Dave Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Dave provides digital financial products including budgeting tools, cash advances, banking, and job-opportunity referrals. On January 5, 2022, it completed its SPAC business combination, accounted for as a reverse recapitalization. Prior-period results are those of Legacy Dave and may not be fully comparable.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $42.6 million | $34.4 million | Up 24% |
| Operating expenses | $65.2 million | $44.8 million | Up 46% |
| Operating loss | $22.7 million | $10.3 million | Loss widened |
| Net income (loss) | $(34.8) million | $4.0 million | Turned to loss |
| Net margin | (81.9)% | 11.5% | Down |
| Operating cash flow | $(37.5) million | $2.6 million | Turned negative |
Service-based revenue was $39.3 million, up from $32.4 million; transaction-based revenue was $3.3 million, up from $2.0 million. The filing does not present a conventional gross-profit or gross-margin figure.
- Credit costs: Provision for unrecoverable advances rose to $13.8 million from $3.5 million. Advance volume increased to approximately $545.1 million from $277.8 million. The allowance was $16.3 million against $78.2 million of gross advances at quarter-end; $9.4 million of advances were written off during the quarter.
- Other costs: Compensation and benefits increased 91% to $17.9 million, including higher staffing and stock-based compensation. Advertising and marketing declined 13% to $12.2 million.
- Non-operating items: Other expense was $12.1 million versus other income of $14.3 million a year earlier. The comparison was affected by fair-value changes in stockholder-loan derivatives and warrant liabilities; these instruments and related options were substantially settled or exercised in connection with the business combination.
Liquidity, cash flow, and debt
- At March 31, cash and cash equivalents were $23.6 million, marketable securities were $278.3 million, and restricted cash was $0.4 million. The filing’s MD&A cites cash and marketable securities of approximately $302.3 million; the balance-sheet line items sum to approximately $301.8 million.
- Current assets were $375.0 million and current liabilities $58.8 million. Cash, cash equivalents, and restricted cash totaled $24.0 million at quarter-end, down $8.4 million during the quarter.
- Operating cash use of $37.5 million included a $26.6 million increase in member advances. Investing cash use was $272.6 million, largely reflecting purchases of marketable securities; financing cash inflow was $301.7 million.
- Debt included $35.0 million drawn under the senior secured facility, $20.0 million under its credit line, and a $100.0 million convertible note issued to FTX Ventures in March. The facilities carry variable-rate interest; the convertible note bears 3% annual interest, compounded semiannually, and is due in 2026. FTX may convert at $10 per share; full conversion of initial principal would issue 10 million shares, before any additional shares for interest paid in kind.
- Management said available resources, including the business-combination proceeds and FTX note proceeds, were expected to fund working capital and capital needs for at least 12 months from the filing date. Dave also said it expects net losses under its operating plan and may seek additional capital.
Material developments, outlook, and risks
- The business combination closed January 5, 2022. The filing reports $224.2 million of trust redemptions and approximately $7.0 million of cash proceeds from the trust after transaction costs and redemptions; the transaction also included a $210 million gross PIPE commitment. Public-company costs are expected to increase.
- Dave entered a four-year agreement making FTX US its exclusive provider of cryptocurrency services on its platform.
- Management attributed higher advance-loss provisions to increased advance volume and aging balances. It described loss and collection experience as steady in early 2022 and noted prior underwriting changes, while warning that future credit performance and economic conditions could affect member creditworthiness.
- Material risks include competition, regulation, technology and service failures, fraud, credit losses, inflation, COVID-19 effects, and access to funding. The company stated that it had no material changes to the risk factors in its 2021 Form 10-K, but identified potential dilution and default consequences under the FTX note.
- Legal matters include a data-breach class-action settlement estimated at approximately $3.2 million and included in the legal settlement accrual, a former-employee stock dispute being defended, and an office-sublease dispute whose outcome the company said it could not estimate.
- Management concluded disclosure controls and procedures were not effective at March 31, 2022 because of previously identified material weaknesses in internal control over financial reporting. Management said it planned remediation, including improvements to review of complex accounting matters.
Most important facts for investors to verify
- Whether advance-loss rates, collections, write-offs, and the allowance remain adequate as advance volumes grow.
- The reconciliation of reported liquidity figures, use of marketable securities, and the cash needs of funding member advances.
- The FTX note’s conversion, interest-in-kind, default, and repayment terms, including potential dilution and the effects of the related crypto-services agreement.
- Progress in remediating material weaknesses and the reliability of future financial reporting.
- Current status and potential financial exposure from the data-breach settlement and other disclosed litigation.