Q1 2021 Upstart Holdings Inc Earnings Call
Please standby we're about to begin.
Good day and welcome to the upstart Q1, FY 2021 earnings call today's conference is being recorded.
At this time I'd like to turn the conference over to Mr. Jason Smith head of Investor Relations. Please go ahead Sir.
Yeah.
Good afternoon, and thank you for joining us on today's conference call to discuss upstart first quarter 2020.
<unk> financial results.
On today's call are Dave Gerard.
And Sir.
And it sounds it on our Chief Financial Officer.
Before we begin and.
And wanted to remind you that shortly after the market close today upstart issued a press release announcing its first quarter 2021.
And publish almost and Investor relations presentation.
Both are available on our Investor Relations website IR.
Sure.
During the call and you can make forward looking statements such as guidance for the second quarter and full year 2021 related to workers.
These statements are based on our current expectation and information available as of today and are subject to a per go ahead.
Certainties that assumption.
Actual results may differ materially as a result of various risk factors.
And art.
And as with the SEC.
As a result, you caution you against placing undue reliance on these forward looking statements.
We assume no obligation to update any forward looking statements as a result of new information or future events, except as required by law.
During today's call unless otherwise stated references to our results are provided non-GAAP financial measures and are reconciled to our GAAP results.
Which can be settled and the <unk>.
Our earnings release and supplemental tables.
To ensure that we address as many analyst questions as possible.
Nicole we request that you please limit yourself to one additional question.
Yeah.
Now I'd like to turn it over to Dave Girard CEO.
Good afternoon, everyone. Thank you for joining us on our quarterly earnings call covering our first quarter 2021 results on <unk>.
Hey, Gerard co founder and CEO of upstart.
And I want to start by thanking the entire upstart team for another amazing quarter. Despite the many obstacles. The past year has put in front of you you have continued to deliver most of you have never been in and upstart office, yet the pace of innovation and the pursuit of our mission has never been stronger.
I'll start as the leader and the application of artificial intelligence to consumer lending and our first quarter results continue to demonstrate our leadership and this emerging category.
Q1, 2021 revenues were up 90%.
Profits were up by a factor of 7% over the first quarter of 2000 and 'twenty.
Despite softer loan demand from consumers due to government stimulus programs almost 170000 loans were transacted by our bank partners and Q1 more than double the volume from just two quarters ago.
Not unusual to see fast growth and a fintech company, but it's quite rare to see that growth paired with real profits well, it's worth explaining what's driving our core personal loan business and why we're so optimistic about its future.
Our growth is primarily technology and model, driven which manifests as increasing conversion rates and our borrower funnel and.
And the first quarter of 2021, we launched a variety of model and technology upgrades that together unleash the growth that you're seeing.
And to help you understand this dynamic let me call out three examples.
First we launched a new version of our core credit Decisioning and AI model that our bank partners used to price loans. This model was actually and ensemble or a blend of multiple machine learning models that work together to generate a more accurate risk assessment here.
Historically, we've achieved big wins by adding new and more sophisticated model for them to this ensemble other wins have come by simply upgrading the existing models.
The big win we saw on the first quarter included and upgrade to the algorithm that governs how these models are blended together. This upgrade led to higher approval rates and lower interest rates, which of course translates into more loans.
Second we launched improvements to our verification models that reduce the amount of friction applicants experience and applying for a loan including those coming back to upstart for a second line.
These improvements included more refined fraud signaling and increased automation of income verification and this reduction and friction and increase the conversion rate of our funnel leading to more growth.
It also helped us to more efficiently process, the larger volume of applications that we experience leading to higher profit.
This is the essence of technology driven growth and.
And third we upgraded the models that underpin our marketing acquisition program that means for every dollar we spent on marketing we brought incrementally more consumers to the platform into our bank partners.
AI has almost unlimited potential and spend targeting lifecycle marketing and even content generation.
Flying AI to our customer acquisition efforts as a relatively new area of investment for us and we expect it will be a significant source of growth and the future.
Of course, this growth couldn't happen without the confidence of our bank partners and institutional investors. We continue to add new bank partners to our platform to see existing bank partners expand on the upstart powered lending programs and Tad institutional investors, who are happy to invest the capital into upstart powered bonds, where high quality loan assets with <unk>.
Predictable yield we've.
We've built and increasingly sophisticated supply chain and the money that funds upstart loans from Super efficient bank depositary capital to broad and deep institutional and capital markets funding.
What most consider money to be the ultimate commodity and lending to be a zero sum game. We've built a proprietary platform that continues to accrue advantages by the day.
It's the types of AI model upgrades described here paired with and support of our bank partners set up a lot of upstart to grow loan volumes by a factor of 20 and the last four years, while reducing acquisition costs and generating real profit.
Our optimism for the future comes from two facts.
We continue to have a likely backlog of projects that will improve our funnel throughput and lead to more growth and the future and second we don't see competitors on the same AI centric journey that upstart is on.
As we sit in the past auto lending as that starts next big opportunity.
The auto lending industry is about six times the size of personal lending and we believe it has at least as much mispricing and inefficiency with millions of consumers and <unk>.
And more than they should to finance a vehicle through a process that is just pleasing to all.
Our early escalation and this market has confirmed our hypothesis that there is a wide open opportunity for upstart and our bank partners to deliver a superior product to the market, meaning more accurate pricing instant approvals and elimination of friction.
I'm happy to report that we're making very fast progress and this new and exciting category. Since January we have expanded our auto refinance product from a single state and 33 states representing more than two thirds of the U S population.
Based on various rules and regulations that impact the process of refinancing a car loan and we're building the best possible process for each.
At the same time, we're actively encouraging the space that have yet to adopt modern conveniences, such as digital signatures and electronic leans entitling that make it easier for consumers to access the best possible loan.
This is one area, where the COVID-19 pandemic has hopefully push states toward adopting these remote friendly technologies sooner.
We're also working to eliminate friction and the borrowing process with the goal of delivering and auto refi product with the same quality experience and instant gratification that has made us a leading personal lending platform.
On the it's happening much faster this time, given the complexities of auto lending, it's no small effort to build a refined product that is simple and as accessible as and unsecured loan, but we're well on our ways of doing that.
To date, we've activated only a couple of marketing channels to reach enough consumers to test and iterate on our auto refinance product and in fact, you can't yet find and auto loan offer on upstart dot com that will all change in the coming months as we begin to more proactively market and cross sell our auto refinance product.
I'm also happy to report that we closed our acquisition of prodigy, a leader and automotive Commerce software strategy is like Shopify for car dealerships, helping to create the modern multichannel car buying experience that dealerships need and consumers rightfully expect in 2021.
In addition to modernizing the car buying experience will allow us to bring upstart AI enabled auto loans to dealerships across the country, where the vast majority of loans are transacted.
By potential distractions from the merger the small, but mighty prodigy team increased our dealership and footprint by 45% and the first quarter. Even at this early stage almost $800 million and vehicles were sold through prodigy and Q1 and 2021.
During the quarter, we became a certified digital retail provider for Subaru of America retailers.
As I said last quarter, we believe prodigy will enable upstart to tap in to one of the worlds largest buy now pay later market opportunities to realize this potential we're significantly increasing investment and <unk> technology and go to market piece.
The first quarter. It wasn't just a win from a financial perspective, we also made significant strides and our ongoing fair lending effort.
From our perspective, if you want to be the industry leader and AI enabled lending you also need to be the leader in fairness and transparency and inclusiveness and Conversely, if youre, not making clear and ongoing investments and fairness testing, it's questionable whether youre really doing AI.
Last fall the consumer financial Protection Bureau, the nation's preeminent regulator and matters of consumer protection renewed its no action letter with upstart.
As a reminder, the purpose of so called no action letters just to reduce the potential regulatory uncertainty for innovative products that may offer significant consumer benefit.
Well, let's start is now and our second three year no action letter with the CFPB. We know of no. Other lending platform that has received and no action letter from the Bureau related to fair lending.
As part of this renewal we developed more sophisticated test that raise the bar significantly in terms of how fairness is measured. Additionally, we increased our level of transparency by sharing the source code for the fairness tests, we perform across every single upstart loan applicant for all of our bank partners and the first quarter, we executed these new tests.
For the first time and recently delivered the result, the CFPB.
Our 2020 access to credit testing demonstrated once again that starts platform improved access to credit and the form of increased approval rates and lower apr's for every traditionally underserved demographic tested.
From my perspective, we've raised the bar on thoroughness and rigor of fairness testing at the same time when it comes to AI governance I believe we're setting the standard for proactive cooperation between industry and government.
2020 was a transformative year for upstart the COVID-19 pandemic presented an opportunity for our technology and our team to shine during a very difficult period and they did just that we came into 2021 from a position of strength with a business that's growing very quickly and generating significant profits at the same time and we're now.
Building on that strength, we are upgrading our AI models and technology, we're adding bank partners to our platform and we're expanding quickly and to even larger market opportunity.
It's clear to us that AI has unlocked a brighter future for lending where consumers can access credit at a price thats fair and reasonable with and experience worthy of 2021, AI lending as a transformational opportunity to create a better product for consumers and for banks and upstart has become synonymous with this exciting.
And new category.
Thank you I'd like to now turn it over to Sanjay, our Chief Financial Officer, and walk through our Q1 financial results and guidance Sanjay.
Thank you, Dave and thank you to everyone for joining us on.
And some of the exciting details that Dave just walked us through we aspire to be a company whose numbers speak for themselves.
No further Ado, we dive and.
Our revenues in Q1 were $121 $3 million.
Up 90% from the same quarter of the prior year and up 40 per cent quarter over quarter.
And that amount revenues from fees represented $116 million or <unk> 96 per cent of the total.
Underpinning this fee based revenue was the origination of 170000 loans by all of the bank partners across our platform up 102% from the same quarter of the prior year and a conversion rate of 22% on rate request.
And from 14 per cent of the prior year.
As Dave mentioned, our top line performance this quarter benefited from continuing improvements to model accuracy and <unk>.
<unk> advances achieved and targeting models, we use to optimize our acquisition campaigns and work we completed to further reduce friction in our borrowing process, including beyond the initial transaction with the customer.
Our contribution profit and non-GAAP metric, which we define as revenue from fees minus variable costs per borrower acquisition verification and servicing was $55 $8 million and Q1 up 117% year over year and representing a 48 per cent contribution margin up from there.
And its 38% and the year prior.
The margin improvement over the past year has been partially driven by improvements to marketing and operating efficiencies some of which were implemented in the wake of depend on it in order to manage the business more conservatively through this turbulence.
As we discussed on our last earnings call.
This level of contribution margin continues to be slightly above our expected long term trend line and we.
But it to normalize downwards moderately over the coming quarters, as our marketing channels and operations hiring returned to full scale.
Q1, operating expenses were $105 8 million up 67% year over year or 58% year over year, when netting out the impact of stock based compensation.
Investment in engineering, and R&D remains our priority.
171% year over year to $19 million and Q1.
General and administrative spend grew slower than revenue in Q1 and.
Increasing 72% year over year to $20 million.
And in part by additional costs incurred from the closing of a private your acquisition.
We continue to ramp our fixed expense base following lower than total investments in 2020.
The other expense categories of sales and marketing and customer operations were largely driven by the variable cost increases and borrower acquisition verification and servicing previously discussed.
Our Q1 GAAP net income was $10 1 million.
From $1.5 million in the prior year.
Fight incurring a one time and $5 3 million dollar expense from the voluntary repayment of our PPP loans.
Adjusted EBITDA, which we adjust for stock based compensation.
Came in at $21 million and Q1 up from $3 7 million in Q1 of 2020.
Despite being similarly impacted by the repayment of the PPP loan.
Adjusted earnings per share for Q1 was 22 cents based on a diluted weighted average share count of $91 5 million.
Turning our attention to the balance sheet.
We ended the quarter with $336 million and restricted and unrestricted cash.
And from $72 million at the end of the first quarter 2020.
This balance reflects the repayment of a $5 3 million PPP loan, but does not reflect the proceeds from the follow on stock offering we completed on April 13th.
Which resulted in an additional $265 million raised net of underwriting discounts.
In terms of loan assets, we carried and aggregate balance of loans notes and residuals.
Of $73 $2 million down from $227 5 million at the end of the same quarter in the prior year.
This reflects the continuing reduction and the percentage of platform loans funded through our own balance sheet.
As highlighted during our last earnings call. These loan assets represent the totality of the direct exposure, we have to credit risk.
Now turning to our near term and full year outlook.
As expressed in our full year guidance communicated last quarter.
We are now seeing a catch up and business results to where we believe our technology improved to over the course of 2020.
As well, we continue to see our contribution margins and slightly above their historical trend on it.
We expect them to mildly contract as we returned to a more normal operating spend.
There are two additional trends, we would like to call your attention to that will be impacting the margins and our guidance.
The first is that we expect to direct incremental earnings upside towards accelerating the expansion of the <unk> software platform. We recently acquired consistent with our level of excitement at the magnitude of that opportunity. This will have an impact on our EBITDA margins through the duration of 2021.
The second is that given the relatively sharp rise and our stock price since the beginning of the year, we anticipate that our stock based compensation expenses were a recent grants will be rising disproportionally as we expense them over the next few quarters, which will impact our net income margins.
With these points in mind for Q2, we are expecting total revenues of $150 million to $160 million representing quarter over quarter growth rate of 28% at the midpoint.
We note that year over year growth rates for Q2 will become somewhat meaningless as we lapped the peak impact of the pandemic.
Contribution margin of approximately 44%.
Net income of $8 million to $12 million adjusted net.
Net income of 21% to $25 million.
Adjusted EBITDA of $23 million to $27 million.
And a diluted weighted average share count of approximately $94 9 million shares.
As a result of the continuing strengthening and our business as well as on our underlying model technologies.
For the full year of 2021, we now expect revenues of approximately $600 million.
Representing a growth rate of 157% year over year.
And up from the 500 million and that we indicated last quarter.
Contribution margin of approximately 42 per cent.
And from 41% indicated last quarter.
And we continue to expect and adjusted EBITDA margin of approximately 10%.
That is all of the information we had to share with you today I want to again. Thank you all for taking out time to join us and hear about our results.
And to also reiterate Dave's gratitude to all of our hard working teams at upstart.
<unk> and efforts are contributing to our progress.
You all are making it very easy to be the financial and other piece of this company.
With that.
Dave and I are now happy to open the call to any questions.
Peter.
Thank you if you'd like to ask a question presume a pressing star one on your telephone keypad, if youre using a speakerphone. Please do make sure that your mute function is turned off till I your signal to reach our equipment. Once again that is star one if you would like to ask a question, we'll take our first question from Ramsey.
And also from Barclays. Please go ahead.
Hi, gentlemen, thanks for taking my question this evening.
Wanted to ask about your loan conversion rate and it came in well above our model and I know you gave us some granularity on on some of the improvements on the technical side that you've made.
How do you expect that metric to trend through the year. It feels like that's a pretty decent contributor to the full year guidance raise and maybe a higher conversion rate and our models reflected and also just speak to what the upward limit might look like on that rate over time or if there is one.
Sure, Yeah, Hey, Ramsey and thanks for your question Mr. Sanjay.
I guess, what I'd say is so.
It's obviously, it's super important driver of our top line.
Four months of the funnel.
It is and a sense of beneficiaries from.
The underlying the accuracy of the models and the underlying strength of the technology.
And that technology strength can manifest and one of two ways. It can show up as.
<unk> take our conversion rates.
And sometimes it can show up as improvements to the top of our funnel because as a conversion.
Funnel improves.
And we then expand on marketing.
And our marketing campaigns and scale.
And maybe one way to think about this as well.
And we sort of signaled that our our contribution margins themselves are a little bit abnormally high right now.
And that's related to what you are talking about because.
It typically is the conversion funnel improves and if we can.
Predict that accurately and and anticipated what we will do is extend their marketing campaigns and the fact that our contribution margins are somewhat high right. Now is maybe a signal that we haven't expanded our marketing campaigns appropriately. So we're still we're still and sn's, leaving some profitable.
And on the table.
So overtime.
Overtime, what you might expect is that.
Knowledgeable and hopefully continue to improve on.
Conversion and funnel will improve but then expansion or on the sort of acquisition side.
And we'll bring it back down a little bit and and convert it more into the top of funnel traffic.
So that's the dynamic it's a bit hard to predict how improvements to our technology will show up between the conversion rate improvements and just overall sort of marketing scale.
And as for upper limits for that for that very reason is a bit hard to predict the upper limit because a lot of what's driving the improvement of our technology.
As you get to very high conversion rates will just naturally resulted in larger acquisition campaign size.
But as Dave said and I think the core point, that's important is that the backlog of projects we have.
That sort of has a very direct line to improving the accuracy of the models is pretty long and that's really the underlying driver what's driving a lot of the a lot of the business results that you're seeing.
Okay I really quick follow up from me is just on <unk>.
On the the prodigy network and you're kind of projected penetration rate of the auto dealers and that network you could just remind us is that something where you have to go dealer by dealer and kind of convert them over to your loans or is that something where you can kind of make it back and change and sort of you know migrate.
Migrate everybody over to where do you guys rather than other other competitors offering lunch.
Hum.
And so it's it's a it's a multi step process and the first thing that needs to happen and in the places that we're focused right now is in getting the product software adopted.
And by the dealers themselves.
And as that sort of footprint expands.
And then within that transaction volume, we have the opportunity to offer our loans our loans still need to compete with the rest of the market place obviously.
And of the day, you need to have the best prices and the highest approval rates in order to win.
And that that scenario I think we're relatively confident and so I think to us strategically what's important is the expansion of the footprint of the commercial software that probably would use developing.
From that will flow opportunity for for loan volume, but that would be almost the service second stuck with you on.
Got it alright, thanks for taking my questions. This evening.
Thank you Andrew.
Thank you we'll move on to our next question from Pete Christiansen from Citi.
Good afternoon, and thanks for the opportunity to ask questions nice trends.
I just want to piggyback off of branches first question on with and I'm trying to understand.
And the upgrades that you made to the platform this quarter and how that translated to a higher conversion and also noticed that.
Average loan size was down year over year on.
Or are you just identify more near prime borrowers.
On that.
According to your miles more creditworthy or is it a function of just getting more credit worthy borrowers and to the until the funnel.
Steve This is Dave I'll answer that question.
The model's accuracy does both of those things get smarter about separating good credits from bad credits.
And thereby it helps us avoid offering loans to those who are more likely to default and the effect of that which is the most basic building block of our business is that.
It allows us to approve more people.
Generally lower rates that fundamental dynamic is about as core to you.
What we do and and how we do it as anything and.
We don't term anybody near prime because a lot of times, that's a legacy label applied by our FICO score, that's not very predictive any longer.
And our.
Mind, we're looking for people with you know.
A very high likelihood to repay alone.
As.
And then by a very specific model.
And that dynamic is the core of what has driven the growth along.
Reduction and friction for.
And for people, who have seen alone and that they would like to we'd like to get access to.
And you have to just get through the approval process and so those.
Those are sort of a twin pillars of our growth happens generally at least that.
First level is.
Is a more accurate credit model that tempts to approve more people at lower rates and secondly, a reduction and searching for those who want to get the loan. So those are the sort of the primary effect growth and that's exactly what happened and the first quarter.
Thank you that's helpful. I guess, we all need to change your mindsets when thinking about.
And your model and.
And then just as a follow up question as it relates to.
Getting prodigy and the hands of more dealers is there a commission or can.
Rebate.
Issue that that you would have to.
Pete against other other lenders and to that category.
No.
The product software and <unk>.
And just today is sold on a sort of a subscription basis from a few thousand dollars to a dealership to sort of.
Modernize their.
Auto selling experience, we haven't changed that model to date.
And in the future the upstart loans will appear in there and they will become an option to finance their vehicles for consumers.
Likely the only option, but put and option would be upstart powered loans and there certainly.
The money can flow in different directions on that depending on the nature of the borrower and.
And such but in any case, we are.
Extremely optimistic that it will be a source of what amounts to very low if not even negative acquisition cost for loans, which is.
Just an incredible opportunity its the nature of what point himself and that's generally does overall.
And in this particular very large market opportunity the auto lending market.
It's a it's an incredible opportunity for us.
Okay. Thank you very much on them.
Thank you Pete.
Thank you we'll hear next from Ron's USA with J P and Securities. Please go ahead.
Great. Thanks for taking the question and and really great results here, Dave I wanted to ask two things. One is just on your bank partner loans and and as it relates to the upstart referral network, we're seeing more and more partner to join and I think it's a shorter data onboard and sort of days to on board. So if you can just talk about the process here is more bank partners join and just how that process is going and then.
Secondly, when you talked about maybe tie on to the question was just as you've talked about reducing friction in terms of newer products and <unk> and I think around new and I heard repeat users for just improving automation, reducing friction can you talk a little bit more about just the repeat process and how that's coming along and thanks again.
Sure that's a great questions. So upstart referral and that work is the term we use when a borrower comes to upstart and Dennis referred to one of our bank partners and share format work is the term we used to.
Market that service to the banks themselves just for.
Clarity and basically banks are heavily regulated and they certainly have a lot of and diligence to do if they're going to use.
And <unk> technologies, such as ours to originate credit so that process I think will always be a significant lift, but having said that we're doing a lot of work to streamline that process, particularly for smaller community banks.
As well as credit unions and theirs.
Very quick quick and growing interest from credit unions, and and what we're doing.
So really trying to do what I think almost any technology company tries to do to get enterprise adoption, which is to shrink the selling process shrink the diligence process shrink the onboarding process and Theres no sort of magic bullet there other than we continue to refine.
No.
Each part of that and.
We have now multiple times and I'll sign up.
Bank or credit Union and less than 90 days from our first conversation and that for US is a massive step forward.
It's not it's not on the standard yet.
And like it to be in the future.
And we're also just kind of shrinking the diligence steps and the on boarding steps just a refinement of the technology and.
And having more sort of off the shelf diligence materials ready. So it's just an ongoing effort and I don't think we'll ever be done with it frankly, but we are making nice progress and there are eight I think 18 banks and credit unions on our platform today and.
And I do apologize for interruption and it looks like it had a speaker disconnect give us just a moment to go ahead and get day reconnected one moment.
Hello.
David Your line dropped Unfortunately I'll go in place you learned back in one moment.
Hey.
And Dave has been reconnected.
Sorry.
I'm not sure where I dropped.
Other than to say, where we're shrinking and the process and the second part of the question was on sort of repeat borrowers. If you will yes, that's something that we've been streamlining for some time. We're now just in the first quarter, we began to actually market to those who had gotten loans and the past and might be eligible to get one again, so it's worth.
Still a somewhat young platform compared to some others and so this is still a modest part.
And we have focused to date on making a profitable and growing a profitable business.
Really where we were just getting that first initial loan with the consumer and so this is really upside to our business and it seems to be coming together very quickly. This is really just personal loan and then a second personal loan but of course, a bigger future is when we can cross sell between products and personal loan to an auto loan or vice versa, and all of that is in front of us.
Thank you Dave.
Thank you.
Thank you we'll take our next question from Arvind and money from Piper Sandler. Please go ahead.
Congrats on a terrific quarter, just set a couple of questions.
And kind of the first question is really around the market size for four loans personal loans.
And as more loans and process to upstart platform.
Reducing acquisition costs and pricing risks and more accurately and and you start to gain scale.
And what time does it pressure more banks are too.
And to work with upstart because because you'll have a different approach.
And on air powered approach to solving this problem.
And just really trying to understand what's the ceiling market share market share ceiling and the personal lending space.
Hi, Arvind let me just this is Dave I'll answer that question. So.
And personal loans is one of the fastest growing categories of credit and because consumers love. It it's very simple and has high utility and and.
And <unk>.
Fast access generally low rates et cetera. So it's very fast growing category I think it's taking market share away from credit cards, I think it's taking market share away from Helocs, which have a much more difficult process and take more time. So we believe it's and it will continue to be a very fast growing category. We also think were really the first.
Our proprietary product that can because it's been sort of a fragmented market for a long time, but we really think we have a proprietary advantage that can allow us to grow market share.
And I'm very very quickly and probably beyond what's been seen.
And the past so we're very optimistic that it's a category and its early stages in terms of how big it can be and will continue to improve and grow very quickly, particularly as better products come to market from people like upstart.
With respect to banks and banks.
Banks feel the pressure to join upstart or work with upstart or somebody like us and I think that will certainly be and effect. We would expect over time, particularly as AI moves into lending categories that are more and more meaningful and central to their business and there's just more and more proof points of the better economic outcomes of using AI and Monday.
And so personal loans.
For example is not a very central business for most banks. So they don't necessarily feel a lot of pressure by our personal lending product thats markedly better than another one on.
Auto lending and certainly much more central to more and more banks. So we are getting a lot of interest because.
And Theres a lot of large banks that have significant auto businesses and now naturally. This is an area of interest the idea of being able to treat more people have lower loss rates and more profitable portfolio of loans is obviously compelling and as we move through other categories over time, whatever those might be I think we're going to just see more and more interest our view generally is all flavors of blending.
And are going to be AI enabled and the future because the economics are so much better and it's only a matter of time until you know all banks will get on board if not with upstart then with building something themselves are trying to source and this type of technology somewhere.
Terrific and and then.
And there are a couple of questions on on on <unk>.
<unk> yeah.
And just from a.
Kind of the way Youre.
Power and <unk> are you able to apply the same.
Yeah. The algorithms are our data from <unk> as you're doing on the personal lending space and the second thing is like yes, certainly there's been like a massive ramp I think you mentioned 800 million.
And in Q1 and it.
It took a significant growth rate how should we kind.
Kind of think about volume and volume you can deliver in 2021.
And part of you.
Yeah.
Sure. So just to quickly explain how <unk> fits and <unk> is really about the point and sale auto lending, meaning at the dealership there as a first step even prior to that Thats already been and process for some time with us and that is refinance of auto loans, which has done really through upstart dot com for someone who got on auto loan elsewhere and.
And generally speaking we are taking every bit of our model that is applied to personal loans and applying it to auto loans and what that really means is that when you. When you when you underwrite and auto loan you have and individual to consider and that's of course, what we've been doing and our whole personal loan business and you suddenly have an asset that is backing alone.
And some more complexity and opportunity to the model. So it's really an extension of what we built and refined for years and the personal lending space and is now being applied as I mentioned and 33 states still at the early stages, but and the auto refinance product that exact exact model will then become part of.
What we offer through prodigy two dealerships. So you can think of it as it's being initially refined and built as a refinance product, but more or less the same model will apply for a purchase and new vehicle purchase that will happen at the dealership and that's obviously central to our success as we don't start from scratch on a new model, we actually learned from them.
We have and then extend it and in some way or another to make it relevant to a new market and it's exactly what we're doing with the auto market and and with prodigy.
Alright, Thank you very much.
Yeah.
Pretty good.
So I haven't had this is Sanjay I was just going to tack on and maybe address the second part of your question.
Which is the.
The fact that the project footprint is growing very quickly, which it is but it's also a massive market as Dave said meaningful and so the dealership financing market overall.
And there are at the very early stages.
And we think the opportunity is large and we do believe it will grow faster, but I guess suffice to say that I don't.
I'm.
My belief is they are their footprint and how quickly it grows won't be the limiting factor.
And now.
And our ability to scale the auto lending side of upstart and I think they're going to provide plenty of transaction volume and it'll be up to the.
Rest of the business to build the operations and funding infrastructure.
To scale, but I think as and when we can scale this sort of the lending part of our auto business.
Commercial software footprint.
That product is providing us and I think will be more and more than ample ample and sort of transaction volume and size for us to grow well into the future.
Yeah, I'm certainly excited about the offering.
And looking forward to more and more on that.
Progresses.
Thanks, so much.
Thank you once again that star I Wonder if you'd like to ask a question well hear next from John Hecht from Jefferies.
Afternoon, guys and thanks for taking my questions.
Actually you got a lot of my questions have been asked and and you did talk about and <unk>.
During the call it the sales cycle more productive with the banks and credit unions.
And I'm wondering is there a way can you share with US you mentioned 18 banks on the platform is there a characteristic that you're identifying of asset size or just balance sheet disposition of the banks that are you know call.
Call it migrating to more rapidly and same question with the credit unions.
Well sure that's a good question.
I would say first of all.
It's obvious that we tend to be in and smaller.
Community or regional banks.
And credit unions, there are some I mean in the $40 billion ish assets or more so they're not they're not the smallest banks, but our interest really is.
Is appealing to all of them, having a simple process that can work for a very small bank or credit Union that doesn't have a lot of resources, but of course Theres. No reason, we can't partner with and and Wouldnt hope to partner with the largest banks and the country over time I think today, because it's still an early stage market. It's very helpful to have a bank, where the CEO would have awareness would be.
Involved and this the credit committee would be aware.
The lending the EVP of consumer lending et cetera would be involved and so it tends to make it a little easier to be the smaller banks, where you can get everybody on the same page there will always be a process and the process is going to be more complicated the larger the bank is so I think that's what we're seeing and the earlier stages.
Maybe not unlike technology adoption and any kind of new industry as it's it tends to happen a little bit smaller and then move up move up to the large and larger enterprises over time, that's exactly how we see this playing out now again at the same time, we we didn't start it off.
Couple of years ago, saying look we wanted banks between $5 billion, and maybe 100 billion and assets as our target and I think we've realized we can probably go below that and above that and.
And as we as the product matures and so I think we're we're definitely broadening over time.
Okay. That's helpful and then do you.
Is there a re sales cycle, if someone's day at the bank partners buying unsecured loans can they just and SaaS hop in the queue for the auto loans or do you have to reengage them and go through a separate sales cycle.
Well, that's a great question.
We are definitely working towards sort of standard agreements that you can add another product on with sort.
Simple one page exercise. So that's part of it is a very insightful question like you don't want and go through a full contracting process to add and new product to what the bank might be doing with us. So we've really moved towards kind of a master agreement style, where you can say you started with personal loans now you want to add on.
Auto loans, you might've started I'm getting.
Getting loans from upstart Dot Com now you actually want to use the technology on your own website et cetera. So all of these trends just trying to streamline that process of a bank starting with us in one place and then working with US multiple places over time, which is what we're seeing for share.
Okay and then final question is.
And I apologize if this was addressed sites with on issues as well have you seen as the last round of stimulus gets absorbed have you seen any changes and kind of payment.
Payment patterns like the payment rate may be slowing or are you seeing any indications that stimulus is getting absorbed into the system at this point.
Yeah, and this is sanjay.
Yeah, we haven't seen too.
Too much change in the macro.
Outlook as it right now.
Obviously on the one hand, the economy is beginning to open up a little bit on the other hand, there was and the pressure on the stimulus that has reduced the demand for loans.
And so I think from the indicators, we have things have been pretty steady since last October last November.
And I think that's consistent with.
The macro metric we track most closely too which is credit card balances and.
And since a lot of our a lot of our loans are aimed at refined those.
And those balances have fallen and on the orders I feel like 10% since the beginning of the crisis and they've only regained about a percent or two as of March so.
I think our are on a macro sort of indicators would sort of on.
It's like that.
Alright, great. Thanks, very much guys.
Thanks, and thank you.
Thank you, we'll take a follow up question from Ron Josey from JMP Securities.
Great. Thanks for thanks for the follow up question, just we're getting a lot of questions here on on just the guidance and so Sanjay can you unpack a little bit more of the increase in the annual guidance and wondering if autos is may be a larger part there given.
I think Dave you mentioned, making fast progress overall, not just a thought prodigy, but but now and 33 states and general So just any more insights on Jay on the increase in annual guidance from the 500 to 600 and it'd be great. Thank you.
Sure I mean, maybe just to put a point on it its still.
And could really nothing meaningful from the auto side, we continue to be.
I guess you might call. It and then just incubation mode there.
Developing the operations and expanding the <unk> dealer footprint.
So we're still not counting on any meaningful contribution.
You know a lot of it boils down to the kinds of things that Dave talked about every single week, we are watching improvements to the credit models improvements the verification models and improvements to the acquisition targeting models.
And as those are improved and as those drive our daily and weekly numbers we.
And we propagate them through with some statistical.
And statistical.
Confidence and a little if you will.
And so we're just we've had a very good quarter, obviously, we're obviously, leaving the quarter on a good from our guidance for.
For the next quarter is a little bit under 30% quarter over quarter, and we're propagating that strength through to the end of the year.
Got it thank you.
Okay.
Thanks, Ron.
And our last question, so I'll turn it back over to Dave.
Alrighty Thanks, Jason.
Again, I just want to repeat and thank you to the upstart team for an amazing quarter, we're really thrilled with our results and thanks to all of you for spend on the time with US today, we will see you all next time.
Thank you that does conclude today's conference. We do thank you all for your participation you may now disconnect.
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