Green Dot Corporation (GDOT) Q3 2011 Earnings Report, Transcript and Summary

Good day, and welcome to the Green Dot Corporation Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Mammone, Vice President of Investor Relations for Green Dot. Mr. Mammone, the floor is yours, sir.

Thank you, and good afternoon. By now, everyone should have access to our third quarter 2011 press release. You can find it at www.greendot.com, under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial information, including non-GAAP total operating revenues, adjusted EBITDA, non-GAAP net income and non-GAAP diluted earnings per share. This information is now calculated in accordance with GAAP and may be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial information to their most directly comparable GAAP financial information appears in today's press release and in the appendix of the presentation that accompanies this call. Also, we're providing 2011 guidance on a non-GAAP basis with a reconciliation to GAAP, which appears on the financial information section of our Investor Relations website. Finally, before we begin our formal remarks, we need to remind everyone that part of our discussion today will include forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and you should, therefore, not put undue reliance on them. Some of these risks are mentioned in today's Form 8-K filing with the Securities and Exchange Commission. Most are discussed in our 2010 annual report on Form 10-K, which is available at sec.gov. With those formalities out of the way, I would like to turn the call over to Steve Streit, Founder, Chairman and Chief Executive Officer of Green Dot Corporation. Steve?

Chris, thank you, and welcome to Green Dot, and welcome everyone to our Q3 earnings call. Also with me this afternon is Green Dot's Chief Financial Officer and my good friend, John Keatley. We appreciate you all listening in, so let's dive straight into an overview of our Q3 financial results. We're pleased to report that in Q3, we achieved yet another very successful quarter, and here are some some highlights for you. Non-GAAP total operating revenues increased 26% for the quarter, the $119 million. Adjusted EBITDA also grew 26% for the quarter to $31 million. As a reminder, our financial results for the quarter are now reported on an apples-to-apples comparison to last year because we have now fully lapped the Walmart renewal from back in May 2010. Adjusted EBITDA margins were flat year-over-year at 26%. I'm pleased with this result given that we continue to spend at historically high levels as we invest in people, new initiatives and infrastructure. Furthermore, you may recall that the midpoint of our previously announced full year 2011 margin guidance is approximately 24%. So as you can see, we're tracking well above that. The number of new cards activated grew by 33% year-over-year to 2 million activations in the quarter. New customers who reloaded their card for the first time also grew a robust 33% year-over-year to nearly 850,000 new reloading cardholders in the quarter. So we're not just attracting more customers, we're also attracting more of our most profitable customers. By the way, nearly half of all activations in Q3 were customers who have purchased at least one other Green Dot card in the past. Our reported data makes it fairly easy to calculate churn and retention, if you will, on a plastic-by-plastic basis. But if you were to think about churn and retention on a customer basis, you can see that we retain many customers for many years, although that same customer may buy multiple cards over their lifetime with us. The number of active cards as of the end of Q3 was up 27% year-over-year to 4.2 million active cards. Gross dollar volume once again displayed very solid growth in the quarter, up 63% year-over-year to $4.1 billion loaded to our products in Q3. The ramp-up in direct deposit activity on our cards continued in Q3, with dollars loaded via direct deposit up 126% year-over-year, representing 51% of GDV loaded to our cards in Q3. And finally, cash transfers to our Green Dot reload network increased by 29% year-over-year to 8.9 million cash transfers in the quarter. So I really want to thank and congratulate the entire Green Dot organization for delivering another outstanding quarter. John Keatley will provide some more detailed color on these results when I hand the call over to him in just a few minutes. And I'll provide you with some business update. You may have read about a recent agreement with Blackhawk Network to sell Green Dot brand general purpose reloadable debit cards through their network of retail partners. This deal has the potential to increase our distribution around 10,000 additional locations over time and greatly enhances our reach into the supermarket channel, with chains like Safeway, Albertsons and others. I'm also pleased to announce that Green Dot launch tour is in the process of launching new product SKUs and new merchandising programs at Walmart and Walgreens and with other retailers still to come. In Walmart, we have agreed to double the number of products we sell by adding to the current MoneyCard suite of offerings, including 2 new MasterCard branded products that are targeted to specific use of segments of Walmart customers. We expect the expanded MoneyCard category of the new merchandising and placement initiatives in other major retailers nicely contribute to the new card activations number. Still very early on the development of our online customer acquisition channel, but are pleased to report that new cards activated and funded through greendot.com and walmartmoneycard.com now ranks as our fourth largest distributor of our cards. Online is turning into a great distribution channel for us because customers acquired through the online properties tend to give us higher revenue and retain their accounts longer than other customers, and also because our online properties nicely complement our retail network channel. Next, I'd like to welcome First Data as a new reload customer on our Green Dot reload network. The First Data Money Network, which is the leading player in the employer paycard space, now direct their customers to reload their payroll cards through the Green Dot Network. Moving on now to a brief regulatory update. As many of you know, the new interchange rules associated with the Durbin amendment went into effect on October 1. Green Dot managed programs are exempt from restrictive interchange, but there still seems to be some confusion on the marketplace about how our business maybe impacted by the free ATM and bill pay requirements of the statute. We review what we told you last quarter. One, we believe the financial impact of adding a monthly fee-free ATM withdrawal on the Walmart MoneyCard program next year will be either revenue neutral or slightly revenue positive over time. As many of you know, we have had a fee-free ATM network on our Green Dot branded cards for some time now. We can predict with experience and confidence the financial impact of adding a similar free ATM network on the Walmart program will cost us just slightly more than 1% of total company revenue, all else being equal, but should have a revenue and earnings upside of higher card usage and retention over time. Number two, the only other notable change that we have made in response to Durbin was to proactively shut off our ACH bill pay service during Q3. Only around 1% to 2% of our customers have utilized this ACH service in the first place. Going forward, those customers will still be able to pay bills using their Green Dot cards where Visa and MasterCard are accepted. And since we'll now generate interchange revenue on those bill pay transactions, we could actually see a small financial benefit from this change. Moving on to the Florida AG investigation. We continue to be responsive and collaborative with the AG's office and continue to work towards a resolution. With nothing more to add at this point, but we'll have updates for you as developments warrant. As to our pending application to become a bank holding company and to close on the purchase of Bonneville Bancorp, we have not yet received the decision one way or the other from the Federal Reserve. We have guided that we would have a decision to report by now, but the process is taking longer than we had expected. And once we receive word from the Fed, we'll be sure to let you know. Lastly, for more than a year since transitioning to a public company, we've been talking about the developing secular trends that have the potential to propel our company's adoption among both banked and unbanked consumers. It's always difficult to determine exactly what drove a particular sale to a particular customer. We continued in substantial growth in all our key top line metrics, including new cards activated, first-time reloading customers, direct deposit volume and GDV loaded through our network, all clearly seemed to be indicating that Green Dot's value proposition is increasingly resonating in the marketplace, all good stuff. And with that, I'll now hand the call over to John Keatley with more color and background on our strong key -- Q3 financial performance. And then after John's report, we'll go straight to Q&A. John?

Thanks, Steve. As Steve mentioned, we were pleased with our strong results in Q3. We continue to show very solid top line and bottom line growth, consistent with our expectations and the guidance that we have provided. I'd like to walk you through our financial results now in more detail, which are also presented in the supplemental materials available on our website. If you turn to Slide 7, you'll see the growth of the 3 components of our non-GAAP total operating revenues. The overall makeup of our revenues stayed relatively constant year-over-year with card revenues driving the largest portion of our revenues, followed by interchange and cash transfer revenues. Card revenues, which consist primarily of monthly maintenance fees, ATM fees and new card fees, grew 23% in Q3 to $50 million for the quarter. This revenue category grew a bit more slowly than our active card base and the other components of revenue, due in part to the fact that more of our customers were taking advantage of the promotions and incentives that we offer our customers and account for as contra-revenue. For example, more customers qualified this year for monthly fee waivers and took advantage of our fee-free ATM network. Also, we've seen a significant increase in the number of customers earning the $10 incentive for enrolling in direct deposit or getting 2% cashback on gas purchases on their Walmart MoneyCards. Another contributing factor was the increase in new card activations from our online channel, where we do not charge a new card fee. So while these incentives do tend to reduce the growth in card revenues in the short term, we're happy with the higher usage and retention that they drive. We're pleased to see that our customers are engaged in finding ways to use the product cost effectively. Cash transfer revenues continued its consistent and steady upward trajectory, growing 31% in Q3 to $34.7 million. Pre-reload activity from our cardholders and from our network reload partners were the key drivers of that growth. Interchange revenues grew 27% year-over-year to $34.2 million in Q3, which was in line with the growth in active cards. As we mentioned before, interchange revenues do not grow in lockstep with the growth in gross dollar volume because as direct deposit activity increases, larger portion of GDV is pulled off of cards at ATM machines or dispersed at retail stores when customers get cashback on purchases. This dynamic was magnified in Q3 due to a large number of our cardholders receiving tax refunds on their cards. These are relatively heavy tax refund activity in Q3, but cardholders took advantage of the late filing window for the 2010 tax year. Moving on to Slide 8, you see the components of operating expenses as a percentage of non-GAAP total operating revenues. We saw some efficiencies in several expense areas despite the heavy investments we've made in our business over the past year. Sales and marketing expenses increased approximately 2 percentage points year-over-year, from 32.2% to 34.3% of revenue. But we're in line with the level of expenditure for this category in recent quarters. Comparison period from last year, Q3 2010, was an unusually light quarter for sales and marketing expenses, as we had very little advertising and no significant in-store promotions or product rollouts. The level of sales and marketing expenditures in Q3 this year was consistent or slightly lower than what we've spent in the previous 3 quarters as a percent of revenue. Compensation and benefits expenses declined 40 basis points, come in at 18.3% of revenue, despite significant staffing increases across the organization, particularly in IT and risk management. We saw the greatest amount of leverage in the processing expense line item. This declined by 70 basis points, from 15.5% of revenue last year to 14.8% of revenue this year, as we continue to negotiate for better rates and achieve volume discounts with our bank partners, our processors and the payment networks. Other G&A expenses remained constant as a percent of revenue during Q3 at 11.7%. Sale efficiencies in this area were offset by higher depreciation cost associated with infrastructure investments and high professional service expenses tied to our bank application. As we turn to Slide 9, you can see our non-GAAP revenue growth. Non-GAAP total operating revenues grew to $118.9 million in Q3, an increase of 26% over the prior year. These results are consistent with our earlier guidance that non-GAAP revenues would be roughly flat sequentially with Q2. Revenue concentration from Walmart declined slightly in Q3, from 65% of non-GAAP revenues a year ago to 62% this year. Slide 10 shows our adjusted EBITDA, which grew 26% year-over-year to $30.9 million. And our adjusted EBITDA margin was 26% for the quarter, roughly flat with Q3 last year. Slide 11 shows that our non-GAAP net income was $17.2 million for the quarter and our non-GAAP EPS was $0.39. Both of these metrics increased by over 30% year-over-year. The balance sheet continues to be a source of strength for the business. We ended the quarter with $238 million of total cash and investment securities, including $10 million of restricted cash and $198 million of unrestricted cash and cash equivalents. Our total cash and liquid investments increased by $15 million during the quarter and we remain debt-free. The full year, our guidance remains unchanged, but we can't provide some additional color at this time. We project non-GAAP total operating revenues to be closer to the low end of our range of $490 million to $505 million. Meanwhile, our adjusted EBITDA should be closer to the high end of our range of $117 million to $123 million. Our guidance implies that we expect to see a sequential bump in revenues during Q4, which we think will be driven by the seasonal trends we typically see during that quarter combined with the impact we expect to see from some of our marketing and in-store initiatives, as well as some lift from new prepaid interchange rates introduced by Visa earlier this month. With that, I'd like to turn the call back to Steve.

Thank you, John. Very good. We'll now open the phones for a Q&A. Operator, we're ready for you.

[Operator Instructions] The first question we have comes from Jason Kupferberg of Jefferies.

This is Ramsey El-Assal for Jason. I have a question on the Black Hawk deal. To what degree does the involvement of the aggregator there weigh on margins when you compare it to one of your more kind of typical direct distribution deals? And as a follow-up, could you comment a little on the timing of the rollout? When are the first 5,000 locations coming on and what might be the pace of the remainder? I know it's over a 24-month period, I'm just trying to figure out how to incorporate it in the model.

Sure. This is John. I apologize I have a little bit of a cold this afternoon. Yes, we've always had reseller-type relationships as well as direct retailer distribution relationships. The economics do not differ significantly when we are working through or resell it to a particular retailer, I supposed to working directly with the retailer. So there's no material change there. In terms of the rollout, I'm going to hand that one to Steve.

Right. Latest information, rollouts are always a little bit tricky because you're building displays and there's a lot of logistics involved. The latest information I have is that we can expect to have that rollout well underway beginning Q1. It could be some in Q4, but not material enough to scream about it. So I would -- I'd look to model for Q1 beginning.

Okay. All right. That helps. And also, could you give an update on the government channel, how your efforts there going, if you're look -- are there any kind of deals, I mean sizable deals in the pipeline and also just an update on the IRS pilot and where that's at?

Yes. Well, first, let me answer that IRS one first because it's easiest. There's obviously not any IRS pilot that will be happening this year. It's already heading into November and there's never been a new RFP or movement on that. And as I mentioned in the previous call, in the political environment in D.C. and for a lot of other reasons, that's not rolling past through another pilot. It could be that the program comes back in a different form or similar form down the road. And if it does, we'll obviously do our best to find a way to be a part of it, but there is no IRS program like the one we piloted last year. So that's that. On the government channel, I've actually been very pleased and encouraged. We have a wonderful fellow named Mark Shifke we brought on board maybe 6 months ago at this point. Sort of start this channel from scratch and to find out what the needs are for state governments primarily and also some federal work, and how we might be able to solve some of the challenges they're having. We've had a lot of fruitful meetings with a lot of states, a lot of state control organizations, and have learned a lot and shared a lot. And the activity in that channel seems pretty hot in terms of the numbers of meeting request and that kind of thing. But you never know in sales, to be honest, as meetings are meetings, sales are sales and rolling out and issuing products are the final stage of that. So it's hard for me to say with any certainty how many of these meetings will turn into sales. But for the stage of the channel, we're very encouraged by the high level of interest.

The next question we have comes from Glenn Fodor of Morgan Stanley.

The prospects of banks raising the checking account fees, are you doing any sort of targeted marketing to convert some of those customers and perhaps some market share and flip them over to prepaid customers?

The answer is, we've always highlighted our value and the convenience and the ease of the products. And on the TV spot that we've been running is long before this latest wave of bank criticism was popular. The commercial started with the husband and wife and their alleged children sitting at a dining room table and they start off of by saying, "we used to have a checking account, but the fees became too high." So we've always sort of been on that train, right, in terms of our messaging. So the question is, are we doing anything new or different to further highlight it, and the answer is you can expect that we'll do some tweaking of our messaging in the media and that type of thing. But essentially, we believe our messaging has always been there, and we're beginning to benefit increasingly from that kind of thing. But I wouldn't expect to see, if you will, a wholesale message of shift or anything like that.

And good to hear on the kind of new products you're rolling out with some of your retailers, but is there any implications on those rollouts on the marketing spend?

Implications, meaning whether we'll we be spending more. Is that what you mean?

Exactly.

I'll let John answer that.

Yes. I mean, as we've mentioned last time, we do have some significant rollouts and promotional activities here and towards the end of the year. We've discussed before that we have some new SKUs rolling out in Walmart Stores, including MasterCard branded product, and we'll have some significant promotional activities in many of our other retailers as well. So you would expect a modest increase in sales and marketing activities as we head into Q4.

And along the lines of the same kind of seasonality and patterns we've seen in the past, I guess?

Yes, that's right. With the exception that we're expecting more of a bump this year in Q4 than we've seen in the past. I think our -- the guidance is consistent with that. Last year, among other things, we did have some disruptions in the retail environment due to CARD Act when they were changing the locations of our products and many stores. A lot of those issues have been sorted out. We're expecting a bigger Q4 bump this year than we've seen in the past.

The next question we have comes from Bryan Keane of Deutsche Bank.

Just want to get clarity on the revenue guidance of $490 million to $505 million, I think you guys said that would probably come towards the lower end of the range. I'm just curious on what anything causing that. Was it the incentives that kind of dropped it towards the lower end and what prevented it from being in the mid to high end?

Yes, sure. So just as a refresher, we did have our initial guidance, it was $480 million to $500 million for the full year. And at the end of Q1, we had a very strong tax season. We raised the guidance to $490 million to $505 million. One issue that we had this year is that we had a larger share of our volume from customers getting tax refunds. A lot of those customers did run off and they tried at the end of tax season or after getting access to their tax refund. And that was something that was a bit new this year. We also had -- we mentioned in the prepared remarks that we had some of the promotions that we've ran that we booked as contra revenue, like the direct deposit and incentive of $10, the 2% off on gas, rebates on the Walmart MoneyCard also booked as contra revenue. These promotions were very popular and while they were good drivers of adoption and retention, they did put a drag on revenues in the short term. So those are some of the factors that are causing us to head towards the lower end of that range here.

Okay. And then on the flipside of that, it sounds like the adjusted EBITDA is going to be towards the higher end. Is there something, and that's becoming a little more profitable or more scale in the business is driving that?

Yes, that's right. We are seeing some good efficiencies. We mentioned some of the efficiencies we're seeing in processing with our higher volumes. We're able to get better volume discounts. We're able to get some efficiency on comp and benefit. Despite the fact that we're making significant hires and really investing across the business, we're seeing some efficiency in comp and benefit. So those factors are helping drive some efficiency in the business.

Okay, just last question for me. Is there a way to quantify the benefit that you guys will get from the increased interchange that we're seeing from Visa onto the prepaid cards? What that means for you guys?

Yes. So the changes you're referring to are the -- for everyone out there, the new interchange rates that Visa announced and that became effective earlier this month. At this point, we have less than one month of data with the new interchange rates in effect. And it's a little bit too early to comment, and specifically what the impact of those interchange rates will be. As you all know, there are a lot of moving parts with interchange and different merchant categories and basket sizes and so on, and would feel like we need at least one month of data, maybe 2 months of data to really got a good handle on what the impact of these new interchange rates will be for us.

Okay. But it's definitely -- it's just a question of how positive it might be. I mean, there's no -- you haven't seen any reason why it would be a drag for your guys' results?

Right. We believe it will be a positive.

The next question we have comes from Julio Quinteros of Goldman Sachs.

It's actually Roman Leal in for Julio. The first, to start off with, obviously, a lot of movement going on on the retail distribution space. And I was wondering if you can give us any color on your position in there, and that channel obviously, it's a leading one. But maybe if you can give us a color on how many retailers are under exclusive contracts or stores or percentage of volume or anything that will be helpful there.

Well, I guess, on a percentage of volume, a little bit easy to figure out because everyone knows that Walmart is exclusive, and that's a 60-somewhat percent. So the answer is, most of our volume is exclusive, I guess, by definition there. We've never really gotten into specifics as to which retailers were exclusive and which ones were not. We're probably bested advised as not do that. I think what's probably most important to note is that not all of our retailers are exclusive nor have they ever all been exclusive. And yet even in the ones where we're not contractually exclusive, it's common and typical that they would still sell only our products anyhow. And so we like to think we earn exclusivity the old fashion way and that as we earn it using old-fashioned TV commercial. And that is how we have great selling products and outstanding compliance and IT integration with the retailers of POS systems, and all those things which tend to give us practical exclusivity even when we're not contractually exclusive. In the case specifically to what you're talking about in 7-Eleven I think it's what brings up the question that they announced recently that they're selling some other products, and 7-Eleven has always had other products on their shelf alongside Green Dot since day one, whether it's been the First Data product through an American Express product and years before that, their own product at one point. So we've never been exclusive in 7-Eleven and still we'll continue not to be. And so I did want to bring that up if that's one of the reasons you're asking. So we feel good about our position in retail and the sales in retail, the increasing sales in retail, a massive numbers of reloads that we do at retail locations. All of these things really build, we believe, a significant value proposition to our retailer base.

That's helpful. And with regards to the new products you're introducing at Walmart, any differences in pricing there? I mean, should we be thinking about it on an average revenue per card moving substantially there?

They're all the same pricing model. And maybe that we learn over time that usage difference is a difference between one segment or one usage segment and another product. And that could have impact into lifetime revenue or earnings per card, but the consumer pricing is the same.

Okay. And then one last one on the 2% cashback promotion. Is that an ongoing program? Does it happen that it expires at some point? Just curious on all the details there and have you seen any noticeable trend in the users of that promotion?

Yes, it's been a very successful promotion. It's not a permanent feature of the card. It is scheduled to -- and I believe until the end of -- I'm not sure on the exact date, but it's not a permanent feature of the card. When customers buy gas, they get 2% off effectively when they buy gas. We found that it's a sticky feature. Customers like it and when they use their card to buy gas, they tend to keep the card longer.

The next question we have comes from Andrew Jeffrey of SunTrust.

Can you just talk a little about your deal pipeline? You've had some nice wins this year sort of, I think, Steve, you referred to them from time to time as product line extensions and then obviously some new distribution. But you have a new government division now and so forth. So I wonder if you could just sort of characterize the pipeline and talk about whether maybe sales cycles have changed at all now that we're post-Durbin and the Fed interpretation there of an -- and that sort of stuff.

Yes, sure. Well, we announced in this year in previous quarters the Black Hawk arrangement. We talked about AARP, which is our relationship with the AARP Foundation, the market cards with the AARP logo and the market those in retail stores and also in other venues. Seniors who are being faced with the need to direct deposit to Social Security benefits which, as you know, is the new law, so that's a new channel us and new customer base and new partnership. And, of course, as you pointed out that we've talked about the government channel and the growth of our online channel. So all this is relatively new in the past months in the past year. We have, something what I'm allowed to say -- we have one of the best deal pipelines, I think, if we look out over the next 6 months to a year that we've had in a while and I'm very excited about all the deals that are in that pipeline. The problem is, until a contract signed, we can't or shouldn't talk about it. We never like to pre-hype anything and so we don't talk about it until the deal is signed. And so we've been somewhat mute on those points. But I'm very pleased with the great job our revenue team is doing on the pipeline coming up and as we're going to make announcements, we will.

Okay. And I guess the one other question I had for you, as we look out, I know you haven't given '12 guidance. I think Bryan was asking you about the contribution from higher interchange. Just directionally is, would you think about higher interchange as being sort of sufficient to offset the lapse in the Intuit relationship or what's the sort of qualitative order of magnitude?

Andrew, it's a good question. It's something we're looking at very closely. And as I mentioned, we have a limited data right now. We don't have a full month yet. We don't want to really quantify the interchange upside just yet. Wish I could, but I think that will be something for the next call.

I think the answer to the broader question, as we look at the pipeline and as we look at the sales trends, do we feel we have enough momentum to overcome the Intuit loss? The answer is yes, and that's where you're going with the question.

Yes, that was the intent of the question. Great.

Yes. I mean, John is right. We don't want to pin our hopes on the interchange because we need to see how that shakes out, but we feel good about our ability to grow past the loss of Intuit.

The next question we have comes from Bob Napoli of William Blair. Robert P. Napoli - William Blair & Company L.L.C., Research Division: A question on Direct Deposit, I'd like -- can you give a little clear example of how you're marketing? And what's driving the dramatic growth in Direct Deposit? I mean, how are -- is it -- are they coming from a certain channel? Is there like, is the Walmart channel a higher percentage of direct deposit? What is driving that growth and where do you see it moving as a percentage of your GDV? It's a little over 50% now. Is it going to become 70%?

Let me ask John, I'll have John answer the second part which is more numbers based. I can tell you that the first part of why we've been so successful in growing direct deposit is I think we have a focus on it and we're trying to get all the low-hanging fruit into that enrollment. And there's 3 things propelling it. One is, just the growing mainstream nature of our products and the customers who use the products. So these are people who are accustomed to direct deposit. They may have had a checking account and they had it before. They know what it means. They know how to sign up. And so, I think, if you will, the mainstreaming of the Green Dot customer base is probably the largest reason for the increase in direct deposit, in my view. The next part is, is we make it easier to enroll. It used to be a sort of a puzzle, if you will, a Rubik's Cube of how to enroll and print the form and fill the space and bring it to this lady who does this and that. And we've tried to cut a lot of that out. With Federal benefits, you can enroll with a click of a button and we take care of it for you. And then for employer direct deposit, you can print out a prepopulated form online or get it another ways where it's already filled out for you with directions, and we have a direct deposit hotline that customers, employers can call. So the second part would be making it easier to enroll. The third part has been we incentivized it by paying that $10. While $10 isn't going to make or break anyone's year, it's another reason for the customer to pay attention to it and to read the advertisement for it and to think about it and to learn about it. I think all those things have come together to make a more fertile enrollment environment for direct deposit. And as to where we think that ultimately can end up and some of the other questions you have, I'll give that one to John.

Yes, Bob, I think the only thing I would add to that, I guess, is the tax refund -- this year was really a material portion of our total Direct Deposit volume more so than last year. And that was especially pronounced during tax season, leading up to April 15th, but we've also seen it with late filers and people filing right up to the October late filing deadline. We don't have a specific target on Direct Deposit as a share total volume. Our cash volumes been growing very nicely. It continues to grow pretty steadily up 30% year-over-year. And we think the cash portion of our business is also going to continue to grow quickly and be a big piece of the overall story. But we do think Direct Deposit will continue to outpace it. It will continue to move up about 50%. We don't have a particular target. It may probably always be lower than some other prepaid portfolios out there given our acquisition channel and the types of customers requiring retail. Some of them, direct deposit is just not an option and some of them are buying the card because of the cash load capability at the retail store. But we think is a good ways to go. Robert P. Napoli - William Blair & Company L.L.C., Research Division: How much of the Direct Deposit is payroll Direct Deposit versus tax?

It depends on the season, I guess.

Yes, depends on the season. We haven't broken that out specifically, there is, as Steve mentioned, you got 3 main categories. You have payroll. You have government benefits and we have tax. Tax, this deal was very -- was a meaningful piece of it. We haven't broken out specifically, it was quite a big piece of it. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And then just on the Intuit. Just, I mean, when we look at metrics for next year into the first quarter, the cards added, I mean, are the -- is that movement, I understand it's about 4% of revenue, of which you'll lose about 70% of it and keep the other 30% through the reload network. But when we're looking at new card additions in the first quarter and second quarter of next year, how big of an effect is this going to have? Should we be looking at new card activations being down year-over-year for the first quarter and second quarter? And then once you move past the Intuit, I mean, just to give a feel so there are no shocks on some of the metrics.

No, I mean, it is a material contributor on a lot of key metrics. It's probably GDV more than any other. So that does make a tough comp for Q1 on some of those metrics. But we certainly wouldn't expect a key metric like new card activations to be down year-over-year because of the loss of TurboTax.

Your next question we have comes from Greg Smith of Sterne Agee.

First off, the balance sheet, the cash is building quite a bit. Any thoughts on how you may deploy that anytime soon?

For the time being, the focus continues to be acquisitions. So we continue to build a war chest and the first priority will remain acquisitions for a while. A distant second priority will be to start to return that to the shareholders. But for the time being, given the growth stage of this industry and our company, we intend to continue to hold onto it and use it for acquisition.

It feels comforting. We get that question a lot, as you can imagine, and the cash keeps building. We added another $50 million, I guess. This past quarter we're up to maybe $240 million, $238 million, something like that. And we're debt free, but I like that. It feels good in this environment. We're in an environment where we think there'll be a lot of, what I'll call, accidental consolidation in the prepaid industry. Meaning that smaller players we believe in our internal thinking that we will have an increasingly more difficult time complying with a host of all the regulations and the new expenses involved and all the things that are going on. And so we think there'll be good some opportunities to come and we think, sometimes, good things are worth being patient for. So we understand there's a lot of questions out there. Remember, I'm still the largest shareholder, so I want to get my share as well, if you will. A private shareholder anyhow. And so we'll look at those things. But we like having the cash right now and like the optionality it gives us. And so I wouldn't say we are in any rush to spend a lot of it just to do it.

Okay. And then this was talked about a little bit, but it does seem like we're going to increasingly see the your card sold by side-by-side with others. Is that going to change your strategy? Do you think you anticipate as that happens more frequently doing anything differently with pricing or marketing? Just how are you thinking about the business as that may be evolve in the industry?

Yes, we think about it a lot. We don't know if they will be sold in a lot of places side-by-side but certainly, more than we were, let's say, last year. Because last year, the answer was maybe 1 retailer and this year it can be 2. So there could be others.

Without going into the specifics, we are very competitive bunch, for those of us who know the management team. We've been at it for a while and we have a lot of flexibility and optionality and what we can do with all kinds of things, pricing, advertising, marketing, packaging, the way we display our products, new product that we can roll out. And whether or not, we're sold side-by-side with the competitor. We always want to reinvent our company to be the best we can be and to attract the most customers that we can attract at a profitable level. And so we should always expect us to do things like that. But this is a good opportunity to comment on that because lately we can get in that competition question more. This has always been a highly competitive market. I don't know how many prepaid companies are out there but in our last survey, it was well over 900 or 1,000 of them that out there marketing prepaid cards into 1 niche or vertical or another. So a lot of products out there for the customer to choose from. If you are to go online, where we have a big presence, and type in prepaid cards, you might get 50 sites, or something like that, come up that has an offering like that yet we rapidly rose to be the top or certainly one of the top acquirers of cards online in the course of 12 months. And so we've always had that kind of competition. I remember a year and a half ago, during our IPO roadshow, the big crisis at that time was that Western Union a few months before IPO this goes back almost 2 years ago. When they did this, they came out with the low fee or fee-free card where there's no monthly fee. There are a lot of other fees but no monthly fee. And everybody had opined at the time, oh my gosh, this is it. And Western Union said, we'll be in everybody's retailer. And of course, that has never materialized. It's now been 6 months since American Express announced their new product, which is a good product and we are working with them on the reload side, so we hope it's very successful. Since they announced that, and as you know, that was sort of the talk of the town with the investor community and the analyst community. But that's not materialized in any way that would be remotely competitive with Green Dot. So we take all competition seriously. It makes us better. We're a very competitive bunch. But we don't see any new product or new distribution agreement on the horizon that will do anything to impede our growth. And if anything, it makes the category more urgent to consumers when we have more companies out there marketing and propelling the benefits of the product. And we think that's a good thing. And that’s way products in large industries develop. So we don't feel any stress over that but we respect the fact that it certainly could be a concern among investors and others.

The next question we have comes from John Rowan of Sidoti & Company. John J. Rowan - Sidoti & Company, LLC: John, I probably ask this question all the time. But I was wondering, do you have any evidence or any type of data point that I can point to that shows me that there's been a change or any type of increase in the consumer behavior to hold your cards for a longer period of time, whether it's card lifetime -- I know you guys talk a lot about Direct Deposit and kind of the thought process there. Is that more direct deposit increases card lifetimes and increases the stickiness? But I was just wondering if you had any real data point to point to, to show that type of trend?

There's limited data out there, I appreciate that, in terms of retention and churn. The short answer is that we have not seen any really significant or dramatic changes in terms of average cardholder retention and their average card lifetime. You can probably back into that by looking at our rate of new card acquisition and the active cards from quarter-to-quarter. You do -- you have, as we've mentioned before, we have very different segments of customers. We have people who acquire the card, keep it for a short period of time and that pull down the average retention quite a bit. And then at the other of end of the extreme you have Direct Deposit customers who receive their whole paycheck on the card twice a month or every 2 weeks and keep the card for a period of years. So as the mix of customers changes, the retention changes a bit but there has not been a really dramatic change in that metric.

It's been tough to figure out. We actually look -- you can see it by cohorts and segments and we discuss those internally. But when you put them all together in one big pot and stir them up, it's hard to tell because year-over-year the portfolio is used so differently. So as we become more mainstream, people are looking at us as a way to get their taxes Direct Deposit. But a tax Direct Deposit is one of your shortest-retaining customers, whereas a payroll Direct Deposit guy would be one of your longest retaining customers. So every time you try to come up with a simple way of looking at like all Direct Deposit is good and all cash reloading is bad. That's wrong, right? Because we know that some of our cash reloaders who never use Direct Deposit are absolute fabulous customers. Some of our most profitable. You could have a Direct Deposit customer loads thousand dollars and takes it off an ATM the next day and he may be one of your least profitable customers. So it's very hard to sort of come up with a steady state to compare quarter-over-quarter, year-over-year because the portfolios so early in its development and so many millions of new people adopt the products every year, and they have ways of using it that maybe we haven't fully thought of. And so it's very much been a learning experience for us along with our investors and analysts. And I wish there was a more crisp way we could define it.

I guess one clear trend that we can point out on this topic that Steve mentioned in the prepared remarks was the number of repeat customers that we're seeing. So even while the average retention of an individual card has not changed very significantly, we are seeing more customers come back and buy another card. And in that way, they are spending in the family and keep coming back to use Green Dot product even if they might have several cards over their lifetime.

The next question we have comes from Tien-Tsin Huang of JPMorgan. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: Just wanted to -- I guess on the guidance, I just wanted to clarify the, does the low end of the revenue range include any benefit from the higher interchange rates or can we assume that it's upside?

We've been very cautious about including any upside from interchange in our guidance at this point. It's a lot of moving pieces and we need a little more time to watch it. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: Understood I just wanted to make sure that we should think about it as more upside than anything else. And then just mechanically on the same topic, do you share some of that rate increase back in the form of commission or rebate to Walmart, is that what's adding to some of the uncertainty?

We do share it with a handful of our distribution partners like Walmart. We do share some of the interchange revenue. But that, that's not really where the uncertainty lies, that piece is pretty well-understood. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: I just want to make sure for my own edification. And just on the bank acquisition, Steve, just -- I guess I want to take your temperature and see if the delay signals anything at all? Do you feel better or worse about this closing?

Well, I feel -- I don't feel better or worse. I continue to feel cautious and optimistic. I guess that would be the 2 phrases. The delay is really, to be fair to the Federal Reserve in Washington who's working on our application, there's a tremendous amount of work that goes into running the Federal Reserve. We have 5 governors and their staff who are in charge of everything from Dodd-Frank to Durbin interchange amendments to the, oh my gosh, I'm probably -- CARD Act. The amount of legislation thrown to the Fed to decipher on the deadline has been massive. And I think it's fair to say that, that has had an impact into the speed at which they're able to entertain things that are not as important as saving the world and that would be our application. So I think there's been some delay there. They are very, very hard-working and, from my experience, extraordinarily talented and a great group of people of the Federal Reserve. So I wouldn't say the delay in and of itself means anything good or bad. I don't it increases our chance to be declined approved. But we continue to feel cautiously optimistic and we've been guided that we'll have a decision sooner than later, and so we remain patient. But I could always see the decision going either way and always have felt that way. So I don't know if that provides any better color for you but... Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: It does, I appreciate that. The last one for me, I promise. Just you mentioned, I think Andrew asked about the pipeline. Has the composition shifted at all? Are you seeing more opportunity to work with the banks on a private label basis?

We're seeing the opportunity set broaden dramatically. If you think of Green Dot in the past as being retail than retail and online, the answer is we're seeing new, exciting channels, new partnerships and new ways to distribute cards both in retail and online that I don't think we would have been thoughtful of about 3 years ago, let's say, or 2 years ago. I think as the deals are announced we'll kind of see a pattern emerge as we look to continue our acquisition of new customers.

Your next question we have comes from Gil Luria of Wedbush Securities.

First, a product introduction question. You've mentioned MasterCard. MasterCard mentioned prepaid cards at Walmart. There are already MasterCard-branded cards at Walmart. Are you talking more about branding like NASCAR Prepaid Visa, having a brand like that, and an online card that's MasterCard? Is this something new? Has this already been introduced? Is this happening in the fourth quarter?

No, it's the same product that I think, everybody's rushing to talk about. So there's, gosh, you want to see 3 schemes? 3 MasterCard schemes we've added at Walmart? If I'm off, I'm only off by 1, Gil.

And they're already there?

They're already, yes. We rolled those out, oh gosh, maybe 3 months ago or 2 months ago and they're already there. That's correct. So I think what Adrian [ph] was referring to was a restatement of those new products. And of course, when you launch a new product, it grows over time as customers see it and everything else. So that's what that is.

Got it. And then that your guidance for the fourth quarter implies sequential revenue acceleration and pretty decent year-over-year margin expansion. In the terminology of your 3 revenue lines, where do you expect the uplift there in revenue. Because that's -- It's still sequential revenue up. Is it going to be the same pattern where it's more cash transfer, more interchange, less card revenue in terms of ramping from the third to the fourth quarter?

That's probably a finer level of detail than we want to get into on this point on the next quarter, but I wouldn't expect a dramatic change in the revenue mix here heading into Q4.

T The next question we have comes from Tom McCrohan of Janney.

On the bill payers, the folks that do pay the bills with funds loaded on the card, who are the top 3 billers that are recipients of funds today?

Say it again, Tom, when people pay a bill with their MasterCard or Visa debit card, what are the top bills? Is that what you're saying?

Yes, who are the top 3 recipients, which billers are getting the majority of bill payments from Green Dot card holders?

That's a good -- I haven't checked probably enough to give you a certain answer on this call. But historically, it's been telecommunications providers. People paying their cellphone bills, occasionally utility bills. Places where they accept MasterCard and Visa. For example, your Verizon bill or your Sprint bill, that kind of thing.

Like a MetroPCS? Something like a prepaid?

Yes, all those. Telecommunications providers and cellphone companies always gravitate towards the top. PayPal at one time was a good merchant for us and probably still because people load with a debit card, pay TV or cable TV, DirectTV, things of that nature. Just -- what I'll call common utilities or telecommunications where they have said MasterCard or Visa has always, going back to the early days, been a popular use of bill pay on the card.

I had a question on the brand and then one clarification question. Majority of the retail stores that card is branding, Green Dot with the exemption of Walmart, so over time, you expect to see more cards kind of co-branded with a channel partner, or do you expect to kind of push the Green Dot brand on your cards as you kind of explore new channels?

While they're could be co-brands here or there depending on the size of the partner and the rationale for why you do it. In the old days, the reason you label the card with a co-brand was ego, frankly. Everybody wanted to feel good to have 6 different names on the plastic. But I think as folks become more sophisticated about it, there's got to be a good consumer reason to co-brand it. There's clearly a great consumer reason in the case of Walmart because they're Walmart. And because they have the financial services division and they believe it has some pull, and we believe so too. It wouldn't always make the case in every other channel. And so -- and even on the Walmart cards, as you know, Green Dot is very prominently displayed both on the package and on the card itself. So we're still on those cards even though the co-brand is Walmart and Visa or Walmart and MasterCard, depending on the flavor. So Green Dot is a brand that we always push and that we promote. It makes it easier for national marketing. Consumers are highly aware of it. The name of the reload network is Green Dot and Green Dot has a lot of sway and influence with this customer base. So I would expect that Green Dot will always be the dominant brand.

Okay. And then as my last question in EBITDA. John, on Page 19, there's some reconciliation schedule that goes through the moving parts for getting from GAAP EBITDA to adjusted EBITDA. And this quarter, the stock-based retailer comp went down. About $6 million from $24 million to $18 million. But the reconciliation table for EBITDA didn't change. It stayed at $76 million, same as last quarter, which I know is amalgamation of a couple of things, one of which is stock-based comp. So why didn't that go down by $6 million?

I think there is there's a lot of detail in the footnote as to the assumptions behind it. In general, I think as an overarching comment, we really just provide guidance on adjusted revenue and adjusted EBITDA. This page is really here for SEC requirements to show our reconciliation back to GAAP. So we're not indicating anything about stock-based comp the way we think our stock price is headed, which is another component in that. So I wouldn't read anything in here in your beyond just showing the mechanical calculations you're getting from the adjusted revenue and adjusted EBITDA back-to-GAAP figures.

Is it fair to say does imply that one of the other categories went up by $6 million, either stock-based comp or depreciation and amortization?

Yes, again, I just -- we're really just guiding on adjusted revenue and adjusted EBITDA here.

And the next question we have comes from Wayne Johnson of Raymond James. Wayne Johnson - Raymond James & Associates, Inc., Research Division: If we're talking about Green Dot in 2 years from now. What kind of percentage of sales or revenues do you think sales and marketing would be? How should we think about that progression going forward? Do you expect to maintain kind of the current rate and that's my first question.

As we're looking forward, as we've mentioned before, we expect to drive some margin expansion over time. We would expect that to come primarily from some of the other line items, comp and benefits, other G&A. Probably too benefit and processing already there could be more. But probably not in sales and marketing. I mean we expect that to generally grow in line with revenues. For example, we spend a bit more online to acquire cards, but they tend to be very high-quality customers. And we expect to increase our spending on that channel as that channel grows over time. But we wouldn't expect a lot of efficiency on the sales and marketing line. Wayne Johnson - Raymond James & Associates, Inc., Research Division: Okay. I appreciate that. And this question was I think partially asked. But regarding the direct deposit opportunity for you guys and your relationship with ADP, could you expand a little bit on how the ADP relationship is progressing? And how we should think about that going forward as a source of GDV growth?

Sure. The ADP relationship does not contribute to GDV at all. It's purely a reload deal so that when their customers reload on the Green Dot Network we generate some cash transfer revenue. But that GDV does not appear in our numbers at all. Wayne Johnson - Raymond James & Associates, Inc., Research Division: But still going forward, on ADP, is there a way that we should be thinking about that as far as percent penetration of their opportunity in customer base? I'm just trying to use some sort of metrics and roadmap of opportunity. That's all.

Well, if you think about ADP as a reload partner, which is what it is. In other words, the payroll cards that they'll issue to folks who adopt the product that they market to, they can now reload their cards on Green Dot reload network. And so how much revenue we gained from that or the size of the opportunity depends on a couple of variables neither of which we control. One is, how many cards will ADP ultimately issue to consumers? And I know it's relatively a young program for them. And then, number 2, how many of those customers who get the cards are going to reload with cash at a Green Dot location that relies on how well it's marketed, the kinds of folks who are adopting the payroll cards and a lot of variables like that. So it's probably too soon into their program for us to get a sense as to whether or not this is one of our bigger or mid-sized reload partner programs. We're not sure but ADP has every opportunity, as you call the opportunity set there. They have every opportunity to be a great payroll card issuer. They certainly have the right customer base and the right people to market to. So we hope it's a big portfolio that many of those customers end up reloading on our network.

The next question comes from James Friedman of Susquehanna.

I apologize I don't know this, but has the prepaid industry had a prior adjustment to interchange. And if so, what was your experience on the impact to revenues?

No, there's always changes that come and go with what used to be called the associations and now the payment networks, MasterCard and Visa, and has been for 40 years. There's always some movement of the soil, if you will, of interchange. But I think the reason, if you're relatively new to the story, is that the whole Dodd-Frank Financial Reform Act included the Durbin amendment which wholesale recast interchange rates for institutions of different sizes or different kinds of debit card programs. So I think that's why you're hearing so much questioning about interchange.

Yes, I think the last increase was, I want to say April 2010, I could be wrong. But periodically, the interchange rate for debit have changed and, in general, that they both prettily consistently gone up and it's always been a positive benefit to us when that happens.

Okay was the April 2010, let's say, magnitude has -- I think it's both 5% that's currently contemplated?

Yes, well, we haven't quantified exactly what this change means for us, yet. So a little early to say whether it's bigger or smaller.

Okay. Switching gears. It seems like you're now in an exciting position to start to aggregate more data about your end markets and your customers. What stage are you at in terms of maybe monetizing and mining some of that data?

Well, we do have a lot of data and the answer is, we are not in any way monetizing it today, except to help educate ourselves in how to better service and market to our customers. So we don't have any other uses of it. To your point, we have so many millions and millions of customers doing so many hundreds and hundreds of millions of transaction, and that data is rich and the environment to collect it is there. So to the extent we could use that in a way that's helpful to our customers or in a way that we can monetize it, I guess we could. The challenge is though frankly, for us, is that we've got so many great opportunities ahead of us, low-hanging fruit, and we don't see the reselling data as low-hanging fruit. That's more high-hanging fruit, if you will, number 1. And number 2, is we're deeply protective and highly conservative on the way we think about our cardholder data. Any kind of use of information that could even potentially concern our customers or raise concerns about the use of third-party data would be deeply concerning to us. And that's another reason we just haven't gone there. In fact, in our privacy policy, our GLV notices that get sent out, we don't share our data today with any third party provider at all. We don't even have the ability to share. So drafted the most conservative privacy policy you can have at a bank. And so the answer is, it could be something we do with that data down the road, more likely to be internal than selling it externally.

Our final question comes from Ashwin Shirvaikar of Citi.

So I wanted to just get back to the bank acquisition question. Obviously, strategically very important for you guys. So as it pushes out, what is the backup plan from a product release standpoint and so on?

Well, the word back-up plan, how do I describe this? We think that becoming a bank holding company, which as you know is a very expensive, very long-term project that we've undertaken as a key initiative. If we got approved for that, we think it gives us some sustainability and some vertical integration and some nimbleness in the product development cycle that may be we didn't have prior. And we always said that was the 3 reasons for wanting to become a bank holding company. But today, we operate not as a bank holding company. And if we were not approved, that will continue. In other words, we will try to look at other ways to give us, to accomplish those 3 reasons for buying the bank. We'd look at other ways to give ourselves better sustainability, meaning more risk mitigation of bank partners. We would look for ways to structure the contracts with regulators and banks to have a more nimble product development platform and that's what we would do. You wouldn't be able to accomplish the vertical integration piece necessarily. But having said that, that was the smallest part, we never forecast any meaningful dollar save in that component of it. So we would need to find other ways to get those benefits. But I want to remind you that we're not a bank holding company. Today, nobody in the industry that is doing what we do us or anyone else is a bank holding company. And we would continue to do what we did are doing today but in a way that got us what we needed. But our clear preference would be to get approved for the charter.

And the second question, I wanted to go back to the M&A question that was asked earlier. And you did say that from a use of cash perspective, investing in the business would be clearly the right thing to do, and I certainly agree. But you had a point there about consolidation of maybe the lower end of the industry? And I just wanted to get a clarification from the use of cash perspective. Are there specific targets you are looking at? Is the pipeline opportunities...

There are specific types of targets we're looking at. Although what we mean by that is we start off and we say, "Hey, let's sort of think about who's out there. What kind of companies do x that could help us achieve y?" And then we try to identify those competes. It isn't that we target any one particular more we target a certain set of metrics that we're looking to achieve a certain strategic advantage we're looking to gain through a purchase. And the reason why I think timing is important and why the patient bird gets the worm, I couldn't think of a better analogy. The reason we think it's smart to sit tight is that the market is changing more and more. The competitive barriers have never been higher in entering our industry. You have to have the scale to be profitable. You have to have massive scale to be able to afford all the new requirements that our continually placed on companies like ours. You have to have a brand name. You have to have technology that works and is auditable. And you have to have just a gargantuan compliance infrastructure to navigate through the laws and obligations that are imposed on companies like ours, and other banks to be fair, not just prepaid providers. Everything from AML standards and all the things and regulations to all the requirements of CARD Act and Durbin and Reg E and everything else that you have to comply with. So you see the barriers increasing and the cost of entering the market increasing. But you have a market where you have 900,000 prepaid providers, of which may be 5 of them have any kind of scale or size. So that tells me that something is going to happen. This is just me talking. I don't have any evidence to prove this. You're just asking my thought as a CEO. As you look at the other 895 programs out there or 995 programs that may have not have the scale and the funding necessary to continue, my guess is, many of those most of those will ultimately go away through closing up shop or in some ways selling off and/or combining. And then we'll have some of the top half of that but have enough size and scale where they can't make it on their own necessarily but that they could be good acquisition targets. And when that moment comes and you start to see that activity pickup, we just want to make sure that we're well equipped for it.

That will conclude today's teleconference. I would now like to turn the conference back over to Steve Streit for any closing remarks. Mr. Streit?

Yes, thank you, operator. And I think we're good to go. We've enjoyed your questions today. We have a fairly heavy conference schedule coming up that Chris Mammone and team have put together New York, Boston and I don't know where else, maybe San Francisco. Where else are we going between now and...

We'll travel throughout the country.

Well, at least parts of the country, 2 or 3 cities. So to the extent that you see us appearing, we'd love to see you there and there should be plenty of opportunity to see you all face-to-face and answer more questions. And we appreciate your interest and have a wonderful day.

And we thank you, gentleman. You also have a wonderful day. That will conclude today's teleconference. We thank you all for attending today's presentation. At this time, you may disconnect your lines.