Dave Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Dave's financial results for the third quarter ended September 30th, 2023. Joining us today are Dave's CEO, Mr. Jason Wilk, and the company's CFO, Mr. Kyle Bauman. By now, everyone should have access to the third quarter 2023 earnings press release, which was issued earlier today. The release is available in the investor relations section of Dave's website at HTTPS In addition, this call will be available for webcast replay on the company's website. Following management's remarks, we'll 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. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as the assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to 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. 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 factors in the earnings press release in Form 8K furnished to the SEC. I would now like to turn the call over to Dave's CEO, Mr. Jason Wilk. Please go ahead.

Thank you, and good afternoon, everyone. I'm pleased to share with you that we delivered another quarter of strong performance in Q3. We continue to execute well against our strategic and financial objectives while making significant progress towards profitability and beating our expectations on key financial and operational metrics. Non-GAAP variable margin and non-GAAP variable profit expanded substantially, and we continue to generate operating leverage on our fixed cost base as we scale the business. As a result, our adjusted EBITDA in the quarter improved over 90% year-over-year to a loss of $2.5 million. Based on these strong trends, we have raised our full year 2023 guidance across the board for non-GAAP revenue, non-GAAP variable margin, and adjusted EBITDA. The midpoint of our guidance implies that we will turn adjusted EBITDA positive in this fourth quarter, which is one to three quarters faster than expectation we set in mid-22. During our second quarter earnings call last year, we also set expectations around the levers we plan to employ to solidify our path to profitability. Since then, I'm incredibly proud of how we have rallied as a team and executed so strongly in order to deliver on our commitments despite the challenging market conditions. First, we committed to focusing on enhancing member lifetime value and expanding variable margins to improve the magnitude and durability of our variable profit-based unit economics. Second, we committed to conversion-focused marketing campaigns on channels with the highest proven returns, maximizing the efficiency of our investments. Finally, we committed to rationalizing expenses and driving operating leverage from our fixed cost structure as we grew the business. Our Q3 results demonstrate the substantial progress we've made against these objectives. First, we expanded our non-GAAP variable margin by 1,600 basis points based on initiatives that Kyle will get into in a moment. We also integrated the product experiences of our extra cash and DaveCard business, as we said, and as a result, nearly doubled DaveCard spend volumes and achieved double-digit growth in ARPU. Second, we reduced quarterly marketing spend by one-third and still managed to substantially grow member acquisition as we reduced our CAC by nearly 50%. Finally, we've driven substantial operating leverage as our fixed cash expenses declined modestly while our non-GAAP variable profit more than doubled. The net result of this progress is that we reduced our adjusted EBITDA loss from $28.5 million in the second quarter of 2022 to $2.5 million in the last quarter, approaching break-even. In addition to the progress we've made on our financials, we remain true to our values of being member-centric, and we remain committed to progressing on our mission to build products that level the financial playing field. Moving forward, we are excited to continue driving profitability out of our model that will enable us to grow and make impact for current and prospective members through ongoing growth and product development, ultimately allowing us to make further progress towards our mission. Now, with that said, I'd like to dive a little bit deeper into the quarter and our progress against our strategic growth initiatives of acquiring new members efficiently, engaging them effectively, and deepening our relationship with them via Dave Card engagement. Diving into our first strategic growth initiative, we once again drove meaningful member growth despite significantly reducing marketing spend relative to last year. As we've discussed in prior quarters, we strive to acquire customers by marketing free banking services with the ability to instantly access short-term credit with no interest and no credit check, a message that strongly resonates with our millennial and Gen Z audience. In the third quarter, we added 821,000 new members while decreasing CAC by 30% on a year-over-year basis. On a sequential basis, we reduced marketing spend by 7% and still managed to grow member acquisition by 11% due to a 17% improvement in CAC. We attribute our CAC efficiency improvement to our continued platform improvements, channel optimization, and enduring product market fit, coupled with the more rational competitive dynamics in the market for advertising inventory. These cap efficiencies have persisted thus far in the fourth quarter, which bodes well for marketing performance. Our second key strategic growth initiative is to engage members by delighting them with instant access of up to $500 of extra cash using our proven AI-driven underwriting models. Our monthly transacting member base remained roughly flat, sequentially to $1.9 million. To unpack this a bit more, our DaveCard and Extra Cash monthly actives grew healthily, sequentially. However, as we mentioned last quarter, we began to transition our $1 per month subscribers to a new billing system, which has created a near-term headwind to overall MTMs, as we include $1 subscribers in this metric. We expect to complete this migration in the fourth quarter, and we're excited about the flexibility that this new system will provide us to potentially pursue further subscription opportunities. Turning to our extra cash business, we once again drove a significant increase in extra cash origination volume, which was up 23% year-over-year and 7% sequentially to $932 million. This growth is largely driven by increases in extra cash transacting members. This performance highlights the strong demand for extra cash both from new and existing members as our origination volume metric approaches nearly $1 billion per quarter. Despite the increase in origination volume, our net receivables balance remains low at only $97 million, once again highlighting how the short duration of extra cash allows us to serve a vast number of everyday Americans without the need for a sizable capital-intensive balance sheet nor significant credit risk exposure at any one point in time. Furthermore, our 28-day delinquency rate improved 165 basis points compared to the third quarter of 2022 and 41 basis points sequentially despite challenging macroeconomic conditions and step-change growth and origination volumes. This third quarter figure represents the lowest ever 28-day delinquency rate in our company's history, despite the previous low occurring in the first quarter, which typically exhibits the seasonally strongest credit performance given the additional liquidity provided to members from tax refunds. Our strong credit performance is attributable to the ongoing investments we're making in our proprietary AI-enabled risk management and payment system. Over the past two quarters, we've launched two new underwriting models focused on different member segments of our portfolio. The combined effect has been incredibly positive as we're sustainably driving higher levels of conversion, retention, and net monetization. Moving to our third strategic growth initiative, we are constantly working to create a deeper payments relationship with our members by accelerating adoption of our Dave debit card through the synergies that exist with Extra Cash. We aspire for our members to utilize our full suite of banking services complemented by our market-leading short-term liquidity feature of Extra Cash. Our Dave card metrics continue to display progress with improved cross-attach rates from extra cash into our DaveCard business, which is demonstrated by the 73% year-over-year increase and 12% sequential increase in DaveCard spending volume in the third quarter. Our average transaction per monthly transacting member increased 39% year-over-year and 13% since the second quarter to 6.4% for another record quarter. We plan to continue executing on our strategy and driving further adoption of DaveBanking heading into 2024. Pointing together our solid progress within both extra cash and the day-to-day monetization, we recorded a 9% increase in ARPU during the quarter on a year-over-year basis and an 8% increase sequentially, which highlights our ability to effectively monetize our core multi-transacting member base. As we look to the fourth quarter and into 2024, we expect to see incremental improvements in extra cash ARPU, resulting from the new percent-based express fee pricing structure, which we introduced to new and existing members over the last few months. This new structure is exhibiting favorable early signs for extra cash monetization and creates even greater synergies with the Dave card, which should support monetization on that side of our business as well. All said, we continue to deliver significant value for our members and deepen relationships with them as we seek to become the primary banking destination for everyday Americans. We have successfully executed against our roadmap and our execution in 2023 has positioned us to accelerate our path to profitability as we are now on the verge of turning adjusted EBITDA positive in Q4 while continuing to generate double-digit growth. We look forward to delivering on our goals for both Dave members as well as our shareholders as we solidify our position as a superior banking experience for everyday Americans. With that, I'll turn the call over to Kyle to take you through our financial results. Kyle?

Thank you, Jason, and good afternoon, everyone. We're pleased to record our third quarter results as we exceeded expectations across our key operational and financial metrics. We grew our non-GAAP variable profit by over 50%, demonstrated the sustainability of our non-GAAP variable margin improvements, and made significant progress on our path to profitability, approaching break even on a non-GAAP adjusted EBITDA basis. The KPIs underlying the key tenants of our strategy are also very positive. Versus Q3 of last year, CAC is down 30%, originations are up 23%, exceeding 930 million, Our 28-day delinquency rate is at its lowest point in company history, and cross-attached into DaveCard is strong, with total DaveCard spent exceeding $340 million, up 73% year-over-year. Now to dive a little deeper into our results. Total GAAP revenue in Q3 was $65.8 million, up 16% from Q3 of last year. Revenue growth is primarily driven by increases in ARPU from our monthly transacting member base. The ARPU expansion has largely been driven by higher extra cash and Dave Card engagement amongst our total MTMs. From a product development standpoint, we're extremely focused on our user journey of delivering a best-in-class short-term credit solution to drive member engagement and Dave Card adoption, which is driving the growth of extra cash and Dave Card actives and increasing ARPU and member lifetime value. Non-GAAP variable profit in Q3 increased 51% to 37.3 million, representing a 55% margin relative to our non-GAAP revenue, up approximately 1,300 basis points versus Q3 of last year. The increase in variable margin has been driven by structural improvements across our business. First, credit performance continues to improve as a result of ongoing development and optimization of our AI-enabled underwriting engine and supporting infrastructure. resulting in higher spreads and lower credit losses. Additionally, we have driven efficiencies in how we utilize the payment networks to move money and reduced costs resulting from contract negotiations with several key vendors. Our ability to sustain these non-GAAP variable margin levels has enabled another increase to our margin guidance for the year, which we'll be sharing more detail on later in the call. Moving to third quarter operating expenses, our provision for credit losses decreased to 16 million compared to 18.4 million in Q3 of last year. As a percentage of extra cash originations, the provision declined to 1.7% in the third quarter compared to 2.4% in the year-ago period. The decrease in loss provision is attributable to the ongoing improvements we've made to our risk architecture, as I referenced a moment ago. These gains are also evident in our 28-day delinquency performance, which tracks the delinquency rates of a given quarter's originations. Compared to the third quarter of last year, our 28-day delinquency rate improved by 165 basis points to 2.42%, while we grew originations by 23% to $932 million. Processing and servicing costs during the quarter decreased by 26% to $7.1 million, compared to $9.5 million in the year-ago period. On a percentage basis relative to origination volume, processing and servicing costs improved nearly 50 basis points to 0.8% compared to 1.3% in the year-ago period. These gains are sustainable, driven by technology investments we've made in our payments infrastructure and improved contractual terms with vendors, as I also referenced a moment ago. Advertising and marketing expenses decreased 42% to $13.9 million during the third quarter compared to $24.1 million in the year-ago period. This 42% reduction in marketing spend led to an 18% reduction in member acquisitions since we were also able to reduce our tax by 30% over that period. This, combined with the long-tail marketing investments made during the second quarter, enabled us to efficiently deploy our marketing dollars and significantly reduce spend during a third quarter while continuing to meaningfully grow our variable profit. Compensation expense decreased 5% to $23.1 million in the third quarter compared to $24.3 million in the year-ago period, despite increasing non-GAAP revenue by 15% over the same period. As a percentage of non-GAAP revenue, compensation expense declined from 41% in Q3 of 2022 to 34% in Q3 of 23. We continue to believe that we can execute on our plan without needing to make material additions to our overall headcount, given the scalability of our technology platform and overall operating model. Gap net loss for the third quarter improved to 12.1 million compared to a net loss of 47.5 million in the third quarter of 2022, representing a 75% improvement. Adjusted EBITDA loss for the third quarter was 2.5 million compared to a loss of 27.5 million during the year-ago period, representing a 91% improvement. The improvement in adjusted EBITDA was due primarily to the combination of our revenue growth and variable margin expansion, coupled with tight cost controls and lower marketing spend. As Jason mentioned, this puts us well on track to meet our goal of turning adjusted EBITDA profitable as early as the fourth quarter of this year, which would be one to three quarters faster than the expectation we set during mid-2022. We're really proud of the work that our team has done to get us to this point and look forward to continue to build on our momentum in Q4 and throughout next year. Now turning to the balance sheet. As of September 30th, 2023, we had approximately $171 million of cash and cash equivalents, marketable securities, short-term investments, and restricted cash, compared to $178 million as of June 30th, 2023. As of quarter end, our net receivables balance was $97 million, an increase of roughly $8 million sequentially. The amount drawn on our credit facility remained at $75 million as of the end of Q3, as we continue to rely on our balance sheet cash in the third quarter to fund extra cash originations versus our credit facility, given the cost of capital difference between our facility and our corporate cash. That said, a few weeks ago we announced that we had amended our credit facility to increase our capacity by 50 million to 150 million, an increase in the advance rate by approximately 800 basis points, and we were able to reduce our cost of funds by approximately 200 basis points, and additionally extend the maturity date by an additional two years, such that we now have over three years remaining on the term of the facility. As highlighted in our earnings release today, the fact that our lending partner was willing to extend more capital at more favorable terms despite the notably tighter conditions in the broader capital markets speaks volumes to the strength of our business, unit economics, and overall outlook. Now turning to our guidance. Given our significant revenue improvements throughout the year, we now expect full year 2023 non-GAAP revenue to range between $257 million and $261 million, representing growth of 22 to 24% compared to last year. Second, given our sustained levels of variable margin this year and improvements that we've made to our variable cost structure, we are raising our full year 2023 non-GAAP variable margin guidance to range from 53% to 54%, which is up 1,200 to 1,300 basis points relative to 2022. Finally, we are also raising guidance and now expect full year 2023 adjusted EBITDA to be a loss between negative 22 million to negative 17 million, reflecting a 75% to 80% improvement from 2022 and implying a range of negative 2 million to positive 3 million in the fourth quarter. The significant improvements across our key financial metrics throughout the year have not only allowed us to raise our guidance, but have left us well-positioned to achieve our goal of achieving profitability in the coming months. I'll now pass it over to Jason to conclude our call.