Green Dot (GDOT) Steven W. Streit on Q2 2016 Results - Earnings Call Transcript

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Green Dot Corp. (NYSE:GDOT) Q2 2016 Earnings Call August 4, 2016 5:00 PM ET

Executives

Dara Dierks - Managing Director, ICR LLC

Steven W. Streit - Chairman, President & Chief Executive Officer

Mark L. Shifke - Chief Financial Officer

Analysts

Christen Chen - Jefferies LLC

Tai DiMaio - Keefe, Bruyette & Woods, Inc.

Vasu Govil - Morgan Stanley & Co. LLC

George Mihalos - Cowen & Co. LLC

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Mike Grondahl - Northland Securities, Inc.

Reginald Lawrence Smith - JPMorgan Securities LLC

Bob P. Napoli - William Blair & Co. LLC

Operator

Good afternoon, and welcome to the Green Dot Corporation Second Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode today. After today's presentation, there will be an opportunity to ask questions . Please note this event is been recorded.

I would now like to turn the conference over to Dara Dierks. Please go ahead.

Dara Dierks - Managing Director, ICR LLC

Thank you, and good afternoon, everyone. On today's call, we will discuss 2016 second quarter performance and thoughts about the remainder of the year. Following these remarks, we will open the call for questions. For those of you who've not yet accessed the earnings press release that accompanies this call and webcast it can be found at ir.greendot.com. Additional operational data has been provided in the supplemental table within our press release.

As a reminder, our comments include forward-looking statements about, among other things, our expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Green Dot's filings with the Securities and Exchange Commission, including the most recent Form 10-K that we filed on February 29, 2016, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call, we will make reference to financial measures that do not conform to Generally Accepted Accounting Principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today, including the revenue per active card will be on a non-GAAP basis. The information may be calculated differently than similar non-GAAP data presented by other companies. Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP financial information appears in today's press release. The content of this call is property of the Green Dot Corporation, and is subject to copyright protection.

Now, I'd like to turn the call over to Steve.

Steven W. Streit - Chairman, President & Chief Executive Officer

Thank you, Dara, and welcome, everyone, to our second quarter earnings call. I'm pleased to report that Q2 was another strong quarter for Green Dot, delivering results ahead of our expectations on both the top- and bottom-line. Total GAAP operating revenue came it at $173.5 million versus our expectation of $168 million, adjusted EBITDA including $7.2 million of unusual and incremental launch expenses associated with the roll-out of our new suite of prepaid products was $32.4 million versus our expectation of $28 million.

Non-GAAP EPS including those incremental launch expenses were $0.27 versus our expectation of $0.21. Revenue growth came from all our product lines across the company, including prepaid cards, GoBank checking accounts, cash transfers, and tax refund processing. But without question, the big story of the quarter is the acceleration of our core prepaid card business where per active card metrics accelerated to new highs across most of the KPIs we track. For example, on a year-over-year basis, average revenue per active card was up 13%, purchase volume per active was up 13%, interchange revenue per active card was up 11%, direct deposit penetration was up 13%, and total GDV per active card was up 17%, the number of reloads or cash transfers per active card was up 5%, and the revenue we earn on each of those transactions was up 4%. A good high level way to think of it is that even though our active card base was down 11% year-over-year, the revenue from the Account Services segment was up slightly, which we believe is a pretty amazing statistic and indicative that the improvement and features we've deployed to our suite of new and existing products is helping to drive engagement and usage of our products. We believe we are doing a better job of pleasing our customers.

As you know, we've laid out a six-step plan to drive growth and deliver at least $1.75 in non-GAAP EPS in 2017. And I'd like to update you on each of those initiatives and those steps and discuss how they contributed to our performance during the second quarter.

Step one on our six-step plan is to launch new more appealing products with materially better unit economics at all 100,000 retailers. So on this step, which is our card business, the key headline for the quarter is at both our new card products and our legacy card products are contributing unit economics at historic highs. Our overall portfolio is a blend of all the new cards, so over time our portfolio shifts towards more new cards with the new economics, but today the portfolio still dominated by the old cards. That why it's important to note that both old cards and new cards performed strongly in Q2.

Across the portfolio, average revenue per active was up 13%, as I mentioned earlier. We believe the stronger revenue per active card is the result of a few changes we've made to our business over the past few years. First, as you know, we discontinued our old MoneyPak product in February of 2015. This change made our products less attractive to certain segments of customers who used MoneyPak to reload their cards with cash. It also so happened that the segment of customers who relied on MoneyPak were mostly lower revenue generating customers and included many one-and-done customers where we made little money. As such, in the last 12 months, we believe we lost approximately 500,000 mostly low-value active accounts. As a result of these changes, our legacy card portfolio now contains a larger share of higher-revenue generating committed customers who are generating substantially higher revenue per active card.

In terms of our new suite of cards, they've been on sale at Walmart since late Q1 on a full chain basis and most other Green Dot brand retailers since early Q2. The new products are enjoying very strong customer usage metrics, like, first-time reloading, spend, and GDV.

Most importantly, as a result of the strong customer usage metrics and the materially better unit economics, they're generating high revenue per new card sold. Of course, prepaid cards, just like other types of subscription businesses, take time to mature as a portfolio. So we don't yet have enough historical data to know precisely how the portfolio of new cards will look with age, but so far signs are very encouraging, as you can tell in part from our results in Q2.

As mentioned earlier, one trend we're observing is that the new cards seem to attract fewer one-and-done buyers. Our cards are still far and away the bestsellers on the rack, but we seem to have peeled away some of the repeat one-and-done users that used to generate a lot of unit sales but not a lot of revenue and sometimes even negative margins on that revenue. So the cards we're selling today seem to be higher revenue producing and made up of more committed customers.

Another benefit of increasing revenue per active card is margin expansion. Incremental revenue on an active card drops to the bottom line at a very high contribution margin since the costs of supporting an active card are essentially the same regardless of the revenue that the card generates. This is one of the reasons why we're continuing to see margin expansion on a year-over-year basis after adjusting for the unusual launch expense of $7.2 million in the quarter and normalizing for the higher Walmart rev share increases which did not lap until May.

This is the trend we expect to continue as we work to drive increasing customer usage and increasing revenue per active card on top of an increasingly more efficient operating platform. So the summary here is that between the greatly improving revenue-generating characteristics of our legacy portfolio and the superior unit economics of our new card products, we are benefiting from material year-over-year organic growth in our prepaid card business lines.

Remember that, to stay flat for the year, we estimated we would need to generate an additional $35 million in revenue to make up for the MoneyPak related losses. The fact that we're actually up year-over-year in revenue, is an indication that we're on track with our expectations.

Now let's discuss the second step in our six-step plan and that's bringing back MoneyPak with new risk controls. To recap, several years ago, Green Dot and others with similar reload products saw dramatic rise in nefarious use of those products. We were unable to impede the fraud at that time so we took the difficult step of removing MoneyPak from store shelves. Concurrently, we've rolled out a new easier and more fraud resistant method of reloading cards called Reload @ the Register which, as the name implies, allows the customer to reload their card with a simple swipe of the card at the register. As you can tell from our reload volumes, this service has caught on quite well with consumers and it's now the standard by which how prepaid cards are reloaded throughout our industry.

Meanwhile, we were hard at work designing a new MoneyPak equipped with new anti-fraud technology so that we could one day bring back the popular MoneyPak product. The culmination of those efforts was that the new MoneyPak, which rolled out to retailers in April and it's currently on sale, at around 17,000 Green Dot retailers including Walgreens, Rite Aid, and Kroger.

The product is selling within our expectations with volumes growing month-over-month. We also expect to gain additional distribution at other major Green Dot retailers, including CVS, who will start selling MoneyPak later this year.

Of course, the new MoneyPak may never be as a big as the old MoneyPak given that many customers have switched to Green Dot's Reload @ the Register service and other customers have moved on to other replacement products and now satisfy their needs. But we think it will be a nice contributor, over time, for the segment of customers who use MoneyPak for putting cash on prepaid cards and various other non-card related use cases.

Step three in our six-step plan is to make modest investments in high potential initiatives that aligned with our roadmap to growth. I'd like to touch on one or two of those initiatives to give you a sense of where we stand and what we're seeing.

First, let's talk about lending, we believe there is an enormous unmet need within our customer base for well designed and fairly priced credit products. At the same time, it's not easy frankly to lend profitably to the consumers we serve. As a result, we're entering the lending marketplace deliberately but carefully through two complementary paths, one is called Green Dot Money, which is our lending marketplace, the other is our launch of a secured credit card and I'll tell you about both.

Green Dot Money lets us partner with others to bring credit to our customers without taking the credit risk ourselves. Our secured credit card lets us lend directly to our customers while managing credit risk by tying the customers' credit line to a security deposit held at Green Dot Bank.

Green Dot Money is up and running. The good news is that the application volume is good and growing substantially month-over-month, validating our belief about unmet need. The bad news is that approval rates for the marketplace lenders are far too low to make the marketplace perform the way we want.

The inherent challenge of lending to consumers with low or no credit scores has been exacerbated by the recent upheaval in the alternative lending market, some lenders have restricted the number of loans they're making, and others have tightened underwriting standards, both of which limit approvals at the low-end of the FICO spectrum which is where our customers generally rate. We are working with our marketplace lenders to provide them with better incremental underwriting data that might be able to help them say yes more often and it will continue to explore how Green Dot Money can help us serve our customers and grow our business.

In terms of our secured credit card, we plan to launch that product by late Q3 and we'll offer it to applicants who have an interest in approving their credit scores. For both Green Dot Money and our secured card program, we have been disciplined on the scope in how we design these products and we've kept investments low. Our technology expense to build the Green Dot Money site was quite modest and our cost of customer acquisition is essentially zero.

As a result, we have little downside and we believe lots of potential upside as we work to build this business over the medium to long-term. The other growth initiatives I'd like to discuss is our Uber 1099 payroll account that we developed to focus on what we're now calling the gig economy. The theory underlying this initiative is pretty simple, as more and more Americans leave the W-2 economy and join the 1099 economy, the gig economy, the on-demand economy, we believe we can meaningfully expand our customer base by putting Green Dot in the flow, making us a natural choice for consumers and small business owners that need a checking account. Uber's a test case for this thesis. When drivers enroll with Uber, they are offered the chance to open a GoBank checking account.

Since the program launched on a national basis just a few months ago, Uber Debit by GoBank has registered over 80,000 drivers and advanced over $80 million in wages to GoBank account. More recently, we've worked with Uber to make Green Dot an even more compelling option, by introducing a new product called Instant Pay to any debit.

Drivers use Instant Pay, pay a small fee and in return Green Dot Bank advances their wages ride by ride and in near real-time to just about any domestic bank issue debit card. We make money by sharing of the transaction fee charged to the driver. Instant Pay, which launched just a few weeks ago, is experiencing terrific growth on a week-over-week basis and we've already completed over 60,000 Instant Pay transactions to drivers in just a short amount of time.

We're proud of what we're doing for Uber drivers, but what's really notable is how the program demonstrates the opportunity to use Green Dot's unique assets to win business. Over the past few years, we've made substantial investments in cutting-edge financial technology and mobile UX capabilities. At the same time, we own a bank and maintain a strong balance sheet. There are lots of banks out there, but very few banks that are Silicon Valley, FinTech, and mobile leaders.

We believe that we've created a unique platform we can now use to drive long-term growth by extending our reach to new modern use cases and new distribution channels in addition to our profitable core legacy channels.

Step four in our six-step plan is to launch major platform initiatives that are intended to drive significant cost reductions this year and next. We've made solid progress so far. And with the exception of some new unknowns related to the processor migration project, which is part of this savings initiative, we feel good about our progress to-date.

Step five in our six-step plan is to make opportunistic and accretive acquisitions using cash or debt. It's hard to find high quality acquisitions that are accretive and digestible but we're always on the lookout for deals that could be strategically and financially compelling.

Step six in our six-step plan is to execute on our $150 million share repurchase plan. As you know, we still have made $100 million in buyback so far since we announced our three-year plan in late 2015. We still have $50 million of buybacks remaining in the authorization, which we expect to execute in due course. In addition to the share buybacks, we're also actively seeking opportunities to improve returns from Green Dot Bank.

When we bought the bank, our regulators imposed very strict limits on us given that we were new bank operator. But now as we hit the five-year anniversary of owning Green Dot Bank, we're working with our regulators to give us greater flexibility to invest our stable core deposits into higher yielding but safe investments, to dividend excess capital held up at the bank back to the holding company so we could use it to fund other accretive activities, and to extend our lending capabilities. Over time, we believe that we'll be able to make Green Dot Bank a more powerful competitive advantage in the marketplace and become a more material contributor to Green Dot Corporation's consolidated results.

Now having updated you on our six-step plan, I'd like to bring you up-to-date on the processor migration project. This multi-year effort involves the migration of 100 million accounts from TSYS to MasterCard PTS. To manage of the risk, we split the migration into four distinct waves, each dealing with a specific part of our card base.

The first two waves happened on time and without material incident in late 2015, and then again in March of this year, wave three of the migration which went forward in May did not go as well as the prior conversion waves, with approximately 60,000 cardholders or about 1.5% of our 4 million-plus active cardholders, experiencing some type of service disruption ranging from minor to major. The vast majority of all issues were fixed in just a few days and all systems have been working properly since that first week post-migration. Nevertheless, it was a painful experience for us and our partners. We cannot overemphasize how critical uninterrupted service is to our value proposition customers and to the success of our company. We're taking the matter very seriously and have taken and will continue to take the steps we feel are right to make sure our cardholders are served effectively.

First, we paid out over $4 million to cardholders prior to Memorial Day in the form of cash credits and monthly fee waivers to show our sincere apology to impacted customers and as a way of thanking them for being great customers. Second, the wave four conversion has been put on hold to give our processing teams time to perform a thorough root cause analysis, design an appropriate remediation plan, and retest the system. Once our technology leaders are comfortable, we can proceed safely. We will reschedule the wave four migration which now likely won't happen until sometime in the first half of 2017. Mark Shifke will talk more about the economic implications in his section of today's remarks.

Before I turn it over to Mark, I just wanted to cover a few corporate governance items, that is, first, I want to welcome our new directors to the board, Nino Fanlo and George Gresham. And I want to thank our investors for electing me to a new three-year term of service.

Second, on June 27, the board appointed Bill Jacobs to be our new Chairman. Many of you may know Bill from his role at Global Payments. He brings many years of operational, board service, and governance experience to Green Dot and we are delighted to have him serve as Board Chair. Thank you, Bill.

And with that, I'll now hand the call over to Mark Shifke. Mark?

Mark L. Shifke - Chief Financial Officer

Thanks, Steve. I'd like to start by providing some insight into our strong performance in the quarter on the top- and bottom-line, followed by commentary on our two business segments and how they each contributed to our results. Based on another quarter where we exceeded our expectations, I'm pleased to be able to announce another modest top-line guidance raise for the full year and will provide those details along with our soft guidance for Q3 later in my prepared remarks. First, I'm pleased to report that we delivered $173.5 million in total operating revenue, representing a year-over-year increase of approximately 2%.

Recall that due to MoneyPak discontinuation in early 2015 and the negative impact it had to active cards and associated revenue over the course of the year, we started this year with an approximate $35 million headwind that we would need to grow past just to break even in 2016 on a year-over-year basis. So the fact that we grew in absolute terms in the quarter shows our growth plans are working as expected and actually a little bit better than expected.

Revenue growth came from all of our product lines including prepaid cards, GoBank accounts, cash transfers, and our tax refund processing business TPG. In our Account Services segment, we saw a year-over-year increase in revenue per actives of 13% driven by strong performance on our legacy portfolio plus better unit economics on our new products.

In addition, in our Processing and Settlement segment, revenue per cash transfer increased 4%. Revenue per reload continues to grow for two reasons. First, we no longer offer free reloads on our new suite of products. And second, the new MoneyPak sells for $1 more than the old MoneyPak had, as the concentration of our portfolio receiving free reloads declines.

And as we sell more MoneyPaks and build more scale with that new product, we expect our average revenue per reload will continue to rise. So, in the wake of the detour that started in late 2013, when we introduced lower fee MoneyCards and then worsened with the negative impacts from the discontinuation of MoneyPak in 2015, it's encouraging to see robust organic growth in the Account Services segment. As you may recall, we had previously forecast that the revenues from our core prepaid business would return us to a growth trajectory in Q2. As the numbers indicate, we did exactly that.

Adjusted EBITDA margins in the quarter were also very strong and well ahead of our expectations. Adjusted EBITDA in the quarter was $32.4 million, including the absorption of $7.2 million of unusual incremental expenses associated with launching our new prepaid products and inclusive of one month work of higher Walmart commission rate that did not lap in the quarter until May.

The majority of that strong underlying organic margin expansion was driven by, what we believe to be four sustainable and repeatable factors: one, higher revenue per active card from our installed base of older prepaid cards; two, better unit economics from our new suite of prepaid cards; three, a continuing trend of higher revenue per reload transaction; and four, an increasingly more efficient operating platform allowing more of that incremental revenue to fall to the bottom-line. In terms of non-GAAP EPS, we exceeded our estimates and delivered $0.27 per share, taking into account the incremental launch expenses.

We continued to generate strong cash flows in Q2 with net cash generated from operations in the quarter equaling $19.5 million and unencumbered cash at the holding company equal to approximately $101.1 million after taking into account the $50 million ASR we executed in April.

Before I discuss guidance, I'd like to talk about the financial implications of the May processing conversion event and the subsequent material costs we incurred or expect to incur related to items such as providing impacted customers with courtesy credits and fee reversals from wave three, the cost of settling the class action lawsuit that was filed in connection with that conversion event and the cost of delaying the fourth and final conversion wave off of TSYS and on to the MasterCard PTS platform until sometime in the first half of 2017.

We have discussed this matter with our new processing partners at MasterCard. They have been great partners and have reimbursed us for all material costs that were incurred by us in Q2 and have committed to reimburse us for the incremental material costs that we expect to incur for the remainder of the year. As such, we expect there to be no material negative financial impact to Green Dot as a result of the processor conversion issues in 2016. As it relates to 2017, the sizing of any potential negative impact to Green Dot is a bit of an unknown at this point, because we don't yet have a firm wave four conversion date scheduled, although we expect it to occur in the first half of the year. In any event, until we ultimately complete the final conversion wave with all customer accounts off of the existing platform and successfully operating on the new platform in a normal fashion, we would expect to continue to incur material incremental expenses for which we would seek additional reimbursement at that time.

Now let's discuss our thoughts for the remainder of 2016. On the revenue side, our portfolio performed well in Q2 and we believe we have a good visibility into and are quite encouraged by our revenue trends. The quarter posted top-line over-performance relative to our expectations of $6 million. However, offsetting that $6 million beat is that we have around $3 million of potential revenue headwinds related to some of our new initiatives in the second half of the year.

In particular, we're off to a slower start than we expected on Green Dot Money as Steve mentioned in his prepared remarks. And the launch of one of our new card distribution partnerships we announced previously has been delayed from Q3 into later this year or early next. Given that, we're increasing our full-year revenue guidance by $3 million from a range of $705 million to $710 million to a new range of $708 million to $713 million.

We generated $402 million of revenue in the first half, so our new full-year guidance at the midpoint implies we will achieve $309 million of revenue in the second half. Of that, we expect to generate $152 million of revenue in Q3 implying $157 million in Q4. This revised guidance reflects, on the one hand, the continued strong and improving results from our core prepaid and reload business lines in the first half. And our conservatism around the timing and performance of our new suite of prepaid cards as we get more data around active card trends and expected lifetime revenue of those active cards and other new initiatives planned in the second half.

For adjusted EBITDA, we are currently tracking towards the higher-end of our current range of $156 million to $160 million. However, given the delay noted above in some new initiatives and in performing the final wave four processor conversion that was originally planned to take place this year as well as our desire to get another quarter or two of data on our new card products and other new initiatives, we have decided to hold steady at our current adjusted EBITDA range until more certainty emerges in the second half.

As a result, notwithstanding the $4 million adjusted EBITDA beat and the $0.06 per share of non-GAAP EPS beat, we are not raising guidance in respect of adjusted EBITDA or non-GAAP EPS. But we are reaffirming our prior guidance ranges for adjusted EBITDA of $156 million to $160 million and non-GAAP EPS of $1.39 to $1.43 per share. For Q3, implied guidance adjusted EBITDA, and non-GAAP EPS are expected to be $22 million and $0.16 per share, respectively.

Aside from the question around potential incremental expenses and potential reimbursements related to the processor conversion delays we just discussed, we are still on track to fulfill our commitment to achieve at least $1.75 and non-GAAP EPS in 2017.

And with that, I would like to ask the operator to open the phone for questions. Operator?

Question-and-Answer Session

Operator

Thank you. Our first question comes from Ramsey El-Assal of Jefferies. Please go ahead.

Christen Chen - Jefferies LLC

Hi, guys. This is Christen Chen for Ramsey. Thanks for taking my question.

Steven W. Streit - Chairman, President & Chief Executive Officer

Sure. Hi, Christen.

Christen Chen - Jefferies LLC

Hi. Can you provide some more color on the Q3 and Q4 guidance – cadence especially on the bottom-line, it seems like that Q3 EPS guide was somewhat shy of our model, but the full year is still the same. Is there just some puts and takes there that we should be thinking about? Thanks.

Mark L. Shifke - Chief Financial Officer

Yeah. Look, you're absolutely right, on a full year basis, we're coming out to where we were going to come out before but we've accelerated some of that beat into Q2 and then we didn't raise on the bottom-line for the rest of year. So what you have is pretty much the same full year result that we previously had.

Steven W. Streit - Chairman, President & Chief Executive Officer

Maybe we don't, Christen, understand specifically the question.

Christen Chen - Jefferies LLC

I guess – so the guide implies fee for acceleration into Q4. I know you had called out in the prepared remarks that there was a delay of initiative, a launch initiative from Q3 to Q4, but is there anything else we should be thinking about? I mean, we initially thought maybe this was related to the MasterCard processing migration, if there's going to be incremental expenses, but it seems like MasterCard has already gotten that taken care of and will be reimbursed. So, I guess, we're just wondering if there's something kind of the Q4 or Q3 migration that we should...

Steven W. Streit - Chairman, President & Chief Executive Officer

No, we don't think so, but maybe what we can do, Christen, is we're looking at the face of Chief Accounting Officer, notice in the room, who is sort of a little bit puzzled. And maybe when we do the one-on-ones, after we can better understand the nature of the disconnect and try to answer it mathematically, but there's nothing unusual coming up in the room, so I am not sure we know how to answer it.

Christen Chen - Jefferies LLC

Okay, okay, sure. Thank you, fair enough.

Steven W. Streit - Chairman, President & Chief Executive Officer

Sorry about that.

Christen Chen - Jefferies LLC

No problem.

Steven W. Streit - Chairman, President & Chief Executive Officer

Okay.

Operator

Our next question comes from Sanjay Sakhrani from KBW. Please go ahead.

Tai DiMaio - Keefe, Bruyette & Woods, Inc.

Hi, this is actually Tai DiMaio in for Sanjay. Thanks for talking my question.

Steven W. Streit - Chairman, President & Chief Executive Officer

No worries.

Tai DiMaio - Keefe, Bruyette & Woods, Inc.

I guess my question is a little bit more strategic, I mean, given where we are in the competitive cycle, you've seen a lot of the large individuals exit. I mean how do you think about your pricing on legacy accounts, given that you're getting much higher per unit economics on the new accounts. Do you have the ability to price them up – would you – I mean how do you think about that?

Steven W. Streit - Chairman, President & Chief Executive Officer

Yeah, well, so we did in some cases. For the Green Dot portfolio, we did a modest, what's called, the Change in Terms, where we raised the monthly maintenance fee to match the new monthly maintenance fee on our new products that are sold. So we were at $5.95 and we went to $7.95 and we did that fairly recently. Was that at the end of 2015? We forget the dates. Remember we talked about it at that time.

And so, it doesn't generate a tremendous amount of money because the cards don't have very long lives as you know. But it does help somewhat and it helps normalize the difference between a new card and an old card in that respect. So we did do that – we did not to do it on our other portfolios for various reasons. But, I also want to be clear that it isn't just that we're getting better economics on the new cards, and you look at these as an aging cohort, so we've tracked the first 30 days, 60 days, 90 days and you keep going out until you get to the end of a card's prospective life in three years and sometimes later than three years. For direct deposit customers, we have some that have been on there for many years.

And so, you first track in that first 90 day cohort, because that really helps you understand the way that the things were likely to go, if you will. And so we're getting more money on the new cards for sure because of the better unit economics of the fee plans and also because we're doing things that are encouraging more behavior, more spend, more reloading which means better interchange and all those – reload fees and all those goodies.

But in the old cards even though the fees are largely the same except for the monthly maintenance fee on a segment of them which is not material to our overall revenue, you've just seen better usage. And so, the extra revenue we're getting is from people putting more money on the card and spending it more and seeing direct deposit become a bigger part of the portfolio. And so they are very, very valuable. So we'd never want to do anything to rock the boat unnecessarily of those existing cardholders. And many of them, frankly, qualify for the fee waivers anyhow, which is another reason why the Change in Terms doesn't generated a ton of money, because they have the fee waiver from the direct deposit limits and the load limits.

So we're just benefiting on both sides, a terrific revenue growth per active card, people have been on the system for months and years and many years in the case of our direct deposit customers. And then the 90 day cohorts of the new customers, which means – and hopefully as they get older, will look even better than the customers we have today.

So in the same way that portfolios take time to decline like when we rolled out the new MoneyCard portfolio back at the end of 2013, it takes time. In that case, a negative trend for that revenue to decline. And then when you replace cards with better priced cards, it takes time for that to build. In our case, we're benefiting from both. And that's why it's looking so strong.

Tai DiMaio - Keefe, Bruyette & Woods, Inc.

Okay, that helps. And then maybe my follow-up to that is on customer acquisition costs. I mean have you seen the dynamic change maybe over the last year, especially when you think about these new initiatives that you're rolling out. Are you kind of thinking about the level of investments related to that in a different way maybe to the past or is it kind of the same?

Steven W. Streit - Chairman, President & Chief Executive Officer

So – well, okay, both. So it's the same in retail where the cost of hanging the card and merchandising the card and printing a package and all that kind of thing, for filling a personalized card, that doesn't change without regard to the fee schedule and our acquisition cost is the same. In other words, retail commissions outside of the Walmart contract renewal last year and so forth, those would all be consistent and you wouldn't see significant changes in our cost per acquisition for that channel.

But for cards sold online, you have a different advantage. When you're collecting more money and you have higher lifetime revenue per card, you can afford to spend more on marketing on the Internet, click marketing, different kinds of things that you couldn't do if you had a lower value card. So when you have an Internet generated card from one of our Green Dot direct channels, which is a significant part of our business, those you can have a little bit more leeway in how you market because you have a higher revenue generation per card and so it gives you an opportunity in channels that maybe you couldn't have competed in before.

Having said that, we tend to be cheapskates and we tend to hold ourselves to rigid cost per acquisition online and it's just working not quite well. So the answer is no change in your models where there shouldn't be to cost per acquisition, but anytime you have a card generating more money in that first 90 days, it gives us a little bit more leeway for how we may want to spend to acquire a customer.

Tai DiMaio - Keefe, Bruyette & Woods, Inc.

All right, great. Thank you.

Operator

Our next question comes from Vasu Govil of Morgan Stanley. Please go ahead.

Vasu Govil - Morgan Stanley & Co. LLC

Hi, thanks for taking my question. I quickly wanted to ask about the active cards which were down 11% year-on-year and I think even on a q-on-q basis, the decline seemed higher than in last years from 1Q to 2Q. I'm guessing we've mostly – we are mostly done recycling the impact of the discontinued MoneyPak products, but can you sort of elaborate on what was going on and what we should expect in the back half for active cards?

Steven W. Streit - Chairman, President & Chief Executive Officer

Sure. Well – so the first question is the decline is – in our view, the results of the MoneyPak removal back in 2015, you could just see if you remember that painful period of time, we removed the product at the end of January, some stragglers where there till the middle of February, but essential it was gone in January.

And then starting at about March or April, you just saw the decline in new card sales come down which predicates a decline in active cards. And then you have fewer people who were buying the card – for MoneyCard, buying cards, which also generates a decline in active cards. So the 0.5 million of decline year-over-year is – the MoneyPak decline I believe is more than, but you have offsetting impacts. You have the MoneyPak users going away, but then you also have other people who are retaining longer, right, which helps to build your active card. So you have some portions of your portfolio increasing in actives. You have the lower revenue generating guys, thankfully decreasing in activity and active cards and the net is 500,000 down. But your revenue per card is so much higher because the percentage of your customers who are the higher revenue producing customers just keep becoming a larger part of your active base.

So anyhow, but that's the reason for the year-over-year decline. Had we removed MoneyCard in 2014 or something, you would have seen it in a different year. But that's why it's more this year than in other years because MoneyPak is the big determinant of that.

In terms of when we'd see active cards turning around, we first have to lap the MoneyPak ecosystem declines, which we're expecting to be sometime about the end of this year. And so, we'll lap that period of decline, so, call it, November, December. And I want to say from memory that the MoneyPak ecosystem in our view officially ended end of October early November. So, we wouldn't expect active card growth to happen until a period of stabilization in actives and then you'd see that actual growth come back sometime in 2017.

The actual timing and rate of the active card stabilization then growth would depend on new unit sales of reloading cardholders and then the level of churn, right, in the existing installed base of actives and the higher the unit sales of reloading cards and the lower the churn rate of the installed active base means the higher the net active card base. So that would happen sometime in our expectation in 2017 sooner, if churn is lower and sales are higher, a little bit later if churn is higher or sales are lower and then we really rock and roll if sales are higher and churn is lower, but we wouldn't want to get over our skis on that. So we're always modest in our expectations but that's how the math works.

Vasu Govil - Morgan Stanley & Co. LLC

Great. Thanks for that. And then just quickly on the Green Dot Money product launch. You talked about already starting to take some applications. Can you talk about the lending partners that you're working with? Have you signed a bunch? I don't think we've seen announcements of the lending partners that you're working with.

Steven W. Streit - Chairman, President & Chief Executive Officer

No. Yes, we haven't – the answer is, I know of a bunch, we have, I want to say, six or seven or maybe a little more than that, signed up and getting ready to enroll and then they have a technology deployment into the site. And I want to say, we have about two or three currently active and reviewing our applications. And we want to get up to a base of about 10 active lenders. Frankly, there are not a zillion lenders who lend the people in our FICO range. The average Green Dot customer, as you can imagine, has a very low FICO score and has a spotty lending history and a spotty banking history, which is, in many cases, why they end up at Green Dot Bank.

So it's a tough customer to underwrite and there's not a lot of lenders who specialize in that and say, hey, I love this customer base, I want to lend to them. And then it gets even harder because of our brand name at Green Dot and our quite serious devotion to our customer base. We can't and won't market loans that we think are, in any way, unfair or predatory or not in keeping with what we think is the kind of thing we want our customers to take advantage of. So it doesn't mean that we're not – we don't mean that to be overly-pious or anything like that, it's just a matter of how we manage the brand. So when you look at the clients out there who are willing to both serve this customer base and willing to charge them a rate that we think is appropriate and that we can live with, there's just not a lot of lenders.

But we do have some good ones and there are ones that specialize in it. And now we have to figure out how to get them better data and append – if you will, append the data if they're a Green Dot Bank customer, for example, can we tell that lender that they're on direct deposit or can we give that lender information about how long they've been a good customer. Anything that can help that lender say yes and then take a risk on that customer. And as we get that formula better, as lenders get more confident in their decision making, as we develop an underwriting track record, I think you'll see those approvals go up. But one of the ways to go up, to your point, is have more lenders with more secret sauce in underwriting to hopefully say yes to more customers.

Vasu Govil - Morgan Stanley & Co. LLC

Great. Thanks for taking my questions.

Steven W. Streit - Chairman, President & Chief Executive Officer

Sure.

Operator

Our next question comes from George Mihalos of Cowen. Please go ahead.

George Mihalos - Cowen & Co. LLC

Great. Thanks, guys. Just wanted to delve a little bit more into the guidance – maybe you can breakdown the reasons for keeping the EBITDA guidance where it is, given the outperformance in 2Q and then the revenue outperformance that we're seeing. It doesn't really sound like it has that much to do with the card migrations. So maybe you can help us there a little bit.

Mark L. Shifke - Chief Financial Officer

Sure, George. Look, our beat in the quarter was $6 million, but we believe we're going to have revenue headwinds in the second half associated with the new initiatives and we believe they will now deliver about $3 million less than we had planned. So we think that $6 million is really just a net beat of $3 million and that's why we took up our guidance to that extent on revenue.

On adjusted EBITDA, we beat by $4 million and we think there is about a $2 million bottom-line headwind from the slow start that we have on Green Dot Money and the delay in the new program launch. And so, we think there is around $2 million also of potential headwinds from the processor conversion event. So, as a consequence, when you put that all together, we raised revenue $3 million and we're holding EBITDA and EPS flat.

Steven W. Streit - Chairman, President & Chief Executive Officer

To us, it's just a mathematical equation. In other words, when we do the buildup, we're looking at who are the good guys and we take the good guys and then we see are there are any bad guys lurking in the dark shadows in the second half, and we subtract out the bad guys. And so that's the number you come up with. Could we be more aggressive based on our trends in our active card portfolio? Probably. Should we be more aggressive in our trends? Probably not. And that's what I meant earlier by aging.

We only have 1.5 cohorts of 90-day cohorts, that's a pretty limited data set to play with guidance. And so we want to be thoughtful and conservative and we do know, as Mark said, we have anywhere from a $2 million to $4 million headwind on adjusted EBITDA because of the processor thing and the slower start to those initiatives. So, mathematically, it makes sense to hold steady. And, look, in the old days, would we have been more exuberant? Maybe.

I think it's fair to say that we're increasingly more thoughtful and conservative as we try to view our guidance which doesn't mean we can't miss it. So who knows? But we always try to guide where we believe we can meet it at the very least.

George Mihalos - Cowen & Co. LLC

Okay. Appreciate that. And if you guys can provide the percentage of revenue coming from your largest customer, Walmart, this quarter?

Steven W. Streit - Chairman, President & Chief Executive Officer

Total revenue? Yes.

Mark L. Shifke - Chief Financial Officer

I think the concentration this quarter is 46%.

Steven W. Streit - Chairman, President & Chief Executive Officer

Yeah. We want to remind you of something, though, because it's easy to get confused. So in the old days – in the olden days, we used to give the concentration just of the Walmart MoneyCard portfolio, just that one portfolio, remember we saw a lot of things at Walmart. That's just one part of it as the Walmart MoneyCard portfolio. And that one portfolio was 50%, 60%-some-odd of our revenue for the whole company. This new number of 46% is everything we sell at Walmart, the Walmart MoneyCard, gift cards, the Green Dot Everyday Visa product, GoBank, reloads, so it's a – so the number is still lower than what used to be at 46%, but it includes everything we sell whereas in the old days it was only the Walmart MoneyCard portfolio.

George Mihalos - Cowen & Co. LLC

Thanks.

Steven W. Streit - Chairman, President & Chief Executive Officer

Yep, you bet.

Operator

Our next question comes from Ashwin Shirvaikar of Citibank. Please go ahead.

Steven W. Streit - Chairman, President & Chief Executive Officer

Hi, Ashwin, good to hear from you.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Hi, thank you for all the detail you guys are providing here. I wanted to delve a little bit deeper into the aging cohort comment that you had – you had basically now – as you said, maybe 1.5, 90-day periods. But you are beginning to see – possibly more attractive new consumer come in. And I wanted to get an idea of how long it might take to – not to complete the transition, but to reach something of a tipping point where you got sort of a sweet spot of enough good guys coming in that it offsets the downward pressure that might see on the other side.

Steven W. Streit - Chairman, President & Chief Executive Officer

Yeah. If you think about portfolio, let me think of an imagery here. I was trying to think of a softball, let's use a softball. I'm trying to think an analogy we'd all think about. And you have sort of the soft outer and then it gets a little bit more firm inside and then at the center of the softball, you have a really hard core. And so, if I just said, hey, take your fingers and start peeling away at that softball, you get to the first layer, okay, the second layer would be a little bit harder but you'd really struggle to get rid of that hard core. That's the same thing in a card portfolio like ours. You have customers who are here today gone tomorrow, that's where the soft outer core and they will turn fairly quickly, although they are turning slower than they used to turn, that's still been a benefit. But they'll turn fairly quickly. But then as you get on the middle, those guys will be there forever, so when you think about – well, not forever, but for many years, because they're on direct deposit, they use the card for their everyday banking needs, that's the core of your company, the person you want to keep forever. They deliver the best revenue and they stay with you the longest.

So when you think about a new product hitting the store shelves, those new people are coming in and it's going to take a while to figure out, of those customers, who are going to become your hard inner core that stays with you for years, who are the people that are just going to reload once or never and throw the card away.

So the answer is, you'll replace, if you will, the first half of that softball, you will replace in the course of 12 months of our average retention that we report just in the Q is, what, eight months or something like that, which is sort of a retention number that's everything mixed in together in a big mixing bowl.

Then, in theory, over the course of eight months, the vast majority of those cards will turn over. But you'll still be left over with those core – the hard inner core of that softball that will be with you for many years. And so that sort of gives you a year-over-year growth and it has the impact of making your revenue per average customer much higher because the guys in the outer softer core just don't contribute a lot.

So the answer is, you will replace the soft outer core with new customers coming into system, that's a positive sign. The perfect storm, if you will, for revenue meaning in the good way the perfect combination, is you keep that hard core of the old portfolio, because they're delivering tremendous revenues and they are waiving out of the fees anyhow for the most part.

So you want keep that hard core, but you're replacing the soft core with new customers that are paying more money than the old customers used to come on. And so that's what your ultimate hope is. So you'll never get rid of or not in the next year or two certainly – I shouldn't use words like never, I'm speaking colloquially with you, I'm not speaking in an audited fashion.

But you're not going to have all the customers leave, you don't want them to leave. They'll be with you for many years. We have Walmart MoneyCard customers that are seven years old. We have Green Dot customers who are eight years, nine years old. So those will stay there. But you will replace the easier to replace customers more quickly with higher fee cards. So I don't know if that's helpful color commentary or if I confused everyone even more. But does that make sense?

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

No, that makes sense. It gives a good framework to think about it. Sort of a follow-up question is, you do have the higher fee that you laid on higher per card fee and then the takeaway of the zero fee MoneyPak. Is there a situation sort of, let's call it, middle of next year where those things anniversary and then we should – as we'd start thinking of modeling out the next 12 months to 18 months that it creates sort of a comp issue.

Steven W. Streit - Chairman, President & Chief Executive Officer

Well, this is the secret to understanding the cohorts. The usage has been so much better than we thought it would be on the new cards. In other words, you sort of anticipate what might happen and I think when we first guided the year, we said – and we disclosed our assumptions for the year, if you remember, and we said that one of our assumptions was that behavioral metrics on the new cards stay the same to the old cards. And we weren't sure if that was risky or not, they could have been much worse, let's say.

But it turns out they're better. So as you see these portfolios come together over the next year, just like our current card, of active cards keeps getting better and better, that's been a trend over just, I don't know if you remember, we did the analysis last call, but it's many quarters in a row that our active cards have been getting better in terms of revenue per average active.

And so, it could well be that we have that's still seasoning and coming together. As long as the portfolio seasoning, meaning your installed base keeps getting better because you're left at more and more of a hard core center to my previous analogy. And because of new guys coming in are of higher money than the old guys replacing, you'll continue to have solid comps in theory in the model as you go. But that's the part that we wouldn't know. In another words, if you were to say, hey, Steve, guide out 24 months, you'd have a pretty wide range of potential outcomes depending on the retention of that hard core from your existing portfolio and depending on how many of the new guys turn into hard core going forward.

The easy part is you replacing a $5 card with a $7 card, that part is easy. But frankly, that's the smallest part of your revenue composition. It's really that hard core that generates all that revenue and that's why we're trying to invest and have been investing in things like the ability to write checks to pay your rent and person to person payments and savings vault on the MoneyCard, which is a savings account on the card.

All these kinds of cool things to try to make the card more meaningful, Cash-Back Rewards, right. If you're buying the card that advertises, buy me because I've Cash-Back Rewards, you're not buying it, I would assume, to pay your phone bill and throw it away. Right?

So these are all the kinds of things we're doing to try to encourage that hard core center to stick around. And when you only have 90 days plus of data, you wouldn't want to bet your life on it. But the first 90 days has certainly been fulfilling as you can see from our results.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Yeah, no, absolutely. My last question and this is kind of what I was trying to build up to is, not to speak concretely of guidance for next year. But the $1.75 for next year with everything that's going on, all these initiatives and where they stand and some are a little bit ahead, some are not where you want it to be. But overall, the $.75, is that still sort of a good ballpark to think about.

Steven W. Streit - Chairman, President & Chief Executive Officer

Well, listen, we're still talking about it and that means we have confidence in it. It could be higher, yes, if everything lines up and things work out, yes, it could be lower, but we hope not – the only thing in 2017 that is a negative that or one of the things we see in 2017 that could be negative is, as we mentioned on the call, the process conversion, while we feel like the platform would be ready to go and we'll convert and, to the extent we not, we believe that MasterCard will continue to work with us and take care of us as they have. Well, then, that's okay. But it's hard to perfectly foretell the future on that. And so I feel better once the conversion is done and everything is working great.

And we know that that's a thing of the past. That will give me some comfort because that was supposed to happen this year, right? And it's still might, but our guess is first half of 2017. And so I want to see that done and in the bag and lock down and that's good. And then I want to see our active card cohorts working the way we want them to work. Are they matching our expectations? Is behavior still the same or better than what it is today? And that's bit of an unknown, but absent those two metrics, if you will, things should work out on the upside, but we've always want to guide at a range that we believe we can hit.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Got it. Understood. Thank you.

Steven W. Streit - Chairman, President & Chief Executive Officer

Yeah.

Operator

Our next question comes from Mike Grondahl of Northland Securities. Please go ahead.

Mike Grondahl - Northland Securities, Inc.

Thank you, guys. First question, is there just anything else anecdotally you could share about the new cards with the higher economic, just that you've seen in these first 90 days in terms of usage or any patterns developing?

Steven W. Streit - Chairman, President & Chief Executive Officer

Well, I think I'll give you the high level, I suppose, Mike. Look, we're thrilled with their performance and we talked about that in different ways, in different metrics. We haven't broken apart the metrics for the new card versus existing card because it's just too granular, and it'll drive people nuts with making their model. But we're currently obviously pleased with reloading behavior spend and all those other revenue generating activities that are driven by customer behavior, those are all looking very positive. Look, the reason why that's important is you can't fee yourself in the glory. Maybe for a month you can, but you can't fee yourself in the glory because if people don't like the product or they don't feel like it's a value, then you're going to crash the portfolio.

So, in addition, to launching the products with different fees, you've got to see people engaging in the usability of the card. So the fees to us are the easiest part. Will people reload more money? What's your first 30-day reload rate? What's the average amount of GDV? What's your direct deposit enrollment? All those things to us are way more important than the fees because they predict what that hard core, to my previous analogy, will be in the out months and the out years.

So all that behavior so far is looking positive. But I want to caution again. We have 1.5, 90-day cohorts. Fee revenue is clearly up, as you know, and as customers use the card more, they also pay more fees. So there is another benefit to people engaging in the card more. So we're only have limited amount of data, Mike, on this cohort analysis of the Walmart cards and the new Green Dot cards, but we're very encouraged. I don't know that I can give you – I'll give you one anecdote. Those people – I don't want to leave you with nothing. I want to give you something good. We have a product which look great in the research lab, but you never know what it looks like on the self and that's called the Green Dot 5% Cash Back Visa. It's a debit card, not a prepaid card. And it's targeted to the mass market, not necessarily the low and moderate income segment. And it's the most expensive card we've ever sold in the company's history. It's $9.95 a month, and it has 5% cash back on it. And it's a beautiful piece of plastic and it's a gorgeous package using rich blues and whites and the card is a pearl white finish with the blue version of the Visa logo, it's just a really nice piece of plastic. And all those things matter. And sales on that are doing very well. And engagement on it is clearly a different kind of customer than a regular prepaid card. So that's a little bit of an anecdote. How is that?

Mike Grondahl - Northland Securities, Inc.

No, that's helpful. And then second question is the new MoneyPak, I think it's in 17,000 locations today, plus CVS later this year. How does that compare to the number of locations that the old MoneyPak was in?

Steven W. Streit - Chairman, President & Chief Executive Officer

Well, the old MoneyPak would have been in – I'm going to say, all of our retailers or the vast majority, so let's call it 90,000 retailers in the heyday, call it the middle of 2014. And there was CVS, call it another 8,000 stores, that brings you up to 25,000 retailers, let's say. So we have a long way to go.

Having said that, your biggest retailers are your biggest retailers, right, so the Walgreens, CVSs, Rite Aids, all those. The big winner is if down the line, you can get it back into a Walmart, which we moved MoneyPak long time ago, long before we moved it everywhere else. Could you get it into there? Could you get into – so we still have a lot of real estate left to go and we have a lot to prove to our partners. We would never want to sell a product that made our retailers feel like there was something wrong with the product. And I think, for the most part, the retailers we work with were proud of us for pulling the product, it was very Green Dot thing to do it, if you will. In terms of making sure we are protecting customers and protecting the reputation of those retailers.

And then the new system is pretty slip. I doubt you'd use it necessarily to put money on your prepaid card. But the back end interface, if you got a MoneyPak.com, is a really cool website, and people are using it and it's working, and the fraud controls are working and it's very exciting to see that come to fruition. But, look it's a very small fraction of what the old MoneyPak would have been at its peak.

And so we have a long way to go in terms of bringing it back with more distribution, and then we have to see how many more retailers can sell it, but given that it's only been in the market for a very short period of time, we feel good about the real estate we're getting back.

Mike Grondahl - Northland Securities, Inc.

Got it. Thank you.

Steven W. Streit - Chairman, President & Chief Executive Officer

Sure.

Operator

Our next question comes from Reggie Smith of JPMorgan. Please go ahead.

Reginald Lawrence Smith - JPMorgan Securities LLC

Hey, guys, congrats on the quarter. Just wanted to dig in on the comments you made earlier. I think you said that in regards to new sales that you guys continue to be the share leader as you retails with your new products. I guess my question is so you're still the leader, has share shifted at all with the rollout of these higher priced products? And I have a few follow-ups.

Steven W. Streit - Chairman, President & Chief Executive Officer

Yeah, so the answer is, it has because we've lost – and this what I mentioned in the prepared remarks and it's a good question, I'll give you some color on it – we've lost on the repeat one-and-done customers and that was part of the design of the products. A significant part of our customer base use the products as a free throwaway product. And which is not their fault, it's our fault. That's how we design the product and they're taking advantage of it.

But the card was cheaper than a gift card. So you could buy a Green Dot card or a Walmart card, you buy it, it's a couple of bucks to buy, but cheaper than a gift card than may be is $5 to buy, you buy it, you register it with the fake name like Rumpelstiltskin or something, we decline you, right, we're not going to approve you for the card, but you can spend down the card in the package and they do that and they pay their Verizon bill or they pay their Sprint bill or whatever it is, and whatever their DIRECTV bill, it was a very common one. And they throw it away, and they just do that every month. But every month we're doing a CIP and going out to Experian to get their data and to LexisNexis and we're sending out plastic in the mail and all those kind of things. So you're sitting here running a fulfillment cost and, of course, the retailer commission because the retailer gets paid whether that customer turns out to be long-term or short-term.

So you're sitting here with an acquisition cost that is maybe $6 or $7 all-in and a customer who, by the time we went to collect the fee, was already long gone. They had made their bill, they used it up and throw it away. And that's the way it's been for years with the company. So it's shouldn't be a surprise to us that it encouraged one-and-done behavior.

The other thing that we used to do is we sold cards for free on promotion. And we may still do that, it's a great way to get people into that card. But for a long time, we were free at Walgreens, we were free at Rite Aid, I forget where else, we may have been free for a little bit at the retailers, and you generate these massive amount of unit sales but the quality of those customers were horrific. So you'd see your revenue rise a little bit, right, and then you see your EBITDA get crunched as these customers just generated losses and repeat losses.

So what we've done is we've peeled off by design that layer of repeat one-and-dones. And the card is priced now where you're more likely to the want to reload it. You've already bought it, you invested in it, it's now cheaper than to reload than it is to buy a new card before it's cheaper to buy a new card than it was to reload. And we've changed those dynamics. And so we don't look at our market share as unit count because that's somewhat frankly irrelevant to the long-term, I mean obviously it's important intake fact.

But I'd rather sell, let's pretend, 10 cardholders who are reloading and generating strong lifetime revenue than 100 guys where we're losing $1 a card, right. So the answer is we're still far and away the share leader but we've absolutely given up some unit sales on the rack and we're okay with that. Now the question is – in fact it was part of the design – so now the question is, how do we sell and introduce the cardholders to a different kind of customer segment that people are buying us now and say, Green Dot is for the serious prepaid cardholder and generate more of those customers.

It's gone very well so far as you can see but we want to make sure that we get that out here and so the mantra in our sales effort is cut expenses, sell more quality cards, cut expenses, sell more quality cards, it's a very simple metric. And you will see our promotional activity or if you see what Steve Harvey talks on his TV shows or any of those, you will see where the thrust of our promotional effort is.

Reginald Lawrence Smith - JPMorgan Securities LLC

Understood. And I guess a follow-up to that. You talked about I guess the usage of the new cards and that has been, I guess, better than what you had modeled initially. Just curious have the sales also been better than what you modeled? So it sounds like you've got a better cardholder base than you thought. I guess my question is, is it a little bit larger than you thought as well or is it smaller or is it in line.

And then lastly when thinking about the Uber relationship and I guess pre-funding and direct deposit, how should we think about the incremental expense associate with that or is there one, how – the mechanics of how that works and whether that's a potential drag? Thanks.

Steven W. Streit - Chairman, President & Chief Executive Officer

Yeah, so the answer is, we don't really – we clearly have an expectation for new card sales but we model based on active cards. And for the active cards, we say would within a certain range, I forget what it is, a few points up or down. And, I think we're basically within our range of that. And ultimately it's a combination of active cards and the revenue per active, that's how we run the model. And we don't particularly guide on unit sales, although we have a forecast for each retailer. And the reason is because it's somewhat of a meaningless metric I can blow the door off of unit sales by saying, buy a Green Dot card for free and we'll put $10 at acquisition, right, but you'd see the company not do very well. So that's how we model it and that's within line. The next question is – I mean in the active cards and the revenue – the next question was about direct deposit – I'm sorry, would you give me that last one again? The cost of...?

Reginald Lawrence Smith - JPMorgan Securities LLC

Yes. So correct me if I don't understand this correctly, but I thought with Uber deal that you guys were prefunding the payroll and then it would settle with you guys maybe a day or two later, I'm just curious is there costs associated with that and how should we think about that?

Steven W. Streit - Chairman, President & Chief Executive Officer

Yeah. The answer is it's an implied cost. We're using our bank's balance sheet, right. So every day you have settlements incoming. Every day you have settlements posting and outgoing, and that would be a settlement in transit and that's what that is, because you're getting the money every business day. It's no different by the way, in fact, it's identical to what we do with our retailers and we have for 15 years. When I reload a card – pick your favorite retailer, Reggie, Dollar General – when I reload a card at a Dollar General, the customers getting access to those funds the second they leave the store, right. But Green Dot doesn't get paid the second they leave the store, we're going to get pay the next business day or two days later or if it's a long holiday weekend, four days later.

But the customer got to use the money right away. So there's always a fairly large outstanding receivables balance at the bank or settlement in transit. And so when we underwrite and do a risk analysis on our balance sheet at the bank, we're underwriting that retail or that organization for their ability to make sure they pay us pack in the time agreed to. And there would been an implied cost of money for that overnight or there would be an implied cost of money for the two-day, but as you can imagine, it wouldn't be significant and it's just part of the revenue and the EBITDA model for the product.

Reginald Lawrence Smith - JPMorgan Securities LLC

Got it. Understood. Thanks, guys.

Steven W. Streit - Chairman, President & Chief Executive Officer

Sure.

Operator

Our last question comes from Bob Napoli of William Blair. Please go ahead.

Bob P. Napoli - William Blair & Co. LLC

Thank you.

Steven W. Streit - Chairman, President & Chief Executive Officer

Napoli, it's been a long time. Good to hear from you.

Bob P. Napoli - William Blair & Co. LLC

Yeah, how are you doing buddy?

Steven W. Streit - Chairman, President & Chief Executive Officer

Very good.

Bob P. Napoli - William Blair & Co. LLC

Any thoughts on adopting the EMV cards for your prepaid cards?

Steven W. Streit - Chairman, President & Chief Executive Officer

So the answer is we're going do EMV, but it's not going be until the later years. When I say later, I'm taking about end of 2017. And then go out from there and it will be on those customers – boy, the softball analogy is going to do me well, today. So back to that inner core. I was trying to think of like a mountain where you water brush and the clay falls of easy making hard clay, but I settled on the softball.

So question was the EMV, so we will serve the EMV chips up on the cards that go to those hard core customers. It would be very, very wasteful to put an EMV chip on a card that hangs on the rack, that would be preposterous or to put an EMV chip on a one-and-done reloader, but clearly for high value customers, direct deposit customers, reloading customers, there is a number of ways we can segment our active base. And we've actually done the analysis and we do believe it will save us net some losses of person-to-person card transactions and you'll see those rolling out towards the end of 2017.

And so, that's one of the ways we're going to both control the cost of that and, at the same time, make sure it's a net positive by only putting the chip on those cards where the fraud risk is higher and where the loss of charge-offs is higher.

Bob P. Napoli - William Blair & Co. LLC

Makes sense. How much revenue did you have from TPG in the quarter?

Steven W. Streit - Chairman, President & Chief Executive Officer

I don't know that we disclosed it. What you can do is, you can look at the segment called Processing and Settlement and you'll see a segment number and that's comprised of our cash transfer business, reloads at retailers and TPG, and there is probably some metrics in there – I know there is metrics in there as it relates to the numbers of taxes, refunds they've processed in the quarter and that type of thing. And that's probably your best disclosure.

Bob P. Napoli - William Blair & Co. LLC

Is that a big effect on the 2Q to 3Q EBITDA mix shift?

Steven W. Streit - Chairman, President & Chief Executive Officer

It is when you think of margins because TPG generates no revenue and all or very tiny revenue in the second half of the year. But they still have the same staff, right? So you have – if you will, your fixed expenses are evenly divided over the course of the year, you have some higher variable expenses of call center or whatnot in the first part.

But over the full year, they have their fixed expenses evenly divided, but all the revenue front loaded primarily in the Q1, straggling revenue into Q2, and then tiny revenue three and four, so it does affect your margins where you're going to have big fat margin margins in Q1, which is not sustainable clearly for the whole year. And then you're going to see in the back half compressed margins as a result of having to pay for that company's existence even though you're only generating revenue from your prepaid card business lines

Bob P. Napoli - William Blair & Co. LLC

Okay. And you're doing – you have a lot of initiatives going on and of those initiatives which – what would be the top one or two that are going to have the biggest effect – could have the biggest effect on your business over the next few years?

Steven W. Streit - Chairman, President & Chief Executive Officer

Well, if you call the new cards and the Cash-Back cards and so forth, an initiative, clearly those are the drivers of our business. It's our core business, right. So those would be big, if you look at some of, what I'll call, the ancillary initiatives or more of the side initiatives that could be high potential, Green Dot Money, on paper, should do really well if we can get lenders to say yes. I know that sounds trite. But if you think about the lending market, the biggest issue people have in the lending market is the cost of acquisition, right. And the ability to get that in there because you have to pay, what is it, you probably track it better than I do, but as much as $400 to $500 for a funded loan for a lender.

At Green Dot, we have so many millions of customers coming in that we're paying nothing for applicants; the problem is we've got to figure out a way to get better applicants and to give that appended data to the underwriters so that they can have more to work with. But that could be a good one, if we can get that rolling, right. And that's a good one. Uber is going very well, I'm stunned by the numbers of Instant Pay and how fast that's growing, and I gave some statistics on that. But that isn't as profitable or as big clearly as selling a prepaid card account.

So I think that – but if you had to say two, I would say, Uber and Green Dot Money have exciting potential initiatives not only for those companies like with Uber, but others like it. And then as we can have more products, they all work together exponentially. Remember on one of our slide decks, we had the wheel of synergy. And we talk about the fact that as we can build a lending product or as we can build another kind of product, can you sell that through to the Uber driver, can you do this with that?

And these are all the conversations that we're having about how we look at the long-range planning of the company. How we can continue to grow with our existing customer base with new products and services? So that's all part of what we look at, but those are two good ones. And MoneyPak is doing well, which is, in effect for us, free for the price of asking, right, it's already our brand, and already our product, and technology was already built, and – or at least the core technology to process it, and that's doing well.

So I think we have a lot of irons in the fire as you point out, but our focus is always the core business because that's what pays the bills. And so we always want to have the best prepaid products, we always want to have the best and most compelling fee schedules and services and features. We've always want to have the most beautiful packages on the rack. We always want to make sure we are in the best retailers, all that blocking and tackling is something we focus on all the time.

Bob P. Napoli - William Blair & Co. LLC

How should we think about revenue from Uber – the Uber relationship?

Steven W. Streit - Chairman, President & Chief Executive Officer

Well, it's, gosh, I don't know how you'd say that, it's all part of our active cards, right. So I would think of it as me as thinking of it as being incremental and additive, but not generating what a prepaid card would generate in total. Although, the Uber GoBank accounts, if that driver is using it as their core checking account, clearly not all of the 80,000 that we've registered so far are, just like with prepaid cards, you have a lot of people who just want to get paid and they could care less, right. And they get their money off the card at their nearest ATM. You have others who say, oh, this is a cool checking account, I'll use this. And those guys will do very well. So – but they're all part of that active card portfolio in the Account Services segment.

Bob P. Napoli - William Blair & Co. LLC

And last question. And this is – obviously, the board of directors has changed radically over the past few months. And how is that – and how are you working with the new board? And can you give any color into how – how things are going since the changes? That would be helpful.

Steven W. Streit - Chairman, President & Chief Executive Officer

Well, look, may be a better question for the board, I can give you my perspective as the guy who has been here for a while. I think it's going extremely well. It's painful to see folks like Tim Greenleaf and Mike Moritz. I mean – and I'll say this, Sir Mike, for those of you who are blessed to have met him or know him, he's without question one of the coolest most important guys. Hang on one second, Bob.

Bob P. Napoli - William Blair & Co. LLC

Sure.

Steven W. Streit - Chairman, President & Chief Executive Officer

Anyhow. Great guy. And, Tim, of course, did so much work on our committee so well. But the new board is fabulous. Nino has done a great job. George is contributing. Bill Jacobs, as your Chairman, has been spectacular. And Raj Date has been so impressive. Chris Brewster has been amazing. And you would think the board has been together for years. If this were a band, you'd assume we would have been rehearsing the charts for years and it's a new band, if you will.

And so I feel very fortunate. It's functioning, they're learning Green Dot, we're learning them, but I've enjoyed it and there's been – it's gone a lot better than I would have thought. If you would ask me what it was like – what it would be like before all this happened, I would have given you a different comment. Now that it's happened, I feel very fortunate and very pleased. And I think for the most part, I'm sure they'd tell you the same thing.

Bob P. Napoli - William Blair & Co. LLC

Okay. Thank you. Appreciate it.

Steven W. Streit - Chairman, President & Chief Executive Officer

You bet. I think, operator, that's all she wrote from looking at the board, right?

Operator

Absolutely. I'm turning the call back over to management for closing remarks.

Steven W. Streit - Chairman, President & Chief Executive Officer

The only closing remark is thank you for listening. We appreciate you hearing our message today. And we look forward to talking to you next or seeing you at a conference near you. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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