Dave Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; filed November 7, 2023. Dave is a financial services company offering short-term ExtraCash advances, digital banking, budgeting, and income-opportunity products. It reported one operating and reportable segment and said nearly 10 million members had opened accounts as of the report date. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $65.8 | $56.8 | $186.0 | $145.2 |
| Operating expenses | $76.4 | $94.7 | $229.9 | $258.8 |
| Net loss | $(12.1) | $(47.5) | $(48.7) | $(107.4) |
| Net loss per share | $(1.01) | $(4.06) | $(4.10) | $(9.32) |
| Adjusted EBITDA (non-GAAP) | $(2.5) | $(27.5) | $(20.1) | $(74.4) |
- Q3 revenue grew 16% year over year. Service-based revenue was $59.2 million and transaction-based revenue was $6.6 million.
- Q3 operating loss was approximately $10.6 million, or a 16.1% operating margin; net loss margin was approximately 18.3%. These margins are calculated from reported figures.
- For the first nine months, operating cash flow was positive $18.1 million, versus cash used of $40.9 million in 2022. Investing activities provided $3.0 million; financing activities provided $0.004 million. Cash, cash equivalents, and restricted cash ended at $44.8 million.
- At September 30, cash and cash equivalents were $43.6 million, marketable securities $1.6 million, and short-term investments $124.6 million. Together these totaled $169.8 million, compared with $192.0 million at December 31, 2022.
- Net member advances were $97.1 million, after a $19.8 million credit-loss allowance. Gross advances were $116.9 million; the allowance was about 16.9% of gross advances.
- Current assets were $278.4 million and current liabilities $34.9 million. Total liabilities were $215.3 million; stockholders’ equity was $79.2 million.
- Debt comprised $75.0 million drawn under the debt facility and $104.7 million of convertible debt, including accrued in-kind interest. Q3 interest expense was $3.1 million; nine-month interest expense was $9.0 million.
Changes versus comparable periods
- Q3 revenue increased $9.0 million (16%). Processing-fee revenue rose 31%, reflecting higher advance volume and average advance size; transaction-based revenue rose 65%, alongside 73% growth in debit-card spend to $341 million.
- Tips fell 17% in Q3 and 10% for the nine-month period, which management attributed primarily to lower member tip engagement. Nine-month subscriptions rose 18%, while Q3 subscriptions were nearly flat.
- Q3 operating expenses declined 19%, led by a 42% reduction in advertising and marketing, alongside lower processing and servicing costs. Nine-month expenses fell 11%; other operating expenses increased 8%, including higher legal, checking-product, and charitable contribution costs.
- Credit-loss provision declined 13% in Q3 and 5% for the nine months. Management cited improved collections, including seasonal tax-refund effects and underwriting improvements, while also noting higher provision expense for advances aged over 120 days.
- Net loss and Adjusted EBITDA loss narrowed substantially year over year. Comparisons benefited in part from the absence of prior-year legal, financing, and transaction costs and from changes in warrant and earnout fair values; these items make year-over-year net income comparisons less indicative of underlying operations.
Outlook, risks, and notable items
- Management expects continued net losses under its operating plan but believes cash on hand is sufficient for working capital, capital expenditures, and operations for at least 12 months from the filing date. No quantified revenue or earnings guidance is provided.
- Management expects to continue ExtraCash originations using balance-sheet cash and the debt facility as needed. It says access to additional capital is not assured; if funding is unavailable, it may need to curtail operations or alter plans.
- The September 2023 debt-facility amendment increased total commitments from $100 million to $150 million, extended maturity to December 2026, raised the minimum liquidity requirement from $8 million to $15 million, changed the benchmark from LIBOR to SOFR, and terminated the company’s limited guaranty of up to $25 million. Dave had drawn $75 million and reported covenant compliance at quarter-end.
- Legal matters include a data-breach class action settlement in process, with an estimated $3.1 million accrual, and approximately $4.3 million accrued for individual data-breach claims. In October 2023, Dave paid $3.3 million toward the latter amount. The company said other ordinary-course proceedings were not expected to have a significant adverse effect.
- Disclosure controls and procedures were determined to be ineffective because of previously identified material weaknesses in financial reporting and IT general controls. Remediation efforts were ongoing; management said it performed additional analysis and believes the financial statements fairly present the reported information.
- Key stated risks include competition, changing technology, regulation of banking-as-a-service and bank partnerships, legal and regulatory proceedings, member service failures, economic conditions, and the company’s ability to manage growth and obtain capital. The filing reported no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether advance collections and credit performance remain durable, particularly for older receivables; review the $19.8 million allowance, write-offs, recoveries, and aging mix.
- Whether revenue growth and improving Adjusted EBITDA persist without relying on lower marketing spend or favorable prior-year comparisons.
- Available liquidity, investment maturities and valuation, and compliance with the amended debt facility’s liquidity trigger and covenants.
- Convertible-note repayment or conversion terms and the effect of the $104.7 million balance on future dilution and interest obligations.
- Progress in remediating material weaknesses and the status and final costs of the data-breach settlements.