Green Dot Corporation — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports fourth-quarter results. Green Dot provides prepaid and checking accounts, payment processing, reload and disbursement services, and tax refund processing through its bank, retail network and Banking-as-a-Service partners.
Financial performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Operating revenue | $890.2 million | $718.8 million |
| Operating income | $98.3 million | $63.3 million |
| Net income | $85.9 million | $41.6 million |
| Diluted EPS | $1.61 | $0.80 |
| Operating cash flow | $218.3 million | $114.5 million |
Annual revenue grew 23.8%; operating expenses rose 20.8%. Operating margin was approximately 11.0%, versus 8.8% in 2016. Net margin was approximately 9.6%, versus 5.8%. The effective tax rate fell to 17.0% from 32.4%, benefiting from stock-compensation tax effects, the Tax Cuts and Jobs Act remeasurement, and releases of uncertain-tax-position reserves.
| Q4 metric | Q4 2017 | Q4 2016 |
|---|---|---|
| Operating revenue | $213.0 million | $162.8 million |
| Operating income (loss) | $3.7 million | ($3.5 million) |
| Net income (loss) | $12.2 million | ($1.3 million) |
| Diluted EPS | $0.23 | ($0.03) |
Q4 2017 included a $6.6 million income tax benefit, a significant contributor to quarterly net income; operating income was modest relative to revenue.
Business metrics: Active cards reached 5.26 million at year-end, up 27% year over year, including UniRush and 4% organic growth. Gross dollar volume was $31.8 billion, up 39%; purchase volume was $21.6 billion, up 32%. The company processed 38.60 million cash transfers and 11.17 million tax refunds.
Liquidity, debt and segments
- Year-end unrestricted cash and cash equivalents were $919.2 million; restricted cash was $90.9 million and available-for-sale securities totaled $153.5 million.
- Long-term debt and current note payable totaled $79.6 million net of financing costs, down from $100.7 million. No revolver borrowings were outstanding; the term loan matures in October 2019. The company was covenant-compliant.
- Management said existing cash, operating cash flow and borrowing capacity should cover working capital, capital expenditures, debt service and other needs for at least 12 months.
- Account Services revenue was $693.1 million and operating income $143.7 million, versus $544.3 million and $90.1 million in 2016. Processing and Settlement Services revenue was $228.4 million and operating income $62.0 million, versus $203.6 million and $66.3 million.
- Green Dot and Green Dot Bank were classified as well capitalized. Green Dot Bank’s year-end deposits were $1.02 billion; management noted that most were classified as brokered deposits.
Material changes, outlook and risks
- Green Dot acquired UniRush in February 2017 for approximately $163.7 million in total consideration, expanding its online direct-to-consumer and payroll-card businesses. Acquisition effects contributed to growth and higher expenses.
- Management said it completed and exceeded its 2017 six-step plan. It cited improved active-card mix and unit economics, organic active-card growth in the second half, and growth in Simply Paid and tax and money processing. Processing expenses included elevated costs tied to the earlier processor conversion; the company reported a $6.5 million partial recovery.
- For 2018, management expected a lower effective tax rate under the Tax Act and capital expenditures above 2017 levels, with investment in products, programs and IT infrastructure. It expected the TurboTax relationship to contribute to active cards and Account Services revenue, particularly during tax season. The filing gives no clear numerical earnings or revenue guidance.
- Walmart generated approximately 40% of FY2017 revenue, down from 45% in 2016; its MoneyCard agreement expires May 1, 2020, subject to its renewal provision. Interchange represented 29% of revenue.
- Other key exposures include seasonal tax-processing revenue, concentrated tax-preparation partners, fraud and customer overdrafts, cyber and service interruptions, regulatory and bank-capital requirements, and competition. The filing says a tax-business earn-out calculation remains disputed; an unfavorable resolution could require payment of up to $26 million. It also reports a $3.5 million lawsuit-settlement expense.
- The company completed its existing $150 million repurchase authorization in 2017. A proposed additional $150 million authorization remained subject to regulatory approval; management did not expect to seek approval before the latter part of 2018 at the earliest, given capital needs for planned programs.
Investor verification priorities
- Confirm organic growth and customer engagement separately from UniRush acquisition effects, and monitor active cards, purchase volume and revenue per account.
- Track Walmart contract renewal and revenue concentration, interchange-rate exposure, and retention of major tax-preparation partners.
- Assess 2018 investment needs, bank regulatory capital and liquidity, brokered-deposit status, and any timing or capital effects from new BaaS programs.
- Follow the disputed tax-processing earn-out, the Tax Act’s final accounting and effective tax rate, and the resolution and cost of legal matters.
- Reconcile operating cash generation with restricted cash, customer-related deposits and obligations, debt repayments, and repurchase plans.