Green Dot Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; financial statements are unaudited. Green Dot is a financial technology and registered bank holding company offering consumer and business banking products, payment services, cash processing and tax refund processing.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $369.4 million (+16.8%) | $316.2 million | $762.9 million (+12.4%) | $678.4 million |
| Operating income | $31.8 million | $5.4 million | $65.8 million | $64.2 million |
| Net income | $24.9 million | $3.3 million | $50.7 million | $50.1 million |
| Diluted EPS | $0.45 | $0.06 | $0.91 | $0.93 |
| Operating cash flow | Not separately stated | Not separately stated | $119.5 million | $161.5 million |
Q2 operating margin was approximately 8.6%, versus 1.7% a year earlier; six-month operating margin was approximately 8.6%, versus 9.5%. Q2 net income rose sharply from a low prior-year comparison, while first-half net income was nearly flat and diluted EPS declined.
- Q2 revenue growth was led by card revenues and fees, up 29.6% to $197.9 million, and interchange, up 5% to $101.1 million. Net interest income increased 67% to $3.5 million in Q2, but was down 2% to $8.8 million for the first half.
- First-half cash processing revenue fell 16% to $157.7 million, reflecting lower cash transfers, lower tax-refund unit economics and reduced Simply Paid activity tied to the rideshare industry.
- Q2 operating expenses increased 8.6% to $337.6 million; first-half expenses rose 13.5% to $697.1 million. First-half processing expenses increased 35%, while compensation and benefits rose 21%.
- By segment, Q2 revenue/profit was Consumer Services $182.1 million/$55.8 million, B2B Services $112.6 million/$18.2 million and Money Movement Services $66.0 million/$38.2 million. B2B revenue grew rapidly, but costs grew faster; Money Movement profit benefited from lower expenses and tax-refund timing.
Cash, liquidity and debt
At June 30, 2021, unrestricted cash and cash equivalents were $1.891 billion, available-for-sale securities were $1.091 billion, and total assets were $4.289 billion. Customer deposits were $2.865 billion. These customer-related balances are part of the bank’s operations and should not be viewed as wholly discretionary corporate cash. The company reported $119.5 million of operating cash flow for the first half, down from $161.5 million; investing used $265.7 million and financing provided $544.8 million. Ending unrestricted and restricted cash combined was $1.895 billion.
No borrowings were outstanding on the $100 million revolving facility, which was fully available; the company was in compliance with its covenants. Management said cash, operating cash flow and borrowing capacity should cover expected needs for at least 12 months. The company reported that it was well capitalized under applicable regulatory standards.
Changes, outlook and risks
- Management attributed growth in consumer and B2B account programs partly to digital-payment adoption and government stimulus and unemployment payments. It expects performance metrics to normalize as government support wanes.
- GO2bank launched in January 2021. Management expects continued investment in marketing, customer experience and a modernized banking platform, and said it expects margins to expand in 2022 and beyond. It reported higher marketing spend in the first half than it expects in the second half. No numerical financial guidance is provided in the filing text.
- Q2 cash transfers declined 18.3%; first-half cash transfers declined 16.7%. The non-renewal of a reload partner agreement is expected to affect transfers and, to a lesser extent, segment profitability through the remainder of 2021. Tax-refund processing in Q2 was affected by filing-deadline timing.
- In May 2021, Green Dot agreed to acquire Tax Refund Solutions assets and operations for approximately $165 million cash, subject to customary conditions and Federal Reserve approval or non-objection. The parties were targeting completion in Q3 2021.
- Green Dot committed to annual $35 million capital contributions to TailFin Labs through January 2024. First-half investing also included a $50 million purchase of bank-owned life insurance policies.
- Key risks include reliance on Walmart and other distribution partners (Walmart represented 23% of Q2 revenue), concentration in a BaaS partner (about 20% of Q2 revenue), fraud and overdraft losses, regulatory and deposit-classification requirements, cybersecurity and service disruptions, low interest rates, competition, and COVID-19 uncertainty. Two related securities/derivative lawsuits remain unresolved; the company said it could not determine their potential financial impact.
Most important facts for investors to verify
- Whether revenue growth and account activity can persist as stimulus benefits fade; Q2 active accounts were down 3.5% overall year over year.
- Whether B2B growth can translate into stronger segment profit despite processing costs, customer-support expense and partnership margin structures.
- Progress, regulatory approval, funding and integration risks for the proposed $165 million Tax Refund Solutions acquisition.
- Trend in overdraft and disputed-transaction losses: first-half loan-loss provision was $10.1 million, versus $0.3 million a year earlier, and overdrawn-account provision was $10.2 million versus $4.4 million.
- Exposure to key retail and BaaS partners, the pending litigation, and the effect of brokered-deposit rules and other regulatory changes on Green Dot Bank.