Green Dot Corporation (GDOT) Q4 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the Green Dot Corp. Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Christopher Mammone, Vice President of Investor Relations. Mr. Mammone, please go ahead, sir.

Thank you, and good afternoon, everyone. On today's call, Steve Streit, our Chairman and Chief Executive Officer; and Grace Wang, our Chief Financial Officer, will discuss 2013 fourth quarter and full year performance and thoughts regarding our 2014 outlook. Following these remarks, we will open the call for questions. For those of you that have not yet accessed the earnings press release that accompanies this call and webcast, it can be found at ir.greendot.com. Additional operational data have been provided in a supplemental table within our press release. As a reminder, our comments include forward-looking statements about, among other things, 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 Q3 Form 10-Q that we filed on November 8, 2013, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will 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. The content of this call is property of 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, a replay or distribution of any transcription of this call. [Operator Instructions] Now, I'd like to turn the call over to Steve.

Okay. Thank you, Chris, and welcome, everyone. With me today is our new Chief Financial Officer, Grace Wang. So here's the agenda for our call today. We'll provide a 2013 Q4 financial review and a full year wrap-up. We'll share some updates on our recent key business initiatives. We'll bring you up-to-date on how we're faring in the market in light of all the recent competitive activity, and we'll close out the call with our 2014 guidance followed by Q&A. So first, let's begin with the financial review. In Q4, Green Dot continued to perform well, achieving total non-GAAP revenues of $145 million, representing growth of 5% year-over-year in the quarter. As we previously forecast and highlighted for investors, our Q4 margins were heavily compressed as a result of the costs involved in the second half rollouts of the 27,000 new Green Dot retailers, the multiple new products at Walmart, the launch of new programs in the FSC channel and the expenses associated with the acquisition of the Walmart MoneyCard portfolio from GE Consumer Retail Bank. While we believe these are all great investments that provide meaningful growth opportunities and savings opportunities going forward, these investment-related expenses do have the impact of taking down normalized margins quite a bit in the effective periods. Looking at our full financial results for the year, as you can imagine, we're very, very pleased. We ended 2013 with non-GAAP revenue of $582 million, $2 million above the high end of our updated guidance range and $57 million better than the midpoint of our original guidance at the beginning of the year. Our blended adjusted EBITDA margin for the year was around 18%, inclusive of the second half investments, and a reported $103 million in adjusted EBITDA above the midpoint of our updated guidance range and $10 million better than the midpoint of our original 2013 guidance. That adjusted EBITDA translated to a non-GAAP diluted earnings per share of $1.15. Our cash position grew again in Q4 as we generated an additional $121 million of net cash from operations for the full year, a 19% increase year-over-year. That brings our total cash balance to $622 million, of which $200 million is unencumbered. We continue to have no debt. So despite perhaps the most challenging year in our company's history, we're pleased to have delivered our 12th straight year of revenue growth since our first year of card sales back in 2001. In fact, in the 3.5 years since our IPO, Green Dot has grown the non-GAAP top line by 82%, our GDV by 117% and we added approximately $346 million in net cash generated from operations, all just in that 3.5 year period. Since our humble beginnings as a company that started at a small table in my bedroom in 1999, Green Dot has consistently delivered growth for our investors and growth remains our primary focus. Now, let's take a look at some of our key customer-driven performance metrics for Q4. Our active card base increased by 3% year-over-year, showing a return to active card growth. The number of customers receiving recurrent direct deposit to their Green Dot account grew again this quarter, up 7% year-over-year, and the number of cash reloads rose by 4% year-over-year. As a result of more accounts receiving recurrent direct deposits and the increase in cash loads, our GDV, or total dollars loaded to our products, also rose to a new Q4 record, $4.4 billion. Remember that in addition to all the competitive headwinds in the market, Green Dot's risk control has turned away around 2 million customers in 2013 who purchased or otherwise tried to use one of our products. So to grow these overall portfolio metrics in such a year is a positive indicator in our view and a testament to the resiliency and sustainability of our business model. So the summary here is that Green Dot is, once again, not only the clear leader in the prepaid industry, but also we believe the hands-down leader in attracting sticky, longer-term customers with both the largest active customer base and the largest reloading customer base in the prepaid industry. Now I'd like to let you know how we're progressing with some of our key growth initiatives. First, here's the latest on our entry into the Financial Service Center channel, also known as the check cashing store channel. We're pleased to let you know that we're making very good progress here towards our goal of being the leading provider of prepaid cards in the FSC industry. Since our last earnings call, around 90 days ago, Green Dot has signed distribution agreements with approximately 200 new check cashing stores in 11 states, including 140 stores in the Chicago area, representing around a 40% market share in Chicago, the nation's second largest check cashing market. We expect these new stores to be rolled out over the next 3 months or so. Now the latest on Walmart. Our new expanded category of segmented prepaid card products at Walmart is off to a very good start, and we're pleased with the metrics we're seeing thus far. Because this new portfolio of so many different products is only 90 days old, we're not prepared to draw firm conclusions on how the new assortment may ultimately perform since only time can provide enough incremental cohort data to forecast precisely. But it's fair to say that we believe this initiative will be a positive contributor in 2014. Looking at our non-Walmart business, the entry into 27,000 new retailers and check cashing stores is beginning to play out quite nicely. Early results of many of these new retailers are strong, and we believe that in the aggregate, this new distribution for our Green Dot branded products can provide both revenue growth and enhanced revenue diversification over time for our business. I think our strong results of these new channels and locations also provide further revenues as to the resiliency and appeal of the Green Dot brand and our products' overall customer value proposition. Now, the latest on GoBank, America's multi-award-winning mobile checking account from Green Dot Bank. As we look at the first 6 months since the public launch for GoBank, we have reason to be excited on a number of fronts. First, while we still have a long way to go in making GoBank a material earnings contributor to Green Dot, GoBank, as a product, is trending nicely towards profitability on a contribution basis. That's a very good sign this early into the product's life cycle and we believe exemplifies how we can use our bank and our large-scale operating infrastructure to efficiently roll out new and innovative products. As we drill deeper and look at the GoBank accounts received in recurring direct deposit, these customers are highly productive with higher revenue and better margins than even many of our most profitable prepaid accounts. So while we're still in the very early days with GoBank and the revenue base is still very small relative to the overall size of Green Dot, we continue to be optimistic about GoBank's long-term prospects. Now, here's the latest on the assumption of the legacy Walmart portfolio, moving from GE Consumer Retail Bank into Green Dot Bank. We plan to close on this transaction and electronically reassign the portfolio over to Green Dot Bank by the end of February. Once this is done, we will no longer be paying GE Consumer Retail Bank for bank issuing services. I also want to remind you that back in late 2012, we did a similar migration when we moved all of our legacy Green Dot portfolios from Synovus Bank over to Green Dot Bank. When you calculate the cost savings generated from issuing our own products from Green Dot Bank for both our Walmart and non-Walmart portfolios, the cost savings in 2014 will be around $10 million, as compared to what we would have otherwise paid to those third-party banks to issue our cards previously. We expect this efficiency to grow as our portfolios grow since the payments we made to third-party banks were based on a percentage of GDV. You may recall that we only paid around $15 million to acquire Bonneville Bancorp back in 2011. So in addition to all the strategic benefits of being the bank holding company and owning our own bank, we're pleased to be realizing this level of operating efficiency so soon after that transaction. Now let's talk about the competitive environment and how Green Dot is faring. The increasingly competitive landscape in the prepaid market is off in a central topic that investors raised as it relates to our longer-term prospects for sustainability and growth. We understand that the competitive landscape is an area of focus, and so we're always happy to provide color and context whenever and wherever we can. My belief is that inventing, scaling and leading a new and vibrant market segment like prepaid is a marathon and not a sprint and that we should all expect the market to remain competitive because large and growing vertical attracts lots of new competition. Some new competitors will find traction and others will fail. But we don't make money based on the success or failure of others. We only get paid on our own success. So at Green Dot, we're certainly aware of and respectful of all competition, but we also remain hyper-focused on our customers and the business strategy we have developed to profitably serve them. As our results in 2013 showed, we feel like we're on the right track. Now let me do my best to provide some color on the specific competitive questions we get most often. One of the central investor concerns about Green Dot's future opportunity is that big banks will attract a large number of our current and potential customers and critically harm our business or that other large players, like American Express, will use their brand, deep pockets and loss leader pricing to steal share from us and cause industry pricing to fall overall to unsustainable levels. So on the big bank front. First, for some years now, BB&T, U.S. Bank and numerous other national and regional banks have offered prepaid cards targeted to our same customer base, and those programs have now been around for some years without posing any demonstrable threat to Green Dot's business. But then, in 2012, Chase launched the largest and most robust foray into the consumer prepaid market of any big bank to date with the launch of the Chase Liquid prepaid card. The launch of Liquid in 2012 caused a lot of understandable investor concern because Liquid was and is a well-designed product that featured low fees and free reloads at all Chase branches. Plus, Liquid was backed up with a massive multimedia marketing campaign. Additionally, just about every Chase branch and Chase ATM machine nationwide featured Liquid advertising and Chase specially trained their branch personnel to sell the product to likely customers as they walked in. In other words, Chase and their Liquid product team did a world-class job in creating, marketing and promoting the product. So where is Liquid today? While Chase doesn't disclose business metrics for Liquid, based on our own research, it appears that Liquid is no longer being actively promoted in Chase branches nor in mass media. We also do not see Liquid show up in any material way in our own internal customer research. To be sure, Chase is an excellent bank with a very strong brand and a robust and ubiquitous branch network in most parts of the United States. But in the world of prepaid, Chase is no Green Dot. Next, let's look at the American Express Serve product sold alongside our Green Dot products in several retailers nationwide. American Express has done a tremendous job of getting the word out for their newly launched Serve product, and their marketing team should be commended for a first-class effort. From heavy in-store retail signage, big retail stand-alone displays, circular newspaper advertising, beautifully produced TV spots that you may have seen that ran during some of the highest rated network TV sports events in December and even offering consumers cash incentives to buy a Serve card, American Express has seemingly spared no expense. While Amex doesn't disclose detailed business metrics about Serve, based on our discussions with industry sources familiar with the Serve business unit, we believe American Express has invested hundreds of millions of dollars to date in an effort to gain traction in the prepaid market. Yet despite this massive investment level, and American Express' ongoing aggressive marketing of Serve's loss leader pricing, we're pleased to let you know that Green Dot continues to thrive. For example, in one large retailer where we have third-party sales data, Green Dot is outselling Serve by an 11:1 margin for the combined December and January to-date period. To be sure, American Express is a terrific company with a very strong brand and loyal base of financially well-heeled customers. When it comes to serving America's wealthiest customers with world-class charge cards and credit cards, American Express is tops. But when it comes to serving America's low and moderate income families with high-quality, low-cost prepaid cards, American Express is no Green Dot. Lastly, on this topic, as a follow-up to the competitive data we shared during our Investor Day back in November, we continue to see similar trends for all of Q4 where our nonexclusive retailers grew faster than our exclusive retailers. While we can't explain the direct cause of these results, we believe that competition may, in fact, be driving consumer interest and this consumer interest could be helping sales for us and perhaps others as well. So in summary, we take all competition, big and small, very seriously. And like many of you, we too have worried over the years that this competitor or that competitor could pose a serious threat to our business. As you recall, that's one of the main reasons we guided down in mid-2012. But as it turns out, we believe our first mover advantage, our strong brand name, our love and respect for our loyal customers and the sheer size and scale of Green Dot in the prepaid industry has together helped sustain us through these evolutionary times. Do we expect there to be lots of competition now and even more going forward? You bet. Do we believe that Green Dot will continue to be a long-term survivor and thriver? Absolutely. So now, let's talk about guidance. As we look to 2014 and beyond, we believe we have a very attractive market opportunity and we're confident we can reaccelerate growth driven by a well-thought out strategic plan with a particular focus on retaining and growing our customer relationships. But at the same time, we remain cautious about getting ahead of ourselves because many of our new growth initiatives are quite recent. They still require further investment and will take some time to fully harvest, so we generally prefer to be cautious as we build our own internal models and we would advise our investors and analysts to do the same as you build your own models. So, with that said, for 2014, Green Dot is forecasting full year non-GAAP total operating revenues to be between $640 million and $650 million, representing a growth range of 10% to 12% over 2013. Adjusted EBITDA is forecasted to be between $114 million and $118 million, representing a growth range of 11% to 15% over 2013. Full year non-GAAP diluted EPS is forecasted to be between $1.22 and $1.28. I want to take a moment to thank the entire Green Dot team for their hard work and dedication, which allowed us to perform so well in 2013. I also now want to take the time to officially welcome Grace Wang as our new CFO. We're excited to have Grace on the team and believe her talent, drive and passion will be a big driver of value for all of us. And with that, I'll turn it over to Grace Wang to introduce herself and to say hello. Grace?

Thank you, Steve, and good afternoon, everyone. I am thrilled to be part of the Green Dot team. In my short time at Green Dot, I've really been able to see what a strong organization Green Dot is, the true depths of knowledge, experience and passion across the firm. I'm really excited to work with the entire team and to look for ways to further strengthen the company and its budgets, processes, and discipline. For those of you I did not have a chance to meet at the Analyst Day, I'd like to take a moment to share a brief overview of my background and what my initial focus will be here at Green Dot. I joined Green Dot with more than 20 years of experience in business and financial services. For the past 9 years, I was at JPMorgan Chase, where I served most recently as the European, Middle East and Africa Chief Financial Officer for JPMorgan Chase's $6 billion investor services business based out of London. Prior to that, I was the EMEA CFO and Head of International Strategy and Business Development for their $8 billion Treasury and Security Services business. At Green Dot, my initial focus will be to further strengthen and mature our internal processes and financial controls to ensure we have the right level of support for the growth of the business. For those who know me, I'm stringent on cost controls and holding the division leaders accountable for their numbers. At the same time, I understand the balance between executing discipline and investing where needed to ensure we have the platform to support future growth. The more I can do to ensure continued financial and operational excellence, the more time we and our division leaders can spend focused on driving our business and delighting our customers. I'm also passionate about building the business and taking it forward into the future and ensuring that it is nimble enough to continue to grow and extend into new channels, new products and bring new services to our existing client base to retain them longer. In coming to Green Dot from JPMorgan Chase, I am fortunate to join another firm that also believes in having a [indiscernible] balance sheet. As of December 31, we have total cash and investment securities of $622 million, that Steve mentioned earlier, including $422 million at Green Dot Bank and approximately $200 million unencumbered cash held at Green Dot corporate. This allows the firm to meet not only its regulatory requirements, but also positions us to take advantage of market consolidation in the sector at the right price. As mentioned, I am happy to be here and look forward to meeting all of you over the coming weeks and months. And with that, I'd like turn it back to the operator and open it up for questions.

[Operator Instructions] Your first question comes from Ramsey El-Assal of Jefferies.

On the quarter and the guidance, it looked like the top line came in pretty nicely, but the bottom line was sort of below our expectations in the quarter. It looked like you're processing expenses, and your G&A expenses are really higher than we modeled. What's the dynamic there in terms of how we should sort of view FSC's expense levels going forward? And sort of what you've experienced in the quarter, are you going to continue to need to invest in the business all through next year at sort of similar levels as we saw in the fourth quarter?

No, not that high. We tried our best to signal the investors. Chris and I did a show at the Goldman Sachs Conference and at, maybe it's Credit Suisse, I forgot the -- back in October or September. And we mentioned last earnings call that the cost involved of rolling out so many retailers, you have to understand, 27,000 stores is not a small number of buildings and parking lots and packages and displays. Then on top of that, you had all the new products at Walmart, each with its own technology needs and each with its own special segment and customer service requirements. And then launching into the Financial Service Center channel, which you heard in the prepared remarks, we're doing pretty well in. And then as if all that wasn't enough to digest in a 4- or 5-month period, we have the Federal Reserve approval to purchase the Walmart MoneyCard portfolio from GE Retail Bank and all that requires, puts and takes and settlements and a ton of technology and people and consultants and all that coming in to make that happen. So, on one hand, the answer is no, I don't imagine we'd have all that coming together again in any one quarter or any half a year. Although, if it happened, that would be wonderful, too. But having said that, we still have some investment as we always do, right? We're going to be rolling out more stores in the FSC channel. And we're also digesting the 400-basis-point increase in Walmart, which is 60%, 65% of our revenue, and that's a big margin hit to digest while still building scale and efficiency. We're also investing, in 2014, in a lot of technology and product improvements as part of our ongoing retention campaigns, which you can tell have performed well, the behavior on our cards continues to improve. So there's always money to be spent, but certainly not at the level that we did in the second half. That was an extraordinary -- in a good way, extraordinary investment period for us.

So on margins still, I think at Analyst Day, and correct me if I am recalling this incorrectly, but I think in Analyst Day, you mentioned that sort of a normalized -- you said that this could -- the adjusted EBITDA margin of the business in a kind of a normalized environment could get at -- could have a 2 in front of the number...

That's right.

Is that still something that you feel is achievable in kind of a normalized environment? Or is this sort of a new -- a kind of a new reality investing in the business here?

No, we -- yes, what I said, and I still stand by it, is that the long-term margin for Green Dot should have a 2 in front of it. And what I mean by that is you spend all this money but it takes 6, 7 months to get to the revenue from a card bought. So the fact that a fellow buys an account on a Monday, it may be 6 or 7 months from that Monday to generate that revenue and counteract the cost it took you to onboard him and to roll out the product. So the answer is we still think a 2 is the right number, but it clearly won't be in 2014. But as we continue to grow revenue and we keep our expenses in line, and Grace continues to wield the hammer or mallet, the steel mallet of expenses, we think a 2 is very achievable but not in 2014 for all the reasons we've discussed.

Next, Sanjay Sakhrani of KBW. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: This is actually Steven Kwok filling in for Sanjay. The first one, just following up on the expenses. I mean, when we -- when looking at the back half of 2013, there seems to be some increase in expenses that appeared to be like temporary. Is that not the case anymore where you'll need to continue to invest in 2014? Or is 2014 -- is there a way to quantify how much of that -- of the investments is kind of one-time in nature?

Well, similar to the last question, we said, this is my memory so it may not be precise but it's going to be pretty close. In the last earnings call, we talked about the fact that there's about a $30 million investment, of which half was capitalized and half hit the income statements. You're looking at in the -- if you think about second half in Q4, call it, I don't know, $7 million, $8 million, whatever it was, that hit that one quarter, that was part of that rollout. Plus, if you look at the earnings line, the EPS line, on top of that the amortization or depreciation that was involved in all that activity. So would we had -- and that is $30 million on top of what it normally takes to run Green Dot in the way we run Green Dot. So I wouldn't expect such big numbers to hit repeatedly. But having said that, it would be wonderful if it did because it means we're expanding our business well beyond our guidance. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then just following -- in terms of the purchase volume, the year-over-year increase was only 2% this quarter. And when we go back the last 2 quarters, like 10%. Is there anything unusual going on? Just wanted to see what the go-forward rate should look like.

Yes. I think we got a little bit hammered, frankly, by the weather because we have trended better in previous quarters over the years, if you go back to the various Qs. And so I think, frankly, us and all card issuers, not just Green Dot, had a challenge with weather and ice storms and all kinds of crazy stuff that really impacted folks, including you all in New York. And so when you have blizzards and snowstorms and ice, that doesn't do a great thing for retail sales and spend and reloads and that kind of thing. But nevertheless, if you look at our year-over-year, we feel good that those metrics are up. Think about this, we're talking about not individual metrics. We're talking about global portfolio metrics. So at a time when you not only have all the competition and at a time when you're not only turning away folks with risk controls that continue to evolve and so on and so on, we still grew the aggregate portfolio behavior. So I'd give you a sense that if we haven't done those things with a normalized growth, we would have been. But I think in Q4 specifically, the weather was not helpful to us. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: Got it. And the last question is around the Walmart relationship. Is there any updates on the renewal process?

Well, I can tell you that the contract expires in May of 2015. And here's my feeling on this, and it's a fair question and we get it all the time, and Walmart is such a fabulous partner and a great client and so that's a fair question to ask. Every time we meet with Walmart, every time we have a discussion about product, every time there's a concern or issue, every time there's a question, our Bentonville team, we have an office in Bentonville, and the fellows there who work there year-round, the folks here at headquarters, every contact with a Walmart executive is an opportunity for us to make a positive impression and let them know how much we care about their business and how much we care about fulfilling their dreams and goals in this market. And so I wouldn't say that a renegotiation of a contract that some of that happens at a certain time on a certain day, it's a long-term objective to help them always understand and to make sure that we behave in a way that is the vendor of choice. And so we're always optimistic for our continued relationship.

Next, we have Tien-tsin Huang of JPMorgan. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: Just want to just follow up on the revenue guidance a little bit. The fourth quarter metrics, it looked like a lot of the key metrics slowed a little bit. I heard the weather comment, but just trying to reconcile those metrics to the 10% to 12% revenue growth. Can you help build that up for us a little bit? I know tax could change things very much on the baseline, but just a reconciliation will be helpful.

Well, it's a good question. And Chris, maybe you can be helpful with this, because Grace, I hate to ask you because you're so brand new. But as we look to the model and built it in, everybody, all division leaders participate, you have the revenue growth, which is somewhat easier to predict because you can look at existing sales trends and build it up and we know from history what our accounts generally deliver and over what time period they generally deliver. So revenue tends to be the easiest part, Tien-tsin, of putting that plan together. What is somewhat more capricious is what cost will be involved, what initiatives that we don't announce on these calls because they're not yet public, we're working on and what that might cost and all that and how that plays into what the actual number will be. And then on the bottom line, how the depreciation and amortization schedules work in all the tax rates and tax credits, so that tends to be somewhat more difficult. So we feel pretty good about the revenue, and if we feel good about the rate -- well, we feel good about all of that, otherwise we wouldn't be guiding it. But I wouldn't say that the metrics in Q4 are the result of anything except, if you will, all the fewer cards from the risk controls sort of plateauing and then a reacceleration of growth with the first time we've had active card growth in quite a while showing that we're now building active cards. So if you think of the train of revenue, first you have to sell a card, then it has to be successfully activated, then it has to be used and reloaded and then the revenue begins so that growth in active cards and all the new rollouts in October, I would describe as the beginning, the engine of the train. And then as it flows through the year, it becomes fairly easy to predict if you were sitting in those meetings with us. So I think we have pretty good -- we have confidence. But of course, anything can go bump in the night and so we acknowledge that. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: Yes, totally understand. So just thinking about the margins, I know you've had a couple of questions on expenses. Just margin expansion of 30 bps. I think you've mentioned $10 million in incremental savings from the GE acquisition. So it does seem like you're spending a little bit more than average in '14. So just to put more detail to that, is it customer acquisition cost, proactive marketing? I don't think it's commissions, but just trying to -- a few more answers to that.

So first of all, I want to clarify just one thing. So the $10 million was the combined savings between the Synovus portfolios, which are all of the Green Dot cards and Walmart. But yes, so all the $10 million is not incremental. I'm simply pointing out that Bonneville Bank worked out well and that we actually got more efficiencies going forward. The question about our spend in '14. '14 is still a more expensive year than normal, but not as expensive as '13 was. And the reason is that we continue to evolve, Tien-tsin, into a technology company, a leading FinTech company with the coolest products for the coolest customers on the planet. And that's a change in our company. If you think about where we were 3, 4 years ago, we were a prepaid company without a bank charter, that had very basic technology, that had a great product, but that's what it was. Today, we're leaders in mobile banking. Today, we're running technology products for all kinds of retailers from big cloud data projects to all kinds of other analytics that we build behind the scenes that help us to drive retention. We're also investing a lot in just our platform and infrastructure and a lot of new features which will help us build retention to make our customers able to use our products as they would any checking account or any kind of bank account, not just a prepaid card. So I suppose there's some heavier expenses as we continue to modernize the infrastructure of Green Dot and become more and more of a tech company, but certainly not at the level we had last year. And then I think we also have to remember that the Walmart commission step-up for 400 basis points on 64% of our revenue is a big chunk of meat to swallow that hit for half year last year, another half year this year, and all that would be a headwind. So to still expand margins by 30 basis points despite all the new entries into the new channels, the takeover of the GE portfolio, which is a massive job. You're thinking about hundreds of employees onshore, offshore, China, here. These are big, big enterprise-level, big bank kinds of projects. They don't happen everyday, but there's no question they're expensive.

Next, we have David Scharf of JMP.

Couple of things. One, at the top line, Steve, I think in some previous quarters this year, you help break out for us the revenue growth at Walmart versus non-Walmart accounts. Can you share that?

I don't know. We have it, I guess.

Yes, we have it. For the full year, Walmart revenues were up 6% and non-Walmart revenues were up 4%.

For the quarter, is there any way to...?

For the year. For the quarter, Green Dot, I think, grew fast in the quarter at 9% and Walmart was down around 2% or 3%.

It grew 3%.

Got it. And related to that, recognizing it takes a while looking at a quarter's worth of new signings, a quarter's vintage to kind of assess the -- what usage characteristics are going to be. Just looking at the last few quarters of new accounts going -- so now you have 3 and 6 months of history, are the -- is the direct deposit and reloading characteristics of the Walmart and the Green Dot account holders looking similar lately? Or is one segment showing more of a proclivity for being a reloader?

No, I think they both have fairly similar characteristics in terms of behavior. So no, I don't think there's any huge gulf or huge divide on that. But also, just as a point of clarification, all of our new retail launches were only done in October. So these are all very, very recent. So we have 90 days of 27,000 retailers, 90 days of all the new products at Walmart, so these are very young initiatives. So it hasn't even been 6 months. It's been 3 months.

Got it, got it. And then maybe just to follow up on the expense side. Relative to maybe 2, 3 months ago, Steve, is your planned investment in building out check cashing this year, as well as GoBank, would you -- the most to be materially more significant than you thought they would be, maybe a quarter or 2 ago?

No, I don't think so. We're having more success in FSC channel than we thought we would. In other words, we knew we'd be successful and strong. But frankly, that train is going pretty fast so maybe there's some accelerated rollout expenses there. But that's a good thing because earlier in the year, you can sign those stores, the longer you have to get some revenue from those accounts as the retailers launch in the year. So that's a good thing. GoBank is actually not a material expense, the rollout was expensive last year. And there may still be some IT that is depreciated and that affects EPS this year. But no, I'd say the majority of expenses are the overall running of the company and digesting the margins and all the things we've discussed, not the margins -- adjusting the increases at Walmart commissions.

Next we have Mike Grondahl of Piper Jaffray.

Can you talk a little bit about the pipeline for new retailers? And then I have a follow-up.

Well, let's see, what can I tell you that I can disclose on pipeline? The answer is the Green Dot brand is more in demand than ever. We have lots of retail meetings. We're in a whole lot of stores right now, so I can't tell you there's another 100,000 hanging out there in the wings. But there are some interesting retailers and other kinds of neighborhood and segments, and demographics we'll probably get into. And I think there's a whole lot of check cashing stores we'll get into. So I'm trying to think of what else I can disclose. I think we feel good about our sales and revenue pipeline, and we feel good about digesting and harvesting all the great stuff we did in Q4. And I wish I could tell you more is probably all I can say, I suppose.

Okay. And then I'm just trying to reconcile the margin a little bit, sort of being up 20 or 30 basis points. The last slide of the Investor Day, I think was opportunity to expand margins, and it listed like 9 things. Are you not getting some of the traction out of those things? Or is it simply just the investments that carried over more into 2014?

Lot of investments carry over into 2014, especially in Q1. And we did highlight last quarter, we talked about the fact that 1/3 of all the rollout expenses in Q4 rolled over to Q1 as well. So Q1 will be somewhat depressed. But none of them -- the stuff we're investing in, whether it's efficiencies and all the things we're doing in scale and new technologies actually are working quite well and we think they'll work way better as each year drives by. But it's expensive. I mean to give you just a simple example, we spent a ton of money, in the last year, there was long project that got hit in second half with some new CRM software that drives our worldwide call center. You have to understand the company the size of Green Dot does millions and millions and millions of calls a month. So every second saved by an operator, every IVR that can handle a call, these things are quite meaningful. And -- but it's expensive to do it. And some of that is capitalized, a lot of it isn't. But now that it's rolled out, the cost savings are quite material, right? So we think these are the right investments to make, not just for efficiency but for better service and everything else. And also we're a company that continues to grow, and we have a bank that's really rocking and rolling. That itself has its own needs to make sure that we can roll out innovative and new technologies and products and services for our customers that we can do as a bank that other prepaid companies cannot do when they're not a bank. And so we're making sure we have the right underpinnings to do that properly and safely. So we're really -- Mike, and I don't mean this to be glib, but it's a constant debate and discussion that we have internally at Green Dot as we look at our fiscal process. We can run the company in a number of different ways, but the way we've always chosen to run it is, number one, thoughtful and conservatively; and number two, as a long-term growing stand-alone public company that is determined to be the absolute leading bank of choice for the masses. And you can't do that by not investing in the latest call center technology or not helping your platform handle the transactional volume. We'll do something like 1 billion authorization this year and believe it or not, our little Green Dot Bank that we bought only 2.5 years ago went from nowhere to now being a top 15 or top 20 debit card issuer in the entire country out of over 14,000 banks and credit unions. So you just can't do all that and ignore the infrastructure, ignore the talent level. You have to invest in all those things so you can continue to grow. And so when you're doing it, you're doing that, you're absorbing Walmart commissions, you're building all the new features and services that we believe will build more retention on our products and you're trying to deliver the results for investors and then guide appropriately in so doing. So I think that's kind of where we're at. I don't know if that answers your question or that's too much, but that's sort of where my head is at on it.

And if I could just follow up to that. Is there any way that you could sort of say, hey, we think the investment dollars that extended into 2014 were x and so many relate to the 27,000 stores, so many relate to Walmart and then so many relate to check cashing. And so we can kind of see what is extra investment there is or elevated investment?

Yes, I think we couldn't do it on this call because it would be guessing and not a wise thing to do. But what we could do is have -- and I think we have sort of that when we did the Goldman show, the conference, when was that, Chris, in October, I think?

In the September, yes.

We did have a slide that should be on our website on the IR page that talked about the investments, and we did break it up. I think at that point, we were not able to disclose the investment in Walmart, so I think we just called it...

A new product rollout.

A new product rollout and big investment. But we did break out sort of part of those expenses and then we can do it more granularly now that a lot of these have rolled out. And if that's something that you think might be helpful to others, we're happy to do that.

Next, we have George Mihalos of Crédit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: So not to beat a dead horse on the margins, but can you maybe help us think of the progression of the margins through the year? I know we're used to seeing margins being strongest in the first quarter, with the -- with all the direct deposit tied to the tax refund. Should it be more uniform this year around 18%?

Well, I don't know that I want to say that. I think that the first quarter or the first half, you're right, it has generally expanded because you have a lot more revenue against the similar cost base since you have all the direct deposit and all the things you just said. This year, Q1 may be a bit depressed because, again, a lot of that expense that we have from second half will roll into Q1, and that we have previously disclosed in and talked about. So I don't want to guide quarters and I don't want to say more than we're prepared to say because it may not be accurate or verified, but for the year-long margins, I think what we guided looks very good.

The other consideration is in the first half, you have the higher Walmart commissions versus last year when they're still lower commissions.

Yes, it could lap, yes. But if you think of the full year at 18%, that's about where we think we'll end up for this year. Now if revenue grows faster than what we're guiding, of course, you could have some efficiency flow through. But I said this in the prepared remarks but I want to reiterate it again and we said it at conferences many, many times that we try to plan cautiously because we're a growing company with an increasingly important brand in the banking industry, not just in the prepaid industry, in the banking industry. And as such, we have a lot of opportunities before us. And so we look at our forecast and we try to plan with thoughtfulness and with caution and with the knowledge that things can go bump in the night and then we guide in a way that our investors can hopefully rely upon. And if we beat, we'll raise as we go. And that formula has been something we've done for some time. And so I don't know if that's appealing or not appealing, but I just want to let you know sort of how we think about it. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. Well, it's helpful, so I appreciate that. And just a follow-up question, just turning on to David's question from before on maybe some of the different characteristics between the Walmart customer base and the non-Walmart base, is the lifetime value of a non-Walmart customer similar to a Walmart customer?

Gosh, let me think how to answer that. I would say the answer is probably similar, but at the same time, probably not exact. And since I don't have the accounting in front of me, it'd be hard to say. But generally, our customers have similar characteristics in terms of reloading behavior and the revenue they generate over their lifetime. So if there's differences, I wouldn't say they're massive differences and nothing that I would focus on and building a model out of it, I suppose.

Next, we have Ashish Sabadra of Deutsche Bank.

Quick question on the cash transfer. So that slowdown, was that also related to the weather? And going forward, should we see that thing ramp up to more normalized level? And also a related question on the cash transfer itself. I was wondering if you could disclose how much did the third party reload grew this quarter and what percentage of the reload is actually third-party reload?

Yes. So the cash transfer slowdown, we think, is a couple of things. So again back to my train analogy, I guess, as I think about that. So you buy the card, you activate it successfully and then you reload. So reloading normally trails about 30 to 60 days from card activations and these new programs are recent. So this 3% increase over 90 days of card sales and active cards has not yet reloaded. These are all cards, I shouldn't say all of them, but that cohort is new from November, December and now we're into January, right? So I would expect that to pick up as active cards pick up. And also I would expect that all of our metrics would have slowed because, again, we've blocked 2 million customers over the course of the year. So as you're not going [ph] active cards and you just turn away more customers, people begin to attrite and they begin to flatten out and you plateau and then you kick back up again. So we're back in that cycle now of the train starting from slow and picking up speed, whereas parts of last year, we have the train slowing down the inertia that, that involves. So that's also part of where you see the metrics. I'm sure the weather didn't help either, but I wouldn't think the weather is a huge part of that. Maybe at the margin, but I wouldn't say it's massive. And then Chris can give you the answer on...

The second part of your question, the portion of cash transfer revenues that came from third parties was 29% in Q4 of 2013. In the year ago period, it was 26% of cash transfer revenues.

Next, we have Bob Napoli, William Blair. Robert P. Napoli - William Blair & Company L.L.C., Research Division: I was hoping to dig in a little bit on the guidance on the revenue growth and just thoughts around the active card growth that you have in your guidance. Do you expect active card growth to approximate revenue growth? I mean, you have been getting a little bit of increase in revenue per active card. Do you expect that to continue?

Yes, we would. So active cards, just from a mathematical formula point of view, tracks amazingly close to revenue and vice versa. It's not exact because it isn't just active cards. It's how those active cards behave and all that. But if you were to just look historically over many years of the company, active cards, if you said, hey we're going to be up in 10% active cards, then you would expect to be up 10% in revenue. And that has held through give or take a few basis points for many years. So I think it's fair to say that active cards will track our revenue forecast. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. And then just -- JPMorgan talked about -- announced that they're going to sell their portions of their prepaid business. I don't think Chase Liquid was included in that based on your comments. There may not be anything at Chase Liquid to sell. But the similar -- I guess, the other pieces of it might be something that could be of interest to you. I guess, I didn't -- so I just -- wonder your thoughts that would certainly reduce the exposure or the concentration, the exposure that you have with Walmart, 66% of your business, and get that to a smaller number and open up some other growth opportunities for you. Is that something -- is that type of an acquisition something that you would take seriously when you have such a strong balance sheet, and that's what you're going to use it for?

Well, so it depends if I have to pay William Blair a commission. No, I'm just kidding. The answer is, we are fairly -- we're very active in looking at a ton of acquisitions, and we probably vet, I'm going to say, 2 or 3 a month of various sizes. But at the same time, we have a pretty strong policy that I don't care what the acquisition is or isn't and how tasty it is. If it isn't accretive, then it's just not something we're going to move forward on. As it relates to the corporate assets of JPMorgan's prepaid business, which is a government business, like benefits, it's a corporate business with some payroll accounts and then a health care HSA account business. Liquid, you're right, is not part of that. That's on a retail bank, this is on a corporate and commercial side of the bank. Those are assets that we'd love to look at and be aware of because some of those could be great. We have a huge amount of respect for JPMorgan. As you know, they led our IPO, and so I have a close personal affection for many of the folks there and I know the businesses well, and love the bank as a company. So, for all those reasons, it could be something we'd look at. But obviously, to give more determination or more specificity on the earnings call probably isn't the most prudent thing.

Next, we have Glenn Fodor of Autonomous Research.

With respect to GoBank, we saw T-Mobile enter the mobile checking account space this quarters. It sounds like it's a little bit different twist on that story than GoBank. But realistically, this could be a competitive product. How do you think about the strengths of your position in offering this type of service versus folks like T-Mobile and carriers and what I imagine will probably be a bunch of other new entrants at some point?

Yes, there'll be a 1,000 of them. I mean, so the T-Mobile product, we're familiar with. It is a prepaid card and marketed as a prepaid card. It's not a DDA or a checking account, but it is a prepaid card that has a mobile app that allows you to do add minutes and whatnot to a T-Mobile prepaid phone. And it's a good product and T-Mobile is a great company. And so if you're a T-Mobile prepaid phone user and you're in the market for a prepaid card and you think the benefits are good, that may be a fabulous choice. But I don't know that it has any bearing, good, bad or indifferent on us or any other players in the space. It's another product that appeals to a segment and we wish them great success.

And then just to follow up on GoBank. Do you have any sort of metrics on the uptake of people who were percents or whatever of downloading the GoBank app and then becoming regular users? I mean, is there some type of conversion rate metric that you look at? And how does that compare to other consumer finance solutions?

Yes. We -- none that I can disclose, but we obsess over what we call the waterfall. The waterfall means I learned about GoBank, maybe I read about it in the New York Times, in the Wall Street Journal or saw it on a TV show, what have you, it sounds cool. It won an award. Hey, listen to that or I'll download it. So first, you measure the awareness, the download. Then from the download, how many people successfully pass CIP, which is your Customer Identification Process. Once you've done that how many folks will make their initial deposit. And of those people who make their initial deposit, how many of those will own direct deposit and become regular ongoing users. So you have a 4- or 5-step waterfall, and we obsess over every dropoff at every piece of the waterfall. And you're constantly fine-tuning it and well, gosh, why are so many people dropping off here? Or how come this guy downloaded it but didn't make an initial deposit? So that's -- the product team works on that all the time, and it's certainly one of those things that you look to improve when you can.

Which -- so you're tracking better than other consumer finance apps, if you have that type of data?

I don't know. We're banking, it's a real bank account, not a budgeting tool or something of that nature, which doesn't have the same regulatory requirements. I can't -- it's hard for me to compare. If you were to compare our app plus successful downloads to other large banks, whether it's via [indiscernible] or Chase or someone, I would imagine that, well, they actually can't -- you're not allowed to open accounts on those apps. And there aren't -- actually if I think about it, there are no other stand-alone mobile checking accounts at all. You have Moven, which is a start-up and they have some neat stuff. And you have Simple, which is a start-up that also has neat stuff that then rents a charter at another bank to do their work. So I don't think there is anything quite like GoBank, frankly, so it's hard to compare. But I would say that the approval rates are similar or better than some of our prepaid cards, not as good as your online prepaid card account acquisitions better than retail. So I don't know if there's anything radically good or bad about it, but what -- where we can improve a lot is just the overall waterfall. You downloaded it, you passed CIP, which you have to go through a process, how come you didn't make that first deposit? Did you forget? Was it too hard? The kinds of things that any product manager would do as they look at a new product.

Ashwin Shirvaikar of Citi.

This is Phil Stiller on for Ashwin. I just wanted to follow up on the Walmart growth. I think you said it was 2% to 3% for the quarter. And I think that's the lowest it's been in a while, which is surprising, given the product introductions there. Can you provide some color. I mean, I think you said you were pleased with the -- how the introductions went, but can you reconcile that with the growth rate?

I don't think I would put a lot of stock into that one way or the other. Remember that you start to roll out on October 15 to 16. You're disconnecting product from one rack. You're adding product to another rack. You have hundreds of what are called jobbers or merchandisers going to retailers screwing on racks to displays and checkout stands, and you have so many things coming and going up and down, sideways and frontwards, that to draw. And that's why I said this before, these are so early, you're looking at 45 days, 60 days of revenue from an account sum setting from GE Money Bank or GE Consumer Retail Bank into a new format and being rolled out with people buying cards that, again, will generate revenue over time. So a card bought in November wouldn't generate any material revenue in November or maybe even December. It'd be January, February, March. So I think you need -- as you all build your models and as we build our own, we'd think of that train analogy that you're beginning the inertia of the train and it builds. Just like when last year, we had the competition that we put on the risk controls, which turned out to be more impactful than actually the competition was. It took a long time to slow down the train. So that's the nature of large portfolios, nothing happens tomorrow morning or tomorrow night. These things move in ways and sequences. And I think we feel pretty sure from looking at the sales and results and the active card growth in a short period of time that the wave is now on the upswing. But with all the headwinds and so forth, clearly our growth rate was on a downward trend from where we used to be, let's say, before the risk controls and so forth. So I don't know if that's helpful, but that's how we think about it, that wave movement of the revenue and the payoff of a new account.

Okay. And then you mentioned earlier you referenced your online distribution, can you talk about how big that is today, relative growth rates? And is there any plan to invest in that more significantly, given the brand strength that you guys have and how profitable that channel might be?

Well, we invest at a CPA where we can be highly profitable with it, but we don't have a mission to be #1 online. Let me tell you what I mean by that. By the way, we have a strong online acquisition and some of our best customers come from onlines. We like the channel a lot and that's both at greendot.com or walmartmoneycard.com and we have many other products that we sell online through our various sub-brands and flavors. So we like the channel, but we -- I just don't like -- how should I say this, I get an allergic reaction to our division leaders who'd come in and say, hey, I want to really floor it and run our cost per acquisition at a rate that is dilutive to the revenue of the card you're selling. So you don't want to spend $90 on an online-acquired customer that you may -- only make in the year $50 on or something. So we sort of have these metrics that we focus on that the cost per acquisition has to allow the card to be accretive either in the period or nearly in the period that it's sold. So I don't know that we're investing more or less, I'd say we're investing appropriately to make sure we're highly accretive and every customer we acquire online because we have many, many channels, right? So we're not just an online only company, and I know that some of those companies have to spend more to keep the wheel spinning. So the answer is we love online. Are we investing more? I'd say we're doing the same thing we've always done and we monitor cost per acquisition to make sure that that's a profitable channel.

Okay. One last question if I could sneak it in. It looks like there was an impairment charge in the quarter. What was that related to and what expense line was it in?

It was in technology and it was for some internally-developed and then later decide not going to be used internally software that we wrote off because we're just not going to use it. We use part of the code, but not the other part of the code and the answer was just get rid of it in Q4 and move on. We're not going to use it and we've already found better solutions that are more efficient as we've hired a lot of new technologists from more sophisticated companies and we've looked at our underpinnings. There's some code that we began on -- back in the old days, if you will, that it just became clear it was not going to be used.

Andrew Jeffrey of SunTrust.

Steve, you mentioned a couple of times having turned away about 2 million was the number you gave us, 2 million customers, so...

Yes. Between new cards bought that were not able to be activated or existing customers who were blocked for one reason or another, it's a lot of people.

Is that roughly of the -- in line with the 20% rejection rate that you've talked about recently?

Yes, that's exactly right. So well, yes.

How would you expect that to trend next year? I mean if there's one lever that you haven't really addressed, now you've got a year of data and experience around risk management and fraud rate and so forth. Is that a lever you can pull to drive active card growth in 2014 or should we not think about that? Is the increment, is your revenue growth guidance entirely a function of new distribution with -- coupled with the sort of low to mid-single digit growth rate we're seeing in the installed base?

Yes, the revenue growth is new distribution, more sales and more activations because you have more sales and then better behavior because the product becomes more adopted and you've seen that trend. On risk controls, we would never use risk as a lever to increase or decrease revenue. We would simply use risk controls as a lever to decrease risk and make sure that our bank is clean as a whistle and that we have the kind of portfolio that we want to have. Having said that, it's also true that we're a more sophisticated, bigger company today. As you look at these investments in these massive brick [ph] systems and neurologic networks that predict behavior and shut down accounts and generate reports that look suspicious, we do become more sophisticated. So let me think of a good analogy because people always make fun of my analogy. If prior to the better technology, we used a sledgehammer to kill a cockroach, it certainly killed the cockroach but it may have also cracked some foundation on the floor that was unnecessary. We're beginning to with our risk team that does a fabulous job and we're beginning to, with our better technology, start to be able to segment types of risks, types of behavior, better alerts so that we can now use a smaller hammer and maybe not a sledgehammer, but we still need to kill the cockroach because we have no interest in running the bank of our size and the sustainability we want to have by allowing any kind of silliness into the system.

So is that another way of saying that the rejection ratio may decline, but it won't be by design relative to growth? It will be by...

If we alter risk -- and by the way, there's no one day, and I get this question a lot and I appreciate it, it's actually a very insightful and thoughtful question. People say that when you did this to risk control, there's no -- it isn't like, hey, let's do something to risk at Tuesday at 2 o'clock, we'll have a meeting. It is an evolution of new kinds of fraud, looking at monitoring boards online to see what people are thinking about our cards and how they're using it. It's looking at weird behavior that sometimes you may not even understand. What does that mean? We don't know. Let's track this and watch it. So it's a constant update that when you have your enterprise risk committee meetings on a regular basis, there'll be all kinds of discussions and details around what you're seeing. So you're always adjusting this, doing that, hey, wow, we went a little bit nuts over there. We can back off of that, or it looks like we're not stringent enough over there. So it's an evolution of how those controls go together. Not one switch you turn on and off. But -- so the question is do we always adjust and monitor risk controls for efficiency? The answer is absolutely. Would we purposely do something to risk control for the sheer benefit of increasing enrollments, no.

Okay. And one follow-up, a housekeeping question. I noticed your share count guidance in '14 is actually a decline from the weighted average outstanding in the fourth quarter. Is that exploration of options? I don't think there's a buyback in there, is there?

There's not. And I hate to plead ignorance, but we have about 44,500,000 shares of something. Is that different, Jeff?

No, I think we had -- for the year, it was 44.5 million. We're projecting somewhere in the 45 million range for 2014.

So I don't think that's different than where we've been. I know there are some services, though -- if you look at some of the new services that I think they may only count common shares and not preferred and others because they always tend to have the valuation of the company smaller than it really is. So I know that there are some reporting services that have a smaller share count than what it is in reality, but roughly 44,500,000 is the right number.

Your guidance says non-GAAP of 45 million and the non-GAAP at the end of the quarter was 45.8 million, so it implies that there are about 800,000 shares in the fourth quarter, the full year that go away.

Yes, some of that diluted share count and just as our stock price goes up and down as people exercise options and there's some variability in there, but our best guess for 2014 is going to be 45 million.

Okay. So at this point, I think we're -- yes, it's actually overtime. Listen, we appreciate all the questions, and thank you for listening in. And we look forward delivering a good 2014 for you, and we look forward to meeting you at the conference. We're going to be at KBW in New York a week from Monday, February 10, and then somewhere else -- we're doing something else? Well, a lot of 101s [ph].

Yes.

Okay. Well, very good. We look forward to seeing you soon. Thank you, everybody, and have a great day.

And we thank you, sir, and the rest of the management team for your time. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, and have a great day, everyone.