Earnings call transcript Q4 2022

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Operator

Good day, and welcome to the Upstart Fourth Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jason Schmidt, Head of Investor Relations. Please go ahead.

Jason Schmidt

Good afternoon, and thank you for joining us on today's conference call to discuss Upstart's fourth quarter and full year 2022 financial results. call Datta, Girouard, our today's Officer; Chief on Sanjay and Chief us are Upstart's Dave Executive With Financial Officer.

I closed on Relations a an Investor begin, after our year XXXX fourth Investor we want presentation. and you full remind Before published results that quarter the and market release Both today, website, press issued Relations ir.upstart.com. financial Upstart announcing its to shortly are available

result XXXX These the and described are with related and of subject will factors we forward-looking such information that risks, first make our quarter in for to current and in of the based may our During uncertainties SEC. our today assumptions. the of call, our as available to Actual plans to our as a a vary filings statements various and statements business have platform guidance of risk on been variety results expectations expand the are as materially future.

you placing reliance As a against undue forward-looking result, on statements. caution we these

We required assume information except forward-looking events, statements or future obligation of as any the result as law. new to by no update

can which the and In yourself limit to reconciled as we as tables. are our be call, and supplemental non-GAAP measures stated, today's To analyst’s that ensure and are you unless please one follow-up. address earnings in questions we one many can as release that possible question request results, to provided our financial during GAAP found call, addition, the additional references during results to otherwise

on Loop will March Conference Capital Upstart Investor in Technology Conference on XX. this JMP and be the participating March quarter, the Securities Markets X Later

CEO it over I'd Upstart. Now of to to Dave turn Girouard, like

David Girouard

our Upstart. model. millions not mainstream business results their you and earnings of was call XXXX everyone. federal disproportionately we're the The fourth what to of was for year we're Girouard, challenging become CEO last results. lost harmed Co-Founder happy income. for our stimulus XXXX our Obviously, suddenly perfect Upstart, akin with sharing our storm of on for for and many year joining Americans us ways, source recession borrowers, Thank Dave withdrawal I'm quarter today. primary a year In had afternoon, of simulated a and full Good covering the

the The the decades markets of Out abundance began with and the respect what many cautious fastest or hikes fact their to paused lenders loan have back exceeded caution Fed's economy. interest both Upstart-powered in despite XXXX. our their might cut program of rate lenders the economy, several since concerned or portfolios next left met in originations, and in capital come about that an expectations

business opportunities shortly. to into our difficult few of Having these some areas, ways we a said of of in laid you companies them times. take there a with the great it I'll in improve. most some advantage and of that, we're parts XXXX not made We've was presented best because The in share excuses. gift needed progress the that many

for to is as public. most But time it fiscally to we've we're and first, profitable We've I and as return possible. running profitability our tight always committed an been. of that been to want clear make soon ship intention to It been have operationally the that

abrupt our step end. deeply to our and I'm lending of the but members, took years, over Upstarters two such unfortunate ago, reduction time an came representing by at of these the volume, the team our that in weeks profoundly about XXX Given sorry the the we necessary workforce reducing immeasurable of size made contributions Upstart to for mission staff. grateful I'm their XX%

across can a future. pursuit best to AI-powered lending the we the to necessary ways just of adequately ensure resume stronger company the important the on development XXXX us our the focused forward rest for when We product. improvements was in decided have a we business reduction presented also this in our resource world's opportunity roadmap. This make of haven't we we staffing, that look we expenses, loan. business With grabbed Upstart to Yet pause reducing step to that small of the made can day

Let me examples. share few a

strategic First, we've terms while it's lenders. business the continually. to for our traditionally that for be funding our marketplace of model as strengthened also supply simplest on is loans the participation consumers think price discovery needs and as true, to in based on platform useful and viewed scaled And a and a chain this

could funding in to earnings support to our more in begin In the in that multiple of persistent partnerships report reliable platform. that that provide would with partners we happy goal. we're Upstart this late-stage investigate to August, call potential and you discussions I told I'm

also volatile upgrade of took significantly model's to our macroeconomic understand the ability react we economy Second, and advantage to conditions. to

unemployment, Index, I Macro Upstart quarter, plan are performance. Last credit like our UMI. conditions, changing economic productize announced or and metric the measures to impacting inflation new how This

methodology in to metric We public we calculating our UMI, monthly for breakthroughs expect continue the this quarter. to and launch this to later make

learning near rapidly providing and the credit exciting in and an of the unions the health financial a Upstart continuously changes insight our infrastructure will industry consumer, American to real-time accordingly. with programs banks lending This is first, big team. autonomously, adjust This step them lending economy. provide that into machine an from is their allowing development adapt In toward to lenders with

You'll be about hearing more this soon.

actually confirmed represents power environment. in profit have XXXX area the explore. considerable prior XX% opportunity, of Despite that our a pricing that we've both unit down year-on-year. lending volume just even was begun large our to pricing and most surface our XX% the which Third, strong economics contribution challenging only in was we up Optimizing fact versus the year, XXXX

improvements, we've continued support also in to across innovate future these addition major platform In our to growth. of

to with history. of overall any I obvious in markets our as become all expect technology fact, in more I this we will In economy our capital XXXX and in believe progress year made And you. than the normalizes,

year important accuracy. of from Some last progress areas include model

FICO-based seven months significantly traditional is continue increase the a risk accuracy we The pace what X.X to continue last the increase Our model model, in than our model years. better more our of prior than in in we to delivered development. and AI models separate

Automation. of we manually. personal In no done human By I anywhere the a automated. of boost originating was automated, has XX% quarter, team intervention our fully eliminating from automating loan. process that loans the processes operations loan in came fourth there record primarily mean saw the traditionally This or

Auto from under Retail. ago. finished a the XX% increase with dealerships a XXX We total contract, year year

AI-powered prices XX helping of experience only piloting friction. will more them inventories and applicants loan our automobile buying normalize, As with our our are become auto dealer approve in to dealerships, for partners important. the We're our car replenished modernize ability less more

choose the presented now, borrowers were fully automated, us from an of in As XX% are in in XX% when an of Also about these time. the of every three retail one dealerships, increase Upstart-powered they prior QX, loan Upstart-powered loans with auto quarter.

innovative for individuals includes loans. of to loans XX our have we've loans from To $XXX We personal launched XXXX. from June not three originated dollar dollar with otherwise Small months product to Small tenors to dollar XX,XXX this approved than in who product $X,XXX been loans. Today, would small our months. more date,

of And means are QX, were were loans coverage at machine originated small as XX,XXX of our XX% the dollar pace borrower fully increasing than are just dramatically expansion these in importantly, learning which automated. alone. we in More loans improving. of This QX models

cautiously unions earnings credit partners. I environment, the year starting number XXXX Lending on bit we of Upstart secular platform XX, of ago, recognize the the hostile when partners our direction clarity appreciate us, In XX represent platform. potential fundamental they had the that significant they there's a call on in and representing of banks change it. are lenders economy. a a technology you a capacity the with Despite growth Upstart told Today, on These is XXX%. but lending more see expansion and once

attention your Now this I'd priorities and our for like year. to XXXX to turn

priority to foundation continue to other for soon UMI much a model This we is the to possible. stop implies which proper the today, is economy profitability anything position accuracy next as there, taking and calibration all trends first turns. observed regardless and which is relative is return to to on the based. as as assure our This products conservative success Our way of our all model as

make unknowns generating and While are economy, intensely cash focused GAAP the given can't operating on we in once again. we promises income the positive net

economy, from some expect return our of the pattern modest quarter-on-quarter growth we cooperation with to And to year. this

the interest of While is conveniently is platform This approval market dictates. effort, captured ours in the a priority This to capital it's earlier. is monthly year, funding by the the by basis committed on rates mentioned expansion that transaction both reduce capital a prevailing volume the also on future. rates the and are of risk this bank our risk and primary of the initiative I also This to world foundational the motive volatility gated growth in in UMI.

serve improving volatility means we sheet the which and by loans, on Through our our which into expansion borrowers we're And as is are uncertainty. in reduce bank competitively, also wisely. union auto preferred lastly, times lenders focused home interest future Upstart continuing this, balance can by and our of efficiently such well as our It credit all as secured of using products loans generally to and ability in more partners. primary of

path and I and in efficiency earliest on a have days, of We continue model capital been since our this to XXXX beyond. expect

is to intelligence the I Sanjay, to products learning. recent share unlock a about to I'm our credit that core opened can Before than our generative by Upstart's can decisions score of AI of I launches now it has why business optimistic ever unlimited want AI The The eyes and XX-year-old as credit of turn machine thesis over potential as future. smarter obvious. powered artificial

NDA school that exam. his of weeks a couple ChatGPT ago, passed A final admitted successfully warden Professor had

leader with can it's believe credit gently of the Despite economic the more AI are lending. we is AI technology, stronger year founder-led better development Indeed, team every that established model we than to and this of It's more that advanced dramatically to company an challenges is day. a were lead and a ever. ago application So more data, leadership Upstart our to accelerated XXXX, proving in much than decisions. market we not accurate clear training are

but I've and it turbulence doing We because journey As this it because no mainstream so it's on, of and path chose I financial of dream. else in done. credit is get our let think little not the be the everyone, one the a we're one the easy, than to economic before, for health Americans We reinventing of price that because won't works it's it needed improve was can American of chose way. of better certainly it no to we important. said the credit price

XXXX year like now turn full I'd Sanjay? Officer, to it financial through to and Financial over And guidance. Chief results QX you. our our Thank to Sanjay, walk and

Sanjay Datta

Thanks, from Dave, to for your and Valentine's in. break a to Day listen all taking thanks

Reflecting begun back a macro of to potentially stimulus and still call, government about we've expectations. it's the disappearing bearish over say the outlook delinquencies year our most our the to our has of exceeded a sanguine markets the and the sound when consumer on quite broader adverse were wildly past earnings on the year year on the One encroaching ago alarm impact economy. safe at that time ago,

and Over the and we delinquencies the the predicted ensuing XXXX than consumer their limited new markets exit risk. contraction have Indeed, sharp. funding for of in elevated resulting income the course and consumer on change patterns appetite greater enter year, impact in remain consumption of remain a and as we markets the delinquency was funding could the in proved year,

spring. as starting savings this, barometer personal The we aggregate upwards of that encouraging some now three months, consumer consecutive an rate, health, may which the worst December to the behind be its the Despite level has prior since we are macro reaching closely in signs watch us. highest lunched for see fiscal of

in Underpinning drifting coupled reversal the consumption ample of personal pre-pandemic nascent back levels, over recovery consumption ongoing personal hourly over a period, to both their to of prompting the this same savings trend is real a growth towards begin which The relatively participation to still with rates participation for us language rates recovery alignment. rates in workforce recent and coming improvement continuing runway quarters. suggests closer below of real and income the workforce historically wages,

signs upwards consumer loans, of of a this our slower health, much measure in Reflecting QX, encouraging defaults prior rate matched XXXX. at early of to of than fiscal and has QX impact quarters consumer the macro internal UMI, weeks improving in Upstart-powered but on from the stabilization shown

performance season. As UMI are vintages a corresponding we our of continue to stabilizes, more for seeing as reconvergence they to longer-term recent target

these partners shown also for a to perhaps with initial and in some securities trends, spreads markets XXXX securitization very side, the QX. funding the related On actively in senior we signs being engaged have expressions exploring we with multiple David challenging interest. relationships advanced encouraging long-term of after who prospective Concurrent as tightening to, capital qualify including which some formal with are an as alluded stage, of of us, are at

have not yet hope to have news front we do soon. definitive anything on report, While to more this concrete we

With some highlights from quarter. as financial these fourth truck, points here data are back the

line, with loans choosing million conditions in on sheet our largely On result of QX. given from came than line $XXX forecast, to revenue fees the interest a in above more top retain the expectations. was balance our anticipated largely Net market in of income

representing in revenue X% Taken guidance together, and million, XX% our contraction a by contraction of a year-over-year. $XXX sequentially net QX was ahead

down year-over-year in was across loan year. was size representing our transactions up and approximately XX% Average loans, XX% borrowers. new XXX,XXX loan volume versus The platform last of XXX,XXX over QX

region, variable servicing non-GAAP we a of XX% as define minus acquisition, up borrower in from QX, year. at last costs metric, fees a revenue came percentage revenue from contribution in XX% as verification for which from Our and fees

QX take and higher spend. rates We through expand margins marketing our efficient continue to in more

were trends achieved and which following year-over-year QX, in X% down marketing, sequentially. of the year-over-year majority the reduced XX% and The volume. by $XXX XX% sales down million reduction was was Operating expenses in through

overall have the of few positions Over sequentially we operations, all limited key quarter, G&A, to last were and only engineering nominally a down in in which strategic largely hiring spend.

$XX.X QX average per million. negative of these of million. negative based on earnings our And EBITDA was components $XX of GAAP loss number a adjusted share in together, weighted was ahead $XX.X resulted of negative Adjusted net well million, count guided Taken million. $XX.X a $X.XX diluted share

roughly We $XX from a with XX%, a year of million, X% XX% XXXX. from the prior ended year and of EBITDA earlier. EBITDA revenue A million, the full $XXX contribution year margin down versus X% net adjusted adjusted of margin representing flat

sell QX, remained quarter, secondary view, models the not in new our in sheet During balance we the recalibrated do decision for credit market in contemplated trends the than our prices made to consumer extent ultimately loans our Liquidity and the default. have from we originally fewer the to to during personal the reflect guidance. of our markets thin which

and So harvest we the chose to balance our interest retain income. loans sheet on

attractive loans testing from more selling our the continue quarter. the on pricing balance total. that sheet segment We in as of normalizes million up the for R&D In principally the $X.XX the plan to represented QX $XXX and of auto rose last balance loans a market meantime, purposes total, becomes billion, strategic that of made option. within to million $XXX Of

balance new sources to size we planning roughly the sheet loans. We existing balance therefore, maximum of are to additions maintain, at we we and liquidity now the for are largely limit that suitable find sheet will, can until of

sheet in and net loan remain the balance total at a value. of we on this, $XXX $XXX Despite approximately fair liquidity of equity position with million in cash comfortable corporate million

near-term be continues conservative to continue tied mentioned, the with and of of to consequently, our environment, the the macro further a we economy, despite previously the in QX, encouraging outlook macro degradation assumption some and trends price Index. to Macro to Upstart in Looking loans

our from reflects further seasonal loan More specifically, for withdrawal year source for loans. of QX as UMI funding for the we have own headwinds, some sheet QX a into that the traditional funding tightening our guidance our coming assumption pricing, new a our experienced higher in balance topline and forward partners

workforce ledger, weeks they we expense two side which to the the the ago. reduction, refer On announced of

next to the XX reduction, next compensation related cash million savings primarily in employee savings As operating reduced realize expense approximately in we years. to million over cash of compensation result months, and the $XX stock-based this expenses to $XX a addition benefits, expect of from of three over

non-GAAP this charges to which we the from million restructuring have related in $XX guidance. quarter, Also our incurring event, anticipate in excluded first we

million. income contribution expect of of mind, for $XXX the weighted million, negative approximately of XX.X negative approximately of of net of million, income EBITDA consisting in With $XX million $XXX we and these adjusted of and negative adjusted million XX%, a margin income total fees average shares. count share approximately $XXX net $XX net of $XX from specifics A XXXX, diluted approximately approximately revenue QX of negative million, of million interest approximately revenues approximately

time take force always wrapping a to Before to just amazing we The were chapter. that journey, went of through. them proud. to the of in we you moment things acknowledge with you by to Upstarters seeing your would We best do will contributions would up, honor spent do you will in make like that made part reduction take recently will forward the work Upstart to a you in the and and next us a the and forward be the look group that affected we way our what

Thank are you. Operator, And Dave to that, now to with happy back to open call questions. any I you. the and

Operator

Ramsey first El-Assal with comes Our Instructions] [Operator from Barclays. question

Unidentified Company Representative

Hi. and Ramsey. had couple more a a pricing in your comments. like This question ago, you you on prepared [indiscernible] power. think you John commented power, had a is -- something this tighter the I mentioned quarters you environment, also believe pricing given of I on I for bit on little that for the

of the by offset So you I revenue higher saw this whether were not say was wondering, can pricing? declines or any quarter partially you

Sanjay Datta

prior I up Sanjay. our the quarter, John, very this a take say is little were rates maybe bit. that would similar to

enough I to think was were -- did change trajectory. offset significant to but we the the able we impact of sort So them don't obviously marginally,

Unidentified Company Representative

you. Okay. Great, thank

Operator

Our ahead. Please Christiansen comes Pete from question Citi. next go with

Peter Christiansen

that serve, can a talked pulled from demand just recognize wondering be funding. side you your extent you -- a was little I the about great on helpful. dive for borrower I wondering for if would sense of to side. Dave, into you could Thank I supply a was marketing you you. Good the if back bit, afternoon. bit you the category loan but overall that quite that demand talk

And give you levels that if changes seen any in bank sense us that have dynamic? you follow-up, have then allocation can a you just your a wondering the of as existing with partners,

David Girouard

This rate Thanks, has it very there's been, don't demand down. I but would savings American up safely -- due the to when is an that loans credit given that personal expect demand is can Consumer is it's in for It's -- Dave. just time in environment, credit demand the been into we recently, demand I absolute I when a for would are think kind of usually weakened I actually to people the if say, so returns Pete. I consumer of strong. measure Sure. see. say, know a but time thing, seasonal has tax normal where We're quite headed strong. we'll think for and

now, say to for But can continues else. something that strong. credit we think be by I consumer for overwhelmed that's very demand Sometimes safely

Peter Christiansen

Great. And...

David Girouard

Sorry, the other question. No worries.

Peter Christiansen

Yes.

XX% I your of Have for allocation know Just at levels the or loans those Upstart months? something like partners some at some instance, of take? in few like all bank cap that seen like alter a you seen last Have you that. wondering, banks, them have typically

David Girouard

it balance they business, kind the And in their the sheet, et can month, on lot every capacity Well, going on partner go. and cetera. a as bank state for of depends change whatever sure, each a of has that at is else will they

without Everyone just over and So economy. have same year, challenging lending last question impactful it's next they've been the is economy. about the banks or CNBC. unsure Generally conservative the they're just They're that else's common been concern in last when banks the the one what's very in banks and have decrease. naturally to reducing that's speaking, cautious tightening the our as watching business increase year had and of get concerns, about very probably most and really had parts would

Peter Christiansen

Great. Thank you.

Operator

JMP Our Scharf next question with comes from David Securities.

David Scharf

Hi, questions. taking my good for afternoon. Thanks

just and outlook. on the of specifically, kind the First of one, QX up demand maybe kind loan following

consistent both this heard on seem of very other lenders commentary the consumer with Your nonprime personal trends of quarter. and kind from demand kind credit we've

aside imposed your the a kind about revenue, of kind more Or sheet tax think in tightening seasonality. primarily the box limitations at As the we that is this of does down by step balance point? setting further? is refund David, of credit it that function just

David Girouard

question. a the model. for Dave, are Generally business of supply we kind balanced and speaking, Thanks, demand

Out are due our we Today, largely most not opposite. of excess times, rates be up, business higher the are rates sometimes decline that's way can of the So have levels environment. and borrowers it in in and of risk the down way the funding. approvals to actually, is enough because and

Now as said lenders have -- same question pulled actually, time, earlier had a the as I from well. Pete, at back

much the look a higher now, rates between really driving but of And over in balanced, in platform, risk higher. the say higher rates the much go, demand. environment. at a we we're approval because So a that's the that's this right lower. out just as of volume The much is but always in maintain to and it decline lower in much most fundamental And thing UMI, of the there it's much, approvability, we're function much, most -- much into which rate relatively hard supply are it's what's years, the strange But call are and that's our XXXX, reason to course, way lower balance way, interest volumes. trying we will essentially

David Scharf

alters of and insignificant. downsizing disciplines don't new but this any of anything can kind product outlook? on perhaps were just product -- the the Got engineering, of doing the there the annualized it. divide into of a development it know wondering, just of cost it's initiative I'm of in And not side. kind expense is kind if and -- comp that the turning areas, per primarily was or math, follow-up, type dangerous technology downsized, stock if it. and simple employees $XXX,XXX employee, which there as I just just is Helpful. to I other I in realize color rationalized. averages longer-term you of so one-third savings Got maybe about that provide number is a but the sort

Sanjay Datta

David, Sanjay. this is

Let's see.

bit call the as In sort it XX%, of company order which of took others. the it's workforce the a teams have But almost reduction let's you'd a were the, absorption force, pretty is of of across the the when reduction in overall, of what spread than a functions different some expect was. terms allocation you all affected evenly it, on and

but With respect to efforts intention the the is the the our think communicate thing roadmap, call business being, the lending There's quite in product main We the think as market right, this sort I the that couple them at the public, for I near small of maybe on time big the, of maybe understood a to that's I when pause. we it, call things weren't medium-term think map. main the time sort will, of in least out. other put getting that is the to impact to that of that's road every margins do but to have back on

David Scharf

you. Thank Great. it. Got

Operator

Please Clinch comes question ahead. Equities. next from Atlantic with Simon Our go

Simon Clinch

perhaps wondering of Hi, useful I for on was out in and questions. report. when share guys. much. the wanted just had unusual Thanks mean might bigger think might standards you've out back your get you models I Thanks model really today's guess picture with -- market of to the the in sort I taking are the here. a the I you're the AI pandemic, information I business business perspective to share market the in what my performance a that period Because gains of Lots the very coming advancements what in gains structure not made that live we institutional the channels pandemic. differences -- of very today that coming saw that model the up the to guess funding and

to pace might this how particular the share and those or environment. of be what sort coming of what about working wondering it might of out gains against just I'm think work

David Girouard

Sure.

can needed investing lending think of gotten the things remarks from some beautiful reality, well, be month a need us sense. I of makes and a the those can But funding and secured, pure in of showed -- acknowledged have kind our has important changed of course, point kind definitely and to to an beginning, know in month sort it we which economist my a that in come better, initiative in only go I where go of volume is an as might and for So view, it at-will at lot more pretty of locked dramatically. whiteboard environment, come or is and it us. to technology model and/or And we on

issues date the almost the had related we've So to are entirely to really side. funding

view, on Some of us is we of it, of and fix. macroeconomic things some it None it, frankly, technology. in to need is and on my is our

I think more it been. continues today has differentiated, to be it extraordinary so than and if not

it so because my we to do. I improvements can the the in kind masked lend, sense, much deciding if there's are, in aren't and All sense funding of talked if earlier about makes only remarks some markets operating properly if aren't lenders

we don't are sure we some sort pursuing of make said, to twice. we've make the as So mistake initiatives, same

so is committed fundamental. time very to us of secured having funding, funding over periods And longer

unions UMI banks really in of Also, is particular, what's transparent this effort really we're doing with what credit economy. call and on with with the lenders, going in to we be

decisions, won't be can going to there. volumes they and down standards at very as they might slow past needed as informed be they So but which out insight the where make as tighten on it much didn't times, been to it as in has have hopefully maybe dramatic what's

of at our side core confident think we very in none are in business. these fixed all in. view, really on AI predictiveness, to related which So are to But cetera, them, the efforts we needed feel et least my be what fix to its our and

Simon Clinch

this keeping -- than Is past? follow-up on they the the accelerating stickier Index. UMI to And as a pace the also useful prove on been coming relationships tool the potentially platform have at even just in maybe touching partners bank it then of a keeping that something and will the really

David Girouard

the Well, we getting information I very sort indication that you're it's meaning certainly consumer think a the in time, over they just near powerful a of lend lender about lender's you of and performance hope so. health month underperformance not is that the in really done either quantified of the of having and with credit slices has I or real have available just mean the for idea to something past. If because a their dices different finished in programs.

can your to something It's in is you about up economy the the is item model how deteriorating rules of we system really powerful tool say, to This think, in maybe powerful that itself, you way a the and I impact or macro you a really attribute credit one actually don't the the set have economy. And to hard is from no, some to very new your isolate have going way, that and visibility. system be performance of

we lenders all excited about. will think get flavors of that

Simon Clinch

so much. Thanks

Operator

comes next Please Our Autonomous question Wildhack Rob ahead. go Research. with from

Robert Wildhack

guys. really What if would What there. color to Wondering too, might timeline, committed working ask wanted of partners could more on helpful. Hi, your additional with the type funding kind detail be of about be you with? you give in you're Any them? more I sources. discussions some out arrangements

Sanjay Datta

Sanjay. Rob, this is

pretty time happen of this cautious style necessarily sort I for of think been all, I It's see near the I saying that that guess relationships. more over not is sort first in the would capital something a Let's transition on us. of we've committed always term. would in say,

large these think are I strategic relationships. -- very

had qualify with we interest. partners number but guess, I of don't We just definitive right points we remarks. of That some as think think of optimism And have a I to sounded that multiple a that, reiterate there, sort said, conversations prepared we of of out note mentioned are in stage. to in sort I sort of call advanced I the would indications we our anything now,

again, of notes we're in have think they're But more hopefully, environment, sort meantime, broader some seeing will. the So to optimism, to definitive of through. things soon. we're you in sounding I we'll announce we something the some trends some think that took And of the optimistic of if related the I

And some that of then different exchange, scale would forward what of forms. is I structures committed in question couple At are like partners sort discussing in would of the form, hand, take arrangements. partner your nature they think we different at more -- could then of on you And different of simplest the we're side as speak. economics capital. kind these and be And with the one of the the sort premium on a imagine sort the commitments really of

So most to that's it's hard of description of will of but these how be a sort the sort partnerships precise, too bit work. sort general of

Robert Wildhack

And very credit larger wondering additional than or might conversations then it. if how I'm Got on your partners. be partners, type? with ABS different a your a there a do then your the vary would union bank color would current would helpful. helpful. that credit Any with conversations by say, really could That's founder, add be funding you

David Girouard

just Dave. vary bank they credit unions Credit side, on the ago. say, flush I a the would today. bit. maybe a do This Sure. were much really less and is Well, deposits year mean I union case That with is

with credit deposits. where -- unions because very they flushed again, for were, So starved are really loans

so and normal, little a just that reverted to changes their that's appetite. think I

so. much regard out banks, And I a going competition there of with to borrowers I there's deposits. interesting lot on for banks, think not mean

of It's it's more for the dynamics. pay up. the guys deposits think some saying, one really interesting of pushing new I APY, really So the in the market

quickly, it a lot as banks. hard hear will largest out it is can not the other Would be be you I going see landing. in we and just caution the of change just of a this from there's pretty recession, kind in overwhelming they're about So the economy, there think landing out recession, than, caging. CEOs but soft mean usual, an changing I all any don't that dynamic fundamentally on small

think just the that's that's there. of I sort cautiousness out So

a there's and say, sides, credit there much of need But swimming in in and today. was generally, would -- definitely I definitely all deposits ago, as on a result, lesser year that's

Robert Wildhack

Thanks.

Operator

next ahead. Our comes with Goldman question Please go Mike Sachs. from Ng

Michael Ng

of Hey the decline good constraint. just what XQ sequential two. for a 'XX guidance. around both I it was some question. of to in color which the was funding a like revenue, the They're And mostly helpful have afternoon. driving sounds Thanks on it get was lot

are was just conversion? you. rate talk could expecting Thank funding wondering environment? lower if about Or of a due that was decline requests in I So whether and to you levels you solely first, tougher actually revenue sequential

Sanjay Datta

sides that conditioning Sanjay. is Mike, say, are for the the sort would of both ecosystem. QX I our think that I of constraints this the on happening guidance are

couple borrower around more call did fronts. of becoming from conservative sort the go constructed let's we to the, assumptions and of on QX the a it, side, sort approvability QX. as impact is On performance on that we their One, mention of macro are forecast loan

a loan it's need our necessarily is of do most that is of the what the seeing, business of we're because performance. important a to actually not reflection to we in thing get conservatism reflection Some

on spill sort QX. we we doubled exited will that so that and And QX as of down into

is And XX% of you sort the do traditionally, the then, to, impact year. in that that of on referred of tax see the a course, trough, seasonality as which get to you the season, course Dave fact QX, XX% depending there's

and out some funding then those And the issuance. on funding particularly ABS on continuing for turned who was were relying said, yes, reliant ABS be QX as side, we liquidity, are sources, quarter to on there's leverage the more markets. a pullback tough those who

source, sort And plays we was loss as sort the into QX. the think then, as a of our but that funding balance a had so funding affected what own sheet of course, of not which we factor some well. of I majority coming it of mentioned source, our of And

some So the guided. on add we approvability side, together, of of I they those to on up think you sort when have funding you things add borrower, and sort all side things the where the of something

Michael Ng

the being about Appreciating we the XQ the likely Great. year? just to good And way -- comments last your expect of then fee million revenue the funding and Thanks. rest assuming the to environment about it of think change? What's question better trough. grow necessarily of question. UMI Should second can throughout Or that that? the the off the doesn't year, $XXX than environment that be significantly a

Sanjay Datta

the I out. Yes. think highest the mechanics I and play most I we I this the at way will mean, think level, that on guess, focus Sure.

related. that are closely things very two So,

The first one and the most important one really is expressed by that metric, UMI. what we call

stabilizes that is a And loan of and our material exciting. will as that which macro it starts back slides. more believe the happens, we delinquency, sort down, is risk in those come performance, re-convergence as that risk and contributing see there to that some is investor Essentially, borrower you in of target of to means for to what as

in And that those to to two the to as happen, back ecosystem has side exceeding side the business. the things and becomes historically. performance will back And fact, go approvability target target accretive on of the borrower as it

capital, markets a the goes and markets, get go by when deals start will that place the performance of approvals typically, style target side to and risk that's committed on in with And to signals see certainly, signals follow sort the levels. down. loan to the up, overperformance. risk provide they along we funding will ABS subsiding So, couple of and of -- accompanied in if prior go our fuel the funding easier that of of back Typically,

Operator

comes Our go next Stanley. from James with Morgan Please question Faucette ahead.

Sandy Beatty

Sandy on I Thank the performance you. on question have This trends. is Beatty James. loan a for

call looking so. three deterioration delinquencies a the or public deals meaningful or So, of majority we ABS of months the pretty losses, the five annualized has just last, it, at shown data over track that the

and your are sure, team make with correctly? interpreting consumer. that? UMI then contextualizing thinking then that general is How on to wanted the the just the just And about we I So, comments

Sanjay Datta

Yes. Sanjay. Sandy, is this Sure.

if right delays that said couple out. there's there's phase a I guess broader of at couple I of I So, you're looking a now, call -- sort would issuance ABS of

one loan it issued a the in time or into origination an season sort The takes the just ABS of first get it deal. for of the from is to issuance

in And sense. bit of, a I a think, sort lagging so indicator that's of that

us respect the to we loan And performance have the you target in to investor that materials. in of this is, and what our reflected think, with see sort language to sort vintage, so, in of speak chart I of produce

trough I will. high loan excess sort of the maybe the in think you performance late XXXX, in XXXX, the delinquency, towards if of of will, point if point you end of happened the maybe low or view or our

is And clear lower-income the that you're to then from are think broader stress. which I there's a in first. view, delay, became phasing at now a borrowers of that the it's which our impaired looking that under if is you're at, it's sort looking second it's issuance, primer And pretty coming then what perspective, probably phase borrowers relevant

the you're I looking at you're course, of borrowers typically other higher does if tend and because side collateral, our former issuance, work of think players. our at prime And towards sort broader And more in reflected issuance to looking with you'll borrowers. or digital if we see the of in it lower-income certainly, probably

ABS probably or is the describe mid-XXXX, it borrowers And so, I in flush The the of to income in the way I somewhere probably takes numbers. that at all hit I borrower of troughing view, sort actually XXXX. think through guess, my trough a is, and of their two primer the lower of sort quarter end

that's perspective. describe maybe how our so I And from the system

Sandy Beatty

of back really nature Obviously, a the January high general the I the et what's of with it. we've Is a cost And generally, helpful. plan. that's has conversation? terms process ask, forecast given to timing to you're restructuring of wanted year, how in market Got in talked That's focus know more and general XQ very on thought and a at a that about about cutting, rates, there One the target? path to But just the cetera. profitability. respect thinking the I this level? been

David Girouard

James. put we as is as definitely be in Sure, we environment took expenses would it environment the I weeks wish a the generally, say, Dave. it position we when we year. the not sense we a where will later few ourselves in to This in action back, this exists took fixed need thought make

view, position, market think We're expenses it. in not if you any fairly up can is the our year. be a ourselves economy fixed It deteriorate improving, with, this is. where while then stable So, going stay the we et we it we've about set you not business the or, large to and in something assumptions nature serve -- and the is we And could of was neutral how live but will, that largely it for like very just and about to not making that's a on cetera.

people the many a only now. of more how we'll, fixed let's in and future to financial lot have or point with in fixed potential leverage we a dealing we last in makes to down will feel slim ourselves fact, profit position our about us we're give month be us environment from right our expenses. get a of forget with a -- that of able ourselves sort get out And not confidence at of perspective, some because lot business we like in whatever, had Let's expense it sense emerge

good really gotten about also marginal We've marketing. spending on

Our margins are contribution way up.

basis Our way are acquisition pre-loan on down. costs

set about again, making any we're future. in the So, not macro. dramatic But up, really the a think, assumptions improvement I we're for just well

Sandy Beatty

my question. thank for taking you Okay,

Operator

Our Please question go comes from John Jefferies. with Hecht ahead. next

John Hecht

Thanks about in you're guys very much. I quarter -- QX. like closer to guess looks of thinking It about did one billion somewhere doing or QX. what you volume $X.X this between

of channels of You're pricing not buyers are buyers the characterize you wondering of balance transfer can of what's who those within it. each or -- And kind the of sheeting the main kind over channels? I'm six-month that period, kind investors?

Sanjay Datta

John, this is Sanjay.

the say, and there's rely ABS call similar on of then, the and There's in of So, the a sort who the funds of sheet. it, channel markets, the I largely and capital between, channels course, do be folks unions. of sort end credit maybe spectrum, who the a they tend And bifurcation not. banks that's let's that markets balance folks to primary past. what to would and we've in described are

with put a pretty origination much paying, setting own to pricing on that funds ABS is on the that channel working I about are think just remaining the loans, the when our the and markets. ones respect loans the well, of do volatility sheet think And rely the most of you own borrower to are standard markets, who prices pretty the banks we are their their are the given ABS own balance technology charge not of what using through their fee.

the but In volumes no there's that sheet. our for committed originated own par. exchange minor to exceptions markets, respect we've transfer we There's So, balance folks scale, have They at it's provide in and a would been something originated say, technology to capital who and close and transferred some the I own use, in for is With use for bit real very loan their exchange loan forward. their of par. the always for to regard. a that that's, discount, for that

John Hecht

Okay. -- raised can you over know you've we pricing the year. And past then

kind the You on us rate this at post of portfolio average. looks little maybe originating mentioned give duration for what's point. a about the are to what goal the bit larger loan Can -- and just of -- size kind us you sizes like what loans portfolio the like and think of portfolio --

Sanjay Datta

see. let's Well,

So, proactive the we're its loan respect market thing. duration to we for to with and trying the size, on what options view We borrower, the a have -- will do sort and achieve. don't marketplace present necessarily will the of

of much remaining it, months because primer we've marketplace the way that we've ago, and the rates be the than call it collateral much, so raised resulting has and bigger in think loans. loans to six, because so approvals was, nine tend restricted trended is the I primer

fact approval that removed of loan sort been the -- the opted has the from to loans so, size. And of many increase lower-grade the box have

to you're With effect. are of So think you -- mix when you rates? you talking that's are or interest a respect rates bit -- maybe say I a of rates, sort take about describing

John Hecht

origination. nonprime, of whether cohort are I'd guess year fee passing And I mean, the the yields ago? now Like-for-like, -- it's dollar differential average you're what what's a yield yes, I interested prime be versus Well, that a in or -- fee on? the the per then

Sanjay Datta

is they've I at now. gone take right And see low. as rates, revenue up you'll reflection underlying in if gone guess, loan Sure. very of a they've is about look take you answered sense, Dave earlier a that rate the fee originations, of sort of a the our question think Approvability as I general demand demand a really up. side, Well, -- Fundamental high. on percentage

can in use economics the in high, a volume where our But we inelasticity. unit we've when to times lot is that as of improve there's said way that demand past contracting. And a is

banks gone they the fraction you've of up. And over the the loans contract of out mix, our less have rates by the loans that are are year, box. course that the larger a increasingly fact as right, of seen volume despite take changes kick the and the approval prime because that's the So, impacted

seen that even loans So, an despite the percentage rate take gone the up. and has you've of of percentage fact the capital improving bank

will, capital as if sending And their see rate as for cost of typically is. primary on with they markets. in where the economy capital impact what them rates, an sort are to their of and and setting again, own function of not lower of own respect you that they're state direct there's banks in originating as loss obviously bifurcation what capital They've yield, a loans, that had cost

have certainly we sort a yields bank average gross a but essentially our So, bank. case. sort in loan targets it's of gone little I you would different bit where their on have what laid the It's a up we materials, say by somewhat, bit one are markets In the investor of after that capital monolithical out program, can loss. of

sort year XX. ago, they're they now And a just of terms, rough the sort eight in seven, ballpark, of near were if around

at they've -- what up of roughly sort commensurate the So, rates two-year happened gone treasury to duration. has with

Operator

Our next comes from Goetsch go question Loop Capital. Hal Please with ahead.

Hal Goetsch

question. Thanks my for taking

make business, to automotive understand me what said. and just about I sure I Let your want you asked

that is in dealerships, is platform right? XXX AI-powered some the of XX You only

David Girouard

the making You're lives XX. in

Hal Goetsch

nearly taken that? to Is those those think it's share the loans best way of the In XX, XX% that about managements. on dealer

David Girouard

That's right.

was that show has shown So loan somebody. when offer exactly to to our

Hal Goetsch

time given Okay. business. point every it loan shown? this of being participating Because and is the Is your an sale like And is the opportunity? of part

your other pretty essentially for a part sale business large refinancing of part other is The cool of of This very business your ticket. expenditure. of is point kind is

kind how transactions helping extra about an you you is your deals of profitable system very just want can may those just be complete are many with for I dealership because us share Could week average on to know the that? what incredible.

David Girouard

Yes.

values we elsewhere. is borrowers our that a for primary we -- mean, I aren't or them that one sure, think to and just I elsewhere, dealerships -- for number can I very offers see you, sometimes specific getting than on make don't but of with will better have have for they rates --

a kind proposition. rate That's close also, process the primary automated And the very dealer. faster the it's and for of significantly is value better because

if you I take think dealers, different the the doing out captives, programs a things kind I on wallet outside sort have the which of we wallet to you at is OEMs cut captive, think loans. lending and outside those meaning share share, about look the wanted capital of of in of just XX% themselves about XX

Hal Goetsch

Okay.

capital. of So, XX% outside

to ago, How in is hard. rates a have one two go some And X%, yield for characterize now three this what's Is that supply issue the -- on of that would places characterization side fair this X%, up. those the cut to on? moved have recent supply is so the going Great. is market more you of for the or years loans, the that X%, how overall -- buyers of X% buyers, for many trying Okay. much find platform

little a bit it's easier. Now

David Girouard

That's the quarters. dynamic definitely over a of past couple been

returns Let's call lever some to needed cases. previously it can get hedge X% now bonds buy in senior single-digit returning to order up funds high in that buy of and sort

with And can so, their different as they compared meet before. sort hurdles of alternatives to

there's starting a yes, little pricing. of there instruments to been competition and more some that's up been we're senior And But out for think in anomalous. bit been think has see a signs, a that I revert certainly there's yield, starting to environment lot and little that been terms the bit So, I substitution. of an tighten how they're

Hal Goetsch

Okay.

where still Or kind question. on lenders macro is is there it even period causing sales that started ask that in XX On view a XX the same-store there of Let really growth? the one yet me less have macro on the generally were the still -- don't are XX you like changed with. we last lend your originally to original now, even is because you because now has

David Girouard

to one feeling macro. for partners sure. another affects macro all everybody, degree generally the or the The of of impact are our meaning Yes,

can or they're pausing. mean down they're that slowing So

Sometimes as longer with us they're they're they're implementations cautious. taking -- are not just more signing and because

XXXX. direction of they're they're little beginning in, or cautiously this going XXXX a know the they is of So, but a end in moving the

clouds to a go, in the not the out platform go lenders future So, platform, part at and that you pace of good we that. been a adding as see and having the the little But have perhaps, of a into for more I and capacity have larger a are they small of would quickly happy that's if -- feel clip, when confidence. ready lenders large very when quotes, really ready much of on we're to bit clarity, a additional for have be while at right very I with presumably, them bonds converting we're larger little economy. we on we'd now, think lending to caution. monthly as quotas us, But adding are there's they happy and we'll number we level think they're and that sort But a that, a function have the of the past said

Hal Goetsch

Great.

so you Okay. Thank much.

Operator

next Our Piper ahead. with question from go comes Please Arvind Ramnani Sandler.

Arvind Ramnani

there of much particular that have just you kind loans a going then then on the where like they're team looking those of wanted sales of How to up like is I kind boarded, or that and And lending about onboard. lenders of lenders kind loans syndicate ask once partners process to new onboard with them? of -- kind you lenders. show them out to sign Yes, a sales

kind like loan process. of understand I the

that be but You walk you can bit, through have terms of process of just that helpful. lenders, of will a processing kind XX% in little if above like kind rate, a

David Girouard

This Arvind. Dave. Sure, is

borrowers, I We're looks think but an this might right? enterprise to along that. of what of process kind to don't selling compare selling easy selling, seeing the flow them know, out software or somebody banks really I to to it's for technology it you SaaS of the help expect lend process, like

committees and There's through win such drill and have to they effort risk and get now. credit side. of because We a such. you So, the to committees lot the business have committees know

selling of originating onboarding process, you it of done helping loans. a success lot we've team, process cetera, of times, it but an and as could enterprise which think walk an process et So, somebody live the customer and a through then getting is

And are, be next and they thinking -- then touch fact, almost where what want with and they're constantly there's about we're the we're in after to seeing. just them, volumes what

XX-plus a So, we're today, of when why more. or imagining there's management. a of the lot day platform and on account there's heavy XXX That's lenders amount fairly a there's

better so, them And themselves, by we as but today. we're them to do want much handling can one one as certainly very they carefully

Arvind Ramnani

great. That's Okay.

now, bigger a like to it's environment? to problem late solve kind whether be XXX kind this Like we're problem And it. of throw of greater, lending kind of number so, solve out will too number constrained and potentially the there, that or a of we of of that I getting may even mean right out or kind

of cycle But this or like, more then XXX with make a lenders, economic easier? that of we years let's and you situation now, will few maybe base are the say, from kind kind go through sitting like another tough of lot

David Girouard

it reality, and of doesn't I Upstart say, one the performed that. platform this loans the you the the today, well, a in would several would put way. turns before cycle, and put next same, that the is through it back we they to to it will they behave help great, on it's the that lenders place in say, all more the way but want on then lenders that But that lot Having look if all if like at time much. all are things act platform out

credit and out of abundance cycle not this for our of unions pause. and actually inventor is have they platform caution, do on credit an and are because lot of deteriorate. a really seen who sometimes they a the with get today first smaller They've performed point do building well, we proof banks pull the So, us, back

us months, first credit of performed banks also loans well. it have future over and you last having be means all, these or very will So, the to call a if having I that, point We'll in well think, in for because serve really the different another proof the XX large point, proof want categories.

I personal auto relationship lot that, of course, us home cement think, cetera, if lending, started with in further. the of may So, they in and has it a of be lending, et sort lending or opportunity to

out a of potential end So, the for a the us lot primary originated is large have to definitely lenders fill what part, of platform. to our

The can we we are and other do things doing.

but and what very next that. in there'll nature time business volatility some the around, has at So, like given always hard the in look certainly do, hope will it the we of it our year, we last are working be we

Arvind Ramnani

for drive guidance, would was either or of change you provided of you those the mean would certainly the think Kind macro to kind like you'll of kind range kind kind of downside guardrails of numbers. What what kind just provided with kind helpful of the of to of outcomes year if And made I scenario to progresses? kind on provided. upside of of happen Perfect. as like what question. broader you of last like estimates what the and do which kind -- needs But need to some

Sanjay Datta

that and both answer this what Yes. described earlier. of is UMI the upside a but I on Sanjay. borrower look It's like lending some think would create down. platform will sort will or straightforward, will Mechanically, return target/overperform. I consequence funding partnerships there's on sort of loan lot side, create the to we a comes scale. Arvind, then And an and some relatively of achieve performance as that the will

personal that certainly we I the would That sort more would were world opposite. further upside as do skittish be down where U-turn get downside I or today well. a theoretically where guess a the rates levels back they of savings back if and/or even funding to are low its versus go devolves if create sort the and previously degrades to trajectory downside create of markets and mean some

Arvind Ramnani

about mainstream right? kind and kind some press. mean, Perfect. if bunch as last that these of and some you your I have of years kind with And ChatGPT easier, becoming partners kind AI of kind very well-known is one, with a but become could expressing this back a or that AI I have it things may lot folks been -- Like just not of of tangible, when of were conversations kind made This your of more I of more could. broadly -- of Has imagine AI, kind talking of of some publicized. cohort two there skepticism like of people now thing level

using where are that like, around ChatGPT. you're wrap Have convinced of the kind okay, touched can some It use to my AI. of I've conversations actually word it. those now fine, people changed hands I

David Girouard

differently, actually trying of some marketing getting can AI class us that, what tried model arguing sense, more a haven't this you a AI And AI known. credence. What because of better think lending something free it. decisions. and it's obviously for credit ways. see kind it build can sense but There's stunning category And try just sort much ChatGPT if different it and says, of guys, you the to to can as make some it many of it's very seems we're do if do of it in certainly, ChatGPT to in sorts do straightforward generative can well, I smarter when is trying

power economy is the decades of be come. our an that very and So, to advertisement central going fact the to AI for AI for for it's in the

to how awareness to fits you're really want it executive, attractive if makes future, I and bank think, it get So, how a the just you start in a that you about think of more partner. Upstart,

Arvind Ramnani

Great. very Thank you much.

Operator

The Dan ahead. go from Dolev comes Please next with question Mizuho.

Dan Dolev

going only I for one I'm guys. it question. to make you have easy Guys.

Does just that kind subprime really is beyond reopen box QX? that the and the It the you their credit like can in So even looks mean near of like [indiscernible]. prime quick.

Sanjay Datta

of the said that sub -- Dan, quite sort sorry, I prime didn't borrowers are there. you the lower beyond

Dan Dolev

can you reopen box mean based their the you terms And what of first question. credit Yes. in Thank risk. Does my and is in trough on beyond quarter? that said that prime It was the subprime that actually is you. near that other the kind like credit looks the of

Sanjay Datta

look back as point the to I sort that. willing approvals to to quite And -- to we would they we I think to would think look we've we're started reached of don't well, trend increase where we're open call -- down.

them. for multiple very see in of but at I a Or evidence think maybe stable we me to level they've been need months, macro now let it terms. talk about

to savings repayment, line detects see the adjust of further that. rates consumption. to coming We will of evidence in from as see And sorts which in with personal need the back result evidence income need it further model patterns will rebounding. We of

data. we sort in to take So, thing will to react of The play to the decision need a not a necessarily out begin it's on. improving as trends model they

Operator

from with Caintic Please Stephens. comes go question ahead. Vincent final Our

Vincent Caintic

for thanks question. taking my Hi.

a to related funding So, both side. question, two-part the

sheet, discuss could for amount have of balance loans the other increasing have there's capacity. on maybe on that the if And you first, balance you ways So to much do how you that if capacity sheet. increase

example an for have -- So banks, Fintech’s, as example.

of second then the upside an the And to XXXX. question recently that is, the had part saw I you securitization

you the have there can there's Thank learnings about you like any you. there? if could wondering and appetite if Just that, potentially more opportunity talk

Sanjay Datta

Vincent. Thanks, Sure.

see. Let's

have On start substantially saying, be its think percentage of some we bigger and think don't I the terms charter. one, sheet increase in strategy it to have create capacity platform represents. don't balance pursued of certainly overall capacity first in the balance our and a bigger I well, the way a let desire sustainable would sheet peers me that what to through by bank

I their which capacity running platform. to I and us recovery sheet as balance up the think our we're not I and think that's R&D funding the to a lot projects and of the suitable We up. many want by reasons, of effectively for capacity. our scale different covered we're when scales be size of the I past. now, driven at different but markets, the one the products imagine mean local we the model by just scale would capacity, with could in think platform doing maybe don't can the platform And for we've the of you increasing maximum it's

choice. strategic I that's, think, deliberate a So fairly

seem and a January. think a you a And With deal say high I and like spreads a tightened securitization, of would have basically of in rebound lot to at senior in the I level. to have parts the the did respect subordinate about instruments markets, I guess if -- ABS senior their the it said, characterize the yes, demand lot. and I that close price we would

The senior well. instruments things That better of that's not back they of risk. in there than QX. sequenced. parts did has real a see the think sort significantly in and -- not for the where I less QX, way you first, subordinate rebound point sort So, priced the still get eventually risky will as improved they versus typically, market We're the a at then is subordinate come but

midway hopefully. So, through or I does of hopefully, -- U-turn nothing of maybe that transition we're think that sort sort

Operator

call. you. Thank you participation, may for And now does this you disconnect. today's Thank your conclude and

Upstart (UPST) 14 Feb 232022 Q4 Earnings call transcript