Green Dot Corp (GDOT) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Green Dot Corporation Fourth Quarter 2010 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator Instructions)

This conference is being recorded today, Thursday, February 10, 2011. And I would now like to turn the conference over to Dara Dierks, an associate from Green Dot Investor Relations. Please go ahead, Ma'am.

Thank you, Operator. Good afternoon. By now, everyone should have access to our fourth quarter 2010 press release. It can also be found at www.greendot.com under the Investor Relations section.

During the call today, we will be reviewing a presentation which you can access by clicking on the webcast for today's call. Throughout this conference call we will be presenting non-GAAP financial information including non-GAAP total operating revenues, adjusted EBITDA, non-GAAP net income and non-GAAP diluted earnings per share.

This information is not calculated in accordance with GAAP and may be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliation of our non-GAAP financial information to their most directly comparable GAAP financial information appears in today's press release.

Also, we are providing 2011 guidance on a non-GAAP basis with a reconciliation to GAAP which appears in the financial information section of our Investor Relations website.

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 financial 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 perspectives for our secondary public offering and in our most recently quarterly report on Form 10-Q, which are available at sec.gov.

With that, I would like to turn the call over to Steve Streit, Founder, Chairman and CEO of Green Dot Corporation. Steve?

Thank you, Dara, and welcome, everyone, for our Q4 earnings call. As always, with me here at our Monrovia, California headquarters is my close partner and Green Dot CFO, John Keatley.

John and I always enjoy spending time with our investors and others interested in our company and we hope you'll find today's presentation helpful and informative.

In addition to discussing our Q4 results, back by popular demand is another Green Dot in depth segment where we'll present the special report on various aspects of our company. And this quarter we'll discuss how we're focusing on our customer acquisition efforts towards longer-term, higher revenue customers.

Today's in depth segment is called, Green Dot Looking for Mr. Right, which will be presented right after John's financial review. But first, let's get to our favorite part of the call, which is a recap of our company's performance. As we turn to slide number three on the deck, you'll see that the fourth quarter was another strong quarter at Green Dot.

Non-GAAP total operating revenues increased 40%. Adjusted EBITDA grew 16% and non-GAAP net income grew 21% year-over-year from strong performance in all of our key metrics. This is especially good when considering the fact that the 2009 comparison period was prior to the renewal of our Walmart agreement and the higher commission rates associated with it.

Since the quarter ended, we also made further progress in expanding our distribution channels beyond retail. As I'm sure many of you know, we announced last month that Bonneville Bank and Green Dot are the bank and program manager for a US Department of Treasury pilot program, whereby Americans can receive their federal tax refunds via direct deposit to a prepaid debit card.

As many of you know, Bonneville Bank is under a definitive agreement to be acquired by Green Dot. Furthermore, the Green Dot network will serve as the exclusive cash reload network for the program and the pilot.

We believe that all Americans should have access to safe, low-cost, FDIC insured banking products to handle their daily transactional needs. We're proud to partner with the US Treasury to help more Americans enter the financial mainstream with their own pre-paid debit card account, and avoid the cost and time involved in otherwise waiting for cashing a tax refund check.

While we're working to expand beyond retail, we're also working to expand in retail. And with that said, we're proud to welcome Casey's General Store to our long list of retail distributors.

Casey's is one of the nation's largest convenience store chains with 1500 stores throughout the Midwest. And, in fact, my oldest daughter, [Kristen], goes to the University of Illinois where she's working towards her Masters in social work and she tells me that she relies on Casey's General Store locations in Decatur, Macon, Blue Mound and Taylorville.

She said she likes Casey's because she gets her gas there. They have a good variety of groceries, and everyone around there loves their pizza. Casey's, the convenience store and a whole lot more, and we're proud to welcome them to our company.

We now stand at approximately 55,000 retailers selling our products nationwide. As I mentioned before, our retail distribution is one of our most important assets, allowing us to reach the vast majority of the US population on a regular basis.

Lastly, let me provide a quick update on our bank acquisition. We're continuing the regulatory review process to acquire Bonneville Bank of Utah and become a bank holding company, and we expect resolution within the next four to six months. We began the process with our application filing back in February of last year, so it's been almost -- exactly a year. We'll get resolution, we believe, in the next four to six moths.

We're highly appreciative of the hard work and dedication that our regulators have poured into the review of our application and I, again, want to take this opportunity to thank them for their tremendous effort.

Well, I'll now hand the call over to John Keatley with more specific Q4 performance details. And after John's comments, we'll bring you our Green Dot in depth feature for today followed by Q&A.

John?

Thanks, Steve. As Steve said, we're pleased with our fourth quarter results. In particular, we're excited about how customers continue to incorporate our products into their lives and use them more frequently.

As we turn to slide four, you can see the growth in our gross dollar volume or GDV, which is the total volume of funds loaded to any Green Dot product. Our GDV grew 53% year-over-year to $2.7 billion. This metric continues to outpace our new card activations [and] active card, demonstrating that customers are entrusting Green Dot with a larger and larger share of their personal finances.

Slide five presents our cash transfer volume, which grew 41% to 7.3 million transactions during the quarter. This was driven by the growth in our active card portfolio, and also by growth in transactions attributed to our network partners like PayPal.

Slide six shows the growth in active cards, which increased 26% to 3.4 million, as of December 31, driven primarily by higher new card activations. We had 1.53 million new card activations for the quarter. This was an increase of 10% year-over-year. And, more importantly, we saw a 24% increase in the number of cardholders who reloaded their card for the first time.

As Steve mentioned, we've taken some steps to better target long-term, high-revenue customers for our products and we're beginning to see strong results from those efforts. We'll discuss this trend in greater detail in the in depth section of the call.

As we turn to slide eight, you see that card revenues totaled $42.4 million for the quarter. That's up 38% from the comparable period of 2009. The increase was primarily the result of year-over-year organic growth in the number of active cards, as well as growth in average card usage.

Cash transfer revenues totaled $27.9 million for the quarter, an increase of 46% from the comparable period of 2009, driven by increased cash transfer transactions and higher revenue per transaction.

Interchange revenues totaled $27.3 million for the quarter, an increase of 39% from the comparable of 2009. The increase was primarily the result of two factors; the increase in the number of active cards in our portfolio, and an increase in transactional volumes per customer.

Proving down the P&L, as you can see on slide number nine, our sales and marketing expenses totaled $35.1 million for the quarter, or 36% of non-GAAP total operating revenues, compared to 28% in the comparable period of 2009.

The increase of eight percentage points was primarily the result of higher sales commissions paid to Walmart, as the result of our May 2010 renewal agreement, and a $3.2 million increase in advertising expenses as we continued to spend on television and online advertising.

Our compensation and benefits expenses totaled $19.6 million for the quarter. Excluding stock-based compensation, it was $17.6 million, which is approximately 18% of non-GAAP total operating revenues. This was comparable to the percentage for the same period last year. Comp and benefits is one of the areas where we tend to see significant operating leverage as we grow.

Processing expenses totaled $13.8 million for the quarter, or 14% of non-GAAP total operating revenues. This was down from 16% in the comparable period in 2009. As a percentage of interchange revenues, it was 51%, which was down from 56% in the comparable period in 2009.

We typically evaluate our process and expenses as a ratio of interchange revenue because it tracks more closely to that line item than to other revenue categories. The improvement reflects the savings that we receive under our processing and bank issuing agreements as our volume increases.

Other general and administrative expenses totaled $10.6 million for the quarter or 11% of non-GAAP total operating revenues, which was down from 13% of non-GAAP total operating revenues in the fourth quarter of last year.

Our income tax expense decreased to $4.8 million for the quarter compared to $4.9 million for the fourth quarter of 2009, lowering our effective tax rate to 38% for the quarter compared to 42% last year. The reduction in our tax rate is primarily due to a change in the apportionment methodology, which was approved by the California franchise Tax Board in May 2010.

Under this methodology, we apportion less income to California, resulting in a lower effective state tax rate.

We typically measure our revenue growth in terms of non-GAAP total operating revenue, which is total operating revenues excluding the comp to revenue item stock-based retailer incentive compensation.

As we turn to slide ten, you can see that our non-GAAP total operating revenue grew to $97.5 million in Q4, an increase of 40% year-over-year. One of the key financial metrics that we use to measure our business is adjusted EBITDA, which is EBITDA excluding the expenses associated with providing stock or options to our employees or to third parties.

As you can see on slide 11, Q4 adjusted EBITDA was $22.5 million compared to $19.4 million in Q4 of last year, a year-over-year increase of 16%. Our adjusted EBITDA margin declined from 28% to 23%. The reduction in margin was primarily the result of the higher commission rate I referred to earlier.

The other key financial metrics 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 to third parties.

As you can see on slide 12, non-GAAP net income in Q4 was $12.7 million, which was up 21% year-over-year. The increase was primarily the result of our top-line growth, partially offset by the same factor that negatively impacted EBITDA margins.

Our balance sheet continues to be very strong. We ended the quarter with approximately $173 million of cash on hand, including $167 million of unrestricted cash and $5 million of restricted cash and no long-term debt. Our cash position increased by $32 million since last quarter.

As we turn to slide 13, let me remind you again that our comments include forward-looking statements. You should review our recent SEC filings that identify important risk factors and understand that actual results could materially differ from those contained in the forward-looking statements.

For the full year 2011, we're expecting non-GAAP total operating revenue of between $480 million and $500 million, which implies year-over-year growth of 27% to 33%. This forecast is based upon several assumptions, including improvement in average access cards over the year of approximately 25%, growth in cash transfers of approximately 30% and GDP growth of approximately 30% year-over-year.

We expected adjusted EBITDA of between $114 million and $122 million, implying and adjusted EBITDA margin of 24% based on the midpoint of the revenue and adjusted EBITDA ranges. This implies year-over-year adjusted EBITDA growth of 16% to 24%.

However, if the higher Walmart commission rates are applied across all of 2010, the year-over-year adjusted EBITDA growth would be between 31% and 40%, which represents margin expansion of slightly more than one percentage point.

We expect the seasonal pattern that we saw in 2010 to repeat itself in 2011 with the most dramatic, sequential growth occurring in Q1. Our January results this year are in line with our projections.

As I've said in the past, on a quarter-to-quarter basis, there will certainly be some events that make comparability difficult to model. We will provide additional explanation when we think it's necessary to help you understand performance comparability.

And with that, I'd like to turn the call back to Steve. Steve?

Great. Thanks, John. And now we're ready to present this quarter's in depth segment called, Green Dot Looking for Mr. Right. One of the most common areas of questions John and I get is about customer segmentation and retention, and how we attract segments that are more prone to enroll in direct deposit and more prone to be long-term, higher-revenue customers.

So we thought this quarter we'd dive into this topic a bit, and talk about our strategy of how we acquire higher-revenue, longer-term customers to our products. John?

As you may know from our past conference calls and presentations, approximately half of our new card sales are to customers who buy our products to satisfy a short-term need, and half are to customers looking to satisfy a long-term need. So that means that half of our business is made up of short-term customers. Right? Wrong.

The fact is that while our new card activations may be roughly 50/50, the revenue from our long-term customers is far greater than that of the short-term customers. And so, in reality, only about 15% of our revenue is from short-term customers and about 85% is from long-term customers.

So a significant lever of growth for us is shifting our mix of unit sales toward more long-term customers, even if that means making our merchandising and retail placement perhaps somewhat less conducive to attracting short-term customers.

This shift in customer mix toward longer-term customers is a positive to the income statement. We always work hard to solicit more and more new customers to adopt our product but increasingly our focus is on finding effective ways to attract the highest revenue, longest term new customer as opposed to attracting just any new customer.

Yes, that's right, John. Some of the ways we work to attract longer-term customers includes some of these following initiatives that we wanted to share with you. Beginning last year we changed all of our in-store displays at our retail locations to segregate reloadable, pre-paid debit card products from non-reloadable gift card products.

This is a change that we've been working on with many of our retailers for some time. And the recent passage last year of Card Act helps service catalyst to make this happen at all of our retail locations.

While this is lowering new card activations for people who are looking for short-term gift card type product, it has also increased the odds that only people truly interested in a reloadable, pre-paid card were, in fact, buying our product.

Second, we made some changes to our packaging. If you notice -- if you go to a local store you'll see we now include the phrase, not a gift card, on the front of the package right underneath the price.

There's also now a product description on the package itself advertising direct deposit and reloadability. And educational signage appears on most of our displays that heavily emphasize the reloadability of our cards, along with information on how to enroll in direct deposit.

Another contributor to longevity and revenue per user has been our fee plans, which heavily reward long-term customers. For example, our fee-free ATM network, our free online bill pay services and the $10 direct deposit incentive that we provide customers when they enroll in direct deposit have all been effective encouraging longer-term use.

We continue to drive growth from our online channel where we've done a great job there. We're better able to target the higher-revenue and longer-term customers online, and better able to communicate the value and features of our products specifically tailored to those customers.

We believe secular trends in banking are also beginning to push more long-term customers out of traditional branch banking into our retail solution. And, lastly, our new TV commercial, which we launched last year, spoke almost exclusive on how our product is a long-term substitute for a checking account or a credit card.

So just how effective have we been at changing our mix of customers and the behavioral characteristics of our portfolio? John will tell you.

John?

As we turn to slide number 15, you can see a few of the more notable metrics that we think demonstrate the points that Steve just made. We have seen a significant increase in the percentage of our new card activations that turn into reloading customers.

While total new card activations were up 10% year-over-year, the number of customers reloading for the first time increased 24% in Q4, evidence of a shifting mix of our new card activations.

Second, the number of purchase transactions per active card increased 16% year-over-year. Third, the number of cash transfer or reloads per active customer has increased 12% since last year. Interestingly, higher cash transfer usage is a trend that we see even amongst our direct deposit customers. In Q4, approximately 45% of our direct deposit customers is at least one cash reload on the Green Dot Network.

Now, the following three metrics we think are particularly significant. First, our GDV per active card has increased 21% year-over-year. Second, the proportion of active customers on direct deposit has increased more than 50% over the past year. And third, the proportion of our reloading customers who qualify for our monthly fee waivers has increased significantly.

In December, nearly 20% of our reloading Green Dot card holders had their monthly fee waived. This is a true win/win as these customers generate significantly higher interchange revenue but pay lower fees.

Steve?

Yes, altogether, we believe that metrics like these are indicating a true sea change in how our customer mix is evolving, and how this evolution is driving significant revenue growth within our active portfolio.

So while gross new card usage sales will always be an important metric and an important focus for us, growing the right kind of unit sales will become even more important as we keep looking for Mr. Right.

And that was this quarter's in depth segment. We hope you found it helpful and useful. And now, Operator, let's go ahead. We'll open the phones for Q&A.

Thank you, sir.

(Operator Instructions)

Our first question comes from the line of Adam Frisch with Morgan Stanley. Please go ahead.

Hi, Adam.

And, pardon me, Mr. Frisch, your line is open at this time.

Hi, this is [Glen]. I think there's a little connection issue with the conferencing here. How are you guys? Thanks for taking our call. Sorry about this.

We thought Adam was just so astounded by the success --.

Hi, I'm on. Sorry.

I was about to take it, but go ahead, Adam. Sorry.

Hi, guys. How are you doing? Sorry about that. I know a lot of people are waiting to get on.

One of the things I wanted to talk about -- I think the stock is selling off a little bit here in the after hours because, while the results were certainly very, very good and a lot of people would probably kill a bunch of their relatives in order to have growth like this at their own company, maybe there wasn't enough upside and maybe expectations were a little bit out of whack from what you're delivering.

So maybe, John, if you could just kind of go over your guidance, what you laid out there for fiscal '11. Where could the upside come from? How conservative are these numbers, or is this kind of where things are going to wind up as best as you can tell?

Well, yes, let me talk about the guidance we provided a little bit. You know, on the IPO -- and previously we've guided to 25% top-line revenue growth and 30% earnings growth.

Our guidance for 2011 is a little bit higher than that. We're at about 27% to 33% on the top line and 30% to 40% on the bottom line when you adjust for Walmart. As you know, with the seasonality of our business, a lot of that growth comes early in the year in Q1.

2011 seems to be no exception to that. Our results through January suggest that we're well on track to hit those numbers. So, we feel good about that guidance.

Okay. Let's talk about other opportunities, verticals for the product in the coming years. I think the Treasury announcement was a great one. Even if you don't make any money from that announcement, just the regulatory halo effect that you'll get, I think, is really helpful.

But obviously, government is going to become a bigger player, e-commerce, mobile, penetrating Generation Y or X or whatever letter we're up to at this point. If you could just talk to us maybe about in a year from now, two years from now, on a conference call like this, what are you going to be talking about in terms of the biggest growth drivers of the business?

Well -- hey, Adam. This is Steve. You know, I think as you look forward over the next 18 months, if we're successful at executing the plans that we have internally. And one of the -- there's a lot of great things about being a public company. One of the more frustrating things is we can't risk as much or disclose as much as maybe we would have as a private company to investors and others.

But, let me say it this way, that over the next 18 months I think in addition to our continued strength in retail, that will be a top player in almost every worthwhile channel of mass distribution of these accounts.

So we think of young people -- by the way, the new one that I read this morning is Generation Z. But it's 18 to 24 year olds. I don't know what happens after that. They have to start with A again or something -- double A.

But anyhow, but if you think -- so you'll have retail. We think that will be a player in government and certainly want to have a meaningful presence there. And the Treasury pilot is a great start but it is just a pilot, and so you never know how that will turn out over the long term.

But certainly the government vertical, the payroll vertical and any other vertical that we think makes sense or we can use our leverage and our scale and our distribution technology and platform, our Green PlaNET, to attract large groups of customers who are prime for our type of product. You can expect us to be a big player. And we feel good about our progress in achieving that, and so we feel good about all that.

Okay, the last question I'll ask and then I'll hand it over to somebody else, the question we get is did the Walmart renewal, because it was so public and such a big event in the Company's progress. Has that impacted your relationships or contractual terms with other retailers?

I know they're obviously on multiyear arrangements. But have any of them come back and asked for early renewals or renegotiation? Or, how do you expect that to impact future renewals? Thanks, guys.

Yes, Adam. It's always a good question. When the news first came out, which was, oh, gosh, June or July of last year -- it was right before the IPO -- we did get questions from some of our retailers; what does this mean? Especially on the equity side a lot of folks were wondering what that meant. Tell us how this works or that works.

And so, we did get some questions. But at the same time, it's just such a different program in terms of how it's distributed at Walmart, how the various fees are shared with Walmart that our other retail partners, who are vitally important to us, understood that they had a great deal as well -- different deal perhaps because of the nature of the kind of distribution and the ways the distribution deals are structured, but they had a great deal.

So, we didn't experience a lot of challenges there. And in the few where we had requests to review the deals, it's worked out we think in a better way because a big reason, let's face it, that Walmart gets some of the deals they get because they sell a lot of product.

And the concept of being able to move more product and for our retail partner to be incentivized for moving more product is a great conversation to have.

And that's one, frankly, that Mark Troughton, who, you know -- Mark and I will have any day of the week with any of our retail partners to figure out how to sell more cards and issue more accounts and have more customers together and increase incentives for everybody.

So the answer is it's worked out okay and we're real proud of our strong relationships with all of our retailers, not just Walmart. And so I think we're in good shape there.

Okay. Thanks, guys.

Yes.

Thank you. Our next question comes from the line of [Tin Chin Wang] with JPMorgan. Please go ahead.

Hey, good afternoon, Steve, and John. I want to ask a follow-on I guess to what Adam asked. Actually, before I get there, going to this Mr. Right section, which his useful. It sounds like the message is for us to break the link between revenue growth and the new activation metric, which has been running kind of flat sequentially here. Am I right in thinking about it that way and --?

Well, maybe a little bit right. It's reflective of conversations that John and I have internally. Look, here's the thing -- that you'll find that sequential growth will, again, kick in quite heavily in Q1.

Green Dot is sort of a planting and harvest kind of a company, meaning that the first half of the year -- the first four or five months of the year, you see this huge step up in account acquisition and then we do everything we can to keep as many of those customers throughout the year.

We're always acquiring new accounts. But no question, Q1 and maybe even a little bit early on in Q2 is a big time for us. And then you see growth in usage metrics that we're doing a good job, and that kind of brings us in.

I guess what it's really saying is that, look, as we look at our own displays at retail stores. As we look at this topic of one-time or short-time need users versus long-term need users, the long-term guys were 85% of our revenue, and the revenue per user is just so much higher.

So, we're certainly looking at how do we fine tune our displays, our TV commercials, our pricing, our marketing messaging to make sure that we're attracting the best customers all the time? And sometimes that is mutually exclusive to attracting the casual user, the guy who makes an impulse purchase on the way out of the store, or the person who thinks they're buying a gift for their grandson or granddaughter.

And we've been successful at doing that, but it can have the effect of making the gross unit sales look deflated, but it doesn't mean a lot of revenue.

And I -- look, we have some competitors, to give you an exaggerated example, but it's true -- who give away the cards for free or shove them in bags on the way out of the store or who somehow have other kinds of uses to get as many cards issued to inflate that card issued number. But, I don't know that that's particularly helpful to anybody. Right?

And so, as we get older and more sophisticated and also sensitive to the fact that we need to drive direct deposit, it becomes mutually exclusive. If you're saying, hey, listen, we want to attract more and more heavy users and when they get that account, we want them to use it for years, not weeks.

Then, by definition, your repeat customer base may go down a little bit in that nature and you're going to have less casual users who bought it because they wanted to buy one thing on eBay. Having said that, we sell a lot of short-term gift cards. The Walmart gift card sales, for example, were up massively year-over-year and John has some numbers for that.

And we sell a lot of short-term [need] customers, too, but there's no question that what I guess we're trying to relay in that segment is that when we now look at a display -- if you go back to Green Dot of two years ago, we said, hey, where do the most people go and we just want to sell as much units as we can.

Even our incentives internally to our sales people were you're incentivized on how many units go out the door. And I think we're revisiting that and saying, okay, look we want to sell a lot of new accounts but we want to sell a lot of new high volume accounts.

And, therefore, I'm not going to have displays in the greeting card section. I'm not going to have display next to the graduation section. Let's really focus on getting great long-term customers. And that means if we have fewer short-term customers, so be it. We love them all but the fact is we're really trying to focus our distribution.

And I don't know if that makes sense, Tin Chin, but that's kind of what we're saying.

Right. It sounds like you're going after quality as opposed to quantity.

I think we're going after both, but of the two, when we have to turn the dial one way or the other, we turned it in favor of quality.

Right. It's a prioritization thing. That makes sense. So, maybe I'll ask it a different way then. If we think about sort of the revenue per card, the opportunity there across your existing -- call it whatever -- 3.5 million cards or so, how much more room is there to go, Steve, or John?

I mean, it sounds like there's a lot. I mean, the metrics certainly show that, but how much more room is there?

Well, there's -- I mean, there's a long ways to go. I mean, if you think of the fact that roughly half of our new card sales are to non-reloaders, then the difference between revenue per user between a reloader and a non-reloader is really dramatic.

I mean, the half that are to the reloaders generate 85% of our revenue. So as you change the mix, you don't have to change the mix that much to really impact your average usage and average revenue per user.

And that's what -- I think what you're hearing in the conversation here is that we're also changing the way we look at new card activations. We talk more about what's the number of first-time reloaders we had this quarter, the people that we got in the door and got them to reload as opposed to just the raw number of people that we activated. And as the mix shifts, the revenue per user can really shift quite a bit.

Okay, this is good. That answers the question. Last one for me and then I'll jump off. I don't want to hog the call. Just on the marketing side, what's the outlook for some customer awareness campaigns, whether it be Green Dot sponsored or from your partners like Visa or MasterCard, etc cetera? How does that look in 2011?

It looks good. Visa and MasterCard, independent of us, have announced as you know, Tin Chin, from covering both stocks that they intend to spend more money promoting pre-paid as a category. And whether or not they do that in TV or somewhere else, I'm not sure. But, they've clearly made that a focus.

And we'll continue to do TV. We're in production for our generation three or four -- I forget -- TV commercial at this point. And each commercial gets a little more mainstream and has a message that is more appealing to a broader group of long-term users.

Kind of fun, actually -- if we ever have time, maybe John, what we should do at an investor show is show like the first -- remember the first TV commercial, which is all about casual use and buying online and sort of how the products in the company has matured over the years.

But we're going to do a lot of TV and internet as we do every year, and continue to refine it. And so, you can be sure that we're going to be out there with great displays and TV commercials and other supporting media.

Great. Thanks for the details, guys. Appreciate it.

Thank you.

Thank you. Our next question comes from the line of John Williams with Goldman Sachs. Please go ahead.

Hey, you guys. Thanks for taking my questions.

Sure, John.

Very quickly, just curious to get an update -- I know it affects you a little bit less than your nearest publicly traded competitor -- but do you have any sense on the regulatory backdrop? Obviously there are some proposed rules out there from Congress right now that are being floated around.

Just curious to know what the update is on your side and whether you see that as a potential risk or opportunity in the near term.

Well, we see it as not a risk or an opportunity. I've got to speak for myself. I see it as a reality of the nature of banking and products and regulation. And, frankly, it's welcomed by Green Dot.

John, I think you know we have a large government relations effort. We have a full-time presence in Washington, DC. The way we deal with consumer advocates and lawmakers and regulators is a point of pride for Green Dot.

And, frankly, to be frank about it, a lot of these proposals, whether it's Senator Menendez's proposal or whether it's letters that have been sent from Senator Durbin's office or Senator Menendez's office directly to Elizabeth Warren, we're supportive of those letters. We think they're on the right track.

And so to Green Dot specifically, if I were a Green Dot shareholder which, as you know, I am a large one -- I'm comforted by that. Because what it does for me is it makes me realize that Green Dot is on the right track, that we're supportive of these efforts, that the way we handle disclosures and fees, the fact that we've never ever done any kind of payday lending product, never would.

The fact that every fee we have is disclosed in whatever it is, 12 or 14 point font on the back of the package before you buy it, these are all things that have been developed with consumer advocate and regulators and lawmakers in mind, and with our customers' best wellbeing in mind. And so, I think for Green Dot it's a good thing.

I'll be honest with you. This is not about other companies, per se, although, I guess it is. As I say that, that's a lie. It is about other companies. But I think to your point, a lot of the fees that are specifically called out in the Menendez letter, a lot of the interest that the CFTB may ultimately have and a lot of the questions that are raised by lawmakers and regulators about certain kinds of fees are, in fact, charged by many of our competitors, public or private.

We think, over time, those fees are not sustainable and that you are going to have to see shifts in business models at companies that continue to do short-term lending or overdraft charges or poor disclosures or charging to get your balance or whatever the case may be. And Green Dot has not exposure to those kinds of issues, and that was intentional. It's not accidental.

And so, we're aware of it and we understand it and we feel good about it, frankly.

Okay, thanks, Steve. The other question I think is more specific to distribution, longer-term views of the model and the possibility -- I mean, this comes up a lot in our conversations with investors -- the view that banks are going to take a more active role in pre-paid issuance.

And it seems just conversations that we've had recently have certainly been focused on that. And it seems that the banks are perhaps a little bit closer than maybe a lot of us really thought. Just curious to know what your view is on that, the retail distribution versus the bank distribution and maybe even ATM distribution, and how that could affect you over the next say 12 to 18 months.

Right. Well, look, we think that banks are all looking at it. I think we mentioned that last conference call. We deal with a lot of banks, and a lot of our friends and associates work at the major banks.

And we would think that every major bank in the country has some sort of team today, product development team, how could they, would they, should they issue a pre-paid card in some form or fashion. At the very least, a payroll card would be something that any bank with corporate accounts should look at doing if they're not today.

And many are looking at in-branch solutions for people who aren't necessarily ideal for straight checking DDA that maybe they can get a prepaid card as a consolation prize, for lack of a better phrase.

And that's all fine. We think that's a good thing. The bigger the market the better for everybody. And, you know, we don't see an issue with that. And I think, as I've said it before, that Green Dot, you can expect us to work with some of those banks to help them get those cards to market in an efficient manner.

So, we think that's a good thing for the industry. We're one company. At a large scale you have our competitor -- our other public competitor, the NetSpend out there who has a notoriety. And at the end of the day, that's one or two companies trying to push an entire industry that service half the country. And so, we don't have any issues with it.

The more advertising the product, the more talking about the product, we just have to think that that arising tide floats our boat more than others. So, we're okay with that.

Your second question was retail versus in-branch. The question you have to ask is if somebody is currently underserved, under-banked, making less than $50,000 a year, whatever definition you want to use, how often today are they in a bank branch looking for a banking solution and how often are then in a Walmart or a K-mart or a CBS or Rite Aid or Walgreens looking for a solution?

And I think that answers our feeling on that. We're glad we are where we are.

Any color on the ATM? I know it's still early stage for that. But is that potentially a distribution threat that the banks really haven't been able to leverage but could at some point pretty easily do?

I think it's George Jetson stuff. The answer is, in a theoretical Harvard Business case study, the answer is I guess there could be a machine that takes your ID and takes your photograph and somehow spits out a temporary card that you later activate.

I can tell you that we work with banks every day, and I don't know any of them, including the huge ones, who are eager to invest $80 million, $90 million, $100 million in CapEx to retool an ATM network and stock plastic cards and bill collectors and audits and this and that.

If it happens, it won't be any time soon. And I'm not even sure if the technology exists, frankly. But if it did, it certainly isn't coming out any time where you'd want to talk about it sooner than a few years from now or if ever.

Great. Thanks, Steve. We'll see you and John and our conference next week. Thanks.

Looking forward to it.

Same here. Thanks.

Thank you. Our next question comes from the line of Bob Napoli with Piper Jaffray. Please go ahead.

Good afternoon.

I don't want to speak to Bob Napoli but I will, however, talk with Bob Napoli.

Thank you, Steve. I'm kind of used to it.

Okay.

I appreciate it. Just in the -- are you seeing more competition or are the trend --? I'm just trying to track the trend in new card activations was a bit softer year-over-year growth. Then you had an okay sequential growth in the fourth quarter. Was there something unusual in the fourth quarter last year that made that comp unusually difficult, or is there more --?

Well, John may have better color about it. Here's my two cuts at is and then John can correct me, which he does all the time. But, here's my two cuts. Look, we had Card Act that took affect end of Q3, beginning of Q4 and that was pretty significant. Remember that Card Act in the retail environment meant that we had to install entirely new displays in Q4 and before. Really it started in August.

And that's a pretty big deal because it meant that we had to give up some placement at the checkout lane or other, what I'll call, high-traffic, convenience locations inside a store, and have dedicated displays elsewhere in the store that may or may not been familiar to the customer.

So, in other words, now, if you go into a typical store you'll see the gift cards, the convenience products on the checkout and now the Green Dot products are in permanent displays. It's better in a sense that you know where to find it and they're segregated and there's less confusion. It's been worse for our tonnage, if you will. And that's one thing.

The other thing is, retail is a logistical enterprise. There's nothing hi-tech about retail. You're hanging things on a shelf, you know. And whenever you disrupt that process, shelves come down, but they don't always go immediately back up.

So we had a lot of retailers, including some of our big ones -- some of our bugger drug store chains, where there was not product for a period of time because the box was left in the back room and displays weren't set up.

And the display came down on time to comply with the law but the new one never went up. And then we had to send out more merchandisers to put them back up. And so, you had all this kind of rigamarole that was happening that caused some distribution noise, I guess is the best way to put it.

So, we think that was probably a big part of it. But I don't think it's been caused by a competition and, if anything, we see the quality of our customers rising so dramatically, which is something we've worked so hard at. We're just thrilled about that internally.

That -- I think we had heavy competition; you wouldn't see that either. So I think maybe some of it, frankly, I hate to say, was friendly fire. It was our own inability to smoothly control that retail process because retail is such a massive undertaking at some of these locations. But, we'll see.

I think when I look at the Q1 numbers that we've had so far I feel like we're in good shape. But it was a little goofy there in Q4, and I think that's probably why.

And so, you saw the trend improve through the quarter and then into 2011 is what you're saying?

Well, we only have one month in Q1 but January was a -- I guess we're allowed to say it. We just said it was a good month.

Good, yes. Yes, I think what Steve is saying -- the only color I would add is that those changes at retail that really seem to have impacted the sales to the short-term need customers, or customers using the product as a gift, was -- in Q4 '09 we saw a big spike in sales to those kind of customers.

We didn't see that kind of spike to non-reloaders in 2010. But, we did see continued growth in the sales to the reloaders and that's continuing here in 2011.

Okay. And then in your outlook for 2011 it looks like the EBITDA margins are pretty flat with 2010. Is there -- do you think there's upside to that? Because you do have -- it does seem like you have some pretty good operating leverage on the overhead.

Are you planning on raising the marketing lever as a percentage of revenue to invest in growth? Or, are there other investments that you're making that would cause that EBITDA margin to be relatively flat?

Yes, so the margin expansion we have in our projection is about one percentage point. So, if you adjust 2010 and assume that the higher commissions we paid to Walmart were in effect for the full year and then compare that to the 2011 guidance, we're really building in about a little over one percentage point of margin expansion next year.

You know, naturally I think our margins would expand a little faster than that -- and we are making some of the kinds of investments that you referred to. We're investing in building new products and expanding into new channels that Steve referred to. And we do plan to increase our spend on advertising and marketing, both online and on TV next year. So, yes, we do plan to spend in all those areas in 2011.

Thanks. And just last question on -- you probably can't answer -- but Bonneville Bank. Why is it taking as long as it has? Is it -- it seems to me like the IRS pilot suggests that you're going to get approval but I'm sure you --

No -- it's interesting. It's funny you say that. My feeling is it's taking - my emotional reaction is, boy, this is taking a long time. But I was talking to one of the regulators who said, well, Steve, to be fair, we did tell you it's a year to 18 months and that this is not a fast process. It's been exactly a year. And our guidance today is another four to six months. We think we'll have an answer.

I can't tell you whether that answer's going to be yes or no. We'll all need to wait to find that out. But, it'll be right around that 18-month mark. I think if anything I was a victim of my own excitement and optimism when I thought we'd get it done by the end of the year.

But, we think the process continues appropriately and don't have any cause for concern. We think it's a time warrant and time honored process, and we're going to continue until we get the answer.

Thank you.

Thank you. Our next question comes from the line of Gil Luria with Wedbush Securities. Please go ahead.

Good afternoon. Thanks for taking my question. First of all, could you help us break down the fourth quarter revenue between the different channels, Walmart, other retail distribution, online, direct mail, to the extent that you have any of that?

Sure. Hi, Gil. This is John. Yes, we can provide Walmart, non-Walmart. That's something we're accustomed to providing. We typically don't provide it by the other channels.

But in terms of Walmart, non-Walmart, in Q4 we were about 64% in terms of non-GAAP revenue concentration. It would be a couple points lower than that on a GAAP basis. So, that was down about three percentage points from last year.

Let's see. What other sort of numbers can I give you? Online continues to grow, so online would be up significantly year-over-year. I guess that's probably about the only breakouts I can provide at this point.

Yes.

That's fine. And then in terms of the regulation, I think you highlighted the fact that within the Menendez bill that came in with the last Congress, most of the items really cater to the way you do business and highlighted how you're on the right side of the fence.

But the one item that is probably still relevant to you is ATM fees. I believe you charge those to Walmart customers and various implications that there have been -- probably mean that you have a year or two to consider that. What would be your early thoughts on what to do with ATM fees? Would you try to replace them with other fees?

No, I think -- I mean, for a year or so, or at least a year plus we've had the fee-free ATM network on the Green Dot side of the house and we'll roll those out to the Walmart side of the house, and I would imagine there's a big impact to us one way or the other. There's not a lot of ATM use.

Remember that cash back at the point of sale has always been free on all of our cards. And we actually do, last I checked, more volume from cash back. But, you've done that, I'm sure. You go the grocery store, you buy something and the machine says, do you want cash back? So, that's how a lot of people get cash off our cards anyhow.

But to your point, we will make it free on the Walmart portfolio as well. And so, we don't see that being a big impediment to us one way or the other.

Then last question is about tax season, which we're now into. The IRS postponed taking filings on until February 14 for many people. And what you know now for January and your Intuit Turbo Tax business, has that moved out in any significant way?

No, we don't expect any material impact to Q1 from that delay. We're seeing a little bit of a delay and some of those returns are shifting from January to February, but most of that revenue would end up in Q1 anyway.

Great. Thank you.

Thank you, Gil.

Thank you. Our next question comes from the line of Jason Kupferberg with UBS. Please go ahead.

Hi, this is Ramsey El-Assal for Jason. I wanted to follow up on Bob's prior question about Bonneville Bank. I know that you guys are still waiting on approval for the acquisition. But assuming all goes as planned, can you remind us of how much of your business -- I guess how much of your volume you'll be able to transfer away from your existing issuing partners and on to Bonneville?

Well, I wouldn't say transfer away is the right phrase because we'll continue to use the Synovus Bank Columbus Bank and Trust with the accounts that are on there. And GE Money Bank will always be our partner at Walmart, so --.

But I think a better way to phrase it -- I know what you're trying to say is, how will we begin to initiate new volume on Bonneville Bank? And with the bank application we provide a business plan that talks about how you'll begin to issue new cards.

And so what we would do, Ramsey, is let's pretend we close on the bank on some day one. After 30 days we begin issuing cards. By 60 we've issued X number -- by 90, and it continues to roll out in the prescribed plan that's part of the bank application.

So I don't have the exact number in front of me. Lew Goodwin, who's our bank CEO, would know better. But it's not material to our income statement one way or the other, so I've not thought much about that.

Okay. So it's really more a question of new issuance rather than conversion or something like that.

That's right.

Okay, I got you.

You just said what I tried to say in ten minutes in one second. That's exactly right.

Okay, great. Another question about the government channel, your current Treasury pilot seems to be structured where you're more sort of a program manager where perhaps -- and this is just speculation here -- your revenue yields might be a little lighter in that sort of model rather than in your retail channel.

Are there different structures that you guys can go after in this government channel that'll have you in a different sort of position there? Or, is that sort of program management the kind of a way a government channel might sort of play out going forward?

No, actually, that's the way it always is. So the way it works, whether retailer or anywhere else, is you have an issuing bank. In the case of the Treasury pilot, that's Bonneville Bank. In the case of a card that we sell at Walgreens or somewhere, that would be Columbus Bank and Trust out of Georgia. In the case of a Walmart money card, it would be GE Money Bank.

So, you always have the bank issuer. And then Green Dot contracts, in a legal fashion, with the bank as the program manager. So, that's always the set up and always has been historically.

Right, right. You know, I think I erred in my terminology. My understanding with the pilot was that Green Dot was functioning in sort of a -- more of a kind of would manage the program at sort of a fixed cost plus a profit margin rather than the structure that you currently do business in in your retail channel. That's how I should have phrased the question.

Oh, I see. No, I don't -- in the Treasury pilot, frankly, we're doing that as a service -- in my mind, as a service to the Treasury, to the US government. We're just so honored to have been asked to develop that program. And there's no revenue. In fact, it's probably costing us money for the pilot. So there's certainly no impact, and we're not looking to get rich off of it.

And if the pilot is successful and if Treasury feels that from that point they want to roll it out to an RFP. And then if we win that RFP and become the national issuer, if you will, at that point we'd need to sit down and figure out a model that makes sense from a financial point of view. But for the pilot it's kind of really hard to tell. I don't think we focused a lot on the economics.

The focus was how do we make sure we get the pilot out without any mistakes, and make sure that we can hit the deadlines that the Treasury needed us to hit. And we did that. And then, we'll figure out how the money works down the road if the opportunity arises.

Okay, great. That helps a lot. And my other questions have been answered. So, thanks a lot.

Thank you.

Thanks.

Thank you. Our next question comes from the line of Greg Smith with Duncan-Williams, Inc. Please go ahead.

Yes, hi, guys. With your processing expense, does that -- when you hit a new tier, does it all reprice at a lower rate or just incremental volume?

Hi, Greg. There are a few components of our processing expense. There are the fees that we pay to the networks, to Visa and MasterCard, there are fees that we pay to the issuing banks, like Synovus or GE Money Bank. Then, there are fees we pay to other processing third parties like TSYS.

Each contract is a little bit different. Visa and MasterCard deals typically don't have those kind of volume thresholds; our deal with TSYS does. Those breaks would typically be on the incremental volume.

And with the banks it's kind of a mixed bag. We do have some thresholds where you get benefits across all of volume and others where you don't. So, there's really a lot of different components within that processing line item.

So what's, I guess, the simple answer then why it actually declined sequentially?

Well, we do receive benefits. We do get volume breaks and in some cases they do ratchet back and in some cases they actually do step down on the incremental volume.

Okay. So the answer then is just as you said. It's significant enough on some of those volume step downs that cause a sequential decline across your entire processing expenses.

Correct.

Okay, perfect. And then, what should we expect for a tax rate in 2011?

Yes, so our tax rate -- effective tax rate for the full year in 2010 was about 39%. We do expect some benefit in 2011. Estimate would be about in the range of one percentage point, so something close to 38% in 2011. There is some uncertainty around that as we continue to sharpen the numbers and understand the impact of the apportionment change in California. But, I think 38% is a pretty good estimate.

Okay and then one last modeling one, and I'll jump on. Just a compensation expense -- the quarter-to-quarter seasonality had a consistent sequential uptick last year. What should we -- or, I'm sorry, it was a little more jumpy this year relative to the prior year. What should we expect, just some sort of quarterly progression for comp and benefits?

A fairly consistent, sequential increase. So, while our revenues have a significant seasonality to them, finding great people and hiring them is sort of more of a slow and steady process. So, you can expect a fairly steady, sequential increase in that line item.

Okay, and even 1Q versus 4Q -- because it was down sequentially in 2010? Was that an aberration?

You're saying Q1 2010?

Yes, versus Q4 of '09. It fell sequentially.

Well, the big decrease there was from a significant stock comp expense in Q4.

Yes, okay, that's right. That's right.

Yes, so that was sort of an unusual, non-recurring.

Okay, so steady, sequential progression is probably the best way to model it?

Right.

Okay, perfect. Thank you.

Thank you. Our final question comes from the line of Chris Mammone with Deutsche Bank. Please go ahead.

Hi, guys. Thanks for squeezing me in.

You bet.

Let's see I got -- maybe just a question on, you know, your international strategy. Did it change at all or evolve at all in the wake of MasterCard's acquisition of Travelex? Because MasterCard -- they sort of suggested that, you know, while they didn't see the need to sort of help more aggressively develop the market in the US because of the likes of you and your competitors.

There really isn't a Green Dot to be heard of, you know, outside the US. And just sort of called to mind that while you're focused on the US and all the great opportunities you have domestically, that there are also some great opportunities outside the US that you might lose out to others that are focusing there. So, I mean, any color there you can provide?

We're looking more international than we ever have. But -- and maybe this is just my own personality quirk and --. We have so much business here in the US and so much opportunity for growth, so many channels that we need to fulfill on an internal roadmap, if you will, to rollout and successfully compete in or develop that I always get nervous biting off more than we can chew.

And people lose their focus and everybody's traveling all over the planet. And, before you know it, while you're excited to rollout a program in a country somewhere, you lose an opportunity to rollout a big payroll program here in the US. So, what we sort of do is we take meetings all the time for international bus dev.

We have a lot of investment bankers who speak with us constantly about acquisitions or partnerships or something. And then, we work with some of our retailers and partners who have established businesses outside the US. And so, my guess would be if you look out 36 months, I'd be willing to be that we're heavily involved in some successful international venture.

But on the near term, meaning over the next six months or something, I just don't see it as being as compelling. If you kind of rank order all the priorities, it just never seems to bubble up to the top. Once you take out the sex appeal of it and everything else and you look at the raw economics, it just never matches restocking a shelf at a Walgreens or rolling out a new payroll program. And so -- anyhow, that's sort of the way we're thinking of it.

Okay, that's helpful. I guess, obviously, you got the big renewal out of the way last year. But could you remind us, are there any sort of renewals to call out in 2011?

Yes, I don't think we've ever disclosed contract ends. Most of out contracts are enrolling kinds of agreements. We're always in a renewal discussion with somebody somewhere, generally. So, I don't think we'd want to disclose contract dates from a competitive reason.

I mean, can we just think of your contracts as sort of evenly spread out throughout the term?

Yes, I think it's -- yes, I don't think there's any one magic date where you have six contracts expiring at once. They're all kind of random and all over the deck and in various parts of a two or three or four, whatever it is, year cycle. So, yes, I think that's right.

But certainly -- let me answer it another way. There's no crisis happening in terms of contracts. But we'd never want to give out a specific end date for a specific retailer. That would be an opportunity for all of our competitors to line up at the door.

Okay. And I guess last one for John, just housekeeping on guidance -- any additional color on sort of cash flow, CapEx expectations for 2011.

Yes. No significant departures from what you've seen in the past. You know, we've typically had CapEx in the 3% to 4% range of revenue. So, no significant departures there. I think, in general, it'll be pretty consistent with what you've seen historically.

Great. Thanks.

Thank you. And I would like to turn the call back to our speakers at this time for any closing remarks.

Thank you, Operator. Well, good. We appreciate you joining us today and listening in. I got some emails, John, during the call that our speaker phone system is horrible. And so, what we're going to do is while John was answering questions we shot an email over to our IT department.

And we're going to build a little studio that maybe has less echo than my office does and better quality. So just wanted to let you know we apologize if you couldn't hear us clearly, and it'll be better next time around.

We thank you all for joining us on the call and, of course, feel free to reach out individually if we can ever be helpful. And have a great day.

Thank you. Ladies and gentlemen, this concludes the Green Dot Corporation Fourth Quarter 2010 Earnings Conference Call. Thank you for your participation. You may now disconnect.