Q4 2020 Upstart Holdings Inc Earnings Call
Good day, everyone and welcome to the upstart fourth quarter fiscal year 'twenty 'twenty earnings Conference call. Today's call is being recorded at the time I would like to turn the conference over to Jason Smith I'm the.
VP of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining us on today's conference call to discuss I'll start with fourth quarter 2020 financial results with US on today's call are state of Gerard I'll start Chief Executive Officer, and Sanjay talks on the Companys Chief.
That's a lobster for.
Before we begin I would like to remind you of that shortly after the market close today.
<unk> issued the press release announcing its fourth quarter and 2020 of financial results and published in the Investor Relations presentation.
Both of them are available on our Investor Relations website IR the upstart dotcom.
Today's discussion includes forward looking statements. Please refer to our form 8-K dated March 17th 2021 filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results to differ materially from these forward looking statements.
I would also like to remind you on that during the call. We will discuss some non-GAAP measures related to upstart performance.
You can find the reconciliation of those measures to the nearest comparable GAAP measure in the press release.
To ensure that we address as many analyst questions as possible trade of the call. We request that you. Please limit yourself to one initial question and one follow up.
Now I'd like to turn it over to Dave Gerard.
Oh of upstart good.
Afternoon, everyone. Thank you for joining us on upstart inaugural earnings call covering our fourth quarter and full year 2020 of result on day.
Gerard cofounder and CEO of upstart.
Last quarter was monumental for us as we took the company public in the midst of the historically complex and challenging time for the U S and for the World. We began trading on December 16th on the NASDAQ under the ticker symbol U P. S T.
Excited to present on a quarterly and full year results for the first time as a public company.
I'll share it has a unique combination of scale rapid growth and profit driven by our underlying AI technology. Despite the COVID-19, pandemic and the elevated economic risk, resulting from the abstract the revenue is 42% in 2020 compared to 2019, he was GAAP profitable as well our Q.
For 2020 revenues were up 39% year on year.
I'll start as a fee based visits we don't make loans and the aren't exposed to material balance sheet risks the.
Despite this we care a lot about how upstart loans perform so we're happy to report that the COVID-19 pandemic had no material impact on the rigs.
At our bank partners and the only investors experienced this past year.
We're also excited to announce that we've entered into an agreement to acquire Prologis software a leader in cloud based automotive Congress.
Towards the end of last year, we originated the first AI enabled the auto loan on our platform.
In the initial phase of starting to enabling consumers to refinance expenses and mispriced car loans saving them on average $72 per month.
With the acquisition of <unk>, we aim to accelerate it starts presence and one of the largest buy now pay later opportunities proud of he is bridging the gap between how the dealerships operate and the new way that people shop for cars.
More than $2 billion in vehicle sales have been powered by prodigy at franchise dealers from top brands, such as Toyota Honda and Ford the.
This acquisition is our first and signals our excitement about the long term potential of our auto lending initiatives.
The step back for a moment, Paul and I founded upstart nine years ago with the idea that modern technology and data science could improve access to affordable credit.
Each of US came from the extremely modest backgrounds, where access to credit was essential for every step of credit both for consumers and businesses is not just important personally is the cornerstone of our economy and essential to the growth and prosperity that Americans expect.
There's broad consensus that the credit economy is highly inefficient if not broken models.
The models for quantifying the risk and pricing of loans are not far from the role of the guidance.
In terms of consumers don't have access to credit pay too much for it or take on credit that they can't ultimately afford on the other hand banks in 2021 are swimming in deposits and are looking for more sophisticated tools to lend them out in a responsible and profitable manner.
It's far less consensus that modern data science, namely artificial intelligence can remedy the situation like upstart is validating the thesis every day.
On the 2018 study upstart demonstrated to several large U S banks, but our AI based lending platform could almost triple their approval rates, while holding losses constant compared to the current risk models and that was in 2018 of starts AI models have improved constantly and dramatically. Since then this is an.
For <unk> 0.1 way to grasp of the potential for AI lending and how different it is true traditional approaches that we look back on our own models from just a few years ago and shake our heads at how simplistic and the rudimentary day work compared to our current capabilities.
As a public company our financial results will ultimately speak to how unique and differentiated our AI models are but it's worth the quick refresher on how the underlying technology actually works.
Our AI models like all AI systems are fueled by incredible amounts of data and sophisticated software to interpret that data while most lenders consider only a handful of variables as part of the lending decision upstart model considers more than a thousand variables about each applicant you can think of these as the columns.
On a spreadsheet.
As of December 31, 2020, our model was trained on more than $10 5 million unique repayment of that these are like the roes in the spreadsheet and we continually upgrade the machine learning software and interpret this data.
Enabling us to price the next zone on our platform just a bit more accurately.
Upstart goes far beyond the singular AI model predicting default risk we have discrete AI models that improve the entire lending process, including identity fraud income misrepresentation loan stacking prepayment risk the optimization anymore, but of course, our model that targets default risk is the centerpiece.
Each of our system. It predicts not just the likelihood that among all the fault, but when that defaulting the expected to happen.
The advantages of starts AI model office, our bank partners is obvious higher approval rates lower loss rates and a highly automated digital experience upstart enables lending programs that are more predictable more profitable and more inclusive.
For consumers the advantages of AI based lending are equally compelling higher approval rates lower a P. R's.
The fully automated approval with more than 70% of upstart loans approved in near real time zero documentation or phone calls for acquired.
58% of the loans on our platform in 2020 happened on the mobile device.
Our expectations for a seamless digital experience has never been higher and upstart helps our bank partners meet and beat that expectation.
It's also important to say that AI lending can be and should be inclusive fair and unbiased in fact, more so than traditional systems as the company dedicated to improving access to credit fairness of inclusion of are central to our mission. We test every single loan application on our platform for fairness.
And share the results of these tests quarterly with the consumer Financial Protection Bureau, It's also worth noting that we do this rigorous testing on behalf of each of our bank partners. This level of rigor and transparency and fairness testing is quite unique in the personal lending industry.
The results of these tests day. It all upstart platform offers significantly higher approval rates and lower interest rates to every demographic group testing that as an outcome. We believe every bank should strive for it and its lending programs.
While better AI models are the primary lever we used to create a more inclusive platform. It's not the only lever very soon we'll release of Spanish language version of our product that we believe is the first of its kind among digital lending platforms in the U S, while restaurants and retailers routinely offer of Spanish.
Languish alternative online lenders Unfortunately do not.
Taking that alone is the big decision and it comes with important obligations. So it's clearly better for the consumer if the entire experience, including disclosures the loan agreement and customer support are available on their preferred language.
In closing I want to say that while we're in the first stages of adoption of AI lending. We're confident that this transformation will play out for years and decades to come.
Virtually all lending will be AI enabled in the future because the economics are so compelling for all participants.
We entered the the category leader in AI lending and a partner to banks, who share our vision.
Thank you and now I'd like to turn it over the Sanjay our Chief financial Officer to walk through our financial results and guidance Sanjay.
Thanks, Dave Happy St Patty's day to everyone and thank you for joining today very grateful that would be with us.
On Sunday of data upstart CFO and I will cover our financial results of our first quarter the public company as well for full year of 2020 before touching on forward guidance.
Our revenues in Q4 were $86 $7 million up 39% from the same quarter of the prior year.
Of that amount revenue from fees represented $84 $4 million or <unk> 97 per cent of the total on.
Underpinning the SKU based revenue was the origination of 123396 loans by all of the bank partners across our platform.
57% from the same quarter of the prior year and of 17, 4% conversion rate on the request up from 14, 9% in the prior year.
Our contribution profit of non-GAAP metric, which we define as revenue from fees minus variable costs for borrower acquisition verification of servicing was $41 million in Q4 up 77% year over year and.
And representing a 49% contribution margin up from a margin of 38% in the year prior.
The margin improvement was driven by increases in marketing and operating efficiency as.
As well as a rise in the percentage of loans fully automated the 71% up from 69% of the prior year.
This level of contribution margin is slightly above our expected longer term trend line and we expect it to normalize downwards mildly over the coming few quarters.
Q4, operating expenses were $76 $3 million of 29% year over year for 25 per cent when netting out the impact of the stock based compensation.
The investment in engineering, and R&D was a priority over the past year growing 94% year over year to $14 $1 million in Q4.
However, general and administrative spend grew more slowly than revenue in Q4, increasing 29% year over year to $14 $8 million, partially benefiting from savings in the office in travel costs due to the pandemic.
The other expense categories of sales and marketing and customer operations was largely driven by the variable cost increases and borrower acquisition verification and servicing previously discussed.
Our Q4 of GAAP net income was $1 million down from $6 $1 million in Q4 of 2019.
This year over year decrease is almost entirely attributable to changes in the fair value of warrants that were granted in the first year to the company and carried on our balance sheet of liabilities up until the exercises in Q4, coinciding with the December IPO.
Adjusted EBITDA in which we adjusted for this warrant fair value of expense as well as for stock based compensation came in at $15 $5 million in Q4 up from $7 million in Q4 of 2019.
Adjusted net income per share for Q4 was seven cents based on the diluted weighted average share count of $80 3 million.
Now turning to a few full year highlights our fiscal 2020 full year revenue came in at 233 4 million growing 42% year over year, despite the severe adverse impacts from COVID-19.
Contribution profit was $105 million on the year.
115% over 2019, and representing a 46 per cent contribution margin.
GAAP net income came in at $6 million for the full year on adjusted EBITDA was $31 $5 million, representing a 13% adjusted EBITDA margin versus 3% of year earlier.
On the balance sheet side, we ended with $311 million in restricted and unrestricted cash largely flowing from the proceeds of our December IPO, and which was up from $80 million at the end of 2019.
In terms of the loan assets, we carried in the aggregate balance of loans notes in the residuals.
The $98 million at the end of 2020 down from $266 million at the end of 2019, reflecting the continued reduction in the percentage of platform loans funded through our own balance sheet.
This $98 million of loan assets represent the totality of the direct exposure, we have the credit risk.
So we turned our attention the 2021 we would highlight a few dynamics, which are impacting how we currently forecast the balance of the year.
The first is that part of the growth we have been and are currently experiencing it simply of the business catching up to where the technology has improved over the past year.
So on a cents, we are recovering to where we otherwise would've expected to be absent the impact of the pandemic.
The second is that our contribution margins remained slightly above their historical trend as we emerge from the recovery phase and we expect them to mildly contract as we returned to a normal operating up the lithium.
The final note is that we are currently planning to voluntarily repay the PPP loan, which we received in 2020 shortly after the onset of Covid.
Even though our conclusion remains that it fully meets the eligibility requirements for forgiveness.
This decision will have the effect of reducing Q1 'twenty one net income.
Adjusted net income and adjusted EBITDA, all by $5 $3 million.
With these points in mind for Q1 of 2021, we are expecting total revenues of $112 million to $118 million, representing a growth rate at midpoint of 80 per cent year over year.
Contribution margin of approximately 44%.
Net income of seven 8% to $8 $3 million.
Adjusted net income of $13 four to $14 $2 million.
Adjusted EBITDA of $14 six the $15 $3 million.
And the diluted weighted average share count of approximately $92 4 million shares.
For the full year of 2021, we now expect revenue of approximately $500 million, representing a growth rate of 114% year over year.
Contribution margin of approximately 41%.
And then adjusted EBITDA margin of approximately 10 per cent.
In closing we feel it is worth reiterating how proud we are of how our company has navigated what was the very challenging environment in 2020.
And we feel that we were entering 2021 as a much stronger company for it.
Our business model has proven to be resilient the accuracy of our AI models has continued to improve steadily.
And most importantly, the credit underwritten by our platform has performed unimpeachable through the turbulence of the past year.
We continue to be excited about the sheer magnitude of the opportunity ahead of us and applying our technologies to the broader landscape of risk across financial services.
Look forward to sharing our results with you in the coming quarters.
With that Dave and I are now happy to open the call to any questions operator.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad, if you're calling for my Speaker phone. Please make sure. Your mute function is off juncture, you're saying how can I check right now.
I wanted to ask the question.
It looks like first of all go to <unk>.
Christiansen.
From Citi. Your line is open.
Thank you good evening. Thank you for the question the congrats on the congratulations on your IPO fantastic.
Well, Dave I wanted to talk about the auto opportunity here certainly the surprises the acquisition.
We will accelerate the front end of the business, but as we think about building up the financing partners.
And.
Customizing the model.
To see the the auto market per se.
If you think about the the timing of scaling of that that product.
Yes over the next 12 or so months and then I have a quick follow up.
Okay.
Sure. Thanks for the question this is Dave.
I'll just say quickly we are just entering the auto lending space over the last few months and you can.
It started this year in one state has expanded to 14, but we're still really in the formative stages of establishing the product and we're finding it. So we don't expect it to contribute materially in 2021. This is really a year of.
Moving out testing and proving the funnel on bringing on bank partners.
Saturday and this is kind of a process that took several years for our personal loan product you really reached the stage of its gotten to certainly do you expect this to happen much faster, but 2021 from our perspective with.
With all of it is really a building year and the acquisition of <unk>, We certainly view as an accelerated toward the.
The point of sale the majority of of the market that happens at the dealership.
But still on that.
The guidance would hold which is we don't expect it to be material towards 2021 of the results.
Thanks, that's helpful and then.
As we look at you know the credit profile of your average consumer I mean average credit card debt came down 12% in 2020, you certainly have the stimulus distributions.
Distributions going out now.
How much do you see that of the factor.
In growth in the personal loan side considering the.
Number one the use cases.
Really that consensual headwind.
How do you guys think about that.
Yeah.
Yeah, Hey, Pete is the subject.
Thanks for the question.
I'll jump in on this so I think that the sort of of the impact of the pandemic and all of the stimulus that's been injected into the economy.
We think of the impact of that maybe on two levels.
One is <unk>.
We believe it's been.
The.
It's been constructive for credit performance on the other end of an adverse to the volume.
So put another way with.
With the stimulus in the economy. The economy is at the record savings rates in some of these memory.
Low amounts of consumer spend.
On that is manifest as you said in.
In the sort of record low credit card balances and then on our end of it sort of shows that the smaller.
Lower demand for loans in the smaller loan sizes.
And so that's been a headwind through the past year as we've recovered and it continues to be with another round of stimulus you might imagine that that will be propagated a little bit.
On the other hand as the effects of the pandemic due on wind and as consumers return to the economy of the savings is normalized.
You might imagine net that would in fact to become a tailwind on the volume side until the.
Those are the cause of the spend lots of the flex that we think about when we think about the stimulus.
Thank you gentlemen, very helpful and congrats again on on the IPL. Thank you.
Thank you.
Thanks Keith.
Operator would afford us the question.
Thank you and next we'll go to Ramsey El <unk> from Barclays. Your line is open.
Hi, guys. Thanks, so much for taking my question and congratulations on a very strong quarter.
Wanted to ask in the context of the commentary on the 2021 guidance I think Sanjay you mentioned that the key growth drivers of the business sort of catching up to where the check has improved over the past year kind of catching up to where you would've been.
Can you elaborate that on the little bit of what exactly are you talking about there in terms of the underwriting models in terms of other aspects of the business just curious a little more color there.
Yeah sure. Thanks, Rick good to hear from Randy.
So I would not call. This the key driver, but it certainly is a factor in how we think about the recent path of growth in the past for it but just to kind of briefly describe it.
Our our underlying technology has been improving steadily over the past year on.
Our models have gotten more accurate our ability to underwrite risk on behalf of our bank partners has improved and the.
It hasn't necessarily shown up directly in the business because of you know the business has undergone a lot of volatility for a lot of extraneous factors.
But as of the what's sort of the impact of Covid itself subsides. The business is now catching up.
To the.
Where we otherwise would have expected it to be.
They're never been an impact of of the pandemic and so you know as as rates of return for investors normalizes the risk in the economy normalizes.
We're sort of converging to that sort of the you can imagine of a trend line had COVID-19 never happened in the converging the that trend line, so sort of part of what is.
On the propagated by sequential growth quarter over quarter is that dynamic.
And of course, that's not been the Alaska at the entire year.
But there are other things that are creating tailwind as well.
That has to do with the ongoing for the performance of our marketing campaigns are the ongoing improvements we are making this year for the model and some of the things I described around how you know is the.
The effect of the of the time then that's the side, we do imagine some tailwind of the consumers return to the economy.
So I think what we're doing the calling out one impact of the sequential quarterly growth in particular and.
For the extent that that's moderated and our guidance going forward. That's one of the factors.
Okay that makes sense.
I wanted to ask a follow up on the credit Karma relationship I was just kind of wanted to get an update there in terms of like box and it seems like you're more than maybe backfield. Some some headwind there what's going on there the the things play out the way you thought and then just a quick bolt on there is weighted prodigy contributing to revenues and EBITDA and <unk>.
'twenty one.
And I'll hop back in the queue.
Sure. This is Dave on.
Credit Karma is a really important part partner of ours has been for a while and we expect will continue to be there now part of the Intuit, who had a relationship with the previously.
Are the scale of our partnership continues to grow and we see ourselves as co leaders and kind of adjacent.
Areas. So has there been successful we've been successful the relationship on continues to become more meaningful the both of US we don't anticipate that changing there's certainly a lot of different approaches they taken wage we can work with them and we will over.
Time make decisions about where it makes sense for us to work with them or not but we view those as squarely tactical decisions on it is of great partnership we anticipate it will continue to be of great partnership our goal as much as we had talked about having a lot of our loan sort of lead volume coming through credit Karma.
The important for us to continue to build the other channels, we have no desire to reduce the scale of the partnership we have with credit Karma in fact, we want to keep building. It we don't essentially view this as a on.
The real issue for US we are a unique company and that we have a proprietary product the most people and fintech.
Or in lending Fintech I don't really have the proprietary products for a big seek out for.
Criteria of distribution, we actually do have of proprietary products. So we're very happy to have the partnership with somebody like credit Karma to take advantage of that.
Thanks for everybody and just Oh.
That's the question.
Thank you next we'll go to John Hecht from Jefferies. Your line is open.
Morten or excuse me afternoon and congratulations.
You guys gave some good stats about the growth.
Out of the bank platforms.
All you tied of that I saw you did announce the Apple bank adoption and some other credit unions.
Over the course of the rest of US maybe can you give us an update on <unk>.
On call it the penetration of momentum there and pipeline of any details you can give of around that component of the business.
Yeah sure this is Dave.
Let's just say I think on momentum has continued since our IPO, we've signed agreements with three additional banks, we've had two including Apple banks as you referenced go lives on our platform.
There is today, a total of 15 banks on our platform.
I think there's a lot of interest to the interesting things happening in the market first of all Covid has clearly accelerated the.
Of the Digitization efforts and projects that banks are undergoing because of course, there's pretty dramatically reduce traffic to their branches, which is a trend that's been going on for years, regardless, but accelerated during the COVID-19. So on the.
The importance of digital is there and certainly there's a lot of more interest for that reason and our platform.
It's also clear that banks have excess deposits these days and a shortage of loans.
And that is true almost across the board for banks, one one sort of reaction that we've taken to that is we're little more focused on helping.
Banks get loans from our platform really referred from upstart dot com to the banks. This is something we can readily do our volumes are growing as can be seen very quickly and so it's really the fastest way to solve a very acute problem of banks have which is against surplus deposits and a lack of demand for loans, particularly through branches.
For large time had been closed or like the traffic. So this is really the state of it we're definitely seeing increased interest from larger banks I think both because of this excess deposit issue as well as the fact that our entry into auto is into a category of that larger banks are much more familiar with kind of a lot more history with.
And a lot more confidence and so we would anticipate continuing to grow our pipeline of banks I'll also add we on the.
Something Super interesting signed.
And the agreement recently, the very small bank.
Interesting only because it was from start to finishing above the 90 day process and that for US. It's fairly groundbreaking we don't we don't expect all of our agreements that come together that quickly by any stretch, but one of our goals is certainly to make it faster and easier for banks to join our platform and the on board. So that's something we're very excited about.
Okay. That's very helpful color and then yeah, I know I look at things from a different lens, but just looking at the momentum you guys were exhibiting through the second part of last year I guess the post the shelter in place period, when things started to normalize.
And looking at our forecast for the guidance is clearly it's significantly ahead of that and.
I'm wondering if you like sort of like I said I understood. We work through different labs, but can you guys characterize where you maybe were some disapproved momentum has come from despite stimulus maybe backing down a little bit of secular on demand as it is at the bank channel is it more of the consistent credit funds shadow of the new product channel or is it all the above or is there any kind of.
You can steer us as to where some of the.
The upside is coming from.
Maybe in a more meaningful way.
Yes. This is Dave let me try to maybe explain how why I think on our business as being sort of all these days part of it is internal and by that I mean despite.
Despite all of the turbulence last year in the world in the industry, we invested a lot of an R&D our models and our team kept getting bigger and stronger you can tell by our R&D spend last year, we did not hold back and so the technology has been improving dramatically and I'd, even say that COVID-19 accelerated back because of change in the U.
The environment is really of learning opportunity for an AI system. So you know there was just very fast forward progress and the quality of the technology that generally means the throughput of our funnel gets much better now at the same time the environment changed a lot of course and two things changed for.
The level of risk in the environment went up a lot and that really meant that.
It really stressed out competing models and we feel like we have pretty significant advantage and are in an environment, where there's elevated levels of risk of having a system and an AI based system that can discern risk and handle the property because.
Even the more important advantage the second thing that happened as we've mentioned is demand for credit dropped and this really is because people spent less weren't traveling eating out et cetera credit card balances lower as Sanjay mentioned and that translates to us as demand for smaller loans.
We are of a company that has invested a lot in automation, some smaller loans or something that you kind of a really well from a profitability perspective. When you put those two together I think what youre seeing is upstart taking pretty significant market share.
In the during a time of turbulence when when different models are handling things differently.
The company's or nationally reacting in different ways, whether the pulling back tightening credit et cetera, but this is really I presented an opportunity for a new platform to shine that has really built differently and I think that's what we've seen play out during 2020, and we're certainly seeing it playing out as we get into 2021.
Great I appreciate the color guys. Thanks.
Yeah.
Kind of gone up you'd like to ask a question. Please press star followed by the number one on your telephone Keypad next we'll go to Ron Josey from JMP Securities. Your line is open.
Great. Thanks for taking the question and what a quarter, but the data and I have a question here I'll kick off and David will follow so you know Sanjay just wanted to maybe understand a little bit more about the acquisition channels and David your comments there on on risk but.
The total funded loans accelerated in the quarter on the toughest comps of the year rate requests also accelerated so clearly things are going well can you just talk a little bit more about the acquisition channels.
It was this quarter and most importantly, just the strategy going forward I get credit Karma that maybe things besides credit Karma.
Is the first question on David I don't know if you want to ask your second one.
Yeah sure Hi, Ryan Thanks for the question.
Sure I guess I would say.
The overall mix or spread between channels has not evolved greatly and we continue to.
All of our channels and really the the dynamic that we think of that as one of the underlying strength of the model of improves.
It improves our ability to convert loans in the funnel and when that happens. It just it creates expansiveness of it allows us to send.
The larger campaigns that better unit economics, and so there has been of growth across channels.
I wouldn't really point to any one specific channel is having an outsized impact and the expansion that we're seeing.
Okay.
Got it.
Great. Thank you I'll go back in the queue appreciate it.
But you also get a chance for I'm sorry. The next we'll go to Matt Schindler from Bank of America. Your line is open.
Yes, I I I know, it's been talked about for a bunch of times on this call, but it's true.
I'm trying to figure out the difference you did talk about changes the credit carbon did in November of affecting your ability to take on that incremental.
That did that last alone through getting that last week three of them.
Because of their change in the ability for you to get that at the right price.
Yet you accelerated in the quarter.
And it looks like you're going to accelerate rather dramatically for the year.
The coming year.
What changed there and how easy is it for you to just repurpose marketing dollars from one platform to another.
Yeah.
I'm sure Annapolis's dates.
So yeah it.
Let's say I mean, there was a little noise about back and forth with with credit Karma lost in the fall.
In terms of them, having a program that we had elected not to participate in.
But frankly that was all sort of the small matter.
Sort of demand for our product and into all channels, including credit Karma frankly overwhelmed at any sort of as we said sort of late in the back and forth between awesome credit Karma deciding how we work together as a little bit of I don't know of a sideshow compared to what is really just the emergence of <unk>.
Of the product that is distinct in the market on.
Our ability to model and help our bank successfully underwrite the tour so of the market. The breadth of the market is really what is unique and on credit Karma is an important partner, but as Sanjay said, our channel mix has not really changed.
That really means is increasingly on.
The consumers find your weighted the best product and that's our belief we don't believe it.
And the notion of the Capex impact it owns its customers, we believe that like the sort of the origins of the internet itself the.
Foundations of Google and Amazon the consumers find their way to what they want the best product for them and I think that's what you really see happening here is it particularly in this challenging time upstart has the best product for most consumers.
And whether it's through credit karma or whether it's through other channels. They are finding their way to it. So I think that's really the summary of it I think it.
It is an important and great partnership, but our growth in what we're kind of showing and what we're demonstrating the need for the coming year of what we're guiding towards is really a cross channel thing, it's not particularly about one channel.
And.
Growing on all fronts basically.
Okay and then just.
The second question on all of the kind of a longer term basis on this.
Goes through you did talk about your bank source loans.
Going up.
Quite a bit from the worst parts of the Covid.
Thanks for really all about the active but just longer term and you did at the banks.
I think you're up to 15 now.
The.
Why wouldnt, both small banks why is that the small and medium bancshares running for this platform. If it's largely of very high margin.
Origination fee for them for a product that they did not happen could not do on their own.
And services sort of helps the true.
Right now it's of Great question, we ask ourselves that sometimes the debate.
But the.
Thanks.
Are built on the conservative structure. They are conservative by nature in AI is a very new technology.
On their perspective, so the tend towards on making sure everything is on.
As it should be that the regulators are supportive of it that you've seen in two cycles. So so I think this is the honest they perfectly.
The adoption rate for banks.
They are not purely driven by you know incremental profit sort of desire to grow probably a little different than most businesses in many ways, but it is happening in the pipeline is growing and Fortunately we've built our models such that we are not dependent on how many banks and how quickly. These banks the doctor technology, we've developed it.
Platform net flows loans due to capital markets in the institutional buyers, if banks were not ready and willing to some of them and hold them and that's why our business can grow as quickly as it does the models can continue improving as rapidly as they are and the banks can come on board when they are ready to do it when the company.
On the idea of speed of risk communities credit commitments components can you can you know they have the lot of committees.
But that's okay, we're going to be there in the model keeps getting better and.
The 15 is a great number the 30 40 50, it'll be better but at some point of it becomes commonplace then.
Thanks for a winning market share who will do well.
Who are serving their customers and for the very best product or using something like upstart to help them do it and when it becomes commonplace, we shouldn't be I think a moment of the acceleration in the future on.
It's really of mainstream on.
Mainstream technology that most banks use it's only a question of when that when that day comes.
And would you really want them to do it to fully come on board.
Tons of small banks doing this on taking customers because in the end you make more.
The EBITDA per funded loan if you source of it yourself.
This is Dave again.
We're a little neutral to that whether the customer comes to upstart dot com, which is a model that has a higher revenue profile.
Or whether the bank of sources, the customer and they're only paying us.
Call It platform for which is essentially a lower revenue profile, but the higher gross profit. So frankly, we're kind of neutral to them, we like those of.
And we of course want upstart in the upstart loans can be ubiquitous and customers moving to find them wherever they go. So we don't really have a favorite in that race.
Certainly we'd like to see both grow rapidly over time.
Thank you Anna this is signed yet decided on.
I would just add.
What was on the solve what's best for the borrower and everywhere as the different set of combination of cost of capital and risk, but if that's the the sensor for for the borrowers out. There then absolutely in the interest of the platform and I'll just add that we are from a dollar of perspective somewhat EBITDA ignostic.
We will make a lower dollar of prolonged because banks tend to have better offerings will convert more of loans and the two effects tend to net each other adding on.
Interest.
Great makes sense. Thank you.
That's the operator next question.
Thank you and next we'll go to David share from JMP Securities. Your line is open.
Hi, good afternoon. Thanks for.
The squeezing me in on setting me up well.
The.
So there was some complex technological problem, but I actually thought it up on the call of instead of hitting the revenue.
Yeah.
But.
I'd like to but let's follow up of couple of one of this increased demand.
Hum.
Which is obviously just moving right through the stimulus headwinds and so forth, obviously, we need demand on the other side of the network.
Can you speak a little bit about.
On the funding front it sounds like kind of what development Youre seeing in terms of maybe the number of investors that are.
The signing up for kind of the way the securitization I think the developments unfolding flow arrangements and the like I'm just overall for the rest of the.
For the partners that are emerging.
Yeah, Hey, David happy to on and we won't take.
We don't take personally of hung up on our call.
On the funding side, I guess I would say obviously in the depth of of the Covid impact.
Q2 of last year coming into Q3.
A lot of funding sources, whether they be banks or or sort of institutional investors.
Obviously concerned about risk, obviously pulled back risk premiums when very high required wasn't very high.
That's sort of underpin the bit of what you saw in terms of the business cycle on our side.
As the sort of.
The broader risk landscape started the clearer that the smoke started the clear of low data as we got to the end of the year people felt more comfortable.
On.
I think you saw some some of the original investors sort of coming back into the Fray and then certainly as the back towards the end of the year you saw other other funding sources that maybe what's sitting on the sidelines with respect of digital if you will.
Waiting to see what would happen in the first macro shock that we then were able to the.
Over the course of 2020.
Coming to the space.
And and starting to participate showing interest and so our pipeline today.
Say, it's as good as it's ever been with respect of demand for them.
For loans on the funding side.
They talk a little bit about the demand or the interest from the banking side.
And that's been really.
Really really instead of encouraging on the institutional side equally you've seen a lot of the named and interest.
You probably would have seen that manifest in the securitization markets at the end of the year in Q1 on.
Which are some of the most constructive markets. We've seen certainly since we began on the shelf. So so.
So I think a lot of folks are a combination of studying the feel more comfortable now even though yields are still our required returns are still above where the where pre COVID-19. There's certainly a much higher level of comfort and or the broader secular sort of trend where a bunch of people who are just kind of waiting to see what the first macro shock of assembly because of the platforms.
I feel pretty good about participating in recognizing that the performance is actually very good if not better than some of the other.
The parts of the economy.
And therefore, showing interest where the where they didn't before so I think that the short summary of all of that is we feel really confident on the funding side and the the.
The rapid reconstruction of our own volume.
That you've seen in the results in the guidance.
Funding has not been.
And obstacle for that anyway.
No no no that's helpful. I mean, the certainly the ABS markets incredibly receptive of newspaper.
The follow up I think Dave May have mentioned early on in the prepared remarks for.
About the Spanish language burden coming soon and you know.
I know there was some unsecured.
Consumer installment lenders that have historically.
Focus COVID-19 yet.
Kind of high mix.
Of the Spanish speaking of borrowers in the U S. It's typically been a little further down the credit spectrum of higher rates than the ravages.
As you contemplate that targets the borrower or we expect it to be working with the same.
General FICO range and the use of proceeds for the existing platform with the kind.
Kind of are essentially.
The a different kind of in market the credit profile.
Yeah, So great question.
The quite a bit.
Yeah, maybe I'll start and in the hands.
What country out of stocks.
Yes, there really has been.
Unfortunate shortage of online lending platforms that have off of their product.
For the Spanish speaking population.
And the ones you referred to generally.
Our retail base and we've actually physically go into a shop, our store and sit down and get alone and generally higher higher rate higher rates and.
All of that goes with that so this is really in our view the first of one of the first.
Where it's a purely online experience, but it's just.
On it.
It is a tailwind for the Spanish speaking market and that's not a trivial matter in some reason not everyone has done this because you have to go across everything from the marketing to.
The disclosures the privacy policy the.
The loan agreement the customer support so of doing it you can't do of partially and maybe that at least somewhat explains why it hasnt happened on the market, but in our view of its really important because being.
Being able to.
That alone is important thing, it's a big obligation.
We don't yet know because we've not launch the product yet we cannot we cannot yet speak to exactly how the demographic will compare to our current sort of borrower base that has gone through our platform to date.
But it is the identical product in the sense of it's an online product and.
It's really just tailored for the language it you're not even going into retail lending or anything of that nature of it is really.
It's still a true digital product just for clarity.
All of it Sanjay Adam if you'd like to.
Sure Yeah on it just on the specific point of mix, we don't anticipate the this will change our mix meaningfully.
From a modeling perspective.
The allowing us to bring our product to any.
Demographic that is obviously, a big and fast growing on an important one in the U S.
But it's also of demographic that.
Our models of typically perform very well with which is to say the demographic. That's been historically underserved by traditional lending models. So we view this as the expansion of our product offering, but no real change to the underlying mix or strategy.
Got it thank you and congrats.
Thank you David.
Operator, I think we have time for one more question.
Thank you. Our next question comes from Pete Christiansen with Citi. Your line is open.
Oh, thanks for for another round here.
One of them.
A bit of a high level question here sort.
And in Fintech. There is this concept of of the Super App and.
You see certainly amongst the payments companies some of the challenger banks.
You know the credit functionality isn't there yet, but we can kind of see where the evolution of <unk>.
Going on.
One could think that could be a threat to two upstart just by having you know.
The multiple banking products on one app.
But on the other hand, you know I kind of think of that as potentially an opportunity for four of the referral of distribution channel or even the opportunity to the white label for <unk>.
<unk>, the challenger banks or even some of these other syntax just.
Just curious to hear what your thinking is the there's obviously a bit off in the Grand scheme of things but.
How do you think about.
How the the Fintech market is evolving in that way and could upstart play a meaningful part of it in that.
Yes, that's a good question.
So let me for saying no I think there will be emergence of new age banks that will challenge on.
The larger banks that have been around for for decades, I think that it is a good and healthy thing and there's a whole bunch of the volume for it and I'm sure there'll be some of them will be very successful in doing that with light lightweight models.
Et cetera.
We do on any way to see that as a threat to us if anything having banks that are new banks. If you will that are sort of tech forward and and very hypersensitive to the quality of experience, they're giving to their customers because the good thing and we would hope to partner with them overtime.
Think lending is a very special and unique function and for nine years. We've been building. These models that do it in a unique manner. So we don't at all feel threatened in any way that.
Some of these new banks will suddenly become lenders the.
Having the large captive audience that will never get loans elsewhere.
I think one of the policies of Fintech is in some sense for banks themselves as believing you own your customers.
The free World out there of the Internet has done anything in the last 30 plus years and has shown that a better product as of few clicks away and we are firmly of the belief that consumers are going to go to the best place for the best product.
And the suite.
The bank idea.
We're just not believers in the not to say there won't be some new banks that they won't be successful, but they will have multiple products, but in no way do we see a world where consumers aren't going to the you'll find the best mortgage available the best personal loan available of the best credit card available and on will simply take it on from one provider. It's not it's not on the deal and the way the market.
The head.
Thanks Willie.
Types of Ah Congrats.
Congrats again on all of the quarter.
Yes.
That's true.
Ill turn the callback for Ya.
Sure I just want to say thanks to everybody for joining us on our first earnings call and hopefully this helps them for all and we will see you again.
In a few short cut.
A couple of months, thanks for joining us today.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
Yeah.
Yeah.
[noise].