Dave Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 2 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Dave's financial results for the Q2 ended June 30, 2023. Joining us today are Dave's CEO, Mr. Jason Wilk and the company's CFO, Mr. Kyle Baumann. By now, everyone should have access to the Q2 2023 earnings press release, which was issued earlier today.

Operator

The release is available in the Investor Relations section of Dave's website at https: investors. Dave.com. In addition, this call will also be available for webcast replay on the company's website. Following management remarks, we will open the call for your questions. Certain comments made on this conference Call and webcast are considered forward looking statements under the Private Securities Litigation Reform Act of 1995.

Operator

These forward looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward looking statements. The forward looking statements These forward looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward looking statements. The company's presentation also includes certain non GAAP financial measures, including adjusted EBITDA, as supplemental measures of performance of our business.

Operator

All non GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts and other important information in the earnings press release and Form 8 ks furnished to the SEC. I would now like to turn the call over to Dave's CEO, Mr. Jason Wilk.

Speaker 1

Thank you, and good afternoon, everyone. I'm encouraged by the progress we made in the Q2 as we continue to on our strategic and financial objectives and delivered another strong quarter of revenue growth. GAAP revenue increased more than 30% for the 4th consecutive quarter despite reducing margin spend by 28% year over year. This consistent revenue growth coupled with our sustained margin expansion And operating leverage enabled us to more than half adjusted EBITDA loss for the 2nd consecutive quarter. Our Extra Cash product Continued to be a core driver of our business.

Speaker 1

During the quarter, origination volume reached record levels, while our 28 day delinquency rate once again improved on a year over year basis. Continued enhancements to our AI underwriting model and origination processing efficiencies have been critical components of driving non GAAP Variable margin up to 53% from the low of 39% in Q2 of last year. We also continue to drive strong engagement with the Dave debit card as debit spend and transaction per NTM reached record levels for the quarter. Banking revenue grew over 120% and now accounts for over 10% of revenue as we commit to becoming a full banking solution for our customers. Our record daycard engagement reflects the progress we have made to integrate our products We remain focused on continuing to execute our strategy of becoming a superior banking product for everyday Americans.

Speaker 1

Demand for our products is strong and growing and is further supported by the inflationary and interest rate pressures of which our everyday Americans members face. We expect to continue delivering more member value through ongoing product development, while further strengthening our attractive unit economics. We remain on track to become adjusted EBITDA profitable in 2024 consistent with the timeline we committed to early last year, while maintaining ample liquidity to do so without needing to raise additional equity capital. Now to dive a little deeper into the quarter and our progress against Diving into our first objective, we continue to drive network growth while decreasing our marketing spend relative to the prior year. As discussed last quarter, we are aiming to acquire banking customers at scale by marketing ourselves as a neato bank that provides people with instant access to short term liquidity without worrying about overdraft fees.

Speaker 1

While we continue to reduce marketing spend when compared to last year, as mentioned last quarter, We ramped our marketing spend back up relative to Q1 to capitalize on the seasonal demand patterns for extra cash. In the Q2, we added 739,000 new members, up 26% relative to last quarter. Our customer acquisition costs increased modestly in Q2 given how we typically pull back on marketing spend in the Q1. However, we reduced CAC by 31% on a year over year basis, which is a more appropriate comp given seasonal dynamics. Our ability to drive these marketing efficiencies is a result of our continued product enhancement and channel optimization over the last year.

Speaker 1

Moreover, we made significant marketing investments at the corporate level, including a full website and branding refresh as well as cost produced TV and radio advertisement That began airing in the Q3, none of which contributed to actual member acquisition in Q2. Excluding the aforementioned corporate marketing investment, CAC would have declined by roughly 38% year over year. We anticipate these longer tail investments will contribute to acquisition and revenue growth in the second half of the year as we continue to capitalize on the strong demand for our products. Our second key objective is to enable members by providing them with access to up to $500 of extra cash using our proven AI driven underwriting models. Our multi transacting number base Increased 26% year over year to $1,900,000 driven by our engagement focused marketing, the rollout and optimization of extra cash events up to 500, Underwriting improvements which enhance retention and the broader rollout of our DaveCard offering.

Speaker 1

On a sequential basis, we saw a meaningful increase in Higher ARPU extra cash and daycard MTMs, which was offset by a decline in paid subscribers due to our migrating off of a legacy subscription billing system and onto our own newly built platform, which better positions us to launch new subscription offerings in the future. As Kyle will touch on in a moment, our 2Q non GAAP revenue 3% quarter over quarter and the modest climb we saw in MTMs was more than offset by a 5% increase in ARPU. In terms of extra cash performance, origination volume during the quarter increased 43% year over year to $867,000,000 reflecting strong continued demand in addition to higher extra cash advancements relative to last year. On a sequential basis, as alluded to last quarter, extra cash originations ramped in 2nd quarter based on the growth in extra cash MTMs and demand rebounded from the seasonally low tax refund season in Q1. Despite the solid growth, our Extra Cash Advance net receivables portfolio totaled just $89,000,000 as of quarter end.

Speaker 1

Underscoring how we can serve a vast number of everyday Americans without the need for a sizable and capital intensive balance sheet. Our AI based underwriting model continues to provide competitive advantages in credit underwriting and risk management. Additionally, our extra cash advances help everyday Americans Rich gas between paychecks for things like rent, groceries and gas. The essential nature of these expenses helps to support extra cash Our 28 day delinquency rate improved 84 basis compared to the same period last year, even against a more challenging economic backdrop. This equates to 23% improvement in credit performance over a period where we increased Extra cash origination volume by 43%, which we believe bodes well for the durability of our variable margin as to scale.

Speaker 1

Moving to our 3rd objective, we continue to focus on creating a deeper payments relationship with our members by accelerating adoption of our Dave debit card. We are ultimately working towards becoming a primary destination for our members to drop deposit their paychecks, putting Dave at the center of their financial lives. Utilizing extra cash as a conversion plan for initial card usage, we are making meaningful progress in growing DaveCard spend. The DaveCard is seeing increased adoption given the synergies we create with our extra cash offering and DaveCard engagement is also consistently improving as evidenced by the 27% year over year increase in average transaction per MTM in Q2 and 77% increase in DA card spending volume, which was another record quarter. These results indicate that our strategy to deepen customer relationships is paying dividends with an exciting product roadmap focused on improving cross attach rates and increasing engagement to drive growth.

Speaker 1

Overall, we're tracking well against our strategic growth initiatives and our commitment to turning adjusted EBITDA profitable in We're delivering significant value for our members, solving their fundamental pain points and building loyalty that enables us to deep our relationships with them. We have an innovative roadmap That I'm confident will allow us to deliver even more member value. We're doing this while building a durable and defensible business model with strong growth and attractive Internet economics with significant upside from here. Finally, just before the start of today's call, we announced that former Snap Inc. Chief Strategy Officer Imran Khan Has acquired a 2% 2.5 percent stake in Dave as of today, through investments funds he manages and via a secondary market transaction.

Speaker 1

He will also join Dave's Board of Directors effective immediately. Tom brings deep experience and knowledge of Dave as a leader in operations, ad sales, partnerships, capital markets Corporate strategy at both public and private companies. He was also integral in 2 of the largest tech IPOs in history with Snap and Alibaba And a consistent track record of catalyzing growth and scale of innovative companies. We're honored to have such an esteemed business leader like Himratz take a position to date and join our Board of Directors. With that, I will turn the call over to Kyle to take you through our financial results.

Speaker 1

Kyle? Thank you, Jason, and good afternoon, everyone. We are pleased to report that our Q2 results were in line with our expectations and consistent with the plan laid out in our last conference call. Non GAAP variable profit growth was more than double our revenue growth, thanks to the sustained improvements we have made to credit performance and our broader variable cost structure. And once again, we more than half adjusted EBITDA loss compared to the prior year as we continue to make progress on our profitability goals.

Speaker 1

Now turning to our results. Total GAAP revenue in Q2 was $61,200,000 up 34% from Q2 last year. Our revenue growth was driven largely by continued increases in our monthly transacting member base and improved MTM monetization, including deeper DaveCard engagement. Non GAAP variable profit in Q2 increased 78 percent to $32,900,000 representing a 53% margin relative to our non GAAP revenue compared to a 39% margin in the year ago period. The increase in variable margin was primarily due to structural improvements we have made to our payments infrastructure, improved contractual terms with key vendors and ongoing optimization of our AI based underwriting Which continues to produce superior credit performance against a challenging macro backdrop.

Speaker 1

The sustained increase in non GAAP variable margin has enabled us to increase our variable margin guidance for the year as highlighted in our earnings press release this afternoon. Moving to our Q2 operating expenses, the provision for credit losses was $15,900,000 compared to $13,900,000 in the year ago period. As a percentage of extra cash originations, the provision declined to 1.8% in the 2nd quarter compared to 2.3% in the year ago period. The increase in overall provision is a result of significantly higher originations, while the provision as a Percent of originations continues to decline as we further improve our underwriting models, which has translated into better 28 day delinquency Rates and ultimately credit losses. In Q2, our 28 day delinquency performance improved by 84 basis points year over year while we grew originations by 43 percent to $867,000,000 We continue to expect delinquency rates and our overall provision for credit losses as a percentage of extra cash originations to remain well below 2022 levels as we continue to make improvements to our underwriting.

Speaker 1

Processing and servicing costs during the Q2 decreased 5% to 7,200,000 compared to $7,600,000 in the year ago period. As a percentage of our origination volume, processing and servicing costs improved by more than 40 basis points to 0.8% compared to 1.3% in the year ago period. These gains were driven by improvements that we have made to our payments infrastructure as well as better pricing from key vendors that we began to benefit from in Q3 of last year. Marketing and Acquisition expense decreased 28 percent to $15,000,000 in the 2nd quarter compared to $20,800,000 in the year ago period. As Jason mentioned earlier, excluding $1,400,000 of corporate marketing spend related to a brand refresh as well as the development of TV and radio advertising that will air in the Q3 and beyond, customer acquisition costs would have declined by roughly 38%.

Speaker 1

Strong demand combined with ongoing product enhancements and channel optimization enabled us to spend 28% less on marketing while acquiring 33% More new members versus the year ago quarter. On a sequential basis, as we alluded to last quarter, we ramp marketing spend to take advantage of seasonal demand for extra cash Compensation expense decreased 39 percent to 23,900,000 the Q2 ended June 30 compared to $39,100,000 in the Q2 of 2022. The reduction was primarily due to Strictive stock unit grants that were made in the Q2 of last year when we made a large catch up grant to employees after not issuing grants In the period leading up to the close of the De SPAC transaction. Excluding the impact of stock compensation expense, Compensation increased 6% to $17,300,000 or 28 percent of non GAAP revenue compared to $16,300,000 or 35 percent of non GAAP revenue in the year ago quarter, which demonstrates the growing operating leverage we are achieving as we scale. We continue to believe that we can execute on our growth plan without needing to make GAAP net loss for the Q2 improved to $22,600,000 compared to a net loss of $27,100,000 in the Q2 of 2022, representing a 17% improvement.

Speaker 1

Adjusted EBITDA loss for the 2nd quarter was $13,100,000 compared to a loss of $28,500,000 during the year ago period, representing a 54% improvement. Excluding a $4,000,000 legal settlement charge related to our 2020 data breach Expense during the Q2, adjusted EBITDA loss would have improved by nearly 70% to 9,000,000 Now turning to the balance sheet. As of June 30, 2023, we had approximately $178,000,000 of cash and cash equivalents, Marketable securities, short term investments and restricted cash compared to $196,000,000 as of March 31, 2023. The decrease was largely driven by growth in extra cash receivables funded with existing balance sheet cash. As of quarter end, our net receivables balance was $89,000,000 an increase of roughly $9,000,000 sequentially.

Speaker 1

The balance of our credit facility was $75,000,000 as of the end of Q2, which is flat relative to the end of the prior quarter. We expect to continue to rely on our balance sheet cash to fund extra cash originations in the near term as opposed to our debt facility given the cost of capital difference relative to the returns on corporate cash. Now turning to our outlook. Given our significant increase in non GAAP variable margin this year and the sustained improvements that we've made to our variable cost structure, We are raising our 2023 variable margin guidance to a range between 47% 51%, which is up 400 basis points Relative to our prior guidance of 43% to 47%. We continue to expect our non GAAP revenue to Range between $235,000,000 $260,000,000 for the full year 2023.

Speaker 1

With respect to our primary profitability metric, we are also reiterating adjusted EBITDA guidance for the year, which calls for a loss ranging between negative $50,000,000 to negative $35,000,000 reflecting a 43% to 60% improvement relative to 2022. This guidance includes the impact of the aforementioned $4,000,000 one time legal settlement charge taken in the Q2 of this year. Ultimately, we believe we're well positioned to achieve our full year guidance and continue to have strong conviction Turning adjusted EBITDA profitable in 2024. I'll now turn it back over to Jason for his closing remarks. Thank you to everyone for joining us on the call today as well as the Dave team's continued belief in our plan to become a superior banking product for everyday Americans.

Speaker 1

I look forward to highlighting further progress against our objectives next quarter. Operator, we can now open the call for Q and

Operator

Please standby while we compile the Q and A roster. As there appear to be no questions in queue, This does conclude today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Dave delivered GAAP revenue growth of 34% year-over-year in Q2, while non-GAAP variable profit rose 78%, lifting variable margin to 53% from 39% and cutting the adjusted EBITDA loss by over 50%.
  • The Extra Cash product set a record with $867 million in originations (up 43% YoY) and saw an 84 basis-point improvement in 28-day delinquency rates, thanks to AI underwriting enhancements.
  • Engagement with the Dave debit card hit new highs—transactions per member rose 27% YoY and spending volume jumped 77%—while banking revenue surged over 120% to represent more than 10% of total revenue.
  • Marketing spend fell 28% YoY and customer acquisition cost was down 31%, yet Dave added 739,000 new members (up 26% sequentially), reflecting stronger marketing efficiency and product enhancements.
  • For 2023, Dave raised its full-year variable margin guidance to 47–51% (up 400 bps) and reiterated adjusted EBITDA loss guidance of $50 million to $35 million, aiming for adjusted EBITDA profitability in 2024 without further equity capital.
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Earnings Conference Call
Dave Q2 2023
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