Green Dot Corp (GDOT) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Green Dot Corp First Quarter 2011 Earnings Conference Call. During this presentation, all parties will be in a listen-only mode.

As a reminder, this conference is being recorded today, Thursday, April 28, 2011.

I'd now like to turn the conference over to (inaudible), an associate from Green Dot investor relations. Please go ahead.

Thank you, operator. Good afternoon.

By now, everyone should've accessed to our first quarter 2011 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, 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 and in the appendix of the presentation that accompanies this call. 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 IR site.

Finally, before we begin our formal remarks, we need to remind everyone that part of our discussion today will include forward-looking statements. These include forward-looking statements about our financial guidance, the impact of changes in our relationship with Intuit, 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 our 2010 annual report on Form 10-K, which is available at sec.gov.

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

Thank you, [Dara]. And welcome all to our Q1 earnings call being broadcast today from our new Green Dot earnings call studio here in beautiful Monrovia, California. As always by my side is my close partner and Green Dot CFO, John Keatley.

We always love talking with you and we especially love it when we have great results to report, which is most certainly the case today. In addition to discussing our Q1 results, we have our ever popular Green Dot in-depth feature presentation. This quarter's presentation is called Watching Green Dot Grow.

It's an in-depth report on how we've grown in the past and all the levers we activate to achieve continued growth in the future. Watching Green Dot Grow is coming right after John Keatley's financial report a little bit later in the call.

But first, let's begin at the beginning, which is a summary of our company's Q1 performance.

Green Dot is a high-growth company that targets 160 million American consumers. And as we (inaudible) technology, technology evolves, and new regulations take hold, and additional banks struggle to keep fees and check, Green Dot stands in the leadership position at the earliest stages of what we believe to be a very large opportunity -- the opportunity to become the bank of the unbanked, and the financial service provider to the ever-growing segment of the financially underserved.

We understand that high growth isn't just a phrase. Being a high-growth company is one of the most important reasons you'd buy Green Dot stock. And as we turn to slide number three on the deck, you'll see that by any and every measure, we have fulfilled the definition of high growth in Q1.

In fact, we've set a new company record in many of our key metrics. So let's get to it.

Non-GAAP total operating revenues increased 33% to $123.2 million for the quarter, adjusted EBITDA grew 12% to $30.8 million for the quarter, and non-GAAP net income grew 27% year-over-year to $17.5 million.

It's important to note that we have not yet lapsed the May 2010 Wal-Mart renewal agreement, which increased their rev share. So if you're comparing apples to apples and you assume the same Wal-Mart rev share year-over-year our adjusted EBITDA would've grown approximately 48%.

Active accounts were up 27% to 4.3 million active customers in the quarter. Green Dot gross dollar volume was up a whopping 62% year-over-year to $4.6 billion for the quarter.

The number of new cards activated increased 23% year-over-year to 2.2 million new accounts activated in the quarter. Additionally, more than 80% of these new activations came from customers and households who are either currently banked or who were previously banked.

This is a big sea change in the folks who are buying our products. And we're going to dive deeper into that in our segment -- our in-depth segment later on this call.

Funds loaded via direct deposit was up a massive 102% year-over-year, with direct deposit accounting for approximately 58% of all dollars loaded to Green Dot accounts. (Inaudible) after Matt Kohler and Scott McCafferty from our marketing group are continuing to do a great job in driving this key direct deposit initiative.

On the network side of our business, we had another strong quarter in Q1, with cash transfers on the Green Dot Reload Network increasing by 35% to 8 million cash transfers in the quarter. Congratulations to (inaudible), Green Dot [net's] GM.

By the way, I also want to point a great fact about our products. It often gets lost in the shuffle and the exchange of all the data. There's been a number of reports published by consumer groups and others, the most recent being Consumer Union, about the high fees on some prepaid programs, and that some programs may charge $200 per year or more. And that may be true.

But at Green Dot, our average customer pays just a little more than $6 a month all in for the Green Dot account. And that includes every fee of every kind the company charges. So, monthly charges or ATM charges, cash reload fees and so forth, just a little over $6 a month.

Green Dot direct deposit customers pay even less. Equally important to underserved customers about there's no credit check or check system inquiry required to get a Green Dot account, there's no minimum balance requirement or any direct deposit enrollment requirement.

Furthermore, Green Dot products never have any overdraft penalty fees, overdraft fees of any kind. So, for those of you who follow the banking industry, I think you'll agree that it would be hard to imagine a better deal for our market segment than that.

And even though our fees are so far less than what many of our competitors may charge, we're still able to use our scale and cost advantage to generate great financial results for our investors. So the customers win and the investors win, and we're very proud of that. We have some quick business updates to share with you now. First, we welcome Speedway convenience stores, a division of Marathon Oil, to our growing network of retail distribution partners.

Speedway has 1,400 clean, modern locations throughout the great Midwest. Get it the fast way, get it the right way, get it the Speedway. Our retail distribution count now stands at over 55,000 Green Dot Network locations nationwide.

Next, I'm pleased to announce that we have signed our first payroll program. Green Dot will be providing payroll card services to Rite Aid Corporation, one of our nation's largest employers, with over 90,000 employees. That program will be fully rolled out over the next 12 months or so. And our thanks to our longtime partners and friends at Rite Aid Corporation for their business.

On the network side of the house, I'm pleased to announce we have the Higher One Company. Higher One has joined the Green Dot reload network to allow cardholders of their OneAccount suite of products to add funds to those accounts.

We're also pleased to announce that Intuit has chosen Green Dot as its reload network for its prepaid card, including its TurboTax card. So while you know we won't be acting as program manager for the TurboTax card starting next year, we will continue to be their reload network. There are over 120 programs now that rely on the Green Dot Network for cash reloading services.

Last week, Green Dot announced the creation of our government division with the hiring of JPMorgan and Goldman Sachs veteran executive Mark Shifke to become GM of that channel and help us with government initiatives company-wide.

We have a lot of plans and aspirations for our new government channel and we're eager to actively begin pursuing relationships with federal state and local government to help solve their disbursement challenges, while helping recipients enjoy the convenience and safety that Green Dot products offer.

Finally, as a quick (inaudible) update, the process moves forward on our acquisition on our Bonneville Bancorp. There is no change to the guidance we gave in our last call. And that is we're expecting word on regulatory approval during this summer.

And at that point, at this point now, I'll turn the call over to John Keatley with more specific Q1 performance details. And then 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 mentioned, we were pleased with our Q1 results. We were particularly pleased with the strong growth across all of our key operating and financial metrics. As you can see on slide four, our quarterly GDV increased 62% year-over-year to $4.6 billion in Q1.

This increase far outpaced the growth in our active card, because customers are increasing the average amount of money that they load to their card, and a larger number of customers used our products this year to receive their tax refunds quickly and safely.

We work hard to grow both sources of the funding to our card -- cash and direct deposit. We were happy in Q1 to see both sides of GDV showing strong growth. Direct deposit volumes grew 102% year-over-year and accounted for around 58% of GDV during the quarter.

Cash and check cashing reload volume also contributed significantly to the growth in GDV. Customers loaded $1.9 billion to our products at retail stores through the Green Dot Network during Q1, an increase of 27% year-over-year.

The number of cash transfers on our Green Dot Network, which is shown on slide five, continued to show strong growth, increasing from $5.9 million in Q1 of last year to $8 million this year.

Slide six shows the growth in our active cards during the quarter, which increased 27% year-over-year to 4.3 million active cards as of March 31st. We were also pleased to see that, for the fourth quarter in a row, the growth in active cards outpaced the growth in new card activation, evidence of improving reload rates and higher average retention.

Slide seven shows the growth in our new card activation, which increased 23% year-over-year to $2.2 million. As we've mentioned before, we pay particular attention to the number of new card activations that turn into reloading customers that these customers tend to keep the card for a longer period of time and drive the vast majority of our revenue.

So in addition to achieving strong new card activation, we were happy to also see that the number of first time reloaders increased 29% year-over-year in Q1.

As we turn to slide eight, we see the components of our non-GAAP total operating revenues. Our card revenues totaled $54.3 million for the quarter, an increase of 29% from Q1 2010.

Cash transfer revenues increased 36% year-over-year and interchange revenues increased 35% year-over-year. The increases in all categories were driven primarily by the growth in our active card portfolio, and increasing average usage per card.

While the growth in interchange revenues went dramatic, it doesn't grow itself as GDVs, because direct deposit customers tend to withdraw a larger portion of their fund at ATM machines than do non-direct deposit customers, and we don't receive interchange on ATM-withdrawal transactions.

So GDV and interchange don't grow in lock step.

Moving on to slide nine, we can see the components of operating expenses as a percentage of non-GAAP total operating revenues. Sales and marketing expenses totaled $42.5 million or 35% of non-GAAP total operating revenues, compared to 28% last year.

The increase was primarily the result of the higher commissions that we paid to Wal-Mart under our May 2010 renewal agreement. Compensation and benefit expenses were $21.1 million for the quarter, or 17% of non-GAAP total operating revenue compared to 18% last year.

Processing expenses were $19.7 million for the quarter, or 16% of non-GAAP total operating revenues. Other G&A expenses totaled $13.4 million for the quarter, or 11% of non-GAAP total operating revenues, compared to 13% in Q1 of 2010. The decrease was primarily the result of a reduction in professional service expenses.

Our income tax expense was $7.9 million for the quarter. Our effective tax rate declined in Q1 to 38% compared to 47% a year ago. The decrease was primarily due to the fact that Q1 2010 included non-deductible expenses associated with our IPO.

As we turn to slide ten, you can see our non-GAAP revenue growth over the past five quarters. Our non-GAAP total operating revenue grew to $123.2 million in Q1, an increase of 33% year-over-year. Slide 11 shows the growth of our adjusted EBITDA, which increased 12% year-over-year to $30.8 million, and out EBITDA margin for the quarter was 25% of non-GAAP total operating revenues.

As Steve mentioned, if you adjusted for the Wal-Mart renewal in May 2010 and compare the quarters on an apple-to-apple basis, our adjusted EBITDA would've grown 48% year-very-year. Slide 12 shows that our non-GAAP net income grew 27% year-over-year to $17.5 million and non-GAAP diluted EPS grew 26% to $0.39 a share. Non-GAAP net income grew quite a bit faster than adjusted EBITDA because of the lower tax rate this year.

Our balance sheet continues to be very strong and our business continues to generate cash at a rapid clip. We ended the quarter with approximately $203 million of total cash, including $10 million of restricted cash and $193 million of unrestricted cash and cash equivalents.

Additionally, we had $8 million of short-term investments at the end of the quarter and we remain debt-free with no long-term debt. Our total cash and short-term investments increased by $38 million just in the first quarter of the year.

In light of this strong performance, we feel comfortable raising guidance for the remainder of the year. As we turn to slide 13, you'll see that we're increasing our expected non-GAAP total operating revenues to a range of $490 million to $505 million.

We're also revising our adjusted EBITDA guidance upwards to a range of $117 million to $123 million. This forecast is based on revised assumptions around growth in average active cards, growth in cash transfers and growth in GDV, based on the strong performance that we saw in Q1.

For the remainder of the year, you should expect to see a similar seasonal pattern of last year where we have big step growth in Q1 in all of our operated metrics, followed by a slight sequential decline in Q2 in terms of new card activations, active cards and GDVs. It should be clear on a year-over-year basis we expect to show very strong growth in all of our key operating metrics throughout the year.

While we're on the topic of guidance and updating our forecast, as you know, we won't be serving as program manager for the TurboTax program starting next year. But as Steve mentioned, the Green Dot Network will continue to serve as the reload network for those cards going forward.

So I thought it might be helpful to provide you with some guidance on how to think about that as you build your forecast for next year. The total revenue from the Intuit program for this year, including both program management revenue and reload revenue, will be around 5% of our non-GAAP total operating revenues.

But not all that revenue goes away next year. The reason is that we still will maintain revenue on cards that we've issued this year and in 2010 that remain active next year and beyond, and we will still receive reload revenue from existing cards and new cards that Intuit will distribute next year and beyond.

And all that gets added back to the model. We expect to have a [debit] of around 3% of total operating revenue for 2012 that will need to be replaced as a result of not having the TurboTax program management revenue. And with that, I'd like to turn the call back to Steve. Steve?

Great. Thanks, John. Now, we're ready to present this quarter's in-depth segment called Watching Green Dot Grow. Green Dot is a high-growth company. Results over many years show that.

But many often ask us how you continue to grow. So John and I are now pleased to present this quarter's in-depth feature, Watching Green Dot Grow. John?

There are key three drivers of revenue for Green Dot. They are, first, the number of active accounts in our portfolio; two, the average level of usage per account; and, three, the number of cash transfers sold to Green Dot cardholders reloading their card, or sold to customers like third-party network members who use our network for cash reloading services.

Each revenue driver has its own set of levers that we can activate to generate growth. We call these growth levers. Some of these levers operate independently of one another.

For example, an initiative to increase retail sales of new cards may impact the number of active accounts, but not necessarily increase the average level of usage per account within the portfolio. Other levers like increasing direct deposit enrollment impact multiple revenue drivers, including boosting retention and thereby increasing the active portfolio, and also increasing average usage per account.

So let's discuss our growth levers in each category.

Okay, very good.

Let's start with the number of active accounts in the portfolio. This quarter our active cardholder portfolio stands at 4.3 million, which gives us by far the largest active portfolio in the prepaid industry.

The active account number is a function of, one, the number of new accounts that we acquire through our various acquisition channels and, two, the amount of time that the account stays active.

Our growth levers here include increasing the number of new accounts acquired through our various distribution channels. It accomplishes growth through things like driving same short sales of retail promotions, new merchandising, our TV marketing campaigns, or online marketing.

We do this by increasing the percentage of new cards sold that turn into reloading accounts. Not all new card acquisitions are equal from a revenue perspective. So, internally, we promote not just growth on new card sales, which are certainly important, but also important is promoting the number of first-time reloading new customers.

Our goal is to always see growth in both gross new customers and first-time reloading customers as we saw in Q1. Another driver for active portfolio is encouraging direct deposit for ongoing regular reloading.

Customers on direct deposit engage in habitual reloading, which leads to longer retention and, therefore, a higher active account number. In Q1, we were able to drive a significant increase in direct deposit accounts and funding volume from federal and state tax refunds, as well as from payroll and government benefits.

We've never disclosed this number before, but we'll give it to you now. In Q1, we had approximately 875,000 unique accounts with direct deposits, an increase of 75% year-over-year -- really amazing growth.

The second revenue driver is the level of usage for active accounts. And now you have a large base of active customers, but not all active customers are equal from a revenue or retention perspective.

Some use their cards just once in 90 days. Others use it 90 times in one month. Generally speaking, it's been our experience that the more a customer relies on their Green Dot account, the more spend they have, the more interchange revenue they generate, and the more likely they are to habitually reload the card, leading to more card revenue, interchange revenue and cash transfer revenue.

So increasing usage is a big growth lever. Some key growth levers for this driver include creating incentives for increased usage. Fee-free plans that waive fees for regular users are an example.

In fact, maybe 20% of the reloading customers on our Green Dot portfolio have their monthly fees waived because of their heavy usage. Another lever is creating more usage opportunities.

Examples include offering free online bill pay and online banking tools, which allow the card accounts to be used for making common payments such as those to landlords and day care center that may not accept Visa or MasterCard.

Creating loyalty and rewards programs is another growth lever, like the 1% cash-back (inaudible) program at Wal-Mart and (inaudible) ATM withdrawals at our large network of free ATM machines. Plus, as customers become more familiar and comfortable with our product their usage rises organically.

Let me highlight a couple of examples of where we see this, which you can see on slide 15 in the presentation. The gross dollar volume for active card in Q1 increased 27% year-over-year. Average transaction per active card, including ATM withdrawals and purchase transaction, increased 13% year-over-year.

Great. The third revenue driver is cash transfer revenue. The Green Dot Network is something we don't talk nearly enough about and would like to highlight our networks division and the cash transfer revenue we generate, so you can better understand the unique value this asset brings to the customers (inaudible) and to you, our investors.

No other prepaid company has a reload network like ours, and ours is the largest reload network in the industry. And this is the division that generates our cash transfer revenue.

So, growth levers of cash transfer revenue include -- and this one will be obvious but important -- encouraging Green Dot customers to reload their card. While many reloads now come to direct deposit, about 60% in Q1, 40% still comes in the form of cash via our retail network.

This generates cash transfer revenue, so helping people better understand the reload and the benefits of reloading their card is the key lever.

Another big lever is assigning more and more members to user networks to facilitate cash transfers for the customers of their program. For example, approximately 120 programs are now members of the Green Dot Network. And their customers use our network to add cash to their cards and account product.

Examples include PayPal or H&R Block or AccountNow, or as we announced earlier, Higher One and Intuit. These are networks that facilitate cash transfer to their products.

As you can see on slide 15, these programs drive an increasing share of total cash transfer volume. The revenue from these programs increased approximately 80% year-over-year; enrolling new members on our network have been and will continue to be a key growth lever for us.

And lastly, marketing cash reloading to the customers of our network membership is an effective growth lever. The more the customers of those members, whether it's H&R Block or an Intuit, the more those customers reload the first time through our retail network, the more -- the behavior turns habitual and sticky.

This is in part why you see the network growing so fast over time. The network in many ways mimics the growth of the entire prepaid industry, not just the growth of Green Dot's own card program.

And another key growth lever for us and we're very excited about is we see the promise of secular growth coming through -- the shift towards electronic payment, the changing branch banking model as it alienates an increasingly fee weary customer, and the overall awareness of prepaid debit card. These are all secular trends that are impacting our business in a positive way.

And I'd like to share a few examples. First, increasing average deposits amongst our customers. We now see higher GDV per customer as evidence that a higher-wage earning customer is adopting our product.

And we see a larger portion of our customers are banked or previously banked. And our latest research just completed a few weeks ago, approximately two-thirds of new customers reported they come from a banked household. And of the unbanked customers, approximately half indicate that they come from households that were previously banked.

So, in another words, less than 20% of our new customers are from households that have never been banked. That's all. That's the big difference over a year.

Another way to look at it is that we used to be a company propelled by unbanked consumers. The evidence is now clear that more and more we are a company propelled by consumers of all backgrounds, unbanked and banked, adopting our products to solve their daily money management needs. Really exciting.

And all of this taken together is the trend that we believe will continue to help drive higher adoption, retention and usage of our products for years to come. All really good stuff.

And that's this quarter's in-depth segment Watching Green Dot Grow. We hope you found it helpful and enjoyable.

And now, Operator, let's go ahead and open the phones for Q&A.

Thank you. We'll now begin the question and answer question.

(Operator Instructions).

And our first question is from the line of Adam Frisch with Morgan Stanley. Please go ahead.

Hi, Adam. How are you?

Mr. Frisch, your line is open.

Hi. It's Glen for Adam. I think we're having technical difficulties. He's at the conference in Florida but he was listening, but if don't mind.

Glen, go ahead. Sure.

Yes. No problem.

There's folks at Western Union that are going out having, according to them, some success in lowering the commission payouts to their distribution partners. Can you talk about how the trends in your non-Wal-Mart commissions are tracking?

And are there any initiatives that you're working on similar to Western Union's that might be part of your strategy going forward to lower the commission payouts?

Well, yes, I can take that the first, and then John Keatley can comment.

We see the commission rates fairly stable at our retailers and those contracts tend to be longer-term contracts enrolled periodically. So we've not had a lot of pressure, good or bad. So I would say they've been fairly stable.

We don't have anything aggressive going on to lower commission rates to retailers, because they're our biggest partners in this business, if you will. So, if anything, we're always trying to come up with ways to make them more excited for each renewal period.

So I don't know that we're engaging in anything purposeful to lower the rates we pay to retailers. Generally, Glen, when we renegotiate when those cycles come up, it's about how do we get more displays, better distribution, more circular ads, or better support for our TV campaign so that we can have higher sell through.

So that tends to be where we focus. Western Union, as you know, has a different makeup or model or challenge where they have a lot of independents who are Western Union agents and they make all their money from the sale of those services.

So a bigger part of their revenue goes to those agents. So they probably have a slightly different challenge than we do.

Okay. I'd just like to take one more. Nice to see you building up publicly under your governmental efforts. You made a recent hire that's going to head up that effort.

Was that planned in advance? Or was that the result of perhaps some success that you're seeing in the pilot and it's just doing a lot better than you expected?

And then second part, I know Bonneville Bank is part of this pilot as well. Let's just say, for example, hypothetically, if you didn't get approval for the charter, does that in any way affect your role or participation with the Department of the Treasury?

That's a lot of question. I feel like (inaudible). Remember in the old days of Saturday Night Live.

I promise I'm done after this.

Okay. So first question, why did we build a government channel? It's somewhat opportunistic.

There's so much inbound business development that comes in to our offices, I'll give a speech at the conference somewhere and there will be a line of state and local governments, some federal agencies asking to speak with me about a need that they have for disbursement or payroll.

And we really haven't had anyone in the business. So I'll give to -- or somebody in bizdev. But we haven't had anyone to focus on it. And so, I would say that hiring Mark Shifke to lead that up is opportunistic, because we think more than anyone else we have a good opportunity to help governments looking to do that.

So, yes, it's planned, but it's planned because we saw a need, and we'll see how that grows over time. That was number one.

Number two, there was not a reaction particularly to the Treasury pilot because the results of the pilot really belonged to Treasury to release when and if they want to do that. But that data belongs to them.

But let's face it, we did a great job, we think, in that pilot and it did show us that we have a lot of value to bring to government agencies looking to do that. So it wasn't about Treasury specifically, but building up the infrastructure to support that (inaudible) and we have a lot to offer and led to our belief that we could be helpful there.

And then the last question was Bonneville Bank. We think we'll get word here in summer. That's been our guidance all along after the last call or two, and we're tracking well for that.

We feel good about approval but who knows. We'll find out when the regulators opine, we're always respectful of the fact that we have a hard job on that regard. So we'll see what happens there.

But if we, for some reason, did not get approved for the charter, that would not impact our ability to service customers or governments, because as you know, today, we use a variety of banks to service customers. And if we did not get approved for a bank, that would continue as it has.

All right. Thank you. And sorry about the technical difficulties.

No, not at all. Thank you, Glen.

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

Hi, John.

This is Dennis sitting in for John. How are you guys?

Very good. Good to talk to you.

Likewise. So activations were up, were a bit light versus what we were expecting. Aside from tax impact, what else within the rest of the customer base kept that a bit light this quarter?

Well, I'm hesitant to agree with you that is a bit light.

I think you'd have to find some really, really, really big national banks to find anyone who acquired 2.2 million new FDIC-insured accounts -- that's a pretty large number -- and 23% growth, or whatever it was, year-over-year for the quarter, we thought, was actually pretty good.

So I don't think Dennis we thought it was light. But we're disappointed that you did.

So we thought it was a good quarter and more than sets us up to hit our year and then so much is why John raised guidance. But all segments grew -- online, retail, TurboTax was helpful in there.

But with or without TurboTax, it's a big growth quarter for us. We felt pretty good about it.

And the other thing I'd add to that is we typically focus more on the active card member than the activation member, although I admit both are important and our active cards grew 27% year-over-year.

What were you modeling, just out of curiosity?

30%.

Well, 30% would've been great, but that would be fairly heavy. Certainly, we're not modeling that. But, yes, we were pleased with it and it more than sets up the year to do everything we said and then some. So we're feeling pretty good.

Thanks.

Okay.

Thank you. Our next question is from the line of Jennifer Dugan with Lazard Capital Markets. Please go ahead.

Yes, thanks. As the government vertical becomes more important, how is Green Dot impacted the Treasury's Direct Express Program where benefits are loaded on to debit cards?

Is GDot doing anything to help customers get those funds on to one of their GPR cards?

Right. The Direct Express Program, which today that contract belongs to Comerica, has been out there for years and that contract will come up, I think, in 2013. And when it does, we'll certainly be part of the RFP and see if we can be competitive in that before that part of the government business.

It's helpful in the sense that it shows that disbursements to a prepaid card can work, that consumers will use there and adopt them, and that they can be useful and helpful to governments.

So that, in regard, that Direct Express Program is helpful globally to any prepaid issuer. And then as far as Green Dot goes, we're doing a lot to make sure that people know that getting a direct deposit of the government benefit to our card is easy to get.

We pay them $10 when they do it. We have all kinds of help lines to do it. We've integrated now with the Direct Express Program, which means that with one click, when you enroll with the Green Dot card, it will automatically hook you up for direct deposit for any federal benefit that you may see or receive whether Social Security or anything else.

And that has had very heavy adoption and has contributed, actually, to our direct deposit growth. So we're all over that and we think we'll benefit from it, especially if Social Security ratchets up the need to get these deposits put to an account.

As you know, on May 1st, anyone new enrolling in Social Security has to choose to get it direct deposited into some account, and Green Dot will be there increasingly to let our customers know that they can do that.

Okay. Great. And then one follow-up, can you break out how much of the GDV this quarter came from the Intuit program?

Yes, sure. Well, I guess maybe one way to break it out for you would be to provide the growth with and without Intuit.

So excluding the TurboTax program, our GDV would've grown 52% year-over-year. With the TurboTax program, it goes 62% year-over-year.

Right. So TurboTax -- and we've said this all along and that's why we try to break out some additional guidance for you in the prepared remarks.

TurboTax is a neat program. We like it. But it is not Green Dot-made. The Green Dot core business is way, way bigger than the TurboTax contribution.

And so it's a good program, but that's why we wanted to get that extra guidance.

Okay. And then when you're excluding TurboTax, you're excluding it from year-over-year?

Correct. Both last year and this year.

Okay. Great. Thank you.

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

Good afternoon.

Hi, Bob.

You beat my number on activation. So anyway.

Thank you very much.

Let's see. The question -- the Rite Aid program, is that your first payroll card program? And when does that kick off? And what other efforts -- can you maybe give a little color around what you expect out of programs like that?

Well, it is our first pure payroll program, if you will, and it will roll out over the next 12 to 14 months. And the reason is we have to integrate it into the HR system. So that would (inaudible) they can choose to get another card.

So having said that, assuming that our adoption is 10% to 20%, which is set to go for a corporate-driven payroll card program, maybe it equals 10,000 to 20,000 cards. We have about 90,000 employees.

So at the end of the day, frankly it's not material to Green Dot's size and scale; more maybe indicative of the fact that we can be competitive and do win in some of these corporate accounts.

The favorite, Bob, to be honest with you, to go off the prepared comments, I guess, a little bit, our favorite payroll account is our, just, everyday Green Dot card, because when the customers -- and the same way that you have a checking account, for example.

When you go down or pick your bank, you're in Chicago -- so what's a good Chicago bank? What's that one that's owned now by the Canadians? Anyhow --

Bank of Montreal?

No. No. No.

The (inaudible) is owned by --

Let's say we're going to Harris Bank, okay? Okay. Let's say you're going there to open a check. They don't say, okay. Well, tell me, Mr. Napoli, would you like a payroll checking account? It's just a checking account, you know.

And then you opt to have your payroll direct deposited. The same is true for Green Dot. So we have this massively growing direct deposit base. And those are customers saying, hey, this is my bank account, or I want my pay loaded onto it.

That's our favorite way to get people to using those payroll cards, because then it's longer-lasting and the revenue is better, and the customers have more satisfaction.

Having said that, we understand there's also a niche and an opportunity in employee-employer driven payroll, if you will -- and Rite Aid is the first one we're doing that -- but the adoption, if you look at the adoption rates from many of the companies that have done it for years, it's not particularly great.

And the revenue for card isn't as healthy as a regular business. So we'll do these. And we're opportunistic as you know. That's one of our claims to fame.

And so we're excited to do Rite Aid and we'll do others like it, but I wouldn't look at that as a massively impacting kind of a deal.

Any color on the tax business with the government on the test that you did this fall? And what kind of response rate did you get? And how are you feeling about that business and other types of tax-related businesses to replace TurboTax as you look at 2012?

So I answered the two parts separately. On the first question of how is Treasury going, we really promised to Treasury that we'll leave that to them to talk about it and distribute that information as they feel appropriate and comfortable, and the pilot is fully matured. So we leave that to them.

On the second part of it, we like tax in general, whether it's turbo tax or own card. As John pointed out in the last question, we have mass of tax like deposits to our cards with our without turbo tax. And again, we're trying to promote Green Dot as your full service bank account, right? So in the same way that you had your deposits loaded, our customers have their tax refunds loaded.

And so tax is important to us, whether that means a tax card or a card distributed to tax prepare, we'll be opportunistic in searching those deals out when they come. But you're going to see most of the thrust of our marketing being to regular Green Dot customers and new customers in retail stores saying, hey, there's no better way to receive the tax payment or reimbursement than to a Green Dot general purpose card. And here's why and here's what, and so forth.

And we did those promotions this year. Some of our retailers, 7-Eleven and some others, and they were very, very well. I think we're going to expand further next year.

Last question. Just your sales and marketing was a bit stronger than what we had modeled. What are your plans this year for sales and marketing investment?

Yes.

Relative to 2010 and, I mean, why, I mean, was it stronger? Are there additional programs that you're finding marketing more aggressively?

Yes. Well -- so in terms of the overall level for sales and marketing, you know, as a percent of revenue, I think it sell about in the middle of the range between where it was in Q3 and Q4. So both of those, Q3 and Q4, both included our new higher Wal-Mart commission rates.

So from our point of view, it wasn't a really notable either being notably high or low in terms of sales and marketing expenses. But I would say, in general, in 2011, we do plan to continue to spend both on TV advertising and online advertising. We like the results we're getting in both the best channel.

So our sales -- our advertising component of sales and marketing will likely grow a bit faster than revenues in 2011. But I think Q1 is a fairly typical quarter for us, not an outlier.

Thank you.

Thank you.

Thank you.

Our next question is from the line of Andrew Jeffrey with SunTrust.

Please go ahead.

Hey, guys. Thanks for taking the question. And, yes, I like Bob's comments for what it's worth. I think it'd be the most activation numbers which I was aware on the street.

Thank you.

I noticed you don't give guidance on activations. It's the one key metric you report, but to which you don't guide. Is there any way -- and I know it's been kind of a volatile number and a subject of much discussion, this call is evidence to that.

Is there any way you can give us a sense of what you think activation growth -- new card activation growth is going to look like this year?

Yes. Well, sure. To your point about new card activation being somewhat volatile, that's probably the main reason we don't guide to that number. It has -- while active cards and reloads and [GDV] has grown fairly steadily over a ten-year history, new card activations has followed more the step pattern and they do respond more to particular promotions or placement in store or for specific initiatives going on.

So it will probably always be a somewhat more volatile number than some of our other metrics. I would say that if you look at our active cards, which is ultimately more important than activations, our active card growth in the year over year basis has been growing faster than new card activations for the last four quarters.

We've guided to 25% year over year growth in our active cards. We don't think we need to hit 25% growth in new card activations to hit 25% inactive. So the new card activation growth can trail the active growth a little bit. So we probably expected to come in a bit lower than active cards for the year.

Okay. And to be clear, if I'm looking at your guidance, year over year growth in active cards now north of 25% is your expectation, right?

Correct.

Okay. And then with respect to processing expenses, you know, it looked like you'd been getting or that you got in the fourth quarter some really good processing expense leverage is both year on yearend and sequentially and then it popped back up again as percent of revenue in the first quarter.

Is there something seasonal there? How should we expect the scale to roll out on the processing expense line?

Yes, you have a good eye. It wasn't as higher than it's been. The main driver of that is the ATM volume and that people were getting their tax refund on to their cards. We saw a higher than normal ATM usage. And those are fairly expensive from a processing standpoint for us.

Okay. And to that somewhat seasonal, I take it.

It is somewhat seasonal, that's right.

Okay.

Oh, I guess I should point out, though, that we have seen a general increase in direct deposit adoption and those customers do use ATMs more. So there are some seasonality and then there are some increase related to direct deposit (inaudible).

Okay. And in kind of picture when, you know, when you look at your distribution -- which is still dominated by Wal-Mart and obviously Wal-Mart's doing a good job for you -- you know, longer term, is there enough room to grow in terms of penetration that you can gain through Wal-Mart to sustain this growth rates?

Or do you really feel like as we get toward the end of '11 and look out to '12 that you're going to need new deals to sustain the current growth rate, one? And sort of as a corollary, what's the pipeline looking like for new distribution partners? It seems like there's been kind of a dearth of announcements in the industry and I want to know how much of that is because of kind of regulatory uncertainty out there?

Well, for the first question is we think there's a kind of meat left on the bone at Wal-Mart and they think so, too. It's certainly easy today to walk into any Wal-Mart stores, especially the Supercenters which are the newest stores, and easily not know that there's a money card display.

There are massively big stores and then stores where they have the Wal-Mart money [centers] we tend to do far better than in the stores without them. And that's shows you get the more of the traffic can see the product, the more we sell.

So we're always working on initiatives for new displays, new merchandize and new variations of the product. And to be fair, everything (inaudible) product company does that, you know, whether your Cascade detergent or Green Dot, you know, coming up with a new color or a new way to draw the attention of the consumer.

But every time we do one of those initiatives, we see sales pop up again, or if we do a TV campaign, sales pop up. So there's -- that's never-ending. And we think there's a lot of opportunities still there and -- number one.

Number two, we still see growth that are non-Wal-Mart retailers. We have great growth again year over year. We've been in some of our Hallmark retailers and Walgreens and the Rite Aids and the CVSes of the world for nearly a decade or something like it. So now we feel good about all that.

The next part I think you said was why haven't you seen more big retailers signing on? I think that biggest reason is is that Green Dot pretty much has every beautiful plum on the tree I think is already picked.

We continue to go a little bit deeper and look for some fill in retailers that we're proud to have on our network and you'll see some of those be added in. But when you have, you know, Wal-Mart and Walgreens and Rite Aid and CVS and Kmart and 7-Eleven and Circle K and Radioshack -- I can't think them all -- you know, Kroger, there's not 100 more like them, right?

So there'll be some fill-in retailers. We'd love to be in the Home Improvement Channel and we're having some of those meetings and maybe a dollar store, too, that makes sense for us when we look at those.

But I think it's fair to say that we continue to expect things for growth. We have and we'll continue to see it. But importantly, you need to continue to expand on new channels and that's why you see us hiring a powerful GM like, a (inaudible) of government. That's why you see us continuing to invest money in our online channel which has really been a really good channel for us and continues to grow and you'll see other channels are forthcoming.

So, the answer is yes and yes. We want to grow in retail. We want to grow out of retail. And we have plans to do that.

Great. Thank you.

And your next question is from the line of Gil Luria with Wedbush Securities.

Please go ahead.

Yes. Good afternoon.

Hi, Gil.

Hi. I wanted to ask you about the guidance raises. First on -- rather, when you raised the guidance, what -- which of the components was instrumental to that? You added -- your card (inaudible) grew 23%. That was an acceleration. 29% for first time reloaders which was also an acceleration. And let me add my vote to better than I expected.

But you also extended the life of the card to the longest life probably that you had since you transformed the category in June early 2009. You had more activity per card. Which of those components led you to increase the guidance?

It's a good question. I mean, it was kind all of those things. You know, we like really all the things you just mentioned. We see strong new card activations. We see a lot of those customers converting and becoming reloading customers. Our conversions to direct deposit looked great this quarter. And as you know, those customers keep the card a long time and drive revenue for many, many months.

Well, the only one that you didn't mention was the network, the third party network reload which is, well, still small relative to our card business. It's becoming material and we've shared some numbers on that business. All of those things together are giving us comfort that this year's going to come out a little better than we had originally expected.

And then the same thing on the profitability guidance. You raised, in spite of the fact that your sales in marketing is kind of staying at a high level, where are you getting more leverage than you thought when you guided originally?

So, we're seeing -- well, if you look at the EBITDA raise relative to revenue raise, we didn't move the margin much. So we are expecting that we are going to have to continue to spend both in terms of sales and marketing to attract and activate great customers.

We're also going to be spending, in terms of our fixed cost and investing in new programs like the payroll program of Rite Aid that are going to require some new capabilities and infrastructure to support those programs. But in general, where are the places that we find leverage -- clearly, comp and benefits has been an area where we find a lot of leverage. It's mostly of fixed expense, although it does have our call centers in there which is more of a variable expense.

Other G&A, we've gotten some good leverage there and expect more in the future. Those would be the main two areas where we see leverage.

And then finally, you got the payroll business organically. Government it looks like you hired somebody because of the demand you're getting. Does that mean that you're not going to need to go out and do M&A or you still, well, thinking of supplementing those kind of clean opportunities by adding some acquisitions there.

We like acquisitions. We like the idea of acquisitions sometimes more than the actual acquisition. But, we like it. We have a pretty big war chest, as you know. We're up to -- what was it -- $203 million in cash that we're generating where it's been historically, $30 million, $40 million in a quarter.

So -- and there's a reason that we haven't taken that money and done something else with it. In addition to needing it for capital reserves for the bank. So we like acquisitions and there's a few we continue to look at. We really can't say a lot about it without violating something left to right. But we think acquisitions will be an important part of how we grow and see you can look forward to, maybe, some good news on that. But you never know until you know it. So we're always very cautious about what we're talking about.

Sounds good. Thank you.

Sure.

Your next question is from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.

Hello, Tien-Tsin.

Hey, guys. I think most of my questions have been addressed. But I just want to ask a couple of things. The -- first, that third party of GDM revenue you disclosed at which is helpful. How big do you think that could get, guys, in the percent of cash reference for revenue?

I ask this because there's a lot of prepaid cards out there, some virtual ones, too, including mobile, et cetera. Anything that precludes you from getting much bigger -- on this third party reload front?

No. We see that there's a lot of green field opportunity for us because on the -- you know, we started that network to serve those prepaid cards specifically going back to 2004 (inaudible) to 2005 and it's growing well.

But then we've found sort of a new greenfield opportunity with all the, let's call them, virtual account players that are being driven by mobile initiatives and various Internet initiatives, PayPal being the first. But now, you're looking at some of the Intuit opportunities and all the new accounts being generated that we think will be Green Dot network clients over time.

So, that would do us a lot of opportunity. If you think of sort of the network, and I mentioned on the prepared remarks, I mean, this haven't really talked a lot about it, in part, because it hasn't been a huge part of our revenue relative to the core Green Dot business, and in part because that division has been somewhat of an evolutionary mode.

But as it becomes more defined and more material, we'll talk a lot more about it, we love the network because it's kind of like -- what people don't understand Tinjeng, often is they think that Green Dot is a prepaid company like every other, perhaps. And it's not. It's a different company and the network you're getting for free.

If you -- when you buy Green Dot, nobody else has that kind of network and that's why it has its own growth pattern, its own revenue metrics. And we think that over time, that's going to become a real star in the company, as a division. And it's already big, but we think it could get a lot bigger. So that's a long way of answering your question, I guess.

No. It's good to know. Just -- and then on the -- I think, there're a few questions about pipeline, I think, some on distribution. But I want to ask just about, you know, program management and the pipeline there, and anything that's large enough that can replace that Intuit business that you can see that you're chasing.

Yes. Intuit as John guided on the call that 3% of revenue for next year is the debit and 3% is not -- you know, you never want to start the year with a 3% debit, but it's not exactly as a high debit relative to our growth rates in all the opportunities we have.

So, the answer is yes, and at the same time, you know, as we get more experienced, frankly, with program management, I've asked myself on a number of occasions and we've had some strategic talks internally that we're becoming more selective with who we work with on program management because we built this amazing capability, if you think of -- especially, if we're ultimately able to get approved for the bank.

But if you think about the issuing inside and the program management [needing] call centers, and the regulatory outreach, and government relations, and all the different pieces that make a prepaid program work successfully and profitably, it serves both the customer side and all the constituency, the consumer groups. And the legislators and regulators were all very important to the industry.

We have that all. And it used to be that our thought was, hey. Let's use it for anything and everything. Let's give it away and be helpful. And more and more, I'm starting to wonder if some of the best programs we can manage are our own. And so, we're having those dialogues internally.

But we -- to answer your question in a different way, there's ample enough business in the pipeline to more than overcome the 3% debit. I think that's the best way I can answer it.

Perfect. That's good to know. Last one for me is -- and again, I think it was asked by Andrew, but just the expense per card did move up a little bit. You'd mentioned some of the ATM cost there, John. Can you give us some guidance? I know you did raise the guidance overall, but if we will think about expense per card of the processing cost, I mean, how should that evolve as we step into the next few quarters.

Sure. Yes. There were a couple of drivers, I guess, on the expense side. You know, I mentioned ATMs. You know, in general, when you have more spend going through a card and we had much higher GDV per card, that does drive up your banking BIN licensing cost. It also drives up your processing costs a bit. So some of that's related to the higher volume which is on the card.

When you convert a new customer under direct deposit, you do have some incremental cost upfront. We pay a $10 incentives to customers to enroll in direct deposit. When they do enroll in direct deposit, they generally have their monthly maintenance fee waived at least for that month and usually in many months to come as well.

So, some of it is related to the higher GDV per card. Some of it's related to enrolling more customers in direct deposit. So, those would be the main reasons for it.

All right, got it. Thanks a lot, guys. Thanks.

Thanks.

Thank you.

Thank you. Our next question is from the line of Chris Mammone with Deutsche Bank (inaudible).

Thanks. Good afternoon.

Hi, Chris.

So just not to harp on the act of -- on the activation metric, but, you know, nice rebounds as far as we were concerned as well. And I know that, you know, it's hard to predict, you know, how much visibility on that number looking forward.

But now, that the benefit are looking back on the first quarter, I guess, you know, could you maybe talk about the sources of the rebound and how much of it, you know, might have been -- you know, a lot of the card act implementation that you use that in the fourth quarter. Growing over that -- how much was due to advertising and could you sort of break it down for us why we saw that nice rebound.

Well, John can talk about some of the sources of it and then I'll talk about the card act. We think a lot of it was card act and the reason is, is that we know which retailer was the cause of the loss in Q4. And that same retailer, once we got the displays backed up, rebounded to their previous levels, and that contributed a lot.

So, pretty a lot of it had to do with the reshuffling of displays and the change of product mix and all those kinds of things. So we think that has something to do with it. We also have the seasonal impact and the fact is that it's volatile. Q4 is a big gift card quarter and we don't sell gift cards. And our cards were intentionally -- we intentionally market them and not to confuse them with gift cards.

So we think that all added up to some of the concern over Q4. But -- and now, I'll let John talk about why we go elsewhere.

Yes. Our new card activation growth is (inaudible) in line with our longer term trends. So it wasn't, you know, that remarkable one way or the other. I think that the quarter that was kind of an outlier was Q4. And as Steve mentioned, that really was because those gift card short-term purchases -- sometimes confusion with the gift card, dropped off quite a bit. We didn't see that spike of sales around -- right around the holidays that we had seen in 2009.

So it was more of a normal quarter, I'd say, in terms of how new card activation goes.

Okay. I guess as a follow-up, you know, maybe just some color on some of the new, you know, competing products maybe in the marketplace. We know that -- you know, we know that Target is probably off limits to you given your relationship with Wal-Mart.

So, you know, what have they been doing in this space if anything. What are your thoughts on the new serve offering by American Express because, you know, we know that that obviously incorporate the prepaid product from them. You know, maybe some general comments on the competitive landscape, right?

Yes. Well, there's been -- there're some things we know because we're not supposed to know, but we know. So I don't want to talk about those things. So all that target (inaudible) announcing when and if they do, but your point, I thought but now, they would've put out something and I don't think they have yet. But we expect them to -- and you're right. We won't be working with them on those products.

And then on the (inaudible) product, we think it's an innovative product from American Express. And if you listen to the American Express senior the management talked about that product and if you read the terms and conditions and so forth, it really has nothing whatsoever to do with our customer base or the kind of product we offer.

It's very much, however, targeted to go after PayPal and perhaps beat other kinds of online payment services to the punch and it's structured in that way. It's really made for more of a moderate -- in my view, a moderate or an upscale consumer whether you're a current user of Amex or an active online purchaser looking for an alternative to PayPal.

But the funds are not FDIC insured. It's not made to be used with direct deposit and those kinds of things. It's very similar, in fact, almost identical to where we could tell it has PayPal structure and something that we think will be of total use by folks who want to buy online, the same way that these -- with PayPal.

We don't see that interfering with our business at all.

Well, then I guess (inaudible) any thoughts on what that might do to your future reloads from PayPal in the network?

I don't know. We'd like to think that -- you know, we're sort of switching into that regard. We're here to help any -- remember the network has a fairly simple mission and that is how can we legally and compliantly and simply get cash from a consumer's wallet into some other format digitally.

And whether we're loading that cash to a PayPal account, or another prepaid card or one of our own cards, or to a bank account, or to accept a credit card payment are all the different things we do with our money pack. We're agnostic.

So if, you know - if Amex started to trump PayPay with [Surf]. God bless them. And hopefully, we'll be working with Amex -- if that were to happen. But, you know, we're here to serve all comers on the network side.

Okay. That's all I have. Thanks.

Sure. You bet.

Thank you. That's all the time we have today. I would now like the turn the call back to management for any closing remarks.

Thank you, operator. We appreciate it. I don't think we have any closing remarks except to thank everybody for their intelligent questions and for keeping me and John awake during the call and that's always helpful.

And we look forward to hopefully hitting it out to the ballpark for you and doing our best to achieve our goals. And we thank you for investing and wish you a great day.

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.