Dave Inc. (NASDAQ:DAVE) Q4 2023 Earnings Call Transcript March 5, 2024
Dave Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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.
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.
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Q&A Session
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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 Z target demographic who use our ExtraCash product for essential staples, such as gas and groceries. This demographic has traditionally been difficult for incumbent banks to reach cost effectively, and our marketing efforts are bolstered by strong word of mouth leading to consistent organic number acquisition. In the fourth quarter, we added 683,000 new members at a CAC of $15, which is the lowest quarterly CAC we’ve achieved since the beginning of the pandemic in the second quarter of 2020. We attribute the strength of our TAC in the fourth quarter to the brand refresh and creative investments we made in mid-2023 and a continued push to drive efficiency, which led to a 14% reduction in CAC quarter-over-quarter and 12% year-over-year.
CACs have remained efficient in the first quarter of 2024, typically the softest period for marketing due to tax refunds supporting our member base and liquidity needs, thereby moderating response rates to our advertising. The second pillar of our growth strategy is to drive engagement of MTMs with ExtraCash engagement being the primary starting point of our member journey. In the fourth quarter, our Monthly Transacting Member base grew 9% sequentially and 11% year-over-year based on solid growth amongst Dave Card, ExtraCash and subscription monthly actives. In the fourth quarter, we successfully transitioned our $1 multi-subscription program to a new billing system, which resolved a temporary headwind to Monthly Transacting Member engagement in Q2 and Q3 and gives us the flexibility to pursue expanded subscription opportunities going forward.
In Q4, we also achieved a significant company milestone of disbursing over $1 billion per quarter in ExtraCash advances to our members, representing 11% growth from 3Q and 29% growth from last year. We achieved this by both growing our base of ExtraCash active members and by more effectively underwriting these members for higher advances without compromising on our credit performance, which I’ll get into in a moment. Higher advanced sizes, combined with our new percent-based express fee structure we fully implemented in early Q4 enabled us to grow ARPU 4% quarter-over-quarter. Further ExtraCash product enhancements, some of which are currently in testing gives us the confidence we can continue to grow monetization moving forward. It’s also worth reinforcing that the ExtraCash product structure is highly scalable, allowing us to grow originations without the need for a sizable capital-intensive balance sheet or take on significant credit risk exposure at any one point in time.
Even with $1 billion in ExtraCash originations in Q4, our net receivables balance was only $113 million at quarter end due to the short duration high-velocity nature of the product. To expand on the topic of credit performance, our 28-day delinquency rate in Q4 has once again reached a record low, improving 139 basis points year-over-year to just 2.19%, despite 29% growth in origination volume. The ongoing investments we have made in our proprietary AI-enabled risk management engine, which we refer to as CashAI continue to bear fruit. The fact that we have seen record lows in 28-day delinquency rates and overall loss performance in both the third and fourth quarters, while most other consumer finance asset classes are exhibiting marked credit deterioration is a testament to the effectiveness of CashAI.
As mentioned on prior calls, we typically experience both the lowest delinquency rates and the softest demand for ExtraCash during the first quarter, given the additional liquidity provided to members from tax refunds. While we expect the seasonal pattern to recur in Q1 of this year, we are well versed in managing business performance and calibrating our marketing spend as the tax season unfolds. Finally, to discuss the third pillar of our growth strategy of deepening our relationships with members by driving top of wallet spending behavior through direct deposit. Our approach has been to leverage ExtraCash to drive cross [ph] attached to the Dave Card by making the ExtraCash funds available more quickly and inexpensively in sense of the Dave Card.
This is an efficient way for us to drive trial with the Dave Card, an important step in building the trust required to win direct deposits. We made solid progress on this trial building strategy throughout the year with cross attach rates from ExtraCash into our Dave Card reaching approximately 50% among our ExtraCash actives, driving Dave Card spending growth throughout the year. In Q4, spending volume reached $369 million, a 41% year-over-year increase and 8% sequentially. With direct deposit penetration remaining fairly consistent quarter-over-quarter, average transaction per MTM remained roughly flat sequentially at 6.4%. We’re still in the early innings of winning direct deposit and top of wallet spending behavior with our members, which is a primary strategic focus of ours for 2024.
