Q2 2023 Dave Inc Earnings Call
Okay.
Okay.
Good afternoon, everyone and thank you for participating in today's conference call to discuss <unk> financial results for the second quarter ended June 30th 2023.
Joining us today are Dave <unk> CEO , Mr. Jason well.
And the company's CFO , Mr. Kyle Bartlett Bartlett.
By now everyone should have access to the second quarter 'twenty to 'twenty three earnings press release, which was issued earlier today.
<unk> is available in the Investor Relations section of games website at H T. T. P. S colon afford slots forward slash investors dot dais dot com.
In addition, this call will also be available for webcast replay on the company's website.
Following management 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 1990 fives they.
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.
Okay.
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 adds up 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 outperformance of our business.
non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with the FCC rules.
You'll find reconciliation charts and other important information in the earnings press release and form 8-K furnished to the SEC.
I would now like to turn the call over to Dave CEO Mr. Jason.
Okay.
Thank you and good afternoon, everyone.
I am encouraged by the progress we made in the second quarter as we continued to execute on our strategic and financial objectives.
Delivered another strong quarter of revenue growth.
Revenue increased more than 30% for the fourth consecutive quarter, despite reducing marketing spend by 28% year over year.
It's consistent revenue growth, coupled with our sustained margin expansion and operating leverage.
Adjusted EBITDA loss for the second consecutive quarter.
Our extra cash product continues to be a core driver of our business during the quarter origination volume reached record levels, while our 28 day delinquency rate once again have crude on a year over year basis.
Continued enhancements of our AI underwriting model and origination processing efficiencies have been critical components of driving non-GAAP variable margin up to 53% from the model of 39% in Q2 of last year.
We also continue to drive strong engagement with the deep debit card debit Spanish transaction for MTM reached record levels for the quarter.
Banking revenue grew over 120% now accounts for 10% of revenue as we are committed to becoming a full turnkey solution for our customers.
Our record D card engagement.
We have made to integrate our product and become the primary destination for all of our members.
We remain focused on continuing to execute our strategy of becoming a superior banking product for everyday Americans demand for our product is strong and growing is further supported by the inflationary and interest rate pressures, which are everyday Americans member states.
We expect to continue delivering more number value.
Development, while further strengthening our attractive unit economics.
We remain on track to become adjusted EBITDA profitable in 'twenty 'twenty four consistent with the timeline. We can measure early last year, while maintaining ample liquidity to do that without needing to raise additional equity capital.
Now diving, a little deeper into the quarter and our progress against our strategic growth initiatives of acquiring new members efficiently driving your engagement and deepening the underlying relationships.
Diving into our first objective, we continue to drive member growth, while decreasing marketing spend relative to the prior year.
As discussed last quarter, we are aiming to acquire customers at scale.
We're getting ourselves that the neo bank that provides people with access to short term liquidity without worrying about overdraft fees.
While we continue to reduce marketing spend when compared to last year as mentioned last quarter, we ramped up marketing spend back up relative to Q1 to capitalize on the seasonal demand pattern fracture cash.
In the second quarter, we added 739000, new members up 26% relative to last quarter.
Our customer acquisition cost increased modestly in Q2, given that we typically pull back on marketing spend in the first quarter. However, we reduced cost by 31% on a year over year basis, which is a more appropriate comp given seasonal dynamics.
Ability to drive these marketing efficiencies as a result of our continued product enhancement.
And channel optimization over the last year.
Moreover, we made significant marketing investments at the corporate level, including a full website branding refreshed as well as cost produce television radio advertisement that began airing in the third quarter, none of what contributed to actual member acquisition in Q2.
Excluding the aforementioned corporate marketing investment cap would have declined by roughly 38% year over year, we anticipate these longer tail and that will contribute to your acquisition and revenue growth in the second half of the year to continue to capitalize on the strong demand for our products.
Our second key objective is to enable members by commodity.
Got to up to $500 of extra cash using our proven AI driven underwriting models.
Our multi transaction number base decreased 26% year over year to $1 9 billion driven by our engagement focus marketing the rollout and optimization of extra cash that's up to 500 underwriting improvements, which enhanced retention and the broader rollout of our current offerings.
On a sequential basis, we saw a meaningful increase in higher ARPA extra cash D. MTM, which was offset by a decline in paid subscribers due to our high grading.
Legacy subscription billings as Jim and onto our own newly built platform, which better positions us to launch new subscription offerings in the future.
And Kyle will touch on in a moment, our <unk> non-GAAP revenue increased 3% quarter over quarter and the market climate on MTF was more than offset by a 5% increase in carpet.
In terms of extra cash requirement origination volume during the quarter increased 43% year over year to $867 million, reflecting strong continued demand. In addition to hire extra cash advancement that's relative to last year.
On a sequential basis as alluded to last quarter extra cash originations ramp in the second quarter based on the growth and extra cash MTS and demand rebounded from the seasonally low tax refund season in Q1.
The solid growth our extra cash advanced net receivables portfolio totaled just $89 million as of quarter end underscoring how we can serve a vast number of everyday Americans without the need for a sizeable capital on the balance sheet.
Our AI based underwriting model continues to provide competitive advantages in credit underwriting and risk management. Additionally, our extra cash advances everyday Americans rich gas paycheck for things like rent groceries and gas the essential nature of these expenses helps to support extra cash credit performance Thats number do not want to lose this critical source.
Liquidity for their everyday lives.
Our 28 day delinquency rate improved to 84 basis points compared to the same period last year, even against a more challenging economic backdrop.
Wait the 23% improvement in credit performance over a period, where we can create extra cash price nationwide by 43%, which we believe bodes well for the durability of our variable margin scale.
Moving to our third objective, we continue to focus on creating a deeper payments relationship with our members by accelerating adoption of our <unk> debit card.
Ultimately working towards becoming a primary destination for our efforts to drop deposit their paycheck.
Dave at the center of their financial lives.
Utilizing extra cast the conversion plan for initial card usage, we are making meaningful progress in growing paid cards back.
The D card increased adoption given the synergies we create with our extra cash operator and day part engagement is also consistently improving.
Evidenced by the 27% year over year increase average transaction per Mcf in Q2 at 77% increase in D 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 across the category and increasing engagement to drive growth.
Overall, we're tracking well against our strategic growth initiatives and our commitment to turning adjusted EBITDA profitable in 2024, we're delivering significant value for our members solving their fundamental pain and building loyalty that enables us a deeper relationship with us.
We have an innovative roadmap that I'm confident will allow us to deliver even more value. We're doing this while building a durable business model with strong growth and attractive economics with significant upside from here.
Finally, just before the start of today's call, we announced that former Snap Inc. Chief strategy Officer, and Black Hawk has acquired eight 2% to 5% stake and Dave as of today.
<unk> manages and via a secondary market transactions.
He will also join David Board of directors effective immediately.
<unk> deep experience and knowledge, David the theater operations at the Partnership's capital markets and corporate strategy at both public and private companies.
Also integral in two of the hardest tech Ipos history with snap and Alibaba.
Our consistent track record of Catalyzing growth and scale of innovative companies, where origin, such as deep business leader like you've not take a position to date and joined our board of directors.
With that I will turn the call over to.
Actual results.
Thank you, Jason and good afternoon, everyone.
We're pleased to report that our second quarter 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 the credit performance in our broader variable cost structure.
And once again more than half adjusted EBITDA loss compared to the prior year as we continue to make progress on our profitability goals.
Now turning to our results.
Total GAAP revenue in Q2 was $61 2 million up 34% from Q2 last year.
Our revenue growth was driven largely by continued increases in our monthly transacting member base and improved MTN monetization, including deeper Dave card engagement.
non-GAAP variable profit in Q2 increased 78% to $32 9 million, representing a 53% margin relative to our non-GAAP revenue compared to about 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 engine, which continues to produce superior credit performance against a challenging macro backdrop.
A sustained increase in non-GAAP variable margin has enabled us to increase our variable margin guidance for the year as highlighted in our earnings release. This afternoon.
Moving to our second quarter operating expenses the provision for credit losses was $15 9 million compared to $13 9 million in the year ago period.
As a percentage of extra cash originations the provision declined to one 8% in the second quarter compared to two 3% in the year ago period.
The increase in overall provision as a result of significantly higher originations, while the provision as a percent of 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 rate 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% to $867 million.
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.
Processing and servicing costs during the second quarter decreased 5% to $7 2 million compared to $7 6 million in the year ago period.
As a percentage of our origination volume processing and servicing costs improved by more than 40 basis points to 8% compared to one 3% in the year ago period.
These gains were driven by improvements that we've 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% to $15 million in the second quarter compared to $20 8 million in the year ago period.
As Jason mentioned earlier, excluding $1 4 million of.
Corporate marketing spend related to our brand refresh as well as the development of TV and radio advertising creative that will air in the third quarter and beyond customer acquisition cost would have declined by roughly 38%.
Strong demand combined with ongoing product enhancements and channel optimization enabled us to spend 28% less on marketing <unk>.
Hiring 33% more new members versus the year ago quarter.
On a sequential basis as we alluded to you last quarter, we ramped marketing spend to take advantage of seasonal demand for extra cash coming out of tax season.
Compensation expense decreased 39% to $23 9 million in the second quarter compared to $39 1 million in the second quarter of 2022.
The reduction was primarily due to restricted stock unit grants that were made in the second quarter 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 destock transaction.
Excluding the impact of stock compensation expense compensation increased 6% to $17 3 million or 28% non-GAAP revenue compared to $16 3 million or 35% 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 any material additions to our head count.
GAAP net loss for the second quarter, a true up to $22 6 million compared to a net loss of $27 1 million in the second quarter of 2022, representing a 17% improvement adjusted EBITDA loss for the second quarter was $13 1 million compared to a loss of 28.
$5 million during the year ago period.
Representing a 54% improvement.
Excluding a $4 million legal settlement charge related to our 2020 data breach expense during the second quarter adjusted EBITDA loss would have been.
Improved by nearly 70% to $9 million.
Now turning to the balance sheet.
June 32023, we had approximately $178 million of cash and cash equivalents marketable securities short term investments and restricted cash compared to $196 million 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 million, an increase of roughly $9 million sequentially.
The balance of our credit facility was $75 million 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 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 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% and 51%, which is up 400 basis points relative to our <unk>.
Prior guidance up 43% to 47%.
We continue to expect our non-GAAP revenue to range between $235 million and $260 million for the full year 2023.
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 million to negative $35 million, reflecting a 43% to 60% improvement relative to 2022.
This guidance includes the impact of the aforementioned $4 million, one time legal settlement charge taken in the second quarter of this year.
Ultimately, we believe we are well positioned to achieve our full year guidance and continue to have strong conviction and turning adjusted EBITDA profitable in 2024.
I'll now turn it back over to Jason for his closing remarks.
Okay.
Thank you to everyone for joining us on the call today as well as the <unk> continue to believe in our plan to become a superior banking product for everyday Americans.
I look forward to highlighting further progress against our objectives next quarter operator, we can now open the call for Q&A.
As a reminder to ask a question do you will need to press star one one on your telephone again Thats Star one one on your telephone SaaS question to remove yourself from the queue. You May press Star one again.
Please standby, while we compile the Q&A roster.
Again to ask a question.
Press Star one one.
As there appear to be no questions in queue. This does conclude today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Okay.
Yes.
Okay.
[music].
Thank you.
[music].
Yes.
[music].
Yes.
<unk>.
Yes.
[music].
Sure.
[music].
Yes.
Yes.
[music].
Okay.
Bill.
Hmm.
Yes.
[music].