Green Dot (GDOT)

Q2 2012 Earnings Call

July 26, 2012 6:00 pm ET


Christopher Mammone

Steven W. Streit - Founder, Chairman, Chief Executive Officer and President

John L. Keatley - Chief Financial Officer


Bryan Keane - Deutsche Bank AG, Research Division

Roman Leal - Goldman Sachs Group Inc., Research Division

James F. Kissane - Crédit Suisse AG, Research Division

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division

Ramsey El-Assal - Jefferies & Company, Inc., Research Division

Glenn Fodor - Morgan Stanley, Research Division

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Gregory Smith - Sterne Agee & Leach Inc., Research Division

John Kraft - D.A. Davidson & Co., Research Division



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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Green Dot Corporation Second Quarter 2012 Earnings Conference Call. [Operator Instructions] The contents of this call are being recorded. I would now like to turn the conference over to Mr. Christopher Mammone, Vice President of Investor Relations for Green Dot. Please go ahead, sir.

Christopher Mammone

Thank you, and good afternoon. On today's call, Steve Streit, our Chairman and Chief Executive Officer; and John Keatley, our Chief Financial Officer, will discuss 2012's second quarter performance and updated thoughts regarding our 2012 outlook. Following their remarks, we will open the call for questions. The slides that accompany this call and webcast can be found at and will remain available after the call. Additional operational statistics have been provided in a supplemental table within our press release. As a reminder, today's call is being recorded. And our comments include forward-looking statements, including statements about the loss of the TurboTax program to Green Dot and our expectations regarding future results. Please refer to the cautionary language in the earnings release and in Green Dot's filings with the Securities and Exchange Commission, including the 2011 Form 10-K that we filed on February 29, 2012, and our most recent Form 10-Q filed on May 10, 2012, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During this call, we will make reference to financial measures that do not conform to generally accepted accounting principles. This information may be calculated differently in other companies', similarly titled non-GAAP information. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are included as supplemental tables in today's earnings release and are also available at All statements made by Green Dot officers on this call are the property of the Green Dot Corporation and subject to copyright protection. Other than the replay noted in our press release, Green Dot has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call.

Now before I hand it over to Steve, just a couple of guidelines for today's Q&A session. [Operator Instructions] Now I'd like to turn the call over to Steve Streit.

Steven W. Streit

Thank you, Chris. And welcome, everyone, to our Q2 earnings call. As always, with me this afternoon is Green Dot's Chief Financial Officer, John Keatley. After my remarks, John will recap the financials for the quarter and will also provide greater detail around our 2012 financial outlook, which we're updating for you all today. So lots of things to discuss and let's get started.

We had a good quarter of growth in the core business with non-GAAP revenue up 23% year-over-year, less the TurboTax impact, and non-GAAP earnings per share was up $0.35. Our non-GAAP EPS reflects a $0.01 reduction for a onetime write-off related to IT development for a large partnership that we learned last month will be delayed for the foreseeable future so we took the write-off now.

Other highlights of the quarter. Excluding the impact of the discontinued TurboTax program, new card activations were up 18% year-over-year in the quarter and GDV was ahead by 24%. Active cards grew to 4.4 million as of June 30, representing year-over-year growth of 16% excluding the discontinued tax program. John will discuss our Q2 results with a bit more granularity here in just a few minutes.

Next, I'd like to let you know that we're going to use the occasion of this earnings call to provide revised guidance for the remainder of this year. We see a greater level of uncertainty going forward in our business as our market and the prepaid industry in general continues to evolve. So we feel the need to be cautious and lower guidance for the remainder of the year and I'd like to walk you through our thinking.

There are a number of unknowns in our business that could be headwinds to revenue growth going forward, and these potential headwinds fall into 2 main buckets. Bucket 1 is new competition. After personally meeting with most of our largest retail partners over the past 90 days, we expect that several new competitive products could be on sale next to Green Dot products at many of our current retail distribution locations later this year or next year. Some of our retailers believe that expanding the in-store product selection will increase the overall pie and invite new customers into the category and that this may benefit Green Dot with higher sales but other of our retailers believe the category may well grow but that Green Dot's net unit sales may decline as a result. Frankly, we don't know how this will all play out, and therefore, we think it's most appropriate to take a conservative view and assume that at least at the outset that we lose some portion of our unit sales at most of our major retailers.

The second bucket, is around new risk controls which we voluntarily began to put into place in late Q1 and then accelerated into Q2. These new controls are designed to enhance security measures through tighter customer identification protocols and more sophisticated back-end monitoring of accounts. While these new risk controls are, without question, the right thing to do, the short-term effect is that we are seeing our year-over-year growth in new accounts activated being negatively impacted as new customer accounts are now more stringently vetted as part of these new processes.

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