Green Dot Corporation (GDOT) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Green Dot Corporation Third Quarter 2012 Earnings Conference Call. [Operator Instructions] The contents of this call are being recorded. I would now like to turn the conference over to Mr. Christopher Mammone, Vice President of Investor Relations for Green Dot. Please go ahead, sir.

Thank you, and good afternoon, everyone. On today's call, Steve Streit, our Chairman and Chief Executive Officer; and John Keatley, our Chief Financial Officer, will discuss 2012 third quarter performance and updated thoughts regarding our 2012 outlook. Following their remarks, we will open the call for questions. The slides that accompany this call and webcast can be found at ir.greendot.com and will remain available after the call. Additional operational data have been provided in a supplemental table within our press release. As a reminder, today's call is being recorded. And our comments include forward-looking statements, including statements about the loss of the TurboTax program to Green Dot and our expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Green Dot's filings with the Securities and Exchange Commission, including the 2011 Form 10-K that we filed on February 29, 2012, and our most recent Form 10-Q filed on August 9, 2012, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. Now, during the call, we'll make reference to financial measures that do not conform to generally accepted accounting principles. This information may be calculated differently than similar non-GAAP data presented by other companies. Reconciliations of those non-GAAP financial measures to the most comparable GAAP measures are included as supplemental tables in today's earnings release and are also available at ir.greendot.com. All statements made by Green Dot officers on this call are the property of the Green Dot Corporation and subject to copyright protection. Other than the replay noted in our press release, Green Dot has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. Finally, just couple of guidelines for today's Q&A session. [Operator Instructions]. Now I'd like to turn the call over to Steve Streit.

Thank you, Chris, and welcome, everyone, to our Q3 earnings call. With me, as always, this afternoon is Green Dot's Chief Financial Officer, John Keatley. While we're pleased report that during the third quarter, Green Dot had solid double-digit growth in both revenue ad active cards, the latter number net of the discontinued TurboTax program, Q3 saw new competition enter the market, with large national banks and major retailers, including some of our largest retail partners, providing consumers with greater choices than ever in the prepaid debit card category. Despite this, some of our best new card activation growth this quarter actually came from retailers where new competition was the most prevalent. Additionally, Green Dot benefited from lower return year-over-year, and higher revenue per active card on a year-over-year basis, while having among the lowest-priced products on the market. Margins continued to see pressure as we invested heavily marketing, new product development, new channels of distribution, and new technology that we believe is necessary to drive growth and efficiencies over the long term. Some highlights to our Q3 results are as follows: Active cards grew to $4.4 million at September 30, representing year-over-year growth of 11%, excluding the TurboTax program. One of the best measures of the underlying quality of our card portfolio is non-GAAP total operating revenues per active card. This metric was up 7% year-over-year in Q3. John will discuss our results with more granularity here in just a few minutes. Next, I'd like to provide some insight into what we believe are the top concerns of the market with respect to our company. And those are: One, the possible threats our ongoing sales posed by new competition in the market, and in particular, the new Bluebird product at Walmart; two, possible price compression caused by that competition; and three, the impact of risk management policies on future new customer enrollment and other operating metrics. So let me address each. First, talk about competition. Around the mid-August time period, our largest selling pharmacy chain rolled out a number of competing products, including an American Express product with no monthly fee. As a result of that new competition, Green Dot facings were reduced materially on the rack in order to make room for those new other products. It's only been around 10 weeks of these new selling environment but we're pleased to say that, thus far, our brand has held up well, with year-over-year new card activations up around 40%. As a point of comparison, at the same retailer, those growth rates are similar or better than we've seen in previous years when we were exclusive. As another data point, starting in Q1 of this year, our top-selling convenience store chain rolled out many new competitive products on the rack next to the Green Dot brand. Plus, those other competitors entered into a series of aggressive in-store promotions, advertising things like fee rebates on their products and lower purchase prices than what the Green Dot brand sold for. Despite all that, the Green Dot brand continue to grow in that retailer, with new card activations up around 5% to 10% year-over-year in Q3. This growth rate is slower than we had previously seen in that retailer when we were exclusive, so we're still growing in that retailer, but at a slower rate. Lastly, we'd like to give you sense for what we're seeing, so far, at Walmart with the very aggressive launch of their new Bluebird product from American Express. The product has only been on sale there now for about 2 weeks, so this early data is hardly conclusive. But, so far, our sales results are only slightly worse than sales in the same time period last year, less than 10% decline. So while not conclusive by any means, these early results are somewhat comforting. To be clear, we're not satisfied with lower growth rates at Walmart or any retailer, and we have many new growth initiatives that will need to be successfully executed in the coming months in order to reaccelerate growth rates of the long term. But our performance in Q3 further suggests that there is a large market opportunity for our products and that we can benefit from the mainstreaming of the prepaid category. Green Dot has the largest customer base and a leading brand-name in the prepaid category, and we are a competitive force in the marketplace. While not conclusive, we believe these early results in the face of so much new competition from so many new large entrants is a positive indicator. As it relates to competition more thematically, I'd like to provide some context. There are 9,000-plus banks and credit unions in America, including the well-known top 10 national banks, and all of these institutions do business. Just because Capital One rolls out a new rewards card with Jimmy Fallon and Alec Baldwin as their spokespeople, doesn't mean that people stop using or applying for a Chase credit card. And just because Chase advertises a Sapphire credit cards with special rewards doesn't mean that people start or stop applying for an American Express card. And just because Bank of America advertises free debit card rewards with their checking account doesn't mean that people stop opening checking accounts at Wells Fargo. In other words, the theory that every new customer gained from one company must be a net customer loss for another company is simply not supported by facts, in either our industry or nearly other consumer finance category that we're aware of. The prepaid category is large and we believe it is getting larger and more mainstream every day. We believe that opportunity for growth is available for many players in the prepaid space and we intend to work diligently to continue our long-term leadership position. Next, let's talk about potential price compression in the market caused by this new competition. We do believe that ongoing innovation in our industry, combined with the more mainstream appeal of the product, will result in lower pricing over time. In fact Green Dot, over the years, has lead the market with lower prices and is still among the lowest-cost prepaid cards in the market. On average, a Green Dot customer pays, in total, around $6 or $7 all-in for our products and this includes any and all fees of every kind, including ATM fees and reload fees, monthly fees and new card purchase fees. This is considerably lower than almost any comparable checking accounts, certainly, and is at the lowest end of the prepaid market. For example, while the American Express prepaid card sold at Walgreens and other pharmacies has no monthly fee, the customer will pay around $2.50 for the first ATM withdrawal and around $4.50 for each successive ATM withdrawal on a monthly basis. They'll also pay $4 or $5 for cash reload and $4 or $5 to buy the card initially. Furthermore, the American Express card is not bank-issued, not FDIC insured, and therefore, cannot accept many types of commonly used direct deposits. So just doing two ATM withdrawals per month on that product would make the Amex card more expensive than a Green Dot card based on similar usage patterns. For Green Dot customers who qualify for our fee waiver, the cost of the Amex card would be considerably higher than a Green Dot card. And, of course, the merchant acceptance of American Express, especially at neighborhood-based small merchants is fractional over that of Visa or MasterCard. Revenue products on the shelf, the fees speak for themselves. The net spend in PayPal cards, for example, are far more expensive compared to Green Dot. They have no free ATM networks and no fee waivers at all. For example, the PayPal card charges $4.95 for the purchase price then charges another $4.95, 36 hours after the purchase with an additional $4.95 per month after that. So we wouldn't expect to have any material pricing pressure from those entrants at all. As it relates to the Chase Liquid product, we think this is an attractive offering. And judging from the large mass media campaign supporting the Liquid card, it would appear Chase is sparing no expense to make it one of the most heavily advertised new product launches. In the case of Liquid, the monthly fee is similar to Green Dot, at $4.95. This is $1 cheaper than our Green Dot card, but about $2 more expensive than our Walmart MoneyCard. However, many customers qualify for Green Dot's fee waiver plans, and pay no monthly fee, whereas the Chase Liquid card has no fee waiver unless you link it to another Chase checking account. We both have free and network ATM withdrawals and we both offer free direct deposit. However, Chase does allow free reloads at select specially-equipped Chase ATM locations at their branches, whereas Green Dot offers reloads for between $3 and $4.95 at 60,000-plus retail locations. However, we know from actual customer behavior and actual historical results that many prepaid customers do not wish to go to a bank branch and spend time meeting with a consultant and filling out forms in order to open an account. They would rather conduct their business where and when they shop. For that customer, we believe Green Dot will continue to be a far more convenient offering than the Chase Liquid card. As a point of fact, Green Dot's biggest growth years occurred during the free checking era when almost every large natural retail bank offered a free checking account to all-comers. So, in summary, we think Chase is an attractive product with Liquid, and we think they're doing a great job marketing it. And in the process, helping to grow the entire prepaid category, but it remains to be seen how that product may or may not impact Green Dot or the prepaid market in general. In any event, Green Dot intends to take all appropriate steps necessary, now and going forward, to ensure that we can continue to be the best value brand name leader in the prepaid market while still delivering healthy margins and growth across our business. Finally, I'll talk about the impact of risk controls. The phrase risk controls isn't representative of any one thing but rather is inclusive of many types of monitoring, controls, policies and procedures that make up the ways in which we protect against enterprise risk at Green Dot Corporation and Green Dot Bank. As the leader in the market issuing far more accounts than any other prepaid company, we naturally tend to see emerging risk first. Our risk controls may negatively impact new card activations metrics. We believe such controls may have the affect of positively impacting our overall active customer metrics. In fact, our new risk controls may be one of the reasons why we saw improvements in churn and revenue per card in Q3. In any event, we certainly have no interest in growing new card activation and acquisition at the cost of sullying our portfolio or our repetition. On this topic, lastly, controlling risk is not just a Green Dot thing, it's the right thing for all issuers and program managers of prepaid cards, and we believe that our thinking on this matter will ultimately be adopted by others in our industry. Now, let me close my section of today's call with some business updates for you. First, we're pleased to announce of that CVS, 7-Eleven, and The Pantry stores, a large convenience chain, have all entered into new multiyear contract extensions with Green Dot. CVS Pharmacies and The Pantry convenience stores been selling Green Dot products now for a full decade, and 7-Eleven since 2009. We thank them all for their continued support and partnership. Next, we're pleased to let you know that Walmart and Green Dot continue to work together to expand our MoneyCard category of prepaid cards in an effort to grow sales and revenue by bringing customers new and exciting offerings. Recent initiatives include a new line of NFL team branded MoneyCard and a new Mossy Oak-branded card. Mossy Oak is a popular affinity brand for hunters in many regions of the country. All these new products went on sale at participating Walmart Stores just a few short weeks ago. Walmart and Green Dot also continue to work closely together to bring new innovation to the market and to grow our mutual businesses for the long term. Since 2007, Walmart has been, and continues to be, an important and close partner for Green Dot, and we greatly value that relationship. Lastly, we're pleased to announce that Green Dot and the Florida Attorney General's Office have resolved the previously announced prepaid card investigation into 5 leading prepaid companies, including Green Dot. Green Dot has entered into an agreement of voluntary compliance, known as an AVC, under which we will make a charitable contribution to a Florida organization for $25,000, and we'll also reimburse the AG's Office for certain expense in the amount of $75,000. It's important to note that the investigation revealed no findings against Green Dot. Furthermore, the AVC officially acknowledges Green Dot's cooperation and support of the Attorney General's efforts to establish adequate industry standards for the benefit of consumers. Now I'll hand the call over to John Keatley who'll take a deeper dive into our financials. John?

Thanks, Steve. Our revenue growth in Q3 remain solid, particularly when normalizing results for the discontinued TurboTax program, which impacted the year-over-year growth of many of our key metrics. The business continues to generate significant cash. Total cash and investment securities increased $50 million during the quarter. Our operating margins declined year-over-year and I'll share the drivers of that margin performance with you in just a moment. But the first topic that I'd like to discuss is our revenue growth. As you can see on Slide 3, our non-GAAP total operating revenues grew 14% year-over-year in Q3, or 19% excluding TurboTax. In terms of the 3 main categories of revenue, cash transfers grew the fastest, up 20% year-over-year; followed by interchange, up 16%; followed by card revenues, ahead by 8%. Normalizing for TurboTax, card revenue growth would have been 10%. Slide 6 provides a breakdown of the main factors that drove the year-over-year margin decline. First, we had several promotional activities in Q3 designed to attract and retain higher-quality customers. These included our new TV campaign, which has been our best-performing campaign to date, and heavier online marketing which tends to yield a higher-quality, longer-retaining customer but requires a larger upfront investment. Secondly, new product development costs increased significantly in Q3 as we invested in products that we expect to deliver meaningful revenues starting in 2013. Third, during Q3, we continue to invest in our infrastructure, including the migration of a significant portion of our card issuing volume to Green Dot Bank, which we expect will yield significant cost savings beginning in 2013. Page 7 shows our non-GAAP net income, which came in at $12.8 million, and our non-GAAP EPS, which was $0.29 per share on a fully diluted basis. In terms of our key operating metrics, we showed strong year-over-year growth. For the purposes of comparability, all of the following metrics have been normalized by excluding TurboTax. Our active card portfolio grew 11% year-over-year, and new card activations increased 7% year-over-year. We saw an improvement in our churn rate of approximately 90 basis points, which can be measured by calculating the proportion of cards that were active in Q2 but became inactive in Q3. Our GDV grew 12% year-over-year, and purchase volume was up a healthy 16% year-over-year. The strong growth in purchase volume is another important indicator of the quality of the portfolio. Cash transfers continue to grow rapidly in Q3, increasing 19% year-over-year, driven by both increased reloads from our portfolio of cardholders and more reloads from our network partners' portfolios. Our balance sheet continues to be very strong. We ended the quarter with $327 million of total cash in investments securities, including $164 million of unrestricted cash and cash equivalent, $149 million of investment securities, $13 million of restricted cash and no debt. The portion of this cash that we consider to be unencumbered, essentially the cash and investments securities held at the holding company and not required to maintain regulatory capital ratios, was $225 million as of September 30, which equates to greater than $5 per diluted share. We know that many investors may feel that we should use this cash to execute a share buyback. Not surprisingly, the use of cash is a topic that we carefully consider on an ongoing basis. At the present time, we believe that long-term growth initiatives, and the cash needed to support those initiatives, is a more compelling use of cash in the near term. In our view, this is the right course given the growth related business opportunities we see ahead of us in 2013. Our guidance for 2012 remains unchanged, which includes expected non-GAAP total operating revenue growth of 10% to 12%, adjusted EBITDA of $104 million to $106 million and non-GAAP EPS of $1.29 to $1.32 per share for the full year. We believe that this guidance remains reasonable, given the uncertainty presented by the launch of new competitive products, at Walmart and other stores, and ongoing enhancements to our risk controls. As we approach our Q4 reporting date, we expect to have better visibility into our future performance as we anticipate having more sufficient sales and usage data from our major retailers that have recently launched competitive products, and as we prepare for the launch of new products of our own. This concludes our prepared remarks. At this point, we are ready to take your questions. Operator?

[Operator Instructions] The first question we have comes from Gil Luria Wedbush Securities.

In terms of the competition, you discussed a couple of good Case Studies. Can you give us an update in terms of your -- apart from Walmart, your top 5 retail channel partners, how many of those already have a competing product on the shelf, have had it this quarter, of the top 5 after Walmart?

Again, 3 of the 5 have a competing product. So if you include Walmart, that would be one, that's not through Q3. That just started, as you know, 2 weeks ago. You have Walgreens and 7-Eleven, Rite Aid is exclusive to Green Dot for a couple of years to come, and CVS announced they would be going on exclusive but is in the process of doing that this month. So it would be effectively in Q3, let's call 2 of the top 5, Walmart if you add 2 weeks ago, 3 of the top 5. And ultimately it'll be 4 of the top 5.

Got it. And then if you have a view of the rest of your retail distribution partners. What percentage of those would it be? Is that even meaningful?

Well, the rest are already nonexclusive and have been, really, forever. Blackhawk has always sold multiple brands. A lot of our convenience store chains ever sold through resellers have always had multiple brands. So, the answer is most of the other ones will be nonexclusive, but they always have been.

Ramsey El-Assal, Jefferies. Ramsey El-Assal - Jefferies & Company, Inc., Research Division: Given the significant pressures in your retail channel, can you give us an update acknowledging the nice recent sale you made and your efforts to develop maybe more defensible channels like direct-to-consumer or even potentially pay card? Has your overall strategy or thinking changed there, in terms resource allocation or organizational changes or that type of thing?

It's a great question. If you look at the bulk of the money that we've put into new product development in Q3, for that matter a lot of this year, it's been on new products that have nothing to do with prepaid and nothing to do with retail, per se. In particular, our mobile checking account, that we'll talk more about in the coming months. And then also, at the same time making sure that we remain very, very strong in retail. So new products that are unique to Green Dot that we can sell through our retail channel, different kinds of prepaid cards that have a unique advantage like the RushCard or AARP or NASCAR for certain segments and certain affinities. So it's important that we diverse, both in terms of our customer segments, like Sally Mae and like those other products, and it's important that we find new products that give Green Dot something unique and special in the market. So that's been a real part of our investment this year. Ramsey El-Assal - Jefferies & Company, Inc., Research Division: Okay. As a follow-up, there's been plenty of speculation and chatter lately, unsubstantiated admittedly, about Green Dot's options when it comes to being acquired or recapitalized or other options like that. Have you had any meaningful conversations with the board about those types of opportunities? And to what degree does your bank holding company status kind of limit your potential options to that type of thing?

Well, I wouldn't want to comment on what we discussed in board meetings, but there's been no real discussion on it with anybody. And I think it's because the company is still extremely profitable and still continues to grow, and aside from our stock price, is still a healthy the company. So, I think for those reasons, there's not been really a lot of dialogue. I would characterize, overwhelmingly, the conversation in the building and among the senior management team is about new products, growing the company, controlling costs and making sure that we are a winner in this evolution. I'll tell you, it's been a fascinating period of time. We invented this industry back 12 years ago, and now we're sort of faced with reinventing it again, and we're excited by the challenge. So that's really what occupies the overwhelming majority of our thinking.

Mr. Huang, JPMorgan. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: I like the analogy with the issuers. But I'm curious, it's a very basic question, Steve. Like why do you win in jump off situations? You've talked about faring pretty well when you lost exclusivity. Is it packaging? Is it the retail network? Obviously, pricing is one of the factors. Maybe if you could just go through some of that with us, that'd be helpful.

Well, I think there's a number of factors that all sort of add to the recipe, and I'll quote one of our major retail buyers. He said, "Steve, Green Dot is the Tide detergent of the detergent category." We have, remember, millions of installed customers. We have been doing this for years and years and years, over a decade. Literally we get letters and calls from people whose mothers use our products and now the daughter is using our product. And people tend to be loyal to brands that deals with personal items like money. So whether it's the kind of shampoo you use or the kind of dish-washing detergent you use, people change brands reluctantly, number one. Number two, we have a good product. It works. It's simple, it's basic. The fees are well disclosed, people know how it works, and they use it. And I think that people of that underestimate how hard it is to kill a network model and how hard is to start a network model. And so, in that regard, we have time and brand reputation and a user base on our side. Having said that, we never take that for granted. We wake up in the morning paranoid and go to bed even more paranoid, because we believe that if you're not paranoid that's a recipe for disaster. So, I don't ever want to appear in any way cocky, and I want to point out, Tien-Tsin, as we said in the prepared marks that the results that we've had so far, very early. 10 weeks at a Walgreens and 2 weeks at Walmart does not a sales track record make. So we have a lot of evolution to come and that maybe we're impacted more severely going forward. We just don't know, only time can answer that question. But I do think we have a strong brand and a strong consumer preference, and I think that's why you see us, generally, still even in these competitive negotiations getting the lion's share of the retail position in the retail rack, the eye level space. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Great, now that's helpful. Maybe just to dig in on the Walmart Bluebird. Obviously, a lot attention there. I've tried it, I've seen it in the store and I'm trying to think about the experience versus a MoneyCard. So I guess the key difference in my mind was the mix of MoneyCenter sales versus in-lane sales and also check-cashing as a source of funding into the MoneyCard, which I think is a little bit different with MoneyCard versus what Bluebird can do. So can you quickly go through how that might defend sort of your share in activations as we go through this fourth quarter versus Bluebird or am I way off base in thinking about those differences?

No, I think it's good to think about it. I mean, the way that we think of it here at Green Dot, and we have a huge amount of respect for Walmart, Bluebird is a highly innovative product. And I think that Walmart and American Express have come up with something unique and interesting and compelling for consumers. That attracts, or is designed to attract a different demographic of people currently have a Chase account or Bank of America account or U.S. Bank account or whatever it might be. While the MoneyCard is marketed and attempting to attract the consumer that maybe today does not have a bank account or is a cash customer or is looking for something faster and easier. I think they're both good products. I think the MoneyCard product will get better over time. I think the Bluebird product will get better over time. And I think it's innovative. We hope it does fabulously well at Walmart and we hope that the Walmart financial services team has another hit on their hands. So we don't look at it an us versus them. We look at it as a fabulous innovation and we look at Walmart as a retailer that we expect to work hard to make sure that we continue to grow.

Bob Napoli, William Blair. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And I guess, just to follow up on Walmart. You said 2 weeks in, Steve, and you're down 10% on sales at Walmart stores. And are they in all Walmart stores? How are you able to track that?

Yes. What we said that our sales have not been down materially, less than 10%. I do believe Bluebird is in all stores, to my knowledge, and maybe a few. As retail works, even under the best intentions, things don't always happen exactly as you'd like overnight. But I would have to assume by now that Bluebird is in most or all Walmart stores. But to be fair, that's a better question for the Walmart team. So I think it's fully rolled out. But, again, and this is why we are cautious about this or maybe cautiously optimistic, but I can't say it enough, that 2 weeks does not a trend make. So we knew that we'd be bombarded with questions about it, so we wanted to provide whatever information we could in such a short time into the new program. But Amex is spending a lot of money in marketing. If you watch prime time TV or check your Twitter feed or Facebook, you'll see that. So they're taking this seriously. Walmart is a fabulous retailer and they have tremendous merchandising for the product in the store. If you've gotten into a neighborhood Walmart you'll see the big, what do you call it, the palettes and the attractive displays. They've done a fabulous job. So we're not saying that our results, 2 weeks in, are indicative of anything but that. But I do believe they're fully rolled out. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Do you have any plans to make pricing changes in Walmart or otherwise? And with Bluebird in the Walmart locations, does that change the terms of your contract? I mean your commission rate, I'd be going back to Walmart and saying you really think we should raise the commission rate next year given that you now have this Bluebird product.

The answer is no. Having Walmart launching Bluebird doesn't impact the amount of money we pay to Walmart as a commission rate, if that's the question. In terms of do we plan to do anything with pricing? The word plan implies something happening imminently or something in the works or something, and would not be the case. I think it's fair to say though that we're always open-minded to anything that gives us a competitive advantage, and that make sure that we're a long-term surviving player. So I would never say we wouldn't change pricing or anything like that, but to answer your question directly, there are no immediate plans. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And just a comment. I mean, given that this is such a huge part of your business, Steve, I think it would be helpful if, part way through the quarter, you kind of gave an update on how you are doing at Walmart as opposed to just -- I just think it would be helpful given that it's such a huge part of your business, with Bluebird ramping out. If in the end of November you maybe came out with statistics for the month of November, in Walmart, year-over-year.

Yes. I appreciate the comment. Can't say that's something we'd do or not. And John reaffirmed our 2012 guidance, so it kind of it is what it is. But it's something I appreciate your comment on, that we'd take into advice.

Greg Smith, Sterne Agee. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Steve, it sounds like you don't want talk about the mobile checking product, but it just strikes me the Bluebird card feels very much like that, to some extent. Is that off base, I guess would be my first question.

Well, I don't know if it's off base. I think when our product comes out, you can decide. To the extent, they're both targeted to people who have bank accounts currently, I suppose it has that common. But Amex competes today on the credit card side with dozens of major issuers. And Amex and Visa and MasterCard and Discover all compete for their share of credit card. So I don't think, Greg, that it's one or the other. But to the extent, they're both going to be appealing to people who have checking accounts in traditional retail banks, they certainly would have that in common. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Okay, and then will it be sold at Walmart? I guess I'll just ask that flat out.

Don't know, and at this point, couldn't comment even if I knew.

George Mihalos, Credit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: Just taking a look at the guidance that you guys put out there in the revenue side, it would suggest that, in absolute terms, revenue would come down in the fourth quarter from the third quarter. Historically, you guys have had a step-up there. Maybe you can kind of comment on some of the conservatism around there, how you came about that guidance.

Yes, thanks for the question, George. Yes, in Q4, we continue to have a strong dose of conservatism in our guidance. Really, for the same reasons we adjusted guidance down last quarter. There is still uncertainty around the impact of competition on our sales, at our major retailers. Steve mentioned we only have 2 weeks of sales data with Bluebird at Walmart, so we don't yet know what the full impact of that will be. And there's continued uncertainty around risk controls. That's had an impact on our business to date, and we expect there will be some continued enhancements to our risk controls going forward. So in light of those uncertainties, we thought it was prudent to leave our guidance unchanged for the last quarter of the year. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. And then, last question from me. You guys mentioned the churn improving in this quarter. Do think that's something sustainable or is it just sort of too early for you guys to tell?

Well, we hope so and we don't think it's purely random either. Our advertising, our marketing efforts, our pricing and our features are really all designed to try to retain and keep customers for a longer period of time. And I think part of it is a feature of the fact that a year ago we did have more of the tax refund volume, so customers were getting cards and late-filing. They were filing tax returns in September and first half of October, and a lot of those customers were short-lived. So I think part of the improvement is a feature of that. But it's also a symptom of the fact that we have more customers enrolled in direct deposit and we're focused on keeping customers for a longer time.

Mike Grondahl, Piper Jaffray.

Could you just help us understand the heavy investment that you're doing right now? And how long do you think that really lasts? I guess I'm talking about Slide 6 the most, going from a 25%, 26% margin to 18%?

Sure. You point out that we have heavy investments, you're absolutely right. This was a big investment year. Some of those investments include acquiring Loopt, which is really an integral part of our new product development strategy. We're working on building new products for Sallie Mae and we're working on creating a retail version of the RushCard. We're building a new checking account that we believe will target a new demographic and pull new people into the category. And we're working on rolling out Green Dot Bank. And in this month, we'll be migrating a large portion of our issuing volume from Synovus Bank into Green Dot Bank. Those are all initiatives that require significant investments, and you really don't see the financial impact of those investments until next year. We also had some significant marketing initiatives this year. We have a new TV ad campaign in the market. So far, it's our best-performing TV ad to date. We've spent more on online and we've found that we attract a higher quality customer, on average, online. And that was a source of significant spend this year as well. So, really, a quarter of significant investment that should pay off in the quarters ahead.

John, let me just ask it this way. What do you think those total investment dollars in '12 are? And what do you think they will be in '13?

There's a slide in the presentation that kind of gives you a walk-through of what those investments were in the quarter. So you can back into it that way. Those dollars are significant. We're not ready to talk about new initiatives or new investments in 2013. In Q4, we should be able to provide some additional direction there. But it was a significant investment year for us and next year we should see the fruits of those investments.

Julio Quinteros, Goldman Sachs.

Maybe just coming back to the integration efforts, especially on the back of the acquisitions. I'd like to hear just a bit more in terms of where you are on the integration efforts, and then ultimately, what the thought process is around the product rollout. I think one of the efforts you talked about in the mobile might obviously be tied to the Loopt piece, but I'd love to hear more of the bank side as well. If we can just kind of get some sense there, that'd be helpful.

Sure. These are monster initiatives. It's easy to say it, I guess, and harder to do it. Because when you're dealing, for example with the bank, you buy the bank and then -- remember it's a real bank. It has a branch with lollipops for the kids and drive-through tellers. So you're running a branch in Provo, Utah, servicing that community while taking a community bank and turning it into a platform that can safely and soundly serve as the issuing platform for millions and millions of accounts nationwide. So the technology and the capital reserves and the staffing and all that. New packaging that has to have new terms and conditions, a new labeling for Green Dot Bank and basically all very significant. And they occupied, in the quarter, I'll bet at least 100 employees full-time jobs out of our technology division and our bank division and risk and governance divisions to pull off. So these are fairly major chunks of meat that you have to digest. Once you do it, you do it. But in the early days, it's no small effort. On the Loopt side, that integration has gone well and as expected. We have a lot of Loopt talent who are now managing broader parts of the Green Dot technology team. And Sam Altman, who was Loopt CEO, is a great partner and has become a great friend and the strategies that we're putting into our mobile products we think are spectacular and hopefully we'll really wow consumers going forward. But all these things take a lot of time in meetings and money and effort and discussion. And none of them are easy, but I think we've done a fairly good job of it and we'll see how that goes over time.

Okay, and then just in terms of the product rollout, around some of these efforts. Would that still be something in sort of first half, second half of 2013? How should we think about that part?

Yes, yes. For sure. The mobile stuff, we're targeting Q1 for some of the launches, and certainly by second half, full launches. And having said that, anytime you have new virgin technology, and that's what the mobile stuff is for us, we test it and test it and test it again, and pay people to break it and test it again. So we're feeling very good about it but we could miss by a month here or there for a reason of caution, I guess, or safety conservatism. But we think that's right. The Rush product is on track for Q1 development and a Q2 rollout. Sallie Mae will be rolled out in Q1, in limited fashion. And then, of course, big enrollment for school is in September, so you'll see more of that. But I think we're on track with all of that. But when you put all that together -- remember, most companies, if you think of other companies in our space or other companies in banking, rolling out one, just one new innovative product in the year could be a 2 or 3 or 4 year effort. If they do just one. And Green Dot is chewing off 3, 4, 5 major initiatives in a year, and succeeding at it. But it would be wrong of me to say that it's been easy. It has not easy, we're getting through it, but it's a lot.

Got it. Just one last one. I mean, you went out of your way to give us the impact on pricing and competition, and you did a nice job of laying out the issues that you're facing as far as threats by new competition. I guess maybe what I'm trying to gauge is, based on what you've seen, based on what you understand about the competitive dynamics, do you guys feel better at this point or is it still too early to know what all these trends ultimately mean?

Well, you know me well enough that I never feel good about anything. I would say that we feel good that we have a good path to execute to make sure that Green Dot is a big, viable player in banking for this part of America. We feel good about that. But it's just too early to tell what Bluebird means to our sales, too early to tell what JPMorgan's Liquid card does to, not just our sales, frankly, but the entire industry, right? It isn't about Green Dot, that's just an industry play. And we don't know. So we watch them carefully. We look at them. Like you, I see the commercials on TV every night, alongside our commercials and so we don't know. But by nature, I'm optimistic, I'm an entrepreneur and our staff is optimistic because we've worked all together for years. But these are clearly uncertain times and evolutionary times for our industry. And that's why I think you're seeing us be so cautious as we guide investors in the way we write our prepared remarks and answer these questions. Because if we knew beyond a reasonable doubt, we'll tell you that. But I've been in retail, and in marketing and in sales for a long time, and the answer is that, in some ways, the jury is still out. So we're optimistic, we're comforted by some of the early polls, let's say, to use an election season analogy. But the election hasn't been held yet, so we need to be cautious and continue to be conservative in the way we forecast.

John Kraft, D.A. Davidson. John Kraft - D.A. Davidson & Co., Research Division: I just wanted to drill down into the risk controls a bit. It seems like, indirectly at least, they're helping you in some areas like churn. Can you quantify though how much they're impacting you on the actual activations?

Well, we can't give you exact percentages. And we're not always sure, day-to-day, so you sort of look at it globally. But I think the answer is, in some channels, a lot. Look, we did a -- I don't know I ought to say this. We, a few years back, as everybody knows, the TurboTax program, which we thought at the time was a blessing. I'll tell you what it was though for use and that was a crash course education in all the crazy things that happened with tax fraud and with ID theft and everything else. And it's something that we're cleaning up from. But you can't un-ring the bell. In other words, if you're running a bank and you're a CEO, like I am, who really, really cares about reputational risk and a clean portfolio in a long-term survivable, sustainable public company. We take that kind of stuff real seriously. So the more we learn, the more we learn. So you install some new programs that track Internet IP addresses and you go, holy cow, look what we learned here. And we buy Loopt and we learned that through geo-location we find that there's other crazy stuff happening somewhere else and you block that down and then you run some other reports. And if you're working in Green Dot risk management and if you are a Chief Risk Officer, it's kind of a fun time of renaissance of knowledge and technology. But we are really serious about making sure that our customer base is legitimate and pure and good. And we think that's the right path to take. So the answer is, if you think of the tax channel and tax refunds, we've cut out a ton of activations. I mean, many, many, many thousands.

Yes. On that topic, one metric we can offer is that we're now declining over 10% of new card activation attempts, which is a significant increase, in part due to these new controls that Steve is discussing.

If you look at other channels, they seem not to be as impacted. So we're sort of learning which parts of our portfolio are more prone to be targeted by fraudsters. And so it's hard to say, but we would expect that the decline rate will go up, depending on the kind of customer it is. But the customers that are left behind are more likely to be real, legitimate, ongoing reloading customers. And, look, even if that isn't the case, it is what it is. You can't run a company by keeping your head in the sand and pretending not to learn things. And so we really have a goal to be an extraordinarily fine bank holding company and bank and provider of products for years to come, and controlling your enterprise risk is a part of that. John Kraft - D.A. Davidson & Co., Research Division: Got you, that's helpful. And, Steve, you did mention Intuit. So I just should like to ask, the re-signing of that TurboTax deal, did that just come down to price?

Well, I don't know what it came down to. We're not doing the program, and I don't know that it's been announced who got the program. Was it announced? Okay, so I'm sorry I didn't know that. So the answer is that you'd have to ask Intuit about that. But Intuit's a fine company and whoever ends up doing it, I'm sure is a fine company, but we're not doing it and it is what it is.

Next, we have John Rowan, Sidoti & Company. John J. Rowan - Sidoti & Company, LLC: Just wanted to clarify one quick thing. Sorry, I'm on the East Coast. I'm not getting great phone reception. Steve, when you talk about Walmart, you did say it was a 10% reduction the first 2 weeks, year-over-year. Does that have anything to do with the increased risk protocols?

Probably. It's hard to say what was the cause of risk controls versus what's the cause of Bluebird versus what's the cause of bad weather. I mean, it's just hard to know for sure, or inventory controls. So that's why we're saying it's not really -- anything in that 10% zone, up or minus -- we've had some days, by the way, we've been up here or there. So you just don't know. It's just too soon. So the answer is risk controls, generally, have clearly impacted sales, certainly, during tax season at Walmart for sure. Walmart, like us, is very thoughtful and conservative about controlling risk and reputation, so we work together on that. And if it is customer, it is what it is. But it's hard to say exactly what the cause is, but the results are what they are.

Next, Ashwin Shirvaikar, Citi.

Steve, you mentioned in your remarks, I believe, that pricing in the industry, over time, goes down. Clearly, pricing has many facets. There's initial price, reload, monthly fees, so on and so forth. Could you provide more granularity on what you meant? And then take it to -- when you speak of pricing at Walmart, is it basically your decision? How much of is a Walmart input or is it out of your hands? Can you talk about that?

Well, so when I speak about pricing, broadly, it's everything put together. The consumer, when they think of a price of a product, I don't know that they're always thinking of this fee versus that fee versus the other fee. They're referring, really, emotionally to what they believe they're paying for the product. And so I don't know that I have any one fee in mind, so much as I'm think just generally how the consumer thinks about fees for the prepaid category. So if you were to project out, some years down the road, I think that the surviving large and leading players in the industry will have extraordinarily-, highly-functional products that do lots of cool things that cost less that generally what they cost today. How that comes out, in terms of this fee versus that, I don't think any of us can predict with certainty today. As it relates to Walmart, the Walmart MoneyCard is the Walmart product. It's a Walmart product, we're their service provider and their partner in it. So, on one hand, we will discuss pricing together as collaborative partners. On the other hand, at the end of the day, it's Walmarts product, and we would do what they want it to do.

Okay. And on prices, just to drill down little bit more on the pricing comment. In terms of -- if the surviving players can do it more cheaply, say 5 years from now than today, is that because they're the lower margin or is it because you got more scale and you're passing on the benefits to the consumer? What are the drivers and the pieces of that in your thinking?

It could be all that, really. I mean, I can tell you what our preferred outcome will be and we can go from there. Historically, our size and scale has been a real competitive advantage, and the investments we've made in platform plays have been recent, say in the last year, including the bank and so forth, and Loopt. And we'll have to see how those contribute, so we could look really smart or really dumb a year from now. So we'll have to wait. But, clearly, we believe that size and scale is a great hedge against pricing. And also longer retention and higher quality customers versus one and done customers. All those things add in to a value proposition that hopefully increases for the customer over time, while still providing margins that are acceptable to the company and to the market.

Okay. I just want to get those points out there. In terms of contribution from Sallie Mae. If you could -- what's your thought process? I know you mentioned the September timeframe, with schools, but anything else other than that seasonality aspect?

No, we could say that we, and Sallie Mae both, believe that we can penetrate a large portion of Sallie Mae's universities that are on their disbursement program. So in the first half of the year, the program will be fairly small, but we expect, and we're working hard towards, a significant penetration of their school base in the 2013 to '14 school year.

John Welch, Rothschild.

First off, thank you for being very straightforward and refreshing on this call. The mobile first quarter launch was answered. I'd just like to drill down, the Bluebird Amex card is a Walmart product also, correct?

Yes.

So the pricing is being driven by Walmart?

Well, I don't know. I couldn't tell you how the contract's written or who decides what or how. But, certainly, the Bluebird brand name, my understanding, is something unique to Walmart. And the product itself, the sort of platform that Bluebird is run off would be similar to -- I think they're using the platform for the Amex prepaid card that the sell at Walgreens and CVS and so forth and that...

The same platform that -- from the best of your knowledge, that's the same platform that they launched 6 or 7 months earlier, that they closed down at Walmart, correct?

I would hate to -- I don't mean to be not direct on it, but those are the kinds of questions I think best left for Walmart on their call or with Amex because I'm not privy to those conversations. I would hate to opine.

But, generally, there was a launch it was a failure and now there's a relaunch. And the work we did, and I don't want to kind of sound like Colombo, but there seems to be a great deal of focus on the Bluebird launch. And the Visa card is out some 8 million holders, and I believe the Amex is at, I mean, 5 million. And so you've got about a 3 million difference there. And if you drill into that demographic, the point I'm getting to is the size and scale you speak about. Shouldn't you also talk about location? Because if you drill down into the demographic of the Walmart customer, they're not shopping at the majority of the places that take the American Express card. They're are shopping at the Dollar The? Tree's Dollar Generals, Dunkin' Donuts, the liquor stores, the local grocers. And if you do some basic due diligence and call these customers, and these retailers, they're not accepting the Amex cards. So the heavy investment that Amex is spending, I start to scratch my head, because they're not in the location of the demographic.

Yes. Well, look, it's hard for me to comment on it. I'll say this to be fair to the Amex Bluebird product. They're really marketing it as an account, and, oh, by the way, there's a card. In other words, it's an account that they're looking to market as a substitute for a checking account or an alternative to a debit card. So, much of what you say may be true, but I think only time will tell how consumers adopt it and so hard for me to say. But I appreciate your thoughts and your points.

Bryan Keane, Deutsche Bank.

I jumped on a little bit late, but the Walmart 2 weeks that you're measuring, what weeks where those? Was that starting from the October 8 launch of Bluebird?

They launched the 15th or 16th. So it would've been the 16th through yesterday, effectively.

Yes, it was really the last 2 weeks of October, starting with when we believe the product was fully rolled out.

And then I guess how much did the last a couple of days, due to Hurricane Sandy, probably had an impact or it didn't have any material difference?

Yes. No, Hurricane Sandy did have an impact for sure. Everywhere, not just Walmart. Remember that a lot of -- it you look at the population of the United States and where a lot of our retailers at, Walgreens and CVS' and so Green Dot retailers, not just Walmart, were shut down for a couple of days, no question about, or a good portion of those chains.

So it sounds like it's down 10% in revenue over that 2 week period. What was it pre the launch of Bluebird? What was Walmart running?

Just to be clear, it wasn't revenue. We don't know what the revenue will be because that depends on lifetime behavior. We're just saying unit sales. So unit sales, our actual card activations were down less than 10% compared to the same period last year. That's the only indicator we have. In terms of revenue and retention all those other, GDV, and all those other metrics, that will take some months to figure out.

Okay. And what's that same metric card activations, unit sales before the launch of Bluebird this year?

It actually was down more than that. That really is more of a feature of the spike in volume we had, late tax filers last year, leading up to the October 15 deadline. So there is always a lot of factors impacting sales at any one point in time. And for the first half of October, we were actually down even more than that because of the sort of a feature of the tax volume we've seen the year before.

And then the risk controls and all that stuff?

You have the risk controls and you have Sandy, and you do have a lot of -- so we're not intended to say that the impact of 0% to 10% is conclusive and entirely attributable to Bluebird. It's really too early to sort of make that sort of final determination.

We know that everybody want to somehow try to triangulate an answer, and if we could be that for you, we would. But if you look at just the weeks leading up to the launch of Bluebird, as John said, our sales were down more. So that would mean that Bluebird increased our sales. But that's not the case, it's just that we have risk controls that attacks tax fraud more than out of tax season and all that kind of stuff. So that's why the best comparisons is to give you a year-over-year same time period comparisons because the seasonality is less of a factor when you do it that way. But we will know in 6 months, right?

Yes. Now, that's helpful. Then just finally, John, the margins for fourth quarter, if I back into them, it looks like margins will drop again in the fourth quarter. Is that additional investments or how do we think about that drop in operating margin?

Well, the Q4 guidance, which I mentioned before, is conservative in light of the uncertainty we have around competition and the impact of risk controls. So, really, what you're seeing is -- assuming that the revenue comes in, in line with that guidance, a lot of that revenue decline would flow to the bottom line, which would result in a lower margin. So that's really the driver of it.

I think, operator, we're done.

Yes, sir. Sir, we thank you, and to the rest of management, for your time. And we thank you all for joining today's conference. It appears that the conference has ended so at this time you may disconnect your lines. Thank you, and take care everyone.