DAVE 10-Q
Dave Inc./DE (DAVE)
Table of Contents
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of |
(Commission |
(I.R.S Employer | ||
incorporation or organization) |
File Number) |
Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
exercisable for one share of Class A common |
||||
stock, each at an exercise price of $11.50 per share |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| ☒ | Smaller reporting company | |||||
| Emerging growth company | ||||||
Table of Contents
TABLE OF CONTENTS
| 5 | ||||||
| Item 1. |
Unaudited Condensed Consolidated Financial Statements | 5 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 42 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 60 | ||||
| Item 4. |
Controls and Procedures | 60 | ||||
| 62 | ||||||
| Item 1. |
Legal Proceedings | 62 | ||||
| Item 1A. |
Risk Factors | 62 | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 63 | ||||
| Item 3. |
Defaults Upon Senior Securities | 63 | ||||
| Item 4. |
Mine Safety Disclosures | 63 | ||||
| Item 5. |
Other Information | 63 | ||||
| Item 6. |
Exhibits | 64 | ||||
| 65 | ||||||
2
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q” or this “report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are forward looking and as such are not historical facts. All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future results of operations, financial position, market size and opportunity, our business strategy and plans, efforts to regain compliance with the listing requirements of the Nasdaq Stock Market (“Nasdaq”), the factors affecting our performance and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “can,” “expect,” “project,” “outlook,” “forecast,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2022 (the “Annual Report”) and in our subsequently filed quarterly reports on Form 10-Q and current reports. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this Form 10-Q involve a number of judgments, risks and uncertainties, including, without limitation, risks related to:
| • | the ability of Dave to compete in its highly competitive industry; |
| • | the ability of Dave to keep pace with the rapid technological developments in its industry and the larger financial services industry; |
| • | the ability of Dave to manage its growth as a public company; |
| • | the ability of Dave to protect intellectual property and trade secrets; |
| • | changes in applicable laws or regulations and extensive and evolving government regulations that impact operations and business; |
| • | the ability to attract or maintain a qualified workforce; |
| • | level of product service failures that could lead Dave members (“Members”) to use competitors’ services; |
| • | investigations, claims, disputes, enforcement actions, litigation and/or other regulatory or legal proceedings; |
| • | the ability to maintain the listing of Dave Class A Common Stock on Nasdaq; |
| • | the effects of the COVID-19 pandemic, the Russia-Ukraine war or rising inflation on Dave’s business; |
| • | the possibility that Dave may be adversely affected by other economic, business, and/or competitive factors; and |
| • | other risks and uncertainties described in this Form 10-Q, including those described under Item 1A, “Risk Factors” of the Annual Report. |
We caution you that the foregoing list of judgments, risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements may not be complete. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we do not intend to update any of these forward-looking statements after the date of this report or to conform these statements to actual results or revised expectations.
As a result of a number of known and unknown risks and uncertainties, including without limitation, the important factors described in Part I, Item 1A, “Risk Factors” in the Annual Report and in our subsequently filed quarterly report on Form 10-A, our actual results or performance may be materially different from those expressed or implied by these forward- looking statements.
This report contains estimates, projections and other information concerning our industry, our business and the markets for our products. We obtained the industry, market and similar data set forth in this report from our own internal estimates and research and from industry research, publications, surveys and studies conducted by third parties, including governmental agencies. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe that the data we use from third parties is reliable, we have not separately verified these data. You are cautioned not to give undue weight to any such information, projections and estimates.
3
Table of Contents
As used in this report, the “Company,” “Dave,” “we,” “us,” “our” and similar terms refer Dave Inc. (f/k/a VPC Impact Acquisition Holdings III, Inc.) and its consolidated subsidiaries, unless otherwise noted or the context otherwise requires.
4
Table of Contents
As of September 30, |
As of December 31, |
|||||||
2022 |
2021 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Marketable securities |
— | |||||||
| Member advances, net of allowance for unrecoverable advances of $ of September |
||||||||
| Short-term investments |
— | |||||||
| Prepaid income taxes |
||||||||
| Deferred issuance costs |
— | |||||||
| Prepaid expenses and other current assets |
||||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| Property and equipment, net |
||||||||
| Lease right-of-use |
||||||||
| Intangible assets, net |
||||||||
| Derivative asset on loans to stockholders |
— | |||||||
| Debt facility commitment fee, long-term |
||||||||
| Restricted cash |
||||||||
| |
|
|
|
|||||
| Total assets |
$ |
$ |
||||||
| |
|
|
|
|||||
| Liabilities, and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | $ | ||||||
| Accrued expenses |
||||||||
| Lease liabilities, short-term (related-party of $ |
||||||||
| Legal settlement accrual |
||||||||
| Note payable |
— | |||||||
| Credit facility |
||||||||
| Convertible debt, current |
— | |||||||
| Interest payable, convertible notes, current |
— | |||||||
| Other current liabilities |
||||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| Lease liabilities, long-term (related-party of $ |
||||||||
| Debt facility, long-term |
||||||||
| Convertible debt, long-term |
— |
|||||||
| Warrant liabilities |
||||||||
| Earnout liabilities |
— |
|||||||
| Other non-current liabilities |
||||||||
| |
|
|
|
|||||
| Total liabilities |
$ |
$ |
||||||
| |
|
|
|
|||||
| Commitments and contingencies (Note 1 6 ) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, par value per share $ and outstanding at September 30, 2022 and December 31, 2021 |
$ | $ | ||||||
| Class A common stock, par value per share $ issued at September 30, 2022 and December 31, 2021, respectively; 2022 and December 31, 2021, respectively |
||||||||
| Class V common stock, par value per share $ respectively; |
||||||||
| Treasury stock |
— | ( |
) | |||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive loss |
( |
) | — | |||||
| Loans to stockholders |
— | ( |
) | |||||
| Accumulated deficit |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity |
$ |
$ |
||||||
| |
|
|
|
|||||
| Total liabilities, and stockholders’ equity |
$ |
$ |
||||||
| |
|
|
|
|||||
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Operating revenues: |
||||||||||||||||
| Service based revenue, net |
$ | $ | $ | $ | ||||||||||||
| Transaction based revenue, net |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating revenues, net |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating expenses: |
||||||||||||||||
| Provision for unrecoverable advances |
||||||||||||||||
| Processing and servicing fees |
||||||||||||||||
| Advertising and marketing |
||||||||||||||||
| Compensation and benefits |
||||||||||||||||
| Other operating expenses |
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| |
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other (income) expenses: |
||||||||||||||||
| Interest income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest expense |
||||||||||||||||
| Legal settlement and litigation expenses |
||||||||||||||||
| Other strategic financing and transactional expenses |
||||||||||||||||
| Gain on extinguishment of liability |
— | — | ( |
) | — | |||||||||||
| Changes in fair value of earnout liabilities |
— | ( |
) | — | ||||||||||||
| Changes in fair value of derivative asset on loans to stockholders |
— | ( |
) | ( |
) | |||||||||||
| Changes in fair value of warrant liabilities |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other expenses (income), net |
( |
) |
( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss before provision (benefit) for income taxes |
( |
) | ( |
) |
( |
) | ( |
) | ||||||||
| Provision (benefit) for income taxes |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ |
( |
) | $ |
( |
) |
$ |
( |
) | $ |
( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss per share: |
||||||||||||||||
| Basic |
$ |
( |
) |
$ | ( |
) | $ |
( |
) |
$ | ( |
) | ||||
| Diluted |
$ |
( |
) |
$ | ( |
) | $ |
( |
) |
$ | ( |
) | ||||
| Weighted-average shares used to compute net loss per share |
||||||||||||||||
| Basic |
|
|
||||||||||||||
| Diluted |
|
|
||||||||||||||
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive loss: |
||||||||||||||||
| Unrealized loss on available-for-sale |
( |
) | — | ( |
) | — | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Common stock |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A convertible preferred stock |
Series B-1 convertible preferred stock |
Series B-2 convertible preferred stock |
Common stock |
Class A |
Class V |
Additional paid-in capital |
Loans to stockholders |
Treasury stock |
Accumulated other comprehensive loss |
Accumulated deficit |
Total stockholders’ equity |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 (as previously reported) |
$ |
$ |
$ |
$ |
— |
$ |
— |
— |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
— |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 (as adjusted) |
— |
— |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
— |
( |
) |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock in connection with stock plans |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock pursuant to the PIPE financing |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock pursuant to the Merger Agreement |
— | — | — | — | — | — | — | — | — | — | ( |
) | — | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of Series B-1 preferred stock warrants, net of settlement |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of 2019 convertible notes and accrued interest to Class A common stock |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Class A common stock |
— | — | — | — | — | — | — | — | ( |
) | — | — | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrant for Class A common stock |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholder loans interest |
— | — | — | — | — | — | — | — | — | — | — | — | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of derivative asset and paydown of stockholder loans |
— | — | — | — | — | — | — | — | ( |
) | ( |
) | — | — | ( |
) | — | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of liability |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 |
— |
$ |
— |
— |
$ |
— |
— |
$ |
— |
— |
$ |
— |
$ |
$ |
$ |
$ |
— |
$ |
— |
$ |
( |
) |
$ |
( |
) | $ |
||||||||||||||||||||||||||||||||||||||||||||||
| |
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Common stock |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A convertible preferred stock |
Series B-1 convertible preferred stock |
Series B-2 convertible preferred stock |
Common stock |
Class A |
Class V |
Additional paid-in capital |
Loans to stockholders |
Treasury stock |
Accumulated other comprehensive loss |
Accumulated deficit |
Total stockholders’ equity |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 (as previously reported) |
$ |
$ |
$ |
$ |
— |
$ |
— |
— |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
— |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
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|
|||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 (as adjusted) |
— |
— |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
— |
( |
) |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock option exercises |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of stock option early exercises |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholder loans |
— | — | — | — | — | — | — | — | — | — | — | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Netloss |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 |
— |
$ |
— |
— |
$ |
— |
— |
$ |
— |
— |
$ |
— |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||||||||||||||||||||||||||
| |
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Common stock |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A convertible preferred stock |
Series B-1 convertible preferred stock |
Series B-2 convertible preferred stock |
Common stock |
Class A |
Class V |
Additional paid-in capital |
Loans to stockholders |
Treasury stock |
Accumulated other comprehensive loss |
Accumulated deficit |
Total stockholders’ equity |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | $ |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock in connection with stock plans |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
— |
$ |
— |
$ |
( |
) |
$ |
( |
) | $ |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
Common stock |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A convertible preferred stock |
Series B-1 convertible preferred stock |
Series B-2 convertible preferred stock |
Common stock |
Class A |
Class V |
Additional paid-in capital |
Loans to stockholders |
Treasury stock |
Accumulated other comprehensive loss |
Accumulated deficit |
Total stockholders’ equity |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock for stock option exercises |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of stock option early exercises |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholder loans |
— | — | — | — | — | — | — | — | — | — | — | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, |
||||||||
2022 |
2021 |
|||||||
As Restated |
||||||||
Operating activities |
||||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
||||||||
Provision for unrecoverable advances |
||||||||
Changes in fair value of derivative asset on loans to stockholders |
( |
) | ||||||
Changes in fair value of earnout liabilities |
( |
) | ||||||
Changes in fair value of warrant liabilities |
( |
) | ||||||
Gain on extinguishment of liability |
( |
) | ||||||
Stock-based compensation |
||||||||
Non-cash interest |
( |
) | ||||||
Non-cash lease expense |
( |
) | ||||||
Changes in fair value of marketable securities and short-term investments |
( |
) | ||||||
Changes in operating assets and liabilities: |
||||||||
Member advances, service revenue |
( |
) | ( |
) | ||||
Prepaid income taxes |
||||||||
Prepaid expenses and other current assets |
( |
) | ||||||
Accounts payable |
||||||||
Accrued expenses |
||||||||
Legal settlement accrual |
||||||||
Other current liabilities |
( |
) | ( |
) | ||||
Other non-current liabilities |
( |
) | ||||||
Interest payable, convertible notes |
||||||||
Net cash ( used in) provided by operating activities |
( |
) |
||||||
Investing activities |
||||||||
Payments for internally developed software costs |
( |
) | ( |
) | ||||
Purchase of property and equipment |
( |
) | ( |
) | ||||
Net disbursements and collections of Member advances |
( |
) | ( |
) | ||||
Purchase of short-term investments |
( |
) | ||||||
Sale and maturity of short-term investments |
||||||||
Purchase of marketable securities |
( |
) | ( |
) | ||||
Sale of marketable securities |
||||||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
Financing activities |
||||||||
Repayment on line of credit |
( |
) | ||||||
Proceeds from PIPE offering |
||||||||
Proceeds from escrow account |
||||||||
Payment of issuance costs |
( |
) | ( |
) | ||||
Proceeds from issuance of common stock for stock option exercises |
||||||||
Repurchase of common stock |
( |
) | ||||||
Proceeds from borrowings on convertible debt |
||||||||
Proceeds from borrowings on debt and credit facilities |
||||||||
Net cash provided by financing activities |
||||||||
Net increase in cash and cash equivalents and restricted cash |
||||||||
Cash and cash equivalents and restricted cash, beginning of the period |
||||||||
Cash and cash equivalents and restricted cash, end of the period |
$ |
$ |
||||||
Supplemental disclosure of non-cash investing and financing activities: |
||||||||
Operating lease right of use assets recognized |
$ | $ | ||||||
Operating lease liabilities recognized |
$ | $ | ||||||
Property and equipment purchases in accounts payable |
$ | $ | ||||||
Conversion of convertible preferred stock to Class A common stock in connection with the reverse recapitalization |
$ | $ | ||||||
Recapitalization transaction costs liability incurred |
$ | $ | ||||||
Conversion of convertible notes and accrued interest to Class A common stock in connection with the reverse recapitalization |
$ | $ | ||||||
Conversion of B-1 Warrants to Class A common stock in connection with the reverse recapitalization |
$ | $ | ||||||
Discharge of PIPE promissory note in connection with the reverse recapitalization |
$ | $ | ||||||
Vesting of common stock exercised early |
$ | $ | ||||||
Amendment to loan to stockholder |
$ | $ | ||||||
Supplemental disclosure of cash (received) paid for: |
||||||||
Income taxes |
$ |
( |
) |
$ | ( |
) | ||
Interest |
$ |
$ | ||||||
The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the condensed consolidated balance sheet with the same as shown in the condensed consolidated statement of cash flows. |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Restricted cash |
||||||||
Total cash, cash equivalents, and restricted cash, end of period |
$ |
$ |
||||||
For the Nine Months Ended September 30, 2021 |
||||||||||||
As Reported |
Adjustment |
As Restated |
||||||||||
| Operating activities |
||||||||||||
| Member advances, service revenue |
$ |
( |
) |
$ |
$ |
( |
) | |||||
| Net cash (used in) provided by operating activities |
$ |
( |
) |
$ |
$ |
|||||||
| |
|
|
|
|
|
|||||||
| Investing a ctivities |
||||||||||||
| Net disbursements and collections of Member advances |
$ |
$ |
( |
) | $ |
( |
) | |||||
| Net cash used in investing activities |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
| |
|
|
|
|
|
|||||||
As of September 30, 2022 |
As of December 31, 2021 |
|||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ |
$ |
||||||
| Member advances, net of allowance for unrecoverable advances of $ September 30, 2022 and December 31, 2021, respectively |
||||||||
| Debt and credit facility commitment fee, current |
||||||||
| Debt facility commitment fee, long-term |
||||||||
| |
|
|
|
|||||
| Total assets |
$ |
$ |
||||||
| |
|
|
|
|||||
| Liabilities |
||||||||
| Accounts payable |
$ |
$ |
||||||
| Credit facility |
||||||||
| Debt facility |
||||||||
| Other current liability |
— |
|||||||
| Warrant liability |
— |
|||||||
| |
|
|
|
|||||
| Total liabilities |
$ |
$ |
||||||
| |
|
|
|
|||||
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Service based revenue, net |
||||||||||||||||
| Processing fees, net |
$ | $ | $ | $ | ||||||||||||
| Tips |
||||||||||||||||
| Subscriptions |
||||||||||||||||
| Other |
||||||||||||||||
| Transaction based revenue, net |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ |
$ |
$ |
$ |
||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
ATM-related fees, and are recognized at the point in time the transactions occur, as the performance obligation is satisfied. Interchange and
ATM-related fees recognized as a reduction of transaction based revenue during the three and nine months ended September 30, 2022
approximately
$
| September 30, 2022 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| Assets |
||||||||||||||||
| Marketable securities |
$ | $ | — | $ | — | $ | ||||||||||
| Short-term investments |
— | — | $ | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ |
$ |
$ |
— |
$ |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities |
||||||||||||||||
| Warrant liabilities - public warrants |
$ | $ | — | $ | — | $ | ||||||||||
| Warrant liabilities - private placement warrants |
— | — | ||||||||||||||
| Earnout liabilities |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
$ |
$ |
— |
$ |
$ |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| December 31, 2021 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| Assets |
||||||||||||||||
| Marketable securities |
$ | $ | — | $ | — | $ | ||||||||||
| Derivative asset on loans to stockholders |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ |
$ |
— |
$ |
$ |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities |
||||||||||||||||
| Warrant liability |
$ | — | $ | — | $ | $ | ||||||||||
| Note payable |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
$ |
— |
$ |
— |
$ |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Opening value at January 1, 2021 |
$ |
|||
| Amendment to loan to stockholder |
||||
| Change in fair value during the year |
||||
| |
|
|||
| Ending value at December 31, 2021 |
||||
| Change in fair value during the period |
( |
) | ||
| Exercise of call option |
( |
) | ||
| |
|
|||
| Ending value at September 30, 2022 |
$ |
|||
| |
|
December 31, 2021 |
||||
| Expected volatility |
% | |||
| Risk-free interest rate |
% | |||
| Remaining term |
||||
| Opening value at January 1, 2021 |
$ |
|||
| Initial fair value at the original issuance date |
||||
| Change in fair value during the year |
||||
| |
|
|||
| Ending value at December 31, 2021 |
||||
| Change in fair value during the period |
( |
) | ||
| Exercise of warrant |
( |
) | ||
| |
|
|||
| Ending value at September 30, 2022 |
$ |
|||
| |
|
December 31, 2021 |
||||
| Expected volatility |
% | |||
| Risk-free interest rate |
% | |||
| Remaining term |
||||
| Opening value at January 1, 2021 |
$ |
— |
||
| Fair value at issuance |
||||
| Change in fair value during the year |
||||
| |
|
|||
| Ending value at December 31, 2021 |
||||
| Change in fair value during the period |
( |
) | ||
| Discharge of obligation through the issuance of Common Stock |
( |
) | ||
| |
|
|||
| Ending value at September 30, 2022 |
$ |
— |
||
| |
|
| Opening value at January 1, 2022 |
$ |
— |
||
| Initial fair value at the merger date |
||||
| Change in fair value during the period |
( |
) | ||
| |
|
|||
| Ending value at September 30, 2022 |
$ |
|||
| |
|
September 30, 2022 |
||||
| Exercise Price |
$ |
|||
| Expected volatility |
% | |||
| Risk-free interest rate |
% | |||
| Remaining term |
||||
| Dividend yield |
% | |||
| Opening value at January 1, 2022 |
$ |
|||
| Initial fair value at the merger date |
||||
| Change in fair value during the period |
( |
) | ||
| |
|
|||
| Ending value at September 30, 2022 |
$ |
|||
| |
|
September 30, 2022 |
||||
| Exercise Price |
$ | |||
| Expected volatility |
% | |||
| Risk-free interest rate |
% | |||
| Remaining term |
||||
| Dividend yield |
% | |||
| • | Historical financial performance; |
| • | The Company’s business strategy; |
| • | Industry information, such as external market conditions and trends; |
| • | Lack of marketability of the Common Stock; |
| • | Likelihood of achieving a liquidity event, such as an initial public offering, special-purpose acquisition company (“SPAC”) merger, or strategic sale given prevailing market conditions and the nature and history of the Company’s business; |
| • | Prices, privileges, powers, preferences, and rights of our convertible preferred stock relative to those of the Common Stock; |
| • | Forecasted cash flow projections for the Company; |
| • | Publicly traded price of the SPAC; |
| • | Primary preferred stock financings and secondary common stock transactions of the Company’s equity securities; |
| • | Lack of marketability/illiquidity of the common stock underlying the Company’s stock-based awards involving securities in a private company; and |
| • | Macroeconomic conditions. |
For the Three Months September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Numerator |
||||||||||||||||
| Net loss |
$ |
( |
) | $ |
( |
) |
$ |
( |
) | $ |
( |
) | ||||
| Less: noncumulative dividend to convertible preferred stockholders |
||||||||||||||||
| Less: undistributed earnings to participating securities |
— |
— |
||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss attributed to common stockholders—basic |
( |
) | ( |
) |
( |
) | ( |
) | ||||||||
| Add: undistributed earnings reallocated to common stockholders |
— |
— |
— |
— |
||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss attributed to common stockholders—diluted |
$ |
( |
) | $ |
( |
) |
$ |
( |
) | $ |
( |
) | ||||
| Denominator |
||||||||||||||||
| Weighted-average shares of common stock—basic |
||||||||||||||||
| Dilutive effect of convertible preferred stock |
||||||||||||||||
| Dilutive effect of equity incentive awards |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average shares of common stock—diluted |
||||||||||||||||
| Net loss per share |
||||||||||||||||
| Basic |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Equity incentive awards |
||||||||||||||||
| Convertible debt |
||||||||||||||||
| Convertible preferred stock |
||||||||||||||||
| Series B-1 warrants |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash |
$ | |||
| Other assets |
||||
| Accrued expense |
( |
) | ||
| Earnout liabilities (As Restated) |
( |
) | ||
| Warrant liability — Public |
( |
) | ||
| Warrant liability — Private |
( |
) | ||
| Net assets acquired (As Restated) |
$ |
| (i) | in the event of a change of control pursuant to which Dave Stockholders receive, or have the right to receive, cash, securities or other property attributing a value of at least twelve dollars and fifty cents ($12.50) to each share of Class A Common Stock (as agreed in good faith by the Sponsor and the Board), then Triggering Event I shall be deemed to have occurred and; |
| (ii) | in the event that, and as often as, the number of outstanding shares of Class A Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any similar event, then the applicable Common Share Price (as defined in the Business Combination Agreement) threshold (i.e., twelve dollars and fifty cents ($ |
| (iii) | in the event of a change of control pursuant to which Dave Stockholders receive, or have the right to receive, cash, securities or other property attributing a value of at least fifteen dollars ($15.00) to each share of Class A Common Stock (as agreed in good faith by Sponsor and the Board), then Triggering Event II shall be deemed to have occurred and; |
| (iv) | in the event that, and as often as, the number of outstanding shares of Class A Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any similar event, then the applicable Common Share Price threshold (i.e., fifteen dollars ($ |
| Class A | Class V | |||||||
| Common stock outstanding on December 31, 2021 |
||||||||
| Common stock activity between December 31, 2021 and January 5, 2022 |
||||||||
| Exercise of derivative asset and paydown of stockholder loans |
( |
) | — | |||||
| Issuance of Class A Common Stock for stock option exercises |
— | |||||||
| Repurchase of Class A Common Stock |
( |
) | — | |||||
| |
|
|
|
|||||
| Common Stock outstanding prior to the Business Combination |
||||||||
| Conversion of preferred stock to Class A Common Stock |
— | |||||||
| Class A Common Stock attributable to VPCC |
— | |||||||
| |
|
|
|
|||||
| Adjustment related to Reverse Recapitalization* |
— | |||||||
| Founder Holder shares |
— | |||||||
| Conversion of 2019 convertible notes and accrued interest to Class A common stock |
— | |||||||
| Exercise of Series B-1 preferred stock warrants, net of settlement |
— | |||||||
| Issuance of Class A common stock pursuant to the PIPE financing |
— | |||||||
| |
|
|
|
|||||
| Total shares of common stock as of closing of Business Combination and related transactions |
||||||||
| |
|
|
|
|||||
| * | The corresponding adjustment to APIC related to the reverse recapitalization was comprised of (i) approximately $ |
September 30, 2022 |
December 31, 2021 |
|||||||
| Marketable securities |
$ | $ | ||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
| Corporate bonds |
$ | $ | — | $ | ( |
) | $ | |||||||||
| Asset-backed securities |
— | ( |
) | |||||||||||||
| Government securities |
— | ( |
) | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ |
$ |
$ |
( |
) |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Days From Origination |
Gross Member Advances |
Allowance for Unrecoverable Advances |
Member Advances, Net |
|||||||||
| 1-10 |
$ | $ | ( |
) | $ | |||||||
| 11-30 |
( |
) | ||||||||||
| 31-60 |
( |
) | ||||||||||
| 61-90 |
( |
) | ||||||||||
| 91-120 |
( |
) | ||||||||||
| |
|
|
|
|
|
|||||||
| Total |
$ |
$ |
( |
) |
$ |
|||||||
| |
|
|
|
|
|
|||||||
| Days From Origination |
Gross Member Advances |
Allowance for Unrecoverable Advances |
Member Advances, Net |
|||||||||
| 1-10 |
$ | $ | ( |
) | $ | |||||||
| 11-30 |
( |
) | ||||||||||
| 31-60 |
( |
) | ||||||||||
| 61-90 |
( |
) | ||||||||||
| 91-120 |
( |
) | ||||||||||
| |
|
|
|
|
|
|||||||
| Total |
$ |
$ |
( |
) |
$ |
|||||||
| |
|
|
|
|
|
|||||||
| Opening allowance balance at January 1, 2022 |
$ |
|||
| Plus: provision for unrecoverable advances |
||||
| Less: amounts written-off |
( |
) | ||
| |
|
|||
| Ending allowance balance at September 30, 2022 |
$ |
|||
| |
|
|||
| Opening allowance balance at January 1, 2021 |
$ |
|||
| Plus: provision for unrecoverable advances |
||||
| Less: amounts written-off |
( |
) | ||
| |
|
|||
| Ending allowance balance at September 30, 2021 |
$ |
|||
| |
|
September 30, 2022 |
December 31, 2021 |
|||||||
| Computer equipment |
$ |
$ |
||||||
| Leasehold improvements |
||||||||
| Furniture and fixtures |
||||||||
| |
|
|
|
|||||
| Total property and equipment |
||||||||
| Less: accumulated depreciation |
( |
) |
( |
) | ||||
| |
|
|
|
|||||
| Property and equipment, net |
$ |
$ |
||||||
| |
|
|
|
|||||
September 30, 2022 |
December 31, 2021 |
|||||||||||||||||||||||||||
Weighted Average Useful Lives |
Gross Carrying Value |
Accumulated Amortization |
Net Book Value |
Gross Carrying Value |
Accumulated Amortization |
Net Book Value |
||||||||||||||||||||||
| Internally developed software |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Domain name |
( |
) | ( |
) | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Intangible assets, net |
$ |
$ |
( |
) |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| 2022 (remaining) |
$ | |||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| Thereafter |
||||
| Total future amortization |
$ |
September 30, 2022 |
December 31, 2021 |
|||||||
| Accrued charitable contributions |
$ | $ | ||||||
| Accrued compensation |
||||||||
| Sales tax payable |
||||||||
| Accrued professional and program fees |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon a minimum of |
| • | in whole and not in part; |
| • | at $ |
| • | if, and only if, the closing price of Class A Common Stock equals or exceeds $ |
For the Nine Months Ended |
||||||||
September 30, 2022 |
September 30, 2021 |
|||||||
Operating lease cost |
$ | $ | ||||||
Short-term lease cost |
||||||||
Variable lease cost |
||||||||
Total lease cost |
$ |
$ |
||||||
For the Nine Months Ended |
||||||||
September 30, 2022 |
September 30, 2021 |
|||||||
Other information: |
||||||||
Cash paid for operating leases |
$ | $ | ||||||
Right-of-use |
$ | $ | ||||||
Weighted-average remaining lease term—operating lease |
||||||||
Weighted-average discount rate—operating lease |
% | % | ||||||
Year |
Third-Party Commitment |
Related-Party Commitment |
Total |
|||||||||
2022 (remaining) |
$ | $ | $ | |||||||||
2023 |
||||||||||||
2024 |
||||||||||||
2025 |
||||||||||||
Thereafter |
— | — | ||||||||||
Total minimum lease payments |
$ |
$ |
$ |
|||||||||
Less: imputed interest |
( |
) | ( |
) | ||||||||
Total lease liabilities |
$ |
$ |
$ |
|||||||||
Expected term |
||||
Risk-free interest rate |
% | |||
Expected dividend yield |
% | |||
Expected volatility |
% |
Shares |
Weighted- Average Exercise Price |
|||||||
Options outstanding, January 1, 2022 |
$ |
|||||||
Granted |
$ |
|||||||
Exercised |
( |
) |
$ |
|||||
Forfeited |
( |
) |
$ |
|||||
Expired |
( |
) |
$ |
|||||
Options outstanding, September 30, 2022 |
$ |
|||||||
Nonvested options, September 30, 2022 |
$ |
|||||||
Vested and exercisable, September 30, 2022 |
$ |
|||||||
Remaining term |
||||
Risk-free interest rate |
% | |||
Expected dividend yield |
% | |||
Expected volatility |
% |
Shared |
Weighted- Average Grant-Date Fair Value |
|||||||
Nonvested shares at January 1, 2022 |
$ |
|||||||
Granted |
$ |
|||||||
Vested |
( |
) |
$ |
|||||
Forfeited |
( |
) |
$ |
|||||
Nonvested shares at September 30, 2022 |
$ |
|||||||
Year |
Related-Party Commitment |
|||
2022 (remaining) |
$ | |||
2023 |
||||
2024 |
||||
2025 |
||||
Thereafter |
||||
Total minimum lease payments |
$ |
|||
Less: imputed interest |
( |
) | ||
Total lease liabilities |
$ |
|||
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 25, 2022 our Form 10-Q/A for the three months ended March 31, 2022 filed with the SEC on August 22, 2022 and our Form 10-Q for the six months ended June 30, 2022 filed with the SEC on August 22, 2022. Actual results may differ materially from those contained in any forward-looking statements. Unless otherwise noted or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and the “Company” are intended to mean the business and operations of Dave Inc. and our consolidated subsidiaries subsequent to the closing of the Business Combination (as defined below).
Overview
In the story of David vs. Goliath, the small underdog is able to outsmart and defeat his larger adversary. This is the spirit behind the name “Dave.” We have built an integrated financial services online platform that provides millions of Americans with seamless access to a variety of intuitive financial products at a fraction of the cost and with much higher speed to value than that of the legacy financial services incumbents, such as traditional banks and other financial institutions. Our mission is to build products that level the financial playing field. Our near-term strategy is focused on delivering a superior banking experience for anyone living paycheck to paycheck.
Based on our observation and analysis of Member data, legacy financial institutions charge high fees for consumer banking and other financial services products, which disproportionately burdens tens of millions of Americans who can least afford them. We see this dynamic playing out with our Members who we believe are on average paying between $300-$400 in overdraft, maintenance and other fees to their existing bank for basic checking services.
Further, we see a significant opportunity to address the broader short-term credit market. According to a report by the Center for Financial Services Innovation (“CFSI”), legacy financial institutions charge approximately $30 billion in fees annually. The Financial Health Network estimates that financially “coping” and “vulnerable” populations pay approximately $120 billion a year in fees and interest for access to short-term credit.
Our prospective Member opportunity is also significant. According to the Financial Health Network, by 2023 approximately 45 million Americans will be “financially vulnerable,” 65 million Americans will be unbanked or underbanked and 185 million Americans will fall into the low or volatile income and credit-challenged category. Given these dynamics, we estimate that our total addressable market consists of between 150 million to 180 million Americans who are in need of financial stability and are either not served or underserved by legacy financial institutions.
Dave offers a suite of innovative financial products aimed at helping our Members improve their financial health. Our budgeting tool helps Members manage their upcoming bills to avoid overspending. To help Members avoid punitive overdraft fees and access short-term liquidity, Dave offers cash advances through its flagship 0% interest ExtraCash product. We also help Members generate extra income for spending or emergencies through our Side Hustle product, where we present Members with supplemental work opportunities. Through Dave Banking, we provide a modern checking account experience with valuable tools for building long-term financial health.
Market research conducted by Dave found that legacy financial institutions commonly require a more extensive banking relationship and days or even weeks of wait times to access their features and services, which can potentially be more onerous in order to obtain premium features (e.g., access to increased interest rates requires direct deposit or higher minimum daily balances). Even new challenger banks often take multiple days or even weeks before allowing members to access certain premium features, according to the same research. In contrast, Members are able to utilize all of Dave’s products individually and instantly, whether or not their banking relationship is with us. As an example, our ExtraCash product allows new Members to now access up to $500 to cover an overdraft at their existing bank. We are able to do this by leveraging our proprietary machine learning engine that analyzes a Member’s prior transaction history at their existing bank. This flexible approach to Member choice and speed to value has been a key driver of our growth and best-in-Class brand favorability.
We have only begun to address the many inequities in financial services, but our progress to date demonstrates the demand for Dave to rewire the financial system for the everyday person. Since inception and through the date of this Form 10-Q, over 10 million Members have registered on the Dave app, over six million of them have used at least one of our current products and we believe that we have a substantial opportunity to continue growing our Member base going forward. We strongly believe that the value proposition of our platform approach will continue to accelerate as a result of our data-driven perspective of our Members, allowing us to introduce products and services that address their changing life circumstances.
Business Combination and Public Company Costs
On January 5, 2022 (the “Closing Date”), we consummated the previously announced mergers contemplated by the Agreement and Plan of Merger, dated as of June 7, 2021 (the “Business Combination Agreement”), by and among VPC Impact Acquisition Holdings III, Inc. (“VPCC”), Dave Inc., a Delaware corporation (“Legacy Dave”), Bear Merger Company I Inc., a Delaware corporation and a direct, wholly owned Subsidiaries of VPCC (“First Merger Sub”), and Bear Merger Company II LLC, a Delaware limited liability company and a direct, wholly owned Subsidiaries of VPCC (“Second Merger Sub”). Pursuant to the Business Combination Agreement, First Merger Sub merged with and into Legacy Dave (the “First Merger”), with Legacy Dave being the surviving corporation of the First Merger (the “Surviving Corporation”), and immediately following the First Merger, the Surviving Corporation merged with and into Second Merger Sub (the “Second Merger,” together with the First Merger, the “Mergers” and the Mergers together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”), with Second Merger Sub being the surviving company of the Second Merger as a wholly owned Subsidiaries of VPCC (the “Surviving Entity”). In connection with the closing of the Business Combination, we changed our name from “VPC Impact Acquisition Holdings III, Inc.” to “Dave Inc.,” and the Surviving Entity operates under the name “Dave Operating LLC.”
42
Table of Contents
While the legal acquirer in the Business Combination Agreement is VPCC, for financial accounting and reporting purposes under accounting principles generally accepted in the United States (“U.S. GAAP”), Legacy Dave is the accounting acquirer, and the Business Combination is accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Dave in many respects. Under this method of accounting VPCC is treated as the “acquired” company for financial reporting purposes. For accounting purposes, Legacy Dave is deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Legacy Dave (i.e., a capital transaction involving the issuance of stock by VPCC for Dave Capital Stock). Accordingly, the consolidated assets, liabilities and results of operations of Legacy Dave have become the historical consolidated financial statements of the combined company, and VPCC’s assets, liabilities and results of operations have been consolidated with Dave beginning on the Closing Date. Operations prior to the Business Combination are presented as those of Legacy Dave in future reports. The net assets of VPCC have been recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded.
The Business Combination generated gross cash proceeds of $217.0 million, including $210.0 million proceeds from the public investment in private equity pursuant to the subscription agreements between the Company and certain investors (the “PIPE Investment”). Total direct and incremental transaction costs aggregated approximately $35.3 million which were recorded to APIC as equity issuance costs.
As a result of the consummation of the Business Combination, we will incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, and legal and administrative resources, including increased audit, compliance and legal fees.
Recent Developments
On March 21, 2022, we entered into a Convertible Note Purchase Agreement (“Purchase Agreement”) with FTX Ventures Ltd., owner and operator of FTX US (“FTX Ventures”), pursuant to which, we sold and issued a convertible note in the initial principal amount of $100.0 million (the “Note” and the transactions contemplated by the Purchase Agreement and the Note, the “Transaction”). The Transaction is exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act. We intend to use the proceeds from the sale of the Note for working capital and general corporate purposes.
The note bears interest at a fixed rate of 3.00% per year (compounded semi-annually), payable semi-annually in arrears on June 30th and December 31st of each year. Interest may be paid in-kind or in cash, at our option. Forty-eight months (the “Maturity Date”) after the date of the initial issuance of the Note (the “Issuance Date”), we will pay FTX Ventures the sum of (i) the outstanding principal amount of the Note, plus (ii) all accrued but unpaid interest thereon, plus (iii) all expenses incurred by FTX Ventures (the “Redemption Price”). Payment of the Redemption Price on the Maturity Date will constitute a redemption of the Note in whole.
The Note will be convertible into shares of our Class A Common Stock (“Common Stock”) at the option of FTX Ventures, upon delivery on one or more occasions of a written notice to us electing to convert the Note or all of any portion of the outstanding principal amount of the Note. The initial conversion price of the Note is $10.00 per share of Common Stock (the “Conversion Price”). The Conversion Price of the Note is subject to adjustment for stock splits, dividends or distributions, recapitalizations, spinoffs or similar transactions. The Note and the shares of Common Stock issuable upon conversion of the Note have not been registered under the Securities Act and may not be offered or sold absent registration or an applicable exemption from registration requirements.
Beginning on the 24-month anniversary of the Issuance Date continuing until the Maturity Date, if the closing price of the Common Stock equals or exceeds 175% of the Conversion Price for 20 out of the 30 consecutive trading days ending immediately preceding the delivery of the notice of our election to convert the Note, the Note will be convertible into shares of Common Stock, upon delivery of a written notice to FTX Ventures electing to convert the Note or all or any portion of the outstanding principal amount of the Note.
At any time prior to the Maturity Date, we may, in our sole discretion and upon delivery of a written notice to FTX Ventures electing to prepay the Note, prepay the Note without penalty by paying FTX Ventures 100% of the Redemption Price. Once the Redemption Price has been delivered to FTX Ventures, the Note will be cancelled and retired.
Conversion of the full initial principal amount of the Note would result in the issuance of 10,000,000 shares of Common Stock if converted at $10.00 per share, which amount is subject to increase by any interest paid in kind that is added to the outstanding principal under the terms of the Note.
The Purchase Agreement and Note include customary representations, warranties and covenants and set forth standard events of default upon which the Note may be declared immediately due and payable.
On March 21, 2022, we also entered into a White Label Services Agreement (the “Services Agreement”) with West Realm Shire Services, Inc., d/b/a FTX US (“FTX US”). The Services Agreement allows our customers to establish accounts with FTX US through our platform to place orders for eligible cryptocurrencies and for the settlement of such orders. During the four-year term of the Services Agreement, FTX US will be our exclusive provider of such cryptocurrency services.
Restatement of Consolidated Financial Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to certain adjustments made to our previously issued condensed consolidated financial statements as of and for the nine months ended September 30, 2021. The determination to restate these condensed consolidated financial statements was made by management after its review of records related to the classification of cash flows to/from Member advances, in connection with its preparation of the Company’s condensed consolidated financial statements for the nine months ended September 30, 2022. See Note 2—Restatement of Previously Issued Financial Statements to our condensed consolidated financial statements.
43
Table of Contents
COVID-19 Impact
There are many uncertainties regarding the current global pandemic involving a novel strain of coronavirus (“COVID-19”), and we continue to closely monitor the impact of the pandemic on all aspects of our business, including how it has and may in the future impact our Members, employees, suppliers, vendors, and business partners. The duration and magnitude of the continuing effects of COVID-19 on our Members remain uncertain and dependent on various factors, including new variants of the virus and their severity and transmission rates, the nature of and duration for which preventive and containment measures are taken and remain in place, and the extent and effectiveness of such measures, including vaccination programs, and the type of stimulus measures and other policy responses that the U.S. government may further adopt. Moreover, the global macroeconomic effects of the COVID-19 pandemic and related impacts on Members and their demand for our products and services may persist for an indefinite period, even after the effects of the pandemic have subsided.
Comparability of Financial Information
Our future results of operations and financial position may not be comparable to historical results as a result of the consummation of the Business Combination.
Key Factors Affecting Operating Results
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including Member growth and activity, product expansion, competition, industry trends and general economic conditions.
Member Growth and Activity
We have made significant investments in our platform and our business is dependent on continued Member growth, as well as our ability to offer new products and services and generate additional revenues from our existing members using such additional products and services. Member growth and activity are critical to our ability to increase our scale, capture market share and earn an attractive return on our technology, product and marketing investments. Growth in Members and Member activity will depend heavily on our ability to continue to offer attractive products and services and the success of our marketing and Member acquisition efforts.
Product Expansion
We aim to develop and offer a best-in-class financial services platform with integrated products and services that improve the financial wellbeing of our Members. We have invested and continue to make significant investments in the development, improvement and marketing of our financial products and are focused on continual growth in the number of products we offer that are utilized by our Members.
Competition
We face competition from several financial services-oriented institutions. In our reportable segment, as well as in potential new lines of business, we may compete with more established institutions, some of which have more financial resources. We compete at multiple levels, including competition among other financial institutions and lenders in our Advance business, competition for deposits in our Checking Product from traditional banks and digital banking products, competition for subscribers to our financial management tools, and competition with other technology platforms for the enterprise services that we provide. Some of our competitors may at times seek to increase their market share by undercutting pricing terms prevalent in that market, which could adversely affect our market share for any of our products and services or require us to incur higher member acquisition costs.
Key Components of Statements of Operations
Basis of presentation
Currently, we conduct business through one operating segment which constitutes a single reportable segment. For more information about our basis of presentation, refer to Note 3, Summary of Significant Accounting Policies in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.
Service based revenue, net
Service based revenue, net primarily consists of optional tips, optional express processing fees and subscriptions charged to Members, net of processor- related costs associated with advance disbursements. Service based revenue, net also consists of lead generation fees from our Side Hustle advertising partners as well as fees earned related to the Rewards Product for Members who make debit card spending transactions at participating merchants.
44
Table of Contents
Transaction based revenue, net
Transaction based revenue, net consists of interchange and ATM revenues from our Checking Product, net of interchange and ATM-related fees and cashback rewards, and are recognized at the point in time the transactions occur, as the performance obligation is satisfied.
Operating expenses
We classify our operating expenses into the following five categories:
Provision for Unrecoverable Advances
The provision for unrecoverable advances primarily consists of an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in the outstanding advances receivable. We currently estimate the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the unaudited condensed consolidated statement of operations. We consider advances more than 120 days past due or which become uncollectible based on information available to us as impaired. All impaired advances are deemed uncollectible and subsequently written off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries, if any, of Member advances written-off are recorded as a reduction to Member advances, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances in the unaudited condensed consolidated statements of operations when collected.
Processing and Servicing Fees
Processing and servicing fees consist of fees paid to our processing partners for the recovery of advances, optional tips, optional express processing fees and subscriptions. These expenses also include fees paid for services to connect Members’ bank accounts to our application. Except for processing and servicing fees associated with advance disbursements which are recorded net against revenue, all other processing and service fees are expensed as incurred.
Advertising and Marketing
Advertising and marketing expenses consist primarily of fees we pay to our platform partners. We incur advertising, marketing and production-related expenses for online, social media and television advertising and for partnerships and promotional advertising. Advertising and marketing expenses are expensed as incurred although they typically deliver a benefit over an extended period.
Compensation and Benefits
Compensation and benefits expenses represent the compensation, inclusive of stock-based compensation and benefits, that we provide to our employees and the payments we make to third-party contractors. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations and handle routine customer service inquiries and support.
Other Operating Expenses
Other operating expenses consist primarily of technology and infrastructure (third-party Software as a Service “SaaS”), commitments to charity, transaction based costs (program expenses, association fees, processor fees, losses from Member-disputed transactions, and fraud), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, certain sales tax related costs, office related expenses, public relations costs, professional service fees, travel and entertainment, and insurance. Costs associated with technology and infrastructure, rent, depreciation and amortization of our property and equipment and intangible assets, professional service fees, travel and entertainment, public relations costs, utilities, office-related expenses and insurance technology and infrastructure (third-party subscriptions), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, office-related expenses, public relations costs, professional service fees, travel and entertainment and insurance vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.
We expect our operating expenses to increase for the foreseeable future with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.
Other (Income) Expenses
Other (income) expenses consist of interest income, interest expense, legal settlement and litigation expenses, derivative asset fair value adjustments, other strategic financing and transactional expenses, gain on extinguishment of a liability, earnout liabilities fair value adjustments, and warrant liability fair value adjustments.
Provision for Income Taxes
Provision for income taxes consists of the federal and state corporate income taxes accrued on income resulting from the sale of our services. On March 27, 2020, the CARES Act was signed into law, which among other things, includes certain income tax provisions for corporations; however, these benefits did not impact our current tax provision.
45
Table of Contents
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
| For the Three Months Ended | Change | |||||||||||||||
| September 30, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Service based revenue, net |
||||||||||||||||
| Processing fees, net |
$ | 29,793 | $ | 21,032 | $ | 8,761 | 42 | % | ||||||||
| Tips |
17,497 | 12,005 | 5,492 | 46 | % | |||||||||||
| Subscriptions |
5,191 | 4,060 | 1,131 | 28 | % | |||||||||||
| Other |
314 | 241 | 73 | 30 | % | |||||||||||
| Transaction based revenue, net |
4,012 | 2,860 | 1,152 | 40 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 56,807 | $ | 40,198 | $ | 16,609 | 41 | % | ||||||||
|
|
|
|
|
|
|
|||||||||||
Operating revenues
Service based revenue, net— Processing fees, net
Processing fees, net of processor costs associated with advance disbursements, for the three months ended September 30, 2022 were approximately $29.8 million, an increase from approximately $21.0 million for the three months ended September 30, 2021. The increase of approximately $8.8 million, or 42%, was primarily attributable to increases in total advance volume from approximately $360.7 million to approximately $757.1 million along with a higher average advance amount period over period. Processing fees tend to increase as advance volume increases, but may not always trend ratably as processing fees vary depending on the total amount of the advance. The percentage of Members that chose to pay a processing fee to expedite an advance remained consistent for the three months ended September 30, 2022 and 2021, respectively. The average processing fees Members paid to expedite these advances increased slightly for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
Tips
Tips for the three months ended September 30, 2022 were approximately $17.5 million, an increase from approximately $12.0 million for the three months ended September 30, 2021. The increase of approximately $5.5 million, or 46%, was primarily attributable to increases in total advance volume from approximately $360.7 million to approximately $757.1 million period over period. Tips tend to increase as advance volume increases, but may not always trend ratably as tips often vary depending on the total amount of the advance. The percentage of Members that chose to leave a tip decreased slightly for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. For those same periods, the average amount of tip Members chose to leave increased for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
Subscriptions
Subscriptions for the three months ended September 30, 2022 were approximately $5.2 million, an increase from approximately $4.1 million during the three months ended September 30, 2021. The increase of approximately $1.1 million, or 28%, was primarily attributable to higher subscription engagement with Members on our platform.
Transaction based revenue, net
Transaction based revenue, net for the three months ended September 30, 2022 was approximately $4.0 million, an increase from approximately $2.9 million, for the three months ended September 30, 2021. The increase of approximately $1.2 million, or 40%, was primarily attributable to the growth in Members engaging with our Checking Product and corresponding growth in the number of transactions initiated by Members.
Operating expenses
| For the Three Months Ended | Change | |||||||||||||||
| September 30, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Provision for unrecoverable advances |
$ | 18,353 | $ | 10,760 | $ | 7,593 | 71 | % | ||||||||
| Processing and servicing fees |
9,494 | 6,205 | 3,289 | 53 | % | |||||||||||
| Advertising and marketing |
24,090 | 12,949 | 11,141 | 86 | % | |||||||||||
| Compensation and benefits |
24,294 | 15,432 | 8,862 | 57 | % | |||||||||||
| Other operating expenses |
18,498 | 10,523 | 7,975 | 76 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 94,729 | $ | 55,869 | $ | 38,860 | 70 | % | ||||||||
|
|
|
|
|
|
|
|||||||||||
46
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Provision for unrecoverable advances—The provision for unrecoverable advances totaled approximately $18.4 million for the three months ended September 30, 2022, compared to approximately $10.8 million for the three months ended September 30, 2021. The increase of approximately $7.6 million, or 71%, was primarily attributable to an increase in provision expense of approximately $6.4 million related to Member advances aged over 120 days and those that have become uncollectible based on information available to us, in addition to an increase in provision expense of approximately $1.2 million related to Member advances aged 120 days and under.
The increase in provision expense related to Member advances aged over 120 days and those which have become uncollectible based on information available to us, period over period, was driven primarily by aged receivables and the increase in advance volume during the second quarter of 2022 along with approximately $3.0 million in member advance write-offs related to a fraud event during the third quarter of 2022. All impaired advances deemed uncollectible are subsequently written-off and are a direct reduction to the allowance for unrecoverable advances.
The increase in provision expense related to Member advances aged 120 days and under was primarily attributed to significant increases in average advance amounts and total advance volume from approximately $360.7 million to approximately $757.1 million for the three months ended September 30, 2022 and 2021, respectively. This resulted in an increase to the allowance for unrecoverable advances and corresponding higher provision for unrecoverable advances expense during the three months ended September 30, 2022 as compared to September 30, 2021. We anticipate volatility in Member advances outstanding each period as they are directly correlated with the timing and volume of Member advance activity during the last 120 days prior to the end of the period.
Throughout the three months ended September 30, 2022, loss and collections experience of Member advances remained steady, however, historical loss and collections rates utilized in the calculation of the provision for unrecoverable advances decreased slightly when compared to historical rates used in 2021 which reflected underwriting modifications made during early 2020 in response to the onset of COVID-19. These underwriting modifications primarily consisted of lower advance amounts and stricter eligibility requirements. Any changes to our historical loss and collections experience directly affects the historical loss rates utilized in the calculation of the allowance for uncollectible advances. The changes in the allowance for unrecoverable advances, period over period, has a direct impact on the provision for unrecoverable advances.
For information on the aging of Member advances and a rollforward of the allowance for unrecoverable advances, refer to the tables in Note 7 Member Cash Advances, Net in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.
Processing and service fees—Processing and servicing fees totaled approximately $9.5 million for the three months ended September 30, 2022, compared to approximately $6.2 million for the three months ended September 30, 2021. The increase of approximately $3.3 million, or 53%, was primarily attributable to the increase in advance volume from $360.7 million to approximately $757.1 million for the three months ended September 30, 2022 and 2021, respectively, offset by volume associated discounts and cost savings due to price reductions from our processors.
Advertising and marketing—Advertising and marketing expenses totaled approximately $24.1 million for the three months ended September 30, 2022, compared to approximately $12.9 million for the three months ended September 30, 2021. The increase of approximately $11.1 million, or 86%, was primarily attributable to increased advertising efforts, production costs and promotions across various social media platforms and television.
Compensation and benefits—Compensation and benefits expenses totaled approximately $24.3 million for the three months ended September 30, 2022, compared to approximately $15.4 million for the three months ended September 30, 2021. The increase of approximately $8.9 million, or 57%, was primarily attributable to the following:
| • | an increase in payroll and related costs of approximately $5.3 million, primarily due to hiring and increased headcount throughout the business; and |
| • | an increase in stock-based compensation of approximately $4.5 million, primarily due to restricted stock units granted during the three months ended September 30, 2022 and stock options granted to a certain executive during 2021, which achieved certain performance conditions associated with the close of the Business Combination; offset by |
| • | a decrease in consultants and contractor costs of approximately $0.9 million, primarily due to decrease in the need for supplemental recruiting efforts and a decrease in IT security, marketing, design and augmenting customer service resources. |
Other operating expenses—Other operating expenses totaled approximately $18.5 million for the three months ended September 30, 2022, compared to approximately $10.5 million for the three months ended September 30, 2021. The increase of approximately $8.0 million, or 76%, was primarily attributable to the following:
| • | an increase in insurance related costs of approximately $1.7 million, primarily related to Director and Officer and Cyber Insurance premiums; |
| • | an increase in accounting costs of approximately $0.9 million, primarily related to various audit, tax and Sarbanes-Oxley compliance readiness related fees associated with the Business Combination in January 2022; |
| • | an increase in technology and infrastructure expenses of approximately $1.2 million, primarily due to increased costs to support the growth of our business and development of new products and features; |
| • | an increase in expenses related to our Checking Product of approximately $1.5 million, primarily attributable to processing and fraud related costs associated with the growth in Members and the number of transactions processed; |
| • | an increase in legal fees of approximately $0.5 million, primarily due to ongoing litigation, compliance, employment and general corporate related matters; |
| • | an increase in various administrative expenses of approximately $0.5 million, primarily due to increases in licenses and fees and travel and entertainment and other administrative expenses; |
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| • | an increase in depreciation and amortization of approximately $1.6 million, primarily due to accelerated amortization related to the change in useful life of a certain intangible asset, equipment purchases for increased headcount and amortization of internally developed software; and |
| • | an increase in rent expense of approximately $0.5 million, due to additional leased office space; offset by |
| • | a decrease in charitable contribution expenses of approximately $0.4 million, primarily due to decreased amounts pledged to charitable meal donations related to Members’ tips. |
Other (income) expense
| For the Three Months Ended | Change | |||||||||||||||
| September 30, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Interest income |
$ | (1,171 | ) | $ | (470 | ) | $ | (701 | ) | 149 | % | |||||
| Interest expense |
2,403 | 709 | 1,694 | 239 | % | |||||||||||
| Legal settlement and litigation expenses |
6,845 | 343 | 6,502 | 1896 | % | |||||||||||
| Other strategic financing and transactional expenses |
2,209 | 29 | 2,180 | 7517 | % | |||||||||||
| Changes in fair value of earnout liabilities |
18 | — | 18 | -100 | % | |||||||||||
| Changes in fair value of derivative asset on loans to stockholders |
— | (9,001 | ) | 9,001 | -100 | % | ||||||||||
| Changes in fair value of warrant liabilities |
(748 | ) | 614 | (1,362 | ) | -222 | % | |||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 9.556 | $ | (7,776 | ) | $ | 17,332 | -223 | % | |||||||
|
|
|
|
|
|
|
|||||||||||
Interest income— Interest income totaled approximately $1.2 million for the three months ended September 30, 2022, compared to approximately $0.5 million for the three months ended September 30, 2021. The increase of approximately $0.7 million, or 149%, was primarily attributable to interest earned from yields from short-term investments and higher interest rates during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
Interest expense— Interest expense totaled approximately $2.4 million for the three months ended September 30, 2022, compared to approximately $0.7 million for the three months ended September 30, 2021. The increase of approximately $1.7 million, or 239%, was primarily attributable to interest related to increased borrowings from the delayed draw senior secured loan facility (the “Debt Facility”) which Dave OD Funding I, LLC (“Dave OD”) entered into during January 2021, and which was subsequently amended in November 2021 to include a $20 million line of credit (the “Credit Facility”), along with interest related to the Note with FTX Ventures and higher interest rates on borrowings under the Debt Facility and Credit Facility.
Legal settlement and litigation expenses—Legal settlement and litigation expenses totaled $6.8 million for the three months ended September 30, 2022, compared to approximately $0.3 million for the three months ended September 30, 2021. See Note 16 Commitments and Contingencies in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q for more information regarding pending legal actions. The increase of approximately $6.5 million, or 1896%, was primarily attributable to an increase in various settlement and litigation expenses related to the various legal matters as compared to those expenses recorded during the three months ended September 30, 2021.
Other strategic financing and transactional expenses—Other strategic financing and transactional expenses totaled approximately $2.2 million for the three months ended September 30, 2022, compared to approximately $0.03 million for the three months ended September 30, 2021. The increase of approximately $2.2 million, or 7517%, was primarily attributable to consulting related spend on exploring various transactional and new product opportunities.
Changes in fair value of derivative asset on loans to stockholders—Changes in fair value of derivative asset on loans to stockholders totaled $0 for the three months ended September 30, 2022, compared to a benefit of approximately $9.0 million for the three months ended September 30, 2021. The decrease of approximately $9.0 million, or 100%, was primarily attributable to the exercise of the call options and settlement of the derivative asset during the close of the Business Combination in January 2022. Please refer to Note 3 in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.
Changes in fair value of warrant liability—Changes in fair value of warrant liability totaled a benefit of approximately $0.7 million for the three months ended September 30, 2022, compared to an expense of approximately $0.6 million for the three months ended September 30, 2021. The decrease in expense of approximately $1.4 million, or 222%, was primarily attributable to fair value adjustments associated with certain public and private warrant liabilities due to decreases in our underlying Class A Common Stock price, offset by fair value adjustments associated with certain warrants exercised in connection with the Business Combination.
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Provision for income taxes
| For the Three Months Ended September 30, |
Change | |||||||||||||||
| $ | % | |||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Provision for income taxes |
26 | (6 | ) | 32 | -533 | % | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 26 | $ | (6 | ) | $ | 32 | -533 | % | |||||||
|
|
|
|
|
|
|
|||||||||||
Provision for income taxes for the three months ended September 30, 2022 increased by approximately $0.03 million compared to the three months ended September 30, 2021. This increase was primarily attributable to an increase in state taxes, including gross margin state taxes, relative to state taxes recognized for the three months ended September 30, 2021.
Comparison of the Nine Months Ended September 30, 2022 and 2021
| For the Nine Months Ended September 30, |
Change | |||||||||||||||
| $ | % | |||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Service based revenue, net |
||||||||||||||||
| Processing fees, net |
$ | 74,624 | $ | 57,410 | $ | 17,214 | 30 | % | ||||||||
| Tips |
45,991 | 33,067 | 12,924 | 39 | % | |||||||||||
| Subscriptions |
13,691 | 13,055 | 636 | 5 | % | |||||||||||
| Other |
748 | 610 | 138 | 23 | % | |||||||||||
| Transaction based revenue, net |
10,109 | 7,711 | 2,398 | 31 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 145,163 | $ | 111,853 | $ | 33,310 | 30 | % | ||||||||
|
|
|
|
|
|
|
|||||||||||
Operating revenues
Service based revenue, net - Processing fees, net
Processing fees, net of processor costs associated with advance disbursements, for the nine months ended September 30, 2022 were approximately $74.6 million, an increase from approximately $57.4 million for the nine months ended September 30, 2021. The increase of approximately $17.2 million, or 30%, was primarily attributable to increases in total advance volume from approximately $961.7 million to approximately $1,908 million along with a higher average advance amount period over period. Processing fees tend to increase as advance volume increases, but may not always trend ratably as processing fees vary depending on the total amount of the advance. The percentage of Members that chose to pay a processing fee to expedite an advance remained consistent for the nine months ended September 30, 2022 and 2021, respectively. The average processing fees Members paid to expedite these advances increased slightly for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Tips
Tips for the nine months ended September 30, 2022 were approximately $46.0 million, an increase from approximately $33.1 million for the nine months ended September 30, 2021. The increase of approximately $12.9 million, or 39%, was primarily attributable to increases in total advance volume from approximately $961.7 million to approximately $1,908 million period over period. Tips tend to increase as advance volume increases, but may not always trend ratably as tips often vary depending on the total amount of the advance. The percentage of Members that chose to leave a tip decreased slightly for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. For those same periods, the average amount of tip Members chose to leave increased for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Subscriptions
Subscriptions for the nine months ended September 30, 2022 were approximately $13.7 million, an increase from approximately $13.1 million during the nine months ended September 30, 2021. The increase of approximately $0.6 million, or 5%, was primarily attributable to lower subscription engagement with Members on our platform.
Transaction based revenue, net—Transaction based revenue, net for the nine months ended September 30, 2022 was approximately $10.1 million, an increase from approximately $7.7 million, for the nine months ended September 30, 2021. The increase of approximately $2.4 million, or 31%, was primarily attributable to the growth in Members engaging with our Checking Product and corresponding growth in the number of transactions initiated by Members.
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Operating expenses
| For the Nine Months Ended | Change | |||||||||||||||
| September 30, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Provision for unrecoverable advances |
$ | 45,995 | $ | 21,693 | $ | 24,302 | 112 | % | ||||||||
| Processing and servicing fees |
23,627 | 16,920 | 6,707 | 40 | % | |||||||||||
| Advertising and marketing |
57,087 | 38,844 | 18,243 | 47 | % | |||||||||||
| Compensation and benefits |
81,326 | 34,685 | 46,641 | 134 | % | |||||||||||
| Other operating expenses |
50,738 | 31,987 | 18,751 | 59 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 258,773 | $ | 144,129 | $ | 114,644 | 80 | % | ||||||||
|
|
|
|
|
|
|
|||||||||||
Provision for unrecoverable advances—The provision for unrecoverable advances totaled approximately $46.0 million for the nine months ended September 30, 2022, compared to approximately $21.7 million for the nine months ended September 30, 2021. The increase of approximately $24.3 million, or 112%, was primarily attributable to an increase in provision expense of approximately $11.4 million related to Member advances aged over 120 days and those that have become uncollectible based on information available to us, in addition to an increase in provision expense of approximately $12.9 million related to Member advances aged 120 days and under.
The increase in provision expense related to Member advances aged over 120 days and those which have become uncollectible based on information available to us, period over period, was driven primarily by aged receivables and the increase in advance volume during the first and second quarters of 2022 along with approximately $3.0 million in member advance write-offs related to a fraud event during the third quarter of 2022. All impaired advances deemed uncollectible are subsequently written-off and are a direct reduction to the allowance for unrecoverable advances.
The increase in provision expense related to Member advances aged 120 days and under, was primarily attributed to significant increases in average advance amounts and total advance volume from approximately $961.7 million to approximately $1,908 million for the nine months ended September 30, 2021 and 2022, respectively. This resulted in an increase to the allowance for unrecoverable advances and corresponding higher provision for unrecoverable advances expense during the nine months ended September 30, 2022 as compared to September 30, 2021. We anticipate volatility in Member advances outstanding each period as they are directly correlated with the timing and volume of Member advance activity during the last 120 days prior to the end of the period.
Throughout the first nine months of 2022, loss and collections experience of Member advances remained steady, however, historical loss and collections rates utilized in the calculation of the provision for unrecoverable advances decreased slightly when compared to historical rates used in 2021 which reflected underwriting modifications made during early 2020 in response to the onset of COVID-19. These underwriting modifications primarily consisted of lower advance amounts and stricter eligibility requirements. Any changes to our historical loss and collections experience directly affects the historical loss rates utilized in the calculation of the allowance for uncollectible advances. The changes in the allowance for unrecoverable advances, period over period, has a direct impact on the provision for unrecoverable advances.
For information on the aging of Member advances and a rollforward of the allowance for unrecoverable advances, refer to the tables in Note 7 Member Cash Advances, Net in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.
Processing and service fees—Processing and servicing fees totaled approximately $23.6 million for the nine months ended September 30, 2022, compared to approximately $16.9 million for the nine months ended September 30, 2021. The increase of approximately $6.7 million, or 40%, was primarily attributable to the increase in advance volume from $961.7 million to approximately $1,908 million for the nine months ended September 30, 2021 and 2022, respectively, offset by volume associated discounts and cost savings due to price reductions from our processors.
Advertising and marketing—Advertising and marketing expenses totaled approximately $57.1 million for the nine months ended September 30, 2022, compared to approximately $38.8 million for the nine months ended September 30, 2021. The increase of approximately $18.2 million or 47% was primarily attributable to increased marketing efforts, production costs and promotions across various social media platforms and television.
Compensation and benefits—Compensation and benefits expenses totaled approximately $81.3 million for the nine months ended September 30, 2022, compared to approximately $34.7 million for the nine months ended September 30, 2021. The increase of approximately $46.6 million, or 134%, was primarily attributable to the following:
| • | an increase in payroll and related costs of approximately $17.8 million, primarily due to hiring and increased headcount throughout the business; |
| • | an increase in consultants and contractor costs of approximately $1.1 million, primarily due to our need to supplement recruiting efforts and an increase in IT security, marketing, design and augmenting customer service resources; and |
| • | an increase in stock-based compensation of approximately $27.7 million, primarily due to restricted stock units granted during the nine months ended September 30, 2022 and to the expenses related to stock options granted to a certain executive during 2021, which achieved certain performance conditions associated with the close of the Business Combination. |
Other operating expenses—Other operating expenses totaled approximately $50.7 million for the nine months ended September 30, 2022, compared to approximately $32.0 million for the nine months ended September 30, 2021. The increase of approximately $18.8 million, or 59%, was primarily attributable to the following:
| • | an increase in insurance related costs of approximately $5.3 million, primarily related to director and officer insurance premiums; |
| • | an increase in accounting costs of approximately $1.8 million, primarily related to various audit, tax and Sarbanes Oxley compliance readiness related fees associated with the Business Combination in January 2022; |
| • | an increase in technology and infrastructure expenses of approximately $3.8 million, primarily due to increased spending to support the growth of our business and development of new products and features; |
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| • | an increase in expenses related to our Checking Product of approximately $5.3 million, primarily attributable to processing and fraud related costs associated with the growth in Members and the number of transactions processed; |
| • | an increase in legal fees of approximately $1.5 million, primarily due to ongoing litigation, compliance, employment and general corporate related matters; |
| • | an increase in various administrative fees of approximately $1.6 million primarily due to increases license and fees and travel and entertainment, investor relations and administrative expenses; |
| • | an increase in depreciation and amortization of approximately $3.1 million primarily due to accelerated amortization related to the change in useful life of a certain intangible asset, equipment purchases for increased headcount and amortization of internally developed software; and |
| • | an increase in rent expense of approximately $1.2 million, due to additional leased office space; offset by |
| • | a decrease in chargeback related expenses of approximately $4.0 million, primarily due to fraudulent activity in relation to our Checking Product (see “Risk Factors—Risks related to our Business and Industry—Fraudulent and other illegal activity involving our products and services could lead to reputational damage to us, reduce the use of our platform and services and may adversely affect our financial position and results of operations.” in our Form 10-K for the year ended December 31, 2021); and |
| • | a decrease in charitable contribution expenses of approximately $0.8 million, primarily due to decreased amounts pledged to charitable meal donations related to Members’ tips. |
Other (income) expense
| For the Nine Months Ended |
Change | |||||||||||||||
| September 30, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Interest income |
$ | (1,831 | ) | $ | (610 | ) | $ | (1,221 | ) | 200 | % | |||||
| Interest expense |
6,246 | 1,494 | 4,752 | 318 | % | |||||||||||
| Legal settlement and litigation expenses |
6,845 | 952 | 5,893 | 619 | % | |||||||||||
| Other strategic financing and transactional expenses |
5,040 | 253 | 4,787 | 1892 | % | |||||||||||
| Gain on extinguishment of liability |
(4,290 | ) | — | (4,290 | ) | -100 | % | |||||||||
| Changes in fair value of earnout liabilities |
(9,616 | ) | — | (9,616 | ) | -100 | % | |||||||||
| Changes in fair value of derivative asset on loans to stockholders |
5,572 | (33,043 | ) | 38,615 | -117 | % | ||||||||||
| Changes in fair value of warrant liabilities |
(14,232 | ) | 3,480 | (17,712 | ) | -509 | % | |||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | (6,266 | ) | $ | (27,474 | ) | $ | 21,208 | -77 | % | ||||||
|
|
|
|
|
|
|
|||||||||||
Interest income— Interest income totaled approximately $1.8 million for the nine months ended September 30, 2022, compared to approximately $0.6 million for the nine months ended September 30, 2021. The increase of approximately $1.2 million, or 200%, was primarily attributable to interest earned from a higher marketable securities balance, yields from short-term investments and higher interest rates during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Interest expense— Interest expense totaled approximately $6.2 million for the nine months ended September 30, 2022, compared to approximately $1.5 million for the nine months ended September 30, 2021. The increase of approximately $4.8 million, or 318%, was primarily attributable to interest related to increased borrowings under the Debt Facility and the Credit Facility, interest related to the Note with FTX Ventures and higher interest rates.
Legal settlement and litigation expenses—Legal settlement and litigation expenses totaled $6.8 for the nine months ended September 30, 2022, compared to approximately $1.0 million for the nine months ended September 30, 2021. See Note 16 Commitments and Contingencies in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q for more information regarding pending legal actions. The increase of approximately $5.9 million, or 619%, was primarily attributable to increased settlement and litigation expenses related to various legal matters as compared to those expenses recorded during the nine months ended September 30, 2021.
Other strategic financing and transactional expenses—Other strategic financing and transactional expenses totaled approximately $5.0 million for the nine months ended September 30, 2022, compared to approximately $0.3 million for the nine months ended September 30, 2021. The increase of approximately $4.8 million, or 1892%, was primarily attributable to consulting-related spend on exploring various transactional and new product opportunities.
Gain on extinguishment of liability—Gain on extinguishment of liability totaled approximately $4.3 million for the nine months ended September 30, 2022, compared to $0 for the nine months ended September 30, 2021. The increase of approximately $4.3 million, or 100%, was primarily attributable to the extinguishment of a $7.5 million liability in exchange for shares of our Class A Common Stock.
Changes in fair value of earnout liability—Changes in fair value of earnout liabilities totaled a benefit of approximately $9.6 million for the nine months ended September 30, 2022, compared to $0 for the nine months ended September 30, 2021. The increase of approximately $9.6 million, or 100%, was primarily attributable to fair value adjustments associated with certain earnout shares liability due to decreases in our underlying Class A Common Stock price.
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Changes in fair value of derivative asset on loans to stockholders—Changes in fair value of derivative asset on loans to stockholders totaled an expense of approximately $5.6 million for the nine months ended September 30, 2022, compared to a benefit of approximately $33.0 million for the nine months ended September 30, 2021. The increase of approximately $38.6 million, or 117%, was primarily attributable to fair value adjustments associated with options issued in connection with loans to stockholders resulting from a decrease in the underlying fair value of our Common Stock as of the settlement date of the derivative asset compared to the benefit received from the increase in the fair value of our Common Stock during the nine months ended September 30, 2021. Please refer to Note 3 in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.
Changes in fair value of warrant liability—Changes in fair value of warrant liability totaled a benefit of approximately $14.2 million for the nine months ended September 30, 2022, compared to an expense of approximately $3.5 million for the nine months ended September 30, 2021. The increase of approximately $17.7 million, or 509%, was primarily attributable to fair value adjustments associated with certain public and private warrant liabilities due to decreases in our underlying Class A Common Stock price, offset by fair value adjustments associated with certain warrants exercised during the Business Combination.
Provision for income taxes
| For the Nine Months Ended September 30, |
Change | |||||||||||||||
| $ | % | |||||||||||||||
| (in thousands, except for percentages) | 2022 | 2021 | 2022/2021 | 2022/2021 | ||||||||||||
| Provision for income taxes |
70 | (1 | ) | 71 | -7100 | % | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 70 | $ | (1 | ) | $ | 71 | -7100 | % | |||||||
|
|
|
|
|
|
|
|||||||||||
Provision for income taxes for the nine months ended September 30, 2022 increased by approximately $0.07 million compared to the nine months ended September 30, 2021. This increase was primarily attributable to an increase in state taxes, including gross margin state taxes, relative to state taxes recognized for the nine months ended September 30, 2021.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measure is useful in evaluating our operational performance. We use the following non-GAAP measure to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that the non-GAAP financial information may be helpful in assessing our operating performance and is more indicative of our operational performance and facilitates an alternative comparison among fiscal periods. The non-GAAP financial measure is not, and should not be viewed as, a substitute for GAAP reporting measures.
Adjusted EBITDA
“Adjusted EBITDA” is defined as net loss adjusted for interest expense (income), provision (benefit) for income taxes, depreciation and amortization, stock-based compensation and other discretionary items determined by management. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that, when evaluating Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA on a supplemental basis.
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The following table reconciles net loss to Adjusted EBITDA for the three months ended September 30, 2022 and 2021, respectively:
| For the Three Months Ended September 30, |
||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Net loss |
$ | (47,504 | ) | $ | (7,889 | ) | ||
| Interest expense, net |
1,232 | 239 | ||||||
| Provision (benefit) for income taxes |
26 | (6 | ) | |||||
| Depreciation and amortization |
2,381 | 785 | ||||||
| Stock-based compensation |
8,026 | 3,556 | ||||||
| Legal settlement and litigation expenses |
6,845 | 343 | ||||||
| Other strategic financing and transactional expenses |
2,209 | 29 | ||||||
| Changes in fair value of earnout liabilities |
18 | - | ||||||
| Changes in fair value of derivative asset on loans to stockholders |
- | (9,001 | ) | |||||
| Changes in fair value of warrant liabilities |
(748 | ) | 614 | |||||
|
|
|
|
|
|||||
| Total Adjusted EBITDA |
$ | (27,515 | ) | $ | (11,330 | ) | ||
|
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|
|
|
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The following table reconciles net loss to Adjusted EBITDA for the nine months ended September 30, 2022 and 2021, respectively:
| For the Nine Months Ended September 30, |
||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Net loss |
$ | (107,414 | ) | $ | (4,801 | ) | ||
| Interest expense, net |
4,415 | 884 | ||||||
| Provision (benefit) for income taxes |
70 | (1 | ) | |||||
| Depreciation and amortization |
5,146 | 2,059 | ||||||
| Stock-based compensation |
34,074 | 6,342 | ||||||
| Legal settlement and litigation expenses |
6,845 | 952 | ||||||
| Other strategic financing and transactional expenses |
5,040 | 253 | ||||||
| Gain on extinguishment of liability |
(4,290 | ) | - | |||||
| Changes in fair value of earnout liabilities |
(9,616 | ) | - | |||||
| Changes in fair value of derivative asset on loans to stockholders |
5,572 | (33,043 | ) | |||||
| Changes in fair value of warrant liabilities |
(14,232 | ) | 3,480 | |||||
|
|
|
|
|
|||||
| Total Adjusted EBITDA |
$ | (74,390 | ) | $ | (23,875 | ) | ||
|
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|
|
|
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Liquidity and Capital Resources
Since inception, we have financed our operations primarily from the issuance of preferred stock through our Series A and Series B funding rounds, issuances of convertible notes, funds from borrowings under the Debt Facility and the Credit Facility, and funds received as a result of the Business Combination. As of September 30, 2022 and December 31, 2021, our cash and cash equivalents, marketable securities and short-term investments balance was approximately $223.9 million and approximately $40.2 million, respectively.
As an early-stage company, the expenses we have incurred since inception are consistent with our strategy and approach to capital allocation. We expect to incur net losses in accordance with our operating plan as we continue to expand and improve upon our financial platform.
Our ability to access capital when needed is not assured and, if capital is not available to Dave when, and in the amounts needed, Dave could be required to delay, scale back or abandon some or all of our development programs and other operations, which could materially harm our business, prospects, financial condition and operating results.
We believe that our cash on hand following the consummation of the Business Combination, including the net proceeds of VPCC’s cash in trust and the proceeds from the PIPE Investment and any alternative financing, along with the $100 million in cash from the Purchase Agreement with FTX Ventures should be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months from the date of this Form 10-Q and sufficient to fund our operations. We may raise additional capital through private or public equity or debt financings. The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our product development efforts. No assurances can be provided that additional funding will be available at terms acceptable to us, if at all. If we are unable to raise additional capital, we may significantly curtail our operations, modify existing strategic plans and/or dispose of certain operations or assets.
Material Cash Requirements
While the effect of COVID-19 and other macro-economic factors have created economic uncertainty and impacted how we manage our liquidity and capital resources, we intend to continue to invest in people, marketing and user acquisition, technology and infrastructure, and new and existing financial products and programs we believe are critical to meeting our strategic objectives. As growth of our ExtraCash product scales, material cash will be required to fund advances until the point at which those advances are subsequently collected. The amount and timing of these related cash outflows in future periods are difficult to predict and is dependent on a number of factors including the hiring of new employees, the rate of change in technology used in our business and our business outlook as a result of the COVID-19 pandemic. While we expect certain cash outflows for these expenditures will exceed amounts spent in 2021, we expect to fund these cash outflows primarily through our cash flows provided by operating, investing and financing activities.
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We may use cash to acquire businesses and technologies. The nature of these transactions, however, makes it difficult to predict the amount and timing of such cash requirements.
In the normal course of business, we enter into various agreements with our vendors that may subject us to minimum annual requirements. While our contractual commitments will have an impact on our future liquidity, we believe that we will be able to adequately fulfill these obligations through cash generated from operations and from our existing cash balances. Dave does not have any “off-balance sheet arrangements,” as defined by the SEC regulations.
In response to our remote employee workforce strategy in the U.S., we have not yet closed our leased office locations. We are required to continue making our contractual payments until our operating leases are formally terminated or expire. Our remaining leases have terms of approximately 1 year to approximately 3 years, subject to renewal options of varying terms, and as of September 30, 2022, we had a total lease liability of approximately $0.9 million. See Note 17, Leases in the notes to our unaudited condensed consolidated financial statements for additional information regarding our lease liabilities as of September 30, 2022.
We also have certain contractual payment obligations for principal and interest owed under the Debt Facility and Credit Facility. Interest payments are required to be made on a monthly basis. At September 30, 2022, $45.0 million of term loans under the Debt Facility were outstanding and $20.0 million had been drawn on under the Credit Facility. See Note 15, Credit and Debt Facility in the notes to our unaudited condensed consolidated financial statements in this Form 10-Q. Additionally, we also have certain contractual payment obligations for interest owed under the $100.0 million Note we issued and sold pursuant to the Purchase Agreement entered into with FTX Ventures. Interest payments relating to the Note are required to be made or added to the outstanding principal on a semi-annual basis. At September 30, 2022, approximately $1.6 million of interest was added to the outstanding principal. For more information on the Purchase Agreement with FTX Ventures, see Note 12, Convertible Note Payable.
Cash Flows Summary
| (in thousands) | For the Nine Months Ended | |||||||
| Total cash (used in) provided by: |
2022 | 2021 | ||||||
| Operating activities |
$ | (40,944 | ) | $ | 4,030 | |||
| Investing activities |
(263,928 | ) | (26,349 | ) | ||||
| Financing activities |
311,760 | 38,876 | ||||||
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|
|
|
|
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| Net increase in cash and cash equivalents and restricted cash |
$ | 6,888 | $ | 16,557 | ||||
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Cash Flows from Operating Activities
We recorded a net loss of approximately $107.4 million for the nine months ended September 30, 2022, and net loss of approximately $4.8 million for the nine months ended September 30, 2021. We reported negative cash flows from operating activities of approximately $40.9 million and positive cash flows from operating activities of approximately $4.0 million for the nine months ended September 30, 2022 and 2021, respectively.
Net cash used in operating activities for the nine months ended September 30, 2022 included a net loss of approximately $107.4 million, adjusted for non-cash items of approximately $5.5 million for depreciation and amortization, approximately $46.0 million for provision for unrecoverable advances, approximately $5.6 million for a decrease in derivative asset fair value, approximately $34.1 million for stock-based compensation expense, and approximately $1.5 million for non-cash interest, offset primarily by a decrease in the fair value of earnout liabilities of approximately $9.6 million, a decrease in the fair value of warrant liabilities of approximately $14.2 million, gain on the extinguishment of a liability of approximately $4.3 million and approximately $0.8 million for changes in fair value of marketable securities and short-term investments. Further changes in cash flows from operations included an increase in receivables related to revenue from Member advances of approximately $5.4 million and an increase in prepaid expenses and other current assets of approximately $5.3 million. These changes were offset primarily by a decrease in prepaid income taxes of approximately $0.7 million, an increase in accounts payable of approximately $3.6 million, an increase in accrued expenses of approximately $3.1 million, and an increase in legal settlement accrual of approximately $6.4 million.
Net cash provided by operating activities for the nine months ended September 30, 2021 was approximately $4.0 million. This included a net loss of approximately $4.8 million, adjusted for non-cash items of approximately $2.1 million for depreciation and amortization, approximately $21.7 million for the provision for unrecoverable advances, approximately $3.5 million for the increase in fair value of warrant liabilities, and approximately $6.3 million for stock-based compensation expense, offset primarily by an increase in derivative asset fair value of $33.0 million and an increase in non-cash interest of approximately $0.6 million. Further changes in cash flows from operations included an increase in receivables related to revenue from Member advances of approximately $1.7 million and a decrease in other current liabilities of approximately $2.0 million. These changes were offset primarily by a decrease in prepaid income taxes of approximately $1.3 million, a decrease in prepaid expenses and other current assets of approximately $0.6 million, an increase in accounts payable of approximately $6.0 million, and an increase in accrued expenses of approximately $4.5 million.
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Cash Flows from Investing Activities
During the nine months ended September 30, 2022, net cash used in investing activities was approximately $263.9 million. This included payments for internally developed software costs of approximately $6.4 million, the purchase of property and equipment of approximately $0.5 million, net disbursements and collections of Member advances of approximately $77.6 million, the purchase of short-term investments of approximately $197.8 million , and the purchase of marketable securities of approximately $300.6 million, offset by the sale of marketable securities of approximately $308.8 million and the sale and maturity of short-term investments of approximately $10.3 million.
During the nine months ended September 30, 2021, net cash used in investing activities was approximately $26.3 million. This included the payment for internally developed software costs of approximately $3.9 million, the purchase of property and equipment of approximately $0.2 million and net disbursement and collections of Member advances of approximately $26.1 million, offset by the sale of marketable securities of approximately $3.9 million.
Cash Flows from Financing Activities
During the nine months ended September 30, 2022, net cash provided by financing activities was approximately $311.8 million, which consisted of approximately $195.0 million in proceeds from PIPE financing in connection with the Business Combination, approximately $29.7 million in proceeds from the Business Combination, net of redemptions, approximately $1.6 million in proceeds from stock option exercises, approximately $100 million in proceeds from borrowings related to the Purchase Agreement with FTX Ventures, and approximately $10.0 million related to debt facility borrowings, partially offset by approximately $23.0 million for the payment of issuance costs related to the Business Combination and approximately $1.6 million related to the repurchase of Class A Common Stock. For more information on the Business Combination and Purchase Agreement with FTX Ventures, see “— Business Combination and Public Company Costs” and “—Recent Developments”, respectively.
During the nine months ended September 30, 2021, net cash provided by financing activities was approximately $38.9 million, which consisted of approximately $1.4 million in proceeds from stock option exercises and approximately $45.0 million in proceeds from debt and credit facility borrowings, partially offset by approximately $3.9 million of repayments on a line of credit and approximately $3.6 million for the payment of issuance costs related to the Business Combination.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our critical accounting estimates and assumptions are evaluated on an ongoing basis including those related to the: (i) realization of tax assets and estimates of tax liabilities; (ii) valuation of equity securities; (iii) fair value of derivatives; (iv) valuation of notes payable; (v) fair value of warrant liabilities; (vi) allowance for unrecoverable advances and (vii) fair value of the earnout liability.
Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Please refer to Note 3 in our accompanying unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 included in this Form 10-Q.
While our significant accounting policies are described in the notes to our unaudited condensed consolidated financial statements, we believe that the following accounting policies require a greater degree of judgment and complexity and are the most critical to understanding our financial condition and historical and future results of operations.
Fair Value of Financial Instruments
We are required to account for certain financial instruments at fair value with changes in fair value reported in earnings and may elect fair value accounting for certain other financial instruments in accordance with U.S. GAAP.
Financial instruments carried at fair value include marketable securities, short-term investments, derivative assets related to loans to stockholders, earnout liability and warrant liabilities.
We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use the following hierarchy in measuring the fair value of our assets and liabilities, focusing on the most observable inputs when available:
| • | Level 1. Quoted prices in active markets for identical assets or liabilities. |
| • | Level 2. Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| • | Level 3. Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
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Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Derivative Asset
We recorded a derivative asset related to the call option on loans to stockholders. The derivative asset was carried at estimated fair value on our unaudited condensed consolidated balance sheets. Changes in the estimated fair value of the derivatives were reported as a loss (gain) on derivatives in the accompanying unaudited condensed consolidated statements of operations. We utilized the binomial option pricing model to compute the fair value of the derivative asset and to mark to market the fair value of the derivative at each balance sheet date. The binomial option-pricing model considers a range of assumptions related to the fair value of common stock (see below Fair Value of Common Stock for further details), volatility, dividend yield and risk-free interest rate. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates. Upon consummation of the Business Combination in January 2022, all of the call options related to the Loans to Stockholders were exercised and the related loans were settled.
Warrant Liabilities
We recorded a warrant liability associated with the Debt Facility. The warrant liability was carried on our unaudited condensed consolidated balance sheets as a long-term liability estimated at fair value. Changes in the estimated fair value of the warrant liability were reported as a loss (gain) in the accompanying unaudited condensed consolidated statements of operations. We utilized the binomial option-pricing model to compute the fair value and to mark to market the fair value of the warrant liability at each unaudited condensed consolidated balance sheet date. The binomial option-pricing model considers a range of assumptions related to the fair value of common stock (see below Fair Value of Common Stock for further details), volatility, dividend yield and risk-free interest rate. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates. Immediately prior to the close of the Business Combination, all, or 1,664,394 of the vested warrants were exercised and net settled for 450,841 shares of Legacy Dave’s Class A Common Stock after applying the Exchange Ratio of 1.354387513 pursuant to the terms of the Business Combination.
We also recorded warrant liabilities for both public and private warrants associated with the Business Combination. The warrant liabilities are carried on our unaudited condensed consolidated balance sheets as a long-term liability estimated at fair value. Changes in the estimated fair value of the warrant liability are reported as a loss (gain) in the accompanying unaudited condensed consolidated statements of operations. We utilize the Black-Scholes model to compute the fair value and to mark to market the fair value of the private placement warrant liability at the time of the Business Combination and at each unaudited condensed consolidated balance sheet date. The public warrants were valued using the Black-Scholes model and public trading price of the warrants, when available. The Black-Scholes model considers a range of assumptions such as stock price, strike price, volatility, time to maturity, dividend yield and risk-free interest rate. The Black-Scholes pricing model includes subjective input assumptions that can materially affect the fair value estimates.
Earnout Liabilities
We recorded earnout liabilities associated with the Business Combination. The earnout liabilities are carried on our unaudited condensed consolidated balance sheets as a long-term liability estimated at fair value. Changes in the estimated fair value of the earnout liabilities are reported as a loss (gain) in the accompanying unaudited condensed consolidated statements of operations. We utilized a Monte Carlo Simulation Method to compute the fair value and to mark to market the fair value of the earnout liabilities at each unaudited condensed consolidated balance sheet date. The Monte Carlo Simulation Method considers a range of assumptions such as stock price, volatility, and risk-free interest rate. The Monte Carlo Simulation Method includes subjective input assumptions that can materially affect the fair value estimates.
The Company has elected to measure the note payable debt instrument at fair value using the fair value option of ASC 825-10. We identified an embedded derivative related to a convertible feature in our promissory note with Alameda Research and in accordance with ASC 815-15-25-1 criterion (b), since we have elected to apply the fair value option to the debt, the Contingently Exercisable Share Settled Put/Call Option and any other embedded features were not separated from the debt host. The note payable was carried on our consolidated balance sheets as a current liability estimated at fair value with changes in fair value reflected in earnings. We used a market yield approach to determine the fair value of the promissory note. The market yield approach model includes subjective input assumptions that can materially affect the fair value estimates. Upon the closing of the Business Combination, the promissory note was automatically discharged upon the Company’s issuance of 1,500,000 shares of Class A Common Stock to Alameda Research. The closing of the note payable occurred immediately prior to the closing date of the Business Combination.
Fair Value of Common Stock
Up until the closing of the Business Combination in which the Company became publicly traded on Nasdaq, the Company was required to estimate the fair value of the Common Stock underlying the Company’s share-based awards The fair value of the common stock underlying our stock-based awards was determined, in each case, based on a valuation model as discussed further below, and was approved by our Board of Directors. Our Board of Directors intended all stock options granted to be exercisable at a price per share not less than the fair value per share of the ordinary share underlying those stock options on the date of grant.
In the absence of a public market for our common stock prior to the date of the Business Combination, the valuation has been determined using appropriate valuation methodologies in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.
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We considered various objective and subjective factors to determine the fair value of our Common Stock as of each grant date, including:
| • | Historical financial performance; |
| • | Our business strategy; |
| • | Industry information, such as external market conditions and trends; |
| • | Likelihood of achieving a liquidity event, such as an initial public offering, merger with a special purpose acquisition company (“SPAC”), or strategic sale given prevailing market conditions and the nature and history of our business; |
| • | Prices, privileges, powers, preferences and rights of our convertible preferred stock relative to those of Dave Common Stock; |
| • | Forecasted cash flow projections for Dave’s business; |
| • | Publicly traded price of the SPAC; |
| • | Primary preferred stock financings and secondary common stock transactions of our equity securities; |
| • | Lack of marketability/illiquidity of the common stock underlying our stock-based awards involving securities in a private company; and |
| • | Macroeconomic conditions. |
The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. The probability of a liquidity event, the derived discount rate, and the selected multiples that are applied to our financial statistics are significant assumptions used to estimate the fair value of our common stock. If we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
During 2019 and 2020, our estimated fair value of our common stock remained relatively consistent before a potential public listing through a business combination with a SPAC (“SPAC Transaction”) was first considered in 2021.
The fair value for our common stock was estimated to be $0.935 per share as of August 5, 2019 (“August 2019 Valuation”) and $0.981 per share as of August 30, 2020 (“August 2020 Valuation”). In 2021, our management team first contemplated a SPAC Transaction, which was incorporated in the June 7, 2021 valuation that resulted in a fair value for our common stock of $8.67 per share (“June 2021 Valuation”). The SPAC Transaction was considered in the subsequent valuation performed as of October 6, 2021 that resulted in a fair value for Dave’s common stock of $10.80 per share (“October 2021 Valuation”).
The August 2019 Valuation and August 2020 Valuations were completed prior to the contemplation of the Business Combination, and at the time of these valuations our management did not expect a near-term exit. The August 2019 Valuation was performed at the time of the close of Dave’s Series B-1 and B-2 preferred equity financings (“Series B Financing”). Since no near-term exit was expected, the August 2019 Valuation was performed using the market approach, specifically the subject company transaction method was performed using a single option pricing model (“OPM”) as the allocation method. As a result, the fair value of our common stock was inferred from the Series B Financing. The August 2020 Valuation was performed using the market approach, specifically the guideline public company method (“GPCM”) and used a single OPM as the allocation methodology. The GPCM was performed by first considering the Series B Financing’s implied revenue multiple from the August 2019 valuation report, and then was adjusted based on changes in the guideline public company’s multiples since the Series B Financing occurred, with consideration for adjustments based on our comparative operational performance between the periods.
The June 2021 Valuation and October 2021 Valuation both used the hybrid method, wherein a probability-weighted expected return model (“PWERM”) incorporated an expected near-term SPAC exit scenario as well as an OPM. The OPM was used to model the value of common stock in a delayed exit/stay private scenario. Total equity values for each scenario management identified were estimated as of the measurement date. The delayed exit/stay private scenario total equity value was estimated using the discounted cash flow method under the income approach and the GPCM under the market approach. The total equity value in the SPAC Transaction scenario included in the June 2021 Valuation was determined based on the expected Business Combination pre-money valuation. The common stock price per share in the SPAC Transaction scenario included in the October 2021 Valuation was determined based on the publicly traded price of the SPAC as of the valuation date. Our management’s estimated probability for each scenario occurring at each valuation date was applied to the respective scenario’s indicated common stock value to arrive at the estimated fair value of common stock.
The increase in the fair value of our common stock between the August 2019 and August 2020 Valuations, and the June 2021 Valuation and the October 2021 Valuation was predominantly due to our progress towards completing the Business Combination that was not known or knowable at the earlier valuation dates. As previously discussed, the August 2019 Valuation utilized the Series B financing to determine the value of common stock in a single OPM. The August 2020 Valuation relied upon the GPCM with valuation multiples selected considering the implied multiples at the time of the Series B Financing, with appropriate adjustments to the multiples to account for changes in our financial and operational performance as well as to reflect changes in the guideline public companies’ multiples and comparative performance, from the close of the Series B financing to the August 2020 valuation date. In early 2021, we first contemplated a SPAC Transaction and began taking the necessary steps to prepare for a business combination with VPCC. The necessary steps undertaken to prepare for the Business Combination included meeting with VPCC and investment bankers, discussing timing expectations, and negotiating the preliminary letter of intent with VPCC. As our ongoing negotiations related to the Business Combination reflected an increased likelihood of a near-term exit transaction and/or liquidity event, the valuation of Dave’s equity as of the June 2021 Valuation took into consideration the indicated equity value implied by the negotiations as well as the uncertainty inherent in the future key milestones including execution of the Business Combination Agreement and VPCC’s shareholder vote. Similarly, the increase in the common stock value to $10.80 per share in the October 2021 Valuation resulted primarily from an increase in the probability of the near-term SPAC Transaction closing and an increase in the value of common stock in that scenario due to the passage of time and an increase in the SPAC’s publicly traded price as compared to the SPAC Transaction’s negotiated pre-money valuation. As a result, the increase in Dave’s common stock fair value between the valuation dates resulted directly from both the increase in the pre-money valuation and acceleration of the timing of an exit, from the Series B Financing to the Business Combination.
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Please refer to Note 3 in our accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 included in this Form 10-Q.
Allowance for Unrecoverable Advances
We maintain an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in outstanding Member advances. We currently estimate the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors. Interpretations of the nature of volume of the portfolio and projections of future economic conditions involve a high degree of subjectivity. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the unaudited condensed consolidated statement of operations.
We consider advances over 120 days past due or which become uncollectible based on information available to us as impaired. All impaired advances are deemed uncollectible and subsequently written-off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries of Member advances written-off, if any, are recorded as a reduction to Member advances when collected, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances expense in the unaudited condensed consolidated statements of operations.
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Income Taxes
We follow ASC 740, Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more-likely-than-not that the asset will not be realized.
The effective tax rate used for interim periods is the estimated annual effective tax rate, based on the current estimate of full year results, except that those taxes related to specific discrete events, if any, are recorded in the interim period in which they occur. The annual effective tax rate is based upon several significant estimates and judgments, including the estimated annual pre-tax income of the Company in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year. In addition, the Company’s tax expense can be impacted by changes in tax rates or laws and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.
ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained in a court of last resort, based on the technical merits. If more-likely-than-not, the amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination, including compromise settlements. For tax positions not meeting the more-likely-than-not threshold, no tax benefit is recorded. We have estimated approximately $0.6 million and $0.1 million of uncertain tax positions as of September 30, 2022 and 2021, respectively, related to state income taxes and research tax credits.
Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense within the statement of operations.
We are subject to income tax in jurisdictions in which we operate, including the United States. For U.S. income tax purposes, we are taxed as a Subchapter C corporation.
We recognize deferred taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. We recorded a valuation allowance against our deferred tax assets, net of certain deferred tax liabilities, at September 30, 2022 and December 31, 2021. Based upon management’s assessment of all available evidence, we have concluded that it is more-likely-than-not that the deferred tax assets, net of certain deferred tax liabilities, will not be realized.
Emerging Growth Company Status
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to remain an emerging growth company and to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and non-public companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. See Note 3 of our accompanying unaudited condensed consolidated financial statements included in this Form 10-Q for the recent accounting pronouncements adopted and the recent accounting pronouncements not yet adopted for the nine months ended September 30, 2022 and 2021.
In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act for emerging growth companies. Subject to certain conditions set forth in the JOBS Act, if we intend to rely on such exemptions, we are not required to, among other things: (a) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (b) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd- Frank Wall Street Reform and Consumer Protection Act; (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the unaudited condensed consolidated financial statements (auditor discussion and analysis); and (d) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
We will remain an emerging growth company under the JOBS Act until the earliest of (1) the last day of the fiscal year (a) following March 4, 2026, (b) in which we have total annual gross revenue of at least $1.07 billion, (c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
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Recently Issued Accounting Standards
Refer to Note 3, “Summary of Significant Accounting Policies,” of our unaudited condensed consolidated financial statements included in this Form 10-Q for a discussion of the impact of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to a variety of market and other risks, including the effects of changes in interest rates and inflation, as well as risks to the availability of funding sources, hazard events and specific asset risks.
Interest Rate Risk
We hold cash and cash equivalents and marketable securities for working capital purposes. We do not have significant exposure to market risk with respect to investments, as any investments we enter into are primarily highly liquid investments. As of September 30, 2022, we had cash and cash equivalents and short term investments of approximately $223.9 million, consisting of operating, savings money market accounts and various short term investments which are not materially affected by changes in the general level of U.S. interest rates. Furthermore, the Convertible Notes issued by us accrue interest at a fixed rate.
We also have interest rate exposure as a result of our outstanding term loans under the Debt Facility and borrowings under the Credit Facility. As of September 30, 2022, the aggregate outstanding principal amounts of the term loans under the Debt Facility was $45.0 million. The term loans bear interest at an annual rate equal to 6.95% plus a base rate defined as the greater of three-month LIBOR (as of the last day of each calendar month) and 2.55%. The $20 million credit line under the Credit Facility has an interest rate of 9.188% annually plus a base rate defined as the greater of three-month LIBOR and 2.55% (a total of 12.05% as of September 30, 2022). If overall interest rates increase by 100 basis points, our interest expense under each of these facilities would not be significantly affected.
Credit Risk
Financial instruments that potentially subject us to credit risk consist of cash, Member advances and deposits. We maintain our cash with major financial institutions. At times, cash account balances with any one financial institution may exceed FDIC insurance limits ($250,000 per depositor per institution). We believe the financial institutions that hold our cash are financially sound and, accordingly, minimal credit risk exists with respect to cash. Our payment processors also collect cash on our behalf and will hold these cash balances temporarily until they are settled the next business day. The Member advances are also subject to credit risk. See “Risk Factors—Risk Related to Our Business and Industry—Our non-recourse cash advances expose us to credit risk of our Members and if our underwriting criteria for making advances is not sufficient to mitigate against this risk, our financial condition and operating results could be adversely affected if a substantial number of our Members fail to repay the cash advance they receive.”
Inflation Risk
Historically, inflation did not have a material effect on our business, results of operations, or financial condition. During 2021 and continuing into 2022, inflation has begun to increase. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations and financial condition.
Item 4. Controls and Procedures
As previously disclosed in filings with the SEC described below, we determined that we had material weaknesses in our internal control over financial reporting for the fiscal year ended December 31, 2021 and the quarters ended March 31, 2022 and June 30, 2022. Among the material weaknesses identified, we determined that our review control over the accuracy of our accounting treatment of the Company’s member advances and earnout shares did not operate effectively, resulting in a restatement of our unaudited condensed financial statements for the three months ended March 31, 2022. Refer to Note 2 - Restatement of Prior Financial Information, for discussion regarding the restatement impacts.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal quarter ended September 30, 2022. Based on this evaluation and for the reasons set forth above, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2022.
Previously Identified Material Weaknesses
As disclosed in Part II, Item 9A of our Annual Report, the Form 8-K/A filed with the SEC on August 22, 2022 and our Form 10-Q/A filed with the SEC on August 22, 2022, material weaknesses in our internal control over financial reporting were identified. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. For more information concerning the material weaknesses identified, see section titled “Risk Factors—Dave
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identified material weaknesses in its internal control over financial reporting in its audited financial statements for the years ended December 31, 2021 and 2020 and in its unaudited condensed financial statements for the three months ended March 31, 2022 and March 31, 2021. If Dave is unable to remediate these material weaknesses, or if it identifies additional material weaknesses in the future or otherwise fails to maintain effective internal control over financial reporting, it may not be able to accurately or timely report its financial condition or results of operations, which may adversely affect Dave’s business and share price” in Part II, Item 1A of our Form 10-Q/A filed with the SEC on August 22, 2022.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of September 30, 2022 were not effective, and notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Chief Financial Officer, believes the condensed consolidated financial statements included in this Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Remediation
Management has begun to implement remediation steps to improve our disclosure controls and procedures and our internal control over financial reporting. Specifically, we intend to expand and improve our review process for complex securities and related accounting standards. We have begun to improve this process by enhancing access to accounting literature, identifying third-party professionals with whom to consult regarding complex accounting applications and considering the hiring of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our material pending legal proceedings, please see Note 16, Commitments and Contingencies, to the unaudited condensed consolidated financial statements included elsewhere in this report.
From time to time, we may become involved in legal proceedings arising in the ordinary course of business. We are not currently a party to any such litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, negative publicity and reputational harm and other factors.
Item 1A. Risk Factors
As of the date of this Form 10-Q, there have been no material changes to the risk factors disclosed in in our Annual Report for the year ended December 31, 2021 filed with the SEC on March 25, 2022 and in our quarterly reports on Form 10-Q/A for the quarters ended March 31, 2022 and June 30, 2022 each filed with the SEC on August 22, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
Exhibits designated by an asterisk (*) are filed herewith and those designated by two asterisks (**) are furnished herewith; all exhibits not so designated are incorporated by reference to a prior filing as indicated.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dave Inc. | ||||
| Dated: November 14, 2022 | /s/ Jason Wilk | |||
| Jason Wilk | ||||
| Chief Executive Officer and Director | ||||
| Dated: November 14, 2022 | /s/ Kyle Beilman | |||
| Kyle Beilman | ||||
| Chief Financial Officer | ||||
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