Green Dot Corporation (GDOT) Q1 2014 Earnings Report, Transcript and Summary

Good day, and welcome to the Green Dot Corporation First Quarter 2014 Earnings Conference Call and webcast. All participants will be in a listen-only mode. [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 for Green Dot. Mr. Mammone, the floor is yours, 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 2014 first quarter and updated 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 this earnings release and in Green Dot's filings with the Securities and Exchange Commission, including the most recent Form 10-K we filed on March 3, 2014, 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, 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 and also with me on today’s call is our Chief Financial Officer, Grace Wang. Okay, so let’s begin with the financial review of the quarter. Green Dot posted a solid Q1 with non-GAAP revenues of $162 million, representing a year-over-year growth rate of 4% and adjusted EBITDA of $38 million, which represents a year-over-year growth rate of 10% and calculates as an adjusted EBITDA margin of 23%. Our non-GAAP diluted earnings per share were $0.42. As you may know from previous commentary, our adjusted EBITDA margins came in stronger than what we had expected when we first put together our plan for the year. This is largely due to increasing operating efficiencies and a better mix of higher margin revenue coming from better than modeled customer usage behavior. Results also benefited from $5.6 million of additional revenue from accounts that previously had courtesy fee blocks that were lifted in the period, but even if you backed out that revenue, our adjusted EBITDA margin was still around 20% which is quite a bit better than what we had expected. As strong as our revenue and adjusted EBITDA results were in Q1, we also have some negative events in the period and we’d like to shed some light on those challenges for you. First, we estimate that there were approximately 22 bad weather days where as much as two thirds of our selling geography experienced weather that was bad enough to slow card sales, reloads and retail spending through our cards. While it’s hard to know precisely, we believe that the bad weather accounted for perhaps a loss of around 2% of revenue in the quarter. The Target data breach also impacted our topline and bottom line results for the period and here is why. As a precaution, sales of some of our products were suspended and pulled off the shelf for approximately 45 days in the period. Some of that inventory is still not back on the shelf. We took these proactive measures because we wanted to ensure that products that we sell that don’t have the same type of customer verification processes as our GPR cards weren’t purchased by bad guys using stolen debit and credit card data. So we lost those sales until we were able to get a better handle on the scope of the hack. The suspension of sales and the associated collateral impact of removing these products off the shelf generated a loss of about 1% or so of revenue in the period. Then on the expense side, we experienced much higher than normal charge-offs from customers whose card data was compromised in the Target breach. As you may know, one of the many valuable services that Green Dot offers its customers is full regulated dispute and [arrow] resolution protection known in the banking industry as [REGI]. So when a customer spotted an unauthorized transaction on their card statement, they called our customer service center, reported the disputed transaction and if deemed to be a legitimate dispute, they were refunded the amount of the unauthorized transaction. We also then encountered the expense of mass reissuing of cards to customers who we believed could have been impacted by the Target data breach, whether or not they reported a dispute. So all in, we estimate the cost of refunding customers who reported unauthorized transactions, and the cost of reissuing potentially compromised accounts, cost us together around 2 points of adjusted EBITDA margin in the period. So always some puts and takes, but all in all we had a very strong quarter and we’re quite pleased with our start to the year. Now let’s take a look at some of the key customer driven performance metrics for Q1 that helped contribute to the headline results. First, our active card base in the period increased by 5% to 4.7 million active cards. This is now the third sequential quarterly uptick in active cards and is consistent with what we previously described as the big train of active customers that takes a long time to slowdown and a long time to speed up. So we’re moving in the right direction in accordance with our expectations. Next, the number of customers receiving recurring direct deposits grew again this quarter, up 8% year-over-year, and the number of cash transfers rose by 4% in the quarter year-over-year to 11.7 million transactions. The result of all this positive activity is that our GDV rose by 4% year-over-year to a new all-time record of $5.3 billion in the period. Now here is a business update on how we’re coming on a number of fronts. First, on February 11, Green Dot Bank closed on the acquisition of the Wal-Mart prepaid program, formerly issued by GE Capital Retail Bank. So since that date, all Wal-Mart money card accounts, including both the existing portfolio accounts and all new accounts that will be issued going forward, are issued by Green Dot Bank. As a result, we are no longer paying GE Capital Retail Bank for bank issuing services and all the deposits associated with the Wal-Mart program are now held at Green Dot Bank. At this point, I want to thank my good friend and a wonderful business partner, Margaret Keane at GE Capital Retail Bank for her years of partnership and mentorship and the entire GE team with whom we worked so closely on the Wal-Mart program since 2006. Next, we’re making nice progress on our entry into the financial service center channel, also known as the check cashing channel. In Q1 we signed up another 30 check cashing companies that will distribute our products at their respective stores with many more agreements pending. We’re also at a point where we can begin tracking the customer behavior of cards acquired through our check cashing partners and we are pleased with what we are seeing. Cash reload rates, direct deposit enrollment rates and other customer driven metrics are all equal to or better than accounts acquired through our traditional retail channel. So you can expect us to continue to be aggressive and working hard to expand our presence in America’s best check cashing stores. Now the latest on GoBank. Online and app store enrollments are continuing to grow and the customer behavior trend in terms of recurring deposits, direct deposit enrollments and other metrics are materially better than our average prepaid card customer metrics. We are also getting good value from the technology platform used to create GoBank. We are utilizing that platform for other products throughout the company. So while GoBank is still a very small revenue contributor relative to all of Green Dot, we’re feeling very good about what we have with GoBank both as an innovative and expansive new product opportunity and as a cutting edge technology platform, upon which we can create other new products and services for current and future customer segments. Now, let’s talk a bit about competition. We received many calls from analysts and investors on the heels of the American Express announcement that Wal-Mart is now selling the Serve prepaid card at the Wal-Mart stores alongside our suite of prepaid cards at the same locations. This is the same exact Serve prepaid card that has been on the rack next to our Green Dot brand cards at Walgreens, CBS, Family Dollar and on sale at other retailers nationwide for quite some time now. While we can’t predict exactly how Serve at Wal-Mart might impact our business going forward, you may take some comfort in knowing that despite zero dollar loss leader pricing, huge promotions where American Express paid customers as much as $50 in incentives, large mass marketing campaigns and so forth, Serve has had no discernible impact on our robust growth at Green Dot retailers. For example, Green Dot is out selling Serve by 10 to one margin for the combined March and April to date period based on available competitive sales data. I also want to remind you that for quite a while now, Wal-Mart has been heavily marketing, promoting and stocking Bluebird by American Express with free reloads and a similar pricing plan to Serve. So MX at Wal-Mart is hardly a new development within the overall competitive landscape. As another data point, it’s well disclosed that NetSpend has been aggressively marketing and stocking their PayPal branded MasterCard product and the NetSpend branded Visa prepaid card at nearly all of our Green Dot retailers for as long as two years now, with full distribution in more than 65,000 retailers according to recent [Pieces] disclosure. Yet in Q1, they reported only about $11 million in revenue from all of their retail sales combined, a tiny sliver of Green Dot’s retail revenue, even though NetSpend products are easily twice the price of Green Dot. So again this is illustrative of how Green Dot products perform against competitors in multi-product retail displays. So in summary we expected that there may be many competitive cards on the rack over time at Wal-Mart just as there are many competitive cards on the rack at nearly all of our other Green Dot retailers. In fact, today Green Dot sells many different cards on the rack at Wal-Mart that compete with our own Wal-Mart money cards suite of products. You may recall there are nine different SKUs on that Wal-Mart rack today of which our Wal-Mart money cards suite represents just three of those nine products. All things being equal, our experience over the last few years has been that a vibrant category of competitive products seems to drive sales for Green Dot. So while we understand the fear of the unknown is a natural reaction to any competitive threat, we also welcome the opportunity to once again prove Green Dot’s leadership, both in terms of the quality of our products and the consumer preference for our products. Before I turn it over to Grace for some perspectives on our financial outlook, I want to take a moment to thank the entire Green Dot team for their hard work and focus in delivering another solid result for our partners, our investors and most of all our customers. Green Dot people put the Green in the Dot and I’m most appreciative and proud of their efforts. Grace?

Thanks, Steve. Let’s talk about how we see the year playing out from a financial performance perspective. You may recall that Green Dot does not provide formal quarterly guidance, only annual guidance. And part of the reason that we don’t provide quarterly guidance is that the timing of things like marketing spend, cost to manufacture and distribute our card packages, payment network incentives, charge-offs and the seasonality of our business can have the effect of making quarter to quarter financial performance uneven and hard to predict on a straight line basis. As a result we feel that annual guidance is a smarter way to go. So as it relates to our financial performance for the full year, we are reiterating our previously announced guidance of $640 million to $650 million in total non-GAAP revenues and $114 million to $118 million in adjusted EBITDA. Full year non-GAAP diluted EPS is still forecast to be between $1.22 and $1.28. While we’re off to a solid start for the year, particularly with respect to our adjusted EBITDA margin, we want to remind everyone that our financial performance is highly dependent on customer acquisition rates, active cards resulting from those customer acquisitions and the usage behavior associated with those active cards. As you know, we’ve launched a large number of new retailers and a tremendous number of new products over the past 6 months. There’s always some degree of risk and uncertainty as new card programs launch and the associated customer acquisition rates, active card numbers and behavioral trends take hold. Lastly as you model the rest of the year and Q2 in particular, we want to caution you not to straight line our Q1 results and assume that our Q2 adjusted EBITDA margins will be the same as Q1. In particular for example, we expect there to be about $6 million or so in expenses in Q2 associated with routine supply chain marketing and merchandizing expenses that happen to hit that quarter. So this is why our quarters tend to be uneven. So while we feel very good about our full year guidance, we want to make sure you understand the lumpiness of our quarters in our model. And with that I’d like to turn it back to the operator and open up the phone line for questions. Operator?

Thank you, ma’am. [Operator Instructions] First question we have is Sanjay Sakhrani of KBW.

This is actually [inaudible] in for Sanjay. Yeah, just a couple questions on the expense side. Just looking at your annual guidance for year, the adjusted EBITDA margin implied is roughly around 18%. Could you just give us some commentary on what the outlook is for the rest of the year and what could potentially bring your margin back down to those levels?

Grace mentioned our guidance remains unchanged from when we provided it last call and so we’re still forecasting that same 18%. And I think your question was what could happen to make it go below that. Is that what you said?

Yeah, is that basically investment span and product rollout? So is there something specific that you expect in the back half of the year? Particularly given, I think the last time you guys talked you either expect a ramp in revenue. So could you just think about that in that context?

Yeah, let me answer it best I can and Grace can chime in if you want. So we don’t have anything planned with that regard to expenses that would make it go below 18%. Although things could always go bump in the night I suppose. But there’s nothing that we think would make it go below that which is why we guided it and reiterated it for this call. But quarter to quarter, you’re going to see variances and Grace did a good job of calling that out specifically because as part of our routine operating rhythm, nothing weird of wacky, just the way we run as a bank combined with a consumer’s package goods company if you will, we’re in that intersection. We’re bank meets Procter and Gamble meets Google I guess, technology combined with banking and consumer products. And we have merchandizing runs and manufacturing costs and those tend -- they hit quarters as they hit. You have a fairly complex demand planning system that says hey, we need to do a packaging run for Walgreens or hey, we need to do a big run for this product or we’re putting something on sale at, I don’t know Rite Aid and we need to have these packages here. So they tend to hit in a lumpy way throughout the year. And so quarter to quarter, you could have a widely varying EBITDA. And Grace has mentioned that in Q2 we would expect our EBITDA to be somewhere in the mid-teens which is why she gave you that $6 million number because we know we have packaging to produce and maybe some marketing on some programs that we’re doing. So they’re a part of the rhythm of the company, nothing unusual but nevertheless they don’t hit in a straight line fashion. And so that’s probably why we wanted to call out the fact that while we did a super job in Q1 and we’re pleased with that, you wouldn’t want to straight-line it because you’re going to be wrong and it’s going to look harder than the reality of what we were expecting. And so that’s why we wanted to be helpful in that comment. Has that kind of answered the question?

Yeah, great. And then just a follow up. I think you mentioned $5.6 million revenue benefit in relation to blocked cards during the quarter. Could you just give some more color on that? Is this a big benefit?

Yeah, happy to do it and that’s why we wanted to call it out because while the number is not material to the quarter or the year from an accounting point of view or numbers point of view, it does have a disproportionate impact on EBITDA because it falls down to EBIDA and that’s why we wanted to call it out. So happy to share more color. We did have that $5.6 million onetime benefit on accounts that had received the courtesy fee waiver. And the way that works is when a customer calls in or we block a card for suspicious activity, and you probably have this happen to you as a holder of a card of a bank. You’ll get a note saying we see something unusual on your account. Please call customer service so that we may release the account. So that’s what a courtesy block is. So we block that account and we wait for the customer to contact. We have an informal policy and we’ve had it for a long time where if we block a customer, the fee engine stops too. So the fee engine doesn’t hit those cards because we want to wait for the customer to call back and we don’t want to necessarily fee them while we’re waiting the call back. And most customers do in fact call in a few days after getting that message. They clear up the issue, and the account resumes its normal life. But some customers for whatever reason will never call back. Maybe it’s not enough money for them to care about or they forget it, who knows but they don’t call. So after a period of time, we do routine, I’ll call it the cleaning out the closet where we look at accounts that were blocked that have not been claimed by the customer in terms of unblocking, them providing us needed information. So we remove the courtesy fee waiver, collect the fees and the account will stay active and on file and available to the customer. And maybe one day they’ll call and maybe one day they won’t. So that’s why we collect and it happens periodically but in this case because it hit at $5 million, $6 million, not a big amount a number but big relative to that. EBITDA, we wanted to make sure that we called it out.

Ramsey El-Assal, Jefferies. Ramsey El-Assal – Jefferies LLC : Can you give us an update on the Wal-Mart business specifically revenue at Wal-Mart. Has that stabilized on inflected and it can be quantitative or qualitative comments. In other words, I’m trying to parse out the contribution from the new rollouts like a dollar stores and the check cashers. Versus what’s happening in your core Wal-Mart business.

Yeah, it’s a great question thank you. You’ll see in the cue when it comes out and I forget if we had another documents today. But the Wal-Mart revenue concentration is 61% this quarter Green Dot being the remaining 39. And that is somewhere lower than it was, in Q4 Wal-Mart was 62%, in this quarter it was 61%. It’s a not a huge difference, but year over year it’s a big difference. They were 67% last year and I think that’s what you’re referring to. And I think what it means is that our non-Wal-Mart revenue is an increasing part of our total revenue mix at the company which is a good thing. We recently rolled our 27,000 new Green Dot retailers as you know and our reload network business continues to grow. We entered the check cashing store channel and sales of our Green Dot branded products are nearly all of our retailers overall are up materially year over year. We’re really doing very well with the Green Dot brand. So we’re a company that’s comprised of many retailers and portfolios and so I think the more favorable revenue concentration statistic is an indication that Green Dot family of brands is performing very, very well. Not necessarily that Wal-Mart is not. And as you think about Wal-Mart, we do have a lot of new products there. And some are doing great and some have opportunities for improvement, and that’s the way it works in consumer products. We’re not a [inaudible] company, there’s an old phrase. But it’s true in the category management that when you roll out a lot of product, some will do better than others. So you’re always tinkering and moving the dial left to right. And trying to perfect the mix of products on the shelf and so we have some of that to do. But overall we’re very pleased with the new category of Wal-Mart, the behavioral trends are up as you heard and the overall active cards for both Wal-Mart and our company are on the march and on the rise with three consecutive quarters of uptake. So overall we’re pleased, always room for improvement everywhere throughout our business. But I would say the differing concentration you referred to is about Greed Dot expanding and selling very well as opposed to any other issues at Wal-Mart specifically.

Okay, when Wal-Mart rolled out Bluebird it was a pretty splashy rollout. There were dedicated displays. There were a lot of marketing material and collateral all over the store. Are you guys seeing anything similar with the serve rollout? Or is this a less notable kind of product launch?

Oh gosh, always think I’d answer that. So the answer is it’s only been up I want to say a couple of weeks in those stores. And so no dancing girls and fireworks yet. But excuse your phraseology there. But listen, anything on the shelf at Wal-Mart is a big deal because Wal-Mart is the biggest retailer in the world and they are great marketer of products. So number one, nothing we’ve seen yet, but knowing American Express I would anticipate that they will invest heavily in marketing, whether it’s a mass marketing or in store marketing, whatever it is they do. And to American Express’s credit, they’ve done a very thorough job of marketing their products when they went into CBS and other retailers. And I don’t have any reason to assume they will not do the same thing at Wal-Mart, but to be fair I have no specific information about their plans one way or the other.

Ashish Sabadra of Deutsche Bank

Hi, solid quarter. So quick question on the active card growth. That definitely came in pretty strong, I was wondering if you would just provide some color on, did you see any benefit from because of the tax season because of the seasonally strong taxes? And in the same vein, if you could also talk about the risk and controls, if you’ve made any changes on that front and how do you expect that of cards to grow going forward? Thanks. Steven Streit: Sure, good questions. Thank you. So first on the tax question, Q1 is always a strong quarter for the prepaid industry, for that matter for banking in general to your point because of tax refunds and all that cash coming into the hands of so many Americans. It’s the biggest single payment if you will that our customers where we see in an entire year by far. So you always have a big Q1. What I’m really proud of and really like about our company and I’ll point it out to you since you asked, I never want to lose an opportunity here, is that we don’t have today any embedded tax programs. In other words some years back we had the Intuit program which now NetSpend has and that king of thing. But what we have today is completely organic. So when you see that GDV figure of $5.3 billion and you see active cards up, that’s just called consumers who say oh, I want a green Dot card. I want to use it with the IRS to receive my tax refunds and I want to go ahead and spend it as I want to spend it. There’s no embedded program that automatically steers consumers to our products. What you see is naked and organic and it’s a great result. And so we are pleased with that and so appreciate you asking that question. On the question of risk controls, we are always adjusting researching, learning, doing what the risk team calls champion challenger where you look at you’ll take 10% of customers and run them through this track and 20% through that track and you try to compare is there an advantage to one, are there better risk results than the others. And we are putting a lot really cool IT that helps us better predict fraud, spot fraud before it becomes fraud at all. And so all those things I think are helping us moderate the draconian impact of risk controls a year ago. But they are still essentially the same as what they were, but we are getting better at being more precise and surgical let’s say whereas maybe year and a half ago we brought out the anvil and the sledge hammer. Today it’s more a bolt hammer and a screwdriver. So we are getting better at it, but we have a ways to go and so that’s that. And then I think your third question was active cards and our model would in fact call for active cards to grow throughout the year. And as you know our exit in Q4 should be bigger than our entry in Q1 if it plays out the way we think. And so far so good right, but it’s only the first quarter but that’s the way it’s supposed to work.

Okay. That’s great. Just quickly on Wal-Mart, one quick question on Wal-Mart. So the Wal-Mart as you said the revenue contribution has gone down, but as these new products that you’ve introduced at Wal-Mart, as those mature what are your expectations going forward? Do you think Wal-Mart will continue to grow at or above the company average or what’s your expectations going forward?

I think that Wal-Mart has the potential to grow fast and faster than they’ve ever grown and the key is whether it’s at Wal-Mart or Rite Aid or Walgreens or CBS or anything is making sure that we always have products on the shelf. I know that sounds basic, but you are in retail and that’s how it works. So you have to have products on the shelf. You have to have the products people want to buy. You have to market them properly and then you let the natural nature of that take care of itself. And Wal-Mart is a great partner and a brilliant marketer. And so the Green Dot side right now is growing beautifully and we think the Wal-Mart side will be growing beautifully as it has historically. So we really feel good about all of our portfolios. It’s been a very good time for Green Dot. I think one difference to your point is that we took some very interesting bets on this new category with our partners at Wal-Mart. And that is, we have this really cool preferred card that has no reload fee at all. So if you will the bet there is that the short term revenue loss is made up by longer usage, higher usage, more direct deposit enrollment, more cash reloading behavior. And I love those metrics and that’s one of the favorite parts of the KPI because while it’s too early for us to say okay, this is it or now we know, it’s been very cool to see that product roll out and see how that performed. So one quarter is hard to make any judgment on, but we feel good about all of our portfolios, including Wal-Mart.

David M. Scharf, JMP Securities David Scharf – JMP Securities: A couple of things. Steve, you mentioned some new check cashing. I think you said 30 companies. Is that companies or rooftop? Trying to get a sense for how many stores you’re _

It is companies and I want to say it’s between 100 and 200 rooftops, give or take, close enough for the question. David Scharf – JMP Securities: Got it. And what would be the aggregate rooftops for all your check cashing?

Chris, are we in 500 now?

We ended Q1 in about 400 rooftops and so these 30 companies are incremental to that.

So 400, plus you have these and more to go. It’s been a good channel for us. It’s different than the types of retailers we’ve been in historically, but we really enjoy the check cashings to operators and they know their customers. They care about their customers. They’re in the neighborhood. They’re friends and family members and it’s all a very unique vibe that you don’t get out of traditional retailer let’s say. And the cards are selling well and they’re behaving well. So we think we have a great opportunity and our progress has been rapid fire and we expect to do a lot more. David Scharf – JMP Securities: Got it. And regarding that customer that walks into a check cash, obviously a lot more propensity for potential direct deposit. I think in the past you’ve had presentations that referenced an average of maybe $400 of [light] time revenue for a direct deposit account compared to maybe $100 for the company average. Is that $400 changing? Is it getting better? Are you finding a -- you referenced an 8% increase in the number of direct depositors. But are you seeing incrementally longer usage from your direct depositors or larger reloads or is it still too early to tell?

We’re seeing more direct depositors and then of those who direct deposit, we’re seeing better behavior. So both things are happening and that’s probably what drives our GDV and drives our revenue. As you pointed out, the revenue differential between a customer that rolls in direct deposit and stays with us for I don’t know, two years, three years, is way better than a customer that is a casual user obviously. So having said that, not all direct depositors are great customers and not all cash reloaders are bad customers. In fact cash reloaders are some of our best as well. But on a mixed basis, in a perfect world you’d want to have lots of recurring direct deposit customers, people choosing to put their pay check or their government benefits on the account and then keeping it forever and ever. And so that’s more of a wish list than it is a reality in any one quarter. That’s what we’re always driving towards. David Scharf – JMP Securities: Got it. And when I look at the balance sheet, the big ramp in deposits at the end of the quarter, is that represented entirely by assuming the GE Bank accounts as well as tax refunds or is there actually both?

Yes. So Q1 would be a heavy tax deposit time and then on top of that we took in, I forget the amount, but it was many hundreds of millions of dollars of GE money portfolio. So yeah, it would be a combination of those. David Scharf – JMP Securities: And just so I understand lastly the puts and takes, it sounds like this $5.5 million of courtesy fee waiver which -- that’s about a good 3.5 points of EBITDA margin. It sounds like that’s a wash with what you lost from the –

Yeah, it’s a loss and every quarter has, I call them puts and takes, but you always have these crumbs that get swept up and you have the timing of certain things have come in and the timing of certain things have come out. So on one hand it so happened that we had that revenue hit in Q1 which as you pointed out is about 3 points of margin. But then we also had horrible weather where we were shut down for a third of the quarter in our best cities. The killer for weather for us wasn’t just the weather and the 22 days of weather, but the bad weather wasn’t here in California or Arizona or somewhere, even Texas I guess had some bad weather, but it was all in our best states, places like Pennsylvania and New York and Massachusetts where we have some of our best and heaviest users in those intercity communities. So it was a punishing quarter from weather point of view. And then removing a bunch of products off the shelf for 45 days wasn’t exactly helpful. So we started the quarter in a fairly injured way and one that was a bit worrisome because you don’t know how these things pan out. So we definitely had negative impact on the revenue from there that we got lucky and was made up from the other revenue that came in on a timing point of view into the period. On the EBITDA side, we got hurt even worse because not only did we have the weather and those issues but you had the issue of the charge-offs for Target were fairly material. We spend about $3.7 million in incremental charge-offs, above our typical plan for customer charge-offs and disputes. And while that’s not a lot if you are a huge bank for a company like Green Dot that’s why there was two points or so margins. So it all adds up. Yeah, we had some bad things happen and some things that we were lucky and timed out and all comes out in the wash. So either way it was a great quarter but we didn’t want to point out those artifacts

Tien-tsin Huang - JPMorgan

I just want to clarify the $5.5 million, the courtesy fee list, was that contemplated in your full year guide?

No. This came out of -- you mean when we provided guidance last year? The answer is no or earlier this year. That came out of a routine audit and work that happens in the company day in and day out, out of the purview of Grace and myself. So it was a timing of how that happened which is good, but it was not part of our original forecast. And by the way neither was the weather or the Target data breach. That stuff happened right at the end of the year and that was a bit of a shocker as well.

Yeah. No, I caught that part, Steve. I wasn’t sure if the benefit you took was actually part of the full year guidance. Now I understand. Got it. And then the $6 million in expenses that could hit I the second quarter with the packaging and the materials and what not, is that in addition to the -- I think the number was $30 million you said you’d spend over the , I think 3Q, 4Q, 1Q to launch some of the other stuff. Is this in addition to or did you …

My guess it would be in addition to, but let me but let me explain it better, Tien-tsin. So when you launch a bunch on new retailers and we did a huge amount, 27,000 plus we remerchandised all these different products at Wal-Mart. So you have a onetime lump creation of a ton of packages and manufacturing, hiring merchandisers to erect racks and put them in the store and line them up. So you have that startup expense and that onetime expense is just what it is. Unrelated to that, just part of a natural rhythm of running a consumers products company, you are always spending $5 million here, $2million there, $7 million there for this packaging run or that packaging run. So the answer is it’s incremental but not out of nothing unusual in the company. It’s just part of the routine cycle of demand planning manufacturing distribution and merchandising. Tien-tsin Huang – JPMorgan: Got it. If I could just ask one more just the dollar channel and the productivity there. I heard, you comment on check cashing, but I didn’t hear much on the dollar stores. How is that tracking versus expectations?

Really, really well. Yeah. We just look at the dollar stores as retail store, not necessarily anything unique beyond that. So that’s why I didn’t call it out particularly, but the dollar stores are doing great. It’s in neighborhoods and locations where many of our customers as you can imagine might shop and it’s been a meaningful ad to the Green Dot brand, no question about it.

Mike Grondahl - Piper Jaffray

Yes. Steve, if you could, could you just talk a little bit about sources of new card growth and how that compared to your expectations?

Sources meaning the types of retailers or is that what you mean?

Yeah. Maybe if you had the 27,000 new locations. you have Wal-Mart. You have your other bucket, then check cashing. Just your active cards are growing now and I’m just curious the sources of that growth and how that compared to what you envisioned a quarter ago.

I think the delightful upside, we have planned for the Green Dot brand to grow this year, but not as much as it’s growing. The Green Dot brand is really doing extraordinary well and our brand tracking scores that we get from third party research companies that are hired by Green Dot to provide that kind of data. So is the brand the strongest it’s ever been in the 14 years I’ve had the company. And it just keeps growing and we are not sure why. There’s a lot of theory that the various marketing consultants talk to us about in a sea of confusion customers go to familiarity. That’s one theory, makes sense to me. It also is true that our Chief Marketing Officer, a wonderful woman named Sharron Pope is unbelievably talented and no you can’t hire her. And Sharon and I work closely together and we are doing some really cool things. We sponsor shows like the Steve Harvey shows and Harvey’s Hero which is a fabulous, very highly rated daytime talk show. All over the Queen Latifah show and other kinds of things that really have a very intimate interaction with our customer base. And that’s worked really well. Green Dot is an icon in many parts and communities in America and growing over time. So and our sales match that. So that’s been very, very helpful and that’s been a nice upside. And yes the Green Dot brand does well in dollar stores, but frankly we’re growing in deep double digits at stores where we’ve been in for a decade. So a lot of growth on the Green Dot side as well. Wal-Mart continues to grow as well in terms of its customer usage in new cards. That’s a very new category. So we have to look at that and remember we’re coming off a year and a half of risk controls and losing shelf space as part of the re-merchandizing of Bluebird and other products. And so that’s how that breaks out. But we’re company of portfolios of many retailers. We are 92,000 retailers, many retailers, many products, many SKUs, many categories and it all works together. And that’s what you’re seeing happening.

Okay and then maybe just a follow up. What triggered the revenue recognition in the $5.6 million?

What triggered it in?

Yeah. Was there something that -- how did you decide to take it in the first quarter?

Because that’s when you do the audit and you clean up these accounts and had fee blocks where it was clear the customer wasn’t going to call with information to clear it. You take it when you do the audit, so it could have been any quarter I suppose, but we did the audit in Q1 and so we took it in Q1. We could have tried to spread it across the year but our accounting group that felt that something was not really a precedent for that. So we took it when we took it and then as you know from your question disclosed it as often and as hard as we can.

Matt Lipton, Autonomous Research. Matt Lipton – Autonomous Research: Hey guys, thanks for taking my question. I just wanted to clarify on what Tien-tsin was asking about. This $30 million that you had planned through the first quarter, did you wind up spending all of that? In other words are you live right now and rolled out at all the retailers that you expected to be coming out of 2013?

Yeah we did, it’s all spent and that did hit Q1 as we thought it would. But we had more favorable -- even forgetting about the $5.6 million, even forgetting that we just had way better float through our entire margin revenue mix, better operating efficiency. We got the bank transaction closed on February 11 to which helps save us money that we were paying to GE. So of all of that work together to make a better Q1. Matt Lipton – Autonomous Research: Got it, so no retail delays is what led to some of the margin upside this quarter?

No, in fact taking products off the shelf and the other issue we talked about and the bad weather actually hurt margins. If it had been a normal corridor with normal winter weather patterns, and if we hadn’t had to suspend sales of products related to that a data breach, it would have been far stronger. Matt Lipton – Autonomous Research: That’s great. And then you followed the weather and a 2% revenue impact. Do you also include Easter in that? In the late Easter I noticed that GDV in payment volume was maybe just slightly lower than we had thought it would be. And what do you think about Easter now in April. Do you care to share kind of what spending trends might look like in April and if you’re seeing it bounce back there. Thanks.

No, other than an Easter egg hunt for my kids we don’t take any Easter into the forecast. We always have months that have, let’s pretend five Fridays in one year and then the next year only has four Fridays. And you always have these artifacts in the quarter, and frankly it’s one of the reasons that we don’t guide on a quarterly basis because it just becomes so complex. And we’re not a hundred year old business with reams of data. So that’s why our annual guidance tends to be fairly accurate but the quarters are lumpy. But no, we don’t bake in anything for the timing of the holidays and that type of thing.

Smitti Srethapramote of Morgan Stanley. Smitti Srethapramote – Morgan Stanley: Your comps and benefits were down quite a bit in Q1. Can you just go a little bit more into details in what drove that and how sustainable that is.

Grace, do you want to comment on comp and benefits?

Sure. No problem. As you know we had a reduction and retention base incentives associated with our looped acquisition that fell off around third quarter in 2013. So that’s where you would have seen some of the improvement. We also had an increase in our overall capitalization rate associated with our internally developed software. We moved from an IT development waterfall approach to Agile over this past year. And as we transitioned that also changed our capitalization rate, and how we captured time. So, both of those things were part of that impact.

All right, thank you. And then just a follow up on GoBank, can you just give us an update in terms of how Go Bank is … I know adoption rates are faring versus your internal expectations and any thoughts on Simple’s acquisition by BBDA a couple months ago?

Sure. So the good news is we don’t have expectations so they are easy to meet on GoBank in the sense that it’s a new product that internally we have goals for our product team, but nothing that we’ve ever announced in public for that exact reason. So the answer is it’s growing. We are up to actually a good number of accounts. If this were a standalone community bank, would be a massive product, but Green Dot is such a large company relative to the accounts we acquire that it isn’t material to Green Dot. So it’s doing great. We like the enrollment patterns. We like how people are enrolling to the app stores and online. The usage on it is terrific, meaning that the deposit rates, the direct deposit enrollments, the redeposit which would be the equivalent of a prepaid card of let’s call it first time deposit or additional retention deposits are good. The fees people are paying us are (inaudible) we have modeled. I think I’m always hesitant to get overly excited in a public call because I don’t want to make expectations higher than what they might be. But it’s been a great product for us. We are very proud of it and growing in a way that we would have liked to see and we are seeing it. And on top of that, the technology is fabulous. It is just an amazing piece of technology, forgetting about the application of that technology as GoBank and you are seeing piece of that technology in the Wal-Mart preferred card. You are seeing it in the Green Dot app and other products that we are rolling out throughout the company. And so we are getting a lot of use out of that and we have a lot of high hopes for that long term for the company. But as I mentioned earlier in the call, still a very small revenue contributor to all of Green Dot. And then the second question you had was, I’m sorry. On simple?

Any thoughts on Simple that was purchased by BBDA.

Yeah. So I know the two entrepreneurs of Simple and congratulated them when they sold the company. It was a wonderful thing for them and a great innovation. And it shows you the value of really great technology and great mobile banking technology. They are not a bank. And so they sold to a bank. And so while that’s not (inaudible), what we are, it does show you that the technology itself has tremendous value in the marketplace. We hope to do quite a lot with GoBank and hope to be able to execute our plans that we have internally for it.

Andrew Jeffrey of SunTrust. Andrew Jeffrey – SunTrust Robinson Humphrey: Hey, Steve, I just want to clarify something. You mention the Wal-Mart concentration or contribution to revenue. If I just do the math, 67% last year and 61% this year and flyers is down about 6% sales of Wal-Mart year-on-year. So I’m just trying to reconcile that with the commentary about strength and the money card at Wal-Mart. And also I wonder if the $5.6 million in revenue is non-Wal-Mart specific? So how do we think about those things in the context of performance at Wal-Mart versus non-Wal-Mart retailers?

Sure. So let me help answer. First of all I want to clear just from a factual point of view. It wouldn’t be 6% in sales. It would be 6% in revenue. Most of our revenue is contributed by active reloading cards. So you can’t really imply sales rates year over year by that concentration number. Andrew Jeffrey – SunTrust Robinson Humphrey: If I said that I misspoke. That’s revenue ...

That’s okay. I just wanted to make sure that others listening understood that. But as I said the revenue is somewhat predictable. You take a look at the active cards starting back as I mentioned earlier on the call going back to mid-2012 with the announcement of Bluebird and all the new competition. And then we layered on pretty heavy risk controls. We cut a tremendous amount of active cards enrollments on the Wal-Mart side as we did on the Green Dot side during that period of time. And so that long train of active cards comes to a slowing pace little by little by little, but it slows nonetheless. Then you launch a bunch of new products in call it November issue of last year. And then you see the train as you put more coal in the oven begin to increase and that’s where you see that sequential uptick in active cards. So the year over year revenue concentrates in out call -- more of an artifact I guess than anything predictive. And part of the model of trains slowing down is speeding up and that’s why we try to provide that color so folks understand. I think the more relevant metric you want to follow is active cards over time because that’s really the leading indicator of revenue. So that’s the first part of the question. And the second part of the question how to do with the $5.6 million. It’s a good question. My guess is that and I’m looking at the accountants in the room, my assumption is that the concentration was similar on that part of the revenue than it is by regular revenue. Maybe it was 50-50, close enough for rock and roll. It’s somewhere in that area nothing dramatic one way or the other

So if I understand correctly, your assertion is that there’s a tale to the increase in risk controls. The fact that you lacked the risk controls you put in place in the first quarter, 13 in the first quarter 14 wouldn’t necessarily inform this past quarter revenue at Wal-Mart. So if what you’re saying is right, we should start to see the Wal-Mart revenue growth and concentration as a percent of total Green Dot revenue increase as the year goes on, right? If I’m understanding you?

Well that would be relevant to how the Green Dot side does. But so it’s hard to answer that question with precision. But I think the way to think about is that as we get into Q4, we would plan to exit the year with a bigger active base at the Wal-Mart portfolio than we have today as that train picks up steam with all the new products and activity. That’s right, and so we know whether or not the concentration changes depends on whether the Green Dot side grows as fast or more slowly in active cards. And so it could be that in a perfect world you have the concentration stay the same but the company is just a way bigger company. But the way life works is you always seem to have given one year over the other, you always have one side growing faster or differently than the other. But it all evens out in the mix. So I don’t think as we look at it Andrew in Q1 there’s anything particularly compelling to draw from it. Except that as a company with multiple portfolios we’re on track to do what we said we’d do and that the Green Dot side is doing very well right now. But at the Wal-Mart side with our new mix of products, we think we’ll exit the year quite beautifully.

Okay, that helps. And just overall Green Dot has the biggest prepaid company in the market. Do you have a sense or can you help us understand your view of the growth in the category? In other words, we know about all the unbanked numbers out there and everything else and how big the addressable market is. But can you opine a little bit on how fast I think the category is growing and whether overall the market growth is accelerated, decelerated, remained roughly the same.

Well so we look at … we have our own internal, I’ll call it index if you will or the Green Dot 500 or something where we try to look at different companies to try to get a sense of what the industry growth rate is. Because there are, Andrew I think about, oh I know 1,200 prepaid card programs if you will. 1,200 baby Green Dots out there in the country that are issued out of a handful of banks. And so we look at, for example we look at the growth at Bancorp as a leading indicator. They issue a tremendous number of programs so we always listen for commentary on their prepaid growth. We look at any data we can get for MasterCard and Visa. We look at our own data and then we looked at our own sales reports by brand. And it looks like the industry is growing at between 15% and 20% if you will kind of take that blended average of all these little growth factors. But that is an always related active cards or at any one program, you have a lot of government cards mixed in. So it is hard to get a number because so many companies are private and don’t report. So also NetSpend is another good comp with teases. We always listen to their earnings calls as you might as well. You get a send of net spends, revenue and active cards. So whether you’re looking at revenue, that can vary depending on who does what to a fee who adjust this or that. If you’re looking at active cards, I may give you a different growth statistic. If you look at GDV which is what the networks look at primarily, it’s closer to that, I think 15% 20% number. So we sort of hold ourselves to that standard based on our size and scale that with all the cylinders popping, we should be at a 15% overall growth rate, but having said that our sales rate can often be way higher than that. But again, really heavy revenue is driven by those customers who buy it, reload it and then use it over and over again. So I think if you were to -- and I’d like to tell you this is third party audited data. This is not, you asked short if I was a guy in the industry and so I’m responding in that way. This is hardly a scientific response. But my gut tells me that 15% to 20% feels about right and that that’s where we want to target out growth long term. But as you get bigger and bigger, you have a bigger number to grow off of and so you need to look to new products and new services to drive the revenue growth and revenue per user. And we spend a fairly good amount of time on those types of initiatives.

Ryan Davis, Credit Suisse.

Hi there. Could you help me think about GDV per active card this quarter? It looks like it was down year over year. Was there something strange going on that drove this? I just figure with the increase in direct deposit, I thought this metric would go upwards?

So the answer is, everyone -- it’s funny, when we you said that everybody rushed to the tables to find calculators. So the answer is we took a global view. Let me do this in my head which is always dangerous as you know me, but if we are up in active cards by 5% and up and in revenue overall say 4%, then that would imply a lack of efficiency in load volume per card. But I think you need to look at reloading cards and I think on a reloading basis we are actually up in revenue. We are active by 4% if I remember the homework we did before the call. So and the reason why that’s difficult to guess if I were on your side of the desk and it’s a very good question, is that you have a ton of new cards being sold at dollar stores and at Wal-Mart and at all of our retailers. But it takes time for those to generate revenue. So the majority of our revenue is driven by older, more seasoned reloading cards. So if we took all the cards in a bucket, I’ll give you a reverse analogy in a mathematical equation. If you stop selling cards, if tomorrow we shut down every retail and never sold another card again, the revenue of proactive cards would skyrocket because the only guys you’d have left are your ongoing recurring users. So the reverse is that as right now we are acquiring a lot of new customers more so than we’ve done historically. And so you are going to see that blended average have a much larger denominator, which will give you a different result. But that’s a long way of saying I wouldn’t put any meaning into it and there’s nothing in your model that you should look at. It continues to look very strong and for those reloading customers it looks great. So nothing meaningful, I don’t think they are good or bad.

Okay, thank you. And as a follow up the cost associated with the Target breach, was that something that unique maybe only to Green Dot or do you think something your competitors witnessed too? And then as kind of an upside to that, I guess Target recently announced their migration of their Red card and their other product to EMV. Is there any thoughts as far as you guys moving some of your prepaid products in that direction or maybe now kind of an industry push?

Sure. So let me ask the first question. Green Dot provides a lot of consumer protection for our customers that are not required by law and that the vast majority of other prepaid providers do not provide. And one of those would be bank standard regulated Reg-E protection. We are a bank holding company. We are a bank. We are not a third party marketer of prepaid cards that then rides the rails of a nonaffiliated third party bank. And so we do hold ourselves to a higher standard and in this quarter Reg-E was expensive for us. I don’t know that all of our competitors would have had the same percentage or per capita charge off. My guess is they might have if they were Reg-E compliant. But the big ones I don’t think are Reg-E compliant. So we probably bore a bigger burden of that this quarter than others. But and maybe one of the reasons why our brand does so well, people know that we are a good company, we treat you fairly and that maybe part of the whole karma of the brand. So hard to know how other competitors were affected. Certainly in the traditional banking industry you bet. I don’t think they announced it. It’s not material to a company the size of a Chase or Wells Fargo or something, but I’m quite sure that they were very busy in their loss department as we were in ours trying to protect our bank and protect our losses. And frankly our Chief Risk Officer, John Morton did an unbelievable job with his team of following trends almost around the clock as we tried to not only to make sure our customers were made whole and have their money to spend as we wanted them to, but to make sure that we didn’t suffer losses greater than what we suffered. It could have been quite severe if we’d not have had the right kinds of technology systems, a fabulous, fabulous team who runs that division for us. The next question is EMV and I read that article as well about the Target Red card debit going to EMV. Look, clearly the need for new kinds of security, encrypted data, more protection is out there. It is -- what’s happening -- forget about debit cards. That’s almost the least of it when you think about just what’s new and the Heartbleed virus. You can wake up without finding, I even had a letter from believe it or not a dentist that I used, saying that his file was stolen and hacked and my social security and dental records and what not were taken. And I had a whole thing I had to fill out to acknowledge receipt. So the problem is that as technology races faster than the tools to protect you against the technology, we live in a very scary world as it comes to transactional data, personal data and all kinds of things. So I think that what Target is doing is clearly prudent and in reaction to the unfortunate event that they experience and we feel horrible for Target there, but for the grace anybody. that is the nature of our industry. So it isn’t anything that somebody did horrible or this or that. Nobody ever intends for this to happen and I’m sure that was a horrific day for their CEO and their team at Target. But the fact is that we live in a scary world so all of us continue to amp up our protections and then hope that we’re not the next victim. So it’s a scary time and to the extent that EMV can encrypt data, that’s great. EMV does not help you with online transactions. It doesn’t help you with other kinds of transactions, but any step in the right direction is the right direction. And so I think you’ll see a lot of discussion and activity. But then you have the reality of EMV. This is beyond the scope of me as CEO of Green Dot because other banks will be far more impacted far sooner than we would be given the nature of our portfolio and customer base. But you have to figure out how to make a change ,but then you need a whole ecosystem change. So even though a card may have an EMV chip in it, processes today don’t process it. Retailers don’t have the POS devices that accept it. But clearly if you would fast forward two, three, four years we think that these kinds of things will become more commonplace and we’re sure that there will be agreements made with our network partners at MasterCard and Visa, other banks including Green Dot and that protecting customer data clearly will be a source of investment for us and every financial service provider in the country and in the world, no question about that.

Michael Tarkan, Compass Point Michael Tarkan – Compass Point: Just a quick one. Can you help us with where apparent level unrestricted cash is at the end of the quarter?

Unencumbered cash at Green Dot Corp is, Grace?

Unencumbered cash is sitting at $136 million currently.

And that is, to point out, that’s down a bit from last quarter because we paid a chunk of cash to GE to settle various bits and nuts associated with that large Wal-Mart portfolio. So we wrote them a check for $50 million that came out of that unencumbered cash as an artifice of that transaction. Michael Tarkan – Compass Point: Understood. And then how are you guys thinking about potentially a share buyback at this point?

I actually thought I would escape an earnings call without that question, but no. that’s what I get for taking the last call. So look, here’s -- how do I talk about this? As a management team and as a board, I think it’s fair to say that we feel that Green Dot stock is really good investment and that a share buyback, especially given where our share price is prior to this call, but at any time, may well be a prudent use of that excess capital. So at this point as we look at the best uses of excess capital, we feel warmer towards a buyback than we perhaps ever felt in the past. That being said, as a bank holding company using excess capital for whatever reason, is a formal decision making process. And it involves long term capital allocation planning, a formal review of our future needs and uses of cash and any number of other analyses that any bank holding company would want to undertake before spending any material amount of cash and anything off our balance sheet. But then once you’ve fully thought that through as a management team and the board, then that buyback would require the approval of our regulators at the Federal Reserve and the State of Utah. So while I can’t say with certainty what we may or may not be able to announce at any point down the road, I think it’s fair to say that we do believe that Green Dot stock is a worthy use of cash and that use of cash will rank up there with other potential uses of cash in discussions that we have on a regular basis.

And that will conclude our question-and-answer session. I would now like to turn the conference back over to Mr. Streit and management for any closing remarks. Sir?

Great. We appreciate your time on the call and I know we have some in-person presentations in New York, Boston and so forth as the season moves on. Hopefully we’ll see many of you there. Thank you for your time this evening on the east coast and this afternoon here on the west coast. Goodbye.

And we thank you, sir, and the rest of the management team for your time today. The conference call has now concluded. We thank you all for attending. At this time, you may disconnect your lines. Thank you, and have a great day, everyone.