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 30, 2024. 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 2024 earnings press release, which was issued earlier today. The release is available in the investor relations section of Dave's website at investors.dave.com. In addition, this call will be available for webcast replay on the company's website. Following management's remarks, we'll open the call to answer your questions. Certain comments made during 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 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 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 update any forward-looking statements. The company's presentation also includes certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income 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 information 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 Welk.

Thank you, and good afternoon, everyone. Today, I'm pleased to share our full third quarter results, building on the strong preliminary results we announced on November 5th. We once again outperformed in the third quarter, achieving record revenue of nearly 93 million, up 41% from the year-ago period. This marks our fourth consecutive quarter of accelerating year-over-year revenue growth, supported by double-digit percentage increases to both ARPU and multi-transaction members, which are quarterly records for both metrics. We also delivered another record quarter on variable margin, which expanded nearly 1,300 basis points year over year, driven by stellar credit performance enabled by Cash AI in our latest underwriting model, which was fully rolled out heading into the third quarter. Additionally, we achieved highly efficient CAC at greater levels of investment and significant operating leverage as we remained disciplined in managing our fixed costs. All of this led to a 63% sequential increase in adjusted EBITDA approximately $25 million for the quarter. For reference, at the beginning of the year, $25 million was within range of what we had guided for the entire fiscal year 2024, and I'm incredibly proud to have achieved it in just a single quarter. Given our record performance year to date and strong outlook for the remainder of the year, we are raising full-year 2024 revenue and adjusted EBITDA guidance, which Kyle will discuss in a moment. Turning to the recent FTC matter, which we issued a statement last week as part of our pre-announcement, we believe we have a strong defense and are prepared to vigorously defend ourselves. As a reminder, the FTC suit does not question our ability to charge subscription fees, optional tips, or express fees, but rather it pertains to our consumer disclosures and how the company acquires consent for the fees associated with our products, where we believe we have always operated within the law. As such, we have not made any changes to our financial forecast as a result of the FTC's action. Our company was founded on the belief that far too many Americans are underserved by traditional financial institutions. Dave provides critical financial support that traditional banks often don't offer, including free checking and savings accounts and access to credit without credit checks, late fees, or interest. Our members consistently share how much they rely on us to meet their essential needs with over 1.2 million app store reviews and a 4.8 star rating on iOS. Our success is rooted in delivering meaningful value through innovative and accessible product experiences, a commitment that has driven our success, and we believe it will continue to support our growth and profitability moving forward. Transparency, compliance, and customer trust are our highest priorities as we evolve to meet our members' needs. Now I'd like to provide additional insight into the ongoing progress we've made executing on our growth strategy. This includes efficiently acquiring new members, engaging them through extra cash, and deepening our relationships through the Dave card. We have continued to prioritize efficient member acquisition at increasing scale, driving consistent growth on our multi-transacting member base in a cost-effective manner. In the third quarter, we acquired 4% more members compared to the prior year period, despite spending nearly 10% less on marketing. This led to a 14% year-over-year decrease in CAC to $15. On a sequential basis, our CAC was down 2%, while member acquisition was up 19% as we continue to optimize our channel mix and as the market for digital media assets remains rational. During the third quarter, we did not observe any impact to our cap efficiency from the election cycle, nor did we start to in Q4 through last week's election. Overall, performance this quarter has remained strong. The second pillar of our growth strategy centers around enhancing engagement with our monthly transaction members strategically positioning Extra Cash as the key entry point that sets the foundation for long-term member relationships. As I mentioned earlier, this focus has delivered another quarter of strong results, with MTMs going 23% year-over-year to a new quarterly record of 2.4 million members. Our Extra Cash-driven value proposition, coupled with our comprehensive banking product suite, has been instrumental in driving growth. Moreover, in the third quarter, we benefited from a full quarter's impact of our latest underwriting model, which supports better conversion and retention rates while improving credit performance, as I'll get into in a moment. With the consistent growth of our member base and the ongoing expansion of our product capabilities, earlier today we announced that we entered into a non-binding letter of intent to form a strategic partnership with what we believe to be one of the most highly respected sponsor banks in the FinTech ecosystem. We anticipate that this new bank partner, whose parent is publicly traded, will leverage its scale, experience, and strong compliance and risk management capabilities to sponsor our credit and banking products. We anticipate that this partnership will further diversify our key commercial relationships and better position us to launch next-generation products in support of Dave's mission of leveling the financial playing field for everyday Americans. With respect to extra cash, we generated another record quarter of originations, which grew 46% year-over-year to $1.4 billion. This was driven largely by the increase in multi-transaction members as well as a 17% increase in average extra cash origination size. The new underwriting model, which we rolled out throughout Q2, played a big role in supporting the increase in average disbursement amount. Relative to Q2, extra cash originations grew 15%, which is the strongest sequential growth in originations in two years when the scale of originations was nearly half as large. Ultimately, we believe our ability to sustain meaningful growth and originations demonstrates both the depth and breadth of our TAM, as well as our ability to address members' needs for short-term liquidity. For the third quarter, our net receivables portfolio totaled $166 million at quarter end, which represents a $38 million increase from the end of Q2, despite growing originations by $174 million to $1.4 billion over the same period. We believe this continues to underscore the short-term, high-velocity nature of our product enabling us to serve many customers efficiently without relying on a capital intensive balance sheet or taking significant credit risk exposure at any one point in time. Moving to extra cash performance, our cash AI underwriting engine allows us to enhance liquidity access for our members while continuing to improve credit performance. In Q3, we improved our 28-day delinquency rate to 1.78%, down 64 basis points year over year, over which time extra cash originations increased 46%, as I mentioned a moment ago. Our 28-day delinquency rate in Q3 is down 25 basis points quarter over quarter and actually came in lower than Q1, which is historically our seasonally strongest quarter in terms of credit performance. Throughout Q2 of this year, we rolled out a new underwriting model, which they trained on more than double the number of machine learning variables that were used to train our prior underwriting model that was launched in Q2 of 2023, which we believe bodes well for future performance. Credit performance in Q3 of this year benefited from a full quarter's impact of this new model, and this performance has persisted thus far on Q4, which we expect to continue going forward. Turning to the third and final pillar in our growth strategy, strengthening member relationships by driving engagement through the Dave Card. Our strategy leverages the power of our market-leading extra cash offering to build deeper long-term banking relationships with our members. During the third quarter, Dave Card's spending volume was up 19% year-over-year to $407 million, driven by a combination of strong growth in banking active customers, as well as card spend per banking active customer. This strength in spending volume was supported by solid growth in both extra cash disbursements to Dave checking accounts, as well as in external funding into the Dave ecosystem. Over the past eight quarters, we have primarily focused our resources on expanding Extra Cash and optimizing the levers supporting this product to drive overall profitability. While we remain committed to enhancing and refining Extra Cash, In 2025, we plan to allocate more of our R&D resources towards elevating the DaveCard experience to encourage greater adoption and top-of-wall spending behavior. Our combined efforts in extra cash, DaveCard, and subscriptions resulted in a strong 14% year-over-year increase and an 11% sequential increase in ARPU during the third quarter, which we believe highlights our ability to continue expanding the monetization of our growing member base. These gains were largely due to the progress we've made increasing average extra cash disbursement amounts, which is the primary driver of our average revenue per extra cash origination, which was up 15% year over year and 6% sequentially. With respect to extra cash monetization, it's worth noting that the flexibility of our business model and the strength of the underlying member demand allows us to continue to optimize the structure of the monetization. As you may recall, in 2023, we successfully transitioned from a tier-based fee structure to one that is percent-based, which improved our average revenue for extra cash disbursement and new member conversion without any adverse impact to extra cash engagement or retention. As the next step in this evolution, we are testing a simplified mandatory fee structure and user experience that will remove both optional tips and optional instant transfer fees the day of checking accounts. After issuing over 115 million extra cash originations, we believe we have sufficient data to assess the willingness of what members will pay for access to this service. This new structure has several benefits, One, given optional fee decline as customers season on our platform, we believe that the new fee model we are evaluating should scale better, allowing us to increase average extra cash approval amounts and engagement. Second, improved investor clarity with respect to our business model. And lastly, even though we feel strongly about the significant customer benefit that optional fees bring to consumers in need, there is no question that these fees have become more of a focus for regulators, as many companies have chosen to implement this experience in various ways. If testing is successful, we expect to be in a position to share more about our progress on this initiative during our next quarterly earnings release. 2024 has been an exceptional year thus far, highlighted by record performance quarter after quarter. We believe it's clear that our strategic focus on increasing access to extra cash through product and underwriting enhancements, winning deeper wallet share of our members' banking needs, and expanding our base of members benefiting from these products has positioned us well for the future. We're proud of the strong execution from our team, and the meaningful product improvements we've implemented to increase member value and engagement, leading to increased ARPU and lifetime value, all while remaining disciplined on cost management. With that, I will turn the call over to Kyle and take you through our financial results. Kyle?

Thank you, and good afternoon, everyone. As Jason highlighted, the third quarter further demonstrated the strength and scalability of our business, with record results across nearly all key metrics. We achieved substantial operating leverage by accelerating revenue growth and remaining disciplined with our fixed cost base. We expanded our variable margins significantly and improved marketing efficiency at scale. Given our strong third quarter performance, we are increasing our full year revenue guidance and once again increasing our adjusted EBITDA guidance for the third consecutive quarter. We surpassed the high end of our most recent full year adjusted EBITDA guidance range through the third quarter of this year. As we shared in our preliminary results announcement on November 5th, third quarter revenue reached 92.5 million, representing a 41% year-over-year increase. This growth was fueled by 23% growth in MTMs and ARPU expansion of 14%. Our ability to acquire new members efficiently has amplified the impact of our marketing investments, while strengthened retention and reactivation initiatives have driven additional growth in our MTM base. The ARPU increase was due to both increased extra cash engagement and monetization, as well as stronger engagement with and monetization of the Dave card. Non-GAAP variable profit in Q3 increased 72% year over year to $64.2 million, representing a 69% margin relative to GAAP revenue, which is an all-time high and up approximately 1300 basis points from Q3 of last year. Our sustained improvements to variable margin have been driven by lower provision expense as a percentage of gap revenue as a result of significant improvements in credit performance driven by cash AI. These improvements enabled us to continue to lower loss rates while increasing the revenue generated per extra cash origination. Our variable margin performance in Q3 was further enhanced by the strides we made in optimizing payment processing costs, along with the benefits of two key vendor contracts renegotiated in Q4 of last year, as well as in Q3 of this year. Now turning to operating expenses. Our provision for credit losses improved, decreasing 14% year over year to $13.7 million from $16 million in the prior year period, while extra cash originations grew by 46% over that time. As a percentage of extra cash originations, the loss provision fell to 1% from 1.7% the prior year, which we believe underscores the power of our cash AI underwriting engine, which continues to make more precise and predictive credit risk decisions through the incorporation of more model variables and the performance of the more than 115 million unique extra cash disbursements originated to date. The improvement in loss provision expense exceeded our own internal forecast and more than offset the calendar dynamic related to the day of the week on which the quarter ended, which we highlighted last quarter. This calendar day dynamic caused the 30% sequential growth in net receivables balance, given the quarter ended on a Monday, while extra cash originations grew by 15%. As Jason mentioned, credit performance in Q4 remains strong, though we expect the same day of the week dynamic to impact the loss provision in Q4, which ends on a Tuesday, and from an accounting standpoint, offset some of the strong underlying performance. Processing and servicing costs in Q3 increased 21% year-over-year to $8.6 million compared to $7.1 million in the year-ago period, while extra cash originations grew by 46%. As a percentage of origination volume, these costs improved to 0.6% from 0.8% as a result of efficiencies we realized with payment processors, as well as a large vendor contract we renegotiated effective August 1st. We expect to realize a full quarter's benefit of this renegotiated contract beginning in Q4. Advertising and marketing costs decreased approximately 10% year-over-year to $12.5 million compared to $13.9 million in the prior year period as we were able to achieve our MTM growth goals at lower levels of spend. The 14% year-over-year reduction in CAC to $15 allowed us to acquire 4% new members in the quarter for 10% less marketing spent. We expect marketing investments in Q4 to remain at a comparable level to that of Q3 as we plan to continue capitalizing on the strong demand we're experiencing and the attractive LTV to CACs we're generating on our investments. Looking at compensation and headcount, our compensation-related expenses grew by $7.6 million to $30.7 million in Q3 from $23.1 million in the prior year period due largely to an increase in stock-based compensation related to certain performance-based restricted stock units in Q3. The specific impact related to these awards in Q3, which were tied to the delivery of certain adjusted EBITDA targets, was 5.6 million. We expect an additional 6.2 million of expense related to these awards through the end of Q1 of 2025. Excluding stock-based compensation expense, Compensation and benefits increased by 5% year-over-year and on a percentage of revenue basis decreased to 19% from 25% in the year-ago period, which we believe further underscores the operating leverage inherent in our business model. Other operating expenses increased $8.1 million to $24.4 million in the third quarter from $16.3 million in the year-ago period. The Q3 figure includes a $7 million accrual for legal settlement and litigation expenses related to the FTC matter, which Jason mentioned earlier in the call. Excluding the impact of this reserve, other operating expenses increased by approximately $1 million over the past year. As a percentage of revenue, other operating expenses excluding the legal settlement and litigation accrual fell to 19% of revenue in the quarter, down from 25% in the same period last year. Gap net income for the third quarter improved to .5 million, which includes the $7 million accrual for legal settlement and litigation expenses. This compares to a gap net loss of 12.1 million in the year-ago period. Adjusted net income, which excludes the legal settlement and litigation accrual, stock-based compensation, as well as changes in fair value to certain non-cash liabilities was 21.1 million in Q3 compared to an adjusted net loss of 5.6 million in the third quarter of last year. Adjusted EBITDA for the third quarter was 24.7 million compared to an adjusted EBITDA loss of 2.5 million during the prior year period, which is attributable to revenue growth, margin expansion, CAC efficiency, and improved operating leverage. Through consistent execution, we have achieved adjusted EBITDA profitability for four consecutive quarters with a 63% sequential increase. Looking ahead, we expect continued adjusted EBITDA profitability, although the trajectory may be uneven as we plan to strategically allocate marketing investments as well as account for an increase in the provision for credit losses in Q4 and throughout 2025 driven by the quarter-end timing dynamics I mentioned earlier, which may more than offset the solid credit performance we expect to continue to persist. Now, I will turn to the balance sheet. As of quarter-end, we had approximately 76.7 million of cash and cash equivalents, restricted cash, and other highly liquid securities, compared to 89.7 million as of the end of Q2. The decrease in cash was driven largely by the $37.7 million increase in extra cash receivables outstanding at quarter end due to higher extra cash originations, as well as the dynamic related to the day of the week on which the quarters ended. The amount drawn on our credit facility remained at $75 million as of the end of Q3, as we continue to rely on balance sheet cash to fund extra cash originations versus our credit facility. Subsequent to quarter end, we amended our credit facility with Victory Park Capital. The amendment increased the advance rate within the facility by 250 basis points, following the 800 basis point increase in September of 2023, and it adjusted eligibility criteria and concentration limits to expand our borrowing capacity. There is no impact to the cost of funds on the $75 million outstanding, and the cost of any future draws will remain at the same spread over the benchmark rate. The facility size and maturity remain unchanged at $150 million in December 15, 2026, respectively. We believe this amended facility underscores the confidence our lender has in the strength of our business and financial performance. And now to turn to guidance. We are raising our full year 2024 revenue guidance to range between $340 million and $343 million. This compares to our previous guidance of $310 million to $325 million and represents growth of 31% to 32% compared to the full year of 2023. With respect to profitability, we are raising our full year 2024 adjusted EBITDA guidance for the third consecutive quarter to a range between $71 million and $74 million. This compares to the guidance we provided last quarter of $40 million to $50 million, and our original guidance at the start of the year from $25 million to $35 million. Overall, our outlook remains incredibly positive, and we believe we are well positioned to continue driving growth and profitability from here. And with that, we'll now open it up for questions.