UPST - Earnings call transcript Q4 2024

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Operator

Good afternoon, and welcome to the Upstart Fourth Quarter and Full Year 2024 Earnings Call. [Operator Instructions].

As a reminder, this conference call is being recorded.

I would now like to turn the call over to Sonya Banerjee, Head of Investor Relations. Please go ahead, Sonya.

Sonya Banerjee

you. Thank Upstart the the Full Quarter Call XXXX. year Earnings to Fourth for and Welcome today's Dave call and on me With are Sanjay our Co-Founder; Girouard, Datta, CFO. and CEO our

include Actual strategy. described These a been our risks, a may update future are risk we new by as forward-looking will factors required as During and our We variety differ result uncertainties statements no SEC our are of today's business statements, of today information based law. call, and as a various assume have materially filings. which of any and outlook result that forward-looking statements expectations result make or in obligation assumptions. beliefs to except on statements events, as and about to subject of

include in which to which historical earnings our a Our are Reconciliation GAAP found financial GAAP are our on discussion IR measures, be not our results. can will website. for substitute our of available materials, non-GAAP results non-GAAP

the we're participating Before I quarter. that the this call share I'll turn in events Dave, to over

investor On retail participating both Citizens we'll available our Technology participating the we'll on Twitter And be March in IR be in a Henry events X, replay A will February of Conference. JMP on with be XX, website. Invest. on Q&A

that, over to you. With Dave,

David Girouard

took asked rapid afternoon, the we couldn't Considering Sonya. cake. at of Upstart, stronger the XXXX for improvement year, quarter-by-quarter today. we quarter the a finish. year Good environment everyone. a for clearly Thanks, the Thank of you us for have the was joining beginning faced and weak fourth

revenue it's upfront. worth GAAP profitability. XX% our a but and QX, financial our not origination since XXXX bit adjusted on We'll a In volume XX%, grew sequential summarizing product basis. the EBITDA first business within all at whisker and our grew both returning a came categories QX, overall, to the of of later, a details to sequential In across quarter basis, on grew delivered seen levels dramatically get

stunning work On XXX% for basis, both equates HELOC without about in XX% XX% more Upstart Upstarters this by country. could And across dollar incredible growing categories growth this believing want achieving revenue. and have auto possible each to of Originations for year a in new each an year-over-year product happened and originations small None in ago. relief our we with insanely quarter-on-quarter. of of than just growing at a by product a our I thought pace and to XX% thank growth great them and the sequentially grew

that decline part latter Macro improvements product future to we model and the appreciated Macro, benefited clearly represented never of growth, certainly most any our continue when they We XXXX. While to business of finally by assuming wins plan from Index the in but deliver Upstart the macro support they're we to a also tailwind, the come.

to that describe and like model the in in some of I'd dive Now quarter. fourth we and saw the product wins

lifeblood that potential crowd. future our that core of risk continue robust. the separation improvements and pipeline Upstart. seen model personal is you product, the separate our innovations deliver the from responsible us we lately business wins of our In are Model of to model much increase in for They're further wins have loan

to the or saw the ML momentum in what's XX, the Model loan, you giant the delivered we led in an referred speak, the innovation as of is If as APR, model. recall and in much of accuracy. half with feature This forward a to impactful model was model of to using price XXXX. the most second the This of model input a it leap

terminal loan the called other when particular charged introduced state underwriting a and all a explain To this considered of PTM. in the launched XX, Payment QX, Model Transition models, a loan In the month set. in bit, or the data was which training we timing or new prior off words, In capability model a Model, only prepaid.

final data that the off of current that can in that charged also This to but model. delinquencies a PTM enables properly recover have loan. model delinquency of directly meaningful that consideration intermediate from are are core may and accurate It in suddenly means preceded the status states more model. can the the training delinquent inform loans our not means learn

concepts but a boosts. They're by and as We're PTM feature accuracy aren't model often of innovations these the new forms surprised types increase like in deliver, onetime APR entirely.

refine advantages You offer to our many a can their and as time team ways of long on come. vectors for that think build innovation them to

these to significantly recent calibration. innovations some I on model want in core achieving we've addition thoughts risk done this invested share consistent analysis focused and separation, we've in model to In area. also

time stimulus. reminder, COVID and as default. underperformed all And that quarterly was government the overall a calibration As several measures between we the Upstart the gap vintages that predicted withdrawing of the level actual has during know,

we had we in volatility, defaults to the state of of principal time tools It's today's less applied have this than completed our volatility. and period of with returned observed lost underperformance period. back test full handling a months would of XX% thing. found associated even period intense had worst quarterly But this today's We actually any course, isn't partners' historical macro would recently We sooner. important calibration macro whatsoever XX vintages avoided have using to lending loan to good this X% tools first throughout the that that during excess of a that

volatility periods our analysis This us resilience strides we're of to platform confidence making our meaningful through well gives future. that of for economic bodes and the improve

our to products. newer on Moving

of products, the giant XXXX. in auto Auto for and refinance all the revive of has about to refi, improved advantage to refinance to our I in we resulting across in we and QX, Xx rates increase mentioned it rates particular, that both XXXX. seen contributing in auto in has models modest conversion and underwriting earlier. a in XX% new Also, reductions volume conversion opportunity, auto roughly sequential hope rates, released In retail begun improvements improvement take full interest base the origination

of excellent an on opportunity prior We're auto millions our cross-sell for as increasingly refinance borrowers. focused

Our HELOC growing was a did and In QX, by much XX% conversion is eligibility. of we personal This our like booster. the growth counteroffer in improvements, sequentially, expanding auto combination had state automated driven strong much cross-selling loans we QX, product by business. conversion ago. an important a This years as process, approximately

by powered machine In December, feature instant verification XX%. learning we income rates launched increased that a

and cross-sell up our borrowers. We're home population. finished state also in our to begin originations ramped of XX% ability our XX representing hard California year We U.S. of states, with to We HELOCs in the HELOC the offered prior soon. to hoping working

We originated more for defaults, a and finished super than with also XXXX start newest X,XXX product. strong our HELOCs X

importantly, which HELOC offers about available borrowers January, basis huge the HELOC were is on in our rates signed is turnaround important this already agreement partner. for milestone on on with win best made And a Upstart. Upstart a also superfast to an partner we come. this a lending and live. us by partner's being and for HELOC things bringing partner This great improved for more QX, In behalf of offers the a XXX first harbinger of points,

substantial familiar customers. is homeowners a which The lending unions product demand comfortable. partners both prime, also Banks for with and HELOCs as it's credit and because they're our from very and it's love

needs some for funding likely quite time for our our will HELOC exceed it's come. supply to So

toward home product year be fast-growing Upstart. a expect confident of terms and HELOC advantage, of that a banks I emerging also unions. great I'm only in process is an Upstart will always of as cost have a with automation, which given part but XXXX funding, for distinct lending strength, terms in business increasingly relationships our and orientation extensive our and of will not credit

that XXX% in with quarter. growth cost QX. amazing more approve in margins by loans This loan The fourth giant in us volume driven more variable performance, gross continue the than Upstart cost on the economics. the large loan team has year. dollar developing improvement sequential per exceptional more This referenced target I small new our our for small credit loans in borrowers was relief earlier accounted strong dollar reduction predominantly their run origination and borrowers for allowed of SDL XX% product than within The to in

to both. small core Americans. sample even the model. set important our unsecured efficiency is loan data accuracy of beginning personal future, underwriting the expanding the represent more moving use single to on borrowers underwriting expect Model of In train As and more the to be effect a repayment both to for near for trained XX, to we our lead of we're has model to This products, dollar we'll help which of model which

these a efforts and we Last by clear to leveraging outreach paying year, timing to overall In health. by which of personalization In improve off. payment XXXX, operations our that makes XX became scale and and our plans outlined within automation increased personalization and and data, This it outcomes modernize track operational efficiency. demonstrates on XX% I borrower QX, a the how were borrowers rate stay servicing methods. improves at delinquent days portfolio personalizing sequentially helps borrower by contact

efforts XX% balanced roll delinquency the us intentionally same risk direct intensifying of year-over-year. X-day delinquent routine rates Ongoing has most of time, XXXX. reduce default approach, for where from the XX% investments helped loan reduce This people-related we've automating At cost by us charge-off impactful. they're while management servicing collections to in at automation current by over prioritized helped course per borrowers the

it than AutoPay rise in Upstart, well commitment portfolio-wide our be of first but the part X as both creates for These better outcomes to loans Overall, to value a lenders. borrowers improvements years. for XX% not now origination, the highest stakeholders. exceptional up turning the new reflect more continues into enrollment at at points level efficiency exceeded competitive Servicing credit XX% than while all enrolled year-over-year. more lending, and we're of with time, driving flashiest that basis XXX AutoPay customer experiences for differentiator and may

in well for was business total supply and on commitments commitments funding capital with commitments platform. us of our as a as well $X.X in exceptional up a the credit growing long-standing we XXXX QX, roster for partners from year an lending upsized We In XXXX. by increasing our partners, saw these increased our active private billion. partners sets of

facility. confidence our capital platform. partners We personal million underscore warehouse the wins in loan have closed also These $XXX our a

union year-over-year. volumes to partners XXXX their to partners confidence with and also bank XX% lending credit continuing XX% improved expand and our loan platform our platform. of quarter-over-quarter given liquidity QX return Upstart in lenders the marked grew and originations the with our

cash We and XXXX in beyond. also as the debt growth second convertible million in almost strengthened XXXX the due balance refinancing and to considerably liquidity improve for our our well year in $XXX by sheet position half raising anticipated as our of

our our leadership the to priorities X As with towards AI. building for both the team, This rapid new partnerships and goal can In prepare we the largest model in a begin this of I all improving X, yield Number I our the to XXx want factory is across in pace investors want reliable the in and our delivering my number reason. proprietary XXXX, our infrastructure, innovation growth Number world. share growth. the the year, want high-quality, in strengthen asset to This loans X, funding We supply by of increase accelerating streamlining data. funding Upstart strengthening classes. training steps for our XXXX. dramatically for year. lenders processes means I take

real be combines the to second the just leaps that. Number of that the to all. half X, growth the doing those we best bigger for in to of this toward once down net and with partner path who want it return Success otherwise. process who We're this the GAAP income again company unique choose half XXXX. will year. best and second even profitability in And strides for rates, profits. for us, present giant rapidly in Upstart X, a will invaluable started on endeavor verge and high We make aim of We Number make in those XXXX, challenge

up. I as few A wrap thoughts

with Upstart. something foundation for said went on of own the is simple else credit. to Google's model then of that is his who eventually Upstart stuck and our started building This description is me. AI early a venture very Nobody DeepMind even recently trying. Upstarters fund yet join One elegant

the the year In each AI of undeniable AI, said had But fact, origination you're credit of improve obvious that a of wish in clear the and people everywhere. opportunity a power it. of if I transformational it's represent I trillions for to dollars believer lives

While will is or whether many be good winner ultimately rightfully the AI-enabled American AI worry for undeniably bad about lending family. a for humanity,

annual Diego talking mostly generational with about Live and for across of to Upstart to in toward take other within an our gathered rate process weeks in the changers, will challenging San incredibly best each time our taking destination and few spent a create second was kick the the lot our but ages. products. XXXX we and is we We of of A the any for about credit the best what best brand off company process ago, goal, a in event XXXX conference. it will a grasp. leaps company, create for Upstarters The rate unlike theme game a believe giant success and realistically all best it's is This a to offering all world.

our event more model opportunity we're great we're This Day City, host team insight gain event New where AI into it how calling Upstart management look and provide building a our business investors unlocks. our in-depth and technology, On York X apart. we'll is connect we'll an the the May and XX, in an of of incredible analysts for to and combination sets us what with opportunity deeper the at

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

Sanjay Datta

of and your of for some our Dave, sharing to with today. time thanks Thanks, us all participants

XXXX balance We size ambitious year. out the return of financial emerging encouraged of year, growth sheet with the committed reduce to business, environment challenging to momentum, own past profitability. are At set some trajectory the last beginning an from capital and and we our base, to improve otherwise adjusted performance scale objectives, the navigated much for having what of turnaround of was be our EBITDA the the continue up good

a list macro consisted wish Our only stable of environment.

million from loans report we our are XX%. As the year, nadir costs fell balance Quarterly we revenue positive year were controlled, The with card. to adjusted pleased EBITDA. sheet fourth fees up million. positive look on our closed XX%, of our were we by $XX back interest the QX $XX originations quarters up successive flipped income XX%. on quarter, X in Fixed by net largely the of about and with from negative were Versus of XXXX, amount

see The perspective, indeed sometime the the remain our published since largely year. reflected some default This prior conversion back year the macro a of steady of the of welcome half recent recent in model consistently the peak day, light showing break of over did last defaultiness from degrading the the environment us X improvement attaining index, our more X UMI. of momentum over years giving to from as even improvements the last Macro signs credit spring allowed good on wins over quarters

years. Our was conversion in rate highest its QX nearly X level at in

all as capital. was increasing our year-end, our meet Additionally, their to into to investors continue of priced behalf lending and supply lenders funding on recent leaning marketplace of giving of partners of return credit platform track on our with targets, on the confidence

which was from the million, from financial model some cuts are here and $XXX sequentially, a virtually the across their fall's of fees fourth from context, lower and UMI partially exceeded XX% last Revenue highlights all pricing. quarter guidance XX% year-over-year aforementioned and metrics. as platform enhancements from partially this our our combination into With way rate working up of XXXX,

increasingly is interest value falling worked as and was vintages mostly million we've Net marks. now reflected off UMI older underperforming as fair improving income the $XX almost in

came representing us the and quarter, approve model XXX,XXX, to together, loan XX% in of and across in platform the The revenue prior from higher was approximately our amounts. improvements net at new up up up reflecting of XX% QX million, $X,XXX allowed size XXX,XXX prior Taken quarter-on-quarter. volume XX% year continued borrowers. for year-on-year from transactions $XXX sequentially XX% that loan approximately and $X,XXX loan Average was approximately

to variable Our QX, Despite take as than metric, flat costs fees quarter. prior verification we funnel, define percentage QX, in reinforced revenue acquisition, a were minus the and efficiency borrower which the versus contribution our by of revenue XX% as rate borrowers. servicing improving as non-GAAP customer our well which in conversion came margin, cost strength a at acquisition service supported for from fees marginally of an margins as a lower from

were revenue base. in QX. expenses our and some to at Fixed versus in from up X% expenses with acquisition, expenses up catch-up due accruals being fee incurred the be will roughly the not growth sequentially volumes, were borrower considered lower earlier that operating Expenses GAAP which XX% of QX, were marginally QX up line were by to year in variable X% that the nature. corresponding continued in temporary relating verification $XXX servicing are million sequentially, of for

that fixed as principle expect of we tight our pursue management continue core business. You how will can a we to manage expense

our QX $XX steady Altogether, in expectation with million, weighted $X.X Adjusted well against Adjusted count and $X.XX earnings cost share top on on ahead GAAP consecutive million, was second our per net of positive diluted outperformance was nicely line and quarter. reflecting fixed based margins XXX average for the accordance a of leverage scaling the share operating loss base. the and was million. also EBITDA

We full a of with XX% $XX.X of the XXXX, margin versus EBITDA a revenue million, adjusted negative margin and $XXX earlier. up a contribution completed representing from year million, net a EBITDA adjusted of X% approximately a X% margin XX% positive of year

for deal from and held million economic to volumes a year are with expectations $XXX million year, for million our in securitization of balance quarter. borrower down path of of timing the issue. surge next set the the signal the rose in but this from $XXX million $XXX The capital We of sheet, put in on we exposure. down million to loans sequentially XX% consisting the short-term retain consolidation loans well arrangements, place outstripped prior ended we directly is view which which borrower from the us now are be QX minimal toward. loans the held the as directly of $XXX $XXX Rising of volume a of We

objective our the Our loans on to remains as the balance continue sheet amount directly held of year progresses. reducing

are consolidated from loans exposure in of $XX we million a $XXX completed a of The net retained deal securitization which only million. total back from XXXX

in we of from half position and cash million, proceeds in year million strengthened the quarter prior $XXX the that also we reflecting issuances the $XXX as at convertible unrestricted up X did debt back from Our the last year. ended

platform As following the against efforts the for ahead, environment balance we assumptions: the average growth, relatively the stable no margins macro containment majority baseline rate may plan our following although we relatively in constant the contribution pace of primary objectives take volume, margins, year if assumption a gains sheet. pressure some of for will continued any that and funding third-party of will loans drive the we Macro conversion modeling to wins of a grow historical and directly and scale of gear continued strive pruning Index, segments, up a stable and successful, Upstart downward cuts, fixed as put on held our borrower rates, and continued cost availability on

as grants, complete impact negative over we one expect expense. see Additionally, equity a compensation shift stock-based a year from to multiyear to we on

current will lower in historical a at the with aligning older charge will dilution one typically expensed While incur calculated economic they grants prices. generally than the grants, year by accounting lower result higher stock are which price, amounts

$XX the QX approximately count share $XX a margin for million, context our approximately with a approximately XXXX, of adjusted that income income average of negative of and million, adjusted with net expecting of from weighted approximately XXX diluted items is positive approximately of total as net of of million million, of share basic XX%, consisting million $XXX million $XX weighted contribution and interest count reminder positive quarter, are XX approximately EBITDA million, shares quarter net revenue approximately of and income average shares. $XX fees we revenues seasonally these of approximately slowest a first $XXX million of With typically

approximately of approximately expect billion, at interest full $X adjusted approximately For and $XXX the expecting are of million, fees income of of be positive of we revenues to net year for breakeven $XX revenue XX%, income from of GAAP XXXX, consisting we least and margin EBITDA the million net total year.

contributions To employees, year for on once all for joining profound I as your us this to Upstart past XXXX, Thanks am. together. call. thanks all and efforts this the to we've Excited you again navigated about

to over Operator, you.

Operator

first Instructions] line the Needham. our question Peterson of we'll And take from Kyle with [Operator

Kyle Peterson

Wanted to off funding. quarter. start Nice on

down. You deployment of guys How depositories? that of at funding kind mentioned guys seems you think committed will XXXX? you whether the How mix about in funding working the or the like a good there's additional capital, moving it's buyers pipeline of between thinking forward it guys of some are should we about are

Sanjay Datta

same. talked This of objectives thanks is for maybe that and and and hedge allocation We've our sheet will north say the between balance, of balance fund credit having committed somewhere bank past capital type joining. would remain medium-term ABS XX% Kyle, and Sanjay. of capital. capital at I the in our here the some union

in the that's some still target us. to volumes, Obviously, look a the think expeditious seeing way involves deals some that expansion medium-term most capital striking borrower we of And counterparties. grow will I oftentimes, with in possible. large we're for short-term, and good

future, objectives remain what our that's in I we same. probably up medium-term the lined the So but near think have

Kyle Peterson

about follow-up of what on commentary update, will be should you and of as that maybe a is as And sit now or of that? where you loans where X? the provide it's end of held pace the the kind the that anything But kind goes sit on the balance just January on there how Okay. could next should any over Appreciate whether quarter balance or to And sheet then guys we balance the year think the on sheet. sheet on. reducing plan

Sanjay Datta

obviously And in the right borrower we've the what a timing ability spurts in challenge similarly borrower good extension had put side a in on past facing being and QX. growth between of match sort side the about we're on it. Kyle, that's now. to talked We've there to of Yes, bit capital place of the agreements

sources take quarter-to-quarter that So would capital of conversations and now. to right more activity quarter-to-quarter, to in one. us, from the and a that's we'll create a than about loans say those we're look it's month-to-month I But

Operator

take We'll Clinch with the next of question line Redburn Atlantic. from our Simon

Simon Alistair Clinch

start of drove we comments, I it were sort all the upside if to break do you really down was down cap? just could this help on what your that quarter? was with just brought with Was the sort demand. how you there curious wondering borrower of -- that Or Could XX% the saw Sanjay, borrowers Just as of that sort being model? kind of beneath rate breaks down. just

Sanjay Datta

Simon, don't think approvability increase yes, maybe conversion, Dave alluded terms was in of it sort that. improvements of amount as of maybe accuracy to some of I could that half model of from rough thumb, rule some the in it and as a to know, coming you the them. of

bit. some that always a a coming them some as And the talked platform have in we've pricing. rate work little I cuts moderated platform our if reflected but of being combination amount they And been saw we some And reflected last also of delay corresponding some into from how rates default little UMI having about now well. pricing, That's is fall, in guess, has subsided bit.

APRs on conspiring So cuts default of lower moderation and a little platform. to from rates, fall, technology, combination last all some some the better in rate

Simon Alistair Clinch

given the or, there's you of planning Macro much that as plenty Great. outlook, quick and how the the your color eventualities with guidance uncertainty. around various year. your the And shop rates all about Certainly, those the my going year. the flex Thanks to the I which people for guess, I'm business? follow-up, that for end kind thinking curious a for still of How're just of your to managing within of approach actually. kinds think you're be might that up -- even at in framework

Sanjay Datta

up we as We to that going is I We down or UMI go take, don't of rates that don't down. that for go up are what conservative guess, a matter. assume going to we think assume or Well, position.

which modest But the kind to our that's do we things to think best themselves is very, it, So a that's of they very think build just Having accommodate have changes performance prudent I drop, targeting cetera. the is actually We we the we that and that amount there over that think the our are. powerful. conservatism right talked approach most remarks. any would that view models model be very take. any in bit as if of a to our future they're that's potential tools stay about adjust such quickly might can't my out And into can I do. we never volumes assume et on

lending we're them. means necessary on place moving or resilient. because But And there. accurately generally a I respond results our partners more it speaking, models this toward our just out a investors even on where what's for precisely are better is for more and and quicker can We think as going based is big win

David Girouard

And modest, movements are relatively index. a rate Simon, our default certainly impact that in of the compared just themselves changes reminder to

Operator

Instructions] Christiansen Citi. [Operator the with Peter line of from next Our question comes

Peter Christiansen

market least the retention, thinking think taking at more view from think of there's there a Nice to here? the you're seeing what And do about area? what's on about lot health capital funding turnaround and the guys. forming Sanjay, Dave, just for curious, risk the you're on emphasis market you throughout of your more in the of on outside year, new as participants risk sources side, appetite partners

Sanjay Datta

clarify, securitization in arrangements or just the in to capital generally you're just committed asking about more markets? risk our Pete, retention

Peter Christiansen

Yes. actually. That

Sanjay Datta

making, arrangements capital respect with the our unchanged. to guess remains view I we're

of our And the of have at I said total remain think have we We we percentage those certain want And underpinned platforms to sheet. a balance capital that will those percentage own arrangements, continue ratios that put our target some we by in committed rough true. capital. risk single-digit from

for both purchasing. broadly just and appetite more there in loan asset risk, in think market, increasing definitely I the broadly with markets securitization more an the is

definitely And so the, fever I the engagement a the but would a say, the pitch back some conversations parts was up years stack. not think at even traffic market there's it we're heat bit, a maybe and risk of quite happening little and lot of starting part few yet I to to see of that ago, debt

So encouraging. that's

Peter Christiansen

guess, as That's percentage a just cost, helpful. I -- acquisition follow-up, went like a up And little as borrower it uptick bit. a looks a of little principal

using the you're a do gotten Just borrowers Upstart that it you think itself? has thinking attract where curious point network can how to external onto partners? Or brand really about

David Girouard

loan. Pete, this of period We've long in either acquisition had, per or pretty Dave. amazing a time, consistency cost dropping even is over a

economics feel exceptional. the very we of that. are So loans our good about unit economics The --

there'll be quarter-to-quarter. cost a of long reduced looked we've through So the loan. the if from enormous growth, acquisition per But you little actually variances over trajectory

we So opportunities for whatsoever. loan the And, well Generally contribution has concerns but area have an years. when many, where that we team dial like down on up per feel sense. that I marketing it's no have speaking, performed many dial and front makes to exceedingly

Operator

take with Instructions] [Operator El-Assal Barclays. We'll the next Ramsey from line of our question

Ramsey El-Assal

quarter. Terrific The loans kind fully moving automated of up. keep

are is the close lot a at automation? we thoughts room Those of in there? to of I for they think have is there I'm How we to are updated now knock-on just to -- curious benefits about about, terms XX%. run model. max there ceiling still level? seem Or a of lot about sit the your a

Sanjay Datta

there'll say would of a to I I have XX%. XXX%. get to fraudulent imperfections guess mean expected never that could never XXX%, ago, activity, we'll we sort ceiling get or just of say but couple the et would years cetera, you some is to be always

it do on is. a approvals. think we're that the models I team instant with There's to So working constantly where that improve unlock happy

applying We're the higher. the So I not other loan what think products, doing it product. the some lot of -- a techniques is go same we're also personal I to of mean, can just

to and there's had be wins So more decisioning. lot a automation in instant

So high can yes, know go. don't I how it

I versus borrowers be think in is applicants, be the attract much can can to It personal away, determined. to that will much loan there keep we of product, true there. bad a that have go though higher, still out dynamic we it platform always is how the and really -- how fraction true to guys ultimately the

Ramsey El-Assal

me. for follow-up a And Okay.

years, auto, loans, loan your types? you model of hypothetical now chart of of kind little these few other loans, think terms think can we about help mix a loan personal in getting next traction originations. small-dollar As HELOC of with through verticals, pie we you're should of How us evolving look out terms kind that over in other like the the a these

David Girouard

consumers. have don't because loans onto today, that -- certainly We core personal category Yes. very is other utility for a growing itself can to perfect see very as business, is It's a are lens you high, rapidly. rapidly its growing say than have that -- high our

bit So it's tricky. of a little

growing cap when on believe the also to the of course, both categories, is those category put kind quickly auto growing you on itself But the of loans larger much and hard personal We market very have side, in other dynamics within market and quickly, personal category any our home so share growing do. lending, can it's share what generally loans are speaking. lending X

there. headroom So huge amount there's a of

don't to in we it's a them. do and But see between bit to XXXX. they'll frankly newer little bit of judge very for what know see we're and the products a bet, sure. happy We're a rapidly, hard really excited it's to growing So

Operator

[Operator Dolev Instructions] And we'll question with from Mizuho. take of Dan the line our next

Dan Dolev

as is quick always. outstanding quarter Dave, Sanjay, great. X questions. have I This

which year. should a through the the and the Can guiding term follow-up. us some looks huge that think one maybe it walk quick model? we long First operating of because medium about on I you And margin. the like good. pretty you It in levers for the model have is you're XX%, have And is looks how over then the

Sanjay Datta

the that, We've foresee we relatively drop revenue from the the believe business what anticipating efficiently volumes our the model. rates is relatively and increase I bottom that, to margins, steady take costs. meaning contribution line relatively a will mean And And the very against that top that P&L. by lot of good are our steady leverage we of and about stable in have fact as operating past fee increases, specifically, we in the talked we

be that line, XXXX, Now we top modest. make some on but we're expanding again, investments will the they'll in

that as in talked about ambition ability profitable. XXXX highly think, and our belief And do bottom a lot grows line. our so of that. Dave of business And to ability in more underpins and have I be to just our fast-growing company both generally an our beyond, think And I sort to to general, transmit the a in that's we this

Dan Dolev

it. follow-up. we Got of I a sort supercycle. prophecy guess, fools. like mean, seems that It I then some And the for I the Bible, have a in are know -- I to according is the

this but seems mean, cycle? -- don't is incrementally over there are I I time. like how better things you legs a better getting mean, want So I it to prophecy, much make to

are cycle, If the where be bet you in we to make great. had would a that on

David Girouard

in and loans don't know I'd higher. Long-term high. should is call a it's I are be it cycle relatively one, UMI in still -- much Pricing sense. if our that platform notionally of

higher So think least and probably at a normal. bit don't are them -- also a to than rates be on might little long-term expect I you

risk important I still business. fundamental still go But prices. our at what to able those in don't down X least down. obviously be do go for high normals. for of would or do We've just those year here been Most our it improvements are to we've that and And trend to able things these UMI been said, to So separation to fundamental interest we take back rates elevated. we long-term those that are or with both of platform, do years waiting like around tells of there's and growth. great terms very loans, we inputs what we'll and next those And to automation deliver sit maybe very hope to really are that me, that the of will some which see price over toward the

we the take get just will And models. we'll macro on we them. think cranking accurate I wins more otherwise, away So when keep can

Operator

next our take of We'll question from the JMP. Scharf with Citizens line David

David Scharf

more Maybe one a specific open-ended. and one little

just side, fee-based reversal amount the like we this. how fair any leverage the in having just there the that on growth? in tell in -- is seems you factoring income also mark-to-market guide. is know to There model the holding and guide of the fewer you material Is be -- 'XX? in it tremendous leverage obviously, loans much there's a less for in value operating specific a us Sanjay, sheet balance of included of On Can NII part in Or are net write-ups? interest

Sanjay Datta

from hear you. to great David, Yes.

see. Let's

anything, investor I R&D expect our as we're and largely QX, the And macro improvement Our as a the now that. underperforming NII the we, our as And as to that way, performance holds. be balance than I originated or that trickle would had of on think really There we're UMI well. we've expected And expected as at it. I of maybe if that we've set Look, core. an any of some more all the is so balance vintages, moved value some in improved. don't signaling think taken a years more But the into sheet. is put of guide perform both That well produce for of XXXX that of sheet the would assets and of has couple majority past I XXXX, be say, just more another incrementally sheet, should marks may fair a we should assets. signals looking balance think returns some ago on yet performing in in that the auto

story. the the of that's So majority

David Scharf

last much sort Yes. release may A point. mirror. referenced the sort press open-ended, this in little opening you more rearview That consumer sounds consistent kind of was a in and No, understood. comments Both That a have reference the as most QX high lenders with with of the watermark. of think I answered question. XXXX losses pretty Dave's partially the peak and

was loans. with had I you was principal. personal this it billion what about mean, funded $X.X think X.Xx that of I just quarter, and

just at if environment, don't competition. I the I and interest get about just And once it peak players Other scale rate got know that level to that conversion XX%. much that looking But you're amount? improve how above to could environment, the call spot different 'XX, to whatnot. could going conversion back potentially to whether we're that is sweet on rate funded we us think is an try same on in get late business else environment the to side, margin than anything as quarterly competing to and can out 'XX. could searches peak back the the funding at current the of Karma that you Credit that of what to rate about principal against I'm it's again. contribution that period, potentially signal think EBITDA the early there

Sanjay Datta

answer back the you the of lot because rates to that will are our guess there than models time, I environment. that mean, of drop environment. the I is scale the look the drop compared UMI. Dave. to in the back the of Yes, obvious not path also proxy our could with A different original guess risk business, of high high level path of But obvious the risk the is in path I dramatically a that of because, that in that think I the sort and stronger.

ability themselves, still And dramatically relatively better. But prices borrowers, of is elevated. models as between the decision-risk in are their to quite so said, Dave terms the similar-looking

will XXXX order And as an so of as back existed require to scale. get level rough I that we environment in not think constructive as to in

and a our model And is we as point that, maybe when is related itself much business do, stronger.

clear not back I fall then. contribution were that back that believe margins our think the I will level been do we've to they

we optimized I think we rates. much more how measure elasticity we're and we manage our in how and take how price

of a in streamlined fixed borrowers or for size it. so and onboarding have beyond And similar and us servicing top terms even line business, base now I of fixed better frankly, and margins think, again, more base of to efficiency cost level expect the cost a should you

have and a whether of pretty time So actual incubate at or be think across there looking of to have bets the the that the period strength you're better that, board, we But our and which underlying I beyond our technology, that. it's much across board. business some the the model in only over will expect that well, stage, fact that time contribute we to few we undertaken those real beyond is difference more early as are that

Operator

We'll Caintic next of from take BTIG. line with question our Vincent the

Vincent Caintic

follow-ups. are Both

income to be transaction to it your so continue XXXX, be to perhaps Or growth that near-term? volume transaction how profitable. move near-term growth EPS are a So want there question, alongside sense in guidance least guiding GAAP trying for relative and should in investments profitability you're to could to something at be growth? get for so make, that the in the slower first of you Is kind earnings on seeing EPS so while to volume net expecting going of positive we be kind the should where positive we

Sanjay Datta

ballpark that be in breakeven. Vincent, Yes. would or least we'll in XXXX, we the at just breakeven of reiterate I guess

to of roughly So do that In as we in happening it. not general, think couple could out with of mechanical be There profitability in that improving that program, to the style the expect stock previously costing And from at grants and which to or of scale. things really of dramatically we've ahead I I my X-year essentially called a grant. of current impact ballpark, that I of is with increases the are quickly grants P&L. expense. charge the we think one essentially our yes, just pricing has fact has moving grants a you more it accounting think the of price them script accounting done, of the more grant what and stock-based that to approved the multiyear is a

you year grow is I profitability So scales will to a through the I the full we've that's to then platform the where as see point given, the of minus believe then the we breakeven should And from onetime as million, positive. as impact. think grow you guidance could about of $XX year, something the course be the think that QX us which

Vincent Caintic

about prior then And makes discussions Great. capacity. sense. the just second, Okay. on funding follow-up your That another

million billion of and fee that's do for income, kind volume of of of to rough volume XXXX, then So math $XXX the million that quarter if transaction of if of about XXXX. fee guidance transaction fourth the XXXX close I $XXX holds your billion in the of income, $XX the just kind the $X.X in

funding could that your availability volume potentially capacity good holds? of So kind your great XXXX. growth on is for or growth, sort current transaction I'm or ability funding of more availability the environment see if of if transaction volume wondering we volumes much of in maybe how on constraint binding

Sanjay Datta

Vincent, couple a Yes, of thoughts.

XXXX on a is maybe compared I for of expecting. to origination First your but correct, little directionally we're all, think volumes math aggressive what

close -- that, we're expecting not at much called a did think relatively as to assumption, it's make I So $XX we even number quite don't we as But explicit billion. and the really that be explicit funding do that about the we and the available. the will assumption forecasting side most is of the assumption modeling the out we of platform, borrower make the

not the of the really, how will infinite does would think side business on comes growth. our the down to way. finding and successful that approvability. What a of to which in any have funding of determine in signal we we'll number we a of in any not the now, that guidance. raise constrain we we're technology pipeline our we way be suggests quality I were terms to variable don't I achieve world product in materialize But think, every and is platform in approve. marketing the and and That that right growth borrowers are it's And to volumes as terms in borrower accordance conversations side to the more There funding to us with said, in real the have, in will and able able of scale capital gating the our what allow

Operator

next line Hecht We'll of with take from question Jefferies. our the John

John Hecht

Obviously, the us the recovery your dealership year? how Your auto network, just course about where how know primary is auto of recurring channels like for -- just HELOC business? Karma, -- we've here. mix sources high the how on and of of And wondering but that of might first give the one sources you the this more I much characteristics and then is over is how migrate auto -- that of I'm maybe through is maybe of Credit some good pretty seen a can much volumes. coming from source sort level

Sanjay Datta

the channels in productive got John, more all business, driven in Sure. They was hit similar because of it and more acquisition a just all growth lot conversion way. of sort our core efficient. a

think versus changed where previously. dial much been at at the what core it on has moving So don't while channel the scale overall skew not I the still And the the compared products, the business. they're all are numbers to exciting, new

you largely with I been similar relatively what the just core that's think in driven quarters. as So prior think to of doing could mix level aggregate a we've at business by of channel the it sort

John Hecht

program small you mentioned What of loan nicely. of mix does the -- the second It sounds then of that size different the a where customer migrate what's and them over development small and terms? time? growing have And that loans. of are now? how program intention question, is Okay. dollar take kind to -- to like And kind then that then that's you might someone Maybe in products Dave, the overall

David Girouard

approve for Smaller a Dave. able with John, going sure. this margins. the shorter Yes, is more loans duration, be generally, people you're to at to

generally it's of more U.S. just population. the so And and underwrite way to understand more a rapidly

that that product. can understand heart of it's been you people the the just boundaries out so models just accelerator definitely And rapidly. more And an of terms of the in we can moving of that's think -- of

is It good economics. generating

larger move word, So of people definitely but of it's not can us terms on or sort the loan, products, is the a And car an understanding. loans accelerator to models of leader sense those in loss et for it any personal cetera. refinance other a in

strategy. an Upstart the from that borrowers that definitely of itself. mentioned new acquisition product it's so on in were XX% quarter, We fourth And

in to people quickly being borrowing. it's means of that and meaningful cross-selling able how So new better the other onto on to to other getting we're the better us we're products, them bringing types sense at And help of platform.

very and which I have a all is the rate of that huge and we're underwrite more able be product the that to more it's think, just going with these good indicator for understand is growing, and So population. to future our models

Sanjay Datta

years. parameters John, size just our which of compares $X,XXX, of about is to these to is north from X which terms the $XX,XXX core to XX looking loans somewhere just of X in And average loans, our to in product, those you're the X terms months product. core of compared at

So it's sort of that scale.

Operator

Smith take We'll line our Reggie from JPMorgan. with next question of the

Reginald Smith

if broke can wanted Great you much I guys. guess, I sure out. I'm the as last up about I you -- think on not Congrats, to, this you quarter. But your transaction follow talk sounds how dollar between about ones. guess, question. And difference as and volume, like those may the smaller loans for it the there well. a that large today? be from it of in Maybe conversion rate is us frame

David Girouard

XX% of loans are dollar small, they're just something say, count. like small they of maybe are, the X% like dollar total of would total Reggie, But originations. I more because north loan

than this respect have mean it's as a core comes some there's lower that mean, there. conversion, overlap but With rates bit definitely of conversion to turndowns on remember scale. So are little you a lot I to product. I it's our the -- the volume core that from PL,

over X for sort $XX,XXX loan can a them for a much somebody approve we can we of if years, smaller loan. at So look

in already So an been looking sense, has, declined. that you're applicant at some

that So it's as have than apples-to-apples. it the our do a conversion a bit is number of in lower and but itself at product. number look a hard for conversion, second to of core think it Maybe we

Reginald Smith

improved Got conversion? how the to curious process underwriting buyers? maybe Because that improvements then lower And get a in but comfortable it. what and I people that. Like of lower would a is trickle that it's rate, that you get of about how the was if then model, would your makes I Like have sense? that I your to partner? in translate second this, be do confident you'd whether they fee at approving they APR your accuracy just is a the comfortable transaction part model, that? the of loan presumably, from rate the of talked there and does And imagine more to where but I'm don't main question Like are lower drivers down your these want curious, oversimplify kind loan, you when in your

David Girouard

when and very of first the to Dave, improve that accurately. get has let that That at Sanjay with speak likely those that more effect more fundamentals or are generally, models the rates are accurate. avoiding for is they and them. our model. part. other least reduce then the investors more and people speak to technology comfortable our to And that The more happens, This the pricing get I'll how of more can you people default and them follow us for

lead so very important to what the to who we basic are that So is that do models dynamic more is how do and we we growth. accurate

The other because rates up, everything side goes goes level automation. aren't rate automation invariably, from loan getting When a less is involved is up. the meaning the in conversion friction of there's us,

frankly, X almost and those entire story of those and of less. then dynamics put XXX is So you less friction. together, And or that or explain rates our decisioning more accurate words credit Upstart the in the company, X history

Sanjay Datta

under on work is is, speak just our buyers time. over mouth to with that with our our capital investor side, the arrangement, also us loan loan a committed And who've course. basis that that gotten the putting instances And their that model And on in fact the buyers diligence certainly do we're who course, capital it's where I evolves where of us. of comfortable they Yes. to are mean, Reggie, money

a and models chosen us to know evolve that have that loan how the counterparty -- a buyer. to relationship And well. the of any so in of we understand embedded static it's and nature not basis they we're They they've sort with be underwriter, any of on of a our

with think generally it's us. don't I not surprise a So work who folks to

Reginald Smith

presumably to way for. have Is change if the way a or be, improves, willing them, I doesn't But alpha they're if the from your outperforms it to – the they models loan think what model about they it they right rate what end I is willing their your buy would what on improve, correctly? even back about to thinking model to benefit guess that for thought. they're the like that So captured in it pay that would because change, don't better by articulate ultimately your discount loan it? is as am what then a

David Girouard

exactly. Not

they So perceive of we what in Reggie, the require. a you're amount of has that of a return and no lower requirement their the lower return state model is set on constant our if right But for bearing we risk, will APR. borrowers actually

a in it worry investor, yes, not the investor. So just really get calibrated rate much we're drive gain The – borrowers who model to to makes it's they how their they improvement, too accrue better tend the borrower, return to care as we in APRs. behind that the of But stand who long form that frankly, of we and the return. the execute. don't fact, we as value from lower And models

Reginald Smith

give on was you totally quarter, by flowers for this I for Congratulations sure. flat-footed a quarter I great guys. the work to on one. want the

Operator

We'll line take question next the our from with of James Faucette Stanley. Morgan

James Faucette

questions. really good ask clarifying I a wanted of on quarter. couple congratulations a to And

fourth et what quarter realistic know good, the and there like to contribution be 'XX give beyond? nuance talk bit cetera? in you some as little and as we And us thing. is year moving it from kind margin, Can a it's CAC, little margin go think about a you next I the But for of third bit a like contribution quarter reduced it around? what should of we range down probably through be can the that seasonality 'XX. on and although looks First, profit of can

Sanjay Datta

James, X margin, just and that I rates would so contribution One moving take how are guess the those. call our things. is we're managing out things I

very rate recently. take think in-quarter know, you been as we've optimized I

could and lowering overall volume, that do take volumes. a constant you and between profitability, regrow altering profit we we're profitability, platform increasing get and as taking. imagine by our back think into a it's decision rates we and constant in-quarter us And net GAAP the experiment running, and I leverage volumes we're that's

variability So take contribution source in of one rates are margin.

second been lean you And growing prior very, been off as cash The of out, our periods is if as of free. are us acquisition get and funnel, and acquisition. obviously acquisition conversion mined as think further organic leads, into And a those CRM we we paid very might you will, expansive see similarly, of we've years. efficient, what weigh more or the better pointed get cost. largely in you'll the We've Dave

have may margin. the an margin contribution that on So impact on

cost And loan. operating cost is I our to a think to one we're costs, And great really the third efficiencies a onboard where loan, our our service time. over areas those are making

have and lot technology and that lot a automation of wins. those delivering applying of leaders We to areas are a

so time. are cost to our actual process down over those and alone, service And costs coming

in I But of steady. direction. either for and them between, don't So XX% We've and the most X around year. there's the and takes XX% you it's puts think we've been add some past of bounced the know, pretty I of up, sort

the good in of pretty on So demonstrated we've I a think the margin. resiliency scheme things, grand

James Faucette

Great. And et through little And we anticipate mail new should upstart.com, any much a direct then who and wanted mix? go of on of versus and that cetera, speaking how [indiscernible] year I people in just et cetera? this as we customer is direct you're bit to changes thinking channels acquisition, what as input

David Girouard

users our This kind I we'll to would of Sure, of continue have growing. James. base say, Dave. all, is is of first

course, of second either more more et products we, loans, or or they're getting are third by and So cross-selling cetera. getting

close So I X think those, to of to acquisition that tick and continue course, have cost. fraction will up always

that's great generally, So a thing.

more better, from the make Whenever direct better to get mail partners, we increase we amount DM -- can continue our so models send. get great volume actually We converts mail to we progress. direct tend of that

marginal prefer sort when do we marketing. very directly we're consumer. the So direct oriented certainly dollar meaning of to marketing We

or whether anywhere making And $XXX,XXX best No of XXX initiatives, we made get is for have are you have you the because of or can you rates. our big the year really one $XX,XXX best score FICO are FICO to matter or between we've if we to want say and also anywhere. would rate score, an a which a I want the year strides big toward in that. a consumers, those, XXX earning all XXX

is everybody. And direction. for big much results is be your do almost making you of And I the that when more broad-based we're I that will good strides think can marketing think in offer of one

And so we're some doing OTT like scale. television at stuff

on don't Upstart's you'll think more I you'll efficient see and our more I anything to stadium don't that consumers. attract more brand name football and But of like soon. out think very, anticipate see there I begin putting or to ways in I anytime -- more that. a very us do

Operator

the O'Neill We'll Matt Partners. take with of line question our next from FT

Matthew O'Neill

or hoping we are things assumptions I know could when follow a there's bit on there Sanjay, I improving. an was the UMI. asymmetry underlying of of sort up around internal

hold see to improvements they're is adjust quick little more conservative. sort a model the kind and bit the of take how more You versus time when deteriorating, become to of

So I year? some Would kind of the until else where guess UMI equal, here through the continue where to question stay is now? level is versus down of is all the the you conservatism, should with it come internal it approach now view

Sanjay Datta

to an whether go the is we view Matt, question will continue internal that your down? have UMI

Matthew O'Neill

it's Well, just that because future. model data period to that of underwriting level adjust the improving, the I immediately understand how time you're -- when internal that shows doesn't the into for a

my of asymmetry little improvement quickly signs underwriting. flow around of through an kind So there's bit into a the how of was understanding

Sanjay Datta

Yes. to I the above will the see. in rest of flat if general, for making assumptions I we're And underwritten improvements loans. year, terms remain any in in in UMI lag we UMI. it mean, I will guess, the we stays Yes. of continue newly

risk. always So to will Dave where there of U-turn with to buffer does we respect some some explained economy least in brace as enduring at conservatism for be want kind scenario underwrite an how credit earlier, the because a a we

frankly, be And above then, we're And down we how that normal like to long-term UMI back is I even true underwriting. positive to that want X.X. some average expect some until would buffer

risk of increasing think underwriting to be there time. to in brace maybe will order conservatism scenarios an put for other expression in I the of is So it over always way our

Operator

question Wildhack And from of Rob the with Autonomous we'll line take last our Research.

Robert Wildhack

the go on why I more you so I'm volume to much tend said margin. for take lower down in XXXX? as a to on come and lower margins wondering volume isn't steady Sanjay, marketing, contribution margin. to Why rates have bit more spend would One think those earlier I lead that growth? with contribution contribution a XXXX. wouldn't that think the grows, just case you

Sanjay Datta

harking said, take growth And think acquisition Rob, over efficient demonstrate think steady we've able that's and been time. rates Dave I to to at -- changed. costs I don't back we've something

would be the rates I in our future you order a to that margin would volume, the at lower to drop in take will, invest move in-quarter financials. our thing to cause only expense conscious think contribution of if

take we contribution acquisition I whether it cost, or of it's efficient to as on an decision that day. margins And acquisition. unit costs pressure think we talked may scale. when about, do a one put margin not But Dave is our lot will always dollar that very, as we've comes really it, We're as a increasing operations calls

As in to acquisition point can we our back come marketing our marketing, we with and line targets. the where costs conversion funnel the our gets expand do better, more will

So we on overspend that don't grow. ourselves a view order needs as to business marketing to in

Robert Wildhack

yet? in touched been to you does if cohort those XXXX this is consider the I Because meaningful in a the outlook there? in Curious And buyers couple big a at loan a the returning volume past. on rebound the times that engine ABS And platform of evening. way channel will Okay. big that's type ABS a know

to curious channel. on the your thoughts get just So ABS

Sanjay Datta

population I conversations a Yes. market, I happening. we're of Probably right side and as engaged the to where a with guess good broader in terms soon platform, they think a are but call will more the lot of optimistic. there's of now, a think I at really too it's we're make

about at be us. not Our ABS But really markets. different being broader just XXXX They assumptions make that paths the true. there's be don't bottleneck about that, make explicit numbers will – nothing the for assumed And that is any specific a capital. assumption or capital many could ways will

Operator

today's you question-and-answer turn the concludes at remarks. That your I'll back this to conference for session. Dave, closing time,

David Girouard

us today, to sense I'm web. to a a you the through either All to right. for lot, taken think our can we've joining of that our sure the really on level yet see. been all We've and Upstart you on the and phone enthusiasm or Thanks has I optimism. world

you Have forward work and again look to a about more with talking our in we all in So XXXX. May evening. sharing Thanks. good

Operator

your for you participation. Thank call. today's concludes This

You may now disconnect.

Upstart (UPST) 11 Feb 252024 Q4 Earnings call transcript