Dave Q3 2026 Earnings Call Transcript
Dave (NASDAQ:DAVE) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Dave reported a 31% year-over-year revenue growth in Q3 2020, driven by a 35% increase in new members and improved ARPU, leading to raised full-year guidance for revenue, adjusted EBITDA, and adjusted diluted EPS.
The company successfully rolled out Cash AI v6.0, which improved credit performance, increased average ExtraCash sizes, and reduced past-due rates. They are also testing higher ExtraCash limits beyond $600, seeing positive results in gross profit per member.
Dave’s member acquisition strategy resulted in 1.1 million new members with efficient marketing spend, contributing to a record non-GAAP gross profit of $138 million, up 33% year over year. The company is optimistic about sustained growth through 2027.
Dave Flex Card adoption is growing, with encouraging cross-product adoption with ExtraCash, suggesting potential significant upside in member lifetime value.
The company expanded its agreement with Coastal Community Bank to increase funding capacity, enhancing growth investment and capital return capabilities.
Management highlighted solid credit performance and monetization improvements, with expectations for continued ARPU and MTM growth into 2027, despite a slight increase in CAC.
Full Transcript
OPERATOR
Good afternoon everyone and thank you for participating in today’s conference call to discuss Dave’s financial results for the third quarter ended September 30, 2020. Joining us today are Dave’s Chairman and CEO, Mr. Jason Wilk, and the company’s CFO and COO, Mr. Kyle Beilman. By now, everyone should have access to the third quarter 2020 earnings press release, which was issued today after the market closed. The release is available in the Investor Relations section of Dave’s website at investors.dave.com.
This call will also be available for webcast replay on the company’s website. Please note that this call is being recorded. Certain comments made during this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company’s filings with the SEC.
Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. The company undertakes no obligation to revise or update any forward-looking statements except as required by law. The company’s presentation also includes certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, non-GAAP gross profit, non-GAAP gross margin, adjusted earnings per share, and compensation expense excluding stock-based compensation, as supplemental measures of the performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules.
You will find reconciliation tables and other important information in the earnings press release and Form 8-K furnished to the SEC, which are available in the Investor Relations section of Dave’s website at investors.dave.com. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again.
I would now like to turn the call over to Dave’s Chairman and CEO, Mr. Jason Wilk. Please go ahead.
Jason Wilk (Founder and CEO)
Good afternoon and thank you all for joining us. Q3 was another strong quarter for Dave with revenue growth accelerating to 31% year over year, driven by accelerating member growth and continued ARPU expansion, all while delivering strong credit performance. Based on these results and the momentum we see across the business, we are once again raising our full-year guidance for revenue, adjusted EBITDA, and adjusted diluted EPS. There are three key takeaways from today’s call.
First, credit performance was strong in Q3 and improved further in September following the full rollout of Cash AI v6.0, with record ExtraCash sizes and lower 28 DPD rates. Second, our customer acquisition engine is delivering record scale and improving unit economics, making our growth investments increasingly attractive. Lastly, Dave Flex is showing encouraging early traction with better-than-expected acquisition costs and strong cross-product adoption with ExtraCash that suggests significant upside to baseline member lifetime value.
Turning to our growth pillars, starting with member acquisition, we added a record 1.1 million new members, up 35% year over year. But the bigger story is how efficiently we scaled. Marketing spend increased more than 50% while CAC rose just 14%, which was outpaced by improvements in member lifetime value, thus maintaining our attractive returns at much higher volume. As we said before, we invest to maximize gross profit dollars rather than minimize CAC.
With returns on incremental marketing investment at multiples of our cost of capital, we invested beyond the higher plan we outlined. Last year we delivered record non-GAAP gross profit of 138 million, up 33% year over year, and annualized gross profit per MTM increased approximately $19 to 1.75. As our record new member cohorts build tenure, we expect their increasing engagement and monetization to support growth into 2027. Moving to our second pillar, engagement through ExtraCash originations reached 2.5 billion, up 23% year over year and 9% sequentially, and we exited the quarter at nearly 10 billion in annualized originations. Growth reflected more credit-active members and a 5% year-on-year increase in average ExtraCash size to 218. Following the full rollout of Cash AI v6.0 in September, average ExtraCash size grew to $225 while our 28-day past-due rate on September originations fell below 2%, improving from 2.09% for the quarter.
This strong credit performance has continued into Q4. We also began testing ExtraCash limits beyond $600 with early results showing a meaningful increase in gross profit per member. Notably, existing fee cap members eligible for more than $600 will be enabled higher limits via an additional draw at a 5% fee, which we believe now puts all customers roughly on the same fee structure. We believe higher limits, in combination with this additional draw monetization and strong credit performance, set us up well to continue delivering higher gross profit per member moving forward.
Moving to our third pillar, deepening engagement, Dave Card spend was $533 million, up 5% year over year. As we discussed previously, we have deliberately shifted our focus from new debit-focused initiatives to our new Dave Flex Card, which we believe has more differentiation in the market to win top-of-wallet spend, given our advantages in underwriting and the strong value propositions of the product. During Q3, we grew Dave Flex adoption from single- to double-digit thousands of members through both cross-selling to existing members and direct customer acquisition at better-than-expected acquisition costs.
While results are still early, we are encouraged that the products are proving complementary. Existing ExtraCash members cross-sold to Dave Flex are retaining and monetizing well ahead of baseline, driving significant potential LTV upside. Members acquired directly through Dave Flex marketing are subsequently adopting ExtraCash, and members who may not yet be approved for Dave Flex are adopting ExtraCash. Overall, our ecosystem approach is playing out as expected, and we plan to continue to optimize the acquisition funnel and unit economics ahead of scaling more broadly in 2027.
We do not expect meaningful Dave Flex revenue in 2026, and none is embedded in our guidance. We expect a more significant contribution in the second half of 2027. Before turning it over to Kyle, a couple of strategic updates. First, we recently amended our agreement with Coastal Community Bank to expand our funding capacity, giving us greater flexibility to invest in growth and return capital to shareholders. Kyle will cover the specifics on the DOJ matter. We have no updates and continue to vigorously defend our acquisition. In closing, we’re accelerating member growth, expanding monetization, and improving credit outcomes, which are all coming together to drive record performance.
Thanks to the entire Dave team for another strong quarter, and with that I’ll turn it over to Kyle.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Thanks, Jason, and good afternoon everyone. Our Q3 results show the durability of our model at increased scale. We increased acquisition investment beyond our prior plan while maintaining strong credit performance and growing adjusted EBITDA faster than revenue. In addition, the Coastal funding transition freed up liquidity to support growth and capital return. I’ll cover the financial results, explain the provision and gross margin drivers, and close with our capital position and raised outlook.
The earnings supplement on our IR site provides a detailed KPI breakdown. Starting with revenue, total revenue was 198 million, accelerating to 31% year over year and nearly 16% sequentially. Growth was driven by an 18% increase in monthly transacting members to 3.15 million, an acceleration from Q2, together with an 11% growth rate in annualized ARPU to $251. Newer members begin at lower ARPU and expand with tenure, so a record new member cohort weighs on the average. Even with that mix shift and faster MTM growth, monetization improved as the fee cap changes and Cash AI v6.0 supported larger ExtraCash amounts and higher revenue per origination.
One note on comparability: beginning this quarter, we no longer include in our calculation of MTMs members whose only monthly activity was low-engagement, non-monetized activity related to Goals accounts. This change affects MTMs, ARPU, and gross profit per MTM, and prior periods have been recast to ensure comparability. On pricing, September’s gross monetization rate, which measures ExtraCash revenue per dollar originated before credit losses, was approximately 7% compared with 6.4% for Q2. Combined with a larger average ExtraCash size in September, this drove a 16% increase in revenue per origination versus Q2. These results capture a full month of fee cap changes and most of the rollout of Cash AI v6.0. For the full quarter, those gains held up after credit losses.
Our net monetization rate was 5.2%, up about 40 basis points year over year and our highest in five years. Beyond ExtraCash, subscription revenue provides another monetization tailwind, growing 74% year over year as more of the base joins at the $3 a month price point. With pricing, underwriting, subscription mix, and seasoning of our recent new member cohorts all contributing, we believe we are well positioned to sustain MTM growth and ARPU expansion into 2027.
Turning to gross profit, non-GAAP gross profit was 138 million, up 33% year over year, and non-GAAP gross margin was 70%, up from 69% a year ago and down from 72% in Q2. Two items drove the sequential change. First, Coastal funding costs, which accounted for about 100 basis points of the change from Q2. Most of that was planned, but the transition moved faster than expected, so more receivables entered the program sooner and the related cost came through earlier.
These costs are included in gross margin but excluded from adjusted EBITDA, and the transition freed up significant liquidity tied up in ExtraCash receivables. Second is the provision. Provision for credit losses was 37 million, or about 1.5% of ExtraCash originations, in line with the year-ago rate but above our forecast. Provision reflects portfolio growth, mix, and credit performance, so it can move differently from static pool delinquency and loss rates, which we believe more directly measure credit quality.
Static pool loss rates were flat to down year over year. However, our prior provision forecast assumed a larger improvement based on the stronger early repayment performance we saw coming out of the spring following collections enhancements we made. Those enhancements brought repayment in sooner but didn’t reduce ultimate losses as much as the early data implied. We’ve recalibrated our forecast to reflect these new repayment timing patterns, and our updated outlook incorporates them.
September was our strongest month of the quarter, with a 28-day past-due rate below 2%. Q4 to date is tracking in line with September, supporting our expectation that the quarter’s 28-day past-due rate will remain below 2%. Our updated forecast points to meaningfully better ultimate loss rates, which together with our pricing changes supports our expectation for Q4 non-GAAP gross margin to exceed Q2 levels. Now working down the P&L, advertising and activation expense was 28 million, up 48% year over year and 37% sequentially. As Jason noted, attractive returns supported investments above our prior plan. We expect a modest further increase in marketing investment in Q4. Compensation and benefits was 43 million, including 22 million of stock-based compensation. Stock-based compensation increased as our stronger full-year outlook raised expected payouts on performance-based awards, including a one-time catch-up of about 4 million for prior quarters.
Excluding stock-based compensation, compensation was 21 million, up roughly 21% year over year and 10% sequentially. The increase reflects the targeted investments in product development, marketing, and AI we outlined last quarter. Other operating expenses were 14 million, including 6 million of non-recurring legal settlement and litigation expenses excluded from adjusted results. On an adjusted basis, fixed expenses grew more slowly than revenue and declined to approximately 17% of revenue from 18% a year ago.
We expect operating leverage to continue building as revenue scales. Pulling it all together on profitability, adjusted EBITDA was 82 million, up 39% year over year at a 41% margin, up from 39% a year ago. GAAP net income was 64 million, or $3.30 per diluted share, including 26 million of non-cash gains from the remeasurement of warrant and earnout liabilities. Those gains are excluded from adjusted results and the underlying instruments expire in January of 2027. The year-ago GAAP comparison included a significant tax benefit primarily from releasing a valuation allowance.
Adjusted net income was 60 million and adjusted diluted EPS was $4.39, down 7% and 1% year over year, respectively. Both comparisons reflect taxes. Last year’s third quarter included a tax benefit in adjusted results, while this quarter reflects a more normalized effective tax rate. Before taxes, adjusted earnings grew roughly in line with adjusted EBITDA, and a 5% lower adjusted diluted share count helped per-share results. Turning to capital, we ended Q3 with 315 million of cash, investments, and restricted cash, up from 254 million at the end of the second quarter. We generated over 81 million in operating cash flow while additional Coastal funding reduced our direct funding needs. As Jason noted, we recently amended our Coastal Program Agreement, increasing our ExtraCash funding capacity from 225 million to 325 million. Coastal funded approximately 159 million of receivables at quarter end, up from 93 million at the end of the second quarter.
We expect to complete the remaining member migration in early 2027, allowing us to make fuller use of the expanded capacity. As a reminder, Coastal funds the receivables while we retain the underlying economics and credit risk exposure. With respect to capital return, we deployed approximately 20 million during the quarter to reduce our share count through restricted stock unit net settlements and open market repurchases, leaving 88 million available under our repurchase authorization. In early October, we also repaid the 75 million outstanding under our Victory Park debt facility. Adjusting September 30th cash for only that repayment leaves approximately 240 million of cash, investments, and restricted cash, with no borrowings remaining under that facility.
Our capital priorities remain unchanged: invest in organic growth at attractive returns and repurchase shares opportunistically to create long-term per-share value. Turning to our updated 2026 outlook, we are raising guidance across all three metrics. We now expect revenue of 746 million to 750 million, up from 725 million to 735 million. We expect adjusted EBITDA of 327 million to 330 million, up from 315 million to 325 million. And we expect adjusted diluted EPS of $17.45 to $17.65, up from $17.00 to $17.50, and this assumes a 23% effective tax rate at the midpoint. Our outlook implies fourth quarter revenue of approximately 221 million, up roughly 35% year over year and a further acceleration from 31% in Q3, and a fourth quarter adjusted EBITDA margin of approximately 46%.
For the full year, that represents approximately 300 basis points of adjusted EBITDA margin expansion. The outlook assumes higher marketing investment in Q4 than in Q3, continued ARPU support from pricing, Cash AI underwriting, subscription mix and cohort seasoning, and the Q4 gross margin expansion I described. It also assumes no meaningful revenue contribution from Dave Flex. In closing, we are raising our full-year outlook with revenue growth accelerating again in Q4 while investing more in acquisition at attractive returns. Improving credit performance and stronger monetization support our Q4 margin outlook, while greater funding capacity and liquidity give us flexibility to invest in growth and capital return. We believe these factors position us well heading into 2027. With that, operator, please open the line for questions.
OPERATOR
Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q and A roster. And our first question will come from the line of Devin Ryan with Citizens Bank. Your line is open.
Devin Ryan (Analyst at Citizens Bank)
Great. Good afternoon, Kyle and Jason as well. Question just on the record, new member additions obviously good to see here. Can you talk about what you were doing different to drive them? Obviously higher marketing dollars, but CAC went up a little bit but still looks like positive payback. So can you talk a little about that? And then also just the seasoning that you typically see since this is a big number as we look out over the next four quarters as they mature. Like how much ARPU uplift do you see typically over kind of a 12-month look forward, just so we can kind of think about modeling this since it’s a big number. Thanks.
Jason Wilk (Founder and CEO)
Yeah, thanks, Devin. Appreciate it. I can speak to the first part of the question with new members. Yeah, I’d say it’s just really business as usual with our existing channels. We’re scaling up the channels that work best for us, from TV to social media. And as you know, 30% of our acquisition is coming from word of mouth, which has not changed at all with these increased levels of scale, which gives us a lot of promise going into the next several years here.
I’d say the one lift was from our further investments in AI-born creative. We have a very recognizable brand mascot. We spent a lot of time, effort, and energy developing that, and AI is able to create tens of thousands of creatives within minutes. It tends to be that most of these networks like new and fresh creative, and previously it took us several months to make one ad and now we can make ads within a matter of seconds using our proprietary Bear mascot with what is an incredibly recognizable Dave.com domain name.
So I just speak to that being really good signs and we love to see the incrementality that we’re driving here. And I’ll let Kyle speak to the incremental ARPU expansion as these cohorts season.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Hey Devin. So look, in terms of how they season, we tend to see, call it in that post six-month window, things tend to sort of approach more what we would consider kind of terminal monetization, and we don’t provide explicit breakouts around that. But I think that we’re just really excited to see all the ARPU levers we have kind of stacking that give us a lot of confidence in just the runway of ARPU and getting us to that low double-digit ARPU growth trajectory that we’ve talked a lot about over the last couple of years.
And that comes in the form of the fee cap changes that we completed in Q3, the higher limits that we’re in the process of offering. We talked about in September that number was about $225, and we see there to be a lot of continued upside in that by lifting the higher end of the limit spectrum. And then we also have the subscription fee revenue that’s growing. I think that was up about 74% year over year. And then you layer on the Flex opportunity on top of all that, and on the monetization side of the equation, we’re feeling very good.
But I’d say, all else equal, you probably would have seen us closer to that kind of 13-ish percent number if we had cohorts kind of in that seasoned range that we would expect things to mature to, if you’re following that.
Devin Ryan (Analyst at Citizens Bank)
Yep, great. Appreciate the color there. And then as my follow-up, just want to get a little bit of maybe early learnings from Flex. Good to hear that you’re seeing some demand there and expansion. The question is, are you seeing these members—I know there’s overlap with existing ExtraCash members—is it additive in terms of the activity level that you’re seeing from the members, or is it all cannibalistic where they’re now using Flex instead of ExtraCash?
Just trying to get a sense of how to think about are they complementing each other or in some ways are they competing with each other? Thanks.
Jason Wilk (Founder and CEO)
Thanks. I’d say that’s one of the most encouraging parts of the product launch thus far, the complementary nature of the two business lines. We are seeing customers that are existing ExtraCash users who adopt Flex continue to use ExtraCash almost in its entirety from their prior limits. But what’s also encouraging, as we mentioned on the call, is customers we’re acquiring directly into Flex—both the ones that are approved—also adopt ExtraCash at a very high rate, and also the ones that we turn down adopt ExtraCash at a very high rate, which turns it into much more of a low-and-grow strategy where we can hang on to that customer and upsell them Flex later. So there’s a lot to like. And as we just continue to develop the cohorts, we’re excited to ramp up that product further in 2027, but definitely not cannibalistic.
Devin Ryan (Analyst at Citizens Bank)
Yep. Okay. Excellent. Good to hear. Thanks so much.
Jason Wilk (Founder and CEO)
Yeah, thank you.
OPERATOR
One moment for our next question. And that will come from the line of Patrick Moley with Piper Sandler. Your line is open.
Patrick Moley (Analyst at Piper Sandler)
Yeah. Good afternoon, guys. Thanks for taking the question. So, Kyle, on gross monetization, I think you said it reached about 7% in September as the legacy fee caps came off, 5.2 for the quarter. So is that 7% the fully loaded right now, or is there more that we should expect as that $20 cap cohort rolls off? Thanks.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Thanks, Patrick. It’s about 7% for September. And then in terms of total unit monetization, on the $225 base, you can kind of infer what the average revenue per ExtraCash is. So the quarterly average was about 6.4% for gross monetization versus that September figure. So you can kind of see what the impact of that fee change was relative to baseline there. I think that September metric is a pretty good indication for where we see the Q4 numbers shake out.
Patrick Moley (Analyst at Piper Sandler)
Okay, great. Thanks. That’s it for me, guys.
OPERATOR
One moment for our next question. And that will come from the line of Chris Zhang with UBS. Your line is open.
Chris Zhang (Analyst at UBS)
Thanks for taking my question. My first question was on the acquisition cost for the quarter, but I think it’s more—we’re actually more interested in what it looks like in September and in particular, remember recently you shared some stats on the returns or the paybacks on the marginal acquisition dollars. And maybe can you give us a sense of an update of the CAC for the September-onwards cohorts and, on the margin, what kind of returns or ROIs you’re looking at for the marginal acquisition dollars?
Jason Wilk (Founder and CEO)
Yeah, thanks, Chris. So just to reiterate, CAC did go to $22, but the gross profit per user went up even faster by $8 to $175. And so it is still a sub four-month payback even at this increased scale with a very slight increase to CAC. I mean, the reality is the marginal improvements in LTV over the last couple of years certainly significantly overshadowed the small increases in CAC to the point that these investment returns are still very, very attractive with much higher increases in CAC compared to this.
So these are really healthy trends and we were encouraged and excited to see the results here.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Just to add to that, Chris, in terms of the marginal CAC, as you can imagine, they’re higher than the baseline average. But we are investing aggressively at this level. I think you can see in the amount of dollars we’re putting to work here that the returns on an incremental basis are multiples of our cost of capital. And so things continue to look very, very healthy at the top of funnel.
Chris Zhang (Analyst at UBS)
All right, appreciate it. Thank you. Thank you for—thanks to both of you. And my follow-up is on the loss rates. And I guess maybe conceptually, can you give us a sense of potentially under Cash AI 6.0, how much have you—if you have—how much have you already kind of loosened the loss rates at all just to kind of widen the originations in order to maximize the gross profit dollars? And then maybe looking ahead just compared to the take rate, how much are you willing to kind of loosen the loss rates going forward?
And maybe also on the marginal concept, if you could give us a sense of maybe what the loss rate looks like on the marginal cohort, maybe the lowest credit quality cohort, how high the loss rates are you willing to tolerate in order to just maximize the gross profit dollars, that’d be helpful, thank you.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
So maybe just start with the September figures because I think those are a pretty good indication of the fee model changes as well as the impact of V6, which covered nearly all the originations in September. So what we talked about is the 28 DPD rate for September being below that 2% level, which should pull through to really solid sequential improvements to our 121-day loss rates. And we’re always kind of considering different optimizations within the portfolio to maximize gross profit.
I would say that there’s always room to make improvements, but I think in terms of where the margins are at, we’re pretty happy there, and I wouldn’t expect to see us make any material deviations from these kind of unit economics to maximize a different outcome than what we’ve been sort of orienting around over the last, call it, quarter or two here. Hope that helps. But again, we’re always kind of hunting for value but very comfortable with where the unit economics lie, especially coming out of September based on the dynamics that we’ve talked about.
Chris Zhang (Analyst at UBS)
Kyle, definitely encouraging to see the improvement in September. Thank you.
OPERATOR
Thank you. One moment for our next question. And that will come from the line of Connor Allen with JPMorgan. Your line is open.
Connor Allen (Analyst at JPMorgan)
Hey Jason. Hey Kyle. Thanks for taking my questions. I also wanted to ask about members and your investment into marketing. I was curious, as the kind of top of funnel is widening—perhaps you’re investing into it—are you seeing any change or surprises relative to the conversion rate to transacting members? Has that dynamic changed at all versus your expectation?
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
The short answer is no. I mean I think that’s captured in our payback periods. They continue to stay in that, call it, four or four-ish month range there at this higher level of scale. So again, as we talked about, things look very, very healthy and we’re certainly not seeing any kind of deterioration in the quality of customers that we’re acquiring at this higher level of scale. Things look, again, very, very healthy at the top of funnel, which, Connor, I think just speaks to the size of the TAM in general, further supporting how large it is.
Connor Allen (Analyst at JPMorgan)
Understood. Got you. Thanks. Maybe another one on just the fee structure changes. I’m curious whether you’ve seen any—as you’ve made the changes—has there been any impact on churn rates or customer behavior? It seems like no, just from the way you’ve described it. But anything you’d add there just around customer behavior relative to the fee changes you’ve made?
Jason Wilk (Founder and CEO)
No, nothing there. I mean, specifically the fee change from the $15 to $20 fee cap—there’s been no incremental churn as a result of that. The customers that we do give have a benefit in the sense that for a slightly higher fee they are getting a higher limit. And so we know that our customers would gladly trade a slightly higher amount of money to get more limit. And we did note in the call today that customers going beyond $600 will now have access to an additional draw who were previously fee-capped at a 5% fee.
And so we now, for all intents and purposes, have all customers on roughly the same fee schedule at this point for modeling simplicity moving forward.
Connor Allen (Analyst at JPMorgan)
That lets you expand that kind of total cap that you can offer, which matters a lot to the customers. Cool. Thanks, guys. Appreciate it.
OPERATOR
Yeah. Thank you. Thank you. And our next question will come from the line of Ryan Tomasello with KBW. Your line is open.
Ryan Tomasello (Analyst at KBW)
Thanks everyone. Can you just put a finer point on what drove the provision recalibration and the deviation in repayment performance relative to your assumptions? Anything concerning there on the credit side, particularly with respect to the new member cohorts given you’ve been leaning into growth. And then does that weaker provision performance run-rate into your go-forward assumptions? If you can tell us what you’re baking in for the 4Q provision, that would be helpful.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Yeah, thanks, Ryan. So as we talked about, credit performance in general was very solid in the quarter. When we look at the provision early coming out of last quarter, what we saw was really solid early DPD data that we had taken into our provision forecast that was pretty early on in its sort of repayment curve. Ultimately the losses didn’t fall quite as much as what that early strength had suggested. And so instead of them being improving, they were roughly flat.
And that kind of drove up our expectation or we sort of under-modeled the provision for this quarter. And so we’ve recalibrated our extrapolation factors based on the new repayment timing curves. And what had happened there was we rolled out some servicing and collection improvements that effectively pulled forward some of the collection dollars that typically fall into the end of the tail. And we’ve since recalibrated that. That’s now captured in the revised outlook.
And, you know, I guess to put a bit of a finer point on it, when you look at the relationship between, say, the 28 DPD rate and the 120 DPD rate, that typically matured at, you know, historically had matured in kind of that low-30s range where it would reduce into the low-30s between 28 and 120. And now we’re seeing that kind of come in in the high-20s. So that’s what we’re capturing in our modeling. And again that’s all been captured in our revised outlook.
Ryan Tomasello (Analyst at KBW)
And then just to follow up on the fee caps, as you look out across the member base, just kind of high level, how much runway do you think is out there on average advance sizes, particularly with the higher advance limit cohort that you already have? Any way to frame how that looks entering next year, and relative to the 225 you cited for September, do you expect growth off of that for the full fourth quarter? Thanks.
Jason Wilk (Founder and CEO)
So Ryan, I’d say certainly we believe a lot of room to run now that we’ve extended limits beyond 600, with some early test customers already reaching a $1,000 limit, both on ExtraCash as well as with Flex. The 225, expect to still see some growth there in Q4. September was the first full month of V6, which really produced the 225 result in combination with the higher-than-$600 credit limit customers, as well as just improvements to underwriting in general with V6.
So as that continues to season, similar with the 5.5, we think there’s a good amount of room to run here still. And as Flex matures, that also would be a tailwind for average originations per user. As we, again, to Devin’s point, we’re not seeing any cannibalization with those products, so expect the synergy to show up in positive cumulative consumption of credit.
Ryan Tomasello (Analyst at KBW)
Great, thank you.
OPERATOR
Thank you. Our next question will come from the line of Adib Chowdhury with William Blair. Your line is open.
Adib Chowdhury (Analyst at William Blair)
Hey guys, thanks for taking our questions. So it looks like the ExtraCash origination dollar year-over-year growth has been decelerating for the last couple of quarters. We just wanted to ask, is that a function of tighter underwriting or changing the credit box or aperture, or is there something else you would call out there?
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
No, I mean definitely not a change in sort of risk aperture by any means. As we’ve talked about, credit performance remains really solid. I mean it’s more of just a function that we haven’t been growing. We hadn’t been growing that quite as fast as we had historically because we were constrained around the CCAP to grow average origination sizes per customer at the rate that we did last year, for instance. And so I think with that fee cap constraint eliminated now, we would expect to grow origination dollars on top of, or at a higher rate than, what we have been, call it, over the last couple of quarters, where it’s largely more attributable to customer growth as opposed to being able to unlock higher average origination sizes per customer. So, you know, all that being said, I would expect to see an acceleration there now that this CCAP constraint has been removed.
Adib Chowdhury (Analyst at William Blair)
Got it. And as a follow up, I guess as we’re getting closer to ’27, could you kind of remind us about the line of sight you guys have towards achieving the mid-teens member growth and low-double-digit ARPU monetization growth that’s embedded in your longer-term growth algorithm?
Jason Wilk (Founder and CEO)
Yes, I mean we continue to feel very good about that over the medium term here. Nothing about our performance thus far calls that into question. We’re very excited about what’s going on with the overall performance that we’re seeing within the portfolio to drive originations growth. Top of funnel is working exceptionally well. We have the monetization levers that I walked through earlier and so we’re feeling quite confident in the outlook. I’ll just add that the more months we have here, the more quarters we have of this accelerated member acquisition, as those customers season over time, that will set us up well for further growth into 2027. So a strong fourth quarter and third quarter really are going to be accretive for us for next year and the years following.
OPERATOR
Thank you. One moment for our next question. And that will come from the line of Adam Frisch with Evercore. Your line is open, Mr. Frisch. If your line is muted, please unmute. I’ll move on to the next person. Our next question comes from the line of Jacob Steffen with Lake Street Capital Markets. Your line is open.
Jacob Steffen (Analyst at Lake Street Capital Markets)
Yeah, thanks guys for taking my questions. Maybe just first I want to touch on the ARPU expansion, quarter over quarter, 9%. Maybe if you could just kind of piece out a little bit more in detail on the moving parts of the fee cap removal plus the higher limits that you’re advancing to customers, and just remind us the timing of some of those moves in Q2, when you removed the fee cap, etc.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Hey, Jacob, thanks for the question. I mean, effectively we were testing—well, when we take a step back, we had eliminated the fee cap for new customers back in the second quarter, and we had begun the migration of existing customers to either the $20 cap or the fee cap elimination altogether, call it by late August is when that change was fully implemented. That sort of coincided with the ramping of V6 over that same period of time as well. And so again, that’s why we’ve tried to highlight September as very instructive on the sort of exit rate for the quarter and the baseline for expectations moving forward.
But effectively the timeline is ramping throughout the third quarter on both V6 as well as the pricing adjustments, with a full month’s benefit in September. And for clarity, existing fee cap customers that are looking for credit, in addition to the $600 we are giving them today, we will issue them credit via an additional draw, of which they’ll have to pay the 5% for that additional credit. And that’s what I meant on the call, that that roughly puts all the cohorts on the same pricing once we have that fully rolled out by the end of this quarter.
Jacob Steffen (Analyst at Lake Street Capital Markets)
Okay, got it. That makes sense. And then maybe just on the Coastal Community facility being upsized today. You know, I think in the past you’ve said that you were planning to fund some of the originations off your own balance sheet, Coastal was going to fund the rest. But is that strategy changing at all? How are you thinking about using Coastal going forward?
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
I would expect to use them for the vast majority of originations. I mean, we have the flexibility to balance sheet more of it ourselves. But we really like this arrangement that we’ve struck with them. It just provides us a lot of flexibility from a capital allocation standpoint at an attractive cost of funds. And so it’s something that we’re quite happy with and we’ll look to likely use to its full extent for the foreseeable future.
Jacob Steffen (Analyst at Lake Street Capital Markets)
Got it. I appreciate it.
OPERATOR
One moment for our next question. And that will come from the line of Reggie Smith with Loop Capital. Your line is open.
Reggie Smith (Analyst at Loop Capital)
Thank you. I just listened to your last response and I was thinking about the new cohort of users that have come on. And so you’ve obviously relaxed the fees. And so I’m curious what you’re seeing in terms of initial activation as you kind of think about the various cohorts. I would imagine being able to offer—and maybe you’re not doing it—but are you offering more credit on the first transaction? And have you seen an uptick in early engagement? Anything you could talk to around that? And I have one follow-up about your collections.
Jason Wilk (Founder and CEO)
Hey, Reggie, I’d say for the most part, because we have more of a low-and-grow strategy, newer customers tend to get approved for lower amounts than existing customers that we have a longer tenure with. I’d say most of the improvements in first-time credit offers have come from just improvements in overall underwriting. The big change with respect to new customer offers came with our new pricing model when we moved to the $5 minimum, 5% pricing a couple of years ago.
It really impacts the customers as they’re growing beyond the limits of which the fee cap was causing some constraints, where we are seeing some obviously positive uplift to ARPU and origination size per user.
Reggie Smith (Analyst at Loop Capital)
Got it. Okay. And then just thinking about—it sounds like, and I’m multitasking here, so I may have gotten this wrong—but it sounds like you’ve pulled forward some of your collections, and I’m curious, I guess, I would assume that that would carry forward, but for some reason it’s not. I’m curious, are people shutting down the accounts? Why would this claim that fall off toward the back of the collection period? Are you seeing that folks just aren’t receiving income in that account and aren’t active in that account, that linked account anymore?
What’s driving that?
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Yeah, I mean, that tends to be the typical thing that you see from a loss perspective, is people abandon or have stopped their income coming into those accounts that we underwrote. I’d say nothing’s really changed. And the pull-forward is really, again, a function of the servicing and kind of collections upgrades that we put into place. And we expected those results to carry through, but in hindsight, we didn’t really change much around the decisioning process from an underwriting perspective to really expect meaningful loss rate impact.
And I think that was just a learning for us in how we kind of think about, you know, what’s servicing and collections impact versus, say, the decisioning, where decisioning is probably more of a driver for ultimate walk rate as opposed to the servicing and collection instruments.
Reggie Smith (Analyst at Loop Capital)
Understood. That makes sense. Okay, thank you.
Jason Wilk (Founder and CEO)
Like Reggie said, the big takeaway is that loss rate from the provision perspective was flat to down year over year. But, you know, as an operator and also an investor, excited about September performance with 28 DPD rate being below 2%, I mean, there’s a lot to like about that. And that was, again, the first full month of V6, which has been a big focus area of the company to get that rolled out. And that’s what I would be using to assess the credit performance of the company.
Reggie Smith (Analyst at Loop Capital)
Yeah, and I think the echo—I think what Chris was getting at earlier—I think, you know, we see the DQ rate go down and, you know, we hear about the underwriting. That’s great. I think, you know, what we’re wondering is, like, you know, why not push it now this time? You just have the Coastal Bank agreement and you want to be very cautious there and careful, but it just seems like there’s probably more risk on the table, or more opportunity that’s not necessarily being tapped into.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Yeah, and I think, yeah, I mean, just to speak to that, I think where we see that big opportunity is particularly at the higher end of our limit spectrum. And Jason talked about the ability to go up to 1,000 for those customers and being a little bit more risk-on, being able to help support more of their needs with the higher limits. And I don’t think that really changes the sort of the margin picture to be dilutive at all. It’s just ARPU-accretive and value-proposition-accretive, which is why we’re so excited about it.
Reggie Smith (Analyst at Loop Capital)
That comes through loud and clear. I get it. Thank you.
Kyle Beilman (Chief Financial Officer & Chief Operating Officer)
Thanks, Reggie.
OPERATOR
Thank you. I’m showing no further questions in the queue at this time. This concludes today’s program. Thank you all for participating. You may now disconnect.
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