Green Dot 2015 Annual Report Download - page 42

36
Revenue Recognition
We recognize revenue when the price is fixed or determinable, persuasive evidence of an arrangement exists, the
product is sold or the service is performed, and collectibility of the resulting receivable is reasonably assured.
We defer and recognize new card fee revenues on a straight-line basis over the period commensurate with our
service obligation to our customers. We consider the service obligation period to be the average card lifetime. We
determine the average card lifetime for each pool of homogeneous products (e.g., products that exhibit the same
characteristics such as nature of service and terms and conditions) based on company-specific historical data. Currently,
we determine the average card lifetime separately for our GPR cards and gift cards. For our GPR cards, we measure
the card lifetime as the period of time, inclusive of reload activity, between sale (or activation) of a card and the date
of the last positive balance on that card. We analyze GPR cards activated between six and thirty months prior to each
balance sheet date. We use this historical look-back period as a basis for determining our average card lifetime because
it provides sufficient time for meaningful behavioral trends to develop. Currently, our GPR cards have an average card
lifetime of five months. The usage of gift cards is limited to the initial funds loaded to the card. Therefore, we measure
these gift cards’ lifetime as the redemption period over which cardholders perform the substantial majority of their
transactions. Currently, gift cards have an average lifetime of five months. We reassess average card lifetime quarterly.
Average card lifetimes may vary in the future as cardholder behavior changes relative to historical experience because
customers are influenced by changes in the pricing of our services, the availability of substitute products, and other
factors.
We also defer and expense commissions paid to retail distributors related to new card sales ratably over the
average card lifetime, which is currently five months for our GPR cards and five months for gift cards.
We report our different types of revenues on a gross or net basis based on our assessment of whether we act as
a principal or an agent in the transaction. To the extent we act as a principal in the transaction, we report revenues on
a gross basis. In concluding whether or not we act as a principal or an agent, we evaluate whether we have the
substantial risks and rewards under the terms of the revenue-generating arrangements, whether we are the party
responsible for fulfillment of the services purchased by the cardholders, and other factors. For most of our significant
revenue-generating arrangements, including GPR and gift cards, we recognize revenues on a gross basis. As it relates
to our tax refund processing services, we act as an agent in these transactions and record revenues on a net basis.
Generally, customers have limited rights to a refund of the new card fee or a cash transfer fee. We have elected
to recognize revenues prior to the expiration of the refund period, but reduce revenues by the amount of expected
refunds, which we estimate based on actual historical refunds.
On occasion, we enter into incentive agreements with our retail distributors and offer incentives to customers
designed to increase product acceptance and sales volume. We record these incentives, including the issuance of
equity instruments, as a reduction of revenues and recognize them over the period the related revenues are recognized
or as services are rendered, as applicable.
Stock-Based Compensation
We record employee stock-based compensation expense based on the grant-date fair value. For stock options
and stock purchases under our employee stock purchase plan, we base compensation expense on fair values estimated
at the grant date using the Black-Scholes option-pricing model. For stock awards, including restricted stock units, we
base compensation expense on the fair value of our Class A common stock at the grant date. We recognize
compensation expense for awards with only service conditions that have graded vesting schedules on a straight-line
basis over the vesting period of the award. Vesting is based upon continued service to our company.
For performance based awards, we recognize compensation cost for the restricted stock units if and when we
conclude it is probable that the performance will be satisfied, over the requisite service period based on the grant-date
fair value of the stock. We reassess the probability of vesting at each reporting period and adjust compensation expense
based on the probability assessment. For market based restricted stock units, we base compensation expense on
the fair value estimated at the date of grant using a Monte Carlo simulation or similar lattice model. We recognize
compensation expense over the requisite service period regardless of the market condition being satisfied, provided
that the requisite service has been provided, since the estimated grant date fair value already incorporates the probability
of outcomes that the market condition will be achieved.
We measure the fair value of equity instruments issued to non-employees as of the earlier of the date a performance
commitment has been reached by the counterparty or the date performance is completed by the counterparty. We
determine the fair value using the Black-Scholes option-pricing model or the fair value of our Class A common stock,
as applicable, and recognize related expense in the same periods that the goods or services are received.