Dave Inc. Q1 2023 Earnings Call
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Good afternoon, and welcome to the JV in conference calls.
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Phil just because remarks that will be a question and answer session.
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Finally, I would like to advise all participants that this call is being recorded.
I'd now like to welcome Jason to begin the conference.
Jason over to you.
Thank you and good afternoon, everyone I'm very proud of our team's performance in delivering another strong quarter for Dave members and shareholders in.
In Q1, we grew revenue by nearly 40% year over year and were flat sequentially in line with our expectations given the seasonality of demand for our extra cash product during tax refund season.
Our variable margin economics continue to improve driven by a combination of substantial improvements in credit performance all renegotiated key vendor contracts.
When you're processing cost efficiencies.
This margin expansion, coupled with lower marketing spend and fixed cost operating leverage a modestly more than half of our adjusted EBITDA loss for the second consecutive quarter building on our progress in Q4 and advancing our path to profitability.
I believe our improved profitability drivers over the past few quarters validates our operational strategy and position <unk> for success is the farthest the metro cell is one of the meeting to your banks in the U S.
Our affordable member centric banking products have already drive millions of customers today, and we look forward to continuing to execute on our strategy of becoming a superior banking product for everyday Americans.
Okay.
Now to dive a little deeper into the quarter and our progress against our strategic growth initiatives. Our first area of focus is to acquire banking customers efficiently at scale by marketing top of mind liquidity pinpoints are key value proposition of being a neo bank. It helps people at the short term liquidity for their everyday expenses without incurring overdraft fees continues.
So resonates strongly driving efficient member acquisition.
In Q1, we added 587000, new members and grew our bumpy transact team members to $2 million, representing 34% year over year growth.
We were able to achieve this growth despite seasonally lower demand.
For extra cash tax refunds helped to support the liquidity needs of our audience during tax season.
These seasonal dynamics, particularly at each of our response rates on our campaign, which is why we tend to moderate marketing spend in the first quarter. However, we actually reduced our cost by 4% sequentially and nearly 40% relative to the first quarter of 2022.
We believe these favorable acquisition trends demonstrate the strong demand for our product that should help to reinforce our overall growth objectives for the year.
As Tom will outline in a moment, we plan to ramp up marketing spend in the second and third quarters. As we believe we can achieve even more attractive returns on investment at greater scale in those periods and reaccelerate growth.
Our second focus area is to engage customers by providing them with instant access of up to $500 of extra cash using our proven AI driven underwriting models in the first quarter extra cashiers nation volume grew over 45% to $798 million on a year over year basis, driven by both growth in numbers as well.
Higher extra cashman, that's compared to the prior year.
On a sequential basis extra cash originations remained flat, reflecting the tax refund driven seasonal dynamics I described earlier.
From a monetization standpoint, our unit economics are durable and margins are improving.
Average revenue per origination remained steady our 28 day delinquency rate was a record low improving by nearly 100 basis points sequentially and 57 basis points year over year.
As we discussed on our last several calls we believe our underwriting and risk management capabilities, alright competitive advantage and that this quarter demonstrates just how powerful our model is even against the challenging consumer credit backdrop, we're making gains.
As mentioned earlier, we moderated marketing spend in the quarter to better match market demand for extra cash around tax refund season, consistent with our plan to ramp up marketing spend over the balance of the year. We expect extra Casper is nascent to accelerate as the man normalizes seasonally with additional tailwind based on the challenging macro backdrop impacted our numbers and broader camp.
Our final focus area is to create deeper payment relationships with our members by accelerating adoption of our <unk> debit card.
Ultimately were working towards becoming a primary destination for our members to deposit their paycheck.
David The center of their financial lives.
Utilizing extra capacity conversion point for initial card usage, we are continuing to make meaningful progress in growing D card spend.
Average transaction for monthly transacting member grew to a record $5 four in the first quarter. We had another record date card spending volume, increasing 12% sequentially and 62% on a year over year basis.
<unk> card continues to gain traction we anticipate these positive trends supported by an exciting product roadmap that is aimed at capturing this opportunity.
I remain optimistic about our outlook, we're delivering significant value for our members solving their fundamental pinpoint 1 billion loyalty that enables us to deepen our relationships with them.
We have an innovative roadmap that I'm confident will allow us to lever even more member value. We're doing this while building a durable and defensible business model with strong growth and attractive unit economics with significant upside from here overall, we're tracking well against our strategic growth initiatives and our commitment to achieving profitability in 2024.
With that I will turn the call over to Carl to take you through our financial results.
Okay.
Thank you and good afternoon, everyone.
Before we get into the specifics I just wanted to echo Jason's sentiment.
With our Q1 performance as our top line metrics were in line with expectations, we're demonstrating our differentiated underwriting and risk management capabilities, delivering our margin enhancing initiatives and making progress on our strategic priorities.
All of this has led to another quarter of closing the gap to profitability, while maintaining strong liquidity with net cash increasing quarter over quarter.
Our total GAAP revenue in Q1 was $58 9 million up 38% from Q1 last year, our growth was driven by increases in our monthly transacting member base improved extra cash monetization and stronger data card engagement.
First quarter GAAP revenue was roughly flat sequentially and in line with our expectations given the negative seasonal affective tax refunds on demand for extra cash during the first quarter.
non-GAAP variable profit in Q1 increased 91% to $34 million, representing a 56% margin relative to our non-GAAP revenue compared to a 41% margin in the year ago period.
The increase in variable margin was primarily due to markedly lower provision expense in the first quarter. The renegotiation of a key vendor contracts that went into effect.
January one as well as ongoing processing cost enhancements that we've discussed on our last couple of calls.
We do not expect variable margin to remain at this elevated level in the quarters ahead, given the dynamics related to loss provision, which I'll describe in a moment. However.
However, we do anticipate variable margin for the balance of the year to remain notably about 2022 levels and for the full year to fall comfortably within our established annual guidance.
Moving to our first quarter operating expenses, the provision for credit losses decreased 13% to $12 million compared to $13 8 million in the year ago period.
As a percentage of extra cash origination the provision declined to one 5% in the first quarter compared to two 5% in the year ago period.
Decrease was primarily attributable to two main factors first we have made significant improvements in our underwriting over the past year, which have translated into markedly better 28 day delinquency rates and overall credit performance. Despite the deterioration in the macro environment and significantly higher originations in.
In Q1, our 28 day delinquency performance improved by 67 basis points year over year, while we grew originations by nearly 50% year over year to $798 million.
On a sequential basis, we improved our delinquency rate by nearly 100 basis points well originations remained roughly flat.
The second factor, which led to the decrease in provision for credit losses. In Q1 was attributable to strong settlement during the quarter due in large part to the positive seasonal effects of tax refunds on our members.
This resulted in lower member advances outstanding as of the quarter end, and hence a lower allowance and provision for credit losses.
Going forward, we anticipate provision expenses will increase as we expect to grow origination and seasonal dynamics normalize.
They should remain lower than 2022 levels as a percentage of extra cash origination due to sustained improvements in underwriting performance.
Processing and servicing cost during the first quarter totaled $7 1 million compared to $6 5 million in the year ago period.
On a percentage basis relative to our origination volume processing and servicing costs improved roughly 30 basis points or 25% to 9% compared to one 2% in the year ago period.
This improvement was largely due to the payment flow optimization and efficiencies that reduce network costs associated with extra cash in Q1, which will be fully reflected in the second quarter with more additional initiatives in flight that we expect to deliver further upside over the coming quarters.
Marketing and acquisition spend totaled approximately $9 4 million in the first quarter compared to $12 2 million in the year ago period, representing a 23% reduction.
We achieved a nearly 40% year over year reduction in cash in the first quarter. As a result of continued channel and creative optimization, which were supported by favorable market conditions.
As a result, we were able to spend 23% less on marketing in the quarter, but acquired 27% more new members relative to the year ago period.
As Jason touched on we anticipate ramping marketing spend back up in the coming quarters to capitalize on demand for extra cash and higher returns on investment we can achieve greater scale in those periods.
We expect that these investments along with the demand for extra cash in the bounding after tax season should accelerate originations extra cash related revenue throughout the rest of the year.
In regards to compensation expense, we spent $24 4 million in the first quarter compared to $17 9 million in the first quarter of 2020 to.
Due in large part to our strategic investments in product.
Engineering and the expansion of our marketing personnel base to execute on our growth initiatives.
We anticipate the level of compensation expense in the first quarter to remain roughly flat going forward as we believe that our existing team and resources are sufficient to deliver on our objectives.
GAAP net loss for the first quarter improved 57% to $14 million compared to a net loss of $32 8 million in the first quarter of 2022, driven largely by the factors highlighted above adjusted.
Adjusted EBITDA loss for the first quarter was $4 5 million compared to a loss of $18 3 million during the year ago period.
On a sequential basis adjusted EBITDA loss improved over 60% as we expanded variable margin and reduced marketing spend due in part to lower cash and continue to exercise discipline with respect to our fixed cost base.
Now turning to the balance sheet.
As of March 31, 2023, we had approximately $196 million of cash and cash equivalents restricted cash marketable securities and short term investments compared to 193 million as of December 31, 2022.
This increase in cash balances largely due to strong extra cash settlements in the quarter. In addition to the moderated level of extra cash originations.
As a result, our portfolio was a net source of cash in the quarter, given how quickly our extra cash receivables turn into cash.
As of March 31.
2023, our net receivables balance was $80 million, a decrease of $24 million sequentially.
This net receivables portfolio of balance to increase over the coming quarters in line with our planned growth in originations.
With respect to funding the outstanding balance on our debt facility remained at $75 million throughout the quarter.
We expect to continue to rely on our balance sheet cash to fund the extra cash originations in the near term as opposed to our debt facility given the cost of capital difference relative to the returns on our corporate cash.
We have nearly two years of remaining term on that facility, which affords us both higher advance rates and lower cost of funds when we do more fully utilize the facility.
Overall, we have high conviction in our current level of capitalization and an order and then our ability to deliver solid growth execute on our strategy and achieve profitability without the need to raise additional equity capital.
Now turning to our outlook, we continue to expect our non-GAAP revenue to range between $235 million and $216 million for 2023, representing growth of 11% to 23% relative to 2022.
We expect variable margin to normalize from first quarter levels, such that we also expect to comfortably achieve our full year non-GAAP variable margin guidance, ranging between 43% to 47%, which represents a 200 to 600 basis point improvement relative to 2022.
With respect to our primary profitability metric, we are reiterating our adjusted EBITDA guidance for the full year 2023, as well, which calls for a loss ranging between negative $50 million to negative $35 million, reflecting a 43% to 60% improvement from 2022.
We plan to prudently scale marketing investments over the coming two quarters to accelerate growth, which in combination with normalized variable margin will increase adjusted EBITDA losses in those two periods.
With the expected additional scale from those marketing investments in conjunction with the improvements we have achieved on our unit economics to date, we are well positioned to achieve our target of turning adjusted EBITDA profitable in 2024.
We continue to believe we have ample liquidity to deliver on our growth plan without the need to raise additional equity capital.
And with that this concludes the financial highlights and I will turn it back over to Jason for his closing comments.
I would like to thank everyone for joining the call today as well as our dedicated team for their continued commitment to driving the growth of the business that ultimately achieving profitability. Dave has a bright future ahead and I look forward to providing further updates on our next call.
At this time I would like to remind everyone in order to ask a question Press Star then the number one your telephone keypad.
Pause for just a moment to compile the Q&A roster.
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There are no further questions at this time before I close the call.
Note that certain comments made on this conference call and webcast are considered forward looking statements under the private securities.
Litigation Reform Act of 90 95. These forward looking statements are subject to known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in its forward looking statements.
These forward looking statements are also subject to other risks and uncertainties that are described from time to time in the companys 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.
This now concludes today's conference call you may now disconnect. Thank you.
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