1.9)% | | Number of tax refunds processed | 9.91 | 9.61 | 3.1% | Comparison of Operating Results Q1 2023 operating revenues increased by $15.8 million due to higher Card Revenues, partially offset by decreased Interchange Revenues, while operating expenses grew by $16.4 million, primarily from Processing Expenses - Card revenues and other fees increased 12.7% YoY, driven by BaaS partner program management fees and adoption of optional features like overdraft protection[164] - Interchange revenues decreased 19% YoY due to lower purchase volume and a lower effective interchange rate[164] - Processing expenses rose 29% YoY, principally due to growth in certain BaaS account programs and overall transaction volume[169] Segment Results Segment performance was mixed, with B2B Services revenue growing 28% to $171.3 million, Consumer Services revenue falling 12% to $139.8 million, and Money Movement Services revenue up 1% to $98.2 million - Consumer Services: Segment revenues decreased 11.9% YoY to $139.8 million, and segment profit decreased 2.8% to $52.8 million. The number of active accounts declined 20.7%[174] - B2B Services: Segment revenues increased 27.9% YoY to $171.3 million, while segment profit was nearly flat at $22.2 million. Gross dollar volume grew 62.8%, but active accounts fell 24.3%[180] - Money Movement Services: Segment revenues increased 1.0% YoY to $98.2 million, while segment profit decreased 0.7% to $61.0 million. The number of tax refunds processed increased 3.1%[186] Liquidity and Capital Resources Green Dot's liquidity as of March 31, 2023, was $722.0 million in unrestricted cash, with $100.5 million cash from operations, and both the corporation and bank were 'well capitalized' - Primary liquidity source as of March 31, 2023, was $722.0 million in unrestricted cash and cash equivalents[192] - The company had no borrowings outstanding on its $100.0 million revolving line of credit as of March 31, 2023, with the full amount available[198] - Both Green Dot Corporation and Green Dot Bank were categorized as 'well capitalized' under applicable regulatory standards as of March 31, 2023[206][208] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations, with limited exposure to foreign currency and equity prices, while inflation, credit, and liquidity risks are managed through conservative policies - The company's primary market risk is interest rate risk. While rising rates increase interest income, the net effect is expected to be negative in 2023 compared to 2022 due to BaaS partner interest sharing and lagging yields on the investment portfolio[210] - Inflation risk is considered manageable, as higher borrowing costs are expected to be offset by higher yields on cash/investments and increased interchange revenue from higher consumer spending[213] - Credit and liquidity risks are managed via a conservative investment policy restricting investments to highly liquid, low-credit-risk assets and by monitoring the creditworthiness of retail distributors and partners[215][217] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[218] - No material changes were made to the company's internal control over financial reporting during the first quarter of 2023[219] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, including a class action lawsuit and a shareholder derivative suit alleging misleading statements, with outcomes currently inestimable due to their preliminary stage - The company is a defendant in an alleged class action lawsuit, Koffsmon v. Green Dot Corp., et al., asserting claims under the Exchange Act for allegedly misleading statements about its business strategy between May 2018 and November 2019[105] - A related shareholder derivative and securities class action, Hellman v. Streit, et al., has been filed and is currently stayed pending resolution of motions in the Koffsmon case[107] Item 1A. Risk Factors This section outlines significant risks, including macroeconomic challenges, reliance on key partners, intense competition, operational issues like system interruptions and data breaches, and extensive regulatory and legal compliance requirements - Macroeconomic Risks: Worsening economic conditions, rising inflation, and interest rates could adversely impact consumer spending, transaction volumes, and financial results[227] - Business Risks: The company has significant revenue concentration with Walmart (17% of Q1 2023 revenue) and other large partners. The loss of any major partner would materially harm the business[229] - Regulatory & Legal Risks: As a bank holding company, Green Dot is subject to extensive regulation by the Federal Reserve and others. Failure to comply with capital requirements, AML laws (like the BSA), and other regulations could result in enforcement actions, fines, and business restrictions[264][267] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities during the quarter[294] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[295]