Dave Inc.

Greetings and welcome to Dave's first quarter 2022 earnings call. As a reminder, this conference is being recorded. This afternoon, Dave issued a press release announcing results for the first quarter ended March 31st, 2022, which can be found on investors.dave.com. We would like to remind you that during this conference call, management will be making forward-looking statements, including statements regarding expectations related to financial guidance, outlook for the sector and company, and the expected investment and growth initiatives. Please note these forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect the company's views only as of today, should not be relied upon as representative of views of any subsequent date, and Dave undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties, that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to the company's filings with the SEC, including its Form 10-K filed with the SEC on March 25, 2022. In addition, during today's call, the company will discuss non-GAAP financial measures, which they believe are useful as supplement measures of Dave's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You will find additional disclosure regarding the non-GAAP financial measures discussed on today's call. And Dave's press release issued this afternoon and its filings with the SEC, each of which is posted on Dave's website. The website of this call will also be available on the investor relations section of the company website. It is now my pleasure to introduce your host, Mr. Jason Wilk, CEO and Chairman of the Board. Thank you, Mr. Wilk. You may begin.

Thank you, Operator. Good afternoon, and thank you for joining us for our first quarter earnings call. For today's call, I'd like to begin by providing some highlights on the quarter, and then we'll recap our growth strategy oriented towards driving shareholder value. After that, I will turn it to our CFO, Kyle Bileman, who will discuss our first quarter results in more detail, as well as our outlook. Now on to some highlights from Q1 2022. During the quarter, we added 340,000 net new members and ended the quarter with approximately 6.4 million total members on the Dave platform. We had an average of 1.45 million multi-transacting members in Q1. As a reminder, a multi-transacting member is someone who makes a funding, spending, extra cash, or subscription transaction with Dave. This is an important metric for us as we continue building towards becoming the primary banking product for our members and driving daily transactional engagement. Those members completed an average of 4.4 transactions per month during the quarter. Our non-GAAP total operating revenue for the quarter was $43.7 million, representing growth of 24% year-over-year. As a reminder, Q1 is historically our lightest quarter due to tax refund season, reducing the need for credit amongst our target consumers. Adjusted EBITDA for Q1 was negative $18.3 million as we continue to invest in growth and product development. As we have previously mentioned, over the next eight to ten quarters, our focus continues to be making disciplined investments and to achieve profitable growth and new economics at scale. After this period, we believe we will be well-positioned to deliver positive adjusted EBITDA and free cash flow going forward. We're seeing encouraging trends through April with record origination volume and multi-transaction members. New member growth and efficiency is also trending favorably. We believe these signals support our macro thesis that waning stimulus and tighter consumer balance sheets make our value proposition even more resonant, giving us a unique opportunity to outperform. With that, we have confidence reiterating our 2022 guidance that Kyle will discuss in more detail later in the call. At Dave, we continue to be focused on building a superior banking app serving everyday Americans who are struggling with some or all aspects of their financial lives. This large, adjustable market we are targeting is an estimated 150 million people who still need our help in the U.S. alone. Now to go into an update on our progress against our strategy to drive growth, which consists of three components. First, utilize our data-driven underwriting advantage to profitably grow our extra cash for the nation and average revenue per member. Dave's credit-first go-to-market strategy is a capital-efficient model to acquire customers that we can ultimately grow into longer-term banking relationships. Promoting the ability to get money into our members' accounts within minutes enables highly performative direct response advertising that embodies brand loyalty very early on in the member lifecycle. We're executing well here. Over the course of Q1, we increased total originations by over 20% versus Q4 and increased average revenue per monthly transacting members. We've also increased our average size for origination by nearly 30% versus Q4 and nearly 90% year-over-year with better credit performance in Q1 2022 relative to each of those periods. These trends give us confidence that we can continue to lean in here to drive additional growth. To extend our lead in the industry, over the next few weeks, we'll be increasing our maximum extra cash amount to $500, which we believe will be additive to our marketing methods and drive existing member engagement. The average American does not have $400 set aside for emergency, and we will now play an even more meaningful role in enabling significant purchases for our members without the need for them to tap into multiple sources for help. We are also excited to announce we will be adding an optional credit building capability to Extra Cash by the end of the second quarter. We will be the first overdraft product to help members build their credit by submitting Extra Cash repayment activity to the major credit bureaus. This is a strong opportunity to differentiate from other competitors, helps us further penetrate our CAM with a new value proposition, and adds a new potential monetization lever to our product portfolio. There are close to 50 million Americans who do not have a credit score or have too thin a credit file to develop a score. Dave can improve his customers for extra cash without a credit score, help them establish credit history for the first time, or empowering them to build on what they already have. This will be a meaningful first step in our longer-term strategy to graduate our members to future credit opportunities to grow LTV. The second piece of our growth strategy is to grow our population of multi-transacting members, driven by both new user acquisition and increased engagement of our large existing base. As mentioned on our last call, we will continue to deploy marketing dollars where we see efficient returns at scale. With that, we are excited to roll out our Summer of Dave campaign starting in early Q3, heading into our seasonal demand period throughout the year. This effort will see a brand new ad campaign highlighting all of our new features, including the new extra cash limits, credit building, and rewards features. The final piece of the growth strategy is to accelerate banking adoption and spend frequency, ultimately building towards winning primary account status with our members. In late Q2 and early Q3, we will complete the unification of our banking and extra cash business. Moving forward, all of Dave's customers, new and old, will be required to have a Dave's Spending Account, of which they will receive several benefits, including faster and cheaper access to extra cash, as well as cash back rewards. We are excited to see the results of this in Q3 and beyond. So to recap, we are pleased with the results we are seeing here today. We have a well-developed plan If we further drive our business into the second half of the year, we have strong tailwinds that will aid those initiatives and a great team that is working together to execute on our vision and mission. I would now like to turn the call over to Kyle to review our results from Q1 and review our guidance for 2022. How's it to you, Kyle?

Thank you, Jason. In terms of top-line performance, total non-GAAP operating revenues were approximately $43.7 million in Q1 2022, representing 24% year-over-year growth compared to the same period last year. On a GAAP basis, service-based revenue was up approximately 21% year-over-year compared to the same period last year, which is primarily driven by growth and extra cash originations. We had significant growth in transaction-based revenue versus the prior year as our banking product continues to ramp. Q1 GAAP transaction-based revenue was approximately $3.3 million, up approximately 64% year-over-year compared to the same period last year. We continue to believe in the opportunity to drive substantial growth in transaction revenue as we integrate the extra cash and spend experiences, which Jason mentioned previously, and roll out additional product enhancements throughout the year to drive recurring spend engagement. We think this is an important step towards our longer-term ambition of winning primary account status with our members. In terms of key trends, Q1 is seasonally slower from a growth and engagement perspective as tax refunds reduce the demand for the extra cash service. This trend plays itself out both in terms of top of funnel efficiency as well as existing member engagement. As such, we attempt to align our largest marketing and product investments and initiatives to peak demand cycles throughout the year, which are during the summer and holiday season. Next, I'll address are non-GAAP variable profits. This metric is used internally as a helpful indicator of the health and margin profile of our unit economics. To recap, the key drivers of this metric are extra cash credit performance, as well as the primary direct cost drivers associated with our broader product portfolio. For the quarter, non-GAAP variable profit was approximately $17.8 million, representing an approximate 41% margin relative to our non-GAAP total operating revenue. From a margin perspective, this represents a decline of about 700 basis points relative to Q4. This decline is primarily a function of the timing of higher origination volumes requiring additional allowances for unrecoverable advances rather than changes in our overall credit performance. Further, we'd note that the period over period impact of these changes continue to be impacted by the secondary effects of large-scale stimulus in late 2020 early 2021 which drove large swings in total origination we expect this noise to moderate going forward in terms of credit performance for the quarter we continue to see consistent and strong performance with an average 28-day delinquency rate of 3.27 percent a 22 basis point decrease versus q4 2021's average we saw a similar decrease or improvement of about 30 basis points and Q1 2022 versus Q1 2021's average. So again, very strong performance from the portfolio. Our five years of experience underwriting our target demographic across nearly 60 million total originations combined with the loyalty of our member base and the very short duration of extra cash have contributed to our strong credit performance even in the current environment. Our newest vintages are performing in line with our expectations and historical benchmarks. which I believe is a testament to our unique technology and capabilities that allow us to manage growth and risk effectively in a variety of markets and cycles. Next, we're seeing tighter growth spreads as we've increased our average size per origination, which negatively impacts variable margin at a fixed charge-off rate. This was an expected trend, and though we're monitoring it closely, it's not something we're concerned about, given it is consistent with our overall member engagement strategies. As we can help bring more members up the extra cash limit curve, we can serve as a broader state of their needs, driving better funnel conversion and longer-term engagement and retention, all contributing to increased lifetime value. Further, on the cost front, we've picked up a thorough evaluation of our vendor stock, which we expect to yield savings and drive variable margin expansion in the second half of the year. We remain committed to building an efficient cost structure and increasing the profitability of our unit economics as we grow. Moving to operating expenses, the provision for unrecoverable advances totaled approximately $13.8 million for Q1 2022 compared to approximately $3.5 million in Q1 2021. The increase was primarily attributable to an increase in advance volume from approximately $278 million in Q1 2021 to approximately $545 million during Q1 2022. As previously mentioned, the significant fluctuation here was driven by volume growth, as credit performance remained incredibly strong. It's also important to point out the efficiency of our balance sheet, with total receivables of just $61.8 million, supporting the $545 million of origination volume for the quarter. In Q1 2022, processing and servicing fees totaled approximately $6.5 million, compared to approximately $5.2 million for Q1 2021. Again, this increase was primarily attributable to the increase in advanced volume offset by volume associated discounts and cost savings due to price reductions from our processors. As we grow, we'll continue to generate incremental leverage and efficiency as a percentage of our total origination volume in this line item. Our marketing and acquisition spend totaled approximately $12.2 million for Q1 2022 compared to approximately $14 million for Q1 2021. We continue to believe we have amongst the lowest customer acquisition costs in the industry and that we can grow efficiently, particularly given the relevancy of our value proposition in today's inflationary environment. As of the end of the quarter, we had a total of 6.4 million members, a substantial population for us to continue to market to to drive efficient monthly transacting member growth. In terms of outlook for our marketing and member acquisition spend, As I previously mentioned, we're attempting to align our marketing investments to periods of higher seasonal demand and engagement, particularly in the upcoming summer months. This aligns well with our exciting product development initiatives that Jason referenced earlier. Overall, for the year, we're expecting to invest between approximately $65 million and $80 million in marketing. This range is a function of the opportunities presented by the market and traction of our new product initiatives. giving us the ability to flex up or down based on expected LTV to cash return profiles. If we feel that we can incrementally scale spend to drive further growth while maintaining a disciplined payback period of 12 to 18 months, then we see a strong case for value creation by deploying additional dollars into our marketing engine. With our strong capital position and positive outlets, we feel uniquely positioned to execute on our growth plans. In terms of adjusted EBITDA, as Jason alluded to earlier, we're still in considerable investment mode that we believe will set us up to drive consistent future growth at scale. Our hiring investments are focused on enhancing our core offerings and building the next generation of products for our business. We expect these investments will allow us to bring more value to our members, increase ARPU with a more robust offering, and further penetrate our TAM to deliver strong growth over the next several years. More specifically, we front-loaded most of our hiring and other fixed-cost investments into the first part of the year. So from a margin perspective, we're expecting to drive much more operating leverage throughout the calendar year. With that backdrop, Q1 2022 adjusted EBITDA was approximately negative $18.3 million, with a gap net loss of approximately $34.8 million, which includes a number of one-time non-cash and BSPAC-related transaction expenses. As of March 31, 2022, our fully diluted shares outstanding was $361.9 million. Please visit our investor website where we have a slide detailing our share count. Now, turning to the balance sheet. As a reminder, the closing of the business combination in January added approximately $202 million of cash after expenses, which relative to the $61 million of equity we had raised prior to going public is significant. Further, the additional $100 million of capital received from the FTX investment in March provides us with the added capacity and flexibility to pursue further organic and inorganic growth opportunities. Accounting for this new capital, as of March 31, 2022, we had approximately $302.3 million of cash and marketable securities on the balance sheet. This is approximately five times the cumulative equity capital that we had raised from our inception through the close of our going public transaction in January. Additionally, we currently have a significant amount of undrawn capacity under our warehouse credit facility, an ample runway to scale that facility as we expand our credit business. Therefore, we believe we are well capitalized to deliver significant growth, execute on our strategy, and achieve profitability and positive free cash flow without the need to raise any additional equity capital. Now, turning to our outlook, which we are reiterating for the year. We continue to expect non-GAAP total operating revenue to be between $200 and $230 million for the year. We expect our growth to ramp throughout the year as we realize the expected returns from our investments in marketing and product enhancements. In terms of margins, we continue to expect our non-GAAP variable margin to be in the range of 44% to 48%. Overall, we're very excited about our outlook. We believe the prevailing macro environment is a tailwind for our business, which we've gotten strong signal on to start the second quarter, and that we have a compelling opportunity ahead of us to accelerate growth throughout the rest of the year and beyond. And with that, I'll pass it over to the operator for Q&A.

At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Sagiv Hartmayer with Jefferies. Please proceed with your question.

Hey, this is Suki Farmer. Thank you for taking my questions. Just to start off, a few questions in terms of modeling. Do you mind just confirming your diluted chairs outstanding and EPS for the quarter? And also, when can we expect a balance sheet to be released?

We will provide the balance sheet. I think we're posting the queue by Friday. And then we have a detailed share count breakdown on the IR page. So just pointing to that for a more detailed breakdown there.

Okay, great. Thank you. And one more. In terms of behavioral changes, are you noticing any changes in product set among your customer base? Are you seeing any customers utilizing more of your ancillary products? Any color around that would be greatly appreciated.

Ancillary products in terms of like side hustle?

Right, right.

So I would say we're very focused on the top of funnel in our go-to-market strategy around the credit-first approach. We just find that with the macro environment around the stimulus weighting In the inflationary environment, that product is really resonating more than ever with folks. We finished off our integration with extra cash in the banking business at the end of this quarter and early Q3, and so that's where we do think there will be more meaningful opportunity for people to start cross-attaching further into banking from there. We don't report on side hustle stats, but we are looking to revamp that product, and there could be an opportunity later in the year to talk further about it.

Okay, great. Thank you.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. At this time, it looks like we have no more questions in the queue, and this does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.