DAVE - NASDAQ

Good morning, everyone, and thank you for participating in today's Conference Call to discuss Dave's Financial Results for the Fourth Quarter and Full Year ended at December 31, 2023. Joining us today are Dave's CEO, Mr. Jason Wilk; and the company's CFO, Mr. Kyle Beilman. By now, everyone should have access to the fourth quarter and full year 2023 earnings press release, which was issued earlier today. The release is available in the Investor Relations section of Dave's website at https://investor.dave.com. In addition, this call will also 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 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 risks 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 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 and 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 and Form 8-K furnished to the SEC. I would now like to turn the call over to Dave's CEO, Mr. Jason Wilk.

Thank you, and good morning, everyone. We generated exceptional results in 2023 and surpassed our guidance on all metrics, exceeding both our original guidance from beginning of last year as well as our increased guidance in Q2 and Q3. Dave had a record fourth quarter and most importantly, achieved profitability, having generated $10 million of adjusted EBITDA and positive GAAP net income for the fourth quarter. Further, we accelerated revenue growth while simultaneously lowering operating expenses and leaning into the operating leverage inherent in our business model. I'd like to start the call by reflecting on Dave's journey. We launched in 2017 with a mission to build products that level the financial playing field. At the foundation of Dave, we hold the belief that technology can be used to revolutionize the cost and access of credit and banking. By embracing big data and without relying on legacy credit bureaus, we experienced rapid product market fit for our first product ExtraCash, offering members instant and interest-free credit to cover gas and groceries. This delivered highly efficient growth over the next several years before turning profitable in 2019. We then began strategically investing in our digital first Dave checking account in 2020 as we needed to create natural synergies with ExtraCash and that our target market was in significant need of affordable banking services. In mid-2022, we began to focus on the levers that would drive sustainable improvements in the unit economics of our business, including enhancing member lifetime value, expanding variable margin, optimizing our marketing investments and driving operating leverage to mark fixed cost structure. I'm proud to say that we delivered on each of these objectives and executed on our profitability goal. Compared to Q2 2022, our variable margins are up 2,200 basis points. Our CAC has decreased by over 50%, and we have grown revenue by 60%, while reducing our fixed expense base. Moreover, we further expanded member lifetime value through stronger retention and the growth of our banking product as a natural complement to our core ExtraCash product. Though still in the early innings of our efforts, we have also continued to find avenues to deepen our relationships with members such as with direct deposit. These were the key levers which solidified our path to profitability several quarters ahead of schedule. And while we continue to make strategic investments in the growth of our business, we expect the company to remain adjusted EBITDA profitable going forward. Importantly, we believe the core values that got us here today will be the same core values that enable us to grow profitably from here and expand the impact we have on the financial lives of our everyday Americans. Foundational to these core values is being deeply member-centric and committed to furthering our mission to build products that level the financial playing field. With that said, I'd now like to dive into the quarter and our progress against our growth strategy of acquiring new members efficiently, engage them effectively with interest-free credit and deepening our relationship with them via Dave Card Banking engagement. Acquiring members efficiently is a major differentiator for Dave. We did this especially well throughout the year as we grew our member base while reducing marketing spend. Our ExtraCash short-term liquidity offering continues to resonate with consumers and our largely millennial and Gen

Thank you, and good morning, everyone. As Jason mentioned, our fourth quarter results represent new high watermarks across nearly all of our key metrics. As you may recall, we raised our guidance during the third quarter to account for our year-to-date outperformance. During the fourth quarter, we continued to execute well, enabling us to exceed our guidance and achieve adjusted EBITDA and net income profitability for the period. We continue to unlock material operating leverage by driving higher revenue and variable profit, largely through expanded ARPU and member retention, while also improving our cost structure through efficient marketing spend, strong credit performance and the optimization of our variable and fixed costs. Now to dive a little deeper into our results. Total GAAP revenue in Q4 was $73.2 million, up 23% from Q4 of last year. Revenue growth was primarily driven by an 11% increase in MTMs and a 9% increase in non-GAAP ARPU. The MTM growth was driven by our conversion-focused member acquisition strategy, in addition to the significant improvements in member retention we achieved throughout the year. Increases in ExtraCash engagement and the growth in Dave Card spend led to the uplift in ARPU. Non-GAAP variable profit in Q4 increased 80% to $45.9 million, representing a 61% margin relative to our non-GAAP revenue, up approximately 2,000 basis points from Q4 of last year. The sustained increase in variable margin throughout 2023 was driven by ongoing improvements we've made to our variable cost structure. A significant portion of this relates to our 2023 focus on vendor stack efficiency as we successfully optimized our usage of the payment networks and renegotiated contracts with several key vendors. Credit performance also continued to improve, which had a positive impact on variable profit. The ongoing development and optimization of CashAI has allowed us to reduce credit losses while also generating higher revenue per advance and lowering credit losses. Moving to fourth quarter operating expenses. Our provision for credit losses decreased 28% to $14.5 million compared to $20.2 million in Q4 of last year. As a percentage of ExtraCash originations, the provision declined to 1.4% in the fourth quarter compared to 2.5% in the year ago period. This decrease in loss provision relates to the ongoing underwriting improvements we've made to CashAI that I just referenced and aligns with our outperformance on a 28-day delinquency rate for Q4. As Jason mentioned, compared to the fourth quarter of last year, our 28-day delinquency rate improved by 139 basis points to 2.19%, while we grew originations by 29% to surpass $1 billion in a quarter for the first time in our company's history. Processing and servicing costs during the fourth quarter decreased by 10% to $7.5 million compared to $8.3 million in the year ago period. As a percentage of origination volume, processing and servicing costs improved roughly 30 basis points to 0.7% compared to 1% in the year ago period. We believe these gains are sustainable, driven by technology investments we've made in our payments infrastructure and improved contractual terms with key vendors. Advertising and marketing expenses decreased 16% to $10 million during the fourth quarter compared to $11.9 million in the year ago period. Since Q4 of 2022, we have reduced CAC by 12% as we deployed conversion-focused marketing spend supported by channel and creative optimizations, the long-tail marketing investments made during the second quarter of 2023 and ongoing improvements to our reporting and attribution infrastructure. During the first quarter, which is typically the softest quarter for marketing efficiency, given the tax refund dynamics, we plan to be situationally efficient with reduced marketing spend in order to help offset some of the seasonal softness in demand for ExtraCash, as Jason noted earlier. Compensation expense was $23.5 million in the fourth quarter compared to $22.1 million in the year ago period, a marginal increase relative to the 23% growth in GAAP revenue exhibited over the same period. As a percentage of GAAP revenue, compensation expense declined from 37% in Q4 of 2022 to 32% in Q4 of 2023. We've also made investments to further leverage AI within our ecosystem to build more scalability into our operating model. We recently rolled out DaveGPT,, our AI chatbot, which has produced very solid initial results, including reducing member success related costs by 13%, while also increasing contact related NPS scores by 28% in just its first 3 months. This is another example of how we're utilizing cutting-edge technology to improve member experiences while also creating more operating efficiency within our business. While we believe that we can continue to grow and achieve operating leverage without needing to make any material additions to our headcount, we plan to make carefully calibrated investments in product development and data capabilities throughout 2024. These investments will be designed to bolster our long-term growth trajectory while maintaining a lean and disciplined approach to our expense management. Other operating expenses were $15.8 million in the fourth quarter compared to $18 million in the year ago period, representing a year-over-year decline of 12%. This improvement is based on a reduction and rationalization of our fixed costs, which continues to amplify the operating leverage we achieved throughout 2023. Other operating expenses also benefited from sustainable improvements we've made to some of our key variable costs within this line item. More specifically, we renegotiated two key vendor contracts that support our banking product, the first in Q1 of 2023 and the second in Q4 of 2023, where we expect to benefit from a full year's impact of these changes in 2024. GAAP net income for the fourth quarter improved to $0.2 million compared to a GAAP net loss of $21.5 million in the fourth quarter of 2022. Adjusted EBITDA for the fourth quarter was $10 million compared to a loss of $12.8 million during the year ago period. As Jason mentioned, this improvement was due to a combination of revenue growth and variable margin expansion, rationalized marketing spend and lower tax and tight cost controls across the business. We are very proud that Dave has achieved profitability and has done so sustainably with disciplined execution and a long-term value maximizing orientation. So while our growth trajectory will not be linear, we expect Dave to remain adjusted EBITDA profitable going forward. Now turning to the balance sheet. As of December 31, 2023, we had approximately $157 million of cash and cash equivalents, marketable securities, investments and restricted cash compared to $171 million at September 30, 2023. As of year-end, our net receivables balance was $113 million, an increase of roughly $16 million sequentially. The amount drawn on our credit facility remained at $75 million as of the end of Q4 as we continue to rely on our balance sheet cash in the fourth quarter to fund ExtraCash originations versus our credit facility. Subsequent to year-end, we announced the repurchase of a convertible note that we issued to FTX Ventures with an original principal balance of $100 million. Dave repurchased the note for a discounted purchase price of $71 million or 67% of the $105.5 million outstanding balance as of December 31, 2023, which equates to approximately a $35 million discount relative to par value. Accounting for this repurchase as well as the impact from our operations and the increase in ExtraCash receivables in January, our cash and cash equivalents, marketable securities, investments and restricted cash as of January 31, 2024, was $75.3 million. Our decision to repurchase the note was based on the confidence we had and continue to have in our financial outlook and capital position as well as the compelling return profile of the transaction. As we have mentioned in the past, we continue to believe that Dave is well positioned to achieve its growth and profitability objectives without the need to raise additional equity capital and believe we have ample liquidity to execute on our growth plan moving forward. Now turning to guidance. We expect full year 2024 GAAP revenue to range between $305 million and $325 million, representing growth of 18% to 25% when compared to 2023. Please note that we are now providing our revenue guidance on a GAAP basis rather than the non-GAAP revenue basis to which we have guided historically. We also expect 2024 adjusted EBITDA to range between $25 million and $35 million, reflecting a $35 million to $45 million improvement relative to 2023. While we also expect our adjusted EBITDA to remain positive on a quarterly basis going forward, we expect that the first quarter will experience the seasonal impacts from tax refunds, which both Jason and I mentioned earlier in the call. Additionally, we are forecasting modest impact to our CAC given that this is an election year, although we have not seen that impact thus far in the first quarter. Finally, as I noted, we plan to make modest investments in product development and data capabilities in 2024, which should position us for long-term value maximizing growth in the years ahead. We believe we have a defensible track record of being disciplined and rigorous in making strategic investments. First, with ExtraCash and then with Dave Card, which have both become accretive to our business model. I will now hand it back over to Jason to conclude our call.

Thanks, Kyle. 2023 was an incredible year for our company. I appreciate the hard work and dedication from the team in getting us at this point, and I look forward to another strong year in 2024. Operator, we can now open the call for questions.