Green Dot Corp (GDOT) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Green Dot Corporation second quarter earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Thursday, August 12, 2010.

I would now like to turn the conference over to (inaudible).

Thank you, operator. Good afternoon. My name is [Dara Dierks] and I am a member of Green Dot's IR team. By now everyone should have access to our second quarter 2010 press release. It can also be found at www.greendot.com under the investor relations section.

Throughout this conference call we will be presenting non-GAAP financial information including non-GAAP total operating revenues, adjusted EBITDA and non-GAAP net income. This information is not calculated in accordance with GAAP and may be calculated differently than other companies similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial information to their most directly comparable GAAP financial information appears in today's press release and on our website as described before. Also, we are providing 2010 guidance on a non-GAAP basis with a reconciliation to GAAP appearing in today's press release.

Finally, before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These include forward-looking statements about our 2010 guidance and our proposed bank acquisition. They are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

Some of those risks are mentioned in today's Form 8-K filing with the Securities and Exchange Commission. Others are discussed in the final prospectus for our initial public offering and our Form 10-Q, all of which are available at SEC.gov.

With that, I would like to turn the call over to John Keatley, the CFO of Green Dot Corporation. John?

Good afternoon, everyone, and thank you for joining us today. My name is John Keatley, and for the past six years I have been in the finance division of Green Dot Corporation, the last four of those years as CFO. It is my pleasure to welcome you to our call today.

Today we are going to discuss some of the key business metrics we use to measure our performance, provide you with an overview of our second-quarter results, and provide guidance for the remainder of fiscal 2010.

But first, I would now like to turn the call over to Steve Streit, our Founder, Chairman and CEO. Steve?

Thanks, John, and welcome to all of you who are listening in today on our very first earnings call. As you can see from today's press release, we had a good second quarter and delivered strong performance across the board. Non-GAAP total operating revenues grew 48% year-over-year and non-GAAP net income grew 20% year-over-year.

As background for those of you who didn't see us on the road show, Green Dot is a leader in the pre-paid financial services industry. Our products are designed to appeal to a broad base of approximately 160 million US consumers earning less than $75,000 a year.

Our customers comes to Green Dot in many cases because they are looking for a simpler, less expensive alternative to the traditional bank checking account or because they are a cash-based consumer looking for a debit card to use to shop online, make travel reservations or conduct other types of transactions where you need a Visa or MasterCard debit card. Generally speaking, about half of our customers who are [unbanked] for one reason or another before adopting our product and have had an account at a traditional retail bank before adopting our product.

Our customers are average American people like police officers, firefighters, school teachers, cab drivers and service workers. All must provide a Social Security number and other personal information necessary to verify their identity in compliance with federal law, so these products are not anonymous.

Green Dot also created and operates a leading reload network for prepaid cards in the US called the Green Dot Network. The Green Dot Network serves over 100 third-party programs that rely on the network to enable the reloading of cash onto their customers' prepaid card and accounts. The Green Dot Network is also the exclusive provider of cash deposits to PayPal accounts allowing customers to fund their PayPal accounts without a checking account or credit card. That is something new for PayPal.

From a distribution standpoint, we sell our cards and offer our network reload services nationwide at approximately 50,000 retail store locations. This includes places like Walmart, Walgreens, CVS, Rite Aid, 7-11, Kroger, Kmart, Meijer, Radio Shack and others and this makes our brand and our products nearly ubiquitous across the country. Customers can also get our debit card products online at greendot.com and walmartmoneycard.com.

Since some of you are new to our Company and since our Company is new to the public market, John and I thought it might be helpful to spend a little time on this first conference call to talk about Green Dot's operation strategies and culture.

Let's talk first about our culture. Green Dot is a mission driven company and our mission is to provide low and moderate income Americans with convenient mass access to low cost, safe, FDIC insured bank accounts. Today we provide these accounts in the form of our MasterCard and Visa branded debit card products and as I mentioned, they are sold at retail stores across the country and also online.

As part of this mission, we also own and operate the nation's leading cash reload network for consumers who need to add funds onto the prepaid card accounts.

I also want to emphasize that at Green Dot, we serve at the pleasure of our customers and this belief is at the core of every decision we make as a management team. Over the years, we have lowered fees and increased features. Our products have no minimum balance requirements, no overdraft or penalty fees of any kind ever. While putting the customer first may have caused us to make some tough financial decisions in our formative years, we were ultimately rewarded with increased account acquisition, increased usage and ultimately increase revenue, margins and profit.

Customers know a good deal when they see one and we are focused on making sure our products and services are always a good deal.

As a management team and at all levels throughout the organization, we value strong leadership and insist on fact-based decision-making and honest self-evaluation. What I mean by that is being wrong now and again is understandable and in fact, mistakes are an important part of the process of innovation, but failing to admit you are wrong is not understandable. I call that pride over fact. Pride over fact hurts successful innovation.

Look, I am quite sure that in the years to come we will make some mistakes, and when we do, you can expect me to tell you that in no uncertain terms. You can also expect that we will tell you how we intend to fix it.

Lastly at Green Dot, we believe that in order to be a thriving, long-term sustainable business, we need to be aligned with all our stakeholders and this includes customers, employees, investors, business partners, consumer advocates, government policymakers and our regulators. Each stakeholder is important to us and we are respectful and appreciative of the vital role each plays in our ability to succeed over the many years and decades to come.

Now let's talk a little bit about how our business is put together. We organized our management team around the key areas that drive the Company's revenue and these areas include the Green Dot branded programs, private label programs, Green Dot interactive programs and the Green Dot Network. Let me say a little about each.

The Green Dot brand management team is responsible for revenue generated from the sale and ongoing use of Green Dot branded products acquired at retail stores. Examples would be our prepaid Visa card or Green Dot prepaid MasterCard product sold at say a Rite Aid or CVS location.

The private label team is responsible for the revenue generated from the sale and ongoing use of products typically branded in the name of the private label partner and acquired through that private label channel. An example would be our Walmart MoneyCard product.

Green Dot interactive is a relatively new area that is responsible for the revenue generated from the sale of ongoing use of any Green Dot branded or private label branded product sold through our online store, elsewhere over the Internet, maybe through a cell phone or through partnerships with interactive social media. Examples would be the online sales of both our Green Dot debit card products and our Walmart MoneyCard product.

Lastly, the Green Dot network team is responsible for generating revenue from the transaction fee charged by the retailer when customers use our network to add money to their prepaid cards or to PayPal accounts. We generally like to keep our management teams across these areas highly collaborative, yet frankly, competitive with one another and over time you will see us make selective investments in headcount as we continue to recruit top talent with the goal of achieving revenue growth and scale in each of these key areas.

We are very proud of what we were able to accomplish this quarter and we are seeing a number of growth drivers at play that are helping to fuel our success. Let me highlight a few.

First, there are very strong secular trends driving prepaid uses usage. Customers are clearly shifting to debit-based products as they seek greater control over their spending and greater access to channels of trade that require plastic instead of cash. In addition, we believe a tight credit card environment and an increasingly expensive retail bank pricing model will continue to drive customers in our direction.

Second, we have great distribution partnerships with retail chains that have over 50,000 locations and with other channels and we expect to continue to build on these relationships. Let me talk about a few.

In May, we entered into an amended prepaid card program agreement with Walmart and GE Money Bank and extended the terms of this key commercial relationship to May of 2015. Details of that transaction can be found in the final prospectus for our IPO.

In July, we signed an agreement with Circle K to join our network of retail distributors. Circle K is the nation's second largest convenience store chain and has over 3000 company and franchised locations.

Over the past year, we have also established other important relationships like PayPal. PayPal customers can add funds to a new or existing PayPal account using our MoneyPak product and these funds can be used immediately by account holders without having to use a credit card or a bank account.

And lastly, our Green Dot interactive unit continues to grow. What was just an idea 18 months ago is now a fast-growing channel of new card acquisitions and a growing contributor to our active cardholder portfolio.

Third, we continue to identify opportunities for new products and services that can drive usage. Our customer focus has led us to enhance our product packaging and product displays for example in retail locations so that consumers can be better educated and so that we can promote our products and services more effectively.

Our product development team is also exploring new features and services that increase acquisition and retention of our products to various segments of users. Recent enhancements include integrated direct deposit enrollment forms, online bill pay, new PC plans and better online and cellphone account management tools.

Lastly, we will explore making acquisitions that we expect will help us achieve our strategic objectives and drive growth. An example would be that in the first quarter of 2010, we entered into a definitive agreement to acquire Utah-based Bonneville Bancorp which is a bank holding company and its subsidiary commercial bank, Bonneville Bank, for an aggregate cash purchase price of approximately $15.7 million.

We are pursuing this opportunity in order to increase the efficiency with which we introduce and manage potential new products and services, reduce the risks that we would be negatively impacted by changes in the business practices of the banks that issue our cards currently, reduce the sponsorship and service fees and other expenses that we pay to these third parties and also allow us to serve our customers better and more efficiently through a more vertically integrated platform.

We are optimistic that we can complete this transaction prior to years end. However, we are deeply respectful of the regulatory review process and there can be no assurance that we will obtain the approvals required for this acquisition to close. We will update you next quarter as the regulatory process continues.

So to sum up, we are very happy with the quarter and the trends in the business and we are pleased to have been able to deliver these results for your review and inspection.

And with that, I will turn it over to John Keatley to discuss more detailed financial information, and following John's presentation, we will be happy to entertain all your questions. John?

Thanks, Steve. Before I discuss our Q2 results, let me provide a high-level overview of our revenue categories and some business metrics we monitor.

We classify our operating revenues into four categories, card revenues, cash transfer revenues, interchange revenues and stock-based retailer incentive compensation. The last category is a contra revenue item where we recognize the fair value of the shares issued to Walmart for which our right to repurchase has lapsed using the then current fair market value of our Class A common stock. In other words, it accounts for the vesting of Walmart's equity grant based upon the value of the stock at the time it vests. When we discuss non-GAAP total operating revenues, we will be excluding this from our calculation.

The first three categories of revenue are primarily driven by the four metrics we use to monitor the performance of our business. They include GPR cards activated, cash transfers, active cards and gross dollar volume. GPR cards activated represents the total number of general purpose reloadable cards from all distribution channels that have been activated and funded. In the second quarter, we activated 1.5 million GPR cards, a 67% increase from the prior year.

Cash transfers represent the total number of reload transactions we sell through our retail distributors. In the second quarter, we had 6.4 million cash transfers, a 56% increase from the prior year.

Active cards are the total number of cards in our portfolio that have had a purchase, reload or ATM withdrawal transaction during the previous 90-day period. We had 3.2 million active cards as of June 30, a 60% increase to the prior year.

And the fourth metric is gross dollar volume which represents funds loaded to our GPR cards and loaded to third-party programs through our reload network. Our GDV was $2.4 billion in the second quarter an increase of almost 77% compared to the prior year.

The improvement in these key business metrics drove year-over-year revenue growth in all categories. Card revenues total $42.2 million for the quarter, up 36% from the comparable period in 2009. The increase was primarily the result of year-over-year growth in the number of active cards in our portfolio.

Factors driving this portfolio growth include same-store sales growth at our retailers, the launch of new retailers in the past year, like 7-11, growth of our online channel and increased advertising. Additionally, the price reductions and new product features that we implemented for our Green Dot branded products in July 2009 drove significant growth in that portfolio.

Cash transfer revenues totaled $24.4 million for the quarter, an increase of $8 million or 49% from the comparable period in 2009. The increase was primarily the result of period-over-period growth of 56% in the number of cash transfers sold partially offset by a shift in our retail distributor mix toward Walmart which generally has lower fees than our other retail distributors.

Interchange revenues totaled $26.2 million for the quarter, an increase of 69% from the comparable period in 2009. The increase was primarily the result of growth in the number of active cards in our portfolio driven by the factors that drove card revenues and increased transactional volume per active customer. Interchange revenues declined approximately 6% from Q1 to Q2 due to seasonality associated with tax season.

Moving down the P&L, sales and marketing expenses totaled $31.4 million for the quarter or 33.9% of non-GAAP total operating revenues compared to 24.2% in the comparable period of 2009. The increase was primarily the result of higher sales commissions paid to Walmart as a result of our amended prepaid card agreement and a $5 million increase in advertising and marketing expenses as we significantly increased our advertising activities in 2010. And that includes TV and online ads as well as in-store displays.

Compensation and benefits expenses total $16.6 million for the quarter or $14.9 million excluding stock-based compensation. This is 16.1% of non-GAAP total operating revenues which is approximately equal to the comparable percentage for the same period in 2009.

Processing expenses totaled $13.9 million for the quarter or 15% of non-GAAP total operating revenues, approximately equal to the comparable period in 2009.

Other general and administrative expenses totaled $11.3 million for the quarter or 12.1% of non-GAAP total operating revenues compared to 9.5% in the comparable period in 2009. The increase was primarily the result of an increase of $2.7 million relating to professional services expenses driven primarily by our IPO and our potential bank acquisition. Because our IPO generated no proceeds to the Company, we were required to immediately expense any costs associated with the offering and these costs will be non-tax-deductible.

Our income tax expense decreased by $4.3 million to $4.7 million for the quarter and there was a 14.6 percentage point decrease in the effective tax rate. The decrease was primarily due to the approval of our petition to use an alternative apportionment method by the California Franchise Tax Board in May of 2010. The decrease in the effective tax rate was partially offset by nondeductible IPO related costs recognized in the three months ended June 30, 2010.

One of the key financial metrics that we use to measure our business is adjusted EBITDA and this is earnings before interest, tax, depreciation and amortization, excluding the expenses associated with providing stock or options to our employees or to third parties like Walmart. Q2 adjusted EBITDA was $23.1 million compared to $23.3 million in Q2 2009 and our adjusted EBITDA margin declined from 37% to 25%. The reduction was primarily the result of three factors.

First, the higher commissions that we paid to Walmart under the amended prepaid card agreement. Second, the increased advertising expenses that yield benefits primarily in future periods but are expensed immediately. And third, the costs associated with our IPO and our bank acquisition.

The other key financial metric that we routinely use to measure our business is non-GAAP net income. Non-GAAP net income is GAAP net income plus the tax effective cost of providing stock and options to employees or third parties like Walmart. Our non-GAAP net income in Q2 was $15.5 million, which was up 20% year over year. The increase was primarily the result of the tax benefit that I mentioned earlier. Non-GAAP net income as a percentage of non-GAAP total operating revenues declined from 21% to 17% primarily due to the same three factors that negatively impacted adjusted EBITDA margin.

In terms of the balance sheet, things continue to look very good. We ended the quarter with over $120 million of cash including $115 million of unrestricted cash and $5 million of restricted cash and no long-term debt. Our cash position increased by almost $18 million from March 31 to June 30.

As we look forward, we intend to provide guidance on an annual basis for non-GAAP total operating revenues, adjusted EBITDA, and certain key business metrics. We will begin by providing our outlook for these metrics for this full year and we will provide our outlook for 2011 when we report our Q4 2010 results.

For full-year 2010, we expect the following. Non-GAAP total operating revenues of between $370 million and $380 million, which implies year-over-year growth of 43% to 47%. This forecast is based upon several assumptions including GDV growth of approximately 80% year over year; growth in cash transfers of approximately 50%; and growth of average active cards over the year in excess of 50%; adjusted EBITDA of between $92 million and $96 million, implying an adjusted EBITDA margin of 24% to 26%.

I would also point out that on a quarter-to-quarter basis, there will certainly be some events that make comparability difficult to model. We will provide additional explanation of our Q2 results in the MD&A section of our 10-Q that should help you.

With that said, operator, we will open it up to questions.

(Operator Instructions) Jason Kupferberg, UBS.

Just wanted to start with a question on a couple of the metrics and the quarter-over-quarter moves there as far as number of active cards, etc. I know you had the seasonal spike in taxes and if I am not mistaken you had the TurboTax deal in particular which may have caused that seasonality to be even stronger than usual. So I am just trying to get a feed on the business if you kind of adjust for that on a sequential basis? Did your metrics come in more or less in line with what you expected as it related to a number of new activations, number of active cards and GDV?

Yes, hey, Jason. This is John. Yes, that's right. Results did come in line with our expectations. You are right, there is seasonality in our business, not only in the TurboTax portfolio but in virtually all of our portfolio show some upward spike around tax season.

On TurboTax in particular, it accounted for a little less than 5% of our actives in Q2. If you look at the year-over-year growth of our active card portfolio, it was 60% growth in aggregate. It is about 55% year-over-year growth if you back out TurboTax. And we expect looking forward that it will continue to run down a little bit in Q3 or Q4, but maybe a couple of points as a percent of total actives, but most of the drop off you have seen from Q1 to Q2 already.

Okay. That's helpful. And then on the retailer side, congrats on the Circle K deal. I saw that you put that out in your press release and was hoping to get a little bit more color there? Is this an exclusive deal? What was the competitive process like? And then maybe if you can give a little color on how the retailer pipeline looks from here forward? And any prospects for other meaningful announcements of new wins over the next couple of quarters or so?

Yes, Jason, the Circle K is about 3000 stores and they are, as you know, a convenience store chain and we don't really discuss whether or not our contracts are exclusive because that would be competitive information, but it's a good retailer and we are happy to expand that retail distribution and that will be rolling out here in Q4 and these rollouts tend to happen over time with the reality of the physical way retailers work. So that is a good one and we will see some cards generated from those sales.

In terms of the pipeline question, there is always meetings happening with new retailers. We talked a lot about on the road show for those of you who were in those meetings, that really when you look at sort of the retailers in the country, we are where we need to be and want to be and there is not a tremendous sea change difference for some retailer that we don't have today that we would like to have. And so we are fairly fully penetrated at this point.

So there will be some add-ons and bolt-ons we call them, like Circle K, which is a good one and then maybe one or two more like that. But I think the mass of our growth if you will won't be from new retailers, although we will have them, it will be more from same-store growth at those retailers, new products and services and some of the other growth initiatives that we have talked about.

Okay, and just last one for me. We get a lot of questions from investors regarding the prepaid space, on the regulatory front and there is obviously very positive news that prepaid cards were exempted from the Durbin Amendment. But maybe you can talk about your views on some of the [Fin-Syn] proposals circulating at the Treasury Department. I know that those were disclosed in some of your filings and just the potential for some of your merchant customers to take on some additional compliance requirements or responsibilities related to your cards? Any conversations you have maybe had with those with those merchants and any impacts that you might foresee?

Well, it's been a little bit premature to have detailed talks with merchants and, first of all, let me comment on the Durbin legislation. Obviously, that worked out great for prepaid but more importantly, great for underserved consumers. And so we're glad that that turned out positively for our industry and those consumers.

On the Fin-Syn side, we actually agree with 98% of what Fin-Syn is proposing and we do that all today. Registering with Fin-Syn and the filing of suspicious activity reports and aggregating load volumes and making sure we know who our cardholders are and how to track them down. We think that is all good stuff and we think Fin-Syn is doing a great job and provides a vitally important function to the country and so we have no issues with that proposed rulemaking.

The reason it has been premature to have discussions with the retailers as it relates to parts of the proposed rulemaking affecting retail stores is that today it's just that, it is proposed rulemaking that was put out there for the intent to solicit comments letters and that common period here expires towards the end of the August, maybe in about one or two weeks, I suppose -- two weeks. And we will submit a comment letters as many others will as well. And now at that point there will be other conversations and discussions about what is right and what is best for the customer and also for law enforcement. So it's been premature.

But we feel good that ultimately whatever is ultimately decided, we will be good shape with it and we will be able to comply. And we also feel confident that we have done a great job with law enforcement and we will be able to continue to do so.

Terrific. Well thanks for the comments, guys.

Gil Luria, Wedbush Securities.

Thank you. First of all, congratulations on a successful IPO and a great first report of a quarter here. First of all, I wanted to start with Walmart. I think -- and you have disclosed it in your previous filings and discussions, the percent of revenue from Walmart. And I wanted to see what the up to date number was for the second quarter in terms of your percent revenue from Walmart?

Sure, Gil, let me just pull that up here. We were -- so in terms of revenue concentration for Q2, we were at 64%, which we will have disclosed in the 10-Q here shortly. That was up slightly from Q1, but Q1 was more impacted by tax season and the TurboTax program so it was in line with our expectation.

And on into it and TurboTax, I think you said slightly less than 5% of your actives are TurboTax issued. What was that running at during the first quarter?

Q1 was a couple of points higher than that. We expected maybe a couple points lower than that in Q3 as that portfolio runs down a little bit.

And it was already dramatically lower in June so you can pretty much see we were in June, I think at 2% or 2.5% of that concentration so you can see where if you look at the quarter it keeps trending down as folks take their tax money off the cards.

Got it. And then in terms of operating expenses, you mentioned the $2.7 million of professional services there that had to do with the IPO and the bank acquisition. Going forward, how does that balance out? Do you continue to have those kinds of expenses that are spilling over from the IPO? Are there incremental expenses? What are the incremental expenses that you are going to have now as a public Company? As a run rate, how should we look at the operating expense that you report? What are the tweaks up and down?

Well, there are -- as you mentioned, there are a couple of somewhat exceptional items that we expect to drop off significantly here after the IPO and one is just the expenses associated directly with the IPO. And again, because our IPO is all secondary, we expensed items that most companies capitalize in an IPO. There also are significant costs associated with acquiring a bank and becoming a bank holding company. As Steve mentioned, we don't expect to close on the bank until Q4, so those will continue, although perhaps at a slightly lower level here in the second half of the year.

Those expenses together accounted for about 20% of our other G&A in Q2 and we expect that to decline significantly through the end of the year.

Got it. And then in terms of the active life, the length of active life on your cards or the flip of which is each churn, the life of your cards is still relatively short and the churn rates are relatively high. What are the kinds of things that are impacting that in the short term and what are the kinds of things that you can do to lengthen the link of a time a card stays active?

Right. Gil, we are always checking into that. And let me talk about churn for a little bit and even the word churn sort of is maybe not the appropriate phrase. Churn reminds me of say a cell phone company or someone where they are incentivizing or subsidizing the purchase of a handset for a couple hundred dollars and then the user has to be active for some months to get that money back.

At Green Dot, we're profitable basically from the time a customer buys our product off the shelf and so whether you use it for five days or 500 days, it is not a drain on the income statement, so churn probably isn't our favorite phrase. But I do want to point out that difference from say a cable company or a cellphone company.

The thing about cardholder retention which is our better phrase, is that we are a segmented business and in some ways, just the nature of how we sell in a retail store affects our rate of retention because we have different people buying our products for different reasons. You have this beautiful package hanging from a really colorful display in a retail store.

There is a temporary Visa or MasterCard that is visible for the customer to see. And many people say, hey, this is a great solution for short-term use. My son is going to summer camp or I am taking a trip and I need to reserve a hotel and I'm going to buy an airline ticket online or I want to buy something on eBay or buy something on Amazon.com.

Whatever it may be and they buy the card, they use it for that purpose and they throw it away. It is not our favorite customer, per se, we make money off of them, but nevertheless, it is how the product is designed and it's one of the things they like about the product. So when you go into a focus group and say hey, how come you didn't reload this card more or how come you didn't use it for longer? They say, well, I just didn't need it for longer, but boy, I really love it and when I have a need I will buy it again.

So there is not a lot we can do to get that guy to stick around. I call it the Avis Rent-A-Car effect. If you go to Avis and rent a Ford Focus for the day, because you are in town on a business meeting for the day, there is not a lot Avis is going to do to get you to keep that car for five days. You know, you used it for one day, you returned it and that is why you like Avis. And so that is a big part of our segment, maybe as much half of our users, in fact, depending on the retailer and the product.

But any of the other guys who say, no, no, we bought this because we are using it as a substitute for the credit card or we're using it as a substitute for a bank account, those are the segments that we really think about retention, how to please them more and more. And we have made a lot of progress in usage in terms of both the amount of dollars put through those cards and the amount of services and features the customers use on those cars for usage.

And what some of the things we have done in the past year and a half to give you a sense, Gil, are things like online bill pay and having the direct deposit forms really pre-populated and right there for the customer to see when they go online to activate. And paying them $10 as an incentive to get on direct deposit. And our new fee free program which says if you load at least $1000 on the card, we will waive all the fees or if you use it at least 30 times in the course of a month on anything, buying a pack of gum, we really don't care, we will waive the fees. And all that together has really helped us in those segments I want to retain longer.

But we are obsessed with it. We are always looking at it. We have done a lot and we will do more.

Got it. And then just last question. Tax rate for the year and maybe medium-term guidance on where you think your tax rate is?

Yes, so for -- there has been a little bit of noise in our tax rate. We had those non-deductible expenses associated with the IPO. We had this petition with the California TB for early adoption of a different apportionment method. Those two effects work in different directions.

For the full year of 2010, we expect a tax rate of approximately 40%. Looking forward in 2011, we will see the benefit of that new apportionment method here in the state of California. We are not providing or we are actually still doing some of the analysis ourselves on the exact impact of that but there will be a benefit that you will see in 2011 and beyond.

Great. Thank you very much.

Bob Napoli, Piper Jaffray.

Good afternoon. Congratulations on your first IPO conference call post-IPO.

Thank you, Bob. I appreciate it.

Question on the prepaid environment and how you think -- Steve, how you think with the Durbin amendment -- how you think the pre-paid market and the competitive environment may change? We're hearing a number of banks thinking about being more active in the prepaid space and maybe some of their bank accounts for lower income which were profitable under debit card, are not profitable and maybe would be under a prepaid card. So you may see more interest from banks. I was just wondering how you think the competitive environment may evolve and who you would be most concerned about as potential competitors?

Well, I don't think we are really concerned about any of it but we are certainly aware of it and I have a couple of thoughts. So first, a rising tide does in fact float all boats in a developing market. This isn't a product where you have 100% awareness of the product and everybody knows it like a credit card say or a traditional debit card. So for other banks or other financial institutions to market this more heavily or to have promotions or to go on TV with it or to be on financial talk shows talking about the product can only help the market develop. And given our size, distribution and scale, I think we will be an outsized beneficiary of that kind of publicity. So I don't really worry about it because the awareness of the product today is so small relative to other products.

So over a few number of years, it could be a plus to us. But having said that, I think banks are going to have a challenge with it. Well, the phrase I use here is a little bit like selling pork. It is real and that is it is both a great product but the market is somewhat unmatched.

The fact is that low and moderate income Americans have learned the hard way that a bank lobby is not a place to hang out and to acquire financial products. I am not saying that it is anybody's fault, but it is what it is, and we are in locations where our customers are more likely to adopt these products.

Thanks. A follow-up kind of on the growth in the business -- in your channels, I was wondering if you could talk a little bit about same-store sales, how some of the success of some of your new channels and maybe how the 7-11 relationship is unfolding?

Let me speak a little bit about that retailer and then John can give you more of the global view.

Sure.

Unfortunately for competitive reasons and confidentiality reasons, we can't give you sales numbers of any one retailer. I will tell you though that globally for 7-11, they have been a great early partner both on the network reload business and on the acquiring of new card customers. And that has turned out to be probably our most successful convenience store chain ever. We have been in convenience for a long time.

So they are a great partner and we are awfully proud to be in those locations and if you have visited a 7-11 recently -- and by the way, they have fabulous coffee 24-7 and they brew it fresh all the time for those of you to travel, it is a great product there.

Anyhow, we have a beautiful display that takes up -- it has got to be a good seven or eight feet of that section when you first walk into the store, facing the parking lot. In other words, you see the glass and then they have this whole prepaid Green Dot display that is quite colorful and they do a great job with it and are being very successful with it.

And then I will let John talk a little bit about our Green Dot retailers sales year-over-year?

Yes, as Steve mentioned, we don't provide details on individual retailer's sales but I can say that we are seeing significant year-over-year growth in all of our key retailers. And additionally, our new online channel has really recently become a significant contributor to new card activations which is really exciting new channel for us.

Thanks. The last question, just the refund anticipation loan. I'm not sure how that fit into your tax business, but it seems like the government is kind of shutting down that product. And I didn't know if -- it seems like that would be a perfect product for a prepaid card. And I wondered if -- at what -- how much of your business on the tax side could be affected by that adjusted regulation?

Well, the answer is none, and let me say that I think it is great the government is shutting that back down. I want to applaud the FDIC and other regulators for shutting that down because we think it is a pretty abusive product. So we'd actually be -- not be controversial -- but we say go get them.

The answer is, none of those funds are from refund anticipation loans. This is strictly about customers who when they go to the -- whether it is TurboTax or do it online or get their tax refund check or depositing those funds, typically if you are direct deposit onto a Green Dot card, but it is not a refund anticipation loan or there is nothing special about it. In it is the same way you or I may get our -- well, haven't had a refund in [50] years I guess -- but it is the same way that somebody may get their refund normally.

Thank you.

(Operator Instructions) Chris Mammone, Deutsche Bank.

Thanks, guys. Let me add my congratulations on a successful IPO.

Thanks, Chris.

Thanks.

I guess maybe a follow-up first -- maybe I will follow up to Bob's question on same-store sales. Any sense for a magnitude on sort of an aggregated basis for what the trends are there? Any additional color?

Well, let's see. Well, yes, I can provide a little bit of color there. So if we are looking at year-over-year, in 2009, remember we had the launch of our new pricing at Walmart in early 2009 in February that really started to drive a significant step up, really significant growth in our new card activations there. And then we rolled out our instant issue product with a lower up front fee at our other retailers on our Green Dot branded product in July of 2009. And since then, we have been seeing really significant year-over-year growth in our new card sales at other retailers and that's pretty much across-the-board.

That product we distributed across our full retail footprint from July through the end of the year last year and we attribute a lot of our year-over-year growth to that new product and the new price plan and some of the new features like the free ATM network, the free online bill pay, low -- waiving the monthly fee for regular users of the product.

So we are seeing significant growth in new card activations and active cards both in Walmart and in our non-Walmart retailers.

Okay, and I guess -- appreciated the color on sort of the drivers of the changes and sort of EBITDA year over year. I guess could you provide in those three buckets maybe what the basis point contributions were for each of those three reasons on EBITDA?

Yes, I probably can't break it down in that much detail in terms on the actual margin impact of each of those. But your comment reminded me that I did sort of leave out the advertising discussion in my analysis of the year-over-year growth which is both a driver of the year-over-year growth in activations as well as a driver of the year-over-year decline in our EBITDA margin.

We did spend significantly more on advertising here in 2010. That includes both TV advertising, which helped drive significant growth in our retail sales. It also helped drive growth in our online channel where we were also spending in online advertising. So TV advertising has been a good contributor of our growth, but it also contributed to the margin decline and as we discussed in a fair amount of detail in our S-1, we renewed our Walmart agreement in May of this year. We saw significant increase in the commission rates that we pay to Walmart so that was a material contributor to the decline in our adjusted EBITDA margin year over year.

And then the third one was the IPO and the bank acquisition costs, which is more of a one time or non-recurring expense, but we haven't yet provided a specific break out of the impact of each of those items.

Got it. And I guess to follow-up on the advertising -- does the stepped up level of advertising represent sort of what you might consider a recurring level or should we expect that to sort of move up and down as the year progresses?

Well, I can't give you specific guidance, Chris, on what we're going to spend or not spend over the year, but I can tell you that we are on plan for what we agreed to spend when we set up the plan last year and that is baked into the forecast that we use internally and the guidance that John Keatley gave you earlier in the call.

What I can tell you, though, is that marketing has always been a big part of Green Dot's formula, if you will. We have a national brand name. We have to support it and we do. Our retailers expect it and we support it both on TV, more recently, frankly, online. We didn't use to do a lot online, but we have done a lot more recently, has been effective.

And then all the displays we have in all the retail stores, which millions and millions of people see and it burns that Green Dot logo in their brain. So you can always expect us to be ongoing television advertisers and my guess is over the years that will actually increase.

Having said that, though, we monitor it very closely. John Keatley does a great job and his group of giving us literally daily reports on the efficiency of a TV spot and when our TV commercial runs the next day we see how effective it was and what channel worked and what show worked and what didn't work. And we are constantly reevaluating. So if a TV campaign ever stopped contributing positive ROI, then our formulas would cut it and so far it has been successful and I would expect us to continue to do that.

Okay, great. And maybe last one from me just on the PayPal partnership. I know it is still relatively early on in the relationship, but any sort of early growth metrics that you could share to sort of see how that has progressed in the early stages?

And then maybe also thinking out longer-term maybe if you could share some of your longer run expectations for what you think that relationship could mean to the model?

Well, PayPal has gone very, very well and I think it will go better. You are going to see with PayPal a new promotion and relaunch if you will on their homepage coming up here in later September. And our teams are working on that together and we think that will be great. It is already risen to be one of our top loading customers and we have over 100 folks who reload on the Green Dot Network. They are already one of our top reloaders after only three months, something like that. And it has been really fabulous to see.

And the only way you would even know about the opportunity is either you run into a package and read the little notice we have on the MoneyPak package or if you see it on the add funds section of the PayPal website which you are only going to if in fact you are already a PayPal customer.

So the fact that we can do some home page advertising combined with some retail marketing we think will expand it even further and make it a more usable and a more notable feature. So we like PayPal. It has done well for us so far, and then how it will grow over time is anyone's guess. You know, we have never been through this path before, nor has PayPal so we're kind of learning as we go, but so far the adoption has been strong. The satisfaction from customers has been very strong.

Great. Thanks, guys.

That is all the questions we have for today. I would now like to turn the conference back over to Mr. Steve Streit. Please go ahead.

Thank you very much, Alicia. Appreciate that. Listen, we appreciate your questions and John and I enjoy knowing all of our investors on a personal basis and through our investor relations firm, called ICR, we have worked out a way for you to reach us and meet with us if you haven't done so already. Just contact Don Duffy and his team at 626-739-3942 or you can e-mail us at IR@GreenDot.com and Don and his folks will arrange a meeting here at our Monrovia offices, metropolis of Monrovia, as we say, which is in the greater Los Angeles area or we can meet up with you at one of the many of the investor conferences that I am sure we will attend throughout the country over the next year.

So we greatly appreciate your partnership, everybody on the call, and helping us grow and we look forward to a long relationship. Thanks, everybody, for your interest in Green Dot and we look forward to talking with you again on our next earnings call. Have a great day.

Ladies and gentlemen, this concludes the Green Dot Corporation second-quarter 2010 earnings conference call. Thank you for your participation. You may now disconnect.