Green Dot Corporation — Q2 2015 Form 10-Q
Business and period: Green Dot provides prepaid and checking accounts, cash reload and transfer services, and tax refund processing through retail, online and other distribution channels. This unaudited report covers the three and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods unless stated otherwise. The January 2015 AccountNow acquisition and recent TPG acquisition affected comparability. The company reorganized into two reportable segments and did not restate prior-period segment data.
Financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Operating revenue | $170.2m (+15.8%) | $147.0m | $397.4m (+29.8%) | $306.3m |
| Operating income | $6.9m | $21.7m | $72.8m | $45.4m |
| Net income | $3.5m | $14.3m | $44.3m | $29.6m |
| Net income available to common stockholders | $3.4m | $12.6m | $43.0m | $25.7m |
| Diluted EPS | $0.06 | $0.31 | $0.83 | $0.64 |
| Operating margin | 4.1% | 14.8% | 18.3% | 14.8% |
| Operating cash flow | Not stated separately for the quarter | $118.2m | $24.5m |
Q2 revenue growth reflected higher card fees and interchange, largely from acquired online/direct-to-consumer programs and improved revenue per active card. Processing and settlement revenue fell 13.4%, principally because MoneyPak PIN was discontinued; $12.7m of TPG tax-refund processing revenue partly offset the decline. For the first half, TPG added $68.8m of tax-processing revenue, while MoneyPak PIN discontinuation reduced cash-transfer revenue by $34.0m. Operating expenses rose 30.4% in Q2, faster than revenue, and operating income and net income declined sharply.
Q2 operating expenses included $5.0m of capitalized-software impairment and $5.6m of acquired-intangible amortization. Other G&A also increased from acquisition-related costs and a higher provision for overdrawn accounts. First-half results included a $7.5m gain from remeasurement of contingent consideration. First-half effective tax rate was 38.7%, versus 37.4%; Q2 rate was 46.1%, versus 36.9%, partly reflecting state tax mix and a cumulative quarterly tax-rate adjustment.
Cash, debt and liquidity
- At June 30, unrestricted cash and cash equivalents were $763.9m; available-for-sale securities totaled $199.2m. Total assets were $1.666bn and total liabilities $967.3m.
- First-half operating cash flow was $118.2m. Investing cash use was $171.0m, including $65.2m for acquisitions, $25.0m for property and equipment, and net purchases of securities. Financing provided $92.5m, including increases in deposits and customer obligations.
- Debt was $138.8m, all under the term facility, down from $150.0m at year-end after scheduled repayments. The $75m revolving facility was undrawn. Term debt bore a 2.94% effective rate and matures October 23, 2019. The company reported compliance with credit covenants.
- Management said available cash, operating cash flow and borrowing capacity should cover working capital, capital expenditures, debt service and the proposed repurchase program for at least 12 months.
Outlook, commentary and risks
- Management expected cash-transfer revenue to decline year over year following MoneyPak PIN discontinuation, with the first-half impact expected to be greater. It warned of possible second-half declines in interchange and fee revenue if customer transition to POS reloads reduces active cards. Management also expected 2015 Walmart MoneyCard revenue to decline absent better unit economics or active-card growth.
- The renewed Walmart MoneyCard agreement runs retroactively from May 1, 2015 to May 1, 2020, with a potential two-year automatic renewal. The higher Walmart commission rate is expected to materially affect sales and marketing expenses in the second half of 2015.
- The board authorized up to $150m of share repurchases, subject to regulatory approval; the program had not yet become effective. The filing provides no specific earnings or revenue guidance figures.
- Major risks include Walmart concentration (48% of Q2 revenue), reliance on a small number of tax-preparation partners, competition, regulatory change, fraud and overdraft losses, data or service disruptions, acquisition integration, and interest-rate exposure. Management described TPG’s business as highly seasonal, with most revenue generated in the first half.
- Legal proceedings were described as ordinary-course matters; the company recorded no reserves because losses were not considered probable or reasonably estimable. Disclosure controls were judged effective, with no material change in internal control reported for the quarter.
Important facts for investors to verify
- Whether former MoneyPak PIN customers successfully transition to POS reloads and how that affects active cards, transaction volumes and revenue.
- Whether Walmart and tax-preparation partner relationships remain stable, and the effect of Walmart’s higher commission terms on margins.
- Whether the acquisitions generate expected revenue and whether integration, amortization or impairment charges continue.
- Regulatory approval and execution of the proposed $150m repurchase, alongside liquidity needs and bank capital requirements.
- Trends in overdrawn-account provisions, settlement exposure, contingent consideration and compliance with debt covenants.